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Foreclosures Finally Settling Down?
This is a quick update from one of my favorite sources for economic analysis, the Calculated Risk Blog.
Fannie Mae, Freddie Mac: Mortgage Serious Delinquency rates declined in March
Posted: 01 May 2013 03:09 PM PDT
The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.
Freddie Mac reported that the Single-Family serious delinquency rate declined in March to 3.03% from 3.15% in February. Freddie’s rate is down from 3.51% in March 2012, and this is the lowest level since June 2009. Freddie’s serious delinquency rate peaked in February 2010 at 4.20%.
Note: These are mortgage loans that are “three monthly payments or more past due or in foreclosure”.
Although this indicates some progress, the “normal” serious delinquency rate is under 1%.
At the recent rate of improvement, the serious delinquency rate will not be under 1% until 2017 or later.
Win the bidding war without overpaying
It’s a seller’s market in Silicon Valley
5 Keys to Making a Successful Offer
Buying a home in Silicon Valley right now is not easy. Listings are scarce and buyers are plentiful. Most homes are selling very quickly with multiple offers. Winning the bidding war can be hell…unless you know the keys to the most attractive offer. Here they are:
Be Qualified
This may seem silly to include, but you should be qualified to buy the home you want. This is not the same as getting pre-qualified (see below.) You need to be able to afford to buy the home and to keep the home. To ensure you are qualified, consult a competent mortgage professional long before you actually buy. However strong a buyer you are today, you can probably be stronger, and thus more attractive to a seller.
For instance, credit is critically important when you are buying a home. You can get qualified with a score as low as 620 (or possibly lower) but it isn’t likely your offer will be accepted, even if it’s the highest offer. With higher scores you can qualify for conventional financing and you’ll look much more attractive. Super high scores will get you a better price on the loan, allow you to qualify for more, and make you a very attractive buyer.
You might have issues with too much debt or too little cash on hand, too. A good mortgage professional will evaluate your situation, help you establish a baseline and help you decide where to focus your efforts to improve qualification. I met with one couple last year who had a little too much debt and consequently slightly too low a credit score, and not quite enough cash in the bank. We worked up a plan, they followed it to a “T”, and they’re closing this week on their new home. It took nine months, but they were able to buy a much nicer home than they otherwise would have.
Meet with a mortgage professional for a full evaluation, build a plan to address whatever is your weakest area, and follow the plan.
Get Prequalified
Get pre-qualified or you’ll just be chasing homes
Once you’re ready to shop for a home you must be pre-qualified for a mortgage. This means that you have applied for a loan, provided all of the appropriate documentation to support the application, and have been underwritten and approved. The lender is committed to making the loan
Your real estate agent will want the prequalification to be in writing, and often written to specifically name the property on which you are making an offer. Your lender should be willing and able to do this for you.
Use a Qualified Mortgage Lender
Speaking of lenders, sellers – who are being coached by real estate agents – are typically more “friendly” to pre-qualifications written by lenders they trust. This might be a bank, but don’t overlook brokers. If a bank doesn’t like the property or if something changes in your circumstances while you’re in escrow (things happen) a bank will turn the loan down, whereas a broker can still shop the loan and in many cases close it.
The key is that your mortgage advisor should be experienced and credible, and it helps a lot if they are well known in the real estate community. Your real estate agent should include your mortgage advisor’s contact phone number and bio with the pre-qual letter, or a link to their web site, blog or LinkedIn page.
I worked with a young couple last year where they were not the highest offer. In fact, they paid less than the appraised value. They were first-time homebuyers buying in a mid-range price and had only 10% down. But they had excellent credit, good reserves, steady jobs and decent income. The listing agent called me to qualify me – he asked how long I had been in the business, how long had my broker been around, how pre-qualified my clients really were, etc. My clients won the deal, and their agent told them that the phone call was what did it. The listing agent did a very good job – he was hunting for the most solid deal, not the highest price, and he found it. And my clients are SUPER happy.
Be sure your mortgage advisor is working for a credible, ethical company, and that he or she is a credible, experienced agent. It could make all the difference.
Be the First or Last Offer
Unless otherwise instructed by the seller, a real estate agent will typically present multiple offers in the order in which they were received. If you are one of the first to view the home, jump in with a good offer as soon as possible. Sellers want the best deal for themselves, but most folks have an innate sense of fairness. All things being equal, they are likely to accept the earlier offer.
If you can’t be first, be last. Although the listing agent should not tell selling agents what current pending offers are, agents have a way of extracting information that could be helpful. Plus, when the sellers are reviewing offers, your offer will be the last one they hear. It could be all the advantage they need.
Use an Experienced, Well-Respected Agent
There are a number of reasons to use a highly experienced agent in a strong seller’s market.
An experienced agent knows how to present an offer in a compelling way. Just as the listing agent’s job is to sell the house by highlighting positive features, your agent’s job is to sell you. They should point out how qualified you are as buyers, what wonderful folks you are, how their home would be perfect for your family, how much you would enjoy the home and how well you would care for it.
