Apr

18

Measuring The Cost Of Higher Mortgage Rates

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Numbers don’t lie. When you’re thinking of buying a home, affordability is the ultimate factor in the buying process. Everything about buying a home is secondary to your ability to afford a mortgage.

Since we’ve looked at the upcoming changes to the mortgage industry, let’s look solely at the mortgage interest rate.

Recent Mortgage Rate Activity

The graph above shows how mortgage rates have steadily increased nearly .75% in the last year. Of course, they’ll go up and down like this for the next few months according to industry experts. However, let’s assume that rates jump like this and remain like that or that you’ll have to lock in at the higher rate when the time comes for you to secure your mortgage rate.

The graph below shows just how much more expensive a .69% rate increase actually is in a dollar for dollar comparison.

So where might that leave you on a monthly basis. Do you want to pay more per month for your borrowed money?

And let’s look at the impact of such an increase over time.

The $29,541.60 you’ll spend on mortgage interest could buy you a lot of things over that time period. Heck, you could upgrade your iPad every year and sell the “old” one and still make out on the deal big time!

Bottom Line

It may make sense for you to re-evaluate your situation and take the plunge in to homeownership. Of course there are many things to take into account. And yes, newsflash – I am a Real Estate Agent, of course I want you to buy a home! But seriously, these are the times in history where people look back (and we all know the people who’ve said something like this) and they say, “Man I wish I…” Do you want to be the person finishing that statement 5 years from now?

If you want great information on qualifying for a mortgage visit one of these webinars hosted daily by Continental Home Loans. Should you have any questions, please call me at (631)881-5959.
The Home Buying Webinar, Daily at 10:00 am
http://www.ezmeetingsonline.com/deanhartman/?do=registration&webinar_id=75

The Home Buying Webinar, Nightly at 7:00 pm
http://www.ezmeetingsonline.com/deanhartman/?do=registration&webinar_id=74

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Apr

17

Four Financial Reasons to Buy a Home

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The purchase of a home is a personal decision. However, I want to give everyone four great financial reasons why you should not wait before taking the plunge into homeownership.

Interest Rates Are Increasing

Interest rates have increased almost 3/4 of a point in the last six months. Most experts expect rates to continue to increase through the year. Interest rates along with price determine the overall cost of a home. Even with prices softening, if interest rates rise, it may be less expensive to buy now rather than wait.

The 30-Year Mortgage May Disappear

There has been much debate regarding government’s role in providing support for homeownership. There are several experts who believe If Fannie Mae and Freddie Mac’s roles are eliminated, or even limited, it may be the end to the 30-year mortgage. This concern is addressed in MSN Real Estate’s Is it curtains for the 30-year mortgage?

QRM Requirements Could Be Much More Stringent

Here are proposed changes to the requirements for a ‘qualified residential mortgage’:

Certain mortgage types would be eliminated
You would need to put a minimum of 20% down
You would need a minimum 690 FICO score
The ratios of income to both the mortgage payment and overall debt would become much more conservative (28% and 36%)
There would be loans available to purchasers who don’t qualify under the new rules. However, they will probably be more expensive to the buyer (both in rate and costs)

Rents Are Expected to Increase

The supply of available rentals is decreasing and the demand is increasing. That will lead to an increase in rental costs throughout the year. The Wall Street Journal this week quoted a report by Reis, Inc:

“Expect vacancies to continue declining, and rents rising through the rest of 2011 at an even faster pace.”

Bottom Line

You may be waiting on the sidelines to see if prices will continue to depreciate before you purchase a home. The mortgage expense is a major piece in the overall financial picture of homeownership. Make sure you consider it when timing your decision.

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Apr

15

Quality Residential Mortgage And What It Means To You

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It’s something you’ll be hearing more of in the near future and it’s not pretty. Quality Residential Mortgage or QRM is going to be a game-changer.

So what is a Quality Residential Mortgage (QRM) and let’s talk about how it’s going to impact you.

There is no doubt that one of the main reasons for the housing collapse was that mortgage underwriting became too lenient. It seemed anyone who wanted to purchase a home found someone to give them a mortgage; whether they actually qualified for it or not. These buyers eventually couldn’t make their monthly mortgage payment and many went into foreclosure.

This started the downward spiral in home values which crashed our economy.The government is now calling for adjustments to the definition of a “Qualified Residential Mortgage” (QRM) in order to guarantee this never happens again. Like many adjustments that follow a disaster, some are claiming the pendulum is swinging back much too hard. Let’s look at the requirements being considered.

