According to a new study by Fed economists many home borrowers are confused about the terms of their adjustable-rate mortgages (ARMs) and underestimate the amount by which their payments could jump.
The study's most astounding findings are the percentages of borrowers who have no clue about the key features of their ARMs such as:
- Maximum rate that can be charged (40% were clueless)
- Maximum rate change at any other time (35% were clueless)
- Index used to determine rates (28% were clueless and many others gave incorrect answers, such as consumer price index or "the going rate")
- Original interest rate (20% were clueless)
- How often rate can change (17% were clueless)
Many, like Stella Adams, executive director of the North Carolina Fair Housing Center, place the ignorance factor squarely on loan officers and mortgage brokers who are either misleading or at the very least not fully informing their borrowing clients.
"What they are told is, "Don't worry about it because you can refinance before the adjustment hits," Ms. Adams says. "Consumers think that if the broker says I can afford this, [then] I can afford this."
There is wide spread difference in understanding of ARM terms between income groups. According to the study 13% of borrowers with $150,000 plus annual income were unaware of the maximum amount their monthly mortgage payment could increase at one time. In contrast 40% of borrowers with annual incomes under $50,000 did not know the cap on those increases.
Sadly, many borrowers using ARMs chose their loans based on the initial monthly
Monday, March 27, 2006
Low-price housing tough fit in Coyote
In a rare show of consensus for constituencies often at odds, a group of affordable housing advocates and home builders are pushing the city of San Jose to retool how it intends to produce below-market-rate homes in Coyote Valley.
If the city does not adopt more flexible positions for the 3,500-acre region, they warn, it runs the risk of creating only housing affordable to moderate-income families and excluding the region's poorest. That would undermine the city's stated goals of having a truly diverse Coyote Valley community that is as self-contained as possible.
City housing staff is giving limited indication that it is willing to adopt policies unique to the south-county region, however, saying they lack the management bandwidth to oversee different programs for different parts of the city.
At the same time, some affordable housing advocates say the city should not shoulder any of the expense of putting up the 5,000 affordable homes proposed for Coyote Valley. Instead, they say the area's housing developers should assume the entire expense, including the cost of building 2,900 apartments and 100 for-sale homes for the region's poorest residents.
That standard exists no where else in San Jose, says Housing Department Director Leslye Krutko. "I do not know if it is financially feasible," she says.
Such units require deep subsidies that could reach as much as $298,000 an apartment for the lowest-income residents, according to an estimate prepared for the city by a Berkeley economist. Conceivably, the housing developers could defray some of that cost with money from sources other than the city, such as the state and federal governments.
Whatever that outcome, the burden would be on top of an estimated $1.5 billion in infrastructure costs that Coyote Valley property owners already face. The bulk of the $1.5 billion, up to as much as $1 million an acre, is slated to come from home builders, and ultimately market-rate home buyers. Industrial property owners and developers are not expected to bear any of the cost of the affordable housing.
"Affordable housing is definitely a huge cost for this project," says Kerry Williams, president of the Coyote Housing Group, a partnership of Coyote Valley property owners including some home builders. The group is financing the Coyote planning effort, which so far has cost $13 million.
The San Jose City Council has said only that it wants at least 20 percent of the 25,000 homes built in Coyote Valley to be "affordable." But council members have not defined "affordability" with precision. Housing for the lowest-income families requires greater subsidies than for those at higher income levels.
Affordable housing is a long-term issue in SIlicon Valley. The region's global economic competitiveness suffers because people working in the area spend so much of their pay on housing or so much of their time commuting to less-expensive shelter in outlying areas.
A goal for Coyote Valley is to put homes near industry and shopping, allowing people to walk, ride a bike or take public transportation regularly. Without enough housing affordable to all income levels, the fear is that the area will contribute to, rather than reduce, congestion on local freeways and air pollution.
"I was pretty flummoxed," says Stephanie Schaaf, a public education and advocacy official with San Jose nonprofit housing provider EHC LifeBuilders, of the city staff's resistance to adopting new affordable housing methods for Coyote Valley. "It was really inspiring to have folks from the privates and nonprofits come to some agreements on goals and targets, and everyone was taken a bit off guard" that staff did not embrace the momentum more fully.
Complicating matters are the city's internal financial problems. By year's end, the city projects that it will have produced 10,000 new affordable homes in San Jose in the last eight years in addition to other work such as helping families rehabilitate existing homes.
But city money to subsidize housing is running low and, given projections of property tax revenue, the production of new homes is expected to fall considerably in the years from now until 2010. According to documents filed by the city with the federal government last year, in the next five years the city expects to build and rehabilitate fewer than 6,000 affordable homes. That's roughly 10 percent of projected need based on federal definitions that stipulate that people should be spending no more than 30 percent of their incomes on housing.
Those realities, says long-time affordable housing advocate Saul Wachter, treasurer of the Affordable Housing Network of Santa Clara County, mean Coyote Valley should be forced to bear its own housing costs internally. Beyond that, he and other affordable housing advocates say, the city must turn its focus to providing housing for the area's poorest people, who earn less than $32,000 a year to support a family of four and whose needs are among the most unmet in the region.
"Our position is that (affordable) housing has to be built in Coyote Valley without city money because the city doesn't even have enough money for housing that is needed in the city as it currently is," Mr. Wachter says. "We think developers can take a portion of the money that they are going to earn on their higher-value homes and along with land donation provide homes for extremely low-income families."
Discussions on affordable housing in Coyote Valley are continuing and no final decision is expected for months.
SHARON SIMONSON covers real estate for the Business Journal. Reach her at (408) 299-1853.
If the city does not adopt more flexible positions for the 3,500-acre region, they warn, it runs the risk of creating only housing affordable to moderate-income families and excluding the region's poorest. That would undermine the city's stated goals of having a truly diverse Coyote Valley community that is as self-contained as possible.
City housing staff is giving limited indication that it is willing to adopt policies unique to the south-county region, however, saying they lack the management bandwidth to oversee different programs for different parts of the city.
At the same time, some affordable housing advocates say the city should not shoulder any of the expense of putting up the 5,000 affordable homes proposed for Coyote Valley. Instead, they say the area's housing developers should assume the entire expense, including the cost of building 2,900 apartments and 100 for-sale homes for the region's poorest residents.
That standard exists no where else in San Jose, says Housing Department Director Leslye Krutko. "I do not know if it is financially feasible," she says.
Such units require deep subsidies that could reach as much as $298,000 an apartment for the lowest-income residents, according to an estimate prepared for the city by a Berkeley economist. Conceivably, the housing developers could defray some of that cost with money from sources other than the city, such as the state and federal governments.
Whatever that outcome, the burden would be on top of an estimated $1.5 billion in infrastructure costs that Coyote Valley property owners already face. The bulk of the $1.5 billion, up to as much as $1 million an acre, is slated to come from home builders, and ultimately market-rate home buyers. Industrial property owners and developers are not expected to bear any of the cost of the affordable housing.
"Affordable housing is definitely a huge cost for this project," says Kerry Williams, president of the Coyote Housing Group, a partnership of Coyote Valley property owners including some home builders. The group is financing the Coyote planning effort, which so far has cost $13 million.
The San Jose City Council has said only that it wants at least 20 percent of the 25,000 homes built in Coyote Valley to be "affordable." But council members have not defined "affordability" with precision. Housing for the lowest-income families requires greater subsidies than for those at higher income levels.
Affordable housing is a long-term issue in SIlicon Valley. The region's global economic competitiveness suffers because people working in the area spend so much of their pay on housing or so much of their time commuting to less-expensive shelter in outlying areas.
A goal for Coyote Valley is to put homes near industry and shopping, allowing people to walk, ride a bike or take public transportation regularly. Without enough housing affordable to all income levels, the fear is that the area will contribute to, rather than reduce, congestion on local freeways and air pollution.
"I was pretty flummoxed," says Stephanie Schaaf, a public education and advocacy official with San Jose nonprofit housing provider EHC LifeBuilders, of the city staff's resistance to adopting new affordable housing methods for Coyote Valley. "It was really inspiring to have folks from the privates and nonprofits come to some agreements on goals and targets, and everyone was taken a bit off guard" that staff did not embrace the momentum more fully.
Complicating matters are the city's internal financial problems. By year's end, the city projects that it will have produced 10,000 new affordable homes in San Jose in the last eight years in addition to other work such as helping families rehabilitate existing homes.
But city money to subsidize housing is running low and, given projections of property tax revenue, the production of new homes is expected to fall considerably in the years from now until 2010. According to documents filed by the city with the federal government last year, in the next five years the city expects to build and rehabilitate fewer than 6,000 affordable homes. That's roughly 10 percent of projected need based on federal definitions that stipulate that people should be spending no more than 30 percent of their incomes on housing.
Those realities, says long-time affordable housing advocate Saul Wachter, treasurer of the Affordable Housing Network of Santa Clara County, mean Coyote Valley should be forced to bear its own housing costs internally. Beyond that, he and other affordable housing advocates say, the city must turn its focus to providing housing for the area's poorest people, who earn less than $32,000 a year to support a family of four and whose needs are among the most unmet in the region.
