The Seattle Condo Blog | Seattle Condos and Lofts

Updated 3/6/2012: Per Mortgagee Letter 12-4 issued today…Revising the effective dates of the Upfront and Annual Mortgage Insurance Premiums which has been changed to April 9, 2012. The Annual MIP on higher valued homes, over $625,500 will be effective June 11, 2012.

HUD finally announced yesterday that it would be raising the Upfront Mortgage Insurance Premium (MIP) for FHA loans effective April 9, 2012, from 1.00% to 1.75% of the loan amount. Fortunately, the upfront MIP can be financed and amortized over the life of the loan.

HUD had previously reduced the upfront MIP to 1.00% back in October 2010.

Additionally, HUD is mulling two other changes to its popular FHA program – increasing the annual MIP and reducing the seller contribution amount. Slated for June 1, 2012 (not yet confirmed) The annual MIP will increase 10 to 25 basis points depending on the size of the loan. The annual MIP will also increase effective April 9, 2012 between 10 and 25 basis points depending on the size of the loan. For most borrowers, with loans less than $625,500, they will likely see the annual MIP increase from 1.15% to 1.25%. For high balance loans, the annual MIP will increase 25 basis points, up to a total of 1.50% as of June 11, 2012. Though it’s called an annual MIP, it is reflected in a borrower’s monthly mortgage payment.

This would be the third increase to the annual MIP since October 2010.

The other proposal under consideration is reducing the seller’s contribution amount from the current 6% to the greater of 3% or $6,000. On a $250,000 loan, that’s still $7,500 in seller contributions, so it’s not likely to make much of an impact for most buyers.

Although, FHA has become popular for condo purchases over the past several years, particularly with more flexible qualification guidelines (provided the condo building is FHA approved), the continued increases in the upfront and annual mortgage insurance premiums are rendering FHA loans less desirable.

Comparatively, well-qualified buyers can obtain conventional condo loans with as little as 5% down and a lower payment amount. And, in some cases, without mortgage insurance (depending on lender and available loan programs).

Contact us if you’re considering a condo purchase and we’ll put you in touch with our trusted mortgage partners.

A recent article in the Seattle Times highlights the side effects of changes that FHA instituted for condominiums in February 2010. We previously reported that FHA eliminated its popular spot approval process that condo buyers utilized to purchase homes in non-FHA approved condo buildings, implemented a new approval process and required recertification every two years.

Now, buyers who hope to purchase a home with FHA’s low down payment loan program are getting frustrated that fewer condo buildings are now FHA approved.

For buyers like Kristy Fender, of Chicago, FHA certification is a must-have on her list, and not just because it lets Fender and her fiancé, Dan Harvey, make a smaller down payment on a home purchase. She also figures that in approving buildings the FHA is doing the due diligence that she would otherwise have to do.

That’s amplified by the fact that many associations haven’t taken the initiative to obtain FHA approval, do so poorly, or encounter problems related to distressed properties.

The number of rejected buildings is adding up, due to bad paperwork and bad balance sheets as an increasing number of condo associations struggle with rentals, short sales and foreclosures. It is jeopardizing the plans of condo sellers who rely on the FHA’s stamp of approval as a marketing tool and condo buyers who either want or need an FHA-approved building.

Condo financing has become more complex and challenging for buyers (and sellers) since FHA and Fannie Mae tightened their condo qualification guidelines. With conventional condo loans requiring at least 10% down, FHA has been a favorable option for condo buyers.

But…

Some associations are deciding that the effort and the expenses tied to the application process, which can run into the thousands of dollars, aren’t worth the payoff and are letting their certifications lapse.

It behooves associations and sellers to be proactive with their condo building’s FHA certification, which is more significant now as record low interest rates are encouraging first-time buyers into the market place, many of whom gravitate towards FHA approved condos. And, it doesn’t have to be a complicated process.

We can help.

