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VOL. 40 | NO. 31 | Friday, July 29, 2016

FHA loans were a great deal. But that was then

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A long, long time ago, I can still remember how that music used to make me smile – and so did contracts with FHA loans. The music still makes me smile, and FHA loans do if I have the buyer, but the “appraisal” can be tough on the seller.

About the time Don McLean scored his monster hit with “American Pie” in 1971, most houses were sold with either Federal Housing Administration (FHA) or Veterans Administration (VA) loans.

As the veterans returned home in the late 1970s with haunting memories of Vietnam fresh in their minds and the job market as dry as Don McLean’s levee, many found the VA loans to be the loan of choice with no down payment required.

The VA and FHA loans fall under the auspices of the Department of Housing and Urban Development (HUD), and both loans require appraisals, but these are not your average appraisals. Rather, they are along the lines of inspections.

Recently, a home was sold with a buyer seeking financing through the FHA. In an odd twist, the house appraised for $270,000, even though the sale price was $207,000.

But the appraiser required that the windows be re-glazed. Receiving no benefit from the high appraisal, the seller resisted making the repairs since he had not been informed that the buyer was pursuing FHA financing. That was an unwelcome surprise.

Back in McLean’s day, houses were, oh I don’t know, some 45 years younger than they are today, so inspection/appraisals were not alarming and, besides, there were no other means of financing as the world was collapsing.

Unfortunately, this world-is-collapsing thing is nothing new. Vietnam War and the Munich Olympic killings were taking place, so sellers were eager to sell by any means possible.

Then in the late 1980s, the savings and loans decided to compete with FHA and VA and offered 100 percent financing, or thereabouts, and no repairs were required on conventional appraisals.

By then, FHA and VA had become notorious for forcing people to replace roofs and windows, so it fell out of favor.

Things were running smoothly with the S&Ls dominating the marketplace until the consequences of the Tax Reform Act of 1986 hit and real estate lost more than 20 percent of its value. Sound familiar? Just like 2008.

So the S&Ls failed, the Resolution Trust Corporation was created to dispose of inventory – foreclosures – and they sold almost all of the real estate in the country in one weekend, and some a bit later.

Some good ole boys were drinking whiskey and rye that weekend, for sure.

Once again, HUD rolls out FHA and VA in order to save real estate’s mortal soul. Things were different, however, and they decided to compete with the banks.

The appraisal process was relaxed and people were lulled into complacency thinking FHA and VA loans were the same as conventional loans.

And then there were veterans buying houses again because they had served in another war or two. Loans were closing on time without repairs. Agents told buyers FHA and VA were no longer threatening.

Then, things reverted to old days, and the repair requirements started to hit gain.

In the streets, the sellers screamed, their agents cried and the handymen dreamed. While many words were spoken, FHA does not think it is broken.

Finally, in order to get a Tennessee Housing Development Agency loan with no down payment, buyer have to go through FHA. Grab a caulk gun, a hammer and some flashing.

Sale of the Week

Last week, 2704 Brightwood Avenue sold for $1,349,500 with its five bedrooms, four and one-half baths and 4,714 square feet. The house was recently completed, replacing a home that was demolished. Many people are mystified by the prices that the so-called teardowns are commanding.

An easy rule of thumb is that the finished product be three times the acquisition price of the property. In the case of 2704 Brightwood, the original dwelling was purchased for $450,000 by Vintage South and three times $450,000 is $1,350,000. So the buyer came out with $500 in immediate equity.

Ryan Miller is the driving force behind Vintage South, and his homes have developed a style that has been well-received.

In the Brightwood home, the ceilings are either 10 or 12 feet throughout the home. There also are double- and triple-paned windows. Energy efficiency coupled with thoughtful finishes are the trademark of this company.

Richard Courtney is a real estate broker with Christianson, Patterson, Courtney, and Associates and can be reached at Christianson, Patterson, Courtney, and Associates.

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