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Remodel or replace? Top 10 ROI opportunities in popular home improvement projects

  • ‘Greige’ (subtle yet powerful) improvements pay off the best.
  • This year’s report reflects continued optimism for the housing market.
  • Replacements beat remodels and exteriors beat interiors.
The 2017 Cost vs. Value report by Remodeling magazine documents the national and regional costs and ROI (return on investment) for 29 popular home improvement projects.

Overall, these 29 improvements paid back 64.3 cents on the dollar in resale value.

What that says to the homeowner is that spending money to sell a home requires research.

The goal of improvements from a seller’s standpoint is to attract buyers and achieve top dollar on a listing. But finding the balance between updates and return isn’t that simple.

In a seller’s market, spending (significant amounts of) money on improvements for resale may not translate to added value. As the tide turns to a buyer’s market in the next year or so, agents will need to carefully track ROI numbers to advise sellers.

Those surveyed about the return on remodeling projects were licensed agents, so Remodeling Editor-in-Chief Craig Webb says the report is a reflection of confidence in the industry:

“I think that this year’s Cost vs. Value report actually reflects the general optimism that both remodelers and Realtors have about the state of the housing economy. We are building more and more homes, slowly in this country, but that’s rising. Remodeling activity is as active as it’s ever been in history. And so, consequently, the prospects are good for everyone involved in the process: the consumer, the remodeler, the Realtor.”

Remodeling 2017 Cost vs Value Report. Graphic by Maci Hass, Redefy

Why the top 10 doesn’t matter

National numbers don’t really mean anything to the individual homeowner.

Improvements that pay off (or not) depend on the same three factors that affect home prices: location, location, location.

Agents should drill down to regional or city numbers in this study to find more applicable ROI numbers.

“There’s variation by projects and variations by the cities,” Webb explained. “Sometimes it’s labor and sometimes it’s the perception of Realtors.”

That being said, there are some interesting national trends that may impact homeowners locally. Note that these projects are broken down into mid-range and upscale categories to account for building materials and finishes.

Subtle changes pay off

The No. 1 trend in this year’s numbers is that the subtle changes make for the biggest return on investment.

Remodeling compared these minor improvements to painting with “greige” — the popular mix of gray and beige that’s a subtle but wildly popular color this year.

The two highest percentage returns nationally came from low-ticket improvements under $2,000: attic insulation came in no. 1 at 107.7 percent, followed by entry door replacement (steel) at 90.7 percent.

Look outside first

Projects that spoke to curb appeal had overall larger returns than improvements inside the home.

Garage doors garnered 76.9 percent ROI for mid-range and 85 percent for upscale replacements.

Entry door replacements in both mid-range and upscale (fiberglass) received greater than 77 percent ROI.

Windows at both levels gained at least 73 percent ROI. Siding was also a winner at 76.4 percent.

The bronze medalist in the top 10 is stone veneer — because it’s become so authentic-looking for a fraction of the cost of the real stuff.

Replacements win

Projects that involved a total replacement — such as windows and doors — scored high among the real estate professionals surveyed.

The takeaway for homeowners is that a broken or seriously outdated door should probably be replaced, even if the return is not 100 percent.

The same goes for old single-pane windows. This speaks to curb appeal as well as the first impression of a well-maintained home.

Biggest losers

Year over year, the trends show that mid-range and upscale additions (except decks) saw less than 62-percent returns overall.

This doesn’t make one of these projects a “loser,” per se, if it makes life in your home better. Just don’t expect to make big money here.

There are two reasons to add on regardless of return.

First, the homeowner simply needed more room well before they were prepared to sell.

Second, the home was disproportionate to those around it (for example, a one-bath in a neighborhood full of two- and three-bath homes).

The biggest low-return project was a $12,860 backup power generator at 54 percent ROI. (It seems there are few believers in the Zombie Apocalypse.)

The second-runner-up loser is a $51,935 backyard patio at 54.9 percent ROI; the project includes 20×20 flagstone patio, sliding door, stone-veneer-surround outdoor kitchen, a gas-powered firepit, pergola and lighting. (Perhaps the lack of hot tub for that spend was the deciding factor.)

Surprise! (Not surprised)

If you were to guess what buyers want, I’d put money down that most people would say updated kitchens and bathrooms.

What’s surprising here is that a minor kitchen remodel at $20,830 could make the Top 10, but a minor bathroom remodel, which cost $18,546, had a surprisingly low 64.8 percent return.

A closer look reveals that in the kitchen, the cabinets were simply refaced, but all the appliances were replaced with stainless, energy-efficient models.

In the bathrooms, the replacements were pretty standard fare.

Both the bathroom and kitchen remodels with spends over $50,000 returned less than 65 percent (not surprised). Because these rooms are highly personal, spending a lot on one specific style could actually turn off buyers.

New trend: Multi-generational living

One new project that didn’t make the Top 10 but may become a growing attraction is a “universal design bathroom.” This bathroom includes such features as a walk-in shower, support bars and a wheelchair-accessible sink.

“Baby boomers are getting older and they’ve decided, for the most part, that they don’t want to move,” said Webb.  “That means that they’ve asked themselves ‘Well, what does it take to live here?’ and ‘What do we want to do to change?’ Sometimes it’s putting the bedroom on the first floor, or putting in a walk-in shower.”

Pew Research census analysis showed that 60.6 million people are living with multiple generations under one roof, the highest percentage since 1960.

