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4 Common Home Buyer Slip-Ups
Real estate professionals see a lot of dumb reasons why home buyers ultimately end up losing out on a deal. Practitioners recently shared some of the more common mistakes with realtor.com®, including ways to correct the situation:
1. Shopping outside their price range.
“It sounds obvious, but some home buyers just have trouble sticking to a budget,” says Benny Kang, a real estate professional in Irvine, Calif. Shopping online may increase the temptation to bump up the price range. One way to avoid this situation is to encourage your buyers to get preapproved for a loan so they know what they can truly afford and stay within their limits.
2. Submitting lowball offers in a hot market.
“If you’re in a seller’s market, making a crazy lowball offer can piss off the seller,” says Kang. Buyers would be smart to offer full price when homes are priced well. Help buyers understand how a comparative market analysis can offer insight into pricing.
3. Making a big purchase while in escrow.
Buyers often don't realize they will need to delay big purchases and opening new credit lines while in the process of buying a home. “Even buying a fridge can throw off your credit or debt-to-income ratio,” says Kathy Conway, a Philadelphia real estate professional. If a big purchase is made, the mortgage lender’s underwriter will need to re-evaluate the buyer’s finances and recheck her credit report before closing to ensure the buyer still qualifies for the mortgage, so be sure to warn buyers when they're approaching this period.
Dumb reason No. 4: Shopping outside your price range
“It sounds obvious, but some home buyers just have trouble sticking to a budget,” says Kang. Therefore, resist the temptation to shop online for homes that are simply outside your price range (i.e., how much you’ve been pre-approved for).
Dumb reason No. 5: Making lowball offers in a seller’s market
You need to rely on your real estate agent to determine whether a house that you’re interested in has a fair listing price. (Your agent will do this by performing a comparative market analysis, which entails looking at recently sold properties that are comparable to the house that’s up for sale.) If a home is priced well, it might make sense to offer full price, says Kang. Moreover, “if you’re in a seller’s market, making a crazy lowball offer can piss off the seller” and kill your offer, says Kang.
Dumb reason No. 6: Writing a bad personal letter to the seller
If you’re competing against other buyers, writing the seller a personal letter can help strengthen your offer. But Julie McDonough, a real estate agent in Southern California, says some home buyers are inclined to overshare, in which case a letter can actually hurt your offer.
“Stick to the fact that you love the house and the neighborhood,” says McDonough. “Don’t get into personal details” such as the fact that you’ve lost out on other homes or want to remodel the dated kitchen.
Dumb reason No. 7: Making a big purchase while in escrow
Some home buyers make the mistake of opening new credit accounts while they’re in the process of buying a house. But purchasing a big-ticket item like a car or a boat while you’re buying a house can jeopardize your financing. Why? Because your mortgage lender’s underwriter is going to re-evaluate your finances and recheck your credit report shortly before closing in order to determine that you’re still able to qualify for the loan.
“Even buying a fridge can throw off your credit or debt-to-income ratio,” says Conway. Translation: Don’t make any big purchases until after you close on the house.
Dumb reason No. 8: Not budgeting for closing costs
If you don’t have enough cash to cover closing costs, you won’t make it to settlement; and if that’s the case, you could lose your earnest money deposit. Thus, make sure to get an estimate from your mortgage lender of what your closing costs will be before making an offer on a property (currently, this is legally required—just make sure to read it).
Closing costs vary widely by location, but they typically total 2% to 7% of the home’s purchase price. So on a $250,000 home, your closing costs could come to $5,000 to $17,500. Both buyers and sellers usually pitch in on closing costs, but buyers shoulder the lion’s share of the load (3% to 4% of the home’s price) compared with sellers (1% to 3%), so you need to make sure you have enough cash on hand to pay your portion.
Best Places to Raise the Next Olympian
Where you grow up may have some influence over whether you could become the next world-class athletic superstar. So which cities hold the best chances for raising the next Olympian?
Trulia’s research team analyzed athletic resources per 10,000 households – from trampoline parks to swim clubs – among cities across the U.S. to come up with a list of where to raising a budding gymnast, swimmer, and track and field star.
The seven best places to raise gymnasts in training:
- Ventura County, Calif.
- Orange County, Calif.
- San Francisco, Calif.
- Fairfield County, Conn.
- Austin, Texas
- San Jose, Calif.
