When Close Isn't Close Enough

Amanda and Josh had been house shopping for months with no success.  They were trying to keep their expectations realistic and view homes with an open mind, but the houses just weren’t measuring up.  They had come to my office hoping to find a solution that would put this home shopping torture to an end and get them into a new house soon.

“So….you haven’t found ANYTHING you like?”  I asked at our meeting.  “Well….”Josh replied.  “There is one.  It’s close…..” he looked at Amanda.  “But not close enough” she added with a frustrated scowl.

“What if we could make it close enough?” I asked.

That led us into a conversation about the FHA 203k streamline renovation mortgage.  The 203k is a mortgage option that lets a buyer buy a home that needs some work.  They find the home, get bids on that work, and then get a mortgage to cover both the home purchase and the renovations.  The renovations are done after the closing, allowing the buyer, seller and Realtor to finish the transaction in a normal timeline (typically 45 days) with the renovations being coordinated by the lender and buyer after the closing.

A new spark came into Amanda and Josh’s eyes as they realized this option might work.  That night, they looked at the home again, this time with renovations in mind.  The next day they contacted me with their wish list.

“We’d like to get a new roof put on the house. The flooring is horrible too and needs replaced.  Oh, and we want some of the rooms painted.  And new countertops in the kitchen.  And the front window really needs replaced.  And a few new doors would be great.  Would that work?”  They asked.  “Yep, that would work.   You can have non-structural repairs up to $35,000 and, as long as you’re not over-improving for the values in the neighborhood, that should be fine.”

With that, they made an offer on the ‘close but not close enough’ home.  The offer was accepted and they hurried to get bids for the repairs.  Once those were in, the process worked like any other mortgage.  The appraisal was done, the loan was underwritten, and 45 days later we closed.

Amanda and Josh closed on their purchase last week and they are now in their new home.  They are working with the mortgage escrow team and their builder to get the renovations done and they expect those to be completed in the next 30 days. 

This couple isn’t alone on experiencing home buying frustration.  A lot of buyers find homes that are ‘close but not close enough’ so they give up.  What if a home could become all the buyer hopes for and more though? 

Home buyers - don’t give up!  This option could very well work for you too.  To learn more about the FHA 203k streamline renovation mortgage, give me a call at 574-234-5201 or email me at lori.hiscock@ruoff.com.

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here. NMLS#404320.

Ruoff Mortgage Company, Inc. is an Indiana corporation licensed by the Indiana Department of Financial Institutions (DFI) and operates with the following licenses:

Indiana-DFI First Lien Mortgage Lending License #10994;
IL Residential Mortgage Licensee #MB.6760734;
Michigan 1st Mortgage Broker/Lender License #FL0017496.

Seller Beware! New Risks To Seller Financing

I received an email from a well respected real estate attorney in our area this week that addressed the impact of the Dodd Frank Act on seller financing.  It is critically important information and he has given me permission to share it with you.  If you work with investors who consider offering this financing option, you need to read this:

There is a new federal law that makes it very dangerous for real estate owners to provide seller financing for the sale of any property where the purchaser is going to live in the property.  The law is the mortgage portion (Title 14) of the Dodd Frank Act and became effective on January 10 of this year. 

  

Here is the basic outline of how this law works.  The seller who is willing to take payments over time must now hire someone to give the buyer advice on whether or not the buyer can afford the payments the seller is requesting.  This person is called a mortgage loan originator, even if there is no mortgage involved.  The seller pays the mortgage loan originator whatever his or her fee is.  People in the real estate industry are predicting that these fees are going to be running between $750 and $1500 per deal.  But that assumes you can find someone with the required license.  After months of searching I have still not been able to find anyone any place in the country who is licensed and willing to do the consulting for a private deal.  These people are going to start sprouting up, but if they exist now, I have not been able to find any of them.

  

If you, as the seller, do not hire a mortgage loan originator to advise the buyer, then after the deal is cut and the buyer has moved into your house, the buyer can sue you and recover back all of the finance charges (interest and any other fees) and force you to pay his attorney fees for suing you.  Further, a new bureau of the federal government is going to monitor this process and help your buyer if needed to bring this lawsuit against you.  Already this bureau (called the "Consumer Financial Protection Bureau") has a place on its website for visitors (your buyers?) to click in order to file a complaint online (from the comfort of the home you have sold to them).  

  

Even if you hire a mortgage loan originator, that persons cannot bless the transaction if your documents call for a balloon payment.  Balloon payments are prohibited, which means that you must carry the paper throughout the full term of the amortization.

  

Further, if your buyer defaults and you have to foreclose, your failure to comply with the Dodd Frank Act can be used as a defense.  If that occurs, I promise that you will be tied up in court for months or years just trying to get rid of this person. 

