The Upside Down House and What It Means

Sunday, March 28, 2010

Hello Hampton Roads,

The Upside Down House--Are you upside down on your house? 

Upside down means that you owe more than your home than it is currently worth.  If so you are not alone; according to research done by American Core Logic, there are 11.3 million mortgage holders or approximately 1 out of 4 people who are upside down on their homes.  According to the bar graph below, 36.3 of the 47 million mortgage holders owe less than their home is worth, and 2.3 million have less than 5% equity in their homes.

Why should anyone care whether or not they are "upside down?"
Why does it matter?

These are very good questions.  First it's important to know that just like the stock market the housing market has ups and downs-- and being upside down on your house today doesn't mean it will be like that in the future; you could be up when the market changes. Just like in the stock market, the real importance is related to whether or not you have to sell, and if so, how soon. If you can wait for the market to rise, or if you plan to be in your home for the rest of your life, then most likely it will not make a difference as long as you continue to make your payments. However, if you have to sell due to financial hardship or an imminent move, you may end up with a loss.  If you are in this situation, it may be in your best interest to see if you can sell your home as a short sale.

How does the number of those who are upside down on their homes correspond to the number of homes in foreclosure and in default?

For the 4th quarter in 2009 approximately 1in 6 homeowners are not making their mortgage payments.  The numbers are:

In foreclosure                        4.58%
In default (30+ days late):      10.44%
Total:                                   15.02%


Broken down by loan type we see:

Prime Loans

In foreclosure:                       3.31%
In default (30+ days late):     6.73%
Total:                                 10.04%

Sub-Prime Loans

In foreclosure:                     15.58%

In default (30+ days late):    25.26%
Total:                                  40.84%

FHA Loans

In foreclosure:                       3.57%

In default (30+ days late):    13.57%
Total:                                  17.14%

VA Loans

In foreclosure:                       2.46%

In default (30+ days late):      7.41%
Total:                                    9.87%

(To view our area, check out the latest foreclosure numbers in Hampton Roads)

Do you notice the trend in these percentages? 

The percentage of homes in foreclosure is significantly less than the percentage in default. That is, there are more homes in default than are actually being foreclosed on.  According to a recent article in the Wall Street Journal, for every new foreclosure, 7.1 mortgages are delinquent (in default). 

Thanks for reading!

_________________________
Serving your Hampton Roads and Virginia Beach Real Estate needs.

Foreclosures vs Short Sales

Friday, March 26, 2010

Hello Hampton Roads,

Let's take a look at Foreclosures vs Short Sales.
Do you know the difference between a Foreclosure and a Short Sale?

Our real estate market has both kinds of distressed sales, and today, we’ll take an in depth look at both.

A foreclosure is a process that occurs when the lender or creditor takes possession of the property because of the borrower’s failure to pay. A foreclosure property is also known as an REO, or Real Estate Owned (by the bank). To recoup their losses, the bank lists these properties with a qualified Realtor® to sell. Since banks are not in the business of owning real estate, these properties can be a source of potential bargains. (Check out my post on How to Buy Bank Owned Homes)  However, foreclosures are devastating to the financial well being of a borrower with effects that can be long lasting.

A short sale, on the other hand, is an increasingly popular tactic for financially troubled homeowners to possibly avoid foreclosure. Short sales occur when the lender or creditor agrees to sell the property for less than the mortgage amount. When the bank agrees to accept less than the pay off amount, the balance is “short” the amount owed, so hence we have the term, short sale. Short sales are essentially pre-foreclosures. The owner of the home has a financial hardship and has either missed mortgage payments or can no longer continue to make them so the property is on its way towards foreclosure.

Here are some of the pros and cons of both:

• Foreclosure
• Pros
• Bank has set the price so there is no guessing concerning the bank’s approval the sales price
• Bank has cleared liens in foreclosure
• Closing is relatively quick, usually within 30-60 days
• Generally the bank’s preservation company maintains the lawn and takes care of safety issues or other issues that may degrade value or cause damage
• Cons
• Lower sales price re-sets the price point in the neighborhood which lowers assessed value and reduces the tax base
• Ruins the owner’s credit—there is usually a 250-300 point drop in credit score and the foreclosure remains on credit history for 10 years or more
• Very damaging to those who have a security clearance and can be grounds for termination or reassignment
• Seller is eligible to receive a Fannie Mae backed mortgage after 5 years –a much longer term than with a short sale.