Whether you’re a buyer considering purchasing, or an owner thinking about selling in a non-approved condo building, we can help. We’ved teamed up with a respected, local mortgage company who will take the reigns of the certification process at no cost to the association, seller or buyer. Conditions apply. Contact us to learn more about this special program.

On October 1, 2011 the increased loan limit for FHA Loans expired reducing the limit in the Seattle area from $567,500 to $506,000 for FHA back loans, potentially affecting upper-end purchases.

Last week, FHA got a reprieve from Congress, which reinstated the higher loan limits in 42 states through 2013. For the Seattle/King County area the loan limit is back to $567,500.

Unfortunately, Congress chose not to reinstate the higher limits for conventional loans (e.g. Fannie Mae and Freddie Mac). The conventional loan limit in Seattle/King Country will remain at $506,000.

Most single family and townhomes will qualify for FHA. The higher limit means an additional 92 properties are eligible. Of the 1,709 single family and townhome properties currently for sale in Seattle today, 70.6% are available under $567,500.

Condos are a different story as the building complex will need to be approved by FHA in order for purchases in those buildings to be eligible for FHA loans. Recent changes to FHA guidelines now require condos to undergo recertification every two years, so some buildings that were once FHA approve may no longer be.

As of today, per the HUD website, 408 condominiums buildings in Seattle are FHA approved, which has increased over the past year. Overall, less than half of the condo buildings in Seattle are FHA eligible.

Of the 873 condos currently available for sale in Seattle, 35% or 307 units, are FHA approved. Throughout King County, 42% of the condos units for sale are FHA approved.

>> View FHA approved Seattle condos listed for sale. *

* Subject to buyer verification

If you’re in the market to buy a home and intend to finance a mortgage greater than $500,000, there are changes ahead that could affect you. Barring Congressional intervention, the conforming and FHA loan limits are expected to decrease $61,500 effective October 1, 2011 from $567,500 to $506,000 in the Seattle metro area.

Conforming Loan Limit

The current conforming loan limit is temporary, enacted in 2008, and is set expire on September 30, 2011. A day after, on October 1, 2011, the $506,000 limit set by the Housing and Recovery Act of 2008 for King, Snohomish and Pierce counties will take effect. However, this is not guaranteed as the higher limit could still be extended. View limits for other counties.

How will this affect me?

If you’re purchasing a property and anticipate securing a conforming loan, you’ll need to come up with a larger down payment to meet the lower $506,000 loan limit. Otherwise, you’ll be in jumbo loan territory with higher rates. Fortunately, it will not affect the vast majority of Seattle area condo buyers where 85.2% of all condos sold in Seattle during the first half of this year were priced below $550,000.

FHA Loan Limit

In 2008, the FHA loan limit was temporarily increased to $567,500. It, too, will revert to the limit set under the Housing and Economic Recovery Act (HERA) as of October 1, 2011, unless it’s extended by Congress. For King, Pierce and Snohomish counties the FHA loan limit will be $506,000. FHA info and limits for other counties.

How will this affect me?

Today, you can buy a property priced up to $588,000 with FHA, assuming a 3.5% down payment ($588,000 x 0.965 = $567,420 loan amount). As of October 1st, the maximum price will decrease to approximately $524,350 in order to meet the $506,000 loan limit. And, if you’re financing closing costs, then the purchase price will be lower still. However, the net effect is negligible since less than 4% of condos purchased in the first half of 2011 fell within this range.

Keep in mind, the changes aren’t necessarily set in stone, they can still be adjusted. But, if you don’t want to take that chance and if you are in the $524,350 to $588,000 price range and using FHA, or if you’re looking to avoid a jumbo loan, then contemplating a 30-day closing period you have around 50 days to find a home and get under contract by the end of August. However, some lenders may tighten the time frame.

