I Bought a House for My Client

October 12, 2013

I Bought a House for My Client

Last week I attended an open house which was planned for real estate brokers and agents to preview a house. The house was beautiful, great curb appeal, with very good quality of materials and in a nice area of the town. My input to the seller was that the price was too high and it is time to reduce the asking price. They had derived the selling price for a market that was OK 4 months ago at the heat of the market, but now for now. The house was in the market about 4 months. Every other attendance gave their opinion and suggestions to the seller on what they need to do to speed up the selling.
At the end everybody was talking about some interesting thing that had happened to them and among us there was a lady that said “I bought a house for my client”. Everybody looked at her and said what? What do you mean? She explained as follow:
I had shown several houses to one of my clients, but he didn’t like any of them and had excuse for every of them. I found a beautiful house in the neighborhood that he was looking for and had everything he wanted and the price was great, much below the market. I showed the house to him and he saw that it had everything he wanted and also I showed him the comp and the asking price was great and below the market price. He made an offer, which finally agreed by seller and became the contract. However, after few weeks, the lender did not approve him and the deal fell off.
I liked the house and the price was about $10K below the market. I told him that this is a great house and great price. I didn’t want to pass on this great deal and purchased the house all cash for myself. After about a month later, he asked me to sell the house to him, which I did. I sold him at the market price then, about $10K higher than I bought, and financed myself (owner financing). These days no bank gives you even 1% interest on your money, but now I am getting much higher interest for my money and I made about $10K at the beginning.
At the end, everybody thought that is a great inspiration story and the open house host said to her “can you do the same for this house too!”

With the pride of living over 33 years in Plano, I am proud to serve as your Professional Real Estate Consultant and guide you through the selling, buying and leasing process, help you locate a suitable site for your business, provide neighborhood demographics and schools information, and more information.

Mobile: 214-457-7055
Fax: 972-596-7984
email: Bahman@TexasFiveStarRealty.com
http://www.TexasFiveStarRealty.com

Contact us about your Real Estate Questions

Why Should You Buy Now?

July 26, 2013

Why Should You Buy Now?

 

JULY 2012

JULY 2013

Assumptions:

Conventional 30-year Fixed
LTV = 90%

Mortgage payment =Only ( Principal + Interest )
Please see below for details.

   

Sale Price

$300,000

$351,000

Interest Rate

3.55%

4.49%

Monthly P+I

$1,219.97

$ 1,598.74

Total P+I Payments for 30 years $439,190 $575,540
Initial Down Payment (10%) $30,000 $35,100

Seller Concessions and Repairs

-$6,000

0

Total Cost=P+ I+ Down Payment-Seller Concession

 $463,190

$610,646

WA!! The same house cost, for the life of loan 30 years, about $147,456 more today compared to the last July purchase, an increase of 49.15%, almost 50%, the initial purchase price.

Remember those Buyers days, last six years up to the end of last year, where Buyers had all the power of negotiations, low offer and record low interest rate. In addition to that, Buyers almost all the time were getting some sellers concessions at closing and some allowances in lieu of repairs based on the inspection and other professional reports.  With all these advantages, still many qualified potential Buyers, were not purchasing their dream homes. When I asked, their reply was that they are not certain about the future of housing, economy and they were hoping interest rate goes more down. No matter how much we emphasized that interest rate around 3% would not last forever nor even for a long time and they should take advantage of that great market and act quickly, still they hesitated to act and did not buy.

After about six years of housing collapsed, the market changed from Buyer’s market to Seller’s market.

Now in today’s Seller market, where there is a shortage of listings and as soon as a house comes to the market there are several offers by next day with full price or higher, Sellers ask for much higher price and don’t negotiate or compromise. There are almost no Seller’s concessions at closing or allowances in lieu of repairs based on the inspection report. The interest rate in the last couple of months has raised more than 1%. Based on many national and state-wide studies, during the past year, home prices increased in 92 of the country’s 100 largest metropolitan areas.

In Dallas Fort Worth Metropolitan area, for the month of June 2013, many of the houses were sold with double-digit percentages higher than a year before (June 2012).

