New Hampshire Real Estate

How does the subprime meltdown impact me?

Real estate foreclosures due to sub-prime lending practices have made the headlines weekly but should the average homeowner be concerned? A quick review of sub-prime practices explains what this means to anyone seeking real estate loans whether they are a sub-prime borrower or not.

Sub-prime Explained. In the most basic form, a sub-prime mortgage is issued to those real estate borrowers that are considered "higher risk" or "not prime". Prime borrowers are those people with high credit scores, solid repayment history, and adequate income to pay their bills and other obligations at the time of the loan. Of course, any household can experience a set-back due to job loss or major illness but at the time of the loan, the household was considered financially stable. Sub-prime borrowers are those with poor credit, income problems, lack of verifiable income, high debt or other irregular credit or income issues which placed them at higher than average risk for defaulting on a loan. Due to the higher than average risk, they are typically charged a higher than average interest rate when obtaining a mortgage.

The current financial problems related to the sub-prime mortgage "meltdown" reported daily in the media revolve around banks, loan origination companies and others who wrote millions of sub-prime mortgages to people who really couldn't afford the loans. Since most of these mortgages are resold to large investment funds or institutional banking firms, the resulting wave of real estate foreclosures taking place has caused these companies to take massive losses on the "assets" held. This has implications for anyone buying or selling real estate due to...

1. Tightening Regulations. Banks and lenders are tightening the credit requirements for credit even for those with solid credit scores and excellent payment history. Expect credit to continue to contract as lenders attempt to protect themselves against "bad loans". To date, interest rates have remained competitive but it can be more difficult to qualify for a loan especially for those with less than perfect credit.

2. Higher Down Payments. Many sub-prime mortgages required little money down or used "Piggy Back" loans to eliminate PMI (Private Mortgage Insurance) by writing two loans; one for 80 percent of the purchase price of the home and another for 20 percent of the remaining purchase price of the home. With little to no money out of pocket, borrowers had little to lose by "walking away" from a home when the variable interest rates increased beyond their ability to pay. Today, lenders are returning to the historic norms where buyers must invest 5 to 20 percent down payment to obtain a new mortgage.

3. Flipping Restrictions. During the height of the real estate market, buyers were putting little to no money down to purchase a home with a sub-prime mortgage then resell it within months for a higher price, a practice known as "flipping". While there are many valid reasons for "flipping" a piece of real estate; for example, buying a home in need of repairs or renovations and then re-selling it after the work is completed – much of the increase was simply due to rapidly rising prices rather than an increase in the inherent value of the property itself. Newly proposed guidelines limit the ability of certain loans to be underwritten if the property has not been held for at least a year in an attempt to reduce the practice of flipping. Unfortunately, real estate investors who routinely buy, fix/remodel and then sell real estate could be negatively impacted by the new financial rules if they are not careful.

4. Foreclosures in the Neighborhood. If you purchased real estate in an area experiencing massive levels of real estate foreclosures then your own property value could be negatively impacted by the number of homes on the market or declining real estate values.

5. Higher Taxes. Easy credit and unscrupulous lending practices helped drive the real estate market to higher than average levels in many cities with a corresponding increase in property taxes.

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How can I sell a real estate note?

If you are fortunate enough to have a large amount of equity in your New Hampshire home or own New Hampshire real estate free and clear then you may have considered holding a "note" or real estate loan. Especially now that banks are tightening lending standards, many buyers and sellers are contemplating holding a note in order to help a deal go through or as a way to get a better return on their investment now that savings, bonds and other "safe" investments pay such low interest rates.

For example, let's say you purchased a home several years ago and it is now worth $100,000. If you held a note on the property at 6.75 percent for 30 years you will collect $133,495 in interest in addition to the original $100,000! Real estate loans are secured by the home so in the event of a foreclosure, the home would revert back to you (the same way it reverts back to the bank during a regular real estate foreclosure). While 6.75 percent interest isn't a bad rate of return, tightening requirements are pushing interest rates far above that especially for buyers with less than perfect credit. The same house worth $100,000 financed at an 8.5 percent fixed interest rate for 30 years would generate $176, 800 in interest payments in addition to the original $100,000 selling price of the home! Clearly, holding a real estate note can be a profitable strategy but the money "trickles in" every month instead of the ability to take one lump sum. That is great for real estate investors who need to defer taxes or those who prefer a steady monthly income rather than a lump sum but every once in awhile you may encounter a situation where liquidity is needed.

