Where Will Home Prices Go Now?

There is a brisk life of home sales after the great recession.  With unprecedented low interest rates fueled by signs of a growing economy, buyers who can buy are doing just that–buying a home or buying another home.

According to the National Association of REALTORS® home sales across the U.S. are up 1.5% average across the Northeast, Midwest, South, and West regions between 2015 and 2016.  Existing home sale prices are also up 3.7% from this time, last year.

There is also a shortage of supply to meet the demand of the buyers who are ready, willing, and qualified to buy.  Currently there are approximately 4.4 months of inventory available on the market, across all regions. What has happened, according to some analysts is this lack of supply, paired with low mortgage rates has created a market of overvalued properties, much like we saw in the early 2000s during the subprime lending boom of 2004-2007.

According to housing analyst Marc Hanson, housing prices are about 25% to 60% above what the fundamentals of the U.S. economy can justify. In the article, it alludes back to the last bubble and anyone who went through that take Hanson’s arguments seriously. While the real estate market has returned to some normalcy in terms of price appreciation while mortgage lending guidelines have not relaxed much there still is cause for concern, namely in the overall economy of U.S. wages (Fortune, Jan. 11, 2016).

Since it is an election year, we will likely not see an increase in mortgage interest rates. After November, it’s anyone’s guess what will happen. If rates go up and values stay where they are, it may be more challenging to qualify for a mortgage, if a buyer has student loans and other debt.

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The New Mortgage Economy

Many people who are looking to purchase a home in today’s ‘New Mortgage Economy’ have no idea the level of detail, liability, and accountability is put upon residential mortgage originators.  For the past 5 years guidelines have tightened, underwriters have become wary and the industry has experienced major changes, some for the better, others have experienced more challenges with taking a borrower successfully through the transaction, while maintaining their own sanity and that of their clients. 

This is a relationship business.  At the end of the transaction if the client does not feel you have done your best, or you have not set realistic expectations you probably will not receive any referrals in the future, let alone another transaction with the current client.  A few tips that I have seen successfully work.

1) Communicate to your clients that you might ask them for documentation (for sure) that they may or may not feel is relevant.  Realize that much of the documentation requirements has more to do with borrowers ability to repay a mortgage, this includes their paystubs, tax returns, and most likely letters of explanation.  Prepare the client for this ‘New Mortgage Economy’ that subscribed heavily to President Reagan’s famous quote, “Trust, but verify!”

2) Have frequent check-ins with the client.  Ask questions about expectations, feedback, and the like. This gives you the opportunity to manage the stress and challenges that the client is likely experiencing. This will also help fend off the build-up and blowout that can occur when the communication loop is not open or constant.

3) Have a face-to-face when things get really bad.  I often find that meeting together (sometimes with their Realtor(R) present) to confirm what is happening, what to expect next, and possibly working through any challenges–which are in support of a successful closing.

Remember that mortgage lending, like many other service industries, is about relationships, communication, trust, and hopefully a longterm relationship that is value-added and beneficial to all concerned.

What to do when your transaction isn’t closing . . .

I recently experienced an extreme delay (still ongoing) in getting a client closed on their purchase.

They sold their current home which had a USDA loan (closed for them in 2012).  As many of you know there have consistently been more government intervention, additional consumer disclosures and accountability put in place on the financial industry; specifically mortgage originators and the companies they represent.

In a society where we have access to online and instant information why has the mortgage industry lagged in this area?  They closed their sale 20 December, USDA still hasn’t reflected their loan as closed.  We have been working diligently to try and connect the dots and have USDA reflect prior loan as closed.  You see, USDA only allows one mortgage loan at a time for a borrower.  Add to the frustration the holiday schedule/closures between Christmas/New Years, inclement weather in the Midwest, and so on.

So what do you do when your transaction isn’t closing…

Have a contingency plan.  Make arrangements to rent back current home OR stay with family.  Although not convenient may save $$ in the long run, especially if your transaction closing gets delayed more than a few days.

I trust we will resolve but feel for the client and his family who have been displaced and looking to us to close their transaction as soon as possible.

Show Me The Money!

Remember that famous line from the 1996 film, Jerry Maguire?  Actor Cuba Gooding, Jr. made this line famous and throughout the years . . . always evokes a sense of humor and lightheartedness.

Today, in the modern world of mortgage lending . . . show me the money has to do with proof of funds.  Where did the monies come from?  Bank statements have become increasingly scrutinized, especially in respect to “non payroll” deposits.

What is the solution . . . I have a conversation in the beginning of the relationship letting my clients know the importance of being able to document their deposits into the bank.  I stress the importance of not having a lot of deposits that they cannot document.

We all receive checks or cash for various reasons, but from the mortgage qualifying and underwriting standpoint, we really need you to “show us the money!”  Some recommendations for best outcomes.

