Why Now is Good Time to Buy!

By Beth Hornick

SunTrust Mortgage

Many potential home buyers are waiting to finalize their decision to buy a new home. With news reports of falling home prices and increased foreclosures– it seems smart to wait. According to predictions from Freddie Mac, housing prices are predicted to drop approx 10% in 2008. BUT, if you pull out the “big 4” (California, Michigan, Nevada, and Florida)- the figures revises to less than a 5% drop. South Carolina and the Hilton Head area in particular, is an area with smaller drops in prices when compared to the national average.

Rates are now at near record lows with 30 year fixed rate loans hovering just around 6.00% for conforming loan amounts. Historical comparisons say rates typically drop about .25% BEFORE the election and RISE after .60% the election.

So, what is the best time to buy? Now, when rates are low? or wait till housing prices drop further? Many buyers seem to be emphasizing dropping housing prices. But, waiting for prices to fall can COST you money!

Here are two examples:

EXAMPLE ONE-Assume a mid level purchase price. These are the homes that should drop a MAXIMUM of 5%.

Current Price                                                             $300,000

Mortgage Amount (assumed 20% down)              $240,000

30 year fixed rate of 6.0% P & I payment               $1,438 per month

Assumes a 20% down, 30 year fixed rate mortgage at 6.00% (6.043% APR)

359 payments of $1,438.91 and 1 payment of $1,440.30

Assume 5% price drop                                            $285,000

Mortgage Amount                                                     $228,000

30 year fixed rate of 7.00% P & I Payment            $1,517 per month

Assumes a 20% down, 30 year fixed rate mortgage at 7.00% (7.047% APR)

359 payments of 1,516.89 and 1 payment of $1,516.16

An increase of $80 per month- that’s $28,800 over the 30 years! A 10% loss In this case- the 5% housing price drop COSTS the buyer over 10%!

EXAMPLE TWO- Assume a higher priced home. These are the homes that should drop a MAXIMUM of 10% (factoring in higher loss states– SC drops are predicted to be smaller)

Current Price                                                             $1,000,000                        Mortgage Amount (assumed 20% down)                          $   800,000

30 year fixed rate of 6.5% P & I payment               $5,056 per month

Assumes a 20% down, 30 year fixed rate mortgage at 6.50% (6.513% APR)

359 payments of $5,056.54 and 1 payment of $5,061.33

Assume 5% price drop                                            $950,000

Mortgage Amount                                                     $760,000

30 year fixed rate of 7.50% P & I Payment            $5,314 per month  

An increase of $258 per month- $92,880 over 30 years! A 9.8% loss.

Assumes a 20% down, 30 year fixed rate mortgage at 7.50% (7.515% APR)

359 payments of $5,314.03 and 1 payment of $5,314.45

Assume 8% price drop                                            $920,000

Mortgage Amount                                                     $736,000

30 year fixed rate of 7.50% P & I Payment            $5,146 per month  

An increase of $90 per month- $32,400 over 30 years! A 3.5% loss.

Assumes a 20% down, 30 year fixed rate mortgage at 7.50% (7.516% APR)

359 payments of $5,146.22 and 1 payment of $5,144.38

Assume 10% price drop                                          $900,000

Mortgage Amount                                                     $720,000

30 year fixed rate of 7.50% P & I Payment            $5,034 per month  

A drop of $22 per month- $7,920 over 30 years. A 0.9% gain.

Assumes a 20% down, 30 year fixed rate mortgage at 7.50% (7.643% APR)

359 payments of $5,034.34 and 1 payment of $5,040.59

In this example- housing prices would need to drop at least 10% before it would offset the predicted rise in rates. And 10% was the MAX decrease predicted!

These assumptions also assume a maximum interest rate rise of 1.00% over today’s rates. If rates rise higher or faster than predicted– the cost of waiting to buy will increase.

Another factor to consider is the increased inventory of homes available right now. Buyers have a larger choice of homes than any time in the recent past. But, what about all the foreclosures that the media says are coming up? Again, South Carolina and the Hilton Head area are predicted to have much lower rates of foreclosures than the national averages.

Also consider also what most foreclosed homes will look like. If a home owner does not have the money to make their mortgage payments– will they have the money to continue the necessary upkeep of the home?  And in many cases– there may also be outstanding liens for real estate taxes or Association fees. Trying to negotiate with a lender to buy Bank Owned Real Estate can make the process more difficult and few if any repair items will be done. In many cases, foreclosures are not the best deal out there.

So what should a potentional home buyer do? Buy now and save money!

Buyers, get into negotiating position

Crafting purchase offer takes strategy

By Dian Hymer, Monday, November 10, 2008.

Inman News

Bridging the price gap between home buyers and sellers can be a challenge in today’s market. Sellers, many of whom have a hard time accepting that their home has lost value, often expect to sell for more than buyers are willing to pay.

Buyers, on the other hand, are concerned that home prices could drop further. So, they’re making sure that they don’t overpay.

There are exceptions to the rule. Very desirable homes in the best locations sometimes sell for over the asking price, particularly if there isn’t much inventory of similar homes on the market. Some foreclosure properties at bargain prices are attracting multiple offers. Prices are rising in select areas. Overall, however, it’s a still a buyer’s market in most parts of the country.

