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How do you buy a house that needs repairs before a bank will lend money?

September 27, 2009 by  
Filed under Featured

Home Repairs Needed

Most people can’t pay cash for a home, even if it is a discounted foreclosure property. That means you need a loan. But, banks don’t want to lend on a home that is not livable. So does that mean you can’t buy distressed properties? Are the deals off limits?

The Federal Housing Administration (FHA) has a loan program just for this situation. It is called a 203(k) loan. These loans are designed to help improve homes and neighborhoods. However the process is quite involved. You need many expensive professionals to help you through the process. You will need plans approved. The money is released as the work progresses and you meet project milestones. It is a process designed for large projects.

For many the red tape is daunting. FHA later realized there was a need for a simpler process. They developed the Streamlined 203(k) program. It won’t work for all projects. There are loan limits, and the scope of the work is limited. It is the 203(k) but simpler. You are limited to $35,000 in repairs. But for many of the homes out there that is enough money to complete the project. The biggest issue is the repairs can’t be structural or involve termite damage and stay within the Streamlined program. For that you will need the full 203(k) loan and process.

Here is what FHA says about the Streamlined 203(k) loan program:

What improvements are eligible under the new Streamlined (k) program?

The Streamlined (k) program is intended to facilitate uncomplicated rehabilitation and/or improvements to a home for which plans, consultants, engineers and/or architects are not required. The Streamlined (k) program includes the discretionary improvements and/or repairs shown below:

  • Repair/Replacement of roofs, gutters and downspouts
  • Repair/Replacement/upgrade of existing HVAC systems
  • Repair/Replacement/upgrade of plumbing and electrical systems
  • Repair/Replacement of flooring
  • Minor remodeling, such as kitchens, which does not involve structural repairs
  • Painting, both exterior and interior
  • Weatherization, including storm windows and doors, insulation, weather stripping, etc.
  • Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens
  • Accessibility improvements for persons with disabilities
  • Lead-based paint stabilization or abatement of lead-based paint hazards
  • Repair/replace/add exterior decks, patios, porches
  • Basement finishing and remodeling, which does not involve structural repairs
  • Basement waterproofing
  • Window and door replacements and exterior wall re-siding
  • Septic system and/or well repair or replacement

What are the minimum and maximum amounts for repair costs under this program?

Given the need for homeowners to make minor repairs without exhausting personal savings, and in consideration of the increasing cost of materials, the minimum repair cost of $5,000 is eliminated and the ceiling is now raised to $35,000. This revised maximum repair/rehabilitation amount recognizes the cost of making older homes more energy efficient. Note that as described below, when the repairs exceed $15,000, the mortgagee must perform or obtain an inspection to determine that all listed repairs were completed.

If you are interested in homes that will require repairs, then keep this program in mind.

The likely process for streamlined is

  1. Get loan pre-approval with a lender that does 203(k) loans
  2. Search for bank owned homes with our free and easy online search engine
  3. We go together to see in person the homes that interest you
  4. Once you have narrowed your search to a house you might pursue you need to figure out how many dollars of repairs it will take
  5. Make an offer with FHA disclosures and 203(k) indicated
  6. Offer accepted
  7. Contractor quote
  8. Appraisal
  9. Loan process
  10. Home purchase closing
  11. Contractor begins work
  12. First payment to contractor made
  13. Repairs completed
  14. Final inspection
  15. Final payment to contractor made

Take the next step. Contact us for lenders that do 203(k) loans and get pre-approved.

Here is the full document from FHA that documents the program:

How low will the bank accept for a short sale offer?

May 14, 2009 by  
Filed under Featured

Limbo

It is a simple question with a difficult answer. How low will the bank accept for a short sale offer? As with most things, it depends. First of all, the seller of the property is the owner, not the bank. The seller must accept the offer before the bank will even see it? But, since the seller walks away from the closing without any money going to him, price is not his first consideration.

