4 Questions to Ask Before Buying a Foreclosure
DAILY REAL ESTATE NEWS | TUESDAY, JANUARY 31, 2012
Foreclosures can offer big bargains, but buyers need to be careful that they don’t get over their heads in purchasing a home that may need more repairs than they bargained for.
Foreclosures are usually sold as-is, and homes that are left vacant standing too long can have a lot of maintenance problems.
Real estate experts suggest buyers consider the following questions:
1. How long has the home been vacant? Be cautious of a foreclosed home that has stood vacant for more than a few weeks or had its utilities shut off a long time. Marvin Goldstein, a home inspector for many foreclosed properties, says a home can deteriorate quickly when heating, cooling, electricity, and running water have been turned off for awhile.
2. How old is the home? Goldstein says that homes that are more than 50 years old may have a failing plumbing system or inadequate electrical wiring.
3. How does the home look? Are there broken windows, gutters hanging down, or damaged siding? “Trust your instincts. If the house looks bad from the outside, it's probably worse than you think,” Goldstein told The Oklahoman.
4. Is there anything missing? Sometimes former owners remove anything of value from the home, such as built-in light fixtures, bathroom tile, water heaters, air-conditioning units, and hardwoods, says Bill Jacques, president-elect of the American Society of Home Inspectors.
Housing experts encourage buyers to get a home inspector to look at the property, even if it is sold as-is, so that home buyers know any repairs needed and cost estimates before they purchase the home.
“Buying a bank-owned home gives you the opportunity to enter the market at a very low price level,” says Dorcas Helfant, a past president of the National Association of REALTORS®. “You can find terrific values among foreclosures, especially if they're not in too bad shape. But, remember, these houses are discounted for a reason.”
Source: “Foreclosed Homes May Need Extensive Repairs,” The Oklahoman (Jan. 28, 2012)
Tuesday, January 31, 2012
Energy Efficient Mortgages and Energy Improvement Mortgages
WASHINGTON – Jan. 31, 2012 – If a home is energy efficient and conserves energy, the monthly utility bills won’t be as high. And if the bills aren’t as high, a buyer can afford to pay more each month on the mortgage.
That’s the theory behind Energy Efficient Mortgages (EEMs). EEMs allow borrowers to qualify for a larger loan and a better, more energy-efficient home.
EEMs are typically used to purchase a new home that is already energy efficient, such as an ENERGY STAR qualified home. However, the term EEM refers to all types of energy mortgages, including Energy Improvement Mortgages (EIMs), which can be used to purchase an existing home that the buyer plans to improve with energy efficient upgrades. EIMs allow borrowers to roll the cost of the upgrades into the mortgage without increasing the downpayment.
Both EEMs and EIMs typically require that a home energy rating – an estimate of monthly energy savings – be given to the lender before the loan can be approved.
Conventional Energy Efficient Mortgages
Lenders who sell loans to Fannie Mae and Freddie Mac can offer conventional EEMs. Conventional EEMs increase the borrower’s income by a dollar amount equal to the estimated energy savings. The Fannie Mae loan also adjusts the value of the home to reflect the value of the energy efficiency measures. For more information about Fannie Mae’s EEM you can call 1-800-7FANNIE (732-6643).
FHA Energy Efficient Mortgages
The mortgage loan amount for an FHA EEM can be increased by the cost of effective energy improvements. The maximum amount of the portion of the EEM for energy efficient improvements is the lesser of 5 percent of the value of the property, or 115 percent of the median area price of a single family dwelling, or 150 percent of the conforming Freddie Mac limit.
For more information on FHA EEM loans, visit HUD.gov. Additional information is available from HUD’s Office of Single Family Housing by calling (800) 569-4287.
VA Energy Efficient Mortgages
The Veteran’s Administration (VA) EEM is available to qualified military personnel, reservists and veterans, and caps energy improvements at $3,000 – $6,000. Borrowers should ask their lender about a VA EEM at the beginning of the lending process. More information about VA EEMs can be obtained from the website for the U.S. Department of Veteran’s Affairs or by calling (800) 827-1000.
That’s the theory behind Energy Efficient Mortgages (EEMs). EEMs allow borrowers to qualify for a larger loan and a better, more energy-efficient home.
EEMs are typically used to purchase a new home that is already energy efficient, such as an ENERGY STAR qualified home. However, the term EEM refers to all types of energy mortgages, including Energy Improvement Mortgages (EIMs), which can be used to purchase an existing home that the buyer plans to improve with energy efficient upgrades. EIMs allow borrowers to roll the cost of the upgrades into the mortgage without increasing the downpayment.
