The Truth About Appraisals
Knowing the Guidelines Solves the Mystery
The appraisal process often baffles consumers. They may feel that their home is worth a higher dollar amount, and so the appraised value doesn't always make sense to them. It is important to know that the appraiser is completely independent from lenders, buyers, sellers, and real estate agents, and that the guidelines to which they adhere are dictated by the Uniform Standards of Professional Appraisal Practice (USPAP) and Fannie Mae. In most states, the mortgage lenders must also disclose the purpose of the appraisal, as each transaction carries its own set of rules.
In essence, these important guidelines help appraisers put a fair market value on homes based on comparable sales in the same area, and the home must be bracketed in size and value.
For example, there is no set dollar figure associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, but the local marketplace supports the value of a pool at $15,000, then that item will be bracketed as [$15,000] on the appraisal.
Upgrades can usually be expressed at a higher percentage of their value in newer homes because the only way to obtain those upgrades was to put more money into the cost of building the home. On the other hand, the upgrading or remodeling of an older home is rarely reflected in full in the final appraisal. This is because typically 25-40% of the project involves demolition and the fixing of issues that aren't uncovered until the project has already begun, such as plumbing or wiring that may need updating.
Ultimately, the value of the upgrades must be supported by comparable examples within the same marketplace. These comparisons must be drawn from current market activity within the last six months. This is a safeguard to prevent appraisers from attaching too high a value to the home in question, and opening up the appraisal for review. This guideline further states that appraisers can only base their opinion on the value of home sales that have actually closed.
As a loan professional, I make a point to follow the appropriate guidelines at all times. This promotes a good relationship with the lender, and helps to create easier and much smoother closings for my borrowers.
Thursday, December 17, 2009
Thursday, December 10, 2009
Baby Boomers
Baby Boomers Retire
Reverse Mortgages Gain Popularity
Born between 1946-1964, the generation known as the Baby Boomers will begin to retire in large numbers, substantially shrinking the labor force in the US. As a result, Social Security, Medicare, and other government programs will be significantly affected over the next several years. In fact, the Social Security Advisory Board (SSAB) estimates that, by 2030, about 20% of the American population will be 65 years old or older.
With rising costs of living and a dwindling budget to accommodate the elderly and disabled, we will see increased usage of the reverse mortgage. This loan allows equity to be taken out of the home to meet day-to-day expenses, and was designed in the late 1980s to help those who owned property, but lacked sufficient income to live on. However, there are benefits and disadvantages to be considered before going into this type of loan.
In most loan scenarios a home will go into foreclosure if payment is not made. If payments are made, the debt decreases and equity increases. The opposite holds true for a reverse mortgage; equity is taken out of the home to sustain the family, causing debt to increase while equity decreases. There is an exception - if the actual value of the home increases, less equity will be lost overall.
Most reverse mortgages are set up so there is no monthly payment as long as the owner resides in the home. There are no minimum income requirements, and the money can be used for any purpose. Equity disbursed from this type of loan is tax-free. Depending on the type of plan, reverse mortgages will usually allow the owner to retain the title to the property until they have lived in a different residence for 12 months, sold the property, died, or the end of the loan term has been reached.
On the flip side, reverse mortgages can be more costly than a normal equity loan. Interest is added to the principal balance each month, and the amount of interest owed is compounded over time. The interest will not be tax deductible until the loan is paid off, in part or in full. Also, since the reverse mortgage uses equity in the property, this constitutes a loss of assets one could pass on to heirs.
The Federal Trade Commission warns of abuse with this type of loan, as they have received reports of predatory lenders taking advantage of the elderly. It is best for the individual interested in a reverse mortgage to research and obtain counsel from reputable sources.* HUD does not recommend consulting an estate planning service to obtain a referral to a lender. HUD provides this information free to the public. Even if the home loan was not originally an FHA loan, the reverse mortgage can be federally secured.
Reverse Mortgages Gain Popularity
Born between 1946-1964, the generation known as the Baby Boomers will begin to retire in large numbers, substantially shrinking the labor force in the US. As a result, Social Security, Medicare, and other government programs will be significantly affected over the next several years. In fact, the Social Security Advisory Board (SSAB) estimates that, by 2030, about 20% of the American population will be 65 years old or older.
With rising costs of living and a dwindling budget to accommodate the elderly and disabled, we will see increased usage of the reverse mortgage. This loan allows equity to be taken out of the home to meet day-to-day expenses, and was designed in the late 1980s to help those who owned property, but lacked sufficient income to live on. However, there are benefits and disadvantages to be considered before going into this type of loan.
