There is both a “streamlined” and regular version of this loan. The streamlined version has less cost and hassle and is only available to owner occupants and investors are not allowed. The FHA 203(k) streamline loan is available to borrowers of all income levels, to homeowners who plan to occupy the house, and for homes with one to four units.  There are three types of loans currently available, 15 or 30 year fixed or one-year arms.

According to the FHA website, there are three uses of the 203(k) loan:

• “To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.
•  To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it
•  To refinance existing indebtedness and rehabilitate a dwelling”

My post will focus on using the 203(k) loan to buy an uninhabitable property that is being sold in “as is” condition.

When shopping for a foreclosed property, the first thing to consider when choosing a lender is: Are they able to offer you this type of loan?   If not, and your property needs improvement prior to occupancy, you should find another lender.  Lenders who are able to provide the 203(k) loan can be found on the HUD website.

The following property types are eligible:

• Condos
• Town Homes
• Single Family Homes
• Mixed Use (Storefront)

To obtain a 203(k) loan there is a minimum $5,000 requirement of eligible home improvement projects on the existing structure of the property. Minor or cosmetic repairs may be included after meeting the first $5,000 worth of repairs.

Of course, if you are buying a condo, you will also be subject to minimum down payment and credit score requirements, which you can read more about here. In addition, only 25 percent of the total number of units in the development can be undergoing rehabilitation at any one time.

Another factor important to be aware of is that an approved HUD Consultant must oversee the repairs.  The process begins with a feasibility study, overseen by an approved consultant. Through this process, the FHA determines whether the improvements would be justified upon completion.  If the estimate of the property’s value after the repairs required in the feasibility study does not equal or exceed the loan amount, then no loan will be granted.

Prior to the start of any work, the consultant will provide a work write-up, which is an item-by-item breakdown of each item to be repaired and the estimated cost. Once agreed upon, the lender will order an appraisal based on the write-up. The appraisal will give an “after-improvements” value. After this step is complete, contractor bids can be solicited. Acceptable bids cannot exceed the cost given in the write-up.

After this step is complete, the loan goes through the normal underwriting and closing process and an initial payment for the purchase of the property is made. The lender holds the remaining funds until the work is completed. As the rehab progresses, requests can be made to pay contractors for work done to that point. The consultant will perform an inspection, and upon approval the lender will release the requested funds. This continues until the completion of the project. If money is left over, it can be used for additional improvements, or reducing the loan’s principal balance, but it cannot go back to the borrower.

Besides the hassle of completing the repairs, the other drawback of these loans is that they tend to come with an interest rate of up to 1% higher rates than the traditional FHA loan.  To get around this, borrowers can refinance the home after the repairs are complete.

Additional information on the 203(k) loan can be found on the FHA Website.

It’s like something out of a bad science fiction movie: a creeping white crud slowly covers the city of Chicago – except it’s for real.

Perhaps you’ve noticed over the last month or so that many Chicago buildings have become mysteriously coated with this crud. So what is it, why is it appearing now, and is it a problem?

I did some checking around with various knowledgeable friends and John Reim of Bee Sure Home Inspection. Everyone seems to agree that it’s efflorescence, which is defined as a crystalline deposit of salts. Efflorescence is not to be confused with effervescence, which is what happens when you open a bottle of soda. Apparently the masonry industry itself is confused about this because bricklayers have purchased ads on Dictionary.com under effervescence. It is also not to be confused with Evanescence, whose music I rather enjoy and am now reminded to buy one of their CDs.

Efflorescence occurs when moisture gets into the brick, dissolves the minerals  that are uselessly laying around in there, and then brings them to the surface as the water evaporates. Since we have had a fairly wet and cold winter there has probably been a lot of water seepage into bricks and now that the weather is warming up the water is bringing these minerals to the surface. Although it looks like hell, efflorescence apparently does not represent a threat to the structural integrity of the brick and it will probably wash away as we continue to get wet weather. Some of it may even get driven back into the brick only to reappear another day.

Such are the joys of living in Chicago.

I just downloaded the latest roster of Chicago Association Of Realtors (CAR) members and was delighted to see that the number of realtor members plummeted by over 4,000 in the last year. At December 2007 the number stood at 17,266 and as of January 2009 it was at 13,051. That’s almost a 25% drop. And based upon what I know about the productivity of individual agents right now I would guess we are going to see even further declines.

While I sympathize with people who are having a hard time making a living I have to believe that this is a welcome change for the industry. Chicago just had way too many agents. But more importantly, I would imagine that many of the weaker real estate agents have left the business and both the industry and the customers are better off without them.

However, there is a flip side to this story as well. Some of the agents that are leaving are ones whose real estate skills are fine but they just don’t know how to generate business. And generating business is in fact the hardest part of real estate. It’s so difficult that the median net income for a realtor in the first two years is only $9,400 per year and 80% abandon the field in their first year.

So why do so many people go into real estate in the first place and why do they keep banging their heads against the wall? Presumably it’s because of the promise of substantially more money down the road. Some agents make a lot of money, with 13% of the realtors with 6 – 15 years experience netting over $100,000 per year. There is really no other explanation as to why these folks continue to starve while trying to get their own business off the ground (especially in this environment).

Of course, we think this approach of agents trying to run their own business no longer makes sense and that’s why we’ve created a different and better model. Our agents do not do any prospecting or lead generation. We do it for them so that they can focus their efforts on providing real estate services and in the process earn much higher commissions.

The amazing thing is that so many real estate agents are still clinging to the old way of doing business and starving while reaching for that brass ring.

