"Timing" your closing

As investment advisors say, you can't time the market. But in real estate, there is one sure thing--the end of the month will be a busy time for closings. Why? Well, when you buy a home, the interest clock starts ticking from the date of closing. When you pay your mortgage, the interest is paid for the full month in arrears. That means that any interest 'charged' in the current month is due at closing. Let's put that into perspective. Today is the 11th. IF you closed today, your new loan's first payment would be due in APRIL. When you pay April's payment, guess what? You just covered all the interest for MARCH. That leaves February hanging so that would leave 19 days of interest left due and payable at closing. For a $200,000 loan at 4.25%, that would be around $23 per day SO you'd have to come up with $437 at closing to cover the interest. If you closed on the 29th, you'd have to pay ONE day of interest or $23; if you closed on Friday the 26th you'd pay $92. IF you are a cash-strapped buyer that extra money can mean a LOT (like paying for movers or pizza for all your buddies who are helping you move). I can see why people want to close at month-end but let me tell you why NOT.

Think of it this way--this is not a revelation to realtors and loan officers. They know their clients' personal situations and will try to schedule these cash-strapped buyers on the last day or as close to it as possible. Again, I get it BUT just realize that there are many issues that could come up. As EVERYONE is super busy, what happens if something goes wrong? Primarily, if the loan is delayed then the closing can be delayed. Again, everyone is busy; things happen. BUT why would you want to set yourself up for something to happen to YOU? Also, people tend to want to close on Friday. Why? Well, the theory is so that they can move the next day. IF something goes wrong though, guess what? If your Seller (especially if they are a builder) "doesn't care" that you have a $100/hour mover idling in the cul de sac. They "don't care" that you have everything lined up. If they don't get their money, it didn't fund. If it didn't fund, you don't own a home. If you don't own the home, do you expect them to just let you move in? NO. Again, they aren't truly uncaring people (hence the quotes around don't care). With that being said, ask any closing attorney or agent about horror stories about people moving in and causing damage, etc. prior to owning the home, with the extreme example of that happening PLUS something totally going south with the loan process and then they can't actually buy the home. Who would be stuck? THE SELLER. (SO if you are a Seller, think twice about allowing someone to move in w/o closing; call and ask me why sometime; that's another post!).

Tips? Close the equivalent of the week of the 20th or 25th on a WEDNESDAY. Why? Well, you're close to month-end (less out of pocket, CHECK) and guess what? If 'something' happens at closing, there are several days to sort it out. What could happen? Missing documents, underwriting issues, missing funds, delayed funding wires, delayed documents, etc. etc. etc. In all honesty, I haven't had many closings take more than a day (extra) to fund when issues have come up; but if it was on a Friday, you'd be looking for a hotel!

There's my tip for the day! Get out there and find your next home! (and remember to call us to close it for you!) Bo

Interest rates on the rise... move fast!

Are you considering a home purchase? A refinance? The time is NOW. Why? Read THIS ARTICLE noting that rates are rising but also take into account that it is widely accepted that the FED will raise short-term rates this summer. Sure, those rates actually have nothing to do with Long-term (e.g. mortgage) rates BUT it will still affect the marketplace. If they do raise the "Federal Funds Rate" expect to see car loan interest rates to go up as well as 2nd Mortgage (HELOC) rates, which are based on the Prime rate AND don't forget credit card rates will likewise rise. SO as noted, while the Prime rate may have 'no affect' on mortgage rates, the factors allowing people to AFFORD a mortgage will definitely be affected (okay, if they don't have ANY car loans or ANY credit card debt or ANY other interest rate affected items, then you are correct, I am wrong ; )

In sum-if you want to buy a house or refinance, do it NOW and definitely before August 1st when the world ends, thanks to dear old blubbering Barney Frank. Cheers!

Rent vs. Buying in ATL

These people DO realize that you could buy a nice HOUSE in-town for somewhere close to the monthly rents listed, right???

Click HERE for the story. Bottom line--if you can afford rent over $1200 per month, you can afford a home!

