Seattle Area Real Estate Blog

First Time Home Buyers Guide Part 1

seattlearea — Mon, 25 Jan 2010 20:02:23 +0000

For a first time homebuyer the whole process of purchasing a home can be a bit daunting at first thought. It doesn’t need to be if you have the right people you are working with. That also goes for any person purchasing a home in the ever evolving real estate and mortgage market. Here’s a guide to approaching the process of buying a home in 10 steps:

1. ARE YOU READY?

Knowledge and experience are the keys to successful real estate transactions. One of the keys to making the home buying process easier and more understandable is planning. In doing so, you’ll be able to anticipate requests from lenders, agents and a host of other professionals. Furthermore, planning will help you discover valuable shortcuts in the home buying process.

Do You Know What You Want?

Whether you are a first-time homebuyer or entering the current market as a repeat buyer, you need to ask why you want to buy. Are you planning to move to a new community due to a lifestyle change or is buying an option and not a requirement? What would you like in terms of real estate that you do not have now? Do you have a purchasing timeframe? Whatever your answers, the more you know about the real estate marketplace, the more likely you are to effectively define your goals. As an interesting exercise, it would be worthwhile to look at the questions above and to then discuss them in detail when meeting with an agent so you both can work towards achieving your goals.

Do You Have The Money?

Homes and the financing of them are almost always intertwined. Financing is the difference between the purchase price and the down payment, commonly referred to as the loan or mortgage. Down payment amounts have varied over the years as we witnessed the coming and going of many no down payment loan programs over the last 5 years. As of now, if you’re looking at a Conventional Loan you’ll have to put 20% of the purchase price down to avoid having to pay PMI (Private Mortgage Insurance). Although if you are willing to pay PMI you can put as little as 5% down depending on your credit scores and the type of property you’re looking for. Condominiums require larger down payment percentages than single family houses. There are also government lending programs that offer even lower down payment options. The FHA Loan program requires only a 3.5% down payment and can be used on most houses. Both the VA Loan program for veterans or current military and the USDA Guaranteed Rural program allow for no down payment purchases if the borrower and property qualify.

Not everyone, however, elects to purchase with little or no money down. Less money down means higher monthly mortgage payments, so most homebuyers choose to buy with as much down payment as they can afford. In addition to a down payment, purchasers also need cash for closing costs (the final costs associated with closing the loan). In markets where buyers have leverage, such as our current buyers market, it may be possible to negotiate an offer for a home that requires the owner to pay some or all of your settlement expenses. Speak with your realtor for details or ways to set that up as part of your purchase agreement.

Is Your Financial House in Order?

The loans that are currently available do require one thing that the subprime loans available during the past several years did not : You need fairly good credit. In general a minimum credit score of 620 is needed for the Government loan programs and Conventional loan programs need higher scores than 680 to get good interest rates for them. For at least one year prior to purchasing a home, you should assure that every credit card bill, rent check, car payment and other debt is paid in full and on time. In order to make sure you have the highest possible scores when your credit report is pulled, you should have your credit card balances as low as possible in relation to your available credit. You should also review your credit report when it is pulled by the loan originator to make sure that it is accurate and if there are any mistakes they can be corrected. Some loan originators also offer credit improvement information with their credit reports which can be very helpful if you need to improve your score in order to qualify for a mortgage.

2. GET A REALTOR

More than 2 million people in the United States have real estate licenses. However, real estate is a tough business with a steep dropout rate, and the result is that only a small percentage of those with licenses actively help buyers and sellers. The National Association of Realtors (NAR) includes 1 million brokers and salespeople, individuals bound together with a strong Code of Ethics, extensive training opportunities and a wealth of community information.

Why?

Buying and selling real estate is a complex matter. At first it might seem that by checking online sites you could quickly find the right home at the right price and go after it by yourself. But a basic rule in real estate is that all properties are unique. No two properties — even two identical models on the same street — are precisely and exactly alike. Homes differ; neighborhoods differ and so do contract terms, financing options, inspection requirements and closing costs. Also, no two real estate transactions are alike. In this maze of forms, financing, inspections, marketing, pricing and negotiating, it makes sense to work with a professional who knows all the aspects of the real estate business.

