FHA loans are common among first-time buyers because they require just 3.5% down and allow more leniency for individuals with lower credit scores and higher debt-to-income ratios, but FHA borrowers pay a 1.25% annual mortgage insurance premium (typically hundreds of dollars each month on top of their mortgage payment and taxes).

This insurance premium lasts until the loan-to-value ratio–the amount owed divided by the purchase price–is 78%, or after five years, whichever comes later.

With the recent FHA changes, the mortgage insurance premium will increase slightly, and it will never go away.

Cha-Cha-Cha-Changes

The FHA will be making the following changes with regard to the mortgage insurance premium:

• The mortgage insurance premium (MIP) will last the entire life of the loan for loans with case numbers assigned on or after June 3rd.
• The mortgage insurance factor will increase from 1.25% to 1.35%, for loans with case numbers assigned on or after April 1st. This is based on a 3.5% down payment, varies for different loan-to-value ratios and loan amounts.

When do I get a case number? Good question. You’re given a case number once your signed offer is submitted to your lender.

What it means in dollars and cents

Under the current FHA guidelines, someone who buys a $400,000 home with a 30-year fixed-rate FHA loan will pay around $25,000 in mortgage insurance during the first five years.

Under the new system, the same borrower will pay around $160,000 over the course of 30 years unless he sells the home or refinances into a conventional loan. The only way to get out of the mortgage insurance premium after June 2nd is to refinance, and rates are not likely to stay at the historic lows we’re seeing today.

To put the mortgage insurance factor into perspective, assuming you got an interest rate of 3.25%, when you throw in mortgage insurance, it’s the same as if your mortgage interest rate was 4.6%. Historically, this isn’t too bad.

Should I still consider an FHA loan?

FHA loans still have their virtues. Just remember that you’ll have to refinance into a conventional loan if you want to shed the mortgage insurance premium after you’ve built up some equity in your home.

The most important thing you can do is meet with a lender you trust early in the process, well before you have to make a decision about which loan to get. A lender can help you weigh the advantages/disadvantages of each option and can help you plan early.

If you want some personalized advice, Redfin-recommended lenders will help you out without the sales pressure. You can meet them at our free monthly home buying classes.

We’d like to thank Brian Thielicke (Cobalt Mortgage), who tipped us off to the change, and Matt Johnson (Sterling Bank), both of whom helped us write this post. Both are Redfin-recommended lenders and you can read all of their client reviews on Redfin Open Book, where we publish reviews of lenders from our own past clients.

You can read all the details about upcoming FHA changes in this letter from the Dept. of Housing and Urban Development.

The post FHA Loans Are About to Get More Costly appeared first on Redfin Real Estate Blog.

First, some background. The reason the government began backing bigger loans in 2008 was because the banks were too jittery to fund jumbo loans on their own. Today, the banks are still jittery about jumbos, but the government is intent on letting the market take its course all the same.

In LA, San Francisco, Washington DC and New York, the government will now only guarantee loans borrowing less than $625,000, whereas on Friday the the limit was $729,750. This means that if you’re borrowing more than $625,000 in those areas today, you’ll now have to pay higher interest rates, and you may not be able to qualify for a loan at all. This could lead to fewer sales.

Projections have differed sharply. Last Monday, the head of the California Association of Realtors was apoplectic: “This is just going to kill us,” Beth L. Peerce told the LA Times’s Alejandro Lazo. But the Federal Reserve estimated that only 3.4% of the loans backed by the government last year would have been affected by the lower loan limit. The Wall Street Journal article citing this data was the most-emailed real estate news for three days straight.

So who’s right, the government or the Realtor association? It depends not just on whom you ask but where. For the areas we cover, Redfin Real Estate Scientist Tim Ellis analyzed sales activity over the last six months county by county and neighborhood by neighborhood to project which areas would be hit hardest. Let’s look first at the county data, so you can also see how loan limits changed:

As you can see, most of the U.S. won’t feel a thing at all, but a few counties will.

Where did these numbers come from? To calculate the percentage affected, we looked at closed sales where the loan would have been below the older, higher limit, but was still above the new, lower limit.

And since government-guaranteed loans require a 20% down-payment, the affected home-prices are actually higher: where you can now borrow $625,500 with a 20% down-payment, you can buy a home worth $781,850. Where the upper limit used to be a $729,750 loan, this allowed you to buy a $912,188 home.

To project how many LA or DC homes are likely to sell for more than $781,850 but less than $912,188, we looked at sales that closed between April 1 – September 30—not currently active listings—just because active listings don’t always sell for their asking price.

