Archive for the ‘Mortgage loans’ Category

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Show me the money – from contract to close on a home…

July 16, 2013

In today’s real estate world…financing is critical. It is often the difference between deal or no deal. So, how do you make it work? There are a number of factors to consider:

1. Is the buyer’s lender local and reputable?
2. Has the buyer been pre-APPROVED?
3. Is there a significant down payment?
4. Will the house appraise?

Without a yes answer to the above questions, your contract could be in jeopardy. It is always important to work with a lender who properly qualifies prospects, No ambiguous language allowed on that pre-approval letter (look for the “out” clauses”)! Make sure you actually talk to the lender and find out the specifics on the borrower. Is the buyer putting down some funds…money talks in this market and deals are done when the buyer has contributed to the bottom line. Finally, is the home priced right? In today’s market…we don’t want to be a part of the problem. We have to be problem solvers!

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Cash is KING for real estate & other random real estate thoughts.

August 24, 2012

This may be a wild and wooly post but I’m just going to share whatever is on my mind today:

What in the world is going on in real estate in Orlando? I’m glad you asked. It’s a rather unique market right now with super low inventory of homes for sale and still lots and lots of distressed properties on the market. Not as many foreclosures but a lot more short sales.

I am seeing multiple bids on homes that are in move-in condition. I listed and sold a home in ONE day recently that was located in Winter Park and was completely remodeled. We had a bidding war and over 20 showings in two days. Absolute madness. What this tells me is that there are so few homes available that are in pristine condition that people will swarm over the good homes for sale. Note to Sellers: FIX YOUR HOUSE UP and make it shine. It paid off for my Sellers in a BIG way.

I recently had a chance to speak with an appraiser (yes…he actually spoke to me) and he told me that 8 out of 10 homes he appraises are fixed up and renovated. He hasn’t appraised a dumpy house in a long time. It is interesting to note that most people are looking for that type of home. After buying a home with 20% down, there isn’t a whole lot of extra cash leftover to fix up the home. So have your home in beautiful condition and watch the offers come in.

There are still distressed homes for sale and while lenders are putting lipstick on these pigs (i.e. paint and carpet)…they are still often showing signs of neglect. The interesting thing is that people are still bidding high on foreclosed homes. I am not sure what is going on here because who wants to OVERPAY for a home anymore? Have buyers lost their minds? Foreclosures are NOT a “deal” at the moment.

Finally, investors are still out there trying to work creative financing and get all sorts of hinky transactions closed. Flippers are back. I won’t deal with anything that may appear unethical and some of these deals just don’t seem “right” to me. Best to move forward with buyers who are working the deal with integrity. That is not to say that investors are not ethical…I just have not felt comfortable with the ones that have approached me lately.

Finally, CASH is KING. If you want to guarantee your offer will be accepted, I hope you are lucky to have cash. People know that the mortgage process is still dicey with resulting delays as things move through underwriting. If you have CASH…you have a guaranteed deal once you pass the inspection phases.

That’s real estate in a nutshell for Orlando…things are moving and selling but we have precious little homes available for sale. If you want TOP DOLLAR for your house – now is the time. I have not seen prices this good in a long time. Let’s get selling…

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More bad news for JUMBO loans

May 13, 2011

Just when you thought it was safe to jump back into the water…oh the dread.

I’m not really talking about sharks in our oceans – I am talking about the jumbo loan sharks and the debacle that is looming. Looks like the federal government is going to take a hard line on these jumbo loans and really cut off the people in the $500,000 to $1M loan category at the knees. Be prepared for a bucket load of strategic defaults with Sellers jumping overboard.

It is getting harder and harder to get any loan. But now Congress is working to get out of the high-end market (so called “jumbo” loans) and try the new “private banking” rescue of our homes for luxury properties. The result for many will be higher cost loans and fewer buyers for more expensive properties. To be clear, there are buyers and sellers in this price range but they can’t do it without a loan at this “mid-range” luxury price point.

In homes priced over one million, we see more cash buyers. But I call this mid-range group ($500K – $1M) as being in real estate purgatory. They are losing hope and they are losing hope fast.  

Michael S. Barr, a former assistant Treasury secretary, said the federal government’s retrenchment would be painful for many communities. “There’s always going to be a line, and for the person just over it it’s always going to be an arbitrary line,” said Mr. Barr, who teaches at the University of Michigan Law School. “But there is no entitlement to living in a home that costs $750,000.”

The problem with this logic is that it will trickle down and affect the entire housing industry. This is the start of some difficult times in the lending market and I believe we may witness many people bailing out of these homes to become renters. Watch for an increase in strategic defaults. I’m already seeing it from the perspective that I have more tenants on hand than high-end buyers. This could be catastrophic.

