What You Should Know About Buying A Flipped Property
August 18, 2011 by Mark Estermyer · Leave a Comment
Purchasing a flipped property in San Bernardino and Riverside counties just got easier. RPM Mortgage has eliminated the maximum 20% increase in sales price within 90 days. This change in guidelines will be huge for those looking to purchase a flipped property while interest rates are at 50 year lows.
Because the Inland Empire has been hit so hard with foreclosures, it should not be a surprise real estate investors are trying to make a few bucks. I am all for free enterprise and every entity should have the ability to make as much money as the free market allows.
But there are some rules to protect the public from unscrupulous investors. Prior to January 15, 2010, FHA had an anti-flipping policy that prevented an owner to sell their property within 90 days. For the past 15 1/2 months, in an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, this rule has been waived.
“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” HUD Secretary Shaun Donovan said.
Even though RPM doesn’t need to, most California lenders are still following the guidelines mandated by HUD, Fannie Mae and Freddie Mac. Here are just the bullet points for both FHA and conventional loans.
- Property flips within 90 days will only be allowed where the re-sale of a property and the new sales price is no more than 20% higher.
- All transactions must be arms-length; no identity of interest between buyer, property seller or third parties. Specific ways to ensure an arms-length transaction include:
- Property seller currently holds title to the property.
- LLCs, corporations or trusts serving as property sellers must meet all applicable state and federal law.
- No pattern or previous flipping activity exists on the property (as evidenced by multiple title transfers within the past 12 months)
- The property was marketed openly and fairly (any sales contracts with “assignment of contract of sale” may be a red flag).
- Flips between 91 and 180 days will require 2 full appraisals if there is a 100% increase from the acquisition price to the re-sale price. The cost of the second appraisal cannot be charged to the borrower.
- The 91 days is calculated from the date the seller took title to the date of the new purchase contract.
- The contract must be dated on the 91st day or greater to not be required to meet the max 20% rule.
- The application, case number and appraisal must all be dated on or after the contract date.
- Property flips within 90 days will only be allowed where the re-sale of a property and the new sales price is no more than 20% higher.
- Maximum LTV/CLTV is 80% for O/O and 2nd Home properties.
- Maximum LTV/CLTV is 60% for N/O/O properties.
- Minimum fico of 680 for O/O and 2nd Homes.
- Minimum fico of 720 for N/O/O.
- Minimum of 2 months reserves for owner occupied transactions.
- Two Full Appraisals are required.
Not every lender will follow these set of guidelines and there are still investors trying to take advantage of a housing weary public. If you have any questions or concerns about the property you are looking to buy, contact me or your trusted real estate advisor.
Should Inland Empire Residents Rent or Buy A Home
April 6, 2011 by Mark Estermyer · Leave a Comment
RPM’s Chief Strategy Officer, Barry Habib Discusses Renting Versus Buying On Fox News
Buying a home versus renting is a big decision that takes careful consideration for Inland Empire residents.
While there are several biased sources that can make arguments for or against owning a home, we’ve found that most home buyers base their ultimate decision on emotion.
Yes, there are some tax advantages of owning real estate in San Bernardino and Riverside counties, as well as the potential to earn equity or pay a mortgage note off after several years.
However, let’s address some of the more obvious topics of discussion first.
Benefits Of Renting:
Lower Acquisition Cost –
Unless you’re able to qualify for a mortgage loan with zero down and have your closing costs paid for by the seller, a typical investment to purchase a home is around 3.5% – 7% of the purchase price for down payment and closing costs on an FHA mortgage, and an average of 13% – 23% for a home secured by conventional financing.
Compared to the cost of about 1-3 month’s rent payment, it’s obvious that renting a home makes financial sense in the short-term.
Lower Qualifying Standards –
While the FHA and other government insured mortgage programs have more flexible credit / qualifying guidelines than most traditional home loan programs, there is certainly a lot less paperwork and personally invasive probing required by most landlords and property management companies.
Generally proof of employment / income and a decent credit history (or a good explanation) is needed to rent a home.