In most loan scenarios a home will go into foreclosure if payment is not made. If payments are made, the debt decreases and equity increases. The opposite holds true for a reverse mortgage; equity is taken out of the home to sustain the family, causing debt to increase while equity decreases. There is an exception - if the actual value of the home increases, less equity will be lost overall.
Most reverse mortgages are set up so there is no monthly payment as long as the owner resides in the home. There are no minimum income requirements, and the money can be used for any purpose. Equity disbursed from this type of loan is tax-free. Depending on the type of plan, reverse mortgages will usually allow the owner to retain the title to the property until they have lived in a different residence for 12 months, sold the property, died, or the end of the loan term has been reached.
On the flip side, reverse mortgages can be more costly than a normal equity loan. Interest is added to the principal balance each month, and the amount of interest owed is compounded over time. The interest will not be tax deductible until the loan is paid off, in part or in full. Also, since the reverse mortgage uses equity in the property, this constitutes a loss of assets one could pass on to heirs.
The Federal Trade Commission warns of abuse with this type of loan, as they have received reports of predatory lenders taking advantage of the elderly. It is best for the individual interested in a reverse mortgage to research and obtain counsel from reputable sources.* HUD does not recommend consulting an estate planning service to obtain a referral to a lender. HUD provides this information free to the public. Even if the home loan was not originally an FHA loan, the reverse mortgage can be federally secured.
Sunday, December 6, 2009
Market Conditions
Existing home sales have shown promising figures, as first-time buyers take advantage of the buyer tax credit and historically low interest rates.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – surged 10.1 percent to a seasonally adjusted annual rate1 of 6.10 million units in October from a downwardly revised pace of 5.54 million in September, and are 23.5 percent above the 4.94 million-unit level in October 2008. Sales activity is at the highest pace since February 2007 when it hit 6.55 million.
Lawrence Yun, NAR chief economist, was surprised at the size of the gain. "Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November," he said. "With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer."
Regionally, existing-home sales in the Northeast rose 11.6 percent to an annual level of 1.06 million in October, and are 27.7 percent higher than October 2008. The median price in the Northeast was $235,400, down 2.6 percent from a year ago.
Existing-home sales in the Midwest surged 14.4 percent. The median price in the Midwest was $146,600, a gain of 1.1 percent from October 2008, the only region seeing a gain in median price.
In the South, existing-home sales rose 12.7 percent to an annual level of 2.30 million in October and are 25.7 percent higher than October 2008. The median price in the South was $151,100, down 6.3 percent from a year ago.
The smallest increase in existing-home sales was seen in the West, which increased just 1.6. However, this number is a healthy 12.0 percent above a year ago. Home prices are still down for the region.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – surged 10.1 percent to a seasonally adjusted annual rate1 of 6.10 million units in October from a downwardly revised pace of 5.54 million in September, and are 23.5 percent above the 4.94 million-unit level in October 2008. Sales activity is at the highest pace since February 2007 when it hit 6.55 million.
Lawrence Yun, NAR chief economist, was surprised at the size of the gain. "Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November," he said. "With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer."
Regionally, existing-home sales in the Northeast rose 11.6 percent to an annual level of 1.06 million in October, and are 27.7 percent higher than October 2008. The median price in the Northeast was $235,400, down 2.6 percent from a year ago.
Existing-home sales in the Midwest surged 14.4 percent. The median price in the Midwest was $146,600, a gain of 1.1 percent from October 2008, the only region seeing a gain in median price.
In the South, existing-home sales rose 12.7 percent to an annual level of 2.30 million in October and are 25.7 percent higher than October 2008. The median price in the South was $151,100, down 6.3 percent from a year ago.
The smallest increase in existing-home sales was seen in the West, which increased just 1.6. However, this number is a healthy 12.0 percent above a year ago. Home prices are still down for the region.
Wednesday, December 2, 2009
The Federal Reserve and Mortgage Rates
The Federal Reserve and Mortgage Rates
Understanding What Causes Interest Rate Movement
Consumers are often misled when it comes to the subject of the Federal Reserve and how it affects mortgage interest rates. Often the media is the culprit causing the confusion. Many times, the Fed has taken action that caused mortgage interest rates to move in a direction other than what consumers expected, because the media provided weak reporting on the subject.
The Federal Reserve affects short-term interest rate maturities, the Fed Funds rate, and the Overnight Lending rate. These factors have a direct impact on the Prime rate. If you took only this into consideration, you may mistakenly conclude that changes made by the Fed will cause a similar movement in mortgage interest rates. However, mortgage interest rates are dictated by the trading of mortgage-backed securities, which trade on a daily basis. The real dynamic at the heart of interest rate movement is the relationship between stocks and bonds.
