How-To Make An Offer: Redux 2009

Check out my Re-Posted article on making offers and you, too, can get the home you want at the price you want to pay.

I like to share my professional and personal experience with HomeBuyers. To that end, I created this blog four years ago. I’ve written extensively about the experience of buying a first home, especially with regards to negotiating with Sellers.

As the Spring Buying season gets underway (and it is DEFINITELY doing so as witness recent activity within my market), I thought I might Re-Post one of my blog articles about how-to make an offer to buy your first home. There is a definite process to making an offer as you will see in the article. Not only did I present information from the “old-fashioned” way of buying a home through a Realtor, but I seeded the article with much that I had learned as a mortgage professional. In my experience, this is a technique that is tried and true and it WORKS.

When Buyers ask me, “Hey Trevor, how do I get a sense what the Seller’s “real” price is?” I respond: “MAKE AN OFFER!”

When Buyers like a house but realize it needs updating, or, the house location is great for their needs but the house itself isn’t quite right, thus leading in both instances to a desire to pay substantially less than the asking price, I recommend those Buyers, too, use the Offer technique described in my article.

Too often Buyers look at homes they really like but walk away without making an offer. In New York State, until you sign a contract of sale, you can make as many offers on as many houses for whatever prices as you like without being committed to a danged thing. Use the Offering technique to get what YOU want. In today’s Buyer’s market this technique is useful to get unrealistic Sellers shaken loose from the idea that their home is still worth what it was in 2005.

Try it and you’ll find you get results when you are dealing with what I consider to be “serious” Sellers and Realtors. The method also helps you weed out unrealistic Sellers from your search for a home. It’s true, there are Sellers out there who aren’t serious. By using my offer method you discover quickly and avoid wasting your time dealing with them.

Let’s talk about Realtors for a moment. With the market in such disarray, many, many Realtors have departed the real estate business; they could not earn enough to pay their bills. They have moved on to take salaried jobs elsewhere. You would think this cleansing process would leave only serious real estate professionals, those who are earnest in their desire to adhere to professional standards and ethics. Too, you would think the part-time Realtor, the “dabbler” if you will, couldn’t possibly survive. In both cases your thinking would be wrong. I’m sorry to report that I’m still coming across situations where Buyers are working with less-than-professional-Realtors. Unfortunately, this can affect a Buyer because you don’t get the high quality of professionalism that you deserve. In a difficult market where Sellers are unsure of their course of action the results can be disastrous. The Realtor’s role is to bring Buyers and Sellers together. A seasoned professional does so ethically and with quality sales techniques. The Pro doesn’t use sales “mumbo-jumbo” instead adhering to the idea that a good salesperson listens to the needs of the customer/client and finds a way to satisfy those needs. The Seller wants the best price in a “Buyer’s Market” and the Buyer wants the home they love without over-paying. Quality Realtors make that happen.

My experience with many part-time Realtors is they don’t have the resources to find the right home for their Buyer. Neither do they have the time nor the inclination for lengthy negotiations.

Many of those “Boom-Time” Realtors who made a killing selling homes to anyone with a pulse just don’t care to understand the finer points of being a good salesperson. In an attempt to survive they are still using the methods that sold homes four years ago. For example, I had a Realtor tell one of my clients at an open house that he had “…better hurry up and make an offer because there are 3 other really good offers on the table.” WHAT!?! In this market that cannot possibly be true. That’s “Boom-Time” selling, not Buyer’s Market professionalism.

My Buyer tested the waters using my offering technique. The offer was neither accepted nor countered. We do not believe the Realtor even presented the offer to the Seller, a violation of New York State law. My client’s offer was very reasonable considering the market conditions, their seriousness as qualified homebuyers, and the fact the house needed $30,000 of updates. The Buyer used the offering technique to discern if the Seller was serious about selling the home. Clearly the Seller was not, or, as I suspect, the Seller’s Realtor was a substandard salesperson. The house is still on the market a month later. I guess the other “really good offers” just didn’t work out (if they existed at all).

My client, on the other hand, has gone on to find a superb and experienced Realtor after using my offering method to walk away from a good house with a bad situation.

Check out the article and you, too, can get the home you want at the price you want to pay. As I have often said around the internet after posting advice on one forum or another, “Hope that helps!”

The Miracle Rehabilitation Loan known as the FHA 203k Loan

A fundamental look at the miracle program known as FHA 203k.