It is possible to sell a real estate note for a lump sum of cash later. This is done by large banks and investment companies all the time but even small business owners and individuals can sell a real estate note or a portion of the upcoming payments. The amount of the "discount" will depend upon many factors including the amount of money required, if it is to be paid in full, the credit worthiness of the home buyer etc but typically will range from 20 percent upward.

Real estate notes are not common but they can be a valuable tool for buyers or sellers.

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What additional cost should I consider when searching for real estate?

Buying real estate is a lot of fun but it is easy to become distracted and buy more house than what you really need whether you are searching for New Hampshire new homes or pre-existing New Hampshire homes for sale, use this helpful checklist to make sure you buy the right house at the right price. The following tips are a few easy to over look calculations that can add thousands or tens of thousands of dollars to the cost of a home.

Preparation:

Budget: Speak to a mortgage broker or loan officer and become pre-qualified to know how much you will be able to afford.

Square Footage: As a general rule of thumb most New Hampshire homes for sale will begin at roughly $100 per square foot for a modest home and go up to $300 to $350 per square foot for a bit more upscale home. If your budget limits the square footage but you have a large family then it will be necessary to search in more modest areas.

Checklist

Yard or Land: The cost of land associated with New Hampshire real estate can vary widely depending upon the area. Typically the farther from town, the lower the cost of land but be careful to include the full price of improving raw land when calculating the total cost. Raw land might seem inexpensive until tree clearing, driveways, utilities, well, septic and other improvements are taken into consideration. Even small yards in subdivisions should be carefully reviewed; is the landscaping adequate or has the builder installed a few plots of grass under the window and left the rest up to you? The average cost of landscaping a modest sized lawn can easily add $5,000 to the cost of the home.

Appliances: Does the house include appliances or not? Are the appliances appealing and in good working order? Kitchen appliances alone can easily add $7,000 to $10,000 to the cost of the home for consumer grade models.

Window Treatments: This is a particularly easy item to overlook so be certain to evaluate the window treatments and ask if they are included with the price of the home or not. Even "off the shelf" blinds, curtains and sliding door treatments range from a low of $100 each window to $300 plus for a total cost of $2,000 or more. Custom window treatments are substantially higher.

Fence: Searching for a big back yard for the children and pet to play? Chances are you will also want a fence to keep them safe. Does the current home have a fence in good repair or will that be an added expense after the purchase? If so, a fence can easily add another $5,000 to the cost of a modest sized back yard.

Garden Shed: Likewise, a small garden or tool shed is another highly sought after feature but if you intend to add your own add at least $2,500 to $5,000 to the budget including the cost of concrete foundation, permit and labor.

When evaluating New Hampshire homes for sale be sure to include the cost of the home plus anticipated repairs, additions or extra work you intend to have done to make the home livable" for you and your family. What originally seems like a good deal may be substantially less impressive once you calculate how much additional money is required to make it fit your lifestyle.

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How do I negotiate the best price when buying real estate?

When it comes to buying New Hampshire real estate then knowing how to make a purchase offer can save you thousands or simply insult the seller. Learn how to negotiate the best price without offending agents or the sellers.

1. Be realistic. Even with the recent down turn in the real estate market the majority of sellers still need to break even – that includes the bank if the house has gone into foreclosure.

2. Calculate the Cost. It is often easy to get a quick estimate of what the home originally cost by checking the clerk of the court or property assessment records. The amount often will not include down payments, improvements or other considerations but it is a good place to begin. Add the following to derive a solid working basis.

• Original cost of lot/land and home.
• Improvements and additions to the home or property.
• Real estate commission and closing costs.

4. Subtract the basis from the current asking price to roughly calculate the profit or amount of gain expected. This is the "highest" negotiation and equivalent to paying full price.

5. Depreciate. Most sellers will mentally calculate the "cost" of a new pool, roof or other improvements to the property based upon what they paid for the item and labor. However, according to the government, appliances and other improvements lose value as they age. Savvy buyers and real estate investors use this information to reduce the price of the offer by calculating the depreciated value of improvements rather than original "cost".

6. Replace. Items that need to be replaced or repaired are an expense in both terms of time and money. Calculate the full cost of each item then deduct that from the asking price.

