CNN just reported that the national unemployment rate keeps improving, with 7.7% reported as the latest number. Oregon is doing a little worse, with 8.3% reported as the most recent figure. Data for Lane County is lagging a bit, but as of December, we’re a little under 8%, which is a vast improvement from 13+% at the depths of the recent Great Recession. An improving employment picture is good for a number of reasons. However, when unemployment gets to about 6.5%, mortgage interest rates will probably rise because the Fed’s monetary policies will change.
I frequently run across clients and friends in Eugene Springfield that want to lower their mortgage payments, but are not sure what to do about it. As a Realtor, one option I usually discuss is selling, which may or may not make sense depending on the situation. 2013 Lane County real estate prices are currently somewhere around where they were in 2004, so if folks have purchased or refinanced in the last 8 or 9 years, there’s often not enough equity to sell without being short. There are plenty of short sales in Eugene Springfield these days, and it’s certainly an option for some, but not all.
Without sufficient equity, it also may be difficult to refinance. One notable exception is FHA Streamline Refinance. I’m not a lender and refer my clients, but as the lenders have explained the program it has some really good features, and some guidelines. Guidelines for FHA Streamline Refinancing are:
1) For homeowners with existing FHA mortgages.
2) Monthly mortgage payment needs to be reduced by 5+% by the refinance.
3) 3 month perfect payment history on your loan, and 1 or less late mortgage payments in the last year.
4) No appraisal required.
5) No income verification.
6) No minimum credit score.
7) For existing loans close before June, 2009, minimal upfront MIP cost (.01%) and low monthly MIP (.55%/yr).
For some homeowners with FHA loans in Lane County, FHA Streamlined Refinance may make a lot of sense. For others, selling may be a good option. And for others, sitting tight and waiting for the real estate market in Eugene Springfield to fully recover may be the best option. If you have real estate questions, please contact me. If you’d like a referral to good lenders, I’d be happy to do that too.
Duplexes remain a popular choice with real estate investors in Eugene Springfield, Lane County, Oregon. Most duplexes in Lane County, but certainly not all, are located in the greater Eugene Springfield area. I’ve found there’s a little more demand for city area duplexes than those in the country. At the time of this posting, there is a lot of buying pressure on Eugene Springfield duplexes and not an abundance of inventory. Of course, all markets equilibrate over time, and the duplex market will too. High demand and low supply tends to push up prices.
There is no shortage of sages and money gurus who have something to say about real estate. In fact, you could probably spend a lot of money on seminars that tell you how things supposedly work; unfortunately, in the real world of real estate and real estate investing most of the seminar ideas I’ve heard don’t work very well. What does work well in the real world is to buy quality properties, manage them adequately, and hold the investment for a number of years. When real estate investing is done correctly, the passage of time will make you look like a genius.
What are advantages to a duplex, and why do folks like them for real estate investments in Lane County? The following are some of the reasons.
Price: They are relatively cheap as a real estate investment, so more people can afford them, so the market and demand is larger for a less expensive investment; high demand and a large market are what you want.
Owner occupied: Some owners will want to live in one side of the duplex and rent out the other side. The tenant in effect helps pay your mortgage, which is a nice benefit. Duplexes are also popular in extended family situations, where someone wants to be close, but not too close. Duplexes are one of the few real estate investments that allow for both an owner occupant as well as tenants.
Financing: One to four unit complexes are usually easier and cheaper to finance than multi unit complexes, greater than 4 units. And, owner occupied financing is especially cheap. A portion of the rent, say 75% to 90%, can be counted on the loan application, which also helps. Talking to a good loan officer is always a good idea.
Cash Flow: A duplex provides a little better cash flow than single family houses. For instance, the rents on 2 120K houses might be $750 each, or $1,500 total, whereas, a 240K duplex might go for $800 per side.
How do you analyze Eugene Springfield duplexes as rental investments? There is not one correct way to do it, but this is how I do it. First, I look at the property itself, and factors I consider are:
Property Location: This is the most important factor, because it’s the one thing you can’t change. Chances are if you find an area icky and wouldn’t want to live in it, others may feel that way too, meaning it’s less desirable and rents will need to be lower to compensate for that.
In analyzing location, some of the things to consider are:
- Is it on a busy street? A quiet street is better.
- Is it near a large source of traffic such as a store or school? It’s better if there is low traffic.
- Is it near industry that might give off odors or noise? I like to avoid houses located close to industrial or commercial sites.
- How do the other homes on the street look? Similar in age and condition is best. Property values do best in homogenous neighborhoods.
- Is it in an area of owner occupied houses, or many rentals? I prefer owner occupied.
- Is the street improved or will it need costly repairs in the future? I like streets with curbs and gutters; streets without them, at least in Eugene Springfield, will probably get them in the future and adjoining property owners often foot the bill.
- Is it on sewer or septic tank? I prefer sewer because maintenance costs are less.
- Are there flood plain issues? Outside of the flood plain is best.
Condition of the Property: Generally, you’re better off paying a little more for a higher quality property. Better quality is easier to rent and tends to take less maintenance over the long haul. As a practical matter, duplex rents around Eugene Springfield tend to cap out around $1,300 or so per month, so there’s a price limit above which duplexes start to make less sense. Ultimately, if you are buying, getting a home inspection is a great idea, and I’m a Realtor, not a home inspector, so I don’t inspect homes. However, I do pay close attention to the condition and quality of the duplex. Things I pay specific attention to are:
- Foundation: Is it slab or stem wall. Both are ok. With a slab (sometimes called slab-on-grade, to distinguish it from a post-tensioned-slab, popular in California, but not in Lane County), there is no under floor wood to rot, but if there’s a problem with plumbing, or sometimes even electrical, they’re more expensive to fix because utilities are commonly in or beneath the slab, which needs to be cut and repoured. The bottom of the wall (wall plate) is more vulnerable to dry rot with a slab, but still can be a problem with a stem-wall; wall plates are typically difficult to evaluate. Exterior water control is especially important in pre 1980 slabs. Slabs are hard to evaluate unless there are obvious failures, like cracks and displacement that have pushed up part of the floor.
