For-sale homes in need of repairs increase.
Bank foreclosure sales are expected to rise as lenders clear their current backlog. (Photo by Feverpitch/FeaturePics.com)
The 2012 housing market boasts record low interest rates and home sale prices. Stricter credit guidelines and potential hidden costs are hindering market opportunities.
This year, 30-year fixed mortgage interest rates reached their lowest level in more than 40 years. Home sale prices have also reached record lows, according to the Jan. 2012 S&P/Case-Shiller Home Price Indices, data relied upon by federal and credit-industry analysts.
Record-low interest rates and declining home prices normally signal an increase in home purchases.
But reduced home prices and attractive financing have not triggered a rebound in the housing market.
“The slow recovery of the housing market and the economy … and more cautious attitudes by lenders” are keeping home sales flat or in decline, said Federal Reserve Board Chairman Ben Bernanke, in a 2012 address to the International Builders Show.
Resources exist to help buyers obtain mortgage financing even in this tight credit market. Money is also available to help with down payments and closing costs.
The Mid-Atlantic region is one of the strongest home sales markets. Case-Shiller housing data shows the Washington area is one of only three of 20 Metropolitan Statistical Areas (MSAs) tracked to post less than a 1 percent decrease (-0.6 percent) in home sale values from January 2011 to January 2012. The average decrease for all 20 MSAs was 3.8 percent.
Despite the strength of the market, foreclosure sales and sales of homes being sold for less than the owner’s debt to the bank, termed “short sales,” are slowing the recovery.
The fact that so many homes are being sold as distressed properties changes the dynamics of buying a home.
“The overabundance of foreclosures and short sales and the knowledge that there’s more coming on the market,” along with stricter credit requirements and increased Federal Housing Administration (FHA) loan insurance fees, are making it harder for buyers to complete home sales transactions, said Alease Bowles, president of the Board of Directors of the Prince George’s County Association of Realtors.
Potential buyers should look for help from three sources when seeking to acquire credit for home financing or assessing the risks involved in buying. The majority of short sales and foreclosures are sold as is with no repairs made by the seller. Buyers must beware of potential costs involved in repairing the home to their desired standard.
Get educated
Nonprofit Housing Counseling Agencies (HCAs) approved by the Department of Housing and Urban Development (HUD) are available in most jurisdictions. These organizations provide information on local down payment and closing cost assistance programs, credit counseling and home buyer education.
Local housing and community development departments and the National Council of State Housing Agencies also offer valuable information. However, the local housing counsel agencies have counselors available to walk potential home buyers through the process. Many grant and loan programs require certification through classes at local HUD-approved HCAs. Their services are free or available at nominal cost.
Get qualified
Many real estate agents will not show homes to buyers who have not been pre-approved by a mortgage lender. There are several benefits to seeking pre-approval with a mortgage lender:
Go beyond home inspection
Foreclosure sales accounted for nearly one out of every four homes sold in 2011, according to Realtytrac, a nationwide foreclosure tracking company. It’s likely lenders will continue to foreclose and sell properties in their inventory at a stable or increasing rate.
Homebuyers able to invest in homes needing repairs will have greater negotiating power and access to a wider pool of properties. Distressed homeowners selling their properties through short sale and banks selling foreclosed homes expect to receive lower offers on as-is sales.
Few mortgage loans allow borrowers to purchase a home needing substantial repair. Even if cleared by the lender, buyers must beware of potential hidden home repair costs. Home inspectors and real estate appraisers do not provide in-depth structural and behind-the-walls analysis.
Using FHA’s 203(K) loan program, the homebuyer can acquire the service of a certified HUD Consultant. This expert will conduct a detailed structural inspection and cost-analysis of the property. Once the loan is approved, funds will be disbursed for purchase and repairs in one loan closing.
The HUD Consultant will act as a go-between when the home buyer and an approved home improvement contractor begin the repair phase. Contractors will not receive payment for each of up to five renovation stages until assigned repairs have been inspected and approved by the HUD Consultant.
State, county and city housing departments also have information on local programs and resources to help home buyers and owners.
