The Section 203(h) program allows the Federal Housing Administration (FHA) to insure mortgages made by qualified lenders to victims of a major disaster who have lost their homes and are in the process of rebuilding or buying another home.
Purpose:
Through Section 203(h), the Federal Government helps victims in Presidentially designated disaster areas recover by making it easier for them to get mortgages and become homeowners or re-establish themselves as homeowners.
Type of Assistance:
This program provides mortgage insurance to protect lenders against the risk of default on mortgages to qualified disaster victims. Individuals are eligible for this program if their homes are located in an area that was designated by the President as a disaster area and if their homes were destroyed or damaged to such an extent that reconstruction or replacement is necessary. Insured mortgages may be used to finance the purchase or reconstruction of a one-family home that will be the principal residence of the homeowner. Like the basic FHA mortgage insurance program it resembles (Section 203(b) Mortgage Insurance for One- to Four-Family Homes), Section 203(h) offers features that make homeownership easier:
-- No downpayment is required. The borrower is eligible for 100 percent financing. Closing costs and prepaid expenses must be paid by the borrower in cash or paid through premium pricing or by the seller, subject to a 6 percent limitation on seller concessions.
-- FHA mortgage insurance is not free. Mortgagees collect from the borrowers an up-front insurance premium (which may be financed) at the time of purchase, as well as monthly premiums that are not financed, but instead are added to the regular mortgage payment.
-- Some fees are limited. FHA rules impose limits on some of the fees that lenders may charge in making a mortgage. For example, the lender’s mortgage origination charge for the administrative cost of processing the mortgage may not exceed one "point"—that is, one percent of the amount of the mortgage excluding any financed upfront mortgage insurance premium. In addition, property appraisal and inspection fees are set by FHA.
--HUD sets limits on the amount that may be insured. To make sure that its programs serve low- and moderate-income people, FHA sets limits on the dollar value of the mortgage. The current FHA mortgage limit ranges from $200,160 to $362,790. These figures vary over time and by place, depending on the cost of living and other factors (higher limits also exist for two- to four-family properties).
Eligible Participants:
FHA-approved lending institutions, such as banks, mortgage companies, and savings and loan associations, are eligible for Section 203(h) insurance.
Eligible Customers:
Anyone whose home has been destroyed or severely damaged in a Presidentially declared disaster area is eligible to apply for mortgage insurance under this program.
Thursday, January 29, 2009
Thursday, December 25, 2008
Refi madness
Falling interest rates are leading to a rush to get cheaper mortgages. Should you join in?
By Les Christie, CNNMoney.com staff writer
Last Updated: December 24, 2008: 2:31 PM ET
NEW YORK (CNNMoney.com) -- Falling interest rates are fueling a mortgage refinance frenzy as homeowners rush to reduce their housing payments.
The average rate for a 30-year, fixed mortgage dropped to 5.08% last week, according to the Mortgage Bankers Association, more than a full point lower than just a month ago.
Mortgage applications were up a whopping 48% last week, according to the MBA and more than 80% were from homeowners looking to lower housing costs.
"It's snowing loans," said Steve Habetz, a Connecticut mortgage broker, "and they're all refis."
Among those were Elizabeth Mayer and Michael Keohane, who bought their Manhattan condo just a little over a year ago, financing $220,000 of the purchase price with a 30-year, fixed rate loan of 6.5%. That was affordable, with monthly payments of less than $1,400. But their new 5.25% loan will lower their payment to about $1,215, saving about $175 a month.
"It was a nice holiday gift," said Mayer.
With savings like that, it's no wonder that homeowners are coming out of the woodwork. And mortgage brokers are beating the drums too, advising their clients to let the good times roll.
Mayer said her mortgage broker had kept her informed of interest rate declines ever since she originally purchased her home. "He's been encouraging whenever opportunities arose," she said. "We missed one opportunity last spring when we just weren't able to act on it."
The broker made sure they didn't miss this chance. "He e-mailed me [about it] from South Africa and called when he got back," said Mayer.
Who should refi...
Anyone with high adjustable-rate loans. Folks in this group should try to get into a low fixed rate if they can. Not only will they lower their payments immediately but it would also eliminate the possibility of future increases.
Those who would lower their rate by a percentage point or more. Borrowers who already have a reasonable fixed rate shouldn't jump into a new loan every time rates inch down, according to Orawin Velz, an economist for the Mortgage Bankers Association.
"You should have at least a percentage point difference before you even think about it," Velz said. "If you have a 6.5% loan right now, it would be a great time to refi."
Waiting for a substantial rate decrease makes sense because getting a new mortgage incurs some expenses. There are the costs of a new appraisal and origination and application fees. Plus, a title search and title insurance are usually required.
All those costs, which can add up to $2,000 or $3,000 or more for a typical $200,000 loan, are often rolled back into the mortgage, increasing the principal upon which the interest rates are applied. If that goes up so much that it offsets the interest rate drop, it doesn't make sense to refi.
Those who are planning to stay in their homes for a while. The increased balances usually take a year or two to be wiped out by lower monthly payments, so anyone planning to sell the home during the next few years probably should not refinance, unless the difference in interest rates is very substantial.
The actual rate borrowers get depends, just as with purchase mortgages, on credit scores, income and assets and the value of the home.
"If you have a high credit score and your equity is good, it's like a vanilla cream puff," said Velz. "You're going to get a great rate."
Borrowers with significant equity in their homes. Many homeowners have had much of their home values erased in the post-bubble bust, eliminating much or all of their home equity - the difference between the value of the home and the amount owed on the mortgage.