So many Buyers today are eager to purchase homes at below market prices. Often these homes are in need of serious repairs or improvements to update the property. The 203k Program handily meets the needs of Buyers today. I personally have originated and closed dozens of these loans back
in the early 1990’s in Harlem and Bedford-Stuyvesant under President Clinton’s Inner City Rehabilitation Initiative. Often we were financing a complete gut renovation of an abandoned Single Room Occupancy (SRO) residence. The Buyers usually paid a price around $50,000 and I would find FHA 203k Financing in the range of $250,000 to cover the purchase and the renovations. Under the provisions of the rehabilitation, the Buyer of such an SRO would convert the Certificate of Occupancy from rooming house to legal 2, 3 or even 4 Family home. The 203k allowed for just such a change and the costs involved, including Architectural fees, Plans and Permits, not to mention the construction costs.

Toay this miracle program allows a Buyer to purchase a home and obtain the monies for repairs or home improvements all rolled into a single loan with a SINGLE monthly FIXED RATE payment. The repairs can cost as little as $5,000 or can run as high as necessary to gut-rehab a home. The limit on
the repair monies that can be included in the loan is the Loan-To-Value (LTV) Limit based on statutory FHA Loan Limits in your area (see below). And this LTV percentage is calculated based on the value of the house AFTER improvements.

The 203k program even has a provision allowing the Buyer to request that up to 6 months worth of mortgage payments be included in the loan so they don’t have to pay two monthly housing
expenses—rent and mortgage—while the house is under construction.

With more and more bank-owned “REO” properties offered for sale, Buyers will need the 203k
Program more than ever before.

203k Interest rates run higher than market, usually about 1% higher, but this is still an ideal program to help Buyers achieve their goals of homeownership while simultaneously updating or renovating a home for the lowest possible cost.

Highlights of the 203k Program:

>Buyer can obtain the cash needed to conduct improvements on a home
purchase folded into the same mortgage loan needed to purchase the house.

>Borrower must qualify according to regular FHA Underwriting criteria with regards to Income, Assets and Credit.

>The Program is only open to Owner-Occupants; no investors permitted. BUT you do NOT have to be First-Time Homebuyer.

>No Income Limits; no minimum income requirements. No geographic limitations, with the exception that the property is here in the good ol’ USA!

Purchase + Improvements = ONE Mortgage and ONE Monthly Payment

Current FHA LOAN LIMITS under the 2009 Stimulus Bill for the New York Metropolitan Region:

1Fam: $729,750

2Fam: $934,200

3Fam: $1,129,250

4Fam: $1,403,400

FHA Basics:

* No Reserves on 1 and 2 Family homes (but it helps!)
* 3 Months Reserves required on 3 and 4 Family homes
* 3.5% Downpayment
* 6% Seller’s Concession
* Credit Scores down to 620 (down to 580 with some Lenders)

There you have a good fundamental look at the miracle program known as FHA 203k.

Do you have questions?  Click on ASK TREVOR and I’ll respond to any and all inquiries, even if you’re not buying a home in
New York State.

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Happy House Hunting!

FHA Is Good For New York

Given the high hurdles for potential purchasers to overcome with regards to credit and cash in the New York Metro Region, the FHA program eases the path to homeownership.

The FHA is the Federal Housing Administration, a division of the United States Department of Housing and Urban Development (HUD). The FHA has been one of the single best ways for homebuyers to purchase a home since its inception in 1934 under FDR’s New Deal.

FHA guidelines make the experience of homeownership more accessible to more people. The guidelines are designed in such a way as to provide Lenders with more flexibility. The FHA is an insurance program whereby the mortgage loan is insured by the United States government. Further, FHA is the only Federal agency that is totally self-funded; FHA does not take any taxpayer money!

Some of the many wonderful features of FHA Insured mortgage loans:

-Low downpayment requirements: 3.5% of the purchase price

-Purchaser’s can use more of their monthly income to qualify for a loan

-Downpayment can be 100% gifted by a family member or employer

-Credit score requirements are lower than for Conventional loans

-FHA Loans are fully assumable (subject to the new purchaser’s ability to qualify for the loan)

-A Seller can contribute up to 6% of a Purchaser’s closing costs. This is especially useful in the NY Metro region where closing costs average 6%. This allows a potential Purchaser to own a home with a substantially lower cash requirement than Conventional loans. (See Closing Costs In NY for more information about closing costs in NY)