For stem walls, I look for cracks that are large enough to put a pencil in or that have moved, which is also called faulting. Given the amount of rain we get in Eugene Springfield, I look out for wet crawlspace areas, which aren’t desirable, but are fixable.
- Subfloor: Moisture, pests and dryrot are the major things to watch out for. Generally, you can only tell about the subfloor with a home inspection. It is easy miss underfloor problems unless you’re well trained. However, sometimes when a house is really bad, the floor will be especially lively (bouncy) or may be noticeably out of level. Common, but easy to fix, subfloor problems are missing or incomplete plastic ground cover and the presence of excess cellulose debris. Installing or fixing 6 mil, opaque, visqueen, a type of plastic, and removal of saw dust left over from construction are the fixes for the aforementioned. I have seen houses with over 20K worth of sub-floor problems due to insects. These types of problems are difficult, and therefore expensive, to fix because there’s a very heavy and big house in the way.
- Siding: HardiePlank type siding, real cedar, and plywood-T-111 are my favorites, in that order. Manufactured siding made of wood fiber and resin is not as good, in my opinion, but can perform well if you keep it painted and caulked, which not everyone does. Transite type siding is my least favorite because it contains asbestos, and remediation isn’t cheap. I usually take note of how good the exterior paint is and if it will be needing paint soon. Houses older than 1978 may contain lead and paint jobs for them are more expensive. Exterior paint jobs in general, have gotten more expensive than you might think, so good paint is a plus, but bad paint is an easy problem to fix. Bare wood and/or chipping paint can be problems that appraisers don’t like, especially if a loan is VA or FHA. Good flashing above penetrations (windows and doors) is a plus, but if it’s not there, good caulking is an ok substitute. It’s important to caulk sunken nail holes in newer, manufactured, siding; they are a path of moisture migration which is the enemy of structures in general, and siding in specific.
- Roof: Without a good roof, a duplex won’t last long in Lane County, where rain is plentiful. Leaks are problematic, especially with the modern specter of mold. A roof has to have some life left in it, perhaps 5 years, for a property to finance. Roofs with a pitch above 2′ to 3′ in 12′ can be shingled, and those lower than that need either a membrane, metal, or hot-mopped roof. Shingles are cheaper. There are two types of common asphalt shingles seen in Eugene Springfield, namely, composite and 3 tab. I prefer composite, which is also called laminate The number of layers in the roof should be noted. Sometimes for a reroof, the new shingles are laid over the old for cost savings. While this works, it’s not as good as removing the old shingles. Sings of an ageing roof are degranulation on the shingles, and rounded or curling shingle corners.
Cedar shakes were very popular in Eugene Springfield in the 1960s and 1970s, but is rare to see them used any more. Generally, when I see a shake roof it’s at the end of its life and will need replaced sooner or later. Metal roofs are long lasting, but not especially common. They’re expensive and the one complaint I hear about them is that they’re noisy when it rains. Concrete shingles are common on higher-end homes, but I don’t see them often on Eugene Springfield duplexes. Copper and slate are very high-end, and are almost never seen on duplexes or other multifamily housing in Eugene Springfield. Roofs leaks tend to occur around penetrations, such as vent pipes for HVAC , chimneys, and sky-lights. The condition of penetrations and flashing is hard to see from the ground, so will most often be determined by the home inspection.
- Windows and doors: Many older duplexes around Eugene Springfield have had their widows replaced, and finding a duplex with newer, vinyl ,thermo-pane windows is a plus. Fiberglass-clad, thermo-pane windows are good, but not as common. The next best, in my opinion, is aluminum thermo-pane, which were common in the 1970s and 1980s. Least desirable are single-pane because they’re not as energy efficient, and they sweat, which is icky. Wooden sash windows can be visually appealing, but require more maintenance, and are best avoided, if possible, for a duplex. Similarly, exterior wooden doors are esthetically appealing, but unappealing from a maintenance standpoint. Insulated fiberglass or metal doors are preferable, in my opinion. Fiberglass doesn’t dint when struck by an angry fist, a bizarrely common occurrence with rentals, but is more expensive, and therefore less common. Many, but not all, duplexes in Eugene Springfield have garages, and therefore garage doors. Modern, insulated, metal, overhead, garage doors provide the most bang for the buck. Their one drawback is their susceptibility to dents. Older wooden or composite doors can still provide acceptable service and are ok. My least favorite is non-insulated, single layer, metal doors because they are very prone to dents. Tenants around Eugene Springfield tend to expect automatic garage door openers. If doors and windows need replaced, they can be done fairly cheaply.
- Floor Plan: Most duplexes in Lane County are not architecturally designed, meaning the builder likely picked a stock set of plans from a plan book. Some floorplans are better than others. Floorplans have changed over time in Eugene Springfield. Before the 1980s many smaller rooms were common. From the ’80s and beyond open, great-room concepts are more popular. There is no definitively good or bad floor plan, so you’ll have to use common sense when evaluating the livability of the floor plan. My personal preference is towards great rooms with vaulted ceilings because the duplex will feel bigger, and it’s well liked by the Lane County marketplace. Three bedroom, 2 bath, 1,200 s.f. per side is my personal favorite, but 2/1’s are more common around Eugene Springfield, and are fine, but rent for less. Single floor is more accessible than multi-floor, so the tenant pool is larger.
