MILLION DOLLAR HOMES and the BANKS THAT SOLD THEM

Since January 1, 2011 there have been 46 bank owned homes that have sold over $1 million in Newport Beach, Newport Coast, Nellie Gail, Coto de Caza and Laguna Beach. In 2011 over 36,000 homes valued over a million have been foreclosed nationwide.

What’s even more shocking is that in many cases the sellers have planned their foreclosure as part of their financial strategy frequently referred to as a “strategic default.” The scenario is simple; these owners can afford to make their house payments but the value of their homes have dropped so substantially they frequently owe more than what their home is worth.

Some homeowners stop making their payments and save enough money to buy another, less expensive home before the bank forecloses.  In some cases it takes banks as much as a year to process a foreclosure. Other homeowners not only default but at some point in the process get the bank to pay them to move out in a “cash for keys” incentive.

What are the consequences? According to Wikipedia “The difference between the value of the property at the time of foreclosure and the amount of the note (assuming the note is larger) is considered by the IRS as “debt forgiven” and may be considered “income” subject to federal income tax. For a short period ending at the end of December 2012 due to the Mortgage Forgiveness Debt Relief Act of 2007, this “phantom income” will not be subject to tax on primary residences.”

Our local statistics show that of the 46 homes that sold last year, the bank that had the most sales was JPMorgan Chase, followed by private investors, Bank of America and US Bank. Statistics could be impacted by inventory that the banks are holding back from the market. The average home that sold was 4400 square feet and sold in 67 days. What is most notable is that most of these foreclosed homes sold for the asking price. There may be some great deals out there if you want to spend wisely.

Understanding Mortgage Insurance Premiums

UNDERSTANDING MORTGAGE INSURANCE PREMIUMS Russ and I recently found a California home loan that allows borrowers to put down only 1%. It does require mortgage insurance and is a great way for buyers who don’t have a lot of cash to take advantage of today’s market. Many buyers in today’s market don’t have the 20% down payment needed to get a home loan without paying some type of mortgage insurance. Different types of loans require different mortgage insurance. No matter what type of loan you may be obtaining the mortgage insurance premium protects the lender in case you default on the payments. There are 2 main types of mortgage insurance. Thanks to Derek Beisner at Intercap Lending for providing us with the following information and chart. “There are two main types of MI: an Up Front Mortgage Insurance Premium (UFMIP), which is generally financed into the loan, and an additional monthly mortgage insurance premium (MIP), paid as a part of your normal monthly mortgage payment. Here are some additional details to keep in mind:”     CONVENTIONAL “MI” FHA  “MIP”** USDA “GUARANTEE FEE” Basics MI can be monthly or all up front 1% UFMIP rolled into loan amount + Monthly Premium 2% UF Guarantee Fee + Monthly Guarantee Fee Potential Benefits Upfront MI can save significantly on monthly payments. Conventional MI often has lower monthly payments than FHA. Income requirements are relaxed compared to conventional MI & USDA. There is more flexibility in credit scores. Seller paid closing costs is allowable up to 6%. The monthly premium is typically almost 1/4 the cost of FHA. Potential Pitfalls Seller paid closing costs is limited to 3% if ≤5% down payment. Credit requirements and income requirements are more stringent. The monthly premium is typically higher than conventional & USDA. There are specific geographic and income eligibility requirements. Income requirements are much more stringent than FHA. Dropping MI When the value reaches 78% of the original sales price, MI automatically falls off. You can request removal if the principal balance reaches 80% (i.e. accelerated payment of principal or, in some cases via an appraisal of the property showing increased value). You must meet two tests to drop FHA’s MIP: 1. You must PAY the balance down to 78% of the original sale price of the property (you can’t just get an appraisal to show equity). AND 2. You must pay the monthly MIP for a minimum of 5 years. The USDA Guarantee Fee remains on the loan for the entire term. It can never be dropped from a USDA loan until the property is sold, refinanced or the loan is paid off. ** Note that the FHA MIP example is based on a 30 year example.   Perhaps you or someone you know could benefit from the 1% down payment program. Please ask them to contact us for details.

QR CODE: www.gr8re.com It allows you to instantly search homes that are listed for sale, get details and view photos on any data-enabled phone. It works in all neighborhoods, it’s available 24/7 and it’s our gift to you at no cost. It even has a GPS feature that goes to work for you. Click on the icon and it gives you all the details. CA DRE License # 00936907 & 00981979

Federal Mortgage Relief

President Obama has laid out a plan to help responsible borrowers and support a housing market recovery.  Funding for the proposed program must be approved by Congress which may take some time. Russ and I feel this issue is very important and we’ll be watching it and share the information as it becomes available.

The California Association of Realtors made some observations that we think are worth passing on to you.

• “Operated by the Federal Housing Administration, the plan would allow underwater homeowners to refinance into cheaper federally insured loans.  Borrowers with good credit who are current on their loan payments are eligible.
• The measure also streamlines the process of refinancing an underwater mortgage, eliminating the need for an appraisal or submitting a new tax return.
• To qualify, borrowers must be current on their mortgage, have a minimum credit score of 580, and must be refinancing a loan on a single-family owner-occupied principal residence.

   

• Lenders only need to confirm that the borrower is employed.  Loans that are more than 140 percent of the home value probably would not qualify until banks wrote down part of the balance.

Congress must approve $5 billion to $10 billion in funding, leading housing experts to praise the plan’s objectives with skepticism of it passing this year.”

 

Should you or someone you know want to discuss any aspect of home ownership please contact us. We offer no obligation real estate counseling services based on over 30 years of personal experience.

Only 1% Down Payment!

Now there is no reason to rent a home when you can purchase with as little as 1% down. Russ and I searched this program and it is legitimate. Here are the details:

First time have an option for assistance with the CHDAP program.  One of the greatest benefits of this assistance program is that it can be used with almost any other home loan financing, like FHA, Fannie Mae conventional, USDA or VA. 

    CHDAP Features:

• Assistance is up to 3% of purchase price to be used for down payment or closing costs      
• Program limited to first time home buyers (have not owned a primary residence in past 3 years)
• Home price must not exceed sales price limits
• Home buyer income limits apply
• Payments deferred until the sale or refinance of the first mortgage
• Low interest rate – loan balance accrues simple interest at an incredibly low rate 

As long as you can contribute 1% of the sales price or $1,000 (whichever is greater), then the California Home buyer’s Down payment Assistance Program could be helpful to you. 

 

Who do you know that can benefit from this? A few years from now this opportunity will be the greatest thing since sliced bread. Give us a call or text us and we’ll refer you to lenders who are reputable. 949-661-4663 or text: 714.343.6300