Thursday, December 30, 2010

Mortgage Rates Back to Levels Previously Seen in May

Freddie Mac today released the results of its Primary Mortgage Market Survey®, which saw all but the 1-year ARM rise. This brings 30-year mortgage rates back to levels seen in May of this year, while the 15-year ties levels not seen since June.

Even so, mortgage rates remain incredibly low.
Mortgage News Facts

    *      30-year fixed-rate mortgage (FRM) averaged 4.86 percent with an average 0.8 point for the week ending December 30, 2010, up from last week when it averaged 4.81 percent. Last year at this time, the 30-year FRM averaged 5.14 percent.

    *      15-year FRM this week averaged 4.20 percent with an average 0.8 point, up from last week when it averaged 4.15 percent. A year ago at this time, the 15-year FRM averaged 4.54 percent.

    *      5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.77 percent this week, with an average 0.7 point, up from last week when it averaged 3.75 percent. A year ago, the 5-year ARM averaged 4.44 percent.

    *      1-year Treasury-indexed ARM averaged 3.26 percent this week with an average 0.6 point, down from last week when it averaged 3.40 percent. At this time last year, the 1-year ARM averaged 4.33 percent.

Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage.

Quotes from the Industry:
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

    * “Interest rates on fixed mortgages and the 5-year Hybrid ARM rose slightly over the holiday week, but were still below the year’s highs set in the first half of 2010. For the year as a whole, 30-year fixed mortgage rates averaged just below 4.7 percent, which represented the lowest annual average since 1955 when secondary market yields on FHA mortgages were above 4.6 percent and the average price of a home was $22,000.

    * “Recent news on housing markets has been mixed. The S&P/Case-Shiller® house price index fell 0.99 percent in October, in line with other reports showing a softening in house prices since mid-year. Home sales continue to recover in the months following the expiration of the Homebuyer Tax Credit, however, with sales of new and existing homes up 5.5 percent and 5.6 percent, respectively, in November."

About Freddie Mac
Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

Monday, December 27, 2010

How to Buy a Home in A Falling Prices Market

Common knowledge dictates that if a home doesn't sell, there must be something wrong with it. That's a true statement. In a market that is moving, there is something wrong with a home that doesn't sell. But contrary to popular belief, it's not always location or condition.

The number one reason why an otherwise attractive home does not sell is price. Homes that are grossly overpriced often never sell at all. Why? Because home buyers don't make offers on them.

Why Don't Home Buyers Make Offers on Overpriced Listings?

  • They don't want to offend the seller. It goes against human nature to offer substantially less than asking price to a seller. It's insulting to the seller and embarrassing for the buyer.
  • Buyers erroneously believe that the seller knows the home is overpriced. They believe that if a seller would be willing to sell for less, the seller would simply lower her price.
  • Buyers also assume that the seller must have turned down low-ball offers from other buyers because surely someone, somewhere along the line, had offered a reasonable price to the seller. But many times, there are no offers at all.
How Do You Find an Overpriced Listing?

The easiest way is to ask your Realtor about the average days on market (DOM) for your area. Multiple listing systems are designed so it's fairly easy to compute the DOM. Then ask your Realtor to sort through the listings and give you a print-out of every home that has been on the market longer than the average DOM.

If your Realtor is a neighborhood specialist, it is likely she has toured these homes and has intimate knowledge of condition and layout of these homes. Ask her to share this information with you. You can also ask your Realtor which of the homes she thinks are overpriced as well. You will be amazed to learn that often agents don't tell listing agents whether their listings are overpriced because agents don't want to offend anyone either!

But listing agents aren't infallible. Sometimes they make mistakes when estimating market value prices for a seller. Ultimately, however, remember that it is always the seller's responsibility to select the sales price.

And, not every home that is overpriced will ultimately sell for less than market value. But many homes that are listed at unrealistic prices are owned by sellers who are motivated and who are willing to listen to reasons why they should sell at a reduced price to you. If you find out that a seller has turned down multiple offers for less money, it might mean that it's just a matter of timing. Eventually the light bulb will go on and a seller will say yes.

There are overpriced gems hiding among the inventory of homes for sale every day. Don't just pass them by. You could be passing up an opportunity to buy your dream home.

Monday, December 20, 2010

Top Credit Score Myths

It's crucial to stay aware of your credit scores and the information in your credit reports. They can help you can get the best rates when you take out any kind of loan. This information can also be requested during job interviews as a representation of your history of responsible bill paying. But the importance of knowing your credit scores and credit report information is so much bigger.

