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Archive for the 'Home Buyers' Category

Helping the kids get their First Home

June 13th, 2007 by Geordie Romer
Categories: Home Buyers
Comments: 2

Guest Post by Darel Ansley of Peoples Bank in Wenatchee

Many homeowners I talk to are excited about all the appreciation they have gained over the last few years, but for us Baby Boomers, the conversation often turns to : how are my kids ever going to get into a home? This has been an issue in the Puget Sound region for some time, but now we are having to address this issue in our markets of Leavenworth and Wenatchee.

With the basic starter home prices growing faster than most people’s salaries, it is getting exceedingly difficult for young people to get into their first home. If you want to help out a child, grandchild or close relative, it is a good idea to talk to a competent lender ahead of time, because sometimes good intentions and logic don’t mesh well with lending rules.

Can I Co-sign?
Cosigning on homes does not carry the same impact as it does on cars; the buyers still need to basically qualify for the payment themselves. Your credit score doesn’t pull theirs up, and if you aren’t going to live there, the rules below for gift money still apply.

Let’s say the kids/grandkids want to buy a house, and starter homes in their area are now $400,000. Let’s also say they have some car payments, credit cards etc, so that they can’t qualify for all that plus the payments on the $400,000. Let’s assume that the kids haven’t had time to save up a bunch of money for a decent down payment, so maybe they have $10,000 in the bank or less.

You are concerned that if you don’t help, they may rent forever, so you generously offer up $40,000 to help them out. Unfortunately, under FNMA lending guidelines, the buyer must contribute 5% of their own funds before utilizing any gift funds. With a $400,000 first home, the kids need $20,000 of their own cash before they can use your gift; bummer. The rule is waived if you gift them 20%, but that means you need to up your gift to $80,000 for this house.

Well, what if I just put the money in their account and pretend it was theirs all the time?

The lender is most likely going to ask for 2 months of printed bank statements showing that they have adequate funds for closing (this is called seasoning). They will also look at every page on the statement to make sure there wasn’t an unusually large deposit. So technically they could use your gift money; the funds just need to be in their account a long time before the home purchase takes place, so that 2 bank statements show the money as theirs.

Another way around this is to let the kids finance 100% of the purchase, and you help them out in other ways. Our assumption above was that they couldn’t qualify with all their other debt payments. So, you use your gift to pay off their other debts, and now their total payments are low enough to qualify. FNMA does not ask for documentation on how the car was paid off. Also, with 100% financing, you can use the gift funds to pay for closing costs, including buying down the interest rate, as long as the buyer contributes just $500 of their own money.

In our example, if you wanted to gift $40,000 and it only took $20,000 to pay off debts and cover closing costs, after the loan is closed, the kids could use your remaining gift of $20,000 to pay down and re-amortize the loan. ($400,000 – $20,000 = new loan of $380,000) Instead of this just reducing principal, you can have the loan payments refigured for the new balance, giving the kids a lower monthly payment. Some lenders charge a $200 fee for this.

So the net effect is you helped them out, and they got into a house without the 5% of their own money; you just had to work within the rules to do it. Because the rule is; if they don’t have 5% of their own money, they can only use gift funds for 100% financing, or 80% and less; but nothing in-between.

There are several things I didn’t cover here, so before you make a decision, find a lender you can trust and let him/her, as well as your tax advisor guide you on the best approach to your scenario.

Leavenworth Real Estate Market Update

June 5th, 2007 by Geordie Romer
Categories: Home Buyers, Leavenworth Luxury Homes, Leavenworth Real estate market, Leavenworth Vacation Homes, Leavenworth Waterfront Properties
1 Comment

The Leavenworth real estate market is made up of a number of different sectors that always seem to be moving in slightly different directions.

 

The majority of consumers, whether they are local homeowners looking at an increased tax bill or out of town investors, look to the growth of prices to gauge the strength of the market.

