Real Estate

Why are rates going up?

The interest rates for home loans have drastically risen in the past couple weeks. Loan rates have been extremely low for several years and rates with rates tumbling over the last year, it is a shock to many of my buyers how fast rates have risen. Many buyers have asked my opinion on whether rates will go back down to the level they were at last month. And while I think there may be some volatility in the rate I also know that the market has been distorted by the government intervention. The following was a recent email I received from a lender that explains in layman terms why the interest rate has risen.

The magnitude of the rapid rise in mortgage rates has been shocking, but the reason is clear. To help stabilize financial markets and boost the economy during the financial crisis, the Fed initiated an unprecedented program to purchase enormous quantities of Treasuries and MBS. The added demand from the Fed distorted MBS markets and pushed mortgage rates down to historically low levels. In recent years, analysts have attempted to estimate the impact of the Fed’s bond buying on MBS prices, and some have said that mortgage rates would have been as much as 1.50% higher without the Fed purchases.
Now, the economy is no longer in recession. With steady economic growth, the Fed has indicated that it’s almost time to scale back (taper) its bond purchases. Investors are now trying to determine the “proper” level of mortgage rates in a growing economy in the absence of unnatural demand from the Fed. Unfortunately, most investors would rather be safe than sorry, meaning that they would rather continue to sell MBS instead of guessing if mortgage rates have moved “high enough”. From one point of view, mortgage rates are still just back at levels last seen about two years ago when the economic outlook was much weaker.
If you have further questions regarding real estate matters, please feel free to contact me at 405-213-2992 or visit my website http://www.sandiwalker.net

Real Estate

The repair cap in the real estate contract

What is a repair cap?

How much should I ask for?

 

After a buyer gets an offer on a house accepted, the next step is to get a home inspection. The home inspector will check the roof and the foundation and all mechanical features in between. It seems like every house has something that needs to be repaired. Sometimes the buyer may have noticed some repairs but most of the time the home inspector uncovers defects in the house.

The repair cap is a dollar amount in repairs that the seller has agreed to repair. The amount of repairs that the inspector uncovers may be more or less than the repair cap. If the repairs are less than the repair cap, the seller will repair all items listen on a TRR form (Treatment, Repair, & Replacement). If the repairs are more than the repair cap, then there are a few different scenarios that could happen.

1.         The buyer decides which repairs are most important to them and ask the seller to repair those items up to the dollar amount.

2.         The buyer asks the seller to repair items that cost more than the repair cap and the seller agrees to make repairs. Contract continues as normal.

3.         The buyer asks the seller to repair items that cost more than the repair cap and the seller refuses to make certain repairs. This is sometimes called the second negotiation.  If buyer and seller cannot agree, the contract becomes null and void. If they can reach an agreement, then the contract continues as normal.

 

The repair cap is listed in the contract to protect both buyer and seller. It may be that the seller cannot afford to make the repairs beyond the repair cap, or the buyer may decide after seeing the inspection report that they do not want to purchase the house especially if there are many repairs and the seller is not willing or able to make necessary repairs.

Once the seller knows the list of repairs they are required to disclose this information to future buyers; however, the seller may still decide to not repair more than the repair cap amount.

So how much should a buyer put in the contract for a repair cap. This is always a tough question, since it is unknown what the inspector will find prior to the inspection. I typically see $500-$1000 in contracts. If the house is newer probably less is fine, if the house is older or very large, then maybe more. I suggest you visually inspect the roof, windows, look for cracks, turn lights on and off and maybe turn the sink on and look under the sink. Does it look like the property has been maintained? If you see major issues like missing shingles or broken windows, ask the seller to repair these items outside of the repair cap. This way you don’t find yourself outside of a repair cap with a seller not willing to make a large repair and you out the money of the inspection when you knew going in that there was a large repair that you were not willing to make was required.

If you have questions regarding real estate, please feel free to call me at 405-213-2992 or visit my website at http://www.sandiwalker.com

Real Estate

The appraiser is not a home inspector

People always want to know if a house will go FHA or VA. If the buyer is getting a VA loan, they comment on the VA inspection. So let’s set a few things straight. There is no FHA or VA inspection so to speak. There is simply a home inspection and an appraisal.

While the buyer pays for the appraisal, the appraiser is hired by the bank to verify that the collateral (the house) is adequate for the amount of money that they are loaning the buyer.

If the loan is a FHA or VA loan, then the appraiser is required to verify that the house is safe, sound and secure; meaning that the exterior doors are solid core, the hot water tank is up 18” in the garage, no peeling paint and no broken windows or exposed wires., etc.

I would not expect the appraiser to climb on the roof, in the attic, or under the house. The appraiser does not get a copy of the home inspection.

As long as the appraiser does not require any repairs prior to closing or the seller is willing to make the required repairs, the house will go FHA or VA. This does not mean that there are no mechanical issues with the home.

The home inspector is hired by the home buyer to inspect the property. The home inspector should climb on the roof, check the structure, and look for electrical, plumbing issues as well as check the heat and cooling system. This inspection should be extensive and if concerns are found that are more extensive than the home inspector’s expertise, then further inspections may be recommended by licensed professionals. Regardless of what the home inspector finds during his inspection, the buyer may or may not choose to buy the house. This is not a pass, fail inspection. The inspector’s job is to identify the mechanical aspects of the house that are not functioning.

The buyer may ask the seller to repair some or all of the repairs that the home inspector has discovered. In the purchase contract, the buyer requested that the seller repair up to a certain dollar amount. If the repairs are more than the dollar amount in the contract, the seller may not want to make the repairs requested by the buyer. If that happens, the contract may bust.