Specifically, for the City of Plano part of the Collin County Texas where I live, we have the following Sales report from the North Texas Real Estate Information Systems (NTREIS) MLS for the Month of June 2013:

Sold Data for City of Plano. Texas for the month of June 2013

City

Average

%Change

Median

%Change

Plano

Price

Year Ago

Price

Year Ago

Texas

$340,312

17%

$287,000

17%

 

Average Sale Price Increased:
As you see the Average Sale Price and Median Sale Price for this city has increased 17% compared to the Average Sale Price and Median Sale Price from exactly one year ago in the same month. Many other Cities gained more than 17%.

Interest Rate Increased:
Now let’s talk about the interest rate: In last two months or so the interest rate has suddenly gone up more than a 1% (April 2013 3.54% vs. July 22nd 2013 4.55%). (Ref. http://www.mortgagenewsdaily.com/mortgage_rates/ )

The 30-year fixed interest rates for the month of July 2012 and July 24th 2013 were 3.55% and 4.49% respectively. This is an increase of 0.94% in Interest rate, Almost 1%

Seller Concession and Allowances Decreased (or Eliminated):

Seller Concessions: Based on my personal experiences in my area, Seller typically used to agree to pay $3000-$5000 at closing cost. This was about 1.5%-2.5% of the sale price. Let’s use 2%

Seller Allowances: Again based on my personal experiences in my area, Seller typically used to agree to pay $1000-$3000 at closing cost in lieu of requested repairs, Home Warrantee, etc. This was about 1.0%-2.5% of the sale price. Let’s use 2%

Loss Calculation for Buyers:

Disclaimer: This calculation assumes conventional loan with no PMI, upfront fee, HOA, other closing costs. In the case of FHA the MIP and MIP Upfront fee have been increased 10 base-point compared to the last year fees and also MIP fee now must be paid for the entire life of the loan (30 years) vs. about 11 years from last year. Also, no closing cost calculation is performed.

If a Buyer had purchased a house in June of 2012, with a purchase price of $300,000, loan amount of $270,000 (LTV=90%) and 30-year fixed Interest rate of 3.55%, his/her payment would have been $ 1219.97 per month. His/her down payment would have been $300,000 -$270,000 loan – $6,000 (average Seller Concession and Seller allowances for repairs, HW, etc.) -> Down payment =$24,000

Total Cost = 360 * $1,219.97+$24,000 = $463,190

Today, the same house, would sell for 17% more ($351,000), loan amount of $315,900 (LTV=90%) and 30-year fixed Interest rate of 4.49%, his/her payment would have been $ 1,598.74 per month. His/her down payment would have been $351,000 -$315,900 loan – $0,000 No Seller Concession and Seller allowances for repairs, HW, etc. -> Down payment =$35,100

Total Cost = 360 * $1,598.74+$35,100 = $610,646

Conclusion:

Sad Fact: The Buyer who did not buy his/her dream house at $300,000 last year in June 2012, now he/she has to pay about $147,456 more (in 30 years) to own the same house that initially you could purchase for $300,000. What a loss! 

Happy Fact: The economy is improving, the interest rate rising, the home prices jumping, therefore, DO NOT wait until next year to purchase your dream home. Otherwise, my report and analysis next year, most probably, will show another big loss compare to this year and month loss.
If you are in the market and qualified, buy your dream home now.

Each 1% increase in the interest rate, will reduce the Buyer’s affordability more than 11.22%. To see the effect of 1/8%, ¼%, 3/8%, ½%, 5/8%, ¾%, 7/8% and 1% increase in the interest rate vs. Buyer’s affordability, please see my other blog at:

http://activerain.com/blogsview/3701135/1-increase-in-interest-rate-will-decrease-your-buying-power-by-11-22-                     

OR visit http://www.texasfivestarrealty.com/Increase_1Percentage_Interest_Rate.asp

 

 

Loan Denial because not having friends

May 20, 2013

Loan Denial because not having friends
NO FRIENDS NO LOAN IS THAT LEGAL?

