Gauge of U.S. pending home sales declines to a six-month low

A gauge of U.S. pending home sales fell to a six-month low in January as buyers competed for a limited number of properties.

The National Association of Realtors’ index of pending home sales decreased 2.8% from the prior month to 122.8, according to data released Thursday. December data was revised to a 0.5% gain after a previously reported decline. The median estimate in a Bloomberg survey of economists called for no change in January.

The decline is the latest sign that the housing boom may be starting to cool amid soaring prices, a lack of inventory and rising mortgage rates. The residential real estate market has been a bright spot in the economy as it recovers from the pandemic. Contract signings are still up 8.2% from a year ago on an unadjusted basis.

“There are simply not enough homes to match the demand on the market” Lawrence Yun, chief economist at the NAR, said in a statement. Still, Yun said he expects inventory to rise in the coming months.

The lack of inventory thus far has driven prices upwards, putting homeownership out of reach for some, said Joel Kan, the Mortgage Bankers Association’s associate vice president of economic and industry forecasting.

“Various other data sources have pointed to higher median sales prices and record-high purchase mortgage loan sizes, all of which have started to create affordability challenges in many parts of the country,” he said. “While home building has picked up to attempt to meet the high demand, increased listings of existing homes will be needed in the coming months to alleviate this shortage of housing inventory.”

By region, contract signings fell in the West, Northeast and Midwest. In the South, the index for pending home sales rose to the highest since August.

Source: nationalmortgagenews.com

A Guide to Property Taxes in 2021: States With the Highest (and Lowest) Rates

With tax season upon us, it seems like a good time to check what homeowners pay in property taxes—and a new survey confirms that where you live makes a huge difference in how much you’ll have to cough up.

According to researchers at WalletHub, which analyzed tax data on all 50 states and the District of Columbia, the average American household pays $2,471 on real estate property taxes. But that can vary widely. And just in case you thought the country wasn’t polarized enough already, political leanings can often be an indicator of state tax rates: “Blue states” (defined by WalletHub as how they voted in the 2020 presidential election) generally pay higher property taxes than “red states.”

As for the state with the highest property tax rate, that’s New Jersey, where residents pay a rate of 2.49%, which means that people living in a median-priced home in the area ($335,600) will pay Uncle Sam $8,362 in property tax per year.

In fact, the five states with the highest tax rates are all east of the Mississippi.

Meanwhile, people in Hawaii are blessed with the lowest real estate tax rate of 0.28%. So even though a median-priced home in the area is expensive ($615,300), homeowners end up paying only $1,715 in taxes per year. In Alabama, the state with the second-lowest tax rate (0.41%) as well as bargain-basement median home prices ($142,700), you’ll pay even lower property taxes of just $587 per year.

Curious how your state stacks up? Below are the top 10 states with the highest—and lowest—property taxes:

States with the highest property taxes

  1. New Jersey: $8,362 (2.49%)
  2. Illinois: $4,419 (2.27%)
  3. New Hampshire: $5,701 ( 2.18%)
  4. Connecticut: $5,898 (2.14%)
  5. Vermont: $4,329 (1.90%)
  6. Wisconsin: $3,344 (1.85%)
  7. Texas: $3,099 (1.80%)
  8. Nebraska: $2,689 (1.73%)
  9. New York: $5,407 (1.72%)
  10. Rhode Island: $4,272 (1.63%)

States with the lowest property taxes

  1. Hawaii: $1,715 (0.28%)
  2. Alabama: $587 (0.41%)
  3. Colorado: $1,756 (0.51%)
  4. Louisiana: $890 (0.55%)
  5. District of Columbia: $3,378 (0.56%)
  6. South Carolina: $924 (0.57%)
  7. Delaware: $1,431 (0.57%)
  8. West Virginia: $698 (0.58%)
  9. Nevada: $1,614 (0.60%)
  10. Wyoming: $1,337 (0.61%)

Why are my property taxes so high—or low?

While property taxes may be high in some states, lower home prices may offset this tax burden. For example, Illinois—which has the second-highest tax rate, at 2.27%—has a low median home price of only $194,500, resulting in annual property taxes hovering around $4,419. That’s less than you’d pay in other states with lower tax rates (like New Hampshire and Connecticut).

So what can you do if you live in a state with high tax rates and high home prices?