"Our position is that (affordable) housing has to be built in Coyote Valley without city money because the city doesn't even have enough money for housing that is needed in the city as it currently is," Mr. Wachter says. "We think developers can take a portion of the money that they are going to earn on their higher-value homes and along with land donation provide homes for extremely low-income families."
Discussions on affordable housing in Coyote Valley are continuing and no final decision is expected for months.
SHARON SIMONSON covers real estate for the Business Journal. Reach her at (408) 299-1853.
Friday, March 24, 2006
5 Tough Questions for Sellers
Selling a home is getting more difficult these days and sellers are going to be asked some difficult questions that buyers in tighter markets may not have had the time or inclination to ask.
Here are five questions a seller should think about and be able to answer — just in case they are asked.
1. Why are you selling this lovely home?
The buyer wants to know just how desperate the seller is. Desperation equals a lower offer, so answer carefully.
2. How much did the seller pay for this house?
The amount is a matter of public record and a real estate professional can find it easily. One answer a seller might consider is some variation of this: "I got a bargain purchase price when this was a run-down shack before I renovated it so my purchase price is irrelevant to today's market value."
3. What defects does the home have and have there been any recent professional home inspections?
It’s a good idea for the seller to have a home inspection before the home is put on the market, so any defects can be repaired or, at least, potential buyers can be told about them before they make an offer.
4. What problems have you had with this home?
In most states, court decisions and statutes do not require home sellers to reveal past problems that have been corrected.
5. What is the quality of the public schools?
Even buyers who don’t have children can be concerned about this and a seller should know the answer.
Source: Inman News, Robert Bruss (3/24/06)
Here are five questions a seller should think about and be able to answer — just in case they are asked.
1. Why are you selling this lovely home?
The buyer wants to know just how desperate the seller is. Desperation equals a lower offer, so answer carefully.
2. How much did the seller pay for this house?
The amount is a matter of public record and a real estate professional can find it easily. One answer a seller might consider is some variation of this: "I got a bargain purchase price when this was a run-down shack before I renovated it so my purchase price is irrelevant to today's market value."
3. What defects does the home have and have there been any recent professional home inspections?
It’s a good idea for the seller to have a home inspection before the home is put on the market, so any defects can be repaired or, at least, potential buyers can be told about them before they make an offer.
4. What problems have you had with this home?
In most states, court decisions and statutes do not require home sellers to reveal past problems that have been corrected.
5. What is the quality of the public schools?
Even buyers who don’t have children can be concerned about this and a seller should know the answer.
Source: Inman News, Robert Bruss (3/24/06)
Tuesday, March 21, 2006
Bridging the Gap
Here are some financing arrangements that could help you cover your down payment and closing costs if you buy a new home before you sell your old one.
BRIDGE LOAN
Short-term financing intended to fund your down payment and closing costs while waiting to sell your house. The loans are usually short-term and carry high interest rates.
Pros: Provides flexibility by allowing a home buyer to proceed with closing a deal to buy a new house before selling his or her current home.
Cons: If potential buyers become aware that the homeowner has secured a bridge loan, it can serve as a red flag that the homeowner is under pressure to sell, which could elicit lower offers.
BRIDGE LOAN WITH DEFERRED INTEREST PAYMENTS
The bank provides a loan that pays off the current mortgage and allows the seller to use remaining funds to finance the down payment and closing costs on a new home purchase. The payment on the bridge loan is deferred for a set amount of time, usually six to nine months, while the homeowner tries to sell the existing home. When the borrower sells the home, he repays the bridge loan plus the interest.
Pros: The home buyer eliminates mortgage payments on the old house and the bridge loan payment is deferred. The upside for the seller is he seals the deal to sell his house without having to agree to a contingency on the sale, such as waiting until the home buyer sells his existing house before closing.
Cons: If a person is unable to sell his home before the term of the bridge loan expires, he will owe the interest that has accrued in one lump-sum payment. The bank may offer to extend the loan until a sale goes through but the borrower will still be liable for the interest that accrued during the first term on the loan.
100% FINANCING ON THE NEW MORTGAGE
The home buyer obtains 100% financing on the new mortgage and needs no down payment for the home, allowing him to buy even if he hasn't yet sold his current house, providing the buyer can get approved to hold two mortgages.
Pros: Allows the buyer to proceed with purchase without getting a bridge loan.
Cons: Mortgages with 100% financing are considered high-risk mortgages, primarily because they have allowed many people to purchase homes they can't really afford.
Monday, March 20, 2006
Weekly Market Report for the Week of March 5th-11th, 2006
The majority of our Silicon Valley offices reported multiple offer activity this week. Sunnyvale is one of the hottest markets in the area as reported by our office and by several agents in the field.
2-3 offers is more the norm in today's market and one entry level property received 8 offers.
Santa Clara County inventory is on a slow but steady climb and eclipsed 2700 this week for the first time since early December 2005. During 2005, we did not reach the 2700 mark until sometime in August. We are still trending slightly ahead of 2004 figures. The inventory peak of 2004 was right around 3000 and we hit this around July of 2004.
Some experts believe that we reach an equilibrium (balanced market- not a sellers or a buyers market) around 3800-4000 properties in Santa Clara County. Based on that theory we still have a way to go and continue to be in a low supply market with relatively strong demand.
2-3 offers is more the norm in today's market and one entry level property received 8 offers.
Santa Clara County inventory is on a slow but steady climb and eclipsed 2700 this week for the first time since early December 2005. During 2005, we did not reach the 2700 mark until sometime in August. We are still trending slightly ahead of 2004 figures. The inventory peak of 2004 was right around 3000 and we hit this around July of 2004.
Some experts believe that we reach an equilibrium (balanced market- not a sellers or a buyers market) around 3800-4000 properties in Santa Clara County. Based on that theory we still have a way to go and continue to be in a low supply market with relatively strong demand.
Thursday, March 16, 2006
Lenders wary of losses tighten mortgage criteria
By Mark Schwanhausser - Mercury News
WORRY ABOUT LOSSES FROM RISKY LOANS GROWING
Lenders are growing wary of the riskier yet more flexible mortgages favored in Silicon Valley, even as rising interest rates are making it tougher for buyers to afford the region's high-priced homes.
Make no mistake about it: As the spring home-buying season begins, the mortgage industry remains robust. Lenders are expected to churn out $2.2 trillion in mortgages nationwide this year. And they still offer a broad menu of loans designed to insulate borrowers against rising rates and squeeze payments within cramped budgets.
Behind the scenes, however, lenders, regulators and investors are making changes that could make it harder for borrowers to stretch into homes or refinance existing mortgages.
The changes could act as a gentle but largely invisible brake on real estate sales just as the home-buying season historically hits top speed, experts say.
"It's still not a bad time to be getting a loan,'' said Mark Milner, chief risk officer for PMI Mortgage Insurance in Walnut Creek. "But given the potential for rising interest rates and a slowdown in appreciation, this is probably not a good time for people to be stretching.''
There are few places where the changes will be felt as deeply as in Santa Clara County, where the median price of a single-family home topped $700,000 in January. In the San Jose area, half the home purchases relied on loans that require borrowers to pay just the interest, according to LoanPerformance, a San Francisco company that tracks mortgage data.
During the real estate boom, many Bay Area borrowers moved away from the traditional fixed-rate mortgage that charges the same monthly payment for the life of the loan. Instead, they've embraced a slew of exotic loans that require little or no down payment, delay paying down the principal or charge temporary ``teaser'' rates.
While such loans have lubricated the Bay Area's high-revving real estate market, there are growing concerns that lenders are more vulnerable to losses if buyers can't pay. And now that home prices in some areas are flattening and interest rates are flirting with three-year highs, there are mounting signs the loan industry is becoming more cautious.
In December, federal banking regulators proposed guidelines to rein in lenders peddling loans that offer below-market introductory teaser rates, interest-only loans and payment-option loans that permit payments that don't cover even the interest.
Tightened criteria
Just days before those long-anticipated guidelines were released, Washington Mutual, the nation's third-largest lender, acknowledged it had tightened its underwriting criteria on payment-option loans. It's now analyzing the borrowers' ability to pay after the introductory starting rate expires.
Industry experts are beginning to see additional changes that could affect borrowers who want to buy homes or refinance. Some lenders are less willing to let customers take out loans bigger than their incomes typically would justify. Some are shaving their predictions of how quickly rising home prices will provide equity that can cushion homeowners and lenders alike. There's more wariness of stated-income loans -- also known as ``liars' loans'' -- that don't require self-employed or borrowers with lower credit scores to document their income.
Also falling out of favor are so-called piggyback loans that add a second loan for buyers who need to borrow the down payment, said Anthony Hsieh, president of LendingTree.com, an online company that refers borrowers to lenders. Some lenders now require borrowers to pay off or refinance the balance of the second loan within two years.
