The Mortgage Go To Guy!!: June 2007

Thursday, June 28, 2007

Florida Mortgage Loans | Foreign National Homebuyers: Seasoning Funds in US Banks

Foreign National Homebuyers typically purchase properties both Second Homes and Investment Properties in Vacation and Resort areas.

With the Florida real estate market being on a downswing but still chock full of new development, Foreign Nationals are finding now to be a great time to purchase their vacation homes in Florida. The weak dollar versus the Euro and British Pound makes this a great time for Europeans!

During the purchase transaction, most lenders require funds equivalent to closing costs plus six (6) to twelve (12) months of PITI (Principle Interest Taxes and Insurance) payments to be placed in a US bank account. The lender will require verification of the deposits for loan approval.

Based on the findings of some of my Realtor partners, some small local banks have some issues accepting and translating or exchanging checks from International Accounts.

To get around this hurdle, I suggest to Foreign Nationals that they choose to start an account in their home country with a large international bank, preferably with branches in the area near where they want to purchase.

Several banks come to mind that have International branches such as:

When the Foreign National is in the loan process, monies can easily be transferred and verified at these banks. They may even create US based accounts for automatic monthly payment options.

High Net Worth Clients can also use the Private Wealth Management departments of these three International banks to get their accounts set up and verified.

Read more about Foreign National Mortgage Planning in my previous posts:

More Florida Mortgage and Real Estate News You Can Use From
David A. Podgursky, MBA
The Mortgage Go To Guy
Your Source for Residential, Commercial, Investment and Relocation Mortgages in Florida

Thursday, June 21, 2007

Florida Mortgage Loans | Condo-Hotel/Condotel Financing Explained

Condo Hotels or Condotels are a popular property type in Florida, especially in hot tourist areas like West Palm Beach, Fort Lauderdale, Orlando, Tampa and Miami. With access to beaches, golf and other tourist attractions, Condo Hotel properties are a great way to purchase a vacation home with the benefits of ownership and the conveniences and amenities of a hotel room.

Condo Hotels have recently become more accepted by lenders who are now offering loans with as little as 10% down. Residency in these units is typically taken as either a Second/Vacation Home or an Investment for loan purposes. Some Lenders allow limited Primary Residence loans on these properties.

Foreign Nationals are common investors into these units in Florida as they typically purchase in vacation/resort areas.

A favorite feature of Condo Hotels for their owners is the rental pool and built in management. While not in use, the hotel can rent the units out and maintain them with housekeeping services on a nightly, weekly or monthly rental. While the rents will not count towards mortgage qualifications, this is a perk of ownership that most people do not overlook.

Lenders often look for specific criteria to be met such as:

Minimum of 600 square feet
In proximity to vacation/resort area
Separate Kitchen Space, Bathroom and Living Area/Bedroom
Kitchen to be equipped for food preparation
Voluntary rental pools

Some Examples of some great South Florida Condo Hotels are:

The Brazilian Court in Palm Beach Florida just off world renown Worth Avenue shopping. This is a quaint historic building complete with the five-star hotel amenities you would expect to find on Palm Beach Island including an amazing spa and a gourmet restaurant owned by five-star Chef Daniel Boulud.

Trump Las Olas Beach Resort - a 12 story Condo Hotel Project with 95 residences in a boutique setting set in the exciting Las Olas area of downtown Fort Lauderdale Florida. Located on a barrier island, on Sea Breeze Blvd between the Atlantic Ocean and the Intracoastal Waterways.

Trump International Sonesta Beach Resort - Part of the Trump Grande project in Sunny Isles Beach, Florida, this project is a three phase project includes the condo hotel project designed by renowned Sieger Suarez Architectural Partnership.

Ocean Sands Resort and Spa - In Pompano Beach Florida, just South of Boca Raton, Florida. A great location with over 852 feet of beach frontage.

The Ritz-Carlton Golf Club & Spa - Located in Jupiter Florida, in the North part of Palm Beach County Florida, this property offers a members-only spa and a Jack Nicklaus Signature Golf Course. The floorplans offered are 2 & 4 bedroom Mediterranean Styled Club Homes.

Friday, June 15, 2007

Mortgage Advice: Rates, Home Prices and Opportunity Costs

Homebuyers rely on Realtors and Mortgage Professionals to help them understand the connection between Purchase Price and Interest Rates and how they relate to time. The Time Value of Money can be easily interpreted by Real Estate professionals that do a little math to show people the Opportunity Costs of choosing to buy or not to buy.

People are astonished when they ask me about the market and I say "It is a GREAT time to buy"... it isn't a sales pitch, it is the truth.

