As many are not aware, there is/was an obscure requirement affecting FHA financed homes and seasoning.  Simply put, an investor must have owned the home a minimum 90 days before conveying the home to a buyer with an FHA insured loan.

Not any more, well, at least temporarily.

Why is this a big deal?  According to FHA Loan Pros, FHA purchases increased by 181% over 2007 to 2008 (pending statistics for 2009 still…).  This is a HUGE majority of the market, and with incentives for the First Time Home Buyer Tax Credit – now is the time to sell.

The previous 90 day restriction, according to some, required that an FHA buyer not even enter into a purchase contract prior to the 90 days (this was one underwriter’s interpretation).  My buyer had to wait until the 90 day time period has passed to write an offer and submit it to underwriting.  I feel the underwriter was a bit rigid on this, and we could have looked elsewhere, but I found similar restrictions at several other banks.  So we waited. 

With the temporary reprieve on the seasoning rule, I look forward to showing my FHA buyers new flips on the market knowing we can successfully write offers and negotiate terms on the property without worry of seasoning requirements.   I belive this will have a big impact on inventory and is a very WELCOME  act of lieniency for investors who’s practices have been severely limited through current underwriting requirements and financing hurdles.  Opening up the doors for investors to make money will move properties, create jobs and get us on the road to recovery.  

I sincerely hope that down the road (hopefully soon) new lieniencies will be given to investors by means of underwriting.  A recent quote I got for an investor cited 25% loan to value (not a big deal), but a 3 points up front for non-owner-occupied which I thought was crazy.  This is a kind of market where if you can afford to buy another residence whether it be a rental, vacation property or land, you should (case in point, I just sold a bank owned vacation condo 2 bed 1 bath to a buyer for $39,000 — move in ready).  Home buyers should not be nickeled and dimed for buying inventory and building their portfolio - just my opinion.

Over 2010 I predict the gates will open up slightly for investors and homebuyers.  Bank policy (underwriting and investor backings) have affects on how fast inventory can move, I’m all about being rational and careful to prevent what we just went through the past 2-3 years.  Money changing hands will bring us out and up!

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The thought of buying Bank Owned Homes is very appealing to many buyers – many like the glamor these foreclosed properties have garnished in the national media, television and the do-it-yourself investment gurus.  Bank owned properties can yeild great opportunity, but there are many pitfalls one must watch out for when hunting them.

The primary reason most people look for Bank Owned Homes is that they assume there’s instant equity, that cannot be more FALSE (Best said in the tone of Dwight Schrute, from NBC’s hit show “The Office”).  Many of the listing entities that manage the Bank Owned Properties (REO’s) are loss mitigation and asset management divisions looking to liquidate the banks newly acquired properties in the shortest amount of time for the highest amount of money.  Many bank owned properties start out merely under acutal market value and incrementally inch their way down in price as time passes. 

I’m sure there’s a bank formula for the way they handle their price reductions or their terms, but there’s no “golden rule” for REO’s,  I’ve seen banks take significantly less for a clean (low or no contingency) CASH offer when up against a more restrictive FHA or Conventionally financed offer.  In many cases, the quicker the asset can move, the better off and the more motivated the bank will be.  On the flip side, some asset managers are not impressed at all with cash (although, it’s hard to forget the “Golden Rule of Cash”  — “He Who Has the Gold, Makes the Rules”).

Some experts estimate that there are up to seven million bank owned homes that are currently not on the market.  This is an attempt for banks to manipulate the market inventory to help stabilize and firm up the prices on the current inventory being marketed. 

Case in point: a home a client of mine just put a cash offer in on was acquired by trustee deed (at auction) by the bank in mid OCTOBER 2009, the property reached the market the second week of January.  This home sat empty and unmaintained for over a quarter.  There are MILLIONS of homes out there like this.

My advice, do your home work on bank owned properties first.

Now the big fallacy aside, some other things one must watch out for:

1. Custom Bank Addendums – Fannie Mae and other Banks all have their own addendums, I call them CYA addendums covering the banks “Bum.”  Thes can have serious ramifications on your transaction that will affect your rights in the deal.  These addendums are not part of the standard Washington State purchase and sale agreement and it does modify some of the boiler plate.  If you have concerns or do not understand it it is advisable to get a competant real estate attorney to review.
2. Damage to property – The banks are getting a little better at winterizing homes prior to severe damage but they cannot always get to them in time.  In most cases you’ll find bank owned homes to be winterized (water turned off, antifreeze in the pipes and the water heater drained, some cases the power will be off).  It’s imperative that the utilities be activated for inspections.  In many cases the banks will refuse to do this for you and the burden to turn on the utilities is placed on the home buyer (keep this in mind when making your offer that there are sometimes increased costs when buying a bank owned home usually under a few hundred bucks).

Now there are probably a million other scenarios and hypotheticals for puchasing bank owned properties, but for the most part these are the top few in my book to watch out for.  Best advice, do your research  make a solid offer and be ready to walk away if you don’t get what you want.

Tags: Idaho Real Estate, Spokane Real Estate // Comments

Did you know some buyers may qualify for $100 down Homes in Spokane? According to HUD’s REO website, they are extending their $100 down program for HUD owned homes. 

According to their website, the qualifications include:

FHA Special Sales Incentive (UPDATED: 10/01/2009): Alaska, Idaho, Oregon, & Washington

October 1st, 2009

HUD will continue to offer a $100 Down Payment initiative. The $100 down payment is for owner occupants (any individual who purchases a HUD home as their primary residence for a minimum of 12 months after closing and who has not purchased a home from HUD as an owner occupant in the past twenty four months), utilizing FHA financing. This incentive is also available to owner occupant purchasers who obtain an FHA Home Repair loan. Note: Earnest Money Policies and all other contract requirements will remain the same. In order to qualify for this incentive the buyer must purchase at HUD’s appraised value or lower, obtaining a second appraisal to justify an overbid is NOT allowed, and the purchaser cannot finance closing costs, prepaids, etc. into the loan. $100 down payment financing is available on most properties through FHA approved lenders It’s a great time to purchase a HUD Home with FHA financing.

What does this mean for qualified buyers?  HUD homes can be purchased for as little as $100 down as opposed to the traditional 3.5% down.  There are some qualifications and restrictions (as with anything) but for those a little tight on finances this option may be great.

Interested?  Drop us a line.

Tags: Idaho Real Estate, Spokane Real Estate // Comments