I just saw a video you should take a look at on Bloomberg, In Depth Look - How Real Estate Came to Own Us. It's about a book Our Lot by Alyssa Katz. I've checked out the video a couple of times and personally I think it's all about the blame game. She talks about how government regulations were relaxed to encourage homeownership, hence the subprime market, hence the Great Depression of 2009 which we're all beset by...okay...whatever...
What she says is cool--keeping in mind I haven't read the book--but we have to look at the ABC of personal finance which goes a little like this...if your outflow exceeds your inflow, your upkeep becomes your downfall. Trust me, there ain't much beyond that, especially when you're considering purchasing a home. Therefore the only thing that matters is whether or not you can afford the home, not whether or not you can be approved for a mortgage. In the past anybody could get a mortgage, but now a lot of those anybodies are in foreclosure...ouch!
So, my point is I don't care what the government has done, is doing or will do in the future, we all have to exercise self-discipline regarding fiscal responsibility. The government never put a gun to anyone's head and made him sign on the dotted line to purchase a home. You've got to know what you can and can't afford, and it ain't rocket science to figure it out. Speaking of guns, as Dirty Harry once said, A man has to know his limitations.
On another note, when will all the madness end with a housing market rebound? I don't know, but check out Five Reasons the Housing Market Still Hasn't Recovered Yet and maybe you'll gain some valuable insight.
Since you asked me, I'll put on my swami garb and predict a turnaround in 2011. How did I come to that conclusion? First, I don't know a doggone thing about high finance and bonds and interest rates and economic cycles--sometimes I just don't know nuthin' period. But, if my burnt out Rutgers University brain serves me well, what I remember is that in 2007 the crap hit the fan in the mortgage industry--stuff was flyin' all over the place as most subprime companies were quickly sinking in quicksand during that summer. That being said, there were still a slew of 3 to 5 year subprime adjustable rate mortgages being approved up to the melt down. Add 3 to 5 years to 2007 and you get years 2010 to 2012. On top of the subprime there are a lot of toxic no-income verification mortgages which still have to implode, so my conclusion is the housing bottom has to be somewhere during those three years. Of course, the middle year is 2011 which I opine will be the rock bottom year. Sure, we'll get spurts in the housing market here and there, but they may be short lived. But in 2011 I think we'll see a somewhat steady incline. Keep in my opinions are like you know what...
All of that being said, there will be great opportunity during those years than ever before for you and Joe Sixpack. In fact, there's great opportunity now, as long as you know your limitations! Interest rates are still relatively low and there's a lot of inventory. Just get back to the basics of good credit, steady income and verifiable assets and you're golden.
Thursday, July 2, 2009
Wednesday, June 17, 2009
What Causes Interest Rates to Go Up and Down?
Question #39 from HOW TO GET A MORTGAGE DURING & AFTER THE SUBPRIME CRISIS
Many, many economic factors! Strength and weakness of the dollar, the price of oil, how the Federal Reserve feels on any particular day, and much, much more.
The Real Deal: Many clients, especially on a refinance, want to wait until the Federal Reserve Board lowers interest rates next week to lock in an interest rate. Sounds good, but it's completely ineffective. The Fed determines two key indices: the Fed Funds Rate, which is an interest rate at which banks lend money to each other; and the Fed Discount Rate, a rate for lending to commercial banks. Neither of those indices directly affect interest rates of fixed or adjustable rate mortgages. However, the Fed's rate changes will affect your HELOC if your HELOC interest rate uses the prime rate as its index.
If you really want to know what mortgage interest rates are tied to, take a look at the 10-year Treasury note. There is not a direct correlation between the two, but most of the time as the 10-year Treasury note moves up and down, so do mortgage interest rates. So maybe the real question is what makes the price of the 10-year Treasury note go up and down? Although the answer may be complicated, as with most other items for sale, supply and demand determine price and rule the day. The greater the demand for the 10-year treasury, the higher the price-which means it's a good bet that mortgage interest rates will rise.
