Financing Game Changer to Affect All Buyers and Sellers!

If you’re a buyer or seller on the fence about making a move, October 1st could be a game changing date.

Starting October 1, 2011 “Conforming” (think Fannie and Freddie) and FHA loan limits are set to be lowered nationwide as the federal government looks to lessen its footprint in the business.  This means the current loan limit of $729,750 in Los Angeles that we’ve gotten used to in the past several years will be reduced to $625,000 this fall. So why does that matter to you? Since most buyers rely on the low rates, smaller down payment requirements and the easier underwriting guidelines offered by these government backed loans, the market is going to lose a tremendous amount of its purchasing power. When purchasing power decreases it puts downward pressure on sale prices. For sellers in certain price ranges this means less qualified buyers this fall. For buyers this will put many properties out of reach. For example:  With the conforming loan limit at the current $729k the average buyer with 20% down payment can buy a $910,000 house.  When the conforming loan limit decreases back to $625k, the average buyer with 20% down payment can only buy a $780,000 house using conforming financing. Today an FHA buyer with the minimum 3.5% down payment has the power to buy a $755,000 property. After October that max purchase price drops to $646,000. If you’re planning on buying or selling you may want to accelerate your timeline.   Of course there is and will continue to be financing far above these loan limits. However, these “non-conforming” or JUMBO loans may have higher interest rates, are more difficult to qualify for, require a larger down payment, and require more post closing cash reserves by the borrower.

It’s also important for you to know that this is not being backed by the government so in turn the Jumbo loan product varies significantly from one bank to the next and one lender to another. It is not “one size fits all” when it comes to jumbo loans. That’s why it is so important to have a mortgage consultant who is skilled in jumbo financing, not only understanding the different programs and guidelines but having access to all of those choices. Please don’t hesitate to call for any additional information on these upcoming changes or any property sales questions you may have.

First-Time Home Buyers Prepare for Best Buyer’s Market in Recent History

While affordable housing prices, ample inventories, and historically low interest rates signal ‘buyer’s market’ for investors or move-up buyers in many U.S. markets, inexperienced first-time buyers may not know if the time is right to make a move into real estate.

“It’s not about timing the market. It’s about time in the market,” says Steve Berkowitz, chief executive officer at Move, Inc., a leader in online real estate. “Once you know how long you expect to own a home, look at the historical value performance of properties in the neighborhood. Be confident about your own job security, down payment resources and tolerance for upkeep, as well as the lifestyle you want today and in the near term. While homeownership may not be for everyone, it is the right choice for hundreds of thousands of people. Today’s housing market, especially for first-time buyers, makes it almost impossible not to think about the possibilities.”

To help first-time buyers know if they’re ready to look for the home of their dreams as we head into this year’s home-buying season, the experts at Move have created a ‘reality checklist’ designed to help them decide if the time is right.

Get your financial house in order
Before you decide to buy a home, it’s essential to make sure your credit is in good shape and repair any damage previously done. Know your credit score: thirty-five percent (35%) of successful buyers recently reported they didn’t know their credit score when they went house shopping, according to a national survey fielded for MortgageMatch.com. Having enough money set aside for a down payment is a key component to making sure you are ready to purchase a home. Also, it’s important to not put all of your money in the down payment as other fees or unexpected expenses often arise after closing.

Don’t fall in love with a house you can’t buy
Find out how much you can afford: establishing your purchase power upfront, including how much money will be required for a down payment and closing costs, is a must for first-time buyers. Look for special loans available from FHA and government sponsored loans for first-time home buyers that reduce the amount of money required to get into a home.

Learn the lingo
Since first-time buyers are new to the market and will finance a significant portion of their purchase, it’s important to get familiar with the processes and terminology associated with home-buying. Here are a few key terms from MortgageMatch.com to add to your vocabulary:

Bait rate: Misleading mortgages with low rate promises and no contingencies generally for those with extraordinary credit. Rates are based on: credit, debt-to-income and loan-to-value ratios, the size and type of loan, property location and the day you lock your rate, etc. The loan isn’t locked until the application is accepted. By then, it may be too late to find a better rate from another lender.

