Most people don't realize that agents have basically complete control over how they market--or don't market--their clients' listings. It's important to ask your agent what, exactly, you'll be getting from them. Of course anyone who works with a reputable broker has the usual fluff--listing in Multiple Listing Service, realtor.com, Broker "X" websites. Unfortunately most of the sites they list automatically populate from the MLS. You need a broader exposure on the web, where 80% of buyers begin their search.
I have a host of standard services that I provide to my listings, including
- Multiple photos in the MLS (Agents used to have to pay for these, but now up to 20 photos are FREE...yet, it's embarrassing to the industry how few agents take the time to upload them.) Almost every buyer I work with says that if there are no photos, they skip the listing, assuming that the seller is hiding how bad the house must be.
- A home warranty that transfers to the buyer. Buyers are nervous, and want to know that the home's systems won't fail right after they move in.
- Postcards to the neighborhood and/or area renters announcing the listing.
- A professional photographer. The majority of agents have neither the equipment nor the training that a professional photographer has, and you need your home showcased in the best possible light.
- Professional printing of brochures. A xerox copy isn't going to stand out amongst 20 other brochures the buyer picked up that day.
- Professional staging consultation. I don't try to be a "jack of all trades." I hire professionals to do a professional job.
- And my newest service, dedicated websites. Check out one of my sold listings at www.eastview914.com . These sites provide a showcase for your home beyond the 3 lines of text in the MLS.
If you're thinking about listing your home, contact me for information about some of the OTHER services I provide to my listings, too!
Thursday, September 6, 2007
Saturday, September 1, 2007
Sub-Prime Mortgages: Crisis Averted?
I've posted here before that there were signs that the sub-prime mortgage mess, while unfortunate for many, was not the crisis that the press makes it out to be. The housing market is just too important to this economy, and while no one is screaming "bailout", there have been consistent signs that the country is not going to sit idly by and let millions of people lose their homes.
Today President Bush announced that new programs were being established to help 80,000 people who have fallen behind on their payments. I'd be willing to bet that if conditions worsen, even more programs will be announced. Sure, they'll blame it on the predatory lenders rather than home buyers that made bad decisions, but at the end of the day, no one wants people out on the street. It's in everyone's best interests--from the owners', to the lenders', to the government's, to keep people in their homes.
Today President Bush announced that new programs were being established to help 80,000 people who have fallen behind on their payments. I'd be willing to bet that if conditions worsen, even more programs will be announced. Sure, they'll blame it on the predatory lenders rather than home buyers that made bad decisions, but at the end of the day, no one wants people out on the street. It's in everyone's best interests--from the owners', to the lenders', to the government's, to keep people in their homes.
FAQ: ARM Loans
A very informative article about shopping for ARM loans (more popular given the recent jump in both jumbo and second trust rates).
The bottom line is to show around for rates, and know which questions to ask.
- Determine the initial interest rate and how long you will get it
- Ask if it’s a negative amortization loan
- Determine what the rate increase will be and how often it ‘resets’
- Determine what the annual and lifetime ‘caps’ are and how quickly you might reach them – this gives you the worst case scenario on your rates. Make sure you understand what the payment is at those rates.
- Know what the index (LIBOR, T-bill, etc) and spread is
- Know whether your loan is a balloon, and what term the balloon is, or based on a 30 year amortization
The author wisely points out to be wary of internet lenders. I’ve seen cases of this myself—even if the rate does turn out to be as low as they claim, keep a careful eye on the fees they charge but are buried somewhere in the Good Faith Estimate (GFE), and often not in the “Lender Fee” section where you’d expect.
Speaking of fees, that’s the only I’d add to this list—always ask what the fees are, and what they’re for. Always ask about things like: administrative fee, underwriting fee, processing fee, application fee, document fee, and warehousing fee. Don’t get me wrong—a lender needs to make money too, but these are the fees you should be comparing, and negotiating. And also understand the origination fee and any discount fees, especially as it relates to the interest rate you’re being charged. Two lenders might both be quoting 7%, but one of them is charging you a “point” (equal to one percent of the loan value and listed as a “discount point” on the GFE) to get it!
As always, you can contact me with any questions, or to look over your GFE with you. I can’t negotiate it for you, but I can tell you which things I’ve seen before and which things I haven’t. I routinely do this with my clients.
