Home Owners Association Good or Bad ?

Whether or not you are a home buyer looking for a new home or a tenant looking to rent a property you should understand what exactly an HOA is and how it will affect your rights.  You should inspect the association documents carefully. Most Real Estate Brokers should be able to help you review the financials, by-laws, and restrictions that an HOA imposes on a property.

What is a Homeowners Association (HOA )?

In simple terms a HOA is a non-profit corporation comprised of all the property owners in a development(s). The owners typically higher a property management company to manage the association. The HOA elects a board of directors who works with the management company. The developer of the project typically creates the association documents, by-laws, and CC& R’s before the project is built and will manage and run the association until the development is a certain percent complete. The Board is the voice of the association and will work to follow the association governing documents. Often I hear people talk of the association in an adversarial way. Based on my experience, it seems a lot of property owners have an, us against them mentality. Where in reality all the homeowners are part of the association and can and should have a voice. In most cases people do not have the time to get involved they leave it up to the board to make all the decisions. Individuals on the board are elected volunteers and typically have other full time jobs. They will vote on key items and conduct the business of the HOA, typically acting on the advice of the management company. The key here is the management company. The board has a duty to its members to make the sure the management company is doing its job.  HOA’s govern various types of developments and are not limited to condo and townhome developments.

What Does The HOA Pay For?

Typically the association provides some insurance coverage, maintenance of a property’s exterior, green areas, pool and community areas and more. It really depends on the type of community and amenities. Single Family Home Associations (PUD’s) may not provide any exterior maintenance but only maintaining the community common areas. A common area is a space that is shared by all owners. Some associations are very complex and it is important for homebuyers to understand these complexities when purchasing a property in a development with an HOA. It is not something that should be ignored. How well an association is run can and will affect the value of the property.

Financial Componenet

HOA dues can be as high as $400 per month is some communities. If you are considering buying a property with an HOA consider this. With today’s interest rates around 4% for 30 year fixed rate loan it costs about $477 per month for every $100,000 you borrow. If your HOA dues are $350 per month you could spend $70,0000 more to  purchase a property without an HOA.  This means the property in the community with an HOA needs to be priced about $50,000 lower than a property without an HOA assuming the HOA is paying for the Hazard Insurance on the property.  

Co-Signing on a Mortgage–Is it Good or Bad Idea ?

What would you do if a family member asked you to co-sign on a mortgage ?  They need a little help qualifying and have always wanted to buy a home. They have a good jobs and the future is bright, they just need a little help to get over the hump.  Sure I will help you you reply.  It is important to understand the implications of your generosity.   

Most loans today are underwritten to Fannie Mae/Freddie Mac guidelines. If you co-sign on a mortgage, this debt will show up on your credit report. Why does this matter? A key figure in the mortgage lending world is the Debt to Income Ratio (DTI), calculated by totaling all monthly debts/ gross monthly income. In the past, underwriting guidelines treated this scenario differently. If you were a co-signer, but someone else made the payments and they could show proof of this, this payment would be omitted in your DTI calculation. Most lenders today will add this payment regardless of who makes the payment. The rationale behind this, if one party did not make the payment, you as a co-signer would be obligated to make the payment. I have seen multiple scenarios where potential borrowers have been unable to refinance or purchase a property because their DTI ratio exceeds the 50% limit imposed by most lenders.

On another note most lenders will allow you to finance up to at least 4 properties before they will exclude you from conventional financing. You can also be on the loan, but not on title to the property and vice versa in many cases. Sometimes this is a good strategy to use. If you run into financial difficulties it doesn’t ruin both parties credit. Holding title via the DEED in California is more about how property is eventually transferred. This can be critical as I have seen many people run into costly probate issues simple because they did not fill out the vesting information correctly. I hope this helps.

Download a Guide to Understanding Vesting Click Here: Vesting_Descriptions_CA_LT1

Investors Can Now Refinance Cash Purchases

Great News for Ventura County Real Estate investors. Fannie Mae has updated it’s guidelines to allow investors who purchase properties with all cash to refinance the property with Cash-Out Loans.  Finally something to to help the housing market. I am sure Fannie Mae evaluated all the Cash purchases going on and saw a chance to get in on the booming cash purchase market. Since most deals are being done by all cash buyers who theoretically, have a stable financial position.  This should free up cash for investors to purchase additional properties.