It's important not to get sucked into the common myths about credit scores. Since the credit system is complicated, it's no wonder that incorrect information spreads quickly. Here are the top 5 credit myths you should stay aware of:

Myth 1: Checking your credit hurts your score.
Actually, checking your own credit doesn't count as a "hard inquiry," so it doesn't damage your credit score. You can check your own credit reports and credit scores as often as you would like without doing yourself any harm. Your credit scores may only be "hurt" by inquiries from a financial institution or businesses checking your credit as part of an application.

Myth 2: Closing old credit accounts is a good idea.
In reality, closing old credit accounts may damage your credit scores significantly. This is because you can't improve your credit by closing a credit card or loan. In fact, maintaining old credit accounts can help your credit by, for example, increasing your credit age or showing that you have a certain amount of available credit. Therefore, it's a good idea to keep your old accounts open and to use them at least a few times a year.

Myth 3: The Three credit bureaus share records about you.
Equifax(R), Experian(R), and TransUnion(R) are independent companies that don't share credit data with each other. Plus, not all banks or other creditors make consistent inquiries about you at each of the bureaus. As a result, your credit reports from each bureau can vary considerably. For example: you may have an account that only reports to one of the 3 bureaus each month. So, it's important to check all 3 of your credit reports regularly in order to identify these differences.

Myth 4: Your credit reports merge with your spouse's when you get married.
Your credit report is tied solely to your own individual Social Security number. When you get married, your credit report doesn't automatically merge together with your spouse's data. However, any new joint or co-signed accounts that you open together can appear on both of your credit reports. Be extra careful with these shared accounts - any late payments can damage each of your credit scores.

Myth 5: It is impossible to have a perfect 850 credit score.
Achieving the perfect credit score isn't easy, but it is possible. You'll need to have more than 7 years of on-time payments, responsible credit card debt usage, a mix of credit and loan accounts, and no recent applications for new credit. Luckily, a credit score above 720 is easier to obtain than a perfect 850, and it will also help you qualify for the best loans, and more.

With identity theft and financial crimes happening much too frequently, your credit and reputation can be ruined in an instant. Today it is more important than ever to know where your credit stands, what it means, how to stay in control of it, and how to prepare yourself to handle any issues.

Friday, December 17, 2010

Percent Price Decrease Research Update - 20 City Composite

            Price Reduction Measures: Jan 2010 - present (90-day rolling average)

 Left axis, black line: Measures the percentage of active sellers that have taken at least one price reduction in the last 90 days.  A 10% rise since the Spring – that’s a huge movement in such a short period.

Right axis, orange line: Measures “by how much” these sellers are reducing their prices. Seems sellers are getting more desperate – taking larger price reductions in a post-tax credit market.

Thursday, December 16, 2010

Documenting Your Assets – Verifying Your Down Payment

When buying a home, it is not enough to just "come up" with the money. With the exception of "no asset verification" loans, lenders want to verify where the money comes from. This is partially a quality control feature to protect against fraud, and partially an underwriting tool to determine your qualifications as a borrower.

If you can document the funds come from your personal savings, the lender is more confident of your strength as a borrower.  A savings history indicates a level of stability.

In addition, if you can verify you have additional assets that are not needed for the down payment, it is important to document those, too. Additional assets are "reserves" you can draw upon during times of trouble, such as unemployment, medical emergencies, and similar occurrences. Additional assets can also help to document that you have a history of saving money, which makes you a more dependable borrower.

It is extremely important to completely document the paper trail of any funds you use for down payment and closing costs. The sections that follow offer guidance on both verifying assets and documenting them as a source of your down payment.

Wednesday, December 15, 2010

What is Going on with Mortgage Rates?

The question is simple enough: What's going on with mortgage rates?

What makes them rise, or fall? Is it the Fed? The economy? Inflation? The banks? The President? Fannie Mae or Freddie Mac? What?

The answer is that rates are moved by a number of related factors, and believe it or not, you -- Joe or Jane Consumer -- are one of those factors.

Mortgage money can come from many sources, including deposits at banks and brokerages, but most comes from investors through what is collectively known as the "capital markets." This is where investors interested in purchasing certain kinds of debt instruments -- bonds, in this case -- come to buy these items.
In order to attract investors, sellers of bonds must compete with one another to get their money.

They do this by offering a variety of " instruments" (also called "product") with differing structures of risk and return over given periods of time. These offerings compete with other investments which are reasonably similar in performance, such as US Treasuries, corporate bonds, foreign bonds, and others.

