Buying a Home? Why the FHA Loan is No Longer the Low Down Payment Loan of Choice

This the second article in a series discussing the ins and outs of the best mortgage loan products available for home buyers.  Last week, the USDA Rural Housing Loan was featured.

The FHA loan was once a very popular and useful loan for helping first time home buyers achieve their dreams of home ownership.  “Was” is the key word though because this loan is no longer the loan of choice for most home buyers.

First let me explain why the FHA loan has become the dinosaur of mortgage loans, and then I will explain what is the new best loan with a low down payment that can be obtained anywhere, regardless of whether it is in the City limits or not (see last week’s article about USDA loans).

Due to substantial losses taken during the economic recession and housing crisis, the FHA (Federal Housing Administration) had to increase its revenues to keep operating and attempt to avoid  a taxpayer bailout.  FHA makes its money by insuring loans which in turn allows mortgage lenders to grant loans over 80% loan to value.  In short, the FHA (backed by the U.S. Government) stands behind the loan, allowing lenders to loan home buyers up to 96.5% of the cost of the house.  Without this guaranty, lenders will not loan more than 80% of the cost of a home, eliminating many potential home owners from being able to buy.  After all, how many buyers have an extra $40,000 to put down on that $200,000 house?

For its most popular loan, the 3.50% down 30 year fixed rate mortgage,  FHA now charges 1.75% up-front Mortgage Insurance (MI) and an additional 1.35% annual MI based on the outstanding loan balance.  This annual MI expense used to drop off after the loan reached around 78% loan to value and home owners could request its removal after only 5 years.

However now, FHA borrowers must pay this MI for the full 30 years of their loans even when the loan to value is less than 50%, even when it is less than 10%.  On a $200,000 house the cost of the up-front MI would be $3,377.50 and the beginning monthly MI cost is $215.46 or $2,585 in just the first year.

The FHA loan was designed with a noble cause in mind: to make home ownership more affordable.  Yet now when compared side by side against the USDA Rural Housing Loan and the Conventional Loan with 3% Down, FHA is the most expensive loan option available.

There are a few scenarios where it does make sense to get an FHA loan:

  • If the buyer has had a bankruptcy and/or foreclosure within the past 7 years. Conventional financing requires a 7 year period to have passed, but FHA’s waiting period is only 3 years.  I recently closed a loan where FHA granted an exception and allowed the loan to be made less than 3 years from the foreclosure date (but greater than two years) due to extenuating circumstances.
  •  Manufactured Home Loans. The only mortgage loan product I have available for a manufactured home is an FHA Loan Product.  This is a lower cost loan than other financing for manufactured homes through finance companies.
  •  Refinancing? FHA offers some higher cash out refinance options than conventional loans and also FHA has a Streamline refinance where the home owner can get the benefit of a lower rate without having to have an appraisal completed on the house. This is very useful for those who home value is under water.

If you cannot qualify for a USDA Rural Housing loan due to income or property location eligibility reasons and want a low down payment loan, the Conventional Loan with 3% down is a better and lower cost option than the FHA loan.  I’ll feature this product in my next post.

You are welcome to email specific questions to me at mtarleton@englending.com, call me at 850-866-2963, and also visit my website at www.bankofengland.us.

Mike Tarleton
Sr. Mortgage Loan Officer
Bank of England
850-866-2963 (Cell)
706-888-0980 (Cell / Text)

NMLS: 264821
Logos with pic

 

Buying A New Home? Which Mortgage Loan is the Best?

Are you in the market to buy a house?  What kind of mortgage loan do you want? The best loan with the lowest rate of course. That is an easy answer. What is not so easy is determining the ins and outs of the various products available. It all depends on several things:

  • How much are you paying for your home?
  • What down payment are you able and willing to make?
  • Where is your home located? Certain products have geographical restrictions like the USDA Rural Housing loan.
  • Do you have VA loan eligibility?
  • Are you buying a home that will need a Jumbo loan?
  • Are you buying a stick-built or manufactured home?