If a refi borrower's home equity has fallen below 20% of the total appraised home value, the borrower will likely have to purchase private mortgage insurance. The insurance adds a point or two to the monthly mortgage costs, which turns a 5% loan into a 6% or 7% loan, erasing any advantage of refinancing.
"That's the biggest hurdle for refinancing right now," said Velz.
Borrowers who don't think rates will decline much further. Everyone considering refis has to decide whether to wait for interest rates to go even lower, which the Mortgage Bankers Association has been forecasting.
That's only a prediction, though, not a certainty. Rates could turn higher instead.
Borrowers must weigh the advantages of gambling on rates turning around or locking in savings at the present very low rates.
First Published: December 24, 2008: 1:42 PM ET
By Les Christie, CNNMoney.com staff writer
Last Updated: December 24, 2008: 2:31 PM ET
NEW YORK (CNNMoney.com) -- Falling interest rates are fueling a mortgage refinance frenzy as homeowners rush to reduce their housing payments.
The average rate for a 30-year, fixed mortgage dropped to 5.08% last week, according to the Mortgage Bankers Association, more than a full point lower than just a month ago.
Mortgage applications were up a whopping 48% last week, according to the MBA and more than 80% were from homeowners looking to lower housing costs.
"It's snowing loans," said Steve Habetz, a Connecticut mortgage broker, "and they're all refis."
Among those were Elizabeth Mayer and Michael Keohane, who bought their Manhattan condo just a little over a year ago, financing $220,000 of the purchase price with a 30-year, fixed rate loan of 6.5%. That was affordable, with monthly payments of less than $1,400. But their new 5.25% loan will lower their payment to about $1,215, saving about $175 a month.
"It was a nice holiday gift," said Mayer.
With savings like that, it's no wonder that homeowners are coming out of the woodwork. And mortgage brokers are beating the drums too, advising their clients to let the good times roll.
Mayer said her mortgage broker had kept her informed of interest rate declines ever since she originally purchased her home. "He's been encouraging whenever opportunities arose," she said. "We missed one opportunity last spring when we just weren't able to act on it."
The broker made sure they didn't miss this chance. "He e-mailed me [about it] from South Africa and called when he got back," said Mayer.
Who should refi...
Anyone with high adjustable-rate loans. Folks in this group should try to get into a low fixed rate if they can. Not only will they lower their payments immediately but it would also eliminate the possibility of future increases.
Those who would lower their rate by a percentage point or more. Borrowers who already have a reasonable fixed rate shouldn't jump into a new loan every time rates inch down, according to Orawin Velz, an economist for the Mortgage Bankers Association.
"You should have at least a percentage point difference before you even think about it," Velz said. "If you have a 6.5% loan right now, it would be a great time to refi."
Waiting for a substantial rate decrease makes sense because getting a new mortgage incurs some expenses. There are the costs of a new appraisal and origination and application fees. Plus, a title search and title insurance are usually required.
All those costs, which can add up to $2,000 or $3,000 or more for a typical $200,000 loan, are often rolled back into the mortgage, increasing the principal upon which the interest rates are applied. If that goes up so much that it offsets the interest rate drop, it doesn't make sense to refi.
Those who are planning to stay in their homes for a while. The increased balances usually take a year or two to be wiped out by lower monthly payments, so anyone planning to sell the home during the next few years probably should not refinance, unless the difference in interest rates is very substantial.
The actual rate borrowers get depends, just as with purchase mortgages, on credit scores, income and assets and the value of the home.
"If you have a high credit score and your equity is good, it's like a vanilla cream puff," said Velz. "You're going to get a great rate."
Borrowers with significant equity in their homes. Many homeowners have had much of their home values erased in the post-bubble bust, eliminating much or all of their home equity - the difference between the value of the home and the amount owed on the mortgage.
If a refi borrower's home equity has fallen below 20% of the total appraised home value, the borrower will likely have to purchase private mortgage insurance. The insurance adds a point or two to the monthly mortgage costs, which turns a 5% loan into a 6% or 7% loan, erasing any advantage of refinancing.
"That's the biggest hurdle for refinancing right now," said Velz.
Borrowers who don't think rates will decline much further. Everyone considering refis has to decide whether to wait for interest rates to go even lower, which the Mortgage Bankers Association has been forecasting.
That's only a prediction, though, not a certainty. Rates could turn higher instead.
Borrowers must weigh the advantages of gambling on rates turning around or locking in savings at the present very low rates.
First Published: December 24, 2008: 1:42 PM ET
Tuesday, December 16, 2008
Fed slashes key rate to near zero
Ben Bernanke & Co. cite weakness in economy and reduced inflation threat as justification for cutting rates to a range of 0% to 0.25%
By Chris Isidore, CNNMoney.com senior writer
Last Updated: December 16, 2008: 2:47 PM ET
NEW YORK (CNNMoney.com) -- In its latest effort to try and stimulate the U.S. economy, the Federal Reserve cut its key interest rate to a range of between zero percent and 0.25%, and said it expects to keep rates near that unprecedented low level for some time to come.
The central bank typically sets a specific target for its federal funds rate instead of a range. The rate had previously been at 1% and this marks the first time the Fed has cut rates below 1%. Most investors were expecting the Fed to cut rates to either 0.25% or 0.5%.
Taking the rate so close to zero leaves the Fed with little room for additional moves if the economy does not start to show signs of improvement soon.
But the Fed said in a statement that it is looking at different steps it can take to stimulate the economy and keep market rates low, including the purchases of long-term U.S. Treasury notes. The Fed also said it will consider other, yet to be disclosed moves as well.
