Should you buy before you sell?

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moving day book 1

NO!

There’s the short answer. Now for the longer version.

I have a severely handicapped sister who lives at home with my Mom. There was no way we could show the property until Mindy and my Mom were moved to their new home. The new house was purchased all cash prior to the sale of their former home. If we had to do it all over again, it would be done the same way. Buy first…move in…then sell.

But very few people have the money to purchase their new home before selling their current home. Even fewer people do not need to know for sure how much their current home will sell for, before deciding how much to spend on their new home. Getting an appraisal on your current home is not an assurance that you will actually sell your home for that amount. Still, for some people, buying first if they can well afford it, will help them to get top dollar for their current home, especially if they have children, pets, or as in my Mom’s case, a severely handicapped family member.

The most common way that people move to their new home before selling their current home is via a “bridge” loan. I once bought a home that had tons of wallpaper and I wanted to strip the wallpaper before I moved in. I used a bridge loan to close on the new house before I had the money from my then current home. I did not take out the “bridge” loan until my home was in contract and past the inspection phase and all contingencies. I then used a bridge loan for two weeks so I could strip the wallpaper and move in a bit more leisurely. I had three small children at the time and I was moving to a larger home in the same neighborhood. All went well and the bridge loan was paid off when my home closed after we were all moved in to the new home.

The main purpose of this post is to tell you that “bridge loans” are NOT easy to come by these days.

I hear a lot of talk about how much the mortgage industry is “tightening” and how much it is “changing”. The reality is…it is just going back to the way it always was.

Bridge Loans are for people who are in contract on their current home and who want to avoid the hectic moving after closing and within 24 to 48 hours. They are not to lock in a price that has not been tested on the current home. Very few lenders want to take the risk of not being in first position by extending financing based on what you THINK your home will sell for these days.

If your lender told you you could buy before you sell via a “bridge loan”, CHECK AGAIN! They may have changed their mind.

Sunday Night Stats

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King County Residential Sales

Active/For Sale – 9631- UP 195 – median price $525,000- UP $950

In Escrow – 2701- UP 73 – median price $449,000 – no change

Closed YTD – 2551- UP 271 – median price $436,000 – UP $1,000

King Conty Condo Sales

Active/For Sale – 3,441 – UP 75 – median price $324,950 – UP 100

In Escrow – 897 – UP 29 – median price $299,950- DOWN $14,500 (asking prices)

Closed YTD – 847 – UP 85 – median price $285,000 – UP $5,000

Median SFH Home Prices of Property Currently In Escrow

$644,950 Bellevue
$484,000 Bothell (King County)
$654,500 Issaquah
$508,950 Kenmore
$684,000 Kirkland
$685,940 Redmond
$367,475 Shoreline

For Seattle, SFH includes townhomes

$479,950 98103
$459,000 98107
$577,000 98115
$475,500 98117

“Statistics not compiled or published by NWMLS.

Proposed RESPA Reform

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When I read the news on HUD’s proposed reform of the Real Estate Settlement and Procedures Act (RESPA) I was skeptical. Cathy from Sequim challenged me to read the 96-page federal register document so we could all figure out what’s going on. I am here to tell you that there is one very good change coming out of this proposal. In fact, it’s so good that I am borderline hopeful that this change might do what legislation is suppose to do and what HUD forgot to do when they signed the original version of RESPA in 1974. But first, the changes that will have many, but not all mortgage brokers screaming bloody murder:

HUD wants to make the Good Faith Estimate (GFE) look the same, no matter where homebuyers apply. Right now there are many off-the-shelf (OTS) software systems that make the GFE look different from company to company. Also, some OTS software can be modified. Some fees, for example, the Yield Spread Premium (YSP), are shown down at the bottom of the form, below the “total costs

Used Car Salesmen, Trial Lawyers and Real Estate Agents

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[Editor’s Note: It’s been a while since I added a new contributor to our mix here at Rain City Guide, but when Gordon Stephenson showed some interest (after at least two years of requests by me!), I can’t help but be excited to have him on board! Gordon is the Co-owner and Managing Broker of Real Property Associates. I first came across Gordon when Zillow added him to their Board of Directors in July of ’05, and have run into him both online and offline since then. He’s a great guy and a virtual real estate institution in Seattle, so I couldn’t be happier to bring him on board as a contributor!]

When I started selling real estate fresh out of college, nearly 20 years ago, my parents were confused, even apoplectic: “You just earned this degree and you’re choosing to sell real estate? How are you going to pay back your student loans? Couldn’t you have done that with a GED?

Laying Bamboo or Wood Floor on the Diagonal

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diagonal wood floorOne of the questions Kim and I are asked most often is which way to lay the bamboo or wood floors. Horizontal? Vertical?

Often the better and best choice is on the diagonal. However I am told this method requires a higher level of craftmanship and produces a larger amount of product waste.

If the home is deep and narrow, you like want to go with horizontal. If the home is wide and shallow in depth, you like want to use vertical. Same goes if you are just doing one room. The room will feel even more long and narrow if you place the wood in a vertical position vs. a horizontal layout.

But don’t overlook that third answer, on the diagonal, particularly in smaller homes.

Another Lender Pulls Out of Fannie/Freddie 100

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Lately I’ve felt like Debbie Downer with the information I’ve been sharing here. On a positive note, it’s great that wedebbie downer have blogs to get this information out to buyers, sellers and real estate professionals…especially since we, as Loan Originators, are given very little notice these days of significant changes. I gave you an example last week, here’s one from today.