- Walls & Ceilings: Textured drywall is the most common ceiling and wall system used for duplexes in Eugene Springfield. Duplexes from the 1960s and 1970s may have popcorn ceilings, which is less desirable, but probably adequate, especially if painted. Thin coat plaster is desirable because it’s more durable, but is not common. Older duplexes may have true plaster applied over lath boards. While adequate, it’s harder to repair. Most walls and ceilings have cracks, which usually aren’t anything to worry about. Sometimes, they can indicate a settling problem, which may need to be investigated.
- Interior Paint: Newer, nicer, interior paint is a plus, but if not present is easy to fix. Paint and floor coverings probably do more than anything else to make a rental seem clean and nice.
Duplexes built before 1978 may contain lead paint. Watch out for discoloration due to mold or water leaks. If either are present, they should be investigated and repaired.
- Floor coverings: Floor coverings, like tenants, come and go. Nicer newer floor coverings are a plus, but shouldn’t sway a deal one way or the other because floor coverings are relatively cheap, and you will probably buy them one or more times. Common floor coverings for duplexes and rentals in Eugene Springfield are: Carpet, Vinyl (Linoleum), and Laminate (Pergo-type flooring). Carpet looks good, is inexpensive, and quiet. It is fairly easy to stain or damage, which is a downside. Carpet is very common in Eugene Springfield duplexes. Vinyl makes a great water resistant flooring, and is desirable in wet areas, such as kitchens, laundry rooms, and bathrooms. Laminate looks good and is durable. Some laminates are not very water resistant and edge-swell when exposed to moisture, which isn’t good. Ceramic tile is sometimes seen in duplexes, usually in entry-ways, kitchens and baths. It’s durable and looks good. It can, however, be difficult to match tiles for replacement, but sometimes extra tiles are left behind, obviating this problem. Occasionally, you’ll see slate tiles, usually for entry ways. They look nice. When sealed, slate can be slippery, though. VCT, vinyl composition tile was once very popular but has fallen out of favor. Hardwood is liked by most everyone I deal with. Periodic refinishing is required, and can be a little expensive. New finished-in-place hardwood is around $10/s.f. in Eugene Springfield, costing about four times more than carpet or vinyl, so wouldn’t be my floor covering of first choice for a Eugene Springfield duplex.
- Plumbing: Landlords and plumbers probably spend the most time thinking about plumbing. Why? Because it’s expensive. Copper or plastic are the two most common types of materials for water supply. (Common plastic pipe choices for supply side are CPVC and PEX) I personally prefer copper because more people understand it, at least at this point in time, so it tends to be easier to fix. Galvanized supply pipes are sometimes seen. These are adequate, but some don’t like them because they can corrode from the inside. Galvanized was popular in Eugene Springfield duplexes up to the 1970s. ABS and cast iron are the two most common waste and vent pipes seen in duplexes in Eugene Springfield. Both are fine. I remember plumbers packing cast iron pipe joints with hemp and pouring in molten lead, which would briefly catch the hemp on fire. Quite a show, but very rare these days. ABS is safe, quick and cheap. Most have their favorite brand of faucets, and I’m no exception, and happen to like Moen, but Delta and Price Pfister also have their adherents. For sinks, I prefer stainless in the kitchen and enameled steel elsewhere. Both are low maintenance. Glass door shower and tub enclosures are a good investment. Tenants do not shut vinyl shower curtains, for reasons unbeknownst to me, and you will get dry rot eventually. Caulking is your friend in wet areas.
Electrical: Seeing updated wiring that includes 200 amp separate breaker panels, separate meters, GFCI and arc-fault interrupts is great, but it is rare to find them all unless it’s new construction. Electrical systems are probably best analyzed by the home inspector. There are certain brands of breaker panels that inspectors don’t like and usually suggest being replaced. Other common problems are double taps in the panel, reverse polarity in some of the circuits, and improper grounding. All are reparable. Homes and duplexes need smoke and carbon monoxide detectors that are to code before the sale closes.
HVAC: Heating, ventilation and air conditioning are important and expensive, so it’s good if they work. Since the 1980s, heat pumps have been a common choice for heating in Lane County. They utilize heat from the environment and usage costs are lower. They do take a bit more maintenance, don’t last forever, and aren’t cheap to replace, so they’re not perfect. For not a lot of money, they can also double as a central air conditioner, if there’s a reversing valve on the compressor, and condenser unit in the air handler. With our moderate climate in Lane County, air conditioning is a luxury, not a necessity, in my opinion. Tenants, of course, like air conditioning, but I’m not sure you get more monthly rent by having it.
Another popular choice in Eugene Springfield, for the last couple of decades, has been a gas furnace, either with our without an accessory air conditioner unit. Natural gas is cheap and reliable, and the furnaces generally don’t require a lot of expensive maintenance. Ceiling and baseboard heat are simple, reliable, but not as cheap to operate as a heat pump or gas furnace. Still, they do work, and there’s some logic in the adage: “if it ain’t broke, don’t fix it.” Forced air wall heaters (sometimes referred to by a leading brand, Cadet) are fine. They’re cheap and reliable. There was previously a problem with certain makes and models in which they spat out hot metal and were a fire hazard, but most of those have been replaced or incinerated themselves.
Fireplaces are fairly popular because firewood used to be plentiful and cheap in Eugene Springfield. They tend to be inefficient and there probably needs to be another heat source as well. Inserts and wood stoves now need to be of the type with an EPA certification or be removed before a sale closes in Oregon. One rare heating source is a sawdust or coal furnace, sometimes called an octopus. I hadn’t seen one in years, but ran across one last month. They were popular around the turn of the last century. Any that remain probably could stand to be replaced.
