The housing market meltdown created a severe change in the US lending market which will become even more evident as we move forward. Currently many of the loans are dedicated to first time home buyers who qualify for an FHA insured loan.

These type of loans give the buyer approximately 97% financing, with the remaining 3% covered often by government grants. Therefore they are in high demand because they allow any buyer to get into a property with practically no money down.

One caveat is that FHA requires the property title to have been “seasoned” for at least 90 days. That means that an investor who buys a home from a bank or a motivated seller, rehabs it and then puts it back on the market for a profit must wait 3 months before closing with a buyer who has an FHA insured loan.

This is not necessarily an issue considering that a typical rehab job will take between 2 and 4 weeks and that the marketing of the property will require at least another 2 o 4 weeks before a potential buyer is found.

Adding the time it takes to get the lean approved we easily get past the 90 days. The problem now is that banks, in order to lend to first time home owners, can only use FHA approved appraisers which introduces a bottle neck in the process because there are not so many of them.

Additionally. FHA approved appraisers are fairly expensive and can take a while before doing the appraisal since there is such an high demand. The bank also is likely to challenge the appraisal and ask for more data, adding time to the process. Then, when the bank runs out of government funds, they must wait for new funds to come in and this can easily add 15 more days. So it is common for a loan to take at least 45 days to actually be approved and delivered at closing, with some horrible delays that sometime bring the overall process at 6 months.

But there is more to it. The appraisers are now invited to take into account also bank owned properties while taking comparable sales for the area. Originally they used to only consider arm-length-sales while estimating the potential value of a property. That is they would consider only those properties sold by a private owner to a private buyer, both trying to do the best for themselves.

Therefore the average appraised value will go down and this trend will slow down sales and reduce average prices, as if they weren’t already low enough. It is funny because banks seem to be playing against themselves.

By tightening the lending process and by forcing appraisers to lower their appraisals, they will also reduce the average selling price of bank owned properties so accelerating the whole spiral on the foreclosure front.

Roberto Mazzoni

Sometime real estate transactions fall apart on some detail that nobody has predicted, often concerning the money to be paid by the buyer to cover not only the purchase price but also all the closing costs that belong to him, plus any possible lending fee.

When selling to international buyers, the transaction often happens with a cash payment, since the buyer has money available personally or because he has secured a loan in his own country: it is increasingly difficult to get US banks to lend to US citizens, much less to foreigners.

But there are three factors that play an important role when the buyer transfers his money to the title company from his European account.

1. When he goes to his European bank to order the transfer, the buyer has to specify the exact amount of US dollars that he wants to transfer and give immediate authorization to his bank to perform the conversion between euro or pounds and dollars at the rate available at the moment.

   If he forgets to give his consent, the European bank will transfer the corresponding amount in euro or pounds to the intermediary US bank, the one that acts as a middle agent between the European bank and the final US bank holding the escrow account. There are always at least three banks involved.

   The intermediary bank will hold the money waiting for the authorization for the converting it to dollars at a defined exchange rate. The authorization will never arrive because your buyer will know nothing about it and the money will remain floating for one or two months in the international bank system and the it will return to the original European account. And the closing will be impossible.

2. The European bank wants to be paid an hefty fees for the transfer and the currency exchange, so your buyer has to have the money to cover also that (make sure he checks his bank fees ahead of time).

3. For some strange reason the intermediary bank always collects an additional fee of approx $35 or $50 therefore the buyer should transfer just that much more money.

These simple concepts will allow you to avoid pitfalls and get to your closing smoothly and successfully.

Roberto Mazzoni