Tag Archives: Buyer-Information

One good faith estimate isn’t good enough…

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[photopress:Cats.JPG,thumb,alignright]In reading Elizabeth Rhodes response to an interest-only loan question, I realized that it has been a while since I talked about my uncomfort with interest only mortgages… I think way too many people are using them as a last resort to get into a house. When interest rates start rising, a lot of people could find out that they have bitten off more than they can chew.

The particular question Elizabeth was answering was in regards to whether or not someone should stick with a mortgage broker that made them feel uncomfortable… She gave an appropriate response (concluding that the client should walk away from this broker) but missed out on giving some truly useful advice that could really minimize this issue. What she could have said: “Get more than one quote!” or “You’re making a mistake by using only one broker anyway.”

In practical terms, “getting more than one quote” means getting at least two good faith estimates. At a minimum, you should get an estimate from at least one on-line banks and one local broker. If I ever create my own set of top 10 rules for a home buyer, getting two good faith estimates would be at the very top. No one has to tell you that you’re making a huge investment when you buy your home. By making loan brokers compete, it is entirely possible to get a much lower rate. Even saving just two-tenths of a percent on your loan can add up to thousands of dollars in the long run.

If you want some more detail, I wrote a bunch more on getting a home loan last March that stills seems relevant.

Get emotional about the deal, not the house

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dragon over waterBarry Ritholtz offered up 10 common mistakes made by real estate investors based on an article by Bankrate’s Pat Curry. The mistakes pat identifies stem from the idea that “real estate has become the tech stocks of the 2000s, the darling investment that everyone seems to think will be their ticket to easy wealth.”

Barry sums up Pat’s 10 common mistakes made by real estate investors:

1. Falling in love with the property.
2. Not performing your due diligence.
3. Forgetting the rule of home improvements.
4. Thinking you’ll get those low mortgage rates you see on TV.
5. Not pre-screening tenants.
6. Breaking your own rules.
7. Investing long-distance.
8. Paying too much for the property.
9. Not studying the competition.
10. Being underinsured.

There’s a lot more background in Pat’s article, making it well worth reading.

How Risky is the Seattle market?

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Sasha getting ready to jumpA national mortgage company, PMI Group, recently came out with a real interesting study that lists the riskiest housing markets in the US. Interestingly the Seattle market ranked #45 out of 50 largest housing markets and it is the only west coast city that ranks in the bottom 10 riskiest areas. Here’s what they had to say about Seattle:

Seattle, WA has also seen its risk decline considerable. It is now the only West Coast MSA among the ranking’s bottom 10. Employment in the metropolitan division is still down by 80,000, or more than 5%, from its peak in the late 2000, but the labor market is gaining momentum with a growing service sector and information industry. The area’s homes have gained 11% in the market value in the last four quarters, while its Market Risk Index value dropped from 84 to 64.

Digging into the report, it says the risk index uses “information on past house price growth and variables measuring employment and unemployment, as well as local income measures and interest rates.” It’s always good to get some positive numbers on our local market!

Considering how much home prices have gone up recently in the Seattle market, I was surprised at the results of this study… None the less, it is pleasing to read that the area’s economics are so deathly as to dwarf the risk of the higher home prices (at least compared to other cities in the US!).

(via Dean Foust at Hot Property)

UPDATE:
CNN picked the story up today and mentions that Seattle home owners can breathe easy knowing that the Seattle market ranked the safest (least riskiest!) in the West.

How far is too far to commute?

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[photopress:round_and_round.jpg,thumb,alignright] The most common question I get from people moving to Seattle regards their potential commute… The question typically follows this format:

“How far away from my work can I live and still have a reasonable commute?”

It doesn’t really matter whether the person is planning to work in Downtown Seattle, Downtown Bellevue, the Amazon Campus, or the Microsoft Campus, because a “reasonable commute” is different for each person.

Some people are willing to drive an hour to save money on a home (or be able to afford a home for that matter), while others want a commute that is less than 20 minutes. Across the country (and especially in the Seattle area), the farther you are willing to drive every day, the less you have to pay for a home.

Interestingly, my work as a transportation planning consultant has put me in contact with some very interesting resources. For example, I recently came across these five maps that were put together by the regional government (PSRC) that give a great indication of the average commute:

These maps are great if you know the area you are going to be working (say Downtown Bellevue) AND you know that you are willing to commute a specific distance (say 40 minutes) because then they can help you put a definitive boundary on your home search!

NOTE: These maps are created “topographical-style”. If you are new to this, imagine that the graphic is displaying a huge mountain centered on the point of interest (like Downtown Seattle). If you move anywhere within the first circle (the top of the mountain!), then your commute to Downtown Seattle would be less than 20 minutes. However, the farther out you live, the large the hill you have to climb to get to work. For example, if you were to move to Issaquah, then you could expect about a 40 minute commute to Downtown Seattle.

By the way, the maps are a little dated (they are based on 1997 data), but the commute patterns have not changed much in the last 8 years, so the trends are still pretty accurate.

The same regional model that was used to create this data also spits out data for future years! Wouldn’t it be great to have the same maps for future years (2010, 2020, etc.) so you could gauge how your commute might change? This can be done! And if there is sufficient interest, I’ll put something like this together!

Flipping Responsibly

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lambsThe Las Vegas Review Journal reports that some flippers (people who buy and then quickly sell a property with the goal of making a large profit) have filed a class-action lawsuit against a home builder (Pulte) because they’ve lost money!

