Archive for the ‘Support for Renters’ Category

Support for Renters who live in Foreclosing Homes

happy family renters

Renters in Fannie Mae-owned properties may be able to stay in their homes

Fannie Mae Tenant-in-Place Rental Policy

To help minimize disruption, eligible renters who want to stay in a home that has been foreclosed can sign a month-to-month lease if the property is owned by Fannie Mae. The policy, which applies to properties owned by Fannie Mae, will help bring stability to communities affected by high foreclosure rates.

Eligible renters will be offered a new month-to-month lease with Fannie Mae and Fannie Mae will manage the properties through a real estate broker or a property management company. Renters may also be eligible for financial assistance if they desire to relocate.

Program criteria highlights:

* To qualify, a renter must live in the property when it is acquired by Fannie Mae
* Any single-family property is eligible including two- to four-unit properties, condos, co-ops, single-family detached homes and manufactured housing.
* The property must meet state laws and local code requirements for a rental property.
* Fannie Mae will not require security deposits.
* Under the Fannie Mae lease, the property may be marketed for sale and if sold the property would be transferred to the new owner subject to the lease
* Rental rates under the new leases will be comparable to other rents in the same market and subject to any legal rent control restrictions.

Click here for the Protecting Tenants at Foreclosure Act of 2009 (PTFA).

Another option to look at is Fannie Mae’s Deed-for-Lease program.

Source: Fannie Mae website


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Buying vs. Renting in this Market – Calculate which makes sense for you.

rent vs. buy a home

The buy-versus-rent question is particularly relevant right now. To qualify for an expiring federal tax credit of up to $8,000, home buyers must sign a contract by April 30 and close on the house by June 30. Many economists also expect mortgage rates to rise in coming months.

Camela Witters, a 38-year-old trophy engraver in Las Vegas, plans to close on her first home purchase — a four-bedroom, $164,000 house nearly identical to the one she is now renting — in the next few days. She decided to buy, she said, when she found out she could save money by doing so. “I didn’t buy a house when everyone did,” said Ms. Witters, who lives with her companion and their children. “So I’m kind of taking advantage of all the foreclosures.”

The Times analysis is based on comparing the costs of buying and renting a similar home, using data from Moody’s Economy.com, a research firm, and from real estate agents. This kind of comparison can never tell someone for sure what the best financial move will be. But it does show whether a buyer will need a big jump in future prices to cover all the costs of owning — including the down payment, closing costs, property taxes, mortgage interest, repairs and co-op fees.

A simple way to do the comparison is to look at something called the rent ratio: the purchase price of a house divided by the annual cost of renting a similar one. The number 20 provides a useful rule of thumb. When you do the math, you discover that a ratio above 20 means you should at least consider renting, especially if you may move again in the next five years or so. When the ratio is well below 20, the case for buying becomes a lot stronger.

Check out the Interactive Comparison Worksheet and find out if buying is better for you.

In many large metropolitan areas, including New York, Los Angeles, Chicago, Houston, Dallas, Atlanta and South Florida, the average ratio is now 16 or lower. It was more than 25 in several of these places at the peak of the bubble, about five years ago. With a ratio as low as 16 and interest rates as low as they are, the costs of owning can be less than the costs of renting — and buyers will end up worse off only if prices fall considerably more.

Calculate here – Is buying a house better for you?

Source: David Leonhardt (New York Times)

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What is a Deed-for-Lease?

support for renters

Deed-for-Lease(TM)

Fannie Mae’s Deed-for-Lease Program (D4L), allows qualified borrowers (or their tenants) to execute a lease of up to 12 months in conjunction with their deed-in-lieu of foreclosure, allowing them to remain in their home as a renter. Borrowers interested in exploring this option should discuss it with their mortgage servicer.

To qualify both the property and borrower (or tenant of the borrower) must meet certain general qualifications* such as:

Occupant Eligibility:

  • Income is sufficient to cover rental payments of not more than 31 percent of gross income. If the current market rent is greater than 31 percent of the occupant’s monthly gross income, a lease will not be offered.
  • Inspection of the property indicates that the occupants have been keeping the property in good condition.
  • The number of occupants is appropriate for the home and in compliance with local laws and homeowner association rules.
  • If pets are present, renter’s insurance is obtained, if required.
  • The occupants signing the lease must agree to a credit review and all occupants over the age of 18 must have an acceptable background check, including receiving clearance from the Office of Foreign Assets Control (“OFAC”).
  • There are no signs or reports of illegal activities conducted at the property.
  • The property is to be used as a primary residence.

Property Eligibility:

  • There are no zoning or homeowner’s association (HOA) rental limitations that would prohibit a lease.
  • Repairs required to make the property habitable are deemed to be in an acceptable amount based on the property value.
  • The property is in compliance with local rules and laws or can be brought into compliance within 30 days.
  • The property is not within a target area for any corporate, government or community neighborhood stabilization plan which may need the property as part of the plan for purposes other than residential.
  • The market rental income is anticipated to cover ongoing maintenance and management costs.

Note: Consideration for a D4L is initiated by servicers. If you are a borrower interested in pursuing a D4L please contact your servicer.

