Home Buyers Can Save by Purchasing Before FHA Fees Go Up on April 1st

[Published March 1, 2012, in the Denver Post]

      A quick check of Metrolist, the Denver MLS, shows that about 30% of homes purchased for $400,000 or less are financed with an FHA-insured loan. These loans are popular because they require only a 3.5% down payment.

      FHA interest rates are comparable to those for conventional loans, but extra fees are charged, both upfront and monthly, for mortgage insurance premium (MIP). These fees replenish FHA’s reserves, which have been depleted by the high number of foreclosures on FHA-insured loans in recent years.

      There is a 75% increase in the upfront fee for those FHA loans initiated after April 1, 2012. This upfront payment, which is currently 1% of the loan amount (and can simply be added to the principal), increases to 1.75%. Thus, on a $300,000 loan, this added principal amount is currently $3,000, but will increase to $5,250 on an FHA loan initiated in April, adding about $11 to the monthly mortgage payment in the above example (based on a 4% interest rate).

    Currently, the monthly mortgage insurance premium is 1.15% annually (1.1% when the down payment is 5% or more), and this fee increases by 0.1% to 1.25% and 1.2% respectively.  Thus, on the same $300,000 loan, the monthly MIP payment is currently $287.50 (assuming 3.5% down payment), but goes up to $312.50, an increase of $25 per month.

That $25 increase, unlike the $287.50, does not go to the FHA. Instead it goes to the Social Security Trust Fund. As noted in my Jan. 12th column, this increase is mandated by the Temporary Payroll Tax Cut Continuation Act of 2011, which was passed in December. That act reduced the Social Security tax for just two months, but is charged to new borrowers for the next 10 years. Doesn’t seem fair, does it? 

On their website, HUD calculates that the average FHA borrower will pay only $5 more each month for that additional mortgage insurance premium, but I don’t see how they could come up with such a low estimate.

The monthly MIP must be paid for 5 years, regardless of the percentage down payment, but can be removed once the homeowner can document 20% or more equity.

Current FHA loans, and loans initiated before April 1, 2012, are not subject to these higher fees.

Conventional loans are also affected by an increase comparable to that $25 per month, but it will be reflected in the loan’s interest rate instead of appearing as an additional fee. 

Fox News report promotes Denver as THE best place to buy real estate

I don't watch Fox News, but I thank the Corrigan Group for sending me this link to a fascinating report about Denver that appeared recently on Fox.

Here's the link: http://www.youtube.com/watch?v=Y9frmEv-vPA

Condo association must take action so that members can sell their units!

[from my Dec. 22nd column published in the Denver Post]

FHA loans fill an important gap in the financing of low-end homes, especially condos, because FHA requires only a 3.5% down payment.  And here in Colorado, the Colorado Housing Finance Authority (CHFA) will loan first-time home buyers all but $1,000 of that 3.5%. But first the condo project must meet FHA approval on a few key factors.

First, if fewer than half the residents are owner occupants, forget about using an FHA — or even a conventional — loan.

Secondly, FHA and Fannie Mae look at the financial strength of the condo association.  If more than 15% of units are behind on their monthly dues, forget about getting a loan on any unit in that complex. 

Third, no single investor can own more than 10% of the units.  And there are other criteria that must be met by the condo complex.

Until February of last year, it was possible to get a “spot approval” to sell a condo by satisfying these and other criteria for the loan underwriter.  However, since February 2010, the condo association itself must obtain certification from the FHA before any unit in that complex can get an FHA loan, even if those criteria would be satisfied.  It takes time and it takes money for the association to get that approval, and many — indeed, most — condo associations have been lax is obtaining that certification.  Moreover, certifications expire and the association must re-apply.  Many have not.

For example, in Lakewood’s ZIP 80228 (the Green Mountain area), there were 18 approved condo associations a couple years ago, and now there are only six.  In ZIP 80229, ten out of 12 are no longer certified — and not because they wouldn’t qualify if they applied.

Now that FHA loans are the only way that a significant percentage of home buyers can finance a home, and since condos are the most affordable way for most buyers to become homeowners, this failure by condo associations to obtain and renew their FHA certifications has potentially disastrous consequences for all current condo owners.  If units can only be sold to cash buyers or with private financing, the values of the units are bound to fall.  If you are a condo owner, pressure your association to get and remain certified with the FHA — assuming it qualifies.