It’s not unreasonable to speculate that the rising cost of housing and care will see more boomers and Gen-Xers bringing aging parents into their homes; at the same time, millennial children loaded with student loan debt are moving back in to save for their own homes.

Getting what you paid for

Although all but one project on this Cost vs. Value report showed a profit-generating ROI, you could argue that not updating key rooms such as bathrooms, kitchens and front exteriors produces a greater negative result. How many buyers wants a “handyman special”?

As housing prices start to dip, this will come into play even more.

It’s a difficult lose-lose for some sellers who can’t afford significant updates but need to make money on their house. They’ll need some expert guidance to make strategic and cost-effective choices.

Best ROI by region

Regional patterns have remained the same year over year. The nation’s hottest market is the Pacific region, with overall returns at 78.2 percent and 10 projects with at least 90 percent ROI.

Conversely, slow markets in the Midwest brought in the lowest overall returns at 54.9 percent and no paybacks over 80 cents on the dollar.

“If you go to San Francisco, 21 of the 29 projects have a return over 100 percent,” Webb said.

“But if you go to Indianapolis, or the entire states of Wisconsin, Michigan, Iowa, Illinois, Nebraska and Kansas, there’s not a single project over 100 percent. However, all 29 projects returned over 100 percent in at least one region of the country.”

Chris Rediger is the co-founder and president of Redefy Real Estate. Learn more about Chris and Redefy on Twitter or Facebook.

Email Chris Rediger.

 

Strengthen Your House 2017 HOMEOWNER REGISTRATION IS OPEN.

CLICK HERE TO REGISTER NOW.

 Would you like to receive up to $3,000 toward an earthquake retrofit of your house? The Earthquake Brace + Bolt (EBB) program provides homeowners up to $3,000 to strengthen their foundation and lessen the potential for earthquake damage.

Many homeowners will decide to hire a contractor to do the retrofit work instead of doing it themselves. A typical retrofit may cost between $3,000 and $7,000 depending on the location and size of the house, contractor fees, and the amount of materials and work involved. If the homeowner is an experienced do-it-yourselfer, a retrofit can cost less than $3,000.

The EBB program relies on adherence to the California Building Code, Appendix Chapter A3. Chapter A3 is a statewide building code that sets prescriptive standards for seismic retrofits of existing residential buildings.

Chapter A3 allows:

  1. the building department to approve the retrofit for a house with a 4-foot or shorter cripple wall, without requiring plans prepared by a registered design professional (architect or engineer).
  2. retrofits for houses with cripple walls higher than 4-feet with plans prepared by a registered design professional.

Surrounding the crawl space under the first floor, many houses have a short wood framed wall (“cripple wall“) that needs to be strengthened to prevent the house from sliding or toppling off of its foundation during an earthquake. Strengthening involves adding anchor bolts and plywood bracing in the crawl space.

More information on qualifying retrofits.

CRAWL SPACE VIEW

 

 

EBB is limited to funding residential retrofit expenses in the crawl space that:

  • Bolt: add anchor bolts and sill plates in the crawl space to improve the connection between the wood framing of the house and its concrete foundation to help keep the house from sliding.
  • Brace: strengthen the cripple walls in the crawl space with plywood will help keep the house from toppling off of the foundation during an earthquake. Strengthening cripple walls enables them to function as shear members, significantly protecting the house from collapsing.
  • Strap and Brace the Water Heater: properly strap and brace the water heater to reduce the likelihood of water and fire damage, and to protect the water supply.

Houses that meet Chapter A3 specifications are typically:

  • wood-framed construction built before 1979
  • built on a level or low slope
  • constructed with a 4-foot (or less) cripple wall under the first floor OR
  • constructed with a cripple wall between 4 feet and 7 feet (requires an engineered solution) 
  • have a raised foundation
 

HOMEOWNER REGISTRATION IS OPEN NOW

 

SELECTION AND NOTIFICATION PROCESS

Homeowners will be notified via email if they have been selected or if they are on the wait list. Selected homeowners will receive detailed information and next steps for participation in EBB. To register, scroll back to the top of the page and click the “Register” button to begin the process.

 

APPLYING FOR THE EBB PROGRAM

 Registration is no longer open. Once registration is reopened, Homeowners interested in participating in EBB must:

  • Own a house located in a designated ZIP Code
  • Create an online account and complete registration as a homeowner
  • Only one registration per house
  • Ensure your house is eligible by answering all qualification questions and reviewing the Program Rules.
    • Your house must have less than a four-foot cripple wall to use a prescriptive plan set
    • If your house has a cripple wall between 4-feet and 7-feet you must use an engineered solution. 

 

SELECTION AND NOTIFICATION PROCESS

When Registration is closed participating homeowners will be selected through a random drawing.

Homeowners will be notified via email if they have been selected or if they are on the wait list. Selected homeowners will receive detailed information and next steps for participation in EBB.

9 reasons folks move to California

 

Want to know why California feels so crowded?

Last year, 514,000 people moved here from other states, according to new data from the U.S. Census Bureau. That’s on top of 334,000 who came from foreign lands. It’s an influx that explains everything from crowded freeways and malls to pricey homes and apartments.

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Gosh, this rush to the Golden State might even make you say “thanks” to the 644,000 neighbors who chose to move to another state in 2015.