What factors do I feel prove this statement?

Prices are DOWN
Rates are LOW
Inventory is HIGH
Days on Market is HIGH

All of these factors show that this is a GREAT time to buy.

But what if Mr. and Mrs. Homebuyer still want to wait? What if they say, "well, everyone keeps saying the market will drop another 1-2% so I think I'll hold off until then!"

That's when I talk to them about Opportunity Cost... the cost of NOT buying now. The cost of passing up a property that they would love and can afford to wait for a future time when:

That house may not be available
Prices in that market may not go down
Rates will go up
There may not be a house available that fits their needs as well in the future

So you see that there are many variables, many unknowns, that could create greater costs if you wait until the future.

Surely, waiting increases the chance of that "1-2% drop" happening if the market is in a downturn...but the benefit of that 1-2% on a purchase can be seriously outweighed by the greater costs of any of the other variables.

The questions that homebuyers must ask themselves are:

Is this the right house?
Is it a house we love?
Does it fit our needs now and for the foreseeable future?
Will we be able to find another house like it if we pass now?
What is our legitimate timeframe for buying?
And most importantly - Will we be able to afford this house if the mortgage payment rises?

Other opportunity costs to factor are:

Lost appreciation on a more expensive house if mortgage rates rise
Costs to shop for a home
Tightening in Lenders Underwriting policies about Loan to Value, Asset and Income, and ratios
Prolonging of escrows based on sale contingencies
Carrying costs of current house/rental while shopping

Robert D. Ashby, CMPS wrote a post called Realtors, You should be scared right now! where he detailed what these recent weeks of rising rates can do to your buyer's home purchase budget.

I have taken it a step further with the table below (click graphic for full size table in new window):

As you can see, there is a lot more detailed calculations that can help your buyer determine if now is the right time to buy.

One of these calculations is simply the amount of house the buyer is qualified to buy based on a interest rate hike of .75%.

As you can see. The Interest Rate goes from 6.00% to 6.75% in this equation. The payments are identical, but the buyer now can no longer afford a house for $375,000 and the new budget is set at $346,250. The $28,750 could mean sacrificing on distance to work, distance to schools, amenities in the community, an extra bathroom, square footage, etc.
Another Calculation I have drawn out is the lost appreciation over time. This table shows an average of 5% appreciation over 10 years.

As most homeowners are in their homes for 4-5 years, I have broken this table into two time frames for examples - 5 and 10 year cycles. Obviously, the lesser priced house cannot appreciate as much over time as the larger home.

At Year 5, you can see that the more expensive home has yielded an additional $13,343 in appreciation over the less expensive home. This is a Direct Opportunity Cost of waiting in a volatile market.

Over 10 years, the difference in appreciation triples to $39,041!! Essentially, for the same monthly payment, the asset returned an additional 10% over 10 years!

This illustration shows the real future value of money lost due to the higher interest rate. (click graphic for full size table in new window)

This shows that same 0.75% interest rate increase actually costs an additional $8,829 if the homebuyer chose to wait and got the house at the same price but with a higher interest rate!

Another calculation that should be considered in this discussion is "What if the market drops another 2%??"

In this table you can see that the original property price is on top with its 30 year Fixed Rate at 6.00% payment of $1,799.

If you drop down to the other three rows, you see that they are all 2% less in property value than the first value.

As you can see, 2% is only $36 in difference in the payments if the rate is the same.

So if there is no negotiating under the current value of the home, this would be considered Today's Value. If you were to wait until the price dropped due to economic changes, time on market, seller urgency and finally get it down, you're gambling over $36.
Now, should the value of the property drop 2%, but the interest rate goes up just 1/8 or 0.125%, the payment difference becomes only $13.

So now we're rolling the dice on the wait over a couple days worth of Starbucks.
Should the value drop 2% but the rate goes up 1/4 or 0.25% (recently we've seen an increase of 0.50%!) then the payment amount goes up and is now $11 MORE... so there is a LOSS of $11 for waiting on property values to drop by $7,500.

Now you can see how two of the main ways to calculate Opportunity Costs as they pertain to Buyers stalling in the current market. As you can see, both of these are Quantitative. The Qualitative factors are harder to calculate but should not be forgotten. They can be:

scarcity in a community,
scarcity of the model,
quality of houses in a price range,
longer commutes,
community amenities,
model amenities,
building materials,
quality of finishes,
inferiority of lots,
etc.

Now, the next time you hear "Oh I think you should wait for the market to totally bottom out" or "I think there's 2% more drop in the house values in this state" remember we're talking a few dollars a month difference versus tens of thousands of dollars difference in payments.

