To recap, there are two tax credits available – an $8,000 tax credit for first-time home buyers and a $6,500 tax credit for repeat buyers for homes priced up to $800,000. Income caps are $125,000 for single buyers and $225,000 for married couples.

The attached file provides an overview the tax credits. Click image to download (PDF).

Members of the military, foreign service and the intelligence community who served outside the U.S. for at least 90 days between December 31, 2008 and May 1, 2010 have a one year extension. The deadline to purchase a home is April 30, 2011 with closing no later than June 30, 2011. Additionally, members may be exempt from the 3-year recapture rule if they need to sell or move from the residence as a result of an official extended duty.

To learn more about the tax credit or to start your home search, please contact our condo specialists.

The proposed changes, which are expected to go into effect this summer, include:

Increase in the mortgage insurance premium (MIP) from 1.75% to 2.25%. It’s an upfront fee that can be rolled into the loan. FHA will release additional information on January 21.

Increase down payment amount based on FICO score. To maintain FHA’s low 3.5% down payment option, borrowers will need a minimum FICO score of 580. For those with FICO scores below 580, the down payment will be 10%.

Reduce seller concessions from 6% to 3% (e.g. seller paid closing costs). According to the FHA, the current level exposes the agency to excess risk by creating incentives that inflates the appraised value. The change would bring FHA into conformity with industry standards.

For borrowers, the net effect of the proposed changes would increase the costs associated with an FHA backed loan. On the other hand, compared to conventional loans, FHA is still a lower cost option with more flexible requirements. Furthermore, with the other FHA condo guideline changes, the changes noted above may affect even fewer condo buyers.

Implementation has been postponed, again, to February 1, 2010. Additionally, some of the changes have been altered since they were first proposed.

FHA has revised its guidelines for condominium mortgages. The new guidelines will take effect with all case numbers assigned on and after February 1, 2010 December 7, 2009 November 2, 2009. (Note: the guidelines were initially scheduled to take effect on October 1, 2009 but have been delayed to February 1st.)

FHA is implementing a new approval process for condominium projects, and with it, the elimination of the “spot approval” process. Spot approvals were used by lenders to qualify an individual buyer’s condo purchase using FHA where the condo project was not previously approved by HUD/FHA. In its place is a new streamlined process, which may affect buyers, sellers/developers and homeowner associations.

With FHA loans becoming more prevalent with its low down payment and flexible eligibility requirements, condo buyers, sellers and their HOAs should keep these changes in mind. For instance, if an HOA has not yet conducted a reserve study, they will now need to do so if owners wish to sell to an FHA buyer, who are becoming an increasingly larger segment of home buyers.

Owner occupancy:
+ Prior to February 1st: 51% of the units must be owner occupied.
+ As of February 1st: 50% must be owner occupied or sold to owners who intend to reside in the unit.

Single owner status:
+ Prior to February 1st: No single entity may own more than 10% of the units.
+ As of February 1st: No more than 10% may be owned by one investor. This applies to builders that subsequently rent vacant and unsold units. This will not only affect the developer who intends to sell their unsold units, but also to existing unit owners in the project. For 2 or 3-unit buildings, no single entity may own more than one unit.

FHA Concentration:
+ Prior to February 1st: For projects over 30 units, no more than 10% may be insured by FHA; for projects with less than 30 units, no more than 20% may be insured by FHA.
+ As of February 1st: For projects with 4 or more units, no more than 50% (temporarily increased through 2011) 30% may be insured by FHA; for 2 or 3 unit projects, only one may be insured with FHA. The change increases the FHA concentration allowing for a greater number of FHA buyers/owners.

Reserve Study:
+ Prior to February 1st: No requirement. However, Washington State law requires homeowner associations to conduct reserve studies, though there is no enforcement provision.
+ As of February 1st: FHA will require that a current reserve study must be performed to assure adequate funds, which must not be more than 12 months old. This is a good change as it’ll incent the HOA to conduct a reserve study.

Insurance:
+ Prior to February 1st: The HOA must provide evidence of appropriate hazard, liability and flood insurance.
+ As of February 1st: The project must be covered by hazard and liability insured, and were applicable, flood insurance.

Other changes include:

Arrears: No more than 15% of the total units may be in arrears of their HOA dues (30 days past due).