“Unfortunately, living in the Northeast has become a very expensive proposition if you want to own properties,” says Ralph DiBugnara, president of Home Qualified and senior vice president at Cardinal Financial. “But homeowners should be aware of what they can write off when it comes to homeownership, especially in these high-tax areas.”

In other words, in high-tax-rate states with pricy properties, the good news is that you are allowed to write off (or deduct) up to $10,000 of your property taxes. Just remember that this may not cover all of your property taxes; it depends on how much your home is worth.

“If your home is worth $500,000 or below, you should be able to write off all of your property taxes,” says DiBugnara. “But if your home value is above $500,000 and in a state with tax rates around 2%, most of the time this is not enough of a write-off to cover all of your property taxes.”

This problem is typical in Northeast states. Still, any write-off is better than none, right?

To help with your overall tax bill, you can also write off mortgage interest as a tax deduction for a balance of up to $750,000. And if you buy or sell a home in a tax year, in most cases you will be able to write off transfer taxes—local or state taxes charged in any real estate transaction.

Green energy sources for homes that are powered by solar are also tax-deductible. You also have the right to appeal the amount of your property taxes if you think the assessed value of your home is too high.

Also weigh what your property taxes go toward when deciding where you want to live.

“People should definitely consider property taxes when they move, alongside information about the local services that those property taxes pay for,” says Stephanie Leiser, lecturer in public policy at the Ford School at the University of Michigan. “They should consider the ‘value for the dollar’ they would get from paying property taxes.”

For example, in some communities, services like trash pickup will be covered by property taxes, while in others, there will be a separate fee.

“It’s also important to keep the overall tax picture in mind when deciding where to move,” adds Leiser. “Low property taxes may sound great, but they may be offset by higher local sales taxes or other taxes and fees.”

Source: realtor.com

Pending Home Sales Fall in January as Inventory Constrains Buyers>

The numbers: The index of pending home sales fell 2.8% in January after four consecutive months of declines, the National Association of Realtors said Thursday. The index captures real-estate transactions where a contract was signed but the sale has not yet closed, making it an indicator of where existing-home sales will go in the months ahead.

The median forecast of economists polled by MarketWatch had called for a 0.5% decline in pending sales on a monthly basis.

“Pending home sales fell in January because there are simply not enough homes to match the demand on the market,” Lawrence Yun, the chief economist for the National Association of Realtors, said in the report. “That said, there has been an increase in permits and requests to build new homes.”

Compared to 2019, pending sales were up 13%, indicating that the housing market remains strong despite the weakness that has crept in during the winter months.

What happened: Pending sales didn’t fall across all regions, as contract signings increased slightly in the South. The largest decline in pending sales occurred in the West, where the index dropped 7.8%, closely followed by the Northeast (-7.4%).

The big picture: A record-low inventory of homes is leaving buyers with few options to choose from, and builders have even begun selling a vast array of properties that haven’t been built yet to meet this demand.

But there’s evidence that demand could begin to suffer as affordability concerns grow. “The timely weekly mortgage purchase applications index is signaling a slowing in activity,” said Rubeela Farooqi, the chief U.S. economist at High Frequency Economics, while citing mortgage application data from the Mortgage Bankers Association. The latest reading signified the lowest level for mortgage applications since mid-May of last year, Farooqi noted.

Some of the decline in the volume of mortgage applications was a reflection of the disruption in Texas caused by recent winter storms. But generally speaking, rising mortgage rates are reducing interest from home buyers to an extent. With prices also quickly rising, buying a home is becoming less and less affordable, which could hinder home sales in the months to come.

What they’re saying: “Home buyers are staying surprisingly active during the colder months. However, buyer demand is getting squeezed by a scarcity of ‘For Sale’ signs and rising mortgage rates,” said Realtor.com senior economist George Ratiu.

Source: marketwatch.com

Rent Prices Have Dropped in These 9 Formerly Hot Markets

Women carrying moving boxes
Photo by Monkey Business Images / Shutterstock.com

You may have heard or seen firsthand how fast home prices have risen. In January, home value appreciation was 9.1% higher than one year prior, the largest annual increase since 2006, according to new data from Zillow.

Perhaps less known is this: The cost of renting is affected, too. But unlike with home prices — rising across most of the country — rents are up in some cities and down in others.

Overall, the cost of renting was relatively stagnant in the United States last year, say Zillow economists. The company, a real estate website, tracks and analyzes home prices and rents. The typical rent this January, $1,721, was up just $9, or 0.5%, from January 2020.