And of course, the way to avoid many issues is to work with a reputable lender in the first place!
The bottom line is to show around for rates, and know which questions to ask.
- Determine the initial interest rate and how long you will get it
- Ask if it’s a negative amortization loan
- Determine what the rate increase will be and how often it ‘resets’
- Determine what the annual and lifetime ‘caps’ are and how quickly you might reach them – this gives you the worst case scenario on your rates. Make sure you understand what the payment is at those rates.
- Know what the index (LIBOR, T-bill, etc) and spread is
- Know whether your loan is a balloon, and what term the balloon is, or based on a 30 year amortization
The author wisely points out to be wary of internet lenders. I’ve seen cases of this myself—even if the rate does turn out to be as low as they claim, keep a careful eye on the fees they charge but are buried somewhere in the Good Faith Estimate (GFE), and often not in the “Lender Fee” section where you’d expect.
Speaking of fees, that’s the only I’d add to this list—always ask what the fees are, and what they’re for. Always ask about things like: administrative fee, underwriting fee, processing fee, application fee, document fee, and warehousing fee. Don’t get me wrong—a lender needs to make money too, but these are the fees you should be comparing, and negotiating. And also understand the origination fee and any discount fees, especially as it relates to the interest rate you’re being charged. Two lenders might both be quoting 7%, but one of them is charging you a “point” (equal to one percent of the loan value and listed as a “discount point” on the GFE) to get it!
As always, you can contact me with any questions, or to look over your GFE with you. I can’t negotiate it for you, but I can tell you which things I’ve seen before and which things I haven’t. I routinely do this with my clients.
And of course, the way to avoid many issues is to work with a reputable lender in the first place!
Wednesday, August 15, 2007
22 Condo Projects Canceled? Come on, now...get serious.
Let's get serious. Here's another "the sky is falling" example from the press. Today's Post has a good article on some condo projects that have been canceled, and how that situation leaves buyers in the lurch. Sure they get a refund, but no place to live, and no compensation for their efforts. (A good warning on the risks of buying new construction.)
Delta Associates is quoted in the article saying that developers had canceled plans for 22 projects in the 2nd quarter alone! Really...22?! I just don't buy it...unless they're using "plans" pretty loosely. (As an aside, it's not a bad thing that condo projects get cancelled--it keeps inventory reasonable and supports prices.)
I've been hearing about these conversions back to apts for a year or more. And the same developments are always mentioned: the Joule in Arlington, View 14 in DC, the Bellmeade in Leesburg (Leesburg? That’s a VERY different market than Arlington or DC), Four Winds at Oakton, and a few others. Those conversions happened months and months ago. So where are the 22 from THIS QUARTER? Someone please find this list so we can map them out. I'll bet they're further away than this article would leave you to believe. And what counts as a "planned" development? My guess is most of these "plans" are on paper--units were years away from delivery anyway. We'll never see that list in the Post though, because alarmist headlines sell more papers.
Delta Associates is quoted in the article saying that developers had canceled plans for 22 projects in the 2nd quarter alone! Really...22?! I just don't buy it...unless they're using "plans" pretty loosely. (As an aside, it's not a bad thing that condo projects get cancelled--it keeps inventory reasonable and supports prices.)
I've been hearing about these conversions back to apts for a year or more. And the same developments are always mentioned: the Joule in Arlington, View 14 in DC, the Bellmeade in Leesburg (Leesburg? That’s a VERY different market than Arlington or DC), Four Winds at Oakton, and a few others. Those conversions happened months and months ago. So where are the 22 from THIS QUARTER? Someone please find this list so we can map them out. I'll bet they're further away than this article would leave you to believe. And what counts as a "planned" development? My guess is most of these "plans" are on paper--units were years away from delivery anyway. We'll never see that list in the Post though, because alarmist headlines sell more papers.
Saturday, August 11, 2007
Interest Rate Jumps; Unfortunate, but not Catastrophic
I'll be writing on this quite a bit, and I'll start off by saying that, as regular readers know, I do NOT think recent interest rate jumps are the end of the world. I'll get to why in a bit, but first, a recap.
Last week, large mortgage lender American Home Mortgage shut its doors. That made the markets very panicky and led to an increase in rates for two specific loan types: "Jumbo" and 2nd trusts.
