Friday, February 24, 2012

Home Sales on the Rise: Ready for Spring Buying Season?

Existing-home sales rose 4.3 percent in January to a seasonally adjusted annual rate of 4.57 million, marking the third gain for home sales in the last four months, the National Association of REALTORS® reports.

“The uptrend in home sales is in line with all of the underlying fundamentals – pent-up household formation, record-low mortgage interest rates, bargain home prices, sustained job creation and rising rents,” NAR’s Chief Economist Lawrence Yun says.

While sales ticked up, inventories of for-sale homes also continued to show improvement, NAR reported. At the end of January, total housing inventory fell 0.4 percent to 2.31 million existing homes for sale, which represents a 6.1-month supply at the current sales pace.

“The broad inventory condition can be described as moving into a rough balance, not favoring buyers or sellers,” Yun says. “Foreclosure sales are moving swiftly with ready home buyers and investors competing in nearly all markets. A government proposal to turn bank-owned properties into rentals on a large scale does not appear to be needed at this time.”

Unsold listed inventory has steadily dropped since reaching a peak of 4.04 million in July 2007. It now is 20.6 percent below where it was a year ago, NAR reports.

Housing Affordability Improves
As home prices have fallen and mortgage rates at all-time record lows, housing affordability is at some of its highest levels on record.

“Word has been spreading about the record high housing affordability conditions and our members are reporting an increase in foot traffic compared with a year ago,” says NAR President Moe Veissi. “With other favorable market factors, these are hopeful indicators leading into the spring home-buying season. We’re cautiously optimistic that an uptrend will continue this year.”

The national median existing-home price for all housing types in January was $154,700, which is down 2 percent year-over-year.

Distressed sales, which tend to sell at steep discounts, continue to hamper home prices nationwide. Foreclosures and short sales accounted for 35 percent of all January home sales, which is up slightly from 32 percent in December.

Still, “home buyers over the past three years have had some of the lowest default rates in history,” Yun said. “Entering the market at a low point and buying at discounted prices have greatly helped in that success.”

Breakdown by Housing Type
Here’s a closer look at how home sales fared by housing type in January:

Single-family home sales: increased 3.8 percent to a seasonally adjusted annual rate of 4.05 million in January from 3.90 million in December. They are 2.3 percent above the 3.96 million-unit pace a year ago. Median price: $154,400 in January, down 2.6 percent from January 2011.

Existing condominium and co-op sales: rose 8.3 percent to a seasonally adjusted annual rate of 520,000 in January from 480,000 in December. They are 10.3 percent lower than the 580,000-unit level in January 2011. Median price: $156,600 in January, up 2 percent from a year ago.

Home Sales by Region
The following is a breakdown of existing-home sales in January by region:

•Northeast: increased3.4 percent to an annual pace of 600,000 in January and are 7.1 percent above a year ago. Median price: $225,700, which is 4.2 percent below January 2011.
•Midwest: increased 1 percent in December to a level of 980,000 and are 3.2 percent higher than January 2011. Median price: $122,000, down 3.9 percent from a year ago.
•South: rose 3.5 percent to an annual level of 1.76 million in January but are unchanged from a year ago. Median price: $134,800, which is 0.3 percent below January 2011.
•West: increased 8.8 percent to an annual pace of 1.23 million in January but are 3.1 percent below a spike in January 2011. Median price: $187,100, down 1.8 percent from a year ago.
Contract Delays, Cancellations Remain High
Twenty-one percent of NAR members in January reported delays in contracts, and 33 percent said contracts fell through, according to NAR. The number of contract cancellations remains mostly unchanged from December.

The increase in the past year of contract cancellations or delays has been blamed on more lenders declining mortgage applications from stricter underwriting standards and low appraisals coming in under the agreed upon contract price.

Source: National Association of REALTORS®

Tuesday, February 21, 2012

Is Earnest Money Required in A Short Sale?

Is Earnest Money Required In A Short Sale Situation?

Q: My agent informed me that earnest money for a short sale transaction was required to make a contract binding. Is that true? More importantly, is earnest money refundable if a buyer pulls out of a contract prior to bank approval even though our contract provides for bank approval within 60 days?
–Anonymous, Bartlett, IL

A: The promise of the earnest money deposit is needed, but the money does not have to be placed into escrow until the bank approves the sale. This is a common error.

The contract is not binding because it is still subject to the banks approval. But even if you do place the money into escrow, you still have the right to its return before bank approval. Even after bank approval, you may still have a right to its return, but this is dependent on the terms of the contract.

If the contract cancels and your deposit is in escrow, then you will need both you and the seller to sign documents allowing its release. Without the signatures, you start down the path of legal recourse.

I always recommend that in a short sale, the earnest money deposit be placed into escrow after the banks approval. Since banks do not give you much time to close after their approval, I tell my clients to do their investigation, inspections and prepare their financing documents with the lender’s underwriter before the bank approves the short sale. This way when the approval arrives, the buyer is ready to close quickly.

Friday, February 10, 2012

Costs Associated with a Home Loan

Costs Associated with a Home Loan
Closing costs are the actual expenses that the lender incurs in the origination of a new home loan.

