Category Archives: mortgage

Don’t Listen to the Media!

“Is the housing market ready for a crash?”

“Will I ever be able to afford a house?”

“Zillow says my house is worth $________.”

These are headlines that both the Seattle and national media are spreading. Here’s the reality:

Housing prices are appreciating at record rates. However, if we go back to 2007, when the market was at it’s peak before the crash, prices have increased 52% – that comes out to 5% a year appreciation over the 10 years.

Buying a home is within reach for many. The media often says it’s hard to get a mortgage, but that’s not the reality. The two most important factors for getting a mortgage are your credit score and the amount of debt you have. Only a lender can tell you if you qualify or not.

The “Zestimate” from Zillow is not an accurate representation of what your home will sell for. Zillow is an automated valuation, there are other companies who provide similar numbers. Because it’s automated, the algorithm has no idea of the special features of a home, the quality of the finishes or view, and any updates that have been done without permits. Even Zillow admits that their numbers are not accurate – the last time I looked Zillow said their Zestimates typically are off 10-20%.

So didn’t listen to the media! Talk to a real estate professional to get your questions answered. You can reach me at 206-790-0081 or mailto:jamie@jamieflaxman.com.

 

New Changes Coming to Buying and Selling Process – What You Need to Know

The Consumer Financial Protection Bureau (CFPB) is a Congress-established agency with regulatory control over federal consumer protection laws. Their goal is to make rules in our various financial markets more effective and consistent to protect consumers. Recently the CFPB created some new rules aimed at helping buyers and sellers have a better understanding of the borrowing process. Below are some of the changes you can expect to see beginning August 1, 2015.

Buyers buying their home with a mortgage will receive a standardized Loan Estimate document from the lender which outlines variables such as the type of loan, payment schedule, interest rate for the mortgage, information about prepayment penalties and other terms of the transaction (such as balloon payments or mortgage insurance), costs to close the loan, and State Law provisions. This document is provided to the loan applicant no more than three days after the buyer submits a loan application.

In addition, Buyers will receive a Closing Disclosure no less than three days before the loan is scheduled to close which reiterates the above variables.

The mandatory three day review period for both of these documents was put in place to allow borrowers the time they need to read through them and have a thorough understanding of exactly what they are committing to. Furthermore, these documents include instructions to the borrower to compare the Loan Estimate to the Closing Disclosure verifying the two documents have the consistent information.

The biggest impact of these changes is that the lender will need more time to process your loan and turn documents over to escrow. At a minimum, it is likely buyers will need 3 more days, but more likely it will be 5-10 days.

The forms themselves have been streamlined and are easier to understand. The interest rate, monthly payments, and the total closing costs are clearly indicated on the first page of the documents for easy reference and to make it easier to compare loan products with different lenders.

Both the Loan Estimate and Closing Disclosure are used for closed-end mortgages, meaning they are not used for home equity lines of credit, reverse mortgages, or for any loan not attached to land. Furthermore, these rules do not apply to creditors who produce fewer than five loans per year.

These new policies will make the process easier and more transparent to borrowers. If you are buying or selling a home this summer and expect the contract for purchase and sale to come in around the end of July, remember that these policies may impact your transaction as lenders and closers navigate through the new documents and timelines. I have attended several workshops on the changes and would be happy to answer any questions you may have. Please give me a call: (206) 790-0081 or send an email to :jamie@jamieflaxman.com.

Sources:

http://www.consumerfinance.gov/

http://files.consumerfinance.gov/f/201503_cfpb_tila-respa-integrated-disclosure-guide-to-the-loan-estimate-and-closing.pdf

http://files.consumerfinance.gov/f/201506_cfpb_factsheet_will-the-new-mortgage-disclosures-delay-my-closing.pdf

 

Market Update

I have been so busy over the past week that I barely have time to write this post. Any question about how hot the market is? Here’s a story for you. Yesterday I submitted an offer on behalf of a client for a wonderful Phinney/Greenwood home. There were 9 offers including ours, and I believe all but one conducted pre-inspections. As one of the other brokers submitting an offer said, it was going to be a “blood bath.” Many of the offers had escalation clauses – and boy did it escalate. I can’t disclose how high it went until after the transaction closes, but my buyer did not have the highest – we came in 3rd. The offer that had the highest dollar amount had weak financing and wasn’t willing to do anything to change the financing situation; the next offer was only a few thousand more than ours but also had weak financing. MY CLIENT GOT THE HOUSE because she had strong financing (30% down and the lender talked with the listing agent) and my buyer was willing to come up a few thousand dollars more.