7. Begin negotiations only slightly above the "lowest low" or "break even" point. Be sure to offer something in return such as quick closing, larger than average escrow and pre-qualification to let the seller know you are a serious buyer at the right price. Date the offer and require an accept or reject by a specific date then wait for the counter-offer.

8. When the counter-offer is received then once again, offer one-half the amount between your original "lowest low" offer and the counter-offer while making sure to add another enticement such as free lease-back of the home or agreement to perform some repairs like painting etc yourself. Once again, date the offer and stipulate an accept or rejection date.

9. By this point both parties will either be close to making the deal work to begin finalizing the discussion or it is time to keep looking. If the numbers are close then continue to work through the real estate agency to discuss other options to make the deal work and lead to a closing.

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What new real estate loan trends should I be aware of?

The recent ultra-low interest rates, minimal down payments and easy credit terms have lulled many Americans into a false sense of security when it comes to obtaining real estate loans including a mortgage or line of credit. Unfortunately, the days of easy money are all but gone as banks tighten lending requirements. Learn what trends to expect when it comes to real estate loans with the tips below:

1. Stricter Standards. Expect stricter standards when it comes to qualifying for a mortgage including larger down payments.

2. Credit Pricing. Not only will credit scores determine eligibility for a mortgage but low credit borrowers will increasingly be charged an upfront premium like the newly instated fee imposed by Freddie and Fannie; borrowers with less than a 680 credit score are charged 1.25 of the mortgage as an additional up-front charge.

3. High/Low Premiums. Buyers at both ends of the New Hampshire real estate market will experience increased fees; real estate selling for less than $75,000 is frequently charged a higher interest rate and additional fees for small loans while Jumbo loans are also racking up as much as an additional .5 percentage point.

4. More Money Down. Forget the days of no money down - banks are going back to the basics and require from 5 percent to 20 percent down for most new New Hampshire homes or pre-existing New Hampshire homes for sale.

5. Larger Equity Reserves. Even current home owners are likely to be impacted by changes in real estate loans. Should you desire to refinance to take out a Home Equity Line of Credit (HELOC) expect to encounter higher equity reserves and lower approval levels.

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How will foreclosure impact my taxes?

If you thought buying and selling real estate was confusing then trying to make sense of foreclosures can really get tricky! Buying, selling or dealing with a real estate foreclosure requires solid information and facts to make sure you understand what to expect and avoid costly mistakes. Use these real estate foreclosure tips to keep the facts straight.

1. Foreclosures Losses are Not Tax Deductible. Although there are many valid tax deductions associated with real estate, the loss from the sale or foreclosure of personal property is not deductible.

2. Cancellation of Debt is Taxable. If you are fortunate enough that a lender forgives or cancels a large debt, take a moment to rejoice then immediately speak to your tax adviser to determine the amount of taxation due to IRS. Although there are some extenuating circumstances or situations where cancellation of debt is not taxable, as a general rule of thumb plan on forking over some of that savings to taxes at the end of the year.

3. Gain on a Foreclosure Might Be Taxable. Occasionally a real estate foreclosure brings in more money than required to service the total debt plus fees; in this situation you may be required to pay taxes on the proceeds of the disposition. The profit from the sale of a personal residence may be excluded if you have owned the home long enough to qualify.

To learn more about how real estate foreclosures can impact your tax situation contact the Taxpayer Advocate Service at 1-877-777-4778, TTY/TDD 1-800-829-4059.

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Where can I find real estate help in NH?

New Hampshire has put together a small arsenal of valuable real estate resources to fit any situation; whether you are interested in selling or purchasing New Hampshire homes for sale, check out these great resources.

Mortgage Help: New Hampshire is taking a proactive measure to help inform consumers about mortgage information and education through a series of free public sessions taking place throughout the state. Banking department staff will review individual mortgage documents and answer questions about payment terms and other available options or programs. For more information contact the banking department information line at 603-271-3561 or via email at Legal@banking.state.nh.us.

Homeowner Hotline: Speak to trained experts about mortgage related questions or concerned Monday-Friday by calling the New Hampshire Homeowner Hotline at 1-800-437-5991.

FHA Mortgage or Other Programs: First time home buyers and others may benefit from the Federal Housing Authority (FHA) mortgage or refinance program. For more information contact the FHA at 1-800-225-5342.

Consumer credit Counseling Services: Get your credit in tip-top condition or learn more about how to manage your finances with Consumer Credit Counseling Service of New Hampshire at 1-800-327-6778.

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