Many borrowers, plain and simple, don't understand how mortgages work. here's what they should know before they go shop for a loan
ERIK J. MARTIN You wouldn't buy a new car without knowing how to drive it first, but would you borrow money to buy a house without understanding how a mortgage loan works? Many people do, say the experts.
According to the results of a recent Zillow Mortgage Marketplace survey, 44 percent of prospective homebuyer respondents admitted they are not confident in their knowledge of mortgages or the mortgage process, overall. The 1,005 adult surveyed incorrectly answered basic questions about mortgage information nearly half of the time. The poll also revealed that 37 percent of respondents believe pre-qualifying for a loan means they have secured financing, and 57 percent don't know how adjustable rate mortgages work.
Why are borrowers so ill-prepared to enter into the mortgage process, and who is to blame? A number of factors have contributed to the problem in recent years, including new, more complex lending laws that have increased the paperwork involved; laziness on the part of an uneducated consumer; and unethical lenders who have put profit ahead of the responsibility to properly edify customers.
"One of the most common mistakes made is calling a bank and saying, 'This is my first home, and I don't know much about mortgages,'" says Carolyn Warren, author of "Mortgage Rip-Offs and Money Savers" (Wiley, 2007). "It's as if they're holding a sign on their foreheads that says, 'Please charge me more - I won't know the difference.'"
Tighter restrictions on lending haven't made things any easier. Recent changes to the Real Estate Settlement Procedures Act require that loan originators provide borrowers with a standardized Good Faith Estimate in an effort to improve disclosure of terms settlement costs and interest rate related terms. However, loan officers cannot give the GFE up front without first reviewing the borrower's income, assets and credit. Hence, once a borrower has submitted all the necessary financials and had a credit report pulled, they often feel obligated to go with that lender.
Consequently, Warren believes there is actually less loan shopping going on now than before the new RESPA law was passed, which she says implicates politicians as major culprits in today's mortgage miseducation problem.
In analyzing the Zillow survey data she and her team gathered, Erin Lantz, director of Zillow Mortgage Marketplace in Seattle, says it's apparent that the collective real estate industry has a lot of work to do.
"Our industry is not known for transparency. We're making great strides to improve, but ultimately it is the consumer's responsibility to get themselves better informed," Lantz says. "Borrowers need to take the time to do research, prepare early in the game, and think more broadly in the context of getting ready to purchase a home."
Steven T. Alexander, president of Private Mortgage Services with Private Bank of Buckhead in Atlanta, says it's vital to do your homework before you jump into the market. Seek the help of a seasoned mortgage loan officer who can help properly structure your transaction to reach your ultimate objectives, read informative books and articles and talk to others who have recently completed the process.
"It is up to the borrower to due their due diligence so they can obtain fair and decent financing," says Warren. "Recently, a buyer asked me to look at the GFE provided by his builder's preferred lender. This lender was charging a $9,558 origination fee for a 30-year fixed rate on a loan of $268,000, while other lenders are charging less than $1,500 for the same rate. Even now, in a post-subprime world, there are gross over-charges going on."
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Welcome to my Blog........I am Mirza Naseem Baig Realtor from Las Vegas ,NV, USA contact info :702-217-5697 or e-mail citylv@aol.com Real Estate Market latest update from my prospective
Sunday, July 24, 2011
Home-price drops said to reflect overcorrection
We're in another housing bubble in Las Vegas, but this time it's the flip side of the overvalued market that emerged from 2000 to 2006, a real estate economist said Wednesday.
Just as Las Vegas home prices were unsustainable when they hit a median of $285,000 in 2006, they're tremendously undervalued now at $106,000 and that, too, is unsustainable, said Mark Boud, principal of Irvine, Calif.-based Real Estate Economics.
"It collapsed so hard that it overcorrected," Boud told about 60 real estate professionals at the Las Vegas Midyear Builder Symposium at Alexis Park. "You pay 11 cents on the dollar in mortgage costs, which is incredible and, in fact, unsustainable. We'll never be able to see this affordability again."