Meanwhile, Wall Street agencies that grade the risk of mortgages sold to investors have made it more expensive for lenders to sell bundles of exotic loans to investors. Some smaller sub-prime lenders, who cater to borrowers with sketchier finances, are charging higher interest rates to compensate, said Grant Bailey, a director for Fitch Ratings, a bond-rating agency.
It's all adding to the anxiety of an already nerve-racking process for consumers.
Radio ads increasingly are playing off the fear of rising rates rather than the temptation of low monthly payments with an interest-only loan, said Robert Kleinhenz, deputy chief economist for the California Association of Realtors.
Panicked, ready to refi
Wells Fargo says it's getting a stream of calls from skittish homeowners holding these unconventional mortgages who want to refinance before their monthly payments vault.
And then there are home buyers who feel buffeted by rising interest rates and the risks of exotic loans. Twenty-four-year-old Catherine Gutierrez is two weeks from closing a deal for a new $305,000 condominium at the Brickyard that's just a three-minute drive from her job at Studio S(s2) Architecture in downtown San Jose. It boasts granite countertops, stainless steel fixtures and cherry-stained cabinets. She already has picked out a deep purple hue called "Sweet Truffle'' to paint the kitchen, living room and her bedroom.
"It looks sleek, it looks clean, and it's so what I am,'' Gutierrez said.
Uneasy about terms
But Gutierrez was uncomfortable when one mortgage broker first steered her toward piggyback loans, then recommended a payment-option plan that would cause her loan to grow whenever she elected to pay only a portion of the monthly interest.
"He was saying the property will appreciate more than what would be added on top'' of the original principal, Gutierrez said. ``I just didn't want to take that risk and put that much faith in the market.''
Instead, Gutierrez plans to get financial help from a parent and take out an 80 percent interest-only loan that would guarantee her five years of payments at a fixed rate.
Is she confident she can still make the payments or refinance when the payments jump in five years?
"I think so,'' Gutierrez said. ``After that I would see what rates are doing. You can't predict the future. You either jump or you don't. I'm jumping
WORRY ABOUT LOSSES FROM RISKY LOANS GROWING
Lenders are growing wary of the riskier yet more flexible mortgages favored in Silicon Valley, even as rising interest rates are making it tougher for buyers to afford the region's high-priced homes.
Make no mistake about it: As the spring home-buying season begins, the mortgage industry remains robust. Lenders are expected to churn out $2.2 trillion in mortgages nationwide this year. And they still offer a broad menu of loans designed to insulate borrowers against rising rates and squeeze payments within cramped budgets.
Behind the scenes, however, lenders, regulators and investors are making changes that could make it harder for borrowers to stretch into homes or refinance existing mortgages.
The changes could act as a gentle but largely invisible brake on real estate sales just as the home-buying season historically hits top speed, experts say.
"It's still not a bad time to be getting a loan,'' said Mark Milner, chief risk officer for PMI Mortgage Insurance in Walnut Creek. "But given the potential for rising interest rates and a slowdown in appreciation, this is probably not a good time for people to be stretching.''
There are few places where the changes will be felt as deeply as in Santa Clara County, where the median price of a single-family home topped $700,000 in January. In the San Jose area, half the home purchases relied on loans that require borrowers to pay just the interest, according to LoanPerformance, a San Francisco company that tracks mortgage data.
During the real estate boom, many Bay Area borrowers moved away from the traditional fixed-rate mortgage that charges the same monthly payment for the life of the loan. Instead, they've embraced a slew of exotic loans that require little or no down payment, delay paying down the principal or charge temporary ``teaser'' rates.
While such loans have lubricated the Bay Area's high-revving real estate market, there are growing concerns that lenders are more vulnerable to losses if buyers can't pay. And now that home prices in some areas are flattening and interest rates are flirting with three-year highs, there are mounting signs the loan industry is becoming more cautious.
In December, federal banking regulators proposed guidelines to rein in lenders peddling loans that offer below-market introductory teaser rates, interest-only loans and payment-option loans that permit payments that don't cover even the interest.
Tightened criteria
Just days before those long-anticipated guidelines were released, Washington Mutual, the nation's third-largest lender, acknowledged it had tightened its underwriting criteria on payment-option loans. It's now analyzing the borrowers' ability to pay after the introductory starting rate expires.
Industry experts are beginning to see additional changes that could affect borrowers who want to buy homes or refinance. Some lenders are less willing to let customers take out loans bigger than their incomes typically would justify. Some are shaving their predictions of how quickly rising home prices will provide equity that can cushion homeowners and lenders alike. There's more wariness of stated-income loans -- also known as ``liars' loans'' -- that don't require self-employed or borrowers with lower credit scores to document their income.
Also falling out of favor are so-called piggyback loans that add a second loan for buyers who need to borrow the down payment, said Anthony Hsieh, president of LendingTree.com, an online company that refers borrowers to lenders. Some lenders now require borrowers to pay off or refinance the balance of the second loan within two years.
Meanwhile, Wall Street agencies that grade the risk of mortgages sold to investors have made it more expensive for lenders to sell bundles of exotic loans to investors. Some smaller sub-prime lenders, who cater to borrowers with sketchier finances, are charging higher interest rates to compensate, said Grant Bailey, a director for Fitch Ratings, a bond-rating agency.
It's all adding to the anxiety of an already nerve-racking process for consumers.
Radio ads increasingly are playing off the fear of rising rates rather than the temptation of low monthly payments with an interest-only loan, said Robert Kleinhenz, deputy chief economist for the California Association of Realtors.
Panicked, ready to refi
Wells Fargo says it's getting a stream of calls from skittish homeowners holding these unconventional mortgages who want to refinance before their monthly payments vault.
And then there are home buyers who feel buffeted by rising interest rates and the risks of exotic loans. Twenty-four-year-old Catherine Gutierrez is two weeks from closing a deal for a new $305,000 condominium at the Brickyard that's just a three-minute drive from her job at Studio S(s2) Architecture in downtown San Jose. It boasts granite countertops, stainless steel fixtures and cherry-stained cabinets. She already has picked out a deep purple hue called "Sweet Truffle'' to paint the kitchen, living room and her bedroom.
"It looks sleek, it looks clean, and it's so what I am,'' Gutierrez said.
Uneasy about terms
But Gutierrez was uncomfortable when one mortgage broker first steered her toward piggyback loans, then recommended a payment-option plan that would cause her loan to grow whenever she elected to pay only a portion of the monthly interest.
"He was saying the property will appreciate more than what would be added on top'' of the original principal, Gutierrez said. ``I just didn't want to take that risk and put that much faith in the market.''
Instead, Gutierrez plans to get financial help from a parent and take out an 80 percent interest-only loan that would guarantee her five years of payments at a fixed rate.
Is she confident she can still make the payments or refinance when the payments jump in five years?
"I think so,'' Gutierrez said. ``After that I would see what rates are doing. You can't predict the future. You either jump or you don't. I'm jumping
Bay Area home sales fall to 5-year low; prices still rising
Silicon Valley/San Jose Business Journal - by Sharon Simonson
The pace of home sales continues to slide in Santa Clara County with 268 fewer homes and condos, or 14.2 percent, trading hands last month than in February 2005, according to numbers released Thursday by a Southern California company.
Despite the slowing, the median price of the 1,614 homes sold countywide rose 14.5 percent to $663,000, DataQuick Information Systems said.
That compares to a Bay Area median of $616,000, up 12.2 percent from the same month a year ago.
DataQuick uses public records to reach its conclusions.
Home sales in the nine counties typically identified as the Bay Area regional housing market were at their lowest level in five years with 6,206 new and resale homes and condos changing hands. That compares to 7,463 in February 2005, though it was up about 200 units from January's threshold.
The slackening pace does not spell doom to him, said Marshall Prentice, DataQuick president, in a prepared statement.
"We'll know more about what's going on once next month's numbers come in," he said. "March sales have a more typical purchase pattern than February's or January's. Right now we don't see anything ominous in the numbers, just a real estate cycle that is past the frenzy phase."
Foreclosure rates, while rising, are not above normal, the company said. Adjustable-rate mortgages are also declining in popularity among Bay Area buyers, and down-payment sizes are stable.
Fred Hibbert, a Coldwell Banker managing broker who tracks weekly sales data across Santa Clara County for the company, said the year has begun differently than is typical, with sales clearly slowing and fewer sellers coming into the market. The number of homes pulling multiple offers has also fallen below 50 percent, he estimated.
Still, he said, "Good locations and property presented properly still draw lots of interest."
The pace of home sales continues to slide in Santa Clara County with 268 fewer homes and condos, or 14.2 percent, trading hands last month than in February 2005, according to numbers released Thursday by a Southern California company.
Despite the slowing, the median price of the 1,614 homes sold countywide rose 14.5 percent to $663,000, DataQuick Information Systems said.
That compares to a Bay Area median of $616,000, up 12.2 percent from the same month a year ago.
DataQuick uses public records to reach its conclusions.