- Cambridge-Newton-Framingham, Mass.
The seven best cities to raise swimmers in training:
- Ventura County, Calif.
- Seattle, Wash.
- Honolulu, Hawaii
- Austin, Texas
- Sacramento, Calif.
- Orange County, Calif.
- San Francisco, Calif.
The seven best cities for running and jumping:
- San Diego, Calif.
- Orange County, Calif.
- San Francisco, Calif.
- Ventura County, Calif.
- San Jose, Calif.
- Oakland, Calif.
- Los Angeles, Calif.
Source: “Best Places to Raise a World-Class Athlete,” Forbes.com (Aug. 9, 2016)
Poll: Real Estate Better Than Stocks, Gold
Despite recent gains in the stock market, Americans have more confidence investing in real estate. About a quarter of Americans surveyed said real estate was their top choice for long-term investing, according to a new national survey released by Bankrate.
Consumers selected real estate as the top pick to invest money they wouldn’t need for more than 10 years, followed by cash investments (e.g. certificates of deposit and savings accounts). Then, coming in a distant third was the stock market.
“Houses are tangible,” says Sterling White, co-founder of Holdfolio, a real estate investment firm. “You can physically see and feel the product. So you know where your money is going: It’s going into that house. With stocks, you have no clue where your money is going.”
The millennial generation was the only group that valued cash investments above other choices (32 percent of those between the ages of 18 and 35 and 43 percent of 18 to 25 year olds selected cash as their top choice) by a large margin.
It’s concerning “that so many people think that’s such a good investment for such a long period of time,” says Avani Ramnani, a financial planner and director of financial planning and wealth management at Francis Financial. “Right now, especially, you’re getting practically no interest from cash investments like savings accounts and CDs.”
Americans are feeling more bullish about their sense of financial well-being, according to the Bankrate Financial Security Index, which is based on survey questions of how consumers feel about their debt, savings, net worth, and job security.
Reverse Mortgages Slowly Make a Comeback
The New York Times is dubbing the reverse mortgage the “quiet comeback” kid in the mortgage marketplace.
Reverse mortgages allow home owners 62 years old or older to tap into their home equity without having to face monthly payments. Reverse mortgages had a bad reputation a few years ago when widespread abuses of their use was reported. But now they’re gradually making their way back into the market, as reforms in the system make them a safer option for lenders. The Federal Housing Administration and the Consumer Financial Protection Bureau have tightened regulations on their use.
Reverse mortgage volume was around 30,000 this year, modest compared to about 115,000 from its peak in popularity in 2009, according to the Federal Housing Administration.
“They’ve always been there as a last resort,” John Salter, a financial planning professor at Texas Tech, told The New York Times. “But they make a lot more sense now because home equity can be a big part of net worth.”
More financial planner are starting to recommend them due to the lowers costs and better consumer protections – such as the mandate that counseling is now required, says Jamie Hopkins, a professor at the American College of Financial Services.
“Many people don’t have enough money to get through retirement, so they have to consider all of their wealth, including home equity as a retirement income source,” Hopkins says.
Still, reverse mortgages aren’t right for everyone. “If you want to provide a bequest to your heirs by allowing them to sell your home upon your death, a reverse mortgage can wipe out much of the equity in your home,” The New York Times reports. The loans also can prove more challenging for those who need to move due to a disability or need to sell their home after a short period of time living there.
5 Things Renters Should Know About Owning
For renters who aspire to be home owners, transitioning from an apartment to a house requires a shift in their thinking that they may not be prepared to make. The financial changes that come with owning, the need to consider planting longer-term roots in a neighborhood, and new neighborhood rules are things renters may not be thinking about enough.
As their real estate agent, it’s important for you to be there for your clients when they’re embarking on a life-changing event such as buying a home.
Moving can already be one of the most stressful times in a person’s life, but it may be doubly so for a new home owner. In order to be their most reliable resource, using your knowledge and experience to provide them with guidance, share these helpful nuggets of information with your clients so their transition from renter to owner can be as smooth as possible.
They need to understand how their financial investment is changing. Renters may see an increase in their monthly rent every lease term, but they don’t see exactly where it goes — toward property taxes and insurance, even “luxuries” such as trash pickup. As home owners, they don’t have a landlord who handles all those details, so they need to be ready to juggle the financial responsibilities of home ownership. Have an open conversation with your clients about these changes and the importance of budgeting to make sure they make smart financial decisions during this process.
