Author: production

Bob Dylan was so right: the times, they are a-changin’. And the residential real estate market is being swept right along.

While in Dylan’s day it was about the group known as baby boomers, it’s now about the millennials-more than 75 million of them. According to the most recent census, millennials now represent more than 25 percent of the population and 32 percent of potential home buyers.

That means that many of you reading this are or soon will be looking for somewhere to live. Your impact is inescapable, and here’s the upshot to date:

Studies in recent years, including one by the Pew Institute in 2013, show that a sizable proportion of 18-to-34-year-olds are still living at home. Another trend is adult children and their parents looking for accommodations together for cost-saving reasons, a recent National Association of Realtors® survey found.

But not everyone is concerned for millennials: Jonathon Smoke, chief economist of Realtor.com, is bullish on them. He reports that in summer 2015, millennials made up 30 percent of buyers, many of whom cited family changes (marriage, kids) as their reasons for purchasing.

And while credit and student debt remain concerns for potential millennial home buyers, give them time. Says Smoke: “They should represent two-thirds of all household formations over the next five years. Job creation will favor them. Their economic opportunities are strong. And they’re planning to start families, which increases the desire to purchase a home. They’re just getting started, and their sheer size will drive activity in housing for decades.”

Landmark legislation that overhauled the documentation that mortgage consumers receive throughout the finance process and at the closing table was implemented on October 3, 2015.

The TILA-RESPA Integrated Disclosure (TRID) rules were designed by the Consumer Financial Protection Bureau (CFPB) to make the mortgage process easier for consumers.

The last significant change to this documentation occurred in 2010, as real estate and mortgage industries were swimming in the wake of the real estate and economic meltdown that had started several years prior. Since then, the CFPB, as directed by Congress, has further revised mortgage-related documentation.

Homeowners who previously financed homes will likely notice the difference with TRID. Those who are doing it for the first time will hopefully find the documentation clear and easy to understand.

When you apply for a mortgage or shortly thereafter, you will now receive what is called the Loan Estimate, which replaces two previous documents. This will clearly list all costs -be it fees or other expenses-for you.

Another part of this implementation that has changed the process will take place at closing. Prior to this new set of regulations, closing documents were able to be prepared and finalized literally minutes before closing. Now all finalized documents need to be prepared at least three business days before closing. Whether it is a home purchase or a refinance, the borrower now has adequate time to review all the details with whomever they need to, be it their mortgage professional, attorney, etc.

This is likely a relief for many borrowers, who may have found this last stretch of the process stressful and confusing, and who may have felt there wasn’t sufficient time to read and understand the documents they were signing.

Now that they have the time to consider, the expectation is that the closing process will proceed more smoothly than it did in the past.

While there are far fewer short sale and foreclosure properties available than there were even a few months ago, you may still find one you’re interested in. Be aware, however, that the process of financing a distressed property (a foreclosure, or a short sale home) is somewhat different from financing a home in the traditional way.

To clarify, with a foreclosure property the lender has started the process of taking it back from the current owner. If the process has completed itself, the property will most likely be vacant.

A short sale property is one in which the occupant attempts to sell it, as he or she can no longer afford the mortgage. The occupant’s lender works with him or her to find a buyer in hopes of avoiding the expensive and time-consuming foreclosure process, which would be the lender’s next step if a sale doesn’t happen.

In either case, your real estate attorney will be handling much of the legwork in dealing with the lender, who is also the seller at this point. The process of selling a distressed property requires more time and documentation than a traditional sale, and buyers will need patience.

Short sales, especially, can take time, as lenders have exhaustive processes requiring huge amounts of documentation from the property’s seller.

The document outlines the seller’s financial position and shows why he or she can no longer afford the property; in other words, it explains why the seller needs a short sale.

Often properties that are vacant and have been vacant for some time (especially those in colder climates) may come with “as is” clauses in the contracts, meaning that the seller/lender won’t be liable for any future issues arising from the condition of the property.

The buyer will, however, have the opportunity for a home inspection after signing the contract, but before moving forward with the purchase process.

Two things are absolutely vital for home buyers to do before they attempt to finance a home: 1) know and understand your credit profile, and 2) think about how your income could change due to life events in the future. Miss these and they will become two of your biggest mistakes.