 

Home prices in Leavenworth WA are certainly up. At the end of May the average list price for a single family home in the Leavenworth area (including Lake Wenatchee and Plain) was $518,000. This is the number that tends to excite people and this is the number that most folks see when browsing the internet or looking in local homes magazines.

 

Of course the number that has more importance is the average SALES PRICE which is what the buyers are willing to pay. Considerably less – $354,000.

 

But as I said before, this is a tale of multiple markets wrapped up in each other.

 

The bulk of the Leavenworth real estate market is single family homes under $600,000 that are not on the water. We could even narrow the range to between $200,000 and $400,000, but the story is much the same.

 

 

At the end of May 2007 there were 45 of these homes on the market. Looking at the sales data, we have 5.7 months of inventory. More or less a balanced market with neither buyers nor sellers having much of an advantage. ( I would say that generally, home sellers outside the city limits probably have a stronger market that those inside the city, but that data will be saved for another day.) Last year, there were 39 homes on the market with a 3.9 month supply. Though supply does seem to be rising, we did have 63 homes on the market in August and September of 2005, so it is hard to say if this is a short cycle or a longer term trend.

 

Homes over $600,000 are the luxury segment of our market. In the past year, 6 homes (non- waterfront) sold in this price range and the 13 homes on the market at the end of May represent 26 months of supply. While few of these sellers are highly motivated, it is by any indication a buyers market. (And has been for some time.)

 

 

Waterfront homes are a different beast. Generally, these really just include homes on Lake Wenatchee and Fish Lake, and riverfront homes on the Icicle Creek, Chiwawa, White, or Wenatchee Rivers. At the end of May, there were 11 homes on waterfront or 7.8 months of supply. I think this market sector tends to be pretty balanced, despite ever growing price points.

 

Overall, I see strong demand for vacation homes by westside buyers at prices under $600,000. This continues to be for “cabins” or other vacation homes generally located outside of the city of Leavenworth.

Leavenworth Insurance – An Interview with Eric Kossian

May 23rd, 2007 by Geordie Romer
Categories: Community News, Home Buyers, Leavenworth Luxury Homes
Comment Here

10 questions for Eric Kossian of Leavenworth Insurance

Here is my second installment of my “10 Questions” series. Eric Kossian of Leavenworth Insurance is a insurance broker in Leavenworth, WA. He is located on Highway 2 in Leavenworth next to Jerry’s Saw Shop. His motto is “We love to save you money!”

 

1. What does an insurance broker do?

Geordie, an insurance broker locates and shops insurance products to protect clients from the financial risk of loss due to such things as fires (property), accidents (liability), death and unsecured retirement investments and income. While most agents think in terms of selling product that is incorrect; we are in the business of asset protection. Some examples of personal assets could be an owned home, cars, income- your ability to produce it, your life (yes, it is a financial asset), and investments. We then use a wide variety of insurance and annuity products to safe guard assets. A good insurance agent asks you lots of questions about everything in your life. This exposes risks which are currently being self insured. A good agent then shows the client options to reduce risk by reducing or moving all or part of the self insured financial risk to others. Having been an Underwriting Specialist for a huge insurance company, I have a keen eye for risk.

 

2. What special insurance products do you offer for the Leavenworth market that other agents or companies might not offer?

While I office and live in Leavenworth, my clients and my advantages are statewide. I can insure most log homes at the same rate as frame construction ( a big savings). But specifically, the most frequent & obvious area I can help people is eliminating the risk (1 in 5 chance, nationwide after a claim) of not having enough insurance to cover the replacement cost of your home. Almost all “replacement cost” policies are capped and the rest is your out of pocket expense. However, I have found a company that removes the cap and will simply replace your home in the event of total loss (and they almost always cost less!) But generally, I provide better risk analysis. Last week, among the clients I insured were 2 multimillionaires and a young fireman who owns 4 homes. They all had significant gaps that could have cost them hundreds of thousands in the event of a claim and I was able to show each of them things on their existing policies where they could save money. It was very satisfying to help them and I actually get paid to do help! They also have simple investment and retirement income risks that are easy to avoid which I am helping with. Why take unnecessary risk if you don’t have to? Make sure you have the “big things” covered.