But that flat line masks big changes.

“The COVID-19 pandemic and widespread changes to work-from-home policies have also pushed many to reconsider what they want and need in their living space, and where it should be,” says Zillow.

Many workers were freed to work from home and live virtually anywhere, at least while pandemic lockdowns lasted.

Rents in pricey, formerly desirable coastal meccas — especially New York City, Boston and the Silicon Valley centers of San Francisco and San Jose — saw the most dramatic drops in rents.

Below, listed by the change from January 2020 to January 2021, are the nine major metropolitan areas where rent costs are down, according to the Zillow Observed Rent Index. Even with reductions, rents in these metros remain steep:

  1. San Francisco: $2,876 (down 9.2% from January 2020)
  2. New York City: $2,465 (down 8.8%)
  3. San Jose, California: $2,892 (down 7.2%)
  4. Boston: $2,277 (down 6.3%)
  5. Seattle: $1,866 (down 5.5%)
  6. Washington, D.C.: $2,006 (down 3.4%)
  7. Chicago: $1,614 (down 2.9%)
  8. Austin, Texas: $1,511 (down 1.2%)
  9. Los Angeles-Long Beach-Anaheim, California: $2,542 (down 0.8%)

In the rest of the 50 largest metro areas in the U.S., rent increased on Zillow’s index between January 2020 and January 2021. These increases were as small as 0.1% in Denver and as big as 10% in Memphis, Tennessee.

A recent analysis by MyMove, a website that helps people relocate, also found that many people who moved during the pandemic left crowded urban areas for (often nearby) smaller cities and suburbs.

MyMove analyzed U.S. Postal Service change-of-address requests filed from February through July 2020. It found that the number of requests for temporary moves — meaning requests from people who planned to live at the new address for less than six months — increased about 27% compared with the same period in 2019.

New York City (110,978 people moved), including its borough of Brooklyn (43,006), lost the most residents to moves, followed by Chicago (31,347), San Francisco (27,187) and Los Angeles (26,438).

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

Berkeley considers ending single-family zoning by December 2022

Berkeley is considering ending single-family zoning by December 2022 in an effort to right the wrongs of the past and address the region’s housing crisis, city leaders say.

The City Council will vote on a symbolic resolution that calls for an end to single-family zoning in the city. But the controversial proposal has already upset some residents who’ve expressed concern that the change could ruin their neighborhoods.

Berkeley is the latest city looking at opening up these exclusive neighborhoods to more housing as the region struggles with exorbitant rents and home prices and increasing homelessness. Sacramento recently took a big step in allowing fourplexes in these neighborhoods and one San Francisco politician is pushing a similar plan.

Berkeley may also allow fourplexes in city neighborhoods. Next month, the council will consider that proposal, which will likely spark pushback from tenants groups fearful it could fuel displacement if more protections aren’t included.

For Berkeley, which has historically been anti-development, the moves are the latest shift as the city slowly embraces more density, including plans to add housing around the North Berkeley and Ashby stations.

Councilwoman Lori Droste, who is introducing the resolution, said she’s trying to undo the legacy of racism that created single-family neighborhoods, which cover 50% of the city.

In 1916, single-family zoning was born in Berkeley’s Elmwood neighborhood, forbidding the construction of anything other than one home on each lot. At the time, an ordinance stated that its intent was to protect “the home against the intrusion of the less desirable and floating renter class.”

“I live in the Elmwood area where it is sort of the birthplace of single-family zoning,” Droste said. “I thought it was incumbent upon me as representing this neighborhood to say that I want to change something that I think is detrimental to the community.”

Dean Metzger, the founder of the Berkeley Neighborhoods Council, a collective of nearly 40 neighborhoods, said he wants the opportunity to give more input before the city changes any zoning laws. He said he worries that if a developer builds a multistory building next to a single-family home, it could obstruct views, block solar panels and clog available parking.

Metzger said it’s hard to specify what kind of design would be most appropriate for Berkeley’s single-family neighborhoods. He said he wants developers to be required to seek input from neighbors before building.

“They’ve labeled us anti-growth; it’s really not true,” he said. “We are trying to find ways to accommodate the development and make our neighborhoods livable. (The council) just wants to build whatever they want to build.”