For answers to frequently asked questions please see Deed for Lease (D4L) – Frequently Asked Questions.

Servicers can find additional information at www.efanniemae.com/sf/servicing/d4l/.

* This list does not include all conditions, which may vary by location.

Source:  Fannie Mae



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6 Steps – How to Buy a Home with No Down Payment and No Credit

house

As a result of the housing market bubble “bursting,” lending guidelines have tightened and the mortgage lenders’ requirement of a down payment for the purchase of a new home has put the dream of owning a home out of many prospective buyers out of reach. Can you still own a home without a down payment or credit?

YES, using a Lease with a Option to Purchase.

Step 1 – FIND A HOME/APT./CONDO YOU LIKE AND WHICH YOU CAN AFFORD MONTHLY PAYMENTS (RENT).

Make sure the property you find is a place you would like to eventually own. Perform some due diligence and see if you can find out anything about the Landlord or property owner from existing tenants or neighbors to gauge whether they are a party that is worth “doing business” with. Ideally, you will want to find a landlord or property owner who is open-minded to creative deals and financing, or a seller who is motivated (or better yet, desperate) to sell their home. The more incentive they have to either rent or sell their home, town home, condominium, the more chance you have to implement and facilitate a deal.

Step 2 – INQUIRE ABOUT A RENT-TO-OWN or LEASE WITH AN OPTION TO PURCHASE.

The idea behind a Rent-to-Own or Lease with the Option to Purchase is simple. You agree on terms to pay rent for a certain rental period, typically between 1-3 years (but I have seen as long as 5-7 years – this is a negotiating point). During the “option” period, just as with ordinary leases, you pay monthly rent (with likely rent escalations each year). At a date certain, under the terms of the agreement, you are granted the option (under the terms of the lease) to purchase the property within a certain period at a purchase price that is mutually determined by the Landlord and you before the lease term begins.

The key to negotiating the LENGTH of time in which you are given the right to exercise your purchase option is to calculate how much money you will need, want, or end up with by the end of the option term to put a “down payment” or receive a credit against your purchase of the property.

For example, say you agree to purchase the property for $100,000.00. If you are paying $1,000.00 per month for three years (i.e., 36 monthly payments) and you have a three-year option to purchase (i.e., you must exercise your option to purchase the property on or before the three year period), if you are given 100% credit for each rent payment, or $1,000 x 36 months, you will receive a $36,000 credit against the purchase price. Thus the sale price of the property would still be listed as $100,000.00, but the property owner/landlord would acknowledge receipt and payment of $36,000.00. Therefore, when you obtain a mortgage from a lender for the remaining $64,000, you are able to show that you already paid as a “down payment,” $36,000, or 36% of the $100,000.00 value.

Step 3 – NEGOTIATE THE OPTION TO PURCHASE TERM.

The longer the option term to exercise your right to purchase the property, the better for you as a tenant. You will want to calculate how much money will be credited against the purchase price by taking the percentage rent times the number of months. For example if your rent payment is $1000 and you receive 30% rent credit over a 3-year option term, that is $300 x 36 months = $10,800 credit (deemed paid to the property owner) against the purchase price.

You should then evaluate that “down payment” against the value of the home to see if you would be able to obtain a loan for the remaining unpaid purchase price balance. For example, if the purchase price is $100,000 and you have a credit “down payment” of $10,800, you would still owe and need to obtain a loan for $89,200. The percentage rent credit you received could be deemed, in essence, a 10.8% down payment made against the property for purposes of obtaining a loan from the lender.

Therefore, the more money you are able to accumulate based on the negotiated option term, the bigger “down payment” you will have credited against the purchase price.

Step 4 – NEGOTIATE THE OPTION TO PURCHASE TERM AND PERCENTAGE OF RENT THAT YOU WOULD RECEIVE CREDIT AGAINST THE PURCHASE PRICE.

You should negotiate the percent of the rent you pay which you will receive credit against the ultimate agreed upon purchase price (see STEP 4). The percentage should be relative to the option term. The shorter the time period in which you are able to exercise your option to purchase, the higher the percentage of your rent payment that should be credited towards the purchase price of the property. For example, I have seen 100% credit of rent paid for a 12-month option term. That is, the tenant has to exercise his option to purchase within 12 months of the commencement of the lease in order to receive 100% credit for all rent payments. This is assuming that at the end of the 12-month period, the total rent payments will serve as a sufficient “down payment” to enable the tenant to obtain a loan/mortgage for the remaining balance.

Typically, however, you should aim to receive at least 30% or more of your rent payments credited against the purchase price. The percentage will be based on a number of factors including, for example, the type of property, its location, its present value, the motivation of the property owner to sell, to name a few.

Step 5 – NEGOTIATE THE PURCHASE PRICE.

You should negotiate the purchase price as PART OF the lease agreement. Obviously, the lower the purchase price, the better for you. To determine the current market value, you can ask a local real estate agent to provide you with a present market analysis based on recent home sales in the area.