I had a client, non-U.S. born but U.S. citizen, who had moved from California to Dallas area from his job. He had great income, professional management position and great credit score. He got qualified and purchased his dream home, however, at closing the title company put a form in front of him to write down names, phone numbers and addresses of two family members, relatives, friends that they know him but don’t live him. His family and relatives were all living outside of U.S., he knew a few coworkers in California but did not know their addresses, etc. He signed all other papers, except that page. we went out. Seller supposed to come and sign papers, lender fund and we get notify of closing and get the key. Two hours later, the title company called me and said if my client doesn’t come up with two names and addresses, the lender will not transfer the fund and we will not have closing.

I got really upset and I don’t think the lender’s request was legitimate. So, if a well qualified U.S. Citizen doesn’t have family, relative or friend to list he will be denied of getting loan? Mortgage lenders should not lend money based on the applicant’s friend names and addresses.

I explained the situation to my client, but he agreed that we both go back to the title company and he put information about two new guys from his new job (with their permissions) in the form and we closed the deal.

To the mortgage lenders, a person’s credit score represents his/her likelihood of making on-time mortgage payments for the next couple of years, based on the person’s recent (e.g., last two years or so) payment history. Therefore, it is very important to have a good/excellent credit history and credit score. But having a friend or not, should not affect the applicant’s ability to pay. The mortgage lender should not approve or disapprove clients based on whether or not applicant has family, relatives and friends.

Is that legal? What do you think?

Contact us about your Real Estate Questions

USDA Map Changes Postponed Until September 2013

March 29, 2013

USDA Map Changes Postponed Until September 2013

Last week the House passed the Senate’s revised Continuing Resolution (H.R. 933) to fund the Government for the next six months. This bill included language to not implement any changes to eligible areas for Rural Development for the next six months.

There will be no changes to the USDA maps at the current time. The President signed this legislation on March 26, 2013 and we expect the formal announcement from USDA RD soon.  

Up to now there was a news that some towns/cities that were previously eligible for USDA loans, are now not eligible anymore based on the latest census 2010. This worried many home buyers, especially first time home buyers and home buyers with low income. But, this has been postponed at least six months.

What is USDA loan? The USDA Guaranteed Loan Program is a federal program offered through the United States Department of Agriculture. Rural Housing through the USDA program provides a number of homeownership opportunities to rural Americans, as well as programs for home renovation and repair. This is an excellent product and benefit for those individuals that qualify.

What are USDA Advantages? There are several advantages to using USDA’s Home Loan Program.

·         USDA 100% Financing

·         Low Monthly Mortgage Insurance(MI)with a USDA loan

·         Low USDA Mortgage Interest Rates

·         USDA Low Closing Costs

·         USDA Zero Down Payment.

·         Easy Credit Qualifying with USDA

·         Government Guaranteed Mortgage

What Are USDA Eligibilities? Rural Housing also offers 100% financing opportunities for those who qualify. In order to be eligible for many USDA loans, household income must meet certain guidelines. Also, the home to be purchased or served must be located in an eligible rural area as defined by USDA. This typically covers towns with less than 10,000 populations.

USDA Property Eligibility Info Basically, the USDA home loan program has 2 things it looks at when determining property eligibility: (1) Location (2) Physical Properties of the house. Location Eligibility: Determining the location eligibility is simple. Just click here and use this tool to determine if your area is eligible. Simply click on your State, the whatever County your looking in. This will bring up a color coded map. The areas shaded in “orange” are ineligible, all other areas are O.K. It’s that simple! Physical Properties:

·         Single family homes only (no multi-units homes)

·         Condos/Townhomes OK

·         Home must be in working order (no “fixer uppers” with mechanical issues)

·         No mobile homes

·         Swimming pools cannot be used to determine the value of the home

·         An FHA appraisal will be used

·         Basically, standard homes in working order is what’s expected…this is NOT a “fixer upper” program.

