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Interest rates: Floating vs. Locking

October 20, 2010

By Greg Cepek

As we’ve all seen, mortgage interest rates remain at or near all time lows.  While it’s normal for everyone to want the lowest rate we all need to remember they have the potential to shoot back up, typically at a much faster pace, than they trickle down.  Most lenders offer borrowers the option to “lock” in the interest rate once a purchase agreement is in place which secures that rate during the time it takes the loan to process.  The other option borrowers have is to “float” the rate, meaning the processing of the loan begins but the rate might be higher or lower when the customer finally decides to lock it in.

I always recommend my clients lock their rate once the contract is in place.  I’ve seen too many times over the years where a borrower decides to float it and then within a few days or weeks the rate is much higher than where it was originally.  It’s always better to settle for a great rate, as they are today, even if they go down slightly after you lock it in than to be stuck with a much higher rate you will be stuck with for the next 30 years if they shoot up as you are floating the rate.

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4 Things First-Time Home Buyers Need to Know about Home Inspections

October 15, 2010

By Ann Newman

According to the National Association of Realtors (NAR), in 2009, a record 47% of homes sold were purchased by first-time buyers.  A professional home inspection not only educates buyers on the condition of the home but can minimize costly surprises down the road.

1. Inspect the Inspector. Only hire a home inspector with an excellent reputation and credentials. Ask how long the company has been in business, and verify the inspector carries professional liability insurance also known as “Errors & Omissions” (E&O).

2. Ask for a sample of a report. The quality of the final inspection report will be important. Make sure the reports are prepared with clear pictures and concise details addressing all the various systems and accessible elements of the home.

3. Inspect ancillary systems. It’s hard for first-time home buyers to know what they need, so be sure to ask what additional services the company offers. Generally, the company will offer you a multiple services discount as well as the added convenience of only having to attend one inspection appointment. Other common services offered by home inspectors are termite inspections, mold screening, water testing and radon testing.

4. Go along on the inspection. Ask the inspection company if they encourage buyers to tag along on the inspection. If the inspector discourages you from going along and asking questions, find another inspector. In addition to documenting issues and needed repairs that may exist, a professional home inspector will also show the new buyer how to operate the various systems in the home and provide tips on improving energy efficiency and maintaining the home in general.

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Foreclosures in the news

October 14, 2010

By Dick Baker

It’s hard to open a newspaper lately without seeing something about foreclosures. Nevertheless it’s hard to make sense of the situation and what it means to the Toledo real estate market.

In September and October, several lenders halted foreclosure actions in dozens of states due to questions about whether they were being done in compliance with state laws. According to the National Association of Realtors, we have no way of knowing at this time how many of the foreclosures have been taken back inappropriately. While this mess should ultimately be sorted out, quite frankly this situation is creating even more problems in an already struggling marketplace and no doubt stalling a real estate recovery.  Many pending transactions have been put on hold or even cancelled, while other properties currently for sale may be nearly impossible to sell due to title questions. 

If there is a silver lining to the current mess, it may be that banks should have more incentive to modify loans for those currently struggling and facing foreclosures, or they may expedite more short sales in an effort to reduce inventory.

In this writer’s opinion, the foreclosure situation is becoming an epidemic, but current actions by Fannie Mea and Freddie Mac may not be the right elixir.

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Is Equity really Rising?

October 6, 2010

By Emily Yerkes

So, all that we have been hearing lately is how terrible the market has been doing and how foreclosures are rising.  While it hasn’t gotten much publicity, the Federal Reserve’s latest “flow of funds” statistical report on the nation’s finances found that homeowners’ net equity holdings have increased by 17.1% from the first quarter of 2009 through the second quarter of 2010, ending last June 30.

How is this possible?  Home prices may be up modestly in some parts of the country over that period of time – even double digits in a handful of the most volatile markets.  However those percentage gains are being measured against the shell-shocked lows of late 2008 and early 2009. Statistically, even the slightest increase in depressed median prices can look impressive.

