Renting Is Not A Good Option Prices Are Rising, Buy Your First Home

The national average shows rentals are up about 3.9% this year. In our area of Evanston IL which is a College town rentals in areas close to public transportation, eating establishments, stores and general areas of interest are harder to come by. Incomes are not keeping pace with rent increases and that makes it even tighter for people who haven’t purchased property.

New York City, Miami, Los Angeles, San Francisco and Boston are the five most expensive rental cities and others are rising at sometimes an even higher rate the 3.9% mentioned. In the last year Houston, Miami, Boston, Tampa-St. Petersburg, Fla., and San Diego experienced the highest rent increases. As an example in the last year Boston has gone up 5.5%. save money

Forbes magazine reported this year that buying is much more affordable than renting in all of the 100 largest metro areas in the nation. According to mortgage lender Freddie Mac, buying is an average of 41% cheaper than renting nationwide.

This is a good reason to save up and make the plunge into home ownership. As we have all been told, the American dream is to be a home owner. Because of the rising rental prices renters should compare the price they are spending per year and getting nothing out of it compared to what it would really cost to become a home owner.

Please contact your local Realtor and ask for a comparison chart so you can learn for yourself. You will get it back when you sell.

New homeowners’ fees to increase

Let’s start with the good news first.  If you are in a home, paying a regular mortgage, nothing’s changed, you don’t have to worry.  No added fees for you.  

However, those that are purchasing a new home at the beginning of this year or planning to refinance, you’ll be paying an additional fee in your mortgage to help fund the payroll tax cut bill that the Senate passed over the weekend.

A quick review.  Originally planning to expire on January 1 (Sunday), a payroll tax cut and long-term unemployment benefits were extended two months when the Senate voted this weekend.  It should go through the House this week.  With this extension comes a $33 billion price tag.  So who pays for it?  Yep, you guessed it.  New homeowners and those refinancing.  That fee rises about a tenth of 1 percentage point and, therefore, increases the fee that Freddie Mac and Fannie Mae charge to insure home mortgages.  It will also increase if your loan is backed by the Federal Housing Administration.

So on a $200,000 mortgage, your rate will increase approximately $17 a month.  Nothing huge but still considerable in the scheme of things.  Obviously, for a higher mortgage it goes up and a lower mortgage will have a smaller fee.  About 9 in 10 mortgages are backed by Freddie Mac, Fannie Mae, or the Federal Housing Administration.

So my question is, is this fair?  Is it the homeowners’ responsibility to pay for this?  Looking at the large picture, I’m sure many people are thrilled that these benefits have been extended, given the state of the current economy.  And if it’s not covered this way, I would think Congress would tax us higher on something else, such as gasoline, income tax, or property tax.  They’ll get their money some way.  I’m curious to hear if you think this is right or if you have a better solution.  Please leave me a comment!  You can also reach me via my Web site.

Refinance mistakes to avoid

Last week I blogged about the new HARP guidelines and how they can help homeowners refinance when they owe more on the home than it’s worth.  I talked about how the loan has to be owned by Freddie Mac or Fannie Mae and that you have to be current with your mortgage.  Since rates are very low, I do encourage you to try to refinance your home to a lower rate if it’s possible for you and to take advantage of the HARP program if you can.  That said, this week I want to talk about several mistakes people make when refinancing and how to avoid them.

1. Not getting the best rate.  It seems obvious.  One lender offers you 5% and another 4.75%.  You go with the lowest one.  You really have to look at the entire cost of a loan, not just the quoted interest rate.  The APR (annual percentage rate) is what matters most.  Your house can be worth less than you think, especially after an appraisal.  The benefit of the HARP program is that it often doesn’t require an appraisal, which can really affect your refinance.  So make sure you do your research.

2. Think of the objective you want with refinancing.  Is it a lower monthly payment?  Is it that you want your home paid off in 10 years?  Know this before you sign any papers.  A lot of borrowers don’t realize that if you refinance to another 30-year loan and you’ve been paying yours down for 10 years, you just went to 20 more years on your loan to another 30.  So if your plan was to have your home paid off in 20 years, that’s most likely not going to happen anymore.  And let’s say you know your job is going to relocate you in a few years.  A 5-year or 3-year adjustable rate mortgage could be most beneficial and offer you the lowest monthly payment.

