Entire feature films, websites and hour-long cable specials have been devoted to debunking urban legends, those modern fables that circulate at the speed of the internet. And real estate is not immune; modern-day myths of easy-peasy seller financing, distressed sellers practically throwing their properties at buyers, and cosmetic fixers that can be had for pennies are just that - fairy tales which, if believed, can result in some not-so-happy endings.
The real deal is that real estate is much more affordable than it used to be, but the barriers to entry are higher, and the days in which you could get something for nothing are over. Here are five real estate and mortgage urban legends, and the truth which lies beneath.
Urban Legend #1: Got bad credit? Get seller financing. Does seller financing exist? Of course. Is it as easy to get - or desirable - as they make it seem in the infomercials? Not even close.
Here's the real deal: most sellers who have a mortgage they obtained in the last 10 years or so also have a due on sale clause which requires them to pay it off when they sell the property. Financing the sale themselves, vs. requiring the buyer to obtain mortgage or other financing to pay for the property, prevents them from having the cash to pay their mortgage off, as required. And the vast majority of those who don’t have a mortgage of recent vintage need the proceeds from the sale of their homes to buy their next home or invest in their next property.
What’s more, even the few sellers who don’t need the cash often don’t want to take on the long-term risk and hassle involved with having to collect payments from a buyer for 10, 15, or 30 years. The sellers who can and will agree to seller financing usually want a premium price and interest rate for it - and the smart ones will require some type of credit check and a deeper down payment than a traditional lender.
And seller financing, as sweet as it sounds, poses risks for buyers, too. If the seller keeps a bank mortgage on the property and fails to make the payment, the seller-financed buyer could end up losing the home they’ve paid for to foreclosure. Best targets for seller-financing are investor sellers who are looking to avoid capital gains, and best practice is to get a local real estate attorney involved in drafting and recording the transfer and financing documentation.
Urban Legend # 2: Buyers save big bucks on cosmetic fixers. Sellers aren’t stupid - and neither are their agents. There might have been a day and time in which you could find listings that were deeply discounted because they needed a little cosmetic refresh. But those days are long gone - even in today’s down market, sellers expect to invest a little cash into paint and carpet to stage and spruce up their biggest asset and get as much as humanly possible for it. Today’s sellers also know that homes not in tip-top shape may not sell at all these days, so they go to great lengths to do make their homes shine. (And those who can’t afford to aren’t slashing tens of thousands off their homes’ list prices, though some will offer buyers a credit at closing.)
That’s not to say you can’t get a discount on a place that needs some work. But the meatiest discounts are on the places that need the most work; roof leaks, old windows and laundry-list long pest inspection reports are much more likely to get you a big price break than scuffed walls and grungy carpeting on a home in otherwise sound condition.
Urban Legend #3: 100 percent financing for first-time buyers. Most of the national first-time buyer programs are mere figments of our collective mortgage memory. But during the subprime mortgage era, 100 percent financing was available to pretty much everyone, not just first-timers. And the post-bubble first-time buyer programs tended to be tax credits that could defray some of the up front investment required to buy a home, rather than zero-down home loans.
FHA loans, which are extremely popular with first-time buyers, are available to any buyer who can qualify, whether or not they have owned homes before or own one now. Most of the state and local first-time buyer programs that still exist involve some level of down payment or closing cost assistance, but the vast majority also require that the buyer put some of their own cash into the transaction. The prevailing theory today is that homeowners who have put their own hard-earned cash into their homes are less likely to walk away from it later, whether or not they are first-time buyers. It has also become clear that the financial management skills and discipline it takes to save up for a down payment or closing costs are skills and habits that stand prospective buyers in good stead for the rest of their lifetimes as homeowners.
Long story short, while virgin homebuyers can and should seek out the assistance programs available to them (local real estate and mortgage pros often know the ins and outs), they should also tuck their pennies away and expect to have to put some of their own financial skin in the game.
Urban Legend #4: Nearly free foreclosures. We've all heard the line that banks don't want to be in the business of owning homes. That may be true, but they are in that business, whether or not they want to be. As a result, they're not giving houses away at pennies on the dollar. In fact, bank-owned homes, as a rule, must be sold at as close as possible to their fair market value. Banks and their Wall Street mortgage investors do this by exposing the property fully to the market, rarely accepting lowball offers, and only lowering list prices in fairly small increments after a listing fails to sell after 60 or 90 days (plus) at the pre-reduction price.
