Quick, Get a Mortgage!

After a couple of years of cash buyers, of late I have had buyers who are trying to get financing and not having the kind of luck they hoped.  To be clear, the lenders, banks and mortgage companies, are not easy to work with these days. They are understandably gun-shy after the last 5 or 6 years, and really only a couple of them are even trying to originate new home mortgage loans.

Naturally, if you were trying to get a mortgage today, you would want to present yourself in the best possible light, but you have to be able to prove what you say. You’ll need to supply your last couple of years of tax returns, and you can be sure the lenders will scrutinize all the numbers there. And of course they also see your complete credit report, which includes not just the “score” that we all have grown to know—if not understand—but also big problems (in red) including foreclosures, or loans and debts that went unpaid and were written off or maybe were paid off, but were not recorded as having been paid off; and lesser problems like late payments, errors and misunderstandings and open but unused charge accounts (often from years ago).

Let me take this opportunity to remind you that if you are thinking in terms of looking at real estate in the near future, it’s time to get a copy of your credit report and review it for accuracy.  I personally had a chance to review my own credit report—this is some years back—and found a half dozen gas station credit cards (none that I had charged anything on for years) and on that same report I found several other credit cards that I had totally forgotten, ones which I had cut into pieces and thrown away, but which were still open and available for use. If you have 10 unused credit cards, and each one has a credit limit of $2500, the lender will dock your borrowing capability the amount you have permission to charge: $25,000 or demand that all the cards are closed out.

These phantom cards and charge accounts will sink your chances of getting a loan until they are corrected.  Here’s the worst part, you can’t just call the company and say. “Cancel my account.” Well, you can call and say that, but simply asking doesn’t get the data off your credit report. You’ll need to ask the credit card company to both remove your account from the credit report AND send along a letter to you indicating that you are in good standing with them and they are working on getting your data corrected with the credit agency. This can take months, so, again, if you are looking at real estate, get going on this effort.

I was recently told by a cooperating broker that her client (a potential buyer of one of the properties I represent) was having trouble with his lender because while he had a pre-qualification letter based on his “stated” income—his credit report had some anomalies and his tax returns did not show his income to be as high as he stated on his first conversation with the lender. He was working with Quicken Loans—an internet based lender—and with a loan originator whom he would never meet in person.  It seemed to me there was no fibbing in making the application, but when you report your salary and that of your wife and then a part-time job that might add another chunk to the total—these sources of income had better all appear on the tax return.

I am not a huge fan of the mega lenders.  They certainly have the money to advertise and that means we all know their names, but borrowing money is stressful and it helps to have a real person you know and trust as your originator. Also, the difference in costs is so small, remember they all get the money they lend from the same place, and the rates are regulated by the Federal Reserve.  So whether you go to Quicken or Bank of America or the Real Trusty Loan Company, the rates will likely all be within a half a percentage point. And most loans are written for a term of 30 years, but most of us only keep the home for about 5-7 years, and may refinance in the meantime—meaning the loan may only be in place for 3-5 years on average. What you are really looking for is service. So if you are in the market to buy real estate, interview some of the lenders you might consider using before you actually need the money, you’ll thank me later. Really. And you’re welcome.

Dane Hahn is a real estate professional serving the Suncoast of Florida from Sarasota Realty Associates.  Contact him at 941-681-0312 or by email at dane.hahn@gmail.com

Housing Affordability Crisis 2014

“Figures don’t lie”, was the first part of a phrase my business partner used to say, and then he would follow that by saying, “but liars sure figure.”  It’s the kind of country wisdom we used to throw around 20 years ago in New Hampshire. But I submit, given a few minutes and a paper and pencil, a good statistician can make any set of data support whatever side you are on.

 

And so I smile when I see on TV or read in the paper that there are no affordable homes in many towns across the USA. This story would be a call to arms, if it were true. The story goes on to say that many neighborhoods are simply too expensive, and something must be done! Usually this headline leads into a story that highlights two or three “expensive” neighborhoods, with tree lined streets and huge gated homes. The TV camera pauses on one or two for sale signs—and the newsreader shares just how critical the unaffordability of these homes are to America.

 

The thesis of the story is the lack of affordable housing. To be more specific, the story is about how low the US average income is, compared to how high the average sale price is. And that’s about where the story ends. You the viewer or reader are left knowing there is a crisis but that there is no solution. And then they go on to the next story.