The Bottom Line: The Fed's concerns are about jillions of economic factors, not directly the interest rate for home mortgages. If the Fed slashes interest rates, don't expect a corresponding slash when you want to lock in your mortgage interest rate.
Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.
Many, many economic factors! Strength and weakness of the dollar, the price of oil, how the Federal Reserve feels on any particular day, and much, much more.
The Real Deal: Many clients, especially on a refinance, want to wait until the Federal Reserve Board lowers interest rates next week to lock in an interest rate. Sounds good, but it's completely ineffective. The Fed determines two key indices: the Fed Funds Rate, which is an interest rate at which banks lend money to each other; and the Fed Discount Rate, a rate for lending to commercial banks. Neither of those indices directly affect interest rates of fixed or adjustable rate mortgages. However, the Fed's rate changes will affect your HELOC if your HELOC interest rate uses the prime rate as its index.
If you really want to know what mortgage interest rates are tied to, take a look at the 10-year Treasury note. There is not a direct correlation between the two, but most of the time as the 10-year Treasury note moves up and down, so do mortgage interest rates. So maybe the real question is what makes the price of the 10-year Treasury note go up and down? Although the answer may be complicated, as with most other items for sale, supply and demand determine price and rule the day. The greater the demand for the 10-year treasury, the higher the price-which means it's a good bet that mortgage interest rates will rise.
The Bottom Line: The Fed's concerns are about jillions of economic factors, not directly the interest rate for home mortgages. If the Fed slashes interest rates, don't expect a corresponding slash when you want to lock in your mortgage interest rate.
Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.
Friday, June 5, 2009
Should my spouse and I both be on the mortgage application?
Question #100 from HOW TO GET A MORTGAGE DURING & AFTER THE SUBPRIME CRISIS
Answer: It depends on the strengths and weaknesses of each spouse.
The Real Deal: When your mortgage application is taken, Lisa Loan Officer will look at the strengths and weaknesses of each spouse. As an example, Kenny and Karen apply, Kenny’s credit is 750 and Karen's credit is 615. Lisa would probably try to approve the application with only Kenny on it. But, what if Kenny’s income is not sufficient enough to close the deal? Lisa would put both on the application and move forward.
Mike and Mary apply for a mortgage. Mike filed Chapter 7 bankruptcy years ago after he lost his job and it was just discharged 18 months ago. Mary is a goodie-two-shoes and very strong financially with superlative credit. Lisa would probably move ahead with only Mary on the application. In fact, she may not be able to use Mike in any capacity with his recent bankruptcy.
James and Joanne apply. Both are squeaky clean, with great credit, but both have low income. In this case they need each other to qualify, purely based on income. Lisa would probably put both on the application.
There are many different scenarios and reasons why Lisa would want both spouses or just one on the application. Each mortgage application must fit into the specified underwriting guidelines and stand on its own merits.
The Bottom Line: Whichever way gets you the best deal determines who goes on the mortgage.
Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.
Answer: It depends on the strengths and weaknesses of each spouse.
The Real Deal: When your mortgage application is taken, Lisa Loan Officer will look at the strengths and weaknesses of each spouse. As an example, Kenny and Karen apply, Kenny’s credit is 750 and Karen's credit is 615. Lisa would probably try to approve the application with only Kenny on it. But, what if Kenny’s income is not sufficient enough to close the deal? Lisa would put both on the application and move forward.
Mike and Mary apply for a mortgage. Mike filed Chapter 7 bankruptcy years ago after he lost his job and it was just discharged 18 months ago. Mary is a goodie-two-shoes and very strong financially with superlative credit. Lisa would probably move ahead with only Mary on the application. In fact, she may not be able to use Mike in any capacity with his recent bankruptcy.