While foreclosed homes do sell for less, on average, than their "regular" sale counterparts, they are also often in worse condition. And banks are virtually always less negotiable on pricing, repairs and other terms than individual sellers. The fact of the matter is that some of the best deals on today's market are to be had via negotiations with realistic owners of non-distressed properties who are ready, willing and able to make a deal.
Urban Legend #5: Distressed owners who will sign their home over to you, gratis. This one is fantasy of the highest level. First off, very few assumable home loans even exist anymore; most mortgage are due on sale, which means that new buyers have to qualify for and secure their own loans. Secondly, many mortgages that ARE assumable have much higher interest rates than today's home loans. Third, most homeowners who are in a distressed position on their home are in that position because their home has declined in value and they now owe more on it than it's worth, which stops them from pulling off a traditional sale or refinancing it at today's lower rate.
Ask yourself: why would you, a buyer, want to assume a mortgage balance vastly greater than the property is worth, even if you could? It's just not worth it, even if you think you're getting a shortcut around the mortgage qualifying rigmarole.
Add to that the fact that many states have consumer protection laws dramatically limiting the sort of 'bailout' that is even legal to propose to a homeowner who is in some stage of the foreclosure process. In addition, many homeowners who have received foreclosure notices are in the process of trying to work out their distress with their lender or staying put without making payments as long as possible before losing their homes. These folks might be slightly miffed at your intrusion, to put it politely, if you ring them up, send them a note or knock on their door trying to pitch yourself (and your signature) as their mortgage distress solution.
By Tara-Nicholle Nelson, Trulia
Showing posts with label mortgage. Show all posts
Showing posts with label mortgage. Show all posts
Thursday, April 7, 2011
Saturday, February 27, 2010
Bankers: The End of Foreclosure Crisis Is Near
The Mortgage Bankers Association is seeing signs that the foreclosure crisis is ending.
“The continued and sizable drop in the 30-day delinquency rate is a concrete sign that the end may be in sight,” says Jay Brinkmann, MBA’s chief economist, in a published statement.
Brinkmann said that normally there is a large spike in short-term mortgage delinquencies at the end of the year because of high heating bills and holiday expenditures. This year, there was not only no spike, but the 30-day delinquency rate actually fell from 3.79 percent to 3.63 percent.
Thirty-day delinquencies have historically been a leading indicator of serious delinquencies and foreclosures, Brinkmann said.
“[This] gives us growing confidence that the size of the problem now is about as bad as it will get,” he said.
Source: Mortgage Bankers Association (02/19/2010)
“The continued and sizable drop in the 30-day delinquency rate is a concrete sign that the end may be in sight,” says Jay Brinkmann, MBA’s chief economist, in a published statement.
Brinkmann said that normally there is a large spike in short-term mortgage delinquencies at the end of the year because of high heating bills and holiday expenditures. This year, there was not only no spike, but the 30-day delinquency rate actually fell from 3.79 percent to 3.63 percent.
Thirty-day delinquencies have historically been a leading indicator of serious delinquencies and foreclosures, Brinkmann said.
“[This] gives us growing confidence that the size of the problem now is about as bad as it will get,” he said.
Source: Mortgage Bankers Association (02/19/2010)
Monday, March 9, 2009
Mortgage rates hold steady
A lousy week on Wall Street didn't have much effect on mortgage rates, according to Bankrate.com. Stock prices fell to 12-year lows. Normally, a giant slide on stock prices is met by a plunge in mortgage rates-not this time. The benchmark 30-year, fixed-rate mortgage was unchanged, at 5.41 percent, according to the Bankrate.com national survey of large lenders. Source: Bankrate.com
Monday, February 23, 2009
5 Tips for Homebuyers Seeking a Mortgage
Here’s a warning for potential borrowers: Nervous lenders have tough new rules and are paperwork crazy.
"Borrowers are going to have to prove they are the borrower they say they are," says Keith Gumbinger, vice president of HSH Associates, a mortgage-industry publisher in Pompton Plains, N.J.
Gumbinger says homebuyers should consider these things before they apply for a loan.
1. Down payments are critical. Borrowers should expect to put down at least 10 percent for a “conforming loan” – a mortgage that Fannie Mae and Freddie Mac will purchase.