Freedom To Move –
It’s easy to find a home through a reputable property management company, move in that weekend and then leave a year later when the rental contract expires. Not being tied down by a long-term mortgage liability is ideal for people new to the Inland Empire, in a career that keeps them on the go or for parents with children that prefer a certain school district.
Plus, if you’re planning on moving in the next 3-5 years, then it may become cost-prohibitive due to the amount of equity you’ll have to gain in the short-run just to cover the cost of paying an agent, buyer closing costs, transfer taxes…. so that you can at least break even at closing.
Less Maintenance and Cost –
If something breaks, a simple call to the property management company will generally solve the issue in 48 hours or less. Plus, renters don’t have to carry expensive homeowners insurance, pay property taxes or worry about interest rates adjusting.
Benefits of Owning:
Pets Are Allowed –
Well, according to the rules and regulations of your county or neighborhood HOA, you can pretty much have as many domestic and exotic pets without having to pay extra deposits.
It may seem like a funny benefit to mention first, but the millions of dog and cat lovers would definitely rank this towards the top of their list.
Pink and Purple Walls –
Yep, you can paint the inside of your house any color you choose. And depending on whether or not there is an HOA in place, you could probably do the same thing on the home’s exterior. Landscaping, flooring, built-in shelving… it’s your property to renovate and grow in.
Peace-of-Mind and Security –
The only way you would be forced to move is if the bank forecloses on your property due to a default in mortgage payments.
So basically, you don’t have to worry about a landlord’s financial ability to make mortgage payments on time. Plus, you can stay in your own property as long as you wish.
Tax Benefits -
The US government has created certain tax incentives making it possible for many homeowners to exceed the standard yearly deduction.
*Disclosure – Check with your CPA or Tax Attorney to verify your own unique filing scenario*
The following three components of your home mortgage may be tax deductible:
a) Interest on your home mortgage
b) Property Taxes
c) Origination / Discount Points
Stability -
Remaining in one neighborhood for several years lets you and your family establish lasting friendships, as well as offers your children the benefit of educational continuity.
Historically, even with other periods of declining value, home prices have exceeded consumer inflation. From 1972 through 2005, home prices increased on average 6.5%, according to the National Association of Realtors®.
Forced Saving -
The monthly payment helps in repayment of the principal amount. Also when you sell you can generally take up to $250,000 ($500,000 for married couple) as gain without owing any federal income tax.
*Disclosure – Check with your CPA or Tax Attorney to verify your own unique filing scenario*
Increased Net Worth
Few things have a greater impact on net worth than owning a home. In a comparison of renters versus homeowners, the Federal Reserve Board of Consumer Finance found that the average net worth of renters was just $4,000 compared to homeowners at $184,400.
While the available tax advantages and potential for earned equity are generally highlighted by most industry professionals as the top reasons to own real estate, it’s important to remember that markets go through cycles.
However, owning real estate that appreciates more than the rate of inflation may help contribute towards your overall investment portfolio, provided your maintenance and mortgage costs are kept low.
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Related Articles – Home Buying Process:
- Home Buying Process
- First-Time Home Buyer Credit Checklist
- Assembling Your Home Buying Team – Knowing The Players
- Seven Things Your Agent Should Know About Your Mortgage Approval
- Important Factors To Consider When Getting Financing On A Foreclosure, Short Sale or New Construction
- Where Does My Earnest Money Go?
- HOA Hurdles to be Aware of When Looking at New Properties
- What You Need To Know About The Home Inspection Process
Home Purchases After A Bankruptcy-Foreclosure-Short Sale
March 16, 2011 by Mark Estermyer · 8 Comments
Purchasing a home for Inland Empire residents after a bankruptcy, foreclosure or short sale can be a very frustrating. The experience a first time home buyer and previous home owners can depend on how prepared they are in providing all the necessary documentation.
The rule of thumb on this topic should be the same for documenting anything that is of any importance; keep all documents ready and available for your loan officer. Divorce papers, satisfied judgements and lien releases are other sets of documents needed to get a loan approved.