Home sales info!

More info on the housing market (click HERE for the article).

While I understand the comment from an economics standpoint I totally disagree with the 'concept' that existing-home sales don't contribute to the GDP. There is a HUGE ripple effect from the purchase/sale of a home--Sellers (hopefully) got paid and now can purchase another home or more 'stuff' (or pay down debt so they can get more 'stuff') and Buyers need to make that home 'theirs' (Home Depot/Lowes, here they come! Ditto for furniture, electronics, etc.). Regardless, good info!

Renting vs. Owning--a quick commentary

I was reviewing a contract for a gentleman purchasing an in-town townhome in the $300's; his mortgage was going to be about $1700 with Dekalb taxes and it seemed like a killer deal. While he will probably pay some monthly HOA dues, I know that there are older homes in our area (Brookhaven) that can be purchased in this price point that would NOT require HOA dues. What is the point of this commentary? He moved out of an upscale apartment complex because his monthly rent on a 2 Bedroom/2 Bath apartment with less than 1300 square feet was going to be $1625 per month! OUCH!

I am just using this example to give you pause to think about why you're renting (if you are...). If you pay rent, it goes to the landlord. If you pay your own mortgage, your asset is (hopefully!) appreciating and your balance is dropping. If you do your homework, you can find something much larger than 1300 square feet for a lower monthly cost. Yes, you may have more to upkeep but the tax benefits alone may make it worth it! Regardless, I continue to be blown away by renters who pay such high amounts when financing is so inexpensive!

With that being said, move quickly! Rates are still low; inventory is still tight. BUT rates WILL go up and there will always be houses out there--you just have to dig!

One way the shutdown could hurt the mortgage industry

Take a look at this document from the Mortgage Bankers Association; this explains how mortgages could be affected by a prolonged shutdown. One client's thoughts said that we're probably good for the next few weeks but if this lasts longer, month-end closings could be affected! Yikes!

Click HERE for the article.

Why Good Credit is important for loan rates.

I stole the following from a newsletter I received from a realtor friend, Byron Williamson (click here for Byron). This is great info about WHY it's important to maintain good credit! THANKS, Bo