The purchase price should probably reflect the estimated value by the expiration of the option purchase term. For example if the option term is three years, and the fair market value of the property is $100,000 today, if you both agree that the property will likely appreciate, the purchase price should include 3 years of appreciate (e.g., $110,000 or $115,000). You would not want the purchase price determined at a later date because that could be a variable that the property owner should manipulate to his or her unfair advantage.

Step 6 – HIRE AN ATTORNEY TO REVIEW.

It is recommended that you hire an attorney to help you either draft the lease agreement with the option terms, or have an attorney review a draft of the agreement given to you from the property owner. Also, your attorney can review any existing association by-laws or rules (if any) that may prohibit the property owner from renting out to you.

Original article by a licensed corporate and tax attorney.

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The Basics of a Lease Option/Purchase

lsop-productTonja  Demoff, Founder of Backyard Wealth dives into the details of a Lease Option/Purchase (LSOP), teaches the “How-to” steps, reveals areas to look out for and shares a  number of LSOP examples.

If you would like a free audio gift of  Tonja’s “Build Wealth with Lease Options“, click the audio product.  You will receive your gift in your Email Inbox.

Below are a few quick pointers.

Today, options to purchase, lease options and lease purchase agreements are three different financing documents. The variances are state specific and not all states have identical laws. Before entering into an agreement with a seller, buyers should obtain the advice of a professional. The information below is an overview and is not meant to be construed as legal advice.

Basics of an Option

  • Buyer pays the seller option money for the right to later purchase the property. This option money may be substantial or as little as $1.
  • Buyer and seller may agree to a purchase price now or the buyer may agree to pay market value at the time the option is exercised. It is negotiable. However, most buyers want to lock in the future purchase price upon inception of the option.
  • The term of the option agreement is negotiable, but the common length is generally from one year to three years.
  • Option money is rarely refundable.
  • Nobody else can buy the property during the option period.
  • The buyer can sell the option to somebody else.
  • If the buyer does not exercise the option and purchase the property at the end of the option, the option expires.
  • The buyer is not obligated to buy the property.

Basics of a Lease Option

  • Buyer pays the seller option money for the right to later purchase the property. The lease option money may be substantial.
  • Buyer and seller may agree to a purchase price now or the buyer may agree to pay market value at the time the option is exercised. It is negotiable. However, most buyers want to lock in the future purchase price upon inception of the lease option.
  • During the term of the lease option, the buyer agrees to lease the property from the seller for a predetermined rental amount.
  • The term of the lease option agreement is negotiable, but the common length is generally from one year to three years.
  • The option money generally does not apply toward the down payment.
  • A portion of the monthly rental payment typically applies toward the purchase price.
  • Option money is rarely refundable.
  • Nobody else can buy the property during the lease option period.
  • The buyer generally cannot assign the lease option without seller approval.
  • If the buyer does not exercise the lease option and purchase the property at the end of the lease option, the option expires.
  • The buyer is not obligated to buy the property.

Basics of a Lease Purchase

  • Buyer pays the seller option money for the right to later purchase the property. This option money may be substantial.
  • Buyer and seller agree on a purchase price, often at or a bit higher than market value.
  • During the term of the option, the buyer agrees to lease the property from the seller for a predetermined rental amount.
  • The term of the lease purchase agreement is negotiable, but the common length is generally from one year to three years, at which time the buyer applies for bank financing and pays the seller in full.
  • The option money generally does not apply toward the down payment.
  • A portion of the monthly lease payment typically applies toward the purchase price.
  • Option money is nonrefundable.
  • Nobody else can buy the property unless the buyer defaults.
  • The buyer typically cannot assign the lease purchase agreement without seller approval.
  • Buyers are often responsible for maintaining the property and paying all expenses associated with its upkeep, including taxes and insurance.
  • The buyer is obligated to buy the property.

Original article by Elizabeth Weintraub.

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Renters in Fannie Mae-owned foreclosed properties can stay in their homes

A renter who wants to stay in a home that has been foreclosed can now sign a month-to-month lease if the property is owned by Fannie Mae.

2-people-infrontof-home

Renters live in more than 20 percent of all properties facing foreclosure. They may pay their rent on time but still risk eviction if the property goes into foreclosure.  To help minimize disruption to good tenants, Fannie Mae now allows them to stay in their homes with a month-to-month lease. The policy, which applies to properties owned by Fannie Mae, will help bring stability to communities affected by high foreclosure rates.

To qualify, renters must live in foreclosed properties at the time Fannie Mae acquires the property. Any single-family property is eligible including two- to four-unit properties, condos, co-ops, single-family detached homes and manufactured housing. The properties must meet state laws and local code requirements for a rental property. Fannie Mae will not require security deposits. The properties will remain on the market for sale.

Eligible renters will be offered a new month-to-month lease with Fannie Mae or financial assistance to move to new housing if they choose.  Fannie Mae will manage the properties through a real estate broker or a property management company.

Rental rates under the new leases will be comparable to other rents in the same market and subject to any legal rent control restrictions. The company will review any instance where the market rate would increase the tenant’s rent and will work to reach an equitable resolution.

Learn more about Fannie Mae’s National REO Rental Policy PDF icon(24KB)

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