Is Now The Time To Buy A House?

Reprinted with permission
Peter G. Miller – Mortgage Lenders Plus.com

At first this may seem like an odd question, especially given the front-page headlines of the past few weeks. But the reality is that selected properties in slow markets can be terrific buys.

To start, it’s important not to be scared off by headlines. The Nation Association of Realtors reports that 93 metropolitan statistical areas showed price increases for existing homes in the third quarter of 2007 when compared with a year earlier. In comparison, 54 metro areas had declines.

But a little caution is in order because these reported figures may not be realistic. For instance, in my community reported home prices show little change during the past year. The catch is that “reported” home prices do not reflect discounts offered by owners including repairs, upgrades, appliances and so-called “seller contributions” that can total $30,000 for a $500,000 home.

What does it mean for buyers?

Homes are more affordable than they’ve been for the past several years. The reason is that there are now discounts and price drops in many areas that did not exist at the height of the market. Combine reduced effective prices with interest rates which are low by historic standards and the result is the ability to either buy more house or to better afford a smaller one.

Some regions are devastated. If you’ve always wanted a condo in Miami or a place in Las Vegas, Dallas, Colorado, Ohio, Michigan and a growing number of areas in California, you’ve got a huge and growing number of choices.

The situation is likely to get worse before it gets better. Many authorities believe that foreclosure rates will increase in the next few months, meaning that purchasers will have even more leverage in the marketplace.

If there really is a window of opportunity for buyers, it’s a window which needs to be treated with caution. Lower prices — by themselves — may not be a good enough reason to purchase at this time. To buy wisely you need to look deeper. Here are important issues to consider:

First, you have to line up financing. You must speak with lenders before looking at houses so your financial capacity can be determined. Once you know how much you can borrow and how much you can afford, you will then know the price range to search for homes. Doing it the other way — finding a great house and then looking for a loan — will not work if the property is not affordable.

In the process of looking for a lender be aware that the marketplace has changed. You’ll do best if you’re looking for a residence and not an investment and if the financing you need is less than $417,000 — the conventional loan limit. Also, some of the loan practices of the past few years are now largely gone. Expect a return to older, traditional underwriting standards.

Look into FHA financing and fixed-rate mortgages. FHA loans have liberal qualification standards and great terms. Fixed-rate loans are a hedge against future interest increases, a protection many ARM borrowers now wish they had.

Second, buy for the long-term. It makes no sense to buy real estate low and sell lower. We don’t know that today’s prices are as low as the market will go. Alternatively, if you expect to own your home for many years then what happens in the coming few months is largely irrelevant.

Third, work with a buyer broker. There are many questions to negotiate in a real estate purchase, it’s unlikely you can win every issue but you’ll have the best shot at getting what you really want by using an experienced broker who knows how to bargain and works for you.

Fourth, look at the long-term prospects for an area. For instance, is the population growing? Are new jobs being added? Are state and local budgets balanced or in the red? A growing population means more housing demand while an expanding job base suggests a larger pool of qualified buyers. As to budgets, when governments are in the red they will want to raise taxes, a cost that cannot be avoided or paid down.

Fifth, buy smart. For instance, buy in the path of future growth, consider existing homes but also look at distressed properties such as foreclosed homes and real estate owned by lenders, or “REOs”. An experienced buyer broker can show you a range of options and explain the pros and cons of each choice.

10 Reasons To Find Your Mortgage Online

If you’re still looking for a mortgage by speaking with a few local lenders you may be missing big opportunities to save money, says Peter G. Miller in his latest consumer column for Mortgage-Lenders-Plus.com.

“The Internet now makes it simple for individuals to quickly and easily check with hundreds of lenders in a single setting,” says Miller. “No less important, not only is it possible to consider huge numbers of mortgage options, it’s also possible make more informed choices because of the news and information which is now online.

Miller says the Internet reflects the realities of modern lifestyles. Its available 24/7, you don’t have miss work or drive anywhere and because of competition borrowers have a lot of leverage in the marketplace.

“If you asked about Internet shopping five years ago many people would have said they had never placed an online order,” says Miller. “Today Internet shopping is as common as concrete and the same is true with online mortgage borrowing. Finding a loan online is now quick, simple and can help borrowers get the best-possible loans.”