The bottom line. Financing is as important as price. And who the lender is may make a difference. My client’s lender was willing to go above and beyond to advocate for the client. On-line lenders and big banks often won’t do this. With them, you’re just one of hundreds of mortgages – personal relationships make a difference.

The bottom line. The market is still hot. A colleague had 11 offers on another listing. Inventory is low demand is still high.

Contact me at jamie@jamieflaxman.com or 206-790-0081 to discuss putting your home on the market or buying a home.

 

FICO Credit Score Changes and Mortgages

If you are considering a move and will be applying for a mortgage, you may be biting your nails wondering what your FICO (Fair Isaac Corp.) score means for your ability to borrow. Your credit score determines if you are given preferred interest rates, will have to pay more due to missed payments or a high debt to income ratio, or are able to qualify for a loan at all. The FICO credit score ranges between 300-850 and weighs payment history, amounts owed, length of credit history, new credit, and types of credit used according to myFICO.com.

Shockingly, one-third of Americans struggle to pay their medical bills each month and medical is the number one leading cause of bankruptcy in this country according to Forbes. Medical bills have affected the credit scores of millions. In fact, Forbes indicates 64 million Experian credit bureau consumers have medical collection on their credit report which impacts their credit score and their ability to get a loan. According to Anthony Sprauve, FICO’s director of public relations, 50% of all unpaid collection debt is medical debt.

Under the new FICO 9 credit scoring formula which is set to be implemented this fall, the impact of medical debt will be reduced and the average credit score will increase a median 25 points per person with medical debt but who are otherwise financially responsible with their bills. Additionally, medical debt that has been paid in full will not affect the credit score negatively at all.

The rationale for this change is that having one-time medical debt is much different than chronic credit card debt. However, more than 11 million Americans use credit cards to take care of medical debt each year. Under the new FICO rules, doing that would hurt their credit more than if they made a payment plan directly with the medical facility or medical collection agency.

Another change in the FICO scoring model is that past, closed debt associated with collection companies will also have a lesser-impact.

Steve Brown, President of the National Association of REALTORS®, welcomed the change, indicating it will “make a real difference in the lives of millions of Americans, who have been shut out of the housing market or forced to pay higher mortgage interest rates…since the housing crash, overly restrictive lending has been the greatest obstacle to homeownership.”

FICO 9 will change the credit scores of many.  While these changes seem like a step in the right direction, Fannie Mae, Freddie Mac, and a host of other lenders are still using older FICO scoring methods and have been slow to adopt changes in credit-scoring conventions. Therefore, although you may benefit from a better credit score under the new FICO 9 formula, your lender may or may not take the new formula into consideration when you apply for a loan. Additionally, some lenders already discount medical debt when determining someone’s creditworthiness.

If you have questions or concerns about your credit score, the time to talk with a financial professional who can get you on the right track to homeownership is now. I have lenders I can refer you to. Please give me a call: (206) 790-0081 or send an email to jamie@jamieflaxman.com.

Sources:

http://www.realtor.org/news-releases/2014/08/new-credit-scoring-calculation-will-improve-access-to-homeownership-say-realtors

http://www.forbes.com/sites/christinalamontagne/2014/08/26/medical-debts-will-soon-weigh-less-on-your-credit-score-but-theyre-still-a-problem/

http://www.housingwire.com/blogs/1-rewired/post/31236-adopting-fico-9-could-increase-first-time-homeownership

http://www.foxbusiness.com/personal-finance/2014/09/10/what-fico-new-credit-score-formula-means-for-home-buyers/

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

 

 

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New Website, Same Great Content

I haven’t written a post in a few weeks, as I’ve been in transition to a new website and blog host. The new site is up; if you’re reading this, you’re on www.jamieflaxman.com. I made the switch to a WordPress site as I feel it’s cleaner, easier to read and navigate, integrates my blog better, and it has a simpler search tool.

