Now That You’ve Put In Your Offer, Here’s 8 Things That Can Sabotage Your Mortgage Approval

With mortgage rates are hovering near all-time lows, lots of Americans are taking advantage of refinance and home buying opportunities. 

The downside of today’s unexpectedly-low rates, though, is that mortgage lenders are ill-equipped for the rush of new business. 

As a result, the process of underwriting and approving new mortgage applications is taking some conforming lenders as long as 2 months to complete. 

This is double the time needed as recently as six months ago.

Because there may be 60 days between the application date and the closing date, it’s important for applicants to remember that mortgage approvals can be revoked at any time prior to funding. 

As mortgage applicants, there are many events that are out of our control — job security and health matters, for example.  But there are also events that are within our control. 

Knowing that mortgage approvals can be fragile, here are 8 things you should absolutely not do while your home loan is in process.  It may be the difference between being approved by the bank, and being turned down.

1. Don’t buy a new car or trade-up to a bigger lease.
   
2. Don’t quit your job to change industries
   
3. Don’t switch from a salaried job to a heavily-commissioned job
   
4. Don’t transfer large sums of money between bank accounts
   
5. Don’t forget to pay your bills — even the ones in dispute
   
6. Don’t open new credit cards — even if you’re getting 20% off
   
7. Don’t accept a cash gift without filing the proper “gift” paperwork
   
8. Don’t make random, undocumented deposits into your bank account

Now, avoiding these items may not be practical for everyone.  For example, if your car lease is expiring and you need a larger vehicle, it doesn’t mean you can’t buy the car — just check with your loan officer first to be sure the new payments won’t “break” your approval. 

The same goes for accepting cash gifts from parents.  There’s a right way and a wrong way to accept gifts and doing it the wrong way may prevent you from using the gift as a source of downpayment.

Mortgage lending is full of “gotchas” and with underwriting times stretching to 60 days, it’s a lot more likely that a mortgage applicant will trip into one.  Following these 8 rules, though, is a good start.

Whatever happened to “Sell high, buy low”?

Hello again, I was just looking at the listing inventory of available houses for some potential buyer clients of mine, and was struck by the thought in my headline – Whatever happened to the old adage of “Sell high, and buy low”?  That has always been a preferred position to be in, with regard to just about any financial investment, including that of your residence.

 

For the past couple of years though, that – selling high – has not been a realistic goal for most home sellers.  The adage IS working fine now, for most buyers, especially with the number of distressed properties that have been – and will continue to be – on the market in the past 5, 6 months, and probably for the next year.

 

The biggest issue that most of my prospective buyers face is, unfortunately, most of them need to be sellers before they can buy.  The problem is this.  Most of these houses that need to be sold are attractive houses in nice areas, in good locations with numerous amenities.  These are what has become to be called “equity properties” as opposed to the majority of listings that are presently going into escrow, known as “distressed properties” – the short sales, the REOs, ( lender repossessions.) and the corporate relocations, all of which are fighting tooth and nail to go into escrow with a limited supply of non-contingent ( no house to sell.) buyers – the higher the price range, the fewer the non-contingent buyers.

 

The problem this is presenting to equity sellers is that these distressed properties are typically priced 15-20%, or more, lower than nearby equity properties.  In a market like this, the equity seller has to have something incredibly special or unique in order to even attract an offer.  Most properties in this category really are nice, but frequently, so is the distressed property down the street, or Heaven forbid, right next door!  Consequently, the majority of potential equity sellers are faced with two possible solutions.

 

First, to accept the premise that, if you’re going to get a good deal on one of these distressed houses, you are going to have to offer a competitive deal on your house – you have to price it as aggressively as the distressed owners are.  That, my friends is a big pill to swallow, but in the majority of cases it has to be done.  As it turns out, if the properties are all priced competitively, those extra features that have made your house a home for these past few years, will help you get one of the non-contingent buyers to make an offer on yours, instead of the dreary house down the street, with missing appliances and a dying lawn.  You might even get more than the distressed house, just not a lot more.  Maybe, getting back 5 or 10% of the 15-20% difference, between the typical list prices.  So, you’ll have to sell kinda low, in order to buy low.

