SLO HomeStore: The Buyers' Resource

Mortgage rates rising; thank Congress.

Every home buyer on the cusp of making that important decision needs to contact their mortgage lender right away and ask about locking in their rate before mandatory rate increases go into effect.

Failure to lock the rate and close escrow by the end of that lock will result in paying up to ½% higher interest rate for the term of the loan. And that equates to some serious change. On a $250,000 mortgage, for example, that can increase monthly payments by more than $70 per month. At the end of that loan the total in extra payments could come to more than $25,000. For some people that $70 monthly could be enough to disqualify them from getting a loan.

We’re working with buyers right now who have been following the market in preparation of a purchase sometime before May. Upon learning of the imposition of this rate hike, though, they have adjusted their timeframe in order to lock their loan rate at the current rate.

This is a complicated issue but, essentially, when the Congress extended the payroll tax reduction last month they decided to pay for it by increasing the guarantee fee, or g-fee, on new loans. Wells Fargo, which ends up with one out of every three or four loans, has announced their plan to implement the higher rates.

For a detailed explanation, check out this article: The Congress-mandated g-fee shoes are beginning to drop but you’ll need to scroll down a bit until you see the referenced heading. Note, this is a pretty complicated explanation intended for mortgage brokers.

A video that provides a more easily understood synopsis can be found here: http://tbwsdailyshow.com/2012/01/12/your-buyers-pay-more-starting-now/ but this one is intended for agents so you can ignore the commercial at the beginning.

Is home buyer Representation Always “Representation”?

We’d probably all expect the minister to preach the gospel but we might be taken aback to hear the same from an agnostic. So it is that it comes as no surprise when an Exclusive Buyer Agent (EBA) preaches the benefits of buyer agency. But when a traditional agent who focuses on listings and considers buyers the icing on the cake does so it is an occasion to sit up and take notice.

[Note: EBAs represent buyers exclusively. They never accept listings or represent sellers.]

Though dual agency, the “representation” of both the seller and the buyer in the same transaction, is legal and considered ethical in most instances, industry concern over the practice is growing. EBAs, who adhere to a strict code of ethics banning dual agency, have worked to educate the public about the pitfalls of that practice for years. Now more and more traditional brokers and real estate organizations are expressing concerns.

In California, continuing education classes for licensees now contain segments on buyer agency and include information discouraging dual agency in many of their classes. Brokers and attorneys surveyed nationwide last year considered dual agency relationships to be one of the top three causes for lawsuits.

Though there are only a couple of EBAs on the central coast there are a few other firms which take listings and represent buyers, but never on the same transaction.

So progress in educating both the public and the industry has been improving. Recently we noted what may be one of the most strongly-worded arguments against dual agency we’ve seen – and it comes from a pair of traditional agents in Ohio. “Is Your Buyer’s Agent Throwing You Under The Bus??” written by agent Liz and Bill Spear is both thoughtful and thought-provoking.

Every prospective home buyer would be well-advised to read this article in order to understand who, if anyone, is really representing their best interest. And the large number of comments it has received, not just from EBAs but from traditional agents as well should bring the message home quite clearly.

The central coast has been impacted by the growth of distressed properties in the marketplace according to a 7-year analysis prepared by SLO HomeStore.

Beginning in 2005 when there were just two bank-owned (REO) sales in San Luis Obispo County and no short sales, and culminating in 20011 when such distressed properties comprised 42% of all residential sales, the study charts the trend during the recession.

As the number of “normal” sales declined steadily before finally upticking in 2011, the number of REO and short sales grew at a brisk rate. The county’s first short sales were recorded in 2007 (36) while the number of REO sales reached nearly 100. The very next year short sales reached 164 while REO sales hit 547.

But that was just the beginning. In 2011 short sales peaked at 500 and REO sales at 908. At this writing there were 123 short sale homes and 99 REO homes listed for sale in the county.

During the period of the study “normal” sales dropped from a high of 4,219 in 2005 to a low of 1,696 in 2010. They then rebounded somewhat to 1,963 in 2011.

For buyers this data suggests that banks are becoming more adept at handling short sale requests. Many agents, brokers and financial advisers have warned buyers to steer clear of short sale transactions because they have been considered unduly time-consuming and troublesome with little likelihood of success. However, the statistics would seem to indicate the opposite.

We would recommend that buyers consider every opportunity for a purchase that provides them the greatest economic benefit.