Commercial space: Nore more than 25% of the property’s total floor area in a project can be used for commercial purposes.

Conversions: The one year waiting period is eliminated, though the project, including common areas, must be 100% complete.

Endorsement: At least 50% of the units must be sold prior to endorsement of any mortgage on a unit.

Legal phasing: Allows the owner occupancy percentage to be based on release phases.

Recertification: Project approvals will expire two years from the date it was placed on the approved condo list and must be re-certified every two years.

As it is currently written, once the two years are up and condos need to be re-certified, as well as those projects hoping to be approved, may run into an issue with the environmental review section of the guidelines. The guidelines do not allow for projects to be within 1,000 of a highway/freeway, within 3,000 feet of a railroad and within 1 mile of an airport. Potentially, this could affect numerous projects along I-5, Aurora Avenue and throughout Belltown. However, it’s likely the rules may be amended again within the next two years.

This is only intended to provide a high-level overview of the upcoming changes to FHA backed mortgages. For more specific information, including whether FHA is an option for you, please consult with a FHA mortgage specialist.

Sources: HUD Mortgage Letter 2009-19 (WORD download), Guild Mortgage Company, and the Talon Group.

This unit features hardwood floors, 1,300 square feet of comfortable living, two oversized bedrooms with large closet space and a great balcony for entertaining or watching fireworks. Entertain guests while you cook up a 5-star meal in the award winning chef’s kitchen.

The condo also includes in-unit washer / dryer and two parking spaces; community amenities include a swimming pool, community room, fitness room and ample guest parking.

The Shannon is located on a tree lined street in a residential area of Capitol Hill, yet close to everything with Broadway just two blocks away. Walkscore: 98.

For more information about this rental, please contact our leasing partners.

View more photos

Leasing agent: Sound Property Management

A sales concession is something that is not part of the real estate, such as cash, furniture, automobiles, decorator allowances, moving costs, or other “giveaways”. The value of the sales concession must be deducted from the sales price when calculating loan to values.

For example, if you have a sales price of $200,000 and patio furniture valued at $3,000; the sales price the lender will use is $197,000 (200,000 – 3000). Let’s assume you’re putting 10% down payment. Without the sales concession, 10% down would be $20,000. With the sales concession, 10% down is going to be a bit more:

How much more? Continue reading this article at The Mortgage Porter.

Here’s a few highlights:

• Housing Finance Agencies such as the Washington State Housing Finance Commission and certain non-profits will be able to monetize the tax credit, offering a loan against the tax credit at the time of purchase, which buyers can apply towards the down payment.
• For buyers using other FHA-approved lenders, the monetized tax credit can only be applied in excess of FHA’s required 3.5% down payment or towards other closing costs. In other words, it cannot be applied towards the initial 3.5% down payment requirement. As a result, most people will be able to use the monetized funds for closing costs rather than towards the down payment.
• This option only applies to FHA-insured mortgages, not conventional loans. As such, it’ll benefit buyers of single family homes or townhouses more so than condos. The reason for this is that FHA-insured loans are only available to HUD-approved condos. With only about 300 approved buildings in Seattle, many condos are not eligible. Additionally, HUD limits the number of FHA-insured units in a condo complex to 10% (e.g. only 2 units in a 20 unit complex will be eligible for FHA).

While this particular monetization option isn’t likely to help Seattle condo buyers much, it’s definitely a great option for first-time buyers who are taking advantage of FHA-insured mortgage loans. At the very least, buyers can increase their down payment amount or cover closing costs. The recently passed state version would help condo buyers but that seems to be dead in the water at this point.

The $8,000 first-time home buyers tax credit will expire on November 30, 2009. So if you’re interested in taking advantage of the credit, keep in mind, there’s only about 4.5 months left to get under contract. Also, the King County courthouse will close beginning Wednesday, November 25th for the Thanksgiving holiday weekend, you’ll essentially need to close/fund/record the purchase by November 24th to qualify for the credit.

More information:
HUD/FHA: Donovan announces recovery act’s homebuyer tax credit can immediately help thousands of first-time homeubyers to buy a home
SeattlePI.com: Feds will allow tax credit for down payment, closing costs

If truth be told, you need to hire someone you are comfortable working with and who is knowledgeable about construction and safety matters. If you get a name from your Realtor or from a friend’s referral, you are probably off to a good start. Now, I’ve had clients come up to me during inspections saying they didn’t want to work with their Realtor’s recommended inspector asking me “What if they are in cahoots with each other and the inspector is getting a kickback or missed something?”