Home sales in the nine counties typically identified as the Bay Area regional housing market were at their lowest level in five years with 6,206 new and resale homes and condos changing hands. That compares to 7,463 in February 2005, though it was up about 200 units from January's threshold.
The slackening pace does not spell doom to him, said Marshall Prentice, DataQuick president, in a prepared statement.
"We'll know more about what's going on once next month's numbers come in," he said. "March sales have a more typical purchase pattern than February's or January's. Right now we don't see anything ominous in the numbers, just a real estate cycle that is past the frenzy phase."
Foreclosure rates, while rising, are not above normal, the company said. Adjustable-rate mortgages are also declining in popularity among Bay Area buyers, and down-payment sizes are stable.
Fred Hibbert, a Coldwell Banker managing broker who tracks weekly sales data across Santa Clara County for the company, said the year has begun differently than is typical, with sales clearly slowing and fewer sellers coming into the market. The number of homes pulling multiple offers has also fallen below 50 percent, he estimated.
Still, he said, "Good locations and property presented properly still draw lots of interest."
Wednesday, March 15, 2006
Pros and Cons of a 40-Year Mortgage
Real estate brokers and lenders say consumers are being resourceful in taking out 40-year loans when double-digit home price appreciation has become the norm.
"Most borrowers do not plan to live in the house for 30 years, so a longer term is of no consequence," said Diane Saatchi, senior vice president with the The Corcoran Group, a major residential real estate firm.
"They figure to sell in about seven years; having 23 or 33 years left on the term is inconsequential," she said.
But 40-year loans have their critics, like Schatsky, who does not recommend them to to his clients unless they are severely cash-strapped or have a clear sense of future income streams.
Another research group, Bankrate.com, notes that interest rates on 40-year mortgages are generally 0.25 to 0.50 percentage point higher than on traditional fixed 30-year loans. That difference negates some of the benefits of the lower monthly payment.
Even with the same rate as on a 30-year loan, the 40-year loan's savings appear negligible.
For example, a $200,000 mortgage financed for 30 years at a fixed rate of 5.75 percent would carry a monthly payment of $1,167.15, Bankrate.com said.
By stretching the loan term an additional 10 years, borrowers, even at an identical interest rate, reduce their monthly payment by just over $100, to $1,065.78. However, the borrower also would have $16,389 less in equity at the end of the first decade of payments and would have paid an extra $4,200 in interest.
"This all stems from affordability and borrowers stretching themselves beyond their reach to get into a home they can't afford," said Economy.com's Chen. "What's next, a 50-year loan?"
Recent anecdotal evidence indicates that home price increases are beginning to decelerate, a sign the housing sector is starting to cool.
"When housing cools, so will these loans," said Schatsky. "If a consumer has to take out this loan to qualify for a home, their goal of homeownership needs to be seriously reevaluated."
"Most borrowers do not plan to live in the house for 30 years, so a longer term is of no consequence," said Diane Saatchi, senior vice president with the The Corcoran Group, a major residential real estate firm.
"They figure to sell in about seven years; having 23 or 33 years left on the term is inconsequential," she said.
But 40-year loans have their critics, like Schatsky, who does not recommend them to to his clients unless they are severely cash-strapped or have a clear sense of future income streams.
Another research group, Bankrate.com, notes that interest rates on 40-year mortgages are generally 0.25 to 0.50 percentage point higher than on traditional fixed 30-year loans. That difference negates some of the benefits of the lower monthly payment.
Even with the same rate as on a 30-year loan, the 40-year loan's savings appear negligible.
For example, a $200,000 mortgage financed for 30 years at a fixed rate of 5.75 percent would carry a monthly payment of $1,167.15, Bankrate.com said.
By stretching the loan term an additional 10 years, borrowers, even at an identical interest rate, reduce their monthly payment by just over $100, to $1,065.78. However, the borrower also would have $16,389 less in equity at the end of the first decade of payments and would have paid an extra $4,200 in interest.
"This all stems from affordability and borrowers stretching themselves beyond their reach to get into a home they can't afford," said Economy.com's Chen. "What's next, a 50-year loan?"
Recent anecdotal evidence indicates that home price increases are beginning to decelerate, a sign the housing sector is starting to cool.
"When housing cools, so will these loans," said Schatsky. "If a consumer has to take out this loan to qualify for a home, their goal of homeownership needs to be seriously reevaluated."
Weekly Market Report for the Week of February 26th- March 4th, 2006:
Is the market "normal" or "mixed?"
Buyers are certainly out there and activity is healthy but moving at a significantly slower pace than last year. Buyers are being much more selective and are seeking out the best properties, in the most desirable areas and at the "right" price. Prices are holding steady and the average sale price is up over 10% this year to date in Santa Clara County. The number of sales are still lagging behind 04' and 05' figures.
Santa Clara County inventory is a little under 2700 total properties for sale. This is ahead of the same time last year (1550) and very near the 04' mark during the first week in March (2200). Some offices reported 50% of their transactions involving multiple offers while others reported none. High end homes have been moving in select areas. On the Monterey Peninsula, for example, approximately 20 properties between $2-20 million have closed escrow over the past few months. The Peninsula has also reported several properties over $30 million selling in the most prestigious locations.
Inventories throughout the bay area including Santa Cruz, Santa Clara County, the Peninsula and San Francisco are still historically low. Some agents are reporting a "pick-up" in sales activity while others are reporting that "it seems too quiet for the time of year." Whatever the case might be, demand is healthy and there is still much more demand than supply.
The mixed signals are making it difficult for the market to get into a steady rhythm. In the meantime, Sellers should be sensitive to pricing their properties while buyers are processing through the reality that the "bubble" the media has been so fixated on has not come to fruition.
Buyers are certainly out there and activity is healthy but moving at a significantly slower pace than last year. Buyers are being much more selective and are seeking out the best properties, in the most desirable areas and at the "right" price. Prices are holding steady and the average sale price is up over 10% this year to date in Santa Clara County. The number of sales are still lagging behind 04' and 05' figures.
Santa Clara County inventory is a little under 2700 total properties for sale. This is ahead of the same time last year (1550) and very near the 04' mark during the first week in March (2200). Some offices reported 50% of their transactions involving multiple offers while others reported none. High end homes have been moving in select areas. On the Monterey Peninsula, for example, approximately 20 properties between $2-20 million have closed escrow over the past few months. The Peninsula has also reported several properties over $30 million selling in the most prestigious locations.
Inventories throughout the bay area including Santa Cruz, Santa Clara County, the Peninsula and San Francisco are still historically low. Some agents are reporting a "pick-up" in sales activity while others are reporting that "it seems too quiet for the time of year." Whatever the case might be, demand is healthy and there is still much more demand than supply.
The mixed signals are making it difficult for the market to get into a steady rhythm. In the meantime, Sellers should be sensitive to pricing their properties while buyers are processing through the reality that the "bubble" the media has been so fixated on has not come to fruition.
Monday, March 13, 2006
HOT RENTAL MARKET
Many U.S. metros are in the hottest rental market in over 5 years according to M/PF YieldStar, a Texas based research firm. According to Greg Willit, vice president of research at M/PF "2006 should be the big price correction" for rents. "Everything is really underpriced in many markets around the U.S."
- National apartment occupancy rose 1.6% to 95.2% in 4Q05, the highest point since fall of 2001.
- The average rent climbed to $940 in 4Q05.
There are several factors at play that will likely keep the heat on high:
Increasing demand - Rising building cost, coupled with strong new job growth, is creating a growing pool of renters.
- San Francisco had 96.4% occupancy with an average rent of $1,573.
- Los Angeles was the fifth-tighest rental market with an average occupancy rate of 97.1% and an average rent of $1,421. In LA it can take up to 8 years to get a project built.
- New York City topped with 97.1% occupancy with an average rent of $2,400, according to real estate data firm, Reis Client Services.
Other metro areas expected to see increases in occupancy and rent include Las Vegas, NV; Phoenix, AZ; and Austin, TX, where demand has outpaced construction and job creation is growing at record pace.
In some of these markets rising home prices have so widened the gap between renting and owning that many believe there will be a landlord's market for many months.
Shrinking new supply - In many communities the cumbersome building processes and skyrocketing construction costs have placed the price of new homes beyond the mainstream buying market.
Shrinking existing supply - Condo conversions are eating up inventories. In high rental demand markets the existing supply of rental units is rapidly shrinking. So strong is the demand that it is increasingly feasible for developers to convert existing apartment units, considering the high cost of buildable land, excessive planning and permitting time; and high cost of new construction.
Local forces - Natural disasters like Katrina produce strong demand for rental housing.
- Though short-termed the aftermath of Katrina created a sharp demand for rentals (In Houston, TX occupancy jumped to 94% and rents by 3% to an average of $692). The markets of Nashville, Dallas, Birmingham, and Atlanta, all benefited from the Katrina aftermath as evacuees relocated to new communities.
All of these factors are forging a strong investors' rental market into the near future.
- National apartment occupancy rose 1.6% to 95.2% in 4Q05, the highest point since fall of 2001.
