Real Estate Crash thread

[shroom]

i love this thread. real estate is one of the few ways an average joe like me can make it (or lose it). What are your guys thoughts on FHA vs waiting to put down the 20% conventional? I had always told myself I'd wait, [paying any type of premium like the FHA insurance/whatever isn't really my style) but I don't want to end up waiting- only to watch the market rise. Obviously one can't predict future markets- but still I'd like to have some knowledge dropped on me.

[jfost]

Can't you do a 1031 exchange if you sell? Or would you not want to buy more real estate?

he who throw money into more future Chinese death house have short career.

[jfost]

i love this thread. real estate is one of the few ways an average joe like me can make it (or lose it). What are your guys thoughts on FHA vs waiting to put down the 20% conventional? I had always told myself I'd wait, [paying any type of premium like the FHA insurance/whatever isn't really my style) but I don't want to end up waiting- only to watch the market rise. Obviously one can't predict future markets- but still I'd like to have some knowledge dropped on me.

hurry up on the FHA loan - they already changed the MIP to double what it was and are talking about making it non-cancelable for the life of the loan. That would suck.

[4matic]

i love this thread. real estate is one of the few ways an average joe like me can make it (or lose it). What are your guys thoughts on FHA vs waiting to put down the 20% conventional? I had always told myself I'd wait, [paying any type of premium like the FHA insurance/whatever isn't really my style) but I don't want to end up waiting- only to watch the market rise. Obviously one can't predict future markets- but still I'd like to have some knowledge dropped on me.

You pay PMI with FHA so the fees are high. I don't have any advice on real estate investment. The entry fees are very high and rent margins are falling.

[cramer]

i love this thread. real estate is one of the few ways an average joe like me can make it (or lose it). What are your guys thoughts on FHA vs waiting to put down the 20% conventional? I had always told myself I'd wait, [paying any type of premium like the FHA insurance/whatever isn't really my style) but I don't want to end up waiting- only to watch the market rise. Obviously one can't predict future markets- but still I'd like to have some knowledge dropped on me.

well if you went back to 2009, i would have told you to get on FHA. Main reasons, minimal risk and they were giving your down payment right back to you. I pointed out time and time again, not a better time to buy a house on FHA. the government was giving you money. My pmi started out at 110 and now down to like 95. Thats chump change. I spend more on jager in a week.

My opinion, is until we see a steady rise in values in your area, id go FHA. Minimal risk there. You're not breaking the bank to get a house. With that said, it depends on your area. If you are in the SF bay area, wait another 10 years. you missed the boat. Or hope for a benny 2nd real estate crash thread. It could happen. It's all speculation for us all. If you're in vegas or AZ, pounce before its too late. FHA requirements are changing if they havent already. Better credit, better debt/income ratio and a little higher down payment. Not to beat a dead horse, but you should have jumped on the fed's offering up no interest loans in 2008 or free 8K in 2009. Its tough though. If finances werent there, they werent there. Personally, id go FHA if you can get a house you like and its less a month in mortgage than rent than you have been paying. That was pretty much the deal breaker for me. I could get a house for less than i paid for rent. No brainer.

[4matic]

he who throw money into more future Chinese death house have short career.

I have some friends that rushed into a 1031 exchange. They have good cash flow but lost half their equity.

[liv2ski]

i love this thread. real estate is one of the few ways an average joe like me can make it (or lose it). What are your guys thoughts on FHA vs waiting to put down the 20% conventional? I had always told myself I'd wait, [paying any type of premium like the FHA insurance/whatever isn't really my style) but I don't want to end up waiting- only to watch the market rise. Obviously one can't predict future markets- but still I'd like to have some knowledge dropped on me.

Shroom, IMO there is no reason to go FHA. FHA charges an Upfront Mortgage Insurance Premium (UFMIP) of 1.75% of the loan balance and adds that to your loan amount. You never get that back. Also, they charge a monthly MIP of 1.35% (that is L.A. X 1.35% divided by 12). That is fucking expensive.

Do a conventional loan as there is no UFMIP like FHA and the monthly MIP is way cheaper. Conventional financing goes up to 97% ltv, but I would encourage you to put at least 5%-10% down. At 95% ltv, with a 720 credit score, the monthly MIP is .67%. At 90% ltv it is .49%.

While mortgage insurance feels like wasted money, it makes a lot more sense to have it, then to miss a few years appreciation (if that continues) to save up the extra down payment. Also, if shit goes wrong again (which could easily happen) I would rather only have 5% of my saving into a property I am walking away from rather than 20%.
Just my 2 cents

[MontuckyFried]

You pay PMI with FHA so the fees are high.

PMI sucks. I'm in the middle of a home purchase, and have had to scrape together everything I could to reach 20%, but I'm there (barely). Worth it to me, though. PMI is the biggest waste of money and it adds up a LOT in the end.

Since PMI is required for any loan with a lower down payment, does anybody know how the banks still got themselves in so much trouble? I thought its entire purpose was to protect the lender in case the borrower defaults.

