Category Archives: Tips

Jim Owens
By Jim Owens 9th December 2011 0 Comments

2012 VA Loan Limits – Slight Decrease

With the new year comes new VA loan limits.  Unfortunately, the loan limit for Honolulu has gone down considerably (it remains unchanged for the outer islands).  We’ve seen this in the past, it seems like the limit is a pendulum swinging lower one year and higher the next. Here are the new numbers:

  • Honolulu County: 2011 VA Loan Limit =$695,750 (2010 Limits – $741,250)
  • Hawaii County: 2011 VA Loan Limit = $625,500 (2010 Limits – $625,500)
  • Kauai County: 2011 VA Loan Limit = $625,500 (2010 Limits – $625,500)
  • Maui County: 2011 VA Loan Limit = $625,500 (2010 Limits – $625,500)

There are a few important things to remember when taking the loan limits into account:

  • Loan Amounts up to $625,500 – All Islands – 100% financing (no down payment)  is available and at the best possible pricing.

  • Loan Amounts from $625,501 to $695,750 – Oahu – 100% financing (no down payment) is available, but due to the loan amount being above the “conforming” loan limits, loans are considered “VA High Balance.” As a result, they may have tighter underwriting rules and pricing that may be anywhere from 0.25% – 0.50% higher in rate.

  • Loan Amounts above $695,750 – Oahu (above $625,500 – other isles) – These loans are considered “VA Jumbo” loans and require a small down payment.  The down payment required is equivalent to 25% of the difference between the purchase price and the 100% financing maximum (695,500 on Oahu).  For example, if the purchase price is $795,750, there is a $100K difference between that and the Oahu limit ($695,750).  As a result, 25% of that difference ($25K) would be required as a down payment.  All in all, that’s about 3% down, with no expensive monthly payments for FHA or private mortgage insurance…and on Jumbo finaning. The VA Jumbo program remains one of the best deals around.

REMEMBER: The total loan amount, including the VA funding fee, must be below these limits.  The VA funding fee is typically financed, which means that it is rolled into the loan amount.  So, if you are an active duty, first time VA loan user shopping for a home while trying to stay under the $625,500 limit, you must have a purchase price of under $612,334 (when adding the 2.15% funding fee, the final loan amount is $625,499).

Jim Owens
By Jim Owens 30th August 2011 0 Comments

How to Hold Title to Your Home

One of the decisions you will have to make once you have an accepted offer on a home is how you would like to hold title to that property.  There’s a variety of ways to do so, but the key factor is who you will be holding title with (if anyone).

Holding Title may be an unfamiliar term, but it essentially means is who owns the home and what rights they have.  Here are the basics, of course, we are not attorneys and each situation may be different, so check with a qualified professional (attorney/cpa) to determine the situation that is best for you.

If you plan to own the home:

By Yourself: You’ll likely own the home in Severalty which is used when a single individual or entity owns a parcel of real estate.

    • With your Spouse: You’ll likely own the home as Tenants by the Entirety.  This is a type of Joint Tenancy (see below) that is reserved for a married couple or reciprocal beneficiaries.  There are a couple of important benefits to this type of title vesting:
      • Rights of Survivorship – If one of the owners passes away, the other automatically recieves the title.
      • Certain legal protection – Certain claims by creditors of one of the owners may not be able to be enforced on the property due to its effect on the other homeowner.  Of course, this is complicated law, so consult an attorney if you have detailed questions.
      • Ownership is not represented as a percent of the whole, i.e. husband and wife aren’t 50/50 owners, each has an undivided interest in the whole and no property transactions can take place without the consent of both parties.
    • With Family: You may want to own the home as Joint Tenancy.  This is almost exactly the same as Tenants by the Entirety above in the sense that it has the three characteristics defined above.  This can only apply to individuals (more than 2 is ok) and can’t be used for Trusts, companies or any other non human entity.
    • With Someone Else or an Entity: You’ll likely own the home as Tenants in Common.
      • With this type of ownership, the percentage interest IS defined.
      • Individual portions can be conveyed without the others’ consent.
      • There are equal rights of possession meaning a 1% owner has the same right to occupy the property as a 99% owner; however proceeds from sale would be split according to the ownership percentages.
      • There is no right of survivorship, so if one owner passes, that portion passes on to the deceased owner’s heirs and not to the other owners.

    Of course, there are other types of ownership as well, such as trusts, life estates and types of corporate ownership.  It’s best to consult a true expert for advice and a comprehensive financial plan with any of those options.

    Jim Owens
    By Jim Owens 19th August 2011 0 Comments

    Great News for Veterans – VA Funding Fee Being Reduced!

    On August 3rd, the Restoring GI Bill Fairness Act of 2011 became law and reduced the VA Funding Fee for loans closed on or after October 1st.

