This week I begin a four-part series on getting your home ready for sale. This week I will share some current local market trends that can help you get mentally prepared to sell your home. Over the next three weeks I will interview several experts in various professions and share with you their best tips on getting your house ready to sell quickly and for the maximum dollar amount.
Foreclosures: Sorry to start off with the worst news, but this information is important to stabilizing the market. According to Realtytrac.com (www.realtytrac.com) Oklahoma saw 1,177 new foreclosure filings this past April. Year to date that figure is 4,299. Sounds dismal doesn’t it? So let’s compare it to a couple of our neighbors.
This past April, Arkansas saw 1,864 new foreclosure filings and that figure year to date is 6,919 according to Realtytrac.com. With 22% fewer residence than Oklahoma, Arkansas saw 58% more foreclosures in April and a staggering 62% more than our state year to date.
In April, the OKC metro area saw 199 total new foreclosure filings. Edmond realized 35 of these, Bethany had 10, Choctaw 9, Spencer 5, Harrah 3, and Arcadia showed only 1 new filed foreclosure. Compared to Tulsa which saw a total of 419 new foreclosure filings, our market is quite a bit more stable.
Housing Sales: Data from this section is taken from the OKC Metro Realtor website (www.okcrealtors.com). Thus far through April, the OKC real estate market has seen 4,258 home sales. In January 741 homes were sold for an average sales price of $146,639. 997 homes were sold in February with an average sales price of $139,491. March saw and average sales price of $141,071 of 1,259 homes. And April realized 1261 home sales at an average price of $142,166.
Compared these figures with the same month last year and you have very little other than a snapshot of our market from one year to the next. April of 2008 saw 202 more homes sold than this past April. In April ‘08 the average sales price was $146,511 or $4,345 more than the same month this year. But the average interest rate this year is less than last year; 5.41% in 2008 and 5.18 in 2009. Homes selling last April were on the market for an average of 83 days while those selling in April 2009 were on the market an average of 91 days. And the % of selling price to list price was down only 2% in April 2009, down from 98% in April 2008.
Current Listings: A brief comparison of numbers of houses on the OKC market completes the snapshot for this article. In April 2008 there were 9,528 active listings on the OKC Metro MLS. In March of 2009 that number had dropped to 8,659 and again this past April that number dropped to 8,422. There is any number of reasons for this drop in active listings. For some sellers the number of days on the market without a reasonable offer has proven too much, prompting them to remove their home from the MLS. For other sellers, they have come to realize that if they are going to sell their home, there are some improvements that must be done.
Over the next three weeks I will share with you insights from experts who can help you address the most pressing needs your home has in order to be ready to sell. We will discuss recommendations for the outside of your home and the interior space as well. And finally we will discuss several of the mechanical aspects of your home and how even these things that are out of sight can actually help your home sell faster and get top dollar while doing it.
(Trey Bowden is a licensed mortgage consultant in Edmond, OK.)
Friday, May 29, 2009
Friday, May 15, 2009
Presidential Order Provides $8,000 Down Payment for First Time Home Buyers
As it stands right now, the announcement made by HUD Secretary Donovan earlier this week will make it possible for first time home buyers to use the $8,000 tax credit as down payment toward the purchase of a home. All the details have not been released, but the broad brushstrokes of understanding have. “We think the policy is a real win for everyone”, Donovan said in a speech delivered May 12th to the National Association of Realtors. “FHA will be publishing the details shortly.”
This plan is part of the American Recovery and Reinvestment Act of 2009 and is supported by the FHA (Federal Housing Administration) to promote homeownership. The plan contains stipulations from the IRS as well as guidance on how Federal, State, and local government agencies and other FHA approved nonprofits may assist homebuyers that are eligible for the tax credit.
Generally the tax credit is the lesser of $8,000 or 10% of the purchase price of the home. A phase-out of the credit amount begins when the taxpayer’s modified adjusted income exceeds $75,000 for an individual or $150,000 if married filing jointly. The credit is eliminated completely at $95,000 or $170,000 if married filing jointly. For those considering taking advantage of this tax credit, it should be understood that is a “refundable” tax credit, and as such includes taxes owed by or refunds due to the taxpayer in the calculation. Please consult your tax advisor for the specifics of how the “refundable” tax credit affects your specific situation.