What should you expect? Once you select a Realtor you will want to establish a business relationship. You may know that some realtors represent sellers while others represent buyers. As a buyer, it is important that you have your own representation and Realtor that represents your interests first. If you were to work with an agent representing the seller they have first duty to the seller so you’ll be at a disadvantage when negotiations are taking place. Once hired for the job, the Realtor will provide you with information detailing current market conditions, lists of properties that will best fit your needs, financing options and negotiating issues that might apply to each situation. Remember: Because market conditions can change and the strategies that apply in one negotiation may be inappropriate in another, this information should not be set in stone. During your time in the market, your Realtor will keep you updated and alert you to each step in the transaction process.

3. GET LOAN PREAPPROVAL

What is it?

“Preapproval” means you have met with a loan originator, your credit, income and assets have been reviewed and the loan officer believes you can readily qualify for a given loan amount with one or more specific mortgage programs. Based on this information, the lender will provide a preapproval letter, which shows your borrowing power. You can visit as many lenders as you like and get several preapprovals, but keep in mind that each one carries with it a new credit check, which will show up on future credit reports and can hurt your credit scores. Although not a final loan commitment, the preapproval letter can be shown to listing brokers when making an offer. It demonstrates your financial strength and shows that you have the ability to go through with a purchase. This information is important to owners since they do not want to accept an offer that is likely to fail because financing cannot be obtained.

How do you get preapproval?

Real estate financing is available from numerous sources such as banks, credit unions and mortgage brokers that work with local Realtors and in some cases individual Realtors such as myself, who are licensed to do both. Licensing of loan originators is now a national requirement so be sure to check that the person you’re working with is licensed to do so in your state. The loan originator will carefully review your financial situation, including your credit report and other information such as income and assets. They then will then suggest programs which most-closely meet your needs. For instance, a first-time buyer may qualify for a government backed mortgage program with little money down and low interest rates, while a repeat purchaser (someone who has bought a home before) with more equity (money invested in the home) might want to get a 15-year loan and the lower overall interest costs it represents. Typically, first-time buyers opt for the traditional 30-year loan, with a fixed rate of interest over the life of the loan.

I suggest that buyers start the mortgage process well before making an offer on a home. By meeting with mortgage brokers or lenders — either online or face to face — and looking at loan options, you will find which programs best meet your needs, how much you can afford and get pre-approved. I also recommend preapprovals for another reason: Purchase forms often require buyers to apply for financing within a given time period, in many cases, 5 to 10 days. By meeting with a licensed loan originator in advance and identifying mortgage programs, it won’t be necessary to quickly find a lender, check credit, and rush into a financing decision that may not be the best option.

Up next in Part 2 of my Buyers Guide – Looking For Homes!

Seattle Mortgage Rates in 2010

seattlearea — Mon, 25 Jan 2010 19:59:52 +0000

Two weeks into the new year and the average rate for a 30 Year Fixed Conventional Mortgage is at 5.06% as reported by Freddie Mac. That’s lower than the previous two weeks but nowhere near the record lows we saw in 2009 when the average got as low as 4.71%. So the big question is where are mortgage rates headed in the upcoing year? Should we expect to see more rates in the 4’s or are we headed back to the 6’s? There are many signs that point to the 4’s being a thing of the past now that we’re back above that critical 5% mark.

So what are the things that will influence where rates are in 2010? One of the main reasons why mortgage rates dropped to these new lows last year was the Federal Reserve started buying mortgage backed securities providing a market for them that wasn’t driven by private investors and banks. The Fed’s purchase program is slated to end in March 2010 as it reaches it’s purchase total of $1.25 trillion. After that we’ll be back to a mortgage rate market that is driven by private investors who will probably want higher interest yields for their investment.

