Did You Know?

Below are some interesting home buying myths and facts, according to Zillow.

- 42 percent of buyers think that home values appreciate by 7 percent per year. Historically, appreciation has been between 2 and 5 percent per year.

- 56 percent of buyers believe an appraisal determines the home's condition. In fact the appraisal is meant to determine fair market value for the purposes of the bank approving the mortgage or for the buyer to know that they are paying a fair price. An inspection is what details the home's condition.

- 47 percent of buyers believe a home is sold once the purchase and sale contract is signed by both the buyer and the seller. In fact this is only the first step in the closing process. An appraisal must happen (if there is a mortgage. If it is a cash purchase the buyer can choose to forgo the appraisal), as well as an inspection. For instance, if an inspector were to find black mold in the house that was previously undiscovered, the buyers could have the option of backing out of the deal with no penalty. Alternatively, they could negotiate with the seller to have the problem fixed.

- 41 percent of buyers believe they are required to purchased private mortgage insurance (PMI) regardless of the size of their downpayment. But the truth is that only buyers whose down payment is less than 20 percent need to do so.

Were You Turned Down for a Mortgage?

Have you been turned down for a mortgage? Did you know that under the Equal Credit Opportunities Act you are entitled to receive within 30 days a written explanation of specifically why you were denied the loan? Once you receive this explanation you have some options. You can work to address the reasons for the rejection (like improving your credit score or saving more for your down payment). You can also go to different lenders, especially those with whom you have had a long relationship, to see if their lending standards are different.

Another option is to try for a different type of loan. FHA loans require only 3.5 percent down, although the loan level is capped at roughly $417,000 (it varies depending on where you want to buy). The USDA also makes mortgage loans for rural areas. There are a lot of loan options out there, so you should educated yourself about all of your options. Finally, perhaps you need to revise your expectations for what kind of a home you can truly afford. After revisiting all of these issues it is likely that you can get yourself approved for a mortgage to buy yourself a place to call home.

Drop the Price or Hold Firm?

It has been my experience recently that properties that are not priced aggressively- and by that I mean priced at or slightly below market value- are receiving only lowball offers, whereas properties that are priced aggressively are receiving reasonable offers. I don't have any data that I can share to present you to back-up my theory, but I believe it is because opportunistic buyers (often investors) are not worried about offending a homeowner with a low offer. Less aggressive buyers don't seem to feel comfortable making offers significantly below asking even if they are making a market-value offer. Furthermore, everyone loves a bargain. So if your property is perceived as being an excellent deal, you might very well end up with multiple offers. Ultimately it appears that the more unreasonable your price is, the more you are going to attract unreasonable buyers.

Read this New York Times article if you want further anecdotal support of this theory.

http://www.nytimes.com/2011/10/30/realestate/long-island-in-the-region-homes-priced-to-sell.html?ref=realestate

30-year Fixed Rate Mortgage at 4.10 Percent

The average 30-year fixed rate mortgage fell to 4.10 percent from 4.11 percent last week, says Freddie Mac. The average 15-year fixed rate mortgage remained unchanged at 3.38 percent.

HARP Eases Refinancing Restrictions

The Federal Housing Refinance Authority (FHFA), which regulates Fannie Mae and Freddie Mac, announced that changes are being made to the Home Affordable Refinancing Program (HARP) so that the program can help more homeowners. HARP is an important program because it is the only program that allows homeowners who are underwater to refinance their loans. The program is available to owners whose loans were purchased by Fannie Mae or Freddie Mac before June 1, 2009 and whose current loan-to-value ratios are greater than 80 percent. This program is available until December 13, 2013.

The changes include:
- Removing some of the risk-based fees for owners who refinance with a shorter term and lowering those fees for other owners
- Eliminating the existing 125 percent loan-to-value maximum for fixed-rate mortgages
- Ending some of the representations and warranties previously required from lenders
- Not requiring a new property appraisal if Fannie Mae or Freddie Mac can provide a reliable estimate

It is a relief to see the government becoming more realistic about how many homeowners need the opportunity to refinance. Allowing homeowners to refinance loans that have become burdensome will help to stabilize the housing market by preventing more foreclosures, whether they are unavoidable foreclosures or strategic defaults. Fannie Mae and Freddie Mac and 12 Federal Home Loan Banks provide over $5.7 trillion in funding for the U.S. mortgage market and financial institutions.