Too much time is spent pondering California’s challenges and worrying why some folks decide to leave. You realize that California’s often-cited “net domestic outmigration“ (exits vs. move-ins) of 130,000 last year is roughly equal to just three people for every 1,000 Californians?

How does economic and demographic data show what draws folks to California? I filled my trusty spreadsheet with data from the census, U.S. Department of Housing and Urban Development, National Oceanic and Atmospheric Administration and Trulia.

First, I created a ranking of states by their relative per capita movement to or from California from the new census migration data. That gave me a yardstick of where the California’s fan club resides (New Jersey likes us the most by this math) and what states were most uninterested in living here (Idaho doesn’t care for us!)

Then I compared the Golden State’s business and population patterns for the 10 “fan club” states California draws best from — New Jersey followed by Alaska, Alabama, Delaware, Connecticut, New York, Illinois, Maine, Indiana and Massachusetts — vs. the 10 “uninterested” states where we do most poorly with relocation: Idaho then North Dakota, South Dakota, Nevada, Montana, West Virginia, Iowa, Utah, Oregon and Arkansas.

Here’s how California matches up to other states and what’s so appealing about the Golden State:

1. FAIR CLIMATE

Sunshine sells. California’s average 59 degrees is the 13th warmest temperature among all states and certainly looks toasty to folks, considering relocation from our 10 fan club states (average 50 degrees) or the chillier 10 most uninterested states (average 48 degrees).

2. SIZE MATTERS

We’re pretty dense and many folks like that. Fan club state residents are used to “big” with an average population of 9.8 million, more than quadruple the 2.2 million average population in the 10 states from which California (population 39 million) draws least.

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3. MELTING POT

The Golden State loves ethnic and racial diversity, with 61 percent of the population made up of various minorities. That’s closer to the demographics of fan club states (35 percent minority) than the 10 most uninterested states (20 percent minority).

4. GROWING OPPORTUNITIES

California’s job market looks very appealing to folks from fan club states. The state’s job count has risen 13.6 percent since the recession ended. That’s almost double the pace of an average 6.9 percent growth in 10 fan club states. One reason we don’t draw from 10 most uninterested states? Their average 10.5 percent job gains.

5. EDUCATION A MUST

California offers many employment opportunities in professions requiring serious schooling. That’s a reason why 30 percent of our state’s residents have at least a bachelor’s degree. Fan club states are a good match with an average 29 percent of their residents similarly educated vs. 24 percent in those 10 uninterested states.

6. BETTER PAY

Fan club states pay well, with an average annual household income of $74,000. In fact, relocation may not always pencil to the penny as the Golden State’s typical income is $73,000. But that beats the $63,000 paid in those 10 uninterested states.

7. HIGH HOME PRICES

House costs are a challenge to anyone considering a move to California, but at least transplants from fan-club states are used to higher home prices. Averaging listing price early this month in those 10 states was $343,000 vs. $266,000 in the uninterested states. Of course, that gap may not prepare many folks for California’s $630,000 typical price tag.

8. PRICEY RENTALS, TOO

Another Golden State burden: the rent. But again, new residents from the fan club know the pain of being a tenant, averaging monthly rents for a two-bedroom unit of $1,130 in the old home state vs. $794 in those uninterested states. But almost everyone gulps when it comes to the cost of a common California rental: $1,487 a month.

9. WE’RE BLUE, POLITICALLY

This month, our political persuasion is really relevant. Much like California’s presidential vote, seven of the 10 states in the fan club went for the losing Democrat in the White House race. The uninterested states? Eight of 10 supported president-elect Donald Trump.

 

By Jonathan Lansner, jlansner@scng.com

AR: Home Sales Remain Elevated, Pressure Mounts On Buyers

NAR: Pending Home Sales Index suggests rising home prices into 2017

Pending Home Sales Index Shows Summer Increase

Home buyers are out in force, buying up homes just as fast as they come on-market — and it’s making it harder to find good deals in housing.

According to the National Association of REALTORS®, the August 2016 Pending Home Sales Index posted above its benchmark value of 100 for the 28th straight month.

A home sale is “pending” once it’s under contract between a buyer and a seller.

It’s not surprising that contract signings remain high. With today’s mortgage rates lingering near 3.5%; and with rents rising and lenders loosening mortgage guidelines, today’s housing market favors home buyers in a big way.

Low- and no-down payments remain popular, and new programs such as the HomeReady™ mortgage make it even easier to get mortgage-qualified.

Given today’s market conditions, the best deals in housing may be the ones you find today. By this time next year, home prices and interest rates may be higher — and so might your rent.

Click to see today’s rates (Sep 29th, 2016)

Pending Home Sales Index: A Different Indicator Type

The Pending Home Sales Index (PHSI) is a monthly report, published by the National Association of Realtors® (NAR). It measures homes under contract, and not yet closed.

The Pending Home Sales Index is different from most housing market metrics.

Unlike traditional metrics which measure how housing performed in the past, the Pending Home Sales Index forecasts how housing will perform in the future.

The Pending Home Sales Index is forward-looking.

The index tallies U.S. homes recently under contract to project future, closed home sales. This is possible because the National Association of REALTORS® knows that 80% of homes under contract “close” within 2 months of contract.

In August, the Pending Home Sales Index read 108.5 — down from July’s reading, but marking the index’s 28th straight month above its baseline reading of 100.

Beating the baseline is a big deal.

