Real Estate Information Archive

It's obviously going to be a Herculean task for Congress to balance the budget and reduce the deficit. It's sort of like the country song lyric that goes "everyone wants to go to Heaven but nobody wants to go now." It is estimated that the mortgage interest deduction cost the government $100 Billion last year which is why it is a target for cuts.

The Mortgage Interest Deduction has been part of Income Tax laws in this country since 1913. The United States of America is one of the few countries in the world that allow such a deduction. Our goverment has always supported homeownership as is evidenced in the different tax benefits it receives.

• Mortgage interest deuction up to $1,000,000 in acquisition debt on a principal residence and second home
• Deduction of interest on Home Equity debt of $100,000 over acquisition debt used for any purpose
• Capital gain exclusion on up to $500,000 for married couples filing jointly and $250,000 for single homeowners
• Favorable long-term capital gain rates if gain exceeds exclusion limits
• Property tax deduction

There is an interesting relationship between a good economy and a healthy housing market. Contrasted to profits from the stock market which tend to be plowed back into other investments, profits from home sales tend to be spent on consumer products that directly benefit the economy.

The National Association of REALTORS supports the MID and reports that one job is created for every two homes sold. It further states that $60,000 is pumped into the economy for each home sold and that homeownership accounts for over $2 Trillion of the U.S. gross domestic product.

American homeowers are currently paying 80-90% of all federal income tax collected. Some economists believe that a healthy housing market is a leading indicator for economic recovery and that tampering with a significant homeowner benefit like the mortgage interest deduction would hurt the economy.

In almost every state in the U.S., buyers have the option of being represented by their real estate agent. This relationship creates responsibilities that require the agent put their client's interests above their own.

The duties a buyer or seller can expect to receive among others are honesty, accountability, full disclosure, representation and reasonable skill and care. In a nutshell, the agent who represents you is working in your best interest.

It's a special relationship that doesn't exist with most of the other professionals involved in a real estate transaction. Mortgage and title officers are limited to their duties of honesty, accountability and specific requirements under the Real Estate Settlement and Procedures Act.

This special relationship with your real estate agent makes it advantageous to have them coordinate your efforts with the other professionals in the home buying process. Since most buyers' and sellers' transactions are infrequent, the agent can bring valuable experiences to the transaction.

A Residential Finance Consultant is trained and has special tools to help you make better decisions when you buy or sell and in between. Our goal is to help you improve and maintain the investment in your home so we can earn the right to be your lifelong real estate professional.

Fannie Mae and Freddie Mac underwritten conventional, FHA and VA loans account for the vast majority of mortgages chosen by buyers to finance their home purchase. While buyers have the choice on which product to use, there are some considerable advantages to FHA.

1. More tolerant for credit challenges than conventional loans.

1. Lower down payments than conventional loans.
2. Broader qualifying ratios - total house payment with MIP can be up to 31% of borrower's monthly gross income and total house payment with all recurring debt can be up to 43%.
3. Seller can contribute up to 6% of purchase price - this money must be specified in the contract and can be used to pay all or part of the buyer's closing costs, pre-paid items and/or buy-down of the interest rate.
4. Self-employed may qualify with adequate documentation - two year's tax returns and a current profit and loss statement would be required in addition to the normal qualifying and underwriting requirements.
5. Mortgage Insurance Premium can be released in five years when the balance is 78% of original sales price
6. Liberal use of gift monies - borrowers can receive a cash gift to assist in purchase from family members, buyer's employer, close friend, labor union or charity. A gift letter will be required specifying that the gift does not have to be repaid.
7. Special 203(k) program for buying a home that needs capital improvements - requires a firm contractor's bid attached to the contract specifying the work to be done. The home is appraised subject to the work being done. If approved, the home can close, the money for the improvements escrowed and paid when completed.
8. Loans are assumable at the existing interest rate - assumptions require buyer qualification but are actually easier than qualifying for a new mortgage. Closing costs are lower on assumptions than originating a new mortgage.
9. If the rate on the assumable mortgage is lower than current rates for new mortgages, it could add value to the property.

• "It's impossible to get low down payment loans." - UNTRUE! 
  FHA down payments are only 3.5% and VA is 0%.  In some areas, there may be some 100% USDA loans available.
   
• "It takes perfect credit to get a loan." - UNTRUE! 
  There is a relationship of better rates to better credit but many issues on a credit report may be explained.  The way to know for sure is to speak to a reliable lender.
   