1) If you receive a check from someone paying you back for something, selling something, etc. its actually better to just cash the check, rather than deposit it.  Once deposited, we need to know source, have copy of the check, letter of explanation, and if you originally loaned the money proof when you originally loaned the money out.  You see where I am going with this?  Unless, it is pretty cut and dry, easily document-able, etc. go ahead and deposit–otherwise find another option.  You can even deposit into an account that is not being used for the transaction, such as a savings account where no funds are being used or transferred for your transaction.

2) Consider gift funds in lieu of other when you have deposit patterns that are not easily document-able.  Gift funds can be used in most loan programs as part of down payment, closing costs, or combination of the two.  FHA allows 100% gift funds, whereas most conventional requires you have at least five percent of your own funds before applying any gift funds.  The donor will provide an official gift letter (may be required to be notarized) with proof of funds (bank statement)–showing donors ability to gift the funds.

It is a tough but rewarding process in qualifying and closing on your next mortgage transaction.  If you take pro-active steps you won’t be nervous when your loan officer or banker ask the question, “show me the money!”

U.S. Military and Independence Day

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Thank you to all who have served and continue to serve in the United States armed forces.  One of the benefits for our veterans, is in the area of home ownership.  VA financing is a great way for veterans (even those still enlisted) to purchase a home with no money down.  In some cases, with no money down and closing costs being paid by seller.

VA does require a funding fee.  This funding fee is similar to FHA’s upfront mortgage insurance premium, although VA doesn’t require monthly mortgage insurance.  The funding fee is part of an insurance policy for the lender (VA insures) that in the event the veteran defaults on the loan and goes through the process of a foreclosure–the lender would be ensured up to 25% of the total loan amount.

First time use vs. second and subsequent use of VA eligibility

Although VA financing does not require a down payment, if a veteran makes a down payment of 5% or more the funding fee is reduced from 2.15% to 1.50% for veteran/active duty.  The funding fee can be financed, so it does not need to be paid at closing.  For second and subsequent use of VA eligibility, the funding fee increases from 2.15% to 3.30%.

On July 4, 1776, the thirteen colonies claimed their independence from England, an event which eventually led to the formation of the United States. 

As we celebrate our nations 237th. birthday . . . let us remember the men and women of the armed forces who put their lives on the line to protect our freedoms.  America is still the greatest nation in the world . . . thank a veteran today AND remind them of one of the best benefits they have . . . VA financing with no money down.

 

Buying a Home – Q2 2013

Buying a home in the second quarter of 2013 takes patience, being realistic, and a combination of decisiveness and quick response.

1. Patience . . . Yes, as the saying goes . . . “patience is a virtue!”  In the current climate with low inventory, high demand, and competition among cash buyers (investors), as well as the rest of the buying population–most of which actually want to buy a home to live in.  Be patient if you make several offers and none are accepted.  The right property will present itself.  Be confident and know that with proper preparation–being pre-approved for your financing, maintaining good credit, and staying focused on the goal–it will eventually pay off.

2. Being Realistic . . . know that most transactions, especially short-sales can take several months sometimes.  This is especially true where more than one mortgage (lien holder) exists on the property.  Perfect world = single lien holder who approves short-sale.  Real world = many times two lien holders exist.  Thus, you have to wait on first mortgage holder AND second mortgage holder.  They must both agree.  Actually have a transaction going now that the offer was written 7-months ago.  For my clients sake, hope the second lien holder and first lien holder agree soon.

3. Decisiveness and Quick Response – Be prepared that a property will come on the market and due to low inventory, many people will be vying for the same property.  Respond quickly.  Set appointment with your agent to view property and be ready to make an offer.  Make sure you have the funds liquid for deposit, appraisal, and home inspection.  Deposit amount depends on sales price but usually no more than 3% of sales price.

Good luck and keep fighting the good fight.  Your offer will get accepted AND you will find the home you are looking for.

2013 . . . Is it Time to Buy Another Property?

When is it a good time to buy real estate?  Some will say, “it depends!”  It depends on the goal.  If you are looking to buy something and turn around and sell quickly for a small profit (a.k.a. “flipping”) make sure you know what you are doing.  Having a professional Realtor(R), qualified handyman/contractor is essential.  If you are not getting financing and can use 100% cash to purchase you are likely to be able to negotiate and purchase properties in the current market.

Most “flip” buyers are looking to make a certain minimum profit (for example: $10,000).  If that is your minimum profit you need to calculate the cost to purchase, rehabilitate, total to resell; including commissions, escrow, title, etc. and any capital gains taxes (consult your tax professional).

Flipping can be lucrative if you know what you are doing.  If you don’t and don’t have 100% cash to buy . . . consider buying as an investor and renting property long-term (a.k.a. “buy and hold”).  I recommend hiring a professional property management company to manage the property.  Do the math before you buy.  In this market most purchases will equate to a good positive cash flow.

I know several individuals who own 3-4 properties and have a nice retirement on their rental property income.  You have long-term income and equity growth over time.  Also, someone else is paying your mortgage.

I recommend consulting your financial adviser and tax professional but in most cases its a great investment if you count the costs and arm yourself with knowledge and information.