RENTING VS. BUYING
Unless you can get long-term guaranteed rent for one third the price of owning or you are looking for a short-term housing solution, buying is always the best financial choice. Today, with the heavy discounts available PLUS the hearty tax cash back incentives - this is the best time to BUY!
Let's say you can buy a home for $250,000 with no money down and a 30-year fixed rate of 6.5 percent. with a monthly payment is $1850 including taxes, insurance and maintenance costs. Or - you can rent the same house for $1250 per month. Which is the better choice?
If you rent the house, after five years (and average rent increases) you will have paid $83,000 to a landlord compared to $111,000 in mortgage payments if you buy. On the surface, it looks like renting is the cheaper expense. However, when you subtract the tax savings, equity and appreciation ($111,000 - $74,098) - the true cost of owning the home for five years is only $36,902! That's just $615 per month. Plus, the longer you own, the more you gain. The opposite is true for renting, the longer you rent - the higher your expenses get. After five years you have just paid out $83,000 to build up your landlord's asset.
As a tenant, you have little control over when you move or what happens to your home. Plus all the time and money you put into your home goes to the landlord's benefit. Taxes and inflation take the biggest toll on your finances and both work against you as a renter. None of your rental expenses are deductible and inflation fuels rent payment increases.
In contrast, as a homeowner, your mortgage interest and property taxes reduce your IRS bill and your mortgage payment stays the same regardless of inflation. In addition, inflation works for you by increasing the value of your home each year. Even figuring in the down periods, history dictates that the average home will appreciate at least at the rate of inflation (average 3 percent per year).
And that's just the beginning. Let's fast forward thirty years. By the year 2037, as a renter you would have paid over $640,000 to landlords (and that is with figuring only 2% per year rent increases). Your new projected rent is at least $4,200 and you still have little control over your home.
Or- as a homeowner, by 2037, you will be making your final mortgage payment, owning your home debt-free and having an asset worth three to four times what you paid for it. You still have to pay for taxes, insurance and maintenance projected at approximately $660 per month but your home is now worth over $750,000. Another perk for owners is you can also rent your property for additional monthly income or sell it and use the profits to finance your future plans.
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The due-on-sale or acceleration clause is a provision in a mortgage document which gives the lender the right to demand payment of the remaining balance of the loan when the property is sold. A due on sale clause will generally read something like this:
If all or any part of the property herein is transferred without the lender's prior written consent, the lender may require all sums secured hereby immediately due and payable.
In relation to residential property consisting of four units or less, a United States federal law referred to as the Garn-St Germain Depository Institutions Act of 1982 gives these exceptions where the lender cannot enforce the due on sale clause:
If I transfer title to a property that has a mortgage with a due on sale clause, is the mortgage automatically due in full?
The due on sale clause is a stipulation in a mortgage, similar to the other clauses in your mortgage. For example, if you miss a payment on the mortgage, the lender has the option to accelerate the mortgage and call the loan due if they choose to. The key words here are 'if' and 'option'. Here are some key points to consider:
•1. The lender has to find out about the transfer.
•2. The lender has the option or the right to call the loan due and payable in full - it is not automatic.
•3. If the lender does decide to enforce the due on sale clause you will be given notice according to your state's guidelines (similar to foreclosure proceedings)
•4. Typically, the lender will give you an opportunity to correct the default. Remedies include having the new owner payoff or refinance the loan or transferring the title back to the seller until the mortgage is paid off.
Is transferring the title without the lenders permission illegal?
No. It is a violation of the mortgage clause. Mortgage clauses are part of the agreement between you and your lender - they are not laws. Just like if you don't make your payments on time - you violate a mortgage clause.
I bought a property subject to a mortgage containing a due-on-sale clause without getting new financing to pay off that lender. What is the real danger to me as an investor?
If the lender finds out, they have the right to call the loan due and payable. If you cannot correct the default, the lender has the option of starting foreclosure proceedings to reclaim the property. In general, if you are making payments on time - lenders don't go looking for a reason to foreclose.
Can I get the owner to sign a deed to me and then just not record it?
This is not the best idea. Since the previous owner would be the only public owner of record, they could go out and mortgage the property or even sell it again! Further any new judgments, bankruptcy proceedings or other liens against the previous owner could affect the property. A deed is usually the best course for showing ownership but if necessary, you may consider showing your interest in the property through an inter-vivo trust or using a contract for deed or affidavit of interest.
How would a lender discover the title has been transferred?
