Why it may be a really good time to be a borrower

You may have heard of the wild events at the Consumer Financial Protection Bureau (CFPB) recently. My friend Jay Vorhees of JVM Lending had a few words to say about it on his blog, the main points of which are summarized below:

The departing director of the CFPB, Richard Condray, named his deputy, Leandra English, to be his successor. President Trump named his own acting director, Mick Mulvaney. Both claimed to be head of the CFPB, and English sued to nullify Trump’s appointment, but lost.

So, from a real estate perspective, this is what it means for the industry. The CFPB is extremely powerful and was created by the Dodd-Frank Legislation in 2010. It is funded by the Fed and mostly outside the control of Congress. So, the CFPB is well known for being aggressive in auditing and fining, even when offenses had no effect on borrowers.

On that note, Mulvaney – Trump’s appointment – has been openly anti-CFPB, and will likely try to roll back some of the agency’s enforcement efforts. If this holds true, there are two takeaways, or perspectives:

  1. A strong CFPB is necessary to keep the mortgage industry in check and avoid another meltdown like in 2008. It can be countered by pointing out that there are already other factors in place to prevent those abuses, including scrutiny from agencies such as HUD and state agencies.
  2. Lenders and loan officers spend an inordinate amount of time and money to make sure they never endure a CFPB investigation. These efforts often do little to help consumers, and only increase the overall costs of obtaining financing.

A weaker CFPB could result in more free time for lenders and loan officers, and lower borrowing costs for consumers.

Fannie Mae and Freddie Mac also announced their 2018 loan limits, which went up significantly. The “Low Balance” limit for a one-unit property jumped from $424,100 to $453,100 and the “High Balance” limit increased from $636,150 to $679,650.

These jumps allow more borrowers to take advantage of conforming loan guidelines when buying properties in areas with increasing home prices. Combine this with the CFPB appointment, and we may be looking at an incredibly good time to be a borrower!

Also, note the Fed is most likely going to raise interest rates on the 13th and then again in the first quarter of 2018. The market has already taken it into account, and we might see rates drop slightly after the 13th.

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Why buyers don’t always take the highest offer

You might be surprised to hear that sellers don’t always take the highest offer on their properties. It would be logical to get the most bang for your back, but as this article outlines, there are more factors at play in today’s market.

In that specific example, the seller and their agent took a middle offer because it was all-cash, and that was the only way to ensure the deal would go through without having to worry if the appraisal would come in. They sacrificed a bit on the price (possibly) to make sure the house got sold.

From a seller’s perspective, taking a lower offer could be for any number of reasons. It could be because they want to counter up a lower offer because they have better financing or somebody waives the appraisal contingency. It could be because the letter they received from the prospective buyer was so engaging that they wanted those people to own the home, regardless of the price difference. It could even be because they’ve met the buyer and their family and just felt a connection to them.

From a buyer’s perspective, this means there’s an opening in the modern real estate market. If you don’t have the highest offer, you’re not always on the outside looking in. If you put more of a sincere, human touch on your pitch to buy the house, sellers might be more likely to sell to you!

It goes both ways. Real estate transactions involve a lot of paperwork, money and bartering. But when it comes down to it, having the human touch that a buyer seeks might be all you really need to leapfrog other offers and land the house of your dreams!

A great listing agent will go over all the pros and cons of each offer and provide reasons why one offer may be better, and give recommendations on counter strategies. At the end of the day, it is always the seller’s choice on who they choose to buy their home if they have more than one offer.

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Never let a buyer take possession before closing

Picture this: the odds and ends of a real estate transaction you’re involved with are taking longer than expected to tie up. Whether it be a miscommunication between the realtors, legal issues, or uncontrollable circumstances, you just want the home to close escrow.

So, you have already moved out and agree to let the buyer move in over the weekend since you will be closing on Monday or Tuesday. Even though the final forms have been signed, you won’t close for a few more days. You figure, “Heck, whats the harm?”