2. Credit scores count. A 720 on the 850-point FICO rating scale will get a borrower access to the best rates. Rich Bira, branch manager of FCM Direct Lender in Chicago, says: "A score between 720 and 739 gets 0.125 percent added to the rate, a score between 700 and 719 gets 0.375 percent added to the rate, and a score between 680 and 699 gets 0.5 percent added to the rate.”
3. Consider VA and FHA. Borrowers without down payments or with less than stellar credit scores should consider these government-insured loans offered through the Federal Housing Administration of the Veterans Administration.
4. Unearth the records. Before applying, borrowers should organize tax, banking and other records that prove income, savings and debts. They should also expect to be patient about what may seem to be endless requests for information.
5. Get rid of debts. Limiting debts, including what borrowers expect to pay for the mortgage, to less than 43 percent of gross income is important.
Source: Chicago Tribune, Mary Umberger (02/15/09)
"Borrowers are going to have to prove they are the borrower they say they are," says Keith Gumbinger, vice president of HSH Associates, a mortgage-industry publisher in Pompton Plains, N.J.
Gumbinger says homebuyers should consider these things before they apply for a loan.
1. Down payments are critical. Borrowers should expect to put down at least 10 percent for a “conforming loan” – a mortgage that Fannie Mae and Freddie Mac will purchase.
2. Credit scores count. A 720 on the 850-point FICO rating scale will get a borrower access to the best rates. Rich Bira, branch manager of FCM Direct Lender in Chicago, says: "A score between 720 and 739 gets 0.125 percent added to the rate, a score between 700 and 719 gets 0.375 percent added to the rate, and a score between 680 and 699 gets 0.5 percent added to the rate.”
3. Consider VA and FHA. Borrowers without down payments or with less than stellar credit scores should consider these government-insured loans offered through the Federal Housing Administration of the Veterans Administration.
4. Unearth the records. Before applying, borrowers should organize tax, banking and other records that prove income, savings and debts. They should also expect to be patient about what may seem to be endless requests for information.
5. Get rid of debts. Limiting debts, including what borrowers expect to pay for the mortgage, to less than 43 percent of gross income is important.
Source: Chicago Tribune, Mary Umberger (02/15/09)
Mortgage apps up 45 percent
Mortgage loan application volume increased 45.7 percent from one week earlier and is up 5.2 percent compared with the same week in 2008, according to the Mortgage Bankers Association. According to MBA's study, covering approximately 50 percent of all U.S. retail residential mortgage applications, the average contract interest rate for 30-year fixed-rate mortgages (FRMs) decreased to 4.99 percent from 5.19 percent, for 80 percent loan-to-value (LTV) ratio loans.
Friday, January 11, 2008
Mortgages rates drop to low last seen in 2005
The benchmark 30-year fixed-rate mortgage plunged 26 basis points, to 5.88 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.35 discount and origination points. One year ago, the mortgage index was 6.24 percent; four weeks ago, it was 6.17 percent.
The benchmark 15-year fixed-rate mortgage fell 31 basis points, to 5.45 percent. The benchmark 5/1 adjustable-rate mortgage fell 33 basis points, to 5.81 percent. The benchmark 30-year, fixed-rate jumbo mortgage, for home loans greater than $417,000, fell 17 basis points, to 7.03 percent.
The 30-year fixed hasn't been this low since Sept. 21, 2005, when it was 5.88 percent. You have to go all the way back to June of 2000 to find the last time the rate on the 30-year fixed tumbled more in one week. In the second week of that month, the 30-year fixed fell from 8.56 percent to 8.28 percent in one week.
This week's drop in rates can be traced to the release Friday of the employment report for December. According to the Labor Department, the economy produced a net new 18,000 jobs in December. That was a lot worse than expected. Local, state and federal governments added 31,000 jobs, meaning that private employment actually shrank during the height of holiday shopping season.
The unemployment rate climbed to 5 percent from the previous month's 4.7 percent. At 5 percent, the unemployment rate was higher than the average rate in the last 10 years (4.9 percent). Over that 10-year period, the unemployment rate was below 4.7 percent half the time. Five percent isn't horrible, but it's not benign, either.
Rates lower, hoops to qualify higher
The prospect of a slowing economy sent mortgage rates lower. Normally, you would think that the lowest mortgage rates since September 2005 would goad people into mortgage offices to refinance their loans. Some of that is happening, but not in big numbers. The Mortgage Bankers Association says applications were up slightly last week, but it's difficult to make comparisons this time of year because of shortened holiday weeks.