1. Cash requirements lower: If a Purchaser obtains conventional financing with a 5% downpayment, the total cash required on a $475,000 Single Family purchase would be approximately $60,000 (downpayment, closing costs and 2 months PITI reserves). The same Purchaser using an FHA loan would need approximately $20,000 (3.5% downpayment; Seller can pay the Purchaser’s closing costs and no reserves are required).
2. FHA allows for a higher “Debt-To-Income” ratio. Also, FHA allows on a single family or condo that the Purchaser can have Non-Occupying cosignors from the Purchaser’s family assist in qualifying for the mortgage loan.
3. Credit scores lower: FHA does not have a credit score requirement. However, Lenders are permitted to overlay their own Underwriting criteria on FHA guidelines. Currently the credit score standard among most Lenders for an FHA loan is a minimum credit score of 620 (some Lenders go down to 580). For a Conventional loan with PMI (Private Mortgage Insurance) a Purchaser need have at least a 720 credit score.
4. Expanded Opportunity to Purchase: On any given day there are many people wishing to purchase a home who don’t have the money for a large downpayment PLUS closing costs. Living in New York is expensive. For the average New York family earning approximately $100,000 annually to save $60,000 is an extremely difficult undertaking considering the high housing expense and other high cost of living expenses. Saving a $20,000 downpayment is an easier exercise thus making the dream of homeownership more accessible.
5. After Purchase Marketability: The FHA Purchaser in today’s market is effectively locking in today’s interest rate for a future homebuyer in the resale of the home. For example, if a Purchaser of a Single Family home closed today at a 30year fixed rate of 5.375%, that purchaser/owner could conceivably resell the home seven years from now to a person who would assume the FHA loan at today’s rate. If rates are higher in the future, this makes for a more opportune marketing potential.

In conclusion, the FHA program surprises potential homebuyers with its accessibility. These are people who never thought they could own a home. Specifically to the New York market, given the high hurdles for potential purchasers to overcome with regards to credit and cash, the FHA program eases the path to homeownership.

More about FHA and where to find an approved FHA Lending Institution at The FHA Website.

Beware Using Non-FHA Approved Mortgage Brokers

Work only with an FHA approved mortgage broker with a Mini-Eagle or an FHA approved Lender with a Full Eagle.

Since the FHA Insurance program is pretty much the only way to get a mortgage these days, I’d like to caution you against working with any mortgage professional that is not approved by HUD to originate FHA Insured Loans.

The process of obtaining such an approval is difficult and expensive. When a mortgage broker is approved, the office receives what is known as a “Mini-Eagle.” The Mini-Eagle is the permission from HUD to originate FHA loans. A Direct Lender, approved by HUD, has a Full-Eagle.

As we become more and more aware of the excessive lengths some unscrupulous mortgage people will go to in order to make money without paying any attention to legalities, ethics, or professional conduct, we need also understand these same lowlifes will try to jump on any bandwagon in order to make a buck.

Fact is the regulation is in place to prevent anyone from jumping on the FHA bandwagon. That regulation is the Mini-Eagle and Full-Eagle.

FHA does allow in certain instances a Non-FHA Approved mortgage broker to recommend a client to a Full-Eagle Lender and to act as a consultant for the client. This permission is limited to consulting and the fee is limited as to how much the consultant can earn. The consultant is paid by you, the client. Consultant means exactly that: advice, counseling and consulting. The Non-FHA approved mortgage professional cannot originate the loan, cannot write the loan application or become involved in any aspect of the process for loan approval. For that you will work directly with the Lender.

Think of the Non-FHA approved mortgage person as a facilitator who connects you with a Lender, is available to answer your questions and offer advice on the program, but cannot do anything more than that.

Beware of the mortgage people walking around saying, “I can do FHA loans.” More often than not these lowlifes are not FHA approved and they plan on convincing you to doing a loan application with them for an FHA loan. “I’ll find an FHA Lender for you. Sign here.” This is ILLEGAL.

Further, this consultant doesn’t have any real standing in terms of accessing information about FHA products or interacting with the Lender to get your loan processed timely for an approval.

Why should you pay one of these people when you can easily find and work with an approved and experienced FHA mortgage professional?

These folks are just trying to take your money by joining in the current mortgage market opportunity without making the proper professional investment (in time and money) to obtain the proper licensing.

Work only with an FHA approved mortgage broker with a Mini-Eagle or an FHA approved Lender with a Full Eagle. You can find listings of both types of Mortgage Company in your area by visiting www.fha.gov and entering your zip code.