How are condo/home sales being financed?

I don’t know about you, but I’ve been chomping at the bit to know how people who are buying, are financing these purchases.  It’s a monumental task to wade through the detail on this. I probably should have waited a week to get all of the September closings into the mix from the last few days.  But I just couldn’t wait another day!  The suspense was killing me. 

I used all sales from one city on the Eastside, closings from 8/1 through end of September, purchase prices of $400,000 or less.  For confidentiality reasons, since I am revealing mortgage data, I will not name which city I used.  Too easy to trace some of these to the actual purchaser.  I think it will be important to track over the next 6 months, how these percentages change, particularly with regard to FHA and financing for purchases with less than 20% down.

Here are the results of approximately 60 closings. Another 25 or so did not have the data recorded yet as to the mortgage amount and type.  I’ll pick those up in the next analysis.

1) 41.5% were 20% down or more.  Most exactly 20% down. 

2) 25% were 100% financed. Interesting note: 75% of the ones with 100% financing were done as ONE loan.  No second mortgage. So PMI may be back in a big way.  (private mortgage insurance instead of a high rate 2nd mortgage, for the amount financed representing over 80% of the purchase price.)  unless these programs waived PMI.  In any event, one loan and not two, as has been customary for quite some time now.  Big shift.

3) 15% were 10% down.  75% of those were also done as one 90% loan and not two, as in 80% and 10%.  Again…big shift.

4) 10% were 5% down.  Half done as one loan, and the other half done as two loans.

5) 5% were cash purchases.

6) 3.5% were FHA.  The amount financed on these were both 98.4% of sale price, and not 97%.  Important to note, as we tend to say that FHA is 3% down, but it really doesn’t work quite that way in reality.  One was sale price $274,000 with a financed amount $269,766.  The other was sale price $213,000 and financed amount $209,709.  More like 1.6% “down”.  I vaguely remember this from “the old days” but time for everyone to get up to speed on FHA and review some actual closing statements regarding how FHA really works at the end of the day.  While only 2 of 60 were financed using FHA, we should be seeing many more of these.  So we all need to get a lender in to explain FHA financing to the agents, in minute detail, with real closing statements as samples, NOT GFEs!

The under $300,000 market looks good with a 3 month supply in escrow…but something tells me a lot of these won’t close, due to financing, unless a lot of agents get up to speed on how to finance these really, really FAST!  Inventory also looks OK, with less than twice that amount on market, but if we can’t close out those in escrow, there’s not much hope for the existing inventory either, especially if 2/3rds of those in escrow come back on market…which they easily could.  I say at least 1/3 of these will not close.  I’m thinking it will actually be half to 2/3rds that will not close.  Mainly because in escrow represents three times the average per mo. that closed in the last two months!  So my guess is that many of these are in closing date extensions, trying to figure out how to finance.

The key to the next six months will be everyone getting totally up to speed on FHA and FAST!  If the low end can’t move in the first quarter, because agents don’t understand FHA or alternative financing, 2008 is in big trouble.  Old saying: “As goes the low end (in the 1st quarter), so goes the year.”

I’m pushing all of our agents in that direction, to help the industry and consumers.  Focus on the low end and totally “get” how to finance it, for people with little money down.  The better we handle this, the better the market will be.  Every broker should be having seiminars on FHA and minimum down financing, and not waiting to see how the market does without our influence.  The best agents need to go down to the low end price-wise, and focus on helping this market move, and not leaving the cheap seats to those least qualified to juggle the financing piece of this low end market.

Fewer sales failing on financing in the under $400,000 market will be THE key to Seattle’s holding on to its preferred market position nationally.  Don’t let Seattle down.  Roll up your sleeves and get down there where it really matters.  The first time buyer market.  DO NOT leave that market to inexperienced newer agents, without a lot of support.

It’s a darned shame escrow can’t intervene and help with this too.  Not a good time for them to be “neutral parties”.  They are the ones with first hand knowledge of which lenders are closing, and which aren’t.  I’ll give you a few clues:

Bank of America closed about 20% of the zero down, one loan, 100% financing.

Wells Fargo closed about 15% of the zero down, two loan 100% financing.

Countrywide, First Horizon, American Mtg Network, Choice Lending, Gn Mtg LLC, Mortgageit Inc., Planet Financial, Mtg. Network Svcs., Liberty Financial, Rainland – all of these closed one or more those 100% financed in the last 60 days.  FHA – Wells Fargo.

I’m not recommending these lenders, and don’t even know many of them.  Just reporting who seems to be getting the job done.  I’ll try to pick up the last week of September, those not yet updated in the County records data, in a week or so.