USDA Home Loan Income Limits Rather than loan limits, USDA has implemented income limits. These limits are generous as they are 115% of the moderate income level for the household size of the County your buying in. Like all home loans, your income will determine what size loan amount you can qualify for. Click here to use USDA’s income chart. Click on your State link, then look at the County you’re buying in underneath the column that reflects your household size. Use the largest income number on the chart. Note: Regardless of who will be on the loan, ALL household income for ALL adults must be considered.

For more information about USDA loan, USDA Property Eligibility, Household income requirements and USDA Home Loan Income Limits please see USDA website at http://eligibility.sc.egov.usda.gov/eligibility/welcsmeAction.do?NavKey=home@1

Please Contact Us for your question on Real Estate issues.

 Bahman signature

What should we do with today’s Real Estate Market Shift?

March 24, 2013

Dallas Fort Worth market is the seller’s market since last year or so with low inventory. Part of the North Texas, especially in Collin County, there is a shortage of new build homes too. Many homes in the mid range prices go so fast and many have multiple offers. This means buyer’s power of negotiation is less and in some cases the house is sold higher than the original listing price, due to multiple-offer situation.

Also, the interest rate from one year ago is slightly higher. Additionally, some loans such as FHA have higher FHA MIP rate (10 base points) starting April 1st, 2013 and Duration of MIP will remain in effect, starting June 1st, 2013, until the life of the loan or minimum 11 years vs. today’s case that whenever the balance reaches 78% of the original loan amount and/or 5 years the MIP stops.

Increase Monthly MIP rate, starting April 1st, 2013, for a loan amount of $400K would be $32.18 per month. The effect of MIP duration change for the life of loan (30-year fixed at 4% Interest Rate) would be an additional $106,472 MIP compared to today’s scenario. This affects the affordability of the buyers and pay more every month for the same house today.

Please see my other blog (http://activerain.com/blogsview/3618553/fha-mip-change-starting-april-1-2013-and-june-3-2013 ) in activerain for more detail information about these changes and their affect on the buyers.

What do we (as REALTORs) need to do?

The bottom line is that home prices are rising, interest rates will not stay at this record low rate for a long time, rules and fees for loans are changing toward higher cost to buyers, etc.

The buyers should be educated and be aware of these facts and changes and act soon, if they are really in the market. The sooner they buy, the better would be.

Persian New Year No-Rooz, Wednesday March 20th, 2013 at 6:02:13 AM CST

March 5, 2013

Persian New Year No-Rooz, Wednesday March 20th, 2013 at 6:02:13 AM CST

“No-Rooz”, or in many variations  of its spelling; NoRooz, NoRouz, NowRouz, etc., is the Farsi word (Persian language) meaning the “New-Day” signifying the first day of the Persian New year. “No-Rooz” is the major holiday of the Iranian people, which are celebrating for 13 days. Schools, Colleges and universities and most of the workforce are off for these thirteen days enjoying their long vacation, traveling, visiting family and friends, etc.

No-Rooz starts on the exact moment the spring starts. Spring is a symbolic representation of a new beginning. Spring is seen as a time of growth, renewal, of new life (both plant and animal) being born, new beginnings, blossoming life and a love in the air.

Iranian uses the Solar Calendar which is based on the rotation of the earth around the Sun. The moment the Sun crosses the celestial equator and equalizes night and day is calculated exactly every year and that is the beginning of the spring and therefore beginning of the Persian New Year (“No-Rooz”). The calculation is very exact and accurate up to a second and it is based on one complete round rotation of the Earth around the Sun, which is 365 days, 6 hours, 48 minutes and some Seconds.

The Beginning Time of the Iranians New Year – “Saaleh Tahweele”

Due to the nature of being so exact, the beginning of the spring or the first day/time of the Persian New Year will not happen on the same day and time every year. This usually occurs on March 21 or the previous/following day depending on when and where it is observed. The Iranian year is also different than the year in USA. 

The date, time and the Year of the upcoming Iranian New Year, in USA for the year of 2013, is Wednesday March 20th at 6:02:13 AM in Dallas, Texas Time (CST), and the Iranian year would be 1392. This is the exact moment of the Spring Equinox, when the sun is positioned directly over the equator of our tilted Earth.