Basis point: A term used in the mortgage industry which simply means 1/100th of 1%.

Closing costs: The fees required to process and close your loan. They’re a cash obligation running from 3-5% of the purchase price. Motivated sellers might pay a portion of these costs.

FHA: Federal Housing Administration, the Federal Government Agency that oversees the U.S. Housing market. FHA Loans are loans insured by the Dept. of Housing and Urban Development.

FRM and ARM: A Fixed-Rate Mortgage Loan (FRM) is a loan where your interest rate stays the same for the life of the loan. ARMs are Adjustable-Rate Mortgages with variable interest rates that fluctuate based on an agreed-upon index.

GFE: The Good Faith Estimate (GFE) is a document explaining all costs involved in getting a loan.

TIL: The Federal Truth-in-Lending Form is a document that spells out the costs and fees of the loan.

Lis pendens: An official notice that there is a pending lawsuit over real estate.

Per Diem interest: Interest you pay per day, from the day you close to the last day of the month.

Underwriting/underwriting fees: Underwriting is a process the lender performs to qualify a borrower for a loan and the fee is what you pay the lender at closing to cover evaluating the risk involved with loaning you money.

Warranty deed: A legal document guaranteeing the seller has a right to sell a property, which is very important if you are considering a distressed or discounted property.

Mortgage Knowledge
While national rates on 30-year-fixed-rates mortgages have risen slightly this year, they are still at historic lows not seen since 1980, according to Freddie Mac. “Buyers who prepare themselves financially before they start looking for a home will have a better chance of succeeding,” says Sue Stewart, senior vice president for Move, Inc. “If you want to land the best mortgage that fits your needs, start early, educate yourself on your financial situation, get your documentation together and find a lender you trust.”

Find a REALTOR® and go shopping
For those ready to buy, REALTOR.com® has the tools and tips to help you find a REALTOR® and, ultimately, the right home. Finding a licensed real estate professional in your area will make the process smoother and easier to understand. Once you find an agent, share your realistic budget and what you’re looking for in a home. Stay in constant contact with your agent and look for homes whenever you have a spare moment.

First-time home buyer resources
For more tips designed to help the first-time buyer navigate the home buying process, the experts at Move have provided an abundance of helpful information that’s just one click away:
-Reality checklist – Are you sure you’re ready to buy? Here’s how to know.
-How-to Guide: Buying Your First Home – Everything you need to know about buying a home
-Get Prequalified Now – Get prequalified for a mortgage before you begin shopping
-Realtor.com Blogs– Connect with REALTORS® to help you navigate the market
-MortgageMatch.com News – Answers questions about finances and mortgages
-Move.com Home Finance – Equips first-time buyers with tools, guides, advice, and more

If now isn’t the right time, prepare for your future purchase
If now isn’t the right time to buy a home, make a plan with a target date for when you expect to be ready. Improving your credit, paying down debt, stabilizing your work history and calculating exactly how much you can afford, are the best ways to prepare for your future home purchase. It’s also important to refrain from making any new large purchases or applying for new credit.

 

 

Source: RIS Media

http://rismedia.com/2011-03-17/first-time-home-buyers-prepare-for-best-buyers-market-in-recent-history/

GREAT ARTICLE for Everyone to Read: "Should You Rent or Buy"

We came across a really fantastic, informative article regarding real estate and the benefits of renting vs. buying.

Please take some time and read it here Or  http://www.latimes.com/business/realestate/la-fi-lew-20101205,0,6744446.story

Should you buy or keep renting?

In these uncertain times, people more than ever need to know which housing strategy makes more financial sense, buying or renting. Two brothers in Virginia have a website that can help answer that question.

Housing isn’t the investment it used to be. Or is it? Certainly if you bought at the peak of the housing boom — say, 2004 or 2005 — it isn’t. But most people who took the plunge more recently think it is.

In fact, 85% of a sample of folks who bought houses in the 12-month period from July 2009 to June 2010 view their homes as sound financial investments, according to a recent National Assn. of Realtors survey.