3. Don’t refinance when you shouldn’t.  In Number 2 I just talked about the potential of your company relocating you.  So let’s say you decide you’re going to keep your home as a rental.  You have to be careful about refinancing now because your home would no longer be your principal residence.  This could shoot your monthly payments way up.  Discuss with your lender any potentials for not staying in the home long-term so they can help choose the best option for you.  Refinancing may not be it.

4. Be aware of your responsibilities.  Know in advance that lenders will often check your credit again right before closing.  So if you refinance, now is not the time to buy a new car on credit or make a major purchase.  Know when your interest rate lock expires so you get everything completed before that time so you don’t lose the rate you want.

More great advice can be found in this Bankrate article.   And I can be reached via my Web site.

New HARP guidelines will help

I love hearing good news for homeowners having trouble paying their mortgage.  I keep having to remind my friends and clients that “You’re not the only one dealing with this.”  For those of you who don’t know, HARP (Homeowner Affordability Refinance Program) is a government program that was designed to help homeowners refinance.  Great news just announced last week:  Even if you’re underwater on your mortgage, you can still refinance!

Here’s the status on what you need to know.  Below is a list of those eligible to possibly refinance with HARP funds under this program:

1. Your loan must be owned by Freddie Mac or Fannie Mae.  You can contact your lender to find out.  Or you can look this up online by clicking here for Freddie Mac and here for Fannie Mae.

2. You currently owe more than the house is worth.  For those of you that this doesn’t apply to, you’ll be able to regularly refinance by contacting a mortgage lender.

3. Currently have an interest rate higher than prevailing rates.  However, if your interest rate is 4.5% right now, you wouldn’t qualify because rates aren’t that low.  Be thankful that your rate is so low. 🙂

4. Would have to pay mortgage insurance by refinancing.  There is no PMI or mortgage insurance through the HARP program.

5. Have a decreased monthly income due to job loss or job change and couldn’t refinance.  You will still need to show that you can afford the new monthly payments.

As a reminder, you do not need to meet all five of the above criteria.  Just one is acceptable.  The only thing  that is required is that the loan is currently owned by Freddie Mac or Fannie Mae.  Lenders through HARP are currently refinancing for up to 105% of the home’s current value.  

Aside from having no mortgage insurance with these HARP loans, oftentimes it’s not required that an appraisal be done on the home.  Plus closing costs are generally lower with more lenient underwriting.

If you want to find out if you qualify to take advantage of this program and need the name of a great lender, please e-mail me at noah.seidenberg@cbexchange.com or visit me online.

Foreclosures down, backlogs up

Well, I’ve got good news and bad news.  And the bad news can even be interpreted as good news for some.  Good news: foreclosure rates across the country are at a 3-year low, according to MSN Real Estate.  Bad news: Courts are so backlogged by the foreclosure filings that it’s taking a year or more for foreclosures to be processed on some homes.  And that can be good news for those underwater on their mortgages, as they can live in their home for even 2 years in some states without being evicted and without a mortgage payment.

RealtyTrac Senior Vice President Rick Sharga says that “This is really all part of the robo-signing paperwork issue.  Almost none of this is related to a decline in distressed properties. ”  It’s just that Courts can’t keep up with all the paperwork.  And Sharga is unsure whether we’ve reached our peak of foreclosures or more filings will occur once the banks and Courts start catching up.  Even new hirings aren’t helping the banks move the process along any quicker.  And that’s also bad news for buyers interested in foreclosure or bank-owned properties.  The waiting process can still take a while for someone to review all the paperwork.

I just mentioned how some homeowners can live in homes for 2 years prior to being evicted.  In some states, like New York and New Jersey, it’s taking the bank an average of 800 days to finalize a foreclosure once the process has started.  And now the government is going to charge lenders for handling foreclosures improperly.  They’ve also passed regulation requiring 14 mortgage servicers to hire more staff and have a single point of contact for a homeowner dealing with a foreclosure or loan modification.

Nevada leads the country with the highest foreclosure rate.  1 in every 35 homes has received a foreclosure filing.  Arizona and California round out the top 3.  And, unfortunately, Illinois also is included in the top 10, along with Colorado, Idaho, Utah, Georgia, Michigan, and Florida.

And analysts say it can take years for all these foreclosed homes to clear the market brining home values up again.  But it could take even longer because of the backlogs in the courts.  Fannie Mae and Freddie Mac even said they’re going to slowly trickle foreclosures into the market instead of releasing them all at once.  While this is beneficial to home values now, it just means it will take even longer for the housing market to stabilize.

