WHAT IS CONSIDERED A ‘FLIP’?

The primary lender definition of a ‘flip’ is when the current seller has been on title for less than 90 days. A secondary definition is when there have been ‘multiple’ title transfers of a property within the last 12 months.

WHO CARES & WHY?

Your buyer’s lender cares. In the past, fraudulent flip transactions were used amongst family members or business partners to artificially increase the value of a property and ultimately sell the home to an end user at an over-inflated price. Parties to these scams were sellers, buyers, realtors, loan officers, appraisers and title companies. To avoid this fraudulent behavior in the future, investors and regulators have put in guidelines and safeguards to verify that any ‘flip’ transaction is bona fide.

DEED TRANSFERS

Before your buyer makes an offer on a property, it is vital to check the title history of the property. When did the seller take title? Have there been multiple deed transfers in the last 12 months? Has the price increased dramatically on the title transfers? If the county records do not give you updated information, you will want to ask the listing agent. Prior to the offer on a ‘flip’, call your lender and discuss the property. Your buyer’s lender will need to follow certain ‘flip’ guidelines.

FLIP INVESTORS

If your buyer is purchasing a ‘flip’, your lender will have only certain investors who will accept the loan and each have their own underwriting criteria for flip transactions. This criterion also differs whether the loan is FHA, Conventional or VA. The guidelines are too in-depth to cover in this newsletter. It is vital that you work with a lender who understands flips, knows which investors will loan on them and how to properly document the file for an approval. Interview the lender carefully to determine their understanding of the process and never use an unqualified or inexperienced lender on a flip!

APPRAISAL REQUIREMENTS

The appraisal requirements also differ between investors and are determined on the value increase of the property from the time of the seller’s purchase compared to your buyer’s purchase price, and also on what upgrades or renovations have been done. If the seller has done renovations, it may be required or helpful for the seller to provide documentation to the buyer’s lender on the work done. Oftentimes, a desk review or second appraisal will be required on a flip transaction. An educated and experienced lender will understand how to document your buyer’s file and manage the appraisal process so that required information is included in the appraisal.

Richard M. Jefferson, Sr. Mortgage Consultant

NMLS #25381

16150 N. Arrowhead Fountain Ctr., Suite 260    Peoria, AZ  85382

Phone: 480.444.7143   Direct Fax: 480.444.7193

rich.jefferson@onqfinancial.com /    www.richjefferson.com

The announcement also mentioned that these changes are required because the funds for FHA is getting depleted, and they say it makes more sense to fill it back up monthly than with up front fees.

Of course these numbers don’t mean much until we see real world examples.  So the good news is that on a $100,000 loan, your initial fee of $2,250 is now reduced to $1000.  Some will argue that since it was added to the loan anyway that it’s not as relevant, but that $2250 can cost you about $15/mo and you will have to pay it back when you sell.  Now, your mortgage insurance premium will go up $19/mo due to the monthly increase.  So you save $1250, but you pay $19 more monthly, and that is offset by $9/mo (difference from financning $1000 versus $2250).  Ultimately, your mortgage goes up $10/mo on a $100,000 loan.

For $200,000, you go from $4500 to $2000 in up front premiums.  Your MIP goes up $38/mo.  It costs you $26/mo to finance that $4500, but only $12/mo to finance $2000.  So your payments go up effectively $24/mo ($38-$26+$12) while you save $2500.

I know the news was scary when it first came out, as you can see, it’s not all that bad, right?

No New Debt

No (Or Limited) Use Of Current Credit

No Job Changes

No Unsourced Deposits

Perhaps the biggest incentive for purchasing a home during the month of April is the fact that the Home Buyer Credit is set to expire soon. While the credit has been extended to the month of June, anyone who wishes to take advantage of the credit must have the purchase contracted by the end of April. Since most buyers take a few weeks to find the best home to suit their needs, it is a good idea to get the search started well before April 30.

Of course, many savvy homebuyers have been waiting for the housing market to bottom out. Unfortunately, there is no way of determining for certain whether or not a particular market has bottomed out. Yet, according to many experts, most of the local markets have bottomed out already. In fact, some are starting to show signs of recovery. Therefore, those who are waiting for housing prices to reach rock bottom will likely find the best deals during the month of April.

The final ingredient in this perfect storm is the low mortgage loan interest rates we are currently enjoying. Over the last several weeks, the interest rates on long-term mortgage loans have been less than 5%. In fact, interest rates have been hovering around the 5% rate for several months. Unfortunately for buyers, the Fed has recently stopped the mortgage backed securities that helped keep the rates so low. As a result, many experts predict that mortgage loan interest rates will likely increase to around 6% by the end of the year.

