The Pain of Closing Costs

July 21, 2008

Closing costs can be one of the trickiest things new home buyers face when purchasing a property. It is the hidden costs and surprise jack-in-the-box that pops up just as your hopes that the purchase is finally complete and have been set in place. Closing costs are the reason that many people turn to alternative methods for selling or buying a home, such as with For Sale By Owner or just listing it on a free advertising space online like Craigslist.

While it might seem silly to let your home sale be dependent upon a website like Craigslist, it can be a successful, and more affordable way to sell or buy your home by avoiding closing costs.

Closing costs are the fees that the seller and buyer pay during the closing process, including the costs that the seller will pay to both their realtor and the realtor that you use to find their home. The savvy home seller will factor these closing costs into the final price for their property, making the price increase. If you can find a home that is being offered through an alternative method of sale like For Sale By Owner, you can forego these closing costs and save thousands of dollars in realtor fees. Of course, on the other hand, you will not have the expertise and assistance of the realtor throughout your home buying or home selling experience.

In addition to the realtor closing costs, the fees that are put into a mortgage at the last hour can also add up. For this reason, the final cost of a new home might be significantly larger on closing day than the home buyer expected. The U.S. Department of Housing and Urban Development has been monitoring ways to regulate how lenders can put these additional fees into the mortgage as a way to safeguard future homebuyers from these unexpected increases. Since all of the little pieces add up, regulating the final closing costs can become yet another way the real estate and lending market will stabilize after all of the recent slumps and uncertainty.

If you are looking to refinance your home, you should call your existing lender first. By calling the lender with whom you already have an existing relationship, you will be able to streamline the process since they already have all of your information, saving a lot of paperwork and additional fees. You can save as much as 50% on title insurance if you ask for a reissue rate from your lender as well.

If you are buying a new home, try petitioning your existing home lender. They will be anxious to keep your business and assuming you have a good working relationship, you might get a better-than-market offer from them.

Pay attention to the fees associated with your final closing costs. There will be more than a dozen fees associated with your closing statement, including the application fee, appraisal fee, document preparation fee, recording, underwriting and more. Lenders are required to give a good-faith estimate on the closing costs within three days of the loan application. Look over these numbers to see what you can negotiate ahead of time to say money.


The Fight over Mortgage Rules

July 20, 2008

Considering the current state of the real estate market, it came as no surprise that the Federal Reserve would swoop in to regulate and tighten allowances on mortgages for homebuyers. The overhaul of the mortgage lending system is in full swing with consumer groups and lenders on both sides of the arguments. The hope is that these regulations will put the current mortgage lending industry in a more stable and profitable situation in the long-run. Currently, the extension of credit to homebuyers that are incapable of fulfilling their end of the deal harm the lending company, the homebuyer and the real estate market in general.

Currently, many consumer groups are claiming that mortgage regulations are too lax with a variety of loopholes. These loopholes make it too easy to allow reckless lending, which in turn causes more and more instability in the real estate market. However, industry specialists and mortgage lenders argue that these more stringent proposals will become a larger burden on current and future lenders and will reduce the amount of credit they can extend. In essence, a restriction on the amount of credit available is exactly what the Federal Reserve is analyzing the need for. After all, the number of homebuyers who gained credit through unsteady means has put the real estate market in its current unbalanced slump.

Analysts are interested to see which way the Federal Reserve heads. More than 2,500 comments had been submitted on proposals that had prompted a review of the current mortgage lending situation. However, any revisions on the mortgage lending industry now will not help current homeowners who have already fallen behind on their mortgage payments and trying to avoid foreclosure. However, the idea is that with revised mortgage restrictions, they can prevent the current real estate crisis from occurring again in the near future. In particular, the aim is to prevent the real estate crisis on subprime mortgages.

The hope is to have responsible mortgage lending and home purchases to encourage stable lending and a stronger economy overall. However, the Federal Reserve wants to restrict mortgage availability with credit lenders while simultaneously offering plenty of credit to stable qualifiers.

There are four new rules for lending that the Federal Reserve will consider, including some of the following:

  • Preventing lenders from engaging in a practice that will make loans difficult to afford
  • Limiting prepayment penalties
  • Requiring lenders to establish an escrow account for taxes and insurance of the property
  • Verifying income and assets for all potential lending candidates 

These rules would make mortgage lending more stable across the board, although lenders state that these restrictions would make future lending more difficult. In addition, the regulations would disallow banks that pay brokers for steering homeowners into higher-priced loans, rather than the more appropriate loans they can afford. The brokers would also be unable to coerce appraisers into stating the home value for less than it currently is for the mortgage lending process. Unfortunately, these practices all contributed to the current demise of our real estate market situation.