  

Here is a partial list of the transactions which you can no longer do without hiring a mortgage loan originator:

  

1. Lease Option where any part of the payments go toward principal reduction
2. Some other lease option arrangements (if it looks to the court like it was really intended to be a sale over time).
3. Land Contracts
4. 1st mortgage where you agree to take your payments over time
5. 2nd mortgage where you agree to take your payments over time or at some time in the future (like when the 1st mortgage has been paid).

Note - buyers of mortgages which were written after January 10, 2014 also must comply with the act and are subject to the same defenses as the original mortgage holder.

  

There are few exceptions to this law.  First, seller financing on non-owner occupied houses is still allowed.  Financing on commercial properties is still allowed.  Financing of other investor's purchase of your property is still allowed (but they cannot provide seller financing to their buyers).  Seller financing of the seller's own personal home (whether held individual or in a family trust) is allowed provided the seller sells no more than one home in any 12 month period.   

  

It is hard for me to comprehend or describe how this law is going to change our industry.  The State of Colorado has already issued a caution to its realtors not to be involved in any seller financing deals because of the changes effected by this Dodd Frank law.   Any potential buyer who has had a foreclosure in the last three years or a bankruptcy in the last two years is probably going to be prevented from buying any house in which to live.

 

Isn't this interesting information?  If your seller is wanting to offer financing on the home they live in and they are only doing it this one time, they appear to be exempt.  If your client is an investor and the home was not their primary home prior to the sale, though, this is a deal-changer.

 

Feel free to forward it to anyone who you think would benefit from knowing it!

 

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here. NMLS#404320.

Ruoff Mortgage Company, Inc. is an Indiana corporation licensed by the Indiana Department of Financial Institutions (DFI) and operates with the following licenses:

Indiana-DFI First Lien Mortgage Lending License #10994;
IL Residential Mortgage Licensee #MB.6760734;
Michigan 1st Mortgage Broker/Lender License #FL0017496.

Making it Work with Renovation Financing

Here in South Bend, Indiana, buyers are having a tough time.  There just don't seem to be enough good homes on the market right now.  They're looking and looking, but nothing is working.  To make it even worse, when they are finding a good one, it's often sold before they can get an offer in themselves.

Great time to be a seller, right?  Tough time to be a buyer though.

So what should a buyer do?  Keep looking, of course.  Trends like this can change quickly and the right home could come on the market at any time. 

They also should consider some 'out of the box' options like renovation financing.  Renovation financing lets a buyer buy a home that works in terms of size and layout but that may have mechanical or cosmetic issues.  They then roll the cost for upgrades and repairs into the new mortgage to make the home what they want it to be.

Here's a quick overview of the FHA Streamline 203k renovation loan ...

 



To learn more about this and other aspects of mortgage financing, please visit my YouTube channel at www.youtube.com/SouthBendHomeLoan.  If you have specific questions, feel free to contact me at lori.hiscock@ruoff.com.

 

 

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here. NMLS#404320.

Ruoff Mortgage Company, Inc. is an Indiana corporation licensed by the Indiana Department of Financial Institutions (DFI) and operates with the following licenses:

Indiana-DFI First Lien Mortgage Lending License #10994;
IL Residential Mortgage Licensee #MB.6760734;
Michigan 1st Mortgage Broker/Lender License #FL0017496.

Getting Creative In A Tight Market

Sadly, I'm working with a lot of frustrated home buyers right now.  They want to buy a home.  They're fully preapproved and READY to buy a home.  They just can't find a home.

The Michiana market has had a strong shift in the last 60 days and we now find ourselves with a serious lack of homes for sale.  When a good home goes on the market, it is often selling in days, many times with multiple offers.  Buyers are needing to be quick on the draw.  If they're not, they're finding that the attractive homes are gone before they can even schedule a showing.

This is leading buyers to look at options they typically wouldn't have considered.  Two options that I've had multiple questions on lately are the HomePath Mortgage and the FHA Streamline 203k.

HomePath Mortgage

So what is the HomePath mortgage?  HomePath mortgages are mortgages available to someone who is buying a Fannie Mae foreclosure.  A list of these properties can be found at www.homepath.com. 

Typically, someone can still buy a Fannie Mae foreclosure without using HomePath financing.  Most of these homes are also available with regular conventional financing or FHA.  HomePath is just another mortgage option offered on them that has some unique perks.

One perk of HomePath mortgages is that the down payment is only 5% but there is no mortgage insurance charged.  This can be misleading to buyers though.  They think this means they will pay less for the home.  True, there is no PMI, but the interest rate is higher so the payment typically is about the same. 

