RE: Internet mortgage company using mortgage bait and switch, or not.
As a real estate agent I DO NOT LIKE when a borrower is using an internet mortgage company to process their loan. These big companies have no long term relationship with me and therefore have no reason to make my buyers their highest priority. My vendors, mortgage etc. treat my clients like they are their most important borrowers.
With that as a background I refer to the article heading Mortgage Bait & Switch Or Not? I am referring to a radio advertisement that has been running for quite a few days promoting that they have a program with the concept of locking your loan now and being able to pick a lower rate at some future date, providing that interest rates go down in the future. (All mortgage brokers have this option)
The pitch sounds great. The details not so great to most borrowers. The reason for the pitch is to get you to contact the advertiser.
My first days as a loan officer were for a large bank. They advertised a rate or program heavily. We were required to take the phone calls. It was not uncommon for the rate to have climbed by the time they published the quoted in the newspaper rate. However once I had them on the phone, gathered 15 minutes worth of information the consumer was so tired of the process that they stayed with us even if the rate or program had changed. In my history it took only a couple of experiences where I refused to take these calls.
I believe that is what the objective is for this new advertising program, which is to get you to contact them.
The pitfalls of locking now with a promise of a lower rate in the future is that you pay for this attractive program. You either pay with a higher rate or with fees. My experience in originating hundreds of loans is that the costs were not worth it. Another catch is the terms for the relock may be undesirable. You may have a specific period of time that you can exercise the re-lock or it may be available if you are about to close. I don’t remember one person finding this program one they wanted once they knew the facts.
The internet mortgage company running these ads do not care if you end up with the rate lock program. The reason is obvious to me, it is like a mortgage bait and switch, anything to get you to call.
Should Your HOA Be FHA Approved? I recently dealt with an HOA where the HOA board debated on whether or not to renew their FHA approval. FHA will not make a loan on a building that isn’t approved. VA usually follow FHA. The approval process is in depth. FHA reviews the financial condition, the number of rentals, is in in a floor plain, is it properly insured, etc.
The approval must be updated and is good for two years. The board can start the renewal process six months prior to expiration and can go back within six months of expiration.
My efforts to persuade the board was based on the benefits to buyers:
There are two reasons that buyers use FHA: 1- to do a reverse mortgage 2- to have more lenient
mortgage underwriting. The prices in CRT and the size of the monthly dues virtually eliminates any FHA
buyers from using a typical 30 year mortgage to purchase here.
Benefit of FHA reverse mortgages to the HOA: STABILITY. People have to buy with about 50% down.
Using conventional financing it can be as low as 5%. With a reverse mortgage the lender will foreclose
on them if the HOA notifies the owner is delinquent on their HOA dues. The 50% down rule virtually
assures that you have an owner with a great deal at stake. The underwriting process gives reasonable
security that the buyer/borrower can pay their taxes and HOA dues with verifiable income.
FHA condo project requirements: The Building must be primarily residential, contain at least two
dwelling units – No more than 25% of the property’s total floor space in a project or unit can be used for
non-residential or commercial usage – No more than 10% can be owned by one investor or entity – no
more than 15% can be more than 60 days past due on their HOA dues – at least 75% of the units must
be owner occupied.
RE benefits for the building: 1- Demand – The more in demand a property is the more the value. Eliminating a source of financing
reduces the potential value. Mike Kline asked me to prove that FHA was a positive not a negative to CRT.
To me the way to measure that is value. The more in demand a property is the more the value.
Eliminating a source of financing reduces the potential value.
2- Restricting rentals: FHA does not encourage rental owners. The borrowers on reverse mortgages
must commit to owner occupancy. The HOA must account for the rental percent numbers which is one
of the main reasons for the two-year renewal process. Some of the buildings denied FHA have received
a denial because of too many rentals. Zion Summit and American Towers as an example.