A short sale is when the seller owes the bank more money than the home he owns is worth, and the bank agrees to accept a lower amount as payment in full for a sale. The bank will sometimes ask for a personal note from the seller to cover the difference, but the seller will want to avoid this if possible. The bank will decide to approve this arrangement only if it makes financial sense. The threat to the bank, is this home will go to foreclosure if a short sale cannot be arranged. If the seller has the income to continue paying the mortgage and is doing so, that threat is lower. In some cases, a short sale can be arranged without the seller missing any mortgage payments, and the sellers credit is much better preserved. A difficult dance, but possible if an owner without financial hardship wants to move.

Neglected Home

For the majority of short sales, the bank has not been paid in a while. If the house goes to foreclosure, the bank is facing high expenses, and the prospect of owning real estate. Bank owned property tends to decline in value over time because it starts in an uncertain condition, remains vacant for long periods, and is roughly and poorly maintained. Banks make money by lending money. They must have a reserve of cash to lend money. They do not want to own real estate. So they sell it; and they are not likely to get a good price for it. If the house is sold in a short sale, the home is still someone’s home. The home is not usually vacant. The home is at least modestly maintained and not mistreated. The home is sold in an orderly process, and the bank receives cash at settlement. This is a lot of benefits in favor of allowing a short sale.

So what will the bank accept for a short sale? Answer these questions:

  • What is the condition of the house?
  • What is the demand in the local market?
  • How much does the home appraise for, or what is the broker price opinion (BPO)?
  • How long has the home been on the market and at what price was it offered?
  • How well has the home been marketed?
  • Are there any existing offers?
  • What is the financial condition of the bank and the banking industry?
  • What is the competition?
  • What is the absorbtion rate?
  • What are the recent sold prices including REO sales?
  • How many payments are late?
  • How much is the balance of the loan?
  • How many lenders are involved?
  • Is the mortgage insured?
  • Who owns the mortgage?
  • How well is the short sale package presented?
  • Who is the negotiator?
  • How many files are on the negotiators desk?
  • Are there any contract contingencies?
  • Is this a cash offer?
  • How certain is the bank that the deal will go through?
  • etc.

We can try answering these questions, and we do, but is there another way to answer the main question?

The above list is the theoretical way of trying to compute an answer. I like to tell my buyer clients, that the only way to know for sure if a seller (or bank) will accept some amount of money is to make an offer. A real offer is binding on the buyer. It shows the question is not idle talk. The bank in it’s own way is answering those same questions above to evaluate an offer. So an offer means it is worth the trouble for the bank to spend the time and money to figure out just how much it will accept. If there are multiple banks, and mortgage insurance, then there are many people that have to agree on the price. That takes negotiation, and none of that negotiation will take place without a real offer on the table. So the answer is to find out by negotiating with the bank.

And, we can use short sale sold data as a guide to our negotiations. The following two graphs show as a percentage of original list price the final sales price for short sales in Baltimore County for the last year. Each dot represents a sale. Each sale has it’s own unique situation. For instance there is one sale at 30% of original list price. This is an as/is home with renovations half unfinished. There are also sales over 100% of list price. This can mean the price was listed very competitively at the start.

Short Sale Percentage Days on Market Baltimore county

Short Sale Percentage list price Baltimore county

There is nothing magic to the original list price, but it gives us a number to work from for this blog post. For a real transaction, we would research the above questions for the specific case.

  • Find closings for a specific bank
  • Find the loan balance
  • Analyze the local market
  • etc.

The discounts buyers are getting can be quite dramatic. If you were to look at the original loan balance, or the highest property sale price, then things really start to get interesting.

Photo credits, lolodrake and Doug Wertman.

Compost Bin Sale in Baltimore County

April 17, 2009 by  
Filed under Quick

Earth Machine Compost Bin Promotion

Compost Bin Sale April 18 & 19 - You can purchase Earth Machine Compost bins for $35, and you do not have to be a Baltimore county reisdent to purchase a bin. The suggested retail price is $100.