Some things you can now do on my website:

If there’s something you’d like to see me include on the site, let me know. Future plans  include a page of downloadable resources, such as referrals to mortgage brokers and sample purchase and sale contracts. I’d also love to have your feedback on the new site.

There Still Are Affordable Homes Out There

People say it’s expensive to buy a home in Seattle. For many that is the case. But there still are affordable homes out there. Case in point, this Saturday (3/22) I’ll be holding open a rambler in Wedgwood that’s listed for $349,000.

The details – 3 bedrooms, 1 bath, 1,030 sq. ft, and a 6,658 lot. With that much land, you have a fabulous place for kids playing outside or to enlarge the home at a later time. And don’t let me forget, it’s got a 2-car garage with a lot of storage space. Currently the schools for this address are Wedgwood Elementary, Eckstein Middle, and Nathan Hale high, all high demand schools (but do recognize that school boundaries may change year to year).
Now you say, $349,000, is that really affordable. Let’s look at some numbers:
Down Payment (20%) = $69,800
4.5% 30 year loan = monthly payment of $1419 (you will need to add property taxes and homeowners insurance to that number for a monthly payment most likely less than $1,800)
Don’t have 20% down, there are other options. You’ll need to add mortgage insurance in as well. And if you have a combined household income of less than $97,000 with a credit score of at least 620, there are loan options that include down payment assistance of up to 4% of the loan (about $14,000) or there’s even a program with the City of Seattle that will provide down payment assistance up to $45,000.
On this home, offers will be looked at early next week (and I do expect that there will be multiple offers), so contact me ASAP if you’d like a private showing or more information on mortgages. Or please stop by on Saturday and let me know you learned about the open house from my blog.

Buyer Tips for Winning a Multiple Offer

In our fast-paced market with low inventory, it is inevitable that two buyers will see the same property, like the same property, and decide to make an offer to purchase at the same time, oftentimes within days – or hours – of a property coming on the market. This scenario is called a “multiple offer” situation.
Typically a buyer will quickly learn if his or her offer will be competing against others. If you are in this situation, there are several things you can do or include in your offer to make it more appealing to the seller. You might be surprised to learn the best offer is not always the highest offer!
Below are seven tips for buyers hoping to win a multiple offer situation:
 
Money talks  for many sellers it is all about the money.  It is your agent’s responsibility to educate you quickly on the market and where market values are so you can feel good about making a strong offer. In many cases the offer will be above “full price” (the price the property is listed at).  Be smart about how you make that offer and make sure your offer is as “clean” as possible.  Typically home purchase agreements can include “contingencies” (provisions in the contract which specify the contract would be voiced when certain events do or do not occur) which may include: financing (if the buyer cannot obtain a loan), inspection (if the buyer does not feel he or she can handle the inspection results such as when major repairs are needed), or even the sale of the buyer’s current home.  Limit as many conditions as you possibly can so your offer is cleaner than the competition’s.


Approval letter from lender – take the time to get pre-approved before you make an offer so the seller will be more comfortable in your ability to obtain a loan.

Pre-inspection– find out if you can do a pre-inspection (an inspection which occurs before an offer is made). This will enable you make an offer that does not have an inspection contingency.  However, this can be a gamble as the inspection will cost money and this is not a guarantee that your offer will be accepted.

Money down – when competing against other offers, consider increasing your down payment. This settles most seller concerns about your financial viability.

Earnest money – putting as much of your down payment into your earnest money deposit makes a very strong impression.  Sellers like high earnest money amounts because they feel that this ensures you won’t break the contract because you will be worried about losing this money.

Reports/disclosure – have your agent find out everything they can about the property and get copies of all reports and the seller disclosure up front.  Approve these reports and simplify the offer. 
   
Personal letter – if you really want the home, write the seller a letter indicating why their particular home is a good fit for your needs. You would be surprised at how many multiple offer situations are decided based on the letters that buyers have presented to sellers.