"The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity," the Fed said.
In explaining the reason behind the rate cut, the Fed said the U.S. economy, which has officially been in a recession for a year, was in danger of getting weaker, and that the risk of inflation had decreased "appreciably."
Earlier Tuesday, the Labor Department reported that the Consumer Price Index, its key inflation measure, fell by a record 1.7% in November.
The central bank's federal funds rate is an overnight lending rate used as a benchmark to set rates for a variety of loans, including adjustable rate mortgages, credit cards, home equity lines of credit and business loans. This marks the tenth time it has cut rates in the last 15 months.
This rate is the key tool the Fed uses to spur or slow the economy as it tries to balance its dual goals of economic growth and price stability. Lower rates are designed to encourage spending by making borrowing more affordable. Higher rates can keep prices in check by slowing the economy.
Other central banks, notably the Bank of Japan, have taken rates down to near the 0% level in the past. Last week, the Swiss central bank cut its key rate to 0.5%.
First Published: December 16, 2008: 2:29 PM ET
By Chris Isidore, CNNMoney.com senior writer
Last Updated: December 16, 2008: 2:47 PM ET
NEW YORK (CNNMoney.com) -- In its latest effort to try and stimulate the U.S. economy, the Federal Reserve cut its key interest rate to a range of between zero percent and 0.25%, and said it expects to keep rates near that unprecedented low level for some time to come.
The central bank typically sets a specific target for its federal funds rate instead of a range. The rate had previously been at 1% and this marks the first time the Fed has cut rates below 1%. Most investors were expecting the Fed to cut rates to either 0.25% or 0.5%.
Taking the rate so close to zero leaves the Fed with little room for additional moves if the economy does not start to show signs of improvement soon.
But the Fed said in a statement that it is looking at different steps it can take to stimulate the economy and keep market rates low, including the purchases of long-term U.S. Treasury notes. The Fed also said it will consider other, yet to be disclosed moves as well.
"The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity," the Fed said.
In explaining the reason behind the rate cut, the Fed said the U.S. economy, which has officially been in a recession for a year, was in danger of getting weaker, and that the risk of inflation had decreased "appreciably."
Earlier Tuesday, the Labor Department reported that the Consumer Price Index, its key inflation measure, fell by a record 1.7% in November.
The central bank's federal funds rate is an overnight lending rate used as a benchmark to set rates for a variety of loans, including adjustable rate mortgages, credit cards, home equity lines of credit and business loans. This marks the tenth time it has cut rates in the last 15 months.
This rate is the key tool the Fed uses to spur or slow the economy as it tries to balance its dual goals of economic growth and price stability. Lower rates are designed to encourage spending by making borrowing more affordable. Higher rates can keep prices in check by slowing the economy.
Other central banks, notably the Bank of Japan, have taken rates down to near the 0% level in the past. Last week, the Swiss central bank cut its key rate to 0.5%.
First Published: December 16, 2008: 2:29 PM ET
Monday, December 15, 2008
FHA Upcoming Downpayment Changes Effective January 1
Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)
HUD sure makes things confusing sometimes don’t they? With so many changes already in place and coming up with the New Year, I thought it might be a good time to run down a list so that everyone can prepare for January 1st. I’ve run across a few folks who are confused as to guideline changes and effective dates so this will serve as a helpful reminder. Effective for FHA purchases in which cases are assigned on and after January 1st, the minimum downpayment requirements change from the current structure which is a mass of varying requirements based on purchase price and location. Those calculations, which often prove to be very confusing, are being replaced by a simple 3.5% downpayment requirement/96.5% loan-to-value max limit across the board. This calculation will make things much simpler industry-wide when it comes to calculating the purchase maximum mortgage amounts.
However, with the new calculations come a few drawbacks. To date, borrowers have been able to roll in allowable closing costs up to their maximum loan-to-value but effective January 1st, closing costs are no longer allowed to be rolled into max mortgage. Closing costs no longer may be used to meet the minimum investment requirement on FHA purchase transactions. The borrower is responsible for covering the amounts of closing costs, prepaids and 3.5% downpayment required for settlement.
Now the seller-funded downpayment assistance options have been eliminated, this causes some concern for borrowers who have little monies saved for downpayment who wouldn’t qualify for any 100% conventional financing program options due to credit restrictions. So what are borrower options for covering the closing cost, prepaid and downpayment requirements on and after January 1st?
Interested-party contribution limits are not changing so sales agreements may still be written with the seller, realtor, builder and/or lender crediting up to 6% of the purchase price toward borrower closing costs and prepaids. As for the 3.5% downpayment, borrowers may still receive gift funds from relatives, may still receive government homebuyer grant funding in eligible areas, and may use secured funds in the form of a loan against a 401-k plan or other secured asset, or sale of personal property.
In regards to FHA up-front MIP and annual mortgage insurance premiums, these are already in place effective for cases assigned on and after October 1st and will NOT be changing with the downpayment requirement changes. For more info on the MI premiums, refer to Mortgagee Letter 2008-22.
Maximum LTV limits for refinances are explained in Mortgagee Letter 2008-13 and the attachment that was provided.
An important reminder regarding the upcoming downpayment requirement change- Don’t forget to update your loan origination software system as needed. Your existing Good Faith Estimate template(s) may need to be updated to remove the financing of allowable closing costs and may need to incorporate the new simplified downpayment requirement for 96.5% of the lower of purchase price or appraised value. If you utilize software with a major provider like Calyx Point, Contour Loan Handler or Ellie Mae Encompass, you may wish to contact your account representative for an update on what they are planning and when software updates may be expected.
About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.
