Tag: realestate

Mother Nature and Mortgages

 

Here in the lovely state of Arizona where we live six months of the year seven inches from the surface of the sun, we usually have what we like to call a “dry heat” – not unlike an oven, if you will. However, for about six blessed weeks in the middle of all this wonderful heat, we have Monsoon Season where it rains like it’s trying to catch up with Seattle’s annual precipitation totals, and our streets turn into rivers and our parks into lakes.  You can read all about it in the brochures they give out at the airport.

After one of our most recent monsoon storms, I was driving along one of the higher-elevation streets that didn’t become a river, and I noticed that on one side of the road in front of a rather fancy housing development was a row of rather mature Palo Verde trees – and every single one of them had been toppled over by the wind with their entire root systems exposed for all to see. (I’m sure arborists were blushing.) Based on my extensive research (three minutes on Wikipedia), I confirmed that Palo Verde trees are native to our desert climes, so one would think that they’d be used to Mother Nature’s huffing and puffing during Monsoon Season – and they’d be right.  If you go out to the desert and spy a Palo Verde tree that ended up there naturally, you’ll see that it’s standing upright and fully planted despite whatever the elements threw at it.

The reason for this difference isn’t that these “city” trees have loose morals causing their “country” parents and relatives untold hours of disappointment and hand wringing.  The answer is far more simple: like any tree, a Palo Verde’s roots seek the closest and most abundant water source.  In the desert, this usually means that the roots are forced to reach down MUCH deeper to find a water source.  When Palo Verdes are planted as a component of an overall landscaping scheme, they’re either situated close to a patch of grass where all the watering is done at the surface, or the trees are watered independently by a drip system, which is also at the surface.  In either case, the roots stay close to the surface and never develop a system that really anchors them deep into the soil.

If you’re going to plant a Palo Verde tree, the best way to ensure it develops a root system to withstand Monsoon winds, you should take a PVC pipe and drive it into the ground parallel with the trunk of the tree.  The length of the pipe should be anywhere between 4 feet and halfway to China. Once the pipe is installed, the tree should get one deep watering each week ONLY through that pipe.  By having the tree “fed” this way, the roots are forced to reach down toward the water source rather than across to a patch of grass or a drip system.

If your lender spends five minutes on the phone with your buyer and gives you the green light to take them out to look at houses, he/she may be setting you up for failure.  In other words, when the fierce Monsoon winds blow in from underwriting, did your lender do the right work up front to assure your client’s roots will be strong enough?  In most cases, you didn’t find THE HOUSE for your client in five minutes – and I would venture to say there are some clients who need reminding of that, right?  We want the transaction to close as much as you do, so give us the time to get our hands dirty and dig down deep enough to make sure we can all weather the coming storm.

Hedging Your Bets in Home Sales

 

“We’re from the government, and we’re here to help.” There are multiple jokes out there with that as the punch line, but we won’t go down that path today –it could lead to some pretty dark and/or inappropriate places, and this is a family show.  I’m not down on the government, and that’s not the point of this week’s newsletter, but this is a cautionary note to all of you out in real estate land about a government program here in Arizona called Pathway to Purchase –I’m sure each state has a similar catchy-named program.

For those who qualify for P2P (we even have a cool acronym, right?), they can get up to 10% of the purchase price or $20,000 (whichever is less) FREE to be applied to the down payment and closing costs. Bring it on!  The qualifying individual(s) can have an income up to $92,984 (I’m sure that oddly specific number comes from some pointy-headed individual deep in the bowels of our state’s bureaucracy), and the purchase price can go up to $371,936 (Mr. or Ms. Pointy Head strikes again).  A credit score of 680 or higher is required (the guidelines say 640, but believe me, it NEEDS to be a 680), and the property has to be located in one of 26 ZIP codes.  If your buyer checks all these boxes, you’re off to the races, right?  Maybe.