According this this report by MSNBC last week, mortgage interest rates fell to its lowest point this year to 4.63% for a 30-year fixed and 3.82% for a 15-year fixed. A quick look at rates today (5/16/2011) show the low rates holding…Wells Fargo rates are at 6.25% for a 30-year fixed and 3.75% for a 15-year fixed mortgage.

How do the current rates stack up historically? The graph below shows the average annual interest rates for 30-year fixed mortgages over the past 20 years. Even if rates move into the 5′s this year, comparatively, it’ll remain among the lowest we’ve seen for decades.

Did you know that you can obtain a mortgage loan with as little as 3% down with no mortgage insurance?

Wells Fargo Home Mortgage offers a special in-house Community Development Mortgage Program geared towards lower income qualified buyers. In many ways it’s similar to an FHA Mortgage with two distinct advantages for condo buyers:

•  It’s not limited to a small pool of approved condo buildings.
•  It does not have mortgage insurance. This is significant as FHA raised its mortgage insurance premiums on April 18th, increasing monthly payments by as much as $100.

There are a few requirements and restrictions that apply to the Community Development Mortgage Program. These are:

• Borrowers must attend a state certified home buyers education seminar.
• Income is restricted to 80% or below of the HUD Area Median Income, which is $68,400 for King & Snohomish counties. That roughly translates to a maximum purchase of $250,000.
• Credit score as low as 620 with flexible underwriting guidelines.
• Down payment and closing costs assistance is allowed; sellers may contribute up to 3%.
• Does not require reserves.
• Purchase of a principal residence.
• Borrowers not need to be a first-time home buyer.

The program does have a higher interest rate, however, it has a lower monthly payment than a corresponding FHA mortgage. And, for now, mortgage interest is tax deductible.

Example:
      FHA $200,000 Purchase with 3.5% down, 30-year Fixed:
      $193,000 loan at 4.75% equals a monthly payment of $1,340.44.

      CDMP $200,000 Purchase with 3% down, 30-year Fixed:
      $194,000 loan at 5.25% equals a monthly payment of $1,221.28. A savings of $119 per month.

Note: monthly payment includes principal, interest and taxes.

To learn more about the Wells Fargo Community Development Mortgage Program, please contact us and we’ll personally put you in touch with our partners at Wells Fargo.

If you’re currently looking to purchase your home (house, condo, townhome) with an FHA Loan, the cost of that loan will be increasing soon. Effective April 18, 2011, the FHA monthly mortgage insurance premium will be increasing 0.25% for all loans with case numbers issued on or after April 18th.

The net effect of the change is two-fold. First, the monthly mortgage payments will increase. That means more money out of pocket every month. Second, as the cost of the mortgage rises, purchasing power decreases. In this case, not by much; it’s likely less than $10,000. Though, if you’re close to your limit, that could have an effect on how much home you can afford. To avoid the fee increase, buyers should act quickly.

Most FHA buyers will finance a 30-year term with the minimum 3.5% down, resulting in a 96.5% loan to value, and therefore will be subject to the 1.15% mortgage insurance premium.

For a $500,000 loan, the monthly mortgage payment amount would increase $104.

This is the second time in about six months that FHA has increased the monthly mortgage insurance premium. Fortunately, the FHA mortgage insurance premium tax deduction has been extended through 2011, which will help ease the burden. As always, we recommend you speak with your mortgage and/or tax professional to get more detailed information on how the change will affect you.

Don’t forget about the Mortgage Credit Certificate. For qualified first-time home buyers, the Mortgage Credit Certificate tax credit can completely negate the amount of FHA mortgage insurance premium increase.

© The Seattle Condo Blog

A couple of informative condo related articles came out this week, which readers will find useful. (click titles to read the full article)

Dues and Don’ts: Condo owners who get behind on homeowner dues could be in for a nasty surprise | Seattle Met Magazine

…your condo association has the authority to foreclose on your unit if you simply fall behind on your monthly homeowner dues. “People always assume that the only person that can foreclose is the bank,” says Valerie Farris Oman, an associate attorney at the Condominium Law Group. “And that’s simply not true.”