So why doesn’t it seem like our own personal equity holdings have done this well?  The simple answer is the Fed’s rising equity finding is mainly good news for residential real estate; however the increase is not attributable solely to positive events.  The Fed makes its’ basic calculation the same way homeowners would:  You subtract your total mortgage debt from the estimated market value of your home; the remainder (if you have one) is your net equity.  The Fed has access to information about mortgage debt holding of banks and non-bank lenders, and uses a variety of governmental and private real estate data sources to obtain their quarterly values across the country.

There is no dispute that a 17% increase is a move in the right direction at the very least.  Values of homes are no longer on the downgrade nationwide and household debt loads are decreasing.  None of this necessarily helps the people still stuck with homes that are underwater or those who have lost their homes to foreclosures.  But for everyone else that cares about real estate, the latest Fed numbers suggest that the equity crash is over and a rebuilding with smarter credit habits is underway.

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Has your confidence in housing as an investment been shaken?

September 16, 2010

By Dick Baker

If not, you probably haven’t been paying attention for the last few years.  But that can be said about virtually ALL real estate markets.  The values of your home and mine here in Toledo, Ohio, have declined in recent years, but hasn’t that been the case with everyone’s 401(k) as well?  My own opinion (which is worth what you’re paying for it) is that it would be a great mistake to look at housing primarily as an investment.  Our homes were never intended to be piggy banks from which we could periodically extract some equity to spend on lavish items. 

So why should we be bullish on housing?  Lots of reasons.  Most basically, our homes are our shelter, and that has great value.  You can’t live in your stock portfolio. Others pay rent for their shelter, and their rent is gone forever.  But we also buy homes for other great reasons – they may be in a neighborhood or school systems that we prefer, or an easy commute to our employment.  When you own your home, you don’t have to ask permission from a landlord before making alterations. And home ownership still enjoys favorable tax treatment (but keep an eye on Washington!).

Warren Buffett, who knows a thing or two about investing, is well known for this concept (sorry I don’t know the exact quote) – when others are running scared, that is the time to be bold.  If anyone questions whether that time is now for housing, I would offer one more extremely important factor that should tip the scales toward buying – mortgage interest rates are the lowest that I have seen in my 42 years at Danberry!

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Interest Rates vs. Closing Costs
By Valerie Suelzer

The most common question most mortgage consultants get is “What is your rate?”  While this is obviously a very important question there is much more to that question than most people think.  I equate it to someone calling a car dealership and asking “How much is your car?”.

Interest rates can vary tremendously, depending on the answer to some of these questions of the potential borrower:

1)  What is your credit score?

2)  How much is your down payment?

3)  What will your loan size be?

4)  FHA or Conventional Loan?

5)  What mortgage term do you want – 30, 20, 15 or 10 year?

6)  Do you want a fixed rate or adjustable rate?

7)  If you are shopping for a mortgage are you being quoted with paying any points and if so, how many?

These are just some of the questions that need to be asked to answer “What is your rate?”.

When comparing one lending institution to another it is critical to get a Good Faith Estimate or as some call it, a Loan Cost Illustration, which will break down not only the rate and terms you want but will also itemize your closing costs and escrow deposits.  Many times when customers are shopping for an interest rate all they want to know is the rate, but they never ask how much the closing costs would be.  As the interest rate goes down the closing costs typically go up.

A borrower could call Bank A and they might quote a rate of 4.5% for a 30 year fixed term and then call Bank B and be quoted 4.25% for the same fixed rate and term.  Initially, they might think it’s a no brainer to go with Bank B with the lower rate.  However, since they didn’t ask about the closing costs they don’t know that Bank B’s closing costs are $7,000 compared to Bank A’s closing costs of $2,200.

This is why it’s imperative to know the answers to these question when shopping for a mortgage and always ask for a Good Faith Estimate or Loan Cost Illustration.

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You do not have to have 20% down and a 750 credit score to buy a home.

September 8, 2010

By Emily Yerkes

It has been said over and over that in today’s market unless you have 20% down along with a 750 or better credit score, you cannot buy a home.  This is absolutely untrue!!!  In fact, you can buy a home with as little as 3.5% down and with a credit score of only 600.

