Portland Real Estate Update by Janeese Jackson » Getting a Mortgage

Interests Rates Make a Big Jump Today!

Janeese Jackson — Fri, 10 May 2013 18:24:35 +0000

“The Heat is ON!!” – Glenn Frey

Our housing market has enjoyed the benefits of historically LOW, LOW rates for quite some time now. And, complacency can be the enemy of building wealth. This morning we’ve seen the largest swing in mortgage interest rates thus far ALL YEAR! Treasuries continue their negative slide this morning (and as US Treasury notes slide, mortgage rates tend to rise)!! So far (at 9am), rates are up .125%. It may not sound like much but it can affect both the amount you will pay in a mortgage and may also affect the buyer’s ability to purchase!! This morning the 10 year treasury note hit 1.86% in very early trading. Since last Friday’s employment report (stating that the unemployment rate had dipped again to 7.6%), the 10-year treasury note has increased 22 basis points (bp) in rate, that’s a size-able move in a short time. 30-year mortgage rates have increased 10 bp in rate.

According to Investopedia, a basic point (bp) unit is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security. The relationship between percentage changes and basis points can be summarized as follows: 1% change = 100 basis points, and 0.01% = 1 basis point. So, a bond whose yield increases from 5% to 5.5% is said to increase by 50 basis points; or interest rates that have risen 1% are said to have increased by 100 basis points.

Anyway, all financial jargon aside, the bottom line is if you are considering a purchase or sale of a primary residence, investment property or simply refinancing an existing mortgage loan, I’d get on it!!! As this can and will affect buyers AND sellers!!!

“What We Got Here is Failure to Communicate”! Portland’s Sellers Market–Is It Time to Consider a Move???

Janeese Jackson — Tue, 07 May 2013 20:12:32 +0000

“Cool Hand Luke”

Our recovering Portland Metro real estate market is still a bit tentative and I totally understand!!! We are slowly emerging from 4-5 years (according to when you feel our recent real estate bust began and ended) of plunging property values, “underwater” mortgages and an uncertain economy!! Now increased faith in our overall economic status + historically low interest rates + diminished housing prices are luring buyers back into the marketplace at a more rapid pace than sellers are preparing for market. So, as the warden in “Cool Hand Luke” said to Paul Newman “what we got here is failure to communicate”.

Perhaps you have been told in the last few years by your favorite Real Estate Broker that you could only garner a certain price for your home (and, there always is “what the market will bear”). And, that price didn’t motivate you to make a move up, move down or move around (unless you were forced to). But, now may be the time to update those numbers! Many neighborhoods are back to “normal” (whatever that means). Others are getting there! If you’ve been considering a change, you may now be in a position to do just that! We still face a tighter lending market and a more fastidious appraisal process but everyone is relaxing a “little”.

April 2013 Portland Metro Real Estate Update!!

Janeese Jackson — Thu, 11 Apr 2013 17:21:24 +0000

A Medley of Songs About Spring

APRIL 2013 PORTLAND METRO REAL ESTATE UPDATE!

As another “Spring has Sprung”, we continue to enjoy a “contingent real estate recovery” in the Portland Metropolitan area! So, why with all the recent relatively good news in the economy, the stock market and in real estate do I use the term “contingent”. Well, more to come in this post on that. Both accepted offers and closed sales earned a “Best March since 2007″ award (and, remember I’ve often mentioned that according to our Regional Multiple Listing stats, March 2007 was the height of our local real estate boom). In March of 2013 we were down to 3.2 months of inventory (meaning how many months it would take to absorb the current inventory at the current rate of sales). This is lower than in any month since June 2006, when unsold inventory reached 2.6 months. So, those that “can sell”, “will sell” (if they are priced correctly and don’t have any other obstacles). My biggest challenge in getting deals closed, is underwriting requirements!