Oops. What if there is a financial or legal issue that crops up? Worst of all, what if the new buyer starts making changes to the home and they – or someone they hire – gets hurt on the property before it is officially theirs? What happens if there is a fire? I know of one situation where the seller allowed the buyers to put their belongings in the garage and there was something flammable and it started a house fire. Do you think those buyers still bought the house?  No, the sale did not close and the seller was left dealing with a mess and no house to sell.

Now that is a heap of trouble, tripped up by a tangle of confusing liability. What you thought was an act of goodwill has just turned the final few steps of the transaction into an absolute nightmare!

Even if this scenario seems unlikely, it is still possible. And that is reason enough to never let a buyer take possession of a property before the closing is completed. Crazier things have happened!

A realtor’s job is to protect the interests of their clients and a good agent will counsel you against having a buyer or their belongings in your property prior to the transfer of title.
If you think you might want to buy or sell in the near future, feel free to reach out to me for an organized, knowledgeable, friendly ally in the real estate process! You can always reach me at my website under the contact tab at www.kristinlanham.com.

Tax returns and your loan approval!

Our friend Jay Vorhees at JVM Lending came up with another relatable blog recently: Tax Transcripts and 4506-T forms. It generally explains how those forms work, and reminded me of an experience of my own. First, a summary of Jay’s blog:

Every time a lender gets a loan from a borrower, they also have to get the last two years of tax returns. This is why borrowers sign IRS Form 4506-T as part of their disclosures. It formally authorizes lenders to request tax transcripts, which then show the filer’s status and income information.

Lenders are required to request transcripts from the IRS before a borrower can (borrowers can only request them directly if the IRS reject’s a lender’s request). If there is a minor error between the 4506-T and the tax return, this rejection may occur, so it happens pretty often.

That covers the basics of how the 4506-T form works and the role it plays in a real estate transaction. It’s a more subtle part of the process, but can cause huge headaches when done incorrectly. Take, for example, my experience with a property at Madeira in Pleasant Hill last year.

I represented the seller, and the buyer had their lender in Oakland, with a Bank out of L.A. Unbeknownst to us, the bank was being bought out and the new bank was called Bank of Hope – yes, really. But it turned out to be the Bank of Hopelessness.

Abode, Advertising, Banking, Building, Buy, Buyer

Processes changed, the lender in Oakland was let go and nobody knew what they were doing. Communication was terrible. One of the balls that got dropped was getting the tax returns. We closed almost two weeks late and the only way this ended up closing at all is by the processor who I had been speaking with regarding other issues. They actually went down to the IRS office and got the tax returns. She went beyond what is required (and probably got tired of our phone calls), but my seller is an attorney and also made multiple phone calls as they had already purchased a new home that was about to close.

This is one of the best reasons to get fully underwritten before you start to write offers. If all the documentation is in upfront, there won’t be any surprises or delays once you get into contract. Selecting the right lender can be the difference between smooth sailing and dark nightmares.

The smallest decisions can make your house more valuable

When selling a home, oftentimes the goal is to maximize financial return on the deal. Everybody wants to make as much as they can off their home sale, and even the slightest changes can increase what a home sells for.

Take this article on Inman.com for example. It’s about how homes with blue bathrooms sell for $5,400 more on average than others, according to a Zillow study. Crazy, right? Literally just changing the color you’ve painted a wal or two can add thousands of dollars to your wallet!

The article goes on to list a couple other color choices that can add or subtract from the sale price; for example, grey (and other neutral) exteriors sel die about $3,500 more than homes with other colors.

It really goes to show that small aesthetic decisions can play a huge role in netting you some extra zeroes on your home sale. It’s always wise to cater to the current trends when painting, decorating and remodeling your home to go on market – even if it means just a couple grand more in your pocket.

I try to stay tuned in to what’s popular so I can help you make those decisions. I am committed to maximizing your value as a seller, and on the flip side, getting you the best deal possible as a buyer. Give me a call if you’re interested in a real estate transaction!

Tips for preparing to buy a home

It takes a lot of preparation to buy a home. I know, I know, thank you Captain Obvious, right? But if you’re going to be searching for a home in 2017, I want you to be ready for what is headed your way!