- The average rent climbed to $940 in 4Q05.
There are several factors at play that will likely keep the heat on high:
Increasing demand - Rising building cost, coupled with strong new job growth, is creating a growing pool of renters.
- San Francisco had 96.4% occupancy with an average rent of $1,573.
- Los Angeles was the fifth-tighest rental market with an average occupancy rate of 97.1% and an average rent of $1,421. In LA it can take up to 8 years to get a project built.
- New York City topped with 97.1% occupancy with an average rent of $2,400, according to real estate data firm, Reis Client Services.
Other metro areas expected to see increases in occupancy and rent include Las Vegas, NV; Phoenix, AZ; and Austin, TX, where demand has outpaced construction and job creation is growing at record pace.
In some of these markets rising home prices have so widened the gap between renting and owning that many believe there will be a landlord's market for many months.
Shrinking new supply - In many communities the cumbersome building processes and skyrocketing construction costs have placed the price of new homes beyond the mainstream buying market.
Shrinking existing supply - Condo conversions are eating up inventories. In high rental demand markets the existing supply of rental units is rapidly shrinking. So strong is the demand that it is increasingly feasible for developers to convert existing apartment units, considering the high cost of buildable land, excessive planning and permitting time; and high cost of new construction.
Local forces - Natural disasters like Katrina produce strong demand for rental housing.
- Though short-termed the aftermath of Katrina created a sharp demand for rentals (In Houston, TX occupancy jumped to 94% and rents by 3% to an average of $692). The markets of Nashville, Dallas, Birmingham, and Atlanta, all benefited from the Katrina aftermath as evacuees relocated to new communities.
All of these factors are forging a strong investors' rental market into the near future.
Sunday, March 12, 2006
GLOSSARY OF REAL ESTATE TERMS
Agent - An individual who represents a seller, a buyer or both in the purchase or sale of real estate. Since the commission for the sale of a house is almost always paid for by the seller, buyers are able to get assistance and information from Real Estate Agents, usually at no cost to them. It is for this reason that the vast majority of homebuyers employ the services of an Agent for their purchase. In addition, since most houses are listed by Real Estate Agencies, it gives them the maximum number of available properties to consider.
Amortization - The schedule of loan payments that establishes the amount of payment to be applied to the principal and the amount to be applied to interest, usually on a monthly basis, for the full term of the loan.
Annual Percentage Rate (APR) - The TOTAL interest rate of a mortgage, including the stated loan interest as well as any upfront interest paid in securing the loan. The APR will invariably differ from the mortgage rate quoted due to the inclusion of these items.
Appraisal - An estimate of value of a Real Estate property by a professional third party. Virtually all non-owner financed mortgages will require an appraisal and is generally paid for by the buyer.
Adjustable Rate Mortgage (ARM) - A mortgage in which the Interest rate is adjustable, meaning that the rate can go up or down according to prevailing financial market conditions. Probably one of the reasons that buying a home is such an emotional experience is because of the fact that not only do you have the actual house buying to deal with, but for most homebuyers you also have the mortgage process to encounter. This can be a smooth and almost uneventful process, or an unnerving one. A great deal depends on the preparation of the buyer as well as the selection of an efficient mortgage company.
Assessment - The value of a property as determined by the local tax jurisdiction which is used to determine the amount of your property taxes.
Buyer's Agent - A Real Estate Agent that has made an agreement to represent the buyer exclusively, rather than the seller. The Agent, unless specifically disclosed otherwise, represents the seller in any transaction for the sale of a home. It is that Agent's fiduciary duty (where their loyalty lies) to protect the seller's position at all times.
Buyer's Agency, however, may be an option available to you. Simply put, it allows the Agent with whom you are working to be your representative and to put your interests above all others.
Comparable Market Analysis (CMA) - A comparison of the prices of similar houses in the same general geographic area. A CMA is used to help determine the value of a property, either for a seller or a buyer. A Comparable (or Comparative) Market Analysis is developed by an Agent to compare similar properties in the same general neighborhood. It is an essential tool when attempting to determine the market value of a specific home.
Closing - The process that affects the final transfer of the deed from the seller to the buyer, as well as finalize all aspects of the mortgage of the property. After the searching for a home is done, the negotiations have been completed, the house has been inspected, and the mortgage has been applied for and committed to, the focus suddenly turns to the Closing, Settlement, or Escrow as it is known in some localities. For simplicity, in our discussions here we will refer to the process when it all comes together and you finally own the home as Closing. An understanding of the elements of and players in the closing, as well as a concise preparation for it, will eliminate many nervous hours as the day approaches.
Closing Costs - Funds needed at the time of closing (separate from and in addition to the down payment). Loan origination fees, discount points, Attorney fees, recording fees and pre-paids are some items that may be included. They often will total from 3% to 5% of the price of the home, payable in cash (cashiers check).
Contingencies - These are conditions-or "safety valves" written into Real Estate offers and contracts to prevent a buyer from being forced to buy a house that is unsatisfactory either structurally or financially. Examples of contingencies are "This contract is subject to the buyer obtaining a satisfactory whole house inspection." or "Subject to the buyer being able to obtain a mortgage."
Condominium - Housing where the owner owns only the unit in which they live-from the interior walls inward, generally-as well as a portion of the common area.
Debt to Income Ratio - The ratio of a borrowers total of debt as a percentage of their total gross income.
Deed - The document that, when recorded with your local government, determines ownership of a property. Transferred from seller to buyer at closing.
Dual Agent - A dual agent is a real estate agent who has signed a buyer agency agreement with a buyer who wishes to purchase a listing held by the agent or the agent's firm. In states where dual agency is allowed, it must usually be agreed to by all parties in writing.
Earnest Money - Money that is submitted with an offer to purchase which indicates a buyer's seriousness and good faith. In virtually all cases, earnest money will need to be submitted at the time of the offer and remains in escrow until the time of closing, at which time it becomes part of the downpayment.
Equity - The difference between the value of a property and the total of any outstanding mortgages or loans against it.
Escrow - Funds held in reserve both prior to closing (for example the earnest money and deposit) by a third party and after closing by the mortgage company to pay future taxes and homeowners insurance. In some areas, "escrow" also refers to the closing process.
Fixed Rate Mortgage - A mortgage loan where the interest rate is established at its origination and continues unchanged through the life of the loan.
FSBO (For Sale By Owner) - Real Estate that is sold without the assistance of an Agent. FSBO can refer to both the individual selling the property "They are a FSBO," or the property itself "that house is a FSBO."
Foreclosure - The process through which a lender takes back property from a defaulting owner and re-sells it.
Homeowner's Association - An owners group, whether in a condominium, townhouse or single-family subdivision that establishes general guidelines for the operation of the community, as well as its standards.
Inspection - A whole house inspection of a home being considered for purchase that looks for defects in the property.
Interest - That portion of a mortgage payment that is the "charge" for the using the lender’s funds.
Lien - A legal claim against a piece of property that can prevent it from being sold unless the lien is satisfied (paid off). Liens can be filed by unpaid contractors or other debtors in a legal process so that they will be paid when a property is sold.
Listing - A property for sale by a Real Estate Brokerage and Agent.
Listing Agent - The person who has obtained a listing of real property to act as an agent for the compensation to sell the property or find or obtain a buyer.
Loan Origination Fee - A charge imposed by the lender, payable at closing, for processing the loan.
Lock-in - An agreement by the lender at the time of mortgage application or shortly thereafter, to write the mortgage at a specific interest rate, whether rates rise or fall up to the date of closing. Obviously a good move if rates are rising, not so good if they are falling. Lock-ins have specific expiration dates, such as 30, 60 or 90 days in the future.
LTV (Loan to Value) - The ratio of the amount of the mortgage as a percentage of the value of the property.
MLS (Multiple Listing Service) - A listing (almost always computerized) of all the properties for sale by Real Estate Brokerages in a given geographical area.
PMI (Private Mortgage Insurance) - Required on virtually all conventional loans with less than 20% downpayment. Although the payments for PMI are included in your mortgage payment, it protects the lender should you default on the loan. On FHA loans, you will pay a MIP (Mortgage Insurance Premium), which accomplishes the same purpose.
Points - 1 point is equal to 1% of the loan value, paid at closing. Points can be loan origination fees or "discount points" which reduce the interest rate of the loan (you are actually paying a finance charge up front). When a lender, for example, quotes a rate of 8 1/2% with 1 + 1 points, 1 point is for the origination fee and 1 point is for the discount fee.
Prequalification - The first stage of a mortgage application where the lender will run a basic credit report and determine your debt to income ratio in order to see how much mortgage you qualify for.
Pre-paids - Paid for (in cash) at closing for such items as homeowners insurance for one year and real estate taxes for several months.
Principal - The amount borrowed for a mortgage loan. Your monthly mortgage payment will be applied to both the interest and the principal (be assured, though, that the lions share will go to the interest portion in the first years of the loan).