 

By the way?  There are a LOT of uncompetitive equity sellers sitting on the market – the operative word is sitting.  They are old school sellers, determined to get back a fair value compared to what they thought their house was worth a year or two ago.  Many are just “trying to see if they can sell”. Frankly, maybe one or two in a hundred, gets “lucky”.  Those are not good odds.  The majority of these, eventually expire, and disappear from the market, withdrawing to wait for a better time. ( That probably won’t be coming for at least a year.)

 

Here’s the other best alternative.  Make your present house a rental property.  That too, presents problems, though.  First, not everyone has the 20-30% down payment needed for their next purchase just sitting around in cash.  A few years ago it was pretty easy to pull some of the equity out of the old house, to use as the down payment on the new one.  Those days, as well, are but a memory.  As the values of most properties have gone down, whether only 10% or even 25-30%, that borrowable equity has typically evaporated.

 

To make matters worse, the lender on the new house, while wanting a 20-30% down payment, if they see that you’re intending to rent your old house out, want to see 30% equity in that also!  That, is a deal breaker, for most folks.  The bottom line?  If you want to take advantage of the low prices the one of these distressed properties, you’re going to need substantial resources – mostly cash.  The good news?  Interest rates are unbelievably low – under 5% up to loans of $729,750, and less than 6% on loans up to $3 million!  Those make for incredible opportunities!

 

Would you like to sit down and brainstorm the possibilities?  I would be happy to crunch the numbers with you, to see if there are viable options.  I have done such crunching through all types of markets, a couple similar to this one, over the past 32+ years.  Shoot me an email – BobPhillipsRE@gmail.com – or give me a call – (949) 643-2100, and let’s talk real estate.

FHA Cash Out Refinances Getting More Strict As Of April 1, 2009

If you’re in want of a cash out refinance, the most liberal cash-out program in town is about to make qualification more difficult. 

Effective April 1, 2009, the FHA is reducing the maximum loan-to-value on cash-out refinances by 10 percent, dropping the loan size limit from 95% of the home’s value to 85%.

In its official press release, the FHA says it’s making the change to “limit its exposure to undue risk”. 

It also lists the following cash-out requirements:

• With less than 12 months since the purchase date, a home’s value cannot exceed its original purchase price — even if home improvements were made.
  
• A homeowner must be current on his mortgage payments to qualify
  
• A second, verifying appraisal may be necessary, depending on loan traits
  
• Co-signers may not be added to the mortgage note in order to qualify

The last day to register a FHA 95% cash out refinance is Tuesday, March 31, 2009.  The loan does not need to be “locked” — only registered. 

So, if you know that a 95% cash out FHA refinance is in your future, talk to your loan officer before Wednesday morning about registration.

More Signs Of A Bottom : New Home Sales Unexpectedly Rise

The national housing market got its third piece of good news in 3 days:

• Monday: Existing Home Sales up
  
• Tuesday: Home values appear higher nationally
  
• Wednesday: New Home Sales up

And although national real estate statistics are irrelevant to the local markets in which real estate transactions happen, to a country of would-be and wanna-be home buyers, repeated positive news on housing can be a strong signal that it’s time to get off the sidelines.

At least, that’s what the data is showing us.  According to an industry trade group, first-time home buyers accounted for half of all sales of previously-owned homes. 

The stimulus package’s $8,000 tax credit likely played a role in this 50 percent figure, as well as sagging home prices in most markets and low mortgage rates nationwide.

But lest we carried away, we can’t forget that February’s New Home Sales is still the second-lowest tally on record and that two months of data doesn’t define “turnaround”.

On the other hand, if the trend continues through the Spring Buying Season, we’ll likely look back at Winter 2009 as the low point in housing.

(Image courtesy: LA Times)

Watch Out For Mortgage Rates When Gas Prices Rise

Don’t look now but oil prices are climbing.

This should worry today’s home buyers and would-be refinancers because some of the same forces that helped to push crude past $50 for the first time in 4 months also cause mortgage rates to rise.

March 18, the Federal Reserve committed an additional $1.15 trillion to support the economy. 

