Monthly Archives: May 2008

Financing an Investment Property

Posted on by

EDITORS NOTE:  Rates on this post are from 2008!  Mortgage rates for investment properties are much lower now! Contact your local licensed mortgage originator for a current rate quote.

Obtaining a mortgage for a non-owner occupied propery is much different than buying one you will reside in.  For starters, qualifying is tougher and mortgage interest rates are higher as it’s a riskier transaction for the lender.   Here are some quick tips to help get you started if you’re considering buying an investment property.

Plan on using at least 20% for your down payment plus closing costs.   With a 25 or 30% down payment, you will receive a slightly better interest rate.   Just to give you an idea, here is a sample of some current rates based on a single family dwelling with a sales price of $450,000 for a 30 year fixed mortgage and a minimum 720 credit score:

Owner Occupied with minimum 20% down:  5.75% priced with 1% origination/discount point (APR 5.904%)

Non-Owner Occupied (NOO) with 20% down: 6.375% with 1% point (APR 6.537%)

NOO with 25% down: 6.250% with 1% point (APR 6.413%)

NOO with 30% down: 6.125% with 1% point (APR 6.289%)

Of course, you can always pay more in points to have a lower rate.   This is just to provide you with an apples to apples comparison.

There are two camps for qualifying for an investment property:  those who are proven at managing rentals and those who are buying a rental for the first time or who have less than 2 years history.  If you have less than a 2 year history, then it’s likely that you will not be able to use rent credit from the proposed purchase.  Lenders allow 75%  of the rent to be used for qualifying purposes.   Proving you’re a financially successful landlord to the underwriter will take your last two year’s complete tax returns including the Schedule E’s.   If you can qualify for the full PITI payment on the investment property along with your current PITI payment on your residence, then the underwriter may only require a regular appraisal.  Otherwise, count on the appraisal costing almost twice as much as a typical appraisal for conventional financing.   Fannie and Freddie also require a minimum of 6 months reserves (cash assets after closing) for NOO borrowers.

Odds and Ends

  • FHA can be a great way for first time buyers to get into the investor market when they’re buying a 2-4 unit home.  The buyer must occupy in one of the units and the mortgage will be treated as an “owner occupied” transaction.   You will have upfront and monthly mortgage insurance and can buy with as little as 3% down payment.
  • Second homes are sometimes treated as investment properties.  This is really up to the underwriter.  Typically if the home is located within 50 miles of the borrowers residence or if it does not make sense as a second or vacation home, the underwriter may determine that it’s an investment which means tougher underwriting and the NOO rate.
  • Fannie Mae programs exist that help family members buy properties that don’t meet the second home requirements without treating it as an investment purchase (Family Opportunity Mortgage).

As always, I highly recommend that you meet with your local Mortgage Professional as soon as possible if you’re even just considering obtain a mortgage for any reason (investment property, residencial purchase or refi, vacation home, etc.).

 

Sunday Night Stats – King County

Posted on by

In January of 2007, 455 people were able to sell their homes in 30 days or less at 99.84% of asking price.

In January of 2008 only 261 people were able to sell their homes in 30 days or less and they sold at 98.93% of asking price.

42% fewer people sold their homes within 30 days of listing the home for sale in January 2008 vs. January 2007

In January of 2007, 13.25% of all homes sold had been on market for over 120 days and sold for 97.52% of asking price at time of sale.

In January of 2008, 21.67% of all homes sold had been on market for over 120 days and sold for 95.60% of asking price.

And yet…they sold for a little more.  Volume down by 30%, days on market longer, but median sold prices up from $430,000 to $431,375.  Median asking prices up from $430,014 to $439,000.

That was January…let’s jump to April (I don’t know the answers before I type this BTW.  I figure I can’t introduce my agent bias if I post in real time.)

In April of 2007, 1,184 people were able to sell their homes in 30 days or less for 100.62% of the asking price.

In April of 2008, only 561 people were able to sell their homes in 30 days or less and they sold at 99.25% of asking price.

53% fewer people sold their homes within 30 days of listing the home for sale in April 2008 vs. April 2007

In April of 2007, 13% of all homes sold had been on market for over 120 days and sold for 97.8% of asking price at time of sale.

In April of 2008, 20% of all homes sold had been on market for over 120 days and sold for 95.97% of asking price.

But in April, no more volume down; prices up.

Median sold price in April of 2007 was $474,950 ($50 less than median asking price)

Median sold price in April of 2008 was $451,250 and median asking price at time of sale was $459,925

 Volume Down 32% 2008 YTD vs. 2007 YTD

By Request: Stats for “Curious” in Redmond 98052 pretty strong relative to King County as a whole.  Also for Curious – Woodinville 98072; not a pretty picture.  For Aiboh here’s 98074 Sammamish – not bad.  A lot better than Woodinville.  I have to put the special request stats on my blog for space purposes.  But keep the requests coming and if I can’t do them on Sunday night, I’ll squeeze them in during the week somewhere. 

