Not Your Parent's Mortgage Company

Buying Real Estate, Financing
Aug 112010

At least one recent media wave has included a fair amount of whining over the fact that buyers are often finding it difficult to secure a mortgage as lenders have tightened standards and are much more cautious than in the past. Qualified buyers are still ok, There seems to be an entitlement mentality at work–and that’s in a large part what got us into trouble in the first place. One good aspect of that some non-traditional forms of financing are coming to the surface.

One article on the topic included some of the reasons banks are denying loans and offered a reminder that there maybe be an alternative for some folks in the form of private lending. We’re not talking about owner financing (although that is private lending). We’re talking about individuals and private companies making mortgages. Very often this is done through some sort of “matching” service. One mentioned in the article is Noteflo. A potential borrower can actually post the sort of loan he or she is looking for and see if any investors will consider making it.

One thing to remember–these are considered higher risk loans and the investors are looking for a decent return on the loans they make. Expect to pay a premium interest rate if you go this route.

(Understand, this is not an endorsement of Noteflo–I”ve not had any experience with them nor have I researched them.)

Posted by Walter at 7:37 am No Responses »

Can We Bribe A Buyer?

Camp, Financing, Home, Selling Real Estate
Aug 012010

While I’ve never been asked exactly that question, it’s sometimes implied–especially given the slow moving market we’re experiencing. There’s an obvious temptation to “get creative” when property goes on the market. After all, what was the tax credit? (And for the linguists: what is the difference between an incentive and a bribe?)

Definitions aside, recent changes in the mortgage industry have an impact. For all practical purposes, there are severe limits on what sorts of  (and how much) incentive sellers can offer a buyer. Savvy buyers are often leery because they recognize gimmicks and the risks associated with “rebates” in any form.

Some of the things that do work :

  • Realistic pricing… there’s very little reason for a buyer to pay more than fair market value and it’s easy for them to have some sense of what that is.
  • Curb appeal matters and the old “one chance to make a first impression” logic applies. Keep the lawn mowed and trimmed, plant a few flowers.
  • Keep the inside neat and fresh. You don’t need to create a sterile look, certainly… but neatness counts.
  • Part of neatness is “decluttering.” Pack up and store 1/3 to 1/2 of your “stuff.” It’ll make the house look bigger and you might discover you don’t miss it!
  • Think “exposure.” Don’t be bashful about letting people know your house is for sale… and make sure the information about it is complete and accurate. Facts are important, but presentation makes a difference.
  • Be patient. At least one study showed that it takes as much as 21 showings to sell a house.

These are “safe” and relatively inexpensive buyer incentives. Remember that an incentive is only an incentive if the buyer wants it! At the same time, understand that once a buyer falls in love they may drive a hard bargain.  Be prepared for low offers even if you’re priced right. A lot of buyers are using the “nothing ventured, nothing gained” approach.

  • Share/Bookmark
Posted by Walter at 5:56 am No Responses »

Better Than A Tax Credit?

Buying Real Estate, Financing
Jun 292010

Here’s an article you’ll find interesting if you are buying or selling property… I’ll give you a short version. The article suggests buyers who did not take advantage of the recent tax credit may actually come out ahead.

Why? There are at least two reasons.

First, sellers are taking increasing numbers (and amounts) of price reductions on their listed property simply because buyers are harder to find since the tax credit expired.

Second, interest rates are continuing to drop–nearly half a point since the end of April. Frankly, this one suprised me, you won’t have to go back too far to find posts where I predicted a rise. But my inability to predict this one accurately is the buyer’s gain! A half point difference on a $175,000 loan amounts to a $15,000 savings on a thirty year mortgage.

Of course we must add the disclaimer that “all markets are local” and all generalities are false, but this still can be a very good time to buy. Don’t fret over missing the tax credit, chalk up some even bigger and better savings!

  • Share/Bookmark
Posted by Walter at 8:36 am No Responses »

The Silent Victims

Buying Real Estate, Community Info, Financing
Jun 212010

Most clients discover fairly quickly that I spend a fair amount of my available volunteer hours working with children… second and third graders. So it goes without saying that a recent headline caught my eye. “Housing Crisis Wreaks Havoc On Children” It’s not an article for the faint of heart.

