About Scott County, MN

By Sara Huebener

The pendulum continues to swing to the side of over-protectiveness, without regard to the long-term impact on our housing market. Just as we are beginning to see signs of stabilization and recovery, FHA is proposing a series of increases in fees and changes that would impact the housing market. The effective date of these changes has not yet been announced, and more will follow on West Savage Blog as we learn more.

First and foremost, seller contributions to borrowers using FHA financing would be reduced to 3%. While this sounds good from the perspective of a seller, it needs to be understood that this will make obtaining FHA financing more difficult for a buyer. For borrowers who can afford the monthly payment and have the 3.5% required down-payment, but not the additional cash needed for closing costs, this could make the purchase of the property unattainable. On a $300,000 home, this would mean the borrower may need an additional $9,000 in cash (on top of the down-payment) that they did not need to have previously.

Currently sellers can contribute up to 6% towards closing costs for an FHA borrower to make a home purchase more attractive and affordable. This new restriction would prohibit some of that. Fortunately FHA has no plans to touch the existing 3.5% downpayment amount, but we cannot see the rationale in this requirement at a time when we are still working on housing recovery and particularly during the current state of the American economy.

Secondly, FHA is planning to increase the up front Mortgage Insurance Premium (MIP) for FHA borrowers from 1.75% of the loan amount to 2.25%. On a $300,000 home, this is an increase of $1,500 that the borrower would need to have in cash. Finally, the monthly MIP would also increase, but by what amount is yet unknown.

Let me say that we are all for borrowers needing to have some form of downpayment before purchasing a property. People absolutely should need to work for, save for, and have a financial investment in the home they are planning to purchase. The shoddy requirements on credit-worthiness is mainly to blame for what got us into the housing mess in the first place. But changing all the rules of the game during an active time of recovery will be counter-productive.

The past nine months have already seen major changes. We have seen conventional loans jump from 10% required down-payment up to 20% due to declining markets. We have seen major changes in appraisals with the Home Valuation Code of Conduct (HVCC), and the adverse effect it has had on housing sales as a result of non-local appraisers driving into the metro and doing appraisals here.

We have seen the 90-day waiting period requirement for sellers wanting to "flip" distressed properties that they purchased and fixed up for habitability, thereby eliminating some of the purchases of distressed properties in our marketplace because investors simply could not fix them and hold on to them. (This too was just changed, temporarily.)

Of course, we are also seeing many foreclosure prevention and/or delay programs and loan modification programs in place working in effort to stave off the amount of foreclosures hitting the market. Whether these will end up being good or bad for our market in the long run is yet unknown. And now we have the upcoming changes to FHA - a program touted for its attainability for those who have the ability to qualify for a home but do not have a tremendous amount of cash at their disposal.

One thing is clear - our marketplace is ever-changing at the hands of our government officials as they work to over-correct the issues we experienced in 2008 and 2009, and staying on top of it is almost a full-time job. We'll keep you updated on any new changes coming down the pike!

The Pointe Oak Hills Woodhill Summit Ponds Heatherton Ridge Hamilton Hills St. Clair Bluffs

By Chad Huebener

Lenders have long known it was coming, and many prayed it would go away. But it is here to stay.

Effective January 2010, major changes have just been put into place regarding lending practices when it comes to purchasing a home. The intent of the change is to make it easier for borrowers to compare lenders and shop for competitive lending prices, with all pricing by the consumer being viewed as apples-to-apples. Previously, this was a cumbersome process and virtually impossible for buyers to sort out. Also, HUD (Department of Housing & Urban Development) wanted consumers to have a crystal clear picture of what closing costs would amount to for each transaction.

The new changes that just went into effect will require that once a Good Faith Estimate (GFE) is written for a borrower on a particular property, the lender can make no changes to that document (i.e. the fees stated on the GFE must remain the same) with the exception of a select few fees that fall in a certain category and and have a significant impact on the transaction (i.e. a change in the sale price, for example). Certain fees can change at a margin of 10% max. Fees wich do not fall into the category of having a significant impact on the transaction and do not fall into the category of being adjustable by the 10% margin must be "eaten" by the lender.

This is all good for the borrowing consumer, but the new GFE is not perfect. It does not tell borrowers the amount of cash required to close, nor does it show them their estimated principal, interest, taxes and insurance. It does not include lender or seller credits, as well as any tax provisions. For that reason, many firms, including Coldwell Banker, are utilizing Closing Cost Worksheets for borrowers so that a realistic estimate of the proceeds needed to close on the property can be obtained.

Finally, borrowers have up to 10 days to receive and sign off they they are accepting the GFE before an appraisal can be ordered or any other fees incurred on the transaction. This could have a significant impact on a seller receiving an offer - has the borrower approved the GFE?

During these changes in our industry, there are some initial complications expected to occur with the new lender requirements, therefore a very good, solid working relationship between lender, title company, and the realtors involved is very important. A slight miscommunication in something as simple as fees to the borrower could result in (in the case of a minimum-down buyer) the loan losing its eligibility to be insured, or the entire transaction falling apart.

It will take some time for the real estate industry to sort out these new changes. GFE's and HUD-1 statements must balance perfectly now, a process that will take title companies more time to work through. We do expect though, that within 2-3 months time, this process should get easier.