I want to review some of the costs you can expect to pay associated with any new home loan. With any luck, the builder or seller will agree to pay at least some of these expenses for you. But regardless of who pays them, these costs are part of the price of buying your next home, so let's take a look. They are closing costs, loan discount points and prepaid items.
Closing costs are the actual expenses that the lender incurs in the origination of a new home loan. Some of the costs are related to your loan application, such as the expense of newly updated credit reports on all applicants. Other fees are related to the house itself, such as the appraisal of the property. Others are payment to the lender for processing your application, such as the loan origination fee. All these costs are lumped into a broad category called "closing costs." Unless the seller offers to pay them for you, this area of expenses is charged to the buyer, and often runs between 2 and 3 percent of the amount being borrowed. Because different states have different fees and taxes that are a part of these costs, it's impossible to generalize nationwide. So it's important that you talk with a reputable lender ahead of time about what costs you can expect to pay in your part of the country.
Loan discount points are, in essence, a form of prepaid interest. One discount point is exactly equal to one percent of the amount being borrowed. It is paid in cash at closing to the lender as a form of interest. Discount points have the effect of lowering the stated interest rate you will pay on the loan you obtain. For example, a lender might offer you a 30 year fixed rate loan at 8% with zero points or the same loan at 7.5% with 2 discount points. Because the points are considered interest, the yield to the lender is approximately the same. So why, you are asking, would I want to pay points? You probably won't, but sometimes new home builders or employers will offer to pay up to a certain number of points as an incentive, and I want to make sure you get everything that's coming to you.
Last, there is the issue of prepaid items. Most home lenders want you to set up what is called an "escrow" account. This is nothing more than a savings account that the lender holds. Every month you will, in addition to your regular loan payment, deposit a sum for property taxes and for homeowner's insurance into this account. And when the next bill comes due for taxes or insurance, your lender will make the payment for you. The reason that all this matters today is that, on the day of your purchase, you will be required to set up an escrow account with about 9 months worth of taxes and about 2 months worth of insurance payments. In addition, you will have to pay for the first year's insurance policy in full. These costs are called prepaid items, and you must pay for them yourself.
Because regulations and customs vary from state to state, the amount you need at settlement may be more or less than the amounts I have discussed here. Talk to a reputable lender to get an accurate estimate of how much you will need to buy your next home.

A Short Guide to Real Estate Lingo and Acronyms

A Short Guide to Real Estate Lingo and Acronyms
Real estate ads are usually full of acronyms and terms that are unfamiliar to first-time buyers.

Here's a cheat sheet to let you in on the lingo.

4B/2B -- four bedrooms and two bathrooms. "Bedroom" usually means a sleeping area with a window and a closet, but the definition varies in different places. A "full bathroom" is a room with a toilet, a sink and a bathtub. A "three-quarter bathroom" has a toilet, a sink and a shower. A "half bathroom" or powder room has only a toilet and a sink.

assum. fin. -- assumable financing
closing costs -- the entire package of miscellaneous expenses paid by the buyer and the seller when the real estate deal closes. These costs include the brokerage commission, mortgage-related fees, escrow or attorney's settlement charges, transfer taxes, recording fees, title insurance and so on. Closing costs are generally paid through escrow.

CMA -- comparative market analysis or competitive market analysis. A CMA is a report that shows prices of homes that are comparable to a subject home and that were recently sold, are currently on the market or were on the market, but not sold within the listing period.

contingency -- a provision of an agreement that keeps the agreement from being fully legally binding until a certain condition is met. One example is a buyer's contractual right to obtain a professional home inspection before purchasing the home.
dk -- deck
expansion pot'l -- expansion potential mean that there's extra space on the lot or the possibility of adding a room or even an upper level, subject to local zoning restrictions.
fab pentrm -- fabulous pentroom, a room on top (but under the roof) that has great views
FDR -- formal dining room
fixture -- anything of value that is permanently attached to or a part of real property. (Real estate is legally called "real property," while movables are called "personal property.") Examples of fixtures include installed wall-to-wall carpeting, light fixtures, window coverings, landscaping and so on. Fixtures are a frequent subject of buyer and seller disputes. When in doubt, get it in writing.

frplc, fplc, FP -- fireplace
gar -- garage (garden is usually abbrevated as "gard.")
grmet kit -- gourmet kitchen
HDW, HWF, Hdwd -- hardwood floors
hi ceils -- high ceilings
in-law potential -- potential for a separate apartment, subject to local zoning restrictions
large E-2 plan -- this is one of several floorplans available in a specific building

listing -- an agreement between a real estate broker and a home owner that allows the broker to market and arrange for the sale of the owner's home. The word "listing" is also used to refer to the for-sale home itself. A home being sold by the owner without a real estate agent isn't a "listing."

lo dues -- low homeowner's association dues. But find out how "low" the dues are compared to other dues in the area.

lock box -- locked key-holding device affixed to a for-sale home so real estate professionals can gain entry into the home after obtaining permission from the listing agent

lsd pkg. -- leased parking area. May come with additional cost.
MLS -- Multiple Listing Service. An MLS is an organization that collects, compiles and distributes information about homes listed for sale by its members, who are real estate brokers. Membership isn't open to the general public, although selected MLS data may be sold to real estate listings Web sites. MLSs are local or regional. There is no MLS covering the whole country.

nr bst schls -- near the best schools
pot'l -- potential
pvt -- private
pwdr rm -- half bathroom or powder room
REALTOR® -- a real estate broker or sales associate who is a member of the National Association of REALTORS®. Not all real estate agents are REALTORS®.

title insurance -- an insurance policy that protects a lender's or owner's interest in real property from assorted types of unexpected or fraudulent claims of ownership. It's customary for the buyer to pay for the lender's title insurance policy.
upr -- upper floor
vw, vu, vws, vus -- view(s