Powerhouse Solutions – Page 2

More “Old Is NEW” Stories and Stuff

Things will slow down when it comes to processing a loan application and purchasing a home. That’s the old way and it’s new again; as it should be.

I’ve written before, “Everything That Was Old is NEW Again.” The “old” ways of buying a home and getting a mortgage are coming back; please fasten your seat belts and move your seats to the upright position: we’re landing.

I spoke to my friend John McEntee, an attorney, the other day. He told me how 5 clients he had tried to refer to me had decided to go to the banks directly for their mortgage loans. (I guess they figured they would cut out the “middleman” and save a few bucks; fact is, mortgage brokers get lower/discounted rates you can’t get at the banks!)

John complained of the terrible state of service at the banks. In one case an appraisal had been done on the house, the appraiser had forwarded the appraisal report to the bank, but the bank lost it. Twice.

Another client faxed over their docs—paystubs and bank statements—to the loan processor at the bank. The bank processing people couldn’t find the docs. John said, “You call and you can’t get an underwriter on the phone, and when you do, they’re all very good with their sweet customer service voice, but they can’t get anything done.” And he wasn’t complaining about any single bank in particular; all the banks had similar problems.

We’re seeing the same thing at our firm. Our emails and phone calls go unanswered quite often at the Lenders we work with. We spend a lot of time jostling between harassing the banks while simultaneously providing a good customer service “face” to our clients and referral sources (we always try to provide the service to such a level the client has no idea just how bad things are with the banks).

I had a meeting with a Regional VP for a BIG bank in our office last week. My complaints were similar to John’s. The problem with my complaints is that WE are processing the loan application. Because of our experience, we kinda sorta REALLY know what we’re doing. So, when we send a file to the bank, it’s complete. Underwrite it and close it! Set it and forget it!

But, we’re having to deal with overwhelmed and inexperienced Underwriters, especially with regards to FHA loans, and we’re being ignored same as the average consumer.

Now, while a lot of the OLD ways are returning to our industry, this abysmal level of service is not one of those things. In the old days, back in the nineties, loans took time to approve and close, but you always had someone you could speak to. Customer service was never truly “exceptional” but it wasn’t disgustingly abysmal, either.

What has made a dramatic return to the industry is the notion that a loan “closes when it closes.”

That is, when the loan application is FULLY processed, FULLY underwritten, with all documentation in order, then the loan can close. And getting to that fully-processed stage requires time, patience, and, often, more documentation.

Here in New York, home buyers use an attorney to represent them for a home purchase. In New York a sale of real property cannot take place unless a written contract is executed between the two parties (Seller and Buyer). Thus, we use attorneys.

The contract is the foundation upon which is built the entire sale/purchase transaction. The terms of the contract lay out everything from the appliances and/or rose bushes to be included in the sale, to the purchase price and time permitted to obtain a mortgage loan.

In recent years during the fantasy boom, contracts here in New York began to call for commitments in two weeks and closings in 30 days. Say good bye to that nonsense.

Now we’re back to the OLD way. It takes time to process and close a loan. I’ve said to many Realtors and attorneys lately that we’ll be seeing a return to 60 day commitment periods and 90 day closing periods written into purchase contracts.

I’m sure these recent ugly customer services issues will work themselves out at the banks. As we settle further into that old mindset of “full documentation,” “common sense underwriting,” and a properly processed loan application, all parties involved will work together to smooth the wrinkles of this new OLD process.

And things will slow down when it comes to processing a loan application and purchasing a home. That’s the old way and it’s new again; as it should be.

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]

When is the best time of year to buy a home?

If you know that buying a home is the right thing to do for your own personal reasons, then YOU make the time. YOU determine the “when.”

Is there a “best” time of year to buy a home?

Is there a time of year when Sellers are more willing to negotiate because they are more desperate?

When is that time? When?

If you trust your fundamentals, if you know that buying a home is the right thing to do for your own personal reasons, then YOU make the time. YOU determine the “when.”

Maybe it’s because I teach my clients how to negotiate like piranhas.

Maybe it’s because I’ve been looking at (and dreaming of) real estate since I was in my twenties living in an apartment in Astoria.

Maybe it’s because of my eighteen years in the mortgage business working all year ’round through all kinds of markets.

Whatever my reasons, I will say to you this: YOU make the time because YOU get out there and find, force and MAKE the deal that you’re happy with.

The “when” is not based on the market; rather YOU determine the when by shopping and finding and making your deal.

I believe in negotiating hard and tough and forcing a price. I believe in getting up and walking away from the table.

I believe the “dream house” exists in our minds, therefore you can never truly “fall in love” with a house.

I believe you, as a Buyer, truly control your own destiny and I believed that even when the market was overheated and Sellers were insane. (In my long experience, Sellers are ALWAYS insane! You just have to search until you find one who’s willing to be a bit more reasonable than the rest!)

Maybe it’s because I believe it’s all up to YOU.

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.