The second big perk (and my favorite) is that no appraisal is needed.  One of the biggest challenges with many foreclosures is that the condition of the home is too poor and the lender won't lend on it.  With HomePath, this doesn't come up.  Because the lender doesn't get an appraisal, they know nothing of the condition. The buyer gets to be the one who decides if the condition is acceptable to them with no input from the lender.

HomePath financing comes in two flavors - regular HomePath and HomePath Renovation.  Few lenders offer the Renovation option (I don't) but it does exist.  The website provides lists of lenders to contact if that interests you.

FHA Streamline 203K

For me, renovation financing is best done with the FHA Streamline 203k loan.  This is a FHA loan that allows a buyer to buy a home and roll the costs of repairs to it into their new mortgage.

It's a great option that is highly under-used.  The reason it's under-used is because most lenders and Realtors are afraid of it.  They've seen it go horribly wrong and they don't want to subject themselves or their clients to that.

It can go horribly wrong, but it also can go wonderfully right when managed by a lender who understands it thoroughly and knows how to structure the process so that it flows as it needs to.  If a buyer is willing to invest a bit more time upfront to get educated on the pros and cons of this program and if they're willing to invest extra time during the process to work with contractors for the planning and completing of repairs, this option can help them turn the home that others are passing on into a home that others will envy.

Exploring Options

When inventory is low, buyers definitely will benefit from being open to different options. The HomePath mortgage and FHA 203k are two very good ones, with the 203k being the one that typically offers the most potential for the right buyer.  To learn more about how these options could help you or your client get into a home now, give me a call or drop me an email today!


Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here. NMLS#404320.

Ruoff Mortgage Company, Inc. is an Indiana corporation licensed by the Indiana Department of Financial Institutions (DFI) and operates with the following licenses:

Indiana-DFI First Lien Mortgage Lending License #10994;
IL Residential Mortgage Licensee #MB.6760734;
Michigan 1st Mortgage Broker/Lender License #FL0017496.

How a Database You've Never Heard Of Can Kill Your Sale

It happened just last week.  A young Michiana man was in the process of buying a home through a different mortgage lender.  Closing was a week away when his mortgage originator called him to say that his loan was being denied because there was a hit on his CAIVRS.  Not knowing what the heck CAIVRS was, he called his Realtor.  The Realtor, also not knowing what the heck CAIVRS was, called me. 

This buyer and Realtor aren't alone.  Many, if not most, people in the real estate world don't know what CAIVRS is, yet it is something that can kill a sale without warning.  To help prevent that from happening to you, let me fill you in on just what this deadly little acronym is.

One Dangerous Database

CAIVRS stands for Credit Alert Interactive Voice Response System and it is a database maintained by the federal government that lists people who have defaulted on a debt owed to the Federal government or who have had a government insured/guaranteed mortgage foreclosed on within the last three years.  It also lists people who are currently delinquent on a debt owed to the Federal government.

Examples of Federal debts covered in this database include previous FHA or VA mortgages, Federal student loans and Small Business Administration loans.   For a borrower that had an FHA or VA mortgage foreclosed on, that borrower is not eligible to get another FHA mortgage until three years after the date that HUD paid the insurance claim to the lender. The buyer will show with an open 'hit' in the CAIVRS database until that 3 year window has passed.

The 'Paid Date' Problem

The thing that trips most people up with this is that CAIVRS uses a different date for when that three years begins.  Buyers, Realtors and even many lenders assume the magic three years starts with the date of the sheriff's sale.  For general loan approval guidelines, it does.  For CAIVRS findings, though, it does not.  The date used in CAIVRS is three years from when HUD pays the insurance claim.

These two dates are often far apart.  While a foreclosure is typically viewed as 'final' when the sheriff's deed is filed, HUD may not actually pay the claim for months or even years after that point. 

Case in point - I had a client recently who had a foreclosure in 2009 but continued to pay on the mortgage for two years afterwards even though he wasn't legally obligated (nice guy).  Sadly, HUD didn't pay the claim until he stopped paying on the loan so his three year waiting period to buy a new home turned into five years all because his name was still showing as active in this database. 

What To Do, What To Do

The question then comes up, what if a potential home buyer is showing up with a hit in that CAIVRS database?  If the information in CAIVRS about a borrower with an FHA loan is incorrect, it can be fixed.  FHA will correct the information if the person sends the appropriate documentation showing the correct information to the FHA Homeownership Center that covers their area.  They can locate the correct FHA Homeownership Center by going to the following website and clicking on the applicable state: HUD Home Ownership Centers. 

If, however, the information in CAIVRS is right and the claim was just paid later than expected for some allowable reason, there is nothing the buyer can do but wait.  Until the three years has passed and their name is no longer showing in that database, they are unfortunately not eligible for a new FHA mortgage.