BUYERS: So, what does this mean for buyers? The biggest challenge (other than lack of inventory) is the mortgage process. This was never fun, but now can become one of the most challenging and labor-intensive experiences. What can I say? Well, get pre-approved to the fullest extent you can (to alleviate surprises and make the process as seamless as is possible). Otherwise, you simply have to relinquish every minute detail of your life and be ready to explain every human glitch. If you are a first-time buyer, you may have to prepare your mental state for multiple offers and competition! But, whatever else is true, the true question is: are you paying off someone else’s mortgage?

SELLERS: So, what does this mean for sellers? It is a “modified seller’s market” and that simply means if you have a desirable location and you are priced to sell, you will most likely sell (if there aren’t other specific obstacles). Overpricing is still (as it has always been), the “kiss of death” and that just means that when you sit on the market as an overpriced property, the buying public starts questions “why?”. There are still a number of people that can’t sell or don’t want to, due to what they owe on their property. Don’t just assume, find out what your market price might be!

INVESTORS: So, what does this mean for investors? This is such a “perfect storm” for the investor with low real estate prices, super-low interest rates and rising rental rates coupled with lack of rental properties. However, the lack of good, priced-to-cash-flow investment properties continues to a stumbling block for the savvy investor, as well as the mortgage lenders punishing even the most successful investors with extreme mortgage qualification stipulations. But, just know the advantages are worth the challenges!!

Janeese Jackson

Selected by Portland Magazine as a 2011, 2012 and 2013 Five Star Realtor

The Four “C’s” of Qualifying for a Mortgage!!

Janeese Jackson — Tue, 02 Apr 2013 18:07:32 +0000

“Always Getting What You Want” – Circa Survive

The following article was written by Evan Swanson of Mortgage Trust and reprinted with permission. I think this pretty much “sums it up” in my book and is a well-written explanation of the expectations of lenders. Of course, I’m now finding that the condition of the property (which is part of “collateral” below) is very important to the lending process and has been a sticking point in recent transactions (even after buyer and seller have agreed). Problems with appraisals (value and repairs) continue to plague us.

The Four “C”s of qualifying for a mortgage

In evaluating a loan application to determine whether or not an applicant qualifies for a mortgage lenders look at four areas. These four areas are known as the “Four C’s” and stand for:

1) Credit
2) Capacity
3) Capital
4) Collateral

Here is a summary of each “C” and how they impact the loan approval process:

Credit:

Credit is arguably the most important factor of the 4 C’s. An applicant’s credit score taken from the credit report is the simplest measure of their credit strength. In determining an applicant’s credit score lenders will simply use the middle of the three credit scores reported by the three credit repositories (Transunion, Equifax, & Experian).

Credit scores are heavily influenced by a person’s payment history over the preceding 24 months. Other factors may include the proportion of revolving debt relative to the high credit limits, number of accounts, lack of credit depth, and many more.

Another factor that lenders may pay attention to in an applicant’s credit profile is their housing payment history over the preceding 12 months. This may be reflective in a previous mortgage on the credit report or by verifying rent payments if the applicant does not currently own a home.

Finally, bankruptcies, judgments, and foreclosures can all negatively impact the credit analysis for an applicant. Just because an applicant has these negative marks on their credit report doesn’t mean they cannot get approved for a mortgage. It simply means that they would have to show other compensating factors and/ or may have to accept higher rates and terms.

Capacity:

In addition to reviewing an applicant’s credit banks want to analyze their ability to repay the mortgage over time. The primary tool they use for this analysis is a debt-to-income ratio. Simply put, the debt-to-income ratio is the sum of all monthly payment obligations an applicant has (including the proposed housing payment) divided by their gross monthly income.

For example, here is a hypothetical debt-to-income calculation for John & Jane Doe
In this case the debt-to-income ratio of 24.75% would likely be viewed upon favorably by the lender. In most cases banks will accept DTI’s as high as 45% and in some cases up to 50-65%.