Mortgage Rules and Regulations: More is Needed

July 18, 2008

The Federal Reserve is reviewing the rules and regulations for the mortgage industry. The proposed regulations come after thousands of people have requested a review of the requirements lenders follow when establishing credit for home purchases.

With the revised proposal and a look at revisions in the lending requirements, the Federal Reserve are trying to answer critics who have said that changes needed to be made years ago. Many lending experts have stated that if the Federal Reserve had stepped in when the instable lending situation was being created years ago, the unscrupulous lenders could have been stopped, stifling the real estate boom, but also preventing the currently poor lending situation.

Many experts have stated that if a range of rules had been put in place years ago, many of the things that are currently happening in the lending and real estate sector would not have occurred. In fact, a former Federal Reserve governor, the late Edward Gramlich pushed for a stronger regulation in the mortgage industry, to no avail.

However, despite the current proposed regulations that would be enforced with future mortgage lending, consumer groups say that more needs to be done. Some of these regulations include verifying the homebuyers income and establishing an escrow account for taxes and insurance. However, some consumer groups argue that more needs to be done to prevent foreclosure.

Some consumer groups say that the Federal Reserve should prevent lenders from establishing credit without looking at the borrower’s ability to pay. By looking at the ability to repay the debt on the credit extended, the lender can prevent a pattern of extending credit to homebuyers who cannot afford it. The rules and regulations would prevent the potential for misbehaving lenders who concentrate more on their bottom lines and commissions than the future financial situation of these loans. With housing experts claiming that our economy is experiencing one of the worst housing collapses in the last 50 years, the rules and regulations would prevent the situation from occurring again.

Prepayment penalties would be abolished with the current mortgage lending regulations. The rule would prevent lenders from increasing payments towards the mortgage at least 60 days before the monthly payments increased. In addition, hidden additional fees cause confusion for the consumer and are advocated to be removed as well.

However, there are arguments against these proposed regulations. At minimum, experts argue that there would be fewer homeownership as less and less mortgages could be approved. As many people have the majority of their equity in their homeownership, the reduced number of properties able to be purchased would affect current homeowners looking to sell their home as well as the portfolio for thousands of individuals.

The biggest mortgage regulation would fall towards subprime mortgages. There should be more clear guidelines on lenders who will evaluate how borrowers will be able to pay back their financial debt. The combination of these regulations will help to restore the housing market and economy overall, preventing future foreclosures and instability.

Frannie Mae and Freddie Mac are Finding Help

July 16, 2008

In an effort to find more and more assistance with the current real estate problems, Freddie Mac and Fannie Mae are in talks with the Treasury, White House officials and the Federal Reserve. In essence, both Freddie Mac and Fannie Mae are looking for ways to give additional financing for the struggling mortgage companies whose financial problems and ammount of homes in foreclosure are one of the bigger issues in the real estate sector.

What is one of the ways that Freddie Mac will help with their money problems? They are scheduled to sell roughly $3 billion in short term notes starting July 14th. In case they cannot find enough investors, they are negotiating for a backup plan.

Henry Paulson, the Treasury Secretary, is likely to make a planned announcement to reinforce his support for Freddie Mac and Fannie Mae as both companies lost roughly 45% of their value in the past week alone. Since both Freddie Mac and Fannie Mae are an integral part of the success of the real estate market, their stability is essential. Both companies guarantee roughly half of the $12 trillion left in outstanding home mortgages in the United States.

In addition to the current sale of $3 billion in short term funds, the talks are looking at additional ways to fund the companies in case the businesses are unable to raise the capital in the future. One option involves company recapitalization, although neither Frannie Mae nor Freddie Mac want this much government involvement. The Treasurys main focus is to support Freddie Mac and Fannie Mae throughout their current financial state.

Currently, real estate experts estimate that Fannie Mae and Freddie Mac would have about $77 billion in losses before the government could step in for assistance. However, the plans and talks now are an effort to stem losses before they get any worse in the housing market. The auction scheduled by Freddie Mac will have both three month and six month reference bills in an effort to raise monies. The money will be used in mortgagee securities in future transactions. Unfortunately, the issuances do not have any asset backing, which prompts a great deal of speculation in the marketplace as to the potential for future loss and financial catastrophe. To compare, the mortgage backed securities are less likely to collapse since they are backed by home loans and additional assets.

