Tag Archives: condo

FHA Jumbo

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Update 10/18/2008: This post was written in April 2008 and since then, many FHA guidelines have changed.  This post has been updated, however it’s very important to not rely 100% on mortgage information from what you read on the web.  Our guidelines are changing too quickly these days!  FHA Jumbo loan limits mentioned in this post are effective through 12/31/2008 and will be reduced to 115% of the median home value 1/1/2009 (estimated at $522,000).  Click here for an update on FHA guidelines.

Update 2/27/2009:  Lenders are applying a minimum credit score of 620 for FHA loans and the 2008 loan limits are returning.  Is it possible for me to chop up this post any more?

I thought it might be helpful to provide some information for you to use for when I quote rates on Friday for the FHA Jumbo mortgage. There are other criteria to be considered beyond looking at the rate. You may not have considered FHA before due to loan limits, now it’s more attractive: how else can you buy a home priced at $584,000 with 3% down and credit scores below 720?

FHA Mortgage Insurance

FHA charges both upfront and monthly mortgage insurance regardless of how much money you’re putting down. Seriously, if you’re putting 50% down and using an FHA insured mortgage, you’re paying mortgage insurance. FHA mortgage insurance does not cancel out automatically when your home has an 80% loan to value. You will pay the FHA mortgage insurance for a minimum of 5 years and 78% of the original value (lesser of sales price or appraised value) of the home.

Upfront Mortgage Insurance

Upfront mortgage insurance for a FHA insured mortgage is 1.5% 1.75% of the loan amount for a purchase. With an FHA mortgage, you have a base loan amount and the adjusted loan amount (after you add in the upfront mortgage insurance). For example, if your base loan amount is at the current King, Snohomish and Pierce County level of $567,500, your adjusted loan amount will be $576,012 $577,431 (567,500 plus 1.5% or 8,512 1.75% or 9,931) . Once upon a time, FHA upfront mortgage insurance could be refunded if the mortgage was terminated early with a balance of the mortgage insurance premium remaining, this is no longer the case for new FHA mortgages (which I believe is part of the reason FHA fell from favor during the subprime boom). The adjusted loan amount is what your principal and interest payment is based on. So if the rate going for a FHA Jumbo was 6.500% (this is not a rate quote; this is for example only), the principal and interest payment would be $3,640.79 $3,649.76 (576012 577,431 amortized for 30 years at 6.5%).

Monthly Mortgage Insurance

Yes…as if paying that 1.5% 1.75% upfront MI wasn’t enough…FHA has monthly mortgage insurance as well…the good news is that it is at a low rate compared to traditional private mortgage insurance (especially factoring in a jumbo loan amount, higher loan to value and credit scores below 720). The rate for FHA mortgage insurance is 0.5% 0.55% (for a purchase) of the base loan amount. Using our current example, your monthly mortgage insurance would be $236.46 $260.10 (base loan amount = 567,500 x 0.5% 0.55% divided by 12).

FHA is a fully documented mortgage loan. You will need to provide 2 years of W2s (tax returns if self employed) and your most recent paystubs covering 30 days of income. Any gaps of employment during the past 24 months will need to be explained. There are no income limitations and the DTI is roughly 43%.

Low Down Payment

FHA Jumbos allow for as little as a 3% 3.5% down payment. This means you could be a home priced around $585,000 with the base loan amount of $567,500. Your down payment must be fully sourced and seasoned. Be prepared to hand over your last 2-3 months of bank statements and any asset accounts (all pages) and to explain any large deposits that are not from your source of income.    The Seller may contribute up to 6% towards closing costs however the buyer has a minimum investment required of 3% 3.5%. Family members can gift funds towards closing costs as well which counts towards the buyer’s required 3% 3.5%.

Update: Effective January 1, 2009, the minimum down payment will be increased to 3.5%.

Speaking of documentation…

I’ve covered FHA before…and the guidelines for traditional FHA are pretty true for the temporary Jumbo FHA mortgages as well. Here are a few more pointers for our current market:

* FHA does not have price or loan to value limits for geographical areas determined to be soft or declining.

 * FHA does not have credit score risked based pricing for credit scores above 620. (Lenders may have their own risk based pricing for credit scores under 620).

Sellers with homes priced around the new FHA jumbo loan limits should consider buyers utilizing FHA financing. A sales price of $584,000 would allow for a minimum down FHA insured mortgage. However a home buyer could always use more towards down payment and opt for a FHA mortgage meaning that if your home is priced higher, you may still want to consider allowing FHA buyers as they may be considering FHA over the price hits conforming has if their score is below 720.

Condo’s are acceptable for FHA financing as well. They may not be on the FHA approved list, however, if the condo meets the requirements for a “spot approval”, they can still qualify for FHA financing.

Act fast…FHA Jumbo is only here until December 31, 2008.  loan limits will be slightly reduced on January 1, 2009.