Property Tax - An annual or semi-annual tax paid to one or more governmental jurisdictions based on the amount of the property assessment. Generally paid as part of the mortgage payment.
Recording - The act of entering deed and/or mortgage information into public record with your local government jurisdiction.
Selling Agent - This term includes (1) a listing agent who acts alone to sell a listing that he or she obtained; or (2) an agent who acts in cooperation with a listing agent and who sells or finds a buyer for the property; or (3) an agent who has located a property for a buyer for which no listing exists and presents an offer to purchase to the seller. Generally speaking, the selling agent is the person who works with the buyer.
Title Insurance - Protects your title: your ownership rights, from claims against it. Paid at closing, title insurance may be the responsibility of the buyer, the seller, or both, depending on what is traditional in your locality.
Warranty - Covers either most of the house in a new home, or selected items (for example the heating and air conditioning system or the water heater) in a used home. Warranties can vary widely and are optional in used homes (paid for by either the buyer or the seller).
Zoning - Laws that govern specifically how a zoned area can be used. For example, an area may be zoned for single family residential, condominiums, commercial or retail, or a mix of two or more uses.
Amortization - The schedule of loan payments that establishes the amount of payment to be applied to the principal and the amount to be applied to interest, usually on a monthly basis, for the full term of the loan.
Annual Percentage Rate (APR) - The TOTAL interest rate of a mortgage, including the stated loan interest as well as any upfront interest paid in securing the loan. The APR will invariably differ from the mortgage rate quoted due to the inclusion of these items.
Appraisal - An estimate of value of a Real Estate property by a professional third party. Virtually all non-owner financed mortgages will require an appraisal and is generally paid for by the buyer.
Adjustable Rate Mortgage (ARM) - A mortgage in which the Interest rate is adjustable, meaning that the rate can go up or down according to prevailing financial market conditions. Probably one of the reasons that buying a home is such an emotional experience is because of the fact that not only do you have the actual house buying to deal with, but for most homebuyers you also have the mortgage process to encounter. This can be a smooth and almost uneventful process, or an unnerving one. A great deal depends on the preparation of the buyer as well as the selection of an efficient mortgage company.
Assessment - The value of a property as determined by the local tax jurisdiction which is used to determine the amount of your property taxes.
Buyer's Agent - A Real Estate Agent that has made an agreement to represent the buyer exclusively, rather than the seller. The Agent, unless specifically disclosed otherwise, represents the seller in any transaction for the sale of a home. It is that Agent's fiduciary duty (where their loyalty lies) to protect the seller's position at all times.
Buyer's Agency, however, may be an option available to you. Simply put, it allows the Agent with whom you are working to be your representative and to put your interests above all others.
Comparable Market Analysis (CMA) - A comparison of the prices of similar houses in the same general geographic area. A CMA is used to help determine the value of a property, either for a seller or a buyer. A Comparable (or Comparative) Market Analysis is developed by an Agent to compare similar properties in the same general neighborhood. It is an essential tool when attempting to determine the market value of a specific home.
Closing - The process that affects the final transfer of the deed from the seller to the buyer, as well as finalize all aspects of the mortgage of the property. After the searching for a home is done, the negotiations have been completed, the house has been inspected, and the mortgage has been applied for and committed to, the focus suddenly turns to the Closing, Settlement, or Escrow as it is known in some localities. For simplicity, in our discussions here we will refer to the process when it all comes together and you finally own the home as Closing. An understanding of the elements of and players in the closing, as well as a concise preparation for it, will eliminate many nervous hours as the day approaches.
Closing Costs - Funds needed at the time of closing (separate from and in addition to the down payment). Loan origination fees, discount points, Attorney fees, recording fees and pre-paids are some items that may be included. They often will total from 3% to 5% of the price of the home, payable in cash (cashiers check).
Contingencies - These are conditions-or "safety valves" written into Real Estate offers and contracts to prevent a buyer from being forced to buy a house that is unsatisfactory either structurally or financially. Examples of contingencies are "This contract is subject to the buyer obtaining a satisfactory whole house inspection." or "Subject to the buyer being able to obtain a mortgage."
Condominium - Housing where the owner owns only the unit in which they live-from the interior walls inward, generally-as well as a portion of the common area.
Debt to Income Ratio - The ratio of a borrowers total of debt as a percentage of their total gross income.
Deed - The document that, when recorded with your local government, determines ownership of a property. Transferred from seller to buyer at closing.
Dual Agent - A dual agent is a real estate agent who has signed a buyer agency agreement with a buyer who wishes to purchase a listing held by the agent or the agent's firm. In states where dual agency is allowed, it must usually be agreed to by all parties in writing.
Earnest Money - Money that is submitted with an offer to purchase which indicates a buyer's seriousness and good faith. In virtually all cases, earnest money will need to be submitted at the time of the offer and remains in escrow until the time of closing, at which time it becomes part of the downpayment.
Equity - The difference between the value of a property and the total of any outstanding mortgages or loans against it.
Escrow - Funds held in reserve both prior to closing (for example the earnest money and deposit) by a third party and after closing by the mortgage company to pay future taxes and homeowners insurance. In some areas, "escrow" also refers to the closing process.
Fixed Rate Mortgage - A mortgage loan where the interest rate is established at its origination and continues unchanged through the life of the loan.
FSBO (For Sale By Owner) - Real Estate that is sold without the assistance of an Agent. FSBO can refer to both the individual selling the property "They are a FSBO," or the property itself "that house is a FSBO."
Foreclosure - The process through which a lender takes back property from a defaulting owner and re-sells it.
Homeowner's Association - An owners group, whether in a condominium, townhouse or single-family subdivision that establishes general guidelines for the operation of the community, as well as its standards.
Inspection - A whole house inspection of a home being considered for purchase that looks for defects in the property.
Interest - That portion of a mortgage payment that is the "charge" for the using the lender’s funds.
Lien - A legal claim against a piece of property that can prevent it from being sold unless the lien is satisfied (paid off). Liens can be filed by unpaid contractors or other debtors in a legal process so that they will be paid when a property is sold.
Listing - A property for sale by a Real Estate Brokerage and Agent.
Listing Agent - The person who has obtained a listing of real property to act as an agent for the compensation to sell the property or find or obtain a buyer.
Loan Origination Fee - A charge imposed by the lender, payable at closing, for processing the loan.
Lock-in - An agreement by the lender at the time of mortgage application or shortly thereafter, to write the mortgage at a specific interest rate, whether rates rise or fall up to the date of closing. Obviously a good move if rates are rising, not so good if they are falling. Lock-ins have specific expiration dates, such as 30, 60 or 90 days in the future.
LTV (Loan to Value) - The ratio of the amount of the mortgage as a percentage of the value of the property.
MLS (Multiple Listing Service) - A listing (almost always computerized) of all the properties for sale by Real Estate Brokerages in a given geographical area.
PMI (Private Mortgage Insurance) - Required on virtually all conventional loans with less than 20% downpayment. Although the payments for PMI are included in your mortgage payment, it protects the lender should you default on the loan. On FHA loans, you will pay a MIP (Mortgage Insurance Premium), which accomplishes the same purpose.
Points - 1 point is equal to 1% of the loan value, paid at closing. Points can be loan origination fees or "discount points" which reduce the interest rate of the loan (you are actually paying a finance charge up front). When a lender, for example, quotes a rate of 8 1/2% with 1 + 1 points, 1 point is for the origination fee and 1 point is for the discount fee.
Prequalification - The first stage of a mortgage application where the lender will run a basic credit report and determine your debt to income ratio in order to see how much mortgage you qualify for.
Pre-paids - Paid for (in cash) at closing for such items as homeowners insurance for one year and real estate taxes for several months.
Principal - The amount borrowed for a mortgage loan. Your monthly mortgage payment will be applied to both the interest and the principal (be assured, though, that the lions share will go to the interest portion in the first years of the loan).
Property Tax - An annual or semi-annual tax paid to one or more governmental jurisdictions based on the amount of the property assessment. Generally paid as part of the mortgage payment.
Recording - The act of entering deed and/or mortgage information into public record with your local government jurisdiction.
Selling Agent - This term includes (1) a listing agent who acts alone to sell a listing that he or she obtained; or (2) an agent who acts in cooperation with a listing agent and who sells or finds a buyer for the property; or (3) an agent who has located a property for a buyer for which no listing exists and presents an offer to purchase to the seller. Generally speaking, the selling agent is the person who works with the buyer.
Title Insurance - Protects your title: your ownership rights, from claims against it. Paid at closing, title insurance may be the responsibility of the buyer, the seller, or both, depending on what is traditional in your locality.
Warranty - Covers either most of the house in a new home, or selected items (for example the heating and air conditioning system or the water heater) in a used home. Warranties can vary widely and are optional in used homes (paid for by either the buyer or the seller).
Zoning - Laws that govern specifically how a zoned area can be used. For example, an area may be zoned for single family residential, condominiums, commercial or retail, or a mix of two or more uses.