 

 

A combination of the above seven ideas can give you the edge you need when competing in a multiple offer situation. If you have been thinking it is time to make a move, give me a call at 206-790-0081 or send an email to jamieflaxman@cbbain.com. Together we can strategize how you can make a strong offer and secure yourself in the home you have been waiting for.

2014 Predictions for the Real Estate Market

Each year I take time to review what has happened during the year and to look forward to predicting what is in store for real estate.  Below are my predictions for the 2014 real estate market, based on data that was available at the time this was written.  Fifteen of these predictions relate to residential real estate; two are specific to non-residential properties; three have to do with interest rates and lending and the final five pertain to the economy.


Here’s what I’m seeing for real estate in 2014:
     
PREDICTIONS FOR RESIDENTIAL REAL ESTATE 

1. Housing Inventory – There are a number of factors affecting housing inventory levels.   Low interest rates are attracting investors from hedge funds and private equity firms that are purchasing real estate for rentals.  The economy is improving and improved consumer confidence has brought more buyers back into the market.  Foreclosures are down and short sales are rapidly going away because they do not exist in an inclining market.  New construction is still not where it needs to be so inventory challenges will continue throughout 2014.  The increase in investor demand is forcing inventory numbers down to record low levels.  These investors include Baby Boomers who are investing in second home properties and rental properties. All of these factors will contribute to a housing inventory shortage in 2014 in many areas and in many price points.   

2. Market time –Market time began to decline quite rapidly in the late spring of 2013.  Multiple offers returned with a vengeance as short sales and foreclosures began to decline and incoming inventory slowed to a trickle.  Market times continued to decrease until the government shutdown.  Since then market times have stayed steady.  In 2014 market times will decrease because demand remains strong in many price points and in many areas.  Lack of new construction inventory, record low interest rates, the return of consumer confidence, household formation purchases and investor buying will cause market times to decrease even greater than they did in the spring of 2013.

3. House prices – House prices will increase dramatically in 2014 in part due to shortages in inventory.  Other factors that will add to the increase in house prices include high demand from investors buying single family homes to hold as long term rentals, a decline in foreclosures and short sales and an increase in buyer demand.  The median expected house prices should rise over 12% nationally while the State of Washington should rise 12 – 14%. Home prices will see a strong upswing in an overwhelming majority of metropolitan cities. City life is luring Baby Boomers and Gen X’rs, and buyers are rushing to buy properties closer to urban centers, causing an increase in prices and dramatic decline in inventory.  Therefore, house prices will increase by over 20% in many markets like Seattle and surrounding areas.  Prices will increase as high as 30% in some harder hit areas like Las Vegas, Arizona and Florida.

4. Housing Affordability rate – The affordability index measures the relationship between median home prices, median household incomes, and interest rates.  An affordability index of 100 means a household earning the median household income would pay exactly 30% of their monthly income toward the principal and interest of their mortgage.  Above 100 is more affordable, while below 100 is less affordable. With home prices rising quickly (up 12% nationally from last year) and mortgage rates inching up (up a full percentage point from spring of 2013) housing affordability has decreased and has now dropped to a five year low.  The affordability rate will continue to decline as interest rates increase and home prices rise. 

5. House Price Index – According to the Federal Housing Finance Agencies (FHFA) House Price Index (HPI), in the third quarter 2013, nationally house prices rose 2% from the previous quarter and up 8.4% since the third quarter 2012.  This is the ninth consecutive quarterly rise.  Many housing markets have now stabilized and home builders are beginning to plan upcoming projects.  Of the nine census divisions, the Pacific division experienced the strongest increase in the last quarter with a 4.2 percent price increase and a 19.2% increase since last year.

6. Pending home sales – Due to the improving job market, rising rental rates, continued low interest rates and continued housing affordability, pending home sales will increase dramatically in 2014.  There will also be an additional increase in pending home sales as investors purchase homes as long term rentals.  Lack of inventory in new construction will prevent pending sales from reaching higher levels.  Pending home sales would have been higher in the fall of 2013 had it not been for the government shutdown.

