Opportunity arises for hopeful homeowners
Special to the Tribune
“Luck is what happens when preparation meets opportunity.” The Roman philosopher Seneca coined this timeless piece of wisdom about 2,000 years ago.
There’s opportunity right here, right now in real estate in the form of low prices, low interest rates and fabulous government-sponsored homebuyer assistance programs. The preparation part is managing your credit history, creating a budget (and sticking to it), and saving money for a modest down payment and reserves. The mortgage program profiled here provides a rare opportunity to buy a home with a minimal investment and relatively low monthly payments.
Fannie Mae (FNMA, the government sponsored agency responsible for ensuring liquidity in the mortgage markets) has a bunch of foreclosed properties on their books and are motivated to liquidate this inventory because every day is costing FNMA (us taxpayers) millions of dollars. To spur demand for these properties, FNMA is offering a loan program called HomePath. This loan can only be used to purchase homes that FNMA identifies as HomePath properties. Presently there are 15 HomePath properties in the South Shore (two are already in escrow, but there will be more to come). The benefits to the home buyer using HP financing include a low down payment (and the down payment may even be a gift or a grant), no mortgage insurance (saving you about $1,800 per year based on a $150,000 loan), no appraisal required (saving you at least $500 though this only applies to primary residences), and HP is available for the purchase of a primary residence or a vacation home (minimum 10 percent down) or an investment property (minimum 15 percent down). And for a limited time, Fannie will contribute up to 3.5 percent of the purchase price toward your closing costs and prepaid expenses. This is opportunity knocking at your door.
This is one of the most exciting opportunities that I’ve ever seen in our industry. Let’s look at a HomePath duplex listing in the Ski Run area. Let’s round off and call the listing price $160,000. You can make a down payment as small as 3 percent, but if you plan to keep the home for at least five years then the smart move is to find a little more cash (recall that a gift is okay) and make a 5 percent down payment which is $8,000. If you get in before the June 30 deadline, FNMA pays $4,800 of your closing costs (which could cover everything). On a 30-year fixed rate loan, your mortgage is $851 per month, plus $167 per month for property tax and about $70 for hazard insurance, for a PITI (principal, interest, taxes and insurance) of $1,088 per month. The adjoining unit will rent for about $800 per month, so your monthly housing expense is around $300 (plus utilities, STPUD and refuse).
So, if you saved a couple of hundred dollars a month for the past few years (this is the preparation part), you could buy this home and actually reduce your housing expense compared to renting. And while the following shouldn’t be considered tax advice, by owning a home you will most likely itemize your deductions (Schedule A) which almost certainly will save you money on your income tax. In this duplex scenario, you might also prepare an income and expense report (Schedule E) for the rental unit and possibly save still more on taxes (more opportunity).
This convergence of circumstances that has yielded a once in a lifetime opportunity is a temporary phenomena. I’ve heard prospective buyers express the fear that home values may decline further. And yes, we may see an additional erosion of value in the realm of 5-8 percent before values plateau and begin to rise again, but it’s almost impossible to hit the top or bottom of any market (for more on this subject, Google “Case Shiller 100 Year Chart 2011 update”). What is a certainty going forward is that the HomePath program will disappear and that interest rates will rise. When interest rates rise to something closer to the average for the past thirty years (around eight percent), that mortgage payment that is now $851 per month becomes $1,115 per month. And when HomePath disappears, a five percent down payment will require you to pay an extra $130 per month for mortgage insurance. So altogether, your house payment increases by over 46 percent. So if you are considering buying your first home, trading up or buying a rental property (and you’ve done your preparation) your best move would be to act now.
– Mark Treiber works with RPM Mortgage located in Roundhill Center. Call 775-586-1130 for more details.