When the Pending Home Sales Index crosses 100, it’s an indication that U.S. homes are going to contract at a faster pace than during 2001, the first year in which the index was published.

2001 is generally considered a good year for U.S. housing. The current market, then, by comparison, is exceptional.

Results for the Pending Home Sales Index, mixed by region:

  • Northeast Region : +5.9% from the year prior
  • Midwest Region : -1.7% from the year prior
  • South Region : -1.5% from the year prior
  • West Region : -0.6% from the year prior

For today’s renters, it’s an excellent time to consider buying a home.

Click to see today’s rates (Sep 29th, 2016)

Two Popular Loan Types That Help Buyers

Today’s housing market is getting a nice boost from more home buyers who are getting mortgage-approved.

According to a recent report from loan software company Ellie Mae, about 3-in-4 home purchase loan applications were approved and “closed” in July. This means the applicant successfully completed the loan process and purchased a home.

In 2014, only sixty percent of applications made it to closing.

Two major loan programs contributed to the high numbers: conventional and FHA.

FHA loans

The same report showed that buyers used FHA for nearly a quarter of all home purchases.

FHA is even more popular among younger home buyers. A related Ellie Mae study showed that loan applicants born between 1980 and 1999 use an FHA loan 37 percent of the time.

First-time home buyers and repeat buyers alike gravitate toward FHA because of its flexibility. It requires just 3.5 percent down and accommodates buyers who have credit scores down to 580.

One of the lesser-known facts about FHA is that home buyers can use it as a 100% loan, if they can secure a downpayment gift. The program allows the applicant to cover the entire downpayment and closing cost amount with a gift.

FHA requires modest mortgage insurance premiums (MIP) that total about $70 per month for every $100,000 borrowed. FHA MIP cost does not rise with lower credit scores, as does conventional mortgage insurance.

Applicants with a credit score below 660 may find that FHA yields a cheaper monthly payment. And, home buyers can cancel their FHA mortgage insurance premium via a refinance when their home gains adequate equity.

Conventional loans

conventional loan is one that is approved to guidelines set forth by mortgage agencies Fannie Mae and Freddie Mac.

This loan type makes up 64 percent of the market according to Ellie Mae.

Conventional mortgages do not require a 20 percent downpayment, as many home buyers assume. Buyers can put as little as three percent down with the Conventional 97 program or the newer HomeReadyTM loan.

Buyers with larger down payments often choose an 80/10/10 piggyback loan. The home buyer opens a primary mortgage for 80 percent of the purchase price, a ten percent second mortgage, the puts ten percent down.

This loan structure allows the buyer to avoid private mortgage insurance (PMI) while making a reduced downpayment.

Conventional loans are the first choice among many home buyers because they come with low rates and can beat FHA in monthly cost for well-qualified applicants.

What Are Today’s Mortgage Rates?

Across the country, homes are going to contract quickly. Demand from buyers is huge and, because of today’s low rates and rising rents, the pool of potential buyers has stayed strong.

Take a look at today’s real mortgage rates. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.

Show Me Today’s Rates (Sep 29th, 2016)

NAHB: Housing Market Hasn’t Been This Hot In 11 Years

NAHB Housing Market Index 2016-09

Builders Say Strong Market Will Stay On Course

Home builders feel terrific about the future U.S. housing.

With today’s mortgage rates ultra-low and U.S. rents rising, home builders are planning for another strong finish to the year for housing, and a fantastic start to 2017.

Market confidence among the nation’s builders is at decade-best levels.

As measured by the National Association of Home Builders’ Housing Market Index (HMI), home builder sentiment reads 65 out of 100, which is a “confident” figure.

It’s the strongest reading in nearly a year, and certain components of the index exceed confidence levels of 11 years ago.

Builders are excited about the 2017 housing market — and for good reason.

The combination of the lowest mortgage rates in at least 3 years, the rising cost of rent, plus an abundance of loans for buyers with less than 20% down have changed today’s math of “Should I rent or should I buy?”.

Home builders plan to sell more than 650,000 new homes this year, and buyers could usher in even higher demand next year.

The best “deals” in new construction housing may be the ones you find today.

Click to see today’s rates (Sep 20th, 2016)

Why Everyday Home Buyers Follow NAHB’S Housing Market Index

Once monthly, the National Association of Home Builders (NAHB) surveys its members on current housing market conditions; and their outlook for the housing market’s future.

The results are compiled into the Housing Market Index.

Informally, the report is called the “home builder sentiment survey” and it reflects home builder attitudes about the nation’s single-family, new construction housing market.

The index is one of the most anticipated reports published each month, because it provides clues to housing market health six-to-twelve months in advance.

Home builders gather real-time, “on the ground” data as they observe buyer foot traffic and actual sales in their day-to-day business. They recognize trends long before economists.

For instance, a home builder sees rising interest in its homes. Potential buyers visit model homes and sign contracts to buy.

In response, the builder obtains new building permits and breaks ground on new developments. Conversely, it will hold off on new projects if foot traffic wanes.

Without the Housing Market Index, economists would likely only have access to data around building permits and homes on which construction has begun. But that data is a lagging indicator of what happened in the market months prior.

This report, though, is one of the earliest indicators of the home market.

The forward-looking report is important to economists, but can be valuable to the everyday home buyer, too.

Many buyers today feel they have “missed out” on future home appreciation, now that house values have risen steadily since 2012. They feel demand for homes will drop and, in turn, prices will cool off.