An investor-owner must meet the following conditions to get their money back and help with cash flow.

  • The new loan amount cannot be more than the actual documented amount of the borrower’s initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points (subject to the maximum LTV/CLTV/HCLTV ratios for the transaction).
  • The purchase transaction was an arms-length transaction.
  • The transaction is documented by the HUD-1, which confirms that no mortgage financing was used to obtain the subject property.
  • The sources of funds for the purchase transaction are documented (such as, bank statements, personal loan documents, HELOC on another property).
  • All other cash-out refinance eligibility requirements are met and cash-out pricing is applied.
  • Note: The preliminary title search or report must not reflect any existing liens on the subject property. If the source of funds to acquire the property was an unsecured loan or HELOC (secured by another property), the new HUD-1 must reflect that source being paid off with the proceeds of the new refinance transaction ?

If you would like  information regarding financing or purchasing additional investment properties please contact our office at 805-499-7300 or email us at info@presidiorealestategroup.com

Jeff Smith

Why Buying a Home Makes Sense

Being that we are a Real Estate Brokerage, Presidio should be encouraging everyone to buy a home correct ? First of all, I want to make it perfectly clear to everyone, buying a home is not the path to riches. But buying a home is a great way for people to build equity and learn how to do lot’s of cool things, like installing an angle stop valve, using a  bow saw, or painting a wall. Prospective home buyers should take their time and find a home that they can grow with.

Home prices have in some segments of our local market, fallen to a point where it makes sense to buy again. Let’s take a look at a typical home in the West Ventura County area. This includes the cities of Thousand Oaks, Newbury Park,  Moorpark and Simi Valley. A typical 3 + 2 home with 1600 + square feet is going to rent for $2200-$2500 depending on the city, location and amenities. What will buying get for the same price ?

Home Buying

Now let’s look at purchasing. If you bought a home for $450,000 with 10 percent down payment and closing costs your out of pocket expenses would be roughly $45,000. Your total monthly payments would be $2869 including taxes, insurance and mortgage insurance assuming a 30 year fixed rate loan at 5%. Your monthly tax benefit would be roughly $533 assuming you are in the 25% tax bracket, the net effect is a $2336 monthly payment. Add on top of that the +/- $493 per month going to pay down the loan principal your net-net monthly payment is $1844.00. Download the complete Buy vs Own analysis.

Other Factors

Interest rates – which are at historically low levels.  In a low demand market rates play an important factor. If we use the example above, 5% interest rate and increase this to 6%, the payment would increase $257 per month to $2458. In order to have the same monthly house payment the price of the home would need to fall $40,000. Lets face it most people care about what their payment is. It is safe to say interest rates shouldn’t be going up anytime soon but one never knows.  But if they do those who sat on the sidelines waiting for prices to fall will be left holding the bag.

Maintenance & Upgrade Costs- One thing many new homeowners understimate is the cost of home maintenance. If you buy an older home you will want to fix it up and it will need maintenance. If you are handy this will cut down labor costs. But new homeowners should factor in $2000 per year for maintenance at a minimum. A general rule for home improvement projects is to take material costs and double it to get the total costs of the upgrade.

Now is an excellent time to look into buying a home. Presidio Real Estate Services can help you evaluate your options and help you get started.

Underwater Homeowners will have negative impact on Rental Homes

According to a report from Deutche Bank homeowners who are underwater on their mortgage will continue to rise through 2011. If predictions are correct, this will have a neagtive impact on rental home rates. Great for tenants, bad for owners. There is a direction correlation between rental rates and home prices and further price declines should push rental rates down through 2011.

Almost half of U.S. homeowners with a mortgage are likely to owe more than their properties are worth before the housing recession ends, Deutsche Bank AG said. The percentage of “underwater” loans may rise to 48 percent, or 25 million homes, as prices drop through the first quarter of 2011, Karen Weaver and Ying Shen, analysts in New York at Deutsche Bank, wrote in a report today. [Read more…]