3.What kinds of clients can you help the most?

The more one owns the more I can help.

 

4. What things in a home or things about a home make it difficult to insure?

Homes generally qualify for preferred insurance if they have had updates to the electrical (Romex wiring and 100 amp panel min.), plumbing (no pressurized galvanized pipe), the roof is in good shape, there are no major foundation issues (large cracks, major settling, post & pier or rock & mortar foundation). They also cannot have any type of home business (unless approved 1st)- including renting out their home for a nightly or vacation rental. Finally, they cannot be more than 5 miles from a fire station or on a road that is inaccessible in winter.

 

5. Where do you see people being the most underinsured? What liabilities are we not insuring?

There is a long list but the two that effect the most people are: 20% of homes are underinsured, Auto liability is often too low (and is cheap) and many people should have a $200 a year, 1,000,000 excess liability policy. In addition, people often have their assets (their home and retirement assets and their life asset) structured in manner that is risky and not the most conducive to wealth building.

 

6.Will the massive claims from hurricane Katrina have an effect on insurance in Leavenworth, WA?

Indirectly, yes. With billions being paid out, that is lost investment income for insurance companies. That can affect rates nationwide. That why some many preferred companies will no longer write policies within 40 miles of the gulf and Florida coastline.

More likely to impact Leavenworth home insurance rates is the satellite photo & computer aided modeling insurance companies are doing in California. It will eventually spread to Leavenworth. It has been highly accurate in predicting future losses based on fuels & topography.

 

7. If I have to snowmobile to my property in the winter how does this affect the insurance?

You will pay an extra $1000-$1500 per year for non preferred homeowners insurance.

 

8. How is insuring a condo different than a house?

Condo insurance insures only the contents and liability ( the structure is insured by the association). There are several things I recommend for condos and board members.

 

9. Do you offer insurance for people building a home?

Yes, people who own property and have a contractor who is going to build their dream home need to get Course of Construction insurance. It covers the dwelling and their liability.

 

10. If you could ask 10 questions of anyone alive today, who would it be and why?

Being a historical buff and the fact that I am writing this at 10:30pm all the people that are coming to mind are all dead! Ha! There is so much more I want to learn about so many things, I would ask the 1st person permission to ask 1000 people a hundred questions. I love to read on a variety of subjects so at any one moment the person selected could be an astrophysicist or a kindergarten teacher.

10 Questions: An interview with mortgage lender Darel Ansley

April 27th, 2007 by Geordie Romer
Categories: Community News, Home Buyers, Leavenworth Real estate market
Comment Here

This post orginally was published on my Active Rain Blog. It is the first in a series of interviews I call 10 Questions. Here Darel Ansley a Real Estate Lender with Peoples Bank takes the hot seat.