Should You Refinance?

Interest rates just hit an all-time low and that means just as much for current homeowners as it does for potential buyers. But the questions of whether to refinance is more complicated than simply asking whether you want a lower interest rate on your loan- of course you do! Refinancing also means that you are going to pay around 3 to 6 percent of your principal balance in costs and fees and in some cases you might be required to pay down some of your principal balance. In order to figure out whether refinancing makes sense you need to figure out how long you plan to stay in your home and amortize the amount the refinancing will cost you over that time period. So if you plan to stay in your home for another 18 months, will the savings from refinancing with a lower interest rate be greater than the cost of refinancing?

It is also important to remember that interest rates are not written in stone. The interest rates that I discuss on this blog are an average of interest rates from many banks, meaning the bank that holds your mortgage might not be offering the absolute lowest rate. Don't drive yourself crazy trying to get the lowest rate anyone has ever seen. 

The New York Times recently had an informative article on refinancing. I encourage you to read it.

http://www.nytimes.com/2011/10/23/realestate/mortgages-knowing-when-to-refinance.html?ref=realestate

Housing Drought

The rain may have ended our summer drought but it didn't nothing for the dwindling level of homes for sale. Housing inventory was down to 9900 single-family homes for sale in September, a decrease of 39 percent from September 2010. A large portion of that is due to the robo-signing scandal that hit in October 2010 when banks halted their foreclosures; they have since resumed foreclosing but at a much slower rate.

What is deceptive about these numbers is how many homes are abandoned and bank-owned but are not for sale. The banks are not putting these homes up for sale nearly as fast as they should be in order to fuel a recovery. The empty homes are wasting away because they are unoccupied, the banks are not maintaining them and it devalues them even further. What we need is for the banks to clean up their foreclosures processes, resume speedier foreclosures and put the homes immediately on the market. Instead our inventory is artificially depressed, buyers can't find what they are looking for and therefore cannot take advantage of the record-low interest rates that are available.

Senate Votes to Extend Loan Limits

The Senate approved a two-year extension for the higher loan limits that the federal government would insure. The loan limits expired on Oct. 1, decreasing the maximum loan limit to $625,000 from $729,750. Neither the House nor President Obama have taken action on this issue yet. It is important for the real estate market's recovery that the loan limits are extended so that purchase power is not further restricted.

Interest Rates

Freddie Mac said the average 30-year fixed mortgage rate decreased last week to 4.11 percent from 4.12 percent. Two weeks ago the rate fell to an all-time low of 3.94 percent. The average 15-year fixed mortgage rate increased to 3.38 percent from 3.37 percent. Just two weeks earlier it reached a historic low of 3.26 percent.

How to Make Your Home More Sellable

Here are eight projects that are not very expensive but will add a lot of value to your home. Remember, these days when you make improvements to your home you might not recoup that investment in your sale price but you will make your home more attractive to potential buyers. The less time it sits on the market, the lower your carrying costs and the sooner you can move on.

1. Replace the kitchen sink and faucet.
2. Add a backsplash to your kitchen.
3. Replace dated vanities, cabinets and toilets. If you don't want to replace the toilet, just replace the toilet seat.
4. Paint in neutral colors. I favor a cream color with a light pink tint to it because it is a neutral that casts a flattering glow upon a room and the people in it. Avoid totally flat paint, it makes rooms look dull.
5. Add crown moldings.
6. Add cabinets and shelving to your closets and garage for added storage space.
7. Replace the front door.
8. Landscape.

Most importantly, your your house and yard clean! I once went to a property that was such a mess from the outside that I was certain it was abandoned- then I saw that people lived there! When potential buyers see a mess they automatically lower their offer. A pristine property is a valuable property. No buyer wants to clean up the previous owner's mess.

Thirdhand Smoke and Its Effects on Buyers and Sellers

We all know what secondhand smoke is. But thirdhand? It is the newest emerging concern in the very distressing discoveries of the ills of smoking. Thirdhand smoke refers to the carcinogenic chemicals that linger in the walls, flooring, railings and dust in a home well after the smokers have moved out. Their harmful residue can be ingested by new occupants, particularly children and pets, and lead to to health problems.

