Blog for Real Estate Agents

Hello all!

In my neverending search for good news (or at least helpful news), I came across this article from MarketWatch. 

One correction to the article, though. There is a section that talks about temporarily buying down the rate. That is one option, but we do have the ability to permanently buy down the rate as well.

Please feel free to call us for further details.

Good hunting!

Jason Strong, Licensed Mortgage Broker

Effective Incentives to Woo
Buyers and Sell Your Home

By Amy Hoak
From MarketWatch

Flashy incentives like a new car parked in the driveway or a flat-panel television hanging in the den might sound like a good way for home sellers to woo buyers in a dismal real-estate market. But when it comes to actually enticing someone to buy a home, it's the more practical perks that count, real-estate professionals say.

"Serious buyers are looking for a place to buy a home, not a trip to Tahiti," says Dave Ledebuhr, owner of Musselman Realty in East Lansing, Mich. Moreover, lenders are leery of gimmicky incentives, fearing that they're built into the price of the home and that loan dollars are being used to pay for that tropical trip, he adds.

Instead, effective incentives address what's on the minds of potential buyers -- the overall cost of the home and the monthly payments they'll have to manage, he says.

Help in bringing down the interest rate of the mortgage by paying points, for example, can give one home an advantage over another, says Dave Dalzell, owner of Dalzell Realtors in Abilene, Texas.

And contributions to the down payment and closing costs could especially be of help to a first-time home buyer, says Greg Zadel, owner of Zadel Realty in Firestone, Colo.

Incentives can be considered when the home is first listed, as a way to distinguish it from the start, Mr. Dalzell says.

They can also be added when the home hasn't sold in two or three months, as a way of enticing a buyer without lowering the price. Or the incentives could arise in negotiations, when a buyer needs that one extra little nudge to commit.

Make no mistake, the location and condition of a home are going to be its main selling points. But if sellers "put on their buyer's cap" and really consider what issues the buyer might have, it could make all the difference, Mr. Dalzell adds.

"I tell my seller to look at his bottom line," says Susan Ramsey, a Realtor with Re/Max Integrity Realtors in the Phoenix area. A seller should figure how low he or she is willing to go, factoring in both the selling price and other incentives used to get a buyer to commit.

But also be aware that most seller concessions need to be disclosed. "Everything should be in writing and attached to the contract," Mr. Dalzell adds. When someone says, "let's not tell anybody" about an incentive, it could signal imprudence, he says.

In addition, buyers and sellers need to make sure that they don't exceed the lender's allowable seller-paid assistance, Mr. Ledebuhr says.

Below are six of the most common incentives being used in markets today.

Reducing the Price

A price reduction is often the incentive that is looked at first, says Delores Conway, director of the Casden Forecast at the University of Southern California's Lusk Center for Real Estate.

"The price is something that is a common currency -- it appeals to everybody," she says.

Gene Rivers, who owns four Keller Williams real-estate offices in Florida, agrees. If a buyer has in her mind that she'll pay $350,000 for a home and the seller won't budge from $375,000, "$5,000 in closing costs and a plasma TV ain't going to get it done," he says.

Paying Points

Sellers can offer to pay mortgage points for a buyer, an incentive that Mr. Dalzell tends to use in environments like today's, when rising interest rates are at the front of a buyer's mind. One point is 1% of the loan amount, charged as prepaid interest.

"When a buyer sees a lower interest rate or monthly payment, that's something they can relate to," he says. The setup makes sense for a buyer who has to buy furnishings for the new place; it also can make for an easier monthly payment transition for families that are upsizing.

Buyers should understand, however, that the lower rate often lasts only from one to three years. Before accepting, understand and plan for the point in time when the mortgage bill will increase.

Down-Payment Aid

For some buyers, the hardest part of entering the ranks of homeownership is the down payment -- also an area where a seller can help. It's mostly first-time home buyers interested in this kind of assistance because they're often the ones lacking in funds to complete a deal, Mr. Zadel says.