Home builders would beg to differ.

Today, builder sentiment reads a staggering 65, well surpassing the range of around 60 for the past fifteen months.

The report signals renewed strength in the housing market.

The HMI has not hit a reading of 65 since October 2015. Prior to that, the index stretches back ten years without a higher “score.”

In the NAHB Housing Market Index, 50 is the inflection point in the index between “good” conditions and “poor” ones; and September’s reading marks the twenty-seventh straight month in which the HMI has logged north of 50.

Buoyed by low mortgage rates and big demand from buyers, home builders believe today’s housing market is solidly in positive territory.

Home buyers who have been on the sidelines should consider entering. September’s HMI indicates the market will be strong in 2017, and perhaps beyond.

Click to see today’s rates (Sep 20th, 2016)

Builders Correctly Forecasted The 2016 Market

The NAHB Housing Market Index is a composite survey. It’s results are based on three distinct questions posed to home builder trade group members.

Each question polls a separate facet of a home builder’s business.

The monthly readings, as reported by the home builder trade group:

  • Current home sales activity : Reading of 71 (+6 from one month ago)
  • Home sales activity for the next six months : Reading of 71 (+5 from one month ago)
  • Buyer foot traffic : Reading of 48 (+4 from one month ago)

The housing market is strong on all fronts. Especially telling is the future sales component of the index. Builders stated the highest reading since nearly a year ago.

In October 2015, builders took the pulse of the market and stated the 2016 market would see continued strength.

They were right.

Now, builders are calling for fast home sales (meaning higher prices) next year. Home buyers should consider the effect of higher prices — and potential mortgage rate increases — on their plans. They can be on the winning side of rising values.

Buyers may not know specifically what a mortgage is, they do know that their rents are rising and that buying a home could be better than renting into 2017.

So long as the math buying over renting, builders will continue to have optimism for the future of U.S. housing.

Ultra-High Demand For Homes In The West

As with everything in real estate, location matters.

Home buyer demand is strong across the U.S., but western states are faring the best, as home builders see it.

  • Northeast: HMI reading of 43 (+1 from one month ago)
  • Midwest: HMI reading of 56 (+3 from one month ago)
  • South: HMI reading of 68 (+4 from one month ago)
  • West: HMI reading of 82 (+14 from one month ago)

If builders across the U.S. are confident, those in the West are all but certain about the next six-to-twelve months.

That’s good news for builders, but home buyers could face challenges. Bidding wars and above-list-price offers could be the rule, not the exception.

And free home upgrades will be all but off the table.

Still, new homes could be worth the effort. Homes that are newly built often come with warranties that protect the homeowner against expensive defects. New homes occasionally need repairs, just like older ones, and it’s rarely a “bad” idea to receive a warranty if one is offered.

Home buyers in western states can still find value in new homes, despite high competition. As rents rise, buyers are locking in housing costs by purchasing new and used homes in every region of the country.

 

Courtesy: THE MORTGAGE REPORTS

They built towering new cities in China. Now they’re trying it in downtown L.A.

 

Drowning homeowners are getting relief

Strong home price gains this past spring and summer have given drowning homeowners a new supply of air.

While the number of borrowers in a negative-equity position on their mortgages is still high, at just over 14 million, that number is falling fast, especially for those most seriously underwater.

There were 6.9 million U.S. homes seriously underwater at the end of the third quarter of this year, according to RealtyTrac, a foreclosure sales and analytics company. It defines “seriously underwater” as owing at least 25 percent more on the mortgage than the home is currently worth.

The tally represents 12.7 percent of all properties with a mortgage. The number is down from 7.4 million at the end of the second quarter and is the lowest level since RealtyTrac began looking at underwater data in 2012.

At the worst of the housing crisis, in the middle of 2012, there were 12.8 million seriously underwater homes representing 28.6 percent of all homes with a mortgage.

“After a lull late last year and early this year, home sales volume and average sales prices picked up dramatically again in the second and third quarters of this year, resulting in a substantial drop in seriously underwater homeowners,” said Daren Blomquist, vice president at RealtyTrac. “On the other hand, the number and share of equity-rich homeowners also dropped dramatically between the second and third quarters.”

House underwater

Cherezoff | Getty Images

This is because more borrowers are either selling and moving or pulling money out of their homes. Cash-out refinances jumped 68 percent in the second quarter of this year compared to those of a year ago, according to Black Knight Financial Services.

More than 10 million properties today are considered “equity rich,” where the borrower owns at least half the home outright. That is 19 percent of all properties with a loan, according to RealtyTrac.

All the improvements in home equity would seem to bode well for future home sales, but several barriers still stand in the way. First and foremost is the short supply of homes for sale in general, both new and existing. Homeowners don’t want to sell if they’re not sure they can’t find something better. Second is the fact that home prices are rising more than historical norms right now, and some sellers think they can do better if they wait longer. Finally, while the underwater borrower situation is improving, it is far from over, and in some markets, it is still severe.

Florida markets continue to hold the lion’s share of underwater homes. In Las Vegas, Cleveland, Chicago and Toledo, Ohio, about one-quarter of the properties with a mortgage are seriously underwater.

As for those boasting the most home equity, take a look at San Jose, San Francisco, Honolulu, Los Angeles and New York.