Stocks and bonds compete for the same investment dollar on a daily basis. There is literally only so much money to be invested. When the Federal Reserve feels that interest rates need to be decreased in an effort to stimulate the economy, this reduction in rates can often cause a stock market rally. When the market becomes bullish, the money to invest in stocks comes from the selling of mortgage-backed securities.
Unfortunately, selling mortgage-backed securities to fuel stock market rallies causes interest rates to go up, not down.
Historically, there have been many times when the Federal Reserve has increased interest rates. Stocks then sell off in fear that the increase will affect corporate profit margins, and the liquidated stock assets need a place to park until the next rally comes along. The safe haven is found in mortgage-backed securities which cause mortgage rates to drop.
The daily ebb and flow of money is what matters most when it comes to the movement of mortgage interest rates. I make it a point to continuosly monitor interest rates for my clients, and advise them of opportunities to manage their mortgage debt at a better rate. This is the foundation of my business model as a Trusted Advisor.
Let's discuss how we can better educate our clients on the largest purchase they'll ever make!
Understanding What Causes Interest Rate Movement
Consumers are often misled when it comes to the subject of the Federal Reserve and how it affects mortgage interest rates. Often the media is the culprit causing the confusion. Many times, the Fed has taken action that caused mortgage interest rates to move in a direction other than what consumers expected, because the media provided weak reporting on the subject.
The Federal Reserve affects short-term interest rate maturities, the Fed Funds rate, and the Overnight Lending rate. These factors have a direct impact on the Prime rate. If you took only this into consideration, you may mistakenly conclude that changes made by the Fed will cause a similar movement in mortgage interest rates. However, mortgage interest rates are dictated by the trading of mortgage-backed securities, which trade on a daily basis. The real dynamic at the heart of interest rate movement is the relationship between stocks and bonds.
Stocks and bonds compete for the same investment dollar on a daily basis. There is literally only so much money to be invested. When the Federal Reserve feels that interest rates need to be decreased in an effort to stimulate the economy, this reduction in rates can often cause a stock market rally. When the market becomes bullish, the money to invest in stocks comes from the selling of mortgage-backed securities.
Unfortunately, selling mortgage-backed securities to fuel stock market rallies causes interest rates to go up, not down.
Historically, there have been many times when the Federal Reserve has increased interest rates. Stocks then sell off in fear that the increase will affect corporate profit margins, and the liquidated stock assets need a place to park until the next rally comes along. The safe haven is found in mortgage-backed securities which cause mortgage rates to drop.
The daily ebb and flow of money is what matters most when it comes to the movement of mortgage interest rates. I make it a point to continuosly monitor interest rates for my clients, and advise them of opportunities to manage their mortgage debt at a better rate. This is the foundation of my business model as a Trusted Advisor.
Let's discuss how we can better educate our clients on the largest purchase they'll ever make!
Saturday, November 21, 2009
Announcing 2 new assistance programs for Grand Prairie and Rockwall Counties!
City of Grand Prairie
The Foreclosed Home Purchase Assistance Grant Program (FHPAG) assists qualified low, moderate and middle-income families to purchase foreclosed homes in Grand Prairie. The Program is administered through the city of Grand Prairie Housing and Neighborhood Services Department.
The FHPAG program provides up to a $20,000 forgivable second lien to assist qualified buyers with approved closing costs, down payment assistance up to 50% and approved rehabilitation work after closing process is complete.
http://www.gptx.org/index.aspx?page=942
City of Rockwall
This is a true grant/gift program. No second lien is created for the down payment assistance. The only criteria for qualification is that the Borrower must be a resident of Rockwall.
These are on a first come, first serve basis. Only while funds are available so call me today to get started and now miss this huge chance!
The Foreclosed Home Purchase Assistance Grant Program (FHPAG) assists qualified low, moderate and middle-income families to purchase foreclosed homes in Grand Prairie. The Program is administered through the city of Grand Prairie Housing and Neighborhood Services Department.
The FHPAG program provides up to a $20,000 forgivable second lien to assist qualified buyers with approved closing costs, down payment assistance up to 50% and approved rehabilitation work after closing process is complete.
http://www.gptx.org/index.aspx?page=942
City of Rockwall
This is a true grant/gift program. No second lien is created for the down payment assistance. The only criteria for qualification is that the Borrower must be a resident of Rockwall.
These are on a first come, first serve basis. Only while funds are available so call me today to get started and now miss this huge chance!