Regular weekly stats:

King County Residential

Actively For Sale: 11,231 – UP 268

In Escrow: 2,813 – UP 63 – MPPSF $210 (dropped $2.00 again – and that’s asking price

Closed YTD 5,414 – UP 305 – MPPSF $220 YTD (April MPPSF $224)

Not sure why closed sales keep running high while the properties in escrow are running low as to median price per square foot.  You would expect the closings to be affected eventually as these close, but so far not.

MAYBE a lot of the ones staying in escrow are short sales, and they are not closing at all.  That would be the only explanation I can come up with for “in escrow” MPPSF running lower and lower and closings not being lower. 

King County Condos

Actively For Sale: 3,890 – UP 106 MPPSF $320 Down $3.00

In Escrow: 940 -UP 40 – MPPSF $303.50, Down $1.50 but close to where they were the week before last.

Closed YTD: 1,776 – UP 101 – MPPSF $288 – asking prices still running high relative to closed prices.  Especially considering April closed sales are running at $270 MPPSF compared to April 2007 at $300 MPPSF.

Volume down 52% April YOY in condos and prices are starting to see more signs of weakening.   But again, given the sold properties in both residential and condo were on market for a long time, we could be seeing some old inventory selling off at drastically reduced prices.  Some old stale inventory is runing scared from “new on market” and dropping prices accordingly.  

Stats not compiled or published by NWMLS. (Required disclosure)

MGIC Tightens Underwriting Guidelines…Again

Posted on by

MGIC has released underwriting guidelines that will go into effect on new applications as of June 1st. Here is the PDF.  Didn’t MGIC just finish doing that in March? From Housing Wire:

For all markets — so-called restricted markets or otherwise — MGIC said it will essentially no longer provide MI for any Alt-A loan. The company also said that it will no longer allow cash-out refinances in any market, investment properties, multiple units, and option ARMs to be eligible for its mortgage insurance. The insurer also will require a minimum of 3 percent down on any eligible purchase transaction

and this:

Loans in the conforming jumbo range — in a non-restricted market — must have a minimum of 90 percent CLTV and a minimum FICO of 700 to qualify for MGIC underwriting; in restricted markets, the CLTV requirement is tightened to 85 percent. MGIC said it will not insure any loan above $650,000 in any market.

As I have been saying for many months now, underwriting guidelines will, and should, continue to tighten until defaults begin to slow down.

A Mortgage Broker is not a Lender

Posted on by

At the beginning of every law, there’s a preamble and then a set of definitions. Many of you know this: A mortgage broker is not a lender.
A lender is defined by federal law, RESPA, as an entity that makes loans.  This means the entity has the money to fund the loans.

Brokers, by definition do not loan their own money. Instead, they’re middlemen who go out and find the mortgage money. The entity funding the loan is the “lender.

When it's good to know a "wiseguy"

Posted on by

If you’ve ever watched a show like the Sopranos you know that there is a term out there called wiseguy that has a potentially dangerous undertone.  Well, yesterday, for one of my new listings I was thrilled to know a wiseguy, or rather a Wise Locksmith, Chris Weissman.

While driving from Renton to Bellevue’s Bridle Trails neighborhood, to show this listing, I get a phone call from another agent who has shown up to view it with a client.  He’s having trouble with the door and wants to know if I am aware of any problems or special way of handling the lock to make it turn.  “No, I haven’t had any problem with the lock before and neither have the other agents that have viewed the house already”, I tell him.

Come to find out, after calling one of the sellers, there is a way from the inside of the house to turn a little switch that would lock the home from the interior and it would make it so the master lock wouldn’t work.  Not good.  *Note to sellers – always let your agent know about quirky things like this so we can stop it from happening in the first place.*  Not only was I losing this viewing but the pending showing I was about to do would possibly be lost too.  On top of it, I lost one other possible buyer showing when yet another agent came by while we were working on getting the problem fixed.  My inner MacGyver kicked in.  I wasn’t about to do some fancy trick with a paper clip but I could quickly sort out a possible way to solve the problem.

And here is where my wiseguy comes in.  Chris is actually a former client of mine.  He and his girlfriend, Maridee, sold a condo and purchased a home through me about 18 months ago. I learned at that time that he was a locksmith and I’ve referred him to several clients since that time, with very good results I will say.  So, Chris gets a call from my partner, Michael, to see if he can help and he’s on top of it immediately coming over from the Seattle area during rush hour and actually making it within about a 20-30 minute time frame. I was thrilled.  One of the great things about working with various people and different types of contractors day in and day out is that when you need something fast – most of these wonderful folks will drop everything to come help you.