The new Miller column is one of a series of consumer-oriented features published by Mortgage-Lenders-Plus.com as part of its public education program. The entire series — which includes such subjects as credit score myths, how to get a first mortgage, when to refinance and other important topics for real estate borrowers — can be found by going to the latest Miller column.
Established in 2000, Mortgage-Lenders-Plus.com provides a unique online destination for borrowers seeking to finance or refinance real estate. Mortgage loan requests worth nearly $10 billion have been processed on the site, and that number grows each day. The company is not a lender, broker or escrow agent; instead it provides an unequaled marketplace where you can match your needs and wants with nearly 200 competing mortgage lenders. For news about loans, lenders, equities and home values, please visit www.mortgage-lenders-plus.com.

Stated Income Loans: Five Things You Need To Know

A large percentage of all mortgages are now made with “stated-income” loan applications, applications which require less paperwork and speed the lending process. In particular, stated-income loans can help many borrowers, including the self-employed according to Peter G. Miller in his latest consumer column for Mortgage-Lenders-Plus.com.

“Stated-income loan applications make the lending process quicker and easier,” says Miller. “However, there’s a lot of misinformation regarding such forms and the result is that some borrowers miss the opportunity to use stated-income loan applications while other borrowers might be better served with other types of applications.

There are five major issues for borrowers to check before selecting an application format, says Miller.

“You want to know what type of stated income application you’re getting — there are different types and the difference can be important to individual borrowers. Also, you want to know about such things as speed, possible cost, the need for accuracy and tax records,” says Miller. “With a better understanding of how the system works borrowers can make better choices.

The new Miller column is one of a series of consumer-oriented features published by Mortgage-Lenders-Plus.com as part of its public education program. The entire series — which includes such subjects as credit score myths, how to get a first mortgage, when to refinance and other important topics for real estate borrowers — can be found by going to the latest Miller column.

Established in 2000, Mortgage-Lenders-Plus.com provides a unique online destination for borrowers seeking to finance or refinance real estate. Mortgage loan requests worth nearly $10 billion have been processed on the site, and that number grows each day. The company is not a lender, broker or escrow agent; instead it provides an unequaled marketplace where you can match your needs and wants with nearly 200 competing mortgage lenders. For news about loans, lenders, equities and home values, please visit www.mortgage-lenders-plus.com.

An ARM That Only Adjusts Down?

Some marketers just never sleep. A new concept called a “ratchet mortgage” is being proposed that would provide for interest rates reductions when the rate index changes, but would be designed so that interest rates would never adjust up. Apparently this was attempted in the ‘90s with mixed results, since investors were shy about buying portfolios of mortgages that have only reductions in interest incorporated into their adjustable rates.

Now, a couple of financial professionals are set to give it another try. Bert Ely and Andrew Kalotay – who are based in Washington, D.C., and New York, respectively – have been pitching their vision for the ratchet mortgage to industry groups in recent weeks.

As you might expect, any consumer who is asked about the concept says “Sure, I want one of those.” So Mr. Ely says in an interview that “The market demand will be there, but there are a lot of mortgage-initiation issues that have to be dealt with. Lenders are not going to offer this unless it’s a profitable product.”

What the two financial chess players have devised is a system that makes the mortgage concept work because the mortgage interest rate is tied to the interest rate on the bonds that would finance them. They are proposing a system that ties both the mortgage and the fund on which it is drawn to the 10 year Treasury note yield. There would be a fixed rate spread between the two – half a percentage point perhaps – that maintains a steady profit margin even as the rates drop. They have gone so far as to apply for a patent on the system.

“With the previous automatic rate-cut mortgages, the problem was that they never figured out how to finance the mortgages,” Ely said. “Ours is built upon the rate-reducing future of the mortgage and the instrument that funds the mortgage. As the interest rate clicks down on the mortgage, the interest will also click down on the funding instrument.”

Ely noted that “The amount of refinance activity goes up when rates fall and goes down when rates rise,” he said. “What the ratchet mortgage does is mimic that, in a more efficient fashion: When rates start going down, it would go down. And when rates start going up, it would stay the same – which is the same as people saying, ‘I don’t think I’ll refinance now because rates are high.’

If the concept flies, however, it will mean a reduction in the substantial mortgage refinancing activity that goes on now due to the number of ARMs in circulation. And that would not serve the mortgage industry well. Ely dismisses this concern by noting that all innovations affect the status quo. “It’s great for homeowners and it’s great for the economy…but a lot of people who profit from the current system’s inefficiency don’t get too excited about efficiency.”

