Lately, sale agreements have been cancelled because the property appraised for less than the contract price. The buyer is unwilling or cannot put more money down for fear of overpaying in a percieved down market and the seller has already lost so much percieved value that the seller will not lower the price. The result is that the sale falls apart.

In some cases, the appraiser is not the cause. Fannie Mae and Freddie Mac purchase about half of all U.S. mortgages. If Fannie Mae, who buys the loans from the banks, finds banks are found guilty of price inflation, they force the banks to buy back the mortgage at a substantial cost. But if banks drop the appraisal value, they hope to avoid being accused or suspected of inflating the numbers.

Many lenders today will double-check an appraiser’s work by ordering a low-cost electronic valuation. These automated valuation systems only use public records and take no consideration to condition of the property and upgrades. If the electronic version is lower than the physical version, the banks will downgrade the true appraisal value to protect themselves. The result is that bank’s underwriters arbitrarily have been shaving value off the Buyer’s appraisal. At other times, the bank’s underwriters will ask the appraiser to explain the price difference, which can delay the closing.

Effective September 1st, banks selling their loans to Fannie Mae can no longer simply drop the appraisal value. In guidance issued June 30, Fannie Mae told it’s participating lenders that they must contact the appraiser to “resolve” disagreements. If that fails, banks must order a second appraisal and not rely on the automated software to determine the value. So now the banks cannot simply drop the original value that supports a sales contract.

There have been some upgrades to the Broward County Property Appraiser’s website. Effective October 1st, the site will show:

• Building permits are online
• Click on millage to see your city rates
• Explanations on Homestead
• The ability to search on sub-division sales

Concerning sub-division sales, only arms length transactions are included here. That means foreclosures are disqualified for comparables. “D” means dis-qualified and “Q” means qualified. Another update is that a short sale is now considered a qualified (at arm’s length) transaction.

Also added were more functionality on aerial views. Click on View Map. To the right by Details, you’ll see Pictometry. Click on it and you’ll see 45 degree aerial views of the property from north, south, east and west.

  RECAP:    
The “Housing and Economic Recovery Act of 2008,” (HR 3221) includes the following provisions and more: Homebuyer Tax Credit - a $7500 tax credit that would be would be available for any qualified purchase between April 9, 2008 and June 30, 2009. The credit is repayable over 15 years (making it, in effect, an interest free loan).

FHA Reform - including permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program. The down payment requirement on FHA loans will go up to 3.5% (from 3%). The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).

Remember “shared appreciation” Homeowners forfeit profits if they sell within a year (probably not a concern) and the forfeiture decrease 10% per year until the 5^th year where it reaches 50% of the gain.  Here’s the kicker.  It stays at 50%.  So the government is partner.  People are not going to like that and might prefer the Short sale. The homeowner can not take out a home equity line for five years from closing. There are fees involved on this loan per year for an annual insurance premium.

We are reverting back to stricter lending standards seen 20 years ago, as a result of the risky loans homebuyers took out to acquire properties they could otherwise not afford.  So this means new home buyers and those who choose to refinance should expect to pay a higher down payment and have a higher credit score than in the past.  The days of no document loans, asking for proof of employment and of income, are gone.

Even though the Federal Reserve has steadily cut rates to make it easier for borrowers to refinance their current interest-rate reset on their mortgages, there is still a reluctance to extend credit.  Companies that made second mortgages are now denying requests to take a secondary status in the event of a foreclosure, especially in markets that have been declining.  Conventional lenders have removed 30% to 40% of the borrowers who could have qualified in recent years. 

Call Courtney Silverman for home buying assistance in Broward County at 954-292-0743.

There is little competition from other buyers. Motivated sellers are setting realistic asking prices. In other words, it’s a more normal home sale market as compared to the record-breaking volume of the last few years.