I don’t see private banking coming to the rescue. Why? Because the federal government is still going to tightly control bank reserves which further decreases loan availability. I would love to see someone with some real economic credentials figure out how badly this new policy could affect our ENTIRE housing industry.

In short, this could blow a lot of people out of the water. Sending out an SOS…

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I got your back…protect your identity

June 22, 2008

By Linda Hutchinson

When buying or selling a home…protect yourself! You don’t know who is looking at your loan documents, files, contracts, etc. Ask all parties involved if they have a Client Identity Protection Program in place. Many loan processors, law firms, title companies, real estate agents and others have programs that protect you and limit the access to your personal financial information and social security numbers.

Whether buying or selling, NEVER give out your personal information (especially your social security number) by fax, email or phone. Deliver credit reports IN PERSON – don’t fax or email them. For the IRS required forms (often needed to get your home loan approved) make sure you notify your loan officer and write on top of the forms “do not copy, fax or scan” across the top and bottom.

You can never be too careful when it comes to your financial information. You never know who is looking at your faxed copies or emails! Play it safe and be smart!

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Understanding Today’s Real Estate Market

June 17, 2008

What created today’s market conditions?

The conditions leading to the current credit crunch and real estate slowdown are largely a result of a frenzy of demand – demand created by the global investment market, and by individual investor/speculators. Beginning in 2000, the world’s pool of investment money exploded. In 2000, there was a pool of about $35 trillion dollars invested or seeking investments. But in the short time between 2000 and 2006, that global money pool doubled to about $70 trillion. This translates to a huge number of cash-rich investors — from pension funds to sovereign funds-all competing for good investments.

Money to spend!

Pools of mortgage loans (mortgage backed securities) have historically been viewed as safe, desirable investments. So, the growth in investment funds meant demand for these investment vehicles soon outstripped supply. Mortgage companies recognized that if they could generate more loans, they could sell them. Wall Street created new ways to package these mortgages, sell them, and pass the benefits and risks on to investors. In addition, more loans supported the political objective of increasing home ownership.

At first it seemed like a win-win. Mortgage money fueled home ownership. The lenders made money, Wall Street prospered and the risk to investors was evaluated based on historical data showing low loan default rates in the U.S. The problem was that in the rush to make more loans, lenders’ underwriting requirements slipped. What lenders call “liars loans” became common. These loans required no verification of income or assets. The lender took your word that you had a job and that your income and assets were what you said they were. They simply checked your credit score and made the loan. Adjustable rate loans, interest-only loans, and other loans previously used for special situations, went main stream and were often misused.

This flood of cheap, easy money (designed to produce the maximum number of loans) attracted small investors who decided to join the home buying party. In 2004, a less than terrific stock market caused many investors to look for alternate investments. The California, Florida, Washington D.C. markets (plus a few other major markets) were attractive locations for investment due to strong population growth, healthy job markets, and good overall economic prospects. Investors swarmed into these markets under the assumption that money invested in residences would generate higher returns than the stock market or other investment options. They were right. However, in lock step with investors, came swarms of speculators (we’re defining speculators as investors who really couldn’t invest without special financing). The low underwriting standards allowed them into the market.

The demand created by these two groups created a buying environment in these targeted markets where flipping became the norm. It ceased to matter whether a property would cash flow or even be rented. There were quick profits to be made. Return-on-investment was high. Strong demand allowed investors and speculators to contract for a property with a small deposit and sell the property at a profit prior to closing. Others bought, held briefly, and resold for more money. Price appreciation soared with the demand. Developers and builders followed the money and inventories began to rise.

2005: The frenzy moved to new markets

By 2005, many savvy small investors felt the top markets of 2004 offered less opportunity and they looked for new markets where economic fundamentals were good and prospects for home appreciation were strong. In short, they wanted to duplicate the smart investments of 2004 in new markets. This shift or “spillover” into new markets like Phoenix/Scottsdale (AZ), Las Vegas (NV), Reno (NV), Seattle (WA), and Cape Coral (FL), created new demand in these markets. Speculators followed, as did builders and developers. Second home buyers also jumped into the fray, adding to the demand. Government homeownership programs encouraged those at the bottom of the economic pyramid to buy. Money was fueling the market. Homeowners who didn’t want to sell, refinanced instead using the high valuations on their homes to take out cash. Home equity was used like cash from an ATM machine to fuel consumer purchases contributing to a more robust economy. The total number of loans soared.

