More Condo Lending Rules - HO6 insurance coverage

We talked earlier about some of the difficulties in financing condominiums these days.  Don't despair.  Since we wrote that, we have financed several successfully.  We should point out one more requirement you should be aware of.  This has surprised some condo owners who are just now refinancing.  Last year, Fannie Mae and Freddie Mac (who own or guaranty almost every mortgage these days) increased the requirement for condo owners to hold what's known as HO6 homeowner's insurance.  Condo owners know that their building is already insured for fire and other hazards by the blanket policy held by the homeowners' association.  However, this policy generally does NOT cover the INTERIOR and contents of each unit.  This includes the interior side of all walls, doors, cabinets, flooring, etc.  The new requirement is that the homeowner must have coverage of 20% of the property value.  On a recent $500,000 valued condo the coverage required was $100,000 and the annual premium was $640.  Although it might seem at first another onerous requirement from these mortgage behemoths, it actually is a good thing for condo owners to protect themselves.  Make sure you consider this before buying or refinancing your condo.

REO INVESTOR LOANS FOR ACQUISITION AND REHABILITATION COSTS

Real estate investors today are actively buying bank shorts sales and real estate owned.  What will you do when you acquire a property that needs more than the usual clean and paint?

Investors in distressed properties are increasingly asking themselves this question.  Until now, most investors have avoided acquiring truly distressed homes that might actually create the greatest return for them.  This article removes the veil on rehabbing distressed properties and creates a path for getting involved in this potentially lucrative market.

What are we talking about here?  These are properties that need some structural, electrical or plumbing work beyond the usual patch and paint.  You may need to replace the roof, modify an illegal addition to ensure it conforms to local building code, or rewire half of the house.  A well organized investor with the right team of contractor, lender and title company can tackle homes like these that many other investors avoid.  That means less competition and potentially higher returns for you.

Here’s an example.  An investor locates a property that needs more than the usually clean up and paint.  He visits the property with a contractor who specializes in rehabbing homes.  He or she is state licensed, familiar with building codes in the city and can organize the various building trade subcontractors.  The investor now prepares an offer that considers the cost of the rehab work and the estimated sales price of the home ONCE WORK IS COMPLETED.  A completely rehabbed home will create a much larger market of potential buyers – from first time homebuyers to long term rental investors.

Do YOU have to layout cash for both the acquisition and rehab work?  Fortunately, no.  Many private lenders now finance 50-70% of the acquisition cost of distressed homes for qualified buyers.  Increasingly more are now offering to finance part of most of the rehab work as well.  Here is how it works:

Purchase Price of Property:                            $120,000

Estimated Rehab Costs:                                   $30,000

Total Costs:                                                     $150,000

Value of Home After Rehab:                            $200,000

Lender guidelines will vary on the maximum amount of financing they will provide, but here is a typical example:

70% of lesser of after rehab value or

total costs                                                       $105,000

Cash required by buyer at closing:                   $45,000

Before you select a lender, you will want to know more than just the maximum amount they are willing to lend.  You will want to know how they will escrow the rehab dollars, disburse funds to you as work progresses and what those costs will be.  You want to be sure the lender knows what they are doing, works with reputable and experienced fund control and/or title companies and can deliver quickly because you will have very unhappy contractors if you cannot pay them soon after they perform their work.

Investors should consider broadening the range of homes they will consider buying to ensure they are capturing more of their market and even enhance their returns.  Building a great team of contractor, lender, fund control and/or title company is the key to ensuring you minimize risks and turn homes over more quickly to increase your profits

3 Reasons Why You Should Consider a Mortgage Broker.

Many people have rightfully been skeptical of using a mortgage broker in the past to obtain a loan for a purchase or refinance.  There are many stories about bait and switch tactics and outright fraud in qualifying borrowers for a loan.  (Of course, many bank loan officers were also found to have played the same games!)

Because of recent reforms and other trends, there are now 3 reasons to consider a mortgage broker:

1.  Today's Mortgage Broker is nationally educated and certified. As of September 15, 2010, all non-bank loan officers must be nationally tested, licensed, certified and approved to provide lending services.  A national database will also allow consumers and regulators to follow the bad actors.  Regulators can now more easily revoke the license of the violators.  Bank loan officers are not required to do this.
2.  Mortgage brokers provide choice in rates and programs.  Many are approved to do business with four or more national banks and mortgage companies.  They can provide the borrower more choice in loan programs and rates.
3.    Most mortgage brokers provide excellent, customized service.  They can go directly to you.  They do not have to worry about loans getting lost in a huge centralized processing center hundreds of miles away, like many big bank employ.

Like with any service, check out the prospective loan officer on state (and soon, national) licensing authorities, ask for references and make sure you are getting disclosures when you apply.  And, check the disclosures and loan application to be sure your personal information is stated correctly and you have applied for the loan, terms and fees you were told.

Can I qualify for a home loan even if I am not a U.S. citizen?

Yes, under certain circumstances.  If you are thinking of buying, or you are a property seller or real estate agent, you will want to know the rules so you can make the right decision.

