Home Sweet Home, Insider-Tips on Minnesota real estate.

A Golden Opportunity: 203k Program Helps First-Time Buyers Turn Dreams into Reality

As a first-time home buyer, Jessica Garcia was excited last April to officially begin her home search. She found a home within her price range, completed the lengthy paperwork and paid for the appraisals, only to later be told after four months that the deal would not close.

Out of luck and out of money, Garcia was frustrated, but not defeated. She went back to start the search again. It was then that she found the home she would later purchase. Upon first glance, Garcia liked the home and saw its potential, but didn’t have the upfront money it would take to rehab the home the way it needed to be done.

After some discussion, Garcia’s lender, Kevin Roy with Wells Fargo, realized that she might be able to take advantage of HUD’s 203k program, specifically designed to rehabilitate and repair single-family homes. The 203k is a single mortgage loan that provides funds to purchase a home and make repairs and improvements.

“The home needed a lot of work,” explains Garcia. “The previous owners had pets that had really torn up the carpeting and destroyed the blinds.”

Indeed, the home needed new flooring, carpets and, most importantly, a water softener for its wellwater system. So, when the opportunity arose to take advantage of the 203k program, Garcia was game.

“In the end, it worked out great,” she says. “The credit goes to Kevin because if he hadn’t told me about the 203k program, I would not have had the money to fix the home. All of the money I had was put into the appraisals and fees for the first home that I couldn’t close on.”

Once the transaction was set in motion, Garcia turned to Lowe’s store to help her bring her 203k projects to fruition.

“The people at Lowe’s were really great,” lauds Garcia. “I had dealt with a different home improvement retailer in the past, but never had very good experiences. I went to Lowe’s because the people who work there are always friendly and I had heard good things about working with them. The people there really were great—they provided explanations to all of my questions and made my experience easy.”

From the 203k paperwork to guiding her through the program, Garcia credits the Lowe’s team with a job well done. “The team at my Lowe’s was very helpful,” she says. “A couple of people—including manager Mike Cabana—helped me tremendously.”

Prior to closing, Garcia went to Lowe's and chose her products for the 203k projects. Once closing happened in late September, the Lowe’s team prepared for Garcia’s projects, ordering her new carpeting, wood flooring, a water softener and new dishwasher.

“It was amazing,” says Garcia. “The day I closed, I called them and they immediately started ordering the materials and products. Within a few weeks, everything was done.”

According to Garcia, the timing couldn’t have been better. In addition to the improvements she made with her 203k loan, Garcia also took on a few DIY projects herself—including repainting the entire house.

“I decided to put the 203k money into quality carpeting, flooring and, of course, the water softener. I also really needed a dishwasher—the house didn’t have one,” she explains. “The little bit of time I had between ordering the materials and installation was perfect. It gave me just enough time to get all of the painting finished.”

Despite months of worry, confusion and stress, Garcia is now thrilled with her home—and her experience with Lowe’s.

“I am very happy,” says Garcia. “Everyone involved did such a great job and helped me so much…Lowe’s helped me choose exactly what I wanted for my home. I love this house!

“A lot of money goes into buying a home,” she adds. “The 203k program is a great option. It allowed me to do far more than I would have been able to do on my own. As a first-time home buyer with a limited amount of money, it allowed me to do a lot and get exactly what I wanted. Working with Lowe’s was perfect, too. From their affordable prices to the customer service, it was a great experience overall. I would highly recommend both the 203k program and Lowe’s to anybody.”

For more information on the 203k loan program, visit www.hud.gov or www.re-buildusa.com

Why Existing Home Sales Are Flat, Not in Free Fall

Ignore today’s headlines on U.S. home resales. If you strip out the effects of tax credits, the underlying trend looks about flat, says from Tom Lawler, a housing economist in Leesburg, Va., who monitors local sales across the country day to day.

The housing market remains fragile, of course. It isn’t roaring back, but it isn’t in free fall either. Home sales for all of 2010 are likely to be about even with last year’s level, Mr. Lawler figures. The outlook still depends heavily on when the economy begins creating more jobs, how much interest rates rise and how many of the 8 million U.S. households that are behind on their mortgage payments can be saved from foreclosure.

The National Association of Realtors reported this morning that home resales in January declined 7.2% from December to a seasonally adjusted annual rate of 5.05 million units. That disappointed Wall Street, which expected a slight increase, but “anyone who was surprised shouldn’t have been,” Mr. Lawler says.

The original deadline for buyers to qualify for federal tax credits was Nov. 30. That led to a rush of buying in the fall. The annual sales rate, which is (imperfectly) adjusted to smooth out seasonal factors, leaped to about 5.6 million in September, 6 million in October and 6.5 million in November from the range of 4.9 million to 5.1 million that prevailed in June through August. Now the sales rate is back in that range.

“The home-buyer tax credit goosed things in a big way,” Mr. Lawler says. It pulled forward sales that otherwise would have happened later.