3- Endorsement: Many knowledgeable buyers and/or their agents understand the FHA approval means
that important issues have been reviewed buy HUD. These would include too many rentals, a law suit on
the HOA, poor reserves, issues that might arise from the HOA meetings minutes, and any item they
consider a red flag.
The vote went 3 to 2 to renew. A homeowner and the HOA attorney made a different point that swayed the yes voters. That is, when times are tough having the ability for you to sell your home FHA may be critical.
It really is a bear of a situation, being an agent selling a home that is rented. Of course you want that income stream. The fact is that it will impede what is perhaps the right buyer from finding it.
In many cases it is worse on your pocket book to have it rented and for sale at the same time. I say this because the longer the home is on the market the more likely it will be that you lower the price. I don’t and won’t encourage that, but it is a fact.
In almost every price range and location there is competition. Your home isn’t the only one to choose from. If you throw any hurdle in the way of showing your home it is possible the right buyer might miss it. Maybe I should use the work probable, not possible. Rented homes almost always need appointments. Some renters don’t cooperate. Often the rule is at least 24 hour notice. There is one condo currently for sale in downtown Salt Lake City that only allows showings once a month. It’s pretty ridiculous to even have it on the market. In lesser extremes it’s still a problem.
Having your home presented for sale is important. I believe in staging it as practical as possible. I showed a home this week that was rented and kept in sloppy condition. Hey the renter doesn’t care, it wasn’t their home. Instead of staging this home was, shall we say, destroyed. In many cases the buying or not buying decision is made the minute they walk through the door. It is an emotional decision. To some buyers the condition affects the decision.
Sales Prevention Program #84: Sorry It’s Rented. Do you like snakes? I showed one rented home that had a python to greet you as you entered the living room? We did a fast exit out of the front door. I wonder if the home ever sold.
We showed one home where the renter was present. Hey “no problem” they said. We were then treated to a clear explanation of everything that was wrong with the place.
Do you like smells of the unusual nature? We have been subjected to them. Renters rarely care, so there.
Of course it’s a financial situation. My suggestion, if you really want it sold, wait until the renter is gone to put it on the market.
What About Investing In Real Estate? Part 1 of a series. We have seen the ups and downs, even the crashes of our investments. I have been through much, as you probably have. Where should we invest? Should we invest?
Here is the first of some random thoughts and opinions for your consideration. I will address others in future articles. This series has a Salt Lake City focus.
As you read these articles be sure that I see the safest investment is free and clear real estate that can earn you income. In a market crash you my just have to lower your rents. What is more likely in Utah is a 10 year run up. Some say that Salt Lake City is a future of being a world wide hub. Consider how much happier that you would be if you had made your real estate purchase as recent as three years ago. (Three years!)
1- Duplex and/or fourplexes. I’m not into encouraging your going this route. The exception might be if you are living in one of them. Why do I have this opinion? The answer comes from extensive study for a client who thought that this would be his preferred route. The problem here is that so many are after this piece of the market that sellers can get away with what I consider to be absurd. The typical pricing offers a 5% cap rate. In other words if you paid cash for a $400,000 property you would achieve a $20,000 cash return. That might sound nice but virtually every property offered with this return is absolutely a deferred maintenance pit. Most of these are assuming that you are going to manage the headaches yourself. So you get all the phone calls and you get to subtract these costs from your revenue. If you hire a property management company, reduce the rate of return. The 5% is in my opinion too low and it will be reduced by the upkeep and property management.
What went through my mind on this recent study was that these are absolute junk. Don’t pit your future on junk. That’s my opinion.
For your information, my background includes an extensive part of my real estate career in the commercial side of real estate. I was the director of real estate acquisitions for a commercial real estate developer. I have been CCIM trained on numerous aspects of commercial real estate. I focus on residential because of the consistency in this market. However, upon joining Windermere I have been motivated by their strong commercial real estate department to look for good options for my clients. There are good options. In my opinion duplexes and fourplexes aren’t currently a good way to go.
Larry K Cragun – Windermere Real Estate