The home inspection is important for the buyer because it tells them exactly what they are buying. It has been my experience that most buyers do not climb under the house or in the attic prior to making an offer. And even if they did a majority of them would not know what they were looking at; therefore, it is vital that they get a home inspection, so they can make an educated purchase.

If you have real estate questions please feel free to call me at 405-213-2992 or visit my website www.sandiwalker.com  I would love to help you with all your real estate needs.

 

Uncategorized

What is a Short Sale?

A short sale is when the lender accepts a payoff less than what is owed on the property. It avoids foreclosure and the worry that the lender will sue the borrower for a deficit judgement.

In our current market, not all homes are worth what is owed on them. We sometimes refer to these homes as being under water or with negative equity. While property typically appreciates in time, during the past several years we have seen properties devalue. In Oklahoma, we have been very fortunate that most of our values have remained flat or had a minor adjustment in value. This is frustrating and scary to the homeowner but if you’re able to make the current mortgage payment then I suggest that you continue to do so. The likelihood is that the economy will improve at some point and the value of these homes will increase.

The bigger problem occurs when life changes–people lose jobs, get divorced or have a serious medical condition –and you cannot continue to make your current mortgage payment.   At that point the borrower has a few options: Contact their lender and try to work out a payment plan, do a deed in lieu, allow the house to go to foreclosure, or attempt to do a short sale.

In order to do a short sale, the lender is going to want to know why you can’t make the mortgage payment. They will want to see your bank statements for the past two months, pay stubs, and a hardship letter explaining why you cannot pay the mortgage. In addition, they are going to want to see your tax returns.  They are verifying that you truly cannot make the payment.

Short sales do have a negative effect on your credit. The hope is the lender will forgive the deficit and mark the file paid. This does not always happen. I have had a file where the lender wanted the borrower to sign a promissory note for a small amount of money to be paid after the closing. This is a possibility. There could be tax liability issues. Most of the time though the lender accepts the short sale as payment in full and does not pursue the borrower for additional money.

In a future blog, I will discuss in more detail about short sales and what a buyer and seller should expect.

In the meantime, if you have questions about short sales, or other real estate questions, please feel free to contact me at 405-213-2992 or visit my website  http://www.sandiwalker.com

Real Estate

Is getting a FHA loan my only option.

FHA loans have become common place but they can really cost you a lot more than you think

When people think about getting a loan, they often think about a FHA loan today. This is because they require lower credit scores than conventional loans and the down payment is lower. But they do not come without cost.  This loan requires a 3-1/2% down payment plus closing costs. The seller can pay up to 6% in buyers closing costs.  This loan also requires mortgage insurance. Mortgage insurance protects the investor should you default on the loan. In 2012, the upfront mortgage insurance fee rose to 1.75% and the monthly fee went to 1.25%. On a 100K loan, Mortgage insurance adds $1750 upfront to the loan and then an additional $125 a month thereafter until you have paid on the loan for 5 years or you can prove you have 20% equity.

There are some other loan products that can cost the consumer less. If you are eligible for a VA loan, you can avoid the monthly MI. Also rural developement and the FHA 184 (Native American) loans do not require mortgage insurance. In addition, you may find that a conventional loan which will require a minimum of 5% down payment may have lower or in some cases no mortgage insurance. Most conventional loans will require you to have a higher credit score especially if you are putting down less than 20%.

While interest rates are at all time lows, mortgage insurance increases the cost of homeownership. Therefore it is important for consumers to weigh all of their options before selecting a home loan.  So if you cannot qualify for one of the loan products that do not require MI, and your credit scores are high or you have money to put down on the house then you may be able to save a significant amount of money with a conventional loan.

This is also important when you are thinking about refinancing your mortgage from a few years ago. You may save  one or two percent on the interest rate, but the increase in MI may reduce the overall savings if you are getting a new FHA loan. It may be that unless you can get a new loan without MI or reduced MI that the amount you save may not be worth the cost to refinance.

While I am not a financial adviser or a lender, I do have great people on my team who can help to answer your questions. If you have questions regarding real estate, please call me at 405-213-2992 oor visit my website at www.sandiwalker.com

Uncategorized

FEMA called and you are now in a flood plain

In recent years, FEMA has redrawn the flood maps to include properties that were once not located in a flood plain. This causes the owners to obtain flood insurance if they have a mortgage on the property. Flood insurance can be as much as your home owners insurance. Here in Oklahoma City, I have seen flood insurance on a house under $100,000 be as much as $75-$100 a month on top of the standard homeowners insurance premium.

When buyers are looking at a certain price point to purchase a home, what they are really looking for is a certain payment. Consequently, the additional monthly flood insurance premium may cause the new home owner to not qualify for the home with flood insurance that would normally be in their price range if it didn’t require flood insurance.

Creeks, ponds and drainage ditches always give concern, because it could mean that the property is located in a flood plain. But what many people do not know is that the property could be in the flood and if the structure is not actually located in the flood plain, then the owner can obtain a LOMA. A LOMA stands for a Letter of Map Amendment and is issued by FEMA to remove the property from the flood plain. If the property is removed from the flood plain you will not be required to pay flood insurance.

There are lots of homes that are on a hill or the drainage ditch is deep and causes the elevation of the property to be higher than the flood plain. So my best advise is if FEMA tells you that you are in a flood plain, first get an elevation survey from a local survey company. (The last one I was involved in cost $400). The surveyor will survey the property and give you a report. If the property is not in the flood plain send a copy to your mortgage company and file with FEMA for a LOMA.

If you have any Real Estate question, please feel free to contact me. My website is http://www.sandiwalker.com