Well if you have this feeling about your Realtor, don’t do business with them. A good Realtor is worth their weight in gold and is looking out for your best interest. They are going to go to bat for you, so if you think your Realtor isn’t, then Fire him or her. There are plenty of honest hard working Realtors out there who in the end will save you time, money and significant stress and headaches.

[Editor’s note: As of January 31, 2009, Washington state law (WAC 308-124C-050) now requires real estate agents who refer an inspector to provide written disclosure of any business/economic or family relationship they have with the referred inspector to their client. This law is intended to prevent collusion between the agent and inspector.]

So what if I’m thinking about hiring my dad (or friend) to inspect my condo? If your dad is comfortable and experienced in all facets of construction, not just one area like framing or drywall or painting, but is also knowledgeable about the electrical, plumbing, HVAC, garage door safety, siding, roofing and fireplace safety, then he may be able to do a condo inspection for you.

A contractor is generally a master of one particular area, i.e. a plumber is an expert at plumbing systems but may not know much about windows or electrical systems. So if your father (cousin, sister, friend) is well rounded in all facets of construction he may be able to perform the inspection. I didn’t say a good one, but a condo inspection nonetheless. Professional inspectors, on the other hand, are generalist, trained in all areas and are licensed and certified.

At the end of the day, whomever you choose to hire to perform your condo inspection, make sure you are comfortable working with them be it a professional inspector, a family member or someone off the street. In addition to being knowledgeable about condominium systems and construction, the inspector should produce an inspection report that’s easy to read, includes photos and is summarized in a format that is easy to understand. The report should be easy for you, the client, to digest and for the Realtor to negotiate with the seller’s agent.

If you go down the path of hiring a professional inspector what questions should you ask them? I’ll answer that in my next article… YourCondoInspector.com.

PDF version of the chart

Recently, TSCB noted two new mortgage fees implemented by Fannie Mae affecting condo buyers — a .75% condo add on fee and a 1.75% additional fee for investors — both applicable to loans with a loan-to-value rate greater than 75%.

Well, there’s more. Effective March 1, 2009, Fannie Mae is implementing condo guideline changes “in light of the current condo market and the need to mitigate risk on condo loans”. Some of these changes may affect a buyer’s ability to obtain conventional condo loans for new and established condos.

A condo project is “established” if 90% of the units have been sold, is complete and the HOA has been turned over to the owners. A condo project is “new” if less than 90% have been sold, is not completed, is subject to phasing or if the HOA has not been turned over to unit owners.

Overview of Fannie Mae condo guideline changes:

• For new construction and newly converted condo developments, 70% of the units must be pre-sold (closed or under contract). This is being increased from 51%.
• No more than 15% of a condo project units can be more than 30 days delinquent on HOA dues. This is an existing guideline that is now being applied to new condo projects. The calculation was also changed from being 15% of HOA fee payments to 15% of total units.
• Fidelity insurance will be required for condos with 20 or more units, ensuring that homeowner association funds are protected. Presently, this requirement applies to new projects and is now being extended to include established condos.
• A requirement that borrowers must now obtain a condo-owners insurance policy unless the master policy provides interior unit coverage; coverage may not be less than 20% of the assessed value. A condo-owners policy, known as an HO-6 policy, covers personal property, personal liability, and the physical unit from the studs and in. Many policies also include special assessment coverage or the option to include a special assessment coverage rider.
• No more than 10% of a project can be owned by a single entity.
• No more than 20% of a project can consist of non-residential space.
• The homeowners association must have at least 10% of its budgeted income designated for replacement reserves and adequate funds budgeted for the insurance deductible.

According to a Fannie Mae, the guidelines can be modified for condo projects on a case-by-case basis. Therefore, these guidelines may not apply to all condo projects.

What effect will the changes have?

The revised guidelines may affect a buyer’s ability to obtain a conventional loan for either a new or established condo if the project does not conform. Most notably, it’ll affect new developments and it’s already having an impact on at least two new projects. Vulcan recently sent a letter to buyers at its Rollin Street Flats project in South Lake Union notifying buyers of the new 70% pre-sold guideline and extending closing until April 15th at the earliest.