Franklin American Mortgage Company issued a revised memo that I received today announcing a reduction in Expanded Approval (EA) loan to values to a maximum of 95% LTV with a minimum credit score of 660. An “expanded approval” is when a loan scenario doesn’t quite fit the pegs needed to receive an “approval” from the AUS (automated underwriting system). There are different levels of “Expanded Approval” and to tell you the truth, I did very few (maybe 1 or 2 ever) EA loans. There’s a price hit, and at the time either FHA, subprime or Alt-A would offer a better scenario for the borrower. If you had an EA approval with First Franklin at 100% LTV, you had until 4:00 CST today to lock the loan and it was also subject to MI availability (good luck). This part of the memo didn’t bother me personally since I didn’t really use this type of loan as much as the next section.

Here was my personal zinger: Franklin American is discontinuing Fannie Flex 100/Freddie 100. The maximum LTV/CLTV is reduced from 100% to 97% including Fannie 100, Freddie 100, My Community and Home Possible programs (you can still do a Flex 97).

I still have a few lenders that are offering Fannie Flex 100 “at the moment”. However, I’m expecting 100% LTV financing with Freddie and Fannie to go the way of the do-do.

What should you do?

If you’re a Listing Agent and have transactions pending with 100% financing, I would confirm with the lender they are still valid. If you have offers on your listings with 100% financing, contact the lender to confirm they can still offer this product. And consider a quick closing.

If you’re a Selling Agent with Buyers utilizing 100% financing, your buyers should consider a “Plan B” (like 3% down for Flex 97 or FHA). I recommend reverifying transactions in process and any preapprovals.

Buyers, if you’re planning on buying using 100% LTV financing, meet with your Mortgage Professional to develop a “Plan B”. It’s good to have options in this kind of market.

Watch for my next post…featuring eeorr.

Major Credit Score Rate Adjustments — The Hits Keep Coming

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Fannie and Freddie are implementing new loan level price adjustments (LLPA) based on credit score and loan to value. This is a
change for the worse from my previous post announcing the original LLPA. Now your credit score is even more critical. Some lenders are implementing these changes immediately with terms on when the loans must be locked and closed.

The following information is for purchases and rate/term refinances with mortgage terms longer than 15 years (cash out refi’s have additional hits).

The hits shown below are “to price” and not to rate.

LTV (loan to value) 60.01% to 70%
Credit Score 720 or better — no hit
Credit Score 640 -719 is a 0.500% hit to price.
Credit Score 620 – 639 is a 0.750% hit to price.

LTV 70.01 or More
Credit Score 720 or better — no hit
Credit Score 680 to 719 is a 0.500% hit to price.
Credit Score 660 – 679 is a 1.250% hit to price.
Credit Score 640 – 659 is a 1.750% hit to price.
Credit Score 620 – 639 is a 2.500% hit to price.

These “hits” are in addition to other factors that are used for pricing rates and even though I quoted lower credit scores, don’t count on Fannie/Freddie (conforming) financing…especially if you’re eyeing the temporary conforming-jumbo which requires a minimum 660 credit score.

So if you have a 719 credit score and are putting 20% down using a 30 or 20 year fixed rate mortgage, you are going to pay 0.5% more in fee than your friend with a 720 credit score. If your loan amount is $400,000, this is an additional cost of $2000. Or the “price hit” may be factored into to the interest rate. Typically (but not always) 0.5% in fee would equal about 0.125% – 0.25% higher in rate. A quarter point difference in rate runs around $65.00 per month ($775 per year).

Recommended read: How to Improve Your Credit Score.

I also encourage anyone who is considering buying or refinancing a home to meet with a Mortgage Professional as soon as possible. A little time and elbow grease may save you thousands.

MB Confidential – Should he come out of the closet?

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Back in July I wrote this post about my favorite real estate blog(s) not written by people inside the real estate industry.

Manhattan Beach Confidential is written by an anonymous author whom I know as MB Watcher. He was featured in an article written by The Easy Reader and is under a lot of pressure to come out of the closet.

My advice to him was Don’t Do It!!! Stay anonymous. They are just looking for whom to crucify. They’ve got the cross and nails hidden behind their backs. They’ve got the noose all ready over in The Tree Section. They want to know who you are so they can find the chink in your armor. Telling them who you are would be revealing your Achilles’ Heal…we all have one.

I hope to be meeting him in person in the next month or so, and he has agreed to do that without wearing a bag over his head 🙂 Though I have suggested that he do wear a bag over his head and do not want to know his real name. It may be against the code of ethics for me not to tell the Realtors who he is, if I know his name.

What do you think? Should MB Watcher come out of the closet? Is the info he provides less valuable if you don’t know who he is? I don’t think agents are allowed to be anonymous for many reasons. But just a guy writing about real estate? Can he stay a well informed unknown?

Have you heard about Zilpy? New site for tracking rents in cities across USA…

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A title rep sent me an email today that gave me a head’s up on a new site I’d not seen before called www.Zilpy.com. It looks a heck of a lot like Zillow but with data on rents instead of home values. I’ve been playing around with it a bit and while I can’t figure out exactly yet how they’re getting the data, I’m intrigued. Most likely I’ll make mention of it to some of our investors to get their feedback on it as well and see if they think it’s a worthwhile site.

Check out the function of “heat maps” for rent levels in Washington. More states and cities are covered so it’s not just a Seattle gig. I believe it’s come to life from Silicon Valley.

Zilpy.com