James and Joanne apply. Both are squeaky clean, with great credit, but both have low income. In this case they need each other to qualify, purely based on income. Lisa would probably put both on the application.
There are many different scenarios and reasons why Lisa would want both spouses or just one on the application. Each mortgage application must fit into the specified underwriting guidelines and stand on its own merits.
The Bottom Line: Whichever way gets you the best deal determines who goes on the mortgage.
Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.
Thursday, May 14, 2009
Should I Wait to Purchase A Home Until I Can Make a 20% Down Payment?
Question #98 from HOW TO GET A MORTGAGE DURING & AFTER THE SUBPRIME CRISIS
Not necessarily. It depends on your financial situation and/or how you feel about investing in real estate. There are many mortgage programs which allow you to put down less than 20%.
The Real Deal: Nowadays there are many purchasers who make less than a 20% down payment. For instance, in the Garden State of New Jersey, prices are exorbitant in certain areas. In some places $500,000 doesn’t buy that much home. Even if a home is half that price ($250,000) a 20% down payment would be $50,000. Many home purchasers don’t have that much loose change lying around to close the deal. On the other hand, if you can get approved for an FHA mortgage with a 3.5% down payment, you’d only need $8,750. One reason the FHA was developed in 1934 was to spur homeownership and make it easier for Americans to qualify for a home purchase by insuring mortgages. Why not take advantage of it? Even during those times many people couldn’t afford to put down 20% when homes cost far less than they do today.
On the flipside, the more money you put down, the more mortgage products are available to you. You may be able to lower your interest rate and your debt-to-income ratio with a larger down payment. Also, many homeowners feel more secure the greater the equity is in their homes. They feel as though they have funds in reserve and they’re always are able to do a cash-out refinance or get a HELOC if they must have cash.
The question is do you want to put that much of an investment into real estate, do you want to use your cash for another purpose, or do you have the cash period? If one purchaser puts down 20% he could be house rich and cash poor, while putting down 5% could make his economic situation more palatable. Another purchaser could be rolling in dough and putting down 20% is a piece of cake. Another purchaser may feel as though he can never save 20% for a down payment, so why not go for it with what he has? It entirely depends on your situation.
The Bottom Line: Whether you should make a 20% down payment depends on your financial circumstances, how you feel about investing in real estate and/or whether you have the ability to do so.
Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.
Not necessarily. It depends on your financial situation and/or how you feel about investing in real estate. There are many mortgage programs which allow you to put down less than 20%.
The Real Deal: Nowadays there are many purchasers who make less than a 20% down payment. For instance, in the Garden State of New Jersey, prices are exorbitant in certain areas. In some places $500,000 doesn’t buy that much home. Even if a home is half that price ($250,000) a 20% down payment would be $50,000. Many home purchasers don’t have that much loose change lying around to close the deal. On the other hand, if you can get approved for an FHA mortgage with a 3.5% down payment, you’d only need $8,750. One reason the FHA was developed in 1934 was to spur homeownership and make it easier for Americans to qualify for a home purchase by insuring mortgages. Why not take advantage of it? Even during those times many people couldn’t afford to put down 20% when homes cost far less than they do today.
On the flipside, the more money you put down, the more mortgage products are available to you. You may be able to lower your interest rate and your debt-to-income ratio with a larger down payment. Also, many homeowners feel more secure the greater the equity is in their homes. They feel as though they have funds in reserve and they’re always are able to do a cash-out refinance or get a HELOC if they must have cash.
The question is do you want to put that much of an investment into real estate, do you want to use your cash for another purpose, or do you have the cash period? If one purchaser puts down 20% he could be house rich and cash poor, while putting down 5% could make his economic situation more palatable. Another purchaser could be rolling in dough and putting down 20% is a piece of cake. Another purchaser may feel as though he can never save 20% for a down payment, so why not go for it with what he has? It entirely depends on your situation.
The Bottom Line: Whether you should make a 20% down payment depends on your financial circumstances, how you feel about investing in real estate and/or whether you have the ability to do so.
Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.
Friday, May 8, 2009
Credit Card Mistakes
This past Wednesday evening I had the pleasure of doing a homebuyer's seminar at the chic offices of Coldwell Banker Park Avenue Realty, 1015 Park Avenue in Plainfield, NJ. Call me superficial, but I always love going there because the office is so pristine and classy...BTW, pristine and classy is always good for business. Anyway, if you're looking for a home in the area drop in and see Sandy Jackson-Gill (908-251-6450) to make your homeownership dreams come true.
Inevitably, at all seminars I do, the issue of credit is always a big pain in the gluteus maximus for many in the audience. Therefore check out 10 Worst Credit Card Mistakes to save yourself a few headaches in the future. If your credit has just had a myocardial infarction, following are a few quick tips to resuscitate it and/or keep it on life support if you're looking for a home in the near future...
Inevitably, at all seminars I do, the issue of credit is always a big pain in the gluteus maximus for many in the audience. Therefore check out 10 Worst Credit Card Mistakes to save yourself a few headaches in the future. If your credit has just had a myocardial infarction, following are a few quick tips to resuscitate it and/or keep it on life support if you're looking for a home in the near future...
- Don't close credit cards, just pay them to a zero balance or keep the balance low. Closing the card could drop your credit score.
- Don't pay off collections until you speak with your loan officer. Paying off old collections (greater than 6 months old) would be activating an old account and could drop your credit score.
- Don't apply for any credit or open any credit cards if your looking to purchase a home in the next few months. If a new credit account hits your credit report it can temporarily drop your score. If you appy and you're denied for credit...ouch! That's ugly.
- Don't go over your credit limit. You'll get charged with extra fees and a drop in your credit score.
- Don't, don't, don't make any late payments. If you do I'll kick and pout...this one should be obvious, I hope.
Finally, this Saturday, May 9, 2009 at 12:00, I will be presenting a homebuyer's seminar at 178 South 9th Street, Newark, NJ at 12:00 noon. The event is sponsored by the Mid-Atlantic Investment Alliance. The goal of the group is to revitalize the area and turn it into the next Black Wall Street. For more information on the event please call 973-277-6342.
Saturday, May 2, 2009
What is a Mortgage Pre-Qualification?
Question #3 from How to Get a Mortgage During & After the Subprime Crisis
A mortgage pre-qualification is a document from a lender outlining how much of a mortgage a home purchaser can qualify for. A loan officer asks questions which would be essential in underwriting the mortgage, analyzes the information, and drafts a pre-qualification letter.
The Real Deal: Many realtors refuse to show a prospective buyer a home until he or she is pre-qualified. Why? Because time is money--and most people don't have a lot of either one!
Paula Prospect calls Rebecca Realtor to see a $375,000 condo. Rebecca agrees and they drive 15 miles to Condo Paradise Estates. Paula is excited by what she sees and immediately wants to make an offer. Rebecca says we can't make an offer until we have a pre-qualification letter. Paula calls Ben Banker to get pre-qualified. Ben says, "Sorry, Paula, but I can only pre-qualify you for a $325,000 purchase. Don't be foolish and try to go beyond that amount!" At that point, Paula and Rebecca realize they've wasted a lot of energy and the one thing they can never get back--time.
The real deal is that it's ridiculous to shop for a home you can't afford. I've known plenty of realtors who have chaperoned prospective purchasers all around town, without a pre-qualification, only to find, to their chagrin, that the prospects have stinky credit, shaky income, or no money at all for a down payment.
Also, sellers determine which offer they will accept, based on the financial strength of the purchaser. If two equal offers come in, but one has a stronger pre-qualification, the intelligent seller will accept the offer with the stronger pre-qualification. Stronger in this sense may mean better credit, a larger down payment or a superior mortgage product (prime as opposed to subprime). No one wants to waste time, money and energy working on a deal that is either a pain in the neck to process or simply can't be closed.