A free service provided by SLO HomeStore allows buyers to chart market trends such as this in specific Central Coast communities of interest. As an exclusive buyers agency, SLO HomeStore is committed to providing the tools and services necessary to help home buyers make the best real estate decisions.

central coast home sales up, prices down. That pretty much sums up the recently closed year.

2011 saw more Central Coast homes sold than during the previous year, albeit prices by any measurement were lower. Throw in historically low mortgage interest rates and it was a year for home buyers to rejoice.

Indications are that home buyers, long wary of declining values and uncertain economic trends started sensing that the bottom of the market was neigh and made their moves.

According to data from the Central Coast Regional Multiple Listing Service, 3,395 homes sold in San Luis Obispo County in 2011 for a combined sales value of $1,318,267,837. That compares to 2,841 homes sold in 2010 for a total value of $1,174,986,333 and increase of 554 homes sold with a value increase of more than $143 million.

The average sales price of single family homes dropped to $435,227 from a 2010 average of $458,118. For PUDs, the average price for last year was $284,873, down from the 2010 average of $325,705. Condominiums followed the same trend, averaging $247,580 compared to $278,449 in 2010.

Central Coast home buyers considering purchases in 2012 would be well advised to carefully review and understand market trends in their specific towns and neighborhoods. The SLO HomeStore research center is a  free exclusive home buyer tool which allows buyers to compile and study data ranging as far back as 1996.

Getting a home loan after bankruptcy is possible. It’s just going to take some time to reestablish your creditworthiness.

Kevin Hauber, Senior Loan Consultant at imortgage, shares this quick snapshot of wait times following financial calamities such as bankruptcy and foreclosure.

This helpful at-a-glance guide will provide you with the required wait times when working with bankruptcies, foreclosures and short sales.

Conventional Loans:

Chapter 7 BK – 4 year waiting period from the discharge/dismissal date.

Chapter 13 BK – 2 year waiting period from the discharge date or 4 years from the dismissal date.

Multiple Bankruptcies – If there are multiple bankruptcies within a 7 year period, the waiting period is 5 years from the most recent discharge/dismissal date.

Foreclosure – 7 year waiting period from the completion date.

Deed-In-Lieu/Pre-Foreclosure Sale (Short Sale) – Minimum 2 year waiting period.

FHA/VA Loans:

Chapter 7 BK – 2 year waiting period from the discharge/dismissal date.

Chapter 13 BK – 1 year of the payout must have elapsed and the borrower’s performance must have been paid as agreed. Document that the borrower’s current situation is not likely to recur. The court must grant permission to the borrower to enter into a mortgage transaction.

Foreclosure/Pre-Foreclosure/Short Sale – 3 year waiting period.

VA Loans ONLY – 2 year waiting period for Foreclosures.

Can you really get such a low home loan interest rate? Unless you’ve shopped recently for a home loan, the answer may surprise you.

Writing the The Wall Street Journal Market Watch, Amy Hoak explains five reasons why you can’t get the lowest mortgage rates. “Mortgage rates are near historical lows, but the rates lenders are quoting you aren’t as eye-popping as those you see in the news.” Why is that?

First you need to understand that rates are always in motion. By the time you read about a rate survey they have already changed. but aside from that, Hoak offers five reasons the rate you’re quoted might not be as good as the one you read about this morning.

1. You’re not paying discount points and the rates you read about generally include points.

2. You’re credit score is less than perfect, making your loan a bit riskier, therefore a bit more expensive.

3. The type of property you’re buying, such as condos, vacation homes and investment  properties, might require a higher rate, not to mention a higher downpayment.

4. If you’re self-employed you might not have adequate documentation to substantiate the income necessary to get the best rate.

5. Your lender isn’t hurting for business. One big disparity between rates quoted by different lenders may be a volume of their business. One lacking volume may be more rate-aggressive in order to attract more volume.

The bottom line here? Compare rates from multiple lenders. Remember to compare not just the book rates, but the APR. Current truth-in-lending forms required of lenders makes it very easy to compare loans side-by-side.

central coast home prices are projected to stabilize for a year before beginning to inch up the next two years. That was the prediction made by Beacon Economics at the Central Coast Economic Forecast presentation yesterday.

Julie Lynem also reported in The Tribune that “home sales are forecast to grow 8.1 percent over the next year and 8.4 percent over a two-year period.”

Better mortgage rates start with better FICO scores. Most home buyers understand the concept, but don’t always understand how FICO works and what can be done to improve it.

A recent article on Trulia breaks the FICO score down to its basic components and explains how it is designed to use your past to predict your future.