The program has a $15 million commitment, and it’s available on a first-come-first-serve basis –nothing wrong with the Early Bird Gets the Worm concept.  Here’s where it gets . . . dicey–as in, rolling the dice.  We as the lender can’t apply for any funds from this program UNTIL THE HOUSE IS UNDER CONTRACT.  You read that correctly.  What this means is that we can’t give you a reasonable sense of confidence when we prequalify your buyers if we base our qualification on the fact they are relying on the funds to pay for their down payment and closing costs –we can only hand you the dice and hope you roll a good number.  Remember, while the program has a $15 million commitment, there’s no way to go to a website to see what’s left in the coffers–and while $15 million is A LOT OF MONEY to all of us mere mortals, that amount doesn’t last very long.  We speak from experience from the last time P2P made its appearance here in the Copper State.

We learned something else very interesting from the last time P2P was here acting like Santa Claus: in those eligible areas, home prices went up much faster because buyers were flooding in, making offers, and buying up homes.  It’s going to happen again, you know that.  We would HIGHLY recommend taking a look at the list of 26 ZIP codes and showing homes to your clients . . . in the next ZIP over –hear me out.  It’s likely the home in the unapproved ZIP code is still in the same school district, near the same shopping, etc., but you’ll be able to get a better price for a home for your client or get them more house for the same price as those in the approved ZIP code next door.

One more thing to know about P2P (and many other down-payment-assistance programs), the debt-to-income ratios are lower, and the interest rates are slightly higher.  This means your client, if relying on the funds from the program, will qualify for significantly less house.

If a lender approaches you and tells you that they can DEFINITELY get your client approved with Pathway to Purchase funds, ask them to roll up their sleeves and show you their forearms –they’re probably covered with fake Rolexes that you can get for a cheap price.  And if you buy one, roll the dice and hope the watch lasts long enough for your client to come to us and get APPROVED with verifiable options.

Service: Do You Want Fries With That?

 

All I wanted was something to drink, nothing more. It was a warm summer afternoon, and I’d been walking what seemed like a million miles –that might be a slight bit of hyperbole –to visit the sights of a well-known city here in this great country of ours.  As my thirst was getting the better of me, I happened upon a nationally known fast-food restaurant that was literally across the street from a huge tourist attraction –not only was the location a prime one, there were no other fast-food restaurants nearby so competition was next to nothing.

When I stopped in, it was close to lunch time, so the restaurant was understandably busy with a mix of locals and tourists –the line was one of the longest I’d ever seen for this particular “brand”.  As I was waiting to place my order, I noticed that there were four or five registers mounted at the counter, but the manager only had two of the registers running. That seemed odd.

The person in front of me in line had just stepped up to the register and proceeded to place her order –I could almost feel that drink touching my lips and being poured down my gullet to satisfy my building thirst.  Bingo, the person in front of me finished her order and stepped to the left to await her number being called, so I approached the worker who had been placed in my path to take my order –I’m at the gates of thirst Shangri-La. Without even looking at me, the worker reached into her pocket, extracted her cell phone, looked at it for just a moment, and then tapped a couple of keys on the register before walking away from the counter –she never once looked up at me. What?!!!  Eventually, I was funneled over to the remaining open register to place my order and shuffled over to the left to await my number being called –I ordered ONE drink, and it took ten minutes to get it, because they only filled the orders in sequence rather than by availability.

In the real estate and mortgage world, there’s a TON of competition –you can’t swing a cat around without hitting another agent, and everybody has a brother or an aunt who has a mortgage license. However, once an individual has waded through the masses and chosen you and me to help her purchase a home, the competition is relatively non-existent.  At this point, it’s our responsibility to provide a service –and do it efficiently and effectively.

If we’re good at what we do, we’re busy, right? That’s not a bad thing. Nevertheless, what do we do to assure that our clients don’t feel like they’ve been shunted into a long line with only one or two registers open?  Or, are we so full of ourselves and our own awesomeness that we feel our clients should be counting their lucky stars to have us as their agent and advocate?  The manager at the fast-food restaurant, in my estimation, could have been much more successful if he or she set up a system that showed the clients that they were the priority –more open registers, workers who stayed at their post, orders filled more efficiently.  Regardless of our given titles, we’re all managers of our own “nationally known fast-food restaurant” in a prime location with relatively no surrounding competition –do we just settle for what comes through the door and stays to eat, or do we focus on each individual client’s needs and work to assure we aren’t keeping anyone waiting?  And to think, all this from my need for a simple drink!

