Amos Elroy's New Jersey Real Estate Blog

More Detail on FHA Loan Changes

Here is a Clarification of the FHA changes posted from Assistant Secretary of Housing - FHA Commissioner

I wanted to take a moment to make sure you are familiar with events surrounding a sweeping set of policy changes for FHA announced earlier this week. The announcement details the changes that Secretary Donovan promised to deliver by the end of January when he testified before Congress last month.

The new policies are designed to strengthen the FHA's capital reserves so we can continue to fulfill our mission of serving underserved communities.  In addition, we were determined that these changes should support, not disrupt, the nation's housing market recovery.  Bringing these changes to market has been the result of a lot of hard work and long hours.  And, I am proud to have worked with so many of you on this initiative.

What changes will be implemented?  We announced the following on January 20:

1. Increase the up-front mortgage insurance premium (MIP) to 2.25%;
2. Update credit score and down payment requirements for new borrowers;
3. Reduce seller concessions to three percent, from six percent; and
4. Implement a series of significant measures aimed at increasing lender enforcement. 

When combined with the risk management measures announced in September of last year, these new changes are among the most significant steps ever taken by FHA to address risk.  Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market's recovery.  Importantly, FHA will remain the largest source of home purchase financing for underserved communities.

Let's go into more detail:

Announced FHA Policy Changes:

1.      Increase the MIP to build up capital reserves and bring back private lending.

o    The first step will be to raise the up-front MIP by 50 basis points to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.

o    If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.

o    This shift will allow for the capital reserves to increase with less impact on the consumer because the annual MIP is paid over the life of the loan instead of at the time of closing.

o    The initial up-front increase is included in Mortgagee Letter 2010-02 and will go into effect in the spring.

2.      Update the combination of credit scores and down payments for new borrowers.

o    New borrowers will now be required to have a minimum credit score of 580 to qualify for FHA's 3.5% down payment program.  New borrowers with less than a 580 credit score will be required to put down at least 10%.

o     This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.

o    This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

3.      Reduce allowable seller concessions from 6% to 3%.

o   The current level exposes the FHA to excess risk by creating incentives to inflate appraised value.  This change will bring FHA into conformity with industry standards on seller concessions.

o   The change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

4.      Increase FHA lender enforcement.

o    Publicly report lender performance rankings to complement currently available Neighborhood Watch data which will be accessible via www.hud.gov on February 1.

§  This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.

o    Enhance monitoring of lender performance and compliance with FHA guidelines and standards. 

§  Implement Credit Watch termination through lender underwriting ID in addition to originating ID.

§  This change is included in Mortgagee Letter 2010-03 and is effective immediately.

o    Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process.

§  Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.

o    HUD is pursuing legislative authority to increase enforcement on FHA lenders.  Specific authority includes:

§  Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders.  This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite.

§  Legislative authority permitting HUD maximum flexibility to establish separate "areas" for purposes of review and termination under the Credit Watch initiative. 

Note:  This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches.

In addition to the changes I have outlined, we are continuing to review FHA's overall response to housing market conditions, to evaluate its mortgage insurance underwriting standards, and to improve its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

FHA Soon to Make Buyers Pay for Waiting

Delaying home purchase this year could cost home-buyers dearly. If you are considering buying a home this year, time is running out before FHA mortgage rules change for worse.

Federal Housing Authority (FHA) guaranteed loans are mortgages that offer a low down-payment of 3.5% at the current time, for buyers purchasing a primary residence for themselves. The looming changes to be implemented by the office of Housing and Urban Development (HUD) are going to affect the conditions of these loans quite significantly come April 5th 2010.

The mortgage insurance cost for FHA loans, required upfront, will increase from 1.75% to 2.25%. For example a borrower purchasing a $250,000 home with $8,750 down payment (3.5%), will see an increase of $1206 in loan insurance cost. Even though this amount is fed into the final loan amount, and the overall monthly payment increase is modest, it is still money coming out of the buyer’s pocket.

It is also important to remember the soon to come tax credit deadline of April 31st. In order to qualify for home-buyer’s $8,000 credit, the buyer would need to have the contract signed by that date, with a closing date no later than June 30th. Read detail here.

Using Your IRA for Real Estate Investments

It would most likely surprise many that it is perfectly legitimate and possible to use retirement accounts such as IRA (including not only the traditional IRA, but also accounts such as Roth IRA, SIMPLE IRA, Keogh, 401Ks, and SEPs) in your Real Estate investments.

