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Homeownership

FHA is messing with the MIP policy again and it could cost you big

(REAL ESTATE NEWS) You may have heard the FHA’s recent decision to reduce the annual premiums for MIPS, it sounds good, but what does it really mean on a local level.

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The Federal Housing Administration

In early January, we reported that the Federal Housing Administration’s (FHA) intended to cut annual premiums for Mortgage Insurance Premiums (MIP) from 0.85 percent to a much lower 0.60 percent, a highly anticipated, but highly doubted reduction.

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However, in late January, the newly installed Trump administration worried potential home buyers when the administration froze a number of policy changes set in place by the Obama administration. One of these changes was a 25 basis point decrease MIP.

FHA’s reduction

At first glance, it may not seem like much of a reduction, but as we reported in January, “when a homeowner is part of the FHA mortgage program, they pay MIP at closing (currently a 1.75 percent fee) and then in 12 monthly installments annually, so this reduction will make a wide impact.”

The previous article covered the broader reach and implications of the FHA’s reduction, but the let’s take a look at the local impact of the FHA’s fee freeze.

How it will help home buyers

According the National Association of Realtors’® (NAR®) blog, previous NAR® research estimated that “30,000 to 40,000 home purchases would be lost in 2017 and another 750,000 to 850,000 home buyers would face higher costs.”

These statistics were then re-estimated at the local level using 2015 HMDA figures for purchase mortgages which have created widely varying results.

The MIP in FHA predominate markets

The NAR® found that markets with high shares of purchase mortgages, financed with FHA support will experience the broadest impact of the higher MIP fees. The top 10 markets in terms of FHA shares were in smaller communities in Texas and California, along with small portions of the Southeast and the what the NAR terms the “rust belt” (see map for clarification).

More than 40 percent of home purchases in the top 10 markets were financed with FHA backing.

So naturally, these markets would have received the biggest boost to affordability from the proposed lower monthly payments.

The NAR points out that the regions most likely to feel the impact of the FHA decision, are Laredo (TX), Vineland-Bridgeton (NJ), and MacAllen-Edinburg-Mission (TX).

The other seven areas are: Visalia-Porterville (CA), Madera (CA), Merced (CA), Brownsville-Harlington (TX), Odessa (TX), Yuma (AZ), and Bakersfield (CA), in order of highest to least shares of FHA backings.

National Averages

Nationally, approximately 25.3 percent of mortgages were backed by the FHA in 2015, so a large portion of home buyers will be impacted by the FHA decision.

The NAR® points out however, that because the MIP is figured based on the outstanding mortgage balance, buyers in FHA markets where homes have the highest prices, would not necessarily receive the greatest reduction in annual cost.

For example, markets that are notoriously costly, like California and Hawaii, would have saved approximately $1450 with a FHA loan in 2015.

The new 25 basis point MIP reduction would have a much broader reach, helping those homeowners who need it most.Click To Tweet

What it looks like in your area

Curious about what the 25 basis point system looks like in your area?

The NAR® crafted a chart detailing the potential savings from a 25 basis point reduction in the MIP for over 300 metropolitan areas in the United States, go check it out.

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Jennifer Walpole is a Senior Staff Writer at The American Genius and holds a Master's degree in English from the University of Oklahoma. She is a science fiction fanatic and enjoys writing way more than she should. She dreams of being a screenwriter and seeing her work on the big screen in Hollywood one day.

Homeownership

The phrase ‘starter home’ is overrated and overused

(HOMEOWNERSHIP) You see the term in the MLS for fixer uppers, you hear it when Realtors are working with first time buyers. But the term “starter home” shouldn’t be in anyone’s vocabulary. Here’s why.

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Just words

Collins English Dictionary defines a starter home as a “small, new house which is cheap enough for people who are buying their first home to afford.” You won’t find the phrase too often outside of the real estate industry.

There isn’t much about the etymology of the phrase, but most likely, it’s a marketing ploy to get people to buy into the idea of purchasing another home in a few years.

Grind your gears

Mark Greutman, husband to Lauren Greutman, believes that the term “starter home” should bother people. The phrase implies that you will upgrade later.

Your starter home isn’t good enough for the rest of your life. And not to get into how well Americans have it, what about people who will never be able to afford anything more? Is it an insult to them?

Do you really need two living rooms?

Older generations bought one home and lived in it until they could no longer be independent. In today’s world, we buy a starter home, then upgrade to have more space, to live farther away from our neighbors, to have rooms that are only used once or twice a year, and to make sure you have a 2 or 3 car garage to hold your vehicles and more stuff, some of which isn’t taken out very often.

But consider this: You could pay off your starter home in 15 to 20 years, if you budget right.

You could be out from under a mortgage and have money to travel, send the kids to college, or even retire early. When you think about what led to the financial crisis in 2008, isn’t it better to have a smaller house where you can make the payments than worry about losing your house?

Be content where you are

Realtors are motivated to make sure that they have customers. If people buy one home with the intent to stay, will the market dry up? Probably not, because people move and a new generation will be ready to purchase homes for their own family.