Although the January rate was far below the peaks set last fall, it is still nearly 12% above the deeply depressed level of a year earlier.

The tax credits have been extended until the end of April, and that is likely to lead to another spurt of buying in the next couple of months, though not so big a spurt as last fall, says Mr. Lawler.

He figures sales figures for February will be distorted by snow storms, which probably delayed some closings. Home resales are based on sales closed during the month, and closings normally come about four to six weeks after contracts are signed.

So remind yourself not to get too excited about next month’s home sales report, either.

Wall Street Journal By James R. Hagerty

More on Existing Home Sales

Earlier the NAR released the existing home sales data for January; here are a few more graphs ... Graph shows NSA monthly existing home sales for 2005 through 2010

For complete information go to Calculated Risk Finance and Economics.

Housing Problem Was the Bubble, Not the Bust

As sales of new homes reach historic lows, there are increasingly strident calls for Washington to do something. These demands for action, however, fail to recognize that it was government, mostly Washington, which got us into this mess in the first place. Decades of subsidies for the housing industry have resulted in booms and busts that have repeatedly undermined the strength of our financial institutions while leaving the nation with a massive inventory of vacant homes.

The rental vacancy rate is just shy of 11 percent, while owner vacancy rate is approaching 3 percent, both close to double their historic average. In a nation of about 130 million homes, we have almost 19 million that are vacant. Almost 7 million of these are being "held off the market' awaiting better market conditions. Seven million is close to annual record for combined new and existing home sales. It should be painfully clear that our housing markets are facing a problem of way too much housing. Any increase in new housing starts should be a signal for tears, not optimism.

Mark A. Calabria is director of financial regulation studies at the Cato Institute.

U.S. Economy: New-Home Sales Decline to Record Low

(Bloomberg) -- Sales of new homes in the U.S. unexpectedly fell in January to the lowest level on record, a sign that an extension of a government tax credit may not be enough to rekindle demand.

Purchases declined 11 percent to an annual pace of 309,000, below the lowest forecast in a Bloomberg News survey of economists, figures from the Commerce Department showed today in Washington. The median sales price dropped 2.4 percent from January 2009 and the supply of unsold homes increased.

Three Regions Drop

Three of the four U.S. regions showed declines in new-home sales last month, led by a 35 percent plunge in the Northeast. Purchases fell 12 percent in the West and 9.5 percent in the South. They rose 2.1 percent in the Midwest.

The median price of a new home in the U.S. decreased to $203,500 in January, the lowest since December 2003, from $208,600 in the same month last year.

Rising foreclosures are the main threat to a sustained housing recovery. A record 3 million U.S. homes will be repossessed by lenders this year as unemployment and depressed home values leave borrowers unable to make their house payments or sell, according to a RealtyTrac Inc. forecast last month. Last year there were 2.82 million foreclosures, the most since the Irvine, California-based company began compiling data in 2005.

To contact the report on this story: Bob Willis in Washington at bwillis@bloomberg.net

Foreclosure Bargains Getting Harder to Find

Home buyers hoping to snag a really good deal on a foreclosed home are finding it increasingly difficult because supply is shrinking.

Not only have attractive homes in popular neighborhoods already been snapped up, but also government help for distressed buyers is delaying more foreclosures.

Demand is driving up prices. Investors say typical prices have climbed from 75 percent of appraised value to 85 percent or higher when there are bidding wars.

Source: The Wall Street Journal, James R. Hagerty

National Average 30 Year Interest Rates

Weekly Market Activity Report

The Twin Cities housing market in early 2010 looks pretty much like it did in early 2009. How similar? Over the last three months, there have been 7,189 signed purchase agreements; there were 7,186 a year ago during the same time period. Eerie, no? Robotic precision.

For the week ending February 13, there were 711 pending sales, down 2.7 percent from last year, and new listings posted 1,764 units, up 4.9 percent from a year ago. The only thing that's really changed much is the supply of available homes, which continues to dwindle relative to a year ago. The current stock of 22,271 available homes represents a 12.4 percent decline from a year ago.

VIEW FULL REPORT | VIEW MORE RESEARCH REPORTS

Buyers will be pinched by FHA's new rules.

No one likes it when changes to mortgage underwriting make it harder for working households to secure safe and affordable home financing.

But in the case of the FHA’s tightened lending requirements announced in late January, the end may justify the means. The policy changes are designed to shore up the FHA’s capital reserves and help the agency do a better job of managing risk.

"These changes, while serious, are reasonable," says John Anderson, CRS®, GRI, a 30-year real estate veteran who chairs the NATIONAL ASSOCIATION OF REALTORS®’ Federal Housing Policy Committee. "I think the FHA is doing the right thing."

Nonetheless, Anderson, broker-owner of Twin Oaks Realty Inc. in Crystal, Minn., acknowledges that many households will be adversely affected. Buyers will have to either spend more to secure financing or scale down what they buy.