There has been a lot of interest and concern over the past few years about immigration reform and the status of legal residents and students.  We thought it would be a good time to clarify how this affects homeownership and qualifying for a home loan.

Of course, U.S. citizens are eligible for home loans.  U.S. citizenship is evidenced by a social security number.  Lenders will also want a picture ID in the form of either a state driver's license or U.S. Passport to check your identity against terrorist lists, but also to confirm your identity and obtain a credit report.

Permanent resident aliens are also eligible for home loans.  This is evidenced by a valid Alien Registration Card, also known as a green card.

Home loans are somewhat restricted for non-permanent resident aliens.  These are individuals who legally reside in the U.S. and possess a valid visa, including Series A, E-1, G series, H-1, L-1, TN-NAFTA and TC-NAFTA.  Individuals with any of these visas are eligible for home loans, EXCEPT those that have diplomatic immunity.  Individuals with diplomatic immunity are immune from prosecution or judgments to compel payment, so obviously, lenders do not want to lend to them.

The final category is Foreign Nationals.  These individuals are temporary visitors in the U.S. and possess a B-1 or B-2 visa.  They are allowed to reside in the U.S. only for up to six months.  Foreign Nationals, therefore, are NOT eligible for a home loan.

These are general rules.  Some lenders, under some circumstances may lend to foreign nationals or aliens with diplomatic immunity, but generally, the secondary market, and therefore many mortgage lenders, will not.

As always, contact your lender directly for their rules and requirements regarding citizenship and residency status.

If I buy a condo today, how can I finance it?

Boy, this is a tough housing market!  You may think its tough for homeowners in places like Florida, the Inland Empire of California, or Las Vegas.  But, it's even worse if you own a condo and are trying to sell it.  You are probably wondering if you are lucky enough to find a buyer, how will they be able to finance it?  Or, if you want to stay, can you take advantage of today's low fixed interest rates by refinancing?  We are here to give you the basic facts about condominium loans today so you will understand your options.  We would love to hear from you about your experiences so we can share with others.

My first home was a newly built condo in Pasadena, CA.  It was nice to have a never lived in before unit.  However, my wife and I were not fully prepared for condo living.  Sure, we both rented apartments before, but you expect more when you own it!  I actually became President of the homeowners' association.  Boy was that fun!  Here's a little about what I learned from personal experience, plus years financing condos for others.

Condominiums have many advantages and disadvantages in comparison to detached, single family homes. If you like nice landscaping, pool, spa, exercise room and other amenities but you do not want to do the maintenance, or try to pay for it for your own home, a condominium might be right for you. If you do not like those facilities or willing to share them with others, it might not be your best option.

Besides the living arrangements, condominiums are supposed to provide comparable living space and interior amenities as a detached home at a lower cost. However, one of the problems we have witnessed over the past several peaks and valleys of the housing market is that condominiums have proven to be much more volatile in price than detached homes. That is particularly clear in the housing bubble and collapse we have all just witnessed.

The secondary mortgage market (i.e. Fannie Mae and Freddie Mac) has noticed this also. They have suffered greater percentage losses on foreclosures of condos than detached homes, particularly in Florida. There are new rules in place that may make it tougher for you to qualify for a loan.  We will try to provide the basics of these requirements so you can make informed decisions. These are basics so be sure to check with your lender for the specific requirements for your situation. Armed with this information, you too can be known as a Savvy Homeowner!

There are two types of approvals your lender will need to consider before they can approve your loan. These are based largely on Fannie Mae and Freddie Mac rules.

The first type is streamlined approval, the easiest. This is a project that has been in existence for awhile, the homeowners' association is owned and run by the homeowners (as opposed to the original builder), at least 70% of the units are owner-occupied and no more than 15% of the units are behind in their monthly assessments (to pay for all those wonderful amenities, as well as hazard insurance). Right now, condos in Florida and in soft markets (defined by lenders and mortgage insurance companies) are not eligible for streamlined approval.  The buyers or homeowners also can qualify for the highest loan to values (up to 95% on purchase, or 90% on a refinance, with mortgage insurance) and lowest interest rates, as long as they have FICO scores of 680 to 720 or more.  The lender may also require an officer from the homeowners association to certify that association budget is fully funded, there are adequate reserves and insurance, that 70% of the units are owner occupied and fewer than 15% of the units are behind on their assessments.

If there are any deficiencies in the requirements specified above, you still may be able to get financing if either  Fannie Mae or Freddie Mac (many builders will seek these approvals when they plan and build a new project) or your lender go through a more formal approval process. There will be fees, an application package and a site visit from the lender or Fannie or Freddie to complete. This could take awhile, so don't expect the normal 60-90 days loan process. But, don't fret. There is always a possibility your lender can request a one time exception for your loan. Compensating factors like lower LTV, high FICO score, low debt to income ratios and long term job stability may induce the lender to approve your loan even without a formal project approval.

So, there you have it. You now know what to expect and can even knowledgeably quiz your lender on these issues to ensure they know what they are doing and can process, approve and fund your loan on time.