University Hills Real Estate Trends

Protesting property value - don't do it!

Drew Armbruster, CRS (Your Castle Real Estate) — Thu, 12 Feb 2009 11:50:23 -0800

There is an interesting article about me below written by Margaret Jackson at the Denver Post.

Adjusting my property value saved me nearly $1,000 a year (described in below article), so am I saving money? Well that depends on what my goal is with the property.

Duplex example: purchased at $144,000, was tax valued at $280,000 and had it revalued at $165,000.

Am I planning on owning it for 10 years, where I would save approx. $10,000, or am I planning on selling it in 5 years and needing to provide evidence of the property value. It would be a much bigger loss at that time if I am trying to sell it for $220,000 and it is showing a tax value of around $180,000.

Obviously it is not a direct relationship between real value and tax value, but is worth thinking about before you storm down to the assessor's office and demand a lower tax value.

If it is easier for you to read you can click on the link below

http://www.denverpost.com/business/ci_7207753

Begin article:

When Drew Armbruster received a notice that said the duplex he owns in the East Colfax neighborhood was valued at $280,000, he knew it wasn't right.

In May, Armbruster and his wife, Susan, paid $144,000 for the rental property, located in a neighborhood that saw home-sale prices drop 2 percent from 2006.

"It was almost double what it should have been," he said.

Armbruster went to the Denver assessor's office to protest his assessment - and the higher taxes that would have gone with it. About three weeks ago, he received a notice that his property had been revalued at $165,000.

"I was actually pretty surprised," he said.

Armbruster was one of about 12,000 people in Denver to protest his assessment this year. That's more than double the number protesting in 2005. Metrowide, the number of people who protested their property values increased 39 percent. Only Adams and Weld counties saw declines in the number of protests.

Of those who protested in Denver, 2,405 - the bulk of them commercial-property owners - have taken it to the next step at the County Board of Equalization because the assessor's office declined to change the value on their properties.

If the Board of Equalization doesn't adjust the value, property owners can take their protest to the Board of Assessment Appeals, district court or binding arbitration. Because protests are still working their way through the process, it's unclear how many people have been successful in getting their home values adjusted.

In Weld County, the number of protests dropped by 200 to 4,390 this year.

"We did lower values in some parts of Greeley because we saw our market coming down," Weld County Assessor Christopher Woodruff said.

Still, the total value for Weld County is up 6 percent, largely because of the booming oil- and-gas industry.

In Adams County, the overall residential assessment increased 3 percent. The number of protests filed dropped 25 percent from 2005, largely because the assessor's office paid close attention to sales verification, Assessor Gil Reyes said.

"The media was really playing up foreclosures, and everyone thought the sky was falling," he said. "We really worked on getting everything as accurate as we could" to avoid an increase, he said.

Denver County Assessor Paul Jacobs blames media reports for the drastic increase in protests compared with the last assessment cycle.

"It's the counterintuitive expectation," he said. "People were reading stories about foreclosures and the housing market being off. But we were measuring in June 2006, and what the market was doing at that point in time was different than this year."

By the time notices are mailed, the data are nearly a year old and don't necessarily reflect current market conditions.

That means people in neighborhoods where home values have declined by more than 5 percent are probably paying too much in taxes, said Lon Welsh, managing broker of Your Castle Real Estate.

"The assessor isn't keeping up, but it's not like they're not doing their job," Welsh said. "They're working with out-of- date data."

It's not unusual for the number of protests to increase when the market takes a dive, Arapahoe County Assessor Corbin Sakdol said. During this cycle, home values reached their peak right at the second- quarter 2006 appraisal date, well before property owners received their notices of valuation last spring.

In Arapahoe County, 4.4 percent of property owners protested their assessments this year, compared with 2.4 percent in 2005.

"When you go back in history, 4.4 percent is not a gigantic number compared to a lot of years," Sakdol said.

In 1995, for example, 10.8 percent of property owners protested their assessments. The number dropped to 6.4 percent in 1997 and 4.7 percent in 1999.

The drastic increase in protests in Jefferson County is likely because of an active campaign to make sure people knew they could object, Assessor Jim Everson said. The number of protests increased 57 percent to 12,974.

"It wasn't related to a big increase in value," Everson said. "We did a lot of public relations to make sure people knew they had the right to appeal."

Margaret Jackson: 303-954-1473 or mjackson@denverpost.com

The dying Denver duplex - why your qualified buyer can't buy a duplex

Drew Armbruster, CRS (Your Castle Real Estate) — Thu, 12 Feb 2009 11:04:34 -0800

Denver County is a unique county with respect to duplexes, because they are very willing to let you split them and sell as attached homes fairly easily. Because of that, I have a ton of trouble finding duplexes in decent hoods under 300K for the investor who wants to live in one and rent the other (many times an FHA buyer). They don't want to buy the run down cash flow duplexes along Colfax or MLK for $140,000 to $150,000 - they want one in a relatively nice hood.

Does anyone share the same problem and is there strategies for these buyer's (who are often a little slower to pull the trigger) to obtain a duplex in Denver county?

To search for duplexes you can go to: www.findmyhomedenver.com and see if you can find any duplexes in that price range now.