The main thing about ventilation is that it’s present and vents to the outside. Ventilation fans in wet areas (bathroom and laundry rooms) as well as above the stove are good. Automatic ventilation, such as timer controlled suction fans are sometimes seen in newer, more air-tight, construction, and are fine. When I was building, our motto was you could never have too much attic ventilation. Most attic ventilation is passive, but sometimes electric fans are seen. I rarely see inadequate attic ventilation fixed, meaning it’s not perceived as a huge problem.
Appliances: Generally, if the appliances work, that’s about all you can hope for. Appliances in duplexes in Eugene Springfield tend to be low-end. Personally, I prefer step or two up from the bottom end. Home inspectors usually do some simple tests to appliances to verify that they generally work.
Landscape, hardscape, & flatwork: Simple, middle of the road landscaping and flatwork are best for duplexes in Eugene Springfield, at least in my opinion. Tenants don’t tend to take the greatest care of either, and landlords often end up cleaning up and fixing both. So, the thinking is that a 10 dollar arborvitae is more pleasant to replace than a $300 vine maple. Likewise, replacing a $3 cement paver is less painful than a $25 sandstone rock from Montana.
The above are some of the factors that I use to look at the underlying asset, namely the structure, and its condition. Analyzing the financial performance, or “the numbers” is also important. There’s more than one way to go about this, and I tend to combine several ways to get an overall gestalt. Some of the different ways to analyze Duplexes in Eugene Springfield follow:
- Comps: By looking at other comparable properties on the market, you can get a feel for prevailing rents and prices. And if you look at 50 listings every day, as I do, you can pretty quickly size up any property. Looking at price per square foot can be a useful tool. I find comps probably the most useful tool in my evaluation.
- GRM: Some like the Gross Rent Multiplier, which I find somewhat useful. Simply put, its a ratio of gross rents to asking or sales price. I looked MLS for the average GRM for duplexes around Eugene Springfield, for the last 2 years, and saw quite a range, namely, from 8.5 to over 30. Average was 11.3
- Cap Rates: Capitalization rates can be a very useful factor by which to evaluate income property, but aren’t my favorite for duplexes in Eugene Springfield. They’re not always reported, and when they are, they’re often not right. High cap rates can be alluring, but often they are high because the quality of the underlying asset is poor, and the risk is greater. Not only do you need to know what the range of cap rates are for a type of property in the local market, but also the “mistakes” that people sometimes make to show cap rates as too attractive. If you don’t know those things, it’s a good idea to find someone who does to help you.
- Cash Flow: Ideally, I like to see my owners in properties that are at least cash neutral, which is to say that at a minimum, they pay for themselves. For duplexes that means they can carry a loan to value ratio somewhere around 75%, if not owner occupied. Of course, this varies from property to property. The rationale is that if a property is carrying itself, there’s less risk. Times can get tough, and if you need to feed a mortgage every month, it can be a strain, or worse, impossible.
So, all of the previously mentioned things are what I think about when evaluating duplexes or multifamily income property in Eugene Springfield. I was on my first multi-family job site when I was 4 years old and have picked up a thing or two since then. An experienced and honest Realtor can be invaluable if you’re interested in listing or buying a duplex or income property in Eugene Springfield Oregon. Please contact me if you’re interested in buying or listing a duplex in Eugene Springfield or elsewhere in Lane County.
Many would love to sell their houses but are trapped due to relatively low prices and high debt. Our real estate market won’t truly normalize until this changes and trapped home owners can easily sell. Why are they trapped? Lack of equity prevents selling as a non-short sale, and refinances can be difficult, due to low or absent equity and/or poor credit, leaving many to scratch their heads for a good solution. Eventually the situation will resolve, but it will take awhile.
In round numbers, we’ve lost about 1/4 of our value in the real estate market in Eugene Springfield, since peak values in summer of 2007. If real estate appreciates at a typical value of 3-4% per year, it will be years, not months until we’re back at previous values. So, prices will eventually rebound, but over time. Reduction of mortgage debt is also part of the solution. With every payment, the amount of the home mortgage decreases, which also helps. Rebounding home prices and a reduction in the mortgage amount are one cure for the problem. How long until these trapped sellers are set free? I’d guess perhaps 5 years.
Just how big is the problem? Nationwide about 1 in 4 mortgages are underwater, which is to say that more is owed than the house is worth. In Portland, it’s thought to be about 1 in 5. Statistics aren’t available for Eugene Springfield, but it’s reasonable to assume we’re somewhere between the national average and Portland.
So, what can the trapped homeowner do? Refinancing is great if you can do it. We’re at very low mortgage interest rates, and if you can refinance it may well indeed lower your monthly mortgage payments. Refinancing can involve a myriad of rules and requirements and lenders are the best ones to answer questions. Some general information on different types of refinancing is below:
- Your current loan has to be insured by FHA.
- Often, no appraisal is required. This means house value, in particular if you are underwater, isn’t considered.
- Your mortgage payment history is key. Paying over a month late hurts.
- A good credit score may not be necessary.
- Income verification is not necessary.
- The VA program is called IRRRL (pronounced “earl” by lenders) which stands for: Interest Rate Reduction Refinance Loan.
- You need to have an existing VA loan.
- No appraisal is required.
- No income verification is required.
- You don’t need to occupy the home currently, but do need to have occupied it in the past.
- The mortgage must be owned by Freddie Mac or Fannie Mae. The mortgage must have been acquired by Freddie Mac or Fannie Mae on or before May 31, 2009.
- You may avoid an appraisal (it’s case by case, determined by Fannie or Freddie), but they will refinance your loan even if you’re way underwater.
- Your loan must have been originated before or on January 1, 2009.
- You must have sufficient documented income to support the payment.
- You must have a documented hardship.
- Designed to help people in danger of foreclosure.
The above loan programs actually have more specific rules and guidelines, and I just mentioned a few of the highlights. A good lender will know more and be able to answer your questions.