Let’s think about that phrase, “starter home.” It fuels consumerism and discontentment. Don’t call cheaper houses starter homes, but just a home.

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Homeownership

The remodeling projects with best ROI that actually increase home value

(HOMEOWNERSHIP) Knowing which remodeling projects to tackle when a home is being put on the market can save a lot of wasted effort and money.

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If you’re looking to help your clients to identify which projects to tackle before putting their home on the market, look no further: the National Association of Realtors surveyed thousands of real estate agents, industry professionals, and consumers on interior and exterior house remodeling projects, and these are the best projects for upping a home’s value before listing it on the market, ranked on the most value and cost recovery a homeowner can get.

  • Refinishing hardwood floors. Start from the bottom to earn top dollar. Refinishing floors transform a home from worn-out and aging to vibrant and inviting, and only costs about $2500 according to the National Association of the Remodeling Industry (NARI). The project also increases a home’s value by that same amount, meaning a homeowner can recover 100 percent of the costs. Pretty sweet deal.
  • Upgrading insulation. Because it’s what’s inside that counts. This project costs about $2100 based on NARI Remodeler’s estimate and increases a home’s value by $2000 according to Realtors surveyed. That’s a 95% cost recovery.
  • Adding new wood floors. If you don’t have wood floors to refinish, add them in! This costs about $5,500 according to NARI Remodelers, and the increased sales value is $5000. A homeowner can recover 91% of costs from a new wood floor addition.
  • Replacing HVAC system. A new HVAC system adds energy efficiency and refreshes the entire home, and NARI Remodelers estimate doing so costs $7000. The increased value for sellers is $5000 according to NAR REALTORS, meaning an easy breezy 71% cost recovery for homeowners.
  • Converting a basement into a living area. Not only is this cost and space-efficient, it’s also undeniably trendy. A basement makeover costs about $36,000 according to NARI Remodelers estimate and increases value for sellers by $25,000 according to Realtors surveyed. That comes out to a cost recovery of 69%.

Which projects are the most costly?

In case you’re curious, these are some of the most expensive remodeling projects:

  • New master suite. More like master $uite – this costs about $112,500 with a cost recovery of 53%. 
  • Converting an attic into a living area. Cute idea, but also a $65,000 one with a 61% cost recovery. One might say the price is through the roof.
  • Complete kitchen renovation. This project costs an estimated $60,000 with a 67% cost recovery. Even more if you want to throw in a brick oven, and you probably do.
  • New bathroom. With an estimated cost of $50,000 and a 52% cost recovery, make sure you aren’t flushing money down the drain with your bathroom addition!

These trends change over the years, so make sure your knowledge is up to date locally since we all know local trends trump national. Hopefully today you’ve garnered some ammo to help clients better understand how to improve their home’s value!

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Homeownership

How to inform clients about well-known homebuyer scams

(HOMEOWNERSHIP) Real estate scams continue to victimize people, but Realtors are in a position to better protect homebuyers. Here are some tips.

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Despite warning after warning and news story after news story, homebuyers keep getting their money stolen in real estate wire transfer schemes. Some blame the mortgage and real estate industries for not doing enough to educate and protect their clients. Others say the people committing these crimes are getting more and more sophisticated. No matter who’s to blame, there’s no arguing that this crime is on the rise.

What exactly do these real estate scams look like? These criminals usually hack into a business’s emails, often a title company, and get all the pertinent information they need. They then steal and copy that company’s letterhead, and the email addresses, signature blocks and any other relevant information they will need to fool the homebuyer. The homebuyer then gets an email that appears to be from the title company, asking them to wire money, often tens or sometimes hundreds of thousands of dollars.

So, you’re probably wondering right now: What can I do? You want to know how to warn and protect your clients and keep your reputation intact (and avoid costly lawsuits). The following safeguarding tips can help keep cash out of cyberthieves’ hands:

1. Pick up the phone. If you’re closing on a home and receive an email with instructions on how to transfer money to your closing company or lender, take a few minutes to call your agent or broker to make sure it’s legit. Yes, this might be a bit annoying, but not as annoying as losing thousands of dollars in an email scam.

2. Be aware. These scammers usually send emails that look like the real thing. If you’re a homebuyer, look for weirdly timed emails (sent in the middle of the night) or spelling and punctuation errors. Is there a sense of urgency to the email?

3. Educate your clients. If you’re a real estate professional, make sure your clients know about this scheme. Not everyone is aware they could be a target (which is why it keeps happening). Set up a specific passcode for each client.

4. Consider using ClosingLock and asking your title company to use this technology for all of their transactions… What’s ClosingLock (previous name was BuyerDocs), you ask? This tech startup provides secure document delivery for closing companies and homebuyers. The company says it has protected more than $5 billion in wire transfers and works with big and small businesses across the country.

Scams will never be eradicated, but it is part of your job to know the current scams and how to protect transactions against shady folks.

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