University Hills RE Trends: Mortgage Broker Licensing...

Drew Armbruster, CRS (Your Castle Real Estate) — Mon, 22 Dec 2008 12:29:20 -0800

Colorado Mortgage Broker Licensing
In response to the troubled national real estate market and Colorado’s high volume of home foreclosures, efforts have increased to make higher caliber professionals involved in real estate. Licensing, rules and regulations have become more stringent for agents, appraisers, title companies and mortgage brokers. In regards to mortgage brokers, the below items are mandatory. No longer can someone open up the Yellow Pages, claim to be a mortgage broker and then be compensated for placing a loan --- what a novel concept. Before committing to a mortgage broker, please make sure that they are licensed in Colorado by searching for them on the following link: http://eservices.psiexams.com/crec/search.jsp
•    Licensing
All mortgage brokers conducting business in CO must be licensed with the Division of Real Estate and pass the criminal background check. Only those mortgage brokers who are licensed or exempt from licensure by law may broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker. Licensing registration and renewal is $200 every three years.

•    Surety Bond
Prior to licensing, an applicant for license shall post with the Director of the Division of Real Estate a surety bond of $25,000. Yearly premium approximately $190.00.

•    Errors & Omissions Coverage
All CO mortgage brokers must carry Errors & Omissions coverage. For mortgage brokers with less than five years of experience, the annual premium is $600. With five years or greater lending experience, the premium is $500 per year.

•    New Pre-Licensing Education & Continuing Education
1. Complete 40 hours of licensing education and pass the two-part licensing exam (Mortgage Lending Basics & State and Federal Law) by January 1, 2009. Approximate cost for course is $250 and $74 for the exam.
2. Complete a minimum of nine hours of continuing education every three years.

University Hills RE Trends: Pops and Scrapes

Drew Armbruster, CRS (Your Castle Real Estate) — Mon, 22 Dec 2008 12:28:30 -0800

Investing in Real Estate 9 – Scrapes, Pops and New Construction
This blog will discuss a type of real estate investment, scrapes, pops and new construction, in the ___neighborhood__ area in Denver.

What this investment is: Purchasing a small home in an expensive neighborhood that may or may not need work. The home is bulldozed and a new home or duplex is put on the lot. Alternatively, the existing home is renovated and more square footage is added on. A pop-top is adding a second story to an existing home to add more square footage (commonly, a master bedroom suite).

Equity needed: Being able to document your income and your assets will be critical. For a commercial loan, your net worth should generally be at least as much as the loan you are seeking. The good news is that the commercial loan usually does not show up on your credit report, so it doesn’t count towards the “four investment home limitation” from Fannie / Freddie.

Importance of credit: Essential. A 720 FICO is a must. A 740 would be better.

Importance of experience with contractors: Critical. If you have never done it before, start with an easier “paint and carpet” project to build your skills. The more sophisticated the project, the better your contractor management skills must be to make money. Not surprisingly, the simpler projects have lower profit margins than the complicated projects. Make sure you can take the time to really focus on the project. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

Important of experience with property managers: Generally not important for this type of investment.

Next week, we’ll continue to explore scrapes, pops and new construction in more detail!

University Hills RE Trends: Condo Conversions

Drew Armbruster, CRS (Your Castle Real Estate) — Mon, 22 Dec 2008 12:27:37 -0800

Investing in Real Estate 8 – Condo Conversions
This blog will discuss a type of real estate investment, fix and flips, in the University Hills area in Denver.

What this investment is: A synthesis of the fix and flip and rental operations - purchasing an apartment building in a neighborhood dominated by owner occupants, then converting the building from apartment building to condominium. Often requires renovation of the units to meet the expectations of owner-occupant buyers in that area. Complex and time consuming, but has wonderful tax advantages compares to fix and flips and often has superior returns to all other asset classes. Ideally suited for the sophisticated investor with extensive experience.

Equity needed: Being able to document your income and your assets will be critical. For a commercial loan, your net worth should generally be at least as much as the loan you are seeking. The good news is that the commercial loan usually does not show up on your credit report, so it doesn’t count towards the “four investment home limitation” from Fannie / Freddie.

Importance of credit: Essential. A 720 FICO is a must. A 740 would be better.

Importance of experience with contractors: Critical. If you have never done it before, start with an easier “paint and carpet” project to build your skills. The more sophisticated the project, the better your contractor management skills must be to make money. Not surprisingly, the simpler projects have lower profit margins than the complicated projects. Make sure you can take the time to really focus on the project. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

Important of experience with property managers: Not important; the majority of our clients manage their own rentals when they get started. Ideally you will have started with some smaller investment rentals and built property management experience. Now, when you have to finally manage a property manager, it will be easy since you have done the job yourself in the past.

Next week, we’ll continue to explore condo conversions in more detail!

University Hills RE Trends: Fix and Flips (Invesment Strategies)

Drew Armbruster, CRS (Your Castle Real Estate) — Mon, 22 Dec 2008 12:26:42 -0800

Investing in Real Estate 7 – Fix and Flips
This blog will discuss a type of real estate investment, fix and flips, in the University Hills area in Denver.