I have worked with clients who want to convert their current residence with a mortgage to a rental then purchase another house to live in. It’s not that it’s impossible to do this, but it is much more difficult than it was in the past. Each situation is unique, but some of the problems that derail this plan are: too much debt to income, inability to count rental income if there is insufficient equity in the rental house, and needing in some cases 6 months PITI for the rental and new purchase. Mitigating factors such as a job transfer helps in this plan. It’s worth investigating turning your house into a rental, but it’s a more arduous task these days.
When home owners need or want to sell when they’re underwater, some will turn to a short sale. In some ways, short sales are similar to a regular sale: the house is listed with a Realtor and offer(s) are accepted by the seller. In other ways, they are much different: sales proceeds are short of what is owed (short sale; clever, huh?) and the sale is contingent on the lender’s approval of the short sale. The lender will want documentation to prove that the seller can’t afford to write a check for the deficiency (difference in sales proceeds and mortgage debt.) The timing is also much different. Non-short sales typically close in about 5 weeks from the accepted offer. Short sales are typically 3 to 6 months. As I understand it, in Oregon, lenders aren’t allowed to seek deficiency judgments on the first mortgage of a primary residence; this is not the case for second mortgages, though. Sometimes, but not always, lenders will do “cash for keys,” which is when they give you a small amount of money to assist in moving out. I always try for this on my short sales, but honestly don’t often get it. Surprisingly, your credit seems to recover pretty rapidly after a short sale. I have a client right now that is purchasing a new home after I short-sold her last house 24 months ago.
Foreclosures or a deed transfer in lieu of foreclosure are the last resort, at least in my opinion. They are said to do the most harm to your credit rating and the effects persist the longest on your credit report. If all other options are exhausted, though, this may be your last out. It will certainly get you out of an unwanted house, but is a rather blunt instrument to solve an otherwise delicate problem.
Mortgage interest rates are very low these days, usually in the 3% to 4% range, which makes for affordable house payments. Rates are said to be at 40 year lows, and combined with low, but increasing, house prices in Eugene Springfield Oregon, makes it a good time to buy.
The latest data from the Federal Reserve Board shows a national average for fixed conventional home mortgages to be 3.35%, which is very low. How long will it stay that way? No one really knows, but analysts are saying rates will stay low until unemployment drops below 6.5% which they’re not expecting in 2013. Last quarter’s GDP actually was in negative territory, attributed to a decrease in defense spending. Get 2 of those in a row and you have a recession, by definition; analysts are not expecting that, though. New home building is expected to contribute significantly to the economy in 2013.
If you are thinking about buying a house in Lane County, please contact me.
In today’s conservative lending environment, it can be very difficult to obtain loans in Lane County on raw land, or even on bare lots in a subdivision. Raw land is often in its natural state and probably doesn’t have utilities or other infrastructure in place, whereas subdivision lots are often ready to build on.
So what do you do if you find that perfect parcel of land, but don’t have all the cash to buy it? In some cases, seller’s will agree to a land sales contract, in which they essentially finance the purchase. Sellers retain title to the property until you perform under terms of the contract. Sellers I know usually want the cash, if possible, and aren’t thrilled with the risk of holding title to a property not controlled by them; they may need to take it back, or there could be a problem brought about by the new buyer, like dumping of something nasty on the property.
Most banks don’t want to loan on raw land because the loans are difficult or impossible to sell on the secondary market. (Most banks don’t own your loan, merely the servicing rights; the underlying loans typically get sold off on the secondary market.) Land is also perceived as risky, because if they need to repossess it, there is no quick source of rental income, and development costs can be largely a mystery.
There are a select few lenders in Eugene Springfield that will loan on bare land. There are the so-called hard money lenders, but they tend to be expensive, and LTV ratios are low. However, for certain situations, they may make sense. There are a few portfolio lenders in town, who can and will loan on raw land, or just about anything that makes financial sense to them. Down payments may be as low as 30%, which is great for land. If I were wanting to purchase land in Lane County, I think a portfolio lender would be my first stop so I could find out about the financing available. My second stop would be to call a good honest realtor, especially because it’s free as a buyer.
Below is a picture of a lot I have listed, and on which I lowered the price. It’s a good example of property for which a portfolio lender makes a lot of sense.
Most people want to own their own home–it’s part of the American Dream. There are a variety of programs, grants, and loans that help first time home buyers get into a house, sometimes with little or no money down. Home prices have started back up, so many folks are choosing not to wait any longer to buy. I work with first time home buyers, and often it’s cheaper to buy than to rent. Record low interest rates, decreased house prices, and first time buyer’s programs make home buying now especially appealing.
So, how do you go about buying a house? Many will look on the internet to get a feel for what’s out there, guess what they think they can afford, and there’s nothing wrong with that. And, there’s always driving around and picking up fliers. If you’re just starting out mortgage calculators can give you an idea of what monthly payments on a loan will be. If you need a quick back-of-the-envelope type estimate, figure that a home mortgage costs about $5/1,000, meaning you’ll pay around $500 a month for a $100,000 loan.
A better way to go about the process, once your plan gets a little momentum, is to talk to a lender, who will be able to tell you exactly what you can afford, and once you get that number, your home search will be much easier. Finding a good Realtor will also help you. It doesn’t cost anything as a buyer to work with a Realtor, and they’ll be able to guide you through the home buying process, which is often emotional and complex.
There are a number of programs exclusively for the first time home buyer, and there are other available programs for all buyers, that often help first timers, which in summary are:
- Oregon State Bond Program: Up to 3% for buyer’s closing costs or lower interest rate on the mortgage. Within Oregon.
- HAP: Up to 10K as a zero interest silent second. Within Eugene city limits.
- SHOP: Up to 7K as a zero interest silent second. Within Springfield city limits.
