With some great prices out there right now for vacation condos in Leavenworth and Chelan, a lot of people are entering the market.  With prices coming down, some people ask me if they should wait for them to drop further; I tell them, " When you can buy a condo you like for less than it costs to build, there can never be an oversupply at this price, because if this is the price, no one will build any new ones. So if you didn't catch the absolute bottom of the market, you sure got close"

After you see the great prices, before you make an offer, you better check on financing. A lot of lenders have backed away from doing loans on vacation condos, especially those which can be rented out part of the time.  Most condos loans I actually do are for people who started with a lender who said they could finance it as a conventional loan- only to have it get kicked out of underwriting.  We do both Fannie Mae condo loans as well as 'non-warrantable' condo loans, and here is the big difference (I'm not smarter than anyone on this, we just checked with Fannie Mae to see what they would take): It is the presence of BOTH a rental pool, AND a nightly rental desk that kicks most of the loans out of FNMA eleigibility.

The other issue is the percentage of units that are investment properties Vs 1st/2nd homes.  And then the other new FNMA rule that stops most new condos is that FNMA won't buy a loan for a condo unless 90% of the units have been sold.

So what does this all mean?  For Leavenworth and Chelan, only a small number of projects can get Fannie Mae loans (I recently closed one at Kahler Glen). For all other condos, you will need to seek out a community bank that does Portfolio lending (lending their depositors money).  These rates can be higher, however 1) If it is a new project, the bank that financed the project is probably offering special financing. and 2) If you save $100,000 or more off of what they used to go for, but you have to pay a higher interest rate SO WHAT; you are saving a bundle overall.  Here is some quick math - you think you would like to pay 5% , but let's say the portfolio rate you find  is 7%.  If the loan amount with the new pricing is $200,000   you pay $1330 a month P/I. That unit used to sell for a $100K more. Even if you could have gotten the 5% you wanted, 5% on $300,000 is $1610 a month.  

These deals won't last forever, as there is no more supply coming on the market for a great while. Seek out a competent Realtor in the specific market you are looking at to help you.

This year, probably half of the construction loans I have done have been for owner-builders. This is the term we use for people who are building a home without a general contractor. In reality, the projects vary from individuals who never lift a hammer and just schedule all the subcontractors, to the people who are out there on the project themselves setting their own concrete forms and doing all their own framing and finish work. 

For those who are a little nervous about being completely in charge, there are now lots of consultants available, as well as companies who will build everything for you except for the parts you feel comfortable with. Oftentimes they will build the external shell of the house -framed inside with roof,siding, doors and windows. You can then split the rest between your own labor and subcontracting.  Basically, if you know which parts you want to do, you can find a builder who will take care of all the rest.

What I have been seeing is a nice drop in materials and labor prices this year, making these projects a great investment for the homeowners, as the cost savings equals additional equity in their homes.

If you are in the greater Wenatchee area, pick up a copy of the July issue of The Good Life magazine; a story inside features my clients the Flittons and the success they had with their owner-builder project in East Wenatchee.  I would love to link to the article, but the magazine is not online.

I currently have owner builder homes under construction in Winthrop, Omak, Chelan, East Wenatchee, Leavenworth, Cashmere and Crescent Bar, and just finished one in Wenatchee. 

If you are looking for a new home, with prices down for land, construction materials and labor, now would be a good time to check out the option of being your own contractor.

Here are a couple shots of some owner-builder projects currently underway.

I was at a meeting with Realtors from Western Washington, and they were amazed that we were still doing lot and land financing.  Actually in our market areas of Wenatchee, Chelan, Winthrop, and Leavenworth (plus surrounding Counties), there are actually several community lenders that will lend on land. Each bank has different programs and terms, so it is worth calling around to compare programs before making a decision.

I have seen some great deals out there; your dollar really goes a lot farther than it did a few years ago.

I cringe whenever people ask, "Are you still lending money?"; but I suppose it is a fair question these days. In my markets of Wenatchee, Leavenworth, Chelan, Winthrop and Okanogan County, most of the banks that used to do a lot of construction lending have severely cut back their programs.  Some of the things that other lenders have dropped but we still do are:

Owner-Builder Construction Loans

Lot Loans, Land Loans

Modular Home Loans (those delivered in sections)

Kit Home Construction Loans, or panelized home Loans  such as Lindal, Viceroy, etc.

Loans for homes where construction has already started

SIP Construction loans, or ICF construction loans

Many of my clients were planning to build a year or two ago, but everyone was too busy. It has turned out to be a huge blessing as prices are coming in much lower than they were in the past. 