Certified Ambassador Loan Processor (CALP)
HUD sure makes things confusing sometimes don’t they? With so many changes already in place and coming up with the New Year, I thought it might be a good time to run down a list so that everyone can prepare for January 1st. I’ve run across a few folks who are confused as to guideline changes and effective dates so this will serve as a helpful reminder. Effective for FHA purchases in which cases are assigned on and after January 1st, the minimum downpayment requirements change from the current structure which is a mass of varying requirements based on purchase price and location. Those calculations, which often prove to be very confusing, are being replaced by a simple 3.5% downpayment requirement/96.5% loan-to-value max limit across the board. This calculation will make things much simpler industry-wide when it comes to calculating the purchase maximum mortgage amounts.
However, with the new calculations come a few drawbacks. To date, borrowers have been able to roll in allowable closing costs up to their maximum loan-to-value but effective January 1st, closing costs are no longer allowed to be rolled into max mortgage. Closing costs no longer may be used to meet the minimum investment requirement on FHA purchase transactions. The borrower is responsible for covering the amounts of closing costs, prepaids and 3.5% downpayment required for settlement.
Now the seller-funded downpayment assistance options have been eliminated, this causes some concern for borrowers who have little monies saved for downpayment who wouldn’t qualify for any 100% conventional financing program options due to credit restrictions. So what are borrower options for covering the closing cost, prepaid and downpayment requirements on and after January 1st?
Interested-party contribution limits are not changing so sales agreements may still be written with the seller, realtor, builder and/or lender crediting up to 6% of the purchase price toward borrower closing costs and prepaids. As for the 3.5% downpayment, borrowers may still receive gift funds from relatives, may still receive government homebuyer grant funding in eligible areas, and may use secured funds in the form of a loan against a 401-k plan or other secured asset, or sale of personal property.
In regards to FHA up-front MIP and annual mortgage insurance premiums, these are already in place effective for cases assigned on and after October 1st and will NOT be changing with the downpayment requirement changes. For more info on the MI premiums, refer to Mortgagee Letter 2008-22.
Maximum LTV limits for refinances are explained in Mortgagee Letter 2008-13 and the attachment that was provided.
An important reminder regarding the upcoming downpayment requirement change- Don’t forget to update your loan origination software system as needed. Your existing Good Faith Estimate template(s) may need to be updated to remove the financing of allowable closing costs and may need to incorporate the new simplified downpayment requirement for 96.5% of the lower of purchase price or appraised value. If you utilize software with a major provider like Calyx Point, Contour Loan Handler or Ellie Mae Encompass, you may wish to contact your account representative for an update on what they are planning and when software updates may be expected.
About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.
Friday, December 5, 2008
Home Renovations On Sale
Materials costs are plunging, and contractors are begging for work. Suddenly that long-postponed remodel is looking like a smart idea.
By Donna Rosato, Money Magazine senior writer
December 3, 2008: 9:33 AM ET
(Money Magazine) -- If you're struggling to see a silver lining in the beaten-down real estate market, consider this one: It may be a rotten moment to sell your house, but if you've postponed a much needed renovation project on your home - replacing a rotting deck, repairing a leaky roof or updating an antiquated bathroom - now just might be the best time in years to tackle that task.
The reason: Costs are starting to drop - in some cases, sharply - on everything from building materials to contractors' fees as the economy weakens and housing prices tumble.
In fact, consumer spending on home improvements is off by 12% since peaking last year, according to Harvard's Joint Center for Housing Studies - and that works to the advantage of anyone willing and able to remodel now.
"It's hard for homeowners to think about spending on their houses when real estate values are falling," says Kermit Baker, a senior research fellow at Harvard who tracks remodeling trends. "But with contractors hungrier for business, you'll be able to negotiate better prices, win other concessions and hire better-quality contractors than you could a year or two ago."
Overall, experts say, you can expect to save at least 10% on the cost of a renovation and possibly a lot more, depending on where you live and the project you choose. And if prices on many remodeling materials continue to decline as projected over the next few months, the cost of home improvements should fall even further.
Yet another benefit: Putting money into needed repairs and updates now should help your home maintain its value even as other house prices keep falling.
Of course, not all renovations are created equal. Adding a home office or a swimming pool might be on your wish list, but these days neither is likely to give you much of a return on your investment.
With home prices still in a free fall, it's more critical than ever to understand which projects will return the most on your investment and how to negotiate the best deal with the pros you hire to do the job. The following strategies should help.
Cherry-pick your project
Understand this from the outset: No matter what kind of repair or renovation you undertake, you can't count on the payback you'd have gotten a few years ago when home prices were rising steadily.
According to a new study by Remodeling magazine, these days you can expect to recoup about two-thirds of your costs on a typical home improvement if you sell your home within a year after completing the job, compared with 87% in 2005, when home values were at their peak.
That means you have to be especially careful in choosing which jobs to do, considering the urgency of the need (if that roof is leaking, you really have to fix it now) as well as what you'll pay in material costs, how much of the total bill you may recover and any extra benefits you may get.
To the extent you have a choice, focus on projects with better-than-average returns that may yield additional savings in other ways. For example, installing new windows will cost $10,000 to $20,000 on average but return 75% to 80% of your investment (see "Payback time" above and to the right for the six projects with the best return).
And those improvements have the added benefit of making your home more energy-efficient, so you'll also save on your electricity and heating bills. Plus, you may qualify for tax credits that will further offset the cost of making the changes. A host of home improvement tax credits for windows, doors, insulation and roofing were added or extended in the recent bailout bill; for the complete list, go to energystar.gov.