Buying a short sale can allow you to get a pretty good deal on a property that is selling under somewhat distressed conditions. The seller wants out of the property, often to avoid foreclosure, and the property is selling at a price that will net the lender less than what is owed them. However, before you go down this road you need to decide if you can handle the concept of a short sale. Not everyone can.

First, you need to understand the strange dynamics at work in a short sale. The seller still owns the property and is still the seller. However, the lender is really the one in the driver’s seat since they have to approve a deal that will result in them accepting less than a full payoff. The result is that the lender can’t do anything without the seller’s permission and the seller can’t do anything without the lender’s permission. And the lender may have all sorts of very particular rules about what they will and will not permit in a short sale. For example, they don’t want the seller getting a single dime out of the transaction because if there was a dime to be had it should rightfully be theirs since they are the ones getting short changed. And, as you might expect, this is bureaucracy at its worst. You are often dealing with some low level administrative type who gets yelled at all day and is suffering from a false sense of importance. They give meaning to their life by saying “no” and there is no master list of stuff that they say “no” to. In fact, that’s what makes life so much fun for the low level bureaucrat. They get to surprise you with their “no” when you cross the line. Present a request to them with the wrong packaging and “NO!”. For instance, you might get a bank to give you a credit for an unforeseen repair or you might get them to approve a lower price but they might balk at giving you a credit for lost rent or a proration of rent for the current month. Therefore, if you want one thing you might need to call it another thing. When you are dealing with a short sale you are not in a rational world. The bureaucrat will gladly lose $100,000 to foreclosure rather than pass up the opportunity to exercise their pathetic authority.

It gets even more complicated as you consider the seller’s position in a short sale. You need to understand a basic concept: As the buyer in a short sale you are NOT doing the seller a huge favor. If anything, the seller may be doing you a favor. First, you are dealing with someone who is financially on the ropes. Odds are they have no money. They may be considering other alternatives to a short sale such as deed in lieu of foreclosure, letting it go to foreclosure, or even personal bankruptcy. If the property is not their primary residence, the amount of money the bank is going to lose on the deal becomes taxable income to the them (the seller). So, the seller may not care one way or the other. They may have moved into their mother’s basement or just checked out of the process, waiting for the worst roller coaster ride of their lives to end. They may not be getting their mail or returning anyone’s phone calls. So you are not going to get any money from the seller, they are not going to fix any problems, and there is no point in having your uncle, who is an attorney but not a real estate attorney, badger them with official looking correspondence that make demands on them.

Here is the bottom line. When you buy a short sale, you are shopping in the bargain bin. This is a closeout. Irregulars. Merchandise sold as is (for the most part). No returns.

Can you handle that? If so, you might pick up a great bargain.

The following article was submitted courtesy of Keith Hoffman of 1st Advantage Mortgage.

With the ups and downs mortgage rates have had in the past few months, now is a good time to take a look at some factors behind how your mortgage rate is decided.

Thawing the Market

Like most financial products, there is a secondary market for mortgages that brings buyers and sellers together.  For your lender to keep business moving they will bundle a collection of mortgages into a security and sell it to an investor, usually a bank or government, to replenish their cash so they can turn around and make more loans.  Your mortgage rate is directly tied to the demand for these securities.

In the second half of 2008 investors feared the housing market was headed for another fall and begin to further divest their holdings in mortgage backed securities.  Demand fell by 17% through the remainder of 2008 leaving an abundance of supply in the market.  This meant prices had to go up.  Because lenders were selling less, they had to charge more for what they were still selling to stay in business.  That increase in price translates to mortgage rates, which in this case, pushed them up to 7% in October.

With investors pulling away from mortgages, the industry began to freeze back up, and so pressure fell onto the federal government to step in and do something.  One move was pledging to buy $500 Billion in these mortgage backed securities starting in January 2009, which they have.  By buying the market’s excess supply, prices were able to come down – mortgage rates are now sitting around 5%.

Stuck in the Middle

The other move the federal government made was to lower their target rate for federal funds, which is the interest banks pay to borrow money from the government.  Typically a drop in this rate translates to a drop in mortgage rates too, but that didn’t happen this time.

Lenders are currently caught in the middle.  On the one side investors, as we saw above, are demanding higher rates because of the perceived risk of buying mortgage backed securities, and on the other side, consumers are demanding lower rates to ease their budgets as the economy recedes.

The problem for lenders is that their business carries the costs of processing and servicing all of these loans (paying staff, sending statements, etc.), so every time rates drop significantly, their operating budgets shrink significantly too.  Well, as you’ve probably already concluded, when the federal funds rate lenders just couldn’t pass on the savings this time and instead has to use it to give their business some breathing room to stay afloat.

Down to You

The last factor behind your rate comes down to you.  It seems like only yesterday that if you had a credit score of 620+, you got the market price for your rate.  Today, however, as we’ve seen above, investors see more and more risk in buying mortgages, so lenders are trying to ease the market fears by increasing their due diligence on each and every loan they plan to sell.

With that, your credit score is still plays a big role, but now you’ll see adjustments to your rate based on how much equity you have or how big your down payment is – the less money in from you, the higher you’re perceived risk will be, and so you’re rate will be higher.  Also, if you’re taking cash out or buying an investment property, you can expect to face even more adjustments to your rate, as these two areas were a major contributor to the recent foreclosure wave.

The fact here is that your loan originator is now required to do a lot more research into each loan before they can even give you a quote.  At first glance the new rules and adjustments can seem discouraging to many borrowers, but the fact is the market is finding its way through this new economy and, in the end, the goal isn’t to turn borrowers away but to slow the process down and insure you have the most suitable product for your needs.

You can visit Keith’s website by clicking here.