On the other hand, mortgage pre-qualifications can be completely bogus. The loan officer relies on the representations of the prospective purchaser regarding income and assets. The credit report stands on its own two legs once it is run, although there may be mistakes on it! But oftentimes a prospective buyer says he makes $60,000 per year when it's really closer to $55,000. (By the way, do you know your exact income?) Or he says he has 10% for a down payment when it's closer to 8%. Those two misrepresentations, among others, could make or break a deal.
One of the big problems with the mortgage pre-qualification process is that many loan officers get a wee bit overzealous, telling Paula Prospect she can afford a little more home than she really can. Loan officers might do this because the truth hurts and telling Paula what she wants to hear keeps her happy. However, many deals have been killed because Ursula Underwriter does not quite agree with Ben Banker's assessment of Paula's purchasing power. Ursula smacks the deal down and, of course, even more time, energy and money is wasted.
The Bottom Line: The mortgage pre-qualification is essential to determine how much home you can afford. That being said, if a lender says you're pre-qualified for a mortgage of "X" amount, that doesn't guarantee that you will close the deal. You still must go through the underwriting process.
Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.
A mortgage pre-qualification is a document from a lender outlining how much of a mortgage a home purchaser can qualify for. A loan officer asks questions which would be essential in underwriting the mortgage, analyzes the information, and drafts a pre-qualification letter.
The Real Deal: Many realtors refuse to show a prospective buyer a home until he or she is pre-qualified. Why? Because time is money--and most people don't have a lot of either one!
Paula Prospect calls Rebecca Realtor to see a $375,000 condo. Rebecca agrees and they drive 15 miles to Condo Paradise Estates. Paula is excited by what she sees and immediately wants to make an offer. Rebecca says we can't make an offer until we have a pre-qualification letter. Paula calls Ben Banker to get pre-qualified. Ben says, "Sorry, Paula, but I can only pre-qualify you for a $325,000 purchase. Don't be foolish and try to go beyond that amount!" At that point, Paula and Rebecca realize they've wasted a lot of energy and the one thing they can never get back--time.
The real deal is that it's ridiculous to shop for a home you can't afford. I've known plenty of realtors who have chaperoned prospective purchasers all around town, without a pre-qualification, only to find, to their chagrin, that the prospects have stinky credit, shaky income, or no money at all for a down payment.
Also, sellers determine which offer they will accept, based on the financial strength of the purchaser. If two equal offers come in, but one has a stronger pre-qualification, the intelligent seller will accept the offer with the stronger pre-qualification. Stronger in this sense may mean better credit, a larger down payment or a superior mortgage product (prime as opposed to subprime). No one wants to waste time, money and energy working on a deal that is either a pain in the neck to process or simply can't be closed.
On the other hand, mortgage pre-qualifications can be completely bogus. The loan officer relies on the representations of the prospective purchaser regarding income and assets. The credit report stands on its own two legs once it is run, although there may be mistakes on it! But oftentimes a prospective buyer says he makes $60,000 per year when it's really closer to $55,000. (By the way, do you know your exact income?) Or he says he has 10% for a down payment when it's closer to 8%. Those two misrepresentations, among others, could make or break a deal.
One of the big problems with the mortgage pre-qualification process is that many loan officers get a wee bit overzealous, telling Paula Prospect she can afford a little more home than she really can. Loan officers might do this because the truth hurts and telling Paula what she wants to hear keeps her happy. However, many deals have been killed because Ursula Underwriter does not quite agree with Ben Banker's assessment of Paula's purchasing power. Ursula smacks the deal down and, of course, even more time, energy and money is wasted.
The Bottom Line: The mortgage pre-qualification is essential to determine how much home you can afford. That being said, if a lender says you're pre-qualified for a mortgage of "X" amount, that doesn't guarantee that you will close the deal. You still must go through the underwriting process.