What this investment is: Purchasing a home that needs work. The scope can range from the basic "paint and carpet" to extensive overhauls to scraping a decrepit property and completely starting over. Usually does not involve tenants, and the objective is to get in and out of the property as quickly as possible. Great for beginners with the right skill sets or the willingness to learn.

Equity needed: With hard money loans (defined in next paragraph), potentially 0% and they’ll finance the construction costs, too. Expect a LOT of strings to be attached. A small local lender might give you 75% of the purchase price and the renovation budget, and the terms will be a lot more pleasant than the hard money option. Or you can do 20% down and get a convention, non-owner occupied loan and pay for the renovation with cash or your Home Depot credit card.

Importance of credit: If you get a hard money loan, your credit will not matter as much. These are harder to find than they were last year. If you get a traditional loan, it’ll be a non-owner occupant loan, credit score will be very important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical. A hard money lender will lend you money based on the value of the property you are purchasing. If the property is worth $200,000 and you are able to purchase it for $150,000, a Hard Money Lender will probably give you a loan regardless of your down payment or credit score. However, the fees and the interest rate will be much less desirable than more conventional forms of financing. Hard Money Lenders can usually close very quickly, and from the Sellers’ point of view, you are purchasing with Cash.

Importance of experience with contractors: Critical. If you have never done it before, start with an easier “paint and carpet” project to build your skills. The more sophisticated the project, the better your contractor management skills must be to make money. Not surprisingly, the simpler projects have lower profit margins than the complicated projects. Make sure you can take the time to really focus on the project. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

Important of experience with property managers: Not important.

Next week, we’ll continue to explore fix and flips in more detail!

University Hills RE Trends: Lease Options

Drew Armbruster, CRS (Your Castle Real Estate) — Mon, 22 Dec 2008 12:25:38 -0800

Investing in Real Estate 6 – Lease Options
This blog will discuss a type of real estate investment, lease options, in the University Hills area in Denver.

What this investment is: A lease option (L/O) is Acquiring control of a property (though not necessarily ownership), then leasing the property to a tenant. The lease is bundled with an option, so the tenant can (but does not have to) purchase the property for a given price within a given time frame. Again you are seeking a tenant for a property, but usually for a slightly longer term (12-18 months) and frequently (though not always) with the goal that the tenant purchase the property from you at the end of the lease. If you purchase the property, then it's an easier process; if you find a highly motivated seller to let you re-lease the property to another tenant, it can be a lot of work to set up. However, the re-lease method doesn't require any cash out of pocket and does not rely on your credit score, so it is appealing to many investors. Great for beginners with the right skills and attitude.

Equity needed: If you get seller financing, potentially just a few thousand dollars for your operating account. If you purchase the property, 10% down (best case); more likely 20% down.

Importance of credit: If you leverage seller carry, not important at all. If you purchase the property, credit is important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical.

Importance of experience with contractors: Some exposure would be helpful, but you are not likely to encounter construction projects any more difficult than you have maintaining your own personal residence.

Important of experience with property managers: Not important; the majority of our clients manage their own rentals when they get started. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

Next week, we’ll continue to explore lease options in more detail!

University Hills RE Trends: Large Apartment Buildings

Drew Armbruster, CRS (Your Castle Real Estate) — Mon, 22 Dec 2008 12:24:25 -0800

Investing in Real Estate 5 – Large (5+ unit) Apartment Building
This blog will discuss a type of real estate investment, large apartment buildings, in the University Hills area in Denver.

What this investment is: Still targeting tenants for 6-12 months at a time, buildings with more than five units are considered "commercial" property. The loans are more difficult to qualify for, and usually a larger down payment is needed. Uncommon for the new investor; this is usually what landlords with several years of experience "trade up" to. Cash flows on larger buildings are more stable than for smaller buildings, and the economies of scale make it practical (and desirable) to hire a property manager to take over most the work for you. This takes reduces the hassle factor of the landlord process.

Equity needed: Being able to document your income and your assets will be critical. For a commercial loan, your net worth should generally be at least as much as the loan you are seeking. The good news is that the commercial loan usually does not show up on your credit report, so it doesn’t count towards the “four investment home limitation” from Fannie / Freddie.

Importance of credit: Essential. A 720 FICO is a must. A 740 would be better.

Importance of experience with contractors: Some exposure would be helpful, but you are not likely to encounter construction projects any more difficult than you have maintaining your own personal residence. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

Important of experience with property managers: Not important; the majority of our clients manage their own rentals when they get started. Ideally you will have started with some smaller investment rentals and built property management experience. Now, when you have to finally manage a property manager, it will be easy since you have done the job yourself in the past.

Next week, we’ll continue to explore large apartment buildings in more detail!

University Hills RE Trends: Investing in Apartment Buildings...

Drew Armbruster, CRS (Your Castle Real Estate) — Mon, 22 Dec 2008 12:23:14 -0800

Investing in Real Estate 4 – Small (2-4 units) Apartment Building
This blog will discuss a type of real estate investment, small apartment buildings, in the University Hills area in Denver.