- USDA: 100% financing (zero down payment). In Lane County, eligible properties are outside Eugene and Springfield city limits.
- VA: 100% financing (zero down payment) For veterans only.
- FHA: 3.5% minimum down payment.
Some of the programs and are income based. Some are area specific. And, all of them have their own unique set of requirements. A good lender will be familiar with the programs and a good realtor will know what types of houses qualify for which program. Also, some programs are sometimes out of funds, and therefore temporarily unavailable–again, this is something your lender should know. Below each of the programs is described in more detail.
- For first time home buyers, meaning buyer hasn’t owned a home in the last 3 years.
- Can be combined with 15 to 30 year FHA or USDA loans.
- Program provides up to 3% for buyer’s closing costs, or lower interest rate on the loan.
- House must be in Oregon. Can be used or newly constructed site-built, however the underlying loan may have its own requirements, such as no used mobile homes for USDA; each loan program has its own requirements, though.
- No bankruptcy in last 2 years or foreclosure in 5 years. The underlying loan will have its own timing requirements if you’ve had a short sale, foreclosure or bankruptcy.
- If the house is sold within 9 years of purchase and your income limit exceeds certain set limits for the year you sell, you will be required to pay back some of the money, although this doesn’t often happen. Your lender will review it and explain it to you.
- There are income limits by county and number of people in the household. A budgetary estimate of income limits in Lane County is 70K to 80K, or 115% of the median income that year.
- There are property value limits. A budgetary estimate for Lane County is 313K to 383K, depending on location.
- No funds are available before July 2013.
- For first time home buyers, meaning buyer hasn’t owned a home in the last 3 years.
- Maximum income requirements based on family size. In 2012, this ranged from 33K to 55K.
- House must be within Eugene city limits.
- Must be your primary dwelling, single family (can’t use as a rental or be a duplex).
- Up to 10K in funds for down payment or closing costs, in the form of zero interest, silent second mortgage which doesn’t need to be repaid until you sell or refinance.
- House must meet HUD requirements. The condition of the paint is very important.
- Maximum house price is about 260K.
- Used in conjunction with another loan program, for example FHA, for which you must qualify.
- For first time home buyers. Buyer or their spouse can’t have owned a home in last 3 years.
- Up to 7K in funds for down payment or closing costs, in the form of zero interest, silent second mortgage which doesn’t need to be repaid until you sell or refinance.
- House must be located in Springfield city limits.
- Maximum income based depending on family size. Income maximums between 31K and 59K in 2012.
- Must be primary residence.
- House must meet HUD standards.
- Maximum house value is 185K.
- Buyer must contribute $1,500. of their own money.
- Used in conjunction with another loan program, for example FHA, for which you must qualify.
- Not exclusively for first time home buyers.
- Minimum down payment: 0.
- Maximum income requirements based on area and number of people in household. In Lane county, with 3 people in the household, the maximum income is approximately: 74K.
- The house must be in the USDA definition of a rural area. In Lane County this excludes properties in Eugene and Springfield city limits.
- Maximum purchase price is $417,000.
- Property types: Generally existing or newly site-built. In certain instances modular or manufactured homes may be allowable, but check with your lender for the latest on that.
- Farms are, surprisingly, not acceptable.
- There are specific time requirements for bankruptcy, short sale or foreclosure. Almost all loan programs need at least 2 years and sometimes the minimums are more.
- All household income is counted towards the income maximums even if person is not on loan.
- For Veterans
- Zero down payment up to a home price of 417K.
- No location requirement for the house.
- There are specific time requirements for bankruptcy, short sale or foreclosure.
- 3.5% minimum down payment.
- House must meet HUD standards.
- Loan maximum by county. In Lane County, it’s currently $417,000.
- There are specific time requirements for bankruptcy, short sale or foreclosure.
Generally, for all of the loans and programs you’ll need to meet minimum credit standards and have verifiable income. Your loan officer will know the most about the requirements of different loans and programs.
Most home purchases with mortgage loans have closing costs. Closing costs may include: prepaid home insurance, prepaid taxes, loan fees, and a surprisingly large number of other expenses. Each deal and each loan will vary in the amount of closing costs, but a back-of-the envelope estimate is 3% of the sales price. As a realtor, I usually try to get the seller to contribute as much as possible to closing costs so my buyers have to come up with as little out of pocket costs as possible. Typically, when you’re buying a home, you don’t have an abundance of excess cash laying about.
I helped the buyer of this home; she was a first time buyer and had to come up with very little cash out of pocket and utilized some of these programs. It was cheaper than renting for her, and the purchase price was 100K. What a deal! If you’re interested in buying a house in Eugene Springfield or anywhere in Lane County, Please contact me.
VA mortgages are some of the best deals around. Whether refinancing or buying a home, the rates and terms are hard to beat. This cute home in Eugene Oregon is being purchased with a VA loan by a veteran, whom I’m working with as his Realtor, and interest rates are in the three percent range, which is cheap money in my book. As a general guideline, debt (PITI) costs around $5/1,000 at these rates, so a 100K loan is around $500/month, as a budgetary figure.
What’s the catch? Well, you need to be a veteran, and meet some requirements. But, if you qualify for a VA loan, and if you can find a Realtor and lender that are familiar with VA purchases and mortgages, it’s remarkably simple for the home buyer.
What are the requirements for eligibility for Federal VA loans? The VA determines your eligibility. Because it’s the Gov involved, as you might imagine, there’s a fair amount of paperwork and acronyms, however you’ve probably endured worse.
The starting point is your DD 214, the Certificate of Release or Discharge from Active Duty. You can apply for your DD214 electronically or on paper using SF 180. The DD214 is used as documentation for your COE, Certificate of Eligibility. Your lender may be able to check your COE on line, with results generated in real time. You can also apply for your COE using form 26-1880. Get your COE and you’re golden, so to speak. Meaning your lender can issue you a prequalification or preapproval letter and you’re ready to start shopping for a house.