Why bother? You ask. The answer is simple, Real Estate if invested in wisely, may be the most advantageous to yo in the long run. Some advantages include the ability of earning “sweat equity” through improving the properties your account invests in, or the benefit of US tax laws preferential to real property owners.

Most people do not think of their retirement accounts as an account or container for investments, but rather as an investment in itself. In fact what you choose to put in your retirement “portfolio”, so to speak, is up to you. If you ask your retirement account company whether you can add Real Estate investment, their answer may be no. The reason is that most companies that hold retirement accounts are not configured to be able to handle real estate. This however does not mean that can not be done as a rule.

In order to do so, you will first need to establish a self-directed retirement account with a company that specializes in real estate IRAs e-mail me for examples of such companies). This is an easy step. You set up a new account, or simply role over your existing accounts into the new one. (Before you do so however, make sure there are no surrender charges for rolling over your existing accounts).

Once you have done that you can direct your IRA to purchase real estate properties and make investments in your benefit. Notice the subtle point, you are not buying property, the IRA is. There are multiple implications to this. For example profits and expenses related to the real estate investment flow in, and out, of your retirement account directly. Another implication is that any profit you have made through renting or flipping a property is either tax deferred, or tax exempt in the case of a Roth IRA account. Another thing to realize is that while contributions to your IRA are capped at an annual amount, income from investment is not. So it is possible for an individual who has lost ground in their retirement account to catch up.

Not all implications are favorable, however. Since it is the IRA account that handles the investment, you must make sure you have enough liquidity in the account for operating expenses. You should also be aware of the fact you can not use this investment instrument in conjunction with any real estate property you or your family own or your business leases, etc. The investment has to remain completely separate from any other personal or business endeavors you or your family are involved in. For example, you can not buy yourself a vacation home as IRA investment, nor can you get the IRA account to buy your own house off, neither can you house your brother in an IRA investment property.

Another implication you should be aware of is that since the IRA owes the property any financing is bound to be “non- recourse”, or in other words the property is the sole security for the loan. Most lenders will not provide non-recourse loans, so you would have to resort to other means of financing such as sellers financing, or private loans.

All of this is not meant for everyone. If you are convinced this is the way to go you should first learn as much as possible about scouting good properties, cash flow, appreciation and depreciation, and their tax implications, ROI etc. Knowledge is your best friend. Most importantly consult a competent professional advisor before you take any steps.

HUD To Provide Over $700,000 for Affordable Housing and Community Development in North Bergen

On Oct. 16 2008 U.S. Housing and Urban Development Secretary Shaun Donovan announced the Township of North Bergen will receive $738,535 to support community development and produce more affordable housing.

The funding is sponsored by HUD's Community Development Block Grant (CDBG) Program. Most of CDBG funds are aimed at rehabilitation of affordable housing and improvement of public facilities, which in turn is usually a major catalyst for local job growth and business climate. CDBG funds are distributed annually to communities based on a formula taking into account the population of a community, poverty levels, the age of the housing properties, and extent of overcrowded housing.

Since 1974, HUD's CDBG Program has provided approximately $124 billion to state and local governments, targeting their own revitalization priorities.

For investors and home-owners alike these infusions of capital are important aspect to consider when deciding where to purchase.

Teachers, Fire Fighters, Police Officers, You May be Able to Purchase your Home for Half of the Posted Price!

I'll bet you did not know that. Quite often, word of this type of
incentive does not reach the population at large, in spite of the efforts of agencies and not-for-profits. Programs offering great assistance to home-buyers are not always publicized successfuly!

The intent of this particular program ("Good Neighbor Program") is to revitalize select neighborhoods through attracting qualified buyers who would make good neighbors. The incentive is very substantial! A Police officer with arrest authority, or a teacher from Pre-school to 12^th grade, for instance, may be able to get 50% discount off HUD property prices. A buyer has to commit to live in the property as a sole home for at least 36 months.

You do not need to be a first time home-buyer, though you would not qualify if you owned any residential property in the year prior to the submission of your offer.

HUD properties are houses of various types that are usually distressed and are re-appropriated for sale at prices less than other properties on the market. Often a property is at an advanced state of disrepair, and may require the buyer to apply for a 203K mortgage loan, designed to finance both the purchase and the repairs; it may even be a condition for getting the purchase approved.

