Thursday, July 20, 2006

Fannie Mae and the Fed Speak

Real estate brokers have larger inventories than last year and it takes longer to match seller to buyer. Here it is from Fannie Mae economists David Berson and Molly Boesel:
"Total U.S. home sales will fall by eight to ten percent in 2006 as mortgage rates hit a five-year high…"

"Home price gains are expected to slow sharply this year, by 3.0%." MarketWatch: Robert Schroeder

What this means to the home seller is as I stated in Housing Market Recovers After Boom planning and timing are essential to meeting your goals. Whether you go FSBO or work with a real estate professional, getting a house sold takes a bit longer.

With the higher interest rates the amount of house buyers can afford in less. Mortgage loan interest rates are still on the rise and Fannie Mae a economist Berson and Boesel said “the central bank is likely to keep raising interest rates in the near term.” If the economists are correct then mortgage rates will continue to climb as well.

Federal Reserve Chief Ben Bernanke testified before Congress that inflation remains a concern and that the economy was likely to slow and that this should ease inflation pressures. It does not sound like we have seen the last of the rate hikes.

More ominous was his statement that the full impact of the past rate hikes has not yet hit the Nation’s economy. It makes the Berson and Boesel prediction sound credible. MarketWatch reports that applications for mortgages fell 4.6 percent last week which suggests that buyers are paying attention to interest rate news.

The real estate investor, particularly real estate investment trusts (REIT) seem a bright spot in the real estate industry. In a story by John Spence apartment REITs are expected to post the larger gains in a report due out next week.
Overall, we don't expect many surprises, but rather further confirmation that business is good with occupancy, rents and earnings on the rise," said Deutsche Bank analyst Lou Taylor.MarketWatch: John Spence
It remains to be seen what it all means for the single-family home market, mortgage rates, and real estate sales generally, in the near future.



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Wednesday, July 19, 2006

It's All About FICO

When you are looking to purchase a home, the thing to do is get your credit report and look at your FICO score. Fair Issac and Company (FICO) developed a method of determining if persons will pay their bills. The Fair Issac and Company product is called a FICO score. The scoring system is widely accepted by lenders as a means of credit evaluation. The higher your score the less interest you will pay in a loan when your loan gets approved and other perks lenders have to offer.

A mortgage is a type of loan used to pay the difference between the down payment and the actual selling price of a property. There are two methods of finding a mortgage lender. The first method has you going to a mortgage banker and beginning the application process. If you are approved you will be ready to look for a house. This does not mean that you actually have the loan though; it just means the bank is satisfied with your credit enough to pre-approve you for a certain amount. Once you have signed an agreement to buy a house you will begin the application process in earnest. If you loan is approved, (meaning the underwriter has all the information needed for approval and the appraiser agrees with the price you intend to pay for the property and a host of other things) you go to closing. Otherwise you must find another mortgage banker and begin there process.

The second method has you working with a middleman known as a mortgage broker. The broker does the loan shopping for you. The advantage of the broker is he can look at lenders who do not deal directly with the public according to a story by William Bronchick. The broker has more experience in working with lenders and knows how to present your application in a manner that could aid in its approval.

Choosing the route you want to take to a mortgage depends on the amount of time you have to put in pre-approval applications. Remember pre-approval quotes are not binding to the lender. The application has a number of contingency clauses that must be met. The contingencies protect both the buyer and the lender. If your FICO score is 670 or better you will look pretty good to a lender. If your score is 600 or below lenders will have difficulty offering you a mortgage or your interest rate will be higher.

The following list shows the things in the credit history the FICO score analyzes:

  • Late payments
  • The amount of time credit has been established
  • The amount of credit used versus the amount of credit available
  • Length of time at present residence
  • Employment history
  • Negative credit information such as bankruptcies, charge-offs, collections, etc.
(Source)
Correcting the things that affect the credit history takes time but getting the job done can make the dream of homeownership a reality. Here is a link to a page that has a number of calculators available to assist you.



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An Audio Response (My First)

Well I have had a bit of adventure thanks to the heat. The server went down and my post when to wherever lost posts go. Here is my remake.

I am trying out my first audio blog. I am still a babe in the woods when it comes to blogging so be kind. I am learning and having fun while I am doing it. That I am even attempting an audio response is a surprise in itself.

Now this audio is in response to a question from Professor Kim to my story on The New Starter Home Strategy. I am both pleased and honored that she found my attempt worthy of comment.

powered by ODEO



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Monday, July 17, 2006

The New “Starter Home” Strategy

In the past, people purchased a starter home to live in prior to settling down to raise a family. With fluctuating interest rates that plan is no longer feasible. Purchasing a home is much like any other purchase you make – you buy the best you can afford at the time. In housing, that may mean buying a larger house even though you do not expect to need a larger home until some future date. Buying a starter home with the expectation of upgrading at some future date is not a good strategy in the current market. To understand this bold statement, consider first interest rates.

Roper Public Affairs conducted a telephone survey of 1004 people and found “27 percent of homeowners think higher interest rates will make it difficult to make mortgage payments. It also reveals 24 percent currently carry an adjustable rate mortgage (ARM) or a specialized home loan—a figure that jumps to 37 percent for those aged 25-49”

It also found:

  • 23% of homeowners to consider refinancing

  • 61% of renters to have difficulty paying their rent

  • 78% of renters to have difficulty purchasing a residence in the near future”
(Broker Agent News)

Next if you think home equity will help you finance the upgrade home consider moving costs, closing costs, and real estate fees. These costs will take a big bite out of the starter home equity fund.

If you were counting on the salary increases to help finance that upgrade home Home Additions Plus reporter Mark J. Donovan say “home prices have far outpaced salary increases. Quite frankly that chasm seems to continue to grow.”

It seems people stay in the home they purchase when interest rates are higher. Now armed with the above information, you can adjust the long-term home buying plan to one more in keeping with today’s reality. Planning to purchase the starter home then upgrade at some future date will probably cost more today than in the past. Instead of planning an upgrade to that family home after the starter home, if interest rates are low, purchase the best family home you can afford. Consider all the things that you would when looking for a family home: schools, community, transportation, entertainments, playgrounds, parks, etc. in that first purchase even though the need has not yet materialized. Make your first home purchase with your future plans in mind then plan to remain in your “starter home” for twenty years. Plan to build twenty years of equity into this “starter home” before making another move that way the equity has a better chance of being an asset.


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