Rentals are Booming.

Read an interesting article today about how investors are buying almost 33% of the houses and for cash.  How large corporations are buying hundreds at a time, and because of this are actually helping home prices go up in price.

They say that renting is at an all time high and that it seems to be the future.  More and more people can't afford a house and everyone has to have a place to live, so rentals are the way to go.

I bought a rental with a partner recently and paid cash and had it rented 3 days later.  Then we bought one that needed repairs.  We are about ready to rent it too.  Hoping it rents as easily as the first one did.  Wish I had the cash to buy more. 

If you need a rental in the Amarillo area, give me a call.  I'd love to help you find one.

New FHA Regulations in Regard to Collections and Judgments

Mike Clover sent me an interesting email, and I've received permission from him to quote his email.  This tells how FHA Regulations changed toward borrowers who have judgments or collections on their credit history.  He does a great job of giving information where you can understand it in a logical manner.

"In an effort to reduce risk in backing mortgage loans, HUD has once again revised its regulations, effective October 15. Mortgage Letter 2013-24 deals with credit analysis of collections and judgments, and outlines how lenders must proceed. As you probably know, the first step in FHA loan approval is use of the TOTAL Mortgage Scorecard.  This scorecard takes into account the presence of collections or judgments via the credit score. Should a borrower be approved through the TOTAL Mortgage Scorecard, no documentation or letters of explanations will be required. If TOTAL Mortgage Scorecard results in a "Refer," the lender must manually underwrite the loan – and must determine the cause of the collections or judgments. Was it disregard for financial obligations? Was it an inability to manage debt? Were there extenuating circumstances? In order to make this determination, the lender must gather supporting documentation, including a letter of explanation from the borrower for each outstanding collection account and/or judgment. It will be up to the lender to determine whether the explanation is consistent with other credit information in the file. Collections If the borrower's combined collection accounts equal $2,000 or more, the lender must perform a "Capacity Analysis." Medical collections and charge-offs are not included in this aggregate. However, collection accounts of a non-purchasing spouse ARE included here in Texas. Capacity analysis consists of one of the following: Payment in full of the collection account – using a verified acceptable source of funds. A payment agreement with the creditor, accompanied by a letter from the creditor verifying the monthly payment. This monthly payment will be included in the borrower's debt to income ratio. In the absence of a payment arrangement, the lender must calculate a monthly payment equal to 5% of the outstanding balance. This payment will be included in the borrower's debt to income ratio. Judgments Until now, borrowers were required to pay off court ordered judgments before being eligible for FHA insurance. Now there is an exception. Under the new regulations a loan may be approved if the borrower has entered into an agreement with the creditor to make regular monthly payments and has made a minimum of three such payments over a period of 3 or more months. Pre-payments will bring the balance down, but won't help with loan approval. The borrower must provide evidence that the payments have been made on time and in accordance with the agreement. And of course, the payment will be included when calculating the borrower's debt to income ratio. As with collections, in Texas and other community property states judgments against a non-purchasing spouse also must be paid off or meet the rules for exception. Disputed Accounts Many borrowers have found to their dismay that their credit reports contain inaccurate information. Some of that inaccurate information is the result of poor data entry, some is there because old accounts that should have "fallen off" the report have not been removed, some because the original bill was in dispute, and some are due to identity theft. Accounts that appear as "in dispute" on a borrower's credit report are not considered by TOTAL Mortgage Scorecard.  Therefore, they must be addressed in manual underwriting. Disputed accounts fall into two categories: Derogatory and Non-derogatory. Non-derogatory disputed accounts If a borrower is disputing non-derogatory accounts, the lender is not required to downgrade the application to "refer." However, if the dispute results in the borrower's monthly debt payments being lower than originallyindicated, he or she must provide documentation. Derogatory Disputed Accounts If the cumulative outstanding balance of such accounts is less than $1,000, a downgrade is not required. If the cumulative outstanding balance is $1,000 or more (excluding medical accounts) the borrower must provide a letter of explanation and documentation supporting the basis for the dispute. The lender must analyze the documentation to determine whether the account should be considered in the underwriting analysis. In contrast to collections and judgments, disputes involving a non-purchasing spouse are not included in the $1,000 aggregate balance. Identity Theft Disputed accounts resulting from identity theft and credit card theft are not included. However, the borrower must provide documentation verifying the charges as fraudulent. This can include a letter from the creditor and/or a police report. "

Part 1: Everything You Always Wanted to Know about HUD homes.