Please contact me at aelroy@hobnjre.com for more detail.

Our agency, Exit on the Hudson Realty, is one of the few brokerages in the NJ Hudson area authorized by HUD to submit offers. We are in position to take you through the process from A-Z for any HUD property in NJ, NY, and PA. We also offer referal fees for Realtors on HUD home sales.

If you know law enforcement officers, fire fighters, or teachers, let them know about this opportunity, you'll make them happy.

Making Sense out of New Housing Production Rise Figures

Today the US Commerce Dept. announced that production of new housing has risen 8.9% in November. This news were immediately heralded as great signs of a recovery in the housing market, but is it really?!

This could be seen as a positive sign, but for what? What this National statistics figure means, at best, is that developers are increasing production, which could be an indication of their confidence in the market regrowth, however this is by no means a direct indicator of any improvement in the market itself. What is an indicator is the rate of sales.

This is not to say builders are necessarily wrong in their confidence, but there is certainly no direct correlation to objective market conditions. It is important to take these news with a grain of salt, or maybe a pinch. After all the reason developers ended up in a slump with an excess inventory was because they miss-calculated the projections of the market in the past, and what it was going to support. If the confidence of developers turns out to be misplaced, it would only cause a further worsening of the market as it gets overloaded with even more excess inventory. We all hope their instincts are correct.

Either-way, what is more important is to study the stats beyond the sensational headlines. If you do, you realize that even this number, touted as the best thing since sliced Melba toast, falls short of the expected by analysts. Also, construction starts of single family homes only rose 2.1%. The improvements where mainly in the multi-family construction rates, rising by 67.3%. This shows where developers believe the future of the housing market lies.

As to the stats that actually indicate the state of the real estate market directly, the Center for Economic and Policy Research (CEPR) provided interesting stats compiled from Oct. 09. Pending home sales rose 3.7%, marking a slowdown from August and September, but still a positive trend. New home sales increased by 6.2% Nationally in October, which is a very welcome turn from the previous downward trend. In fact October pending homes sales were 31.8% above last years levels!

It is however important to put recent rise in sales in the context of the 2009 tax credit expiration deadlines. It is believed by most analysts to be directly attributed to this deadline. In fact the performance of sales over the next few months will probably be likewise skewed by the 2010 tax credit, with its end of April 2010 deadline.

Either way, though be it incentive or not, the fact that sales are rising is a positive one nevertheless. If we are to assess market trends correctly though, we would have to take a longer view of the market. It is likely the actual change in the market may take as long as 6 months to be indicated definitively.

Hudson County Real Estate Stats Nov. 2009

In November 2009 a total of 285 properties were sold, at 94.65% of list price overall. this marks a decline from October 2009, where a total of 363 sales were made, at a 142.4% of list price. Compared to November of 2008, however, this makes a rise. In the same month last year there were 197 closings at 93.3%.

In a time frame of a year, between November of 2008 and November of 2009, an average of 261 closings per month at 99.5% of the listing price were recorded for Hudson County.

* Data based on Hudson County MLS records

Home Improvements Credit Available

If you are looking to make improvements to your princiloe residence that results in energy efficiency improvement, you may be eligible for credit from the government.

This incentive program has already been in place in 2008, however now it has been revamped and raised for 2009 and 2010. The incentive will cover such improvements as windows replacement and other insulation work, as well as certain heating or hot water appliance installations. The cap is currently at 30% and up to $1,500.

In addition a "residential energy efficient property credit" is available for more expensive alternative green technology, such as solra water-heaters, wind turbines, and photo-voltaic elecric generation. That incentive is also caped at 30% but has no maximum Dollar limit. It can also be used to ubgrade a vacation home, while the basic incentive only covers your principle residence.

• For more detail you may want to read this New York Times story from earlier this year.
• You may check if what you are thinking of installing qualifies for a credit and at what level at this site.

NJ Real Estate Still Mixed Bag

According to the Commerce Department the number of new home development in North East NJ accelerated its decline in October. According to recotrds the annual rate fell from 69,000 to 59,000 since September, marking a drop of a wapping 18.8% in a signle month.

Those these numbers are cringingly painful to absorb, the whole picture is not black. During the same time, according to NJ State judiciary, residential foreclosures shrank for the first time in this year compared to the same period last year. In October of 2008 lenders initiated 5,262 foreclosure processes vs. only 4,991 this October.