By 2015, inventory will tighten, vacancy will drop below 2 percent and there will be a strong push in pricing into 2016, Boud predicted.
Median existing-home prices fell to less then $70 a square-foot in June, down 12 percent from a year ago and nearly $30 a foot less than the cost of a new home, Las Vegas-based SalesTraq reports.
Cheap housing prices combined with the lowest interest rates in 40 years give consumers the leverage they need to buy their dream home, said Anthony Grasst, regional sales manager for MetLife Home Loans in Kirkland, Wash.
Homebuilders need to do a better job telling buyers that it's a fantastic time to buy instead of rent, he said.
"People buy emotionally and justify logically," Grasst said. "How much of the buying decision is financing? About one-third. You have more to fear in rising interest rates than depreciation."
A one-point increase in mortgage interest rate erases 11 percent of household purchasing power, Grasst said.
For example, someone who buys a $250,000 home at 5.25 percent interest rate has a monthly principal and interest payment of $1,242. If the price is discounted 3 percent to $242,500, the payment drops to $1,205, a savings of $37 a month.
If that $7,500 discount is used to "buy down" the interest rate to 4.25 percent, the monthly payment is $1,107, a difference of $135 a month, Grasst calculated.
"Your monthly payment is 11 percent below market and you save $49,000 over the life of the loan," he said. "Explain that rents are susceptible to increasing. Buy now and you're guaranteed low payments for 30 years."
Geoff Gorman, vice president of sales for Harmony Homes in Las Vegas, said the 3-year-old company has grabbed the fifth-highest market share of new-home sales in Las Vegas, but the numbers aren't where he wanted to see them this year.
While new-home sales rose to their highest level of the year at 357 in June, they're only on pace for about 3,500 for the full year, compared with 5,438 in 2010, SalesTraq's monthly report showed.
It was inevitable that sales would be lower in 2011 with "no outside impetus and no manufactured urgency," Gorman said. Demand dried up after the federal tax credit expired in June 2010, though it was later extended to September.
"It's harder than ever to sell a home today," Gorman said. "It's not 2004, with lines out the door like the Matterhorn at Disneyland."
The No. 1 challenge for the homebuilding industry in Las Vegas today is appraisals, he said.
Just this week, Gorman said he had a willing buyer and the necessary comparable sales, but the appraisal came in $10,000 short, killing the deal. The home was appraised at $194,000, about $1,000 more than an appraisal for the same floor plan a month ago. However, this home had $10,000 worth of upgrade options, including stainless-steel General Electric appliances, a larger lot by 700 square feet and several thousand dollars in flooring upgrades.
"I don't think enough of us have said the appraisal situation in town is ridiculous," Gorman said. "I know appraisers have rules to follow, but what's missing is common sense. We all hear that a new car is worth more than a repossessed car. I understand diminishing returns, but seriously, $1,000 appraisal for $10,000 in upgrades? It's not right. I don't know what can be done."
Other challenges for homebuilders include buyers' poor credit ratings and debt-to-income ratios, along with competition from foreclosures and short sales, Gorman said. Those who could qualify to buy a home last year under the federal tax credit did, and those who didn't probably have issues relative to income and creditworthiness, he said.
Las Vegas has an excess supply of distressed properties with a "shadow inventory" pushing 30,000 homes still being held by lenders that has to be absorbed moving forward, economist Boud said.
"Supply will flatten, but probably won't go negative. Demand will go negative," he said. "Unfortunately, the housing market is going to lag economic growth by eight to 12 months."
Consultant Bob Mirman of Eliant Inc. said the nation's best production builders are selling 45 percent of their homes from referrals.
He warned about "consumer terrorism," or people who use the Internet as a weapon to spread the word about how unhappy they were with customer service from a particular homebuilder.
"It's not about the home you build, but the experience you deliver," Mirman said. "Your strongest sales force is an army of delighted homeowners who then tell their friends. Nobody can sell your home better. They're the most trustworthy sources."
Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.
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Just as Las Vegas home prices were unsustainable when they hit a median of $285,000 in 2006, they're tremendously undervalued now at $106,000 and that, too, is unsustainable, said Mark Boud, principal of Irvine, Calif.-based Real Estate Economics.
"It collapsed so hard that it overcorrected," Boud told about 60 real estate professionals at the Las Vegas Midyear Builder Symposium at Alexis Park. "You pay 11 cents on the dollar in mortgage costs, which is incredible and, in fact, unsustainable. We'll never be able to see this affordability again."
By 2015, inventory will tighten, vacancy will drop below 2 percent and there will be a strong push in pricing into 2016, Boud predicted.
Median existing-home prices fell to less then $70 a square-foot in June, down 12 percent from a year ago and nearly $30 a foot less than the cost of a new home, Las Vegas-based SalesTraq reports.
Cheap housing prices combined with the lowest interest rates in 40 years give consumers the leverage they need to buy their dream home, said Anthony Grasst, regional sales manager for MetLife Home Loans in Kirkland, Wash.
Homebuilders need to do a better job telling buyers that it's a fantastic time to buy instead of rent, he said.
"People buy emotionally and justify logically," Grasst said. "How much of the buying decision is financing? About one-third. You have more to fear in rising interest rates than depreciation."
A one-point increase in mortgage interest rate erases 11 percent of household purchasing power, Grasst said.
For example, someone who buys a $250,000 home at 5.25 percent interest rate has a monthly principal and interest payment of $1,242. If the price is discounted 3 percent to $242,500, the payment drops to $1,205, a savings of $37 a month.
If that $7,500 discount is used to "buy down" the interest rate to 4.25 percent, the monthly payment is $1,107, a difference of $135 a month, Grasst calculated.
"Your monthly payment is 11 percent below market and you save $49,000 over the life of the loan," he said. "Explain that rents are susceptible to increasing. Buy now and you're guaranteed low payments for 30 years."
Geoff Gorman, vice president of sales for Harmony Homes in Las Vegas, said the 3-year-old company has grabbed the fifth-highest market share of new-home sales in Las Vegas, but the numbers aren't where he wanted to see them this year.
While new-home sales rose to their highest level of the year at 357 in June, they're only on pace for about 3,500 for the full year, compared with 5,438 in 2010, SalesTraq's monthly report showed.
It was inevitable that sales would be lower in 2011 with "no outside impetus and no manufactured urgency," Gorman said. Demand dried up after the federal tax credit expired in June 2010, though it was later extended to September.
"It's harder than ever to sell a home today," Gorman said. "It's not 2004, with lines out the door like the Matterhorn at Disneyland."
The No. 1 challenge for the homebuilding industry in Las Vegas today is appraisals, he said.
Just this week, Gorman said he had a willing buyer and the necessary comparable sales, but the appraisal came in $10,000 short, killing the deal. The home was appraised at $194,000, about $1,000 more than an appraisal for the same floor plan a month ago. However, this home had $10,000 worth of upgrade options, including stainless-steel General Electric appliances, a larger lot by 700 square feet and several thousand dollars in flooring upgrades.
"I don't think enough of us have said the appraisal situation in town is ridiculous," Gorman said. "I know appraisers have rules to follow, but what's missing is common sense. We all hear that a new car is worth more than a repossessed car. I understand diminishing returns, but seriously, $1,000 appraisal for $10,000 in upgrades? It's not right. I don't know what can be done."
Other challenges for homebuilders include buyers' poor credit ratings and debt-to-income ratios, along with competition from foreclosures and short sales, Gorman said. Those who could qualify to buy a home last year under the federal tax credit did, and those who didn't probably have issues relative to income and creditworthiness, he said.
Las Vegas has an excess supply of distressed properties with a "shadow inventory" pushing 30,000 homes still being held by lenders that has to be absorbed moving forward, economist Boud said.