Saturday April 18th at the IKEA parking lot in White Marsh, 8352 Honeygo Blvd, White Marsh, MD, 21236, from 9am to 3pm. You can get an “Earth Machine” compost bin for only $35, cash and checks only. These are on a first come first served basis, while supplies last.


View Larger Map Click on the “B” to get directions to Ikea

On Sunday April 19th the sale moves to Reisterstown: to the Franklin High School parking lot, 12000 Reisterstown Rd, Reisterstown, MD 21136, hours from 9am to 3pm. Again the price is $35 per bin and there is no limit on the number of bins you may purchase, cash and checks only.


View Larger Map Get directions to Franklin High School

Here is a link to the very helpful Baltimore county website outlining this promotion:
http://www.baltimorecountymd.gov/Agencies/publicworks/recycling/composting/binsale.html

Norseman Plastics has been very successful with these promotions across the country. 6% of residents in Boulder Colorado have one of these bins. There have been sales in California, Pennsylvania, Florida, and Connecticut. And I am sure there have been many more states not listed.

Many of the people that buy these have never composted before. A Portland Metro survey reported that “88% of residents are still using their bin after 3 years”. Composting is a very effective way of reducing trash use. And it is a great way to get rid of leaves.

Shop at Amelia’s Grocery Outlet in Pennsylvania

April 2, 2009 by  
Filed under Quick

Amelia's Grocery OutletI read about a really great discount grocery chain in Pennsylvania, called Amelia’s. I found their website, but deciding which location was most convenient was not clear. So I decided to create a google map with all their locations, to make it easy for everyone to see the best location for themselves.

Amelia’s Grocery Outlet


View Larger Map

Amelia’s web site says “Amelia’s is the area’s only authorized manufacturer-direct outlet for many national and regional grocery manufacturers. As you can see from our manufacturer list, we source close-out products from most of the major food manufacturers. It’s like having a company outlet store for each of those manufacturers under one roof. And the result is that you save money, a lot of money.”

  • Allentown’s Amelia’s Grocery Outlet
    Tilghman Square Center
    4628 Tilghman St.
    Allentown, PA 18104
    Phone: 484-223-2900
    Hours of operation:
    Mon. – Sat. 8:00 am – 9:00 pm
  • Lancaster’s Amelia’s Grocery Outlet
    1951 Lincoln Highway East
    Lancaster, PA 17602-3343
    Phone: 717-392-0635
    Hours: Mon. – Sat. 8:00 am – 9:00 pm
  • Pottsville’s Amelia’s Grocery Outlet
    7100 Fairlane Village Mall
    Pottsville, PA 17901-4100
    Phone Number: (570) 628-3303
    Hours: Mon. – Sat. 8:00 am – 9:00 pm
  • Royersford’s Amelia’s Grocery Outlet
    Parktown Plaza
    301 North Lewis Road
    Royersford, PA 19468-1531
    Phone: 610-948-6029
    Hours: Mon. – Sat. 8:00 am – 9:00 pm
  • Coatesville’s Amelia’s Grocery Outlet
    Caln Plaza
    1851 E. Lincoln Highway
    Coatesville, PA 19320-2407
    Phone: 610-466-1400
    Hours: Mon. – Sat. 8:00 am – 9:00 pm
  • Manheim’s Amelia’s Grocery Outlet
    next to McDonalds
    701 Lancaster Rd. (Rt. 72)
    Manheim, PA 17545-2313
    Phone: 717-665-7500
    Hours: Mon. – Sat. 8:00 am – 9:00 pm
  • Reading’s Amelia’s Grocery Outlet
    (3 miles north of Sam’s Club on Route 222, one block north of the intersection of Routes 222 and 73)
    8472 Allentown Pike
    Blandon, PA 19510-9472
    Phone: 610-916-9861
    Hours: Mon. – Sat. 8:00 am – 9:00 pm
  • Woodlyn’s Amelia’s Grocery Outlet
    1936 Macdade Boulevard
    Woodlyn, PA 19094
    Phone 610-876-6700
    Hours: Mon. – Sat. 8:00 am – 9:00 pm
  • Harrisburg’s Amelia’s Grocery Outlet
    Clemont Plaza
    600 North Mountain Rd.
    Harrisburg, PA 17112-2398
    Just off Exit 72B of I-81N
    Phone: 717-724-2223
    Hours: Mon. – Sat. 8:00 am – 9:00 pm
  • New Holland’s Amelia’s Grocery Outlet
    New Holland Shopping Center
    685 West Main St.
    New Holland, PA 17557-9343
    Phone: 717-354-8600
    Hours: Mon-Sat 8:00 am-9:00pm
  • Rohrerstown’s Amelia’s Grocery Outlet
    (across from Lancaster Health Campus)
    2108 Spring Valley Rd. (Good’s Plaza)
    Lancaster, PA 17601-2427
    Phone: 717-209-7060
    Hours: Mon. – Sat. 8:00 am – 9:00 pm