After a year of racial reckoning, the same criticism of law enforcement practices should be applied to housing policies, said Councilman Terry Taplin, one of the authors of the resolution.

“This is really a historical moment for us in Berkeley because now the racial justice reckoning really has come home,” Taplin said.

As the state grapples with a housing crisis, many housing advocates say city leaders have to undo decades’ worth of anti-density housing policies. They say Berkeley’s efforts are a necessary step in addressing the region’s crisis even if it takes time. If the resolution passes, it will take years before the city sees a change in its housing stock.

“It will take time,” said Grover Wehman-Brown, a spokesperson for East Bay Housing Organizations, which represents nonprofit builders. “It’s many, many decades and centuries in the making. Building housing takes time, especially in areas like ours where there are not just wide open lots that you can drive large equipment up to and start digging to build one house.”

David Garcia, the policy director at UC Berkeley’s Terner Center for Housing Innovation, said the proposal was a “big deal.”

“It wasn’t that long ago when Berkeley wasn’t considered the most forward-thinking on housing,” he said.

But he added that it’s crucial these policies don’t jeopardize existing housing. Outreach to residents is key, he said.

“It’s important to be thoughtful about these decisions because they cannot be easily reversed,” Garcia said. “Creating such a significant change of land use in such a large part of the city is going to involve a lot of planning and critical thinking on how to ensure the best policy outcome. You’re going to want to make sure the policy itself does result in the kind of housing city leadership wants to see.”

Eliminating single-family zoning is changing a status quo that has long favored wealthy, white property owners, and opposition can often stall change, said Jassmin Poyaoan, the director of the Community Economic Justice Clinic at East Bay Community Law Center.

She said local, state and federal officials have to focus on shifting a culture and mind-set around housing policies that focuses on “housing is a human right.” She emphasized that policy changes must focus on creating housing for very low-income residents, protecting rent-controlled units and fortifying tenant protections. This includes Berkeley’s future efforts to allow fourplexes.

But change is coming. Recently, the Berkeley council approved rezoning the Adeline Street corridor and even added an extra floor of height to what builders could do there. The plan allows 1,450 new housing units, about half for low-income families in an area that was once a thriving Black, working-class community, but has become increasingly white as the high cost of housing has driven out many families. Officials are now trying to undo that.

“I think it’s really easy to look at racism and injustice in other cities and other places, but it takes a lot more courage, introspection and vulnerability to look at the mistakes that we’ve made in these areas,” Taplin said. “We have to really take an honest look at our shortcomings and be open to changes that might make us uncomfortable.”

Sarah Ravani is a San Francisco Chronicle staff writer. Email: sravani@sfchronicle.com Twitter: SarRavani

Source: nationalmortgagenews.com

Mortgage rates climb higher to 2.97%

The average mortgage rate for a 30-year fixed loan is now just 3 basis points away from 3%, after a 16 basis point jump last week pushed mortgage rates to 2.97%, according to Freddie Mac’s Primary Mortgage Market Survey.

The average mortgage rate hasn’t risen this high since the end of July 2020, but Sam Khater, Freddie Mac’s chief economist, noted higher rates signals an economy slowly regaining its footing.

“Though rates continue to rise, they remain near historic lows,” said Khater. “However, when combined with demand-fueled rising home prices and low inventory, these rising rates limit how competitive a potential homebuyer can be and how much house they are able to purchase.”

Rising rates didn’t slow new home sales in January though, after the U.S. censes bureau reported sales of new single-family houses in January were at a seasonally adjusted annual rate of 923,000 — 4.3% above December’s rate.

“However, recent increases in mortgage interest rates threaten to exacerbate existing affordability conditions. Builders are exercising discipline to ensure home prices do not outpace buyer budgets,” said National Association of Home Builders Chief Economist Robert Dietz.


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While purchase demand hasn’t shown any sign of decline, the refi wave is showing more vulnerability. As rates rose, refi activity fell 11% according to data from the Mortgage Bankers Association.

For many potential borrowers, the opportunity to refinance is lost before the chance even arises, while other prospective borrowers are caught in a clogged loan pipeline and don’t get the opportunity to lock in that low rate.

According to HousingWire’s lead analyst Logan Mohtashami, a one-eighth to a quarter turn in mortgage rates (high or low) can move the market substantially.