Who are these investors, and why are they so fickle? Mostly, they're people like you, and you want two opposing things: low payments on your debt, especially your mortgage, and high returns on your investments. You (or your investment advisors or fund managers) will only buy so many low- yielding bonds (mortgage or otherwise), because you'll take your money elsewhere if your returns are too low.

Investor demand for a given kind of investment plays a considerable role in moving market yields, because investors have literally hundreds of places to put their money. It's a crowded marketplace, with many sellers of various product competing for those investor dollars. Investor demand for specific product rises and falls with changes in investment strategies; if demand falls enough, a change needs to be made to attract investors again. How to attract them again? Usually, by raising interest rates.

Of course, it's not as easy or simple as that. Mortgage market makers serve not one client, but two: investors, who want the highest possible return on their investments, and the homeowner or homebuyer, who wants the lowest possible interest rate. Simultaneously, rates need to be high enough to attract investors but low enough to attract borrowers. It's quite a complex dance; investors, though, make the music.

As interest rates (yields) decline, investment customers can become more or less interested, depending upon the direction of economic growth, inflation, appetite for the given product, and several other factors. Typically, though, the lower those rates get, the fewer investors are interested in putting them on their books.
In the case of financial instruments like bonds, things get a little more complicated. Bonds have an interest rate (yield), a dollar amount (face) and a current price (price).

A very simple explanation -- which leaves out a number of very important factors -- would be as follows:
Let's say, for example, that you want to sell a $1,000 (face) bond with a yield of 6%. And let's say that it's a good deal, so ten investors start offering you more than the $1,000 you want. They bid the price up to $1,010 -- $1,020 -- $1,030. In effect, that increase in price is actually borrowing from the interest which the bond will return. Because some of the interest is gone, the actual return to the investor is no longer 6%, but something less than that. When demand for a given bond is strong, prices rise to the seller, and the return to the investor (yield) declines.

Conversely, when demand for a given bond is weak, the price falls. For example, you might have to sell that $1,000 for only $980; and the return to the investor (yield) rises, since the buyer not only gets all the interest on $1,000, but also got a discount on his purchase price.

The principle to remember is this: as a bond price rises, its yield falls, and vice-versa.

Other Risks

There's also the impact of inflation, which affects both Treasury, mortgage and other fixed-income investments. Rising inflation reduces the actual return on a fixed interest rate investment, so with 2% inflation, that 6% mortgage note returns only 4% "real" interest.

If inflation is expected to decline for the foreseeable future, you can bet that mortgage rates have some room to fall. Conversely, an outlook which suggests higher inflation ahead will see mortgage rates rise, sometimes very quickly.

Also, a poor economic climate affects mortgages much more profoundly than Treasuries. After all, the US government isn't likely to lose its job and suddenly stop making payments, but it's a safe bet that a percentage of homeowners will, even in good economic times.

There's much more to the structure or bond, mortgage and capital markets, including government influences and overseas relationships to our capital markets which can also have an effect, but the above should be enough to give you a modest working knowledge of the market.

You'll notice that we didn't mention the Fed at all. Fed moves have no direct effect on fixed rate mortgage pricing, but their action or inaction (and expectations thereof) can indeed have indirect effects.

Tuesday, December 14, 2010

Accepting Listings Over Market Value

Sometimes, it is inevitable, but before you take a listing that is overpriced, see that the sellers meet the follow three criteria:

1. The sellers must have strong motive to sell.
Your client’s motivation to sell is the key indicator of whether or not you will earn a fee for your service. You’ll be paid only when your client’s property sells and closes, so evaluate and re-evaluate the interest and determination of the seller to complete the transaction.

If a client absolutely has to sell – because of a job transfer, divorce, financial difficulty, a home too small for the family, or a new home purchase for which sales proceeds are required – the odds of a successful closing swing strongly in your favor. The pressure of the pending circumstances will push the seller to complete the deal even if it involves a necessary price adjustment.

A client who has already purchased another home will become increasingly motivated to sell as the pressure of making two house payments comes to bear. I’ve seen clients undergo complete attitude adjustments regarding the price of their property around the first of the month when they had to write two mortgage checks. The pain of that second check becomes greater than the pain of the price reduction.

2. The sellers must have the financial capacity to sell at "true" market value.
If sellers owe more on their mortgage than their home is currently worth, they’ll need to come up with the difference between the sale proceeds and the loan balance at the time of closing. If they don’t have the necessary resources, don’t take on the listing at any price.