Having second thoughts about that High-End Condo presale?

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As with any blog, this is not legal advice. If you want legal advice, consult an attorney in your area.

Escala. 1521 second avenue. Olive 8. Just a few of the many luxury, high-end condominiums going up in the Emerald City. Needless to say, when its “designed exclusively for the confident few,” you can be sure there will be a stiff price of admission. Indeed, these developers not only charge a high price, they also typically require a substantial earnest money deposit, usually 5% of the purchase price. On a million dollar condo, thats $50k. You’ll pony up this sum months, and even years, before the condo is complete and ready to close.

So what happens if you change your mind between the time you signed the presale contract and when the closing date approaches? What happens if the market goes in the tank and you want out of the deal? Or you foolishly went long on a can’t-miss investment opportunity, and now you’re not so sure you’re one of the “confident few”? Can you get your money back?

The short answer is “no.” Developers typically structure their contracts so that the earnest money will be forfeited if the buyer does not close. Buyers backing out of the deal is every developer’s nightmare — they need to sell the units and move on to the next project. Accordingly, developers do everything they can to “lock in” a buyer.

That said, there are typically a few avenues of attack if you really want out of the deal. To determine whether you are really serious about getting out of the deal (versus typical “buyer’s remorse”), ask yourself: “What would be worse, buying this condo or losing my earnest money?” If buying the condo is the worst possible outcome, worse even than losing your earnest money, then you’re ready to head for the exits.

One fertile area of inquiry is the Public Offering Statement (POS). By law, the seller of a new condo must provide the buyer with POS, which contains a variety of information about the condo development. Upon receipt, the buyer has a 7 day right of rescission and can therefore rescind the contract within that period with a full return of the earnest money. The seller must also provide the buyer with “all material amendments” to the POS, and upon receipt the buyer has another right of rescission if the “purchaser would have that right under generally applicable legal principles.”

Therein lies the rub, of course. These “generally applicable legal principles” are not spelled out in the statute, so it is a bit of an open question as to the extent of a change in the POS (between when provided to the buyer initially and when finalized) that gives rise to another right of rescission. Regardless, however, it creates an arguable point with attendant risk to all parties if they are unable to voluntarily resolve the dispute. Since every POS changes between the initial, presale version and the final version, a buyer can usually use these changes to negotiate at least a partial return of the earnest money.

There are other “arguable points” as well, all of which can lead to a negotiated resolution and a return of at least some of the money. Many developers are apparently unaware of the Interstate Land Sales Disclosure Act, a federal law that applies to large-scale developments. This statute has several requirements, including a disclosure requirement similar to the POS. If the seller fails to abide by the requirements of this federal statute, the buyer may have a right of rescission. There are many exceptions to this statue, but as long as there is some doubt, it will assist the buyer in negotiating a resolution.

In the final analysis, it is probably worth it to hire an attorney if there is a substantial amount of earnest money at issue (almost guaranteed if you’re talking about a luxury condo). The attorney will be able to identify those legal issues that can be used to negotiate a resolution. In doing so, you will probably get some of your earnest money back, and that total will probably be more than what you spent on attorney’s fees.

Another item to add to Daylight Savings Time changes… batteries and power cords

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I’ve written a few articles about fire prevention one of them linked here: link with respect to a site that has lots of fire prevention tips. I’ve also written about the dangers of space heaters.

Today I want to write about the dangers of old, or overheating electrical cords, specifically, if you are using extension cords or multi-outlet cords in your home. We all do it. In fact, recently I updated all the outlet cords in our home office because we couldn’t remember how old the ones were that we were using. Plus, we upgraded some power surge protectors for those outlet cords that were being used for our office equipment like computers and printers.

What got me thinking about this post though was what I read as I was reviewing a condominium resale certificate for a client the other night. In two months of the Home Owner’s Association board meeting minutes were remarks about fires that had started in individual units over the course of about 6 months. This association only has 67 units and 2 units had experienced fires only a few months apart from each other. While that is a small percentage overall it is still scary that if either of these fires had gotten out of control many more units would have been affected. Granted, this is a building from 1992 so it should have a sprinkler system and hardwired smoke detectors and thankfully both fires were stopped within the units walls. But, what about those buildings that are grandfathered against these requirements? You can see where I’m going with this as we’ve all read stories of those kinds of buildings burning and people being hurt or killed.

It’s imperative that anyone using extension cords be careful and to check or replace them regularly.  Perhaps as Daylight Savings Time is a recommended time to change out the batteries in your smoke detectors perhaps it should also be the time to check your power cords around the house.

Now that Matt…

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… has a new condo in Bellevue at the Meritage, you might have thought he would slow down the pace of his condo blogging at Urbnlivn. But no chance there… instead he unleashes the urbnlivn forum for the Seattle-area Market. Very cool. It’s a little quiet at the moment (the site is brand new), but I’m sure under Matt’s guidance, it won’t stay quiet for long…

Also a belated, but HUGE, congratulations to Matt on your new condo!