They need to be happy with their location for the long-term. As a renter, you can bounce around from home to home every year if you want. But when you own a home, you have to stay put — unless you plan on renting it out, which most home owners don’t. Impress upon your client that location is going to play a much more significant role in their future, so they should think about evaluating school districts, access to amenities, and commute time now as they search for their next home.
They may need to abide by new rules. Renters don’t think about possible homeowner association rules they may be governed by, such as trash pickup rules or any curfews or rules pertaining to animals. Make sure to get all the information on neighborhood rules and associations to help your client understand what their new obligations will be.
They’ll need to get into the mindset of an owner. Life as your client knows it is about to change. Once your client purchases a new home, they will no longer have a landlord to tend to their many needs, including lawn care and plumbing. The best way you can help them as their real estate agent is to provide them with contact information for local industry experts. They will eventually need certified specialists ranging from HVAC companies to carpenters to electricians. Let them know they don’t have to do everything themselves.
They should know their neighbors can affect their value. Renters don’t care who their neighbors are as long as they’re quiet (enough). But your client is now going to want to know whether their new neighbors are renters or home owners. This knowledge can help your clients gauge current and future home value in the neighborhood. If the neighborhood consists mostly of rental properties, it is likely a home owner will lose money on their house in the future. Renters do not always feel responsible for maintaining their properties the way home owners do. Property value comes down to curb appeal. Less-appealing neighborhoods often have more-appealing prices, which is not always good for buyers and home owners.
Study Reveals Best Real Estate Pricing Strategy
Set the asking price just below a round number – that’s the best technique for pricing a home for sale, according to new research published in the Journal of Housing Research.
Researchers found that buyers are more drawn to a house priced “just below” at, say, $199,000 than to a house priced at a rounded number like $200,000.
"Our study suggests that by using the just below pricing strategy sellers can price their home slightly higher without driving away potential buyers," says Eli Beracha, one of the study’s author. "As a result, they end up selling their house for more."
Indeed, researchers found that such a “just below” pricing strategy yields a selling price that is about 2.5 to 3 percent higher – or $5,000 to $6,000 more – on a $200,000 house compared with a rounded pricing listing strategy.
Still, rounded priced homes usually have a shorter time on the market and a lower discount relative to listing price, researchers found.
Yet, “sellers’ ability to set higher listing prices for properties using a ‘just below’ pricing strategy outweighs the lower discount and shorter time on the market associated with similar rounded priced strategy homes,” researchers found.
"We tested the age-old debate concerning the best technique to price a home when listing it for sale," Seiler says. "We find that using a price just below a round number works best, particularly in connection to the left-most digit in the price. So, $199,000 works better than $200,000."
The Coolest Home Invention Ever
As a heat wave leaves sweltering temperatures across the country, more home owners may be thankful they have air conditioning.
In 1906, Willis Carrier received a patent for what he dubbed at the time an “apparatus for treating air.” (The Carrier name is still prominent among air-conditioning manufacturers still today.) But A/C units did not grow in popularity until after World War II.
In 1965, only 10 percent of homes in the U.S. had one, and just 2.8 million window air conditioners were manufactured that year, according to U.S. Census data.
However, today the A/C is an important system in the home. Ninety-one percent of all new, single-family homes in the U.S. are air-conditioned. Now, nearly 20 percent of electricity consumption in U.S. homes go toward air conditioning. That means Americans use about as much electricity on air conditioning as the entire continent of Africa uses for all purposes, according to the book “Losing Our Cool: Uncomfortable Truths About Our Air-Conditioned World (and Finding New Ways to Get Through the Summer)” by Stan Cox.
Here are some tips so that home owners can make sure that A/C stays working effectively and efficiently through the hottest days of summer:
- Change out filters: Routinely replace or clean dirty filters. Clogged, dirty filters can block normal airflow and reduce the system’s efficiency. In fact, the U.S. Department of Energy’s website says that replacing a dirty, clogged filter with a clean one can lower your air conditioner’s energy consumption by 5 percent to 15 percent.
- Pay attention to the system’s coils: The evaporator coil and condenser coil can collect dirt over time. “A clean filter prevents the evaporator coil from soiling quickly,” The Department of Energy notes at its website. “In time, however, the evaporator coil will still collect dirt. This dirt reduces airflow and insulates the coil, reducing the ability to absorb heat. To avoid this problem, check your evaporator coil every year and clean it as necessary.”