Many people from the Puget Sound region eventually seek out a simpler life and move over here to Eastern Washington where there is no traffic, the pace is much slower and the sun shines.  Whether you want a small town, or wide open spaces; the low cost of building makes it a great time to make your escape.

Click here for some basics on Construction Lending

I lost out on a transaction with one of my clients the other day; but I think they made the right choice by not refinancing with me. 

I had financed a spec home for them near Lake Chelan which has not sold. I was in the process of refinancing it into an investment property on a 30 year fixed loan.  These days Fannie Mae adds all kinds of extra fees for investment properties, and less than perfect FICO scores etc.  They weren't taking any cash out, and the loan is less than 60% of the current appraised value, but it was still going to cost them about $10,000 in fees to get a 6% loan.

The owner called me and said that a freind was looking for a good investment that was safer than the stock market and returned better than CDs, so she asked if she could pay off my client's mortgage and have my client pay her 6% interest. 

So the friend gets a safe 6% return on her investment, which beats the stock market by about 50%, and my client gets her new loan without the Fannie Mae loan fees.

Of course, I'm out a nice commission on a $417,000 loan, but I couldn't argue with the logic, and encouraged my client to take advantage of a great opportunity.

When people are lining up for 0% interest on 3 month Treasuries, a mortgage on a trusted friend's property, at a safe loan-to-value, looks pretty good.

One fallout from the current market is the increase in homes being sold As-Is. Either a builder was unable to finish, or maybe the house went back to the bank in less than perfect condition.  Either way, you end up with Sellers who don't want to put more cash into the house, they just want to sell it. While there are many more in other parts of the country, we in Wenatchee and all over Eastern Washington are seeing more and more of these.

These are huge opportunities; you will see homes for $150,000 that with $30,000 worth of work would be worth $250,000.  Instant equity!

Even though these are great deals, most people walk away because they think they need to be a contractor with all the money in cash.    You think you can't get a loan, because most lenders won't let you finance a house 'As-Is'.  But there is a solution; you can simply buy the house as as part of a construction loan.  When we do a regular construction loan, we are simply adding materials and labor to bare piece of ground; in this case we are just adding materials and labor to some level of existing structure.

Down payments can vary, but once again, I would suggest seeking out a smaller community bank for this type of program.

There are a lot of negatives in the market, one of these distressed properties can be a happy start with lots of equity for someone.

The subtitle of this message should be the paraphrase of Mark Twain: Bank Liquidity-"The reports of my death have been greatly exaggerated."  

The media coverage of the financial and Real Estate news has created a lot of confusion amongst the general public.  I have had Realtors tell me that some clients think that all financing for homes has dried up. I have had others shocked when I tell them their client can still get zero down 30 year fixed financing on a home.

I can only speak of what is happening in Washington State and specifically my market area which includes Wenatchee, Leavenworth, Chelan, and Winthrop and the surrounding counties.   First a note on bank liquidity; smaller banks which are not publicly traded have not had their stock pummeled, and consequently still have plenty of money to lend.  Please remember, banks have to lend money- that is where we get our revenues to pay interest on your CDs and keep the lights on, so we are still moving ahead.  Fortunately, we didn't write a bunch of bad loans, so we aren't saddled with a bunch of foreclosures either.

As far as 100% financing or zero down, whatever you want to call it, that still exists for first time homebuyers and Veterans.  The program is called HouseKey and is administered by the Washington State Housing Finance Commission. They have done tens of thousands of these loans, and we in our office have done dozens of these every year for at least the last five years.

Now that housing prices have come back down to the affordable range, all we need to remove is the negative news that keeps potential homeowners on the sidelines.

I am not one that likes to make negative predictions, but the recent financial news leads me to conclude that mortgage rates will be going up.  For those who are ready to buy or refinance, I believe now is a good time to lock in your interest rate.

If you want the long version, read on:

Normally a drop in the stock market leads to lower mortgage rates. This is because investors get worried about the future returns from their stocks, and decide instead to put part of their money into guaranteed returns of bonds, including Mortgage Backed Securities. With supply and demand, the price of the bonds goes up- which results in lower interest rates.

In the last few days, In order to finance all their new acquisitions and bailout programs, the government has flooded the market with new bond sales; this has resulted in lower prices for the bonds- which means higher interest rates are being paid.

So now that the Government bonds are providing the funding for the stock market, it gets really confusing.  A drop in the stock  market no longer equates to a drop in interest rates. 

So, as I had stated before the bailout, with all the funding that the government is going to need, bond rates are likely to continue up. And, when the stock market hits bottom and turns around and rallies, rates will really go up. 

 I have often given opinions about the direction of mortgage rates, with the disclaimer that I don't own a crystal ball, but I need to add my second disclaimer: When I got my degree in Finance, we only studied Free Markets, so I am now totally beyond my area of expertise.

