BradyLoan.com

Avoid These Common Mistake When You List a Condo

You just listed a new condominium and you're excited; you priced it right and you expect it to sell and close within 45 days.  Financing is a big deal for most condo buyers; in San Diego, condos are often bought by first-time home buyers.  You might be making these common mistakes which could cause the offers to come in much lower than you want, have deals fall out of escrow, or delay the closing.

1-  Not checking to see which financing is available.  See if the complex is approved for FHA financing and be careful to see when the expiration date of the approval is.  Check to see if the complex is approved for VA financing.  If you can't find the complex on these lists, call me at 858-777-9751.

2- Check with the HOA to determine the owner occupancy percentage.  If the percentage of homeowners is under 50%, the buyers won't be able to use FHA financing or conventional mortgages with less than 20% down payment.  If the percentage is below 50%, consider having us submit the HOA package to VA for a complex approval. 

3- Not ordering the HOA documents immediately.  Most agents tell owners to wait until you have an accepted offer,then ask the escrow company to order the documents.  This is a huge mistake because it delays the process.  It's a cost to your seller but the seller has to provide those docs to any buyer; they might has well get it out of the way.  Committed sellers will do this up front.  You can call me at 858-777-9751, to review those documents, so you are prepared for any offer.

Too often, agents make these mistakes and are chasing their tails in escrow.  We can help you to stop chasing your tail,  maximize the price your seller gets, and guarantee a quick and successful closing.

Can We Do FHA Spot Approvals for a San Diego Complex?

We just closed an FHA loan in a San Diego condominium complex which wasn't on the FHA approved list.  Once upon a time, a real estate agent might call what we did a "spot approval".  Spot approvals were where the underwriter looked at the legal and financial documents, of the home owners association, along with a questionnaire, and determined whether or not the complex was eligible for an FHA loan.

There are no such things as spot approvals anymore BUT... DELRAP approvals operate (practically) the same way as a spot approval does.

FHA-eligible condominium complexes are approved, for a two year period, one of two ways:

1. HUD Review and Approval Process (HRAP)-- this is where the package of the HOA's legal and financial documents are  sent to the HUD Home Ownership center in Santa Ana for review and approval.  This can take up to 30 days and we would need 45-60 days to close the FHA loan
2. Direct Endorsement Lender Review and Approval Process (DELRAP)-- this is where the HOA's legal and financial documents are reviewed by an FHA "approved" underwriter.  HUD "delegates"  authority to underwriters, with a HUD certification, to approve the complex.  This takes 3-4 days and we can close the FHA loan within 30 days.

Our condo review department does this for us and we have access to a HUD-approved underwriter to make the DELRAP decision on the condominium complex.  We process the loan just like any other loan but delay the appraisal until one week after we receive the HOA documents needed.  If we get the documents within the first 2-3 days, after opening escrow, we have no problems meeting the appraisal contingency deadline.

Documents needed include: 

 

• By Laws
• Articles of Incorporation (or Association)
• CC&Rs
• Approved Budget
• Balance Sheet, dated within 30 days of submission
• Income Statement, dated within 30 days of submission
• Cash Flow Statement, dated within 30 days of submission
• Condo Questionnaire
• Recent reserve study (unless at least 20% of the budget is going towards reserves

If the complex WAS FHA-approved, but is now expired, we still have to submit as if it were a new submission.  The two key issues which kill FHA complex approvals are:

1. The owner-occupancy ration is below 50% at the time escrow was opened
2. There is pending litigation

Please call us if you have questions or need us to help your borrower get an FHA loan for an unapproved condominium.  While this isn't a "spot approval", the process is similar enough to the old spot approvals that it feels like one.  Our number is 858-777-9751.

Mortgages For Condominium Complexes With Commercial Businesses (Mixed-Use)

Some mortgage lenders eschew condominium complexes which have a portion of the complex leased to commercial businesses.  For example, in Pacific Beach (San Diego), there is a property with 8 units on top of a 2200 square foot, retail business.  Why won't lenders make a loan there?

Both FHA & conventional financing permit a certain amount of the property, to lease commercial space.  Fannie Mae allows for 20% of the property to be leased to commercial ventures as does Freddie Mac.  FHA allows for up to 25% of the square footage to be leased commercially.

If the commercial space is more than the permitted percentage of the project, or it's being advertised as a condo-tel, or the public liability insurance doesn't cover the commercial spaces that are owned by the HOA, the loan can be funded.

In our Pacific Beach example, each of the eight units is approximately 975 square feet, for a total of 7800 square feet.  The retail space is 2200 square feet.  The commercial lease is 22% of the toal square footage of the complex.  It is not eligibile for Fannie mae or Freddie Mac financing but is eligible for FHA financing.