Nearly half the 8,500 buyers and sellers polled consider their homes a better investment than stocks, while 3 in 10 say housing is at least on par with stocks. And the findings are roughly the same across all subcategories: new home or existing, first-time buyer or repeat offender, single or married, male or female.

But participants in NAR’s annual Profile of Home Buyers and Sellers were also asked how long they expect to stay in their homes, and their answers indicate that most people have come to the realization that housing as a quick dash to riches is a thing of the past.

The median expected length of residence is 10 years, with repeat buyers planning to remain a median of 15 years.

But is even a decade long enough at today’s appreciation rates for an investment in housing to turn a profit? Or put another way, which makes more financial sense nowadays, buying or renting?

To be sure, homeownership isn’t for everyone. Some people simply can’t afford it, and others simply aren’t cut out for it.

Then there are those who simply enjoy their renter lifestyle. They don’t have to mow the grass or rake the leaves. When something breaks, all they have to do is call the landlord. And, if they haven’t signed a lease, they can pick up and move with proper notice.

Of course, renters give up a lot too. They can’t make their home truly their own because they usually aren’t permitted to make improvements or even paint the walls any color they choose — only neutrals, please.

And they don’t have much of a say when it comes to how their communities are run.

Despite those factors, though, the decision to buy or rent has been pretty much a monetary one.

So forget for a moment all that intrinsic stuff about being able to turn a house into a home, giving your kids their own backyard in which to play and living where the schools are better. If a family has enough dough salted away to cover a down payment and closing costs, if it can qualify for a mortgage and if it can afford the monthly payments, property taxes and insurance, it often buys.

Nowadays, however, many people are thinking twice about homeownership. Otherwise, they would be out there bargain-hunting, snapping up prized houses at rock-bottom prices and record-low mortgage rates, and laughing all the way to the Promised Land.

More than ever, people need to know what makes more financial sense, buying or renting.

That’s a problem Steve Rossi faced in the mid-1980s. Fresh out of college, he was told that it would be foolish to buy. But when he looked into the pros and cons of ownership versus renting, “all I got was bits and pieces,” he recalls. “Nobody really had the whole picture.”

So Rossi turned to his older brother, John, a computer specialist, and together they wrote a program that answered Steve’s question: After six years as an owner, he would turn a profit.

“How long you stay determines whether or not ownership will be profitable,” Steve says. “If you buy today and sell tomorrow, you are going to lose money. But the longer you live there, the more it pays to buy.”

Steve still lives in the Annandale, Va., house he bought 26 years ago. By day, he and John work for Uncle Sam. By night, the brothers have turned Steve’s dilemma nearly three decades ago into a business telling anyone who asks how long it will take his or her house to make money.

Years ago, most people came to the Rossi brothers through the Learning Annex, a Washington-area open university where they taught the class To Buy or Not to Buy — That Is the Question. But now, thanks to the Internet, their reach is much wider. In fact, it doesn’t matter where you live. If you can answer some basic questions at their site — http://www.tobuy.webs.com — and have $10 to spare, they can tell you when you will reach the break-even point.

When they first started, the brothers needed answers to 17 questions, things such as how much you expect to spend on utilities, insurance and maintenance, and where would you put the money if you don’t invest in a house. Now, they’ve pared their list of questions to 13.

The simplified “Buy or Not Buy” questionnaire doesn’t ask what you spend on utilities — the Rossis’ computer program adjusts for that automatically — but it still wants to know what you think you would be earning if you invested in something other than real estate. After all, Steve says, “money spent is money not being invested, so you have to adjust accordingly.”

Don’t worry if you can’t answer all the questions. The questionnaire has all kinds of prompts along the way, such as “3% is reasonable” when figuring the escalation rate of your utilities, maintenance and insurance. Even if some questions are left blank, the Rossi brothers have done so many of these analyses that they can answer them accurately for you, and all the information you provide is strictly confidential.

There are other programs that claim to do the same thing as the Rossis’. But most of those are written for or by real estate professionals who would like to sell you a house. The Rossi brothers, on the other hand, are independent and have nothing to gain whether you buy or not. Indeed, if there is room for bias in their program, it appears to be in favor of waiting.