There are additional hopes for financial investing in the future for both Freddie Mac and Fannie Mae. They have a number of different venues for capital and liquidity that they could access to stabilize the current financial status of these companies. In addition, they could gain access to a discount window offered by the Federal Reserve. The Federal Reserve would be able to jump in to assist in stemming the losses from these businesses and therefore help to stabilize a failing real estate marketand house values. However, the Federal Reserve spokesperson declares that the Federal Treasury has not yet had any talks about accessing funds for a direct loan from the central bank.

Swooping In at the Lower Prices

July 15, 2008

Even while the rest of the country is suffering under the deflated economy and woeful real estate market situation, there will always be those individuals who can afford to purchase. And now, with the rock bottom home prices, the time to buy real estate has never been better. Real estate investors are being wooed to purchase more and more properties at a fraction of the cost they would have held during the booming years.

One example of the lure of deflated real estate costs can be found in South Florida. Here, home prices have dropped almost 27% in just the last 12 months alone, making the properties in this region an ideal purchase for any savvy real estate investor. With more and more people trying to get out from under their large mortgage bills to avoid foreclosure, these motivated sellers are putting their homes on the market for less, and closing on them for even lower.

Bargain hunting for properties in this area and other similar real estate markets where the prices have plummeted has never been easier. Better still, the smart investor knows that they can rent out the properties while the market is in its poor state. Once the market rebounds, these properties will be able to sell for a far greater price than they were bought, especially in areas like South Florida where the temperate climate is always one of the biggest selling points.

But what if you do not want to hold a bunch of real estate properties in your portfolio? The smart investor knows that they can purchase a house at a large discount, make a few upgrades and flip the house for a modest profit, should the need to diversify your portfolio arise. If the cash is needed right now, the real estate investor can make some simple upgrades to change the home, sell it quicker and still gain a profit, while holding on to the other properties that might yield a larger profit once the market rebounds.

Other investors are buying in bulk, just as though they were shopping at one of the bulk grocery outlets. Some buyers are purchasing bank owned homes and reselling them with little changes to gain a profit. Homes can be bought up to 50 properties at a time without ever stepping foot on the property. Once owned, these investors make only the necessary changes so the homes sell fast to turn a profit. Of course, this concept has been around for decades and the need to flip the house quickly is what will bring the investor the cash needed. But with the real estate market as low as it is now, those investors with the cash and knowledge to purchase properties can come out ahead as motivated sellers and buyers are anxious to capture a new home at a deeply discounted rate.

Who really reaps the rewards when suffering properties are purchased? The local neighbors and communities are the ones who are seeing the best results from these purchases. Empty homes are welcome signs for vagrants and drug dealers, while these purchased homes help to keep the neighborhood up and keep prices from falling any further.

Smart Tips for When to Buy a Home

July 12, 2008

Search for any article on real estate lately and you will read a lot of doom and gloom scenarios. While it is true that the real estate market is struggling overall, there are some top tips to consider before you purchase a home, no matter what the rest of the mortgage industry and real estate market is doing overall. Before you sell your home or look to buy a new property, answer the questions below to see if now is the right time for you to purchase.

Can you commit? If you can not stay in your new home for at least three years, then now is not the time to buy. With the money that is required to purchase and sell a home, homeownership can end up costing you a great deal of money. If this is a possible outcome for you, it is actually more financially beneficial to rent rather than own until your life becomes more sedentary.

How is your credit?  It is remarkable how much of your life is dependent upon your credit score. If you are considering purchasing a new home, the first step is to look at your credit report. If your credit score is low, wait to purchase. Repairing your credit now can translate into thousands of dollars saved in your future as homeowners with low credit scores will incur higher interest rates and more money out the door to the bank instead of towards the property to build equity.

Do you know how much home you can afford? Throw away the online mortgage affordability calculators. Many of these calculators do not factor in a number of important influences when it comes to buying a home and will instead tempt you with a larger home price possibility so that you will call their offices. Instead, follow the savvy rule of thumb that states you can buy a house that is 2.5 times more than your annual salary. Take into account your debts and expenses before you commit to that number, however.

What school district are you searching to buy a home in? It does not matter if you do not have children or are not planning to have any in the future. The savvy home buyer knows that if they want to sell their house fast and see a good increase in the price, they should invest in a good school district. School districts can be the biggest motivating factor for motivated buyers in the future and will ensure a boost in your property value year to year.

Have you been preapproved? It is fun to look at houses. It is not as much fun to go through the bureaucracy of getting preapproved. However, this step is a necessary one for home buyers. Getting preapproved from a lender involves submitting your actual income, debt and credit history and can save you countless hours of grief and heartache from looking at a home that you simply cannot afford. Knowing how much you can spend ahead of time will make the home buying process easier and more enjoyable.