The crux of the story is that Pulte lowered the price on many of their homes across Las Vegas a few weeks after the flippers purchased homes from Pulte. The result is that the resale value of the homes the flippers had purchased dropped considerably.

Jason Beaver of San Francisco followed some untimely advice from a friend who’d made a hefty profit flipping homes in Las Vegas.

He paid $350,000 for a three-bedroom, 1,500-square-foot new home in the Solera subdivision of Anthem last September, just weeks before the builder, Bloomfield Hills, Mich.-based Pulte Homes, lowered prices in several communities across Las Vegas Valley.

It’s ridiculous of the people to sue Pulte or any of the other home builders. These people bought homes in a highly speculative market. They obviously didn’t do their research to find out a glut of homes were on the market and so they lost a lot of money. It is really hard for me to feel sorry for them.

Via The Housing Bubble 2 (which is currently the most active real estate blog for people anticipating a large correction in housing prices at some point in the future.)

Fannie Mae Sees Mortgage Risks

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sasha flying in yosemiteIf you are interested in more blogs with a real estate focus, BusinessWeek has put together a new blog called Hot Property. The concept is great, and so far, the articles have been quite informative.

Today, they had an interesting article describing a Fannie Mae’s analysis of how many individuals could be hit hard when “adjustable-rate mortgages do what they were born to do–i.e., adjust.”

When taken to the extreme in the form of interest-only loans, adjustable-rate mortgages seem downright dangerous for the novice investor. As I’ve said in the past, I’d be very careful and do my research before getting an interest-only loan…

Good Time to Buy?

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Half Dome Cables ClimbAre you wondering if now is a good time to buy a home? There are so many factors that have gone into the latest housing boom that it can be difficult to gauge whether or not the high prices are here to stay. With that said, today’s Wall Street Journal makes a pretty convincing case that the hot job market in Seattle has led to the rising home prices. (I’m pretty sure this article is only available today before it goes behind a firewall.)

How does the Seattle-area job market look into the future? There are still lots of upsides to the local job market. The WSJ notes that the “area gained more than 45,000 jobs in 2004” with Boeing accounting for “more than 3,700 workers”. In addition, Microsoft has a “20-year plan to add 2.2 million square feet of offices to its 435-acre suburban Redmond campus to accommodate as many as 12,000 new employees.” .

The WSJ also notes that “homes are selling for a premium in some locations along proposed routes for two ambitious transportation projects: a light-rail link and a monorail line that would offer commuters alternatives to cars and buses. There are plans for a 36-story condo tower along the proposed monorail at the historic Pike Place Market.” This analysis from the WSJ agrees with my earlier post about how mass transit has a HUGE positive effect on local property values.

Preapproval financing letter may not be worth much

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homelessThe Seattle Times ran an interesting article on how on-line preapproval letters. It should serve as a warning to sellers to make sure that you are getting a pre-approval letter that is actually worth the paper it is printed on.

The agents said 39 percent of preapprovals issued by Internet-based lenders are faulty or invalid. Nearly 30 percent of mortgage broker-issued preapprovals are in the same category, along with one out of every five preapprovals from national lenders.”
A faulty preapproval letter may say something to the effect that “We have preapproved Mr. and Mrs. Flanagan for a 30-year fixed-rate mortgage at 5.5 percent in an amount not to exceed $500,000.” That allows the Flanagans to look at — and bid on — homes without anybody seeing proof of their actual qualifications.

But what happens when the lender simply relies on Mr. and Mrs. Flanagan’s statements about their income, assets and credit, and issues a preapproval without verifying the information?

“That’s where you can get into deep trouble,” says John Marcell Jr., a real-estate broker who is the incoming president of the California Association of Mortgage Brokers. He runs Compass Realty and Better Mortgage Brokers, both based in Upland, Calif.

Marcell’s loan brokerage does not issue preapprovals for buyers whose credit files, assets and income have not been verified, and his realty firm won’t accept preapproval letters if the information has not been confirmed by the lender or broker issuing the letter.

“In those cases [functioning as Realtor] we go to the [mortgage] broker and say, ‘Look, we’ve got to see the credit reports. We’ve got to see the W-2s. We’ve got to see the bank statements.’ ”

Compass Realty also warns the seller on homes it lists whenever preapprovals look dubious.

mortgage update…

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Turtle on RockMortgage rates are still quite competitive:

Mortgage rates fell across the board over the past week, mortgage finance firm Freddie Mac said Thursday, suggesting the housing market still has room to grow.

The rate on 30-year, fixed-rate loans averaged 5.57 percent for the week ending Thursday, with an average 0.6 point payable upfront, down from the prior week’s average of 5.63 percent, according to the mortgage finance firm’s survey.

Interested in Pre-foreclosures?

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Exit 3On Saturday, the Seattle PI hyped pre-forclosures:

A good place to find these cash-flush speculators is at foreclosure auctions, according to longtime Tampa, Fla., property investor Tom Lucier, author of “The Pre-Foreclosure Property Investor’s Kit.” But by the time a property reaches the auction block, it’s probably worthless as a short-term investment. The trick is to find the distressed property in pre-foreclosure.

Pre-foreclosure is that period of time between when the lender files a foreclosure lawsuit or notice of default in the public records and the date the property is to be sold at public auction or trustee’s sale.