 

What Iranians do before, at and during No-Rooz?

Before the New Year:

1.    Cleaning the house entirely, buy new clothes, etc.

2.    ‘Chahar Shanbeh Soori”: Celebration of the “FESTIVAL OF FIRE” which will be occurred in the last Tuesday night of the Iranian Year.
Due the size of explanation of this event, please see my other articles in http://activerain.com/blogs/bahman

                                        

<pstyle=”text-indent: -.25in;=”” .25in?=””>3.    Grow “Sabzeh”:

 

4.    Setting up a Table of “Sofrehe Haft Seen”: Sofreh means Table, Haft means 7, and Seen mean Alphabet letter “S”. à The entire word means a Table Containing 7 special items starting with letter “S” in Farsi. Each of these 7 items represents good fortune, health, well-being, happiness, prosperity, life-rebirth and posterity. These are (as minimum):

4.1.  “Sabzeh” means Sprouts, usuall wheat or lentil representing re-birth

4.2.  “Samanu” is a pudding in which common wheat sprouts are transformed and given new life as a sweet, creamy pudding and represents the ultimate sophistication of Persian cooking

4.3.  “Seeb” means apple and represents health and beauty

4.4.  “Senjed” the sweet, dry fruit of the Lotus tree, represents love. It has been said that when lotus tree is in full bloom, its fragrance and its fruit make people fall in love and become oblivious to all else.

4.5.  “Serkeh” means vinegar, represents age and patience

4.6.  “Seer” means, represents medicine

4.7.  “Sekeh” means coin, represents good fortune and wealth.

In addition to the above 7 “S” items, almost all household have other things starting with “S” and for other purposes: such as:

<pstyle=”text-indent: -.3in;=”” .55in?=””>4.8.  “Somaq”

 

4.9.  Candle

4.10.              Mirror

4.11.              Colored Eggs

4.12.              Flowers

4.13.              Fish bowl

4.14.              Quran or a poem book by famous Iranian poet, Hafez

4.15.              “Ajill” a mixture of many Persian Nuts

4.16.              Mixture of many Cookies, Chocolates, Persian Bakery and Pastry

5.    “Sabzi Polo Ba Mahi” for the dinner the night before the new year day: Traditionally, Iranians have a big new year’s dinner. It will usually include, in addition to many other foods and deserts, special fish dish (white fish plus Rice with special herbs and, greens (known as Sabzi Polo ba Mahi), Kookoo Sabzi (made up with spinach, special herbs and eggs). <![endif]>

 

At the New Year Time (“Saaleh Tahweel”):

When the New Year starts family members cheers, and hug each other and wish them a happy new year. The Farsi word for that is “Eideh Shoma Mobarak”. Also, older people give brand new paper money to the younger and kids.

During the New Year Holiday (After “Saaleh Tahweel”):

Most People are off for thirteen days, which they use to visit family, relatives, friends, or even taking vacation going out of town/country, etc. Pastries, nuts, and fruit will be on the tables for family and guests to enjoy.

The last day of New Year Holiday (“Sizdeh Bedar”):

The last day of the Persian New Year (No-Rooz) holiday, 13th day, is called “Sizdeh Bedar”.  In many culture, as in Iran, number 13 is bad luck, trouble, unlucky number. On the 13th day of the New Year, people go to parks or county sides for picnic and enjoy the day and throw the 13 out. At the end of the 13th day, people, throw out their “Sabzi” that they had made prior to the New Year into the field or streams.

Also, those young single ladies that wish to get marry by next year, they will tie the grasses and will sing a song in Farsi “Sizdeh Bedar Sizdeh Bedar, Saaleh Digar Khaneheh Shohar” wishing Sizdeh bedar, next year I be married and be in my husband house.

 

The UN’s General Assembly in 2010 recognized the International Day of Nowruz, describing it a spring festival of Persian origin which has been celebrated for over 3,000 Years. No-Rooz (Nowrūz) was officially registered on the UNESCO List of the Intangible Cultural Heritage of Humanity.

