Lower Mortgage Limits Coming September 30

Posted on May 11, 2011 by BeatingUpwind

MAJOR CORRECTION: I’m going to sticky this post for a few days. Max loans aren’t going down nearly as much as I thought they were. So the situation isn’t all that dire. It’s worse, but not all that much worse… Essentially the limits on conforming loans are going down just 15% after September 30. I’ve stricken the parts that were wrong, and put corrections in italics.

The big news today was that it seems there’s bipartisan support for lowering the loan limits for Fannie and Freddie in high cost areas like New York. Assuming it happens, it could have a rather profound effect on places like New York – and it will particularly affect Harlem townhouse shells where many of us depend on the higher loan limits to make the numbers work and the banks avoid the risk of renovation loans.

Right now in NYC, you can borrow up to $729,750 for a 1 family home without having to get a “jumbo” mortgage – that will drop to $417,000 $625,500. For a 2 family you can currently borrow up to $934,200 – that will drop to $533,850 $800,775. For a 3 family you can currently borrow $1,129,250, but that will drop to $645,300 $967,950. (And so on…)

What that means is that fewer people will be able to buy townhouses since they won’t be able to qualify for federally insured mortgages that cover enough of the costs. They will have to try to get mortgages from banks that will require much larger down payments, higher incomes, and overall much less risk for the banks. There already is no such thing as a jumbo renovation loan – so renovation loans will really dry up are less likely to cover the cost of renovation come this fall. Somewhat less demand means real estate prices will could drop slightly (because of this). Properties like shells that are particularly risky will probably see the biggest drops are the most likely to be affected.

This is major will have real effects on Harlem townhouses…

Those of us who have already bought will could see the prices of our homes drop in value since there will be less competition among buyers slightly fewer buyers will be able to get the size of loans they need.

People who are buying will find it somewhat harder to get mortgages that cover all the expenses. A lot of people just won’t qualify. We wouldn’t qualify be able to do the renovation we want to do under the new rules. It doesn’t mean the buyers can’t afford the homes. Our place will actually be quite affordable once it’s all done. It’s just that the renovation process is a risk no bank wants to take on.

My advice to people who own shells that are on the market is SELL NOW! realize after September 30 the value of your place may go down even further. If you’re holding that property after September 30, you’re probably going to hold it for quite a while into the future and it will sell for substantially less money. Now is not the time to be greedy.

If you own a shell and haven’t closed on your rehab mortgage – do everything what you can to close the mortgage before September 30 – otherwise you may not be able to do as nice of a renovation.

If you’re in the market for a shell – that’s a tough one… After September 30 you may not be able to afford a townhouse at all. But closing on a rehab mortgage takes time. You need approved plans (which can take months to get), you need a contractor who’s ready to start, etc. And on top of it all it’s possible the place you buy could drop in value shortly after you buy it.

The same goes for renovated townhouses, but to a lesser degree – the situation won’t be quite as dire for livable places Renovated townhouse may not feel the hit much at all since jumbo mortgages will be available for them (just a little harder to get).

After September 30 cash will continue to be king (even more than it is now). You’ll need a large down payment PLUS pretty substantial income. It’s sorta sad really. The current crop of homeowners who are buying and renovating shells are often pretty regular Joes… A lot of them will just be priced out of the market.

I feel fortunate that we bought when we did and got our loan closed when we did. Yes, our place will most likely go down in value, but renovated places will fair better than shells since banks will be still be lending on regular, non-rehab mortgages. We’ve always taken a long-range view of the townhouse purchase. It will still be affordable for us after we get done. And I’m not sure any of this will matter in 15 or 20 years and we have every intention of living in our place for that long…

Hopefully something will happen to derail the support for these changes. It’s being implemented all wrong… They should take everyone down slowly. They way they’re proposing will hurt places like California and New York and not change anything for middle America. Hopefully common sense will prevail and none of this will come to reality. But from the sounds of it, it’s a done deal.