For those people who have been looking at homes and are on the fence, I would encourage you to act now and get your mortgage rate locked in, as I think some of today's events will lead to higher rates in the next few weeks, and possibly even today.

The early warning sign was the fact that the stock market rallied on negative news.  This morning's payroll report showed a loss of over 150,000 jobs in September. While this is a negative sign for the economy (these people won't be shopping), the stock market went for the reverse psychology and decided that this news would make the FED lower interest rates to try to help the economy. 

This is a set-up for Chairman Bernanke, because if he decides not to lower the Federal Funds rate, the speculative run-up from today would have been false, so the market will fall again - with the blame going to Bernanke, not the speculators.

The other big factor poised to raise rates is the likelihood that Congress will likely approve the bailout today.

As I had posted previously, here in Wenatchee with lots of available homes under $200,000 and many more under the FHA limit of $323,750, and with interest rates currently around 6.0% now is a good time for buyers to get into a home they can afford.

Just to clear the air on some FHA rumors- First Time Homebuyers and Veterans can still do 100% financing- (not all down payment assistance money has gone away),  and most other people still only need 3% down (3.5% is not yet in effect).

So if people are ready, now is a good time to close the deal and get into that new home for a great monthly payment.

Now I know I am not as smart as FED Chief Ben Bernanke and all his advisors, but I have to voice my opinion that  this $700Billion bailout is a bad deal for the economy and the country.

First, it will result in a raising of interest rates and a slowing of the economy. This is because the Government will need to finance this plan by issuing more debt (Treasury Bonds, Notes and Bills).  Half of these are already owned by Foreign investors, with China and the Oil-producing countries near the top of the list (the others are Great Britain,Japan, Brazil and the unknown people with Carribean bank accounts).  In order to bring in $700 Billion in cash, the government will have to issue a ton of debt.  The Foreign investors are going to think that our country is run by poor financial managers, and in order to entice them to buy up this debt, we will have to offer more attractive (higher) interest rates to get them to buy.You always demand a higher return as investments get riskier.  Already, these investors can buy a German note that pays 1.88% more than we offer. If I was a foreign investor, I would think that the German note is looking like a better deal.  So if you want me to buy your US debt, I want to be paid a higher interest rate.

So if the current 10 year US Treasury Note pays 3.88%, and the investors say,"I'm not going to buy up $700 Billion unless you pay 5.88%"  Guess what, 30 year mortgage rates would now be over 8%.  What does that do for the economy?

Hey, our huge foreign-financed deficit was a big concern to me even without this bailout plan.

The second reason I am against the plan is that it rewards greed and removes risk from our supposedly free-market economy.  There are executives from Enron who created these same type of derivatives who had to spend 6 years in the Federal Penitentiary; and the taxpayers are supposed to bail out this latest set of clowns?

These are the people who started the subprime meltdown. It began with the hedgefunds, and then soon all of Wall Street was wanting to rake in Billions from Real Estate by soliciting mortgage companies to sell them loans under terms that were doomed to fail.  These loan terms allowed people to buy homes way over what they could afford.  The bad loans weren't pushed on these Wall Street firms, they were the ones who paid the mortgage brokers to go find the people to buy  houses with little chance of repaying.  They then defrauded their shareholders by listing these new Mortgage Backed Securities as Assets on their books. 

If Bear Stearns, CitiCorp, Wamu or any of these others made bad financial choices, they should suffer the consequences. I didn't see them running to congress 2 years ago offering to pay the taxpayers their record Billions of dollars of earnings!

So let some banks fail; the consumer will be protected by the FDIC.  Some people argue that if we let some big firms fall, there won't be any money to lend.  Here is a clue-if banks don't lend money they go out  of business, so the remaining banks will be lending. Second clue- somewhere out there in this great big world is $700 Billion that the Government was about to borrow; the world financial markets are all liquid, and that same money is available to lend to any American business or individual who has a good home, business or idea to invest in.  Let the free markets flow - the money will go to the people who are likely to pay it back.  There may be some unemployment on Wall Street, but what have those highly paid experts done with your 401-K over the last 5 years anyway? They need to find new careers.

Meanwhile with all the fear being spread by the media and the Government, consumers are like deer in headlights; a terrorist attack wouldn't have been this effective at shutting down commerce.  Here in our market of Wenatchee, we have great homes available for under $200,000 , strong employment, and with all the media panic, the public doesn't realize that a First Time Homebuyer or a Veteran can still buy these homes with 0 down (and it doesn't end in October), plus anyone else can pick up these well-priced home with just 3% down with FHA financing. Let's get this thing settled so we can get on with getting people into the houses that they want and can afford.