The above was a HUD home.  What does that mean?  Hud homes are homes lenders foreclosed on and HUD purchased them at a discounted rate and will put them on the market for homeowners.  There are several steps in this process.  But first know to find the homes on the market go to hudhomestore.com.  When you get there, click on the map for the state you are interested in.  A box will pop up and you can type in the county you are interested in and all the houses that are for sale through Hud will pop up.  If you click on a certain property, a page will come up with its picture and a bunch of choices and information about the property.  One choice that is important is the Addendums as that page as the property inspection report and tells you what they KNOW is wrong with the property.  They will give an estimate of the price to fix the problems they know about.  That doesn't mean there is nothing else wrong with the property, just what they found with their inspections.  But you are buying the property "as is".  HUD makes NO repairs. 

There are three types of listings:  lottery, exclusive, and extended.  What does that mean?  Lottery are Good Neighbor Homes.  If you are a nurse, a policeman, a fireman, an EMT, or a teacher, you can by that property for HALF the listed price.  Not a bad deal!!  But you must live in the home for a certain amount of time, or owe the other half of the listed price.  These listings last a certain amount of time, and if no offer is accepted, they change to Exclusive listings.

Exclusive listings are for home owners.  You must live in the house, it can't be an investment property for you.  If they find you never lived in the home but used it as an investment, they can actually charge you with fraud, and if your realtor knew you were going to use it as an investment instead of a home, they too can be charged and lose their license.  Don't try and fool HUD!!
They have a set date for bids to be opened, and if they open these bids and there are no acceptable ones, they they'll stay day to day for a certain number of days and they'll open the bids daily.  After that time period, the listing becomes Extended.

An Extended listing is now open to everyone, even investors.  Knowing that 25% of the homes sold in August were short sales and REOs (repos) you know that there are plenty of investors out there waiting for these Extended listings.  These homes usually need a lot of repairs, but at the price you can get them, usually an investor can make the repairs, fix the home up to look nice, and then resell and make a profit, or turn it into a rental. 

Two of my children have bought HUD homes in the Exclusive listing time period and gotten great homes for bargains.  One home is now appraised at $155,000 and he paid $100,000, and did less than $3,000 repairs to it.  The other got a 2300, 4 bedroom, 3 bath, two story valued at least at $125,000 and possibly more as it is in an HOA housing addition with its own elementary school for just $88,000.  This home was less than 10 years old!! 

People think of Hud homes as wrecks and in blighted communities, but the recession left millions of homes out there who were lost to foreclosure through job loss, not through deadbeat abandonment.  Oh, I've seen some that the owners tore up before moving because they were angry.  One had kicked in a wall in every single room, poured black oil down the stairs, and removed all the closet doors and the electrical box.  But this is not the norm.  Most are dirty, possibly filled with junk they left behind as they hurridly left before being locked out, but some are very nice, clean and livable, as both of my children's homes were. 

What type of repairs might be made.  Speaking of my kids, one had to put in new light fixtures, a dishwasher, a vanity, sink and 3 mirrors and faucets, and a disposal.  That was it!!  The other had to have the air conditioner worked on, a piece of siding changed out, and something in the bathroom, a faucet I believe, fixed, and two places in the kitchen the drywall had to be repaired.  That was all.  Neither had structural problems or major plumbing issues.  Both did have to replace air conditioner motors within the first year, but if they had listened to mama and gotten the home warranty when they purchased the house, then that would have been a $60 repair.  But home warranties are another issue and we can cover them another day.

In the end, HUD homes are a way of getting a deal on a house, but be prepared to lose a few.  Meaning the good ones get lots of bids.  You need to be prepared to bid at least the asking price, cash is better than a loan if possible, as HUD doesn't have to wait 30 days to close then, and be prepared the have your loan prequalified before making a bid.  Don't be too disappointed if on the day of the opening of the bid you didn't get it.  Both of my children did NOT get theirs upon opening.  My son was sent a message he did not get it but did he want to be in back-up position.  I, as his realtor, responded yes.  5 days later, on Friday we got an email that he was now in first place.  Obviously the winner had either decided not to buy, found something else, or didn't meet the 48 hour contract deadline.  When you are the lucky accepted bidder, you have 48 hours (2 business days) to get your contract paperwork all in.  You have to fedex it for overnight delivery.  If they do not get it in time, they are heartless and go to the back-up offer. 

My daughter bid time and time again and kept being over bid.  On the house she finally got, she was not the lucky winner, but took the back-up position and in a few days was notified she was the winner.  So remember to be patient.  Even if you don't win on the opening, take that back-up position and you may still end up with the house in a few days.

There are many other things to discuss about the HUD procedure, but you can find answers to the most asked questions at Hudhomestore.com.  One thing I DO like as a realtor, a realtor must represent you and put your bid in.  You pay their commission, not hud, but it can be within your loan.  You may not like this, but it will be a lot easier for you having someone do all the paperwork who is experienced at it, keeping up with all the deadlines, and protecting your interests.  And for me, the realtor, it might just keep me in business for another year or so.