A New Hope…just like the Old Days

As a new sense of optimism sweeps into the housing market, the old-fashioned way of getting your mortgage comes once again into vogue.

There’s a feeling of hope we’re seeing from new clients; they want to buy homes. Monthly payment leads the day when it comes to determining if they can buy a home, not the rate, not the state of the economy, not the state of the housing market. And that’s just like the old days.

The hope is driven by the idea there will be a new President, a new administration, and a new attitude in Washington.

These people are coming out in the cold, looking at homes, asking questions, making offers and ultimately buying a home. Many of them are being qualified using another traditional mortgage “standard” the FHA Insured mortgage loan.

FHA has been around since The Great Depression and is still, in my humble opinion, the best way for a family to purchase a home. FHA financing allows for a more “human” understanding of a borrower’s qualifications; lower credit scores (not “deadbeat” credit, just the stuff life throws at you), lower cash required for downpayment (important in the NY Metro region where the cost of living and closing costs are so high), and the ability to use more of your income to qualify for the loan.

I’ve performed miracles using FHA loans throughout my career; and a lot of plain old boring loans that didn’t require a miracle, just a human touch.

FHA is a government insurance program; it’s not a bailout. The bank makes the loan, Uncle Sam insures it against foreclosure. So an old program comes into it’s own just in time. As a new sense of optimism sweeps into the housing market, the old-fashioned way of getting your mortgage—with some help from the government through the FHA—comes once again into vogue.

Yay for that.

To The Rescue!

This afternoon we’re closing another loan we rescued from previous disaster with not one, but two other mortgage companies. This morning, we’re continuing to process the “rescued” loan from two nights ago.

Last night I spoke with yet another Realtor down and out because he had a purchase transaction dragging on and on into oblivion with no hope of ever closing. The Seller’s attorney advised him yesterday that today, Friday August 29th was the absolute last day to get an approval.

The Realtor said, “I think I’ll just let this one go and lose this deal.”

I pointed my finger at him and admonished him not to every say such a thing while I was around. Told him to get the file ready and show it to me today at 1pm when I return to his office. Turns out I also know the Seller’s attorney and I’m certain that, after reviewing the file and determining if I can get it approved and closed, that one phone call to that attorney will provide us with the time we need to finally get it done right.

Rescue, rescue, rescue. I encounter so many of these situations, whether it’s for folks trying to refinance their homes or families trying to purchase their first homes. Many times I have to say, “No, this is truly not possible. There is no way to make this loan work.” But my “No” comes in a few minutes, or, at the most 24 hours. The losers keep wasting everyone’s time as if some magic wand is going to fall out of the sky, hit them in the head and provide a miracle cure for the loan in question.

Days turn into weeks as everyone waits for the mortgage loser to come up with a solution, approve the loan and close it. And the losers are not just mortgage brokers, they are mortgage bankers and loan officers of regular banks, too.

This is the fallout of the mortgage meltdown of 2007. Too many losers still populate the mortgage industry, wasting the time of hopeful homebuyers, serious sellers, and realistic Realtors.

Message to mortgage losers: GET OUT OF MY BUSINESS!!!

For those of you industrious readers, working honestly every day in your field, let me wish you a peaceful Labor Day weekend!

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The Return of PMI: Private Mortgage Insurance

With the mortgage meltdown eradicating piggyback loan programs, and borrowers still needing to finance more than 80% of the purchase price of a home, the need for loans with PMI has become a default issue.

Everything that was “old” is new again, including PMI.

PMI is Private Mortgage Insurance and is required for most mortgage loans when the Buyer’s downpayment is less than 20% of the purchase price.

Back when the now infamous 80/20 or “piggyback” loans were making inroads into the mortgage industry, I was one of the last holdouts at my company (besides my pal and fellow old-timer Barry W.) still originating mortgage loans with PMI. Younger loan officers looked at me as if I were mad for still talking, originating and closing PMI loans. Eventually I made the leap and included the “piggyback” mortgages on the product menu I recommended to clients. Those 80/20 or 80/15 piggybacks I originated all had fixed rates—I just don’t do ARM loans—and, even though the interest rates on the second mortgage was high (usually 9-11%), often the total mortgage payment was cheaper than a mortgage loan with PMI.

The added benefit of mortgage interest tax-deductibility didn’t hurt the situation, either. PMI is not tax deductible.