There is a gap in this analysis, because loans directly ensured by the FHA don’t require a 20% down-payment, thus expanding the range of homes for which demand will be affected. But we focused on conventional government-backed loans to get a simple, conservative answer.

In order to better visualize how the effect varies by location, we created zip code heat maps of each of the above-listed regions. Here’s the Bay Area, which looks like it will be hardest hit by this change. Click on any zip code to see the breakdown. Red represents 20% or more affected, Orange for 10% to <20%, Yellow for 5% to <10%, and Blue for <5%.

Here are links to the full collection of heat maps (or just zoom out and drag the above map to your area):

• Bay Area
• Washington DC
• San Diego
• Boston
• Seattle
• Los Angeles
• Queens, NY
• Sacramento
• Baltimore
• Portland

Finally, let’s break this down in list form by neighborhood and by city.

San Francisco
Within the hardest-hit county of San Francisco, we can see that the area where I used to live, the Castro and Mission Dolores, is the likely to be most affected:

• Castro: 24.2%
• Bernal Heights: 23.2%
• Mission Dolores: 19.0%
• Russian Hill: 18.6%
• Central Sunset: 18.4%
• Miraloma Park: 17.9%
• Noe Valley: 16.8%
• Potrero Hill: 15.9%
• Sunset District: 15.8%
• Marina District: 15.2%
• Twin Peaks West: 14.8%
• Richmond District: 12.0%
• Mission Bay: 11.9%
• South Beach: 11.4%
• Potrero: 11.3%
• Parkside: 10.9%
• Mission: 10.8%

San Mateo County, Northern California
Traveling south to the second hardest-hit county, San Mateo, we project that the damage will be concentrated mid-Peninsula and north:

• Belmont: 23.7%
• San Carlos: 21.1%
• Millbrae: 19.7%
• Foster City: 15.7%
• San Mateo: 10.0%
• Burlingame: 9.9%
• Redwood City: 9.0%
• Menlo Park: 8.1%
• Half Moon Bay: 6.7%

San Mateo County, Northern California
Rounding out the Bay Area in Santa Clara County, the most-affected areas are all south of downtown San Jose:

• Almaden Valley: 21.7%
• Willow Glen: 16.6%
• West San Jose: 12.8%
• Silver Creek: 11.3%

Fairfax City & County, Northern Virginia
Outside of DC, the closer you get to the Potomac River, the greater the effect:

• Wolf Trap: 20.7%
• Great Falls: 17.2%
• McLean: 15.4%
• Mantua: 14.1%
• Tysons Corner: 11.5%
• Dunn Loring: 10.3%

Arlington County, Northern Virginia
In tiny Arlington County, the most affected areas were all within Arlington, not Alexandria, so we look at the data by neighborhood:

• North Rosslyn: 18.3%
• Courthouse: 15.6%
• Rosslyn: 14.9%
• Lee Heights: 14.1%
• Radnor / Fort Myer Heights: 9.3%

Washington DC
And in Washington DC, the damage is scattered throughout town:

• American University Park / Friendship Heights / Tenleytown: 34.0%
• Southeast Chevy Chase: 30.0%
• Capitol Hill: 13.9%
• Massachusetts Avenue Heights: 13.0%
• Mount Pleasant: 12.2%
• Capitol Hill/Lincoln Park: 12.1%
• Glover Park: 11.7%
• Van Ness/Forest Hills/Wakefield: 11.4%
• Howard University/Le Droit Park: 10.2%
• Glover Park/Cathedral Heights/McLean Gardens: 10.1%
• Foxhall/Palisades/Spring Valley/Wesley Heights: 10.1%
• Stanton Park: 9.2%
• U Street Corridor: 8.5%
• Cardozo/Shaw: 7.9%
• Northwest 7.8%
• Georgetown: 7.3%

San Diego County, Southern California
In San Diego, the most-affected cities are mostly along the beach north of the city:

• Solana Beach: 27.6%
• Carlsbad: 16.9%
• Encinitas: 14.5%
• Coronado: 13.9%
• Poway: 9.3%

Orange County, Southern California
In Orange County, the damage is mostly off the coast:

• Laguna Beach: 15.1%
• Yorba Linda: 13.3%
• Ladera Ranch: 12.6%
• North Tustin & Tustin Foothills: 12.2%
• Rossmoor: 11.5%
• San Clemente: 10.1%

LA County, Southern California
In Los Angeles, the affected areas are all over the map:

