Shopping for the Best Interest Rates

THE lowest interest rates in decades sound enticing enough, but they are often out of borrowers’ reach.

Mortgage lenders adjust their rates based on perceptions of risk, so unless you can show you’re a low-risk borrower, you are unlikely to qualify for a rate that matches those seen in all the advertisements or headlines.

The rates quoted by Freddie Mac and others are averages drawn from a variety of financial institutions, and lenders use varied approaches to set them. As its base line, for instance, the Brooklyn Cooperative Federal Credit Union uses rates posted on the Credit Union National Association Web site for New York, according to Daniel Alejandro González, the credit union’s director of lending. Others, like Chase Mortgage, use markers like Treasury yields and agency mortgage-backed securities issued by Fannie Mae.

Consumers who want to try for the lowest rates available need to consider these basic factors.

CREDIT SCORE¬†The ideal borrower has a FICO score of 740 or higher, said Thasunda Brown Duckett, the senior vice president of Chase Mortgage‚Äôs East Region. ‚ÄúThat puts you in the best place for pricing,‚ÄĚ said Ms. Duckett, whose office is based in Manhattan. According to¬†MyFICO.com, borrowers in New York with scores of 760 to 850 could qualify for an annual percentage rate of 3.95 percent on a $500,000 30-year fixed-rate mortgage, while those with scores of 620 to 639 qualify for 5.53 percent.

POINTS¬†The lowest rates usually are decreased by paying a fee called a point, or 1 percent of the¬†loan¬†amount. ‚ÄúYou need to buy points in order to get the best rates at many banks,‚ÄĚ Mr. Gonz√°lez said. In Freddie Mac‚Äôs weekly survey on mortgage rates, points have averaged 0.7 percent on loans in the last year. Points might make sense depending on your financial situation and how long you expect to stay in a home. So ask for a zero point quote, too, and compare.

PROPERTY TYPES If you’re buying a duplex or a four-unit building, your rate will almost certainly be higher. Condominiums may also have a rate premium, especially if they are newer or your down payment is below 25 percent. Lenders charge more if you are not planning to live in the home. Commercial properties like apartment buildings have the highest rates, as they are considered riskier, Mr. González said.

DOWN PAYMENT¬†Ms. Duckett says that borrowers who put down at least 25 percent are more likely to obtain ‚Äúattractive pricing‚ÄĚ at Chase. Lenders offer different breaks on rates if equity is higher, so you should ask what is available.

LOAN LENGTH¬†A lot depends on how long you plan to live in a home. If you‚Äôre likely to move in a few years, an adjustable-rate loan with a low interest rate fixed for, say, three to five years, and adjusted afterward, might work best. Also, rates on 15-year fixed-rate loans are lower than those on the 30-year ‚ÄĒ 0.77 percentage points, on average, last year, according to Freddie Mac. ‚ÄúSome people may not need a 30-year mortgage,‚ÄĚ said Jed Kolko, the chief economist of Trulia, the real estate information Web site.

Borrowers may also be able to reduce their mortgage rate when they enter into a ‚Äúlock-in‚ÄĚ agreement with a lender.

‚ÄúLenders typically offer a lower rate for a shorter lock period,‚ÄĚ Mr. Kolko said.

Lenders typically agree not to change an offered interest rate for 60 days, but borrowers confident of a quick closing may be willing to accept a 45-day rate guarantee, or even a 30-day lock, in exchange for a small discount, because the transaction’s speed helps the lender reduce its risk.

Borrowers must make sure, too, that they consider the entire cost of a home, looking carefully at monthly payment calculations. According to Mr. Kolko, about a third of homeownership costs are in addition to the mortgage ‚ÄĒ among them property taxes, insurance, maintenance and repairs.

Article Shared via California Association of Realtors Newsletter and the New York Times