As the economy starts to improve and investors move money into the stock market, mortgage rates will have to push higher in order to attract investment in mortgage backed securities. We’ll start to see an increased demand for borrowing across the business spectrum and it will drive interest rates for all loans upwards. With the Fed program ending on April 1st and and the spring buying season ramping up shortly thereafter it’s likely we’ll see rates in the mid to upper 5’s by the summer . Expect that in 2010 we’ll have rates hovering closer to 6% rather than 5% like we saw in 2009. In my next blog post I’ll cover some tips for first time home buyers when getting setup and qualified for their first home loan.

In addition to being a Realtor with EXP Realty, Michael Pollock is Licensed Loan Originator in the state of Washington with Northwest Home Center (#510-LO-35045)

Seattle Home Loans in 2010

seattlearea — Mon, 25 Jan 2010 19:55:57 +0000

There have been major overhauls in the mortgage industry over the past several years with loan programs going away, qualifications getting more restrictive and an increase in documentation and disclosures for borrowers. The US Department of Housing and Urban Development (HUD) has introduced new elements to the Real Estate Settlement Procedures Act (RESPA) many of which went into effect on January 1, 2010. Many people are wondering what kind of effects these new regulations will have on mortgage lending and real estate transactions.

The first and most noticeable changes are in the standard paperwork for any mortgage loan, specifically the Good Faith Estimate that is provided to any borrower as part of a loan application after January 1st. A Good Faith Estimate must be provided to any borrower within 3 days of making a loan application. What used to be 2 pages with line item detail has been expanded to 3 pages in an effort to more specifically identify loan related costs and compensation. It offers “tradeoffs” on page 3 which the loan originator/lender can choose to complete or not, identifying loan options with less fees/higher rate or higher fees/lower rate. It also offers a “shopping cart” for the borrower to fill in details from other lenders estimates to comparison shop. These additions are nice benefits to the borrower if they take the time to review them and fill in the comparison section.

A difficulty that any borrower may continue to run into is that any Good Faith Estimate is only binding for as long as identified by the loan originator/lender or if the rate is already locked. For example, if a borrower requests an estimate for a loan and receives it on a Tuesday but the rate has not yet been locked in (likely), comparison shops for several days and comes the loan originator to lock on Friday – it’s entirely possible that the rate/fee structure initially quoted could no longer be available. Origination costs/lender compensation CAN NOT change between a rate lock/acceptance by the borrower and settlement so a new Good Faith Estimate would need to be issued if there were changes in either the rate or fees from the initial estimate provided. This provides insurance to the borrower that there won’t be any suprises at closing with increased/undisclosed loan fees.

All loan originators/brokers/lenders/bankers are bound by HUD to use the new Good Faith Estimate for all new loan applications after January 1st. While it is different than previous versions and may be confusing to some borrowers it’s intention is to make the loan details more specifically identified and not allow for hidden costs/fees. One thing that most borrowers should expect is an increase in the amount of time it takes to complete a loan. The new regulations and disclosure timeframes have made it very difficult for loans to be completed in 30 days unless the borrower has already signed the application and submitted their income/asset documentation to the lender or loan originator. This is important to note as it effects the timelines for closing on purchases as well as the ability for a refinance to be completed within a 30 day rate “lock”.

As a borrower if you have any questions about the details on your Good Faith Estimate ask your loan originator directly. If you see unusual things on an estimate or areas that appear to be “missing” numbers or details it’s likely that the person issuing the GFE either improperly or incompletely filled it out. Beware of those lenders who seem to be lacking in disclosure of loan details and terms of the loan they are offerring. Feel free to share an estimate like that with another originator to verify it’s legitimacy. I encourage all borrowers to shop around and get quotes from at least three lenders before doing a refinance or purchase. More to follow this week in regards to current rates/mortgage market trends for 2010.