What We Know About the HARP Refinance Program, As Of November 28,2011

The HARP Refinance loan program is still unclear but the basic gist of the plan is that, if a borrower is refinancing into a fixed-rate home loan, there will be no equity requirement.  Stated differently, the appraised value won't matter; the government loan program wants to help borrowers get fixed-rate loans which they can afford.  If the new loan is an adjustable rate mortgage (ARM), the maximum LTV will be 105% of the appraised value. 

An Automated Valuation Model (AVM) will be the preferred valuation determination but a full appraisal may be required.  There are no restrictions to the amount of negative equity . A home owner could owe $400,000 on a home that is only valued in today’s market for $300,000.

Income verification is required for the HARP refinance program. If  the original mortgage was underwritten and funded,  as a a stated income loan, the borrower will have to provide proof of income to be approved for a new HARP loan.

There are substantial "risk-based" origination fees, for new loans with a term exceeding 20 years.  Those "risk-based" origination fees are waived for terms of twenty years or less.  The reasoning behind that guideline is that a lower rate, with a lower term, should not have a material impact on the payment amount when compared to the existing payment.  The accelerated amortization however, should establish equity for the home owner more quickly and reduce the risk to the government-insuring entity.

If the existing loan doesn’t require PMI (Private Mortgage Insurance), the new loan won’t require it either.  If  the existing loan requires PMI , there will be no change to that PMI however, the “transfer” of your mortgage insurance policy may require an extra step. Make sure that I know that you currently pay PMI and tell me that amount.

FHA , USDA, and VA loans are ineligible for HARP.  Only loans, which were sold to Fannie Mae or Freddie Mac, prior to May 31, 2009 are eligible.  This means that it is highly likely that loans closed,  in 2009 or thereafter, are ineligible.  To determine if you are HARP ekigible, check these two sites:

http://www.FannieMae.com/loanlookup/ 

https://ww3.FreddieMac.com/corporate/

HARP is not designed to delay, or stop, foreclosures. It’s meant to give homeowners who are current on their mortgages, and who have lost home equity, a chance to refinance at today’s low mortgage rates.  Home owners may not have used the HARP program before and must be current on thier mortgage to refinance via HARP.  Borrowers may not have had any late payments in the last six months.

Only rate-and-term refinances are allowable. No cash out refinances are allowed.  Borrowers can refinance an investment property or vacation home with HARP, even if the home was once a primary residence.  Condominiums can be financed on the HARP refinance program but the lender will require that all warranties from the HOA are satisfied.

HARP refinances first liens only. All junior liens must be subordinated to the new first mortgage. Mortgage balances can be increased to cover closing costs but loan amounts may not exceed the local conforming loan limits ($625,000).

If you are HARP-eligible, you must close on your mortgage prior to January 1, 2014.  Please call me today, at (858)-777-9751, so we can determine your eligibility, qualify you for a HARP refinance, and take advantage of the program as soon as it is authorized for fundings.

San Diego Housing Approaches Rent Vs. Own Parity

Should you buy a home or rent one, in San Diego? 

As always, that depends.  If you're looking for a home in La Jolla, you may never find a one which is less expensive to own than rent, in today's dollars.  The physical beauty of the seaside burg is stunning and La Jolla has traditionally traded at a steep premium to rent v. own parity.

Nick Timiraos suggested that buying conditions are getting better for San Diego, in the Wall Street Journal:

Home ownership is also looking more affordable because after several years of declines, apartment rents will rise by around 4% this year, says Mr. Nadji. He says rents are poised "to pick up even more momentum across the country next year."

Rising rents are one reason a would-be home buyer should consider purchasing a La Jolla home rather than waiting for prices to reach parity there.  If inflation kicks in, and onc day it will, rents could increase a level far above what the mortgage payment, for a La Jolla home, would be today.

Even cities where it is still cheaper to rent than own have seen big boosts in affordability. In San Diego, the monthly cost of owning a home has averaged around 83% more than renting over the past two decades. During the third quarter, owning was 22% more expensive than renting, according to John Burns Real Estate Consulting

Take note of this figure.  In many San Diego sub-markets, (mostly the beach cities), housing prices will never reach parity with today's rents.  Like the La Jolla example, inlaftion may cure that in 2-3 years.  Still, some San Diego County markets have already reached parity meaning, it's cheaper to own rather than rent.  Even in some beach cities, like Oceanside or Imperial Beach.

I searched active Oceanside homes for sale and found one which is listed for $189,000.  With about $7,000 down payment,  and an FHA loan with a 4.88% APR, the monthly mortgage payment would be $1250, some $50-$100 below what it might fetch in rent.  That's one of many Oceanside properties which are at or below parity for the rent V own model.