“There are people who had a 4.00% rate that refinanced to 3.25% and then said, ‘Oh well now that rates are low, I’ll refinance again to 2.75%.’ But if that rate sneaks up a quarter it’s no longer ideal and it’s lost its appeal. They are going to wait for it to come back down, right? And then it doesn’t,” Mohtashami said.

Source: housingwire.com

Even with high lumber prices, new home sales beat

Extreme increases in lumber prices have caused some people to go bearish on new home sales. Not this one! If we play a version of rock, paper, and scissors with lumber prices and mortgage rates, mortgage rates will win. Mortgage rates have a much more significant influence on the new home sales market than lumber prices, even at their current highs.

Proof of this is the recent new home sales report released by the Census Bureau. New home sales beat expectations by a lot, and all the revisions to the last report were positive.

Last month, I wrote that we should have expected new home sales to moderate after their parabolic rise.

Sales are still working to find a sustainable trend after the massive distortion in all housing data lines due to COVID-19. This recent report, especially regarding the positive revisions to the last report, tells a solid story for new home sales in 2021 as long as rates stay low.


From Census:  “Sales of new single-family houses in January 2021 were at a seasonally adjusted annual rate of 923,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.3% (±18.1%)* above the revised December rate of 885,000 and is 19.3% (±19.5%)* above the January 2020 estimate of 774,000.

When reviewing new home sales data, it is wise to keep an eye on the monthly supply. When the monthly supply is 4.3 and below, builders will have the confidence to continue building. This is especially true when the 3-month average is 4.3 months or below. Currently, inventory is at four months with a three-month average of 4.06 months of supply, so it’s looking pretty good. The revisions on this report showed a lower monthly supply than in the previous month.

The low monthly supply is why builders’ confidence is high, despite the massive spike in lumber prices. As a high school basketball coach in my previous life, I know that sometimes all that matters is that you shoot better than your opponents. Don’t overthink it. Better sales plus lower inventor equals increased builder confidence.

Today, the MBA’s purchase application data was also positive by 7% year over year, even with the President’s Day holiday and the Texas snowstorm — two factors that typically hurt applications. Positive year-over-year growth is a good thing. 

So far this year, our year-over-year comparisons have been against a “pre-covid” housing market. March 18 is almost here, which means year-over-year comparisons of housing data are going to get funky. If you see scorching year-over-year growth – don’t be fooled that it will be a sustainable trend. 

Purchase applications in 2021 have exceeded my estimated peak rate of growth of 11%. I expected to see a trend growth rate between 1%-11% year over year, up until March 18.  We are currently trending at 12.375%. The substantial purchase application growth speaks well for housing sales 30 to 90 days out.

The take-home message is that sales are strong, which will contribute to hotter home prices. Right now, we want the rate of growth to cool down.

Next week for HousingWire, I will explain why we should expect to see some purchase application data show weaker year-over-year data in the second half of 2021. There is more to this story than higher mortgage rates.

Source: housingwire.com

Can you use a 203k loan for an investment property?

203k loans for investors: A special use case

The FHA 203k rehab loan can be an affordable way to buy or refinance a home and refurbish it with a single loan. 

This might make the 203k loan attractive to investors and fix-and-flippers. But there’s a catch.

These mortgages are limited to ‘primary residences,’ meaning the borrower has to live in the home full time. So they’ll only work for specific types of investment properties. 

But there are ways to legally and ethically use a 203k loan for rentals and investments. Here’s how.

Verify your 203k loan eligibility (Feb 23rd, 2021)


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FHA 203k loan for investment properties

There’s only one legitimate way to use a 203k loan for an investment property. You can buy and renovate — or construct or convert — a multifamily (2-4 unit) building and live in one of the units.

FHA allows borrowers to purchase 2-, 3-, and 4-unit properties and renovate them using the 203k loan.

To fulfill FHA’s residency condition, you’ll need to occupy one of the units yourself as your primary residence for at least 12 months.

You can rent out the other unit(s), and even use the rental income to cover your monthly mortgage payments.

Benefits of the FHA 203k loan for investors

While this might not be your first idea of an investment property, it can be a foot in the door for first-time investors who want to test out owning and renting properties.

It’s also worth noting that since you’d be buying the property as a primary residence, you get access to lower interest rates.

This means you’d have lower monthly payments and pay less interest overall compared to someone with a ‘true’ investment property mortgage.

Drawbacks

The main downside to this strategy is that you yourself need to occupy one of the units for at least one year.