Events around the Time during Persian New Year Holiday:

Almost any major city or Metropolis in US and all around the word organized special events; shows and concerts with famous singers, dancers, special foods, etc.

Currently, These Persian New Year related events are scheduled in Dallas Fort Worth area:

Tuesday, March 12

 

Char Shanbeh Soori – Ancient Persian Fire Festival

Location: Oak Point Park. 2801 E Spring Creek Parkway in Plano, Texas, 75074 Presented by: Texas Persian Cultural Center 6 – 9 pm 972-492-0604 View WEBSITE

Tuesday, March 12

 

Char Shanbeh Soori – Festival of Fire after the Picnic

 

Website: https://www.facebook.com/events/409213915820870/?fref=ts

 

details: 10 PM – to 2 AM

 

★•★•★•★•★  DallasPersians.com Proudly Presents  ★•★•★•★•★

  ★•★•★•★•★•★•★ FESTIVAL OF FIRE ★•★•★•★•★•★•★ AVENU Lounge

► 2912 McKinney Avenue Dallas, TX 75204                           

Contact Babak Davani, (214) 248-3858

Saturday, March 9, 2013: No-Rooz Celebration at PCC Starts 7:30 PM Texas Persian Cultural Center 525 W. Arapaho Rd., Suite #10 Richardson, Texas 75080. (214) 570-8500

 

Saturday, March 16, 2013: A Private Dream Play Starts 8 PM Majestic Theater, Information: 214-207-4914

 

Saturday, March 30, 2013: NowRuz Festival 5PM to 8PM Children Programs 8PM to 11PM Parents & Family Programs Plano Center 2000 E. Spring Creek Pkwy Plano Information: (972) 233-0505

Starting 2013 Claiming a Home Office on Your Taxes Will Get Easier

February 23, 2013

Starting 2013 Claiming a Home Office on Your Taxes Will Get Easier

If you claim your home office as a tax deduction, the IRS has good news for you. Starting in 2013, taxpayers who work primarily from home will have the option to use a simplified form based on their office’s square footage.

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce a lot the paperwork and record keeping burden on eligible small businesses. No longer will taxpayers who claim the home-office deduction have to keep such detailed records throughout the year, fill out lengthy forms, and calculate related expenses. However, depending on your Tax situation, it could cost you more money to use the new form, according to the “Wall Street Journal.”

The new option provides eligible taxpayers an easier path (but not necessarily the most Tax benefit method) to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 88299) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.

 

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible. Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option. The new simplified option is available starting with the 2013 Tax return which most taxpayers file early in 2014. Check with your tax professional to determine which option, the new simplified form or the regular method, is right for you.
For more advice on maximizing your tax deductions, read “Make this year less taxing” from the January/February 2012 “Texas REALTOR®” magazine. To see other Hot Topics and changes in Year 2013, especially related to the Mortgages and Residential Loans, that affect the affordability and qualification of the residential home purchasers, please visit my site at  
 
          http://www.texasfivestarrealty.com/index.asp

 

FHA MIP Rate and Duration Changes starting April 1, 2013 and June 3, 2013

February 20, 2013

FHA MIP Rate and Duration Changes starting April 1, 2013 and June 3, 2013.

FHA MIP Rate and Duration Changes starting April 1, 2013 and June 3, 2013

February 14, 2013

FHA MIP Rate and Duration Changes starting April 1, 2013 and June 3, 2013

The following changes to FHA Mortgage Insurance Premiums (MIP) will take effect with the respective case number assignment dates, April 1st, 2013 and June 3rd, 2013. These changes are big and may affect borrowers affordability and/or ability to qualify for FHA financing. 

NOTE: These changes only affect FHA Loans with case numbers assigned after April 1st, 2013 and has nothing to do with the Sales closing date. Therefore, If you have a FHA case number assigned on March 31st, but the sale is closed sometimes in May or after, these changes will not affect your purchase.

