I want to take just a moment and cover the primary changes in the bill HR 3221, with 800 pages I am going to only make comments on 5 points:
On Sept 30th 2008 DPA (Down Payment Assistance) programs will end. What does that mean?
Today a buyer can write an offer and ask the seller to up to 6% of the purchase price to be applied to the buyers recurring and non recurring closing costs/down payment. This has allowed a large group of credit worthy buyers to buy today. No more as of the end of Sept!
FHA Loan to Value decrease:
Buyers will need 3.5% cash to buy, up from 3.0%. Sounds small but combined with the end of DPA more buyers are going to be locked out of the market.
FHA MIP (Mortgage Insurance Premium" will increase:
Rate will go up from 2.25% to 3.00%. The loan insurance will go up slightly (this insurance for the loan is usually less than 4 years in duration).
$7,500 Tax Credit:
First Time Buyers (that is anyone who bought and did not won a home in the prior 3 years) can get a $7,500 tax credit if they purchase a home from April 9th 2008 to July 1st 2009. Look at this as an interest free loan for 15 years paid back at $500 per year.
Hope for Home Owners:
Upside down on the loan and want to keep the home? IF you qualify the lien holder will work the the borrower to write down the mortgage to no more the 90% of the appraised value. Example: if a borrower owes $300,000 but the home is worth $200,000 the borrower will receive a new loan for 90% of $200,000, which equals $180,00. The $120,000 is forgiven.
That is all for today.
Thursday, August 21, 2008
Thursday, August 7, 2008
Wait and Rent or Act and Buy?
This is the rent versus buy example mentioned in the newsletter:
For the buyer here is a sale that closed on 7/28/08 and a buy now vs. a rent and buy and wait for the market to drop scenario:
2,500 square foot home rental value $1,500 per month x 12 months = $18,000 rent plus an extra move for $2,500 for a total out of pocket of $20,500 (if you do this for 2 years the numbers the cost is about $38,500). Purchase today with 10% down or $31,000 your P.I. payment will be fixed @ $1,730 per month.
Now in one year assume that the home has lost 10% value and rates have moved as expected .5% up the new P.I. will be $1,665 per month. You saved by waiting to buy 1 year $63.00 per month but you spent $18,000 to rent so you could get a “real deal”. The landlord said thank you and you will need 23 years to recoup your $63 that you saved by waiting for the market to “drop”. What if rates do not change? It will still take you over 10 years to get even for renting for a year.
Oh, on the same subject which is a better buy? A bank owned home or an upgraded owner occupied home competing with the banks to sell? I think that as a personal home or an investment, you are selling yourself very short by only buying on price today and not looking at the inherent value of upgraded owner occupied homes. As an investor some of the REO’s are clearly great buys but again, if you are buying for the long run, really take the time to look at your long term rental growth or costs to upgrade by looking at some of the owner occupied homes with their upgrades (many of the foreclosed home’s lack upgrades and improvements as the buyers were buying the minimum stripped down homes in many cases). The value of better located homes and better upgraded homes in the future can be counted on to return a better value/rent. Always keep in mind that money is in fact cheap and an extra $10 per day can make the difference between a plain Jane home and a really nice home.
For the buyer here is a sale that closed on 7/28/08 and a buy now vs. a rent and buy and wait for the market to drop scenario:
2,500 square foot home rental value $1,500 per month x 12 months = $18,000 rent plus an extra move for $2,500 for a total out of pocket of $20,500 (if you do this for 2 years the numbers the cost is about $38,500). Purchase today with 10% down or $31,000 your P.I. payment will be fixed @ $1,730 per month.
Now in one year assume that the home has lost 10% value and rates have moved as expected .5% up the new P.I. will be $1,665 per month. You saved by waiting to buy 1 year $63.00 per month but you spent $18,000 to rent so you could get a “real deal”. The landlord said thank you and you will need 23 years to recoup your $63 that you saved by waiting for the market to “drop”. What if rates do not change? It will still take you over 10 years to get even for renting for a year.
Oh, on the same subject which is a better buy? A bank owned home or an upgraded owner occupied home competing with the banks to sell? I think that as a personal home or an investment, you are selling yourself very short by only buying on price today and not looking at the inherent value of upgraded owner occupied homes. As an investor some of the REO’s are clearly great buys but again, if you are buying for the long run, really take the time to look at your long term rental growth or costs to upgrade by looking at some of the owner occupied homes with their upgrades (many of the foreclosed home’s lack upgrades and improvements as the buyers were buying the minimum stripped down homes in many cases). The value of better located homes and better upgraded homes in the future can be counted on to return a better value/rent. Always keep in mind that money is in fact cheap and an extra $10 per day can make the difference between a plain Jane home and a really nice home.
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