Monday, June 11, 2007

Mortgage Advice: What's worse than Foreclosure?

What could be worse than foreclosure?? Foreclosure due to being UNDERINSURED.

Many homeowners slide by on their homeowners insurance policy figuring that when the worst happens, they will get paid. The sad truth is that many homeowners will actually come up short on coverage if their house is totally wiped out. When the homeowners policy does not cover the dwelling and the borrower does not have the money to make up the difference, the lender can and will call the note due to lack of repair.

Why does this happen?

Many homeowners do not update their policies to the current value of their home. They don't realize that the insurance company doesn't automatically increase the coverage of their policies. Why not? because that means raising the price of the policy - something most people don't want to hear.

Here in Florida, we have a pretty tough skin when it comes to Insurance costs fluctuating. It is pretty much going to happen annually whether we like it or not. We're very aware of our insurance here due to the weather of the past few years.

What should homeowners be aware of?

Every year or so, it is smart to call your insurance agent and discuss your homeowners policy. Most homeowners don't even think about it because they escrow payments for insurance in their monthly mortgage payment.

Calling your insurance agent and reviewing your policy will allow them to analyze your property and ask questions to find out how and if your policy needs to be altered.

What changes need to be made?

The main alteration that most people need is an adjustment to the replacement cost of the dwelling. The replacement cost is exactly what it sounds like - the cost to replace the dwelling in the case of complete loss. The costs factored in here are strictly construction and materials based on today's market.

For instance, if there is a worldwide shortage of gypsum, then the price of drywall will rise. This will mean that your coverage might not be enough to cover the cost of a complete loss.The replacement cost is estimated in the appraisal upon purchase and refinancing, the two main instances of homeowners insurance analyses. The insurance agent has tools to update these figures to present time to make sure each client is properly covered.

As most people do not refinance every year, calling to make sure your coverage is up to date is a vital conversation to have. As a Mortgage Broker, it is part of my processing that the insurance company is alerted and is included on the mortgagee clause. This means that even if the homeowner forgets to call, it will be taken care of for them.

Realtors: Don't let this happen to you or your clients... when you are sending cards on the anniversary of closing, insert a reminder to call their insurance agents to make sure their coverage is up to date!

Florida Property Tax Update: Investor and Commercial Worries

The release of the newest version of the proposed Florida Property Tax Reform should worry a large portion of property owners in the State.

While Florida House Speaker Mark Rubio and Governor Charlie Crist have done a reasonable job accommodating homestead property owners, i.e. full time residents, especially those with property values under $500,000, I feel that there was a failure in this newest revision of the property tax reform to adequately address the issues facing investors and commercial property owners.

Many feel that these people don't need as much attention but I think that the ripple effect of not helping with their tax woes will be felt more directly than Florida Legislators might realize.

Apartment Investors

These investors will have the ugly job of informing their tenants that all this news about how tax savings will pass to them is just not the case. As property taxes will only lower slightly, and not at all in some cases, Rents will have to remain high to ensure that the properties cash-flow for the investor. The onus of the currently high tax rates on commercial properties will still fall on the pocketbooks of the renters.

Strip Center & Industrial Park Owners

These Investors are usually using Triple-Net (NNN) Leases which involve CAM (Common Area Maintenance) charges. The CAM usually includes Maintenance, Taxes, Insurance and other common fees. This benefits the investor in that they know they are collecting these fees from their tenants...but high inventory and vacancy rates will suffer as CAMs will not be able to be lowered without a true overhaul of the tax codes.

Condo Owners

This is a broad range of property owners but mainly consisting of small and medium businesses. These businesses are suffering from a double dose of the tax reform blues as they see a much less aggressive tax plan on their homes AND their work places.

Shopping Center Owners

Malls and shopping centers have very high per square foot rents right now plus CAM and sometimes Gross Leases to factor in. Due to high taxes, some small businesses are settling for lesser centers because of the high cost of doing business in newer Shopping Centers. Therefore large shopping center owners are seeing higher turnover rates and are now having to offer more incentives to potential tenants.

Land Owners

Some property owners lease their land instead of selling it or constructing on it themselves. Fast Food Chains are a popular target for this type of property owner. They buy the land and lease it to the franchisee who erects the building on it and stays for a certain period. With high taxes, this is creating a burden on property owners in higher traffic areas as they are the most affected due to higher property values.

A potential fix...

Some of these problems could be addressed by a proposition which was not offered up in the most recent coverage was a change in Assessment practices. If properties were consistently assessed with the same method and with an As-Used mentality rather than with a Potential Usage mentality, a small commercial property owner would not have as much to fear when the property appraiser comes to reassess after a new record was set for a price of another property down the street.