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Appraisals – The Hurdle

Finding a home these days is journey in itself. ¬†Getting the home you want is the next headache. ¬†In the last year we’ve seen deals fall apart at the bitter end – over the appraisal. ¬†Realtors take this very seriously. ¬†We do not want overly inflated appraisals that got banks and purchasers in hot water in the past. ¬†We also do not want to see ridiculously low appraisal either – especially in markets where housing is in recovery and values are slowly increasing. ¬†Realtors, their clients and lenders want to see realistic appraisals.
Lately Рit is taking banks more than 30 days to close a deal.  Close of escrow periods are extending from the typical 30 day window to 45 days and beyond.  Some deals are falling apart when the appraisal is much too low and neither side will budge on price, or clients are forced to pay the difference if they truly want that particular home Рwhich can be a hot mess.  The Caton Team strives to protect our clients and will guide each buyer or seller through the best course of action Рand often times the best course is different for each client.
Ways to avoid this headache.
We are blessed on the San Francisco Peninsula to have a variety of job markets in the Silicon Valley and the Biotech industries. If you’re in the market to purchase a home – The Caton Team highly recommend you work with a LOCAL lender and as professional Realtors we request local appraisers as well. ¬†Appraisal companies have changed dramatically since the boom – and for good reason. ¬†However, when you get an appriser who generally works in Modesto (for instance) they will not have a good grasp on the peninsula market – and often the appraisal come in to low. ¬†The “Appraisal Review” is becoming the norm these days – when the difference is too great – and adds days to the close of escrow window.
The bottom line.  Be smart.  The Caton Team always provides our buyers with a Comparative Market Analysis which is a Realtors version of an appraisal.  We take into account the activity of similar properties in similar areas in s short window of time to determine the value of the home when writing an offer Рtherefore offering a solid offer with a realistic price.  Recovery of our real estate market will take time Рand for those of us fortunate enough to call the San Francisco Peninsula home Рwe know it will recover.

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Below is an article I’ve found addressing these concerns that I thought I would share with my fellow readers… enjoy.
Aced Out By an Appraisal
Published by Preston Howard

One of the most frustrating things about the new world of real estate finance is the good old fashioned appraisal.

You can have a borrower who makes more money than the amount of the loan that they are requesting with an 800 FICO score and a stellar financial profile. The file can get underwritten and the deal can be the most solid deal that a bank has seen, but no one is safe until the appraisal comes back confirming the value requested. Homeowners who have been through this painstaking process know what I’m talking about. Realtors walk around in doldrums of disgust as their brokerage commissions go up in smoke. Fellow mortgage brokers bury their heads in shame and pain as deal after deal dies at the hands of an appraiser. However, the unfortunate thing is that there appears to be no end in sight.

The reality is that there were many appraisers out there who severely inflated our housing bubble by doling out overly generous values. However, the appraisal flu has spread throughout the ranks of entire armed forces of the appraisal brigade. By and large, conservative appraisers are coming in lower than ever, while aggressive appraisers have become more conservative. Lots of appraisers have quit the business entirely, while others have become property inspectors! Why is this?

Part of the pressure is coming from banks that want more conservative valuations due to enhanced regulatory scrutiny. Other forces at play include an overly abundant inventory of distressed properties. In the past, appraisers made adjustments for distressed sales; but in many markets, this is no longer the case. Given that so many appraisers are no longer making adjustments for distress, valuations are coming in 15-20%. Both instances have stalled the recovery of the housing market. Inexperienced appraisers from 50 miles away are being utilized to value properties in niche, pocket, and specialized markets. Accordingly, market knowledge is overlooked and expertise is left out of the equation. The scant facts are coming in and the effects are damaging. National realtor boards approximate that ten percent of escrows have been killed due to a low valuation. Another twelve percent of transactions are stalled in limbo, while a final eighteen percent have had to return to the negotiating table for a price change.

So, what are we to do? This calamity started when New York governor Mario Cuomo fought hard for the installment of the Home Valuation Code of Conduct (HVCC). Since its inception, mayhem has been unleashed across the real estate industry. What was meant to ‚Äúprotect the consumer‚ÄĚ has essentially harmed the consumer, paralyzed our industry at a micro level and the economy at a macro level. Real estate professionals have been mobilizing, and the results have been mediocre at best. With the advent of the Dodd-Frank Financial Reform Bill, the HVCC has seen its ‚Äúsunset‚ÄĚ; however, the low appraisals continue to persist. The one thing that is now allowed is that anyone ‚Äúwith a beneficial interest‚ÄĚ in the transaction can contact the appraiser and provide comparable sales to substantiate values. While this sounds promising, many lenders still heed to the rules of HVCC and will not allow brokers or borrowers to contact the appraiser. (Talk about not following the rules). Thankfully, some consumers are taking matters into their own hands. I have encountered homeowners who just so happened to be writers and have profiled the issue in front-page articles in the Los Angeles Time while others have been able to get their woes heralded in The Wall Street Journal. Constituents across the county are lobbying members of Congress and the Senate to draft legislation to change the HVCC. However, I don‚Äôt believe that anything major will be done until those in power are denied a loan.