• La Canada Flintridge: 17.8%
• El Segundo: 16.1%
• Sierra Madre: 14.9%
• Calabasas: 14.7%
• Westlake Village: 14.5%
• Manhattan Beach: 14.2%
• Rancho Palos Verdes: 13.3%
• Arcadia: 13.3%
• West Hollywood: 13.3%
• Rolling Hills Estates: 12.8%
• Palos Verdes Estates: 12.4%
• Redondo Beach: 12.1%
• Hermosa Beach: 12.0%
• Beverly Hills: 11.4%
• East San Gabriel: 11.1%
• La Crescenta-Montrose: 10.9%
• Santa Monica: 9.6%
• South Pasadena: 9.3%

Suffolk County, Boston Area
In Suffolk County, the hardest-hit areas are all in Boston:

• Bunker Hill/Thompson Square: 12.5%
• Charlestown: 9.8%
• City Point: 9.0%
• South End: 8.8%
• West Roxbury: 8.7%
• Downtown: 8.1%
• North End/Waterfront: 7.8%
• Central: 6.9%
• Brook Farm/Veterans of Foreign Wars Parkway: 6.8%
• Upper Washington: 6.7%
• West Broadway/D Street: 6.6%
• Jamaica Hills: 6.3%

King County, Seattle Area
And finally in King County, the areas most likely to be affected are on the Eastside:

• Sammamish: 16.4%
• Mercer Island: 11.3%
• Newcastle: 10.8%
• Redmond: 8.5%
• Bellevue: 8.2%
• Vashon: 7.9%

Within Seattle, the side of Queen Anne facing Lake Union (11.0%) will be hit hard too.

Over the next few weeks, Redfin will track whether closed sales are declining in these areas, so we’ll keep you updated on how the projections compare with reality.

The post Which Areas Will Be Most Affected by Lending Policy Changes? appeared first on Redfin Real Estate Blog.

Before February 1^st, if you were hunting condos with the intention of getting an FHA loan, you had a couple of options. One was to consult the list of condo projects already approved by the FHA. If a project was on the list, it already met the FHA’s requirements, and you were pretty much good to go.

If the condo project wasn’t on the approved list, you had a second option – Spot Loan Approval. The Spot Loan process required the condominium project’s Homeowner’s Association (HOA) to complete a relatively simple two-page questionnaire designed to suss out the project’s overall health. If successful, this process would allow you to move forward with the purchase of your condo unit, without requiring the entire condo project to go through the more rigorous (and time-consuming) process of full FHA approval.

But as of February 1^st, the Spot Loan Approval process has been 86’d.

What does this mean for you, the would-be condo buyer? If you’re planning to get an FHA loan, you have even more incentive to start your search on the FHA approved condo list. Since these are condo projects that the FHA has already approved, getting financing for one of these units should be relatively straightforward, depending on your own loan-worthiness. Keep in mind, however, that projects will be required to be recertified every two years after the date of their placement on the approved list.

What if your dream condo isn’t in a project on the FHA approved list? The short answer is: the condo project must get on the FHA approved list. How does that happen? You’ll need to work with your lender to complete one of the following processes:

First, your lender can submit all the necessary paperwork to the HUD Review and Approval Process, or HRAP. There’s a lot of chatter on the net that this process will take 4-6 weeks, but the HUD’s press release states the process has been “streamlined to allow for uncomplicated condominium project approvals.” Ahem.

Alternately, your lender may be authorized to review and approve the condo project. This route, known as the Direct Endorsement Lender Review and Approval Process (DELRAP), may prove to be the speedier of your two options. It’s only available via lenders who have unconditional Direct Endorsement authority. Meaning that they have specific staff and expertise dedicated to the process of reviewing condo projects. Which is probably a good thing, when you read through a list of the requirements for condo approvals through DELRAP.

The following is a summary of that process as taken from the HUD’s press release; for the nitty-gritty, check out the full HUD press release on the subject, and skip ahead to section V: Project Eligibility Requirements.

1. Minimum Number of Units: Projects must consist of two or more units.
2. Insurance Coverage: Projects must be covered by hazard and liability insurance and, when applicable, flood and fidelity insurance.
3. Right of First Refusal: Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act.
4. Commercial Space: No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes. The commercial portion of the project must be free of adverse conditions to the occupants of the individual condominium units.
5. Investor Ownership: No more than 10 percent of the units may be owned by one investor.
6. Delinquent Homeowners Association Dues: No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payments.
7. Pre-sales: At least 50 percent of the total units must be sold prior to endorsement of a mortgage on any unit.
8. Owner-occupancy Ratios: At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units.
9. Legal Phasing: Legal phasing is permitted for condominium processing. In other words, if a condo high-rise is half-built, the project may still be eligible for FHA approval, as long as the building meets certain requirements. Floors must be “phased  in” in groupings of no less than five floors, amenities and common areas must be complete, a temporary occupancy certificate must be secured, and a third party completion bond obtained.
10. FHA Concentration: Basically, the maximum concentration for FHA loans in any one condo project  is 30%, plus a small tolerance to accommodate for some fall-out. (Note: This percentage has actually been upped to 50% until December 31, 2010, and can even go as high as 100% under certain conditions. For more information, check out the HUD’s Temporary Guidance for Condominium Policy.)
11. Budget Review: Mortgagees must review the homeowners’ association budget (the actual budget for established projects or the projected budget for new projects) for all projects.