The Importance Of The Right Contractor & Contract

Posted on May 8, 2011 by BeatingUpwind

Tomorrow we’re going to court (again). The contractor we used 6 (+/-) years ago to renovate the kitchen and bathrooms in our old coop is suing us. I’m not going to comment on the case until it’s over other than to say it’s a huge hassle but we feel very optimistic about the outcome. This blog post is more about the things we’ve learned to avoid hassle and drama with contractors.

First: Use A Standard AIA Constract

Back then our architect told us to use a standard AIA contract. We didn’t because we didn’t want to seem difficult. Thing is, good comprehensive contracts avoid problems. We shouldn’t have worried about what the contractor thought of us. We should have done what we needed to do to avoid problems down the road.

However, for our townhouse project we did use an AIA contract and having read the contract I can see why he told us to use it. For starters, AIA contracts keep you out of court. In the contract both parties agree to binding arbitration by someone who is approved to handle disputes related to AIA contracts. Arbitration would have been so much easier than what we’re going through.

AIA contracts also stipulate that when the owner and the contractor disagree the first line of arbitration is the architect. I’m not sure that would have avoided our current lawsuit, but it’s coming in handy on our current project – the architect is the voice of reason who balances the various points of view.

Second: Avoid Design/Build Firms

You can go one of two routes when you do a major project. You can hire an architect and then hire a contractor, or you can hire one company that does both architecture and contracting (design/build). While one stop shopping may sound good, in practice there are major problems with it.

For starters the architect is going to do whatever is best for the person who is signing his/her checks. An independent architect will do what’s best for you. An architect in a design/build firm will do what’s best for the design/build firm. The architect for a design/build firm is less likely to spec things like sound insulation in walls, or higher grade materials that will last longer.

But more importantly, you will have disagreements with your contractor – even when you have a great contractor. If there’s no independent architect who can act as a mediator, then the disagreements are more likely to end badly. If you’re wrong, you may not believe a design/build architect as much as you’d believe an independent architect. If the contractor is wrong, an independent architect is more likely to push the point and get the contractor to do it right.

Third: Have The Contractor Sign A Waiver With Every Payment

When we closed on our place our real estate attorney gave us a document and told us to have the contractor sign it every time he gets a payment. In the document he should affirm that all subcontractors have been paid for work covered by the payment and he should also waive his right to put a lien against your property for the work covered by the payment.

Our construction loan is from Wells Fargo and I was pleased to see that they require the contractor to sign exactly that type of waiver before they cut the check. If your bank doesn’t include the waiver, ask your real estate attorney for one.

That waiver would have solved a lot of problems for us since our old contractor started all the drama by putting a lien against our coop.

BTW, if you do get a lien filed against you, just bond the lien to make it go away. You’ll need to put give a bonding agent 110% of the lien amount, and two years later you’ll get your money back (with interest) if the contractor fails to sue you during that time.

Fourth: Pick Your Contractor Very Carefully

It’s really difficult finding just the right contractor. Try to find friends who recommend people they’ve used before. Examine the work closely to see if it’s a level of finish you’d be happy with. Don’t be put off by the fact that your friend may have had a few problems during the process – dig deeper and ask how the problems were resolved. Problems will always come up – the issue is how the contractor dealt with them.

Be wary of referrals from people you don’t know, or people who aren’t in the same position as you are. For example the contractor who is suing us had a lot of referrals from people who were flipping apartments. Flippers have a very different outlook than homeowners. Flippers don’t care if things fall apart in 5 years. They just want it to look good for the sale.

In the end go with the person you trust the most in your gut, but realize that you may have to cut things from your project to afford the contractor you trust. And don’t move forward until you’ve found someone you really, honestly trust to do the job right.

We Have A Roof & A View! (Sorta)

Posted on May 7, 2011 by BeatingUpwind

The roof, while far from done, got put up Friday – well enough to stand on at least…

The next thing we have to figure out is whether the slope of the roof will be uncomfortable as a deck. It changes by about 7 inches every 10 feet. We could do three level areas with one step between each, or we could live with the slope. We went to Home Depot this afternoon and got some plastic lawn chairs and plan on sitting up there this weekend to see whether it bothers us. (Anyone want to join us for a beer on the roof?) If we want to do three level areas we’ll need to raise the railings a bit to compensate for the additional height.