Previously, many homeowners have pulled cash out of their homes and taken new mortgages based on appreciated home values, which have already stagnated or declined. When sellers in this situation get ready to sell, they owe more on their mortgage balance than they’ll reap from the equity they’ve accumulated – and the real estate agent’s fee becomes an out-of-pocket expense, rather than a deduction from sale proceeds.
Set this rule in stone: Take on listings only for owners with sufficient equity to sell at real market value or sufficient other assets to make up the shortfall.

3. Accept over-priced listings only for clients who make a long-term commitment to allow you to represent them.
If you agree to list a property at a price that is over the home’s current market value, insist on a listing term of at least six months. This will give you enough time to market the property, reduce the price if necessary, or even put a second transaction together if the first one doesn’t close.

Too often, sellers who want to stretch beyond top dollar value also want to give you a short timeframe in which to prove yourself. Follow this rule instead: Insist that the term of your listing needs to align with the price of the listing. Take a 30-day listing only if it’s backed by a 30-day price – with a 30-day price defined as a price that is 5% to 10% below fair market value.

Most sellers want a 30-day listing at a price that is 10% to 15% above market value. No deal! Use the following script to align the listing period with the sale price:

"Mr. Seller, based on the price you want for your home, I am going to need a 12-month listing agreement. You’re asking a 12- month price, so I will need 12 months to accomplish a sale. Now, if you want to set a 90-day price of x dollars, then I would be able to take a 90- day listing. What is your desire? Which of these options do you prefer?"

If a seller wants to list their homes at a price that exceeds current market value, be sure they meet the above criteria. Otherwise, you’re gambling with your time, effort, money, and energy, with the odds of a payoff approaching the chances of winning the lottery.

This Article originally published by Dirk Zeller, Realty Times.  Aug 2010.

Monday, December 13, 2010

Is the Market Heading Back Down?

Tuesday’s release of the S&P Case-Shiller home price index shows the housing market is heading back down after several months of growth this summer:

S&P Case Shiller 20-City Index since December 2009

Turns out the active market, particularly the new sellers entering the market each week have been screaming about this since July.  

Ask the Sellers
If you want to know about the condition of the housing market, ask the sellers that enter the market each week – they’ll tell you exactly how the market is doing:

Median Price of New Listings as of December 1, 2010

Friday, December 10, 2010

New 2011 FHA Loan Limits Announced

Bulletin 2010- 43
December 9, 2010
2011 FHA Loan Limits
The Department of Housing and Urban Development (HUD) has announced the new 2011 FHA loan limits.

FHA Loan Limits

The FHA loan limits will be maintained at the current 2010 levels through December 31, 2011.

One-unit properties $271,050
Two-unit properties $347,000
Three-unit properties $419,400
Four-unit properties $521,250

High-Cost Area FHA Loan Limits

For properties located in designated high-cost areas, the FHA loan limits will be as follows:

For mortgage loans funded on or before September 30, 2011, loan limits will remain unchanged from the 2010 high-cost FHA loan limits. The maximum limit is $729,750 for a 1-unit property.

For mortgage loans funded after September 30, 2011, reduced loan limits will apply. The maximum limit will be $625,500 for a 1-unit property.

Please note that actual loan limits for a specific high-cost area may be lower than the maximum limit, noted above. It is important that you review the 2011 FHA loan limits permitted for a specific county at the link below:

HUD’s Website:

Please note: Delivery deadlines for FHA High-Cost loans originated at the current loan limits will be communicated at a future date.

Thursday, December 9, 2010

Custom Home Building Gathering Steam Again in the Carolinas

Nothing could be finer than to be in Carolina, especially if you are a home builder.

According to the latest data from Housing Intelligence, the Carolinas are the place to be. Of the 17 markets in the country which had 1,000 new home closings or more in the third quarter, 10 were in North and South Carolina.

Nationally, just 9.5% of all sales in the third quarter were new homes, down from 10.5% for the same period a year ago. But things are way different in much of the Southeast, and especially so in the Carolinas, according to HI, the independent research arm of the Hanley-Wood publishing group.

The greatest concentration of new home sales was in the military-dominated town of Fayetteville, N.C., were 32% — a third of all sales — were new homes. In the Raleigh-Gary area, 27% of all third quarter sales were new homes. And 23% of all sales in Columbia, S.C., also were new houses.

While the big Carolina markets are hot spots for builders, so are some other Southeastern markets, according to HI. In Augusta, Ga., 31% were new houses. And in Huntsville, Ala., 26% were new houses.