Obligations:
*Proposed housing payment (including real estate taxes and homeowner’s insurance): $2,000
*Car payments: $250
*Student loans: $150
*Minimum monthly payments on credit cards: $75

Income:
John’s monthly gross income: $5,000
Jane’s monthly gross income: $5,000

Debt-to-income calculation:
Total obligations: $2,000+$250+$150+$75= $2,475

Total income: $5,000+$5,000= $10,000

DTI=24.75%

Capital:

Does an applicant have a financial cushion to fall back on if their income is unexpectedly interrupted for a period of time? Has the applicant shown a pattern and habit of saving money over time? These are important questions to a lender and can be answered by reviewing an applicant’s capital accounts.

Capital accounts are any account with liquid assets that a borrower could access if need be. The most common forms of capital accounts on a loan application are checking, savings, money market, brokerage, IRA, and 401K accounts.

In most cases the bank will want to verify that an applicant has an amount equal to 2 months worth of their total housing payment (including real estate taxes and homeowner’s insurance) saved up in a capital account after they subtract any cash required for down-payment & settlement charges. If the mortgage is going to be secured by an investment property or second home the bank may want to see more capital for the applicant.

There are loan programs and lenders that do not require any capital or will allow capital to be gifted from family members.

Collateral:

The final piece of the mortgage application that the bank is interested in reviewing is the property itself. After all, if a borrower fails to make their monthly payments then the bank will take the house back and sell it in order to recoup the money that they loaned against it.

The value of a home will generally be determined by a professional appraiser’s appraisal report.

In reviewing the collateral for a property the bank will review two basic questions:

a) Does the appraiser’s determination of value for the subject property support the value that the applicant is buying (or refinancing) it for?

There are multiple methodologies for determining the value of a home. The two that show up in an appraisal report are the “cost approach” and the “sales comparison approach”.

The “cost approach” determines the value of a home based on the value to rebuild or replicate the property from scratch. This analysis will take into consideration the value of the land that the home is built on and add the cost to rebuild the improvements based on the square footage and amenities (i.e. basements, garages, etc.). The “cost approach” is less relevant to a bank because they never intend on rebuilding the property. However, they may review this in determining if the homeowner’s insurance policy provides enough coverage.

The “sales analysis approach” is the most relevant to lenders in determining the value of the collateral property. With this approach an appraiser will find what they consider to be the 3-6 most comparable properties that have sold near (usually within 1 mile) the subject property within the past 12 months.

The appraiser will then make adjustments to the value of the subject property by comparing various features of the home. Among the factors that can impact the adjustments are square footage, view, quality of construction, built in amenities/ upgrades, number of bedroom and bathrooms, heating cooling systems, etc.

The value as determined by the sales analysis approach is the most important in determining the value for the home in the lender’s perspective.

b) What is the ratio of the loan amount to the value of the property (LTV)?

The loan-to-value (LTV) ratio is also an important consideration for the bank. The LTV measures the amount of money the lender is lending against the value of the collateral.

All else being equal a greater LTV is riskier for the bank than the same loan application with a lower LTV. This is because in the event of foreclosure it is less probable that the lender will recoup the entire loan versus a loan with a higher LTV.

Important Thresholds
There are important thresholds in the underwriting guidelines of most banks which make it more or less likely that a loan will get approved or that a loan will be approved with more favorable or less favorable terms.

These are:

-LTV=

<70%- with an LTV of less than 70% the lender will generally feel very comfortable with the loan. This is because the borrower has a significant of “skin in the game” such that if they should fall behind on their payments they will likely do whatever they can to pay the loan current before foreclosures sets in. Lenders know this and therefore are less concerned about the other 3 C’s with these applications.

70-80%- In general lenders are also very comfortable with an LTV between 70% & 80%. This is because they know that if they had to foreclose on a property it is likely that they could recoup the loan with little risk.

80.01-90%- At 80-90% LTVs bank begin to look for other compensating factors in the file. They may begin looking closer at an applicant’s reserves, income, or source of down payment. It is likely that the bank may charge a premium to the interest rate of anywhere from 0%-.50% depending on the loan file.