7. House price appreciation for high-demand areas and high-demand housing styles – House price appreciation in many high-demand areas and high-demand housing styles will reach over 20% in 2014.  Specifically ramblers, urban hubs, smaller properties with high-end finishing, homes for Baby Boomers with aging parents, and homes for Baby Boomers with boomerang children will continue to be in high demand in 2014.    Home values will appreciate as high as 20% in some areas with 2014 average appreciation to rise from 7.2% to over 8%.  Average annual appreciation from 2014 – 2018 could reach over 8% per year with a cumulative appreciation to 2018 of over 25%.

8. Median house prices – The median existing single-family home prices rose in 88 percent of measured markets in the third quarter, 2013, with 144 out of 163 metropolitan statistical areas (MSAs) showing gains.  Fifty-four areas had double digit gains and 19 had price declines.  The national median home price was $207,300 at the end of the third quarter compared to $184,300 during the third quarter of 2012, which is an increase of 12.5 percent.  This represented the strongest year-over-year increase since 2005. In 2014 I am predicting that the median home price will increase in over 150 of these metropolitan areas.  I also predict that the national median home price will increase by over 16%.   

9. New construction demand –   There will continue to be a severe shortage of new homes in 2014. The US needs approximately 1.2 – 1.5 million new homes each year to accommodate a growing population and the demolition of decayed properties.  The drastic decline in new construction from 2006 through 2012 created a dramatic shortage in new construction product.  New construction in 2013 was not high enough to make any kind of dent in the shortage of supply.   It will take years to make up for the lack of new construction we have experienced in the past 6 years.   It will take 7 years to make up that deficit if the current rate of building stays the same as it is now.  New construction inventory shortages will cause resale house prices to continue to rise in 2014 because of the shortage of new construction inventory.  New home demand will also continue to increase in 2014.

10. New Home Sales – New home sales in 2014 will be high relative to the inventory available of new homes.  New home sales continue to increase.  The lack of inventory is keeping the new home sales numbers down.   As new construction increases and available new homes come onto the market, the new home sales number will increase.  This number is directly tied to current inventory which is still too low in relation to the demand.

11. Housing Starts – From 1995 to 2003 the average housing starts were 1,256,000 starts.  In March of 2009 we hit a 20 year low of 353,000 which is well below what is needed to sustain demand.   In August of 2012 we hit 535,000 which is a dramatic 52% increase from the 2009 low.  In 2013 those numbers have surpassed 600,000 which is still well below what is needed to sustain our new construction demand.   Based on this demand and the expectation that builder lending will loosen in 2014, I expect 2014 starts to increase by over 20%.  

12. Remodeling – The demand for traditional remodeling and for lifestyle remodeling will continue to increase in 2014.  This is due to the demand for floor plans and homes that can accommodate multi-family living.  Due to our aging population, bathroom remodeling will continue to exceed kitchen remodeling in 2014.

13. Household Formation Needs – Household formation is a big part of what drives the real estate market.  Household formation refers to the number of homes we need to accommodate the different types of households.  This includes married couples, people living with parents or children, single people, divorced individuals etc.   For example, divorce drives household formation needs up because instead of living in one home together they live in two homes once separated.  Single people as well as those waiting to get married later in life also drives this number up.  Bad markets and recessions bring household formation numbers down (as adult children may choose to live with parents instead of on their own or people may wait to get married due to economic uncertainty). Additionally, other factors such as immigration and migration affect household formation.  2014 will see an increase in household formation purchases because as the market improves so does consumer confidence which means more individuals who were living together due to financial issues are now moving out on their own.

14. Second Homes Market – Second home sales will continue to have a strong increase in 2014 due to the passing of wealth from the Silent Generation (those born 1925 – 1945) to Baby Boomers (those born between 1946 and 1964).

15. Seriously Delinquent Mortgages – At the end of November, over 734,000 homes were still in some stage of the foreclosure process which is down almost 25% from a year earlier.  Completed foreclosures are down 30% from last year to 470,000.  Almost 70 percent of all homes in some stage of foreclosure are on mortgages taken out between 2004 and 2008.  This declining number is due to more homeowners being able to pay their mortgage payments because of rising home prices and steady job growth.  Foreclosures hit over a million in 2010 and have been declining since.   Short sales will disappear in 2014 because short sales do not exist in inclining markets. 