What should a Realtor do?  Realtors often know when a home buyer has had a foreclosure because buyers often share this information.  If you know that your client had a previous FHA or VA foreclosure, ask the mortgage lender early on if they have run the client through CAIVRS yet.  Don't be surprised if they are confused.  This is often a back office step that the upfront person may not be aware of.  Some lenders hold this step until closer to closing and that is dangerous for your buyer.  Ask the lender to run CAIVRS right away to make sure there wasn't a delay on this HUD payment.

If possible, you'd be even better of getting them connected with a lender who is well aware of CAIVRS and will run their name through it before even giving you that pre-approval letter.  That's now my standard procedure with anyone having a foreclosure on their credit report.  I'd be happy to take that additional, important step for you and your buyer.


Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.

No Down Payment and A Check Back At Closing

Debi and David bought a home last month.  It was a perfect home for them - two bedrooms, two bathrooms, brick exterior, recently remodeled, the works.  Their Realtor was sharp too and managed to negotiate a $72,500 price for them even though things were selling for $75,000+ in the area.

Debi and David were thrilled.  How could they not be?  They got a home of their own, their mortgage payment was significantly less than their rent had been, and they got a check back at closing.

Wait a minute.....did I say that they got a check back at closing?

Yep, I did.  Debi and David used IHCDAs Next Home Down Payment Assistance program to cover their down payment and their sharp Realtor negotiated for the seller to pay the closing costs and prepaid items.  Between these two, all the costs were covered so Debi and David got their full earnest money check back when they closed on the purchase.

Does that sound like an attractive scenario for you or someone you know?  Then let me tell you more!  IHCDA's Next Home Down Payment Assistance is a great program and it's easy for buyers and Realtors to participate in.  Here are the plusses of it:

• No Down Payment - IHCDA gives 3.5% of the price to the buyer.  This is a FHA loan with only 3.5% needed for the down payment so the whole thing is covered.  
• Lower Credit Scores Allowed - buyers with credit scores as low as 660 are considered for approval.
• Fast and Simple - the home buying process doesn't take any longer than normal and the home does not need to meet any higher standard.  The buyer does take an online homebuyer education class but that's about it.  Otherwise, it functions much like a regular FHA purchase.

Of course, there are always a few negatives:

• Higher Interest Rate - the Next Home interest rate is typically a little higher than the regular FHA interest rate.
• Higher Closing Costs - the closing costs are also higher so we normally have to ask for more in seller concessions to cover that.
• Two Year Occupancy - the buyer does have to stay in the home for two years.  If they don't they have to pay some of the money back.  If they do, though, the money is theirs. 

Are those drawbacks something that a buyer should consider?   Certainly, but for most buyers who are having a hard time saving up a down payment, they are well worth it.  To learn more about how Next Home might work for you or for someone you know, give me a call or pop me an email (574-234-5201 or lori.hiscock@ruoff.com). 

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.
 

Three Apps Every Michiana Realtor Should Have

There are hundreds of apps out there that Realtors could use.  Which ones are worth the effort of loading and learning though, and which ones are just a waste of your time?

Let me help you with that.  I've researched dozens of Realtor friendly apps and found three that I believe every Michiana real estate agent should have. 

Open Home Pro

Some Realtors love open houses but many do not.  Why?  Because they don't see much benefit for the time invested.  What if you could dramatically increase the quantity and quality of contact information you captured from open house visitors, though?

That's where Open Home Pro comes in.  It's friendly interface makes buyers more willing to provide information and it's survey option allows you to gather more client information than you typically would.  At just $14.99, Open House Pro is a must have app for any Realtors conducting open houses for their clients. 

DocScanner

I love DocScanner and personally couldn't conduct business as smoothly without it.  DocScanner is an easy-to-use app that lets you take pictures of a document with your phone and convert it into a PDF or JPEG file.  What I love best about DocScanner is both how clear the document come out and how easy it is to email them on once 'scanned'.  Trust me, if you invest the $4.99 to get it, you'll use it and love it. 

Mortgage App

I'm going to let you in on a secret.  If you every call me and ask me how much a payment is going to be for a client, I'm not going to log into some fancy-schmancy system to find out.  I'm going to pull out my phone, open this little mortgage app, and get you a fast and easy answer.

I love answering that question so feel free to continue calling me with it, but if you are the type who would like to calculate that answer on your own, you can download this app free of charge by opening this post from your cell phone and clicking here - Mortgage Payment App.  That will let you get a quick payment estimate for your client.  If you then want to double check it with me, just click the "Contact Me" link on any page in the app to call, email or text me with the house information.  I'll get the answer back to you right away.

Apps are great, but only if they provide some benefit.  The three apps listed above are sure to do just that and help you as you grow your business in 2014.


Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.