Furthermore, if the applicant elects to do 1 loan they will require some form of mortgage insurance. Mortgage insurance is an insurance policy that the borrower usually pays for. The insurance would cover a portion of the lenders losses in the event that they had to foreclose on the property and they did not recoup the entire loan.

90.01%-95%- With less and less equity in the transaction a lender will certainly want to see other compensating factors at higher LTVs. This would include higher credit scores, greater reserves, employment stability, etc. The lender may impose a risk premium to the interest rate of .125%-1.00% Again, with one loan the lender will require the borrower purchase mortgage insurance in the event that they default on their payments.

95.01%-100%- With less than 5% equity into the transaction the lender will make sure that the borrower has ample reserves and solid credit. At these levels the lender is at the most amount of risk because in the event that the borrower defaults and forecloses on the home in the initial couple years it is almost guaranteed that the lender will incur a loss. Borrowers will typically pay a .25%-2.00% premium to their interest rate for this type of approach.

The Maximum a Seller Can Credit a Buyer for Closing Costs for a Home Mortgage Loan!

Janeese Jackson — Thu, 21 Mar 2013 19:22:26 +0000

“Dishonored Credit Song”

Buyers can include a request for seller-paid closing costs as part of an offer to purchase property. Thus, the actual amount being offered the seller is less than the “stated offer price”. It really makes no difference to a seller (whether the buyers offer less as a purchase price OR ask for closing cost in lieu of a lesser amount … but they could include both). It all comes down “the bottom line” for most sellers and what the market will bear. Often it’s a cash-flow issue for the buyer, they have the credit and income to qualify for a loan but don’t have the $$$ for closing costs AND the down-payment!! The maximum closing cost credit a buyer can use depends upon their loan program and intended occupancy. Allowable credits range from 2% – 9% of a purchase price for seller concessions and should be written into the sale agreement as being applied to both the buyer’s closing costs and prepaid expenses (Seller credit is based off of the purchase price on that sale agreement).

CONVENTIONAL:

Owner Occupied & 2nd Homes:

3% of purchase price in closing costs for a loan-to-value of 90 to 95% (in other words, 5-10% downpayment)

6% of purchase price in closing costs for a loan-to-value of 75-90%

9% of purchase price in closing costs for loan-to-value of 75% and below

Non Owner Occupied (Investment Property): 2%

FHA/USDA Loans: 6%

VA Loans: 4% (but seller paid discount points can be paid above and beyond the 4%)

Jumbo Loans: 3%

The Price and Value Conundrum in Real Estate Sales + Repairs and More!!

Janeese Jackson — Thu, 14 Mar 2013 23:30:44 +0000

Jethro Tull – “Conundrum”

The good news is our local Portland Metro real estate market has continued to experience a “steady-eddy” recovery since December 2011. Anxious buyers are on the lookout for well-priced, good condition properties and long to take advantage of these historically low, low interest rates. So, other than lack of inventory (a seemingly chronic lack of inventory, I might add), what do Realtors have to whine about now??? It’s the appraisal and underwriting process!!! I wrote about this prior in a January 2012 article and it continues.

“We’ve come a long way, baby” from the drive-by appraisal days. We can appreciate the need for lending reform, but I must say some of the results of the vast pendulum swing are close to ridiculous. The Dodd-Frank Act has put into effect a lot of stipulations that impact both buyers and sellers. I’ve been to two continuing education classes in the last week that dealt with how appraisals and underwriting has changed!! The appraiser CANNOT factor in time-trend adjustments. This means they can’t look at a similar sale that happened a few months ago and add a percentage to it for the obvious appreciation that may have happened in the overall market. They will also rely more on “closer-in-proximity sales” rather than increase the geographical boundaries to get a more recent comparable!! In a market that is repairing and changing, this can create “value” problems, even if the buyer and seller have come to an agreement.