Anecdotally, loan officers and brokers say business is down not only because of slow home sales, but because borrowers aren't paying attention to rates, or they don't think they'll qualify.
"Sixty percent of people who got mortgages last year can't get them this year," says Bob Moulton, president of Americana Mortgage Group of Melville, N.Y.
Moulton cites the example of a potential borrower who walked into his office early this week. She owed $700,000 on a house in Cape Coral, Fla., that had been appraised recently at $500,000. She couldn't afford to sell it, couldn't afford to refinance it, and couldn't afford the payments after a rate adjustment. Moulton says he recommended that she talk to a lawyer about negotiating a short sale, in which she would sell the house for less than the loan balance and the lender would forgive the shortfall.
Tread carefully
Loan officers and mortgage brokers say they're plagued by lenders that change the rules after a mortgage has been approved but before it has been funded. Some borrowers are getting all the way to the closing table before they find out that the loan approval has been withdrawn, or they have more paperwork to submit or more financial hoops to jump through.
"Even if they go through contract, they might not be able to get financing," Moulton says. Now he tells customers: "Make sure you have your house sold before you buy this house. Make sure it's priced right. You've got to be really conservative right now. You don't want to be caught with two houses" and two mortgage payments.
As the mortgage industry imploded last year, thousands of loan officers and brokers lost their jobs. They're not around to tell their customers that rates have dropped so low.
The benchmark 15-year fixed-rate mortgage fell 31 basis points, to 5.45 percent. The benchmark 5/1 adjustable-rate mortgage fell 33 basis points, to 5.81 percent. The benchmark 30-year, fixed-rate jumbo mortgage, for home loans greater than $417,000, fell 17 basis points, to 7.03 percent.
The 30-year fixed hasn't been this low since Sept. 21, 2005, when it was 5.88 percent. You have to go all the way back to June of 2000 to find the last time the rate on the 30-year fixed tumbled more in one week. In the second week of that month, the 30-year fixed fell from 8.56 percent to 8.28 percent in one week.
This week's drop in rates can be traced to the release Friday of the employment report for December. According to the Labor Department, the economy produced a net new 18,000 jobs in December. That was a lot worse than expected. Local, state and federal governments added 31,000 jobs, meaning that private employment actually shrank during the height of holiday shopping season.
The unemployment rate climbed to 5 percent from the previous month's 4.7 percent. At 5 percent, the unemployment rate was higher than the average rate in the last 10 years (4.9 percent). Over that 10-year period, the unemployment rate was below 4.7 percent half the time. Five percent isn't horrible, but it's not benign, either.
Rates lower, hoops to qualify higher
The prospect of a slowing economy sent mortgage rates lower. Normally, you would think that the lowest mortgage rates since September 2005 would goad people into mortgage offices to refinance their loans. Some of that is happening, but not in big numbers. The Mortgage Bankers Association says applications were up slightly last week, but it's difficult to make comparisons this time of year because of shortened holiday weeks.
Anecdotally, loan officers and brokers say business is down not only because of slow home sales, but because borrowers aren't paying attention to rates, or they don't think they'll qualify.
"Sixty percent of people who got mortgages last year can't get them this year," says Bob Moulton, president of Americana Mortgage Group of Melville, N.Y.
Moulton cites the example of a potential borrower who walked into his office early this week. She owed $700,000 on a house in Cape Coral, Fla., that had been appraised recently at $500,000. She couldn't afford to sell it, couldn't afford to refinance it, and couldn't afford the payments after a rate adjustment. Moulton says he recommended that she talk to a lawyer about negotiating a short sale, in which she would sell the house for less than the loan balance and the lender would forgive the shortfall.
Tread carefully
Loan officers and mortgage brokers say they're plagued by lenders that change the rules after a mortgage has been approved but before it has been funded. Some borrowers are getting all the way to the closing table before they find out that the loan approval has been withdrawn, or they have more paperwork to submit or more financial hoops to jump through.
"Even if they go through contract, they might not be able to get financing," Moulton says. Now he tells customers: "Make sure you have your house sold before you buy this house. Make sure it's priced right. You've got to be really conservative right now. You don't want to be caught with two houses" and two mortgage payments.
As the mortgage industry imploded last year, thousands of loan officers and brokers lost their jobs. They're not around to tell their customers that rates have dropped so low.
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