What do you think?  Should banks be allowed to control when foreclosures hit the housing market?  Please leave me a comment or visit me online.

Early 2011 housing trends

I know we’re already into our third month of 2011.  But it’s going to be interesting to see how the year plays out in terms of the housing market.  Will we expect to see many changes?  Or will things stay relatively similar to what we’re experiencing now with sagging prices and high housing inventory? Bankrate.com has come up with a list of some of the most common trends we’ll see in 2011, at least through summer.

1. We’ll see less refinancing of current mortgages.  Some experts say that it’s the higher interest rates that is causing this dip.  But the other side of it is that those homeowners who have equity in their home already took advantage of a refinance within the last two years, as rates steadily dropped.  So there won’t be as many who refinance in 2011.

2. It will still be hard to obtain a mortgage.  And this is just because requirements to get one are tightening up.  Lenders are being very cautious in loaning money.  With Freddie Mac and Fannie Mae requiring some lenders to repurchase sold-off loans and causing them to lose money, they’re less likely to be as easygoing in lending new money unless you have very little risk, such as a high FICO score, solid appraisals on the home, and good income.

3. New homeowners are still unsure about taking that leap and buying that first home.  Yes, interest rates are low.  However, as just stated before, it’s harder and harder to obtain a good rate.  And even though home prices are low, with so much inventory available, buyers are wary about purchasing if they’ll have to sell in the near future and have so much to choose from they often just decide to rent instead.

4. Home sellers will deal with the current economy and we won’t see any change anytime soon.  The market time will continue to stay where it’s at, higher than in the past, because of high inventory and low prices.  Best way to get your home sold is to keep it in showing condition and listen to your Realtor on a realistic selling prices.  Homes do continue to sell.  But don’t expect to get any bites by listing it above market value.

What do you think of these trends?  Are you in agreement or disagreement?  Please leave me a comment with your thoughts below or visit me online.

Keeping closing costs low

With mortgage rates ridiculously low these days, what better time than to refinance or purchase a new home?  This past week, the 30-year fixed rate was at 4.44%, the lowest it’s been since Freddie Mac tracked the rates starting in 1971.  Even last week’s rate, 4.49%, is extremely low.  For the 15-year fixed rate, it was 3.92%, the lowest since Freddie Mac started tracking it in 1991.  So first things first – pick up the phone and call your mortgage lender now to talk about a possible refinance or purchase.

So if you are planning to refinance or purchase, you still have to worry about closing costs.  Here’s some tips on saving money during this process.

1. If you’re planning to refinance, contact your current mortgage lender/broker.  They already have your information so they won’t need to charge you again for an application fee or an appraisal fee (if it’s relatively recent.)  If you’ve refinanced recently, you also might be able to save on the fees for a title search.  Ask your lender about a reissue rate, which they can request for you.

2. Everything’s negotiable.  If you’re purchasing from a homeowner or builder, consider asking for money towards your closing costs in the price of the house.  You might be able to add $1,000 or $2,000 towards the purchase price and have them pay up to $5,000 of closing costs on your behalf. 

Fee-ed Up?
Here are just some of the costs of closing on a mortgage.

Fee  Average cost* 
Application  $272 
Appraisal  $310 
Credit report  $28 
Document preparation  $206 
Processing  $288 
Recording  $86 
Underwriting  $236 

 *Based on a $100,000 loan. Not every lender surveyed charges all of these fees.
 Source:  HSH Associates December 2003 survey of lenders

3. See if you can save money by providing your own reports.  For example, many lenders might charge you $30 for a credit report and $25 to FedEx documents.  While those numbers seem small, they add up quickly.  See if they’ll accept a credit report you provide that you’ve gotten free or allow the lender to pick up the documents to save on the cost of shipping.

4. Ask to review the HUD at least 24 hours prior to closing.  Your attorney can also do this for you.  Compare it to what you were quoted initially in your good faith estimate, and point out any differences to your lender.  Make sure everything is added up correctly (a mistake a little too common) and that you’re not charged twice for the same thing.  I’ve also had mistakes made where taxes were calculated wrong in the seller’s favor, rather than the buyer’s. 

5. Make sure you purchase homeowner’s insurance ahead of time.  Closing agents will need to see proof of insurance at the closing table.  If not, you might be forced to purchase the lender’s policy at a rate way over the typical charge.  Ask your lender and your Realtor for a list of essential items to take care of before closing so you don’t get stuck paying extra for something or for anything you don’t need.

If you have any more questions, please visit me online.