After 12 months, you could rent out the unit that you live in and move on to purchase other real estate.

But FHA is not for serial investors. Once you use one FHA loan, you likely can’t get another one. You’ll have to secure other financing if you move out and buy again.

Also, keep in mind that you will be living side by side with your future tenants for those 12 months — some may consider this a downside while others won’t mind.

Another downside: FHA loans come with pricey mortgage insurance premiums (MIP) which borrowers are normally stuck with until they sell or refinance into a different loan program.

So there’s a lot to consider before going the 203k investment property route.

But for the right borrower, this could be a great strategy to finance and renovate their own home and a few rental units at the same time.

Verify your 203k loan eligibility (Feb 23rd, 2021)

Can I use a 203k loan if I already own the home?

If you already bought your home, you can use a 203k rehab loan to refinance your current mortgage. This opens up another back door for investors.

You could potentially use the 203k loan to refinance your current home, make renovations, then move after one year and rent the house out as an investment property.

FHA allows you to rent out a home you still own with an FHA loan, as long as:

  • You fulfilled the one-year occupancy requirement
  • You moved for a legitimate reason, like a work relocation or upsizing to a bigger house for a growing family

This would only work for refinancing a home you currently live in and plan to keep occupying for at least a year after the loan closes.

If you already moved and kept your previous home as a rental property, you would not be able to use the 203k rehab loan since the home is no longer your primary residence.

How does the lender know if it’s my primary residence?

Some people make good livings by buying fixer-uppers and then selling them after rehab — aka “flipping” them.

A few might be tempted to take advantage of the 203k program by lying about their intention to live in the home. After all, how can the FHA prove in court what your intentions were when you made the application?

The main argument against this strategy is that lying on a mortgage application can be a felony that could see you in federal court.

Even an email to a contractor mentioning that you don’t intend to live there or other indication of your plans could show up in the court case.

And, repeat FHA buying would not be a viable long-term strategy.

FHA only allows borrowers to have one active FHA loan at a time, except in rare circumstances (for instance, if your work required you to relocate and you needed to buy another home near your new job).

In other words, borrowers cannot move once a year and continue financing new homes with FHA loans.

If you see yourself as an entrepreneur with a rosy future in real estate investing, set yourself up for success by choosing a legitimate financing option that keeps your options open in the long run.

Check your investment property loan options (Feb 23rd, 2021)

About the FHA 203k rehab loan

The 203k rehabilitation loan is backed by the Federal Housing Administration (FHA), an arm of the U.S. Department of Housing and Urban Development.

This mortgage program lets you buy a rundown home — a fixer-upper — and then renovate it using a single loan that covers the purchase price and cost of repairs.

If that involves demolishing the existing structure down to the foundations and rebuilding, that’s fine under 203k loan rules, too.

203k renovation loans are only for necessary repairs to improve the structure or livability of the home. So the funds can’t be used to add luxuries like tennis courts or swimming pools.

And there’s one more important rule: You cannot do the construction or remodeling work yourself. The 203k loan requires you to hire a reputable, licensed contractor, unless you are one yourself and you work full-time as a contractor.

Limited vs. Standard 203k mortgage

There are two flavors of the 203k program: the “Limited 203k mortgage” and the “Standard 203k.”

The Limited 203k used to be called the “Streamline 203k.” As its new name implies, this version is more restrictive about the amount you can spend and the types of work you can do. But it’s also less complicated, hence its former “streamline” moniker.

The maximum repair budget for a Limited 203k loan is around $31,000 ($35,000 officially, but there are mandatory reserve accounts that eat into that sum). And you can’t make any structural renovations to the home.

On the plus side, these loans require much less paperwork and hassle.

The Limited 203k loan is typically best for current homeowners who want to make cosmetic repairs or renovations. It works a bit like a cash-out refinance, except you must spend the money on the home improvements you’ve listed.

A “Standard 203k loan,” by contrast, allows much higher budgets and would be better for home buyers purchasing serious fixer-uppers that need structural repairs.

FHA loan requirements

The basic requirements for 203k loans are similar to those for other FHA mortgages:

  • A 3.5% down payment — Based on your purchase price and rehab budget combined, subject to an independent appraisal
  • Minimum 580 credit score — It may be possible to dip below 580 if you have a 10% or higher down payment
  • Debt-to-income ratio of 43% or less — No more than 43% of your gross monthly income can normally be eaten up by housing costs, existing debt payments, and other inescapable monthly obligations such as child support

Although the FHA sets these minimum requirements, you’ll be borrowing from a private lender. And they’re free to impose their own standards.