• "If I've had a bankruptcy or foreclosure, I can't qualify." - UNTRUE! 
  Credit history following a short sale or foreclosure is very important and there can be extenuating circumstances.  It only takes a few moments with a reliable lending professional to find out if your individual situation will allow you to qualify.
   
• "Getting pre-approved is expensive." - UNTRUE!
  Usually, the only expense to getting pre-approved is the cost of the credit report which could be around $35.  The advantage is that you will know that you qualify for a particular mortgage amount.
   
• "I should wait to qualify until I find a home." - UNTRUE!  
  The best interest rates are only available for the highest credit scores.  It can take time to qualify for a mortgage especially if there are issues that need to be corrected.  It is to your advantage to start the qualifying process early in your home search.
   
• "All lenders are the same." - UNTRUE!
  Reliable lending professionals will explain the entire process before collecting fees, quote fees up-front, have competitive products, do what is necessary to get the loan approved and close at the locked rate and terms.  Ask for recommendations from recent borrowers.
   
• "Adjustable rate mortgages are more expensive than fixed rate mortgages." - UNTRUE!
  Adjustable rate mortgages can be less expensive than fixed rates if the buyers' circumstances warrant it.  There are many variables and you need to be aware of them before deciding which type of loan to finance your purchase; the ARM may provide the cheapest cost of housing.

Buyers and Sellers need solid information to make good decisions.  The agent who represents you in the sales may be the BEST recommendation for a reliable lender.  The mortgage plays an enormous role in determining the overall cost of housing and you need solid information to make good decisions.

Come Join The Mike Parker Team for FREE Pictures with Santa!!!

Home Prices Rise Across U.S.
Bargain Hunting, Low Rates Drive First Gain in 3 Years; Doubl Dip Still Possible

This article was written in The Wall Street Journal on July 29, 2009

By Nick Timiroas and Kelly Evans

Home prices in major U.S. cities registered the first monthly gain in nearly three years, according to a new report that provided fresh evidence that the severe U.S. housing downturn could be easing.

Standard & Poor's Case-Shiller index, which tracks home prices in 20 metropolitan areas, rose 0.5% for the three-month period ending in May, compared with the three months ending in April. It marked the index's first increase after 34 straight months of decline, and came after a variety of housing indicators has shown glimmers of hope for the past several months.

Are the Bulls Here to Stay?

3:51

While the recent rally and upbeat housing news are encouraging, issues like earnings growth may play a role in any recovery. Jeffrey Kleintop, CFA and chief market strategist for LPL Financial, explains his view to Kelsey Hubbard.

Home prices remained down about 17% from a year earlier, according to the index. According to S&P/Case-Schiller's seasonally adjusted numbers, which it began reporting only earlier this year, prices in May posted a 0.2% decline.

But most Wall Street economists who discussed the survey focused on the April-to-May rise, saying it represents a significant change in direction. Home prices in 15 of the 20 areas in the survey rose or remained stable.

The results were also consistent with other recent housing data, these economists said. Sales of new and existing homes rose for three consecutive months through June. Housing starts were up in June, and an index of builder sentiment rose in July, though both remained at low levels.

May's uptick came in part as home prices in some areas fell enough for investors and first-time buyers to begin competing for bargains, helping to ease the backlog of unsold homes.

Other likely sales spurs included mortgage rates that fell to 50-year lows, an $8,000 federal-tax credit for first-time homebuyers and the ability of buyers to secure mortgages from the Federal Housing Administration with as little as 3.5% down.

The latest readings don't necessarily herald a full-blown recovery for the housing market or broader economy. Consumer confidence remains near record lows. The U.S. unemployment rate, at 9.5% in June, is expected to hit double digits before year end, making swift growth and an expanding labor force unlikely anytime soon.

The home-sale numbers surprised Robert Shiller, the Yale University economist who helped create the Case-Shiller indexes. "The change in momentum here is very significant," he said. Last month, Mr. Shiller forecast sustained home-price declines into the next few years, which he said now looks less plausible. He said he expects home prices to remain near current levels for the next five years.

Related

• Sortable Chart: Home Prices, by Metro Area
• Economy: Not All U.S. Regions Are Equal
• Developments: What Case-Shiller Means for Home Buyers
• Effort to Modify Mortgages Falters
• House Prices in England, Wales Edge Higher
• Discuss: Is it the right time to buy a home?

View Interactive

U.S. home prices have fallen by about one-third since their peak in the second quarter of 2006, according to S&P, and are roughly back at 2003 levels.

Some analysts warn that the home-price uptick could reverse as rising unemployment causes more Americans to fall behind on their mortgage payments and end up in foreclosure.

