David Stevens is an Assistant Secretary for the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). He recently spoke to Congress about FHA’s proposals and their continuing efforts to support the housing market.
Granted, Mr. Stevens was appointed to this position and is most probably a dyed-in-the-wool Democrat. But he makes some good points about the increasing stability of the housing market. Home prices have been rising since last April, although they had been projected to decline by as much as five percent in 2009.
Low mortgage rates have spurred home sales and a refinancing boom, and the first-time home buyers’ tax credit is responsible for pushing home sales. Many of those first-time buyers are purchasing REOs and other vacant properties, which helps stabilize prices and neighborhoods. Stevens reported that more than 3/4 of FHA’s purchase-loan borrowers in 2009 were first-time home buyers; the FHA is also the leader in helping minorities purchase homes.
However, as we move into 2010, Stevens and the FHA are proposing more restrictions on loans. . .buyers with lower credit scores (500-579) will be required to provide a larger downpayment (10%). Allowing qualified, responsible families to purchase a home will strengthen our housing market; we got into this mess partially because peoople who had no business buying a home, bought one anyway.
For us investors, it will be a buyer’s market for several months to come. Great deals can be found in every segment of the market, whether you’re into single- or multi-family housing. I believe foreclosures will be on the rise throughout 2010, and I’m going to continue to take advantage of the low prices.
While the market is still somewhat depressed, it won’t stay this way forever. Buy now, do whatever fixups are needed, and rent the home. Thousands of families have lost their homes to foreclosure. For many of them, it’s not that they don’t have jobs or got laid off from their jobs. They bought a home three or five years ago and, at the time, they were able to afford the mortgage payment. And then. . .boom!. . .the balloon payment came due, and they didn’t have that extra income to cover it. When they purchased the home, they thought they’d get a raise or promotion within the three to five year time frame, and it just didn’t happen. So they’ve lost their dream home. But they’re still employed. They can afford to pay rent on a nice home that you’ve bought. This scenario is happening all over the country, and you can cash in on it, as I am.
If you’re willing to take a chance on one of these unfortunate former homeowners, you might consider selling your rental home to them on contract. You can charge them a fat interest payment (10% is what I charge) and work out a payment schedule. Get a decent downpayment of at least $2000, hand over all maintenance responsibilities to your buyer, and give them the house keys. You’ll give them the opportunity to once again be a homeowner, it’ll be a financial win for you, and everyone will be happy!
You can learn more about land contracts in my book, “The Landlord Chronicles: Buying, Fixing and Managing Affordable Rentals.” It will be available soon.