What to Expect When Closing on a Home
Go to any local courthouse and you can find property records detailing real estate ownership in your community -- sometimes records that date back hundreds of years.
These records are important because they provide today's owners with proof that they have good, marketable and insurable title to the property they are selling. Equally important, such records enable buyers to provide proof of ownership when they sell.
The closing process, which in different parts of the country is also known as "settlement" or "escrow," is increasingly computerized and automated. In many cases, buyers and sellers don't need to attend a specific event; signed paperwork can be sent to the closing agent via overnight delivery.
In practice, closings bring together a variety of parties who are part of the "transaction" process. For example, while the history of property ownership has been checked, it's possible that the records contain errors, unrecorded claims or flaws in the review itself, thus title insurance is necessary. At closing, transfer taxes must be paid and other claims must also be settled (including closing costs, legal fees and adjustments). In most transactions, the closing agent also completes the paperwork needed to record the loan.
What to expect.
Settlement is a brief process where all of the necessary paperwork needed to complete the transaction is signed. Closing is typically held in an office setting, sometimes with both buyer and seller at the same table, sometimes with each party completing their papers separately.
Whatever the case, the result is that title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. From the amount credited to the seller, the closing agent subtracts money to pay off the existing mortgage and other transaction costs. Deeds, loan papers, and other documents are prepared, signed and filed with local property record offices.
What you need to do.
One of the best parts of settlement is that buyers and sellers need to do very little.
Before closing, buyers typically have a final opportunity to walk through the property to assure that its condition has not materially changed since the sale agreement was signed. At closing itself, all papers have been prepared by closing agents, title companies, lenders and lawyers. This paperwork reflects the sale agreement and allows all parties to the transaction to verify their interests. For instance, buyers get the title to the property, lenders have their loans recorded in the public records and state governments collect their transfer taxes.
These records are important because they provide today's owners with proof that they have good, marketable and insurable title to the property they are selling. Equally important, such records enable buyers to provide proof of ownership when they sell.
The closing process, which in different parts of the country is also known as "settlement" or "escrow," is increasingly computerized and automated. In many cases, buyers and sellers don't need to attend a specific event; signed paperwork can be sent to the closing agent via overnight delivery.
In practice, closings bring together a variety of parties who are part of the "transaction" process. For example, while the history of property ownership has been checked, it's possible that the records contain errors, unrecorded claims or flaws in the review itself, thus title insurance is necessary. At closing, transfer taxes must be paid and other claims must also be settled (including closing costs, legal fees and adjustments). In most transactions, the closing agent also completes the paperwork needed to record the loan.
What to expect.
Settlement is a brief process where all of the necessary paperwork needed to complete the transaction is signed. Closing is typically held in an office setting, sometimes with both buyer and seller at the same table, sometimes with each party completing their papers separately.
Whatever the case, the result is that title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. From the amount credited to the seller, the closing agent subtracts money to pay off the existing mortgage and other transaction costs. Deeds, loan papers, and other documents are prepared, signed and filed with local property record offices.
What you need to do.
One of the best parts of settlement is that buyers and sellers need to do very little.
Before closing, buyers typically have a final opportunity to walk through the property to assure that its condition has not materially changed since the sale agreement was signed. At closing itself, all papers have been prepared by closing agents, title companies, lenders and lawyers. This paperwork reflects the sale agreement and allows all parties to the transaction to verify their interests. For instance, buyers get the title to the property, lenders have their loans recorded in the public records and state governments collect their transfer taxes.
HOW TO CHOOSE A REAL ESTATE PROFESSIONAL
The recent real estate boom has encouraged an explosion of real estate licensees. But getting a license and succeeding as a professional in the industry are two very different things. To find a true real estate professional – one who will represent your interests and provide valuable insight and advice regarding what is likely your biggest investment – follow these steps.
Do your research.
Drive around your neighborhood or the area you’d like to live in, and make note of the active real estate agents in the area. Call local brokerages for agent recommendations, and specify whether you are buying or selling a home.
Ask trusted friends and relatives for referrals.
According to the 2005 National Association of Realtors® Profile of Home Buyers and Sellers, 44 percent of all recent buyers were referred to their real estate agent through a friend, neighbor, or relative.
Interview at least three agents.
Ask each about their business approach and philosophy (do they offer full service, or will you have to assume some responsibilities in the transaction); experience; designations and advanced training; and referral network (home inspectors, lenders, contractors, etc.). Home sellers should also ask about the number of homes sold in the past year, length of time on market, average sales price in relation to asking price, and the agent’s marketing plan.
Make sure your agent is a Realtor®.
A Realtor® is a licensed real estate professional who is a member of the National Association of Realtors® and subscribes to its strict Code of Ethics, which obligates Realtors® to be honest with all parties involved in a transaction, whether it is the buyer, seller, or cooperating agent.
Realtors® also have access to educational opportunities and training in real estate specialties that are not available to other licensees. This includes accredited subspecialties such as buyer’s representation (ABR), residential real estate expertise (CRS), or Internet readiness (e-PRO).
Through membership in NAR’s affiliated institutes, societies, and councils, Realtors® devote themselves to continuous study of the most recent trends in their fields to stay abreast of industry developments in their specialized areas and better address industry issues.
A real estate licensee has passed an exam; Realtors® are real professionals.
Do your research.
Drive around your neighborhood or the area you’d like to live in, and make note of the active real estate agents in the area. Call local brokerages for agent recommendations, and specify whether you are buying or selling a home.
Ask trusted friends and relatives for referrals.
According to the 2005 National Association of Realtors® Profile of Home Buyers and Sellers, 44 percent of all recent buyers were referred to their real estate agent through a friend, neighbor, or relative.
Interview at least three agents.
Ask each about their business approach and philosophy (do they offer full service, or will you have to assume some responsibilities in the transaction); experience; designations and advanced training; and referral network (home inspectors, lenders, contractors, etc.). Home sellers should also ask about the number of homes sold in the past year, length of time on market, average sales price in relation to asking price, and the agent’s marketing plan.
Make sure your agent is a Realtor®.
A Realtor® is a licensed real estate professional who is a member of the National Association of Realtors® and subscribes to its strict Code of Ethics, which obligates Realtors® to be honest with all parties involved in a transaction, whether it is the buyer, seller, or cooperating agent.
Realtors® also have access to educational opportunities and training in real estate specialties that are not available to other licensees. This includes accredited subspecialties such as buyer’s representation (ABR), residential real estate expertise (CRS), or Internet readiness (e-PRO).
Through membership in NAR’s affiliated institutes, societies, and councils, Realtors® devote themselves to continuous study of the most recent trends in their fields to stay abreast of industry developments in their specialized areas and better address industry issues.
A real estate licensee has passed an exam; Realtors® are real professionals.
Saturday, March 11, 2006
Intermediate Fixed Rate Loans
Intermediate Fixed Rate mortgages (sometimes referred to as Short-Term Fixed Rate mortgages, or Hybrids) come in numerous varieties; the 3, 5, 7 and 10-Year Fixed. These are all 30-year loans that carry a fixed rate for a set number of years, and then roll over to an Adjustable Rate Mortgage.
For example, in a 7-Year Fixed Rate scenario, the rate would be fixed the first seven years, and the loan becomes an Adjustable for the remaining 23 years. The main advantage of these hybrid programs over a traditional 30-Year Fixed loan is typically a slightly lower interest rate.
These types of loans often work well for people who do not plan on being in their home for an extended period of time, such as first time home buyers. The most important question to ask when going into an Intermediate Fixed Mortgage is how long will the borrower need the money?
If the borrower intends to sell the home in four to five years, then a 5-Year Fixed loan offers stability and a lower interest rate for the time that money is needed. However, in this example it would not be wise to pay points up front to obtain a lower interest rate, because the likelihood of recuperating the cost of those points would be diminished with the short tenure in the loan.
The borrower's financial planner and mortgage planner should work hand-in-hand to provide guidance to the borrower in these matters.
For example, in a 7-Year Fixed Rate scenario, the rate would be fixed the first seven years, and the loan becomes an Adjustable for the remaining 23 years. The main advantage of these hybrid programs over a traditional 30-Year Fixed loan is typically a slightly lower interest rate.
These types of loans often work well for people who do not plan on being in their home for an extended period of time, such as first time home buyers. The most important question to ask when going into an Intermediate Fixed Mortgage is how long will the borrower need the money?
If the borrower intends to sell the home in four to five years, then a 5-Year Fixed loan offers stability and a lower interest rate for the time that money is needed. However, in this example it would not be wise to pay points up front to obtain a lower interest rate, because the likelihood of recuperating the cost of those points would be diminished with the short tenure in the loan.
The borrower's financial planner and mortgage planner should work hand-in-hand to provide guidance to the borrower in these matters.
Tuesday, March 07, 2006
Small Kitchen Remodels Make the Difference
While it's true that new kitchen cabinets, appliances, and granite countertops are popular kitchen remodels, there are simple ways to improve your kitchen that many never consider. Kitchen lighting is an overlooked part of interior design, as are paint options and different styles of windows.
