Housing Trends: Maybe We Can Make Saving Money to Buy A Home Sexy

I saw it in the faces of some of my clients; it may have seemed exciting to be a part of the 'gold rush mentality' of no money down purchases: ' why wait and miss the boat, buy a house now.' Meaning, why wait until you have money saved for a down payment or even closing costs!

The truth is always much less sexy, taking the form of foreclosures and sherrif sales at the bleakest end of the spectrum; and too much financial stress even at it's best. You can read a few past posts on the foreclosure issues here and here and here. You can also follow Callahan's Cleveland Diary, since Bill is keeping track, seemingly weekly, of new foreclosures filed.

Out of these dark clouds may be some better news for the future. At least that is what is being reported in Crain's Cleveland this week. Shawn Turner wrote about banks/lenders seeing an increase in the number of fixed rate and conventional loans filed, with a downturn in ARMs and No Interest, and subprime loans. The banking officials interviewed said some key things, at least according to this article:

1) People are taking to heart the negative press about sub prime loans. The good news is that people are learning they "...need to read the fine print..." (quote from Cindy Balser of KeyCorp)

2) Fifth Third Bank says it's conventional loan applications are up to 74% of all loans written, compared to conventional loans encompassing 63% for all of 2006.

Another aspect of mortgage loans to consider: if you don't put 20% down, you will be spending money that does not count towards your Principal or Interest on the loan, but will still have to come out of your pocket. This is because of PMI (Mortgage Insurance) that is 'tacked on' to your monthly loan amount if you provide a down payment of less than 20%. I looked around and of all places found an article on MSN Money. But the source is fairly good: Kiplinger. A question and answer session from a consumer looking to buy a home and get a mortgage led to a pretty concise discussion of what PMI is all about.

I am not saying no one should get a sub prime loan. But it has to be better if more people are focused on actually saving money before they decide to purchase.

Some of my 2007 clients have talked about not being sure if they will be able to stay in Cleveland and put down roots....maybe they are recently out of grad school; maybe they have moved here to accept a job transfer. Could be a lot of reasons. I encourage them to talk to their mortgage lenders about the advantages of a 20 pecent down loan, helping to build equity more quickly. It's been gratifying that a few of my clients were already doing this on their own, planning for their home purchases, saving money. The Kiplinger discussion in Money puts it this way:

"In the early years, you aren't building any equity with the mortgage payment," Eisenberg says. "If the market changes or your personal circumstances change and you're forced to sell, you could lose money" if you made little or no down payment. The equity in your home can also give you an extra source of cash in an emergency."

Peace Out - 3C

Housing and Mortgage News

I went to our Finance Manager Bob Wilson (Howard Hanna Mortgage Services) for some updates on the state of the housing economy. The first thing he sent me was information that can affect interest rates, expected out in June. We already know that they were spiking at the beginning of the month. Bob pointed out the Bond prices falling. That happened again a few days last week. The current rate is about 6.5%, although those pesky rates change depending on your own situation.

Here was his list of important June activity:

Housing Starts
Tuesday, June 19,
8:30 am, EST
Down 2.8% (Bureau of the Census Info)
Important. A measure of housing sector strength. Larger than expected decreases may lead to lower rates.

Leading Economic Indicators
Thursday, June 21, (PR Newswire Info)
10:00 am, EST
Up 0.2%
Important. An indication of future economic activity. Weakness may lead to lower rates.

Philadelphia Fed Survey
Thursday, June 21, (Bloomberg.com reports on this)
12:00 pm, EST
Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.

Mortgage rate info Peace Out - 3C

Interest Rates To Hold Steady...For Now

At least for now. A Market Watch article by Greg Robb. The Federal Reserve has been pretty consistent at keeping the rates low....their target goal remains 5.25%. I gather what was intriguing about this is that the concern for inflation has still not translated into a change in Federal Reserve Policy - which has stayed the same since August 2006 and earlier.

Translated, to me, it means the FR feels our market will recover on it's own without a need for tweaking on their part. To read more about the Market Watch coverage of this new development, go here.

For those of you who are stock and Market wonks, here is Market Watch's 'take' on Ben Bernanke and his style compared to Alan Greenspan. Apparently we no longer have to watch how the Chairman is carrying his briefcase to see if interest rates will rise or fall :-)

Mortgage rates for the week are hovering around 5.75% for a 30-year fixed rate loan. I found it curious that a 30 year market loan rate is listed as better than a VA Loan this week. If you are curious about other types of rates/loans, check out this week's results here.

Predatory Lending: What to Look Out For As You Search for a Home

The weather is better, more people are looking to buy homes. Caution please, about the type of loan you get. Specifically, avoid predatory lenders. Here are some tips about what to watch out for:

*Someone tries to get you to buy a home for more than it is worth based upon an inflated or false appraisal. You can help avoid this by working with a real estate professional who can provide you with real comps. Not to downplay the Internet appraisal models like Zillow, but, a Realtor® in the trenches can get you the best, updated information about home sales in a particular area.

*A lender is a predator if they are knowingly lending more money to you than you can repay, lending more than 100% of the value of the loan, or charging high fees in connection with a loan. You can help ensure you make a wise loan decision by talking to at least three mortgage lenders. You can weigh what all three tell you. And keep in mind, going with the one that seems to promise you the moon may not be wise: if it seems too good to be true, it probably is.

*If a mortgage lender encourages you to falsify any information (yearly salary, etc) in order to qualify for the loan, be wary and seek another lender. Mortgage fraud is not good. Note: do you look good in prison orange?

*The home you want to buy looks a lot like others sold in the area, in similar condition, but someone wants you to pay a lot more for the home than the others. This may sound like the first point, but it's a tad different. There may not be an appraisal involved. Make sure a qualified professional advises you on home sales so you can make a wise decision.

*You are asked to sign blank documents, with people telling you the details will be filled in later. This may sound like a no brainer, but believe me, it happens.

*Someone writes up a purchase agreement for a home, and it has an addendum stating that the Seller will be holding a second mortgage which will be 'forgiven' by the Seller immediately upon your taking Title to the home. This is a big red flag. It means someone is inflating the price of the house - and someone is getting the difference in the real price of the house and the inflated price - that someone should not be you, a broker, a lender or an appraiser. It's fraud.

*You are told that your only chance of getting a loan will be through this one lender. Now I know the American Dream is to own a home. But, if only one mortgage lender in the World will qualify you to get a mortgage....it probably should make you think: is this really the right time for me to buy, or should I wait and save money, clear up my credit, first? And of course if you have checked with other mortgage lenders as I stated above, you will have a better idea about whether now is the right time for you to consider buying a home.

I may be a Realtor® and yes I only make money if people buy or sell homes. However, I need to be able to sleep at night! Those of us who are true professionals only want you to buy a home when you are ready, willing and able. On that note, if you have concerns and know you cannot buy a home now, but want to figure out a strategy so that sometime in the future you CAN buy a home, let me know. There are financial counselors, free of charge, who will work with you for a year (in the mortgage 'arm' of my company) so that you can begin to get your finances on track. Here is an article from The New Standard written by Michelle Chen, about Ohio's Predatory Lending Laws. Peace Out - 3C