Courtesy: Diana Olick CNBC Real Estate Reporter

JPMorgan Leads Big Banks Out the Door of FHA

JPMorgan Chase has nearly stopped making home loans insured by the Federal Housing Administration.

Most large banks have curtailed FHA-backed loans in the past two years because of concerns about credit and legal risks, and JPMorgan’s 98% drop-off in that period puts an exclamation mark on the trend.

The $1.8 trillion-asset bank’s FHA market share was a mere 0.2% at June 30, compared with 12.2% just two years earlier, according to government data crunched by the American Enterprise Institute’s International Center on Housing Risk.

The rollback among big banks follows harsh penalties meted out by the Justice Department , which accused many banks of putting FHA on the hook for shoddy loans in the years leading up to the mortgage meltdown. Market shares at BB&T, Bank of America, Fifth Third Bancorp, Flagstar Bank, M&T Bank, Regions Financial and Wells Fargo have all declined in the past two years, the data shows.

Nonbanks have stepped into the void, and that shift is not expected to reverse until bank executives feel more comfortable with the credit profiles of many FHA borrowers and determine the odds of further federal prosecutions have fallen.

“The banks have ceded this share voluntarily,” said Ed Pinto, co-director of the AEI center, and a former chief credit officer at Fannie Mae.

Nowhere is that reality clearer than at JPMorgan Chase.

Chairman and Chief Executive Jamie Dimon warned last year that the risks of FHA lending were just too great.

“The real question for me is should we be in the FHA business at all,” Dimon said on a conference call with analysts in July 2014. “Until they come up with a safe harbor or something, we are going to be very, very cautious in that line of business.”

He meant it.

In the second quarter, JPMorgan Chase originated just 340 FHA loans, compared with 19,111 FHA loans in the second quarter of 2013. Meanwhile, the bank’s overall home lending business is booming. JPMorgan originated $29.3 billion of home loans in the second quarter, up 74% from a year earlier.

Figures were not yet available for the full third quarter, but JPMorgan originated 97 FHA loans in July and August, according to the center’s data.

JPMorgan is trying to reduce the risks of lending to borrowers with low credit scores and potentially greater chance that the loans will go bad.

Amy Bonitatibus, a spokeswoman for JPMorgan, said the company has significantly reduced FHA lending over the last year due to “the litigation risks, high costs to service and high delinquency rates.”

“We offer products that meet the needs for people across the credit spectrum with a focus on sustainable homeownership,” she said. “This is part of our ongoing strategy to simplify our mortgage business and focus on high quality originations.”

FHA lending is a particularly thorny issue not just because of the high penalties for mistakes on FHA-insured loans. Any pullback in lending to FHA borrowers with lower credit scores invokes concerns that credit could be restricted to minority groups.

Earlier this month, Wells Fargo, the largest U.S. home lender, tightened credit score requirements on FHA loans. Wells raised minimum credit scores to 640 in its retail channel, up from 600. Wells did so after the FHA recently proposed to keep its current policy on loan-level certification when many in the industry were hoping for changes.

Banks maintain that the FHA’s proposal did not go far enough in limiting the government’s use of the False Claims Act, a Civil War-era law that allows the Justice Department to collect triple damages if a bank has violated the FHA’s underwriting standards.

The proposal requires that lenders perform a so-called “pre-endorsement review” of all FHA home loans and certify that each loan submitted for FHA insurance contains no defects. Mortgage lenders have long tried to limit their liability only to material defects on FHA-insured loans. But as the proposal now stands, inaccuracies, inconsistencies or even minor mistakes can still result in substantial fines and penalties.

“The view of lenders is that the proposal leaves in place the current standard of strict liability, so that any mistake whatsoever can trigger a False Claims Act liability,” said Jim Parrott, a senior fellow at the Urban Institute and owner of Falling Creek Advisors, a consulting firm in Chapel Hill, N.C.

Parrott, a former senior advisor to the National Economic Council, said banks like Wells are saying that “we can’t take the risk anymore and we’re pulling back.”

B of A, Citigroup, JPMorgan and U.S. Bancorp have all settled claims that they improperly approved FHA-insured loans that did not meet the agency’s underwriting standards.

But plenty of others, including Wells Fargo, Quicken Loans, PNC Financial Services Group, Regions and BB&T still have outstanding investigations of FHA loans, according to company filings.

Wells Fargo’s FHA market share has fallen by more than half in the past two years. Wells’ share fell to 15% in the second quarter, from 32.4% in the same period in 2013. U.S. Bancorp was one of the few banks to see an increase in its FHA market share during the two-year period ended June 30, to 8.2% from 7.9% two years ago; however, its number of FHA loans and market share fluctuated considerably during that time period.

Both B of A and Citi group have less than 1% FHA market share, though they had not been big players before.

Overall, large banks’ share of FHA-insured purchase-only home loans has dropped sharply since February. Large banks originated 23.5% of FHA loans in August, down from 29.6% in February and 65.4% in November 2012, when AEI first began tracking the data.

However, nonbank rivals have stepped into the void.

Nonbanks’ share jumped to 68% in August, up from 62.2% in February and 26.8% in November 2012, virtually replacing the share ceded by large banks.

Meanwhile, credit quality has improved. FHA’s serious delinquency rate fell to 2.91% in the second quarter, from 3.5% a year earlier, according to the Mortgage Bankers Association.

What could reinvigorate banks’ interest in FHA loans? Perhaps the answer is greater legal clarity or rewards for demonstrating prudent lending.