What this investment is: Purchase of duplex, triplex or quadplex to be rented to tenants, usually for 6-12 month terms. Usually what the rental home / condo landlords graduate to. In most markets they cost a little more than a rental home, but are much more likely to cash flow on the average month. Less cash flow risk; if one unit is empty you have other tenants that still help you with the mortgage payment so it doesn't all come out of your pocket. Many owners will start to delegate some of the property management tasks to an on-site assistant (typically the most responsible tenant), such as yard maintenance and showing empty units. The financing process is only slightly more involved than a residential loan. Relatively small down payment requirements make it affordable. The purchase process is also very similar to purchasing a home. It's a good way for beginners to get started.

Equity needed: 20% - 30% down would be typical.

Importance of credit: Very important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical.

Importance of experience with contractors: Some exposure would be helpful, but you are not likely to encounter construction projects any more difficult than you have maintaining your own personal residence.

Important of experience with property managers: Not important; the majority of our clients manage their own rentals when they get started. If you get a property manager, you’ll be able to figure it out easily on this small of a scale. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

Next week, we’ll continue to explore small apartment buildings in more detail!

University Hill RE Trends: Rental Condos or Rental Homes

Drew Armbruster, CRS (Your Castle Real Estate) — Mon, 22 Dec 2008 12:21:47 -0800

Investing in Real Estate 3 – Rental Condo or Rental Home
This blog will discuss a type of real estate investment, rental condos or rental homes, in the University Hills area in Denver.

What this investment is: Purchase of a residential property to be rented out to tenants, usually on a 6-12 month lease term. This is how most new landlords get started. You can hire out all of the property management functions, but in many cases you will do many of them on your own. There are smaller down payment requirements than for larger rental buildings. The purchase process and financing process is very similar to what you experienced buying the home you live in now. It's a great way for beginners to get started.

Equity needed: Currently 20% - 25% Downpayment. In some cases you might be able to do it with 10% down, but expect the second mortgage to be at a higher rate. While Freddie / Fannie lenders might only let you have four loans, smaller local lenders will let you have more than that if you have strong credit. Contact me and I’ll put you in touch with the right people.

Importance of credit: Very important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical.

Importance of experience with contractors: Some exposure would be helpful, but you are not likely to encounter construction projects any more difficult than you have maintaining your own personal residence.

Important of experience with property managers: Not important; the majority of our clients manage their own rentals when they get started. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

The next few blog articles explore related topics, such as rentals, fix and flips, and new construction. Next week, we’ll continue to explore rental condos / homes in more detail!

University Hills RE Trends: Assignments

Drew Armbruster, CRS (Your Castle Real Estate) — Mon, 22 Dec 2008 12:20:39 -0800

Investing in Real Estate 2 – Assignments
This blog will discuss a type of real estate investment, assignments, in the University Hills area in Denver.

What this investment is: An investor who is interested in Assignments gets a property under contract for an attractive price then assigns the contract to another buyer, usually another investor. The first investor will be paid a fee for the work. If you don't have much equity to work with, and/or if your credit power is limited, assignments can be a way to get started in real estate investing. You will need to have a strong "sales" personality to succeed at it, though.

Equity needed: None, just earnest money.

Importance of credit: Not important, since you are not purchasing the property yourself.

Importance of experience with contractors: Not important. The person that you ‘flip’ the property to will be doing the work.

Important of experience with property managers: Not important. The person purchasing the property from you will be managing the tenants.

The next few blog articles explore related topics, such as rentals, fix and flips, and new construction. Next week, we’ll continue to explore assignments in more detail!

University Hills RE Trends: Investor Loans

Drew Armbruster, CRS (Your Castle Real Estate) — Mon, 22 Dec 2008 12:19:14 -0800

Topic: Special considerations for Investor loans

The talk around the water cooler these days is all about LOANS. Who can get them? At what price? What if I already have a few loans, do I still qualify? A year or two ago the question was at what price do I get a loan (those were the days!). Today it is "am I still in the game?"

Here's the deal: if you have an owner occupied loan and 3 investor loans you cannot buy any more properties and get Fannie Mae / Freddie Mac financing, meaning you can't get a conventional 30-year fixed loan. Now, my hope is that someone reads this and tells me I'm wrong. That would be great! But as far as I know that is the case.

Where does this leave you? You can pursue loans that are warehoused by lenders, meaning they are not sold on the backend to Fannie or Freddie. You are probably looking at a minimum of 20% down but more importantly it will be almost impossible to get a 30-year loan. But a 5/1 ARM is not out of the question. (Lenders, please start a dialogue here and let folks know who has what products available.) There is also Hard Money available. I met with a group of high-end Hard Money lenders today to discuss options and the consensus is that they are proceeding…but with extreme caution.

A final version is to contact smaller local lenders. You'll need 25% down, but if your story makes sense, you'll get your loan - and usually at an attractive rate. Let me know what your situation is and I'll try to refer you to the right person.

Univ. Hills Real Estate Trends: 'Buy and Hold' Loans

Drew Armbruster, CRS (Your Castle Real Estate) — Wed, 03 Dec 2008 10:24:27 -0800

Loan Considerations for Buy and Hold Investors

As far as investment loans, little or no money down loans are impossible. However, lenders do permit the use of Home Equity Lines of Credit or second mortgages from other properties owned by the borrower as a source of down payment. Or, self-employed borrowers are using funds from business lines of credit to fund down payments or renovations (please note: there are asset seasoning guidelines for doing so and the debt incurred by accessing other credit lines must be accounted for against the borrower’s debt-to-income ratio). Thus, we have clients leveraging themselves with other homes they own in order to get in with little or nothing down.