Lenders don't typically conduct routine title searches. The most common way the lender finds out is if the loan goes into default, the lender will probably check the title and discover a transfer has taken place. Also, if the lender pays the insurance from your escrow account and you change the primary insured on the Homeowners Insurance they may notice that the insurance policy has a different name.
Are there any specific disclosure or mortgage fraud laws that require professionals to report a transfer?
From a legal standpoint, a real estate agent, attorney or closing agent is not usually legally responsible for contacting a lender and informing them that a transfer has taken place. However - many professionals will refuse to handle the sale unless the mortgage is satisfied or the lender agrees to the transfer.
How do we proceed if a traditional title agent/attorney will not handle the closing?
In most states, you have the option to get a deed, make it subject to the existing mortgage and execute that yourself (with the seller). Then just take it to the county courthouse and record it. If you must have a HUD-1, there are online sites where you can create one yourself. This is not the best way to buy/sell but people can and do handle legal issues on their own successfully. It is recommended before you 'close' a transaction on your own - you should contact a local real estate attorney and ask him/her if the state law permits two individuals to handle their own transaction and execute and record the deed.
Are there any other difficulties to be aware of when purchasing or selling subject to a due on sale clause?
If you sell your property subject to a mortgage with a due on sale clause - be sure that you clearly disclose this fact in the contract and in the deed. The deed should specifically state the title is being taken subject to the existing mortgage, and its terms. Be sure to reference when and where the mortgage was recorded.
In most cases, lenders today are fairly reasonable when it comes to violations of due-on-sale clauses on performing loans. Unless the violation is specifically brought to their attention, there is no financial incentive for a lender to enforce a due-on-sale clause on a performing loan especially if the current market interest rates aren't much higher. A lender does not want to add defaulted loans to its portfolio.
Regardless, it is wise to be prepared for the worst case possibility. If you buy a property subject to a mortgage with a due on sale clause, be prepared to pay off or refinance the loan in the event the lender does exercise their right to enforce the due on sale clause or be prepared to transfer the title back to the seller and make other arrangements that will satisfy the lenders requirements.
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As a landlord, I have had great success with the tenants that came my way through the local Housing Voucher program.
I usually try to find a tenant whose subsidy is equal to the amount of the rent payment. In that case, the entire rent payment is paid through the Public Housing Agency (PHA) and I don't have to collect anything from the tenant.
The Section 8 Housing Choice tenant based voucher program is a Federal housing assistance program administered through HUD and Public Housing Agencies (PHAs) to help low income families, the elderly, and people with disabilities to pay for decent and safe housing. People who receive Section 8 vouchers go find their own rental housing and use the vouchers they receive from their housing agency to help pay the rent. That means that the Federal Government will pay to landlord all or part of the rent each month.
Section 8 recipients represent a wide range of society. In my experience, the participants have been model tenants including hard working single parents, grandparents raising a second family, medical students and a disabled veteran. People can rent housing of their choice in communities of their choice. Financial assistance is based on household income and the area's cost of housing.
Q: HOW MUCH RENT DOES THE SUBSIDY PROVIDE? HUD publishes Fair Market Rents (FMR) for rental housing by locality. The list is updated each year and is based on the size and location of the housing. You can get FMR rates for your area online at www.huduser.org/datasets/fmr.html The local PHA establishes a housing voucher payment standard which is between 90%-110% of the Fair Market Rent. (FMR)
The monthly subsidy is the difference between 30% of the household's monthly adjusted income and the Housing Voucher ‘payment standard'. The subsidy is paid directly to the landlord by the PHA. Any remaining difference is paid by the tenant directly to the landlord. To qualify for the program, the recipient's income must fall below the median family income for their area. (see 2009 income limits at www.huduser.org/datasets/il/il2008_docsys.html)
For example, let's say the income limits in Miami, Florida for a family of four is $48,250. A family of 4 with a gross yearly income under this amount would qualify for the voucher subsidy. Now let's say this family has a monthly adjusted income of $1200 and they require a minimum of 3 bedrooms. They would qualify to receive a subsidy of $1,119. (The 3 bedroom payment standard of $1,479 minus $360 = $1,119) Keep in mind, the $360 figure is used only to determine the amount of the subsidy - not how much the tenant is required to pay. If the tenant finds a 3 bedroom home with a rent payment of $1,119 or less - the landlord would not have to collect any money from the tenant.
Q: WHAT IS EXPECTED OF A LANDLORD? Probably, not much more than what you are already doing. Some PHAs require landlords to attend an orientation program, which typically last about one hour. Other than that, the requirements are very basic. Once a PHA approves an eligible family's housing unit, the family and the landlord sign a lease and, at the same time, the landlord and the PHA sign a housing assistance payments contract that runs for the same term as the lease. Your rental fee must be comparable or reasonable for the area and the house must meet basic sanitary and safety requirements such as; providing functioning bathrooms, a kitchen or area for preparing food, locking doors and secure windows and smoke detectors.