Wednesday, December 8, 2010

6 Things to Teach Your Clients Interested in Short Sales

When a client spots a short sale house that interests them, kindly tell them to take their hand off the mouse and step away from the computer. Before they get all excited over the prospect of buying that short sale house, make sure they know to call you first, as their agent, to research that short sale listing.

In some real estate markets, fewer than one in 10 short sales close. Just because that home is listed as a short sale doesn't mean it's really for sale (because it's subject to lender approval), nor does it mean it will sell at the advertised price.

Here are 6 things your clients need to know before trying to buy that short sale.

1. Comparable Sales For That Short Sale House

Most short sales are all priced below comparable sales, yet they are priced in line with pending sales.
Why? Because short sales take anywhere from 2 to 4 months, on average, to close, and pending sales will become the comparable sales at closing.

Some short sales are priced ridiculously low. So low that the sellers' bank will never accept them. These types of listings receive multiple offers. But all is not lost. To get your offer accepted, it will need to be priced near market value. If you're clients are not prepared to pay above a superficial price on a lowball short-sale listing, then pass.

2. Mortgage Amounts, Number of Loans and Lenders

As their agent, you need to research how much is owed against the home and find out the number of loans that are recorded. A second or third mortgage lender will receive peanuts as compared to the amount a senior lender in first position will get.

Moreover, some lenders, deserving or not, get a reputation for being difficult to work with. If you are an
experienced short sale agent, you will know who these lenders are and can advise you of the difficulty you may encounter.

If your client's offer is 20% or 30% of the mortgaged amount, it is unlikely that the offer will see the light of day on the negotiator's desk.

3. Short Sale Listing Agent's Track Record

A listing agent who is advertising a short sale but has never closed a short sale is a risky proposition for your client. That's because it's up to the listing agent to submit the short sale package to the lender and negotiate. A buyer's agent can't talk to the bank.

Some listing agents hire outside companies to do their job, and the results of those negotiations are sketchy at best. Ask yourself, do you want to risk rejection of your client's short sale purchase because the listing agent has no experience?

4. Short Sale Seller Qualifications

As their agent, you need to find out if the listing agent has received a completed short sale package from the seller, and ask about the contents of that package.

A complete short sale package consists, at minimum, of the following:

    * Sellers' hardship letter
    * Tax returns
    * W-2s
    * Payroll stubs
    * Financial statement
    * Bank statements

Some sellers do not want to cooperate and are slow to return these documents. Others have never been told by their agent that these documents are mandatory. You don't want your short sale purchase delayed because the listing agent doesn't have the required documents.

5. Number of Short Sale Offers Received
Homes priced under market value will receive multiple offers. An agent is not required to disclose the terms of those offers, but you do want to know how many offers you are up against.

Here's how it generally works:

    * When a short sale home first comes on the market, the first offer will most likely be a tad below list price.
    * The second, at list price.
    * The third offer will be slightly higher, maybe by a $1,000 or $2,000.
    * The fourth offer will be significantly more.

You want to make an offer that will beat the competition yet still be below market, or don't waste your time.

6. The Listing Agent's Short Sale Procedures

Although REALTORS are required by the REALTOR Code of Ethics to treat everybody fairly, not every agent is a REALTOR. This means the short sale listing agent may decide to submit only the first offer to the bank and withhold all other offers.

Withholding other offers could be considered to be a violation of the fiduciary relationship formed between the listing agent and the seller. The seller is entitled to receive the highest and best price. Realize that even if your cleint's offer is submitted to the bank, as time marches by while waiting for short sale approval, another buyer could outbid your clients.

Tuesday, December 7, 2010

Are Mistakes on Your Client's Credit Report Costing Them a Pre-Qual Letter or Loan Approval?

Mistakes on Credit Reports
Almost every credit report will have some mistake, even if only slight. Have your preferred lender pull a credit report for your client (with their permission of course).  Give this to your client and have them complete the following steps:

1. Do not acknowledge any of the accuracies, but be sure to note all inaccuracies.  Write next to each item something like, "not mine, not accurate, mistaken item, complete error," or whatever is most appropriate.
2. Request a copy of the corrected report within thirty days.
3. If they do not respond within 30 days, send another letter. In this letter you will include a copy of your dated original letter and a new letter firmly requesting they remove the disputed information.
4. Include a cc: to the Federal Trade Commission.
Do Not Call the Credit Bureaus - Write Letters
The credit bureau may write a letter asking you to call. Do not call under any circumstances. Your phone call will be recorded and a log will be made of the conversation. Simply write back with copies of your original letters, telling them of the original date you submitted your request. Keep a file of all correspondence to and from the credit bureau and follow through continually. Do not get discouraged, as this will be worth your while.