It’s a fairly long article filled with statistics… some that are frightening. One of the lead paragraphs points out that a large number of Americans are spending nearly half of their income for housing, leaving very little for other basic necessities. “Middle and lower income households with children are dedicating more than half their outlays to housing, leaving less than $600 per month left for all other necessities… Similarly burdened elderly and single person households had even less (under $500) left over after housing expenses…”

A gross over-simplification is that housing costs (remember to include taxes and utilities) are out pacing income growth. We hear it in town meetings. “I haven’t had a raise for three years but my taxes keep going up!” I hear it from first time homebuyers who are rightfully often buying “less” home than the numbers say they can afford. The real estate industry used to encourage people to stretch their limits. I’m not sure that’s a wise move in today’s economy.

If you are thinking about a home purchase or relocation, an objective analysis of housing costs goes along with applying for a mortgage. But remember, your “mortgagability” is a snapshot in time. The current foreclosure crisis is built in part on people who are now living in homes they simply can no longer afford.

Beyond that, if you have some stability in your life, how about considering a helping hand to those who do not? There are lots of programs that do not require a major commitment of time and money. One of those here in Piscataquis County is called Smart Starts for Students.

The campaign represents a school supply assistance program for the greater Piscataquis area by providing starter packs of new school supplies for families in need throughout MSAD #4, #41, #46, #68 and Union #60. Last year nearly 250 kids benefitted from the program and there’s every reason to believe the need will be even bigger this coming school year. Penquis is looking for donors to help empower our kids.

Donations can be money or specific items. There are lots of options! You can “back to school” shop for a specific starter kit or just some items… you can pick which district your donation will go to and even decide whether you want to help at the elementary, middle or high school level. Penquis is working really hard to make it easy for us to help. Look for drop boxes around the area where you can leave items. You can find details regarding the program at the Penquis web site or call the office at 207 564-8196 564-7116 (see comment).  Parents may use the same resources to register their children for the program.

Maybe if we help some of these kids get through school they’ll be able to figure out how to get us out of the mess we got ourselves in!

  • Share/Bookmark
Posted by Walter at 4:33 am 1 Response »

Make Your Own "Stimulus" Package?

Buying Real Estate, Financing, Home
May 082010

The opportunity may be gone to collect a tax credit for buying a home, but that doesn’t mean there aren’t other opportunities for buyers. Just consider this: there were some reports of sellers “hardballing” buyers in the last few weeks of tax credit eligibility. Sellers knew that buyers were working against a deadline and they took advantage of it. They knew getting under contract meant up to $8,000 in tax credit for the buyer and they decided to “force” the seller to share the wealth by increasing the offered price. “If I accept your offer you stand to receive an $8,000 benefit. My counter offer involves you sharing that… I want $4,000 more than you offered.” We might say that a buyer’s opportunity became a seller’s opportunity as the deadline approached.

This reminds me of the oft-stated truth, “There’s nothing like a fast approaching deadline to keep you focused.” In a perhaps not intended way, the tax credit deadline created some “undue influence” on buyers who waited until the last minute to find their home and get the deal done. We can argue whether or not the sellers in these instances were being fair, but the buyers ultimately put themselves in this position.

A lot of buyers are repeating the mistake and again putting themselves in a less than ideal position. Without getting all “economic” we can say with some confidence that interest rates are already off their lows. I’m not confident about how quickly they will climb, but I’m sure they will. The only question that’s worth talking about is how long it takes for sellers to realize climbing interest rates are creating another deadline for buyers.

It’s basic math. As interest rates climb, payments and costs go up. Each “click” up potentially reduces the amount of house a buyer can afford. (The money that would have gone into purchasing the house goes into paying to borrow the money.) So, let’s say for example, as a buyer you postpone your buying decision hoping prices will come down. If you’re looking at homes requiring a $100,000 mortgage and interest rates climb just one half percent that delay cost you $5500 in increased interest cost over the life of the mortgage. Your monthly payment will also increase 3%.

If interest rates begin to climb quickly, sellers may gain the edge in negotiating. The house the buyer could afford today will become unaffordable at some point in the near future.

So, while I don’t subscribe to the “it’s a great time to buy!” theory as a general guideline, I do think it’s a great time to sit down and do some thinking and analysis and make some decisions. If you are in the market to buy, how long are you going to wait before you “get serious” and make a decision? Does waiting cost you money or make you money?

Let’s not forget the principle of “target fixation.” The term stems from a phenomena discovered in World War II where pilots became so fixated on targets they would tend to collide with them during strafing runs. The brain gets so focused on the target that awareness of obstacles and hazards decreases. (If I represent you in a transaction, one of my tasks is to help keep you focused without allowing you to become fixated.)