With the mortgage meltdown mess eradicating most all of those piggyback loan programs, and borrowers still needing to finance more than 80% of the purchase price of a home, the need for loans with PMI has become a default issue.

I’ve noticed also that some Lenders are offering “Affordable” mortgage financing products with reasonably priced PMI payments in order to assist First Time Homebuyers obtain financing during the mortgage meltdown days of 2007. This is a really good thing because too often the PMI premiums—and thus the monthly payment included with a Borrower’s mortgage payment of “PITI”—are so high as to prevent Buyers from moving forward on a home purchase.

Once again I say, “What once was OLD is NEW again!” Welcome back, PMI.

[tags]PMI, PITI, piggyback, mortgage meltdown, homebuyers, Private Mortgage Insurance[/tags]

“Asking Price” Doesn’t Matter to Realistic Buyers

A Buyer who worries about asking price is missing the bigger picture of how to negotiate the purchase of a home.

The methods used to determine asking price on any given property are so wildly varied as to defy clear definition. Especially as emotion plays such a large part in the ultimate decision.

In this market, in my opinion, the Buyer should set their own price.

A Buyer who worries while shopping about asking price and list price is missing the bigger picture of how to negotiate the [tag]purchase of a home[/tag].

The [tag]Realtor[/tag] doesn’t control you—and you should never let them, either!

1. Create your wish list for the home you want.
2. Identify the neighborhood(s) you like.
3. Get out there and shop, shop, shop (that means: do NOT sit at home looking at internet listings; all you’re seeing are ADVERTISEMENTS, not homes).
4. Being out there you gather personal data to compare/contrast against your wish list.
5. Being out there you develop your own personal “gut-feeling” of [tag]market price[/tag].
6. Make offers. That’s how you, the Buyer, determine the market price. (btw: I gave the SAME advice during the boom).

If a Seller is truly interested in selling, you and the Seller will work out your differences on price (in other words: your opening bid is almost NEVER your maximum price, nor is it the Seller’s bottom price) and find that equilibrium wherein both parties are happy and there occurs a “meeting of the minds.”

If a Seller is unrealistic, you will walk away from the [tag]house[/tag] because no amount of patient negotiating is going to convince that Seller of the “true” market price.

This isn’t rocket science: it’s just patience and a realistic appraisal of the market for [tag]home buying[/tag].

[tags]Word Press, Technorati, appraisal, SimpleTags[/tags]

Your personal market value “divining rod”

Go out there as a “dowser” to learn about homes in your chosen neighborhood. You will determine market value better than any Realtor or appraiser or homeowner because you will have been comparing homes, checking features against price, and meeting Sellers.

There is long-standing folklore about those interesting people who walk around with a divining rod searching for water and the best place to dig for a well. Those folks call themselves “dowsers.”

“Dowsing is as strictly defined the claimed ability to discover underground sources of water or metals by means of a ‘dowsing rod.’ Another term used is ‘divining.'”

While that may be myth, there’s something to be said for developing your own ability as a “dowser” when shopping for a home. Especially in these crazy times when Sellers stand firm on prices from 2005 and refuse to price the house to sell. The fact is, without Buyers driving the market prices down, those prices won’t change on their own. And there are not many Buyers walking the streets these days.

If you have decided that you must own a home now—regardless of market craziness—then you’re obviously going to be out there on the streets looking for a home to buy.

With reluctant Sellers and a dearth of Buyers, what’s a person to do?

I say, “DOWSE!” (is that actually a verb?)

Your “divining rod” as it were, is your own personal market value indicator. You create this divining rod by researching property values in your chosen neighborhood.

1. Research the values using internet tools. The ‘net resources available for this are many and varied: propertyshark.com, zillow.com, MLS.com, and Realtor.com are good starters. But the internet is not the be all and end all for information about the home you wish to buy. Don’t fall into the trap of relying solely on the ‘net for your research.

2. Get out there and look at [tag]houses[/tag]. There is no substitute for visiting houses in person. Whether you do this on appointments with [tag]Realtors[/tag] or just by visiting open houses on the weekends (I recommend BOTH methods), you must undertake this important facet of your research for a home.

When you are looking at lots of homes—both online and in person—you will soon develop your “divining rod” and you’ll be a home-buying-dowser!

You will get a sense of the features of different homes at different price points.

You will learn the quirks of the people selling homes and how it is possible for someone to have a ridiculous expectation of what their home is worth.