Manhattan Moving

July 11, 2008

While the rest of the country is suffering under the plummeting prices of the real estate market, it seems that Manhattanites have a good reason to feel protected. Although sales are down in this popular and prestigious area of New York, the strong demand for luxury living in the area has maintained the prices. The average Manhattan apartment now costs a remarkable $1.67 million. However, real estate market experts are claiming that these numbers indicate a softer real estate market here.

The volume of sales in Manhattan continues to be the same as what it was in previous years. However, the average home price is rising, making it a surprising turn of events when compared to the rest of the real estate markets in the country. Regardless, experts are saying that the constant barrage of negative press concerning the real estate market is bound to take its toll, even in places like Manhattan, where the home sales are predicted to slow.

Other industry experts disagree, however. The ordinary has never been enough for the homeowners in Manhattan and the booming luxury real estate market, a protected enclave from the rest of the troubling economy, is protecting Manhattan real estate. In other words, the world of Us versus Them has never been more prominent in New York where realtors are noticing the luxury market and the rest of the market are taking divergent paths.

Unlike the rest of the markets in the country, the average price of a Manhattan apartment rose anywhere between 25% to 36% over the last year. However, two of the most prestigious addresses in the area, 15 Central Park West and The Plaza, did not see the increase.

Overall, sales figures are down in the area. Sales were down 38% from the same time last year and overall, sales number had decreased 21.8% on a year to year average. Nevertheless, real estate experts are experiencing the higher priced property sales to help balance out the slower sales. There are elevated levels of activity reported in this real estate market overall. The luxury market is virtually unscathed by the woes of the middle range real estate market, which has slowed down by the greatest margins.

However, the negative predictions continue. There are layoffs predicted for Wall Street, which would play a large role in the luxury real estate market. There are current homeowners whose future unemployment could create a need to sell their home fast. On the other hand, industry experts point out that if you are looking for a $20 million home, you are not terrifically concerned with your mortgage payments, nor are you as apt to get into poor mortgage situations with variable interest rates.

There is a flood of luxury condominium buildings in the Manhattan market that underscores the trend of positive buying in the luxury community. With full concierge services, swimming pools, spas and more, these condos are being quickly purchased no matter what is going on with the rest of the country and its real estate market woes. As any Manhattanite will tell you, things are just different in New York City.

Are Foreclosures Slowing Down?

July 9, 2008

Although nearly 170,000 homeowners were able to avoid foreclosure in the month of May due to the help of alliance leaders, the number of foreclosures still continued to rise. With more and more mortgage assistance groups preventing foreclosures, the hope is that the overall number in troubled homes will drop. However, the foreclosure crisis continues to plague the real estate market and the economy in general.

Real estate industry experts are saying that foreclosures will continue to rise well into June 2008. Why? The impact of the mortgages interest rate has been slowly depleting the savings accounts and money from people who are just holding on, hoping for the market to turn around quickly. As more and more days pass with the stalled economy, these homeowners are finally admitting defeat and having to petition for a foreclosure despite their valiant efforts. However, more and more homeowners are turning to companies like Hope Now, a mortgage alliance firm to help with their payments.

Hope Now reported that roughly 60% of all the homeowners they work with on a daily basis have changed their payments completely. These repayment modifications have allowed these homeowners to remain in their home and survive without the subprime or variable interest rates they were fighting against. The remaining 40% of homeowners who came to them looked into simple modifications in their mortgage payments to make their financial situation improve.  Repayment plans are typically the most important and effective way for homeowners to renegotiate their mortgage. Repayments are the most common solution for homeowners who have fallen behind on their mortgage payments due to layoff or similar situation.

However, repayment plans are meant to be a temporary solution. For that reason, many real estate experts and housing market advocates are saying that simple repayment situations will not be enough to keep the homeowners from the future doom and gloom of the subprime mortgage rates. Repayment scenarios do not reduce the debt involved with the home. Instead, they give the borrower more time to repay the debt they have on top of their typical mortgage payment. In other words, repayment plans do not address the main problem of the mortgage, which is the interest rate and the conditions by which the mortgage was created, forcing them to sell their home.

Despite the trend of foreclosure experts assisting homeowners, foreclosures have continued to rise 7% in the same period of time these firms were providing assistance. Home industry experts forecast that foreclosures will continue to rise at 7% for the next 18 months as more and more homeowners fall victim to the slowed economy and reduction in jobs.

What are institutions like Hope Now doing for homeowners to help them with their payments? For those homeowners dealing with subprime adjustable rate mortgages, firms like Hope Now are petitioning the banks to freeze their introductory low interest rates on subprime ARMs for a minimum of 5 years to prevent foreclosures from dotting the landscape. As these introductory rates hold, the hope is that the homeowner will bounce back financially in order to meet their financial payments in the future.