“The FHA should create policy where lenders have an incentive to control for their False Claims Act liability through better underwriting, not less lending,” Parrott said.

BY KATE BERRY

Fannie Mae Lowers Mandatory Waiting Period After Bankruptcy, Short Sale, & Pre-Foreclosure

 

Fannie Mae guidelines after a significant derogatory event including bankruptcy, short sale, and foreclosure

MANDATORY WAITING PERIOD REDUCED TO 2 YEARS

It’s getting easier to get approved for a mortgage.

Following in the FHA’s footsteps, Fannie Mae has reduced the mandatory waiting period for a mortgage after bankruptcy, short sale, or pre-foreclosure. Borrowers no longer need to wait 4 years before re-applying to get a mortgage.

Borrowers can now re-apply for a loan just two years after a bankruptcy, short sale, or pre-foreclosure. This is one year longer than the FHA’s minimum waiting period via itsFHA Back to Work program, and a major improvement for conforming mortgage borrowers nationwide.

Mortgage guidelines are loosening across all loans and Fannie Mae is now the most recent government group to help borrowers who have a history of poor credit because of bankruptcy, short sale, and pre-foreclosure.

Click to see today’s rates (Sep 13th, 2015).

NEW FANNIE MAE RULES FOR BANKRUPTCY, PRE-FORECLOSURE, & SHORT SALES

Recently, Fannie Mae changed its mortgage rules for borrowers with a recent bankruptcy, pre-foreclosure, or short sale. The group has reduced its mandatory waiting period after such an event from four years to 2 years.

The change nearly mirrors a similar update from the FHA as part of that group’s Back to Work program. Via FHA Back to Work, certain mortgage borrowers are eligible to apply for a loan just 12 months after a significant derogatory event.

“Significant derogatory event” is defined as any one of the following which may appear on a person’s mortgage credit report:

  1. A pre-foreclosure
  2. A short sale
  3. A deed-in-lieu of foreclosure
  4. A bankruptcy
  5. A mortgage loan charge-off

A significant derogatory events will typically affect a person’s credit score by 100 points or more. For this reason, before selecting a loan program, it’s important to compare conforming mortgage rates via Fannie Mae against FHA mortgage rates via the Federal Housing Administration.

FHA mortgage rates are typically lower than comparable conforming rates; and don’t penalize for credit scores below 740. However, FHA mortgage insurance premiums can be costly on an upfront and ongoing basis.

Any mortgage lender can help you decide which loan program best suits your needs. Explore all available options — you never know how much you might save.

Click to see today’s rates (Sep 13th, 2015).

NEW FANNIE MAE GUIDELINES FOR DEROGATORY EVENTS

Fannie Mae has reduced its mandatory waiting period after a pre-foreclosure, short sale, or bankruptcy.

Prior to the change, which is effective immediately for all loan applications, Fannie Mae required borrowers to wait four years after a significant derogatory credit event before re-applying for a home loan.

That mandatory waiting period is now just 2 years.

The table below compares Fannie Mae prior policy against its current one; and against the FHA Back to Work program which may be more suitable for borrowers with less available downpayment.

FHA loans permit home down payments of just 3.5 percent. Fannie Mae loans typically require 5 percent or more.

  Prior Fannie Mae Minimum New Fannie Mae Minimum Current FHA Minimum
Short Sale 4 Years 2 Years 1 Year
Bankruptcy 4 Years 2 Years 1 Year
Pre-Foreclosure 4 Years 2 Years 1 Year

For a Fannie Mae loan, “extenuating circumstances” are situations which (1) occur one-time only; (2) are beyond the borrower’s control; and, (3) result in a sudden, significant, and prolonged reduction in income.

The label of “extenuating circumstances” may also be applied to situations in which a borrower is subject to a catastrophic increase in financial obligations.

Examples of extenuating circumstances may include divorce, illness, sudden loss of household income, and/or job loss.

Mortgage applicants wishing to apply for a loan using Fannie Mae’s Extenuating Circumstances program should be prepared to provide documentation in support of the claim. Valid documentation may include a copy of a divorce decree; medical bills; and, notice of job loss or job severance papers.

Borrowers should also be prepared to write a brief letter describing the hardship and how it directly led to the bankruptcy, pre-foreclosure, or short sale. The letter should make it clear that default was the borrower’s only reasonable course of action, given the circumstances.

Borrowers should also make it clear that the derogatory event was a one-time event, and that financial obligations have been paid on-time in the months since.

Click to see today’s rates (Sep 13th, 2015).

FANNIE MAE MORTGAGE RATES REMAIN NEAR 2015 LOWS

Along with softening mortgage guidelines, today’s mortgage loans are easier for which to qualify. This is because low mortgage rates lower a homeowner’s expected monthly payment, which reduces debt-to-income ratios.

The conventional 30-year fixed rate mortgage rate has averaged less than 4 percent every month since last November and many mortgage applicants report receiving rate quotes in mid-3 percents.

When mortgage rates are low, purchasing power is extended and refinance opportunities increase.

As compared to last January, 30-year mortgage rates are lower by approximately 60 basis points (0.60%) which has increased the maximum purchase price for today’s buyers by close to $8,000 for every $100,000 borrowed.

This 8-percent boost can mean the difference between buying a 2-bedroom home or a 3-bedroom one; a home with 3 bathrooms or 4 bathrooms; or, a home with an upgraded kitchen, for example.

