Assuming President Obama signs H.R. 5981, the up-front FHA mortgage insurance premium will be decreased by 1% and the annual mortgage insurance premium will be increased to .85-.90%, depending on loan-to-value. This premium is paid as part of a borrowers monthly mortgage payment.

The current up-front premium is 2.25% on most loans and the annual premium is .50% - .55%. Earlier this year, in response to dangerously low capital ratios, FHA increased the up-front mortgage insurance premium to 2.25% and announced plans to pursue a restructuring of the annual charges that were subject to congressional approval. With the passage of this bill, the proposal appears complete.

While the proposal is a positive sign, as it will likely shore up FHA's capital reserves, it will also make securing FHA loans for some buyers with higher debt ratios more difficult. As an example, a $200,000 FHA loan purchase with the minimum required 3.5% down payment will have a principal and interest payment amounting to $995.01. The current monthly mortgage insurance would add $88.46 per month to that payment in addition to the borrower's property tax and insurance escrows. With the proposed changes, the monthly mortgage insurance premium would increase to $144.75. To be fair, most borrowers also finance the up-front mortgage insurance premium, so the decrease from 2.25% to 1.25% would represent a savings of $1,929 plus any interest accrued over the life of the loan.

If you are thinking using an FHA loan to buy a home in the near future, it might be smart to make your move sooner rather than later.

You have found the perfect house:  the floor plan is laid out just right, the price is in your range, and the sellers even threw in the state-of-the art fridge to get it sold.  So, what could be the problem? Well, unless you do your homework, you might just be selling your dream home in a year or two.

Most buyers weigh the aesthetics of a home far more heavily than other factors which are just as important.  So, what are some of the “other” factors a buyer should consider?  Considerations such as repairs and maintenance, schools, taxes, neighborhood, and commute will not only affect the value of your property over the long term, but will also affect that home’s livability. 

The Neighborhood:   Ensure the area offers the amenities you are looking for. If you have kids, it is nice to have other school-age children in the neighborhood.   Is the home near a major traffic artery that could be dangerous for your children and generate “noise pollution” for you? It is important to consider the commute; having to travel an hour in traffic each way means you have less time to enjoy your dream home. Furthermore, your will have to consider the increase in transportation costs. Over the course of a month, an hour in traffic equates to 40 hours you will spend in your car, roughly $250 in gas, and additional maintenance costs to your vehicle. Your choice of neighborhood is just as important as the home you choose because your home’s value will rise and fall with the neighborhood.

Older Homes:  Buying an older home can bring the benefits of a more affordable price and perhaps some character and distinction not found in newer homes today, but is not without its costs. When buying an older home, you should expect to budget for home repairs.  Roofs don’t last forever and neither does the air conditioning system or water heater. Houston’s humidity creates a classic environment for mold to grow in the smallest crack where water has penetrated.  There will be items your inspector misses, so you have to plan for what could be unexpected hefty repair bills. HVAC units can easily cost $5,000 - $10,000 and a new roof can easily run $10,000 or more.

Maintenance:  When buying a home, you should also consider maintenance costs.  The larger the home and the more amenities, means higher maintenance costs.  Pools are notoriously costly to repair and maintain, and a large yard can become more of a garden headache than a source of relaxation if you don’t have a green thumb or a deep pocket to pay for weekly maintenance. A good rule of thumb:   a 4,000 square foot house means double the cost of heating, cooling, re-carpeting, and window replacement of a 2,000 square foot house.

Schools:  Schools are a major driver of home value as buyer demand will always exist for a good school district. Research schools in the area even if you don’t have school-age children, because it will have an impact on your investment.

Taxes:  Tax rates can vary wildly in the Houston metro area, from a low of perhaps 2% of your home’s value per year up to 4%. This is particularly important if you are buying new construction. A home under construction might have a taxable value that is artificially low because the appraisal district still has your home listed as a vacant lot. Next year, when the home is re-assessed, you will experience a much higher tax bill. Even if your mortgage lender established an escrow account for your taxes and insurance, you may have to come up with a big chunk of change to cover any shortage when tax bills are due.

Your goal for your home should be to satisfy as many of your lifestyle needs as possible.  It will be virtually impossible to find the one that allows you to check everything off the list, but nailing down as many as possible will help insure your home is both a good investment and provides many years of happiness to you and your family.

As you begin the listing process, your agent will set up a time to photograph your home. Showing your home is about creating a storyline. Not only are homebuyers looking for certain specifications and amenities in their new home, they are looking for a house that will give them the lifestyle they seek. To remedy this, you must ensure your home has an ambiance that is appealing to a broad audience.

To create your virtual “storyline”, you must develop a plan.