Got renter's or condo unit insurance?

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I’m constantly amazed at how many people don’t get renter’s insurance when they are renting a house or apartment. Did you realize that if a major catastrophe happens to the property you’re renting that the landlord is not responsible for your belongings?  You should.

Renter’s insurance is relatively inexpensive for the peace of mind that it will give you. Not only are you covered if a major issue happens to the property and damages your belongings, you can also check to see if the policy will cover you in the event of a break-in. Most people don’t consider the fact that a water heater might blow out and cause flooding to the interior of a property. This event could damage clothing, furniture, or more. The landlord will likely be responsible for fixing or replacing the water heater but they won’t be responsible for your stuff.

A while back we were representing a buyer on the purchase of a 20-unit apartment complex. There were 2 buildings with 10 units each. For some bizarre reason the seller decided to replace the roofs mid-contract. Unfortunately for her it rained right at the time the new roofs went on and 4 units were ruined and more were damaged – along with the tenant’s belongings. Thus began a nasty fight between her and the tenants – several moved out, resulting in lost rents, and others started attempting to boycott the property and prevent others from moving in to replace those that chose to move.

The majority of these tenants did not have renter’s insurance. More landlords are getting savvy and are adding provisions to their lease agreements that spell out a requirement for renters to show proof of insurance within a short period of time of moving in. My own lease agreements have similar language and it states very clearly that I’m not responsible for their stuff if something happens. Nature can impact a property at any time – I had this happen when a neighbor’s tree smashed into my duplex roof a couple of years ago. Thankfully my tenant’s didn’t get impacted but they could have since the tree punctured holes in the roof. Thankfully we got the roof repaired pretty quickly so no major damage occurred but it could have been ugly.

New condominium buildings are also requiring owners and tenants to have contents insurance. For owners of these units the requirement is that the policy cover up to the deductible of the homeowner’s association policy. Frequently that amount is roughly $50,000.00.  These are good things to know. Many of the condo sales require proof of insurance at closing so be sure to contact an insurance company prior to the end of your transaction if you’re in the process of buying. One guy I know that can handle this for you is Gerald Grinter of Gerald Grinter Insurance.  He can handle policies for condo owners and renters.

Please review the Resale Certificate

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[photopress:cancelled.jpg,thumb,alignright]My client and I reviewed the Resale Certificate and cancelled his purchase today.

When you buy a condo, or condo-townhome, you do not know everything there is to know before you make an offer.

After you are in escrow, after the contract is “signed around”, you get a resale certificate within ten days. I’m not talking about new properties here, but resale properties. It’s amazing how many agents just hand that big packet over to the buyer and then hope and pray for five days that the buyer won’t open it.

Sit down with your agent and go through that resale certificate. Don’t rely on verbal representations made prior to receiving the resale certificate. I was told by the listing agent that the Association had money in reserves. She volunteered that information, as I would never expect an agent to know that. The Resale Certificate comes and it says ZERO in reserves.

How could anyone have a balance of Zero anyway? Did you ever have a Zero Balance in your bank account? It’s either $2.00 or it’s overdrawn…but flat out ZERO?! Is that even possible? Oh and the “Good News” is that the monthly HOA dues were being decreased beginning 1/1/07. No reserves, so let’s reduce the monthy dues…that’s ripe!

Maybe the lawyers can answer this one. I haven’t seen the Reserve Study Summary in many of these packets and have to hunt it down. It really is not possible to know if the monthly dues are adequate, or if the amount in reserves are adequate, without having a copy of the Reserve Study Summary page. Is that not required here in Washington? If not, someone needs to fix that. How do I help make it mandatory that this vital info be included with/in the Resale Certificate? Who do I call? Who do I write?

Well luckily, in this case, I didn’t need to look at the Reserve Study to know that ZERO wasn’t good enough. The agent kept telling me how much BETTER things were NOW than they USED TO BE. That may in fact be true. But better than it used to be is not necessarily, good enough.

Screaming rent controllers

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Renter, Reader or
User?

Two entirely unrelated shorts today:

We used to have a lot more screaming readers at RCG, but like any good troll, they became bored and moved on. It’s really too bad, because my new favorite do-right-by-your-users-blog tells me that screaming users are good.

Over at AHI, there is a good write up (read: I agree with it) on rent control. If New York wants to benefit all of the poor and not just those who were lucky enough to find and stay in a rent controlled apartment, they should give rent subsidies or a form of the earned income tax credit to those earning under a specific income (New York is expensive – $80,000 a year?).

Queen Anne Condos

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Isn’t that photo Awesome! I just got an email announcing the Broker’s Open on Tuesday, September 19th from 12 to 2, but I have an appointment here on the Eastside at 1:30.