Much like there were the ‚ÄúFriends of Angelo‚ÄĚ who got preferential treatment with refinancing with Countrywide (many of which included various Federal lawmakers), the same will most like have to apply in the appraisal industry. When Congressmen, judges, and commissioners start to receive declination letters en masse due to low appraisals, then we will see a shift in the pendulum. I haven‚Äôt heard of Ben Bernanke getting a low appraisal on his home or President Obama. However, I do believe that if Max Baucus (Chair of the Senate Finance Committee) gets a low-ball appraisal, then the issue will get traction. If the ‚ÄúGang of Six‚ÄĚ all get forced to the negotiating table due to a low valuation, I have a feeling that our deficit will take a back seat to Senator Coburn and Senator Conrad‚Äôs desire to lock in a rate that hasn‚Äôt been this low since both gentlemen were in elementary school.

In summary, we are all tired of watching deals go up in smoke over conservative appraisals. It’s a shame to not go forward on a deal with good credit, strong cash flow, and clean collateral when you don’t know if you are at 75% or 85% LTV. Collectively, we need to advocate change and encourage local and national champions to spearhead the issue. Money is being spent, deals are being lost, and tempers are flaring. Enhanced legislation and examination are needed to stop the run away train of low valuation. Therefore, call your member of Congress and express your frustration. If you have access to media, spread the word. Our equity depends on it and ultimately, so does our economy.

Preston Howard is a mortgage broker and Principal of Rose City Realty, Inc. in Pasadena, CA. Specializing in various facets of real estate finance.

Republished from Broker Agent Social Network Newsletter. Aug 2011.

HAFA Short Sale Program

When a homeowner is faced with loosing their home or selling it as a short sale – the decisions are difficult and time consuming. ¬†Often the hoop jumping to work with the bank becomes a second job. ¬†If the loan modification didn’t pan out and the mortgage payments will overwhelm the family – selling the home may be the best course of action. ¬†Foreclosure is the last thing anyone wants to face. ¬†And as a Realtor, the last thing I want to see happen to anyone.

The best course of action is to contact the bank and inform them of the situation immediately. That’s where the HAFA program (Home Affordable Foreclosure Alternative) comes in. ¬†HAFA was created to streamline the process and get the homeowner out of the home with provisions to assist them with the sale and conditions to protect them afterwards.

For more information – please visit:

http://www.realtor.org/government_affairs/short_sales_hafa

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HARP Refinance Program Expanded

Got questions about the new HARP Refinance Program?  Clink on the link below to access up to date information.

Click to access HARP_release_102411_Final.pdf

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How to Write a Great Offer on a Short Sale Property…

So you’ve found your dream home only to find out it is a short sale. ¬†Nuts. ¬†Now what?

A short sale is a pre-foreclosure property.  Perhaps the seller has stopped paying their mortgage and are in default, or perhaps the seller is on top of paying their mortgage, but are forced to sell when the market is down.  Either way it comes down to one thing Рthe seller owes more than the home is worth and in order to sell the property free and clear of any liens the seller must ask the bank to take less than they are owed Рthus the term short sale.

For a seller to qualify for a short sale they must be in financial distress and prove this to the bank.

For a buyer in requires great patience while the offer package and seller financial documents are reviewed by many many many investors.

Because of the tedious review process Рa buyer must be wise when writing their initial offer.

How to write a good offer on a short sale home…

To be frank, when writing an offer on a short sale property you only get one shot. ¬†Once and if the bank¬†accepts¬†the short sale offer – that price is firm. ¬†During the buyers contingency period – if they find out there is an expensive issue – there is no going back to the bank and re-negotiating. ¬†The buyer can either walk away from the deal due to the new information – or the buyer can take a look at their other options on the market and decide what is best for them. ¬†Of course, as your Realtors – the Caton Team will try to renegotiate the price and if an¬†appraisal¬†comes in low – that’s ammo.

The good news – since generally the owners still occupy the home, it is not in too bad of shape and disclosures can be provided up front.

So, how do we write a good offer? ¬†Buyers and their agent will take into consideration the pro’s and con’s of the home and write their best offer after taking a look at comparable properties on the market. ¬†The short sale bank will conduct one or more¬†appraisals¬†of the home and if the buyers offer price is in line with market price – generally the bank will move forward with that offer.