The most common question I get pertaining to bankruptcy, foreclosure or short sale is how long do I need to wait before I can qualify to buy a house. Each loan program has a different answer, but the following charts should answer most of your questions.
| CONVENTIONAL LOAN PROGRAMS | ||
| Bankruptcy | Forclosure | Pre-Foreclosure and Short Sale |
| Chapter 7 – 4 years from discharge or dismissal | 7 years from | 2 Years – 80% Max LTV/CLTV |
| Chapter 13 – 2 years from discharge | completion on | 4 Years – 90% Max LTV/CLTV |
| – 4 years from dismissal | credit report | 7 Years – Max LTV/CLTV per standard |
| Multiple BK’s – 5 years from most recent dismissal or | elegibility guidelines | |
| discharge date | ||
| FHA LOAN PROGRAM | |
| Bankruptcy | Foreclosure/Pre-Foreclosure/Short Sale |
| Chapter 7 – 2 years from discharge or dismissl | 3 years since completion |
| Chapter 13 – 1 year of payout period has elapsed with | |
| payments made on time, must have written | |
| consent for the court appointed Trustee. |
| VA LOAN PROGRAM | |
| Bankruptcy | Foreclosure/Pre-Foreclosure/Short Sale |
| Chapter 7 – 2 years from discharge | 2 years since completion-Because a borrower has |
| Chapter 13 – 1 year of payout period has elapsed with | filed foreclosure does not disqualify the borrower. |
| payments made on time, must have written | Provide complete information on the facts and |
| consent for the court appointed Trustee | circumstances for the foreclosure |
| Exceptions | |
| Between 1-2 years from discharge: reasons beyond the borrowers control-Unemployment, prolonged strikes, | |
| medical bills not covered by insurance. Divorce is not considered beyond the borrower’s control. | |
Requirements for Re-Establishing Credit
After a bankruptcy, foreclosure, deed-in-lieu of foreclosure, or pre-foreclosure or short sale, the borrower’s credit will be considered re-established if all of the following are met:
- The waiting period and the related requirements are met.
- The loan receives a recommendation from Desktop Underwriter (DU) thaat is acceptable for delivery to Fannie Mae or, if manually underwritten, meets the minimum credit score requirements based on the parameters of the loan and the established eligibility requirements.
- The borrower has traditional credit history. Nontraditional credit or “thin files” are not acceptable.
There are several more exceptions that pertain to business owners and other criteria that can affect the approvability of the loan. Only a seasoned loan officer can truly help navigate through the added documentation needed to achieve an approved loan application. For more information on this topic and any other, please do not hesitate to contact me.
Seven Items Your Agent Should Know About Your Mortgage Approval
April 1, 2010 by Mark Estermyer · Leave a Comment
While many experienced real estate agents in Riverside and San Bernardino counties have a general understanding of the mortgage approval process, there are a few important details that frequently get overlooked which may cause a purchase to be delayed or denied.
New regulation, updated disclosures, appraisal guidelines, mortgage rate pricing premiums, credit score, secondary approval layering, rescission deadlines, property type, HOA insurance requirements, title and property flip rules are just a few of the daily changes that can have a serious impact on a borrower’s home loan financing.
While California and the Inland Empire in paticular, has endured a volatile lending environment, it’s obviously important for home buyers to get a full loan approval which clearly defines all contingencies that pertain to each unique home buyer’s scenario prior to spending any time looking at new homes with an agent.
Either way, we’ve listed a few of the top things your agent should keep in mind while showing you new properties:
Caution – Agents Beware:
Property Type –
High-Rise, Condo, Town House, Single Family Residence, Dome Home or Shoe House… all have specific lending guidelines that can influence down payment, credit score and mortgage insurance requirements.
Need to sell one home before moving into another? Is a property considered a second home if it’s in the same city? What if I’m buying a home for my children to live in, it is still considered an investment property?
These are just a few of several possible residence related questions that should be addressed by your agent and loan officer at the initial loan application.
Mortgage Rates are typically locked for a 30 day period, however most lenders do allow for longer lock periods. RPM Mortgage allows for locks ranging from 10 days to 90 days. Extensions are generally allowed, however the extension may come with a cost. Rates also have certain adjustments for property / residence type, credit score and down payment which could have a big impact on monthly payments and therefore approvals.
A 1% increase in rate could literally mean the difference between an approval or denial.