"It gets people into homeownership," he says. "The disadvantage is that the buyer is financing that additional amount," he adds, because a seller would likely come down in the price of the home if a chunk weren't dedicated to down-payment assistance.

Closing-Costs Help

Closing costs include items ranging from legal fees to title insurance and can add up, ranging between 2% and 7% of the loan value, according to Freddie Mac. So many buyers, especially those stretching to make a down payment, will be interested in having a seller help out.

In Phoenix, buyers in every price range have been asking that these costs be covered, according to Re/Max's Ms. Ramsey. "They ask for it because they know that they'll get it," she says.

Adding a Warranty

A residential-service contract is sometimes thrown in as an incentive because it acts as insurance for a home's systems, often including plumbing, heating and cooling. At a cost of a few hundred dollars, some real-estate agents consider it an inexpensive add-on that affords a buyer a little extra peace of mind, Mr. Dalzell says. That peace of mind can be especially welcome during the first year in a house.

The Little Things

Other perks will appeal to buyers, too, ranging from the common to the unique. Payment of homeowner association fees -- typically associated with condo developments -- are sometimes offered. Ms. Ramsey says that a seller with a swimming pool might also offer a year's worth of upkeep for it, a welcome help for those worried about the maintenance of the backyard attraction.

Or maybe, if a corner of the home was designed for a grand piano, leaving that instrument behind entices a buyer to go through with the deal, USC's Ms. Conway says.

Since I will be travelling to the chilly north tomorrow, I'm getting you tomorrow's news today.

The gist of the article is that flat or rising home values will give many homeowners the opportunity to refinance into a better program over the next several years, and that the projected 1.1 million forclosures could actually drop to about a third of that number.

At the Hoffman Team, we are prepared to work with your present and past customers to secure the financing that best meets their needs and goals. Thanks again for choosing us to be your lender, and we look forward to making sure that you are delighted with our service!

Jason Strong

The Hoffman Team

Economy Can Withstand
More Mortgage Foreclosures

By James R. Hagerty
From The Wall Street Journal Online

About 1.1 million foreclosures are likely to result from jumps in monthly payments on adjustable-rate home-mortgage loans made in 2004 through 2006, according to a study by First American CoreLogic.

Christopher Cagan, director of research at the real-estate-information concern based in Santa Ana, Calif., said those foreclosures are likely to occur over six to seven years and won't be enough to damage the national economy. (Financial markets could be hurt, however.

Dr. Cagan analyzed 8.4 million adjustable-rate loans made during those three years and estimated that 13% of them, totaling $326 billion, will end in foreclosures. After lenders resell those properties, the total losses for lenders or investors holding the loans will be $113 billion, he estimated. That is about 1% of total U.S. home-mortgage loans outstanding.

"The vast majority of borrowers will be fine," Dr. Cagan said.

The estimates are based on an assumption that average home prices will remain about level with the December 2006 level over the next five years. If prices drop 10%, the number of foreclosures would jump to 1.9 million, Dr. Cagan projected. But a 10% rise in prices would cut foreclosures to 489,000, he estimated. When prices rise, people struggling with loan payments are more likely to be able to refinance into a loan with easier terms or sell their homes for more than the loan balance.

The projections include only foreclosures expected to result from jumps in interest rates that occur when loans "reset" from their initial interest rate to a higher one, usually after two to five years. They don't take into account foreclosures that will occur for such reasons as job losses, deaths, divorces, illness or fraud.

The worst-performing loans will be those that started with low "teaser" rates, below 4%, the study predicts. On such loans, the typical rise in monthly payments at the reset is 118%, Dr. Cagan calculates.

Survey: Housing slide hits bottom

Orlando Business Journal - 11:43 AM EDT Tuesday, March 13, 2007

A University of Florida study suggests the state's single-family residential housing market has bottomed.

"If you're thinking of buying a house, there's probably not much to be gained by holding out at this point," says Wayne Archer, director of UF's Bergstrom Center for Real Estate Studies. "It doesn't look like prices are going to fall anymore."

The quarterly survey of real estate industry professionals completed in January shows the share of respondents observing a drop in single-family housing prices has dipped, while a growing number find prices staying even with inflation.