•  Short Sale
• Pros
• Less damaging to seller’s credit especially if seller is current on all other payments and a short sale is not reported on credit history
• Not a challenge for owner’s with security clearance
• In most cases property will sell for a higher price than if the property were foreclosed, thus keeping neighborhood property values higher than a foreclosure sale
• Seller is eligible to receive a Fannie Mae backed mortgage after 2 years
• Cons
• Can take an extremely long time to close—in some cases over a year
• According to Fannie Mae, in 2008 for every one short sale, there were eight foreclosures
• Bank may not agree to the price buyer and seller have agreed upon and the price may have to be renegotiated
• Seller may be liable to pay a deficiency judgment (the balance of the loan amount) to the bank if the bank agrees to the short sale
• Generally if the seller cannot make mortgage payments, he or she may also not be able to properly maintain the house

Both short sales and foreclosures have their own set of complexities and these sales are currently a driving force in our market as well as nationally. Any buyer or seller in this market would be wise to seek the guidance of a Realtor® experienced in distressed property sales. If you have any questions or are considering buying an REO or short sale, or selling your house as a short sale, feel free to contact me.


Thanks for Reading,


_________________________
Serving your Hampton Roads and Virginia Beach Real Estate needs.

The Skinny on Re-Hab Loans: FHA 203K Streamline and Full Rehab Loans

Tuesday, March 23, 2010

Hello Hampton Roads,

Do you need to renovate your home or investment property? 

Let’s face it, with all the homes for sale in our market, there are more than a few properties out there that need work to make them really shine! If you find a home to buy that fits this bill and are wondering how you can afford to purchase it and make the needed renovations, then look no further than the 203K Streamline or Full Renovation Re-hab loans. Both the purchase and renovations can be financed into one loan.


Re-Hab loans such as the 203K Streamline and the full renovation loan are perfect for any home in need of repairs as well as for bank owned homes and foreclosures, and for Housing and Urban Development Foreclosures (HUD homes). In a nutshell, these loans can be used to purchase and renovate a home or refinance and renovate; however, they are designed strictly for owner occupants and each loan has their own specific guidelines for qualification.

To start with, the FHA 203k Streamline is only allowing repairs costing a minimum of $5,000 up to a maximum of $35,000, while full Rehab loans are for repairs costing more than $35,000.

The 203K streamline facilitates purchase transactions in which the home needs basic repairs identified in a pre-purchase home inspection or an FHA appraisal. Such improvements may include the following:

• Repair / replacement roofs, gutters and downspouts
• Repair / replacement / upgrade of existing HVAC systems
• Repair / replacement / upgrade of plumbing and electrical systems
• Repair / replacement of existing flooring
• Minor remodeling that does not involve structural repairs, such as kitchens
• Exterior and interior painting
• Weatherization, including storm windows and doors, insulation, weather stripping, etc.
• Appliances, when at least $3,000 of basic home repairs is involved. Appliances may include free-standing ranges, refrigerators, washers/dryers, dishwashers and microwaves and may not exceed $2,000 in total cost.
• Improvements for accessibility for persons with disabilities.

In addition, the 203K streamline does not require a consultant for repair specifications, nor any plan reviewer or architectural exhibits. The work immediately starts after 30 days of loan closing and this helps save the buyer a lot of time!

Full Rehab Loans on the other hand, are intended for properties that require major structural rehabilitation. But unlike the 203K Streamline, it is necessary to involve both an appraiser and a consultant. The consultant will prepare the work write-up and cost estimate. Also, an architect, engineer or home inspector will  then need to inspect the property to ensure the following:

• There are no rodents, dry-rot, termites and other infestation
• There are no defects that will affect the health and safety of the occupants
• The existing structural, heating, plumbing, electrical and roofing systems are adequate and
• The completion of thermal protection upgrades (where necessary).

As such, on a standard FHA 203(k) loan, the process is often as follows:

1. Contact lender for pre-approval
2. Locate property & make offer
3. Get Your Offer Accepted
4. Peform the Home Inspection
5. FHA 203K HUD Consultant
6. Contractor bids and contractor selection
7. Submit the loan to underwriting
8. Clear any loan conditions
9. Property closing
10. Repairs Begin/ Final Inspection when finished

In addition to the qualifications or guidelines above, the full rehab loan can be applied in three ways:

1. To purchase a dwelling and the land it sits on and revitalize or rehabilitate it. In this case, the mortgage must be a first lien on the property and the loan proceeds must be available before the rehabilitation begins. Therefore, for condos, only the interior repairs may be financed, no outside construction to the dwelling can be financed.

2. To purchase a dwelling on another site and move it onto a new foundation on the mortgage property and rehabilitate it. In order to do this, the mortgage must also be a first lien on the property but the loan proceeds for moving of the dwelling can't be made available until the dwelling is attached to its new foundation.