Simple, right?

So, pick your condo off the FHA approved list, or prepare to kill some time while the condo project goes through HRAP or DELRAP.

For purely historic value, here’s a link to the old Spot Loan Approval form (pdf, form no longer in use).

(Photo credit: Heather_Lucille on Flickr/Paramount Pictures. Special thanks to Matt Allen of Cornerstone Home Lending for his assistance with this post.

The post Buying a Condo With an FHA Loan? appeared first on Redfin Real Estate Blog.

Since the price drop-data is for November while mortgage rates declined in December, it may be that the market just needs time to respond. But one analyst called the price drop “breath-taking” and “god-awful.” The WSJ quoted an economist as saying that “the housing industry is in the process of reducing capacity to dangerously low levels.” A second economist said that, “outside of distressed properties, the [California] market is nonexistent almost.”

This made us wonder whether it’s really true, in California or elsewhere, that most of the homes for sale are foreclosures being liquidated by banks.

Since Redfin’s database includes virtually all the homes for sale (basically everything except what’s on Craigslist), including bank-owned listings as well as for-sale-by-owner (FSBO) listings, we can measure what percentage of homes for sale are bank-owned. And we can do this with unusual precision because we map all the data down to the level of a city, neighborhood or postal code.

Here’s what we found for nine of the largest cities we cover, sorted from the highest concentration of listings in foreclosure to the lowest, as of December 22, 2008. We measure the ratio of for-sale-by-owner listings as a percentage of the total homes for sale in each city, and then do the same for foreclosures.

And it’s true that in major California cities south of the Silicon Valley peninsula, about 1 in 4 homes for sale have been foreclosed, and others are being sold by sellers trying to avoid foreclosure (short sales). But the number of short sales may soon be decreasing, as banks are now soliciting short sellers to modify their loans at the new low rates so folks can keep their home.

I used to worry that the low rate of foreclosure in Seattle and San Francisco was a disaster waiting to happen. Prices will fall through the floor in those markets if the percentage of listings being sold by banks increases in either place to 20% or 25%.

But because the downturn in Seattle and San Francisco prices started a little late, and mortgage rates fell soon thereafter — unemployment, not increasing mortgage payments, will be the main driver for foreclosures here — maybe Seattle and San Francisco can avoid the huge pile-up of distressed inventory that is dragging down the market in Southern California.

What do you think? Why do Seattle and San Francisco have such low foreclosure rates? And will this continue?

(Photocredit: Ironside on Flickr)

The post Are All the Homes for Sale in Foreclosure? I Don't Think So… appeared first on Redfin Real Estate Blog.

Clarence Nathan: I wouldn’t have loaned me the money. And nobody that I know would have loaned me the money. I know guys who are criminals who wouldn’t loan me that and they break your knee-caps. I don’t know why the bank did it. I’m serious … 540 thousand dollars to a person with bad credit. 

Glen Pizzolorusso (a mortgage broker in upstate New York): We rolled up to Marquee at midnight with a line, 500 people deep out front. Walk right up to the door: Give me my table. Sitting next to Tara Reid and a couple of her friends. Christina Aguilera was doing some, I’m-Christina-Aguilera-and-I’m-gonna-get-up-and-sing kind of thing. Who else was there? Cuba Gooding and that kid from Filthy Rich: Cattle Drive. What was that kid’s name? Fabian Barabia? We ordered 3, 4 bottles of Cristal at $1,000 per bottle. They bring it out, you know they’re walking through the crowd, they’re holding the bottles over their heads. There’s fire crackers , sparklers. You know, the little cocktail waitresses. You know so you order 3 or 4 bottles of those and they’re walking through the crowd and everyone’s like: Whoa, who’s the cool guys? We were the cool guys. They gave me the black card with my name on it. There’s probably 10 in existence. 

Thanks to Peter Cochran and my twin brother Wes for reminding me about this episode, nearly simultaneously.

I searched for a picture of Glen Pizzolorusso but he’s nowhere to be found…

The post "We Were The Cool Guys." appeared first on Redfin Real Estate Blog.