Five Costly Mistakes First-time Buyers Make

Buying a first home can be a daunting experience. Here are five common and costly mistakes that novice home buyers make:

1. Ignoring the costs of having a low credit score. Lower-score borrowers pay thousands of dollars in increased interest rates over the life of the loan.

2. Muddying the waters by shopping for other things before closing. Lenders continue to check credit scores right up until the time of closing. Too much shopping could cause the lender to take back the loan.

3. Scrimping on an inspection. Being surprised by the need for expensive repairs can be financially devastating.

4. Buying without contingencies. Buyers should give themselves an out if the inspection turns up problems or the bank raises the interest rates.

5. No money for insurance. Insurance can be surprisingly pricey. Buyers who don’t budget for it can face a nasty surprise.

Source: CNNMoney.com, Les Christie (04/19/2010)

HOAs seek association fees from banks

Condominium and home owners associations desperate for money are experimenting with a tactic called “reverse foreclosure” to force banks to pay association fees.

The process works like this: When a borrower stops paying the mortgage, banks often delay taking the property into foreclosure. When banks delay, neither the former home owner nor the bank is paying association fees.

To remedy this, the association files its own foreclosure notice, taking over the title. The association can’t sell the property because of the bank’s lien on it. So the association goes to court, renounces the property and asks the judge to give the title back to the bank.

When the judge does so, the bank has to pay the fees. Experts say this technique is becoming very popular in parts of the country where there are a lot of foreclosed condos.

Source: Miami Herald, Rachael Lee Coleman (03/07/2010)

San Francisco condo resales stay steady

San Francisco's median resale condominium prices from November through January stayed steady from the same period a year ago, leading some analysts and real estate agents to conclude that values have settled into a range where they are likely to remain for some time.

According to city data analyzed by the Polaris Group, a San Francisco real estate firm that crunches housing numbers, the median price for a resale condo in the city - as opposed to a newly built unit - was $638,000 in the threemonth period ending Jan. 31.

That figure was essentially the same as the three-month period ending in January 2009 and was the first time since September 2008 that the median price has not experienced a year-over-year decline.

Analysts believe that housing prices across the Bay Area generally have begun to stabilize, but could be derailed by several factors, including a new wave of foreclosures, mortgage interest rate hikes and the Federal Reserve ending a program to buy mortgage-backed securities.

Chris Foley, a principal at Polaris, said that another big price dip is not likely to happen in San Francisco, given the city's relative shortage of existing housing inventory and a dearth of new construction coming onto the market. Prices currently are about where they were in 2004, he noted.

"Barring a cataclysmic event, either financial or natural, like an earthquake, we believe we are at the bottom and won't see great price appreciation for a while," said Foley. "There's no inventory overhang and there won't be any new construction for a while."

Foley said condo resales are a credible market indicator because they represent the biggest percentage of sales. Owners also generally are not under as much pressure to sell units as quickly as developers of new buildings, who are attempting to pay off construction loans, he said.

Foley said he believes that the market stabilization resulted from sellers becoming more realistic about prices the market would bear and buyers taking advantage of low interest rates and a lull in prices.

Some San Francisco real estate brokers say the market feels much improved from a year ago. They are seeing building owners return units to the market as condos that had been built in the past couple of years, but which had been rented out as apartments because sales were weak.

"The stock market crash in 2008 really changed things for a while and the beginning of last year was slow, but buyers are coming out again," said Realtor Eileen Bermingham.

Figures from another real estate research firm, DataQuick Information Systems, shows that resale condo prices are indeed back in the 2004 range. That year, the median price was $610,000. One year later, the median had jumped to $714,500.

A noticeable change in values started in 2004, when after three straight years in the $500,000 bracket, prices climbed another $100,000. The market hit its peak in May 2007, at $826,000.

Condo resales have seen less fluctuation than new units - particularly the ones at luxury downtown locales. Those buildings, many of them high-rises, started coming on the scene nearly a decade ago and sold briskly into 2008.