- Check condensate drains: The Department of Energy also recommends occasionally passing a stiff wire through the A/C’s drain channels to make sure it’s not clogged. Clogged drains can prevent the A/C from reducing the humidity in the home and can even cause excess moisture to discolor walls or carpet.
How to Spot a Home Improvement Scam
Home owners looking to spruce up their homes need to make sure they don’t get duped by those who claim to be remodeling contractors.
How do you spot a scammer? Will Carpenter, assistant vice president of operations for Contractor Connection, recently offered the following tips in an article at RISMedia:
1. Pay up-front. Home owners should see red flags when a contractor requests that a home owner pay for a project in its entirety before even starting work. Down payments for materials and initial labor are standard practice. But then phased payments are often made as the work is completed.
Read more: Which Renovations Are and Aren't DIY
2. Door-to-door solicitations. So-called contractors may knock on a home owner’s door and talk about work they noticed needs to be done around the house. “This is a very common ruse and one that is, unfortunately, often successful,” Carpenter notes. Home owners will want to make sure they vet the contractor and the offer carefully.
3. Be wary of limited-time deals. Don’t let a contractor make you feel pressured to rush in order to receive a special discount. Reputable contractors offer savings but they won’t push a short deadline on you with pricing, Carpenter writes.
4. Unverified licensing. Be sure to verify credentials – licensing and available insurance coverage. Don’t just go on recommendations from friends and family. Look for examples of the quality of their prior work too.
More Owners Tap Into Equity, Conservatively
As home values rise, more home owners are tapping into their equity with cash-out mortgage refinances. But they’re not taking out nearly as much as they did in the past.
The average amount taken out by owners was more than $60,000. According to Black Knight Financial Services, the average loan-to-value ratio after the refinance was 67 percent – the lowest level ever. On average, borrowers then left 33 percent of equity still in the home after the cash-out refinance.
Forty-two percent of mortgage refinances last fall had borrowers who took cash out of their homes and did not refinance just to get a lower interest rate – the highest share since 2008, CNBC points out.
"All totaled, there was $64 billion in equity tapped via cash-out refinances over the past 12 months, the highest dollar amount for any equivalent 12-month period since 2008-2009," says Ben Graboske, Black Knight senior vice president. "Even so, this amounted to less than 2 percent of available equity being tapped. This is slightly below the post-crisis norm, and 80 percent less than the total amount of equity extracted from the market in 2005-2006."
Lenders are also being more stringent about who can do cash-out refinances. Borrowers who did a cash-out refinance had an average credit score of 748.
"The people that are transacting have passed the credit screens,” Graboske says. “Borrowers are taking out what they need. It's the mindset right now. Use what you need and not more. The only other explanation would be a lender level credit overlay, but these levels would be unprecedented. There is definitely money being left on the table."
The money that is taken out most often goes toward paying for home repairs, education costs, or medical bills. Borrowers are no longer using it for vacations or extravagances like they did a decade ago, CNBC reports.
“It seems they would rather use their home as a savings account, not a checking account,” CNBC reports
To Buyers, Mortgage Rates May Be Overrated
Changes in down payment requirements have more influence over home buyers' willingness to buy than changes in mortgage rates, according to a new study published by economists at the New York Federal Reserve.
The Fed's survey of buyers and renters found that the impact of interest rates may be overrated compared to the even the smallest changes in down payment requirements. The study found that dropping the required down payment from 20 percent to 5 percent increases the willingness to purchase, on average, by 15 percent among buyers and 40 percent among renters.
On the other hand, decreasing the interest rate on a 30-year fixed-rate mortgage raised the willingness to purchase a home by only 5 percent, on average. Buyers showed more influence by down payment changes even though the mortgage rate change could save them more money than the lower down payment.
"A key takeaway is that the effect of a change in down payment requirements on housing demand strongly depends on households' financial situation," says economists Andreas Fuster and Basit Zafar of the New York Federal Reserve. "For instance, a loosening of down payment requirements will have little effect on the willingness to purchase for a new home of current owners with substantial equity, or of renters with substantial liquid savings. The results also imply that macroprudential measures such as a loan-to-value (LTV) cap may predominantly affect the lower end of the housing market, and that the effect on house prices will depend on the state of the economy and other asset markets,"
$1B in Mortgages Milestone for Navy Federal
Navy Federal Credit Union, the world's largest credit union, announced its mortgage closings surpassed $1 billion in March, its best month ever.