Extra purchasing power can also mean the difference between buying in a top-rated school district or a second-tier one.

For existing homeowners, when mortgage rates drop, there’s an opportunity to lower your monthly mortgage payment via a home loan refinance.

Via a refinance, your home’s existing mortgage is replaced with a new one with new, different terms. For many people, these new terms include a reduction in their mortgage rate which, in turn, results in a lower monthly payment.

Refinances are also an opportunity to take “cash out” from a home for home repairs or other needs; or to reduce a loan’s length from 30 years to something shorter.

New “Credit Card” Rule Makes Mortgage Qualification Easier

New mortgage rules change the way credit card debt affects DTI

MORTGAGE APPROVAL RATES RISING

According to Ellie Mae’s monthly Origination Insight Report shows what today’s mortgage applicants have been finding out for themselves — it’s easier to get approved for a mortgage these days.

64% of all loan applications closed in May 2015, which is a six-tick improvement from one year ago. Furthermore, banks are telling the Federal Reserve that they’re loosening mortgage guidelines for borrowers of all types.

Banks aren’t getting reckless, though — they’re just coming to realize that mortgage standards may have toughened too much after last decade’s losses.

“The Pendulum”, as some in the business say, is swinging back to a point of common sense. Guidelines have even loosened to the point where lenders now treat credit card debt completely differently then they have in the past. 

If you’ve been turned for a mortgage in the recent past, it’s a good idea to re-apply. You may get approved today.

HOW TO QUALIFY FOR A MORTGAGE

Qualifying for a mortgage is simpler than it used to be. Not only have mortgage approval standards loosened since the start of the decade, but consumers have greater access to mortgage lenders than during any point in history.

Brick-and-mortgage banks are seemingly everywhere and, for consumers with existing banking relationship, branches can be an excellent place to give a mortgage applications for a conventional loan, FHA loan, VA loan, or USDA loan.

Examples of retail banks include Wells Fargo, Bank of America, US Bank, and JPMorgan Chase.

Or, for consumers who prefer to shop with non-bank lenders, there’s a bevy of online lenders with which to work.

Quicken Loans, for example, is now the nation’s number three mortgage lender nationwide in terms of volume; and relocation lenders such as PHH Mortgage are sizable, too.

The first step in getting approved for a mortgage is to inquire about one. That can be as simple as walking into a branch, or even asking for today’s mortgage rates online to start a conversation.

As part of the conversation, you will be asked about your income, your bank accounts, and your housing history. If you’re a renter with no history of homeownership, expect to be asked about your last several places of residence.

The mortgage application process will also include questions about your citizenship and employment history, as well as your current debtor obligations.

Debtor obligations are discovered using a current credit report which your lender will ask you to provide.

It’s at your discretion whether you want to give access to your credit, but remember that your lender can’t give an accurate rate quote without knowing your exact credit score; and that having a lender check your FICO does very little damage to your score.

After reviewing your information and feeding it into a software program known as a “decisioning engine”, your lender can tell you whether your loan is approved as-is, or with changes to your requested loan size.  

NEW: YOU CAN PAY OFF CREDIT CARDS TO QUALIFY

Nearly two-thirds of loan applications are approved by today’s mortgage lenders. Going forward, though, that number is expected to increase. This is because lenders are changing the way they calculate an applicant’s debt.

The change will benefit applicants who use credit cards monthly, and both home buyers and homeowners looking to refinance will benefit.

Under the new rules, which apply to conforming mortgages, credit card debt is treated differently.

For credit cards which are paid in full at closing, lenders are no longer required to “close” the credit card in order to exclude it from the applicant’s debt-to-income (DTI) calculation.

A credit card paid-in-full no longer counts against an applicant’s DTI.

There are several groups of consumers this change will benefit. The first group is credit card holders who pay their monthly balances in full each month.

Previously, lenders used whatever mid-statement balance a credit card reported to the credit bureaus — TransUnion, Equifax, and Experian — then multiplied that figure by 0.05 to determine the card’s “monthly obligation”. A $10,000 American Express balance would add $500 to a consumer’s obligations, for example.

Now, under the new rules, that American Express card’s monthly debt is $0, which lowers the applicant’s debt-to-income and makes it easier to get mortgage-qualified.

The second consumer group which benefits from the DTI rule change is existing homeowners doing a debt consolidation; refinancing and using home equity to pay down credit cards.

Under the new mortgage rules, credit cards paid off at closing via a debt consolidation no longer count against a person’s DTI. Previously, cards were required to be paidand closed. Closing cards is no longer required. 

The third group is comprised of home buyers and refinance applicants who find themselves close to qualifying, but whose debt-to-income levels fall just outside today’s requirements.

For applicants on the brink of qualifying, cash in the bank can be used to pay down cards at closing, in order to lower DTI and get approved.

Even for cards with a balance of $250 or less, this can mean the difference between getting approved and getting turned down. Your lender can help you determine which cards should be paid down to help you get approved.

WHAT ARE TODAY’S MORTGAGE RATES?

Mortgage approval rates are at their highest levels this decade and, with changes meant to help today’s borrowers, approval rates are expected to climb through 2015 and into 2016. 

Get started with a live rate quote now. Rates are available with no social security number required to get started, and with instant access to your live mortgage credit scores.

Courtesy Dan Green