Numbers are numbers, but homes are an emotional asset. If the seller has raised a family in their home, they are likely to be inclined to sell their home to a young family that will carry on the tradition. If a seller has a woodworking hobby and has built a great workshop in his garage, he may be inclined to sell to a woodworker.
Your agent should take note of things in the house during the inspection and make sure in the offer that the seller knows there is a strong connection between seller and buyer. “…and Mr. Jones is particularly looking forward to creating beautiful pieces of custom furniture in the workshop space that Mr. Smith has built.”
An experienced agent will be able to craft and present an offer in a way that is compelling and attractive to the sellers, whether the offer is the highest priced or not.
There is one other factor that is not often discussed. The real estate agent community is a relatively small one. Agents work with other agents on deals all the time. Some experiences are good, and some are not. Any good agent will tell you that they love it when another experienced, competent, ethical agent is on the other side of the transaction. They have to work together and count on each other to close the transaction, and the quality of the work each does affects the other.
If your agent is new or unknown, or worse is known but considered lazy, incompetent or just too busy to work on transactions, listing agents are less likely to want their seller to take your offer. You might find this uncomfortable, but consider this: the agent’s job is to get the best feasible deal for their client.
Summary
In summary, if you want to be successful buyer in a seller’s market, keep these things in mind:
- Get your “house” in order: be qualified
- Get pre-qualified
- Work with a respected mortgage advisor
- Be the first or last offer
- Work with a respected real estate agent.
Congratulations! You’ve won the bidding war!
And good luck!
My name is Casey Fleming, and I help folks finance homes in California. I am based in Silicon Valley, and can be reached at:
(408) 348-3442 / loanguide@outlook.com / www.loanguide.com
NMLS: 344375
DRE: 00889527
Buying Up is Hard to Do
I’m sure you’ve heard that the real estate market is coming back on strong right now, especially where we are in Silicon Valley. If you bought your home before 2007 you might have thought you’d be in it for just a few years and you had planned to move up, but you didn’t because of the market. Now that the market is hot again, you might be re-thinking your situation. If you are like many of my clients, you might have put off moving up because:
- You had less equity in your home than you expected so you don’t have as much cash to put down on your new home as you had planned.
- Your savings were hit hard by the stock market crash and you had less of a cushion than you wanted.
- You weren’t certain about the real estate market and weren’t confident about moving.
Most folks in Silicon Valley buy a small home as their first home.
But things have changed now, haven’t they? The stock market is up and your savings account has recovered. You might have less equity in your home than you did before real estate crash, but you have way more than you did at the bottom. It’s clear now that the real estate market is moving up.
So what do you do now? What’s stopping you from selling your existing home and moving up into the house and neighborhood that you want? Why shouldn’t you buy up now? Why should you?
Let’s start with why you should not move up.
Your next home is likely to cost you more every month because:
- In California you are likely to have a bump in your property tax.
- If the home you are considering is worth more than your current home you’ll either need to bring extra cash into the deal, or you will have a larger mortgage.
You’ll spend some money on the transaction:
- It costs money to sell your existing home. In round numbers you can expect to spend maybe 7% of the selling price of the home for a real estate commission and closing costs, and you might have a tax hit.
- It costs money to get into the new home. You’ll have loan fees and escrow fees and possibly some taxes.
- You’ll have to invest some money in moving, even if you do it yourself.
If you dream big start with a plan
So then, why should you move up to your next home?
Most folks decide to move up for both financial and emotional reasons.
Let’s look at the financial reasons first:
- Interest rates are at an historical low right now. The longer you wait, the higher your interest rate (for the next 30 years) is likely to be.
- Whenever you make the move, only then will you begin paying off your next loan. The sooner you move, the sooner you will pay off the mortgage on the home you want to live in for the rest of your life. For this reason alone, now is definitely good.
- Higher-priced homes tend to appreciate more than lower-priced homes. The longer you wait, the greater the price difference between the two properties becomes.
- Years from now, when you’re ready to retire and it really matters, you’ll have considerably more equity in your home if you move up now, rather than later. You can access this equity when you need it later either by selling, refinancing, or using a reverse mortgage. Either way, you’ll have more equity to access.
If you can move up to the home you’ll have forever, do it.
And then the emotional reasons:
- There’s a reason you want to move. A better school, a better neighborhood, or more desirable (or even more livable) home. The longer you wait, the longer you have to live with less than what you want, and the longer you put off having what you really want.
- Moving is stressful. We acknowledge that. But in our experience, people don’t put off moving forever. If this is you, you’re going to go through that stress eventually. The sooner you take the plunge the sooner the stress part is over, and the sooner you can begin to enjoy all the wonderful things that will make you forget about the stress.
Bottom line:
You should not “buy up” if you are not truly ready. If have barely enough income to afford the home of your dreams, or if your job is not secure, or if you do not have sufficient cash reserves, I recommend you stay where you are until you’ve resolved your situation.