"We see that as a benchmark," Archer says. "When prices maintain the same level as inflation, then we're probably in some kind of equilibrium. It indicates the market is stabilizing."

The exception is condominiums, which Archer says are overbuilt and prone to speculative and naïve investors.

But the overall news is good - Archer pointed out the most recent results reflect the first time in the UF survey's five-quarter history that the buyers' investment outlook for residential development has brightened. It declined for the first three surveys and was flat for the fourth survey at the end of October, starting to rise only in this latest survey, he says.

Also, because of the dominance of single-family housing, Archer says the latest findings have far-reaching and potentially optimistic implications for the state's real estate industry.

"You can't get away from the fact that the single-family housing market is the single largest driver of the real estate market," he says.

For the survey, UF's Survey Research Center questioned 318 industry executives, real estate lawyers, market analysts, title insurers, financial advisers, market research economists, real estate scholars and other professionals in the field.

The last survey had 183 respondents.

Hybrid Option ARMs or Fixed Rate Option ARMs

Hybrid Option ARMs combine some the best features of Hybrid ARMs, such as medium term fixed rates, with the best aspects of Option ARMs, such as low minimum payments, while solving a lot of the problems with both for the average borrower. They are most popular with homeowners who want the stability of a fixed rate mortgage but the option to make very, very low minimum payments, and are considered an ideal compromise between "safety" and "flexibility" in the mortgage world.

Hybrid Option ARMs are generally based on normal Hybrid ARMs, in that their initial period is usually 3/1, 5/1, 7/1 or 10/1 meaning 3, 5, 7 or 10 years where the rate and minimum payment stays fixed, and 1 adjustment per year afterwards.

However they have Option ARM like features such as a minimum payment, minimum payment adjustment cap, and neg am cap.

Using the above example the same loan amount in a typical hybrid option arm package

- Minimum Payment = 449 (assuming 3.5%)
- Interest Only = 583
- Deferred Int. = 134 (1/3 of regular option arm)
- 1 Year Neg. Am. = 1608
- Recast Balance = 115000 (assuming 115% neg-am cap)
- Months to Recast= 112 (assuming you only make the minimum payment)

Also, when hybrid option arms recast, most of them allow for an Interest Only option instead of forcing the borrower into a fully amortized payment they might not be able to afford. Along with the long recast timeframes and the fixed rates for the initial period, this substantially reduces payment shock on recast.

Option ARMs are one of the most popular loan types in today's market, and for good reason. Option ARMs are like regular ARMs, but they have 4 payment options instead of just the one fully amortized payment option on a regular mortgage. The minimum payment option is the main point of attraction for majority of the Option ARM customers in the USA today, because it allows them to make smaller payments when cash is tight. The minimum payment for the initial period of the loan for 100,000 dollars would be 322 dollars, versus 665 dollars for the full payment on a conventional mortgage. A great option for the self employed, the small business owner.

On 1 month option arms, they adjust every month after the initial period, so if the initial period is 6 months or 1 year, then every month therafter the rate adjusts. There are 6 month and 1 year option arms wherein the payment adjusts every 6 months or 1 year thereafter as well, however 1 mo arms are most popular. They have additional features in addition to standard Hybrid ARMs:

· A Minimum Payment: a payment which like a credit card allows you to stay current on the mortgage without paying the full amount of interest due, referred to as deferring interest

· A Minimum Payment Adjustment Cap: the maximum amount that the minimum payment AMOUNT can increase or decrease in a given period. Typically 7.5%. So if your minimum payment is 1000 dollars, then in the next period it can not go higher than 1075 dollars.

· A Negative Amortization Cap: This is the maximum the loan balance is allowed to increase due to deferral of interest (making the minimum payment only) before the loan is re-cast and the minimum payment option goes away. Depending on state and LTV this is 110% to 120% of the loan amount.