The 60-story Millennium Tower at 301 Mission St., for example, started selling units in November 2007 for an average of $2.5 million. By February of 2009, the Millennium had slashed prices by as much as 15 percent.

Waning interest in expensive new properties, in conjunction with banks reluctant to approve construction loans, has brought residential building in San Francisco to a near standstill.

As a result, it's likely that future construction will lag well behind an improved economy and job growth.

Source: SFGate.com; by: Robert Selna

Whether to Buy a Condo or Not...

These days it's not easy owning a condo, or any house located in a community that requires homeowners to pay fees. As more owners in these communities feel financially pinched, many aren't paying dues. That means residents who keep up with the bills have to pay a bigger share of the burden—and if there aren't enough reserves to pay to replace worn-out roofs or fix a cracked sidewalk, they face the possibility of bumped-up dues or an unexpected special assessment.

On the flipside, prices are low. And for the brave home buyer, there are bargains out there. The trick is looking closely at the homeowner association's health. Buyers need to question the association board about dues payments, and have their inspectors examine common elements before committing to a purchase. It's also important to review the financial documents that every buyer has a right to inspect before closing.

But what should you be looking for? We asked Leonard Baron, professor of finance at San Diego State University, for some tips:

• Make sure you get all the documents, and have sufficient time to look them over. Buyers are supposed to get all financial documents relating to the association during their inspection period, but often they arrive, incomplete, just a day or two before closing. That's not enough time to review documents that may be many pages long. So Prof. Baron advises that you bug your agent for them the minute your home goes into escrow, and demand at least three days to review them.

• Check the financial statement. About two-thirds of the association's budget should be operating expenses such as water, lights, elevator maintenance and landscaping; the rest should be set aside in a reserve fund for long-term maintenance and repairs. See if expenses exceed revenues due to foreclosures, unpaid dues or other reasons. If they do, ask the association what their plans are to make up the shortfall, and whether you should expect an assessment or higher dues. Ask also if there are plans to save costs by cutting pool hours, or the number of mowings or clubhouse cleanings. This could affect not only your comfort, but also the future marketability of your home.

• Review the reserve study. Not every state requires these, but they are becoming more common. For such a study, the association will hire an outside firm that will look at all long-term anticipated repairs and replacements over a period of 30 years, add up the costs, and put together a payment and maintenance schedule. The monthly dues you're charged should reflect the amount of money that needs to be put away to pay for these necessities, but you shouldn't simply assume that's happening. "Many times the boards, under pressure by the owners, will hold the line on raising fees, to the long-term detriment of the property," he says.

• See what percentage of reserve funds has been raised. In an ideal world, associations would save enough money over time to pay for every contingency. So if the roofs on 100 condo units will need to be repaired in 12 years at a cost of $240,000, for the reserve to be 100% funded after six years, half of that sum would need to have been put away for that purpose. But in the real world, associations often rob their own reserve funds to pay for operating and other expenses; Prof. Baron estimates that most are only funded 50% or less. Although the percentage of funding necessary varies by the age and size of a complex, (for instance a skyscraper with a complex mechanical system is much higher maintenance than a small townhouse community) in general, you should be wary if funding is below 40%. "You could be hit with thousands of dollars in assessments if something expensive fails," he says.

Source: WSJ, October 11, 2009, written by: June Fletcher

Condo Purchases Require Extra Steps

Homebuyers contemplating purchasing a condominium should review a long list of documents and other information to make sure that the property they are considering is a solid buy in this challenging market.

The following information is a the top of the must-consider list:

• Budget. Examine the current budget, a year-to-date statement of income and expenses, and a couple of previous years’ budgets to see how they’ve changed.
• Reserve study. Understand the plan for maintenance and how it will be paid for.
• Special assessments. Ask if there have been any and whether more are planned.
• Delinquencies. How many owners are behind in their payments? Many lenders say no more than 15 percent of owners can be in arrears or they won’t write mortgages in the complex.

Source: Chicago Tribune, Lew Sichelman (08/23/2009)