Cash is King, But Appraisers Aren’t Court Jesters

 

What is someone’s home worth?  Short answer, of course, is whatever someone is willing to pay for it.  And if they’re buying with cash, that’s all the answer one needs, right?  So, for those of us who don’t have bags of money at our disposal, the real-life answer to that question is the amount at which it appraises.  As real estate brokers and agents, you already know this, so why am I even talking about it?  Well, let’s just think of this as a quick refresher course–one that should help you in our current market.

One of the big factorsused in determining the value by an appraiser – who quite often seems to take his or her job REALLY seriously – is the overall condition.  Please, hold your “well, duh” comments for the moment.  The “condition ratings”, according to the Uniform Appraisal Dataset Definitions, are broken down into six categories: C1-C6. The category of C1 is almost always a new house; C6 is beyond the definition of “fixer upper” – the idea of financing such a purchase evokes either maniacal laughter or the need to evacuate the contents of one’s stomach.  Again, I’m confident you already knew this, but stay with me –you’ll like how all this ends.

GOODagents know how to prep their clients to get their homes ready for the appraiser.  GREATagents know how to read the comps and can tell from the condition rating (C1-C6) why asimilar nearby houseappraisedfor a certain amount.  Then, armed with that information and knowledge, they can give their clients very specific advice and instructions to assure the appraisal comes back as close to what is anticipated.  In many instances, this is what separates the “GOOD”from the “GREAT”agents – it’s all in the details.

If the house across the street (practically the same floor plan, similar square footage) sold for $268,000, a great agent is going to dig into the comps and find, for example, that the “comp” kitchen was given a C3 – regular wear and tear, well maintained.  This great agent is going to look at her client’s kitchen through the eyes of an appraiser and notice that there’s a chip in the sink and the tile has some cracks in very noticeable places, all signs that the appraiser could look less favorably on the kitchen’s condition and issue a rating of C4.  That difference in rating could mean thousands of dollars in decreased appraised value while the repair of these items might only cost $150-200.

If you already knew all of this, I’m flattered you actually made it this far.  However, if there was even a slight “hmmm, that’s interesting” pop into your mind, give us a call.  We would love to sit down with you and review an appraisal to show you what you should be looking for and how to get an appraiser possibly to change his mind – we’re not making any promises, but you’ll be pleasantly surprised to learn that it’s actually more common than a flying pig.

Don’t Wait for the Rate

 

Buckle up and get ready to have your mind blown! Okay, it’s not THAT mind blowing – some of you might even say, “well, duh” – but it’s still interesting.  The New York Federal Reserve’s economists recently published the results of a study: changes in down payment requirements have MORE influence over home buyers’ willingness to buy than changes in rates.

Surveying both buyers and renters, the Fed found that the effect of interest rates may be overrated when compared to even small changes in down payment requirements.  The study found:

1.Droppingthe down payment from 20% to 5% increases the willingness to purchase, on average, by 15% among buyers and 40% among renters
2.Decreasingthe interest rate on a 30-year fixed-rate loan only raised the willingness to purchase by 5%, on average

As buyers straddle the fence between BUY RIGHT NOW with a higher interest rate and WAIT AN UNKNOWN PERIOD OF TIME to save 20% of the purchase price, here’s an example to give them a push.  Take a look at the numbers for a house with the purchase price of $200,000 with a 30-year fixed mortgage:

WAIT: requires a $40,000 down payment for a total loan amount of $160,000.  At an interest rate of 5%, the monthly mortgage payment (principal & interest) would be $855.35.

BUY NOW: requires a $10,000 down payment for a total loan amount of $190,000.  At an interest rate of 5.375%, the monthly mortgage payment (principal & interest) would be $1059.20.

No doubt $855.35 is better than $1059.20 for a monthly payment – that’s not what’s at stake here.  The difference between those two payments is $203.85.  In order for a person to save the additional $30,000 to go from a 5% down payment to a 20% down payment at the rate of $203.85/month, it would take over 147 months (12.25years!) to get to that point, which is almost half the life of a 30-year mortgage–and who knows what home prices will be like 12 years from now!

For many perspective buyers, that additional $204/monthis significant.  We have a number of strategies to help make up that difference and get you into a home as soon as possible!

This is a reprint (with a few changes) from a few years back, but the message is still relevant today.