Comparables of properties of different Zonings, Usages, and Types should not be weighed in the judgment of an entirely different property. This is the problem with the Palm Beach County Property Appraiser who prefers to base assessments on Potential use regardless of the fact that a property might have been used in the same way for fifty years and has no reason to believe it will change.

The worst part...

There are definitely more property owners that will not feel the overdue relief promised by Legislators... but what these lawmakers are not seeing is that the indirect effect of high taxes on commercial properties on the middle and lower class is felt when employers cannot afford to create more jobs or offer higher wages... when apartment owners cannot afford to reduce rents... and when small businesses just cannot expand due to ultra high costs making financing property impossible.

South Florida Affordable Housing: Political Trade Offs...

South Florida Affordable Housing is a political mess because of tradeoffs that need to happen before anything real can happy in the marketplace.

Catching up on some news today, I saw some big issues being brought up in the ongoing Affordable Housing debates in Palm Beach County, Florida and Broward County, Florida.

I want to isolate a few interrelated issues to get the ball rolling as the sum total of Affordable Housing is just a big complicated mess. Hopefully this will inspire some people to start delving into some of the problems and open their eyes to the areas for improvement everywhere - not just Palm Beach County, Florida.

1) Depressed Real Estate Market

Right now, builders are seeing doom and gloom. They don't believe that the market is there for big housing projects and they are partially right. In Boynton Beach, Florida and Delray Beach, Florida, there are a few new projects that are either in the works or being completed currently.

Builders, though, sense the consumer panic and see so many listings sitting unsold. They also see their other projects having mass cancellations and houses built and empty. This creates havoc in their bookkeeping...but it also hurts their lending potential when they want to start a new multimillion dollar projects. Lenders require certain amounts of presales, certain occupancies and in Affordable Housing certain demographics targetted.

Because of this, many Builders are actually trying to scale back on their plans for new projects!!

This is not a good sign as these are the units and the buyers that we need to kick start. The ultra-luxury market moves on its own. The rental market moves in waves... the affordable market seems to be the toughest market in Palm Beach County, Florida despite scarcity... part of this is due to the property tax issues.

Scaling back the projects just means that the consumer doubt is creating a ripple effect and scaring builders.

2) Density

When developers decide to scale back, they have to make up the revenues somewhere... so they ritz up the units, make them a little bigger... and sell to a higher income bracket.

When you lower the density - the cost per unit rises so the sales price has to rise as well!

When a developer or a government agency reduces a project from a 50 unit per acre density to 30 units per acre, that means that people at the lower income levels are less likely to find suitable and affordable homes.

3) Infrastructure and Amenities

Sometimes governments overestimate the ability of existing roads and commercial areas to sustain growth - and underestimate the amount of additional growth that needs to be added in that light.

When as few as 400-500 units are added, local merchants cannot sustain the growth and need to expand. If there is not adequate new space made available, then these merchants will not be able to handle the new growth.

Also, Infrastructure also needs to assume growth of schools, fire and emergency services and police... something the current budgets don't always allow.

4) Tax Dollars

This is a double edged sword. As we focus on property tax reform, we also have to remember the effect it will have on the localities and how they will deal with the monies that may or may not come in depending on the tax plan that is adopted. Hopefully the newest tax plan will still provide some property taxes so local governments can still have revenue from these new, below median price housing. In Palm Beach County, Florida - median house price is $374,100. In Broward County, Florida it is $372,200. With the current tax plan under debate... a $200,000 home would bring in only 1/2 what it is bringing in today.

Municipalities are holding back all projects right now in reaction to the future budget cuts... and this includes - Affordable Housing!

Again... these are only a few of the issues on the hot seat right now. There are many more we can and will discuss in the future.

Lawmakers and other local commissioners realize some of the issues. Developers realize others...

We as real estate professionals are left to debate the differences and create a sense of urgency to unite the powers that be to create a plausible and meaningful solution to this problem.

More Florida Mortgage and Real Estate News You Can Use From
David A. Podgursky, MBA
www.TheMortgageGoToGuy.com
Your Source for Residential, Commercial, Investment and Relocation Mortgages in Florida

Sunday, June 10, 2007

Florida Property Tax Update: Getting Closer...but very underwhelmed

So Florida Lawmakers took a moment to announce they've come closer to finalizing the Property Tax Reforms that have been the subject of special legislative sessions that seem positively never-ending to residents in the state.

The local media has been buzzing with anticipation of the final announcement of where the taxes will roll back - but based on the latest numbers, I am personally quite underwhelmed.