A skeptic in the banking industry noted that similar concepts have been tried before but now adopted by “the marketplace.” By this he meant the lenders and brokers who originate mortgages. A ratchet mortgage is designed to be a permanent mortgage, one that doesn’t grow prohibitively expensive when the rate adjusts. That means the average mortgage broker is not going to see repeat business from the person that signs for a 3/1 ARM in his office. The self perpetuating nature of the mortgages in circulation today may preclude the industry from adopting a real consumer innovation.

What is an FHA Loan?

The Federal Housing Authority was founded in 1934 to help people buy homes in a country that was neck deep in an economic depression. It has been around ever since, its role evolving as it has attempted to make home owning accessible for the average wage earning American. In 1965, FHA became a branch of the Department of Housing and Urban Development (HUD).

The FHA does not make loans or even guarantee them. It insures them, which minimizes the risk for the private lender issuing the loan, particularly when the borrower is unable to put down the traditional twenty percent down payment. FHA insured loans have always had a cap; there is a maximum dollar amount on an FHA loan; currently that figure is $417,000. Any loan over that amount is known as a jumbo loan and is issued without benefit of federal insurance. The result is a higher interest rate.

In the late 90s FHA’s mortgage limits fell behind the rapidly rising home values. Further, some people in the marketplace had differences with the FHA’s appraisal requirements. As a result, the loans were pushed to the side by the dazzling new array of adjustable rate loans that provided up to one hundred percent financing for sums well beyond the FHA cap.

Today, the value of an FHA-backed loan is once again emerging. The dangers of ARMs have become clear and consumers are returning to a loan process that provides clarity. Once a lending institution has FHA approval on the loan, it is authorized to proceed with the lending process without further oversight.

FHA loans are available to people with credit problems. FICO scores do not apply; moreover, you can obtain an FHA loan two years after you have filed bankruptcy. If you have been through a foreclosure and keep a clean credit record for three years thereafter, you will once again be eligible for an FHA loan.

The rates on an FHA loan are subject to some guidelines and the loan rates can be very reasonable. The rates vary no more that .125 percent of a conventional loan. Mortgage insurance is written into the premium, and it is much cheaper than the commercial private mortgage insurance (PMI) on the market.

A borrower can finance up to ninety seven percent of the home purchase price. Under the acceptable terms of an FHA loan, debt ratios are higher than the debt-ratio limits imposed for conventional loans.

The FHA has standards for the condition of the home being sold, and at one point many sellers deemed them excessive. Those standards have been relaxed somewhat, so that the loan no longer as often stands in the way of consummating a sale. While an FHA agent will inspect the home, buyers should still retain a professional appraiser.

FHA loans are available to anybody but are used most often by first-time homebuyers and low- to moderate-income buyers. It seems like a viable option, however, for almost anyone who is purchasing a home and can do it by borrowing a sum beneath the FHA cutoff point. Particularly in the current world of vastly complicated adjustable rate mortgages, the controls built into the FHA process can make the process transparent for a first time homebuyer.

Credit Bureaus Selling “Tips”

A couple of times a year, I am the recipient of a half inch high stack of direct mail pieces informing me that I’m “Preapproved!” for a new credit card or a substantial line of credit with some hitherto obscure Midwest financial institution. The chances are excellent that this spurt of sales pitches has been launched by a credit “trigger” provided by a credit bureau.

Credit triggers have become an important profit center for all three of the major credit bureaus: Experian, TransUnion and Equifax. Lenders can subscribe to a “trigger service” with any one or all three of them. The subscriber can choose from a number of parameters, the same way that you can customize those RSS feeds on your computer.

Based on those choices – there are twelve or more variables to choose from – the subscriber will instantly be notified if there are changes in the credit profiles of their customers. Originally designed as early warning signals, credit triggers have morphed into a source of marketing leads.

A trigger might be launched by a spike in your credit service performance, such as paying off delinquent debts or making major paydowns on your (substantial) credit card obligations. This sort of activity can be construed as a sign of new liquidity – perhaps a new job, an inheritance or a sudden burst of financial discipline. It might also yield new information on a debtor whose location was unknown.