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From our friends at Bank of the West, here is a list of great tips for preparing yourself to buy a home. See my summary below:

1. Fix Your Credit

Your credit is one of the first things a lender will look at when approving you for a mortgage loan. You can get a free credit report once every 12 months from each of the three credit bureaus: Equifax, Experian and TransUnion at annualcreditreport.com. Make sure to check for mistakes and file a dispute with the business in question, as well as the credit agency, if you find any inaccuracies. They must investigate within 30-45 days.

2. Maintain Your Credit Score

Your FICO score is the most common number used by mortgage lenders to rate your creditworthiness. You can get your credit report with a FICO score for free, or for a small fee. Anything above a 740 FICO score will help you secure better interest rates. If your score is lower, you may still qualify for a mortgage, just with a higher interest rate attached. Your first instinct may be to find ways to boost that credit score. Here are two things NOT to do:

– Don’t close lines of credit – it may indicate credit risk and actually hurt your score

– Don’t open new lines of credit – the uncertainty of your spending habits with a new card might indicate risk and cause your score to tick up

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3. Get a Big Down Payment

You’ll get a better interest rate on a mortgage if you have a larger down payment because lenders will think you’re less likely to default on your loan. Aim for a down payment of at least 20 percent of the selling price. This will also protect you from paying private mortgage insurance (PMI), which protects lenders if you default on a loan.

4. Get Pre-Approved

Meet with a mortgage specialist before you start shopping. They can help you determine an accurate budget and decide what kind of home you can realistically afford. Get a pre-approval letter and add it to a good credit report, income verification and a maximum allowable loan, and home sellers will take you most seriously among the suitors.

5. Keep Track of Your Money

You’ll have lots of documents, bank statements, etc. during the pre-approval and underwriting processes. These will be examined closely to verify income and expenses. If your records show unusual activity, you’ll be asked to explain it and you’ll have to jump that hurdle before continuing the approval process.

If you need a recommendation for outstanding mortgage brokers.  I have a few that I highly regard.

 

East Bay housing market is shifting

housing-marketLately, we’ve started to see a “shift” in the Walnut Creek-area housing market. Price appreciation growth has slowed and we are now seeing more price reductions. Home price appreciation has generally declined to single-digit annual appreciation with estimates in the next year of 3-5 percent.

In the 24/680 corridor, homes are sitting on the market longer than they did in the Spring (20-26 days, as compared to 15-20 days). I am receiving 1-3 offers  with a final sales price of 4 percent over the asking price on most of my listings.

The Federal Reserve Bank will not increase interest rates this month. Currently, the best mortgage interest rate for a 30-year fixed rate is approximately 3.5 percent. In the big picture, global growth concerns remain the driving force behind the long-term trend toward lower rates.

Kitty Cole, who coaches many Bay Area agents, has noticed two distinct Bay Area markets. Many of them are side by side. Check out her insights:

Some of the market (still a seller’s market) is hot, with low DOM’s, high Sales Price to List Price ratios, low inventory, no contingencies, multiple offers and buyers aplenty. This market is going on in Oakland, Berkeley and surrounding cities.

It looks similar to the last 4 1/2 years. The only thing that is quite different is the number of offers that was 10-25 a few months ago, and is now 2-6 (and occasionally higher). This market requires savvy pricing and negotiating to get your seller the highest price. san-francisco

The other part of the market (a buyer’s market) has slowed with these factors in place: price reductions (up to 10 percent, and sometimes two before it brings an offer), contingent offers (contingent upon the sale of another property), high DOM’s, few offers (sometimes only one!), expired listings, cranky sellers and demanding buyers (because they can be!).

In the city, one client whose specialty is high-rise condos, literally slowed overnight and now the DOM’s for her listings are more than 30 days. Another San Francisco agent has had three listings expire in the past three months. One agent in the East Bay (Pleasant Hill) is stymied by her listings that sold within seven days and are now sitting for weeks. Many newer agents are not prepared to have the “I need a price adjustment to sell your property” conversation.  In three months, it will be different … how, I don’t know, wished I had that elusive crystal ball.