The credit union says that first-time home buyers led the surge in mortgage closings – which comes at a time when many other lenders have said first-time buyers have been slow to enter the market.
"We're unique in that over 50 percent of our purchase volume comes from first-time buyers," says Katie Miller, Navy Federal's vice president. "Our goal is to bring awareness and opportunity to these young members."
The credit union’s offerings mostly cater to first-time home buyers and military families. For example, Navy Federal offers a conventional 100 percent financing fixed payment option with no private mortgage insurance that is known as HomeBuyer’s Choice.
Year-to-date, Navy Federal says it has made more than $2.5 billion in mortgage funds available to its members. Bank officials are projecting the credit union will set a record for the entire second quarter due to reaching its highest volume of applications in March. The credit union also anticipates a record year in purchase volume.
The Navy Federal Credit Union serves all Department of Defense and Coast Guard Active Duty, civilian and contractor personnel as well as their families.
5 Tips to Help Clients Improve Their Credit
No credit or a bad credit score can be an obstacle to home buying, but you can offer advice to help clients improve their finances.
Al Goldstein, CEO of Pangea Properties in Chicago, has these five tips to pass on to your clients, which will help them take control of their credit.
1. Get a credit card…really! A credit card is a credit-building tool when used correctly. Goldstein suggests charging a few affordable purchases each month, and then pay the bill in full (before the due date), which will build up credit. However, it is important to not miss or make any late payments to avoid the interest backlash.
2. Keep an eye on credit card balances. On the other side of the coin, it is important to only use credit cards for purchases that could easily be paid out of pocket. Racking up big balances can hurt your clients' score, regardless if the balance is paid in full. Let them know they should stick to 10 percent of the credit limit.
3. Review credit report and fix errors. Make sure your clients know they're entitled to a free credit report each year, and they should get into an annual habit of requesting and reviewing their report. If they spot incorrect credit limits, closed accounts, or other errors on their credit reports, they should dispute them right away.
4. Leave paid debts on credit report. Not all old debts are bad, says Goldstein. Documentation of past debts, such as a car loan, provide a track record of how your clients have handled and paid debts, which can be good for their credit. The longer the history of good debt, the better it is for the score.
5. It doesn’t hurt to ask. If your clients have debt and are looking to pay it off quickly, simply asking the lender if they will lower the interest rate may work in their favor. If there are one or two late payments on their statements, suggest that they ask for a goodwill deletion, which can payoff in the long run.
Nearly 70 Percent of Americans Say They Have Little to No Understanding of Credit Scoring Reveals TransUnion Study
TransUnion Provides Consumers With the Credit Scoring Basics to Get Them on the Path to Their Financial Goals
CHICAGO, IL--(Marketwired - Oct 28, 2013) - Chances are at some point in your life you have, or will, apply for a mortgage or car loan or credit card. It is likely that the lender obtained your credit score as part of the lending decision. But according to a recent study by TransUnion, many Americans do not understand how credit scoring works or that there are many credit scoring models.
A recent study commissioned by TransUnion asked "On a scale of 1 to 5, indicate your understanding of the different credit scoring models available to you and to lenders" and 26.9 percent of Americans surveyed said "one" or they have little to no understanding, 14.6 percent said "2," and 24.6 percent said "3." Only 16 percent of Americans surveyed said "5" or they had a great understanding of the different credit scoring models.
Credit report scores are often used by lenders as a predictor of how likely you are to repay your loans and is generated by a mathematical formula utilizing the data from your credit reports. Lenders have been using credit report scoring as part of lending decisions for more than 20 years.
The reason that the scores you receive may differ is that each score is dependent on the credit report from each credit reporting company and the scoring model they use.
For example, TransUnion might have not exactly the same information on you as another credit reporting company and vice versa. One credit reporting company may be missing an account that either helps or hinders your score and will therefore report a different credit score than another credit bureau. To get the most accurate picture of your credit health, you want to make sure that they all have the proper information by checking your three free credit reports every year at www.AnnualCreditReport.com.
