Cash for Cottages, Castles and Condos: NO TRADE-IN REQUIRED!

August 8, 2009

by Brian Short, CMC, CRMS, GMACertified Mortgage Professional

            The US Senate just approved another $2 Billion for the auto industry’s stimulus program referred to as “Cash for Clunkers” after the first $1 Billion was used up last week in only 3 days.  It seems, at first glance, that this auto industry bail-out program might be havingCash for Clunkers some positive affect on another ailing US industry.  At least the players are allowing the program to work.  The Feds are giving away money (whether you agree with this approach or not), the dealers are accepting the qualifying vehicles and giving a $4,500 trade-in allowance toward a new qualifying car, and US consumers are using up the allowed funds to work this program.

            The housing industry has witness many attempts by the Feds to “jump-start” the stalled industry for the past 12-18 months.  One of the first was the FHA Secure Program with “impossible to qualify” underwriting guidelines for those who had made late payments on their adjustable mortgages.  Most of the national wholesalers were not participating and none of the FHA participating lenders would approve these borrowers for this program. 

            The Troubled Assets Recovery Program (TARP) initiated by then Treasury Secretary Henry Paulson and President Bush and expanded by the Obama administration attempted to infuse cash into the ailing national and regional banks so they would be more willing to free up credit to business owners, home owners and borrowers.  However, with the expansion of this TARP program came the announcement that the Feds could jump into the books of any bank who received these funds to determine if they were “financially solvent enough” to avoid a federal government take over.  Some banks refused the money, others returned it and most who received it held on to it to bolster their bottom line figures.  Either way, no credit was freed up and no home owners, home buyers, home builders or Real Estate industry players have received any relief from such a misguided and over funded Federal effort.

            The recent announcement by President Obama to design a federal loan modification program has been met with delays and unresponsiveness by Bank of America and Well Fargo – the nation’s two largest remaining banks holding the largest number of servicing rights on most of America’s residential mortgages.  On the one hand, these banks appear very unwilling to work with their customers to write down loan balances or interest rates to keep the existing home owner in the home, and yet on the other hand, they are all saying that they do not want any more foreclosed properties and the process of foreclosing on US homes is causing home values to dive bomb unlike anything we have ever experienced.

8000 dollars The one program still being promoted – “$8,000 tax credit of first-time homebuyers” – is far too limited in its scope.  This author was calling for this approach long before the Feds rolled out their version.  However, we were calling for a tax credit for any down-payment and closing costs used to buy a house by ANY buyer.  Only this breadth of a program which would include Real Estate investors, buyers of second homes and “move-up” or “move-down” buyers will truly have any effect of the most critical industry in our downward spiraling US economy. 

            Again, I am calling for the inclusion of those solid borrowers, experienced buyers and business owners to be enticed to get off the sidelines and risk THEIR capital (rather than the future Federal tax revenues for generations to come!) to help get the housing industry out of the dumps. 

            The average first-time homebuyer is still too scared and too inexperienced to be a major player in rescuing the ailing housing industry.  They are fearing for their own job security and seeing house prices plummet causes them to be squeamish about investing what little cash they can scrape together to buy something which may be worth less than what they paid in 2-3 years when they might be ready to sell and buy something bigger or in a different location.  This group of buyers does not have the “staying power” to be the key to a housing industry recovery.  Bring in the Pros!  We need the seasoned home buyers and investors to be encouraged to buy up the housing inventory busting at the seams so builders will be enticed to start building again.

            In the meantime, those who desire to take advantage of the $8,000 tax credit have less than 4 months to get their first-time home purchase selected, financed and closed.  This is not much time in light of heightened underwriting requirements, appraisal delays and turn times in wholesale approval processes.  Those who can benefit from this limited time tax credit must move quickly to get the benefit of the $8,000 “give-away” by the Feds. 

            If you or someone you know has not owned a house in the past 3 years and desire to buy a house before the end of the year to take advantage of this $8,000 refund of all tax withholdings during 2009 and an outright rebate of whatever the difference is between what has been withheld and $8,000, they must get into the game quickly by contacting a Certified Mortgage Professional to get pre-qualified before going out to shop for houses with a Realtor.  The clock is ticking.  There is no promise that the Feds will extend or revamp this program once it expires on December 1, 2009, regardless of how many housing experts, like this author, call for a program which will really help the struggling housing industry.  Sellers are motivated to sell, there is a record-breaking level of houses included in the existing home inventory, and Realtors and Certified Mortgage Professionals have time to give a first-time buyer the time and attention they need to make a great choice to get into (or back into) the housing market.

            The good news is – no “clunker” trade-in is required to participate in this cash give-away.  You can buy anything you want and still get the $8,000 tax credit – a cottage, a castle or a condo!  COME ON DOWN!  You’re already a winner!

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Lease to Own – A Great Short-Term Solution

December 23, 2008

By Brian Short, CMC, CRMS, GMA 

A long-time friend of mine called me this week about his desire to help first-time home owners or troubled borrowers get into a house of their own – even when mortgage loan options are at their lowest for the past 30 years. 

house-for-saleThere is a glut of inventory on the Real Estate market, streets lined with motivated sellers, nearly unprecedented low interest rates and complexes full of renters who want to get out and start something for themselves.  These prospective home owners want their chance to build home equity, experience the freedom which comes from home ownership and to move out on their own. 

What is the solution: Investors buying discounted houses at fire-sale prices, with rock bottom interest rates and then selling them to prospective buyers with a lease-to-own arrangement.

I still contend that an insurgency of Real Estate investors are the ones best qualified to pull the Real Estate market out of its 18-24 month tail spin. 

Why? 

 There is money to be made in Real Estate even in 2009! 

Why? 

1. Historically low fixed interest rates available even to those who will not live in the houses they might be buying.

2. Historically high number of homes on the Real Estate market needing to be sold by very motivated sellers – most of these homes are still in great shape and need little or no fixing up!

3. Historically high number of recent high school or college grads, newly married, or those who have recently had a child who have come to expect that they should be able to buy a house when they move out on their own.

With the recent lowering of the price of gas and the upcoming change of administration in Washington DC, many will be sensing a renewed interest in moving past the rough times of 2007-2008 and be interested in exploring home ownership. 

As I explained to a friend yesterday, all current mortgage loan programs will require 3-5% down payment for any buyer who desires to buy a house in this market.  No mortgage company will be able to change that scenario for the time being. 

Therefore, those who have not saved up their down payment or have glitches on their credit or employment history need time to let those characteristics heal.  A lease-to-own arrangement with a seller is a great way for them to put down some roots, build up some payment history, develop a longer track record on their job and work at paying off or cleaning up some past debt obligations necessary for qualifying for long-term institutional financing.

I have spent hours over the past ten years counseling prospective borrowers who desire to buy a house on my step-by-step plan to pull them out of their specific situation to prepare them for long-term financing.  Most people can be successful with this uniquely tailored plan in 2-3 years as long as they have steady income throughout that time period and remain firmly committed to bettering themselves and righting many of the wrongs of their past.

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