    The fee is significantly lowered for all first time & subsequent use purchases as well as cash-out refinances.  It is also going to be lowered again in 2012 & 2013 for subsequent use purchases with less than 5% down.

    Here’s a summary of the changes:

    First Time Use (Active Duty – National Guard & Reserves add 0.25%)

    • No Down Payment: Reduced from 2.15% to 1.40%
    • 5% Down or More:  Reduced from 1.50% to 0.75%
    • 10% Down or More:  Reduced from 1.25% to 0.50%

    Subsequent Use (Less than 5% Down – Active Duty/Guard/Reserves)

    • As of 10/1/11: Reduced from 3.30% to 2.80%
    • As of 10/1/12: Reduced from 2.80% to 2.15%
    • As of 10/1/13: Reduced from 2.15% to 1.25%

    Note: With 5% down or more, the first time use rates apply

    Remember, if you have a VA disability rating of 10% or more, you can have the VA funding fee waived.  If not, the funding fee does not need to be paid out of your pocket, it can be rolled into your loan amount.

    Aloha veterans and thank you for your service!

    Jim Owens
    By Jim Owens 21st July 2011 0 Comments

    Can I Finance the Purchase of a Home with Non-Permitted Improvements?

    Zoning rules and building laws can be pretty tricky.  While most properties fall within legal bounds, there are a substantial number of properties that fall outside the bounds of the current restrictions.

    Non-permitted Improvements

    Non-permitted improvements refers to any construction done on the subject dwelling that requires a permit, but none was obtained.  There are usually two types; interior changes that don’t affect the overall “footprint” of the property, or additions that do.

    • FHA & Conventional (Conforming) Loan Programs

    Allowed: if the improvements change the gross living area (GLA) then they can’t be valued. If the improvements are within the existing footprint & GLA they shouldn’t be noted on the appraisal and are therefore invisible.

    • VA Loan Program

    Not Allowed: all improvements must be permitted.

    Legal Non-Conforming

    Some homes may have been built according to the building codes or zoning that existed at the time of construction, but no longer meet the current rules.  They get grandfathered in and are legal, but not conforming to current regulations.  This usually means that there will be some restriction in the event that the home needs to be rebuilt.  Whether a bank will lend on the property depends upon the restrictions imposed.

    • Treatment by Loan Programs

    FHA, VA and Conforming rules all allow for homes that fall into the ‘legal non-conforming’ category; however, the dwelling must be able to be rebuilt to the same specifications.  If the rebuilt home must be different (i.e. – no ohana unit or reduced square footage), the disallowed structure or living area can’t be valued.

    Jim Owens
    By Jim Owens 30th June 2011 0 Comments

    5 Great Reasons to Buy a Home

    Ask any homeowner and they will tell you that there are many reasons to buy a home. Here are five great financial reasons to buy using a VA loan rather as opposed to renting:

    1. Lower Up Front Costs:

    Believe it or not, the up front costs may actually be lower to buy a home using a VA loan than to rent. Renting requires a deposit and the first month’s rent to be paid up front. With a VA loan, certain closing costs are not allowed to be paid by you, the buyer.  Couple that with no down payment requirement and possibly a seller credit and the upfront cost can be quite low, and on a rare occasion $0!  Take a look at our video for more details.

    2. Tax Savings:

    Interest paid on your home mortgage is tax deductible.  For example, a couple earning $100K per year combined purchasing a $475K home could save around $375/mo in taxes as a result of deducting the interest paid on their home loan.  If a $475K home rents for about $2200/mo and the mortgage payment is about $2600, the tax savings alone almost make up the difference.  Of course, your situation won’t be exactly the same and we encourage you to consult your tax advisor to see how buying a home will affect your tax situation.

    3. Inflation:

    Rents will increase with inflation, while your fixed rate mortgage payment will not.  Over the past 50 years in Hawaii, rents have increased annually at a 6.1% pace.  That means in 12 years your rent will double, but a mortgage payment will stay the same.  This hurts you as a renter, but helps if you own and even more if you own an investment property.

    4. Equity:

    Historically, over the past 50 years in HI, single family home prices have increased an average of 6.2% annually.  Of course, this doesn’t mean that it is guaranteed to happen or that it will happen each and every year, but even with prices being flat over the past few years, the average increase over time has been pretty significant.  Let’s look at the average annual returns of competing investments over the past 50 year time period:

    • Average Savings Account Interest Rates: 5.1%
    • Gold:7.3% (it has quadrupled in the last 9 years, it was 4% for the previous 50)
    • Stock Market (DJIA): 5.7%
    • So, excluding Gold’s recent acceleration, real estate in HI has the largest growth rate of all of these, but the power of leverage is what really sets it apart from the others. Read on…

    5. Leverage:

    This is the kicker, for all the competing investments, the growth rate is based only on what you can invest.  Let’s say you have $5000 to invest, if you put it in a savings account earning the historical average of 5.1%, you will have $6412 after 5 years.  If you use that $5K to buy a home, it’s not the $5000 that can increase in value, it is the whole value of the home!  Let’s say it’s a $400K home, a 6.2% annual increase in value equates to a value $540,360 after 5 years. That’s a $140K increase in your net worth, much better than the $1400 you get from your savings account!