To claim the tax credit, IRS form 5405 must be filed (available at http://www.irs.gov/pub/irs-pdf/f5405.pdf) along with the 2008 tax return, if not already filed, or an amended 2008 tax return if already filed; or included with 2009 taxes when filed early next year. The IRS defines “first-time homebuyers as those not having had any ownership, including that with a spouse if married, during the three-year period ending on the date of purchase.
Closing on the home purchase must take place on or before December 1, 2009 and first-time homebuyers must purchase the property from a source unrelated to them. This rules out purchasing a house from a spouse, parent, grandparent, child, or acquiring the home as an inheritance.
Because the $8,000 is a tax credit and not immediately available as liquid cash, secondary financing must be acquired to substitute for the down payment (as a tax credit advance) until such time as the tax credit is received and applied to any unpaid balance. We should expect a rush of “willing providers” of this secondary financing to appear, and it should be noted that only FHA approved entities will be allowed to provide this type of financing. The list of these providers will be available on the FHA website.
The tax credit advance when combined with the FHA-insured first mortgage cannot provide any cash back to the borrower. And the secondary financing may not exceed the total needed for the down payment, closing costs and prepaid expenses. The secondary financing must provide language that if the borrower does not repay the amount borrowed by the agreed deadline that principal and interest payments will automatically begin.
If payments on the secondary financing are required, the lender must include this amount when qualifying the borrower for the first mortgage financing. If payments on the advance are deferred (for a minimum of 36 months), these payments are not included by the lender for buyer qualification. Any secondary tax advance financing may not have a provision for any balloon payment before the ten year mark.
These are just the rough guidelines for this portion of the Recover Act of 2009. Full details will soon be released. In the meantime it is important that potential home buyers who are considering taking advantage of this plan have a clear understanding of just how the system works. It is also important that lenders, brokers and real estate agents understand how to set clear and appropriate expectations in the minds of clients and home buyers.
This plan is part of the American Recovery and Reinvestment Act of 2009 and is supported by the FHA (Federal Housing Administration) to promote homeownership. The plan contains stipulations from the IRS as well as guidance on how Federal, State, and local government agencies and other FHA approved nonprofits may assist homebuyers that are eligible for the tax credit.
Generally the tax credit is the lesser of $8,000 or 10% of the purchase price of the home. A phase-out of the credit amount begins when the taxpayer’s modified adjusted income exceeds $75,000 for an individual or $150,000 if married filing jointly. The credit is eliminated completely at $95,000 or $170,000 if married filing jointly. For those considering taking advantage of this tax credit, it should be understood that is a “refundable” tax credit, and as such includes taxes owed by or refunds due to the taxpayer in the calculation. Please consult your tax advisor for the specifics of how the “refundable” tax credit affects your specific situation.
To claim the tax credit, IRS form 5405 must be filed (available at http://www.irs.gov/pub/irs-pdf/f5405.pdf) along with the 2008 tax return, if not already filed, or an amended 2008 tax return if already filed; or included with 2009 taxes when filed early next year. The IRS defines “first-time homebuyers as those not having had any ownership, including that with a spouse if married, during the three-year period ending on the date of purchase.
Closing on the home purchase must take place on or before December 1, 2009 and first-time homebuyers must purchase the property from a source unrelated to them. This rules out purchasing a house from a spouse, parent, grandparent, child, or acquiring the home as an inheritance.
Because the $8,000 is a tax credit and not immediately available as liquid cash, secondary financing must be acquired to substitute for the down payment (as a tax credit advance) until such time as the tax credit is received and applied to any unpaid balance. We should expect a rush of “willing providers” of this secondary financing to appear, and it should be noted that only FHA approved entities will be allowed to provide this type of financing. The list of these providers will be available on the FHA website.
The tax credit advance when combined with the FHA-insured first mortgage cannot provide any cash back to the borrower. And the secondary financing may not exceed the total needed for the down payment, closing costs and prepaid expenses. The secondary financing must provide language that if the borrower does not repay the amount borrowed by the agreed deadline that principal and interest payments will automatically begin.
If payments on the secondary financing are required, the lender must include this amount when qualifying the borrower for the first mortgage financing. If payments on the advance are deferred (for a minimum of 36 months), these payments are not included by the lender for buyer qualification. Any secondary tax advance financing may not have a provision for any balloon payment before the ten year mark.