One factor that apparently drove the March-through-May uptick was a falling share of homes sold at distressed prices, through foreclosure and so-called short sales. Distressed sales accounted for 33% of existing home sales in May and 31% in June, down from a high of nearly 50% earlier this year, according to the National Association of Realtors.

The drop in foreclosure sales was likely the product of U.S. banks' moratorium on home foreclosures, which they undertook as the government launched a round of programs to modify and refinance loans for at-risk borrowers. Most banks ended their foreclosure moratoria in March.

Interest rates also hovered at or below 5% for most of the March-May period, before rising in June.

"Were it not for those rate reductions and the moratorium, you'd see prices down right now," says Ronald Temple, co-Director of Research at Lazard Asset Management. He expects the index to stabilize or increase in the short-term, but forecasts another 12-15% decline in prices thereafter.

Regardless, a combination of still-low interest rates and eager sellers continues to fuel competition for heavily discounted properties. Some buyers are finding that investors with all-cash offers are consistently beating them in bidding wars.

Stacy Watson, a 39-year-old human-resources manager in the Riverside, Calif., area, says she has made losing bids on at least eight homes since mid-June. On Tuesday, she says, she decided to increase her offer for a five-bedroom home in Perris, Calif., to $198,000, nearly $20,000 more than the asking price.

Ms. Watson and her real-estate agent say the bank-owned home has drawn more than 10 offers in less than a week on the market. "Everyone says it's such a great housing market for buyers," she says. "No. This is hard."

Would-be homeowners have benefited from government programs, including one that allows buyers of properties owned by Fannie Mae to receive mortgages from the government-controlled mortgage-finance company with down payments as low as 3%.

When Nelly Whiteman and her husband recently bought a house out of foreclosure from Fannie Mae, she figures they competed against at least two other buyers. The 27-year-old administrative assistant says they snagged their three-bedroom home in Orangevale, Calif., for $176,000, or about $5,000 more than the asking price. They now pay about $1,080 a month in mortgage payments, insurance and taxes.

"It's an extra bedroom for around what we were paying for rent," she says.

The budding housing recovery isn't being felt across the country. Prices increased in 13 of 20 surveyed markets, with the strongest gains coming in Cleveland, up 4.1% from April; Dallas, up 1.9%; and Boston, up 1.6%.

Home prices were flat in the New York and Tampa, Fla., areas. The survey doesn't track condominium or cooperative apartment sales, so it doesn't take into account the majority of housing stock in New York City.

Prices continue to fall in some markets, particularly overbuilt Sunbelt cities. Prices in Las Vegas declined 2.6% in May from April and were down 32% from a year ago, according to S&P/Case-Shiller. Phoenix prices declined 0.9% from April and were down 34% from May 2008. San Francisco, Miami and Detroit also continued to see year-on-year declines of about 25%.

"Is this just a spring bounce that was partly related to the drop in distressed sales?" asks Thomas Lawler, an independent housing economist based in Leesburg, Va. One key question, he says, is whether another wave of foreclosures could come along to offset the home-inventory decline that has boosted many markets.

In many of the hardest-hit cities, banks appear to be slow to put foreclosed homes on the market. In Las Vegas, for example, banks had taken title to 13,200 homes as of June. That surpassed the total number of homes listed for sale in Las Vegas last month, according to SalesTraq, which monitors inventory in Las Vegas. "Are the banks are intentionally holding back inventory? That's a question a lot of us have," says Larry Murphy, president of SalesTraq.

Some housing analysts say they expect falling prices on mid-to high-end homes to weigh on the Case-Shiller index. The supply of these homes has swelled in recent months as borrowers struggle to obtain financing.

Borrowers of "jumbo" mortgages, which are too big for government backing, face higher rates. Banks are also requiring bigger down-payments at a time when traditional "trade-up" buyers are finding that the equity in their homes has fallen.

"We think [the sales index] will look like a 'W,' where prices go up until the foreclosures at the higher end translate into another leg lower," says Ivy Zelman, chief executive of Zelman & Associates, a housing-research firm.

The improvement in housing likely gave a small boost to U.S. gross domestic product in the second quarter, economists said. After data showed construction of new homes was stronger than expected in June and was revised higher in April and May, Macroeconomic Advisers, a St. Louis-based forecasting group, ratcheted up its estimate of second-quarter economic growth. It now sees output shrinking at just a 0.5% annual rate in the second quarter, compared with declines of 6.3% and 5.5% in the previous two quarters.

The government will report its official estimate of second-quarter growth on Friday.