    Of course, buying a home is a decision that should be made based on your own personal situation and expectations of the future.  If you are interested in finding out more, please contact us.

    Gabe Amey
    By Gabe Amey 17th May 2011 0 Comments

    Top 5 Ways to Save Money on Your Closing Costs

    “Closing Costs”….just saying it makes people agitated with the sound of their bank account being drained.  The reality is, whenever there is a loan transaction, there are fees incurred and parties related to the transaction that need to be paid.  Paying fees is never an enjoyable experience, but there are ways to reduce the amount you have to pay.  Here are 5 ways to reduce the closing costs on your next mortgage transaction:

    1.  Negotiate a Seller Credit

    A seller credit is an additional sum of money paid by the seller for the buyer to use to pay closing costs.  Think of it as a cash back program the seller uses to entice buyers to purchase their property.

    What you’ll need to do:

    Have your real estate agent request a seller credit in section C-67 of the purchase contract.  There’s no guarantee that the seller will agree to give the seller credit, and if there are many offers on the property, it can make your offer look weak.  But when done properly, receiving a seller credit can dramatically reduce your closing costs or possibly pay them entirely.

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    Gabe Amey
    By Gabe Amey 13th April 2011 0 Comments

    3.5% Closing Costs Assistance Announced By Fannie Mae

    One of the great benefits that a VA loan offers compared to other loan programs is the fact that you can buy with so little money thanks to the ability to do 100% financing.  With this said, you usually have to come up with some funds to cover the basic closing costs unless you structure the offer with a seller credit (a way to get the seller to pay all or a portion of your closing costs).

    Well, thanks to Fannie Mae, it looks like under their HomePath program, all Fannie Mae owned homes currently for sale, they are offering up to a 3.5% closing credit to help clean out their foreclosed homes inventory.  With a 3.5% credit for closing costs – a buyer of a HomePath home should not have to pay any closing costs.

    I just checked the HomePath.com site today, and currently they have 303 Hawaii properties eligible for this program.  There are a few restrictions:

    • Buyer must buy as an owner-occupied residence
    • Offer must have been submitted on or after April 11th, 2011 & must close on or before June 30th, 2011 (not much time here).

    In addition, the jury is still out to see if a Veteran can do a VA loan and still get that 3.5% credit. If not, HomePath financing requires a 3% down payment (but no mortgage insurance and appraisal is needed).

    If you’re interested about learning more about this program feel free to contact us with any questions and check HomePath.com to see what properties are still available.

    Jim Owens
    By Jim Owens 3rd February 2011 0 Comments

    Reminder – the First Time Home Buyer Tax Credit is Still Available

    This is just a reminder that last year’s First Time Homebuyer tax credit had been extended one year for those serving our country abroad during 2009 and early 2010.  However, the deadline to take advantage of that credit is fast approaching.  Real Estate professionals and potential homebuyers across the country are scurrying to submit purchase contracts before the swiftly looming April 30th deadline of the $8,000 First Time Homebuyer Tax Credit.  Last year’s tax credit was wildly successful; the IRS states that over 1.4 million first time homebuyers took advantage of this program as of September 2009.  While those numbers are a bit dated, it does show how successful this piece of legislation was.

    So, what does this mean for a good majority of us?  Well, it’s just back to business-as-usual.  Rates are low, housing prices have settled, and the economy is starting to turn around – even without the credit, it’s still a great time to buy.

    Now, here is the exciting news!  There is a little known blurb towards the end of HR 3548 – Worker, Homeownership, and Business Assistance Act of 2009 (the bill that extended the $8000 tax credit to April 30th, 2010), that allows for an extension of the credit until April 30th, 2011.  Sweet!  So, who’s still in?  Who get’s the VIP extension of this lovely chunk-o-change?  Let’s take a look, shall we?

    Who qualifies?

    • Members of the uniformed services (military)
    • Members of the Foreign Service
    • Employees of the intelligence community

    CLICK HERE to visit the IRS informational page for more detail

    How do I qualify?

    • Must be on official extended duty outside the United States for at least 90 days between January 1, 2009, and April 30, 2010

    What do I qualify for?

    • $8000 first time homebuyer credit
      • Purchase contract must be signed by April 30, 2011

    This is pretty exciting news for those that qualify!  So, if you found yourself deployed in 2009 or early last year, you can rejoice in knowing that you can take full advantage of this tax credit, while the rest of us poor souls can only watch from the sidelines.  It’s a nice ‘Thank You!’ for your dedicated service to our country.