Some exterior improvements also make a lot of sense right now thanks to sharply lower oil prices. That's because many petroleum-based products, such as asphalt and vinyl, are the core material in these renovations.
The costs of these products had soared recently along with the price of oil but have started to drop, making this the best time in a while to replace your aging roof, repave your driveway or redo your vinyl siding. (See "Building blocks at a discount" above and to the right for a look at recent price changes in key remodeling materials.)
Also think about limiting the scope of the project, since minor upgrades rather than major additions give you more bang for your buck today. For instance, if you modernize your bathroom, you can expect to recover about 75% of what you spent, but adding an entirely new bathroom will pay back only 64% of the cost of the job.
Press for a price break...
These days you'll find a glut of construction professionals vying for your business - a far cry from the situation a few years ago when it was impossible to get a reputable contractor to return your call and a six-month wait to start a kitchen remodel was the norm.
How low can you ask remodeling pros to go? According to a new survey by the contractor referral site Angie's List, 70% of home builders and remodelers are willing to drop prices at least 10%, and 30% say they'll give even steeper discounts.
"There's a larger pool of professionals fighting for these jobs, so a little negotiation may go a long way to get the best possible price for your project," says Angie Hicks, founder of Angie's List, which charges a monthly fee of $6 for access to customer reviews and references.
You'll have the most leverage in the areas that have been hit hardest by the housing slump. But no matter where you live, you should be able to strike a bargain (for tips, see "Hiring a Contractor" above and to the right).
Get bids from at least three remodelers, and insist that their quotes spell out all costs, including labor as well as materials (brand-name products where possible).
Let each pro know up front that you are comparison shopping and that price, in addition to quality craftsmanship, will play a key role in deciding whom you will work with. With the bids in hand, you can then compare prices and start negotiating.
Shopping around really paid off for Nancy Boris, who saved $2,800 on the cost of replacing the back patio of her 2,400-square-foot, three-bedroom home in Roseville, Calif.
Boris, a nurse case manager, got bids ranging from $2,400 (from a contractor who didn't have insurance or references) to $5,800. The highest bidder eventually came down $2,000 in price to $3,800, but Boris ended up going with a pro who had better references for $3,000.
...but be wary of super-low bids
As Boris discovered, it doesn't always pay to just reflexively choose the contractor who comes in with the lowest quote.
In their eagerness (or perhaps desperation) to win business in these tight economic times, some less than scrupulous remodelers may cut corners to come up with that low bid or else leave off charges that they may tack on later, making the actual cost of the project higher than it seemed initially.
Carefully scrutinize any bid that comes in significantly lower than the rest. Ask the contractor, politely but point-blank, how he manages to undercut his competition.
Does he have a general liability policy and workers' compensation? If not, should one of the crew get injured on your property, you'll be liable. Is he using low-quality materials? Is everything you need to get the job done included in the bid?
Then follow up by asking for references from previous clients and checking out his reputation and work history. To do so, go to contractorcheck.com, where for a fee of $13 you can get information about licensing and insurance as well as any legal actions taken. Sites like ContractorsFromHell.com and AngiesList.com can also provide valuable insights.
Wring out extra concessions
In addition to price breaks, ask for other perks while you're negotiating, like a faster completion or a more convenient schedule for work to be done, advises Sal Alfano, editorial director of Remodeling.
Remember, homeowners nowadays are in the driver's seat. "With contractors working on fewer projects, you can expect better service," he says. "Even if in the end you don't get a significantly better price on your project, you should at least get better work done."
By Donna Rosato, Money Magazine senior writer
December 3, 2008: 9:33 AM ET
(Money Magazine) -- If you're struggling to see a silver lining in the beaten-down real estate market, consider this one: It may be a rotten moment to sell your house, but if you've postponed a much needed renovation project on your home - replacing a rotting deck, repairing a leaky roof or updating an antiquated bathroom - now just might be the best time in years to tackle that task.
The reason: Costs are starting to drop - in some cases, sharply - on everything from building materials to contractors' fees as the economy weakens and housing prices tumble.
In fact, consumer spending on home improvements is off by 12% since peaking last year, according to Harvard's Joint Center for Housing Studies - and that works to the advantage of anyone willing and able to remodel now.
"It's hard for homeowners to think about spending on their houses when real estate values are falling," says Kermit Baker, a senior research fellow at Harvard who tracks remodeling trends. "But with contractors hungrier for business, you'll be able to negotiate better prices, win other concessions and hire better-quality contractors than you could a year or two ago."
Overall, experts say, you can expect to save at least 10% on the cost of a renovation and possibly a lot more, depending on where you live and the project you choose. And if prices on many remodeling materials continue to decline as projected over the next few months, the cost of home improvements should fall even further.
Yet another benefit: Putting money into needed repairs and updates now should help your home maintain its value even as other house prices keep falling.
Of course, not all renovations are created equal. Adding a home office or a swimming pool might be on your wish list, but these days neither is likely to give you much of a return on your investment.
With home prices still in a free fall, it's more critical than ever to understand which projects will return the most on your investment and how to negotiate the best deal with the pros you hire to do the job. The following strategies should help.
Cherry-pick your project
Understand this from the outset: No matter what kind of repair or renovation you undertake, you can't count on the payback you'd have gotten a few years ago when home prices were rising steadily.
According to a new study by Remodeling magazine, these days you can expect to recoup about two-thirds of your costs on a typical home improvement if you sell your home within a year after completing the job, compared with 87% in 2005, when home values were at their peak.