Underwriters watch the news as well. Borrowers who work in a volatile industry during hard economic times may have to jump through a few extra hoops to prove that their employment and income is secure. The Inland Empire has seen a dramatic drop in the construction industry, therefore, an underwriter may need to adjust the income down.
Job changes, periods of unemployment or property location in relation to the subject property are other things to consider that may cause a speed bump in the approval process.
Title / Property Flip –
A Flip is considered a property that has been purchased by an investor and quickly sold to a new buyer within a 30-90 day period. Generally, an investor will do a little rehab work, fresh paint, landscaping…. and try to re-sell the property for a significant profit margin.
While it seems like a perfectly fair transaction, many lenders have strict guidelines in place that prevent borrowers from obtaining financing on properties that have a previous owner with less than 90 days of documented ownership.
These rules change frequently, and are specific to particular property types, so make sure your agent is aware of all the boundaries associated with your approval letter.
Homeowner’s Association Insurance –
Some lenders require Condos and Town House communities to have sufficient insurance and reserves coverage pertaining to specific ratios on units that are owner occupied vs rented. Lawsuits against or filed by the HOA can also have a negative impact on the approvability of your loan.
It may also take a few weeks and cost up to $300 to receive an HOA Certification, so make sure your Due-Diligence period is set accordingly in the purchase contract.
Appraisal Ordering Procedures –
Appraisal ordering guidelines are changing quite frequently as regulators implement many new consumer protection laws created to prevent future foreclosure epidemics.
Unfortunately, some of the new appraisal regulations have proven to slow the home buying process down, as well as confuse lenders about the true estimate of neighborhood values.
It is not uncommon for an underwriter to request either a field or desk review to ensure the accurancy of the original appraisal. This is a cost that is generally paid for by the buyer.
VA, FHA and Conventional loan programs all have separate appraisal ordering policies, so make sure your agent is aware of which loan you’re approved for so that they document any anticipated delays in the purchase contract.
For example, if an appraisal takes three weeks and the average time for an approval is two weeks, then it probably isn’t smart to write a purchase contract with a four week close of escrow.
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Related Articles – Home Buying Process:
- Home Buying Process
- First-Time Home Buyer Credit Checklist
- Assembling Your Home Buying Team – Knowing The Players
- Important Factors To Consider When Getting Financing On A Foreclosure, Short Sale or New Construction
- Where Does My Earnest Money Go?
- HOA Hurdles to be Aware of When Looking at New Properties
- What You Need To Know About The Home Inspection Process
Where Does My Earnest Money Go?
March 28, 2010 by Mark Estermyer · Leave a Comment
Hey, I gave my Inland Empire real estate agent a $5000 Earnest Money Deposit check… Where does that money go?
A basic and very obvious question that most First-Time home Buyers ask once their purchase contract gets accepted.
According to Wikipedia:
Earnest Money – an earnest payment (sometimes called earnest money or simply earnest, or alternatively a good-faith deposit) is a deposit towards the purchase of real estate or publicly tendered government contract made by a buyer or registered contractor to demonstrate that he/she is serious (earnest) about wanting to complete the purchase.
When a buyer makes an offer to buy residential real estate, he/she generally signs a contract and pays a sum acceptable to the seller by way of earnest money. The amount varies enormously, depending upon local custom and the state of the local market at the time of contract negotiations.
An Earnest Money Deposit (EMD) is simply held by a third-party escrow company according to the terms of the executed purchase contract.
For example, there may be a contingency period for appraisal, loan approval, property inspection or approval of HOA documents.
In most cases, the Earnest Money held by the escrow company is credited towards the home buyer’s down payment and/or closing costs.
*It’s important to keep in mind that the EMD may actually be cashed at the time escrow is opened, so make sure your funds are from the proper sources.
The Process:
- Earnest Money is submitted to an escrow company with the accepted purchase contract
- At the close of escrow, the EMD is credited towards the down payment and / or closing costs
- If there are no closing costs or down payment, the EMD is refunded back to the buyer
Who Doesn’t Get Your Earnest Money:
- Selling Real Estate Agent – A conflict of interest
- Sellers – Too risky
- Buying Agent – They shouldn’t have your money in their account
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