Kitchen Lighting
If there is a room in your house that does not light properly, then you have an understanding of the importance of lighting. Some rooms and some house plans leave families with dark areas of their homes and too much light in other places.
The kitchen is often overlooked in terms of lighting because most people think the only rooms that matter are the den, the dining room, and the bedroom. However, a poorly lit kitchen is difficult to work in, not to mention a bad complement to your other stylish kitchen features.
Consider these ideas for updating your kitchen lighting:
Under Cabinet Lighting:
This type of lighting is a great addition because it is hidden and allows you to work any place in your kitchen with adequate lighting.
Track Lighting:
Track lighting is no longer the gaudy monstrous track lighting made famous in the 70s. New developments in track lighting have made this type of lighting very slight and effective, while still able to illumine any part of your kitchen.
Above Cabinet Lighting:
This type of lighting makes the tops of cabinets feel like they are glowing, which is an excellent design effect in making your kitchen warm and inviting.
Kitchen Color
Because other features like counters, cabinets, and appliances usually take over the landscape of the kitchen, we often forget the impact of a fresh coat of paint or what a new paint color can do a kitchen's design. After all, there usually isn't much visible wall space in the typical kitchen. However, this doesn't mean that a new color won't make a significant impact on your kitchen's style.
Painting Your Kitchen
Because people entertain in their kitchens so much these days, it is common to decorate with warm colors and warm lighting designs so that the kitchen is a welcoming place to sit and enjoy the company you're keeping. Warm colors like deep reds and yellows keep your guests feeling warm, even as they are leaning against a cool granite or stone counter.
But don't think that you can't accent the wall colors just because you have limited space to work with. You can add details like tile backsplash and new fixtures. Because you can order tiles in any color, and tiling professionals can shape them into any design, you can highlight any color you choose just with a smart tile choice.
Appliances also help to accent the color scheme of your kitchen. There are many more colors to choose from than that old white and cream. Stainless steel appliances are very popular for their modern look, while black appliances are able to tone down strong colors in a kitchen.
Whatever you decide, just know that there are many options for small kitchen remodels that are not costly, but are worth millions in style points. A designer can give you several ideas about how to reshape the look of your kitchen with lighting and color.
Kitchen Lighting
If there is a room in your house that does not light properly, then you have an understanding of the importance of lighting. Some rooms and some house plans leave families with dark areas of their homes and too much light in other places.
The kitchen is often overlooked in terms of lighting because most people think the only rooms that matter are the den, the dining room, and the bedroom. However, a poorly lit kitchen is difficult to work in, not to mention a bad complement to your other stylish kitchen features.
Consider these ideas for updating your kitchen lighting:
Under Cabinet Lighting:
This type of lighting is a great addition because it is hidden and allows you to work any place in your kitchen with adequate lighting.
Track Lighting:
Track lighting is no longer the gaudy monstrous track lighting made famous in the 70s. New developments in track lighting have made this type of lighting very slight and effective, while still able to illumine any part of your kitchen.
Above Cabinet Lighting:
This type of lighting makes the tops of cabinets feel like they are glowing, which is an excellent design effect in making your kitchen warm and inviting.
Kitchen Color
Because other features like counters, cabinets, and appliances usually take over the landscape of the kitchen, we often forget the impact of a fresh coat of paint or what a new paint color can do a kitchen's design. After all, there usually isn't much visible wall space in the typical kitchen. However, this doesn't mean that a new color won't make a significant impact on your kitchen's style.
Painting Your Kitchen
Because people entertain in their kitchens so much these days, it is common to decorate with warm colors and warm lighting designs so that the kitchen is a welcoming place to sit and enjoy the company you're keeping. Warm colors like deep reds and yellows keep your guests feeling warm, even as they are leaning against a cool granite or stone counter.
But don't think that you can't accent the wall colors just because you have limited space to work with. You can add details like tile backsplash and new fixtures. Because you can order tiles in any color, and tiling professionals can shape them into any design, you can highlight any color you choose just with a smart tile choice.
Appliances also help to accent the color scheme of your kitchen. There are many more colors to choose from than that old white and cream. Stainless steel appliances are very popular for their modern look, while black appliances are able to tone down strong colors in a kitchen.
Whatever you decide, just know that there are many options for small kitchen remodels that are not costly, but are worth millions in style points. A designer can give you several ideas about how to reshape the look of your kitchen with lighting and color.
Monday, March 06, 2006
California home inventory, price up, but sales down
Homes are sitting on the market longer in California as sales continue to drop, the state's Realtor group said on Feb. 28.
Despite that, the median price was up 13.8 percent from 12 months ago to $551,300 in January, according to the California Association of Realtors.
Sales declined from January 2004 to January 2005 by 24.1 percent statewide -- 21.2 percent in the Santa Clara region, 35.9 percent in Monterey County and 31.2 percent in Santa Cruz County.
The median price was up 11.4 percent to $740,000 in Santa Clara, 10.5 percent to $685,000 in Monterey and 2 percent to $729,500 in Santa Cruz.
The unsold inventory index, which measures how long it would take to sell the current inventory of homes, has increased to six months from 3.2 months a year ago.
"We expected January sales to fall below the record that was set in January 2005," said association President Vince Malta in a prepared statement. "The decrease was intensified by interest rates crossing the psychological threshold of 6 percent in the last quarter of the year, and by weakness in consumer confidence due to the residual effects of Hurricane Katrina."
"However, interest rates remain near historic lows, and we expect sales activity to accelerate as we move into the traditional selling season," Malta said.
Despite that, the median price was up 13.8 percent from 12 months ago to $551,300 in January, according to the California Association of Realtors.
Sales declined from January 2004 to January 2005 by 24.1 percent statewide -- 21.2 percent in the Santa Clara region, 35.9 percent in Monterey County and 31.2 percent in Santa Cruz County.
The median price was up 11.4 percent to $740,000 in Santa Clara, 10.5 percent to $685,000 in Monterey and 2 percent to $729,500 in Santa Cruz.
The unsold inventory index, which measures how long it would take to sell the current inventory of homes, has increased to six months from 3.2 months a year ago.
"We expected January sales to fall below the record that was set in January 2005," said association President Vince Malta in a prepared statement. "The decrease was intensified by interest rates crossing the psychological threshold of 6 percent in the last quarter of the year, and by weakness in consumer confidence due to the residual effects of Hurricane Katrina."
"However, interest rates remain near historic lows, and we expect sales activity to accelerate as we move into the traditional selling season," Malta said.
Thursday, March 02, 2006
If I Sell My Home, Will I Have to Pay Capital Gains Tax?
The IRS permits a maximum exclusion on capital gain of $250,000 for individuals and $500,000 for married couples filing a joint return who sell their home, but of course some conditions apply.
For the five-year timeframe prior to the date of the sale of your primary residence, you must meet the Ownership and Use Tests the IRS provides in Publication 523, Selling Your Home. These rules ensure you have owned the home for at least two years, and lived in the home for at least 24 months out of the last five years. Additionally, you may not have excluded a gain on your taxes from the sale of a different home within the last two years. Note that if you sell your property for less than your original purchase price, you cannot claim a capital loss.
A 'reduced maximum exclusion' can apply to those who must sell their home due to a change in their place of employment, health issues, or unforeseen circumstances that affect qualified individuals. In all cases, it is best to consult your tax professional or IRS guidelines if you have any questions about the taxes you may be responsible for if you sell your home.
For the five-year timeframe prior to the date of the sale of your primary residence, you must meet the Ownership and Use Tests the IRS provides in Publication 523, Selling Your Home. These rules ensure you have owned the home for at least two years, and lived in the home for at least 24 months out of the last five years. Additionally, you may not have excluded a gain on your taxes from the sale of a different home within the last two years. Note that if you sell your property for less than your original purchase price, you cannot claim a capital loss.
A 'reduced maximum exclusion' can apply to those who must sell their home due to a change in their place of employment, health issues, or unforeseen circumstances that affect qualified individuals. In all cases, it is best to consult your tax professional or IRS guidelines if you have any questions about the taxes you may be responsible for if you sell your home.
Wednesday, March 01, 2006
High Credit Score = Low Mortgage Rate
Credit scoring was developed in the 1960s as a means to determine whether or not consumers were likely to repay their loans. The score ranges from 300 to 900 with a higher score being extremely favorable. Most people have a score between 400 and 800. Essentially, a high credit score translates into lower interest rates for the borrower.
There are five factors that comprise the credit score. Payment history accounts for 35% of the score; outstanding credit balances have a 30% impact; credit history makes up 15%, type of credit factors at 10%; and inquiries influence the score by 10%. This gives the lender a snapshot of an individual's sense of financial responsibility and ability to pay back loans.
There are five factors that comprise the credit score. Payment history accounts for 35% of the score; outstanding credit balances have a 30% impact; credit history makes up 15%, type of credit factors at 10%; and inquiries influence the score by 10%. This gives the lender a snapshot of an individual's sense of financial responsibility and ability to pay back loans.
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