Elizabeth Newlin - Arizona Real Estate Agent

I am currently working with three different clients who have radically different viewpoints on house repairs.

Client #1:

A first time buyer who is stressed about anything that appears to be broken in a house. Drywall cracks are especially disconcerting to the couple (and unfortunately, common in Gilbert, the primary location we have been looking in) but we’ve discussed several other issues that have made them uncomfortable with the idea of purchasing one property or another.

Client #2:

A buyer with much in the way of DIY skills, who wants to purchase a property with lots of potential in the ’sweat equity’ arena. We’ve looked at houses with partially finished additions, houses with doors that lead out to nothing but a 15 foot drop and houses with termite infestations. None of these issues have deterred him, just the complications involved in obtaining a mortgage on these houses.

Client #3:

A seller with a house that has great bones, but that cannot catch a break concerning the escrow in which we’re currently embroiled. This poor house has encountered in the last three months: pool equipment theft, inadvertent locking of a security door causing the house to be inaccessible, a slow leak into the kitchen cabinets causing water saturation and mold, pool pump leaks, a brand new garage door opener not opening, a bizarre leak/paint bubble in an exterior wall in the master bath and various other small issues/necessary repairs.

All of these home buyers/sellers have different motivations for their strong feelings about what needs to be repaired in the houses they’re dealing with. Client #1 does not have a lot of capitol to put into a house after purchase, so they need it to be pretty move-in ready. Client #2 wants something that he can put his own stamp on. He loves things that are not as attractive to other buyers, but that maybe he can polish from a stone into a diamond. Client #3 knows that his house isn’t a lemon, but is frustrated with the bad luck he’s had regarding repairs.

My personal view about home repairs is that anything can be fixed. Termites can be treated, mold can be re-mediated, leaks can be repaired, pools can be degreened and refinished. It’s all a matter of how much it will cost, and who is going to pay for it. And this is why you need a decent real estate agent, because those are the big questions in real estate. How much is it going to cost to make my house into my home… And who will pay to do it? Your agent needs to be there for you to get that answer and make sure that it is the one the will work for you.

Have we ever discussed down payment assistance? I’ve explained the program so many times in person that I can’t recall if I’ve ever set the metaphorical pen to paper about the subject. Well let’s just assume for the sake of this post that I haven’t; here’s a quick run-down.

When the market (and the economy) was hot a few years back and the mortgage industry was a thriving, risk-taking, happy-go-lucky thing, there were loan programs that provided 100% financing. A buyer could purchase a property with no money down and wouldn’t even be on the hook for closing costs if he or she could get the seller to agree to pay them. 100% programs were among the first to be cut when things started to sour and mortgage companies began to go belly-up.

The government sponsors what’s called an FHA loan, that allows buyers to purchase a house with only 3% of purchase price down, and this 3% can be gifted to the buyer. This is not a new program at all, but during the boom, there was little reason to use FHA loans and they kind of went out of fashion for a few years. Now that 100% is gone, the FHA loan is the new black, if you know what I mean.

Down payment assistance programs like Ameridream (which is the most well known of the programs, but Nehemiah is another) are a kind of work-around that turns FHA into a 100% loan. FHA stipulates that although 3% down can be gifted to the buyer, it cannot be gifted by the seller (too close to home). So a non-profit organization called Ameridream was created that allows people to donate money to them and they, in turn, gift that money to buyers for their down payments. It allows a seller, if they agree to it, to donate the 3% down payment to Ameridream (plus a $500 service fee) in the name of the buyer of their house and then Ameridream will gift that money back to the buyer, who can then buy the house. I know, it sounds shady, but it’s been taken to court lots of times, and had so far stood up to the scrutiny.

Unfortunately, that has come to an end, at least for the time being. The housing bill that The President recently signed made these down payment assistance programs illegal as of October 1, 2008. The idea is that these loans where people don’t have any money to put down, are much more likely to be defaulted on, thus costing the government more money to pay back the mortgage companies (FHA loans are loans that are made by banks, but insured by the government).

So here’s what it comes down to: if you want to buy a house with no money down, you better do it soon. And by soon I mean like next week. Until this ruling is overturned or appealed, you’re going to need at least 3% of the purchase price of the house you want to buy saved up, or you’re going to be out of luck.

Wow, there have been a ton things happening in the mortgage side of real estate lately. The big three that I have come across this week are:

1. Most banks have stopped issuing second mortgages and home equity lines of credit (HELOC). Some are even freezing existing lines of credit.

2. Stated income loans are going, going, and all but gone.

3. FHA has raised the upper limit of of loans for single family homes in Maricopa county from $261,500 to $346,250.

There are lots of ways that these things will affect home buyers in the next few months.

Let’s start with the freezing of the HELOCs. It makes sense that banks would want to staunch the flow of money into the hands of the already over-extended public. Those hundreds of thousands of foreclosures we’ve been hearing about all over the national media often come with a mortgage in second position that will get nothing out of the foreclosure process. However, those of us with legitimate plans for our lines of credit may just end up out of luck. My husband and I have a HELOC that we have considered using as a down payment on a larger home so that we can keep our current house as a rental property until the seller’s market gets better. If our HELOC is frozen (it hasn’t been yet), that option pretty much goes out the window. Although, it may be a moot point anyway, as we move on to number 2…

Stated income loans are mortgages that allow self-employed people with decent credit to borrow money based on what they expect to have as income in the next year. My in-house lender, Century 21 Mortgage, announced at our weekly sales meeting Wednesday that they would no longer be offering these loans. In order to get a mortgage, I need to show two years of tax returns at my current career and what I will qualify for will be based on that income. This is all well and good because I have been in real estate for the last three years. However, my grand plan of renting my current house and upgrading to something larger while the prices are good hinges on qualifying to purchase the second home. Rent can count as income (75% of the rent) to offset the mortgage in your debt vs. income ratio, but only if you have a rental agreement in place when you apply for the mortgage. This would require us to have the house on the market for rent while we’re still living in it, which I don’t think my 5 person in a 1750 square foot home family could cope with. A work-around for this would be to go with a stated income loan and inflate my income enough to qualify for the second mortgage without a rental agreement already in place. But without stated loans, this is a problem.

Now on to the FHA increase in cap… this is the only good news (besides the rate-cutting by the feds) we’ve received from the mortgage industry in a long time. This opens the door to lots of buyers who couldn’t otherwise afford to buy right now. 100% financing is long gone, but FHA only requires 3% down (most banks are currently requiring 10%, some still have 5%, but that’s on its way out also). There is also a program called The Ameridream Down-payment Assistance Program that allows sellers to donate 3% of the purchase price of the home to them and they gift it to the buyer (for a $500 flat fee) for down payment. So a desperate seller and a buyer with no cash can come together and make a home sale take place. Now that the cap has dramatically increased, more buyers and more sellers can move forward.

As you can see, times, they are a changing out here in real estate land. Keep your eyes and ears open for how these things can effect you!