For example, some mortgage lenders require a credit score of 620 or 640 for an FHA loan. If one lender has set the bar too high for you, shop around for other, more lenient ones.

Verify your FHA 203k loan eligibility (Feb 23rd, 2021)

What repairs can you do with a 203k loan?

The FHA is putting up taxpayers’ money to guarantee part of your mortgage. So it’s not in the business of writing loans for luxury upgrades.

There are strict rules about the types of home renovations you can do and the amount of money you can borrow.

In fact, the total amount you can borrow for your home purchase and renovation costs is governed by current FHA loan limits, which vary depending on local home prices.

You can find the loan limit where you wish to buy using this lookup tool.

Maximum rehabilitation loan budgets

We already mentioned that a Limited 203k loan gives you a cap of around $31,000 on your rehab budget.

A Standard 203k lets you have as big a rehab budget as you want, capped only by your local loan limit minus the home’s purchase price.

Your total loan amount can be up to 110% of the property’s future value when complete.

But an appraiser will pore over your plans to make sure the final value of the home — after your projects are completed — will match the amount FHA is lending you.

What you can spend your rehab budget on

The Limited 203k is mostly intended for refreshing a home that’s a bit tired. So you can do things like:

  • Replacing flooring and carpeting
  • Installing or replacing an HVAC system
  • Remodeling a kitchen or bathroom
  • Fixing anything that’s unsafe
  • Making the home more energy-efficient

But you can’t use the money to do structural work, such as moving loadbearing walls or adding rooms.

The Standard 203k is very different.

You can do all the above and almost everything else, including serious construction work. Heck, you can even move the house to a different site if you get the FHA to approve your plans.

The 203k loan process

Limited 203k loans are pretty straightforward. Indeed, they’re easier than most to qualify for and set up.

But a Standard 203k isn’t like that. It may be your best path to your dream home. But there will be some extra hoops to jump through compared to a traditional mortgage.

Here’s the basic process to apply for and close an FHA 203k loan.

  1. Find your best lender — You can save thousands just by comparison shopping among multiple lenders. They aren’t all the same! Make sure the ones you consider offer FHA 203k loans and are experienced in delivering them. You’ll want a lender familiar with the specifics of 203k loans to make sure the process goes smoothly
  2. Get pre-approved — Pre-approval shows you your exact budget as well as your future interest rate. And you’ll get a chance to resolve any issues that arise in your application
  3. Find the home you want — This is the fun bit. But download the Maximum Mortgage Worksheet PDF from HUD’s website because that will help you assess whether your plans are affordable
  4. Find a 203k consultant — A 203k loan consultant will visit the home site, inspect the building, and then prepare a document outlining the project’s scope and specifications, along with a detailed cost breakdown for each of the repair tasks. He or she also prepares lender packages and contractor bid packages, along with draw request forms for stage payments
  5. Find a licensed contractor — Some lenders maintain lists of approved contractors. And your consultant may help you find a reputable one. Make sure candidates have proven records for projects similar to yours and are familiar with FHA 203k jobs. Many contractors add serious delays to 203k approval because they can’t seem to complete the paperwork correctly
  6. Have the home and project appraised — The lender will set this up for you
  7. Begin work — Once the appraisal is approved, the lender should let you close. And your contractor can then begin work, drawing on funds in an escrow account

Limited 203k loans require the borrower to live in the home while repairs are completed. So if it’s a new home purchase, you’ll have to move in within 60 days, which is the norm for FHA loans.

Standard 203k loans, on the other hand, might include structural repairs that render the home unlivable while construction is going on. In this case, the home buyer is not required to move in right away.

Rehab loan alternatives for investment properties

FHA 203k loans aren’t the only way to buy and renovate a home with one loan. Fannie Mae’s HomeStyle Renovation and Freddie Mac’s CHOICERenovation products can do much the same thing.

Since the HomeStyle and CHOICERenovation loans are conventional mortgage loans, they won’t charge for private mortgage insurance (PMI) if you put at least 20% down. This can save home buyers a lot of money on their monthly mortgage payments.

However, like the 203k loan, these programs are only available for primary residences.

