Author: Amireh

Bidding Wars

These days across the nation and in Madison it is the time to buy. The National Association of Realtors reported in late April that the number of contracts signed to purchase previously owned homes rose in March 2012 to its highest level in two years, up 12.8% from a year ago.

If you are looking to purchase a home you should be prepared to enter a bidding war if you have found the home of your dreams. In some cases buyers have reportedly agreed to waive inspections and other closing conditions in order to purchase the home they wanted. This may sound a lot like the bidding wars that occurred in the early 2000’s during the housing bubble, but the reason for these new bidding wars is different.

This time around instead of a lot of easy credit, there are fewer homes on the market. For example, last July Wisconsin had approximately 72,000 homes unsold. In the first three months of 2012 Wisconsin has had only 52,758 unsold homes. Compared to last March the inventory of homes for sale is down 16%. This low inventory may be the result of many different things: individuals taking their homes off the market until they are able to get a better price; investors making cash offers; or that Fannie Mae and Freddie Mac are keeping inventories low by not listing the foreclosed homes they currently own.

This low inventory has meant that those houses that are on the market are being seen by a number of interested buyers and often receive multiple offers for purchase. In some cases for Sellers this is great, and they receive an offer way above the asking price. However, in other instances, the sale price is sometimes still much lower than what the Seller originally paid for the home.

Regardless of whether you are thinking about buying or selling a home, you should speak with a Realtor to  better understand the current housing market.

Source: “Stunned Home Buyers Find the Bidding Wars Are Back,” The Wall Street Journal (April 27, 2012).
Source: Wisconsin Realtor’s Association, “2012 March Home Sales Report,” April 23, 2012.
[March Data Monthly Report].

Earlier this year the U.S. Department of Housing and Development issued the following changes to the FHA Loan Program.

April 1, 2012 Changes

Monthly PMI on FHA loans will be increasing by 10 basis points or 0.10 percent. This increase will affect all mortgages that originate on or after April 1, 2012. That comes out to about $17 per month more on a $200,000 loan. FHA has determined that beginning June 1, 2012 in instances where the mortgage exceeds $625,000 the monthly PMI rate will increase by and additional 0.25 percent.

Also effective April 1, 2012 FHA has increased the UpFront PMI or UFPMI. This UFPMI is a one-time mortgage insurance premium collected at closing and is often financed through the loan, by being added to the base loan amount. The premium has increased from 1% to 1.75%. That comes out to about $7 per month more on a $200,000 loan.

Looking to Refinance Your FHA Loan

Effective June 11, 2012 some current FHA clients will be able to complete a streamline refinance loan without being subjected to the current increases in PMI and UFPMI. In these cases the PMI will be lowered from 1.25% to .55% of the loan amount per year. The UFMIP will be reduced from 1% to .01%.

You may qualify for the streamline refinance program if you meet the following criteria:
• The mortgage you wish to refinance originated prior to June 1, 2009.
• You currently have a mortgage insured by FHA.
• You are current on your mortgage payments.
• The refinance will result in lower monthly payments for both principal and interest. In some cases it may be possible to convert an ARM loan to a fixed rate mortgage.
• No cash may be taken out on mortgages refinanced in this manner.

These changes apply to all mortgages insured under FHA Single Family Insurance except:
• Home Equity Conversion Mortgages
• Section 247 Hawaiian Homelands
• Section 248 Indian Reservations
• Section 223(c) Declining Neighborhoods

Take Aways:
• Increases in FHA loans UFMIP and MIP may make a conventional mortgage palatable; research to find out which financing vehicle is best for you.
• Streamline refinancing: If you have an FHA mortgage that originated on or before June 1, 2009 you may want to wait and refinance your FHA mortgage after June 11, 2012 to take advantage of the lower PMI and UFMIP rates. Talk to a mortgage lender to determine if you qualify for this refinancing program.