A larger problem that I have personally experienced multiple times is the buyer and seller come to an agreement regarding repairs. Perhaps, the seller opts to credit the buyer “x” amount to complete repairs after close of escrow. Often the underwriters get wind of it either through mention in a repair addendum, asking for a property inspection report or from the physical inspection by the appraiser. Then, even though the buyer and seller are quite comfortable with the “credit at close of escrow arrangement”, the underwriters can demand that certain repairs are completed prior to funding the loan (obviously, upsetting the apple cart).

And, so our saga continues: Realtors chasing prices and appraisers chasing value!!

Are You “Under-Water” on Your Mortgage in Multnomah County?? Good News!

Janeese Jackson — Tue, 19 Feb 2013 20:02:33 +0000

“Take Me to the Pilot” – Elton John

Multnomah County has been approved as a one-county ”pilot program” starting in April that would allow homeowners who owe more than their home is worth to possibly refinance. This could be HUGE for local homeowners residing in the county. If your mortgage is in a precarious situation OR could be, please take a look at this. Remember, if you have an adjustable mortgage and it’s “OK” now, interest rates WILL be increasing over time. If your mortgage has reset to an unacceptable amount for your personal situation, this could be your salvation. We don’t yet know what the qualifying parameters are, but it’s worth knowing about. See this Oregonian article and the best of luck…but, don’t rely on luck…do whatever is needed to make this happen.

More Details on FHA Mortgage Finance Changes! What it Will Mean to the Buyer!!

Janeese Jackson — Wed, 13 Feb 2013 20:50:34 +0000

“Say it Ain’t So” – Weezer

I wrote last week warning of upcoming changes in FHA financing. The 3.5% down payment on FHA loans could be more expensive for buyers than expected. when considering financing options, the savvy buyer must consider the down-payment required, the interest rate and the closing costs to get a full picture of what the loan will cost!! Beginning April 1, 2013, the mortgage insurance premium (MIP) will go up by .1% to 1.35% which may not even be noticeable to most would-be homeowners. The staggering increase will occur on 6/3/2013 when FHA’s policy on the duration of the required mortgage insurance will be increased for the life of the mortgage. It basically doubles the amount of total MIP IF the loan is paid to term.

Example: Purchase Price $175,000 with 3.5% down payment at 4% mortgage rate on 30 year term
	Current	After 6/3/13
MIP duration	78% of original loan	Life of mortgage
Cumulative premium	$20,838.24	$42,447.93

Currently, the MIP is required for approximately 9 years 9 months with normal amortization. The new program would require the MIP for the life of the loan. In this example, the initial monthly MIP is $196.88 which decreases based on amortization.

There are buyers that qualify on income and credit who may not have the necessary additional down payment required for 80% and 90% conventional loans. The 3.5% FHA program has provided a great vehicle to get into a home with a minimum amount of cash.

For homeowners that expect to stay in their home for ten years or less, the new changes might not have much financial impact. Homeowners who expect to be in their home long term can refinance with a conventional loan without mortgage insurance once the equity has increased due to amortization and appreciation. For buyers to avoid these increases, they will need to act now to get the FHA commitment issued prior to these change dates.

FHA Changes…AGAIN! It’s Gonna Get Harder and Harder to “Sell” FHA Financing as an Option!!

Janeese Jackson — Fri, 08 Feb 2013 16:59:46 +0000

The huge benefits of FHA financing (Federal Housing Administration) has been a huge boon to housing since it’s inception in 1934 . FHA is an arm of HUD (Housing & Urban Development). However, since our real estate and economic recession began, FHA has gone through a series of dramatic changes. I feel this is HUGE for a lot of first-time buyers, as FHA allows a low 3.5% downpayment!! Especially the part that dictates that as of 06.01.2013, Mortgage Insurance (MI) on any new FHA loans can never be cancelable!!!!! Currently, once you pay down your mortgage and/or the appreciation gives you a loan-to-value of 80%, you can cancel your MI premium. That being said, I still contend that assumable loans will one day, once again, have the power they did in the ’80s (and, FHA loans are still assumable by a qualified buyer)!!