But there’s another reason to buy a resale house now. Anxious sellers are offering sales incentives. A few offer vacation trips, higher sales commissions to buyer’s agents, and even automobiles as inducements to realty agents and their buyers.  I think the best incentive is a mortage buy down.  This means the seller will contribute up to 6% of the purchase price to buy down the buyer’s mortgage rate of a fixed loan for the first, second, and third year and then on the fourth year the rate is fixed.  This is a great savings each month.  It is a much better incentive for a buyer than a price reduction!

THE EASIEST, LEAST EXPENSIVE WAY TO FINANCE A HOME PURCHASE. Especially if you are a “cash challenged” or “credit challenged” home buyer, you will love this finance source. Not every resale home can be financed using this source, but all you need is one.

This under-used home mortgage finance source is the home seller.

With more than 50 percent of U.S. homes owned free and clear with no mortgage, those homes are the best candidates for seller financing.  As your Realtor, Courtney Silverman search the local MLS (multiple listing service) listings for homes listed with no existing mortgage. Those sellers are the best prospects for seller carryback mortgage financing.

Instead of sellers taking an all-cash sale and parking the cash in a bank or mutual fund earning around 5 percent interest, suggest the seller of a free-and-clear home carry back the mortgage at 6 percent. That’s a “good deal” for both seller and buyer.

Whenever possible, Courtney Silverman will arange a meeting with the home seller to establish credibility before presenting a purchase offer asking for a seller financed mortgage.

FIVE ADVANTAGES FOR HOME SELLERS OF SELLER FINANCING. In addition to earning a high above-market interest rate, there are many additional seller advantages of financing the home sale that include:

1. Easy quick sale for top dollar. As every merchant and car dealer knows, sales are easiest when the merchandise seller offers easy financing. The same principle applies to home sales where sellers offer easy financing. Price often becomes a non-issue.

2. Vacant houses can be risky for home sellers. If the seller has moved out of the house, this is usually a sign of a very anxious and worried seller, especially if the house has been listed for sale several months. Most sellers of vacant houses will listen to reasonable purchase offers, including seller carryback mortgage terms. 

If the seller wants a shorter term than a 20-year seller carryback mortgage, I reply, “Well, let’s amortize the mortgage over 20 years but include an option for you to call the loan due in 10 years.” After 10 years of on-time mortgage payments, sellers rarely exercise that option.

3. Safety of a mortgage or deed of trust on property the seller understands. The major reason home sellers hesitate to carry back a mortgage for their buyer is they fear the buyer will default and not make the monthly payments.

I emphasize this often-unstated fear and explain when a buyer defaults, the seller then can foreclose and either get paid off at the foreclosure sale by a cash bidder or get the home back to resell for a second profit.

4. Installment-sale tax benefits are another seller advantage, especially when the taxable profit exceeds the seller’s $250,000 or $500,000 principal residence sale tax exemption of Internal Revenue Code 121. If the property was not the seller’s principal residence, spreading out the capital gains tax over the years of receiving buyer payments is usually far better than paying a large capital gain tax in the year of the sale.

5. Down-payment cash to pay the home sales expenses. In a typical home seller financing, the buyer makes a cash down payment of 10 percent to 20 percent of the sales price. This down payment is usually sufficient to pay all the sales expenses, including the realty agents’ sales commission.

HOW TO CONVINCE HOME SELLERS TO FINANCE YOUR PURCHASE. Even after explaining all the seller benefits of financing the home sale, some unmotivated sellers are hesitant to carry back a mortgage on the house they are selling.

Methods to Convince are:

(1) offering to prepay six to 12 months of mortgage payments at the closing (instead of a large down payment);

(2) providing a year’s post-dated checks so the seller can deposit a check on the first day of each month; and/or

(3) giving the seller a copy of the buyer’s credit reports and FICO (Fair Isaac Corp.) score obtained at www.myfico.com.

SUMMARY: Especially in the current buyer’s market for homes in most cities, seller mortgage financing is the easiest way to pay for a house or condo purchase with no institutional loan application hassles.

Click here for a glossary of mortgage terms.