That means you have to be especially careful in choosing which jobs to do, considering the urgency of the need (if that roof is leaking, you really have to fix it now) as well as what you'll pay in material costs, how much of the total bill you may recover and any extra benefits you may get.
To the extent you have a choice, focus on projects with better-than-average returns that may yield additional savings in other ways. For example, installing new windows will cost $10,000 to $20,000 on average but return 75% to 80% of your investment (see "Payback time" above and to the right for the six projects with the best return).
And those improvements have the added benefit of making your home more energy-efficient, so you'll also save on your electricity and heating bills. Plus, you may qualify for tax credits that will further offset the cost of making the changes. A host of home improvement tax credits for windows, doors, insulation and roofing were added or extended in the recent bailout bill; for the complete list, go to energystar.gov.
Some exterior improvements also make a lot of sense right now thanks to sharply lower oil prices. That's because many petroleum-based products, such as asphalt and vinyl, are the core material in these renovations.
The costs of these products had soared recently along with the price of oil but have started to drop, making this the best time in a while to replace your aging roof, repave your driveway or redo your vinyl siding. (See "Building blocks at a discount" above and to the right for a look at recent price changes in key remodeling materials.)
Also think about limiting the scope of the project, since minor upgrades rather than major additions give you more bang for your buck today. For instance, if you modernize your bathroom, you can expect to recover about 75% of what you spent, but adding an entirely new bathroom will pay back only 64% of the cost of the job.
Press for a price break...
These days you'll find a glut of construction professionals vying for your business - a far cry from the situation a few years ago when it was impossible to get a reputable contractor to return your call and a six-month wait to start a kitchen remodel was the norm.
How low can you ask remodeling pros to go? According to a new survey by the contractor referral site Angie's List, 70% of home builders and remodelers are willing to drop prices at least 10%, and 30% say they'll give even steeper discounts.
"There's a larger pool of professionals fighting for these jobs, so a little negotiation may go a long way to get the best possible price for your project," says Angie Hicks, founder of Angie's List, which charges a monthly fee of $6 for access to customer reviews and references.
You'll have the most leverage in the areas that have been hit hardest by the housing slump. But no matter where you live, you should be able to strike a bargain (for tips, see "Hiring a Contractor" above and to the right).
Get bids from at least three remodelers, and insist that their quotes spell out all costs, including labor as well as materials (brand-name products where possible).
Let each pro know up front that you are comparison shopping and that price, in addition to quality craftsmanship, will play a key role in deciding whom you will work with. With the bids in hand, you can then compare prices and start negotiating.
Shopping around really paid off for Nancy Boris, who saved $2,800 on the cost of replacing the back patio of her 2,400-square-foot, three-bedroom home in Roseville, Calif.
Boris, a nurse case manager, got bids ranging from $2,400 (from a contractor who didn't have insurance or references) to $5,800. The highest bidder eventually came down $2,000 in price to $3,800, but Boris ended up going with a pro who had better references for $3,000.
...but be wary of super-low bids
As Boris discovered, it doesn't always pay to just reflexively choose the contractor who comes in with the lowest quote.
In their eagerness (or perhaps desperation) to win business in these tight economic times, some less than scrupulous remodelers may cut corners to come up with that low bid or else leave off charges that they may tack on later, making the actual cost of the project higher than it seemed initially.
Carefully scrutinize any bid that comes in significantly lower than the rest. Ask the contractor, politely but point-blank, how he manages to undercut his competition.
Does he have a general liability policy and workers' compensation? If not, should one of the crew get injured on your property, you'll be liable. Is he using low-quality materials? Is everything you need to get the job done included in the bid?
Then follow up by asking for references from previous clients and checking out his reputation and work history. To do so, go to contractorcheck.com, where for a fee of $13 you can get information about licensing and insurance as well as any legal actions taken. Sites like ContractorsFromHell.com and AngiesList.com can also provide valuable insights.
Wring out extra concessions
In addition to price breaks, ask for other perks while you're negotiating, like a faster completion or a more convenient schedule for work to be done, advises Sal Alfano, editorial director of Remodeling.
Remember, homeowners nowadays are in the driver's seat. "With contractors working on fewer projects, you can expect better service," he says. "Even if in the end you don't get a significantly better price on your project, you should at least get better work done."
Wednesday, September 24, 2008
Dead or Alive?
Is it dead? Is it alive? They tried to kill it and it didn't die. They tried again and killed it; but wait...is it breathing again?
What I am referring to is Down Payment Assistance, also known as DPA. DPA is a program that allows a third party charitable organization such as Ameridream or Nehemiah to pay a borrower's down payment required by FHA, (usually 3% of the purchase price).
In 2007 HUD tried to eliminate the use of DPA. Organizations
such as Ameridream and Nehemiah with some congressional and grassroots help managed to stop HUD then. However
President Bush signed into law legislation (H.R. 3321) that contained a provision to eliminate charitable down payment assistance which becomes effective October 1, 2008.
One day later, following the President's signing H.R. 3321, Congress introduced bipartisan legislation H.R.6694 which would reauthorize and reform charitable DPA. H.R. 6694 has until September 30th, 2008 to be signed or the ban on DPA becomes permanent.
According to an Inman News article published September 9th, 2008, Chairman Barney Frank is quoted as saying "The FHA loved the ban on down-payment assistance (but) hated the ban on risk-based pricing," Frank said at Saturday's hearing. "That seemed to me to offer an opportunity. So (HR 6694) will replace both bans with middle ground -- and it will pass the House, I can guarantee you. What you want to do now obviously is talk to your senators. We think it will go through there -- it has the approval now of the Secretary of HUD."