Both EEMs and EIMs typically require that a home energy rating – an estimate of monthly energy savings – be given to the lender before the loan can be approved.
Conventional Energy Efficient Mortgages
Lenders who sell loans to Fannie Mae and Freddie Mac can offer conventional EEMs. Conventional EEMs increase the borrower’s income by a dollar amount equal to the estimated energy savings. The Fannie Mae loan also adjusts the value of the home to reflect the value of the energy efficiency measures. For more information about Fannie Mae’s EEM you can call 1-800-7FANNIE (732-6643).
FHA Energy Efficient Mortgages
The mortgage loan amount for an FHA EEM can be increased by the cost of effective energy improvements. The maximum amount of the portion of the EEM for energy efficient improvements is the lesser of 5 percent of the value of the property, or 115 percent of the median area price of a single family dwelling, or 150 percent of the conforming Freddie Mac limit.
For more information on FHA EEM loans, visit HUD.gov. Additional information is available from HUD’s Office of Single Family Housing by calling (800) 569-4287.
VA Energy Efficient Mortgages
The Veteran’s Administration (VA) EEM is available to qualified military personnel, reservists and veterans, and caps energy improvements at $3,000 – $6,000. Borrowers should ask their lender about a VA EEM at the beginning of the lending process. More information about VA EEMs can be obtained from the website for the U.S. Department of Veteran’s Affairs or by calling (800) 827-1000.
Sunday, January 29, 2012
Thursday, January 12, 2012
FHA Loans And the Power of Assumability
FHA And The Power of Assumability
One of the rarely touted advantages of people taking FHA mortgages today is the fact that they are assumable. What that means is, when the FHA homebuyer of today is looking to sell his home, a qualified purchaser can “take over” their loan.
Most people believe that interest rates will return to a “normal” range (between 6.5% and 7%) in a couple of years. When you assume a mortgage, the terms remain the same. This means that a buyer five years from now can enjoy a 4 – 4.5% mortgage by assumption rather than the 6.5% – 7% mortgage they would get without it. Since most people buy homes based on how the monthly payment fits into their personal monthly budget, this is extremely impactful.
As an example, a $300,000 loan at 4% today carries with it a $1,432.25 principal and interest payment on a 30 year fixed mortgage. If offered for sale in five years, the purchaser could assume the $271,858.56 balance with the same $1,432.25 payment and remaining term of 25 years. The total payments over the 25 years would be $429,675.
Compare that to a new $272,000 loan at 6.5% for 25 years, which would carry a monthly payment of $1,836.56 (over $400 more a month than the assumption and more than $120,000 more over the 25 year term).
At 6.5% for 25 years, to wind up with the same payment as the assumed mortgage, our borrowers would only be getting $212,000…$60,000 LESS!
The point here is that, when rates go up, homes with assumable mortgages will have more value and will sell at higher prices because they are more affordable. As an additional bonus, the closing costs on assumable mortgages are significantly less (especially here in New York where NYS Mortgage Tax is such a large component of closing costs).
The borrowers must be credit-worthy of course (have good credit, qualifying income, and necessary assets to close), but they would have to be credit-worthy to get a new mortgage too!
Besides the multiple other reasons to obtain an FHA mortgage (low down payment requirements, extended income ratios, lower credit scores, and easier sourcing of funds), there is another perk. In the future, there is a good chance that you may be able to sell your home for more money because of the FHA loan’s assumability.
One of the rarely touted advantages of people taking FHA mortgages today is the fact that they are assumable. What that means is, when the FHA homebuyer of today is looking to sell his home, a qualified purchaser can “take over” their loan.
Most people believe that interest rates will return to a “normal” range (between 6.5% and 7%) in a couple of years. When you assume a mortgage, the terms remain the same. This means that a buyer five years from now can enjoy a 4 – 4.5% mortgage by assumption rather than the 6.5% – 7% mortgage they would get without it. Since most people buy homes based on how the monthly payment fits into their personal monthly budget, this is extremely impactful.
As an example, a $300,000 loan at 4% today carries with it a $1,432.25 principal and interest payment on a 30 year fixed mortgage. If offered for sale in five years, the purchaser could assume the $271,858.56 balance with the same $1,432.25 payment and remaining term of 25 years. The total payments over the 25 years would be $429,675.
Compare that to a new $272,000 loan at 6.5% for 25 years, which would carry a monthly payment of $1,836.56 (over $400 more a month than the assumption and more than $120,000 more over the 25 year term).