The FHFA issued a Mortgage Market Note 11-02 last week which discusses QRM. Here are the highlights:

Types of mortgages that will qualify

A Product-Type qualified residential mortgage is a first-lien mortgage that is for an owner-occupant with fully documented income, fully amortizing with a maturity that does not exceed 30 years and, in the case of adjustable rate mortgages (ARMs), has an interest rate reset limit of 2 percent annually and a limit of 6 percent over the life of the loan.

Therefore, the following loans WILL NOT qualify:

Alt-A (most of which are low or no document) mortgages
Interest-only mortgages
Negatively amortizing mortgages such as payment option-ARMs
Balloon mortgages

Acceptable debt ratios

A PTI/DTI qualified residential mortgage has a borrower’s ratio of monthly housing debt to monthly gross income that does not exceed 28 percent and a borrower’s total monthly debt to monthly gross income that does not exceed 36 percent.

Payment-to-income ratio, otherwise known as front-end DTI, is the sum of the borrowers’ monthly payment for principal, interest, taxes, and insurance divided by the total gross monthly income of all borrowers as determined at the time of origination. Debt-to-Income ratio, or back-end DTI, is similar to payment-to-income but adds all other fixed debts into the numerator of the ratio.

Down payment requirement

An LTV ratio qualified residential mortgage must meet a minimum LTV ratio that varies according to the purpose for which the mortgage was originated.

For home purchase mortgages, the LTV (Loan To Value) ratio will be 80% which means a buyer would need a 20% down payment.

Necessary FICO score

A FICO qualified residential mortgage has a borrower’s FICO score greater than or equal to 690 at the origination of the loan….

Given that currently, many loans are written for buyers with FICO scores as low as 590, this will eliminate many hopeful home purchasers.

To give you an idea of the severity of these proposals, for the average mortgage written in 1997 (well before the housing mess), only 20.4% would have qualified for these current suggested QRM requirements. As mortgage underwriting has become much more stringent in the past three years, for mortgages written in 2009, only 30.5% (less than a 1/3) would qualify as QRM.

When will this take place? As President Obama likes to say, “Let me be clear…”, these are proposed adjustments which are currently up for debate.

Whatever is approved will only apply to government backed mortgages. The private sector will still be allowed to lend their money based on their own criteria (ex. 10% down payments).
However, there will be increased costs to lending institutions which do not use the QRM. Those costs will be transferred on to the purchaser.

What might these increased costs amount to?

Cameron Findlay, chief economist for LendingTree, in an article on the ramifications of QRM explained:

Homeowners who do not qualify for a loan that meets the new definition (mortgage insurance doesn’t appear to be part of the equation) would be forced to pay substantially higher rates. Early market estimates place that number as much as 3.00% higher than the QRM equivalent rate (on a $200,000 loan, that’s almost $400 more a month).

What It Means For Buyers

Clearly the debate on this will be fierce. There will be many on the side of reason that will argue against a few of the finer points like a 20% down minimum requirement. For many Long Islander’s looking to buy a home, this will mean one thing: In order to buy a home, you’ll be relocating out of state. The alternative is that you’ll be putting less down, thus not meeting the QRM requirements and you’ll be paying much more for your mortgage which all in all, won’t be all that bad since a mortgage is an investment of money that you get write-off’s for but honestly, who wants to pay more for borrowed money?

Bottom line for buyers, the incredible low rates right now, make it a no brainer. The cost of borrowing is going to rise.

What It Means For Sellers

This is obvious. It is common knowledge that Long Island is not a hot spot of inward relocation. It is the exact opposite. It’s referred to as the “brain-drain”. We are losing our youth to other states like North Carolina, Florida and Nevada.

For homeowners looking to sell (and perhaps buy), while rates are low and mortgages are “normal” to acquire, it’s also a no-brainer to speak with a professional Realtor(R) about the market and home pricing.

The purpose of this article is not to scare you (although it should a little) or present QRM as a “bad thing”, but rather provide you with valuable information that will help you make the best decisions for you and your family, right now. I hope it was helpful.

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Apr

13

How To Beat The “Bad” Market

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Let’s not beat around the bush on this one. This is a “bad” real estate market. If you are planning on buying a home, stop reading here because this article isn’t for you. For prospective buyers, the only way this is a bad market for you is if you don’t have good credit or don’t have any money to put down on a home and can’t buy right now (sign up for my newsletter if you are thinking buying in the long-term future – I promise you’ll get a lot out of it).

So the only people reading this now are homeowners who need/want to sell. Let’s talk about the “bad” market.