    If the dream of homeownership lingers in your mind, this sure is a great incentive to pursue those further, and we’d love to help you along the way.

    Jim Owens
    By Jim Owens 21st December 2010 0 Comments

    Top Three Purchase Contract Pitfalls to Avoid

    When buying a home, the rules of the transaction are defined by the purchase contract.  It’s a long document with a lot of small print, but as a consumer, it’s important to understand what you’re agreeing to when signing it.  I’ll put you to sleep if I try to cover it all here, so I’ll just cover some items that are of concern to a lender and thus may affect your purchase.  As a realtor, it’s important to understand the lender’s sensitivities.

    Most home purchases here in Hawaii use the Hawaii Association of Realtors standard purchase contract.  I’ll address items of note in that contract, but other forms of a purchase contract can be used instead.  Developers, owner builders, FSBO (For Sale By Owner) and REO (bank owned) transactions may all use a different form of contract.  Regardless of the form of contract used, the items of concern remain the same.

    1) Inclusion of Non-Real Property
    The pitfall I see most often is the inclusion of “non-real” property in the sale price.  Real property from a mortgage lending perspective is the land, permitted structures and anything permanently affixed to either.  So, an oven would be considered part of the ‘real’ property, but a free standing microwave would not.  A ceiling fan would, but a nice big portable fan would not.  When these items are included in a sale, the purchase contracts typically include them items in section C-3.

    Example & Problem

    In a recent transaction, a buyer liked the piano, a couch and a couple of beds that were currently in the house.  The seller no longer wanted it, so the two parties included those items in the purchase contract.  Here’s why it is a problem for us, the lender.  Those items surely have some value.  Let’s say it is $3000 for the sake of argument.  If the purchase price in the contract is $500,000, logic would dictate that the value of the real property is actually only $497,000 because the couch, piano and beds are worth the other $3000.  That would mean that we have to do our loan amount calculations off of the lower, $497,000 value and the borrower would need to come in with a higher down payment.

    Resolution

    The normal suggestion from the real estate agents is to say that the two items have no value, but that is no longer an acceptable practice in this lending environment.  The best solution is to do a contract addendum deleting those items.

    2) Condominium Documents
    Another issue that we see occasionally is that condominium documents have not been accounted for in the contract section C-64.  We will always need the Condo Disclosure (RR105c) when the subject property is a condo & there are other situations where we will need a more complete set of condo documentation.  If the condo docs are not requested right away or there is a delay because of a dispute over who pays for them, it can delay the whole transaction.  I have a recent transaction for the purchase of an investment property.  The condo docs were not identified as needed in the contract and several weeks later, when they arrived, the occupancy percentage was below what everyone had imagined and communicated previously.  As a result, we were several weeks into the loan & awaiting approval, but then needed to start over, change the loan program and broker the loan to a new lender.

    3) Short Sale and REO Properties
    For short sales & REO’s there is often an addendum to the contract or a short sale agreement.  This may address or modify any credits or fee splits agreed upon in the contract.  Make sure that these are accounted for when calculating the anticipated cash to close.  Take a look at our post addressing the hidden costs of buying a bank owned (REO) property.

    Other Items of Note
    Here’s a list of some other things to look out for when preparing or reviewing a purchase contract:

    • Is the closing date realistic?  Make sure your lender and any other parties involved can close by the specified date.
    • All borrowers & accommodation mortgagors must be on the contract (anyone who is on the deed and new title must be on the purchase contract, regardless of whether they are on the loan or not).
    • C-61 Rental Property Matters – make sure this information makes sense with regard to the the occupancy status of the loan and requirements of the loan program.
    • C-67 Special Terms – make sure anything listed there is reasonable and acceptable.
    • Make sure all counteroffers and addenda are accounted for and have been reviewed.
    Gabe Amey
    By Gabe Amey 9th November 2010 1 Comment

    New & Improved: Condo Eligibility Check Tool Updates Weekly

    When we first launched our VA Condo Eligiblity Check tool almost 3 years ago, it was out of sheer frustration that the official VA condo check tool was somewhat ‘clunky’ and at times, very difficult to use.  We thought that there should be an easier and more efficient way to access this important information, so we decided to build our own tool that using the same information provided by VA.

    The result was great – we’ve noticed that our VA Condo Eligibility Check Tool page is our most visited webpage outside of our homepage.  Obviously Veterans and Real Estate agents find the value in our tool – which is exactly why we built it.

    What we found though is that in order to make sure our data is accurate, we had to manually scrub and update our database of condos with the VA’s list.  This proved to be a very time-intensive task and we’ve noticed that we couldn’t get our information updated as often as we wanted.

    The Solution

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