Moreover, even if your condo association maintains its FHA certification, if other complexes don’t, they will affect your complex to the extent that they produce lower comps for your units.

I thank Norm Lewis of Peoples Mortgage (303-910-1629) for educating me on this topic.

Your are encouraged to add your own insights to this issue below!

Thanksgiving Is a Gift We Give Ourselves, Reminding Us How Blessed We Are

[Published on Thanksgiving Day, 2011, in the Denver Post]

With all the news from around the world, we hardly need a reminder that we have much for which we can be thankful.  Thanksgiving is our opportunity to remember that. I don’t know of any other country besides Canada which has a day set aside solely to contemplate one’s blessings.

When I give the opening prayer at my weekly Rotary meeting, I like to say that “We are blessed, and we are a blessing.” In other words, it is because we are so blessed that we are able to bless others with our gifts of time, love, financial assistance and service.  It is out of our gratitude for how blessed we are that we are driven to do good in the world — and Rotarians do a world of good!

What are you thankful for? It’s a metaphysical law that we draw to us more of what we think about, so let’s think positives, not negatives!

I’ll start with my family, especially my now-deceased father, Abbott Smith, who taught me values I still hold dear. He was never a Rotarian, but those values he taught me are entirely congruent with the values of Rotary.

My family moved from Maine to Colorado when I was in kindergarten, and for that I couldn’t be more grateful! Somehow I was lucky enough to be enrolled in St. Anne’s Episcopal School, where I was taught first and second grade by then-Sister Irene, the school’s now deceased founder. What a blessing that was!

Space doesn’t allow me to recount my other personal blessings, so I’ll limit myself here to listing some professional blessings. It starts with being introduced to real estate as a career by the fine people at Coldwell Banker, including Kathy MacLeod and Rich Sands. I still recommend that agents begin their career at CB, even though I moved on to RE/MAX Alliance and then launched Golden Real Estate.

Being rather outspoken, I know that I have irritated some of my colleagues in the business, especially in my early years, and for that I apologize. Nonetheless, I am grateful for what I have learned from many of them and from people in related industries such as lending, inspection, appraisal and repair. I am so much smarter than I was 10 years ago, thanks to them.

And, of course, I am thankful for the several hundred clients who have honored me with their business.  Without the experience I gained from serving them, I wouldn’t be nearly as knowledgeable.

My wife, Rita, has been my love and inspiration since we met in 2003, and I wouldn’t be the success I am today without her presence in my life. I wish all could have the kind of relationship we enjoy.

All 4 Front Range Cities Rank Among Top 20 Healthiest Housing Markets

{Published Nov. 10, 2011 in the Jeffco editions of the Denver Post]

Fort Collins/Loveland, Colorado Springs, Denver Metro, and Greeley were recently ranked #2, #7, #10 and #20 respectively by Builder Magazine as having the healthiest housing markets. The magazine projects that building permits will nearly double in 2012 over 2011’s.

While the report is focused on the new home market, the analysis applies also to the existing home market.

In a “mid-2011 update” posted on Sept. 15th, the magazine said “A housing recovery is blooming in Denver…. Decent job growth — the metro area is on pace to add 20,000 jobs this year — will contribute to strong income growth of 3.6% next year.”  The report predicted a decline in foreclosures, which was confirmed this Monday in a report released by the Colorado Division of Housing.  “2011’s median price, $233,100, is only $20,000 below 2006 levels,” continued the posting.  It also says that the building of FasTracks is “creating new building opportunities all over town.”

It’s hard not to notice all the building going on around Jeffco and the metro area, not just related to FasTracks, although that project has certainly had an impact on the economy.  Over the past two years, KB Homes succeeded in selling out its 60-home Canyon View subdivision in north Golden, at a time when the new home industry was considered stagnant.  Richmond American Homes was equally successful during the same time period with its 30-home subdivision nearby.

In downtown Denver, the 42-story Spire skyscraper across from the Convention Center was built during this time and is now nearly sold out of its high-end condos.

A month ago, I reported that about a third of all current MLS listings are under contract.  I just searched again and the figure is still over 30%.  Although most of my under contract listings have now closed, another listing went under contract Sunday and I’ve been told to expect an acceptable offer on a $500,000 listing shortly.

In short, we are indeed in a healthy housing market now, and the promise of continued low interest rates suggests that it will remain healthy into 2012.