There's a big difference between having an excellent credit score of 740 and the riskier low score of 620.
Not only will the home buyer with the low score have a higher interest rate and mortgage payments, but the closing costs will be more as they pay points to the lender so they can get a lower interest rate.
Lower score pays more for same rate
Consider a $300,000 conventional loan with 20% down on a $375,000 home. To get a 30-year fixed rate of 4.65 percent (under recent market conditions), a borrower with a 620 credit score would need to buy 3 discount points, at a cost of $9,000, according to Joe Parsons, a senior loan officer at PFS Funding in Dublin, CA. But a borrower with a 740 credit score could get the same rate by paying only 0.25% in points, or $750.
To get around the cost of paying points, most borrowers will accept a higher interest rate and slightly higher monthly payment. In the scenario above, a 740 credit score would allow them to pay no points for a loan at 4.875% interest and a $1,588 monthly mortgage payment.
To get the same loan rate, a borrower with a 620 credit score would have to pay 2.75% points, or $8,250 more in closing costs, Parsons said. As an alternative, they could go with a higher mortgage rate - the highest being 5.25% for a $1,657 monthly payment - but even then would still have to pay 0.7 % in points, or $2,100 in this scenario.
Having a good, bad or mediocre credit score can be the difference between getting approved for a loan or having to wait on the sideline to improve your credit.
"If somebody is just right on the cusp, picking up five to 10 (credit score) points may save them $1,000," Parsons says.
Savings, income won't lower your rate
Other than buying down the rate, there's not much more than improving their credit score that someone with a score of 650 or less can do for a conventional loan. Additional assets will help someone qualify for a loan, but they won't get them a lower interest rate.
"Mortgages are generally income based, they're not asset-based," Herb Ziev, a residential mortgage loan originator in Plano, Texas says. "Low credit scores mean higher default rates on home loans".
"It doesn't really have to do with how much money you have, or how much money you make," Ziev says. "It really has to do with risk."
For someone with a low credit score, compensating factors such as having a high amount of savings or having a high-paying job can help make them approvable for a loan, but they won't help get a better interest rate, says Greg Cook, a lender who specializes in helping first-time buyers.
A home loan approval is based on the totality of a borrower's financial profile, Cook says. This includes consistent, verifiable income and a demonstrated ability to save, along with a credit score. The down payment and credit score have the two biggest effects on a loan rate, with a higher down payment needed if a borrower has a low credit score, he says.
Improving your score
The best way to get around a low credit score - and thus a high home loan rate - is to improve the credit score, which can take time, loan experts say.
For someone with a lot of credit cards and credit card debt, a credit score can increase by 70 to 80 points by paying off the cards, he says.
"Sometimes it's as simple as going back and negotiating if you have an outstanding collection," Cook says.
Six to 12 months of paying down credit balances and not having late payments will significantly affect a credit score, says Cyndee Kendall, regional sales manager in Northern California in the mortgage banking division at bank of the West.
Having a high percentage of credit balances to available credit can be fixed in a month by paying down credit balances, Cook says. The ratio should be 30 percent or less, he says.
A borrower can have three different credit scores from the three credit reporting agencies, but lenders usually use the middle score.
Borrowers with low credit scores have the most to gain by improving their scores, Kendall says.
Easier approval on FHA, VA loans
First-time buyers with low credit scores can get FHA and VA loans that aren't dependent on credit scores, though credit history is taken into account, Kendall says. For an FHA loan, a credit score in the low 600s is as low as they can go to get a loan, Ziev says.
"They can get a better interest rate," Cook says of borrowers of the federal government's backing of FHA loans, "but they're going to have to improve their credit score."
What shouldn't be done to improve a credit score is to get rid of credit cards entirely, experts say, though not using them for awhile is a good idea if it can help the user pay off the balance quicker. It's almost a Catch-22, but you need credit to get more credit.
"If you've got no credit history, then people aren't going to give you credit," Ziev says.
(note: Mortgage rates may change rapidly. All rates cited above are based on market conditions at the time of the conversation)

Rent vs. Buy: The New York Times perspective

See this article from the New York Times to see what the fuss is all about. Also, read this from the Atlanta Business Chronicle for ATL specific info. Rates are great; go buy now : )

Why HVCC killed the mortgage business

As a closing attorney, I am on the 'front lines' as it relates to real estate. People ask me about the current trends or "what's really going on" as it relates to real estate. When I talk about our current conditions and why we remain 'stuck' in this real estate recession, my typical response has nothing to do with Wall Street or sub-prime loans--it's all about a little-known regulation called "HVCC" (I bet the mortgage people out there just had a collective shiver up their spine).

The concept behind HVCC (Home Valuation Code of Conduct) was noble enough--a loan officer should not be able to 'push' an appraiser into giving a higher value for a property. HVCC insulated the appraiser from loan officers entirely by using Appraisal Management Companies (AMC's) who now handle the entire appraisal process (LO's submit the property; the AMC will line up the appraisal and provide the finished product to the LO/Lender). Again, sounds reasonable, right? Well, the law of unintended consequences kicked in and the AMCs have either used low-cost providers that aren't very experienced or they've used appraisers that aren't up to speed on the area. Think of your own part of town--could you guess values on properties 20 miles away? I know appraisers aren't guessing (and this is not to throw rocks at qualified appraisers) but some of the people the AMCs use seem to be 'going through the motions' and (as they aren't getting paid market rates for their work) they aren't producing the best quality work. Low-cost providers aren't typically the best products (e.g. you get what you pay for).