There are so many variables and loan products, each with its own pros and cons that it quickly becomes a mind boggling process.  Over the next few weeks I will feature a different mortgage loan product and discuss the ins and outs of each.  You are welcome to email specific questions to me at mtarleton@englending.com and also visit my website at www.bankofengland.us.

This week’s featured mortgage is the:

USDA Rural Housing Loan

The Good:

  • This loan offers 100% financing for qualified buyers.
  • It is a government backed loan which means the interest rates are normally lower than conventional loans.
  • This loan is geared towards borrowers with low to moderate income levels.
  • This loan is a lower cost loan when compared side by side with the FHA loan.

The Bad:

  • The property you are buying must be located in an area deemed eligible by USDA and they did not create this program for city slickers.  If you are buying in Bay County there is a good chance the house is eligible.  Areas which are eligible are typically located outside the city limits, but you can find a link to the eligibility maps here:  http://www.bankofengland.us/loanOptions/Featured/RHS%20Loan%20Program/
  • USDA also has a maximum income limitation to qualify.  It’s not just your income but the income of everyone that resides in your household whether they are on the loan or not (even the teenage part-time worker).  The link posted above will take you to a page that you can input your information to see if you are eligible based on your income and household information.
  • The loan has to be underwritten twice, once by the lender which is usually a 3-4 week process, and then again by the Statewide USDA office. Currently the Florida USDA office in Gainesville is telling lenders to expect 30-40 days for files to be underwritten. That makes the total process start to finish around 60-70 days.
  • Does the house you are buying have a pool? If so, USDA will not finance any value to be given to the pool.  It’s not that a USDA cannot be made if there is a pool but the house must appraise on its own merit with no value given to the pool.

The Ugly:

  • Since I moved to PCB, I have run across several service members that were made USDA loans rather than VA loans and are now trying to refinance to lower their rates.  Had these people taken out VA loans rather than USDA loans when they bought their houses years ago they would now be much better off because they could refinance them more easily. I’ve seen people with higher rate USDA loans not be able to refinance to lower their rates for a variety of reasons such as (1) they are now making too much money and are over the income limitation threshold, (2) they no longer live in the house (military tend to move every few years), (3) they have married and the household income is too high and over the threshold limit, etc…  However, this should not scare anyone from getting a USDA loan now. There is not much likelihood that rates will ever be this loan again and especially.

 

One important thing to consider is that while the USDA loan does offer 100% financing, it does not provide financing for closing costs and pre-paid items like insurance and property taxes.

Despite a few items to consider, the USDA loan is still a great loan, especially if you want no down payment.  It is a much better and less costly loan than the FHA loan.  USDA charges an up-front Funding Fee of 2% which is financed into your loan and also charges 0.40% that is paid monthly included in your payment amount. Compare with FHA’s monthly mortgage insurance cost of 1.35% this is definitely the way to go if you and the house you are buying meet the qualifications.

Mike Tarleton
Sr. Mortgage Loan Officer
Bank of England
850-866-2963 (Cell)
706-888-0980 (Cell / Text)

NMLS: 264821
Logos with pic

30A Sales Activity

What’s Going On in the 30A Real Estate Market?

Are statistics exciting or what? To some, me included, it is like watching grass grow, unless it happens to be about a subject dear to my heart or perhaps my wallet.

Recently there has been a lot of buzz in the area about how the market is going up and the doom and gloom is over. With that in mind I decided it was time to just take a look at the facts and see where things stand.

The area that I am concentrating on is the roughly 18 miles of the Hwy. 30A corridor. I am comparing the first 2 quarters of 2012 to the same period in 2011 (January 1 to June 30th). These numbers were generated from the Emerald Coast Association of Realtors and do not include properties that were handled outside of that format.

These are simply the facts and I will let you draw your own conclusions, but I do have a couple of observations.

It is apparent that sales activity is up as far as single family homes and residential land is concerned. Prices are also up in those 2 categories with 5.6% in price per square foot for homes and 10% for residential land. Time will tell if these increases are sustainable. Condominiums are a different matter, while sales have gone down the prices have gone up 7.3%. It’s possible sales have been affected by the financial market. Condominium mortgages continue to be problematic.