There are exceptions, but practically every lender requires Full Income Documentation on any investment purchase. Full Documentation requires the proof of income through W2s, pay stubs and/or tax returns, as well as proving liquid assets with bank statements. The max LTV is 85% on a non-owner single family property (75% for a 3 - 4 unit); however, most homes are being affected with the ‘declining market’ tag. As such, the maximum loan permitted would be 80% of the purchase price. This is due to mortgage insurance companies refusing to provide MI on investment properties in declining markets. Also, if an investor does not have landlord experience in the past two years, new rules will now not allow any rental income to be included as monthly income. Hence, the buyer would need to qualify with the entire payment going against his/her debt-to-income ratio.

Another point to keep in mind is that Fannie Mae and Freddie Mac are only permitting a maximum of 4 financed properties on a borrower’s credit report. Hence, if a borrower is looking to purchase or refinance a fifth home and already have four loans on their credit, they will face a tremendous challenge in securing financing. This latter rule only affects someone purchasing or refinancing an investment property/second home and NOT an owner occupied purchase.

All this being said, if an investor can put down 20% (or borrow a good chunk of that 20% from other homes they own or lines of credit), is Full Doc, with a 680+ credit score and DTI below 50%, rates are in the upper 6% range on 30yr fixed mortgages with no prepay penalties. With home prices bottoming up in most neighborhoods, coupled with a bullish rental market with increasing rents and low vacancy, investors can easily generate hundreds of dollars of cash flow per month. In fact, many investors choose 15 year fixed mortgages to pay off the loan quickly, yet still cash flow tremendously.

University Hills Fix & Flips

Drew Armbruster, CRS (Your Castle Real Estate) — Wed, 03 Dec 2008 10:22:26 -0800

Loan Considerations for Fix & Flip / Short-Term Investors

Securing conventional financing on a fix & flip or short-term loan is not recommended. Most conventional lenders sell off their mortgages to investors on the secondary market. If the loan is paid off early (before six payments are made), the investor has not recovered their initial investment. The investor will attempt to recover their loss from the lender, who will ultimately come after the loan originator. The loan originator would then be obligated to pay back any premium paid out by the lender. If such activity becomes habitual with the loan officer, the lender can cease doing business with them and their firm.

Furthermore, conventional loans require conventional appraisals. The lender will require that the home is a) habitable in its present state b) in at least ‘average’ condition and c) not in need of any repairs greater than 2% of the purchase price. All three points can be challenging to overcome for investments properties, especially bank owned homes. Consequently, many investors use private money, hard money, home equity lines of credit, cash or specialty investment lenders to avoid failing a conventional appraisal. All of the aforementioned sources of funds can be worthwhile to pursue, but they are meant for short-term loans. Hence, the borrower needs to have a clear exit strategy(ies) to avoid costly extension fees and holding costs. Such loans carry higher interest rates and up-front fees due to their considerable risk. They can be a great route to pursue; however, the investor better be prepared in case the home is not able to sell.

Fix & flip investors should also be cognizant of title seasoning issues. FHA guidelines require that a seller be on title for 90 days before a buyer can purchase the home with an FHA loan. Most flips take longer than 90 days to renovate, market and actually close. But, some deals need limited work and can be turned around quickly. Ultimately, you will want to verify that the new buyer’s lender understands the title guidelines of the lender being used. Furthermore, a flip investor is going to list the remodeled home for significantly higher than what they had paid for it. The lender providing financing to the buyer purchasing the renovated home will scrutinize the new appraisal to ensure the value is justified. Lenders got burned in the past on property flipping schemes and are wary of substantial value increases in short periods of time.

University Hills Real Estate Trends: Jumbo Loans

Drew Armbruster, CRS (Your Castle Real Estate) — Wed, 03 Dec 2008 10:20:10 -0800

Loan Considerations for Jumbo Mortgages

For the Greater Metro Denver area, any loan amount greater than $417,000 is considered a jumbo loan. Fannie Mae and Freddie Mac assign different thresholds for various regions across the country. For instance, $417,000 is not considered a jumbo loan in a high cost city like San Francisco, yet there will still be higher rates for going above $417K.

Due to the size of jumbo loans, they are considered greater risk for lenders, resulting in higher rates. Rates have fluctuated greatly over the past few years on jumbos. As of today, a 30 year fixed could range from 7% - 8%; a full point higher than the prime rate below a loan amount of $417,000. Five year ARMs are popular on jumbo loans, as they typically price out a half point lower than fixed products.

Frequently, a borrower will need to put more money down on a jumbo loan to mitigate the risk. Investors that purchase mortgages are still skeptical of the lending industry, especially higher risk loans, which is why we haven’t been witnessing attractive jumbo rates of late.