Option ARM Example: On a $100,000 Option ARM with a 1% start rate, a base or index rate of 4% and a margin of 4%,

- Minimum Payment = 322
- Interest Only = 667
- Deferred Int. = 345 (IO minus Min Pay)
- 1 Year Neg. Am. = 4140
- Recast Balance = 115000 (assuming 115% neg-am cap)
- Months to Recast= 43 (assuming you only make the minimum payment)

When a regular option arm exceeds its negative amortization cap and recasts (typically in 3 and half to 4 years if you're only making the minimum payment) the minimum payment option goes away, and you are left with the fully amortizing payment, although some products are beginning to extend the availability of the interest only option for up to 10 years. Because of the incredible flexibility of these loans, they are limited to higher credit borrowers (generally a FICO score of 660 is required, however certain programs are available for borrowers with FICOs of 600 or better).

Good morning, and welcome to the Wednesday update to the Hoffman Team Blog. 

Years ago there was the fixed rate mortgage which was pretty simple: you make the same payment for the # of years you agreed to (usually 30), the rate stayed the same, and you were done at the end.

Now, there are a much wider variety of mortgage types available and we are required to be knowledgeable in what we provide to our customers.

We're here to help.

Today we are going to cover Hybrid ARMS, Friday will be One Month Option ARMs, and Monday will be Hybrid Option ARMS.

Hybrid ARMS:

These are a 'hybrid' or union of a fixed rate mortgage and a traditional ARM. They have a:

1. Start Rate which remains fixed for X amount of time, so a 5/1 lasts 5 years and adjusts every year thereafter.

The longer the fixed period, the higher the rate. 

2. Adjustment Cap Structure which dictates how much the rate can change when the loan begins adjusting. A 5/1/5 adj. cap structure means that the 1st time the rate adjusts it can go up or down 5 points max, any subsequent adjustments are limited to 1 point up or down, and the rate can never go up or down more than five points.

This is based upon a rate (which is tied to an index such as LIBOR) + a margin (the percent the bank charges as a 'risk premium' for loaning the money).

3. Floor: a rate which the note rate or fully indexed rate can never be lower than. (usually the initial fully indexed rate)

4. Ceiling: a rate which the note rate or fully indexed rate can never go higher than (usually 9.95 to 11.95 depending on lender and index)

The minimum payment on a 100,000 dollar regular Hybrid ARM with a 7% rate would be a bit over 665 dollars, and borrowers of all credit levels qualify for Hybrid ARM type mortgages.

I hope this helps out when looking at the different options we offer at the Hoffman Team.

See you all Friday!

Jason Strong

The Hoffman Team

Welcome to the start of the Hoffman Team Blog, where I will be presenting articles of interest to the visitors of our site and providing commentary when needed.

We're starting off with an article from FOXNews, regarding the recent change in mortgage rates.

Be sure to check in Monday-Wednesday-Friday for updates!

WASHINGTON — Rates on 30-year mortgages fell to the lowest level since mid-December as investors scrambled to the safety of bonds following last week's stock market turmoil.

Mortgage giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages averaged 6.14 percent this week, down from 6.18 percent last week.

The decline pushed 30-year rates down to the lowest point since they averaged 6.13 percent the week of Dec. 21. Other rates dropped as well.

Analysts said the declines reflected the big 416-point plunge in the Dow Jones industrial average last week. The stock market turbulence sent investors fleeing to the safety of bonds, which meant the yields on those bonds -- which determine mortgage rates -- fell.

"Mortgage rates slid further in the past week to the lowest level this year as volatility in overseas stock markets led to questions about implications for the U.S. economy," said Frank Nothaft, chief economist at Freddie Mac.

Nothaft said he believed the economy would strengthen as the year moves forward and this would leave 30-year mortgages moving in a narrow range of between 6.3 percent and 6.4 percent.

The Freddie Mac survey showed that other types of mortgage rates hit their lowest points for the year as well.

Rates on 15-year, fixed-rate mortgages, a popular choice for refinancing, fell to 5.86 percent, down from 5.92 percent last week.

Five-year adjustable rate mortgages edged down to 5.90 percent, compared to 5.93 percent last week.

One-year ARMs dipped to 5.47 percent, down from 5.49 percent last week.