First Time Home Buyer Start Up

It's time.  You're tired of renting, you're tired of roommates, you're tired of not having something to call your own.  It's time -- time for your first home.  This is one of the most exciting times in your life, but its also filled with apprehension and confusion.  Let's relax and try to make it easier for you.

Who are first time home buyers?

First timers are typically anticipating a major life event like an upcoming marriage, birth of a child or completion of school.  They are most likely currently living with friends or relatives in a rental property.  The best attribute of the first timer is that they value the emotional and financial benefits of owning a home (i.e. personal satisfaction, pride, asset building, etc...)

What do first time home buyers want?

If you're a first timer, you know exactly what you want, but you might not necessarily know how to go about getting it.  Today's first timers are more and more savvy than ever before, with the majority of first timers doing an extensive amount of research on the internet before contacting a Realtor.  First timers want and need a broad array of products, with clear explanations of the entire process from offer to possession. 

Debunking Financing Myths

One of the first things a first timer will need to do is get pre-approved for a loan.  These days, there is a lot more honesty and transparency required on your part, but if your financial house is in good order, you have plenty of great options.  Think you need to put 20%+ down on your first home?  For younger first timers, coming up with that huge down payment is usually prohibitively expensive.  20% is not the norm! 

FHA (the Federal Housing Administration) provides loans that require a minimum of 3.5% down, with a minimum credit score of 600 and mortgage insurance paid up front monthly.  For those who have served in the military, VA (The Department of Veterans Affairs) loans are available for 0% down with any credit score (up to home value of $700k) and.  Conventional financing requires 5% down for first timers with a minimum credit score of 620 with mortgage insurance paid monthly.  One of my favorite loan options is USDA financing.  This type of loan is typically used in more rural areas (i.e. Weld County) but can also creep into the boundaries Fort Collins, Loveland, Greeley and Windsor.  This loan requires 0% down with a credit score of 600.  There are published maps of areas that the USDA provides these loans.  Don't let anyone tell you that you need a hefty chunk of money to put down on a home.  You can afford a down payment, and you can find a great home for nearly the same as what you're renting for right now.

What to do next

A Realtor is going to be able to put you in touch with everyone you'll need to be in contact with.  Take your time, do your research online, and contact a Realtor to get the process started if you're ready to make your dreams into a reality.  If you have any questions, I'm always here to answer them for you -- and the next time you come across someone who is tired of renting and wanting to get into a new home, pick up the phone and call me to let me know how I can help them. 

Thinking About Refinancing?

With low, low interest rates, refinancing is all the rage these days.  But how do you know if refinancing is right for you?  Ultimately, refinancing can save you money, whether in the long term or short term, so lets take a look at a few issues that you'll eventually have to consider when thinking about refinancing.

What are You Trying to Accomplish?

To set the record straight, refinancing only restructures your debt, it does not pay any of your debt off.  So to keep things in perspective, refinancing your loan is synonomous with restructuring your loan.  Here are the three main reasons one might choose to refinance their loan.

• Lower Interest Rates:  There are two ways to save money in the form of reduced mortgage payments by taking advantage of lower interest rates.  One is refinancing your current loan with the lower interest rate, but keeping the remaining loan term constant.  For example, say you have 25 years remaining on a $175,000 mortgage at 8%.  Today, you could refinance the $175,000 mortgage at 4.5% for the remaining 25 years and save a chunk of cash on your monthly mortgage payment.  Secondly, you can refinance your current loan at a lower interest rate AND re-extend your mortgage term.  For example, say you have 23 years remaining on a $165,000 mortgage at 7%.  You could refinance this loan at 4.5% and re-extend the loan back out to a 30 year term.  This would free up more cash on your monthly mortgage payment than the previous example in the near term, but would add another 7 years to your loan and interest payback.
• Debt Consolidation:  Another common reason to refinance is to consolidate one or more loans to make them easier to manage.  An example of debt consolidation is combining your first mortgage with a home equity loan.  This combines the payments and consolidates your debt at a low managable payment over a fixed term.
• Loan Restructuring:  During times of very high interest rates, the difference between a fixed rate mortgage's rates and an adjustable rate mortgage's (ARM) rates can be substantial.  However, during times of low interest rates, these differences are often too small to make much of a difference.  One way of refinancing your mortgage would be to change from an ARM to a fixed mortgage rate, or vice versa.  For example, in times of high interest rates, one might refinance their 11% fixed interest rate into a 8% ARM to reduce monthly payments.  Conversely, during times of low interest rates, one might refinance their 4% ARM to a secure, relatively low fixed rate of 4.5%.  Adjustible rate mortgages might seem very attractive, but remember, they do adjust.  It pays to be on top of rates when using an ARM.  Lastly, one unique way to save money in the long term would be to change your fixed financing terms from a 30 year fixed rate, to a 15 year fixed rate.  This will effectively increase your monthly payment, but you will save 15 years of interest and mortgage payments, which will substantially benefit you in the long term. 

When to Refinance

When looking to refinance there are a few things to consider.  First, consider if your mortgage has any pre-payment penalties.  Some do and some don't.  You could wind up costing yourself more money if you aren't aware of these penalties.  Secondly, you need to recoup the closing costs with your decreased monthly payments.  If your closing costs would be $3000 and mortgage savings would be $150 per month, you would need to own your home for at least the next 20 months to benefit from the refinancing.  Any lender or mortgage broker will be able to help you identify your anticipated closing costs from a loan.  Lastly, as a rule of thumb, when current mortgage rates fall about 1% lower than your mortgage rate, that could be a time to start thinking about refinancing your rate. 