Credit reports

Knowing ahead of time what an underwriter will see on your credit report is extremely important both for you and your loan originator; in the event that information is incorrect and needs to be changed, you can do it prior to falling in love with a home and making an offer. If there are errors (and depending on their extent), the process can take up to 60 days, or even longer in some cases.

There many ways to get your credit report pulled. The two best options, however, are to have your mortgage professional do it – even if he or she charges you for the service – or you can approach the credit bureaus (TransUnion, Experian, and Equifax) yourself. There also are websites that promise to pull your report for free, but be cautious – there are scamsters out there.

Shortsightedness

Home buyers often don’t foresee changes in family size or employment status that could reduce your household income and the ability to pay your bills. Plan for a rainy day when you decide the amount you want to borrow; you never know when you might need an umbrella. Your mortgage professional can help you anticipate future changes and plan for them.

When you apply for a mortgage, your lender will want to know what your down payment will be relative to the value of the home you are financing. This is called the loan-to-value ratio (LTV). If, for example, you are purchasing a home for $100,000 and borrowing $90,000, your LTV is $90,000/ $100,000, or 90%. You’re “committing” 10% of your own money.

The value of the property calculated in the LTV ratio will always be the lower of the appraised value or the contract price, as your lender will only lend against the lower of the two.

With FHA and VA mortgages, the LTV ratio can go higher than other lenders’ maximum requirements. The minimum down payment for FHA is 3.5%, so the maximum LTV ratio is 96.5%. If you can finance the up-front mortgage insurance premium required by the lender, the LTV can go higher than 96.5%.

Say the insurance premium is 1.75% of the amount financed. From our example above, 1.75% of $90,000 is $1,575. If you decide to finance the premium, your LTV becomes 98.25%. And this is OK with FHA. It works similarly with VA mortgages, even with 0% down payment loans.

Your LTV may be favorable, but you still have to consider closing costs and asset reserves. Typically these can’t be financed and will have to be paid from your own assets, seller credits, and/or lender credits. Do discuss these additional costs and your LTV with your mortgage professional, who can help you do what’s right for you.

Just like the stock market, mortgage rates fluctuate. They may move daily, or even hourly, and often significantly in response to global events.

When you are negotiating a mortgage, you can “lock in” the mortgage interest rate through an arrangement with your lender. The arrangement will specify a time period over which you can lock in at the current interest rate.

Before you lock in your rate, you need to ensure the rate is one you are happy with not just for now, but for as long as you have the mortgage.

Because rates fluctuate, it can-and does-happen that after you’ve locked in, rates fall. A lock is a commitment on your part to accept a certain interest rate, and it’s unlikely that you will be able to get it lowered once you’ve made this commitment through the agreement with your lender.

To be able to lock your loan, you must be either fully approved or close to being fully approved.

This is to protect the lender, because by locking in your rate, he or she is making a commitment to the investor who will ultimately purchase your mortgage.

If the lender can’t deliver on your promised mortgage, he or she will be required to pay a fee for the use of the money between the date the rate was locked and the date the investor is notified that the loan won’t be delivered.

This can become expensive for the lender. Both you and your lender should respect the mortgage lock.

Lenders are unlikely to be able to predict rates in the future, and ethically they can’t-and shouldn’t-advise you on what will happen to rates.

Everyone has access to the same market information; your lender has no more insight into rates than you do. Expect your lender to explain the process, but not to help you decide when to lock in.

In the home purchase process, the quality of the experience you have will be determined by the people on your team.

Of course, you will have a mortgage professional and a real estate agent to accompany you on your journey, but there are others who will play key roles: a real estate attorney and a home inspector.

The home inspector is optional, but a very good idea. For perhaps a few hundred dollars and a couple of hours, an inspector can go through the entire property and give you an unbiased review of the current and future issues you may face. A home inspection, as opposed to an appraisal, will inspect all systems such as plumbing, electrical, heating/cooling, etc.

If the seller offers to provide you with his or her inspection, do look at it, but it’s still the best option to have your own inspection by somebody who is working for you and watching out for your interests.

The last thing you want to do is fall in love with a property and go through the purchase process, only to find out later that there was a condition problem that will cost big dollars to correct.