"Jumbo" loans are loans above $417,000--the limit for "conventional" loans set by Fannie and Freddie, who buy mortgage loans from originators. Fannie and Freddie exist to create a “secondary market” for mortgages—that is, they buy loans for cash, and then originators use that cash to make more loans to homebuyers. If they didn’t exist, then banks would only be able to loan as much cash as they had on hand, and would have to hold the mortgages until each homebuyer sold or paid it off. (That’s a bit of an over-simplification, but for our purposes it should suffice.) Fannie and Freddie are government “sponsored” (though not technically government-insured), and so the loans they can buy have certain restrictions, i.e., are under $417K. Because there’s an easily available secondary market for this size loans, they typically have a lower interest rate than the larger, or “jumbo” loans.
Now, $417K doesn’t buy you much in this area, so lots of people end up with “jumbo” loans. And since even the smallest place is usually in the $300s, many people in this area don’t put 20% (or about $60K+) down. That hasn’t been an issue until now. You can put 5% down, take out two “trusts” (or loans)—one for 80% and one for 15%, and be on with your home purchase. Those second trusts are becoming an issue, though. Read on:
The second impact of this panic is a big jump on the 2nd trust rates. 2nd trusts have always been riskier for lenders—they’re junior liens, after all, and so carried a higher interest rate. But that rate is the other important change in the past week. It jumped significantly.
Two impacts on this market are clear, but in my opinion, neither is catastrophic. At least not yet.
1) For most buyers, they can afford less. So if you were shopping at the top of your affordability range, chances are you can no longer afford that payment, regardless of how much you were putting as a down-payment. How much less? We’ll have to see where the rates stop. According to the Post, rates are up almost a full percentage point since May. So for every $10,000 borrowed, that’s $100/year.
Let’s use an example. Let’s say a buyer was looking at in the $600,000 range starting in May. Rates jumped up a point since then. That means that if there is NO room in their monthly budget (and why would any responsible person be looking at that price if there was absolutely no room in their budget?!) then now they can only afford $500,000. Another way to say it is that having the same $600,000 mortgage now costs them an extra $6000/year (which, making some assumptions about income bracket, is about $4000/year out of pocket after taxes.)
My guess—and I certainly could be wrong—is that people shopping for $600,000 homes have just a little bit of wiggle room in their budgets, maybe even up to $4,000/year. I think most people in that income and affordability bracket will make the trade-off, see their home as an important investment, and forgo a few discretionary items to get the house that they still want. I believe that the majority of the people are NOT going to change the range in which they’re looking, at least not by much. Again, maybe I'm naive, or maybe I'm just lucky that my clients tend to be responsible purchasers (or, not to pat myself on the back too much, but maybe I do a good job counseling them up front and introducing them to reputable lenders who counsel them too).
In my experience, the people who tend to stretch their budgets to the breaking point are the people who are buying their first place, which is often under $417K, and therefore not impacted by the jumbo rate jump. They are, however impacted in another way. They usually have less of a down-payment (because they’re not rolling over equity from a previous home), and are borrowing more than 80% of the purchase price.
2) For all borrowers planning to finance more than 80% of the purchase, you can afford less. This one worries me less—one, because only 15% of the loan is going to have a significant jump in rate, and that’s a whole lot better than having it hit the 80%. Second, there exists an option to borrow 95% as one trust and pay PMI. PMI, which historically was a dirty word for borrowers, is more acceptable now because in 2007 it’s tax deductible, same as interest. Boy, did they pick a good year to change that rule! So the 95% trust, as long as it’s not jumbo (see impact #1) should keep the payment roughly what a borrower was planning two weeks ago.
I’m sure this will continue to be a front-page crises for a few weeks. I’ll write more as the situation evolves. But I still stand firm in my conviction that if you are:
- Financially able to buy: good credit, a reasonable budget, about 8% of the purchase price in savings, and
- Your life situation calls for buying instead of renting: will be in this area for 3 or more years, you have reasonable expectations of what you get for the money, and you recognize that even a flat return on an investment is better than rapidly increasing rents (see Rent vs Buy calculator post),
Then this is still a good time to seriously consider buying.