"Supply will flatten, but probably won't go negative. Demand will go negative," he said. "Unfortunately, the housing market is going to lag economic growth by eight to 12 months."
Consultant Bob Mirman of Eliant Inc. said the nation's best production builders are selling 45 percent of their homes from referrals.
He warned about "consumer terrorism," or people who use the Internet as a weapon to spread the word about how unhappy they were with customer service from a particular homebuilder.
"It's not about the home you build, but the experience you deliver," Mirman said. "Your strongest sales force is an army of delighted homeowners who then tell their friends. Nobody can sell your home better. They're the most trustworthy sources."
Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.
for more information on las vegas bank own homes visit www.buybankownhomes.com
Loans with Little Down?
Loans with Little Down?
PETER G. MILLER QUESTION:
My broker says now is the time to buy real estate because prices are low, mortgage rates are down, and it will soon be difficult to finance a property with less than 20 percent down. Why will it become hard to get loans with little down?
ANSWER:
There's been considerable confusion about this, so let's try to straighten it out.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act lenders are allowed to make whatever mortgages they like. However, if they make mortgages with certain characteristics - say, with fully documented loan applications and points and fees equal to no more than 3 percent of the loan amount - they then get certain benefits such as less liability and no need to set aside 5 percent of the loan amount in a reserve fund.
Dodd-Frank also says that loans within the "safe harbor" created to protect lenders from liability must have 20 percent down. But - and here's the part you don't hear too much about - there are huge exceptions. For instance, the 20-percent rule does not apply to FHA or VA financing, conventional loans sold to Fannie Mae and Freddie Mac or loans that lenders keep in portfolio.
The question is this: Who would benefit if mortgages with little money down were increasingly unavailable? Not sellers. Fewer sales would mean lower prices. Not lenders. They would originate fewer loans and lose substantial business. Not servicers. They would have less to manage on behalf of mortgage investors. Not real estate brokers. They would have fewer homes to sell. Not states and local communities. With fewer real estate transactions their tax collections would plummet.
There's now an effort to raise the FHA down payment from 3.5 percent to 5 percent and exchange Fannie Mae and Freddie Mac for institutions from the private sector. But even if we make changes, borrowers will still want loans with little down, and, as a matter of self-interest lenders, brokers and government will still want to make sure that such financing is available with far less than 20 percent down.
for more information on las vegas bank own homes please visit www.buybankownhomes.com
PETER G. MILLER QUESTION:
My broker says now is the time to buy real estate because prices are low, mortgage rates are down, and it will soon be difficult to finance a property with less than 20 percent down. Why will it become hard to get loans with little down?
ANSWER:
There's been considerable confusion about this, so let's try to straighten it out.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act lenders are allowed to make whatever mortgages they like. However, if they make mortgages with certain characteristics - say, with fully documented loan applications and points and fees equal to no more than 3 percent of the loan amount - they then get certain benefits such as less liability and no need to set aside 5 percent of the loan amount in a reserve fund.
Dodd-Frank also says that loans within the "safe harbor" created to protect lenders from liability must have 20 percent down. But - and here's the part you don't hear too much about - there are huge exceptions. For instance, the 20-percent rule does not apply to FHA or VA financing, conventional loans sold to Fannie Mae and Freddie Mac or loans that lenders keep in portfolio.
The question is this: Who would benefit if mortgages with little money down were increasingly unavailable? Not sellers. Fewer sales would mean lower prices. Not lenders. They would originate fewer loans and lose substantial business. Not servicers. They would have less to manage on behalf of mortgage investors. Not real estate brokers. They would have fewer homes to sell. Not states and local communities. With fewer real estate transactions their tax collections would plummet.
There's now an effort to raise the FHA down payment from 3.5 percent to 5 percent and exchange Fannie Mae and Freddie Mac for institutions from the private sector. But even if we make changes, borrowers will still want loans with little down, and, as a matter of self-interest lenders, brokers and government will still want to make sure that such financing is available with far less than 20 percent down.
for more information on las vegas bank own homes please visit www.buybankownhomes.com
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