His first instinct was to try various methods and tricks he’s learned throughout the years to find special ways of opening locks. Unfortunately that didn’t work.  The second attempt through the garage didn’t work but mostly because it is on an electric opener, so then he had to tear off the existing door handle and replace it with a new lock.  I’ll say that it’s a little disturbing to see how easily some of this stuff can be taken off a property – although Chris did say that since he does this all the time he makes it look easy.  He just hates having to destroy stuff.  He didn’t damage the door though and that’s all good.

It ended up that the buyers that wanted to see the house at my scheduled showing ended up coming back (I rang their cell) and we had a successful viewing.  One of the other agents is planning to come back too but I likely won’t know if that 3rd agent comes back.  Either way, the house is accessible again and all is well that ends well.  Since the clients aren’t looking at offers till next Wednesday we should be set but I’ve got Chris on speed dial now, just in case….

Mortgage Broker Commission Meeting Tomorrow

Posted on by

There’s a Washington State Mortgage Broker Commission meeting tomorrow, May 7th at the Renton Community Center to discuss the impact of State Senate Bill 6471. This legislation ammends the Consumer Loan Act and Mortgage Broker Practices Act requiring all lenders to become licensed under the Consumer Loan Act (except those licensed under RCW 63.14)

This change in the state law was put in place to close a loophole. Some mortgage brokers were issued an exemption certificate by their regulator, DFI, because they had received approval as a Fannie Mae/Freddie Mac direct lender. Though still subject to the MBPA, these lenders, an estimated 300, were operating with no state regulatory oversight. This loophole is now closed.

Mortgage brokers are complaining loudly that this change will cost their firm lots of money. I would like to see the raw numbers on their estimates.

I will be attending tomorrow’s meeting, and if I can catch a wifi signal, I will blog live.

This does not appear to be a “closed” meeting since DFI is indicating that the room capacity is 100. I received no notice about this meeting, which is odd, since DFI is always very good about notifying all of us via their listserve.

Time: 1:00 PM
Location: Renton Community Center
Address: 1715 Maple Valley Highway, Renton 98057
Driving Directions

Sunday Night Stats on Monday Morning

Posted on by

Did you ever work so hard in a week, that you just needed to lay down for 20 minutes after dinner and didn’t wake up until the next morning!?  Sure you did.  It happens to all of us.  Well, that’s what happened to me last night after my Open House in Bryant and after inputting a new listing in Redmond.  Just took a nap and never woke up until 6:00 a.m this morning.

In this business the days sometimes just keep running together one after the other and you forget when you last had a day off, or a haircut, or your nails done.  You just keep working day after day until the job is done, and the time frame just keeps switching from this “right now” to the next “right now”.

There is no “have a nice weekend” in real estate.  There is no “what’s your schedule like” in real estate.  On any given day the phone rings and sets a chain of events into motion that has no end until the work is done.  And when your clients have small children, you really roll up your sleeves and pitch in until the house is ready for market.  I have 4 sets of clients with children, all getting their houses ready for market, and 2 of the 4 moving to new houses nearby.  The work is back-breaking, but very satisfying when the job is done and the home is photo ready and Open House ready and Broker’s Open ready, and then you do the photos and the Open Houses and the Broker’s Opens, and it just keeps going until the house is sold.

Everyone wants a list of what an agent does.  Truth is we do whatever it takes to achieve the objective.  Everyone working all at the same time, owners of the homes and agents alike, all working toward the common goal of getting everything just so and on market.

Whether it’s a home built in 1910 in Bryant:

Seattle Home in Bryant

Bryant Home

Or a newer townhome in Redmond:

Rivertrail in Redmond TownhomeRivertrail Townhome

Perfection is the expectation of buyers.  So you just keep working till you get it as perfect as you can.  And the poor Moms who live there with their small children, have the undaunting task of trying to keep it that way day after day.  Getting the kids ready for school and leaving the house in perfect order for showings, is no easy feat.

So this Mother’s Day I ask that you all give honor to the Mom’s with homes on market…and the Mom’s like me who turn into everyone’s Mom when helping them get the job done.

************************

And now for Sunday Night Stats on Monday Morning.  I won’t be doing the April month end stats until next week, as there will be many month end closings posted during this week.  So let’s just do the normal weekly stuff. 

I expect if I’m this busy getting properties on market, two on and at least three to go over the next few weeks, that every agent is busy prepping homes to get them on market.  So inventory should be rising even more in the next 30 days.