Well, the grass has grown a little since you’ve been contemplating this information. I hope you find it useful and welcome any suggestions you may have for additional research on this topic that affects all of our wallets.

*Statistics were compiled by Hugh Smith using data provided by the Emerald Coast Association of Realtors.

Beachy Beach Real Estate  850-233-4351

Will Gulf Front Condo Prices Continue to Fall?

Is the Gulf Front Condo Market at the Bottom?

As a real estate professional who specializes in Gulf Front Condos in Panama City Beach, I get asked all the time for my opinions about the current marketAre condo prices going to drop anymore?   When are prices going to start going back up?   Are short sales and foreclosures still dominating the market?  Should I buy now or wait a little longer?

In my opinion, I think now is a great time to buy.  I know what you’re thinking.  “Of course he’s going to say ‘buy now’, he’s a real estate agent and he just wants to make a sale.”  Not so fast, I like to base my opinions on facts and not just good old fashioned optimism.  So here are the facts.

The Bay County Multiple Listing Service (MLS) shows that there were 44 gulf front condos in Panama City Beach sold in January of 2011.  In Jan. of 2012 that number was up to 47.  It’s a slight increase of almost 7% I know, but let’s look a little deeper.  The average sales price in Jan. of 2011 was $183,509.  In Jan. of 2012 the average was $217,436.  That’s nearly a 20% increase in sale price in just one year.

Are you thinking that 2012’s average sales price must have been skewed by the sale of a huge, really high priced penthouse?  Think again. The highest priced sale in Jan. 2011 was $600,000.  The highest priced sale in Jan. 2012 was $540,000.  Even if that weren’t the case, we can level the playing field by looking at the average price per square foot.  In Jan. 2011 this was $164.27/Sq.Ft. In Jan. 2012 it was $183.93/Sq.Ft. That’s a 12% increase.

Are foreclosures and short sales still dominating the market?  Yes and no.  In Jan. 2012, 36% of sales were either foreclosures or short sales.  While that’s still a considerable percentage, it’s actually down from 45.5% in Jan. 2011.   If you are the type of person that likes to see these numbers in a neat and clean format (like me) here’s a handy table.

Gulf Front Condo Sales Comparison
January 2011 vs. January 2012

Jan. 2011 Jan. 2012 % Change
Total Sales 44 47 6.82%
Average Price $183,509 $217,436 18.49%
Average Price / Sq.Ft. $164.27 $183.93 11.97%
% Foreclosure/Short Sale 45.50% 36% -20.88%
Listing $ vs. Sold $ Variance -7.85% -4.48% -42.93%

The bottom line is that nobody has a crystal ball.  Any investment carries inherent risk.  The savvy investor looks at the big picture.  Does the picture of today’s condo market in Panama City Beach look like we’re at a snow capped peak or are we somewhere near the bottom in the foothills?

If you are interested in finding out more about Gulf Front Condos in Panama City Beach, please contact me, Opey Russ Broker-Associate at Beach Beach Real Estate, at 850-699-1996.

Condo Sales SOAR 44% This Spring and Summer

We’ve all been wondering how condo sales were going to do this year after last year’s oil spill mess.  Well, so far, quarter 2 condo sales are pacing to have an astounding 44% increase over last year.  Yes, that’s a 4, paired with an 4 and a percentage sign.  Condo sales are up 44% this year over last.

How many condos were sold.

Looking from April 1 through today, there have been 262 condos sold on Panama City Beach according to the Panama City MLS.  During the same period in 2010, there were a total of 182 condos sold.  Many expected and speculated that sales this year over last would be higher because of the negative effects from the oil spill, but 44% is staggering.

If we take the total number of condos sold, and divide it by the number of days in the period, and multiply it by the number of days left in Q2 2011, then add that number to 262, then at this point, we’re pacing to sell 294 condos for the second quarter period 2011.  During Q2 2010 there were 215 condos sold – this would still put us at a 37% increase over last year.