Last week, large mortgage lender American Home Mortgage shut its doors. That made the markets very panicky and led to an increase in rates for two specific loan types: "Jumbo" and 2nd trusts.
"Jumbo" loans are loans above $417,000--the limit for "conventional" loans set by Fannie and Freddie, who buy mortgage loans from originators. Fannie and Freddie exist to create a “secondary market” for mortgages—that is, they buy loans for cash, and then originators use that cash to make more loans to homebuyers. If they didn’t exist, then banks would only be able to loan as much cash as they had on hand, and would have to hold the mortgages until each homebuyer sold or paid it off. (That’s a bit of an over-simplification, but for our purposes it should suffice.) Fannie and Freddie are government “sponsored” (though not technically government-insured), and so the loans they can buy have certain restrictions, i.e., are under $417K. Because there’s an easily available secondary market for this size loans, they typically have a lower interest rate than the larger, or “jumbo” loans.
Now, $417K doesn’t buy you much in this area, so lots of people end up with “jumbo” loans. And since even the smallest place is usually in the $300s, many people in this area don’t put 20% (or about $60K+) down. That hasn’t been an issue until now. You can put 5% down, take out two “trusts” (or loans)—one for 80% and one for 15%, and be on with your home purchase. Those second trusts are becoming an issue, though. Read on:
The second impact of this panic is a big jump on the 2nd trust rates. 2nd trusts have always been riskier for lenders—they’re junior liens, after all, and so carried a higher interest rate. But that rate is the other important change in the past week. It jumped significantly.
Two impacts on this market are clear, but in my opinion, neither is catastrophic. At least not yet.
1) For most buyers, they can afford less. So if you were shopping at the top of your affordability range, chances are you can no longer afford that payment, regardless of how much you were putting as a down-payment. How much less? We’ll have to see where the rates stop. According to the Post, rates are up almost a full percentage point since May. So for every $10,000 borrowed, that’s $100/year.
Let’s use an example. Let’s say a buyer was looking at in the $600,000 range starting in May. Rates jumped up a point since then. That means that if there is NO room in their monthly budget (and why would any responsible person be looking at that price if there was absolutely no room in their budget?!) then now they can only afford $500,000. Another way to say it is that having the same $600,000 mortgage now costs them an extra $6000/year (which, making some assumptions about income bracket, is about $4000/year out of pocket after taxes.)
My guess—and I certainly could be wrong—is that people shopping for $600,000 homes have just a little bit of wiggle room in their budgets, maybe even up to $4,000/year. I think most people in that income and affordability bracket will make the trade-off, see their home as an important investment, and forgo a few discretionary items to get the house that they still want. I believe that the majority of the people are NOT going to change the range in which they’re looking, at least not by much. Again, maybe I'm naive, or maybe I'm just lucky that my clients tend to be responsible purchasers (or, not to pat myself on the back too much, but maybe I do a good job counseling them up front and introducing them to reputable lenders who counsel them too).
In my experience, the people who tend to stretch their budgets to the breaking point are the people who are buying their first place, which is often under $417K, and therefore not impacted by the jumbo rate jump. They are, however impacted in another way. They usually have less of a down-payment (because they’re not rolling over equity from a previous home), and are borrowing more than 80% of the purchase price.
2) For all borrowers planning to finance more than 80% of the purchase, you can afford less. This one worries me less—one, because only 15% of the loan is going to have a significant jump in rate, and that’s a whole lot better than having it hit the 80%. Second, there exists an option to borrow 95% as one trust and pay PMI. PMI, which historically was a dirty word for borrowers, is more acceptable now because in 2007 it’s tax deductible, same as interest. Boy, did they pick a good year to change that rule! So the 95% trust, as long as it’s not jumbo (see impact #1) should keep the payment roughly what a borrower was planning two weeks ago.
I’m sure this will continue to be a front-page crises for a few weeks. I’ll write more as the situation evolves. But I still stand firm in my conviction that if you are:
- Financially able to buy: good credit, a reasonable budget, about 8% of the purchase price in savings, and
- Your life situation calls for buying instead of renting: will be in this area for 3 or more years, you have reasonable expectations of what you get for the money, and you recognize that even a flat return on an investment is better than rapidly increasing rents (see Rent vs Buy calculator post),
Then this is still a good time to seriously consider buying.
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