You will get to see yourself more clearly—in your mind’s eye—in the [tag]home of your dreams[/tag].

Most of all, you will develop a personal perspective on prices and thus market value in your desired neighborhood.

With that experience, you will be a better negotiator on price. Because you will have developed a “gut instinct” (or divining rod!), you can better set a maximum price you’re willing to pay for any given home. You can see past ugly wallpaper and ancient carpeting; you can better understand when a Seller is being completely unreasonable.

Get ready to go out there as a “dowser” to learn about homes in your chosen neighborhood. You will determine market value better than any Realtor or appraiser or homeowner because you will have been comparing homes, compiling features versus price, and meeting Sellers.

Dowse away!
[tags]WordPress, WordPress Plugin[/tags]

Make your own Supply to meet your Demand

Toss economic theory out the window. If you are ready to buy a home—for your own reasons—then it’s time to make your own economic theories and make ’em stick.

So you know you definitely want to buy your own home. No matter the market conditions, interest rates, or status of A-Rod’s quest to hit Home Run #500, you have your reasons.

If that’s the case, how then to find a house at a price you’re willing to pay?

There is a glut of homes available for sale, but you can be pretty sure there is also a glut of Sellers out there with unrealistic expectations as to the price they’ll accept. And those expectations might very likely be out of line with your personal viewpoint on market value.
Back in Economics 101 we were taught about Supply and Demand, and how one affects the other, especially regards price.

I say, chuck the economic theory out the window. If you are ready to buy a home—for your own reasons—then it’s time to make your own economic theories and make ’em stick.

Here’s how, then, to find the Supply of houses you’d be willing to buy and thus meet your own personal Demand.

1. Determine a monthly payment you’re comfortable with.

When you are prequalified, your mortgage professional will calcluate for you the monthly payments on a maximum loan based on your income. If the maximum loan you’re qualified for has a payment beyond your comfort level, then ask your mortgage pro to “step it down.” You’ll have a payment you’re comfortable with and you’ll know, based on the new calculations, your maximum price.

2. Shop, shop, shop.

Create your own “gut-sense” of market value. You do this by looking at homes—in person—in your chosen neighborhood and learning the price points of different houses with different amenities and sizes. Look at a lot of houses.

When you are out shopping for a home on a Saturday and a Sunday, make offers. In New York you can make as many offers as you like; until you sign a contract of sale with your attorney, you’re not committed to anything. This is a good way to get at the essence of a Seller’s mindset: are they serious about selling, and what price do they really have in mind? At worst you’ll find out just how unrealistic a Seller is with price expectations. When you meet those kinds of Sellers, it’s time to move on, and you haven’t lost much time “falling in love” with that house!
While negotiating offers, determine the maximum price for any given house. You set that price by trusting your “gut sense” of market values because you’ve been out looking at lots and lots and lots of houses.

When you negotiate offers, first with your opening price and then up to your maximum price you create your own opportunities for “corrected prices” by seeking out the Homeowners who will sell to you at YOUR price.

3. Trust your “stuff.”

In baseball, when a pitcher is a bit flummoxed, the catcher or coach will come out to the mound and say, “Trust your stuff.”

When you’re shopping for your home, the “stuff” is all that homework you’ve done by looking at homes in your chosen market, developing an instinct as to true market price.

The second ingredient in your “stuff” is the knowledge of your personal “fundamentals.” These fundamentals exist with you, not out in the ether expressed on some internet site somewhere as an unfathomable variable in a real property valuation equation. YOU are the equation: your instinct, and your fundamentals. Taken together, it’s your “stuff,” and you should trust it!

The fundamentals are very simply:

-Do you want to rent or own?
-Can you locate a house at a price you’re comfortable with?
-Will you own that house for a long enough period of time to make sense considering how much money you’ll invest to make the purchase?
-Are there intangible benefits to owning that you want to realize, and that you absolutely cannot obtain by renting?

Those are the fundamentals.

A lot of people think there should be some baseline, some pre-defined “bottom” of the market and a condition of economic equilibrium at which point it makes sense to buy a home. They think there is some fixed equation like the Pythagorean Theorem when it comes to real estate market prices and timing.

Umm, no. There’s no such thing. Take it from someone with 18 years professional and 21 years personal experience with real estate.

Homeownership is what you make of it, quite literally. It starts with a dream, continues with your comfort level with the numbers, and finishes with your decision as to your own personal fundamentals.