These are just the rough guidelines for this portion of the Recover Act of 2009. Full details will soon be released. In the meantime it is important that potential home buyers who are considering taking advantage of this plan have a clear understanding of just how the system works. It is also important that lenders, brokers and real estate agents understand how to set clear and appropriate expectations in the minds of clients and home buyers.
Friday, December 19, 2008
Mortgage Transaction Glossary
Now is absolutely one of the best times to purchase or refinance a home in the past two years. In spite of the gloom and doom talk about the stock market and our impending economic crisis, if you’ve even had a passing thought about buying or refinancing, you should at least check it out.
Rates are very low and there are some really good housing buys that have been on the market for several months and the sellers are ready to make a deal. So in anticipation of more people applying for home loans, I offer a brief glossary of mortgage terms. It is my hope that these definitions will help you understand the process a bit better.
Annual Percentage Rate (APR): This is a measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost associated with various loans. The APR is a higher rate than the simple interest of the mortgage.
Automated Underwriting: Is loan processing completed by the mortgage provider through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system effectively removes the possibility of personal bias against the buyer.
Broker: a licensed individual or firm that charges a fee to the borrower and serves as the mediator between the buyer/borrower and seller. Mortgage brokers are in the business of arranging financing for a client, but who does not loan the money.
Certificate of Title: This document is provided by a title company, and shows that the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
Debt-to-Income Ratio: a comparison or ratio of gross income to housing and non-housing expenses; With the FHA/VA loans, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income. For conventional loans, (non-government mortgages) the ratio’s can be higher. In all cases the presence of significant cash reserves can allow for higher debt to income ratios.
Deed-in-Lieu: in order to avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt. This process does not allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.
Discount Point: normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.
Document Recording: after closing on a loan, certain documents are filed in the county where the property is located and made public record. Discharges for the previous mortgage holder are filed first. Then the deed is filed with the new owner's and mortgage company's names.
Escrow: are funds held in an account and used by the lender to pay the home owner’s property insurance and property taxes. The funds may also be held by a third party (usually a title company) until any contractual conditions are met and then paid out.
FICO Score: FICO is an abbreviation for Fair Isaac Corporation and refers to a person's credit score. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. An individual’s credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.
Good Faith Estimate: an estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.
HECM (Reverse Mortgage): the reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.
HUD1 Statement: may also known as the "settlement sheet," or "closing statement". This form itemizes all closing costs and must be given to the borrower at or before closing. Items that appear on the statement include real estate commissions, loan fees, discount points, and escrow amounts.
Joint Tenancy (with Rights of Survivorship): this is one way title to a property may be held. This term describes two or more owners who share equal ownership and rights to the property. If a joint owner dies, his or her share of the property passes to the other owners, without probate.
Loan to Value (LTV) Ratio: is a percentage calculated by dividing the amount borrowed by the price or appraised value of the home. The higher the LTV, the less cash a borrower is required to pay as down payment.
Mortgage: is a lien on the property that secures the Borrower’s promise to repay a loan. It is a security agreement between the lender and the buyer in which the property serves as collateral for the loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.
Mortgage Insurance: is a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan. Mortgage insurance is required primarily for borrowers with an LTV greater than 80% of the home's appraised value. The cost of mortgage insurance is usually added to the monthly payment and is maintained on conventional loans until the outstanding amount of the loan is less than 80 percent of the value of the house.
Negative Amortization: the term “amortization” means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost.
Origination: the process of preparing, submitting, and evaluating a loan application. This process generally includes a credit check, verification of employment, and a property appraisal.
Quitclaim Deed: a deed transferring ownership of a property but does not make any guarantee of clear title. May be used to add or delete ownership of a property.
Survey: a property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc. Borrowers receive a copy of this diagram at time of closing.
Title Insurance: is insurance issued by the title company that protects the lender against any claims that may arise from arguments about ownership of the property. An insurance policy guaranteeing the accuracy of a title search protecting against errors.
Truth-in-Lending: a federal law obligating a lender to give full written disclosure of all fees, terms. This information is provided on a form that bears the same name; also referred to as the TIL.
Underwriting: is a process performed by a human and includes the analysis of all loan documents in order to determine the potential risk involved in making the loan.