[iceman]

I did a 1031 exchange last year, it was a great deal for us, no downside at all. In our situation a bunch of money basically fell out of the sky and we would have been hurt by capital gains pretty badly and we had something in mind to do with the money. Obviously a lot depends on the property you buy and the use you have for it though.

[jfost]

I did a 1031 exchange last year, it was a great deal for us, no downside at all. In our situation a bunch of money basically fell out of the sky and we would have been hurt by capital gains pretty badly and we had something in mind to do with the money. Obviously a lot depends on the property you buy and the use you have for it though.

the house didn't have "bad chi" though did it?

[AdironRider]

PMI sucks. I'm in the middle of a home purchase, and have had to scrape together everything I could to reach 20%, but I'm there (barely). Worth it to me, though. PMI is the biggest waste of money and it adds up a LOT in the end.

Since PMI is required for any loan with a lower down payment, does anybody know how the banks still got themselves in so much trouble? I thought its entire purpose was to protect the lender in case the borrower defaults.

You do realize PMI isnt for the life of the loan right? At least in a standard 30 year non FHA, you can drop it once you hit 20% LTV, whether that be through payments, appreciation, or what have you.

[MontuckyFried]

You do realize PMI isnt for the life of the loan right? At least in a standard 30 year non FHA, you can drop it once you hit 20% LTV, whether that be through payments, appreciation, or what have you.

Right. Even in the short term, it still adds up to quite a substantial amount, as in I'd much rather put those many thousands of dollars toward my next car, remodeling, etc. I don't mind principal and interest payments. I don't mind insurance and property taxes. What I do mind is paying a large fee for what amounts to be one of the biggest rackets ever. If the banks are supposedly hurt by all the foreclosures, then where did the PMI money and coverage go? Isn't that what it was for? I'm still confused as to where the heck that money truly goes. Giant institutionalized scam? It would appear so.

[grrrr]

Part of the no down program was combo loans - conventional 80% and a 20% (or more) HELOC, often interest only. No PMI. Countrywide was giving those to everyone who walked in the door.

Good short on NBR last night about the increase in Fannie Mae loans due to the increasing cost of PMI for FHA loans and the easing of credit.

[Benny Profane]

Right. Even in the short term, it still adds up to quite a substantial amount, as in I'd much rather put those many thousands of dollars toward my next car, remodeling, etc. I don't mind principal and interest payments. I don't mind insurance and property taxes. What I do mind is paying a large fee for what amounts to be one of the biggest rackets ever. If the banks are supposedly hurt by all the foreclosures, then where did the PMI money and coverage go? Isn't that what it was for? I'm still confused as to where the heck that money truly goes. Giant institutionalized scam? It would appear so.

Oh, wow.

I would have to say that FHA 3.5 down loans to 650 credit scores for up to nearly 700,000 dollars is quite the scam perpetrated upon the American taxpayer, unless said taxpayer is participating in the scam by borrowing to the max. Even then......

You should be back in a world of 20% down and normal interest rates and reasonable, non crisis lending standards. But, if that ever happened, the value of all of your homes would drop another 50%. Your insurance is actually a small price to pay for taxpayer supported easy money.
Your welcome.

[MontuckyFried]

Part of the no down program was combo loans - conventional 80% and a 20% (or more) HELOC, often interest only. No PMI. Countrywide was giving those to everyone who walked in the door.

Crazy. Sounds like Countrywide got what they deserved then. Too bad the taxpayer had to pick up the tab for so many big banks, though.

You should be back in a world of 20% down and normal interest rates and reasonable, non crisis lending standards. But, if that ever happened, the value of all of your homes would drop another 50%.

I'm ok with that. Artificially high markets are what caused so many of our current problems to begin with. Seems that a world of 20% down and non crisis lending standards would cause more realistic (and sustainable) values in the end, would it not?

[Danno]

The market in Denver is en fuego right now. My buyers are getting frustrated as they are getting out bid all over the place. I have an appraisal happening tomorrow and have concerns that it might not reflect what the market is doing at this moment. I am doing some touch up, then putting my home on the market to cash in on the craze before rates go back up and slow this machine down.

It will be an interesting summer...

I assume it's the same situation as up here in Boulder, EXTREMELY low inventory, which means anything that comes online has a ton of people ready to pounce. I'm wondering how things will change as we get further into selling season when -- presumably -- more properties become available.

[mud]

You do realize PMI isnt for the life of the loan right? At least in a standard 30 year non FHA, you can drop it once you hit 20% LTV, whether that be through payments, appreciation, or what have you.

Not anymore.
These days you have to keep MI for five years minimum then the property has to appraise at 78% loan to value in order to remove MI from the loan. Or if you think the home is appreciating fast and the loan to value gets to 80% or less you can refinance to a conventional loan at any point and you will not need MI.