What happens is that the credit bureaus forward your dispute to the individual creditors, who have forty-five days to respond. If they do not respond within the allotted time the item must be removed. However, if they do respond at a later date with information that documents the credit report is correct, the item will be placed back on your credit report.
For those of you who have filed bankruptcy in the past, the items that were discharged will normally show up as a charge-off or uncollected debt. You will want to write to the credit bureaus, providing a copy of your complete bankruptcy papers and request that they show the debt as "discharged in bankruptcy." This looks better and raises your FICO score. FICO sores above 680 make it easier to obtain mortgage loans.
You may not be able to clean up every item on your credit report using these methods, but you will certainly be able to improve the way it looks to potential creditors, which can potentially improve your loan chances and your approved interest rate.

Monday, December 6, 2010

The Power of Referral Marketing

Savvy independent business people understand the power of referral marketing. In fact, many independent businesses – such as financial services professionals, interior designers, caterers, or personal trainers – grow their business exclusively through referrals. In a recent study of financial advisors, 80% of advisors’ business came through referrals, and 70% of clients gave referrals on a regular basis.

Referrals are the best source of new prospects - for any business.
  • They come pre-qualified – you typically have a good idea that they are a good potential customer because they are often just like the current customers who referred them.
  • They come already pre-sold – their friend’s endorsement often means more than all the sales-speak in the world.
  • They are typically in your region or geography.
  • They cost almost nothing to produce (unlike costly advertising and marketing) and typically only require a fraction of the time to close as a cold lead.
  • Referrals become a quality source for more referrals.
The heart and soul of referral business
The most important aspect of driving referrals is providing excellent services and being loved by your clients. This is the only true way to make them advocates. Customers are typically delighted to refer friends to quality business people. Customers relish in knowing the best provider and sharing that knowledge with friends. Any businessperson who doesn’t acquire many referrals should first look at the quality of their services, the loyalty of their customers, and how much repeat business they receive. The problem may be in the quality of their base services.

Friday, December 3, 2010

Why Pending Home Sales Go Bad

When pending sales go back on the market as an active listing, it arouses suspicions in the neighborhood. Everybody wonders what went wrong? Why did the pending sale fall apart? It could cancel due to seller's remorse, but that's a long shot.

Many home owners watch the For Sale signs in their neighborhoods. In buyer's markets, it's very common to see a pending sign pop up after two or three months on the market because the DOM are often much longer when there are fewer buyers than sellers. Just as common is when the pending sale sign comes down and the For Sale sign is left standing.
  • Buyer's Remorse
    Buyers get cold feet. In California, standard contracts give buyers 17 days to do inspections. During this time, buyers can cancel a contract for any reason, but the most common is fear of buying a home. During this time period, buyers get their earnest money deposit back for any reason upon cancellation. A pending sale in the Land Park area of Sacramento recently fell apart on the day before closing. The buyer didn't give her agent a reason for canceling. She simply refused to sign loan documents and forfeited her deposit. Her undisclosed reason was cold feet. This was a buyer who five years from now will likely regret her decision.

    First-time home buyers benefit greatly from employing the services of an experienced real estate agent who can walk them through the process of buying a home. An agent who notices the signs of cold feet can provide counseling services and help buyers avoid making a mistake.
  • Home Inspections
    To the untrained eye, many homes look the same: four walls, a floor and a roof. But to a home inspector, every little crack in the wall and every spot on the ceiling could spell trouble. Wet basements, failing roofs and malfunctioning HVAC systems are three significant problems that an average buyer can't reasonably inspect without professional assistance.

    Once a home inspector points out problems in a home, buyers tend to panic. All homes have problems, even new homes. Sometimes buyers demand that sellers replace worn appliances or fix pre-existing conditions that make a buyer uncomfortable. Buyers also can ask for a credit from the seller as compensation. If the seller refuses to do either of those options, then the pending sale cancels and the home goes back on the market.