Copyright by Kirk Charles, 2009. Please do not reprint or redistribute without written consent of Kirk Charles.
Monday, April 13, 2009
Short Sale Blues
The big trend in today's market is buying property via a short sale. What is a short sale? It's when you purchase a property for less than what is owed on the current mortgage. For instance, the seller owes $250,000 on his mortgage, but your offer is to purchase the home for $220,000. Obviously there's a $30,000 shortfall or loss the mortgage company has to eat if the deal is consummated, hence the term short sale.
A few things to keep in mind so you don't get caught off guard...
First, short sales can take a long, long, long time to be approved. I've had short sales which have dragged on for more than six months. The process is that you make the offer, the seller accepts the offer, but the bank which is eating the loss must approve the deal! Without the bank's approval, there ain't no short sale. Apparently the bank's committee -- or whatever other powwow group is in charge -- can drag its feet for as long as it wants to while keeping you, the purchaser, on hold and in a state of high anxiety. Then, when the committee approves the short sale, it normally wants to close as quickly as possible. It’s sort of a weird process, but it is what it is. Therefore, be very, very, very patient in a short sale transaction.
Second, in a lot of cases the subject property in the short sale transaction is sold in AS IS condition. AS IS condition means the bank or seller ain’t doing a thing to spruce the place up. If the roof is caving in, so be it--you have to deal with it! The problem, at least in many towns in New Jersey, is that you may need a certificate of occupancy for your mortgage company to approve your loan. The certificate of occupancy, or more affectionately called the C of O, is mandated by most municipalities to ensure the property is habitable. Therefore, if you can’t get the certificate of occupancy, you may run into a mortgage roadblock.
Lastly, if the property you’re trying to purchase is from a seller who is in foreclosure and you want to cash in on the short sale, watch out – there may be unexpected liens against the property. The seller may owe $250,000 on his mortgage, but there could be judgments and other noxious liens against the property which could pop up unexpectedly when title is run. Once I was involved in a transaction where the seller has $75,000 in liens against the property. Sellers who are in foreclosure oftentimes present an extraordinary challenge -- or a big pain in the you know what! Therefore, if a property is in foreclosure, expect the unexpected.
A few things to keep in mind so you don't get caught off guard...
First, short sales can take a long, long, long time to be approved. I've had short sales which have dragged on for more than six months. The process is that you make the offer, the seller accepts the offer, but the bank which is eating the loss must approve the deal! Without the bank's approval, there ain't no short sale. Apparently the bank's committee -- or whatever other powwow group is in charge -- can drag its feet for as long as it wants to while keeping you, the purchaser, on hold and in a state of high anxiety. Then, when the committee approves the short sale, it normally wants to close as quickly as possible. It’s sort of a weird process, but it is what it is. Therefore, be very, very, very patient in a short sale transaction.
Second, in a lot of cases the subject property in the short sale transaction is sold in AS IS condition. AS IS condition means the bank or seller ain’t doing a thing to spruce the place up. If the roof is caving in, so be it--you have to deal with it! The problem, at least in many towns in New Jersey, is that you may need a certificate of occupancy for your mortgage company to approve your loan. The certificate of occupancy, or more affectionately called the C of O, is mandated by most municipalities to ensure the property is habitable. Therefore, if you can’t get the certificate of occupancy, you may run into a mortgage roadblock.
Lastly, if the property you’re trying to purchase is from a seller who is in foreclosure and you want to cash in on the short sale, watch out – there may be unexpected liens against the property. The seller may owe $250,000 on his mortgage, but there could be judgments and other noxious liens against the property which could pop up unexpectedly when title is run. Once I was involved in a transaction where the seller has $75,000 in liens against the property. Sellers who are in foreclosure oftentimes present an extraordinary challenge -- or a big pain in the you know what! Therefore, if a property is in foreclosure, expect the unexpected.
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