However, if you are going to move up at some point, if your income is sufficient to comfortably support the new housing payment, if you are decent savers and have reasonable reserves, and if you feel secure in your job, then the timing is just about perfect; this market was made for you.
The best neighborhood in Silicon Valley
If you want to understand the precise short-term and long-term implications of buying up, please click here or on the link to the right entitled “Move-Up Buyer Analysis.” You can enter your own data into the analysis to see exactly how much more you’ll be spending each month, and how it will impact your family’s finances for years to come.
My name is Casey Fleming, and I originate mortgage loans throughout California. I am a mortgage broker based in Silicon Valley. What I do differently than other mortgage advisors is that I educate my clients by giving them rich, relevant, meaningful information to help them make informed decisions.
Casey Fleming
(408) 348-3442
loanguide@outlook.com / www.loanguide.com
NMLS 344375 / DRE 00889527
Signet Mortgage
NMLS 168365 / DRE 1403423
Equal Opportunity Lender
Surprisingly Strong Jobs Report May Affect Mortgage Rates
Last week’s jobs report — a combination of the Department of Labor’s Non-farm Payrolls Report and Unemployment Rate — provided investors and job seekers with unexpected good news.
Job growth for February handily exceeded most economists expectations of 160,000 by adding 236,000 new jobs.
According to the Bureau of Labor Statistics, employment increased in business and professional services, construction and healthcare:
- Business and professional services added 73,000 jobs
- Construction added 48,000 jobs. Of these, 17,000 jobs were for residential construction.
- Healthcare added 32,000 jobs
Since September, construction employment has risen by 151,000. This increase in construction jobs may point to a strengthening in the home building sector.
Stronger home building numbers may lead to increasing home prices for sellers and property appreciation for home owners.
Strong Jobs Numbers Help Stock Market Rally, May Spur Higher Mortgage Rates
Retail has added 252,000 jobs over the past year. Hiring in retail suggests that consumers are spending more, which is a strong indicator of economic growth.
These figures demonstrate a trend toward economic recovery and added a last-minute boost to last week’s stock market rally.
Rising stocks generally cause bond prices including MBS to fall and mortgage rates to rise.
The seasonally adjusted employee participation rate declined by 0.40 percent year over year; in February 2012, the seasonally adjusted was participation rate was 63.9 percent; in February 2012, the participation rate was 63.5 percent.
The Unemployment Rate for February came in at 7.7 percent; this was lower than Investor expectations of 7.8 percent and January’s unemployment rate of 7.9 percent.
The seasonally adjusted unemployment rate has decreased by.60 percent from 8.3 percent in February 2012.
Unemployment Rate Lowest Since December 2008
Long-term unemployment of 27 weeks or more accounted for 40.2 percent of February’s unemployed.
8 million workers are employed part time due to scheduling cutbacks or because they could not find full time work.
The Fed has bench-marked an unemployment rate of 6.5 percent as a sign of sufficient economic recovery that could allow the Fed to curtail its monetary easing program.
Given this perspective, the Unemployment Rate remains high, but appears to be declining gradually.
Economic indicators and recently climbing interest rates suggest that mortgage borrowers may want to lock in their best mortgage rates now.
3 Top Tips To Selecting The Right Home For Your Family
Whether you are moving to a new house with children or you are buying your first San Jose home with the intention of raising future little ones there, many factors will come into play when making your decision.
You will want to find a house with the right size and layout, that has a suitable number of bedrooms and bathrooms, is in an excellent neighborhood and has all of the local amenities your family will need.
Here are three important factors to consider during your new home search:
Location
Take a look at the area where the property is located.
Is it close to a school that your kids can attend when they are old enough?
Is there a playground where they can play with their friends?
Are you near any convenient shopping areas or stores for picking up groceries?
Location is one of the most important factors to consider when choosing a place to raise your family.
Neighbors
Take a look at the demographics of the neighborhood. You may want to spend some time walking the neighborhood and learning about the surrounding area.
Taking evening walks in the neighborhood might allow you the opportunity to meet other people who are living there and learn what they think is important about the area.
If it has mostly young families around the same age as you, your children will likely have plenty of neighbors to play with as they grow up.
Affordability
You may think that spending as much as you can possibly afford on an expensive home is the best thing for your kids, but you might be wrong.
In fact, you could end up stressed out from working too hard to make your mortgage payments and feel like you never get enough time to spend with your family.
Another option would be to buy a more modest house that you can reasonably afford and have more time with your children.
Choosing the right place to live is difficult. It might take a while to find the right house, but when you do, it will be worth it.
When you do, you will have a wonderful place to fill with love and memories, where your children can grow up in peace and happiness.
If you’ve been seriously contemplating purchasing your first home, or possibly the next home, the best thing you can do is contact a licensed real estate professional to determine what is available in the market that would fit your needs.
"Buying Up" Financial Analysis
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