At 6.5% for 25 years, to wind up with the same payment as the assumed mortgage, our borrowers would only be getting $212,000…$60,000 LESS!
The point here is that, when rates go up, homes with assumable mortgages will have more value and will sell at higher prices because they are more affordable. As an additional bonus, the closing costs on assumable mortgages are significantly less (especially here in New York where NYS Mortgage Tax is such a large component of closing costs).
The borrowers must be credit-worthy of course (have good credit, qualifying income, and necessary assets to close), but they would have to be credit-worthy to get a new mortgage too!
Besides the multiple other reasons to obtain an FHA mortgage (low down payment requirements, extended income ratios, lower credit scores, and easier sourcing of funds), there is another perk. In the future, there is a good chance that you may be able to sell your home for more money because of the FHA loan’s assumability.
Tuesday, January 10, 2012
In Real Estate, Keeping Current Matters!
In Real Estate, Keeping Current Matters!
The major challenge we have with this is that Karl Case, the other founder of the Case Shiller Index, came out ten days ago saying that now is the time to buy. The New York Times in a story published on 12/30/2011 quotes Professor Case as saying:
They were referring to the great study done by Beracha and Johnson titled Lessons from Over 30 Years of Buy versus Rent Decisions: Is the American Dream Always Wise? We are very familiar with this study as we posted on it back in May of last year. The paper does explain that over the last thirty years the financial benefits of buying vs. renting could be debated.
However, the conclusion of the paper left no room for argument. According to professors Beracha and Johnson, NOW IS THE TIME TO BUY!
“[This] might seem unwise to many given the recent crash in the real estate markets around the country. However, rent-to-price ratios now seem to be in place along with other fundamental drivers that favor ownership over renting.”Dr. Johnson, Ph.D. — Florida International University (FIU) and Editor of the Journal of Housing Research, is now a guest blogger on this site and in November shared with us his current presentation on this issue. To download the presentation, go to http://realestate.fiu.edu/buyer-or-renter-nation.html.
Bottom Line
Friday, January 6, 2012
The Biscayne Corridor - Hemispheric Opportunity Knocks!
Miami's Biscayne Corridor is about to give birth to a $10 Billion development boom. When opportunity knocks this loudly, it deserves to be shouted from the highest mountaintop (or condo tower) to as many as are willing and shrewd enough to hear. The following video is therefore offered in the three major languages of the hemisphere.
I've been selling and promoting the Corridor's development for the better part of a year in direct opposition to major media reports and so-called experts. I don't claim to be a fortune teller, but if it walks like a duck and talks like a duck,..........!
Wednesday, January 4, 2012
Comparing Real Estate to Other Investments
Comparing Real Estate To Other Investments
by The KCM Crew on January 4, 2012
We recently posted Real Estate: Today’s Golden Opportunity comparing the current housing market to the market for gold about a decade ago. Some commented on the fact that you can’t compare gold to real estate as an investment as gold is a very liquid asset and it would take more time and effort to sell a house. We were not trying to make the case for real estate vs. gold as an investment in our blog. We were just showing that all investments go through cycles and that the best time to buy any investment may be when everyone is saying not to.
However, since the subject of comparing real estate to other investments has come up, let’s take a closer look. There are two major advantages to investing in a home of your own rather than another option:
You Can’t Live in Your IRA
When you buy your own home you are not taking available dollars away from another investment. You are replacing one housing expense (rent) which has no potential for a return on investment with another (mortgage payment) that does give you an opportunity for a return. We realize that there has been research showing that over the last 30 years renting has been less expensive than owning. That research also says that if you invested the entire difference between the rent payment and mortgage payment you may have done better financially. There are two challenges with this conclusion:
Today, in the vast majority of the country, renting is actually more expensive than owning a home.
History has proven that tenants DO NOT invest the difference in their rent and mortgage payments.
Today, study after study shows that owning a home is no more expensive than renting a home. However, even if this wasn’t the case, history shows that owning a home creates greater wealth.
Paying a mortgage creates what financial experts call ‘forced savings’. The Joint Center for Housing Studies at Harvard University released a study earlier this year titled America’s Rental Housing: Meeting Challenges, Building on Opportunities. In the study, they actually quantified the difference in family wealth between renters and homeowners:
“Renters have only a fraction of the net wealth of owners. Near the peak of the housing bubble in 2007, the median net wealth of homeowners was $234,600—about 46 times the $5,100 median for renters. Even if homeowner wealth fell back to 1995 levels, it would still be 27.5 times the median for renters.”