1. What questions aren’t consumers asking their mortgage lender? There is an important question, but more important is who do you ask the question of? I suggest shopping around and getting 3 or 4 Good Faith Estimates (GFE) for a potential purchase. Get these in person, because out of these interviews and GFEs, you are going to learn who you can trust. Once you find that lending professional, you have someone you can stick with for the future. Now you have someone intelligent enough to ask the big question which can save you thousands of dollars in interest. People should ask, “What is my best rate and fee option if I plan to live in this house X number of years.” Many people ask for the lowest rate or they want no origination, when these choices are often not the best for them Points, origination, and discount are all pre-paid interest. The more you pay upfront, the less you have to pay over the life of your loan. People who plan to be in a home less than five years will do better to have a higher rate/less upfront option. If you will be there long term, go with more upfront/lower rate. Have your lender show you the math.
2. Are we as a society going to pay a price for the exotic mortgages of the past few years? Yes and no. There is a price to pay in many markets, but some of these problems actually benefit buyers in our area. First, let me explain the two different exotic type time-bombs that are out there: The one in the press right now is the subprime mortgage which is primarily used for people with bad credit. The other one which is used for people who are generally buying homes they can’t afford, goes by many names such as Option ARM, Cofi ARM, and NegAM ARM. These buyers generally have good credit. The subprime mortgages are usually called a 2/28 or a 3/27. This means they are at a low fixed rate for either 2 or 3 years, after which,for the remainder of their thirty year life, they become adjustable and the interest rate can jump substantially. The typical person with bad credit buys the house and continues their poor spending habits. When the rate jumps up on them, and they can’t afford the new payment, they can sell the house, or refinance and roll in a bunch of consumer debt, and get a new 2/28. This can work as long as home prices are rising. In markets that have gone flat or worse, they owe more than the house is worth, so neither of these options work, and you have people giving their homes back to the bank. This of course has a negative effect on home prices if it happens in large enough numbers. The Option ARM is a little different. Generally, these people have good credit, they are just trying to buy a house they can’t afford. This loan type was very popular in California as prices accelerated much faster than wages. Basically it allows the buyer to make a monthly payment that doesn’t even cover the interest due. This is why it is called a Negative Amortization loan; a fully amortizing loan spreads the principle payments over the life of the loan, so it is paid off in the typical 30 years. Negative amortization means that the unpaid interest actually gets added to the principle balance each month. So after 5 years, you can owe much more that when you started. Again, this works in rising markets, so you owe $20,000 more on the house, but it is worth $200,000 more than when you bought it-not a bad investment. But if prices should fall, you can end up owing more than the home is worth. These mortgages are ‘re-cast’ every 5 years, which has generally been long enough to span most market fluctuations. So typically, by the time they recalculate the mortgage, the value of the home has grown enough, the additional principal balance is not a big issue. However, if we ever hit a sustained downturn in home values, the wheels come off the bus in a big way. I am curious to see if this one gets much attention in the current media and government investigations of lenders, because for big lenders like Washington Mutual, this accounts for roughly 30% of the loans on their books. So I feel the price society will pay is actually just regional. In areas where these loans have been used and where prices are already falling or flat, this could stall the market, or accelerate a downturn as too many of these foreclosures hit the market (over supply). In our market, we will actually tend to benefit: we don’t see a lot of these loan types, and our prices are growing, not falling; but we don’t just miss the bullet, we actually benefit, because of what is taking place in the secondary market. The secondary market is where the money for most mortgages actually comes from; Fannie Mae and other large consolidators package millions of dollars worth of mortgages together and sell them to investors in the form of Mortgage Backed Securities (MBS). The investors who used to buy these hybrid or subprime MBS’ will now seek higher quality mortgages. As demand for the safer ‘A-paper’ mortgages grows, like any other bond-type instrument, the interest rate drops. So I expect this will hold down or even drop mortgage rates for our typical buyers for the foreseeable future.
3. What mortgage products do you see being under utilized by the general public? This is kind of strange, because human nature and math are at odds with this one. Math would tell you that you should go for things like 40 year loans and then invest the monthly savings (over a 30 year) in a retirement account, and you will finish out money ahead at the end. In my experience, people who save money on their mortgage by going for longer amortization or something exotic, rarely invest the savings. Like going to Costco, the savings on one item just gets spent on something you weren’t going to buy. As most people are that way, people who plan to stay in a house long term should look at a 20 year loan instead of a 30. For example, with a $200,000 loan at 6% (for both 20 and 30), you would pay an extra $233 per month, but save close to $90,000 in interest over the life of the loan. 15 years would be even better, but most people don’t like the payments. People can run their own numbers and see at http://mortgage-x.com/calculators/default.htm