In addition to being a Realtor, Michael Pollock is Licensed Loan Originator in the state of Washington (#510-LO-35045)

Seattle Mortgage News For The Week of January 25th

seattlearea — Mon, 25 Jan 2010 19:52:45 +0000

The beginning of 2010 was marked by higher mortgage rates but we continued to see some improvement with the third week of declines in a row. The average for a 30 Year Fixed Conventional loan as reported by Freddie Mac dropped to 4.99% from 5.06% the previous week. That was in a week that had little economic reports/news but interest rates dropped based upon economic concerns with money flowing out of the stock market and into bonds last week. This week should hold more economic news such as the Federal Open Market Committee of the Federal Reserve meeting on Wednesday, which will set the Fed Funds rate; reports on New Home Sales, Initial Jobless Claims, Gross Domestic Product & Consumer Sentiment. So how do those impact mortgage rates you ask???

In general if those reports match expectation of the market we won’t see much change, but if they are better than the market expects it shows signs of an improving economy and it’s likely mortgage rates will rise as investors move out of bonds into the stock market. If we get worse numbers than expected, as we did today with Existing Home Sales figures coming in at 5.45M with the market expecting 5.9M, we will see rates hold steady or potentially improve. With all of theser reports out this week it’s likely we’ll have some movement in rates depending on how things shake out and look to investors.

The overall mortgage market right now is quite volatile within a small range. Most quotes I’m making to clients range between 4.75% and 5.125% depending on the day, their credit rating and desire to pay origination fees or not. I am in general encouraging most clients to lock-in their rates now as we expect rates to continue to slowly rise this year as mentioned before in my 2010 mortgage outlook post.

Michael Pollock is a Realtor with EXP Realty as well as a Licensed Loan Originator in Washington with Northwest Home Center (510-LO-35045)

Homebuyer tax credit questions

seattlearea — Tue, 17 Nov 2009 20:12:46 +0000

Here are some frequently asked questions with regards to the revisions to the Homebuyer Tax Credit program

Must the new house cost more than the old house? No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit

I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. Will I qualify for the new $6500 tax credit? Yes. The existing homeowner credit goes into effect for purchases after the date of enactment (November 8th). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement

I am a first-time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits. If the new rules have been signed into law by thetime I go to settlement, will I be eligible for a credit? Yes. The new income limitations go into effect as soon as the President has signed the bill. (November 8th). The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So if the new rules have been signed when you go to settlement; you should be eligible for the credit (or a portion of the credit if you’re within the phase-out range).

I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a non-negotiable price of $825,000. Will I be able to use any of the $6500 tax credit? No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit The $800,000 is an absolute ceiling.

I owned my home for 10 years, but sold it two years ago year and have been renting since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests? Yes. Because you lived in the home for more than 5 consecutive years of the previous 8. You will qualify for the $6500 credit For example, Say John and his wife bought a home in 2000 and lived there until 2008 when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home an occupied it as his principal residence for 5 consecutive years out of the last 8years. The keyword here is “consecutive.” As long as he lived in that house for 5years straight what he did since 3 years doesn’t impact eligibility.

I am an eligible first-time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me? You do not have to close before December now that the extension is signed. Once the legislation was signed, it will be as if the Nov 30 date had never existed. Therefore as long as the contract is in place before April 30 (and closed/settled by July 1, 2010) the purchaser will be eligible for the credit

There are many more questions that can be asked about the credit. I encourage you to either ask your tax attorney or contact me about how you can take advantage of this opportunity.

Evolving Mortgage Market

seattlearea — Thu, 19 Jun 2008 05:36:49 +0000

Throughout the last several years the mortgage market has undergone many changes. We went from having too many products with too little restriction and aggressive account executives promoting their products. Now the pendulum has swung back the other way and the products are limited, the number of low or no down payment products has shrunk to only a few and the interest rates are slowly inching up again. It’s always in a state of flux although the great rates on 30 Year Fixed loans we had earlier in 2008 are slowly going away. With an average rate around 6% these days it’s still quite good in comparison to the long term average of roughly 8% and nowhere near the 12% that was around in the 80′s. With the way things are these days I’m encouraging all clients to get loan pre-approval before making an offer that way you’re confident in what loan and rates would be available.