To limit the impact on the monthly payment and secure a better rate, many borrowers will take out a first mortgage of $417,000 and then try to find a second mortgage to cover the balance. For example, assume a buyer is purchasing a home for $600,000 and they are able to put 20% down. Instead of taking out one loan at 80% = $480,000, it will likely make sense to split the loan into a $417,000 first mortgage and $63,000 second mortgage. Since the combined loan-to-value is 80%, finding a second mortgage lender should be relatively simple. While the rate on the second will be higher than the first, the blended rate will be significantly lower than the jumbo loan option, resulting in a few hundred dollar savings per month.

University Hills RE Trends: Loans for $200k - $417k

Drew Armbruster, CRS (Your Castle Real Estate) — Wed, 03 Dec 2008 10:18:20 -0800

Loan Considerations for Loan Amounts Between $200K - $417K

With all the doom and gloom publications that are mostly exaggerated, many potential borrowers believe that home mortgage lending options have dried up. While underwriters and investors are scrutinizing files more closely, attractive rates and terms still exist for owner occupied purchasers seeking a conforming loan limit (under $417,000). FHA and VA can still lend up to 100% LTV and conventional permits up to 97% LTV. There are certain guidelines to meet when going to these high LTVs, but they are not impossible to surmount.

Every home buyer should first ask themselves what payment they feel comfortable in committing to on a monthly basis. Too many buyers over-extended themselves in recent years on homes they simply could not afford, but qualified for on loose lending guidelines. Just because you can qualify for a certain loan amount does not mean that it’s the best decision for you.

Once the comfortable payment has been established, you can back solve for what loan amount will yield an amount close to that payment and search for homes in that price range. You will need to take the amount of down payment into consideration, as well as whether a 30 year, 20 year or 15 year fixed option is best. While adjustable rate mortgages (ARMs) are blamed for much of the current lending turmoil, a sophisticated borrower can determine if an ARM product makes more sense for their situation.

As of today, 30 year fixed rates are hovering right around 6% with no prepayment penalties. But, it is important to keep in mind that if less than a 20% down payment is made on a home, there will be mortgage insurance. Mortgage insurance protects lenders in case of default. Loans above 80% LTV are considered greater risk, thus, carry mortgage insurance. Borrowers can pay mortgage insurance separately per month or it can be built into the rate. Mortgage insurance premiums will vary based on the LTV. In recent years, second mortgages were popular to avoid mortgage insurance. However, they are tougher to secure in this environment in light of the volume of second mortgage lenders that lost millions of dollars in defaulted loans. Since they were in second lien position, their priority in being repaid was subordinate to first lien holders. When homes were foreclosed upon, the second lien holders were typically paid back nothing.

University Hills RE Trends: FHA Loans

Drew Armbruster, CRS (Your Castle Real Estate) — Wed, 03 Dec 2008 09:56:45 -0800

FHA First-Time Buyer Tax Credit

In an effort to boost the sagging real estate market and overall economy, first-time home buyers are being offered a limited time tax credit when purchasing a primary residence.

The highlights of the tax credit are:

· The tax credit is available for first-time home buyers only.

· The maximum credit amount is $7,500.

· The credit is available for homes purchased on or after April 9, 2008 and before
July 1, 2009.

· Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

· The tax credit works like an interest-free loan and must be repaid over a 15-year period.

Due to the volume of questions that can be generated with the above, I would recommend clicking on the below link for answers to frequently asked questions: http://www.federalhousingtaxcredit.com/faq.php

Univ. Hills RE Trends - First Time Buyers

Drew Armbruster, CRS (Your Castle Real Estate) — Wed, 03 Dec 2008 09:54:48 -0800

Loan considerations for a first time buyer

Lending guidelines are changing on a daily basis for every type of loan: conventional, FHA, VA & commercial. Nevertheless, there are still very attractive first-time home buyer options available. If you are or will be a first-time buyer, it is critical to speak with a loan officer before looking at homes. It is a crushing feeling to view a home, picture making it your own and then find out that you cannot qualify to purchase it. A loan officer will pull credit, analyze debt-to-income ratios, review assets and income and determine what you can afford.

Presuming a pre-qualification occurs, the loan officer will then be able to provide an array of loan options. Presently, FHA loans are the predominant loan for first-time home buyers as they offer flexibility with down payment, income and assets. In 2009, FHA loans will require a 3.5% down payment; however, such funds can be a gift from friend or family member. Additionally, pending on where the home is purchased, many cities still offer down payment monies to assist borrowers with little or nothing down. There is even a program that permits someone to purchase a home for as little as $100. Please keep in mind that when a borrower does not make a down payment, their interest rate will likely be higher, since it the loan will have greater perceived risk.

Conventional loans are very comparable to FHA loans in loan terms and fees. They can be more restrictive with down payment options, debt ratios and alternative forms of credit. But, they require less paperwork than FHA loans, which typically means a smoother underwriting process. Furthermore, they do not require an up-front mortgage insurance premium like FHA loans ---- although, their monthly premiums are higher than FHA. FHA, conventional and VA loans are in the low 6% range on 30 year fixed mortgages with no prepayment penalties. These rates, coupled with lower prices make it an opportune time to purchase real estate.

