My New Blog

All too soon FHA loans, those most often used by first-time home buyers, will be changing. For a long time they have been the most appealing loan type for buyers not "buying up" and therefore without a lot of cash on hand from, for example, the sale of a first home.

What we don't know is exactly when it will happen, but mortgage industry people are speculating April this year. We don't know exactly what is going to change, but the FHA have given the mortgage industry a few potential scenarios. These scenarios all have one thing in common; more cash outlay from the buyer.

This is very impactful and important news for home buyers as, up til now, with an FHA loan they've only needed to have 3.5% downpayment.
Okay, so closing costs and financing is definitely a mortgage guy's expertise but it's going to affect every sale after the next few months so I've been staying on top of it. Here's what I can tell you - again, not definitively but potentially.

Things are getting tighter on mortgages as time goes on. Right now there are three potential big guideline changes that will affect the amount of cash you will need to buy a house:
- A minimum of only 3.5% down payment. Looks very likely to go up but could only go up to 4% but possibly 5%.
- Up to 6% seller contribution/payment of your closing costs. This one looks pretty certain to go down to 3%.
- A mortgage insurance premium that will potentially go up a bit at the closing table but for consequent months looks to stay the same.
These changes may or may not happen but it has been said by the FHA that some of them likely will and they are thinking April 1st could be the date.  Wish I had a better functioning 8-Ball.

Cash, negotiations and the sale.
What I often do is try to negotiate so that the buyer doesn't have to put down more cash than necessary - unless of course they want to put a chunk of money down. Most don't. Cash is costly to borrow and having it to a) keep in reserve for repairs and b) getting the home into the condition they want it in makes cash valuable.

So, what I often do is recommend that we up the offer price by however much you'd like covered of your closing costs by the seller. People refer to this as "seller paying your closing costs" but really, in the situation of us upping the price you're paying for the home, the seller will net the same amount once they've covered some of your closing costs. What you've done by upping your loan amount is roll some of those closing costs into your loan so you can pay a few more dollars a month in your mortgage payment but keep a big chunk of cash. I hope this makes sense. I find it to be one of the most challenging principles to explain.

An example: House for sale for $135K.
You want to pay $129K for it. You also want the seller to cover as much of the closing costs as possible in order to keep as much cash in your pockets as possible.
Your closing costs are approx $11,000.  As of right now, FHA allows a seller to pay for/contribute up to 6% of the contract price amount towards your closing costs. In this case we're going to say that's $8,040 (based on the inflated price). On the other hand, the buyer/You HAVE to put down $4,690 (3.5%) towards the closing costs.

The math then is: $11,000 - $4,690= $6,310 is the amount leftover that theoretically could be paid by the seller.
If we then up the offer by $5,000 to $134,000, we can ask the seller to pay $5,000 of your closing costs. You ultimately bring to the closing table: $6,000.

Okay, that's a lot to take in but just by reading this you are in the minority of folks who are on top of the changes that are coming down the pipeline and will affect buyers and sellers both.

Austin's housing market is (knock on wood) beginning to show signs of what the city does best; rock and roll. Comparing  Austin residential real estate's January 2009 sales numbers to January 2010 numbers, we see a 5% increase. My phone is ringing, my email is dinging, and my listings are getting double if not triple the showings compared to December, 2009.

Yesterday afternoon I took a buyer out to view a few properties, all in the southwest Austin area near or in Cherry Creek. We get to the third one and it's a winner. It's vacant but staged with just enough furniture in every room, fresh paint in various browns, tans and red-hued accent walls, and it's...move in ready. The price was right, too. It was morning on the third day of it being on the market. My client was interested and excited - I called the listing agent to see if there had been any offers yet. Yup. Not just an offer but they'd just accepted one and thus, gone under contract. DAY 3!

The hesitation (understandable hesitation) we saw in Austin area home buyers in 2009 has given way and I believe we're seeing pent up demand let loose. And why not? For those who were holding their breath in 2009, leasing instead of owning in fear of another economic shoe dropping, are getting blue in the face and deciding to exhale..and buy.

And a reminder; The $8,000/$6,500 tax credits are available until the end of April, 2010. Peace out, Austin.

It's disheartening to see any kind of price dip but...it happens. I'm the proud and happy owner of two condo's in Austin and am happy with my purchases. But this year, for the first time, they've actually decreased in value. I'm not planning on selling so it's only theorectical money lost at this point.

Until we can get some of the extra inventory of condo's off the market, it's going to be a soft market. I'm seeing between 4-7% loss in value around the city.  Or in other words: It's a GREAT time to buy a condo.

What I believe we're seeing is the backlash of a lot of condo's having come on the market at relatively the same time. Some were the new construction ones downtown, just south of the river and just east of I-35. But I don't think those affected the prices of the majority of condo's as their pricepoint is considerably higher than the resale condo's on the perimiter of downtown. No, I believe the condo-conversions that were slapped onto the market, in an effort to lure all the new downtown condo buyers into something immediately available, cheaper, and newly redone, are more likely to blame. Condo conversions are apartment complexes where each unit is redone (to varrying degrees) and sold off individually. Think; new floors, countertops, appliances, paint and lighting. Many condo's, both new and conversions, have been forced into leasing in an effort for the developer to stop hemmoraging money from all the unsold units.

In turn, when they start to lease out units, like it was an apartment complex, it becomes hugely problematic to sell any of the units. Why? Well, understandably lenders don't want to finance a condo in the midst of a building with lots of rental units. The difference in care that the average renter takes with the property versus a homeowner is significant and that ultimately affects property value. You rarely see a home OWNER park on their own lawn. A person renting a home - much more likely. The same theory goes for condo's. An FHA loan requires that at a minimum, 50% of units in a condo complex be owner-occupied. And on the other hand, most home buyers want to be in a community of other home owners. They're tired of the rental life.

Bottom line is that this is a temporary dip and condo's will continue to be popular with city dwellers. Many of us just don't want to see a lawn to mow or a fence that needs fixin'. That's what they Home Owners Association fees are for.