4. What should would-be real estate investors know about getting a loan? There are a couple of things that are different with an investment property loan, so people would be well advised to have their loan officer run an approval on them for a likely loan scenario. Here are a few things that are different: If you don’t have 2 years of landlord experience, most loans are going to require some cash reserves after closing, sometimes equivalent to 6 months of payments. If you plan to be in the rental business long term, it is good to establish a relationship with a local community bank. If people have a relationship and a successful history, we can look at their investing as a business and lend to them on commercial terms. These can include lending on the appraised value instead of the purchase price (some of the books make this seem common, but it is not allowed in conventional lending). Also, we have given some people lines of credit so they can close deals quickly for cash. The key to these things is successful experience.
5. What role has the internet played in the mortgage industry? The internet has played two key roles, one positive and one negative. For people who know how to do real research online and not fall victim to the ads, it has made for a much more educated mortgage shopper, and that has been great. On the downside, the internet has expanded bad lending into all markets. The Real Estate business in a given market is a community of Realtors, lenders, appraisers, escrow officers, etc. If someone is ripping people off or even just performing poorly, word quickly spreads. If the lender happens to be someone found online across the country, we as a local community have no leverage to control their actions.
6. If you could change one lending regulation what would it be? I think it should be easier for parents or grandparents to help their family members get their first house. As it is now, about the only thing they can do is gift them some money. A co-signer can’t really help anyone qualify as they can for auto loans, I think this area needs some work.
7. What does the future of real estate lending look like? I have already seen the major lenders starting to tighten up their lending parameters and scrutinizing loan files like never before. So the buyer who wants to make a killing in Real Estate without putting in any of their own cash is going to find fewer options available. As prices continue to rise we will see 40 and 50 year mortgages become more popular. Banks are going to seek out safer loans, so people buying their own home with good credit and a job will find an abundance of loan products, even up to 100% financing.
8. Prices are going up, affordability is going down. How do we make the dream of homeownership possible while still avoiding the risks related to exotic mortgages? In the State of Washington, this will be difficult, because the answer lies with government entities partnering with the building industry. The good financing programs already exist such as Washington’s HouseKey program and Fannie Mae’s My Community product. These allow for 100% financing at very reasonable fixed rates. The issue is the supply of the affordable homes. Affordable housing typically ends up being smaller units further away from town, or in less than desirable areas. In states with property taxes, the municipalities have taken in a huge bundle of money recently because of the acceleration of home values within their borders. The city or county did nothing to earn this money, it is just a windfall. Plus- there should not have been any corresponding increase in the operating expenses for these governments. So I think they should spend some of this money on extending utilities out into areas of cheaper land (if they have any) and if necessary increasing the zoning density in these areas so a builder can build something affordable. In blighted areas, they should offer inducements to builders to come in and build low cost housing. In our state in order to do this, the state and planning departments are going to have to listen to builders to see where they can cut out some regulations that add unnecessarily to the cost of homes. Simple economics would tell you that if a city or county spent this money, the net result would be an increase in their tax base, plus all the positive elements that come from having a higher percentage of homeownership in their area.
9. What changes have you seen in the industry over the past few years? The industry thankfully changes with the times. So as more people have second homes, more lending options are now available. Also, our documentation guidelines are relaxed a little bit, so people don’t have to bring a file cabinet with them to get approved, and things like frequent job changes are not as big an issue anymore. As with most industries, change never seems to happen as fast as we would like, but overall, I would say the changes are positive and benefit the consumer.
10. If you could ask 10 questions of anyone alive today, who would it be and why? I have the need, I just don’t know who the person is yet. About 15 years ago I met a Navy SEAL turned banker turned pastor in San Diego who became a Life mentor to me. He passed away a couple years ago, and I haven’t yet found someone to fill that roll for me. I think it is important to find people who are further ahead in marriage, parenting, business and any important arena of your life and tap into their experience. One thing I think is a downside of our culture is that we all think we can make it alone, so the average person spends the first 50 years gaining experience and then wishes they had had that wisdom when they were younger. I learned early on to find the people who are already there, and use their experience as your wisdom.