King County Residential:

For Sale:  9,372 at a million or less – DOM 53 – MPPSF $225.58 and 1,591 over $1M – DOM 68 – MPPSF $371 Total Residential King County homes on market this morning 10,963.  That is 135 more than last week, after netting out those that went into escrow from those that came on market this week.

In Escrow: 2,750 – DOM 45 – MPPSF $212, that’s 81 less than last week due to month end closings with MPPSF dropping from $214 to $212.  That reflects a drop in asking prices, not sold prices.  Expectation is the sold prices of those 2,750 will be less than the $212 MPPSF asking prices.  Though some did sell for over asking price with multiple offers, the median will likely be more like $210 or so.

Closed YTD: 5,109.  That’s 463 more than last week with DOM of 51 days and MPPSF of $220 for the year to date which is up a buck for closed sales.

Given the median days on market for In Escrow is going down, the price issue of down to $212 MPPSF for those in escrow, is likely due to increased competition and homes coming on market being more realistically priced to sell.  At least for the ones that are actually selling and going into escrow.

***************

King County Condos:

For Sale:  3,784 – that’s 10 more on a net basis than last week.  DOM 57 – MPPSF $323 (about the same)

In Escrow: 900 – that’s 46 less than last week due to month end closings – DOM up from 43 to 48 – MPPSF up from $303 to $305.  Remember those are asking prices, not sold prices.

Sold YTD: 1,675 up 158 over last week – DOM 48 – MPPSF $288 – that is DOWN from $290 last week and EQUAL to the MPPSF of 2007 all months combined.  Given most of last year was strong, condos just now reaching MPPSF of all of last year is a pretty strong statistic for condos.  You would think all of this year would be equal to the last 5 months of 2007.  But they are still running high relative to 2007 compared to the single family home market, but starting to dip on a YOY basis, which is to be expected. 

Amazing how strong the condo market is.  I suspect new construction and condo conversions are giving resale condos a run for their money and strong competition.  That is keeping the MPPSF up, though for resale…not necessarily so.

That’s it for Stats this week.  When I do month end stats for end of April YOY next week, we’ll break down some of the areas like “within 2 miles of Microsoft” and certain Zip Codes from weak ones to strong ones.  So if you are hoping to see a break down of a given area, it’s time to get your requests in for next week.      

One of our agents listed a property at $350,000 in Tacoma three weeks ago and has had NOT ONE showing since it was listed.  My listing in Bryant listed at $529,950 had 6 showings in the first two days + more than 20 people at the first Open House yesterday.  So there is a lot of difference in activity from one area to the next.

Getting the property ready for market, and good photos, have become critically important.  No more stick the sign up “as-is” and wait for offer…    

Free Flushes?

Posted on by

Our development company has been a certified Built Green builder for several years, and we’re always trying to find economically feasible ways to add “green” features to our new construction.  “Economically feasible” to me means that while we’re willing to pay more to build in a more sustainable fashion, we’d like to be able to recover most of those extra costs in higher resale prices, or shorter market times.   

So when I read about a “greywater recycling” unit, I thought we should try it.  Here’s our first installation, in a stand-along townhome in Crown Hill — North Ballard:

This octopus-looking thing takes water from our two showers (the black pipe) and puts it into this 50 gallon tank.  There is a water supply that fills the tank if the level gets too low.  The city inspector scratched his head at this — first time he’d seen it — as did our plumber.  But now that we’ve gone through it once, hopefully the next ones will be easier to install. 

You can see the level of “grey” water in the picture, at about the 20 gallon level.  This water is pumped back into the toilets to use for flushing.  Flushing constitutes nearly 40% of domestic water usage, so in theory, this will reduce your water (and sewer) bills considerably.  And it’s just “light grey” shower water, which if you avoid shaving, toothbrushing, and any other debris-generating activities (not to get too graphic), should be 98% pure domestic water and a little bit of ivory soap and shampoo.  The feedback that I’ve seen from consumers is that they don’t notice that they’re flushing with anything different than normal “clean” water.  So when you do flush, it’s with water that would have gone down the drain after its first use, but you’re giving it a second life.

The cost, all in, is about $4500 (it would be much more expensive to plumb into an existing house).  This particular townhome is about 1750′, and is priced at $450,000 — not priced any higher than it would have been without this system, but our hope is that this is a feature that will set this unit apart from the competition.  We wouldn’t be able to justify this in a $300,000 townhome (not just b/c of the price point, but the $300k unit wouldn’t have enough physical garage space to fit the tank), but we’re putting them into about a dozen other units right now in Seattle. 

There are lots of green things that just can’t work in our spec houses — $40,000 solar arrays, for one.  But this system gives a lot of bang for the buck, and I think our buyers will really like it.