For some, it might seem as if the our regulators have now swung the pendulum so far in the other direction to protect the consumer. That is not all bad. Time will tell how the GFE will impact the real estate transaction. More on this to follow......

Inventory has dropped in Southbridge, and sales have cooled. But do not become discouraged. The holidays stalled activity for a time, but unlike January 2009, this month has been unusually "abuzz" with inquiries of people investigating the market. Short sales and foreclosures continue to be prevalent in our Southbridge marketplace (there are currently five of them), with most of them concentrated in the townhomes.

With the existence of the foreclosure prevention programs which were absent in 2008 and early 2009, some sellers now feel they can hold their heads above water in the marketplace, as this inventory has dropped. We expect that inventory will climb soon, as those getting a head start on the spring market seek to take advantage of the narrow window of opportunity afforded to existing homeowners. (Those who have lived in their home at least five years and purchase a new primary residence with a binding Purchase Agreement secured by April 30, 2010 are eligible for the $6,500 tax credit.)

Prospective sellers in our current market should eliminate pricey updates to their home in preparation for selling. The dollar return will not be there. Instead, they should focus on inexpensive updates that go a long way. Replace brass fixtures for brushed nickel or oil-rubbed bronze, or swap out linoleum for tile. The money spent on granite countertops or finishing a basement in this market will not be soon recouped. Those planning on staying in their homes and wishing to add expensive updates should do so, and enjoy them to the fullest.

What to watch for: Watch the effect of the new regulation requiring lenders to "freeze" most of the costs disclosed to buyers in the Good Faith Estimate (GFE). A few costs can be modified within 10% of the amount stated on the GFE. Some unanticipated cost overages will have to be "eaten" by the lender. Expect some confusion and uncertainty in explanations of these documents, as well as possible delayed closings, as lenders and title companies work to sort out these new requirements. More about this on SouthBridgeTeam.com will follow...

By Sara Huebener

Inventory in West Savage has begun a slow upward crawl, up two listings from last month's inventory, as those getting a head start on the spring market seek to take advantage of the narrow window of opportunity afforded to existing homeowners. (Those who have lived in their home at least five years and purchase a new primary residence with a binding Purchase Agreement secured by April 30, 2010 are eligible for a $6500 tax credit.)

Sales for the past 45 days hover at zero, but do not let this number discourage you. The holidays and frigid temperatures stalled activity for a time, but that will not likely hold for long. The highly-reduced level of foreclosures in our West Savage marketplace compared to 2008 and early 2009 is leaving sellers feel like they can perhaps hold their heads above water in the marketplace. And the $6,500 tax credit is just an added boost.

Prospective sellers in our current market should eliminate pricey updates to their home in preparation for selling. The dollar return will not be there. Instead, they should focus on inexpensive updates that go a long way. Replace brass fixtures for brushed nickel or oil-rubbed bronze, or swap out linoleum for tile. The money spent on granite countertops or finishing a basement in this market will not be soon recouped. Those planning on staying in their homes and wishing to add expensive updates should do so, and enjoy them to the fullest.

What to watch for: Watch the effect of the new regulation requiring lenders to "freeze" most of the costs disclosed to buyers in the Good Faith Estimate (GFE). A few costs can be modified within 10% of the amount stated on the GFE. Some unanticipated cost overages will have to be "eaten" by the lender. Expect some confusion and uncertainty in explanations of these documents, as well as possible delayed closings, as lenders and title companies work to sort out these new requirements. More about this will follow in time....

There are a lot of hurdles to getting a home sold. After the transaction survives a majority of the hurdles, a final, important hurdle remains: the home inspection.

A vast majority of buyers hire an inspector to determine the condition of the home and its mechanical components prior to sale. Depending on the verbiage in the Purchase Agreement, buyers can walk away from a transaction based on the findings of the home inspection. Here are a few of the big hurdles and what sellers should know in order to help the transaction survive the home inspection.

1. Improper Electrical Wiring: It's amazing how many do-it-yourselfers complete their own electrical work. All this can come back to haunt when it comes to the inspection. Sellers should make sure that proper permits have been pulled for all electrical projects. A buyer can request that electrical components be inspected, and that could entail opening up walls. Plus, pulling a permit after the fact can cost up to twice as much as the original permit itself.

2. Roof Deterioration: We've seen countless transactions where deferred roof maintenance leads to inspection issues. The roof should be properly maintained and/or repairs made before the house goes on the market. Additionally, FHA will not finance the property if the home has a faulty roof, and the lender can require a new roof be put on prior to closing.

3. Plumbing Problems: Inexpensive issues can lead to bigger issues in the inspection when it comes to the plumbing department. Fix leaky sinks, secure rocking toilets. A little bit of attention goes on a long way.

4. Drainage and Grading: Inspectors often comment on grading issues and if the layout of the topography around the home contributes to potential water seepage issues. On a rainy day, step outside with an umbrella and watch how your house sheds water. Watch for gutters that need repair, windows that might be absorbing water, and so forth.

5. General Maintenance vs. Poor Upkeep: When an inspector sees immediate signs like broken appliances, cracked or peeling paint, cracking caulking, or broken light fixtures or switches, it is a sign of overall neglect to the home. If such simple items as these are deteriorating, one can assume that the bigger and more expensive items are neglected as well.

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