Generally, the following allows you to be eligible for a VA loan:
- Service between 1940 and 1980: active duty service 90 days wartime or 180 days peacetime.
- Service after September 7, 1980: generally requires 2 years active duty.
- National Guard or Reserves: 6 years guard/reserve service .
- Widower or Widow: If your spouse died on active duty or as a result from a service connected cause. You need to be unmarried, unless you’re 57 or older.
- If you were discharged other than honorably, further work-up by the VA will probably be needed.
This is not an exhaustive list of VA loan eligibility requirements, but is a general guideline. The VA determines loan eligibility.
The Federal VA guarantees the loan but a bank actually issues the loan. Depending on your level of benefits, the VA guarantees the loan up to 25% of the loan amount. Currently the maximum guarantee is $104,250 for a maximum loan amount of $417,000. It is possible for loans greater than this amount, but they may require down payment of 25% of the amount over $417,000. Loans under $417,000 generally do not require a down payment.
The ODVA, Oregon Department of Veterans Affairs, is an actual lender to veterans for home purchases, in distinction to the Federal VA, which merely guarantees the loans. ODVA doesn’t charge a funding fee, but does require mortgage insurance if the LTV (loan to value ratio) is greater than 80%. Federal VA home loans do usually require a funding fee but don’t usually require mortgage insurance. ODVA has their own underwriters who may be willing to loan if your credit is below 620. Both ODVA and the Federal VA home loans are great programs, and which one to go through is best left to you and your banker.
The Federal VA has a level of entitlement, and normally, if you’ve never had a VA loan or paid off your previous Federal VA loan, you’re eligible for full entitlement. If you’ve had a short sale or foreclosure on a VA loan you may eligible for only partial entitlement. To be eligible for Fed VA loans, the following timelines apply:
- Bankruptcy 2+ years ago
- Short Sale 2+ years ago
- Foreclosure 2+ years ago.
Your credit usually has to be 620 or above. The Federal VA per se has no credit requirement, but the secondary market, to which loans are sold, does. It still may be possible to get a VA guaranteed loan if your credit is lower than 620, but these are case by case, and your lender will have the most information on that.
Usually, the Federal VA charges a funding fee, often quoted at 2.15% of the loan amount. The 2.15% is actually for first time use with zero down payment. The funding fee on subsequent use rises to 3.3% on zero down payment. With 5% down payment, the funding fee drops to 1.5% and with 10% down, the fee is currently at 1.25%. (Guard members not otherwise qualifying generally pay 0.25% more.) The funding fee is typically rolled into the loan. However, if you receive or are eligible to receive payments for a service related disability, this fee is usually waived. You’ll need form 26-8937 for this. The amount you are disabled (%) doesn’t matter–the fees are waived.
Closing costs are NOT covered by your VA loan. However, you and your Realtor may be able to build them into the offer and have the seller pay for them. For instance, if closing costs were $1,000 on a house priced at $100K, you might offer $97K with seller to contribute 1K in buyer closing costs, prepaids and fees. Seller contributions to closing costs (concessions) are limited to 4% or less of the purchase price. Usually VA buyers have to come up with little or no out of pocket cash to buy a house.
You will typically need a job, 2 or more years in duration, or other source of income to be eligible for a VA loan. Disability payments usually qualify for this. Unlike other loans, the VA looks more at residual income than DTI (debt to income ratio). Residual income is what’s left after the bills are paid, including utilities, on a sliding scale, based on the number of people in the household.
High debt ratios (DTI) don’t automatically disqualify you from federal VA loans. For income to be counted, it must be acceptable (legal) in all 50 states. For instance, even though marijuana is legal in some states, including our neighbor to the north, it’s not legal in all states, so can’t be counted towards income.
If your loan application is marginal with respect to residual income or DTI, the following compensating factors may help you get a loan:
- sizable down payment. 5% is considered sizable.
- excellent credit history,
- conservative use of consumer credit,
- minimal consumer debt,
- long term employment,
- significant liquid assets,
- the existence of equity in refinancing loans,
- little or no increase in shelter (housing) expense
- military benefits,
- satisfactory home ownership experience
- high residual income
- low debt-to-income ratio
- tax credits for child care, and
- tax benefits of home ownership.
You’ll pay typical closing costs except the following, which VA won’t allow you to pay:
- Escrow fees or charges (typically $200 to $400 dollars, depending on the deal size)
- Document preparation fees
- Loan preparation fees
- Conveyance fees
- Postage or mailing charges
- Loan application or processing fees
- Truth in lending disclosure statement preparation fees
- Tax service fees
Fed VA Loan FAQ:
Q: Can I use my federal VA loan for a manufactured or mobile home?
A: Yes, if it is de-titled (not personal property), on its own permanent foundation, and on its own land.
Q: Will a mobile home in a park qualify?
A: Minimum requirements are the mobile home to be on it’s on its own land, so if you were renting a park space, the answer would be no. If you own the lot in the park, the answer is, yes, it should.
Q: Can a pre-HUD mobile home (prior to June 15, 1976) qualify for a VA loan?
A: I don’t think so. Minimum VA requirements tend to mirror HUD standards, and it would not be FHA/HUD financeable.
Q: Will a single wide mobile home qualify for a VA loan?
A: It may be difficult to find a lender that can write the loan, but as I read statute 36.4207, the answer is yes if it’s at least 10′ x 40′.
Q: Does a mobile home need tie downs to qualify?
A: The conventional thinking is yes.
Q: Can I use my VA Benefits for a condo loan?
A: Yes, if it’s greater than 400 square feet, and it’s a VA approved project .