• Remove Clutter: Grab a box and walk through each room picking up toys and taking old magazines to the recycling bin.
• Tidy Up:  Sweep the floors and wipe down counters and mirrors. Replace burnt out light bulbs.
• Make Repairs:  Re-grout tiles, fix drawers and cabinets.  Old, dated wallpaper can turn some buyers off.  If you have very obvious issues in your home that need attention, there will be buyers who notice. Making these repairs before your photos are taken could increase the number of buyers who request a showing.
• Remove unnecessary knick-knacks and décor:  Less is more when it comes to photos.  You want a room itself to shine through.
• Stage Rooms:  Set up your dining room and table with your best china. Light candles and set out fresh flowers. In your kitchen, have a plate of fresh cookies sitting on a plate and clutter-free counters.
• Clean-Up the Yard:  Fresh plants and flowers can make your house pop in photographs.

Be sure to embrace natural light during the photography session and arrange for the photographer on a sunny day.  Not only do buyers look for homes that are light and bright, but natural light also has a way of opening up spaces. The photographer should take several pictures of each room from different angles to get the full scope of the space.  

HAR.com allows for your agent to list up to 16 pictures of your home. These photos collectively tell potential buyers the tale of your home; and the more pictures potential buyers see, the more they can incorporate their own “storyline” into that house.

To put this data into perspective, it is important to understand the methodology behind these ratings. To earn the highest rating, 90 percent of the district’s students must pass the TAKS (Texas Acknowledgement of Knowledge and Skills) exams, 95% of high school students must graduate on time or return for a fifth year, and the district must maintain a middle school dropout rate of 1.8% or less. For “Recognized” status, a school or district must maintain an 80% pass rating on the TAKS exam, an 85% graduation rate, and a 1.8% or lower dropout rate among seventh and eighth graders. Five hundred and ninety-seven districts and 3,153 schools statewide earned this rating.

Following the “Exemplary” and “Recognized” designations are the “Acceptable” and “Academically Unacceptable” ratings. The Acceptable rating was earned by 298 school districts and 1,456 schools, while 45 districts and 125 schools were Academically Unacceptable. Specific details on the scoring system can be located at http://www.tea.state.tx.us.

School districts do tend to drive home values as families are attracted to areas with good schools, creating a consistent demand for housing in these areas. Conversely, underperforming schools drive less demand and cause housing prices to suffer. The school district should be one of many factors considered by consumers in the home buying process, but certainly not the only factor.

The legislation, which was sponsored by Sen. Michael Bennet (D-CO), extends the life of the guarantee program without any incremental costs to taxpayers through a change in the fee structure of the program, making it self-sufficient. The new law allows the USDA Rural Housing Service to charge an up-front fee, think of this as a mortgage insurance premium, of 3.5% (up from 2%), and allows an annual fee of up to .5% on the balance of the loan. Certain low income borrowers could see these fees waived.

The changes made to the rural housing program are quite similar to those instituted on FHA mortgage loans earlier this year. FHA increased up-front mortgage insurance premiums in April and will likely be increasing the monthly premiums soon as legislation effecting this was recently passed.

The Section 502 loan program, also known as the USDA Rural Housing Program, is available to applicants in non-metro areas of Montgomery, Brazoria, Fort Bend, Liberty, San Jacinto, Chambers, and Waller counties of the Houston metro area. Harris County unfortunately is excluded. Borrowers must have an income at or below 115% of the median income for the area and must demonstrate solid credit histories, but can purchase a home with no down payment.

For more information, buyers should consult a USDA approved mortgage lender.

While this is certainly welcome news for the real estate markets, and many sellers, there are a few caveats. First-time homebuyers, motivated by the $8,000 federal first time homebuyer tax credit, made up a third of all sales, and distressed sales and foreclosures made up another third. This indicates that the challenges faced by the national housing markets are not over. The tax credit is scheduled to expire December 1st and foreclosures continue to be high nationally, depressing traditional sales. Despite the rise in sales, inventories remained high as more homes came on the market. The inventory of unsold homes remained at 9.4 months. Sales prices were down year-over-year in every region of the country.

So what does this mean for residents of Houston, Spring, The Woodlands and Tomball, Texas? What we are seeing in Houston is alot of strength in the entry-level home market as many homes, especially foreclosures, are selling at or above asking price. Homes in the move-up and luxury segments are not enjoying the same level of demand so sellers in that part of the market should take the time to bring their homes to showcase condition and be prepared to price their homes aggressively. Buyers should not expect the deep discounts other parts of the country have seen as homes prices overall have not declined significantly in Houston and there is a far smaller percentage of highly leveraged homes in our area.

One additional piece of good news is that mortgage rates fell this past week and remain at historically attractive levels. 30-year fixed rate loans can be found for less than 5.25% right now in our area.

In the end, rational expectations will insure both buyers and sellers meet at a fair price.

Home prices are one factor in determining your cost of ownership, but so are interest rates and financing availability. Even though interest rates have gone up in the last six months, they are still near historic lows. Since your monthly mortgage payment is a combination of paying down your principal and paying the interest owed, if home prices come down a little further but interest rates go up, it could cost you even more to service a mortgage on an identical home!

While a home is a major investment, it is also the center of your personal life. It's important to live in a home that reflects your taste and values, yet is within your financial "comfort zone." To that end, it may be more important to lock in today's relatively low interest rates and low home prices, rather than to hope for a further break in prices in the future.

Please give me a call if I can be of any assistance in determining how much home you can afford in today's market.