The Senate Tries to Save the Real Estate Market

July 8, 2008

Although it has been in the works for years, a rescue package for the housing market is finally in the works. Many pieces of the package have been debated by Congress for years, hence the delay, the grouping is now on hand to move towards its completion.

However, due to these uncertain elements, there leaves plenty of room for debate and study when the bill comes up for review to lawmakers. The Senate minority leader Mitch McConnell and the Senate majority leader Harry Reid have come to a general consensus on many of the points in the bill, although this does not leave any certain passing of the real estate package.

One of the most debated topics in the bill is the presence of a series of energy tax breaks that will help homeowners and benefit green living simultaneously. This mixture of environmental concerns and real estate purchases seems to be a dually important part of the real estate package. However, both sides are hopeful that the bill will pass relatively quickly to have the pieces initiated for struggling homeowners facing foreclosure.

What will the real estate package entail and how can it help the common homeowner? This real estate bills focuses on a government backed program specifically aimed to help those homeowners in financial need. Those individuals who are trying to avoid foreclosure because of their borrowing situation will be focused upon. In addition, the regulation and rules of the mortgage market, and the large investor groups that play an integral role in these aspects of borrowing, will be analyzed and revised. Ultimately, the goal of the real estate package is to increase activity in the housing market in a beneficial and safer manner. The increase of foreclosures in the real estate market is the main motivation behind the real estate package.

The hopeful deadline to get the bill to the President is by July 4th. However, the White House has already indicated they will veto the bill in its current state. Specifically, the White House does not agree with an allocated $4 billion to help states with homes in foreclosure, arguing that these funds would help the business lenders more than the individual homeowners.

Overall, the key movements of the real estate package act to prevent increases in future foreclosures, which in turn will help to spur the real estate market in general. In addition, Fannie Mae and Freddie Mac will increase their oversight into the mortgage industry.

One of the biggest parts of the package would allow the Federal Housing Administration to have up to $300 billion in new loans for borrowers who are considered risky. However, the lenders would have to write the loan balances below the appraised value of the new homes to qualify. This program would be voluntary and the fees would be paid for by the premiums that borrowers pay, as well as the fees from Fannie and Freddie Mac. The biggest criticism of the bill states that it would be more likely to encourage poor loans, with the government assisting in 400,000 loans that 1/3 would default on in the future.

Get More from the House You’re Stuck With

July 2, 2008

You want a bigger and better home. However, with the current housing market the way that it is, you might not be able to sell your house for what you want. There are homeowners that have spent billions of dollars renovating their homes during the better times. Many home investors see their renovations as necessary steps to increased home prices and a higher possibility of faster sales.

Why not take that concept and apply that to your home now? Rather than see home improvements as a way to appeal to your future seller, why not use home improvements to make you happier…right now! With home sales down almost 18% in just the past year, you probably will not make the right decision by putting your home on the market. However, you can make your existing home more sensational now to make your daily living enjoyable. With more and more home prices stagnating, homeowners are making their current homes the places they want to live rather than trade up to another place.

Give your home the features that it needs to improve value. You can have an upgraded bathroom or higher end kitchen installed in your home now to help with future house sale and daily living now. However, to enjoy the most from your home improvements, do not focus on the financial future growth, but instead concentrate on how much you are enjoying the changes.

What are the biggest complaints by current homeowners? You can address these common concerns to help your existing home situation. Of course, the first solution is to create a home extension on your home to make bigger rooms, kitchen, etc. Of course, this upgrade can be financially difficult. Many homeowners say they want at least a 30% increase in home value square footage size with their new home. If this is not possible, you can at least create the illusion of more space. Take off unneeded doors or install glass French doors in their place. Light the walls with brighter color paints or knock down a half wall. If your wall is not load bearing, it is decorative and able to disappear.

Removing a wall can vary in cost. You can pay as much as $4,500 and as little as $1,500. Load bearing walls will be the most difficult to move and will cost the most for your home. However, the end result could be the most dramatic and potentially convince you to stay in your home for longer than initially predicted.

Do you have wasted space or rooms that are infrequently used? Look at them in a new light and see if you can add them more efficiently into your current floor plan. Finish a basement or turn a sunroom into part of the living room. In addition, you can expect to recoup 75% of your costs and will add to your home value.

Just a few modern conveniences can turn around your bathroom or kitchen. Best of all, when it comes time to sell your home, the bathroom and kitchen upgrade will significantly help in the future sale of your home. Invest for yourself now and you can benefit with your sales in the future.