Q: Will I need insurance for my condo even though the project has casualty insurance?
A: Yes. You will probably need a “walls-in” policy. Many, if not all, types of loans require a “walls-in” policy on condos, so this isn’t unique to the VA.
Q: Can I use my VA benefits to buy a single family rental house?
A: No. VA loans are only for use in financing your primary residence.
Q: After I’ve lived in the house a year, can I use it as a rental?
A: Yes. You will need to sign a document saying you will use the house as your principle residence for one year.
Q: How about a duplex, triplex or four-plex?
A: If you are going to live in one of the units, then yes they should be VA eligible. If you are not going to count the rental income as part of your loan, you might even be eligible for zero down payment.
Q: Are there standards a house must meet to be eligible for a VA loan?
A: Yes. Dwellings must meet Minimum Property Requirements, generally similar to HUD standards. Your Realtor or lender should know the standards. Dry rot, wood-ground contact and bare wood are typically problems that must be fixed.
Q: Can my spouse co-sign for the loan?
Q: Is a termite inspection required?
A: Not in Oregon, but they are still a good idea. States with a moderate to severe termite infestation probability (TIP), all but the northern most states, do require a termite inspection. If the appraisal comes back with evidence of pests or dryrot, an inspection will be required.
Q: Will a special appraisal be needed?
A: Yes. VA requires an appraisal from a VA Certified appraiser. The appraiser will follow guidelines and requirements acceptable to the VA.
Q: Who pays for the appraisal?
A: Usually the borrower. There are certain circumstances in which the borrower is not allowed to pay for an appraiser, such as when a lender orders a second appraisal to challenge value.
Q: Is an appraisal required for a VA refinance?
A: Not if the existing loan is VA.
If you are a veteran and thinking of buying a home in Lane County Oregon, I’d be pleased to assist you. Feel free to contact me.
Distressed home sales, those that are short sales or foreclosures make up between 1 & 4 and 1 & 5 sales, nationwide, which matches the rates of distressed sales in greater Eugene Springfield. The NAR is predicting the rates of distressed sales will fall this year because the number of seriously delinquent mortgages is declining. 3% of Fannie and Freddie mortgages are delinquent in Oregon.
However, the number of Fannie Mae and Freddie Mac short sales reached an all time high with 34,000 being reported for quarter 3 2012. From 2008, Fannie and Freddie have reported some 391,000 short sales. If the average loss per sale were 50K, which is a guess on my part, the loss would be some 19.5 Billion dollars, which is a number on the order of burgers served by McDonalds. Yikes.
The number of REOs by Fannie and Freddie has declined to about 158K in September 2012 down from 241K in 2010, so that appears to be improving.
So, short sales and foreclosures will remain for the next few years but appear to be declining. This is in keeping with the increased real estate prices we are seeing in 2012 & 2013. If you would like more information on short sales or foreclosures in Eugene Springfield Oregon, please contact me.
So what’s up in 2013 with foreclosures in Eugene Springfield? I get asked that question often. The short answer is: the supply of foreclosures, actively for sale, is low and foreclosures are still a good value.
Why is the supply of foreclosures in Eugene Springfield down? Changes in 2012 made Oregon essentially a judicial foreclosure state, which has backlogged the rate of foreclosures. The Oregon Supreme Court is currently considering the MERS issue, so things may change. Non-judicial foreclosures averaged perhaps 6 months to complete. Judicial foreclosures are closer to a year or more.
When I last looked at foreclosure rates in 2010, they comprised 18% of Eugene Springfield sales. In the last 30 days, they comprised only 8% of sales. Short sales went up to 12% from 8%, 2012 vs. 2010, though. Foreclosures plus short sales are sometimes said to be “distressed sales.” The rate of distressed sales in Eugene Springfield is around 1 in 4 or 1 in 5 sales.
Every foreclosure is a tragedy for the former homeowner. Staying in the house as long as possible is sometimes the goal, and understandable. From a societal viewpoint, however, getting the foreclosures rapidly done with is thought to be good. While the roots of the housing crisis go back to 1992, the Great Recession of 2008-2009 was lead by the tanking of the real estate market; its normalization must also occur, and we’re nearly there. In fact, real estate prices in Eugene Springfield have trended up for the last few months.
Shadow inventory is often discussed by foreclosure pundits. Shadow inventory is real estate owned (REO) by banks, GSEs (Fannie Mae, Freddie Mac), the VA or HUD that isn’t actively for sale. Some think intuitions manipulate the market through shadow inventory. I think those people listen to too much talk radio, and there are legitimate reasons for shadow inventory, such as fixing up the house, clearing title issues, or insufficient resources to handle the large numbers of foreclosures. Estimates of shadow inventory in the U.S. as a whole vary widely from perhaps 750K units to over 2 Million.
So, how does the inventory of foreclosures look in Eugene Springfield? Foreclosures aren’t going away anytime soon. I looked at the last 10 months stats from RMLS and there were about 282 closed sales, so we’re consuming say 28 per month. There were 25 actively listed, but over 200 owned (8ish months’ supply) and over 200 in the process of judicial foreclosure (for say, 16 months’ supply). So there are still plenty of foreclosures in Eugene Springfield that will be coming on the market in the upcoming year(s).
People often think that if they know about a vacant house that’s in the process of foreclosure that they or a realtor can contact the bank and get them a deal. Sounds good, but doesn’t work that way. When the bank or GSE is ready to sell, they typically list them with a Realtor who puts them on MLS. Getting through to a bank on a house in the process of foreclosure is virtually impossible.
Another misconception is that banks just want the house off their books so a low ball offer is a good idea. When I looked at the foreclosure stats, they sold in half the time as a non distressed listing and for over 99% of listing price.
If you are interested in foreclosures please contact me.