Price is important but sometimes it is not everything.  When writing any offer, a buyer will need to have a bank pre-approval letter, copy of their bank statements and pay checks to show their financial security.  The short sale bank wants to be sure the purchaser is strong.

The terms of the contract are equally important. ¬†Time is always of the essence in Real Estate – it is even a term in the contract. ¬†When dealing with a short sale bank – a buyer and their Realtor have got to think like a bank – that means moving fast when the bank is ready. ¬†Close of Escrow should be a 30 window – shorter if possible. ¬†Longer than 30 days tends to turn the bank away. ¬†As for as¬†contingency¬†periods (time for the buyer to conduct their inspections and¬†appraisal) the short sale bank will give the buyer the standard window of time – generally 10-17 days after¬†acceptance. ¬†Having a tight contingency period will make the short sale bank a bit more happy. ¬†Also, the bank doesn’t move at¬†anyone’s¬†pace except their own – so giving the bank at least 3 months to review the short sale¬†package¬†is acceptable, longer is better if a buyer doesn’t mind.

Now on my end, as the Realtor – I want to make sure I send the bank your offer and all the paperwork by mail instead of fax so the bank has everything it needs and hopefully cutting down on the back and forth.

In the end, a buyer must write THEIR best offer, and whether they get the house or not, be comfortable with their purchase.

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Loan Limits Have Changed… check out this site…

For more information on the change in loan limits Рvisit the Fannie Mae webiste at:  https://www.efanniemae.com/sf/refmaterials/loanlimits/

-Sabrina

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How to Write a Great Offer on Bank Owned Homes (post foreclosure)

Point Blank –¬†Writing a good offer is writing a good offer. ¬†Price is most important, then close of escrow, contingency terms and then buyer qualifications. ¬†Just about in that order. ¬†So when a buyer is faced with writing an offer on a Bank Owned home – it is just about as easy as writing an offer on a home where the buyer is working directly with the seller.

The Caton Team Realtors, will provide the buyer with comparable market information Рhomes of similar condition and size Рand what they are selling for.  Armed with this info, the buyer can decide a fair market price to offer.  Since the home is bank owned Рthe bank is very aware of the homes market value and has elected to sell the property in the open market instead of an auction Рmost likely because the bank will get more money in a normal sale versus an auction.  So our advise to a buyer Рbe realistic in your offer price.  Too low and the bank will move on, there can be some back and forth counter offers Рbut generally it is cut and dry or the bank will hold onto an offer till a better one comes along.  (At least that is how it feels to the waiting buyer.)

Next are the terms.  A bank owned home can move MUCH faster than a short sale.  A buyer will want to keep their property and loan contingencies tight Р10 Р17 days and generally a 30 days close of escrow is acceptable Рif not shorter since the home is already vacant.

The downside bank owned homes Рno disclosures except for the CA State Mandatory Disclosures Рbut those pertain more to the area than the actually home.  Why?  The bank has NEVER lived in the home and cannot disclose if there are neighborhood nuisances, or if the downstairs bathroom floods every years.  So it is more buyer beware Рhowever Рonce a buyers offer is accepted, they will have their contingency time frames (stated in the offer) to conduct any and all inspections they want and to make sure the home appraisals for their loan.

Sounds like any offer right? ¬†Right. ¬†Bank Owned homes are like normal sellers. ¬†The turn around time for an offer response in¬†a couple of days – a week max. ¬†Meaning, when the buyer get’s the offer accepted phone call – the clock starts ticking for contingencies and in 30 days I hand them the keys ūüôā

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Interested in Investing in Real Estate? Great article link from the WSJ

Great article for Investors from the Wall Street Journal:

http://online.wsj.com/article/SB10001424053111904103404576558484074477822.html?mod=WSJ_RealEstate_LeftTopNews

 

 

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What Costs of Home Ownership is Tax Deductible?

I just came across this great article that I thought I’d forward along. ¬†It talks about what is and is not tax¬†deductible¬†in home¬†ownership.

http://lowes.inman.com/newsletter/2011/09/13/news/152084

 

 

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How Much Insurance Do I Really Need?

How Much Insurance Do I Really Need? ¬†It’s a great question that I get often. ¬†Found this great article and thought I would pass it along:

http://www.washingtonpost.com/realestate/if-you-arent-sure-what-your-homeowners-insurance-covers-ask

 

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