If you’re buying a ‘true’ investment property — meaning you won’t live in one of the units yourself — these loans aren’t an option.

But investors have other renovation loans to choose from.

Traditionally, you would buy a home with a mortgage and then borrow separately — perhaps with a home equity line of credit or home equity loan — to make improvements. Then you could potentially refinance both loans into one later on.

Another option is using a cash-out refinance on your investment property or primary residence and putting the cashed-out funds toward repairs or upgrades.

Of course, all these types of loans require you to have enough equity built up to cover the cost of repairs.

And if you choose to draw from the equity in an existing investment property, you’ll pay higher interest rates.

But the upside is that there are no rules about how the funds can be spent. So if luxury upgrades are on your agenda, this could be the way to go.

Explore all your options

FHA 203k loans are only available to a select group of investors: Those who will buy a multi-unit property and live in one unit themselves.

For real estate investors looking to fix-and-flip or build a large portfolio of investment properties, an FHA loan isn’t the right answer. But there are plenty of other financing options out there.

Be sure to explore all your loan options before buying or renovating a home. Choosing the right program and lender can help you achieve your goals and save money on your project.

Verify your new rate (Feb 23rd, 2021)

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Source: themortgagereports.com

Black Homeowners Charged Higher Mortgage Rates Than White Counterparts With Similar Incomes – ValuePenguin

Inequality is also prevalent in mortgage refinancing

The U.S. housing market continues to see historically low mortgage interest rates and rising home prices, locking many out of finding affordable real estate. Another challenge? The mortgage rate disparities between Black and white homeowners.

When compared with white homeowners with similar incomes, Black homeowners have first mortgages — the loan used to buy or refinance a home — with higher interest rates, according to a new analysis from Harvard University’s Joint Center for Housing Studies (JCHS). What’s more, white homeowners with a significantly lower income than Black homeowners also have lower interest rates.

Lending discrimination lingers in mortgage market

The analysis, authored by JCHS research analyst Raheem Hanifa, found that although mortgage rates drop as incomes rise, race can impact the rate attached to a borrower’s home loan. The median interest rate for a Black homeowner with a household income of at least $100,000 was 4.169%, while a white homeowner with the same income had a median rate of 3.946%, a 22-basis-point discount.

The largest disparity exists between Black and white homeowners earning a household income between $30,000 and $45,000. Black homeowners with this level of household income had a median interest rate of 4.506%, while the rate for white homeowners was 29 basis points lower, at 4.213%.

Not all refinances are created equal

A mortgage refinance can help you snag a lower mortgage rate and monthly payment, cash out some of your available equity or get rid of your mortgage sooner. But, according to JCHS’ analysis, Black homeowners are not reaping the same level of refi benefits as white homeowners.

While the analysis found that Black homeowners were able to refinance into a mortgage with a rate that was 22 basis points lower than their old rate, that was still 20 basis points higher than rates for white homeowners who refinanced. Additionally, refinance rates for Black homeowners were similar to those of white homeowners who didn’t go through the refi process.

Remember to shop around

Your mortgage interest rate affects your loan affordability and several factors are used to calculate that rate, including, but not limited to:

  • Your credit score
  • Your down payment amount
  • Your loan type
  • Your repayment term

A higher credit score can help you get a better interest rate. Generally speaking, mortgage borrowers with credit scores of 740 or higher may be eligible for the lowest available mortgage rates. A larger down payment can also drop your rate because it reduces your lender’s risk by shrinking the loan amount you’ll need to buy your home.

Mortgages with shorter terms tend to have lower interest rates. For example, the typical 15-year fixed-rate mortgage has an average 2.21% rate, while the average 30-year fixed-rate loan has a 2.81% mortgage rate, according to Freddie Mac’s latest Primary Mortgage Market Survey.

Rates also vary by mortgage lender, which is why it’s crucial to shop around. Identify three to five lenders and reach out for price quotes. Pay attention to and compare interest rate and closing costs estimates; you may end up saving thousands over your loan’s lifetime.

Still, if you believe you’re experiencing lending discrimination, consider filing a complaint online with the Consumer Financial Protection Bureau or by reaching out to your state’s attorney general.

Methodology: The Joint Center for Housing Studies of Harvard University’s report analyzed 2019 data from the U.S. Census Bureau’s American Housing Survey. The analysis was published in February 2021.

Source: valuepenguin.com