You may have noticed that I like maps. I think searching for real estate MLS listings is also easier by map. That is why I offer a powerful but intuitive map based MLS Listings search for Maryland, and parts of Pennsylvania and Virginia. Go to www.HelpShop.com and check it out.

Home shows, and craft shows and train shows oh my!

April 2, 2009 by  
Filed under Quick

Trains Homes Crafts

What a busy April weekend!

In Westminster there is the Carroll County Home Show April 4th from 9 am to 5 pm and April 5th from 11am until 4 pm. Admission is $4 per person, persons under 18 are free. If you bring a non perishable food item (for pets or for people) you will get $1 off admission. What a family friendly deal for a great show! The show is located at the Carroll County Ag Center, 700 Agriculture Drive, Westminster, MD 21157. Here is the link for more details: http://www.carrollcountytimes.com/info/home_show/

In Howard county there is the Suburban Maryland Home Show, that runs April 3rd to April 5th, located at the Howard County Fairgrounds, 2210 Fairgrounds Road, West Friendship, MD 21794. The hours for the show are April 3rd 11am to 10pm, April 4th 10am to 8 pm, April 5th 10am to 6pm. Admission is $9 for adults, persons under 16 are free. Here is a link for $2 off of admission: http://www.acshomeshow.com/HGExpo/HG_Discount_Form.html?Venue=HF

And here is the link for general information about the Suburban Maryland Home Show: http://www.acshomeshow.com/HGExpo/HFS.html

And there is also the pretty neat Great Scale Model Train Show this weekend at the Maryland State Fairgrounds in Timonium, it is open April 4th from 9am to 4 pm and April 5th from 10am to 4pm. Admission is $9, person under 15 are free and family admissions are $18, and the admission is good for both days (as long as you can show your hand stamp from Saturday, so don’t scrub too hard!). Here is the link for more details about the Great Scale Model Train Show: http://www.gsmts.com/

The Sugarloaf Craft Festival is at the Montgomery County Fairgrounds, located at exit 11 of route I-270, April 3rd 10am to 6 pm, April 4th 10 am to 6 pm and April 5th 10am to 5pm. Admission is $8 is good for all three days, persons aged 12 and under are free. Here is a link to a coupon for $1 off admission: http://www.sugarloafcrafts.com/festivals/gaith/spring/coupon.html

And here is a link to the general Sugarloaf Craft Festival show information: http://www.sugarloafcrafts.com/festivals/gaith/spring/

And for the nose to the grind stone types (you know who you are) in Carroll County, there is a compost bin sale at the Random house parking lot on Hahn road, Saturday April 4th from 9am to 4 pm. The Earth Machine compost bins are $39, a significant discount from the $100 retail price. This effort is to encourage more composting and reduce some landfill waste. So get your bins while they last. There will also be Systern rain barrels for sale for $50 also significantly discounted from the retail price. Both the compost bins and rain barrels are from Norsemen Plastics. Here is a link to the Carroll County Times article outlining more details: http://www.carrollcountytimes.com/articles/2009/04/02/news/local_news/newsstory6.txt

Have a great weekend!

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