Overall, there are pros and cons to each option. As a first-time buyer start thinking through such factors as: what payment you would be comfortable in making, how much money you can put down, establishing a contingency plan for a job loss, how much you would like saved for unexpected expenses and if you were relocated or forced to sell how would handle the situation?

University Hills RE Trends: Improving Your FICO Scores

Drew Armbruster, CRS (Your Castle Real Estate) — Wed, 03 Dec 2008 09:52:53 -0800

How can you improve your FICO score?

To improve one’s credit score, it’s critical to understand the factors influencing a credit score. The factors that contribute to a FICO score and the weighted percentages for each are as follows:

35% — timeliness of payments
30% — the ratio of used debt to allowable debt for consumer credit
15% — length of credit history (the more credit history and showing proof of consistent timely payment, the better the score)
10% — types of credit used
10% — recent credit inquiries and recent new credit

The greatest driver behind a score is making timely payments on all accounts. Scores will be adversely affected for any payment that is 30 days late or more. Being late on a mortgage payment will not only crush one’s score, but will also make qualifying for a new home loan extremely challenging. Collections and past due accounts are obviously bad; however, paying off old collections can actually hurt FICOs in the short term. Many collections report from years past. If that collection is paid off, the account activity date is brought current, which could initially drive down the score.

A common misconception is that having one’s credit pulled is the worst thing you can do to your scores. While it’s wise to keep credit pulls to a minimum, keeping the proportion of monthly debt to allowable debt at low ratios is far more critical in improving one’s score. For example, if a borrower has a credit card with a maximum limit of $15,000 and they owe $14,000, the proportion is almost 100% and the borrower is close to being maxed out. Getting the ratio below 50% would help and below 35% would be optimal. For revolving debt, I recommend borrowers contacting their credit card companies every six months to request increased maximum limits. It is vital not to use this new allowable debt, rather, use it as a means to always keep the proportions in check. Additionally, many borrowers will spread out their credit debt over a few cards to keep the ratios below 35% on all of the cards. Or, if liquid funds are available, it could make sense to pay down the debt.

Another method of improving FICOs is to establish credit history over prolonged periods of time. By doing so, the scoring formula treats longer credit history as a means of proving that a borrower can be extended credit, but do not put themselves into a compromising situation. Many borrowers will keep inactive credit cards open, instead of closing them, in order to increase credit history. Most lenders like to see at least four lines of credit on a report (called tradelines) that are open with at least two years of history. Of these tradelines, it’s ideal to have balance between the types of accounts: mortgages, installment loans, revolving debt. Too much revolving debt, such as credit cards, can adversely impact scores as it can make the borrower to appear to be over-extending themselves.

University Hills Real Estate Trends: More on FICO Scores

Drew Armbruster, CRS (Your Castle Real Estate) — Wed, 03 Dec 2008 09:44:21 -0800

How does your FICO score impact your interest rate on your loan?

Low credit scores are deemed greater risk for lenders since the likelihood for defaulting on the loan increases. As such, lower FICO scores translate into higher interest rates. Mortgage lenders will group credit scores in a range, usually in 20 or 40 point increments, with interest rates progressively getting better for each higher interval. For example, a borrower with a middle credit score between 660 – 680 will have a higher interest rate (presuming all other variables being equal) compared to one with a 680 – 700 score. Typically, when a borrower has a 750+ credit, they will be able to secure the best possible rate, assuming their income, assets, collateral and down payment are acceptable.

For qualifying, underwriters use the middle credit score pulled from the three bureaus versus an average of the three. For instance, a borrower with scores of 702, 717 and 749 would have a 717 FICO compared to an average score of 722. If there is more than one borrower on the loan, the lender will use the lowest middle score of all borrowers versus the middle score of the primary wage earner, like many lenders used to do. Often times, a husband and wife will have drastically different scores. When that occurs, it is best to qualify off of only the person with the good credit. However, if a spouse or partner is left off of the loan (they can still go on title though), none of their income or assets can be used to help qualify. Therefore, the sole qualifying person must have ample liquid assets, as well as gross monthly income to stay below the lender’s allowable debt-to-income ratio.

University Hills RE Trends: What is a FICO Score?

Drew Armbruster, CRS (Your Castle Real Estate) — Wed, 03 Dec 2008 09:42:43 -0800

What is a FICO score?

FICO stands for Fair Isaac Corporation, a company that created the most used credit scoring model in the United States. An individual’s credit score is calculated through a statistical algorithm and is used as a factor in determining the likelihood of a borrower defaulting on a loan. FICO scores are generally used for obtaining mortgages, car loans or consumer credit. The scores are provided from the three major credit reporting agencies: Equifax, Experian and Transunion. Typically, there is a variance amongst the scores since each agency has a slightly different scoring formula. FICO scores range from 300 – 850, with higher scores being considered less risky. For mortgage lending purposes, any score over a 680 is considered good and above a 750 is considered excellent. Any score below 580 is considered great risk and will be challenging for such a borrower to secure financing.