Leavenworth WA real estate – Should you be investing?

April 27th, 2007 by Geordie Romer
Categories: Home Buyers, Leavenworth Real estate market, Leavenworth Vacation Homes
1 Comment

Are you curious about investing in the Leavenworth or Lake Wenatchee real estate market?

Seems like everyone is interested in real estate investments these days.

I see or hear about three types of “investors” most often in our local market. I use the quotes because most of these are “would be” investors who can’t find what they are looking for in the Leavenworth or Lake Wenatchee real estate market. (I read this article from Broker Agent News, (Top 7 Tips,) after I started my post. Notice the similarities including the use of quotes around “investor”.)

The first is the fix it and flip it investor.
Most don’t have the skills needed to fix the houses with real potential. There aren’t many homes in our market that just need a little paint and new flooring. Much of what is available needs some real love and perhaps even moving a wall or two. Another problem is the high price to get into the market. While $250,000 doesn’t seem high in Seattle or San Francisco, it seems high to a Leavenworth or Wenatchee resident for a house that needs a lot of work. Finally there is the turnaround time. Our time on market, even for great homes, can be a little tough on investors looking to get their money back. If you expect it to sell in a few weeks after you have fixed it up, you may be in for a surprise.
Second, we have the typical landlord investor.
These folks are looking for a property, especially multi-family properties such as duplexes or tri-plexes that have good cash flow. This means that the income coming in from rent is greater than the expenses for management, upkeep, and the mortgage payments. The houses are paying for themselves and the investor only needed to have enough for the down payment. Here’s the bad news- it ain’t gonna pencil. A few years ago you might have found rental properties in Wenatchee (but not Leavenworth) that had good cash flow. Not today. Why? Because real estate prices have gone up, but rental rates really haven’t. Robert Kyosaki, the author of the Rich Dad, Poor Dad series had a good idea. Write rental agreements with language that automatically raises rents yearly. How many times have I heard from landlords that they know their rents could be higher, but they didn’t want to lose their great tenants by raising the rent. Guess what? The investor buyer doesn’t care so much about the quality of the renter as much as the quality of the rent.
Third, we have the vacation home buyer.
This person wants to buy a vacation home and rent it out when it is not in use. This isn’t a bad strategy except for the following caveats.
  1. Make sure the zoning allows it. In Leavenworth, “nightly/weekly” rentals are only allowed in areas with Commercial Zoning. For the most part, this means a condo, although some older houses are located in commercial areas. In unincorporated Chelan County the zoning isn’t as big of a problem.
  2. Be prepared for Management Fees and Condo Association Fees. Managers for vacation rentals locally are charging 40-60% of the rental rate. Some will even charge you a cleaning fee to use your own property. Additionally the monthly condo fees can be a few hundred dollars. These fees make Cash Flow a difficult proposition.
  3. When are you likely to use the property? If it’s just an investment- great. Most folks hope to come over for a few long weekends and holidays. Christmas, New Years, Spring Break, MLK Day, Oktoberfest – these are the big money makers for vacation rentals. The quiet times? Mid week (Tuesday through Thursday) and the in between seasons. Can’t golf or go skiing because the weather won’t cooperate? This is the quiet season. There is a great article about making money from vacation rentals here.
What is my advice for the real estate investor? First of all look to the long term. There aren’t many get rich quick deals. If they exist, they require lots of money and certainly talent. There is however lots of money to be made by investors who can wait a year or two. Second. Look beyond cash flow. What about the other sources of profit? Depreciation, mortgage deduction and market appreciation.
One of my favorite ideas currently is land that doesn’t quite cash flow. Find a house, often a manufactured home, on a great lot that has lots of value. Rent out the house for a few years with minimal improvements. Does the renter pay the mortgage? Of course not, but when’s the last time you got rent on bare ground? In two or three years the lot has increased 20% a year and you can remove the structure and sell the ground.
Similar to this is Rent, Fix and Flip. Buy a fixer upper with potential. Rent it out before you fix it and after a few years of building equity then flip it. We have great appreciation right now, take advantage of it by holding on to it. I think land is a great place to invest right now. Not necessarily large subdivisions, but little short plats of 2 to 4 lots or just keeping a small in town lot or a lot in an existing subdivision.



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