Among other things, the FHA is raising its upfront mortgage insurance premium to 2.25 percent from 1.75 percent, boosting the minimum down payment to 10 percent for borrowers with a credit score of 580 and below (it stays at 3.5 percent for everyone else), and reducing permissible seller concessions from 6 percent to 3 percent.

The FHA also will seek legislation to raise the annual mortgage insurance premium to a level above the current cap of 0.55 percent. The agency already has authority to institute the other changes.

"Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important," FHA Commissioner David Stevens said in a statement.

Anderson, looking at his own market in Minnesota where the median home price is under $200,000, says the impact of the changes will be subtle. For many first-time buyers, including younger households that haven’t had a chance to develop much of a credit history, the credit-score floor will be a hurdle because the minimum 10 percent down payment will simply be out of reach unless they can get help from elsewhere, like family. "But even mom and dad are stretched these days," he says.

The reduced seller concessions will hurt, too, because these funds typically help buyers take care of closing costs like title insurance and the mortgage origination fee. "With that now limited to 3 percent, buyers might have to come up with another 1 percent of the mortgage amount," Anderson says.

The higher up-front mortgage insurance premium won’t affect the amount of cash buyers will need to raise, as that can be financed. But it will affect how much house they can afford, and could increase their monthly payments by $50 to $100. "That extra cost can have a big impact," he says.

Yet Anderson thinks these hurdles are a reasonable price to pay to ensure a healthier FHA, which today commands about 40 percent of the mortgage market nationally and far more than that in regions like the Midwest, with a strong tradition of using FHA-insured loans.

What would be worse, he says, is for the FHA to imperil its financial health. "Over the last couple of years I would have been out of business without the FHA," he says. "They say they’re trying to strike the right balance and I think they are."

Short Sale Buyers Face Difficulty Closing Deals Quickly

Rachel Nacion-Ograyensek and her husband are getting nervous. The house that the two apartment dwellers want to buy—the one with the double oven, pool and tiled patio—may slip away from them.

It’s on the market as a short sale, so the owner can’t act until the mortgage holder approves the discount price. But the Altamonte Springs, Fla. couple insists on buying their first home in time to take advantage of the federal government’s home buyer tax credit, which now expires April 30, 2010.

“The house is our dream house—it’s perfect for us,” Nacion-Ograyensek said. “We are trying to get in on the tax credit, but it’s done in April, and it’s already February. We’ve gotten to the point where we’re passively looking for other houses, but none are quite right.”

Under pressure from the real estate industry, Congress extended and expanded the tax credit last fall. It was to have ended November 30, 2009 and benefit only buyers who had not purchased a home in the past three years. Like the original, the latest version is worth as much as $8,000, but it gives both first-time buyers and qualified existing homeowners until April 30 to secure a contract on a home, and until June 30 to close the deal.

Though real estate agents and homebuilders hope the measure boosts sales, as the previous version was credited with doing, some fear that buyer’s intent on getting a short sale bargain will not make the new deadlines.

In the Orlando area, 67% of Realtors’ existing-home sales in December 2009 were distressed sales—and about half of those were short sales, known for taking at least three months to complete. Even buyers who nail down a contract with the seller by the April 30 deadline can’t be sure the purchase will close within the required two months. “That’s where you get into that riverboat-gambling mentality,” said Jim Ruddy, the longtime real estate agent representing Nacion-Ograyensek and her husband. “Is it worth gambling that $8,000?” At this point in the tax credit countdown, buyers interested in purchasing a short sale must decide whether they are really committed to that property—enough that they would still want to purchase it if they miss the June 30 tax credit deadline, Ruddy said.

Nacion-Ograyensek said she and her husband recently revisited the short sale house in Altamonte Springs and decided it was worth the gamble. The kitchen is ideal for cooking, and the backyard is large enough if they have children or adopt a dog. They have decided to stick with their plan; still, each day that passes makes them more anxious.

In hopes of capturing tax credit-motivated buyers who aren’t focused on distressed properties, Florida’s real estate agents have scheduled an unprecedented statewide open house of properties listed for sale. The event, organized by the Florida Association of Realtors, is set for April 10-11—just two weeks before the tax credit deadline.

Kathleen McIver-Gallagher, chairman of the Orlando Regional Realtor Association, said buyers intent on getting the tax credit should be concerned if they are trying to purchase a short sale through lenders known for slow responses to short sale offers.

As the April tax credit deadline nears, buyers will probably become more interested in homes other than distressed sales, McIver-Gallagher said. “There are plenty of regular homes out there,” she added.

Compounding the delays are new reporting rules that lenders must now follow. Nate Morris, vice president of Thomas Mortgage and Financial Services, said the new requirements involve good faith estimates and HUD closing documents. “It certainly could further complicate things,” said Morris, a board member of the Mortgage Bankers Association of Florida. “I don’t see this working out till the middle of the year. Everyone in the mortgage business talks about it on a daily basis.”