As we get move into the spring home buying season, most locations throughout the country have turned into a seller’s market. Although loan officers typically deal with buyers, or people refinancing, LO’s also come in contact with sellers who are buying in the same community. There are several buyer “turn-offs” that sellers should avoid at all costs.
First and foremost is a dirty house. Whether it be replacing carpets for stains and particulates or steam-cleaning tile and grout, the home should be as debris free as possible. The next area for an impression to go awry is smell. The old saying is buyers buy with their noses. Sellers should make sure their home smells fresh and inviting. From kitchen to pet odors as well as anything else, what a seller may perceive to be homey could quickly turn off a buyer.
Sellers should know that old fixtures are another way to scare off buyers, and for new cabinet hardware and doorknobs, the cost is all of $400 or $500, but it makes a huge difference. The same holds true for dated ceiling fans, light fixtures and kitchen appliances. Buyers can take care of these things after closing escrow, but it's going to impede the seller from getting the highest price possible for their home. Also avoid clutter, which can be a distraction.
It appears that today's buyer wants no part of wallpaper. Wallpaper is a pain to remove and simply adds another chore to a buyer's to-do list. Another pain-in-the-rear are popcorn acoustic ceilings; once the must-have for fashionable homes in the '60s and '70s, but now an accessory that badly dates the space.
Also, if your house is cluttered with too many personal items, it's like the buyer is trying on those clothes with you still in them: a fit is unlikely. Decorating to live and decorating to sell are different, and sellers should try to eliminate personal items, including family photos, personal effects and even unique colors.
Loan officers often tell sellers that another bothersome item is owners who want to walk around with the potential buyer and provide advice. On the other hand, curb appeal is critical – it is your house’s first impression. Experienced lenders know that buying, selling, or refinancing a home is very important, and are more than happy to assist and provide recommendations based on their experience.
It is important for anyone buying a home or refinancing to understand a couple basic concepts. For example, the two most important considerations for homebuyers are debt to income ratio and the price vs. rent calculation. Homebuyers first must understand their affordability using a debt-to-income ratio, and then they can evaluate their housing options in their local market by comparing cost to rent vs. buy.
Debt-to-income analysis tells you what percentage of your income you’re going to spend on housing and all other monthly obligations. This is how all U.S. mortgage lenders make loan approval decisions, and although there are other quantitative measures lenders use for loan decisions (such as credit scores or the percentage of the home’s value that will be financed - LTV), the debt-to-income ratio is by far the most important because it looks at the most data.
For housing, monthly debt payments mean highest-case principal and interest on a mortgage payment and property taxes (before tax deductions), homeowners insurance, and mortgage insurance if applicable. For non-housing it means payments on present and future student loans, credit cards, car loans/leases (the present versions of these items come from credit reports) plus child support, alimony, and countless other types of non-housing debt people have hidden in their credit reports, tax returns, and asset account statements. Lenders allow you to spend 40-50% of your income on your debt obligations depending on the loan size and type.
The next step is to understand whether it’s cheaper to rent or buy. Like debt-to-income, it’s all about the numbers at which you are looking. The reason is because people use national figures for home prices and rents, but monthly mortgage payment assumes a 20% down payment at prevailing 30-year-fixed-rate mortgage rates. Their analysis is based on median national asking prices for rents and median mortgage payments based on national listing prices, so when taking this into consideration, know exactly what the numbers mean!
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Consumers want the best price and best value, whether it is with a gallon of gasoline or a mortgage. Most lenders’ business comes to them from referrals, which is a very good thing, and many mortgage loan originators have had years of experience watching borrowers shop for loans. Some shop different lenders as if they could make a selection based on price. Most mortgage borrowers, however, don’t try to shop; they select or are selected by a single lender, which tends to work very well.
Unlike a gallon of milk, or a Big Mac, there are at least two prices: the interest rate and total lender fees. On adjustable rate mortgages (ARMs) there are also rate caps, the rate index used, and the margin over the index. Borrowers should know that an interest rate all by itself means very little. Multiple prices complicate shopping by borrowers when a number of factors enter into the decision: the products can change based on the borrower’s qualifications, the loan-to-value may change based on the appraised value, and the actual rate and price can change from day-to-day, or even during the day, based on bond market fluctuations.
In recent years borrowers have been at a disadvantage during the process since some lenders have exploited clients. They believe that since the borrower is not shopping, the lender can take advantage of them. This is the illegal, and should not be tolerated. Honest lenders believe in total transparency, and will not quote a price to a borrower below the price they are actually willing to accept. Low-balling is endemic on internet-based referral sites which display price quotes by dozens or hundreds of lenders, for example. Potential borrowers should be very careful when searching for a mortgage – it is an important process.
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In most countries 30-yr fixed rate loans are in the minority. Here in the United States, however, the majority of residential mortgages are fixed rate loans with an amortization spread over 30 years – but some argue that might be changing.
Customized mortgages aren’t new. Industry experts say they are seeing more and more borrowers opt for fixed-rate loans with terms other than the standard 30 or 15 years, especially when it comes to refinancing. Last year, nearly 17% of all refinanced mortgages were with “other length” fixed-rate loans, according to the Mortgage Bankers Association, which noted that in August, September and October, the share was 20 percent. Most of those “other length” loans were in 20-year mortgages, though loans are also available for 10, 25 and 40 years, and even for “oddball” terms like 23 or 12 years.
Most borrowers have noticed that the shorter terms are especially valuable to people refinancing after paying down their 30-year mortgage for five or seven years. If they take a 20-year mortgage, they can reduce their interest rate — and the term — and possibly even get a monthly payment the same or slightly lower than before. The 20-year mortgage is becoming so prevalent, banks are starting to sell them off to investors or in the secondary mortgage market. Many customers seeking to refinance ask for odd loan terms to avoid increasing the length of their repayment schedule. Be sure to ask your loan officer for suggestions.
Proponents of 30-yr mortgages counter, however, with the thinking that the Fed is buying primarily 30-yr mortgages, and that they are the benchmark. Both claims are true. But eventually rates will rise (not in the foreseeable future) and intermediate ARM loans, such as 3-yr or 5-yr products, will come back into vogue.
For some borrowers, refinancing is difficult. Underwriting and appraisal requirements have increased. For borrowers that do meet the increasingly stringent requirements, however, today’s record-low rates offer an unusually good opportunity, and, when taking advantage of the current conditions, there are a few tactics they can keep in mind.
Having a solid credit score is crucial when it comes to qualifying for refinancing, and this usually means 740 or above. Credit issues aren’t the sole premise of low-income borrowers either, as people with high credit scores who miss payments have more to lose, so to speak. It’s best to be aware of any problem areas and start repairing credit well before the qualification process begins. Loan officers remind their borrowers that they are legally entitled to three free credit report from Equifax, Experian and TransUnion, respectively, every 12 months, which is a good place to start.
In terms of other qualifying factors, things are generally easier for borrowers who have at least 20% equity and who have worked the same job for at least the last two years, unless they’re self-employed.
New borrowers and those refinancing know that lenders typically offer several different products. Even though the national average for interest rates is at an historic low, not all loans on offer are equal. Some of the larger institutions are also raising rates due to their pipelines nearing capacity; raising rates is meant to cut back on the volume of loans they have to process while giving profits a boost.
In addition to their products, different banks will have different loan costs. Origination fees for a $200,000 loan can range from under $200 to $2,000, and obtaining the numbers from a variety of lenders can serve as a useful bargaining chip. Ask your Loan Officer or contact us!
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