While no one should go out and purchase a home in April simply because of the Home Buyer Credit, the great prices and the low long-term mortgage loan interest rates, those who are considering buying a home in the near future and who have the financial means to make a purchase should certainly take a serious look at buying now. Waiting just a few months longer could literally result in paying tens of thousands more dollars for the very same home that could have been purchased for less in April – the month of the perfect real estate storm.

Eric Bramlett is the broker & co-owner of One Source Realty, a boutique Austin real estate company that services downtown Austin condo buyers, and that specializes in Steiner Ranch residents. Eric enjoys working with select clients, helping his agents succeed, and hanging out on the lake with his wife & dogs.

Foreclosure prices close to bottom

ASU professor Karl Guntermann publishes a monthly Repeat Sales Index.  In that, he shows that the median price of a foreclosure has declined 2% in December year-over-year.  That compares 15% in October and 8% in November.  It is for this reason that he has decided that prices have bottomed out.  This data is very different than what we have seen with our own eyes.  Generally speaking, it is much harder to buy properties below $150k today than it was a year ago.  There is a lot of upward pressure at this price point and below because investors are cashflowing at these prices.  One of my clients bought a house for $30,000.  Today, there’s no way she gets it for less than $60,000.  To read more about it, please visit http://www.azcentral.com/business/realestate/articles/2010/01/28/20100128biz-guntermann0128.html.

October 2009 Real Estate Supply

There were two very strong source of buyers.  First time home buyers trying to get the tax credit were still very active.  Investors trying to take advantage of the market have also bought up many homes.  We see that in October 32.66% of the homes were bought in cash.  The rumors is that on top of the Canadian money coming in, there’s a lot of Chinese and Japanese money pumping into our market.  No doubt with the winter season upon us, there will be even more Canadian buyers.

October 2009 Numbers

Most of the cities have remained pretty consistent during this time period.  Only Tempe and Scottsdale have seen noticeable changes.  Tempe has gone from 6.1 to 7.2 months of inventory while Scottsdale has gone from 10.3 months to 9.4.  We have noticed that there was a small drop in activity in the first week of November with the tax credit expected to expire at the end of the month.  Now that the credit has been extended again, activity has also picked up again.  Other great news for the real estate market is that the tax credit now is offered to homeowners that have been in their homes for more than 5 years.  It will be interesting to see who qualifies for this program.

Real Estate Market Analysis for October 2009

You’ve heard of the USDA and seen their stickers on the steaks you buy at the grocery store. But did you know they also insure home loans? Strange as it sounds, the USDA’s rural development program has a loan program that allows you to buy real estate with no money down in any area that they deem “rural.”

Good news for readers of this blog – many areas of Arizona are eligible for the USDA 100% home loan! While most banks and lenders have long since stopped offering zero down home loans, there are still many brokers and lenders in every state who offer 100% financing through this great program.

The USDA home loan has some great features:

• 100% loan amount with no loan amount limit
• 6% seller concessions allowed
• No monthly mortgage insurance
• You don’t have to be a first time buyer

There is an income limit for borrowers, but that limit is pretty high in some areas. For instance, in Hawaii the limit is $109,000 a year, so most people still qualify. If you want to check your eligibility and look for a neighborhood near you in your state, check out the USDA’s website.

Oddly that “rural” designation happens to apply to a lot of areas that nobody else would consider rural. Even some larger suburbs are on the list, so wherever you’re reading this, there may be a community nearby that is eligible.

Tony Kawaguchi is a Realtor with Realty Executives Oahu and sells Hawaii real estate

100% Loan Program

August Inventory of Homes Available in Phoenix

Another interesting trend is that the overall number of homes available for sale have continued to go down, despite the number of homes sales has slowed just a bit.  With the number of sales going down, though, monthly inventory naturally goes up.  Overall in Phoenix metro, we have gone from 4.59 months of inventory for July to 5.24 months in August.  Across the board, most of the cities have increased by about a month.  The exceptions would be Gilbert and Chandler, which have maintained the same level.

Status of Homes sold in August in Phoenix metro

Overall, we are seeing roughly 35% of homes bought in cash, 51% of are foreclosures, 18% are short sales, and 31% are traditional resales.

The next few months will be very interesting.  Just like when down payment assistance ended before, there will be a crazy rush here.  The deadline for the First Time Home Buyer Tax Credit is Dec 1.  That means that anybody participating in the program needs to be in contract by October 16th at the latest if they’re going FHA.  So imagine all the people bidding for homes in the first couple weeks of October.  They will be competing very strongly against one another.  I strongly suggest that if you are interested in this program, that you find something in the next couple of weeks.  Or else, you may find yourself outbidded during the most critical stretch.