Housing most affordable now!
Housing at Its Most Affordable in Years
One piece of good news coming out of the Great Recession is the increasing affordability of housing.
The typical U.S. family earning the nation’s median income of $64,000 a year could afford to buy 70.1 percent of all homes sold in the United States during the third quarter, according to a report from the National Association of Home Builders and Wells Fargo. The report relied on the government standard of spending no more than 28 percent on housing. In the same quarter of 2008, only 56.1 percent qualified.
One piece of good news coming out of the Great Recession is the increasing affordability of housing.
The typical U.S. family earning the nation’s median income of $64,000 a year could afford to buy 70.1 percent of all homes sold in the United States during the third quarter, according to a report from the National Association of Home Builders and Wells Fargo. The report relied on the government standard of spending no more than 28 percent on housing. In the same quarter of 2008, only 56.1 percent qualified.
Monday, November 16, 2009
Q/A about the Tax Credit!
FAQs Regarding U.S. Homebuyer Tax Credit Extension, Expansion
From the National Association of REALTORS, here are some of the most frequently asked questions on the changes to the Homebuyer Tax Credit signed into law on November 6 by President Obama.
QUESTION: Existing homeowner credit: Must the new house cost more than the old house?
ANSWER: No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6,500 credit.
QUESTION: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. Do I qualify for the new $6,500 tax credit?
ANSWER: Yes. The existing homeowner credit went into effect for purchases after the date of enactment (Nov. 6, 2009). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.
QUESTION: I am a first-time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits when I go to settlement, will I be eligible for a credit?
ANSWER: Yes. The new income limitations went into effect as soon as the President signed the bill. The income limit and other eligibility rules look to your status as of the date of purchase, which is the settlement date. So when you go to settlement, you should be eligible for the credit (or a portion of the credit if you're within the phase-out range).
QUESTION: I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a non-negotiable price of $825,000. Will I be able to use any of the $6,500 tax credit?
ANSWER: No. The $800,000 cap on the cost of the purchased home is firm. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.
QUESTION: I owned my home for 10 years, but sold it two years ago and have been renting since. If I purchase a home, will I be eligible for the $6,500 tax credit if I meet all the other eligibility tests?
ANSWER: Yes. Because you lived in the home for more than five consecutive years of the previous eight you will qualify for the $6,500 credit. For example, say John and his wife bought a home in 2000 and lived there until 2008, when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for five consecutive years out of the last eight years. The key word here is “consecutive." As long as he lived in that house for five years straight, what he did since then doesn't affect eligibility.
QUESTION: I am an eligible first-time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?
ANSWER: You do not have to close before December 1. Now that the legislation has been signed, it will be as if the November 30 date had never existed. Therefore, so long as the binding contract is in place by April 30 (and you close before July 1), you will be eligible for the credit.
From the National Association of REALTORS, here are some of the most frequently asked questions on the changes to the Homebuyer Tax Credit signed into law on November 6 by President Obama.
QUESTION: Existing homeowner credit: Must the new house cost more than the old house?
ANSWER: No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6,500 credit.
QUESTION: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. Do I qualify for the new $6,500 tax credit?
ANSWER: Yes. The existing homeowner credit went into effect for purchases after the date of enactment (Nov. 6, 2009). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.
QUESTION: I am a first-time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits when I go to settlement, will I be eligible for a credit?
ANSWER: Yes. The new income limitations went into effect as soon as the President signed the bill. The income limit and other eligibility rules look to your status as of the date of purchase, which is the settlement date. So when you go to settlement, you should be eligible for the credit (or a portion of the credit if you're within the phase-out range).
QUESTION: I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a non-negotiable price of $825,000. Will I be able to use any of the $6,500 tax credit?
ANSWER: No. The $800,000 cap on the cost of the purchased home is firm. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.
QUESTION: I owned my home for 10 years, but sold it two years ago and have been renting since. If I purchase a home, will I be eligible for the $6,500 tax credit if I meet all the other eligibility tests?
ANSWER: Yes. Because you lived in the home for more than five consecutive years of the previous eight you will qualify for the $6,500 credit. For example, say John and his wife bought a home in 2000 and lived there until 2008, when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for five consecutive years out of the last eight years. The key word here is “consecutive." As long as he lived in that house for five years straight, what he did since then doesn't affect eligibility.
QUESTION: I am an eligible first-time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?
ANSWER: You do not have to close before December 1. Now that the legislation has been signed, it will be as if the November 30 date had never existed. Therefore, so long as the binding contract is in place by April 30 (and you close before July 1), you will be eligible for the credit.
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