The factors that contribute to a FICO score and the weighted percentages for each are as follows:

35% — timeliness of payments (adverse dings to scores for any payment greater than 30 days later, collections, past due accounts)
30% — the ratio of used debt to allowable debt for consumer credit (an individual that maxes out their credit cards will see a decrease in their score)
15% — length of credit history (the more credit history and showing proof of consistent timely payment, the better the score)
10% — types of credit used (installment, revolving, mortgage)
10% — recent credit inquiries and recent new credit (taking out a fair amount of new credit with multiple credit inquires can adversely impact a score)

University Hills Market Trends: Improving Conditions in Denver's Market

Drew Armbruster, CRS (Your Castle Real Estate) — Wed, 03 Dec 2008 09:40:51 -0800

TOPIC: Improving conditions in Denver’s market

There are some signs of strengthening in our Denver market. The metro area's inventory of available resale housing decreased 20% to 23,120 units in October from October 2007. Some of this reduced inventory is attributed to homeowners taking their properties off the market in frustration because their property is not selling, but lower inventory implies a strengthening market. Remember, the Denver area had housing inventory of 31,989 units in July 2006. Home sales rose 14% to 4,265 in September compared to the same month last year. This is due almost entirely to the lower-end of the market (under $180K) selling like hotcakes. October's median selling price for single-family homes decreased 12% to $206,000 from the same month of '07, and was down 4.7% from September's median of $216,150. Median selling price for single-family homes dropped 10.5% to $222,000 through October, from $248,000 through October '07.Prices are still falling, but at a slowing pace. This trend should continue into 2009 when it is expected to bottom out and slowly climb back. Hang on, it's gonna continue to be a wild ride!

Investor Series: Why sewer scopes are important

Drew Armbruster, CRS (Your Castle Real Estate) — Sun, 26 Oct 2008 21:49:41 -0700

A LOT of agents don't advise their clients to get sewer scopes when they purchase a property. This is a major mistake. A broken sewer can cost between $3,000 - $10,000 dollars to repair and it only costs $99 ($99Rooter - others are more expensive) to have a tech put a camera down the sewer pipe and videotape the sewer all the way to the mainline. This will tell you and the-buyer what the condition of the sewer is. So let's see, we pay to have the furnace inspected but a new furnace will only be about $2,000. We pay to have the roof inspected but that's probably a $4,000 job. So why don't we always inspect the sewer? One reason is because, let's face it, Realtors want closings. Many figure if they keep their mouth shut and don't go out of their way to recommend a sewer scope that's one less chance the deal will fall through. Inexcusable, but all too commonplace. Don't be a chump - get a sewer scope.

Topics for Investors: Basement Kitchens

Drew Armbruster, CRS (Your Castle Real Estate) — Sun, 26 Oct 2008 21:49:02 -0700

You walk into a property you're looking to buy and rent and you walk down into the basement and voila! you find a full second kitchen. Great! You start calculating how much rent you could get if you could rent the downstairs separate from the upstairs and the cashflow is out of this world! But wait, there are a number of very real problems with this scenario. First of all, it's illegal unless the property is zoned for more than one tenant and the property has been converted to non-residential use. But there are even more practical reasons why having two separate tenants is often not a great idea. The first is the utilities. Since it's a house there will only be one bill for Excel and water. Who's going to pay it? Can you really get the tenants to pro-rate their share if you pay it? Good luck. Or do you just pay it, figuring the extra rent will more than offset paying the utilities? Maybe, but what you'll find is that when a tenant is not paying the utilities they have the heat at 90 degrees all winter and every time you go to the house the kitchen sink is running. Your great cashflow gets eaten up by outrageous utility bills and you're back where you started. For these reasons and many more I suggest you don't try to put two tenants into a property made for one. But that doesn't mean the second kitchen has no value. It might be useful for an extended family who needs the extra space kitchen and might actually command a larger rent. Check with your local building department and your insurance agent though, to make sure it's acceptable to have a basement kitchen in the first place.

Investor Series: Understanding Egress Windows

Drew Armbruster, CRS (Your Castle Real Estate) — Sun, 26 Oct 2008 21:48:31 -0700

A lot of investors ask what an egress window is and when one is needed. Technically, it's a window for a room below grade that a municipality has deemed large enough to be safe for exit in case of emergency. While there are some variations, the window needs to be large enough that a firefighter with an oxygen bottle on their back could get in, then carry out an injured person in a fire. Most often, it's associated with a basement bedroom window, making it a legal bedroom. Basement bedrooms without egress windows are illegal. Installing an egress window makes them legal. The confusion is that different cities, counties and agencies have different size requirements and height-above-floor requirements for these windows. Therefore, before you start cutting into the concrete foundation you better make sure you've visited the local building department to get their requirements. In addition, HUD, distributing Section 8 vouchers, also has their own requirements for egress windows. So if you're going to rent to a Section 8 tenant make certain you know what their requirements are. If you don't, you won't get credit for that basement bedroom and get way less rent than you expected - believe me it happens every day. To be honest, there are probably hundreds if not thousands of rentals in Metro Denver that have basement bedrooms without egress windows. In my opinion, this is not only illegal, it's immoral. And if that wasn't enough to discourage you from having one, ask yourself what happens if there is a catastrophic fire and someone dies in your illegal basement bedroom. Not good! For about $1,500 - $2,500 you can get a competent contractor to install an egress window (only one is required per basement bedroom) and sleep better at night.