 

But is there really a crisis? I say no. About 35% of Americans rent a place to live, and  65% are presently home owners. The housing crisis occurs when a would-be buyer can’t afford to buy the home they want in the neighborhood or area of their choice. In all my years in selling real estate, I have never had one client who wanted to pay more for a house than the seller was asking. Every buyer client I represented wanted to spend less than the asking price.

 

Every seller client wants “all the money”. I would suggest that 35% of my sellers have said to me at least once, “I’m not going to give it away.” Sellers tend to think Realtors are trying to get the price down to sell the house quickly. While it’s true the price of a resale house is often suggested by the Realtor, but “set” (contractually agreed to) by the seller. So the affordability problem is really with the seller.  Sellers don’t always ask the “right” price from day one.

 

Because it’s true that every house sells, sooner or later, I contend that every house is or becomes affordable. A house that sits on the market for months and months, sometimes for years without selling, is probably overpriced (you can call that one not affordable).  But once the seller agrees to make the needed modifications—and sometimes that’s only a price change—the house sells.

 

Experts, and by experts I mean lenders, think that you can afford about three times your annual earnings when you buy a home.  This is only a rule of thumb and does not take into consideration your credit scorer, credit history, or other debt you may have (like boat, motorcycle or school loans). But let’s say you want to buy a home for the family. If you earn $50,000, you can probably swing $150,000. 

 

All houses are not the same, to get the most house for your money, you must understand the variables.  Location affects price.  Even a tiny home on the beach will cost a pile of money. But if you pick a moderately priced area, you will find value as well as livability. Age of the house will affect price, and square footage will also be a factor.  The average resale home in Sarasota county sold this year for about $121 per square foot, but other areas sold from as low as $50 per square foot range. As a rule of thumb, new construction is running about $150 per square foot. So do some homework before you go out to see what’s for sale. Knowing what you want may save you the depression of concluding that nothing is affordable.

 

Statistics: Lemon Bay on average is only 1 foot deep.  But boats in the channel note that the average depth is over 6 feet. Likewise the average cost per square foot of a house does not mean you can’t find an acceptable affordable home. The data says on average, houses sell for $155,200 and cost $121 per square foot in this area. Meaning that the average house is 1,282 square feet. Does that mean you can’t find one for less, even a lot less? Not at all. 

 

 

Underwriters: guys you love to hate.

Here’s another anecdotal story of why selling a house can be fun.  Let’s assume a buyer comes forward with an offer to buy a home.  Pretty soon the negotiating is completed and a contract is signed, sealed and delivered--and everybody begins to think the house is sold.

While the buyer is “moving forward” with inspections, picking out paint colors and planning where the furniture will be placed, there is more happening behind the scenes.  In a word, the agents say the loan has gone to underwriting.  Underwriting is the “heart” of the mortgage loan process. The underwriter is the individual employed by the lender to review all of the accumulated documents that the buyer has provided during the loan process.

Sometimes the underwriter will request that additional documents be provided during this step in order to verify whether the buyer will be a good risk for the investors. Once the underwriter reviews all the documents, he or she will decide whether to approve the loan.

If the loan officer has done a professional job up front and explained properly what documents needed to get your loan approved, the process should go very smoothly. And yet, if there have been any “fibs” or creative answers given to questions on the application, the underwriter will probably unearth these issues and slow down or stop the sale.

The underwriter will look at all sources of income, including, in most cases, a 2-year employment history, current pay stubs, W-2 statements, two years of tax returns, bank account statements, other assets and holdings, and additional sources of income. This is certainly one area where additional (unreported) income often surfaces. Buyers who get paid under the table will soon discover they are not able to claim illegal or unreported income.

Errors on a credit report will also rear their ugly heads during this process. Loans which were paid off (satisfied) but were never recorded (closed) will appear as a current loan, still due.  Bankruptcies will be obvious within the credit documentation; a personal bankruptcy will clear most debts—but it won’t clear IRS debt or student loans. Just because a person may have never paid anything toward your student loans doesn’t mean they don’t still owe the money. Bills that people tend to “forget” are old medical bills, which were written off by the doctor or hospital--but not the collection guys. These are the reasons to keep an eye on your own credit report.