I also found plenty of similar opportunities while searching for homes for sale in Chula Vista.  There were many more recently built homes, which command premium rents, listed under $250,000.

San Diego entrepreneur Bill Lyons intends to make these home searches easier when he releases his new website, Revestor.com.  Revestor organizes current listings, by capitalization rate or cash flow, to offer homeowners a chance to "rate" properties, by comparing the listed price to current rental data.

San Diego is still selling at a slight premium but this may be as good as it gets.  If mortgage rates continue to stay low, because of the Fed's printing press and quantitative easing, the bubble for low rates will soon pop, and inflation will kick in.  Locking in a price, and a low mortgage rate, might be the best way to insure you won a piece of our sunshiney paradise.

Lower VA Mortgage Funding Fees Implemented November 18, 2011

N.B:  On the day before I published this, HR 674 passed, reverting the funding fee amounts to the “old” levels.  It was updated in VA Circular 26-11-19, published November 22, 2011.  The “new” lower funding fee schedule was in effect for three days, from Nov 18-21.  Sorry for the confusion.

The Veterans  Administration lowered the funding fee it charges, to insure loans made to active-duty or retired military personnel.    The new funding fee schedule distinguishes first-time users and repeat users and between active-duty, reservists, prior military.

Can you use your VA loan guaranty benefit more than once?

Of course you can.  The VA even allows for two outstanding loans (under certain circumstances) but generally, veterans can only have one VA loan outstanding.  A common misunderstanding is that a veteran can only use a VA loan once.  The benefit can be used as many times as the veteran wishes.

Can you still get a zero-down VA home loan, again?

Indeed you can.  The new funding fee schedule, for zero-down loan purchases, is only 1.40% for first-time users who are active-duty veterans and 1.65% for reservist/guardsmen veterans. Zero-down home loans, for the second and subsequent VA home loans, require a 2.8% funding fee for all veterans:  active duty, reservists, and guardsmen.

Can you lower the funding fee if you use a down payment?

Yes you can.  If veteran home buyers put 5% down, with a VA loan, the funding fee drops to .75% for active duty veterans (1.0% for reservists and guardsmen).  For a 10% down payment, the funding fee drops to .5% for active-duty veterans and .75% for reservists and guardsmen.

Here is a list of the current and new VA funding fees scheduled to take effect on November 18, 2011.

Use/Purpose	Down Payment	Active Duty Veteran		Reservist/National Guard
		Old	New	Old	New
First Time	Less than 5%*	2.15%	1.40%	2.40%	1.65%
First Time	5% - 9.99%	1.50%	0.75%	1.75%	1.00%
First Time	10% or more	1.25%	0.50%	1.50%	0.75%
Subsequent	Less than 5%*	3.30%	2.80%	3.30%	2.80%
Subsequent	5% - 9.99%	1.50%	0.75%	1.75%	1.00%
Subsequent	10% or more	1.25%	0.50%	1.50%	0.75%
Interest Rate Reduction	N/A	0.50%	0.50%	0.50%	0.50%
Assumptions	N/A	0.50%	0.50%	0.50%	0.50%

 

FHA Monthly Premiums Likely To Rise April 1, 2011

Remember when the FHA monthly mortgage insurance premiums rose from .5%(annual) to .9%(annual) ?  The NAR kicked and screamed about housing affordability but the move was made to shore up the ailing HUD reserves.  What many folks missed was that HR 5981 allowed for an increase for an annual premium of 1.55%:

The bill has already passed the house. The bill (H.R. 5981) allows FHA to raise its annual premium to 1.55% from 0.55%. Approved by unanimous consent, the legislation now goes to the White House for the president’s signature.

I haven’t decided that this is a good thing to happen to mortgage lending or a bad thing. One of the determining factors for me will be how much of the authorized increase FHA determines they will actually take. If they take the full 1.55%, it will literally take about 25% of the buyers out of the market.

According to the National Mortgage News, “With this new authority, FHA will lower its 2.25% upfront premium to 1%, but then raise the current 55 basis point annual premium, basing the hikes on loan-to-value ratios. FHA wants to raise the annual premium to 85 bps for loans with LTVs of up to, and including 95%, and to 90 bps for loans with LTVs above 95%.”

Well, it looks like HUD Secretary Shaun Donovan has decided to raise the FHA premium again:

Higher FHA Insurance. "As Fannie Mae and Freddie Mac's presence in the market shrinks, we will encourage program changes at FHA to ensure that the private sector – not FHA – picks up this new market share," states the Treasury plan. In addition to the change in loan limits, the Administration will put in place a 25 basis point increase in the price of FHA's annual mortgage insurance premium, which is paid in 12 monthly installments. FHA just increased the annual MIP payment to .85 percent last October. The new rate will be 1.10 percent. FHA currently accounts for 30 to 40 percent of all new purchase mortgages, and more than half of all mortgages taken out by first-time buyers.