    Do not make unreasonable repair or credit requests. One buyer demanded the seller buy several cans of ant poison and spray the perimeter of the home. Another demanded a $2,500 credit to replace a water heater. Hire a qualified home inspector who can explain defects and their significance.
  • Low Appraisals
    Most home buyers take out a mortgage. To protect the lender's position, the lender will ask a buyer to pay for an appraisal. If the appraisal comes in less than the sales price, here are the options:
  1. Pay the difference in cash.
  2. Order another appraisal from a new appraiser.
  3. Supply the underwriter with comparable sales supporting the sales price, hoping to change the appraised value.
  4. Give the seller a second mortgage for the difference.
  5. Ask the seller to reduce the price.

    If the parties cannot agree to work out one of these options, the pending sale will fall apart.
    Asking a real estate agent to provide you with comparable sales before you write a purchase contract can help you to keep your offer in line with recent sales. Hire a strong negotiator to get the offer accepted at a lower price.
  • Mortgage Loan Rejection
    Until the public records are searched by a title company or lawyer, buyers might not have knowledge of liens or judgments filed against them. Unless these liens are removed, a lender will not lend, and the buyer's loan can be denied.

    Buyers who don't know any better sometimes increase their debt ratios by financing large purchases while waiting for their mortgage loan to close. Taking out a loan for a new car or financing the purchase of furniture can make a buyer ineligible for a mortgage loan. If the loan is rejected because of a buyer's impulse financing, the pending sale will go back to active.

    Do not take out any new loans while waiting to close the sale of your new home. Wait until your loan records and the transaction closes. Don't make any financial arrangements that differ from those disclosed on your initial loan application.
  • Contingent on Buyer's Home Sale
    Buyers can lose a home sale if the contract is contingent upon selling the buyer's home and that home has not sold in the time specified. Few buyers can afford to own two residences at the same time by making double mortgage payments.

    Depending on the contingency agreement verbiage, sellers might also retain the right to kick out a contingent buyer and cancel the contract if another buyer wants to buy the home without a contingency.

    Have a back-up plan in the event your home does not immediately sell while you are under contract to buy another. Investigate taking out a bridge loan. With a little preplanning, some buyers save money by establishing a home equity line of credit before putting their existing home on the market.

Thursday, December 2, 2010

Paying Your Mortgage Down Faster

A good mortgage strategy for some,  but not for everyone.  Still I wanted to pass along this great article I found in the WSJ.

A growing number of homeowners are choosing to pay down their mortgages at a faster rate--even if it means a substantial jump in their monthly payments.

Between January and June, 26% of homeowners who refinanced chose a 15-year fixed-rate mortgage, according to data from CoreLogic, a provider of financial, property and consumer information. During all of 2009, 18.5% of borrowers who refinanced opted for a 15-year term.

What's prompting the shift to shorter loans? Historically low interest rates for fixed-rate mortgages.
Homeowners are doing the math and realizing that rates have fallen enough so the increase in payment between a new 15-year mortgage and their current loan is no longer unbearable for their budgets, says Bob Walters, chief economist at online lender Quicken Loans.

The average rate on a 15-year fixed-rate mortgage was 3.86% for the week ending Aug. 26, according to Freddie Mac's weekly survey of conforming mortgage rates.
A Change in Thinking
The financial situation of those capable of refinancing today is a factor in the shift, Mr. Walters says. These people typically are homeowners with the best credit and the most equity -- and, therefore, most suited for a shorter-term loan.

But there might be some other psychology at work. "We're seeing a different view on debt than maybe we've seen in the past," he says. Today, homeowners are saying, "I really want to pay this off. I'm going to bite the bullet and take the payment and work toward paying this down."

A 15-year mortgage also acts as somewhat of a forced savings account for homeowners, says Leif Thomsen, chief executive of Mortgage Master, a privately owned lender, given that the higher payments help a borrower pay down the principal at a quicker clip.

This is a huge shift in borrower thinking. "There was a drive a couple of years ago to take out the biggest mortgage that you could and use all of the money you would have otherwise had in the house and put it into stocks and bonds--to think of your house and mortgage as part of your entire investment portfolio," says Amy Crews Cutts, deputy chief economist for Freddie Mac.

"That worked for people who do investment finance for a living and are good at managing accounts," she says. "But for the average person, debt is a drag on their psyche as well as their overall budget." Many Americans have reverted to the goal of paying off their house and getting rid of their mortgage, Ms. Cutts adds.
Doing the Math
Refinancing into a shorter-term mortgage isn't a strategy for everyone, however.
Choosing a shorter term usually means you'll get a better rate--and you'll pay much less interest over the life of the loan--but a shorter time frame ramps up monthly mortgage payments.
For example, with a 4.5% interest rate on a 30-year fixed-rate mortgage of $200,000, you would have a monthly payment of $1,015, including principal and interest, Ms. Cutts says. The monthly payment jumps to about $1,480 with a 4% interest rate on a 15-year fixed-rate loan.