My typical analogy for this is take someone who lives in the burbs and typically appraises mega-mansions worth $1M or more out in North Fulton--what happens when they have to do an in-town 'bungalow' that essentially would (should?) be valued at the same pricing? Typically, it doesn't compute and they have issues setting the true value for that in-town property. I hear that LOs can now 'appeal' values with the AMCs and changes are coming (perhaps the 'death' of HVCC?). Sure, HVCC isn't the only culprit, but it's one 'behind the scenes' issue that continues to haunt us. Likewise, there are even more dark clouds on the horizon as new legislation may create more levels of government interference in the industry, again with good intentions (such as lowering costs for borrowers).

Take FHA for an example. With FHA loans, there is an up-front mortgage insurance cost (that is rolled into the loan) and a monthly MI premium. So here's some info about the newly revised FHA program--the up-front MI is now lower (only 1% of the loan amount vs. prior amount of 2.25%). Great, it will cost your borrower less to get that loan, so hooray, right? Wrong! While the up-front charge is now lower, the monthly premium is now higher (from .55% to .90%)! I read an example in the AJC noting a $200K purchase price and a loan of $193K. Old monthly MI was reportedly $88 a month and the new MI will be $148/month! OUCH. The up-front MI is a one-time thing--but that extra $60 is due every month. So again, what sounds good ("lower costs") may not turn out to be a good deal for consumers!

The bottom line is this--many of the relaxed lending standards began years ago with the stated goal of getting more people in houses. Unfortunately, standards were 'too' loose and some people got in over their heads. We are now mopping up from that mess and now we face even more issues with tight credit, no credit and even the foreclosure moratorium is going to affect our industry. Regardless of all that, we shall persevere! Get out there and get some business! If you're over 5% and need to refi, get moving while rates are crazy low! Remember us when you need a closing attorney, no matter where you or your clients are located! Have a great week, Bo

Big Ben says "Loosen the Guidelines"--Hear hear!

As an Atlanta closing attorney, we are on the front lines of the real estate and mortgage business and see 'what's really going on'. In lieu of continuing to generically (is that a word?) blame this all on "Wall Street" (which did contribute to this mess a few years back) let's take a look at one of the major reasons why we are STILL not seeing a solid real estate recovery--tight guidelines! (and appraisals--try googling HVCC if you want more info about well-intended legislation with unintended consequences) We see it all the time-people with good jobs, credit and income who cannot get a loan. With mortgage rates hitting an all-time low of 4.44% it's an awesome time to buy or refinance! Click on THIS LINK for a video from THINK BIG work small. Cheers, Bo

A tale of two stories

Read this article first; then read this article second. Same data, two different conclusions. On one hand you have Economists; you could say they are biased for the positive as they work for an investment company. As for the AP article, you could slam the author as being part of the evil 'mainstream media'. Who is right? We don't know yet. I for one like the Economists' prediction. Why? Well, other than self-serving cheerleading (e.g. real estate is our business) I do like to hear the positive spin, especially after so many negative news that has come down the pike. As for the AP? My guess is to sell newspapers, but I may be wrong. Who knows? As for noting that home sales will fall in the second half of the year... well, let's just say they are most likely not in our business. Yes, home sales will fall in the Fall of 2010. Why? Sales are typically slower in the Fall, but for the 2009 Tax Credit. So having sales drop in the Fall is not news to anyone in our industry--the Spring is 'where it's at' in terms of sales. Summer is somewhat busy but people are more focused on vacation and keeping the kids entertained. Likewise, most sales are finalized prior to the beginning of the school year so that the kids can be legally enrolled in the proper school. As for the Fall? It's just not that active, worse for the Winter. The bottom line is this--both could easily be right and/or wrong. As noted, I am hoping that the more rosy opinion is correct. Rates are still LOW and the inventory is still high so there are a lot of deals to find. If you want to buy a house, forget the tax credit for now; just ask for $8,000 (or more?) off the sales price! And sellers? Just remember you may lose money on the sale of your home, but think of the concessions you can ask for your replacement purchase? Ah, to be liquid... I'd love a mountain house and some rentals!!!

I told you so...

Read this article to see what I'm talking about. Suffice it to say if you want to buy a house and/or refinance, make it happen SOON......!