The roof lets us get a peek at our view. While we’ve stood on the roof of the apartment building next door, we’ve never actually seen the view from our own roof until today. It’s a story lower than the apartment building, and the view isn’t quite as good – it’s a bit obstructed…

(Click picture to see bigger version).

We can see midtown a bit. Citicorp is visible, and from the right angle the top of Empire State is visible, but much of the Midtown view is obstructed by the apartment buildings on Adam Clayton Powell Jr. Blvd. And being Harlem it’s off in the distance anyway. Here’s a blow up of the best part of the view…

(Click for bigger version).

I gotta say though… The fact that our view is so precarious makes me want the boundaries of the Mount Morris Park Landmark District expanded so our neighbors to the south can’t build up and block our view. Thing is, even if they’re landmarked they could still build up a little and block things for us – by adding a bulkhead like we’re doing…

Honestly though, the most interesting thing on the horizon we see when we turn around and look across and down the block a bit at The Greater Metropolitan Baptist Church (originally a German Lutheran church)…

The nicest part of the roof deck is that it’s less of a fish bowl than the back yard. There’s a bit more privacy than the back yard ’cause it can be seen by fewer windows…

Construction Doorways

Posted on May 4, 2011 by BeatingUpwind

Bricked up doorway for workmen in Harlem townhouse One interesting detail we’ve seen in a number of Harlem townhouses that have exposed brick walls are old, original, bricked up doorways between the townhouses (see photo on right).

The old buildings you see in Harlem were built by speculative developers during a real estate boom (yes, that concept is nothing new). Developers would buy a parcel of land and sub-divide it by putting a number of townhouses up at once. Generally all of them would be identical, or just differ in minor ways.

Because they were building several buildings at once they’d put in passageways so the workers could go from one house to the next quickly. Then towards the end of the project all the doorsways would be all bricked up before the walls were plastered.

We have one of these on every floor. The lintels are in a variety of conditions. Originally they were wood. Some are in good condition, others are rotten and need to be replaced. One of them had the wood pulled out and brick put in (because it was in a kitchenette – which was a good thing since that’s where a major fire started).

Our doorways will still be visible when we’re done since we’re leaving the party wall as exposed brick. The old doorways will give the brick walls a little more character and may even prompt a question or two from observant guests.

Look Ma… No Roof!

Posted on May 4, 2011 by BeatingUpwind

No Roof…

Last Friday the contractor took off the roof. It had been pretty badly damaged in a fire nearly 15 years ago. It’s sorta amazing it was still more or less in one piece.

Having the roof off was a curious thing… it was a bit like having a private deck on the top floor of the building…

Once again, nice big windows – 🙂

They’ve started putting in the rafters for the roof. It’s going a little slowly because the bricks in the parapet aren’t in as good condition as the ones lower down in the wall.

Hopefully by the end of the week I can get up and walk on our “roof deck”. I put the ladder up on the top floor at one point and tried to see if I could see the Midtown skyline – not quite, but the roof deck will be 10′ higher. I’m sort of obsessing – wondering if the townhouse behind us will block our view. I’ll know soon enough.

More DOB Issues…

In other news, we passed our first plumbing inspection by default – the inspector didn’t show up. Apparently that’s pretty common – the inspectors focus on inspecting the work of problem plumbers or unknown plumbers and don’t worry so much about well-known plumbers who always pass inspections. That means we can now pour the concrete for our cellar floor.

Also DOB related is that our Post Amendment Approval (PAA) meeting was canceled at the last minute today. I’m guessing the plan examiner was out sick. That wouldn’t be a big deal except that we’ve been trying since mid-February to get the appointment and now it’s delayed another two weeks – to 3 months after we first requested it.

And here’s one gratuitous picture I thought was sorta cool…

The mason stands on those rolling scaffolds to do brick work between the joists.