[jimmyjames11]

Danno. No shit the inventory around boulder is nil. Its bumping up the prices to what i think are crazy. I have seen 3/5 houses I looked at go under contract then fall thru. I wounded if the lenders are calling BS on some of the listing prices?

[MontuckyFried]

I wounded if the lenders are calling BS on some of the listing prices?

I've always wondered how markets could get out of hand when lenders require appraisals and all. Is it people putting higher amounts down to get the loan value below market? Is it cash buyers? Or is it lenders being too lose with their money (which definitely is NOT the case these days)?

[liv2ski]

You do realize PMI isnt for the life of the loan right? At least in a standard 30 year non FHA, you can drop it once you hit 20% LTV, whether that be through payments, appreciation, or what have you.

From http://www.radian.biz/page?name=CancellingMI

Cancelling Mortgage Insurance

We’ve provided some basic information for you regarding cancelling MI. You must contact your mortgage lender to request cancellation or inquire how much longer mortgage insurance will remain on your loan.

As a Homeowner, You're Protected
A federal law called the Homeowners Protection Act requires that mortgage insurance be cancelled when you build up a certain amount of equity in your home. The law applies to most types of mortgages. Talk to your lender about how this applies to you.

When can I cancel MI?
When the balance on your mortgage reaches 80% of the home's original value or current appraised value, you may request cancellation of your MI. You must have a good payment history with respect to the mortgage, mortgage payments must be current and there can be no other loans against the home. Some lenders also require verification that the property did not decrease in value.

Will it get cancelled automatically?
When the mortgage balance reaches 78% of the home's original value
and payments are current, the lender is required to cancel the mortgage insurance automatically.

Do I get a refund?
You may be eligible for a refund of mortgage insurance premiums when your MI policy is cancelled. It depends on which type of MI product you have and certain other conditions. Consult your lender about your particular situation.

Can I get more information on cancellation?
The Mortgage Insurance Companies of America’s website provides additional information, including a cancellation calculator and sample letters to submit to your mortgage servicer.

[liv2ski]

I've always wondered how markets could get out of hand when lenders require appraisals and all. Is it people putting higher amounts down to get the loan value below market? Is it cash buyers? Or is it lenders being too lose with their money (which definitely is NOT the case these days)?

So many of the deals are cash offers, no appraisal issues and in the cases where the buyers are getting a loan, the sellers are now telling them the appraisal can not be a contingency in the offer. These closed comps help support higher values.

[jfost]

Not anymore.
These days you have to keep MI for five years minimum then the property has to appraise at 78% loan to value in order to remove MI from the loan. Or if you think the home is appreciating fast and the loan to value gets to 80% or less you can refinance to a conventional loan at any point and you will not need MI.

Not completely true. ...
Can I get more information on cancellation?
The Mortgage Insurance Companies of America’s website provides additional information, including a cancellation calculator and sample letters to submit to your mortgage servicer.

this is what I was talking about - IIRC, FHA is talking about making the MI non-cancellable for the life of the loan!!! Guess they are walking the line of insolvency (or are well over it) and need to shore up the program...

edit: ah, Austin said NON-FHA - so in that case it is up to the lender's terms no?

[shroom]

^^ I think I'd heard that too jfost.

Thanks for all the responses dudes, I'm pretty green in this arena but you pretty much mimicked the thoughts I'd been having. I'm in Seattle, and have spend enough time online to see 2-3 places come up per week that would be bitchin' to get in right now going FHA (relative to the pricing of similar places). I would much much rather put down the conventional 20%- but I worry more about prices inflating more in the next 1-2 years- to the point where I wouldn't be able to get into the same caliber of place as I would have if I ate those fee's for a year or two. The thought of hesitating now over a few $k in fees that could cost me 100k in face value and a lot more once interest factors in is making my stomach turn. I suppose there is no right answer, but I appreciate the insight.

[mobygrape]

the appraisal can not be a contingency in the offer. These closed comps help support higher values.

That sounds a bit nutty. If the appraisal price is under the offer, typically the buyer has to cough up the extra dough, since the financer is not going to extend credit beyond the collateral value?

If you really want the property, and have the $$ to play ball, great. Different markets bring different players and all.

And yeah, that would tend to support higher values if you have players willing to play that game. Some "hot" areas will support that kind of thing. Other lower-price markets, not so much.

Edit: I have no idea about specifics of the SF/Colorado area some others in the thread are talking about, just talking about in general, and areas where I have had some RE dealings.

[mobygrape]

The thought of hesitating now over a few $k in fees that could cost me 100k in face value and a lot more once interest factors in is making my stomach turn. I suppose there is no right answer, but I appreciate the insight.

My take is that over the timeline for home ownership (5-7 years on average, your case can be different), a few $K up or down is smaller potatoes if you find a place you really like in a neighborhood you like IMO, and that few $K is not going to break your bank. Seattle is a cool place to live, and things were moving fairly quickly two years ago when we sold. Not sure if it's the same now, but from what I hear, if you see something you like, you need to make a move, or someone else will...