What difference does DPA make? Approximately 40% of all FHA purchases use DPA. Since the 2007 court victory against HUD, 40,000 homebuyers became homeowners. That's 40,000 more homes that sold since the end of 2007. In other words 40,000 fewer homes are sitting on the market waiting to be sold. According to Nehemiah Corporation of America, As a result of DPA being eliminated on October 1st 2008, "50,000 hard-working, credit-worthy families will be denied the American dream of homeownership in that month alone."
By: Tina Spradlin
What I am referring to is Down Payment Assistance, also known as DPA. DPA is a program that allows a third party charitable organization such as Ameridream or Nehemiah to pay a borrower's down payment required by FHA, (usually 3% of the purchase price).
In 2007 HUD tried to eliminate the use of DPA. Organizations
such as Ameridream and Nehemiah with some congressional and grassroots help managed to stop HUD then. However
President Bush signed into law legislation (H.R. 3321) that contained a provision to eliminate charitable down payment assistance which becomes effective October 1, 2008.
One day later, following the President's signing H.R. 3321, Congress introduced bipartisan legislation H.R.6694 which would reauthorize and reform charitable DPA. H.R. 6694 has until September 30th, 2008 to be signed or the ban on DPA becomes permanent.
According to an Inman News article published September 9th, 2008, Chairman Barney Frank is quoted as saying "The FHA loved the ban on down-payment assistance (but) hated the ban on risk-based pricing," Frank said at Saturday's hearing. "That seemed to me to offer an opportunity. So (HR 6694) will replace both bans with middle ground -- and it will pass the House, I can guarantee you. What you want to do now obviously is talk to your senators. We think it will go through there -- it has the approval now of the Secretary of HUD."
What difference does DPA make? Approximately 40% of all FHA purchases use DPA. Since the 2007 court victory against HUD, 40,000 homebuyers became homeowners. That's 40,000 more homes that sold since the end of 2007. In other words 40,000 fewer homes are sitting on the market waiting to be sold. According to Nehemiah Corporation of America, As a result of DPA being eliminated on October 1st 2008, "50,000 hard-working, credit-worthy families will be denied the American dream of homeownership in that month alone."
By: Tina Spradlin
Monday, August 18, 2008
Beware the $7,500 'tax credit'
The housing rescue credit may prod some new homebuyers. But the money must be repaid, and the program probably won't be enough to jump start housing market.
By Les Christie, CNNMoney.com staff writer
Last Updated: August 18, 2008: 1:27 PM EDT
NEW YORK (CNNMoney.com) -- Washington policy makers and housing industry insiders hope a new tax credit for first-time home buyers will get the moribund housing market moving again.
But most analysts agree that the program is more of a band-aid than a cure-all for the battered real estate market. What's more, others are quick to point out that the credit must be repaid, which means it's actually an interest-free loan that could get some homeowners in trouble.
"It's one of those things that are more complicated than it seems at first blush, said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America. "Consumers have to make sure they understand the credit thoroughly.
The $7,500 credit is for people buying their first homes, and was passed as part of the Housing and Economic Recovery Act of 2008 and signed into law in July. To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Buyers with income of between $95,000 and $170,000 are eligible for a partial credit.
The Senate Finance Committee estimates that about 1.6 million people will use the credit.
The housing industry pushed for the program. "Breaking the log jam of unsold homes is something we are very much behind," said Richard Dugas, president of builder Pulte Homes, at a news conference to discuss the program. First time home buyers represented about 20% of the market for new homes in 2007.
Realtors are also behind the credit. "[It] will help chip away at inventory levels, stabilize prices and spur [sales] activity," said Richard A. Smith, CEO of Realogy, the parent company of both Coldwell Banker and Century 21.
The industry has had success with tax credits in the past. In 1975, Congress passed a $2,000 credit for home buyers (about $8,200 in today's dollars).
"Buyers flocked to market and cleared out a then-record inventory of homes," said NAHB president Sandy Dunn. But that credit did not have to be repaid.
And the impact should extend beyond first time home buyers, according to Lawrence Yun, chief economist for the National Association of Realtors. A boost in demand for starter homes means that those sellers will be able to trade up to bigger, more expensive places, and so on up the chain.
How it works
Buyers who have not owned a home in the past three years can take a tax credit worth 10% of a home's sale price, up to $7,500, whichever is smaller.
The credit is good for homes closed on after April 9, 2008 and before July 1, 2009, and can be taken on taxes filed during 2008 or 2009. Even buyers who bought a home before the bill passed, but after April 9, can claim the credit.
Unlike tax deductions, which only offset taxes by lowering taxable income, the tax credit is a straight dollar-for-dollar deduction of your tax bill. So a buyer who would ordinarily pay $8,000 in taxes would pay just $500.
It's also "refundable," which means if a buyer's taxes are less than $7,500, the government will send them a check for the difference. For example, if a couple's income generates a tax bill of $5,000, the government will refund all of that plus $2,500.
Buyers must to start paying back the loan within two years, at a rate of no more than $500 a year for 15 years. When the the home is sold, any outstanding balance will be repaid from the profit; if it's sold at a loss and the difference will be forgiven.
And some argue that mortgage lenders will take the credit into consideration, making it easier for buyers to get a loan.
"[The $7,500 reserve] will make borrowers less likely to fall into default," said Ken Goldstein, an economist with the Conference Board, since it gives them a nest egg should they run into trouble. Still, that assumes that buyers will sock the $7,500 away rather than spend it.
No cure
Indeed, the credit comes with plenty of caveats from economists and industry analysts.