Why Are the Interest Rates So Low?

buy a houseThere have been a lot of articles about interest rates and the stock market recently. First, the German 10-Year Government Bond Yield has hit negative territory. In layman’s terms, this means that Germany gets paid interest to borrow investors’ money, the same thing is happening in Japan. Thus, Germany and Japan are getting paid to borrow money.
On the surface, this seems silly. Why would investors take a negative yield or pay somebody to borrow their money? Because it’s safe. Investors will put money wherever they can in order to ensure they can safely recoup it in the future.
How does this help the real estate market? First, the demand for bonds keeps rates very low, making real estate leverage much cheaper (The Brexit will also have an impact, which will be a different post). When investors have a lot of cash and are looking to put it somewhere, real estate investing becomes a good place to do so.
According to the National Association of REALTORS®, the number of homes that went under contract to be sold in April was the highest in more than a decade. It was also the strongest month in more than eight years for new home sales – with a 16.6% jump from the previous month. We do tend to see a bit of a lull in the summer as families head off for vacation.
If you are a buyer, it might be a great time to jump into the real estate market! Give me a call if you would like some help.

First-Time Home-Buyers vs. Repeat Buyers

One Cool Thing chartAccording to the California Association of Realtors, first-time home buyers look for different things in a property than repeat buyers do. Californians list rental fatigue as the single most important reason for buying a home. From those who are trying to move up, it’s a size upgrade, followed by a location improvement.

First-time home buyers are who allow repeat home buyers to move up to the next home and continue the domino effect into the higher-priced homes. This chart to the left provides an interesting look at the different reasons different types of buyers want a new house.

On average, first-time home buyers will stay in their first home between 5-7 years. The reasons for eventually selling vary, but often it is because of the addition of new members to their family, or the search for more space, good schools and a neighborhood where home owners can see their kids riding bikes and being part of a safe community.

I recently listed a past client’s home who bought 3 years ago. When she called me, she said, “Kristin, you were right. We are ready to move.” When they bought their home, I told her they would be there maybe for 5 years and she adamantly said we will be here for a long time.  Do you have a similar story?  Are you outgrowing your first home?

Home Buying 101: Having a Good Lender in Your Pocket

4439276478_109791356b_o (1)When you’re in the market for a new home, having a good lender is essential. In a seller’s market or at entry-level price points, where many first-time home buyers are also submitting offers, the information in this blog becomes even more critical.

I like to have a buyer’s lender call and speak to the listing agent when I submit an offer. I want to know what their qualifications are, and more importantly, the lender’s ability to close in the time stated on the residential purchase agreement. This is where a local lender becomes very important; it is unlikely if you go with an out-of-state lender or one where you have to speak to somebody different each time, that they’d be willing or able to make that call to the listing agent.

However, if the listing agent has worked with the lender before (odds increase if they are local) and had a good experience, the buyer is one step closer to getting their offer accepted over others. Simply put, people like to work with people they know they can trust.

Another question to ask your lender is if you’ll be completely underwritten with a complete file in hand. This prevents surprises. If you walk into a bank and give them the basics, oftentimes they will give you a pre-approval for a certain amount, or for the amount you stated you would like to have (provided you qualify).new home 2

This is fraught with land mines – once you are in contract, that lender is now asking for additional paperwork and, surprise! Something comes up under Freddie and Fannie guidelines that won’t allow you to get the loan for that amount, or at all. This is not a happy situation for anyone involved, so it is also helpful if the underwriter is somewhat local and they work closely with the lender on a daily basis. Communication is key!

One of the many benefits of working with a mortgage broker is the appraisal managment company most likely has better quality appraisers, who know the neighborhood they appraise in. They can’t select who will appraise the property, but they can choose who is or isn’t in the group.
Finally, if you are shopping a loan, make sure you are comparing apples to apples. If you get a quote for a condo, make sure the other company is also quoting a condo and not a townhome. I know some great lenders – contact me if you would like their names and numbers.