There were issues that went untouched entirely and property owner classes who really are only getting token reductions while the "target property owner class" really didn't get that big a boost by the numbers.

Here's the breakdown:

Taxes will be frozen at 2006 levels at the City and County levels... this coming from ideas that said there would be an actual rollback as far as back to 2001.
Taxes will be reduced by 0-9%... those that get a 0% reduction are likely going to be upset... but 9% isn't a lot considering some assessed values have gone up considerably more than that in recent years. Counties and cities that have raised taxes the most in the past years will have the steepest reductions. Palm Beach County Florida is due 9% for sure. Some cities like Belle Glade Florida that have not raised taxes would not reduce taxes.
Revenue growth for Cities and Counties would be capped in the future based on growth of personal income in the state... so local surges in population and job creation would be countered if the entire state doesn't grow in synch.
Local governments could veto their caps, but only with a unanimous vote.
School Taxes will be untouched in the first year... but that's just a warning to local governments to prepare themselves. With thousands of vacant teaching positions, cutting taxes won't help when trying to fill those spots!

Homestead...ugh, what an issue. My past posts detailed homesteading and the new percentage system. Here's how it will work...but only after a majority vote (possibly not a simple majority but a 60% majority will be needed) on January 29, 2008 in the Florida Presidential Primary Election:

75% off the first $200,000 in value... house assessed for $200,000 would pay taxes on $50,000 value.
15% off the next $300,000 in value... house assessed for $500,000 would pay taxes based on $305,000 value ... i.e. $50,000 for the first $200,000 and $255,000 on the next $300,000 in value
No further exemption for homes valued above $500,000

Pros:

This plan definitely targets people who own or will own property in the low and moderate income ranges
This plan is far superior to a flat $25,000 homestead which does little at the top or bottom of value

Cons:

This plan misses the mark in many counties where median property values are higher than $200,000
This plan does not help a huge sector of middle income property owners at the $400-650K range which is a large section of future middle-income buyers. This price range is basically where the family homes come in for many of the "middle class" citizens live that Legislators wanted to help keep in the state.

Forgotten:

Portability... with only a tax freeze, many people will be frozen in their current homes and unable to upgrade or move because the issue of Portability has not been addressed. Only people that have been in their houses for longer than 4 years will really feel the significance of this plan
Assessment Practices... the big issue in South Florida has been the interpretation of assessed values by County Appraisers. The Palm Beach County Florida Appraisers office has been embattled due to their view on Highest and Best Use judgements vs Property in current use. Having the Appraiser assess your property based on what the property could be some day in the future is unfair.
Commercial Property Owners & Investors... a rollback to 2006 and a reduction of 9% for most of South Florida and other high growth Florida Counties will do little to help investors and businesses that own property. The incentive to move to Florida is diminished by the high property taxes.
Renters... without reducing taxes of Investors, the high cost of taxes must be passed on via higher rents. This is a large population and a big issue for the working class.
Snowbirds... a large part of the economy, albeit the seasonal economy, are the second homeowners from out of state. These property owners will get no further reductions. These are the people who eventually do move down full time but will not get the benefit of longer term ownership and portability if they upgrade or downgrade when they move down to Florida full time.
Foreign Investors... this is the same scenario as snowbirds and commercial property owners. A lack of further reduction will lessen potential gains for these investors and send them to other destinations instead of Florida.

All in all... it is a start... but legislators need to reconsider both the freeze date and possibly roll back further (2004??)... and also at least address Portability and Assessment Practices to benefit a broader range of Property Owners.

Tuesday, June 5, 2007

Florida Property Tax Update - AN EARLY VOTE!!

My earlier post Florida Property Tax Update - The Compromise is Near!! details what seems to be the final answer to the Florida Property Tax Reform issue that is currently the main topic of the Florida State House and Senate special session.

Florida House Speaker Marco Rubio, R-Miami, pushed forward a plan that will create a percentage system that will reward property owners with much larger exemptions based on the type of ownerships:

Homestead
Non Homestead Residential
Investment
Commercial
etc

The only issue to resolve at this point is what the specific percentages will be for each category of ownership.

The good news out yesterday was that due to the Florida Presidential Primaries being moved up, the House and Senate have requested that instead of waiting for a vote on an amendment for property taxes to wait for the next general election in November 2008, they want to have this amendment available for vote in this upcoming Primary election!!

Yesterday Morning, Governor Charlie Crist, R, signed a bill moving the Florida Presidential Primary election from March to January 29th of 2008.

As that is only 6.5 months away, it looks like Property Tax Relief is coming soon!

The Mortgage Go To Guy!!