No sugar-coating here. Of course selling now is not ideal. Prices are down and there is an absolutely ridiculous amount of homes for sale right now. So yes, those two factors definitely make this market “bad”.

So What’s The Catch?

There always is one right? What did you expect? I’m a real estate agent! I want to sell your home!

But seriously, let’s look at this “bad” market. If you were planning on selling and renting, then yes, this is a “bad” market. Unless you’re selling to avoid foreclosure, then selling now and renting is bad. You’ve lost a ton of equity and you’re moving backwards in terms of increasing your net worth.

However, if you’re plan is to sell and buy another home, well guess what, you’re trading equity. This is not a novel point I’m making here either. Many homeowners have heard this from real estate agents. As you’re selling low, you’re also buying low.

All you have to do is look at where it is you’re buying and see where prices have shifted. Of course, not all housing markets have lost value, but a majority have.

So that’s definitely one way to beat the bad market.

Another might be to look at the interest rate. The mortgage interest rate is just ridiculously low. It’s actually completely off the charts. For the amount of money you can borrow, to pay less than five cents for every dollar you borrow, it’s just an unbelievable opportunity. Money has never been so cheap to borrow and it won’t last forever (more on that in my later articles this month).

Another way to beat this bad market is realize that it’s not going to get better overnight. Click to read my best article on what your home will be worth in 5 years (and have a calculator handy). If you’re planning to hold on to the home you’re in for the next 5 to 7 years, then fine. But if you want to get out sooner, selling now would be beating the “bad” market.

Yes, even now, selling your home is a better strategy than thinking you’ll sell for more next year or in 2013. Trust me, click that link and read along. Since I wrote it, nothing has really changed drastically to predictions. The local housing numbers haven’t changed all too much (but I’ll be posting the numbers in an upcoming article of course).

Lastly, the best way to beat the market is to just have a positive attitude and listen to a smart and honest agent. There are clearly benefits to selling now. Does the market stink? You bet. But there are positive and important considerations to make right now. Waiting, even just 6 months will drastically reduce your options.

By Thomas McGiveron, LAB
Realty Connect USA

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Apr

11

Taking Marketing To The Next Level

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Over the past year, the world has changed…a lot. I’m not talking about politics or religion or America and it’s battle against financial crisis. I’m talking about marketing.

Time and time again, homeowners will ask me about running ads in the newspaper. And for now, newspapers are still making money because homeowners expect their home to be marketed in the paper. However, over the next one to two years (yes that fast), I would say that unless a home is the ideal candidate for a buyer over the age of 55, that not only Realtors, but homeowners will realize that buyers are not looking in the paper for homes.

Ask yourself this question: Why would you look in the paper if you have a computer and the internet right at your fingertips?

Online, a buyer can not only get 50 times the amount of information on a property, but also see over a dozen pictures of every home, videos of homes, read articles about buying a home and contact the agent to see the home in one click. Information is a click away on the net, as opposed to one picture (in black and white) and some information with things like “eik, 3 bd, 2 ba…”.

Searching on the internet for homes has become much like searching for a vacation stay. When you search for a vacation destination, what’s the number one thing that people do online?

They click on pictures. The more pictures, the more interest is peaked. The less pictures or the less quality of the pictures, the less likely you are to do the second thing most people do online which is get more information in the form of reviews from people and then search for more websites and more pictures and more information.

You can’t do that in a newspaper.

And why wait for information on the weekend, when right now, you can go online and get current information (and lots of it) right now?

Buyers aren’t waiting for the information and they’re not using newspapers to look for real estate.

Today’s Marketing Plan

Create your own video slideshow at animoto.com.

Today’s marketing plan for any home has to include video like this. It’s got to be hip and up to date.

Why?

Because today’s buyer demands more. More information. More photos. Today’s buyer requires easier access to information and doesn’t want to be bored looking at 5 out-of-focus pictures. Today’s buyer has less of an attention span because they’re on the go and too busy to be bored.

Compare that simple 30 second video to your latest newspaper spread with one picture and 4 or 5 lines of gibberish.

There is no question that today’s real estate agent must be equipped with the latest marketing tools to make them more effective in doing what you hire them to do: Sell your home and/or help you find one to buy!

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Apr

18

Measuring The Cost Of Higher Mortgage Rates

Apr

17

Four Financial Reasons to Buy a Home

Apr

15

Quality Residential Mortgage And What It Means To You

Apr

13

How To Beat The “Bad” Market

Apr

11

Taking Marketing To The Next Level

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