Another common misconception when shopping for a loan is believing that the company with the lowest interest rate is the best deal.  Although the interest rate is a large part of buying a home, another factor that you need to be aware of are the fee’s that the company is charging you for your loan.  Just because the interest rate is low doesn’t mean that it is the best deal.  Always find out what the closing costs are along with the interest rate on the type of loan that you are applying for, and then make the decision on which is the best deal for you.

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Home Buyers Are Ready to Move from the Sidelines: Survey

September 2, 2010

By Ann Newman

Are more Americans positioning themselves for home purchase? Although May’s data showed that home sales were down 26.8% as the home buyer tax credit concluded, a new survey conducted by Relocation.com suggests some families are opting for renting while they research—cash in hand—for deals on a new, more desirable home in their area.

Among the key findings of the survey: Of the 60% of individuals moving into rentals, 24% were previous homeowners who are renting temporarily while they look for a new home to purchase. Underscoring this finding is the fact that for many of these families, foreclosure was not the reason for moving—in fact, the number of consumers who moved due to foreclosure dropped by 70%.

Furthermore, many of these families stayed in the area (one in three made a short distance move of 100 miles or less), opting to remain in a location where they already know their schools, shopping districts and prime neighborhoods.

“While the housing market continues to flux from month to month, we’re seeing strong, continued interest as consumers looking to move start their research with us,” said Relocation.com Chairman and Founder Sharon Asher. “These findings suggest that more Americans may be poised to re-enter the housing market this year.”

The Relocation.com survey was conducted in early June 2010 and is a continuation of consumer surveys conducted since March 2009 to gauge moving and relocation attitudes and behaviors.

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What’s happening in today’s mortgage world

August 26, 2010

By Greg Cepek

Over the last two years we’ve seen a little bit of everything.  Rates overall going lower and lower, the stock market up a little one day and down a lot the next which indirectly moves the rates and mortgage underwriting guidelines continuing to change. It all can be a little overwhelming for those in the market to buy a home.  With all that being said it is probably one of the best times to buy a home!

Thirty year fixed rates in the mid 4′s make payments much lower than when they were in the 6′s just a few years ago –  it can also give borrowers more purchasing power.

A $100,000 30-year mortgage at a fixed rate of 6.5% (where it was just a few years ago), makes a principle and interest payment $628.

A 30 year fixed rate at 4.5% makes a principle and interest payment $504 per month which is a $123 per month savings!

Another way to look at it is with a rate of 4.5% a borrower could finance $125,000 and have a principle and interest payment of $630. So, in other words, to have the same payment at 6.5% a borrower could afford a loan of $25,000 more to have roughly the same payment.

What this does is completely open up borrowers to a whole new range to look for their dream home!  On top of these historically low rates, FHA financing remains a very strong program with as little at 3.5% down payment and a minimum 600 credit score needed.

While it is true underwriting has changed some over the years, the borrowers that should be buying still are able to with not much change to the underwriting process.

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Do trees boost a property’s value?

August 19, 2010

By Dick Baker
Maple Tree

Do trees boost a property's value?

Even if you hate raking in the fall, I’ll bet you would agree that a home site with nice trees has greater appeal than one that appears to be a former corn field.

A recent study by the U.S. Forest Service says the presence of street trees increases home values by an average of $7,000.  That’s an awfully broad generalization, but any REALTOR will tell you that they in fact raise property values. 

Way back in the 70’s I had a client ask me to provide him with an estimate of the value of a large tree in his front yard that was lost in a storm (he intended to make a claim on his homeowners insurance).  That was a difficult exercise, however in the Internet age there are some interesting tools out there. In case you ever wondered about the value of a particular specimen in your yard, the Arbor Day Foundation offers an interesting tool on their site.  Go to www.arborday.org/calculator and enter your ZIP code, the name of the tree and its diameter to learn the annual benefits of your tree.  While you’re at it, you might want to browse their tree store.  It’s an inexpensive way to get your next generation of trees going! 

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