New FHA condo financing rules squeeze sellers | Philadelphia Weekly / Inman News

All of the condo projects that ever received FHA approval were going to have to have those certifications expire as of Dec. 7, 2010, but there were so many projects seeking recertification that it created a crush on FHA’s resources to deal with it,” said Kevin Britt, a Seattle attorney specializing in condo and homeowners association representation.

“The FHA extended the deadline based on when the projects originally received approval. The earliest projects were circa 1972 and had to be recertified by Dec. 31, 2010; the other projects (using five-year increments) had longer deadlines

Back in November 2009 when HUD issued new guidelines for FHA condo mortgages, one of the items that many people hadn’t taken much notice about was the recertification provision. Under the new guidelines condos must be re-certified every two years for HUD/FHA approval. Condos that were approved prior to implementation of the new guidelines were given a transition period to obtain recertification…the expiration of the transition period is now fast approaching.

Condominiums that obtained FHA approval prior to October 1, 2008 will need to be recertified by December 7, 2010 or they will lose their FHA approval status.

Fortunately, recertification can be a relatively simple procedure through either FHA’s HRAP or DELRAP approval processes. HRAP approval is done directly with HUD and can take up to 6 weeks; DELRAP is through a direct endorsement lender and can be completed within a week or two, provided the condo conforms to FHA guidelines.

If you own a unit in a condo building that obtained FHA approval prior to October 1, 2008, time is of the essence to secure recertification for your condo building. Losing FHA approval will make your condo less attractive to buyers as FHA mortgages have become increasingly popular option for buyers over the past few years.

The Seattle Condo Blog’s mortgage associates can help you with the recertification process. Mortgage Loan Officer, Dan Keller, outlines and provides important links in his FHA recertification process posting.

Find FHA approved condos: https://entp.hud.gov/idapp/html/condlook.cfm

Update 1/6/2011: For a number of properties (not all) FHA has extended the expiration for six months.

If you’re in the market to purchase and considering or relying on FHA backed mortgage loan, keep in mind, the mortgage insurance premium fees will be changing effective October 4, 2010.

The upfront mortgage insurance fee is being reduced from 2.25% to 1.0%, while the monthly fee will increase from 0.55% to 0.90%.

That means buyers using FHA, will as of Oct 4th, have a smaller loan value amount (due to the reduced upfront mortgage fee) but higher monthly payments (due to the increased monthly fee). According to mortgage brokers, this may negatively affect purchasing power by about $10,000. Not a tremendous amount, but something to keep in mind.

For all loan amounts, the impact of the increase in the Mortgage Insurance Premium is equal to between a .375% to .500% increase in interest rate. The effect on annual payments for loan amounts in all ranges can be seen in the graph above.

It is important to understand that if you are in the market to purchase a home or refinance, you have until October 4 to identify a property and order a case number before these new rates take effect.

Updated 7/30/2010: Additional 30 newly minted FHA approved condos.

Ever since conventional mortgages implemented additional fees, tighter requirements and acquired a general distaste for condo purchases, it has gotten a bit more difficult to secure a condo loan. Those of us who work the condo market have seen more and more buyers shift to FHA backed financing for their purchases. FHA’s qualification guidelines are a bit more lenient and only require a minimum 3.5% down payment.

Add to that the number of first-time home buyers enticed to homeownership as a result of the tax credit, many condo associations have sought HUD/FHA approval for their buildings. This year alone, over 60 condominiums obtained HUD/FHA approval under FHA’s DELRAP or HRAP program, which means the approval is good for 24 months.

Here’s a list of newly minted FHA approved condos that received FHA/HUD approval this year (as of 7/30/10):

Have a question about buying a condo using FHA or if you’d like more information on getting your condo building FHA approved, drop us a note.