Since the announcement, investors have questioned whether the Fed is purposefully spurring inflation.  The Fed’s total debt purchases now total $1.75 trillion.

And to finance its purchases, the Federal Reserve is printing new money, devaluing the U.S. dollar along the way.  This then leads to inflation which, all things equal, causes oil prices to rise, gas prices to rise, and mortgage rates to go with them.

As we’ve seen the last few summers, oil prices and mortgages seem to touch their yearly high points while the weather is warmest.

(Image courtesy: The Wall Street Journal)

Orange County Housing Report: 21% Fewer Distressed Homes on the Market

I’ve just read the latest Orange County Market Report, by my friend Steven Thomas, the President of Altera Real Estate Services.  Steven has a degree in quantum economics and for the past couple of years his bi-weekly report has been the most comprehensive compilation of real estate activity and data for our area – regularly cited by all the major news media in Southern California, as a source for excellent, up to the minute real estate information.  Here is a link to his latest report:

 

Orange County Housing Report: 21% Fewer Distressed Homes on the Market

 

My conclusions upon reading it pretty much validate what I have been seeing first hand, in open house activity, and in conversations with prospective buyers and sellers.  There is a burgeoning realization that real estate interest is coming back to the forefront, fueled by the prices of distressed properties, and the availability of incredible interest rates, in virtually all price ranges.

 

This combination of ingredients, coupled further with pent-up demand, is producing an attractive opportunity for prospective buyers, in all but the lowest price ranges – those under $450,000.. In South Orange County, which I serve, due to a furious scramble in that lower price range, with multiple offers being the norm, and sales prices averaging 101% of list price, this lower range is actually an extreme seller’s market, as banks hurry to liquidate their inventory, to hungry first time buyers and investors clamoring for the best buys.

 

In the higher ranges, those over $500,000., there are still exceptional opportunities in virtually every price range up to over $2,000,000.!  These are not attracting multiple offers, and for the most part, are providing potential buyers with a bit of time to contemplate their options, and to secure financing.  The biggest issue buyers in the higher ranges are experiencing is whether they can buy such a house without a contingency – such as a need to sell their present house.  If that is a concern, then there is a problem, unless they are open to this scenario.  They have to sell low, in order to buy low.  There is no such thing in today’s market, as selling high, and buying low.

 

The best alternative – IF they have plenty of cash reserves or plenty of equity, is to make their present house a rental for a few years until the market for selling it becomes more attractive – which it eventually will, again.  I am well schooled in crunching the numbers to weigh various options and would be pleased to talk to you about your real estate plans or dreams.  I’ve been doing so in this community for well over 32 years.  Give me a call, at 949-643-2100 and lets talk about real estate.

Monthly Home Sales Rise 230,000 In February 2009

Each month, the National Association of REALTORS^® releases the Existing Home Sales report.  It’s a detailed look at “used” home sale data from all four regions of the country.

Among the key findings of each Existing Home Sales report is something called the “median sales price”, the statistical price point at which half of the homes in the U.S. sold for more, and half sold for less. 

Last month, the median sales price in the United States fell to $165,400, down 15.5 percent from a year ago.

Nevertheless, just because the median sales price is lower from last year doesn’t mean that the housing market is losing steam. The median sales price is just the middle point of all home sales in all U.S. markets.  By definition, it groups New York City and Danville, Illinois; Los Angeles and Cheyenne — markets that have little do with one another. 

When median sales prices are falling, it doesn’t point to housing weakness, per se — just that more homes are selling at the lower end of the pricing spectrum than at the higher end.

Going forward, it’s believed that a reduction in home supplies is the key to a complete, national housing recovery.  It’s encouraging, therefore, in a month known for a high volume of new listings, that the number of homes sold kept pace with the number of new homes available for sale. 

The current housing inventory stands at 9.7 months, flat from January.

(Image courtesy: The Wall Street Journal)

The 9-Step Spring Cleaning Checklist

With the official start of Spring last week comes the official start of Spring Cleaning Season nationwide.

In some homes, Spring Cleaning is an annual ritual, tackled within one sweat-filled, rubber-gloved weekend.  In other homes, it’s a less serious endeavor. 