These MIP Rate and Duration changes include:

FHA MIp Policy Change starting April 1, 2013
Effective with FHA case numbers assigned on or after  April 1, 2013 FHA Mortgage Insurance Premiums will increase.

The increases in the annual MIP specified in this article apply to all mortgages insured under FHA’s Single Family Mortgage Insurance Programs except:

    • Streamline refinance transactions of existing FHA loans that were endorsed on or before May 31, 2009 (see ML 2012-04)

    • For all SF Forward Streamline Refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009, the Annual MIP will be .55% (55 bps), regardless of the base loan amount and the UFMIP will be decreased to (1 bps) 0.01%
      of the base loan amount.

    • Title I (Home Improvement Loans):
      HUD “Title I” insures private lenders against loss on property improvement loans they make. HUD does not lend money for property improvements. Title I can be used in connection with a 203k Rehabilitation Mortgage. For additional information on HUD “Title I”, please visit HUD website at  http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/title/ti_abou

    • Home Equity Conversion Mortgages (HECM or Reverse Mortgage)
      Reverse mortgages are increasing in popularity with seniors who have equity in their homes and want to supplement their income. The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage or HECM, and is only available through an FHA approved lender.

    • Section 247 (Hawaiian Homelands)
      FHA’s mortgage insurance provides opportunities to low- and moderate-income Native Hawaiians to purchase a home on Hawaiian home lands. FHA insures loans made to native Hawaiians to purchase one- to four-family dwellings located on Hawaiian home lands.  

  • Section 248 (Indian Reservations)
    A family who purchases a home under this program can apply for financing through a FHA approved lending institution such as a bank, savings and loan, or a mortgage company. To quality, the borrower must meet standard FHA credit qualifications. An eligible borrower can receive approximately 97% financing . An eligible party can produce a gift for the down payment. Closing cost can be financed; covered by a gift, grant, or secondary financing; or paid by the seller without reduction in value.

FHA case numbers assigned on or after April 1, 2013 mean BIG changes for borrowers and may affect their ability to qualify for FHA financing.  These changes include:

Current MIP Rate and Durations Up to

New Rules effective with Case Numbers
Item Changing Current Rules Up to 3/31/2013 Up to 6/2/2013 starting  4/1/2013 starting  6/3/2013
Base Loan Amount < $625,500 MIP Rate MIP Duration MIP Rate MIP Duration
> 15yr Term Annual MIP
(paid Monthly with Mortgage Payment)
MIP Duration
down payment < 5.00% 1.25% Cancelled at 78% LTV & 5 Years 1.35% Loan Term
5.00% < down payment < 10.00% 1.20% Cancelled at 78% LTV & 5 Years 1.30% Loan Term

 10.00% < down payment < 22%

1.20% Cancelled at 78% LTV & 5 Years 1.30% 11 Years
down payment >22.00% 1.20% 5 Years 1.30% 11 Years
< 15yr Term Annual MIP
(paid Monthly with Mortgage Payment)
MIP Duration
down payment < 10.00% 0.60% Cancelled at 78% LTV 0.70% Loan Term
10.00% < down payment < 22% 0.35% Cancelled at 78% LTV 0.45% 11 Years
down payment > 22.00% 0.00% No Annual MIP 0.45% 11 Years

FHA MIp Policy Change starting June 3, 2013
Effective with FHA case numbers assigned on or after June 3, 2013 FHA Mortgage Insurance Duration will change. 

The changes to the duration of the annual MIP as specified in this article are effective for all Single Family FHA programs for which FHA charges an annual MIP except:

    • Title I (Home Improvement Loans):
      HUD “Title I” insures private lenders against loss on property improvement loans they make. HUD does not lend money for property improvements. Title I can be used in connection with a 203k Rehabilitation Mortgage.  

    • Home Equity Conversion Mortgages (HECM or Reverse Mortgage)
      Reverse mortgages are increasing in popularity with seniors who have equity in their homes and want to supplement their income. The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage or HECM, and is only available through an FHA approved lender.