Since the foreclosure segment is driven primarily by unemployment, which has reached a record breaking peak recently, thus this trend, however welcome, is not entirely understood. It is possible that it is a temporary pause, caused by the Obama administration Making Home Affordable debt mitigation programs, though the hope is this will be a continuing trend going on forwards.

The new development rate drop however is not a particularly encouraging outlook as it is the fallout of a large inventory of new houses on the market. Whether optimism is pre-mature or not, will be revealed by time alone.

Tax Credit for Home-Buyers Extended and Expanded (Hoboken, NJ Real Estate)

Many have wondered whether the tax credits that were given to first-time home-buyers in 2008 would be offered again in tax year 2009. It seemed to make sense, since the housing market was still struggling to turn a corner, though there was really no guarantee or assurance that congress would indeed vote to do so.

 Buyers and Realtors can breath a breath of relief, as the law extending tax credits was passed in congress by both parties on Nov. 6, 2009. In fact the new tax credit is not only extended but expanded. This is no longer a tax credit offered to first-time home-buyers, but to any repeat buyer.

 Here is the important information regarding qualification:

If you are a first time home-buyer you may qualify for up to $8,000 credit. If you are not a first time home-buyer, and already owned a property (move-up buyer) you will qualify, but only up to $6,500, and in order to qualify you would have had to own your residence (same residence) for at least 5 years any time during the last 8 years.

To qualify the home purchase must be signed by 30th of April 2010, and have to close by June30th 2010.

The income eligibility limit is $125,000 for individuals and $225,000 for couples. Individuals with an income up to $145,000 and couples with an income up to $245,000 can claim a partial credit.Note that these income limits are the modified adjusted gross income from the tax return, not actual income. In other words even though you make above the indicated amount you may still qualify after adjustments. Home-buyers can also claim the credit against their 2008 tax return, which means you can look at your adjusted income from the tax return you filed this year and know exactly what your income limit is.

Homes with purchase price of more than $800,000 do not qualify.

Also, the home purchased must be a principal residence. Move-up buyers may own a second home, but this credit cannot be used to buy a second home.

There are ways to get the credit before tax return date, though that is a bit more involved than the scope of this blog. If you have questions about it though I will be happy to provide you information about it. Simply go to my site http://www.hobnjre.com for my contact or email me at aelroy@HobNJRE.com.

16 WASHINGTON PARKWAY in Downtown is Sold!

Downtown, Bayonne  -  The 2 story at 16 WASHINGTON PARKWAY has been sold.

Property information

Duplex For Sale in Jersey City Heights

Great condition with built-in rental

• 1,060 sq. ft., 2 bath, 3 bdrm duplex "2 BD apt on top / studio bottom" - MLS® $220,000 - Short-Sale Priced to sell

Jersey City Heights, Jersey City  -  Second and third floor - 2 BD apartment. All hardwood floors, tile in bathrooms and kitchen, fire place. Mint condition.

Recently updated.

1 car parking spot in front of property.

Modern kitchen - high ceilings - large rooms - tiled baths - original moldings - fireplace mantles - hardwood floors - large deck and backyard.

Great commuter location, close to food, shopping and transportation.

Bottom floor is large studio. Wall to wall carpet, tiled kitchen and bathroom. Minor updating needed.

Offered in as-is condition

Property information

Multiplex For Sale in Midtown

1 BR condo in midtown Bayonne

• 538 sq. ft., 1 bath, 1 bdrm multiplex - MLS® $139,900

Midtown, Bayonne  -  - Laundry room available in basement

- Bathroom renovation completed

- Kitchen renovations in process

- Close to public transit

- Maintenance fees include heating and hot water

Property information

2 Story For Sale in Passaic

Great Opportunity!

• 3 bath, 3 bdrm 2 story "Single Family - Colonial" - MLS® $305,000 - Motivated Seller!

Passaic, Passaic County  -  - Renovated 2007 kitchen and bath
- New appliances
- Possible Mother/Daughter
- Basement has full bath
- Comes with a 1 Year Home Warranty!
- Motivated Seller!

Don't let this one pass you by

Property information

Single Story For Sale in Downtown

• 1 bath, 1 bdrm single story - $600 USD Monthly - Heat Included

Downtown, Bayonne  -  Studio in Downtown Bayonne.

Easy Commute.

Security $600. Heat Included. No Pets.

Includes Stove and Refrigerator in Kitchen Area

On 1st Floor.

Property information