PREDICTIONS FOR NON-RESIDENTIAL REAL ESTATE

16. Commercial – This market will only improve slightly in 2014.  Positive influences will include job creation, modest economic growth, and the easing of commercial lending standards.  There is still concern that the commercial recovery will be unsteady because of increased concern over issues including the healthcare and government issues including the debt ceiling.  The commercial market in 2014 will have modest growth.

17. Multi-family – Demand for multi-family housing will continue to increase in 2014.  The demand for rental properties has increased dramatically creating a strong demand for multi-family housing.  From 1995 to 2003 there was an average of 331,000 multi-family housing starts with that number plummeting to 82,000 in 2009.  Multifamily housing starts in 2013 finished around 260,000 units.  I anticipate a modest increase in 2014.

PREDICTIONS FOR INTEREST RATES / MORTGAGE LENDING

18. Interest rates – The Federal Reserve intends to keep the funds rate near zero until the economy is stronger.  This will ensure that short term rates remain low through 2014.  With this rate at a historic low (between 0 and 0.25%) since 2008, the short term Fed funds rate should not raise much before 2015.  Longer term rates will rise in 2014 due to increased activity in the housing market and because of a stronger global economy.  Treasury rate to rise to 3.1 – 3.3, and 30 year mortgages currently at 4.45% could rise to 5 – 5.5% by the end of 2014.   

19. FICO Scores – FICO scores for closed loans had increased substantially from 2007 – 2012.  This meant it was harder for a person to get a loan.  FICO scores on closed loans will reduce in 2014 due in part to easing up of lending which will result in another surge of buying in 2014. In 2014 FICO scores on closed loans will average below 690.

20. Credit Availability for Builders – With the demand for new homes, lenders will soften their lending requirements for builders in 2014.  Builders that previously could not get financing will be able to qualify in 2014 under new builder programs.  Bank profitability equals available credit for builders.

PREDICTIONS FOR THE ECONOMY

21. Unemployment Rate – State of Washington – The unemployment rate in Washington State is 7.0%, down from a high of 10.2% at the end of 2009. By the end of 2014, the State of Washington should see unemployment rates as low as 6.4%. National Unemployment Rate – Nationally our unemployment rate is down from the 10% high we hit in October of 2009. We are currently at 7.0% (November, 2013) and by the end of 2014 we could hit as low as 6.8%.

22. Inflation – The annual US inflation rate for 2012 was 2.1% which was lower than 2011’s 3.2% and higher than 2010’s 1.6%. The historical annual US inflation rate is 2.97%.  The inflation rate in 2014 should increase as the economy improves and should tick up slightly to an average of 1.8 or 1.9%. 

23. Deficit Spending– Deficit spending is the amount of spending that exceeds revenue.  A deficit occurs any year that the government takes in less revenue than it spends.  The United States gross national debt is currently more than 17 trillion.  I do not expect there will be much change to this number in 2014.

24. Consumer Confidence – Consumer confidence, which rolls the facts and feelings about how we are doing as a country into one neat package, hit a high not seen in five years of 82.1 in June.  It dipped after June and after the government shutdown issue sank to 70.4. I predict the consumer confidence index will hit 83-85 in 2014.

25. Consumer Spending –  Consumer spending is on the rise as consumers begin to feel more confident about the economy.  Consumer spending drives over 70% of the economy with the biggest spending done in housing and transportation.  If consumer spending drops off, economic growth will slow, prices will decrease, and the economy can go into a recession.  Inflation occurs when consumer demand for products and services is greater than the ability to provide the goods and services; this causes prices to go up.  The Federal Reserve’s mandate is to ward off inflation.  Consumer spending in 2012 and 2013 was up. I predict consumer spending will also increase in 2014.

Questions or comments, give me a call or email.

STAY TUNED . . . in January I’ll bring you a report on how the real estate market did in 2013.