Impact Analysis (Example):
To better understand the impact of these changes on a borrower, let’s use an example with following assumptions.

Let’s assume a borrower is purchasing a house for $200,000 with 3.5% down (LTV=97.5%), and getting a 30-year fixed FHA loan at 4%.

Today, prior to April 1st, 2013, The Monthly MIP Rate and Duration are as follow:
Loan Amount = $200,000 (1-.035) = $200,000 * 0.965= $193,000,  with Monthly Principal + Interest =$921.41
Monthly MIP = (Loan Amount * MIP Rate for 3.5% down )/12 = $200,000 * 96.5% *1.25% /12 = $201.04
The borrower is paying this Monthly MIP until the loan balance <= 78% of the original Loan Amount = .78* $193,000 = $150,540
Using a Mortgage Amortization Table or Calculator, we find out this happens after paying Monthly Mortgage Payment (Principal + Interest) for 124 Months (10 Years and 4 Months).
So, Total MIP the borrower pays for the entire MIP duration would be  $201.04 * 124 = $24,928.96

After June 3rd, 2013, The new Monthly MIP Rate and Duration would be as follow:
Loan Amount = $200,000 (1-.035) = $200,000 * 0.965= $193,000,  with Monthly Principal + Interest =$921.41
Monthly MIP = (Loan Amount * MIP Rate for 3.5% down )/12 = $200,000 * 96.5% *1.35% /12 = $217.125

Increase Monthly MIP
In the above example, This is an increase of $16.09 = $217.125 – $201.04 MIP per month.

Decrease Affordability
In the above example, additional Monthly MIP of $16.09 for 30 years translates into getting a loan of $189,630 (with 4% Interest Rate) to have a monthly payment and interest of $905.32 =$921.41- $16.09. If the borrower were eligible or could afford to purchaser a house at $200,000 (Loan $ 193,300), Now with this additional MIP he/she is eligible or could afford to get a loan for $189,630 (purchase a house with $196,507 =$189,630/.965) to have the same Monthly payment of Principal + Interest + MIP. This is decrease affordability of $3,493 (1.75%)

Increase Total Monthly MIP
The borrower will be paying this Monthly MIP for the entire loan term which is 30 years or 360 Monthly Payments.
Therefore, Total MIP the borrower pays for the entire MIP duration would be  $217.125 * 360 = $78,165.00
This is an increase of $53,236.04 = $78,165.00 -$24,928.96 total MIP for the entire loan term.

A summary of these results are shown in Figure 1.
MIP changes effective April 1, 2013 and June 3, 2013
Assumption:
purchasing a house at $200,000 with 3.5% down (LTV=97.5%), and getting a 30-year fixed FHA loan at 4%.Interest Rate.
Legend:
     Series 1: with FHA case numbers assigned on or before April 1, 2013, Total Monthly MIP would be paid 124 Months * $201.04/Month= $24,928

    Series 2: with FHA case numbers assigned on or after April 1, 2013, AND before June 3, 2013:
Total Additional (compare to Series 1) MIP paid is $ 1,995.16 = $16.09 * 124.
This brings Total Monthly MIP to be paid = $26,923
Series 3: with FHA case numbers assigned on or after
June 3, 2013:
Total Additional (compare to Series 2) MIP paid is $51,242= (360-124)*217.13.
This brings Total Monthly MIP to be paid = $78,165

For more information about these changes and changes related to the Base Loan Amount > $625,500, please visit HUD website at Mortgagee Letter 2013-04.

Click 2013 FHA MIP Impact Analysis Calculator to See the Affect of New MIP Rates (April 1st, 2013) and MIP Duration (June 3, 2013) For Different Cases

Mortgage Balance Estimator

October 13, 2012

Mortgage Balance Estimator:
Click on the link below to determine estimated outstanding mortgage balance on a property with different set of data and assumptions. This tool is also very useful if you try to purchase a foreclosure property at the court step, when there is no data available in MLS.

http://www.texasfivestarrealty.com/Foreclosure_Balance_Calculator.asp


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