Danell Merren

Do you have a buyer who wants to buy a fixer upper but doesn't know how to get funds post close to fix the home? MSHDA's (the Michigan State Housing Development Authority) Property Improvement Program (PIP) is, in my opinion, the best kept secret in the industry. The program is very unique in that:

A) You don't have to have equity in the home to get this property improvement program loan!

B) You don't have to have a MSHDA first mortgage to qualify!

C) You can actually do the work yourself without a contractor!

D) Sellers can use the product before listing!

E) You can actually have open medical collections!

F) Rates as low as 4%!

G) Landlords can use the program and no income limit for landlords!

It almost sounds unreal considering the market we are in, but this program is run through MSHDA's Community Development Department so it's almost like there is a whole different paradigm or way of thinking.

Homeowners can borrow up to $50,000 for a single family home and there is no equity requirement on loans up to $25,000! Does your borrower want to go over $25,000 without having the equity, well, that should be no problem either! How you might ask? MSHDA does not typically require an appraisal. All they will do is ask for documentation of current SEV and times that by 2 to assume value. Can you imagine if lending were that simple across the board? So, here's a concrete example that I am currently evaluating. The borrower is buying a home for $75,000 that needs a lot of work. The current AV is $84,000. The borrower wants $30,000-40,000 for improvements ranging from cosmetic work to major improvements. We can take the $84,000 times 2 to assume a value of $164,000. So, they can get the full amount of funds needed!

For more information, please feel free to call me at (616) 719-4513. Or visit my website at www.phmgr.com.

I have recently witnessed a new phenomenon where a good credit buyer comes in to get pre-approved for a Conventional mortgage. They typically have good intentions of wanting to purchase home B while at the same time retaining home A, either hoping to sell it "when the market recovers" or listing it right away, hoping to sell it fast.

First, none of us has a crystal ball. You'll hear financial planners tell you all day long that even Warren Buffett can't time the market. We shouldn't think we can do this in the real estate market either. Second, retaining two properties puts a lot of pressure on that family. They will likely be forced at some point to make two house payments. To get home B, they would have to qualify on paper for both payments, but how many people really feel comfortable making two payments?! I always tell clients what they can afford on paper but tell them what is more important is to know how much they are comfortable paying which is typically less than the bank will approve them for.

They may or may not be able to sell. I have heard Realtors in our area state that there are about 13 buyers to every seller. The odds are not in the seller's favor regardless of how well they price. Yes, homes are still selling, but this buyer that buys home B while trying to sell home A is taking a big risk. So, too often I have seen these same folks give up on home A, the financial strain is too great, they often owe more than it is currently worth, and, therefore, they bail from the property. They either let it go to short sale or let it simply foreclose.

In my opinion, as industry professionals, we need to encourage families to not do this. It hurts all of our property values. But how does one do this? If you give too much unsolicited advice, the borrower will just go elsewhere for their loan. One of the banks we broker to recently sent a memo about this problem, asking all of us to "self police" this, to contact underwriting any time we suspect this is happening. Who is going to do this? You can't prove that is what the client is planning to do, they aren't doing anything illegal.

I said about a year ago that the solution would be simple- Fannie and Freddie should come out with a new rule that you can only have one property with owner occupied financing, period (or two if the borrower has a second home in a different geographical area as a real vacation home, etc.). If Fannie and Freddie would say, go ahead and buy home B, but it's going to be at an investment property rate with investment property PMI, I bet this would slow this bail and buy phenomenon down really quick! Clients would be very angry, but it may just slow them down enough to think about the long-term ramifications.

Over the past few weeks I have received a lot of questions regarding the new first time home buyer tax credit of $7,500. So, I thought it was time to share my understanding of the credit, some of the pros and cons, etc. Another colleague I work with sent me a great link on the credit. Thank you, Debbie! You can get some great information at:

http://www.federalhousingtaxcredit.com

To summarize some pros and cons and answer some frequent questions:

• It applies to first time home buyers who purchase between April 9, 2008 and July 1, 2009; first time buyer being defined as someone who has literally never purchased or who has not purchased in the past three years.
• The tax credit can be filed with your Federal Tax Return post close- you do not file the paperwork with your lender, therefore, it cannot typically be used for down payment or closing costs/pre-paids. There is one way to file for part of the funds prior to close, but this will be a reduction of your current federal taxes (please see the above link for more information).
• The tax credit is an advance on future tax refunds; it must be paid at a rate of $500 per year for the next 15 years or at point of sale out of the proceeds; if there are insufficient proceeds then the remaining credit is forgiven according to the article above.
• It cannot be combined with any Mortgage Revenue Bond programs, therefore, MSHDA borrowers do not qualify.

I hope this helps clarify some questions you may have had. If you would like to discuss any further, please do not hesitate to give me a call at 719-4513. Thanks and have a great weekend!

Sincerely,

Danell Merren

Providence Home Mortgage