As it stands, Vulcan may be unable to close any of the units at Rollin Street unless (1) they continue to extend closing until 70% of the units are under contract, (2) seek modification under a Fannie Mae expedited review process, (3) find a lender willing to hold the loans in their portfolio, or (4) convert the use of the building.

Ruby Condominiums in Eastlake is holding off closings until there are enough sales to qualify under the guidelines…that could be awhile. Ruby is FHA approved so that offers qualified buyers an alternative, though Ruby must have 25 sales under contract before it can begin closing FHA buyers. Its developer, Barrientos, is a major apartment developer as well, so reuse may be an option. In both cases, buyers are left in limbo.

The new guidelines may also apply to other recently completed and/or soon to be completed projects including Enso, Veer Lofts, Equinox, Alex, Duncan Place, Leona, Lakeview Residences, Brix, Eleven Eleven, The Danielle, The Dakota and Marselle — that is unless they’ve been approved for a lower rate under a case-by-case expedited review process. Quite frankly, though, I expect a few of these won’t end up as condos.

If there is a silver lining, it’s for sellers at established condo developments who’ll have reduced competition from new construction developments.

Statement from Vulcan:
Vulcan has informed our buyers of the new Fannie Mae and Freddie Mac regulations because Rollin Street is at a level of pre-sales that is under what is mandated by the new guidelines. As these guidelines affect the ability of our buyers to obtain financing and close on their purchases, we felt it was important to communicate these challenges as soon as possible. We are working to understand the new guidelines and how they will ultimately affect the property and our buyers. We will be communicating what we know about these changes and their impact in the next 2 to 3 weeks.

Veer and Enso are at a higher level of sales and pre-sales respectively and our goal is to continue to close units in those buildings as buyers come to the closing table.

Response from Williams Marketing (per comment below)
As of today [2/20/09], Ruby has partnered with a local lender (Seattle Mortgage) looking to actually lend money! They have committed to close homes now, ie, we are move-in ready with no pre-sale requirement. We are also working with other regional lenders for additional commitments to close homes with no presale requirements. Ruby on Eastlake is both FHA and VA approved, so buyers can take advantage of every financial opportunity to get into new home ownership.

Posting has been revised.

Capitol Hill fared reasonable well. Though the median price dipped slightly compared to a year ago, down 1.7%, more units moved resulting in increases in both pending and closed transactions. The market in other in-city neighborhoods continued to struggle with under performing sales volume and declining values.

The number of active condo listings last month increased slightly over December, up 38 listings or 3.3%. Though, compared to January of last year, active listings were down 9.4%. The economy and further softening of Seattle’s real estate market are likely keeping sellers on the sidelines, either holding out as long as they can or renting their units instead.

The citywide condo inventory supply rate (absorption rate) decreased to 7.8 months in last month based on pending transactions. Although Seattle remains a buyers market, the rate has been trending back towards balanced market conditions. North of the ship canal, the condo supply is commensurate with last year’s rate; Capitol Hill’s rate is lower than it was a year ago.

While pending transactions (condo units going under contract) remained below last year’s level (-20.2%), there was a 22% increase in the number of pending transactions last month compared to December. Historically, January sales volume outpaces December, so we’d expect these results. Yet, it is a positive signal that even with the current economy crisis people are buying real estate… the number of pending condo transactions increased for the second consecutive month.

By all accounts 2009 looks rather bleak. The seemingly endless reports of layoffs, mortgage defaults and tightening mortgage guidelines will impact the region’s housing market. Foreclosures and outbound migration could result in higher inventory levels. Yet, there are opportunities that could spur market activity.

• One of three things will probably come out of the stimulus bill – a repeal of the payback component of the existing $7,500 first-time buyers tax credit (House version), a $15,000 tax credit which isn’t limited to first-time buyers (Senate version), or something in between.
• Fannie Mae just reversed its 4-property limit investor restriction and are now allowing loans for up to 10 financed properties.
• Mortgage rates remain historically low even when factoring in the .75% condo fee and more properties are receiving HUD/FHA approval.
• Continued value depreciation in most neighborhoods makes condo ownership more attractive.