There are many credit scoring products available from the major credit reporting agencies, but the only one utilized by  mortgage lenders is the FICO. And that score can either save you or cost you a lot of money.

Fannie Mae and Freddie Mac employ “Loan-Level Pricing Adjustments (LLPA)” in the belief that the lower your score the greater risk of default you represent. In a nutshell, this means they add discount fees to your loan which rise as your FICO score falls.

And those fees can amount to some serious money. Assuming a loan with 20% down, if your score drops below 700 the fees become huge. For example, for a score between 660-679 expect to pay 2.5 discount points or $2,500 per $100,000 borrowed. By comparison, if your score is over 740 you won’t be charged any discount points.

Since a lot of folks don’t have the funds to pay high discount points, an alternative is to uptick the interest rate. Generally, 1 discount point can be offset by adding 0.25% to your interest rate. Either way a lower FICO score is going to dig deeply into your wallet.

If your score isn’t what you’d like it to be there are some things you can do to improve it. Take a look at Trulia’s “Improving Your Credit Score” pamphlet for tips.

home buyers can make contingent-sale offers more enticing if the seller can be convinced there’s a high likelihood that the sale will will go through. How to accomplish that is detailed in the most recent SLO HomeStore newsletter, “For Home Buyers Only.”

The column, reprinted here, is just one of the articles specifically selected to be of benefit and interest to home buyers.

Make contingent-sale offer more enticing

By Dian Hymer

Any offer to purchase a home will contain an element of risk. Even an all-cash offer can be problematic. For example, buyers who haven’t converted their equities to cash could come up short if the stock market drops between contract acceptance and closing.

With an all-cash offer, it’s a good idea to ask for verification of liquid funds needed to close within a certain number of days of contract acceptance so that you don’t receive bad news at the last minute.

Most offers include contingencies for loan approval, property appraisal and inspections. Contingencies usually allow the buyers to withdraw penalty-free if a contingency can’t be satisfied.

Offers contingent on the sale of the buyers’ home carry a higher level of uncertainty than offers that aren’t dependent on the sale of another property. That’s why sellers tend to shy away from them. Some sellers won’t consider them at all.

A contingent-sale offer protects the buyers in case their home doesn’t sell within the time frame agreed to in the contract. If the buyers’ house doesn’t sell, they can cancel the contract and usually have their deposit refunded. The seller, unfortunately, is stuck without a sale after wasting time in a contract with a buyer who couldn’t perform.

HOUSE HUNTING: For sellers to accept a contingent sale offer, they need to be convinced that there’s a high likelihood the deal will go through. The best way to do this is to put your home on the market first and line up a buyer. Sellers will be much more receptive to an offer from buyers whose home is already under contract, particularly if all contingencies have been removed.

Many buyers find it difficult to put their home on the market if they don’t know where they’re going.

But, the financial risk is minimal. However, if you could afford to buy first and did, you might end up owning two homes for more time than anticipated if the market slows. If prices decline, you could end up netting far less than you expected from the sale.

For many repeat home buyers, selling first is not just an issue of not knowing where they’ll be living. It’s much more difficult to qualify to buy a home before selling the current one than it was before 2007. Today, most repeat home buyers have only two options: sell the current home before buying the new one, or find sellers who will accept a contingent-sale offer.

The sellers who are most receptive to contingent-sale offers are those whose homes have been on the market for months and could be overpriced for the market. Ideally, you should pay no more than fair market value. But, it may be worth offering a modest premium to entice the sellers into accepting your offer.

To maximize your chance of being successful, get your house ready to sell before you make an offer. Agree to price it competitively. If your house is in a price range or location that is in higher demand than the house you’re attempting to buy, the sellers might accept your offer.

THE CLOSING: Your agent can help by showing the sellers comparable sales information for your home, including the days it took to sell these listings.

Dian Hymer is a real estate broker with more than 30 years’ experience and a nationally syndicated real estate columnist and author.

home ownership matters. Virtually all economic experts explain that until the real estate market improves the general economy won’t completely recover.

Everyone is invited to help make that point when the Home Ownership Matters national bus tour makes a stop in San Luis Obispo. A rally including local officials, homeowners, would-be homeowners and REALTORS will greet the bus when it makes its local stop. The event is expected to be covered by local and regional media.

Please join us this Friday, November 4 from 2:00 to 3:30 pm in the parking lot of the Froom Plaza Office Max across from Costco, Home Depot and Old Navy.