There Are Tremendous Tax Advantages to Investing in a Home
There is no doubt that selling an investment such as gold is easier than selling your home. However, this liquidity comes at a price. The price is called capital gains. That is the tax you pay on any financial gain you receive from the investment. This tax doesn’t apply the same way when you sell your primary residence:
Theresa Palagonia, a CPA and the Accounting Manager for the firm G.S. Garritano & Associates, was good enough to explain the Home Sale Exclusion Rules:
“You may qualify to exclude from your income all or part of any gain from the sale of your main home.
Maximum Exclusion
You can exclude up to $250,000 of the gain on the sale of your main home if all of the following are true:
You meet the ownership test.
You meet the use test.
During the 2 year period ending on the date of the sale, you did not exclude gain from the sale of another home.
If you and another person owned the home jointly but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions listed above.
You may be able to exclude up to $500,000 of the gain on the sale of your main home if you are married and file a joint return and meet the requirements. (Special rules apply for joint returns.)
Ownership and Use Tests
During the 5 year period ending on the date of the sale, you must have:
Owned the home for at least 2 years, and
Lived in the home as your main home for at least 2 years
Certain exceptions exist in which you may qualify for the exclusion without satisfying the tests listed.
Bottom Line
Every investment has pros and cons. That is why there is such an assortment of great opportunities. Real Estate has been, is and always will be one of those opportunities.
by The KCM Crew on January 4, 2012
We recently posted Real Estate: Today’s Golden Opportunity comparing the current housing market to the market for gold about a decade ago. Some commented on the fact that you can’t compare gold to real estate as an investment as gold is a very liquid asset and it would take more time and effort to sell a house. We were not trying to make the case for real estate vs. gold as an investment in our blog. We were just showing that all investments go through cycles and that the best time to buy any investment may be when everyone is saying not to.
However, since the subject of comparing real estate to other investments has come up, let’s take a closer look. There are two major advantages to investing in a home of your own rather than another option:
You Can’t Live in Your IRA
When you buy your own home you are not taking available dollars away from another investment. You are replacing one housing expense (rent) which has no potential for a return on investment with another (mortgage payment) that does give you an opportunity for a return. We realize that there has been research showing that over the last 30 years renting has been less expensive than owning. That research also says that if you invested the entire difference between the rent payment and mortgage payment you may have done better financially. There are two challenges with this conclusion:
Today, in the vast majority of the country, renting is actually more expensive than owning a home.
History has proven that tenants DO NOT invest the difference in their rent and mortgage payments.
Today, study after study shows that owning a home is no more expensive than renting a home. However, even if this wasn’t the case, history shows that owning a home creates greater wealth.
Paying a mortgage creates what financial experts call ‘forced savings’. The Joint Center for Housing Studies at Harvard University released a study earlier this year titled America’s Rental Housing: Meeting Challenges, Building on Opportunities. In the study, they actually quantified the difference in family wealth between renters and homeowners:
“Renters have only a fraction of the net wealth of owners. Near the peak of the housing bubble in 2007, the median net wealth of homeowners was $234,600—about 46 times the $5,100 median for renters. Even if homeowner wealth fell back to 1995 levels, it would still be 27.5 times the median for renters.”
There Are Tremendous Tax Advantages to Investing in a Home
There is no doubt that selling an investment such as gold is easier than selling your home. However, this liquidity comes at a price. The price is called capital gains. That is the tax you pay on any financial gain you receive from the investment. This tax doesn’t apply the same way when you sell your primary residence:
Theresa Palagonia, a CPA and the Accounting Manager for the firm G.S. Garritano & Associates, was good enough to explain the Home Sale Exclusion Rules:
“You may qualify to exclude from your income all or part of any gain from the sale of your main home.
Maximum Exclusion
You can exclude up to $250,000 of the gain on the sale of your main home if all of the following are true:
You meet the ownership test.
You meet the use test.
During the 2 year period ending on the date of the sale, you did not exclude gain from the sale of another home.
If you and another person owned the home jointly but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions listed above.
You may be able to exclude up to $500,000 of the gain on the sale of your main home if you are married and file a joint return and meet the requirements. (Special rules apply for joint returns.)
Ownership and Use Tests
During the 5 year period ending on the date of the sale, you must have:
Owned the home for at least 2 years, and
Lived in the home as your main home for at least 2 years
Certain exceptions exist in which you may qualify for the exclusion without satisfying the tests listed.
Bottom Line
Every investment has pros and cons. That is why there is such an assortment of great opportunities. Real Estate has been, is and always will be one of those opportunities.
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