Triggers have been available to lenders for years, but now new technology has provided the means to develop a new product. The credit bureaus now have the ability to customize credit trigger information and to provide updates on changes almost instantly. Their old, passive databases have been activated by software that makes them easy to manipulate and quick at generating reports. Experian will accept lists of names from a lender for notification if any of the listed parties has had a credit inquiry. They will also provide lists that match profiles specified by the lender for the purpose of direct marketing. The three categories of marketing, risk and retention triggers are now available on a daily, weekly or monthly schedule.

The credit bureaus have provided their trigger services to mortgage providers for some time. During the refi craze, a mortgage provider would want to know if a customer was seeking additional credit elsewhere and would then try to capture that business. Now that the mortgage industry is in the midst of a significant decline, the credit bureaus are marketing their services to all comers.

The service must be valuable because it isn’t cheap. One journalist writing on the story quotes a mortgage broker in Maine who said brokers in his state would typically pay about $15,000 to sign up for the service plus another $10,000 to $12,000 per month for the lists.

There are regulations about the use of credit information and solicitation offers. Lists of this sort must be used to provide a specific offer of some sort of credit. Many of the more obscure “lenders” seem to be using them simply to ask, “What sort of loan would you like from us?” From a social perspective, the marketing of one’s credit activity seems like another in a long list of recently developed violations of privacy.

Mortgage Lenders Plus.com Helps Borrowers Through New, Tougher Government Standards

CARDIFF BY THE SEA, CA – October 30, 2006 — The federal government says home mortgage lenders need to toughen mortgage standards. The new rules will mean more paperwork when it comes time to borrow — and for some borrowers, less ability to get the loan amount they want.

Adjustable rate mortgages (ARMs), interest-only loans, piggy-back financing and stated-income mortgage applications are about to get a make-over under orders from federal regulators. The new rules will mean more paperwork, tougher mortgage qualification standards and even smaller loans for many borrowers.

“The federal government is putting an end to the urban myth of instant mortgage lending,” says Peter G. Miller, author of The Common-Sense Mortgage and a columnist syndicated in more than 80 newspapers. “The government is saying that borrowers need a much better idea of how loans work. The government is also saying that mortgage lenders need a much better idea of whether or not borrowers are really qualified for today’s new forms of financing.”
In his latest column for Mortgage Lenders Plus.com, Miller shows how borrowers can do well under the new standards. “It’s really a return to the loan standards we had prior to 2001,” says Miller. “With a little preparation most borrowers will be able to easily sail through the new requirements.”

About Mortgage Lenders Plus.com:
Established in 2000, Mortgage Lenders Plus.com provides a unique online destination for borrowers seeking to finance or refinance real estate. Mortgage loan requests worth nearly $10 billion have been processed on the site, and that number grows each day. The company is not a lender, broker or escrow agent; instead it provides an unequaled marketplace where you can match your needs and wants with nearly 200 competing mortgage lenders. For news about loans, lenders, equities and home values, please visit www.mortgage-lenders-plus.com.

20 Questions: What Are The Secrets of Today’s Loans?

The mortgage market is a complex place. Pick the wrong loan and you could spend thousands of extra dollars and face monthly mortgage costs that are needlessly high.

But most borrowers can get good deals by asking 20 basic questions, according to Peter G. Miller in his latest consumer column for Mortgage-Lenders-Plus.com.

“The trick,” says Miller, “is to realize that the mortgage marketplace has changed. The loans that made sense 10 and 20 years ago are still out there, but most loans today have new features and options that were not widely available until recently. In effect, there are more financing options than in the past, including perhaps some new options which offer special benefits for individual borrowers.”

Miller says most borrowers can determine which loan options are best by asking 20 baseline questions.

“A checklist is extremely useful when speaking with lenders because there are so many variations and choices,” says Miller. “It’s not enough to ask about start rates and initial monthly costs because with many mortgages costs and rates can change over time.”

The new Miller column is one of a series of consumer-oriented features published by Mortgage-Lenders-Plus.com as part of its public education program. The entire series — which includes such subjects as credit score myths, how to get a first mortgage, when to refinance and other important topics for real estate borrowers — can be found by going to the latest Miller column.
Established in 2000, Mortgage-Lenders-Plus.com provides a unique online destination for borrowers seeking to finance or refinance real estate. Mortgage loan requests worth nearly $10 billion have been processed on the site, and that number grows each day. The company is not a lender, broker or escrow agent; instead it provides an unequaled marketplace where you can match your needs and wants with nearly 200 competing mortgage lenders.

For news about loans, lenders, equities and home values, please visit www.mortgage-lenders-plus.com.

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