While having a real estate attorney is optional in most states, it’s very important. Of course, the mortgage and real estate professionals are very good at what they do; but they aren’t attorneys. Issues will come up at closing that neither the mortgage professional nor the real estate agent would, or should, address. These issues may include title questions or ownership documentation of the property, and items which have gone missing, such as appliances or light fixtures assumed to be part of the purchase agreement.

All of your team members are working on your behalf and will do their best to make your real estate transaction go smoothly. Don’t consider buying without them.

Purchasing a For Sale by Owner (FSBO) property may seem like a good idea; the seller isn’t paying sales commissions and that should be reflected in the price. However, caveat emptor-buyer beware-there are downsides. According to research conducted by the National Association of Realtors, fewer than 10% of FSBOs are actually sold.

Why? There are any number of reasons, ranging from the fact that sellers don’t know how to price the property to potential problems with the condition of the house.

For example, without the advice of a real estate agent, the seller could over-price the home. So when your lender has the property appraised (which you will pay for), you may find that the appraisal comes in lower than the seller’s price. And the lender is only prepared to lend against this appraisal value. Not against the price the seller is asking. You may come up short.

A home inspection is always advisable, but with a FSBO, it’s essential. Even with an inspection, the sellers may refuse to fix the items identified in the inspection, and the deal may fall through.

For any FSBO purchase, you should have your own real estate agent (even if you have to pay the commission yourself) plus an experienced real estate attorney. They’ll represent your interests: Your agent by evaluating the property according to local market conditions and negotiating on your behalf; your attorney by ensuring the transaction closes seamlessly.

This is the purchase of a lifetime; if it’s a FSBO, ensure that it’s done right.

In these days of ever-watchful lenders, you, as a consumer, can put yourself in the best possible position to be approved for a mortgage by taking a few simple, commonsense steps before you start your home search.

The first step is ensuring you are paying your bills on time. As simple as this sounds, lenders find it extremely important to know that you’re capable of paying on your current debt before they permit you to saddle yourself with even more debt – perhaps more than you can handle.

Second, if you aren’t doing so already, control the amount of your current debt – particularly revolving debt such as credit card balances. Pay special attention to the ratio of your balance to your limit, and try to keep this below 30%.

For example, if you have a credit card with a $500 limit, try to keep the balance under $150. If the ratio goes too high, even on lower-limit cards, it looks to the credit bureaus as though you are about to reach the full limit of the card, which tends to drive down your credit score.

Having multiple cards that are at or close to their limits may start impacting the number of mortgage programs, as well as the dollar amount, you are able to qualify for.

It’s always a good idea to either pull your own credit – which you should be doing regularly anyway – or ask your mortgage professional to pull it.

It’s worth the small charge, and here’s why: if it turns out that there are unexpected items on your credit report that need to be addressed and/or removed, this action will give you the opportunity to take these steps before starting the approval process.

But don’t leave it too long; you can expect that any type of action to correct a credit report will take a minimum of 30 days to affect your report.

When you’re shopping for a mortgage, you should at least consider the 15-year option. The payments will be higher than on a 30-year mortgage, but the long-term benefits are considerable.

First, interest rates are typically lower on 15-year mortgages than on their 30-year counterparts. A 0.25% difference in interest rates may sound minimal, but taken over 180 payments – the number of payments you’d make on a 15-year mortgage – it can add up to a huge difference.

Also, as you are paying on the mortgage for only 15 years, the total interest expense (money that all goes to the lender) will be much less.

For example, if you were to borrow $160,000 for 30 years at 4.25% or 15 years at 4.00%, your payments would be $787.10 and $1,183.50 respectively. The 15-year monthly payment is significantly higher, but thinking long term, your payments would total $283,356 for the 30-year mortgage compared to $213,030 for the 15-year mortgage.

This is a saving of $70,326, making the shorter term well worth it – providing, of course, you can manage the higher payments for the 15-year duration of the loan.

Another option is to take the 30-year mortgage and pay down the principal each month. Even with a 4.25% rate, if you were to make an extra 1/12 payment toward the principal each month ($65.59 on the 30-year mortgage as described above), you would shave off seven years at the end of the mortgage and save $19,903.59 in interest.

Your mortgage professional will help you select the option that’s best for you.