Mortgage Blog

Here's a link to an article in Miami Daily Business Review that discusses something we have seen or experienced in the residential market for years, but which now seems to be getting much worse. Lenders generally prefer loans that are "conforming" - that is loans that can be resold to Fannie Mae or Freddie Mac in the secondary market.  Increasingly many Condos - particularly those clustered in South Florida are being labeled "non-warrantable" virtually shutting them out of the loan market. This article does a great job of summarizing the problem.

http://www.dailybusinessreview.com/news.html?news_id=47126

Typically mortgage interest on you Primary dwelling is tax deductible up to an amount of $1,000,000. Interest on a home equity line of credit is also usually deductible up to $100,000. However these tax deductions are only advantageous to those who itemize. You will not benefit if you choose to take the standard deduction which is $10,700 for those filing jointly. The higher your income that more bigger the tax deduction. If you are in the top bracket you may be able to write off interest at a 35% rate (see U.S. tax brackets) whereas those on lower incomes won’t save nearly as much.

For the most part interest paid on a second home is also tax deductible. However you are allowed only one second home and you may be required to prove that you spend part of the year there. Tax implications should always factor into your decision to buy a home. Please remember that we cannot offer tax advice. So consult your CPA or tax professional before making major decisions.

As home prices continue to tumble a recently compiled list shows that the hardest hit areas are clustered in the Southeast and Southwest. Both California and Florida share dubious honors as each state has 3 of the top ten worst real estate markets. Arizona, Nevada and Georgia each make one appearance in the top ten. Michigan is the geographic exception as the recent spate of job loses in the auto industry has badly affected the real estate market around Detroit.

No. 10: Atlanta, Ga.

Prices Down 7.1%

No. 9: Detroit, Mich.

Prices Down 7.7%

No. 8: Jacksonville, Fla.

Prices Down 8.7%

No. 7: Phoenix, Ariz.

Prices Down 9.5%

No. 6: Miami, Fla.

Prices Down 10.6%

No. 5: Los Angeles, Calif.

Prices Down 10.7%

No. 4: Tampa, Fla.

Prices Down 11.7%

No. 3: San Diego, Calif.

Prices Down 17.1%

No. 2: Las Vegas, Nev.

Prices Down 17.2%

No.1: Sacramento, Calif.

Prices Down 18.5%

Declines represent the most recent one year period. Source ZipRealty, a San Francisco-based real estate tracking firm that aggregates multiple listing service data.

For more information see America's Free-Falling Housing Markets

As if the subprime crisis and decline in home values were not enough, many home buyers are facing a new problem. Some Lenders are now refusing to lend in new home developments. We found one housing project in Northeast Florida where the Lender declined a loan because of the limited number of sales. Less than 25% of the homes in the project had been sold. The legitimate concern is that in a slow market builders may decide to “dump” the remaining stock of homes in a development as they reach the end stage of construction. This can mean that homeowners who purchased early in the construction cycle discover that they paid considerably more that the latecomers.

Understandably Lenders are wary of lending in the early stages for fear that this “dumping” will cause the value of homes to plummet thereby increasing the likelihood of default among those early borrowers who now find their homes to be worth less than they owe. We believe that steps should be taken to protect both the borrower and lender who find themselves in this situation. Builders must be required to “price protect” the early buyers. Just as some department store offer to refund the difference if products later go on sale; builders should be required to price protect the early buyers.

The “refund” should be applied against the loan balance. This would have the affect of protecting the Lender as well as the buyer. In the end all parties would benefit. The borrower would be ensured that buying early will not cause them to lose out on later incentives. The Lender would be guaranteed that if prices decline they will not be left holding the baby. Even builders will benefit as they will again find willing lenders during the early stage of construction.

Todays edition of the New York Times reports that the subprime mortgage crisis has spread into the prime mortgage market. Unlike subprime, prime mortgages are held by people who had good credit at the time they took out the loan. The NYT quotes the Mortgage Bankers Association as saying that 4% of Prime Mortgages were in default as of last December. Meanwhile the delinquency and foreclosure rate for all mortgages stands at a whopping 7.3%, the highest since this data began to be compiled in 1979.

Declining home prices and stricter lending standards appear to have contributed to the problem and many homeowners find themselves unable to refinance or sell homes that have declined in value. The hardest hit areas are those that enjoyed the greatest increase in values during the housing boom. Particularly hard hit are California, Florida, the Southwest and Midwest where job loses are adding to the problem.

You can read the full article by going to NYT Mortgage Crisis.

Based on information supplied by the National Association of Realtors the supply of homes on the market would take more than ten months to clear at the current rate of sales. Fortunately there are other things you can do to improve your chances.

Cut the price

Unless you want to wait ten months to sell your home, consider slashing your price upfront. This is especially important if you must vacate your home. Better that you reduce the price now then 10 months down the road when you have been bled dry by the monthly mortgage payments and cost of maintenance.

Check the competition

Your prospective buyers will. So set aside some time to see what else is on the market. It may better prepare you for presenting your home and will also let you know if you are priced right. Ideally you want to be priced just below similar homes.

Kerb Appeal

The old saying is true – “you only get one chance to make a first impression” – so don’t skimp on the front of the house. A few hundred dollars spent on landscaping can add thousands to the value of your home and help you sell it quickly.

Time your listing

Most homes sell in the summer months. Very few homes sell between November and January. So if possible put your home on the market at the beginning of summer. You will greatly increase your chances of a quick sale.

It’s a numbers game

Enlist everyone you know. Tell your friends, family, co-workers and acquaintances that your home is on the market. If you plan on using a Realtor make sure you select one carefully. Request references from people whose homes they have recently sold.  Also ask them what they will do to bring qualified buyers to you. The more people who get to see your home the quicker it will sell.

Do you plan on keeping your loan for a while? Then it may make sense to "buy" a lower interest rate by paying one or more "points."

Even if you're unsure of how long you plan to keep your mortgage before you move or refinance, paying points now for a lower rate may make sense. For example, do you have a high-paying job now but you think you might change careers in the next few years? We can help you sort it out. It's part of our finding the right loan for your means and goals.

A point -- which equals one percent (1%) of the total loan amount -- is an up-front fee that lowers your monthly interest rate and total interest due over the life of the loan. So, a one point loan will have a lower interest rate than a no point loan. Basically, when you pay points you trade off paying money later in favor of paying money now. You can pay fractions of points, meaning there are a lot of points packages that can make a loan's terms more favorable if that's what's right for you.

There are a variety of rate and point combinations available. When you look at different loan programs, don't look just at the rate -- compare the whole package. Federal law requires lenders to publish their loans' Annual Percentage Rate, or A.P.R.. The A.P.R. is a tool used to compare different terms, offered rates, and points.