FHA expands to help troubled borrowers

Mortgages insured by the Federal Housing Administration (FHA) are rapidly becoming more viable and popular with borrowers, as additional reform changes take place.

In a recent action, the FHA Secure program was expanded to help homeowners who are experiencing trouble in keeping their payments current. They can now refinance their existing mortgage into an FHA mortgage. It was estimated that about 500,000 homeowners may receive assistance with their mortgage with this expanding program by the end of this year. However, it should be noted that homeowners will only receive this assistance if their lenders voluntarily agree to write down the mortgage principal. Lenders need to drop a loan's principal to a maximum of either 90 percent or 97 percent of a home's current value in order to qualify the homeowners for assistance.

Also, the homeowner can miss a few mortgage payments but must still be credit worthy. In effect, it will exclude high-risk borrowers, speculators and owners of vacation homes. FHA Secure's standards call for borrowers to have made six consecutive monthly mortgage payments to qualify, and those defaulting on their mortgage must have only done so in response to a resetting of an adjustable-rate mortgage, it was noted in a report carried on The Wall Street Journal Online.

Some buyers look for stigmatized homes

It may seem a bit strange, but some bargain-hunting home buyers look for “stigmatized” homes. These are properties where a stigma is attached. It may be the site of a suicide or horrible murder – events that were widely covered in news media. It may have once housed the lab for a drug manufacturer, or was a hang-out for addicts. Or it might have a strong reputation locally for being haunted.

Stigmatized, or “psychologically impacted” homes are often priced much lower than other comparable properties that have no such stigma. If the related stigma doesn't bother the buyer, the home can be purchased at a substantially discounted price. For example, the condo residence in the Los Angeles area where Nicole Simpson and friend Ronald Goldman were murdered was initially on the market for $795,000. It eventually sold for $595,000. The house where O. J. Simpson lived in Brentwood couldn't be sold and was finally torn down. The property where 39 Heaven's Gate cult members committed suicide sold for less than half its listed price.

In most cases (depending on state laws), any significant stigma attached to a listed home must be disclosed to a prospective buyer by the broker or owner. An exception is when the previous owner or resident had AIDS or were HIV positive. They are protected under Federal Fair Housing Laws. A study conducted by professors at Wright State University revealed that stigmatized residential properties take about 50 percent longer to sell than homes with comparable features but no stigma, it was noted in a report posted on the Website for the National Association of Realtors. The report also noted that in many cases where a home has the reputation for being haunted the seller often tries to keep their ghosts a secret. But legally, that lack of disclosure may not be in the best interest of the seller.

Brokers often recommend changes in the property carrying a stigma. Repainting the exterior and refurbishing the landscaping are actions taken to minimize the negative impact of a stigma. If you're interested in purchasing a home that might carry a stigma, check it out carefully. Direct pertinent questions to the property's owner and broker – also to neighbors, attorneys and others. You or your broker will then be in a better position to negotiate a purchase price.

Home owners-sellers would be well advised to mention any possible stigma upfront with potential buyers. It might lessen the property's value a bit, but could prevent a major problem down the road when the new owner discovers the stigma. Check with your broker to find strategic ways to mitigate the problem.

Homebuilders offer sales incentives

Homebuilders are highly motivated to reduce their inventory of unsold new homes and are offering prospective buyers some very tempting incentives to buy now. In fact, about three-fourths of today's builders are offering some form of sales incentives, according to the National Association of Realtors. Some of those incentives are very creative. Here are a few examples.

One firm based in Beverly Hills, California, offered 250,000 airline miles as reward for purchasing one of their new homes valued at more than $500,000. Buyers who spent less than that amount were eligible for 100,000 airline miles. Another builder offers to pay the principal and interest of buyers' loans for the first 12 months. Those payments are paid, not just deferred, thus effectively making a 30-year mortgage a 29-year mortgage. Paying the buyer's closing costs is also a popular incentive. In some cases, builders pay for homeowner's insurance policies or taxes for up to a year.

Free upgrades are a particularly popular type of new home sales incentive. This could include superior grade countertops, marble baths, whirlpool tubs, expanded decks, high quality cabinets and other types of upgrades. More creative offerings include a free plasma television set, health club or golf course memberships, prepaid credit cards and substantial home improvement store gift certificates. Some of these incentives, particularly the paying of closing costs, are also offered by some sellers of resale homes. It's the type of marketing action that takes place during all sluggish sales periods.

In a very recent announcement, the developer of residential units in two luxury high-rise towers in Florida offers buyers a guarantee that they can either resell their property for at least as much as they paid, or the developer will buy back the residence at the full cost of its purchase. The offer stands for three years after closing. “We are confident that the real estate market is strong in the interim and over the long term,” said a spokesperson for the developer.

A third of residential sales are second homes

It might surprise you to learn that a third of all homes sold during the past year were second homes for purchasers – those to be used as a vacation residence or investment property. This was revealed in the “2008 Investment and Vacation Home Buyers Survey,” conducted by the National Association of Realtors. To be more specific, 12 percent of home sales were vacation homes, while 21 percent were purchased as investment properties.

About 59 percent of vacation homes were detached single-family residences, 29 percent were condominiums, 7 percent were townhome's and 5 percent were other types. Even in a sluggish sales market, the appeal of owning a private vacation home is strong. It provides a preferred location for a get-away respite when pressures approach the unbearable point. Others see the current market as an opportunity to acquire homes as investments, sometimes at below-market bargain prices.

“Vacation home purchases are largely tied to lifestyle considerations,” it was noted in the NAR report. “Households seek to own an additional home in a desirable destination. While the potential financial benefits as an investment are considered, the purchase of a vacation home is a discretionary choice more closely tied to the utility that households enjoy from unfettered access to a second home.”

For buyers of investment residential properties, the potential financial gains are far more important, the report pointed out. The purchase of a home for investment is a dollars-and-cents decision resting in part on current cash flow from rental income and expectations of future value appreciation (gains). The motivation to buy investment homes is partially driven by investors seeking to diversify their assets and generate income.