Warranty Deed: a legal document that includes the guarantee that the seller is the true owner of the property and has the right to sell the property and there are no claims against the property.
I hope these definitions prove helpful to anyone in the market to purchase or refinance a home. If you are currently in that process, congratulations! If you are not, perhaps you should be. Now is a great time to buy or refinance a home.
Rates are very low and there are some really good housing buys that have been on the market for several months and the sellers are ready to make a deal. So in anticipation of more people applying for home loans, I offer a brief glossary of mortgage terms. It is my hope that these definitions will help you understand the process a bit better.
Annual Percentage Rate (APR): This is a measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost associated with various loans. The APR is a higher rate than the simple interest of the mortgage.
Automated Underwriting: Is loan processing completed by the mortgage provider through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system effectively removes the possibility of personal bias against the buyer.
Broker: a licensed individual or firm that charges a fee to the borrower and serves as the mediator between the buyer/borrower and seller. Mortgage brokers are in the business of arranging financing for a client, but who does not loan the money.
Certificate of Title: This document is provided by a title company, and shows that the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
Debt-to-Income Ratio: a comparison or ratio of gross income to housing and non-housing expenses; With the FHA/VA loans, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income. For conventional loans, (non-government mortgages) the ratio’s can be higher. In all cases the presence of significant cash reserves can allow for higher debt to income ratios.
Deed-in-Lieu: in order to avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt. This process does not allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.
Discount Point: normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.
Document Recording: after closing on a loan, certain documents are filed in the county where the property is located and made public record. Discharges for the previous mortgage holder are filed first. Then the deed is filed with the new owner's and mortgage company's names.
Escrow: are funds held in an account and used by the lender to pay the home owner’s property insurance and property taxes. The funds may also be held by a third party (usually a title company) until any contractual conditions are met and then paid out.
FICO Score: FICO is an abbreviation for Fair Isaac Corporation and refers to a person's credit score. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. An individual’s credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.
Good Faith Estimate: an estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.
HECM (Reverse Mortgage): the reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.
HUD1 Statement: may also known as the "settlement sheet," or "closing statement". This form itemizes all closing costs and must be given to the borrower at or before closing. Items that appear on the statement include real estate commissions, loan fees, discount points, and escrow amounts.
Joint Tenancy (with Rights of Survivorship): this is one way title to a property may be held. This term describes two or more owners who share equal ownership and rights to the property. If a joint owner dies, his or her share of the property passes to the other owners, without probate.
Loan to Value (LTV) Ratio: is a percentage calculated by dividing the amount borrowed by the price or appraised value of the home. The higher the LTV, the less cash a borrower is required to pay as down payment.
Mortgage: is a lien on the property that secures the Borrower’s promise to repay a loan. It is a security agreement between the lender and the buyer in which the property serves as collateral for the loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.
Mortgage Insurance: is a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan. Mortgage insurance is required primarily for borrowers with an LTV greater than 80% of the home's appraised value. The cost of mortgage insurance is usually added to the monthly payment and is maintained on conventional loans until the outstanding amount of the loan is less than 80 percent of the value of the house.
Negative Amortization: the term “amortization” means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost.
Origination: the process of preparing, submitting, and evaluating a loan application. This process generally includes a credit check, verification of employment, and a property appraisal.
Quitclaim Deed: a deed transferring ownership of a property but does not make any guarantee of clear title. May be used to add or delete ownership of a property.
Survey: a property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc. Borrowers receive a copy of this diagram at time of closing.
Title Insurance: is insurance issued by the title company that protects the lender against any claims that may arise from arguments about ownership of the property. An insurance policy guaranteeing the accuracy of a title search protecting against errors.
Truth-in-Lending: a federal law obligating a lender to give full written disclosure of all fees, terms. This information is provided on a form that bears the same name; also referred to as the TIL.
Underwriting: is a process performed by a human and includes the analysis of all loan documents in order to determine the potential risk involved in making the loan.
Warranty Deed: a legal document that includes the guarantee that the seller is the true owner of the property and has the right to sell the property and there are no claims against the property.
I hope these definitions prove helpful to anyone in the market to purchase or refinance a home. If you are currently in that process, congratulations! If you are not, perhaps you should be. Now is a great time to buy or refinance a home.
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