If there are any vague or contradictory areas in the documents that were provided, the process will definitely stretch out as the underwriter does his or her research into the situation. Additionally, if the buyer is receiving or paying alimony or child support, documentation will be required to substantiate the payments or the income. Expect also to provide a copy of the purchase and sales contract and a copy of any checks you have already written as earnest money to the seller.

In order to assess your credit risk and current debt, the underwriter will carefully review the buyer’s credit report with current FICO scores and review the report for any issues. The underwriter also looks at the appraisal for the property to make certain the amount of the loan is commensurate with the property value.

Once the underwriter has all the documentation required they now go through the process of assuring that the total loan package will be accepted by an investor. Each investor has different guidelines that need to be considered when the underwriter begins this process. After this, the underwriter will be able to tell whether or not this loan fits the guidelines and whether it is approved.

If the underwriter needs clarification of income, debt, or additional information about the property in question, the buyer should be ready to track down any necessary documents quickly and hand them over for review. Depending on how many documents are needed to get the final approval, the underwriting process should not take more than a few days to complete. Buyers who are prepared to provide whatever is requested will make the underwriting process go more smoothly.

Dane Hahn is a real estate professional with Sarasota Realty Associates in Venice. Contact him at 941-681-0312 or by email at dane.hahn@gmail.com

 

 

Smart (Nest-like)Thermostats

I found myself in the back aisles of Home Depot just the other day—where some of their more serious stuff is displayed, not the colorful paints and appliances that appeal to the “family”, nope, the inventory back here is more the realm of the obscure.  Here is where you will find hardware you’ve never seen before, tools that do who-knows-what and great quantities of various sized air filters stacked in tidy rows. Oh, and it’s also the home of the heating, cooling and thermostat department.

I was looking for a smart thermostat that would offer options. Options that would include temperature adjustment obviously, but also remember when we needed A/C and when we only needed dehumidification and could the unit remember how much electricity use all this was going to cost. Thermostats, it turns out, control half of your home’s energy. That’s more than appliances, lighting, TVs, computers and stereos combined.

The salesman who was assigned to this area was only a little older than my grandson, which I suppose made him an expert on these electronic controllers. I had read a bit about the “Nest” a special unit invented by some Apple engineers, and so I wondered if HD carried them. “We do,” the salesman said, “but they were all stolen last week. We had a full display one minute, and the next they were all gone.” Such is the retailer’s issue with any expensive product that can be concealed  in the palm of your hand.

He went on to say that more would be coming in shortly and I should consider them. The system is designed to keep your home cozy, and it learns from your use to remember the temperatures you like and switches to an energy-efficient setting when you’re away. Wi-Fi connectivity lets you make adjustments from your mobile phone, tablet or laptop.

According to the dot gov website, you can save as much as 10% a year on heating and cooling by simply turning your thermostat back 7°-10°F for 8 hours a day from its normal setting. You can do this automatically by using a programmable thermostat and scheduling the times you turn on the heating or air conditioning. As a result, the equipment doesn’t operate as much when you are asleep or not at home.  Programmable thermostats can store multiple daily settings (six or more temperature settings a day) that you can manually override without affecting the rest of the daily or weekly program.

But the proof of the pudding these days is the user rating, and so when I got home, I took a look at what the world is thinking.  Frankly, the world seems to like the old workhorse of the thermostat world, Honeywell. The highend Honeywell units have some unique features: each month they send you an email report about your energy usage. So you have the ability to make changes and then see how your changes are working.  Being able to program the AC to loaf all day and then cool the house before you get home is great feature.

Some people value simplicity and minimalism and the Nest is simple and sleek. The screen basically shows the temperature, there is little you can actually control from the wall. But when you adjust the temperature for a few days to the way you like it, you teach Nest what you want. After that Nest Sense learns about you and your home and starts activating features to save you more energy. The other programables like Honeywell ask you how you want the atmosphere in your home, and after you once set them up, that’s what you get. The Nest web site estimates I could save about $200 a year at my house, if I had their system. I suspect I could save something…but since I have an early model programmable now, maybe not quite that much. Still, energy use is a problem for all of us as the value of the dollar decreases (and so everything gets more expensive).

Dane Hahn is a real estate professional with Sarasota Realty Associates. You can reach him at 941-681-0312 or by email at dane.hahn@gmail.com.