Average price, size and square foot.

Looking closely at the numbers, it’s always fascinating to me to see what people are buying. Here are some averages to soak up.

  • Average list price: $192,488.95
  • Average sold price: $179,729.42
  • Average number of bedrooms: 1.78
  • Average square footage: 1,122
  • Average price per square foot: $157.15
Break down of some of the more popular rentals.

Aqua

  • 4 condos sold during period
  • Average list price: $338,475.00
  • Average sold price: $303,750.00
  • Average number of bedrooms: 2
  • Average square footage: 1,349.00
  • Average days on market: 426
  • Average price per square foot: $225.13

Calypso

  • 8 condos sold during period
  • Average list price: $259,787.38
  • Average sold price: $244,062.50
  • Average number of bedrooms: 1.75
  • Average square footage: 1,138.63
  • Average days on market: 228.88
  • Average price per square foot: $214.17

Emerald Beach Resort

  • 5 condos sold during period
  • Average list price: $182,279.80
  • Average sold price: $170,100.00
  • Average number of bedrooms: 1.40
  • Average square footage: 1,051.60
  • Average days on market: 174.20
  • Average price per square foot: $158.86

Tidewater Beach Resort

  • 16 condos sold during period
  • Average list price: $194,125.06
  • Average sold price: $185,031.25
  • Average number of bedrooms: 1.44
  • Average square footage: 1,028.44
  • Average days on market: 82.50
  • Average price per square foot: $178.26
Pricing this year over last year.

The number of condos sold has sky-rocketed, but the price has fallen 13%.  I say fallen, but many would choose to use the word “corrected”.

The average price for the period last year was $302,311, and the average price for the period this year is $179,729.

Observations, opinions and summary.

Being the proponent of Panama City Beach that I am, the huge increase in sales numbers is very exciting.  The volume of sales is very promising coming out of an economic downturn.  People are becoming more confident in their purchasing, they’re taking action in buying up inventory and they’re telling their friends about the great deals they are getting.

The days of buying a condo and generating revenue from rental are back.  Condo pricing is getting back to a point where it makes sense to purchase and then rent out. I get calls all the time from people asking me if it makes sense to buy this or that, looking at rental revenues.  Most of the properties I manage are booked solid all summer long, with decent rates.  More people are wanting to come to the beach this year then any other year before.  Just look around you, Panama City Beach has been buzzing like crazy the last couple weeks since summer started.

Good luck, happy buying and ask if you have questions!

Market Update – Recovery? What Recovery?

This post originally appeared on PanamaBeachRealty.com’s blog.  For more information about real estate in Panama City Beach, current market conditions, and other things happening in real estate locally, you should check it out.

Each month we hear stories about how the real estate market in Panama City Beach is bottoming. We are continually told that it is ready to bounce back at any time. How much longer are we going to listen to this while watching prices drop quarter after quarter? Potential buyers should not be focusing on the overall market. They should instead be looking at the specific condominiums they are interested in. On the whole, the real estate condominium market in Panama City Beach continues to fall. The average price per square foot of a 700 square foot or larger gulf front one-bedroom condo has dropped another $18 per square foot during the first quarter of 2011. These dropping rates do not indicate that the market, as a whole, is bottoming. A large number of floor plans and buildings across the beach are showing no signs whatsoever of bottoming.

Continue reading “Market Update – Recovery? What Recovery?”

Panama City Beach 2010 Real Estate Market Summary

This article is part of our Real Estate category where we talk a bit about real estate in the Panama City Beach area. This post originally appeared on Blog.PanamaBeachRealty.com which often talks about real estate market conditions in Panama City Beach.

Initially, the 2010 Panama City Beach real estate market was stronger than in 2009. However, potential buyers became worried about the possibility of the Deep Horizon Oil spill, so sales declined in April and remained depressed until September. When purchasers realized that the spill would not affect the area, September 2010 sales volume increased. This still was not enough to return to 2009 levels.

Continue reading “Panama City Beach 2010 Real Estate Market Summary”