During 2005, almost 40% of all home buyers were investor/speculators or second home/vacation buyers (27.7% & 12.2% respectively). The difference between the two is primary intent. Investors were looking for return on their investment, while second home buyers’ primary motivation was to use a property as a residence. Appreciation soared in these spillover markets in 2005. For example, Phoenix/Scottsdale prices jumped almost 40% in 12 months.

This was not a normal market, nor one which thoughtful observers would expect to continue. Bubbles were being formed. However, the housing boom was an economic engine and everybody wanted onboard. Anyone looking closely at the situation should have seen trouble on the horizon. But, consumers were getting dream homes, lenders and Wall Street were raking in profits, homeownership was growing, industry job creation was strong, old statistics promised the investments were safe, and regulators must have been dozing.

2006: The real estate market slowed

By 2006, some home owners began having difficulty making their loan payments as loans ballooned or rates clicked up. When lending practices began to tighten in 2006 and some loans had significant rate adjustments, there were fewer qualified buyers and more available inventory, so market conditions changed. Many buyers found themselves with properties they couldn’t afford and loans that were upside down – more was owed on the properties than they were worth. There were fewer investors pursuing residential investments and those that were out there shifted their target markets looking for new opportunities for good returns. Speculators began to fall out of the market.

In 2006, 36% of buyers fell into the investor/speculator or second home buyer category. The percentage of investors had declined to 22%, while the percentage of second home buyers had increased to 14%. Despite the overall slowdown, there were still some markets with good appreciation (investor/second home buyer demand, a booming oil business and Katrina relocations all being important factors). Top appreciation rates in 2006 were about half of what they’d been in 2005. Overall, national home sales slipped 10.8% in 2006, compared to the previous year. However, mortgage securities were still a hot commodity.

2007 and 2008: The slowdown continued

By 2007, the downturn in housing had gained momentum. Lenders were facing a secondary loan market which was becoming a bit more selective about loan purchases. Money was getting tighter. Job losses and other economic issues in markets like Cleveland and Detroit contributed to the slowdown. By the end of the year, The National Association of REALTORS® reported that the housing market was off by 12.8% compared to 2006 (which, remember was already down about 10% compared to 2005). The new home market had suffered even more, falling a whopping 26%, according to The National Association of Home Builders.

2008 brought a serious “credit crunch.” The creative packaging of loans into new forms of mortgage securities, (which had fueled the market by keeping money flowing for home investment) suddenly became a more visible problem. As buyers defaulted, the value and marketability of the mortgage securities became questionable. The financial market took a closer look at these securitized mortgages and realized that ratings based on old underwriting standards were irrelevant and the risks were significantly higher than projected. Defaults and foreclosures soared, home inventories rocketed up, and home prices softened. Available money dried up and the financial market faced liquidity and solvency issues. The bubble had burst. The loan frenzy was over, leaving an industry questioning how to deal with the resulting problems.

So what’s ahead? With money tighter, home inventories high, an economy that is either in or on the brink of recession, a weak U.S. dollar, and lower demand for housing, it seems safe to assume that the short term economic news is not good for residential real estate. We have not yet seen the full extent of problems in the housing market and may soon have to deal with similar problems with auto loans and credit card debt. It will probably take the rest of 2008 and all of 2009 before we work our way out of the housing downturn.

The luxury market continues to perform well

It’s not all doom and gloom. The top of the market continues to be healthy. Many of the country’s most affluent zip codes are still enjoying price appreciation. Recent research by The Harrison Group for American Express revealed that the affluent view today’s real estate market as an opportunity. In fact, those who earn at least $500,000 annually not only see an opportunity; they plan to buy residential real estate in the next 12 months. Of the 40% who report buying plans, the majority say their planned purchase will be a second or third home. This demand will be supplemented by wealthy international buyers who view our residential properties as “on sale” and are continuing to purchase in many major markets.

Bottom line – the market overall is soft and will be for awhile; however, the top of the market is out performing other segments.

Source: The Institute for Luxury Home Marketing, 2008

 

 

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Beg, Borrow or Steal…

April 26, 2008

OK…I DON’T REALLY mean steal…but if you ever wanted to borrow on the equity on your home here are my words of advice – DO IT NOW.

Banks are getting ready to shut down lines of credit and these funds will be closed off and no longer available to you. Of course, in a perfect world, you should not borrow against your house at this time unless absolutely necessary but you are warned; we may not see easy HELOC loans or home equity loans for a while. Banks are getting cautious and are pulling back from loans even to owners with outstanding credit. Look for very conservative lending in the future.

One last word of advice – hang in there. This market will not last. We can not let fear overtake us. I only hope the lenders get that point as well. If they don’t make loans…they won’t make money. In the buying or selling of homes, there has to be a flow of cash and mortgages on secured property. It is what keeps our economy running! Let’s hope the lenders make it so.