Your stimulus package is no longer about a tax credit. In reality, that was only one piece of the buying decision. I’ve used interest rates as an example, but that’s just another component. Yes, prices of homes (in general) are down. That’s just another component. Your personal stimulus package needs to include all the positives and negatives at your disposal–you might be surprised at how many there are!

  • Share/Bookmark
Posted by Walter at 5:46 am No Responses »

Loan me...?

Buying Real Estate, Financing, Home, Home, Selling Real Estate
Apr 192010

One of the calls I seem to be getting more of involves the buyer or the buyer’s agent asking, “Will the owner provide financing?” Since these calls are typically regarding property I have listed, I usually try to do a little research regarding the need for owner financing. Fortunately, most of the answers are honest.

Not too long ago, a statistic was released suggesting that over 20% of the people asked thought it was “okay” to walk away from a mortgage in which the holder was in over his or her head. In layman’s terms, I think that means one in five people find it acceptable not to pay back the money they’ve borrowed.

That must have included one call I had requesting owner financing. In reply to my question regarding why owner financing was being sought I got the explanation that the potential buyer for my client’s property was “walking away” from the house and mortgage he currently owned. He is desparate for a place to live and has a “small” downpayment.

And I’m supposed to suggest my seller client offer financing to this person?

I am not unsympathetic to those who have fallen on hard times, but I also do not think sellers should make bad decisions. It’s also no secret that lenders have “tightened up” lending standards–there are very few circumstances that suggest a seller should become a lender with low standards. For that matter, it’s not a particularly good time for a seller to become a lender with high standards.

Currently one of out ten mortgages is delinquent according to Real Estate Economy Watch. This is over 20% higher than a year ago. Foreclosure rates are over 50% higher than a year ago and there doesn’t seem to be any indication things are going to improve much in the immediate future.

If you are selling remember that “owner financing” in almost any form means you are loaning money to the buyer. Typically, owner financing is being requested because the buyer can’t get financing through a bank. There’s historically been a false sense of security with owner financing because the seller can always “take the property back.” Before you owner finance you might want to explore how difficult and expensive that is… and be sure you are making an informed decision.

  • Share/Bookmark
Posted by Walter at 5:28 am 1 Response »

Smaller Homes Are Better?

Buying Real Estate, Financing, Home
Mar 022010

Some data released by the National Association of Home Builders will be of interest to home buyers and sellers. New-homes are, of course, new homes and as such it’s tempting to think “different” than the market for an existing home. Can we say “Maybe, maybe not?” Are new home buyers really THAT different than folks buying existing homes?

Perhaps the most interesting bit of data is that the average size of a house built is down for the first time in twenty-seven years! Maine readers may be particularly surprised to learn that the average home built in 2009 was 2,480 square feet—significantly larger than what we are used to in Maine. That’s down from the 2008 average of 2,520 square feet by about 1.6%. The pundits are saying things like “small is the new big.” (How much sense does that make really?) Of course the fact that we’re talking about something less than 2% makes me wonder about the margin for error… but there is also logic at work here.  One commentator suggests that “cents and sensibility” are coming into play.

Cents and sensibility may mean talking about the cost per square foot. But we also need to remember we pay for our homes more than once. There’s the cost to build or buy it, the cost to heat, maintain, insure and clean it. Certainly as times get harder (a.k.a. the recession) the need to think about size and objective needs becomes important. 

Let’s not be too quick to attribute the smaller home trend solely to the economy. Remember that the number of households with members 55 and older is increasing. Typically this is a “smaller home” market. This also tends to be a single story market. Does that suggest our general housing market is a bit more focused on single story homes? But wait! There’s also a focus on energy efficiency these days and two story homes are definitely more cost efficient to build…

Personally, I wouldn’t suggest one consider these market trends in planning purchases—they are too spongy and general. But the “cents and sensibility” factor is important. How much home you should buy is really a factor of your needs and your needs should include a reasonable determination of what you can afford—not only to buy but to heat, maintain, insure and clean. One thing we ought to have learned from the foreclosure crisis is that it’s not just about how much of a mortgage a buyer can get. The critical question is “how much house can a buyer afford?”

  • Share/Bookmark
Posted by Walter at 3:23 pm No Responses »

Why Wait To Buy A Home?

Buying Real Estate, Financing, Home, Market Information
Feb 052010

There are, of course some very legitimate reasons. But one big reason that would be hard to argue with is that you want your home to cost you more than it could if you buy now. There are at least three factors that nearly guarantee waiting will be expensive and you’ll get to pay more.