Either way, it helps to have a game plan.

Courtesy of Martha Stewart’s website, the Spring Cleaning Organizer is a 9-step checklist covering all of the basics. 

• Clean shades and windows
  
• Sort through wardrobes
  
• Clean and rotate mattresses and cushions

Most of the checklist items can be retired with household cleansers and vacuums.  A few, however, require heavy-duty appliances that you may not have at-home.  For example, cleaning carpets and rugs is best-handled with a steam cleaner; and, washing windows may be too dangerous, depending on your home.

If you don’t want to rent cleaning equipment from your local hardware store just for Spring Cleaning, consider hiring an Angie’s List contractor to do the job for you.  It will cost more money than doing it yourself, but the job will get done right (and your home will be clean).

The Spring Cleaning checklist also reminds homeowners to check the batteries of in-home safety devices like smoke alarms, carbon monoxide detectors, and flashlights.

(Image courtesy: Junk Bee Gone)

History As A Teacher: What To Do When Mortgage Rates Plummet

For the fifth time in a year, rate shoppers learned an important lesson this week: When mortgage rates plummet unexpectedly, they often recover just as fast.

Wednesday, the Federal Reserve’s newest $750 billion mortgage market pledge helped to push conforming mortgage rates near their lowest levels since WWII. 

24 hours later, however, those rates were expired.

After considering the long-term implications of the Federal Reserve — literally — printing new money to service the recession, markets grew fearful that the Fed’s interventions will eventually lead to inflation.  Inflation, of course, is the enemy of mortgage rates.

So, if you’re looking for the explanation of why rates rose as suddenly Thursday as they fell the day prior, this is it.  And, in hindsight, rate shoppers might have seen it coming, if only because we’ve seen the exact pattern 4 other times:

1. After the Fed’s “surprise” rate cut in January 2008
   
2. After the Fannie Mae and Freddie Mac takeovers in September 2008
   
3. After the Fed announced its first $500 in support in November 2008
   
4. After the Fed zeroed out the Fed Funds Rate in December 2008

Sharp drops in mortgage rate, it seems, are followed by immediate bounce-backs. 

Unfortunately, not every would-be refinancing homeowner saw the increase coming.  People that locked Wednesday captured the lowest rates in 6 decades.  Everyone else wishes they had.

From day-to-day, we don’t know if mortgage rates will rise or fall. Nobody knows that.  But, we do know that mortgage rates tend to follow patterns and we’ve seen the above pattern 5 times now.

When mortgage rates plunge like they did Wednesday, they rarely low for long. When you find a rate you like, get in and get locked as soon as possible. By tomorrow, it’s likely to be gone.

Explaining What The Federal Reserve Did In Plain English (March 18, 2009 Edition)

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today, within the target range of 0.000-0.250 percent.  This doesn’t mean the Fed stood pat, however.

On plan to resurrect the economy using “all available tools”, today, the Fed announced a new, $1.5 trillion round of fiscal support for the treasury and mortgage markets.

The stimulus will likely be Thursday morning’s headline story.

In its press release, the FOMC touched upon a few of the prevailing economic issues, using these points as a legitimizing backdrop for its newest debt load:

• Job losses and wealth loss are dragging down consumer spending
  
• Some U.S. trading partners are falling into recession
  
• Businesses are cutting back on investment and inventory

Of interest is that the FOMC said today’s inflation levels may be too low to support economic growth at all.  This condition is more commonly called deflation.  The Fed’s latest actions, therefore, may be a deliberate attempt to induce inflation through unprecedented borrowing.

For home buyers and potential refinancers, this is terrific news — at least in the short-term.  By introducing new demand for mortgage bonds, the Fed will help pressure mortgage rates lower.  Already this afternoon, mortgage rates fell and they will continue to fall until the market reaches a new equlibrium.

After the Fed’s last intervention, markets reached their balance point in about a day-and-a-half.

Source
Parsing the Fed Statement
The Wall Street Journal Online
March 18, 2009
https://online.wsj.com/public/resources/documents/info-fedparse0903.html