First Public Open will be September 23rd and September 24th from 11 a.m. to 6 p.m. An amazing array of styles from studios to townhomes and amazing array of prices to go with.

[photopress:Queen_Anne_HS.jpg,full,alignleft]

More info at www.queenannehigh.com Very cool site. You can visit each floor and scroll around the different units and floor plans. The studios start in the “low” $300,000s. They say “townhomes” start in the mid $700,000s. Not sure how you fit a townhome into a High School. Lots of floor plans and prices in between. I think there are 139 units altogether on five floors, plus a furnished rooftop deck with amazing views.

One of only 37 buildings in Seattle on the National Register of Historic Places. Should be worth the trip! I’ll have to catch it at one of the Public Opens.

Queen Anne High School was built in 1909 and the historic photos on the site are well worth visiting. This is a public service announcement, and not an advertisement of a Coldwell Banker listing 🙂

Top Down – Bottom Up

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I was helping an agent with a listing that hasn’t sold yet, and one of the simple, yet dramatically effective things I did was rearrange the blind openings. This is particularly important for view property and any property where cars or the street show when you raise the blinds from the bottom up.

If you see two sets of strings, one on the right and one on the left, this usually means they are “Top Down-Bottom Up” blinds. This type of window treatment allows you to cover the low portion of cars going by, but let in light and sky and sometimes tree tops from the top view.

They are great for view property if the windows are low and tall, because they allow you to enjoy the view from the inside without the neighbors seeing you in your boxers 🙂

Condo owners & hot water tanks – A call to arms!

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[photopress:water.jpg,thumb,alignright]A lot of people worry about George Bush and political issues. Many more worry about saving the trees and global warming. I worry about condo owners and their hot water tanks.

I am buying a new hot water tank for the seller and buyer of the condo I have in escrow. When I sold the condo to the current owner/seller, the hot water tank was 14 years old. I bought him a home warranty at the time and a new coil was put in, during the first year that he owned the condo, by the warranty company. Now that I’m selling it for him, I’ve decided to have the tank replaced for the new owner (who is not my client).

Hot water tanks are one of those things that often slips through the cracks in a normal transaction. A home inspector often cannot tell if a hot water tank is “ready to blow” simply by looking at it, unless it is already leaking and corroded. A warranty company comes in and “fixes” it, but often doesn’t replace it until “it blows”. The main reason to replace a hot water tank is due to its current age, which is “past it’s life expectancy”, and not wait until “it blows”. However, in the normal real estate transaction, if it ain’t broke, no one is obligated to fix it. “Past its life expectancy” alone, is not necessarily “a defect that the seller must repair”. Old is not necessarily defective.

When I became a Realtor many moons ago, it was our charge to “uphold the value of real estate” generally. The Realtor motto has changed since then, and I am not currently a Realtor, but that motto is still my “cause of action” and it calls me to replace hot water tanks. We all need a mission in life, and so I have made this one of mine. Why you say?

Because when a hot water tank blows in a condo, it affects everyone. When FORTY GALLONS of water lets loose, while the owner is off at work, it is a chaotic catastrophe! The owner comes home to wade in water that has turned his condo into an indoor swimming pool. The next door neighbor comes home to find water all over her condo, but can’t find the source of the problem. And if it is not a ground floor unit, the people below are getting rained on. If any one of these affected neighbors doesn’t respond appropriately, because “they only got a little water, so they just let it dry out on its own”, you can have the beginnings of mold growing behind the baseboards and under the carpet. If you have a 90 unit complex that is 14 years old, you can potentially have 90 hot water tanks all ready to blow in sequence, over a 2 to 4 year period! One blown tank after another! Water, water everywhere! So it is my mission to replace these tanks before they affect people’s lives adversely. Before there are so many “water intrusion” insurance claims that the HOA loses its condo insurance, or the insurance rates are so high, to keep their insurance, that the HOA dues skyrocket! The ramifications of blown hot water tanks, in succession in a condo complex, can raise everyone’s HOA dues and negatively impact the value of everyone’s condo. So to “uphold the value of real estate”, generally…I’ve got to tackle these old tanks at every given opportunity, one sale at a time. Out with the OLD and in with the NEW!

That being said, if anyone has recently replaced their hot water tank, and can give me a referral to a reasonable and reputable source of hot water tank replacement in the Seattle area…please speak up and join me in this cause to eradicate water intrusion claims. Many “forward thinking” HOA Boards are making a rule, that all hot water tanks be replaced based on age alone, and are monitoring that every owner replaces their tank before it blows on everyone. If you live in a condo complex, especially a “stacked unit” complex, please heed this warning, go to your condo board meeting, and urge them to take a stand against water intrusion caused by hot water tank failure. Being “forewarned is to be forearmed!”

Thank you.