Of course, if the refinancing borrower's current 30-year loan has a higher rate, the difference between the monthly payments could be lower. Still, you should count on some increase in monthly payments.
In general, Mr. Walters says, those who choose 15-year fixed-rate mortgages are older and have more equity and less debt than other folks. They also earn higher incomes and don't have some of the added expenses that younger homeowners typically do.

"People who are taking these loans are financially stable and can afford the payments, but at the same time are planning on staying in their home for an extended period of time," Mr. Thomsen says.

Mr. Walters says you shouldn't take on a 15-year fixed-rate mortgage unless you have substantial savings, including at least a year's worth of living expenses in liquid accounts.

Also, he recommends having a debt-to-income ratio below 35%. So if you have a gross salary of $5,700 per month, for instance, your monthly debt--including any mortgage payments, taxes, insurance, homeowners-association dues as well as auto and student loans and credit-card debt--would have to be a max of $1,995 to get a 35% ratio.
Make That Extra Payment

Borrowers who don't meet those standards, or are worried about future loss of income, might be better served taking a longer-term mortgage but making extra payments on the principal to pay off the loan faster, says Mr. Walters.

For instance, if you refinance a $200,000 mortgage into a 30-year loan with a 4.5% rate, and then apply $100 of the savings to the principal payment each month, you'd save $31,700 in interest over the life of the loan, Ms. Cutts says. And you would pay off the mortgage in 25 years, instead of 30, she adds.
What's more, you would have the flexibility of not paying that $100 in months when money gets tight. "Maybe today you're feeling flush with money. Maybe you're worried in the future that income might change," Ms. Cutts says. With a 30-year mortgage, you have more flexibility. "Shortening to 15 years is a pretty big bump in payment."

Wednesday, December 1, 2010

Are You an Internet Ready Realtor?

According to the National Association of Realtors 2009 Profile of Home Buyers and Sellers, almost 90% of buyers started their search online. If you are selling a home for a client, it is vital to BE a REALTOR that understands online marketing.

Here are 5 tips for marketing yourself as an Internet ready Real Estate agent:

1. Google You!
If people can’t easily find their potential real estate agent in Google that is not a good sign. Unless you have a really really common name or maybe have a celebrity name like Britney Spears or something, you should be well ranked on the first page of Google.  If you don't know how to make this happen, get some marketing help from someone that does!

2. Improve Your Website.
Real estate agents websites don’t necessarily need to win design awards but they should be at a minimum professional looking and easy to navigate. Look how the listings are presented, if you don’t think the houses are shown in a way that will attract buyers to call then potential buyers will probably view your house’s listing in the same way.

3. Your Brokers Website.
While it is important that as an individual agent you have a professional website, people will also check your brokers site. If the broker is prominent in a particular area a large number of buyers may be aware of the brand and visit the broker site directly. The same principals apply here, the site should be easy to navigate and the listings should be presented well.

4. Facebook and Twitter.
As an agent, you should ideally have a presence on both of these social networking sites. It’s important to remember that while other real estate agents are their competition they should have a working relationship with other agents. The fastest way to market your client's house is to other agents with active buyers.  DO NOT USE your professional FB and Twitter accounts for PERSONAL posts - keep them separate - people will evaluate if they want to work with you based on your posts - one off color post and you are probably toast.

5. Get a Smart Phone!
As crazy as it sounds some agents still not use a smart phone such as an iPhone. If you don't like Apple - the there are other smart phone options  in the PC world... A smart phone allows for fast email and texting conversations with potential buyers agents; allows Google search on the road; allows you to map out your travel routes when showing clients homes all day; allows for use of QR codes (if you don't know what this is, google it and get yourself one to start using!). Plus, you can use your phone for Twitter updates and uploading pictures taken right on site. If you don't have this aspect of your business, you cannot possibly operate effectively in today's market.

6. Response Time.
Although it's 6th on the list - it should be #1 in your mind.  People will contact you via your website contact form, email, twitter handle, or phone numbers.  If you do not provide a response within 24 hours on every contact you receive, you are missing the boat.  For every 24 hours you let go by before you call back, your chances of getting or keeping that business goes down 25%.  Some agents check voicemail every day but only check email sporadically, that can potentially cost you a sale.

What is your biggest challenge when listing a new home?