* The monthly cost of FHA (Federal Housing Authority) Mortgage Insurance (MI) is going up, effective
with any new loans assigned from April 1st, 2013. The mortgage insurance premium is going from 1.25 to
1.35% of the loan amount. On a $250,000 loan this is $21+/month. This lowers the amount of a
loan a borrower will qualify for by about $4,000 in price.

* There will be monthly MI on all FHA loans going forward (there
was always upfront MI). But, now there is MI no matter how much is put down, even over 20%
down, effective with new loans from assigned April 1st, 2013. Of course
most go conventional if they have 20%+ down, but there were scenarios
where some might have opted for FHA due to easier guidelines than conventional, but it will
be more difficult to do those loans now. Also, if you did a 15 year
fixed FHA before, there wasn’t monthly MI, however… now there will be.

* And a big one, effective with new loans assigned after June 3rd,
2013, monthly MI will not be cancelable any longer on FHA loans. It will
be there until the loan is paid off. OUCH!!!

An Explanation of the Terms of Your Lender’s Good Faith Estimate!

Janeese Jackson — Fri, 11 Jan 2013 19:15:25 +0000

Survivor: “In Good Faith”
As a follow up to Tuesday’s blog about “What is earnest money”, I thought an explanation of the often confusing terms on a good faith estimate might be in order. Why? Because one of the first steps in your search for a new home or investment property should be getting a letter of pre-approval from a lender of your choice. When you are choosing between mortgage brokers or loan officers, you will be receiving what’s called a “Good Faith Estimate” or “Good Faith Summary” of closing costs, fees and pre-paids. That way you can compare “apples-to-apples” on interest rates and closing costs. Your APR is your “annual percentage rate” which includes up-front fees, such as origination or participation fees will also be disclosed. A good faith estimate, referred to as a GFE, must be provided by a mortgage lender or broker in the United States to a customer, as required by the Real Estate Settlement Procedures Act (RESPA). The estimate must include an itemized list of fees and costs associated with the loan and must be provided within three business days of applying for a loan.

Estimated Closing Costs (All Closing Cost items are a one time charge).

Loan Origination Fee - Fee that is paid to the broker. This is what the mortgage broker gets paid for services.

Loan Discount Fee - Paid to buy down interest rate OR non-owner discount paid on investment property.

Credit Report Fee - Cost of the credit report

Appraisal Fee - This is the cost of the independent appraisal. It is usually paid by the buyer.

Lender’s Inspection Fee - applies to construction and rehab loans only.

Admin Fee - charged by Lender, internal fee (income producing)

Flood Certification - Charged by Lender, they check with FEMA to make sure the property is or is not in a flood zone.

Tax Service Fee - Pays the taxes and insurance annually. Makes sure they are paid and do not become delinquent.

Processing Fee - Charge by Broker, for internal processing.

Underwriting Fee - Charged by Lender, internal fee (income producing).

Settlement Fee - Charged by the Title Company. Also known as Escrow Fee and pays for their services regarding signing and to notarize documents, mail payoffs, record at county.

Title Insurance - Charged by Title Company. They search county records to insure the Lender a 1st position lien.

Title Endorsements - Lender requires this. In case of “typo” errors with address, legal description and environmental.

Recording Fee - Cost to record the Deed of Trust in the county.

Wire Fee - Charged by the Title Company OR Lender, to pay for wiring of funds (income producing).

Estimated Prepaid Items (All prepaid items are re-occurring costs.)

Interest - Interest paid from the date of funding to the end of the month.

Hazard Insurance Premium - Annual premium for the first year (purchases only).

MIP/Mortgage Insurance Premium - payment for upfront mortgage insurance (for loans more than 80% LTV/loan-to-value).

Taxes - proration of existing property taxes and to set up tax reserves, if required.