"It's not going to provide first-time home buyers with cash up front," said the Consumer Federation of America's Allen Fishbein. "You have to apply to get the credit after the fact. There's a delay before you get the financial advantage."
And there are concerns that borrowers may treat the credit as a windfall, spending it as if it doesn't have to be repaid.
"It may appear to be free money," said Fishbein. "Consumers have to have their eyes open about how this works."
Other economists caution that while the credit may be helpful, it's hardly a solution to the crisis.
"It will not turn things around," said Jared Bernstein, an economist with the Economic Policy Institute. "Given the economy, it will only push a precious few first-time home buyers over the edge right now."
Plummeting home prices will blunt any impact that the credit may have, according to Nicholas Retsinas, director of the Harvard University's Joint Center for Housing Studies. As far as he's concerned, the market is simply too soft right now for a modest measure like this to make a big difference.
"The challenge right now is as much willingness to buy as affordability," he said. "The market still has this psychological barrier because people think prices will be lower tomorrow. I don't think this can overcome that barrier."
First Published: August 18, 2008: 11:08 AM EDT
Find mortgage rates in your area
Find this article at:
http://money.cnn.com/2008/08/15/real_estate/buyers_tax_credit/index.htm?postversion=2008081811
By Les Christie, CNNMoney.com staff writer
Last Updated: August 18, 2008: 1:27 PM EDT
NEW YORK (CNNMoney.com) -- Washington policy makers and housing industry insiders hope a new tax credit for first-time home buyers will get the moribund housing market moving again.
But most analysts agree that the program is more of a band-aid than a cure-all for the battered real estate market. What's more, others are quick to point out that the credit must be repaid, which means it's actually an interest-free loan that could get some homeowners in trouble.
"It's one of those things that are more complicated than it seems at first blush, said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America. "Consumers have to make sure they understand the credit thoroughly.
The $7,500 credit is for people buying their first homes, and was passed as part of the Housing and Economic Recovery Act of 2008 and signed into law in July. To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Buyers with income of between $95,000 and $170,000 are eligible for a partial credit.
The Senate Finance Committee estimates that about 1.6 million people will use the credit.
The housing industry pushed for the program. "Breaking the log jam of unsold homes is something we are very much behind," said Richard Dugas, president of builder Pulte Homes, at a news conference to discuss the program. First time home buyers represented about 20% of the market for new homes in 2007.
Realtors are also behind the credit. "[It] will help chip away at inventory levels, stabilize prices and spur [sales] activity," said Richard A. Smith, CEO of Realogy, the parent company of both Coldwell Banker and Century 21.
The industry has had success with tax credits in the past. In 1975, Congress passed a $2,000 credit for home buyers (about $8,200 in today's dollars).
"Buyers flocked to market and cleared out a then-record inventory of homes," said NAHB president Sandy Dunn. But that credit did not have to be repaid.
And the impact should extend beyond first time home buyers, according to Lawrence Yun, chief economist for the National Association of Realtors. A boost in demand for starter homes means that those sellers will be able to trade up to bigger, more expensive places, and so on up the chain.
How it works
Buyers who have not owned a home in the past three years can take a tax credit worth 10% of a home's sale price, up to $7,500, whichever is smaller.
The credit is good for homes closed on after April 9, 2008 and before July 1, 2009, and can be taken on taxes filed during 2008 or 2009. Even buyers who bought a home before the bill passed, but after April 9, can claim the credit.
Unlike tax deductions, which only offset taxes by lowering taxable income, the tax credit is a straight dollar-for-dollar deduction of your tax bill. So a buyer who would ordinarily pay $8,000 in taxes would pay just $500.
It's also "refundable," which means if a buyer's taxes are less than $7,500, the government will send them a check for the difference. For example, if a couple's income generates a tax bill of $5,000, the government will refund all of that plus $2,500.
Buyers must to start paying back the loan within two years, at a rate of no more than $500 a year for 15 years. When the the home is sold, any outstanding balance will be repaid from the profit; if it's sold at a loss and the difference will be forgiven.
And some argue that mortgage lenders will take the credit into consideration, making it easier for buyers to get a loan.
"[The $7,500 reserve] will make borrowers less likely to fall into default," said Ken Goldstein, an economist with the Conference Board, since it gives them a nest egg should they run into trouble. Still, that assumes that buyers will sock the $7,500 away rather than spend it.
No cure
Indeed, the credit comes with plenty of caveats from economists and industry analysts.
"It's not going to provide first-time home buyers with cash up front," said the Consumer Federation of America's Allen Fishbein. "You have to apply to get the credit after the fact. There's a delay before you get the financial advantage."
And there are concerns that borrowers may treat the credit as a windfall, spending it as if it doesn't have to be repaid.
"It may appear to be free money," said Fishbein. "Consumers have to have their eyes open about how this works."
Other economists caution that while the credit may be helpful, it's hardly a solution to the crisis.
"It will not turn things around," said Jared Bernstein, an economist with the Economic Policy Institute. "Given the economy, it will only push a precious few first-time home buyers over the edge right now."
Plummeting home prices will blunt any impact that the credit may have, according to Nicholas Retsinas, director of the Harvard University's Joint Center for Housing Studies. As far as he's concerned, the market is simply too soft right now for a modest measure like this to make a big difference.
"The challenge right now is as much willingness to buy as affordability," he said. "The market still has this psychological barrier because people think prices will be lower tomorrow. I don't think this can overcome that barrier."
First Published: August 18, 2008: 11:08 AM EDT
Find mortgage rates in your area
Find this article at:
http://money.cnn.com/2008/08/15/real_estate/buyers_tax_credit/index.htm?postversion=2008081811
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