Additionally, because there are many different scoring models based on different complex algorithms, even if all three of your credit reports contain the same information, your score may vary based on the scoring model used. For example, if a lender obtains a credit score based on a scoring model with a score range of 501 to 990, the score may be 780, while another lender may obtain the credit score using a different model with a range of 300-850 and the score may be only 625. Therefore it is important to shop around when seeking a loan for the best interest rate and options.
"Because lenders have so many scoring models at their disposal, it's rare when the credit score they receive for a consumer and the score you obtain for yourself actually match, and that causes a lot of confusion," said Springer. "So while you do not have control over what scoring model a lender may use, you do have control over the factors -- or the credit behaviors captured in your credit report -- that contribute to whatever score the lender obtains."
Because there are hundreds of credit scores, you should not be overly concerned with the type of score or even the number. Rather, you should monitor changes within a single score. While there are hundreds of different scoring models with different score ranges, most of them take into account the following factors. TransUnion explains how you can work towards healthier credit within each of these factors:
- Payment history: A good record of on-time payments will help your credit.
- Outstanding debt: High balances in relation to your credit limits can lower your credit score. Aim for balances under 35 percent.
- Credit account history: An established credit history makes you a less risky borrower. Think twice before closing old accounts before a loan application.
- Recent inquiries: When a lender or business checks your credit, it causes a hard inquiry and a slight ding to your credit score. Apply for new credit in moderation.
- Types of credit: A healthy credit profile has a balanced mix of credit accounts and loans.
For more information on how credit scoring works, as well as receive your free credit score by signing up for a 7 day trial as part of your paid TransUnion membership, visit TransUnion.com.
Written by TransUnion Interactive and conducted using Google Consumer Surveys, September 2013. Survey of 807 Americans. Survey results have a 95 percent confidence level.
TransUnion Interactive, Inc. is a consumer subsidiary of TransUnion. As a global leader in credit and information management, TransUnion creates advantages for millions of people around the world by gathering, analyzing and delivering information. For businesses, TransUnion helps improve efficiency, manage risk, reduce costs and increase revenue by delivering comprehensive data and advanced analytics and decisioning. For consumers, TransUnion provides the tools, resources and education to help manage their credit health and achieve their financial goals. Through these and other efforts, TransUnion is working to build stronger economies worldwide. Founded in 1968 and headquartered in Chicago, TransUnion employs associates in more than 33 countries on five continents. www.transunion.com. Follow us on Facebook at http://www.facebook.com/TransUnion.
Next Big Investment: A Million-Dollar Flip
Some investors are betting that renovating and flipping million-dollar properties is the next big opportunity in the housing market.
Investors had been mostly focused on foreclosed and distressed properties, buying them on the cheap and turning them into rental properties. But as foreclosures have dried up in many markets and competition has increased, some investment companies are turning to flipping more expensive properties, particularly in California, where limited inventories are available.
“Unlike the flippers of the housing bubble, who bought homes with little or no money down, those investors today often have to make all-cash purchases, which has reduced the pool of potential buyers,” The Wall Street Journal reports.
For example, American Coastal Properties LLC is buying up properties with what it considers “lot value”: homes with no curb appeal but that are located in exclusive neighborhoods in Southern California. ACP is spending between 50 percent to 100 percent of the purchase price in redesigning — and, in some cases, rebuilding — the homes, says ACP owner Nick Sinatra.
"It's a land trade," Sinatra says. "We're essentially higher-end home builders in highly desirable neighborhoods that, even in bad times, don't suffer."
After ACP bought a Venice, Calif., home last year for $900,000, the company sold it in June for $2.065 million. It had spent nearly $600,000 on renovations. Sinatra told the Journal that he believes flipping luxury homes offers better returns because the market for turning less-expensive homes into rentals or flips has grown “overcrowded.”
"There are fewer competitors in this space because it's more difficult," he says
4 Ways Buyers Can Mess Up a Loan Approval
Your home buyers have gotten approved for a mortgage and now they’re just waiting to make it to the closing table. Make sure they don’t throw their loan approval into jeopardy by making one of these common mistakes:
- Making a big purchase: Tell your buyers to avoid making major purchases, like buying a new car or furniture, until after they close on the home. Big purchases could change the buyer’s debt-to-income ratio that the lender used to approve the buyer’s home loan and could throw the approval into jeopardy.
- Opening new credit: Inform your buyers that now isn’t the time to open up any new credit cards.
- Missing any payments: Home buyers need to be extra vigilant about paying all their bills on time, even if they’re disputing one.