What does that mean to the average FHA borrower, taking out a $300,000 loan in San Diego County?

• Six months ago, the FHA mortgage insurance premium would have been $125.00.
• As of October 1, 2010(and currently), that FHA monthly premium would be $225.00
• After April 1, 2011, expect that FHA monthly insurance premium to be $287.50.

It's more than doubled.  Can you blame HUD though?  As Greg Swann writes, while the Obama Adminsitration says they want to wind down the government's role in housing finance, it appears they just want to shift the responsibility to a growing agency.  That's not helpful for a sustainable recovery in mortgage financing.  Until the government completely withdrawals from housing finance, private lenders have no incentive to come up with a solution.

 

2011 VA Loan Limits for San Diego, Orange, and Los Angeles Counties

San Diego 2011 VA loan limits increased to $537,500 while Los Angeles and Orange counties had a slight decrease to $700,000.  Riverside, San Bernandino, and Imperial counties remain at $417,000. These limits are the maximum base mortgage amount for a zero-down VA home loan.  The 2011 VA loan limits for all California counties:

• ALAMEDA $1,000,000
  ALPINE $480,000
  CONTRA COSTA $1,000,000
  LOS ANGELES $700,000
  MARIN $1,000,000
  MONTEREY $431,250
  NAPA $530,000
  NEVADA $431,250
  ORANGE $700,000
  SAN BENITO $843,750
  SAN DIEGO $537,500
  SAN FRANCISCO $1,000,000
  SAN LUIS OBISPO $528,750
  SAN MATEO $1,000,000
  SANTA BARBARA $710,000
  SANTA CLARA $843,750
  SANTA CRUZ $706,250
• SONOMA $478,750
  VENTURA $562,500

Five counties, in the San Francisco Bay area remained at a $1,000,000 VA loan limit.

2010 VA Home Loan Limits Reduced in San Diego County

The Veterans Administration announced that the zero-down loan limits, for VA-guaranteed mortgages, will be reduced to $437,500, in San Diego County.  The high-balance, VA jumbo mortgage program started in 2008 and allowed for zero down loans up to $697,000.  As priced declined, that number was reduced to $593,750 for 2009.

Median prices across Southern California stabilized in 2009 in response to the high balance loan program, foreclosure stays, and home buyer tax credits.  San Diego County's median price rose from $323,000, in October, 2008 to $325,000, in October, 2009.  It is anticipated that the 2010 VA loan limit should facilitate approximately 75% of the sales prices for 2010.

2010 VA loan limits in Southern California:

San Diego                $437,500

Los Angeles           $593,750

Orange                     $593,750

Riverside                $417,000

San Bernardino     $417,000

Imperial                   $417,000

SEARCH VA HOME LOAN RATES NOW

Mission Valley Condo Approvals For FHA and VA Mortgage Loans

In Mission Valley, there are 39 condominium projects.  If you want to purchase a property within one of those Mission Valley condominium developments, you might choose to use an FHA loan because of the low down payment requirement (3.5%).  Prior to last week, FHA condominium approvals could be issued on a "spot approval basis", meaning a HUD-approved lender could approve a loan regardless of the FHA complex approval. That practice has been discontinued.

Veterans choose to use a VA home loan because there is no down payment requirement.  Like FHA's amended policy, VA home loans can't be approved if the complex isn't.  VA, however, accepts the FHA approval and grants reciprocity.  FHA-approved condo complexes in Mission Valley will have explicit reciprocity by the VA. 

The following Mission Valley condo complexes are approved for both FHA and VA loans:

Friar's Pointe
Friar's Hollow
Friar's Mission
Creekwood at River Run
The Franciscan
Friar Gardens
Union Square
River Scene
Mission Gate
Mission Greens
Mission Heights
Mission Playmor
Mission Plaza
Mission Village
Mission Ridge
Mission Verde
Park Villas North
Rancho Mission Villas
River Colony

As of today (August 6, 2009), the following Mission Valley condo projects do not have FHA or VA approval:

Presidio Place
The Courtyards
Mission Bellwood
Woodspring
Rio Vista
Park Place Estates
The Bluffs
Mission Valley Terraces
City Scene
Fashion Hills
The Vistas at Fashion Heights
Hye Park
The Mission at Rio Vista
The Lido
Escala (Bridges, Bungalows, Courtyards, Terraces, Verandas, Villas)
Rio del Oro

This information is not guaranteed for accuracy.  FHA condominium approvals can be searched at the HUD portal and VA condominium approvals can be searched at the VA portal.  It is advised to search at the portal before visiting the complex.