Q: HOW DO I FIND HOUSING VOUCHER PARTICIPANTS? Housing Voucher tenants may find you, just by responding to your ad or "For Rent" sign. Otherwise, you would contact your local PHA or the HUD REAL ESTATE office in your area. (Look for an agency near you at www.hud.gov/groups/landlords.cfm ) Typically, you will exchange information, than the PHA will add your property to their list of available rentals. In Orange County, Florida you can find the landlord registration and property submittal links on the left side of the page www.orangecountyfl.net/cms/BUSINESS/Section8/default.htm For Seminole County, Florida - go to www.seminolecountyhousingauthority.org
Helpful Websites
General info about HUD and it's various programs: www.hud.gov/
Info for landlords and links to PHAs: www.hud.gov/groups/landlords.cfm
Find the Fair Rental Market Value for your state: www.huduser.org/datasets/fmr.html
Family Income Limits: www.huduser.org/datasets/il.html
What is Section 8?: www.os.dhhs.gov/ocr/sec8.htm
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Demand
Orlando area home sales experienced the seventh consecutive month of increased sales and the 13th consecutinve month of decreasing inventory. There were 47.59 percent more homes sold in March of this year than March of last year.
Supply
The March 2009 inventory level is 15.80 percent lower than it was in March 2008. In March, we had 21,448 homes for sale on the MLS. The inventory consisted of 15,407 single family homes, 4,111 condos and 1,930 duplexes/town homes/villas. This reflects a 12.98-month supply, down from the 16.77-month supply recorded just one month earlier (Feb 09). Overall, the months-of-supply has declined 39.74 percent since January 2009.
Pending Contracts
Pending sales continued upward again in March to 4,906. more than double the 2,398 recorded during the same month last year.
ORRA President Les Simmonds, remarked "Lower prices, record low interest rates, and a vast selection of homes give homebuyers increased buying power, making it an excellent time to buy a home. This is especially true for first-time buyers who are eligible for the $8,000 first-time homebuyer tax credit." The area's average interest rate dropped yet again to 4.67 percent, its lowest point on record.
Prices
While properties are selling the prices are still low. The median price of all Orlando homes sold in March ($137,000) decreased by 37.73 percent compared to March 2008.
49.06 percent of the homes were either bank-owned (700) or distressed (111) homes. The median price of the bank-owned homes sold in March was $95,000, while the median price of distressed homes was $143,500. The median price for the " typical arms length sale" homes (842) sold in March was $174,995.
The good news is the lower prices sends the affordability index to yet another record high of 192.17 percent. An affordability index of 99 percent means that buyers earning the state-reported median income are 1 percent short of the income necessary to purchase a median-priced home. Conversely, an affordability index that is over 100 means that median-income earners make more than is necessary to purchase a home. For example, first-time buyers who earn the reported median income of $26,000 can qualify to purchase one of 7,366 homes in Orange and Seminole counties currently listed for $159,132 or less.
Time On Market
Homes of all types spent an average of just over 3 months (104 days) on the market before being sold and the average home sold for 92.66 percent of its listing. The majority of single-family homes (181) that changed hands in March 2009 were sold in the $200,000 - $250,000 price range.
Condos and Town Homes/Duplexes/Villas
The sales of condos in the Orlando area have increased by 227.78 percent. The most (120) condos in a single price category that changed hands were in the $1 - $50,000 price range, nearly three times the number (44) that were sold in the next most populated category ($50,000 - $60,000).
Buyers Market Strategies
If it looks like a steal - don't hesitate. Make your best offer and then take the inspection period to do a closer inspection and make the final decision.
Properties listed at bargain prices are selling within days (sometimes hours). Many of these sell for a little above the listed price and most agents are taking multiple offers and then asking for the buyers "highest and best".
Get pre qualified for a mortgage or be prepared to show proof of funds. We are finding the majority of the bargains in the bank owned listings. The banks almost always require a prequalification letter or proof of funds to accompany any offer before they will even consider looking at it. Country Wide and Wells Fargo require buyers to be prequalified with one of their own lenders. I have buyers who were offering the best price and terms but lost out to another buyer who was just better prepared and got the offer in quicker.
Buying? EMAIL ME FOR A FREE LIST OF BANK OWNED bargain prices in your area.
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Email: wanda32779@aol.com Success Investment Realty 800-590-9458
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