I'll leave you with a few great resources if you have questions about mortages and refinancing:

• American Capital Financial http://www.amcapfin.com/ 303.831.9636 -- I have a working relationship with DJ Davenport and Chris Coates, both are very knowlegable mortgage brokers and are very helpful to you when considering refinancing.  Give them a call to discuss the options available to you.
• http://www.bankrate.com/  A great website to help keep you aware of the fluctuations in mortgage rates

 

Why You Should Love Housing Statistics

Did you ever have to take a statistics course?  Do you remember hating your statistics course?  I'm hoping by the end of this post you'll learn to love some housing statistics.  Why?  Because they are the lifeblood of my industry, and a major indicator of the economy as a whole.  And it isn't rocket science.  In the following post I'll give you a break down and update you on some national and regional housing statistics so you can wow and amaze your friends at dinner parties.

Pending Home Sales Rise
According to the National Association of Realtors (NAR), the Pending Home Sales Index rose to 79.4 in July, up from 75.5 in June.  Now, those numbers don't really mean anything unless you put them in context.  The Pending Home Sales index is a leading indicator for the housing sector.  This number is based on a sample of about 20 percent of national pending home sale transactions.  Historically, the number of pending home sale transactions has been a very close indicator of actual closed transactions, so the pending home sales index gives you a sneak peak of closed transactions within six to eight weeks.  Where does the number come from?  Well, just like most other indexes, they are based on an arbitrary starting point.  Our starting point happened to be in 2001, when the number was created.  An index of 100 was arbitrarily assigned to the average pending home sales during 2001, which also happened to be the first of five years of record existing home sales.  For example, if the index is below 100, we are experiencing a slower market as compared to 2001.  If we are above 100 we are experiencing an accelerated marked as compared to 2001.  So to sum up, our current national pending home sales index is at 79.4 for July 2010, which is about 19.1% lower than July 2009.  Remember, these numbers are national numbers...Lets take a look at how things are regionally.

Fort Collins Detached Home Statistics (July 2007-July 2010)

Above you'll find some sales information for the Fort Collins area.  In the hustle and bustle of 2007, when everyone was just cruising along, enjoying caviar and champagne, life was good.  364 homes sold for a median of $240,000 in just under 3 months.  Then, things changed.  The stock market took a dive, unemployment fears escalated, and a recession began to rage on.  What changed in the housing market in 2008?  Well, to me, not much.  You could still sell your home for about the same price as it sold for the year before, you'd just have to wait an extra week or two to get it sold.  Not the end of the world right?  Lets look at 2009.  About the same number of homes sold in July of 2009 as they did in 2010, which is good.  What's bad is the median price of those homes took a small dive.  In 2009 we were in the height of the recession, the stock market had bottomed out in early March and things were looking gloomy. 

Fast forward to the present.  What is the difference between July 2010, when things are apparently bad, and July 2007 when the recession was just a twinkle in Ben Bernake's eye?  Number of solds are down about 45% and you'll have to wait 19 extra days to sell your house.  Did you notice what didn't change?  The median price of homes was only down $1000.  If you can get nearly the same price for your home as you did in 2007, what is causing the drop in home sales?  I've said it before and I'll say it again, fear is the reason people aren't selling their homes.  They are fearful that they will lose their jobs, fearful that they won't be able to sell their homes and they owe too much on their mortgage to sell their homes; they are just fearful folks in general.  To me, its understandable, but not founded.  Overcoming fear will be the best way to overcome this recession and get the economy back on track.  I'm not saying our housing market is accelerating, but I can say that the numbers indicate that it is steady.  So what are you waiting for?

(By the way, 30 year fixed rates are at 4.32%, and 15 year fixed rates are at 3.83%)

Avoiding Foreclosure with Short Sales

Every once in a while, I'll post some very technical concepts and try to break it down into simple, understandable ideas that are very applicable in common situations.

Everybody knows about foreclosures; you get behind on your mortgage payments and the bank reclaims your home.  It's just the same concept as getting your car repossessed, only foreclosure involves a long drawn out process where the bank slowly recoups your home and auctions off your home to try and salvage any remaining value.  Foreclosures involve hefty fees for the bank, and unfortunately, will ruin the credit scores of the borrowers.  One way to avoid foreclosure is to negotiate a short sale.

A short sale can be negotiated between the borrower (homeowner) and the lender (usually a bank or mortgage provider).  Instead of forcing foreclosure on the property due to lack of payment, the homeowner and the lender mutually agree to try and sell the home at a discounted price, where the homeowner turns over all the proceeds to the lender.  Usually, a short sale is the most economically feasible solution because it is typically faster and less expensive than foreclosure.

How Short Sales Benefit the Lender (vs. Foreclosures) 

• Lender will usually receive more net proceeds from the short sale than they would in a foreclosure.
• Short sales are typically quicker, allowing the lender to avoid further mortgage non-payments.
• The short sale process and fees associated with it are typically less expensive for the lender.

How Short Sales Benefit the Borrower (vs. Foreclosures)

• Faster process means less missed mortgage payments
• Borrowers are able to lessen the damage to their credit history
• Borrowers get out of an unaffordable situation

Now, there are downsides to short sales as well.  In most cases, there is a deficiency, which is the remaining money owed following the short sale.  In many situations the borrower is not off the hook for the deficiency unless it is clearly indicated on the acceptance of the offer, but the debt can be controlled and financed.  Also, there is no guarantee that the lender will agree to the short sale offer.  Lenders typically have loss mitigation departments to deal with short sale offers.  Their loss mitigation departments usually have a set of criteria including amount of equity and anticipated sale price that they use to evaluate the potential in short sale offers.  With the recent financial crisis, lenders have been more willing to accept short sales than force foreclosure.   

Sometimes in life, situations arise where you might find yourself struggling financially.  If you are upside-down on your mortgage or behind on payments, you do have options.  Take the time to educate yourself to know whats available to you.