- Cashing out: Avoid any transfers of large sums of money between your bank accounts or making any undocumented deposits — both of which could send up “red flags” to your buyer's lender
Seniors Warned to Be Careful with Reverse Mortgages
Defaults on reverse mortgages are hitting record highs and these loans are being blamed for turning seniors out of their homes.
Home owners who are 62 and older can apply for reverse mortgages to borrow money against the equity in their homes. The loans don’t have to be repaid until the home owner moves out or dies. Reverse mortgages are seen as a way for home owners to use the equity in their homes for retirement. But the home owners still have to pay property taxes, maintenance, and insurance on the home.
Some housing experts warn that lenders are advertising the loans to seniors as “free money” that can be used to fund fancy vacations but not detailing all the risks associated with these types of loans.
For example, several widows across the country have stepped forward saying they are facing foreclosure and eviction following their spouse’s death because they weren’t included on the reverse mortgage deed. The widows say they have no claims to live in the home unless they purchase it outright following their spouse’s death, The New York Times reports.
The Consumer Financial Protection Bureau is working on new rules for improving the disclosure of reverse mortgages and the hidden risks, as well as more supervision of lenders who issue these loans
ForSalebyOwner.com Founder Uses Agent to Sell Home
The founder of a popular for-sale by owner Web site used a real estate broker to help sell his 2,000-square-foot, two-bedroom New York apartment after it lingered on the market for six months. Colby Sambrotto, the founder and former chief operating officer of ForSalebyOwner.com, tried to sell the property himself by listing it online and through classified ads, but after six months of it sitting on the market, he sought the help of a real estate broker.
Broker Jesse Buckler told Sambrotto the condo was priced too low and wasn’t attracting the right buyer for the condo.
"At first he wouldn't let me increase the price," Buckler said. "I told him I know what I am doing—the market is picking up."
The condo soon attracted multiple offers and ended up closing recently for $150,000 more than the original asking price.
What is a Prepayment Penalty?
Although not as common as they were just a few years ago, there are still various loan programs that give people an option to have a prepayment penalty.
If you get a mortgage that has a prepayment penalty, it means that you are agreeing in writing that should you “prepay” the mortgage before a specified period of time (usually less than 5 years) then you agree to pay a specified “penalty” to the lender. Some prepayment penalties require you to agree to the penalty only under certain circumstances (for example, you may not have to pay if you sell your house), others require you to pay the penalty regardless of the reason you prepaid the mortgage.
When a lender agrees to loan you money, they have calculated their expected return on the mortgage and built it into their models, even calculating the period of time that they expect you to have the mortgage before it “prepays.”
Although winning the lottery happens, the most common reason that someone would prepay a loan off before the maturity is that they were able to find a loan offered by another lender with a lower interest rate and refinanced out of their current mortgage and into a new mortgage.
When interest rates drop, many people refinance and prepay numbers go up dramatically.
How To Tell If You Have A Prepayment Penalty On Your Mortgage
The easiest way to find out if you currently have a prepayment penalty is to dig out the paperwork you have from when you signed your final paperwork and look for your mortgage note. Most often, there will be wording in your note that outlines the prepayment penalty terms. Sometimes there will also be something called a “Prepayment Penalty Rider,”, but it will vary depending on when you closed your loan and your lender.
Are Prepayment Penalties “Bad”?
Some loans never allow a prepayment penalty. For example, there is never a prepayment penalty on an FHA loan , VA loan or USDA loan. Does this mean that prepayment penalties are bad?
Prepayment penalties aren’t bad — in fact, I tend to view them as a potentially good thing. For example, let’s say that in exchange for agreeing to a prepayment penalty a homeowner:
- Is aware of the prepayment penalty, what it means and what the terms of the prepayment penalty are
- Received a lower interest rate and/or lower closing costs
- Is given the choice of having the prepayment penalty
Then, a prepayment agreement can be a good thing for both homeowner and lender.
The simple reason many people think that prepayment penalties are “bad”? Because, in the past, people haven’t been made aware of these three things.
Effective, 15 July 2011!
Governor Jerry Brown signed into law SB 458 prohibiting banks, servicers and lenders from pursuing home owners of 1-4 units who choose to short sell their homes.
From California Association of Realtors President Beth L. Peerce:
“The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said C.A.R. President Beth L. Peerce. “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.”