3. For refinancing of existing dwelling and rehabilitating it.

Although both the 203K Streamline and Full Rehab Loans seem to entail a lot of official procedures and higher closing costs than a regular purchase mortgage, they are still considered to be a good source of house renovation financing. They can help save both time and money and in addition to turning that diamond in the rough into the perfect dream home!

Not every lender is knowledgeable about these types of loans and if you think that this may be a good product for you, feel free to send me an email and I can put in touch with a qualified lender!


Thanks for Reading,


_________________________
Serving your Hampton Roads and Virginia Beach Real Estate needs.

Telling It Like It Is: The Latest Foreclosure Numbers in Hampton Roads

Friday, March 12, 2010

Hello Hampton Roads,

What are the latest foreclosure numbers in Hampton Roads?  How does Hampton Roads compare with the national numbers for foreclosures?

In a effort to keep you better informed about our area as well as national real estate scene, I give you the following:

The National Picture:

This past February, First American Core Logic came up with some interesting national figures that said at the end of 4th Qtr 2009, 11.3 M homeowners owed more than their home is worth and that this represents 24% of all residential properties with mortgages! Nationally, 1 out of 4 homeowners are underwater, meaning that they have negative equity. Equity is the current market value of the house less any financial obligations/loans owed on the property.

Furthermore, First American goes on to state that once this negative equity becomes greater than 25% (of the home's value) or the mortgage balance is $70,000.00 more than what the property is currently worth, then homeowners have the same likelihood to default as investors. (Typically, investors are known to have higher default rates than homeowners because they do not inhabit the property and have less vested emotionally.)

According to RealtyTrac.com, total foreclosure filings for February were 308,524--this represents a 2% decrease from January but a 6% increase from February last year.

The Local Picture:

Foreclosure filings in our area stood at an all time high in February with 1305 in number up from 1074 in January.

Courtesy of RealtyTrac and the US Census data, we see the following foreclosure rate per city: The foreclosure rate is for month of February 2010.

Virginia Beach
Total # Households 175,553
Foreclosures 1 in 527
Chesapeake
Total # Households 82,685
Foreclosures 1 in 398
Norfolk
Total # Households 95,642
Foreclosures 1 in 474
Portsmouth
Total # Households 43,073
Foreclosures 1 in 366
Suffolk
Total # Households 32,869
Foreclosures 1 in 442
Hampton
Total # Households 60,151
Foreclosures 1 in 431
Newport News
Total # Households 78,792
Foreclosures 1 in 533

Are you interested in finding out more about foreclosures where you live? Sign up to receive your FREE Foreclosure list!

Thanks for Reading,


_________________________
Serving your Hampton Roads and Virginia Beach Real Estate needs.

Mulling Over Recent Tax Assessements in Virginia Beach

Thursday, March 11, 2010

Hello Hampton Roads,

Virginia Beach tax assessments just arrived for 2010!

Like every other home owner in Virginia Beach, we received our annual tax assessment and not suprisingly found that the tax assessed value had decreased from last year. Given the economic environment, this lead me to ponder about the rest of the city and the numbers are interesting: 88% of all properties decreased in value, 8% stayed the same in assessed value and 4% actually increased in tax assessed value.

Looking at the average appreciation/depreciation figures for residential apartment and commercial/industrial properties we find the following:

All the residential neighborhoods in Virginia Beach are divided into 5 districts, Bayside, Beach, Centerville, Kempsville, Lynnhaven, Princess Anne and Rose Hall. Looking at these districts individually we can see which neigborhoods had the highest and lowest assessed values

Bayside

Broadmeadows Condos has a median assessed value of $99,500.00

Bayside has a median assessed value of $831,400.00

Beach

Tapo Mobile Homes has a median assessed value of $28,500.00

Croatan Beach/Atlantic Ave. has a median assessed value of $1,839.900.00

Centerville

Level Green Townhouses at Pinewood Village has a median assessed value of $126,300.00
Emerald Forest has a median assessed value of $771,200.00

Kempsville

Queen City has a median assessed value of $71,150.00

Rivercrest Landing has a median assessed value of $715,000.00

Lynnhaven

Page Ave-Shore Dr Pages Shores has a median assessed value of $91,300.00

Residences at the Westin has a median assessed value of $1,706,200.00

Princess Anne

Salem Court condos has a median assessed value of $128,300.00

Ashville Park/Whilshire VLG PH1 has a median assessed value of $761,150.00

Rose Hall

Princess Anne Plaza TH/SEC 1 has a median assessed value of $95,150.00

Brigand's Quay has a median assessed value of $323,200.00

Interested in finding out how your neighborhood fared? Drop me a line!

__________________

Serving your Hampton Roads and Virginia Beach Real Estate needs.