  1. Mortgage Rates are very likely going to increase soon. There’s a consensus among the experts supporting this because rates have been artificially low for the past fourteen months. This is due in part to assistance from the Federal Reserve though the mortgage-backed securities purchase program. The feds have consistently maintained the program will end March 31st. While predictions of the result are vague, most concur that a rise of .50 to 1.00% soon after April t wouldn’t be unreasonable.
  2. First time home buyers have been receiving tax credits of up to $8,000 and repeat buyers up to $6,500. The “catch” is buyers will need to have a home under-contract by April 3oth (that’s only two and a half months away as of this writing) and close by June 30th. Lenders are now suggesting it takes 45 days to close on all but strictly conventional mortgages. If you haven’t started looking, you might want to lay this out on a calendar. Unless you are counting on another extension of the program “times awastin’.”
  3. FHA is also promising an increase in upfront costs effective April 5th. The cost of the mortgage insurance premium (payable at closing) will increase from 1.75% of the loan amount to 2.25%. Yes, this can be financed. But remember you’ll be paying more to pay more since interest rates will likely have risen.

Without getting too complicated, let’s use a property requiring a $100,000 mortgage purchased after these programs run out. A 1% increase in mortgage rates will create a $62 increase in the monthly payment and will cost nearly $6,000 more during the first seven years. If the mortgage is an FHA loan, the .5% increase in the mortgage insurance premium adds $500 (we’ll assume it’s not financed—that would add more cost). A first time homebuyer has missed the $8,000 and proved the value of “waiting” a few months was worth nearly $15,000 in total.

Smart move?

The only financial argument would be that it’s a good bet home prices are going to drop further and offset the additional costs. In this example, you’d be betting the home price will drop at least 15% in the next few months.

Smart bet?

Obviously your numbers may be different, but one thing that would be smart is to sit down and figure them out—or get some help from a real estate or banking professional to see what makes sense for your situation.

The sooner, the better!

  • Share/Bookmark
Posted by Walter at 4:13 pm No Responses »

Tax Credit Info from I.R.S.

Buying Real Estate, Financing, Home
Dec 062009

I’m at least mildly curious how many pages of tax code are involved in the current Home Buyer’s Tax Credit. You won’t find the answer to that question on the I.R.S. site but you will find a lot of answers to “commonly asked” questions.  I waded through some of them until my head started aching. I still like the advice “consult a tax professional”–particularly if your situation is not mainstream.

  • Share/Bookmark
Posted by Walter at 6:25 am No Responses »

Title What?

Buying Real Estate, Camp, Financing, Home, Land, Real Estate Business
Nov 112009

A recent question from a buyer client suggests it might be a good time to review some very basic concepts regarding title. Let’s start by understanding the word “title” is describing the evidence one has of right of ownership. A “clear title” basically means the ownership of the land is clear and without question.

When a buyer purchases a property, some assurance that the current seller has “clear title” is in order. I could sell you the Brooklyn Bridge, couldn’t I? How do you know whether or not I own it and have the right to sell it? (I could create a fake deed and register it–the existence of a deed is not a guarantee I truly own the property.)

There are three important terms we use when we talk about title.

A title search is performed to establish the links in the chain of title and discover any potential clouds or problems (such as liens) with the title. This is the service buyers and lenders commonly get. (If you are mortgaging your property it will be required by the lender.)

A title opinion may be issued by an attorney. This becomes the attorney’s legal opinion that the title is “good” or clear. Because the attorney is assuming risk; these tend to be expensive. Do not confuse a title search with a title opinion.

Title insurance is a policy issued by a Title Insurance Company. Typically the policy is issued based on the title search. It ultimately is about risk management. Nobody really says “you have a great (clear) title”—the insurance company says “based on the title search we are willing to insure your title.”

If something or someone comes along after you’ve purchased that brings your title/ownership of the property into question, the Title Insurance Company will either defend your title or pay you for the loss of your property – up to the face amount of the policy. The premium for this coverage is a one-time charge and there are numerous options available to the buyer including an “escalating” policy in which the face amount increases automatically.

Don’t let your eyes glaze over when the topic of “title” comes up. These are not difficult concepts, really and you should insist on explanations that you understand well enough to make good decisions.

  • Share/Bookmark
Posted by Walter at 10:11 am No Responses »
Older Entries
© 2010 boomsmaonline.com Suffusion WordPress theme by Sayontan Sinha