Before you rent or buy a home, try to find out if the previous occupants smoked. Owners are not required to disclosed this information, but not knowing could be very bad for your health. And if the owners won't tell you, rely on your senses. Does the house smell of smoke? That smells means you are breathing in carcinogens. Is there a yellowing on the walls or ceilings? New paint, new carpets or flooring and a serious cleaning will help, but your best bet is to wait as long as possible before moving in so that the deadly chemicals have time to dissipate.

And for the smokers out there? My advice to you is to stop smoking in your home. As this information becomes more commonly known potential buyers will offer less for your house because of the health risks they face from your smoking and they will expect remediation at your cost. Plainly put, your smoking is decreasing the value of your home.

Shadow Inventory Declining

The July 2011 national residential shadow inventory of foreclosed homes declined to 1.6 million homes. This is a decrease from April 2011 when there were 1.7 millions units and a decrease from 1.9 million homes in July 2010 and 2 million homes in January 2010. Simply put, banks are selling foreclosed properties faster than they are foreclosing on new properties. It is important to remember that in October 2010 the many banks stopped foreclosing as the robo-signing scandal was revealed. It remains to be seen whether banks will continue to dispose of foreclosed properties at a higher rate than they foreclose on new properties as they continue to refine their foreclosure processes. Banks are also making more efforts to prevent homes from falling into foreclosure.

The shadow inventory is defined as the number of homes that are seriously delinquent in mortgage payments (90+ days) that are not listed in the MLS and that are likely to become foreclosures.

Record Low Interest Rates

For the first time ever the average 30-year fixed rate mortgage has fallen below 4.00% to 3.94%. The average rate on a 15-year fixed loan fell to 3.26%. Mortgage rates are now lower than they were in the 1950s!

Bank of America Offering $20,000 For Short Sales

Bank of America has begun a test program in Florida that offers homeowners between $5,000 and $20,000 to short sell their homes instead of letting them fall into foreclosure and to leave the homes in good condition. The bank will also consider waiving the deficiency judgement (which is their right to come after the homeowners later for the difference between what the home sold for and what the homeowners owed). The program is available to homeowners who do not currently have offers on their homes, whose short sales are submitted for approval by November 30 and who closings occur before August 12, 2012. The program is not applicable for Ginnie Mae, VA and FHA loans.

This is a fantastic plan that homeowners who are underwater with their BoA mortgage and want to sell should consider. It is also a good idea for the banks because the average length of a Florida foreclosure is 676 days (the national average 318 days), according to RealtyTrac. And homeowners whose homes fall into foreclosure have no incentive to maintain the property. The lack of property maintenance while the home is in foreclosure often leads to more than $20,000 in remediation, particularly in Florida where mold is prevalent in homes that are not kept sufficiently ventilated, and previously pristine pools become swamps. It also prevents the homeowners from taking the appliance with them when they leave.

Wells Fargo and J.P. Morgan Chase have similar programs.

30-Year Fixed Rate Mortgage at 4.01%

This 30-year fixed rate mortgage fell to 4.01% last week. That makes the financing of a home more affordable than it has been in most of our lifetimes. For those interested in becoming landlords, the combination of the low interest rates and the lower housing prices and rising rents (projected to increase 4 percent in 2012) make now a very good time to get into that business. Furthermore, with interest rates so low money that is sitting in the bank is making very little in interest. Right now it is smarter to put your money to work rather than keep it in a bank.

Do Incentives Make Cents?

When selling your home, is offering an incentive to potential buyers a good investment? Some sellers are getting creative in this tough market and are offering cars, boats, club memberships or large gift certificates to their buyers. But as enticing as it might seem to offer something lavish with the purchase of your home, it probably won't influence a buyer's decision. What it will do is drive up the cost of selling your home because the buyers would have probably made an offer anyway but then you have to pay for whatever incentive you offered. In this market all that matters to buyers is the price and whether they like the home. So instead of offering $20,00 in incentives, knock $20,000 off your price. That is the best incentive you could offer any buyer.

One incentive that I do support is offering a cleaning service to renters. Who would turn down free housekeeping? And it gives the landlord the opportunity to keep an eye on the property and make sure that it is being properly maintained. Nothing is worse for a landlord than finding out that the nice couple you rented to never cleaned once and now the formerly white toilet bowls are black. The cost of this incentive is a good investment in the property's upkeep and would be less than any serious remediation.