There’s not much you can do to convince an unrealistic seller that he should accept your market-price offer. Many of the listings on the market belong to sellers who will sell only if they get a certain price. They may not be able to sell for less because of the size of the mortgage(s) secured against the property. In some cases, sellers bought at the peak and then improved the property. They can’t bear to take the loss they would incur if they sold at market price. In other words, these sellers would like to sell, but they won’t sell unless they get their price.

Before you make an offer on a listing that’s priced over market, try to find out as much as possible about the sellers’ motivation, and if there’s any flexibility in their price. A lot of time and emotional energy goes into making an offer. Save your efforts for listings where the sellers are motivated. That is, they don’t just want to sell — they need to sell.

Some sellers want to test the waters at a price that’s higher than the market will support. They usually feel that someone will appreciate the added value their home offers and pay more for it. However, these sellers will often negotiate with a legitimate buyer who offers a price that is less than the list price.

HOUSE HUNTING TIP: To put yourself in the best negotiating position, make sure that your financing is in order and that you are able to show the seller that you are capable of closing the deal. The fallout ratio is high in the current market. Many of these transactions fail to close because the buyers couldn’t get financing.

It’s always a good idea to be preapproved for the financing you’ll need to buy a home before you make an offer. Preapproval involves making a formal loan application, having your credit checked, as well as verifying your funds for down payment and closing costs, and validating your income and employment. Lenders often want to know that you have enough surplus cash to make house payments (mortgage, property taxes and insurance) for two to three months.

Buyers who make an initial low offer and who aren’t in competition should make as clean an offer as possible. This means omitting anything that’s not necessary. However, you should include contingencies for loan and appraisal approval and an inspection contingency.

It’s a good idea to include a copy of your preapproval letter with your offer. If you are approved for a higher price than you are offering, ask your lender or mortgage broker to issue a preapproval letter for the price you’re offering.

THE CLOSING: Then be prepared to negotiate. It may take several rounds of counteroffering back and forth to reach a mutually acceptable price.

Dian Hymer is a nationally syndicated real estate columnist and author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.

Good info for potential buyers. 5% down IS still available through Fannie and Freddie in our market  though borrowers with lower credit scores will do better with FHA or VA.

Daily Real Estate News  |   February 19, 2009  | 

5 Tips for Homebuyers Seeking a Mortgage

Here’s a warning for potential borrowers: Nervous lenders have tough new rules and are paperwork crazy.

“Borrowers are going to have to prove they are the borrower they say they are,” says Keith Gumbinger, vice president of HSH Associates, a mortgage-industry publisher in Pompton Plains, N.J.

Gumbinger says homebuyers should consider these things before they apply for a loan.

1. Down payments are critical. Borrowers should expect to put down at least 10 percent for a “conforming loan” – a mortgage that Fannie Mae and Freddie Mac will purchase.

2. Credit scores count. A 720 on the 850-point FICO rating scale will get a borrower access to the best rates. Rich Bira, branch manager of FCM Direct Lender in Chicago, says: “A score between 720 and 739 gets 0.125 percent added to the rate, a score between 700 and 719 gets 0.375 percent added to the rate, and a score between 680 and 699 gets 0.5 percent added to the rate.”

3. Consider VA and FHA. Borrowers without down payments or with less than stellar credit scores should consider these government-insured loans offered through the Federal Housing Administration of the Veterans Administration.

4. Unearth the records. Before applying, borrowers should organize tax, banking and other records that prove income, savings and debts. They should also expect to be patient about what may seem to be endless requests for information.

5. Get rid of debts. Limiting debts, including what borrowers expect to pay for the mortgage, to less than 43 percent of gross income is important.

How Will the Stimulus Package Affect The Housing Market—and You?

This is a monumental piece of legislation that will directly affect the housing market. I want to share my insights on how I believe it will affect the market so that you can make informed buying and selling decisions.

Homebuyers: Part of the stimulus package gives first-time homebuyers who purchase in 2009 an $8,000 tax credit. “First-time homebuyer” is defined as someone who has not owned a home for the past three years.  Combined with the fact that foreclosure filings during January decreased 10% from December 2008 and that some sales in December of 2008 rose 6.5%, we will see prices at the lower end of the price spectrum stabilize. All the really great deals will be snapped up in the next month or two and we should see a price increase in December of 2009 as those who wait will rush to buy before the $8,000 credit is gone. 

This will also help clean up some of the problem loans, short sales and foreclosures that have been a drag on home prices.

Three to six months from now we will see this start to move up to a little higher price range and by the end of the year, prices will stabilize in large mid-priced homes. High-end homes will be the last to stabilize sometime in 2010.

If you are thinking about buying, now is the time. Don’t wait and end up wishing you had taken advantage of this opportunity.

Home sellers: If you are selling in the lower price ranges, you can expect to see increased activity and, if your home is reasonably priced, you will get it sold very close to that price.

If you are not at the low end of the market, and do not have to sell, my advice is to wait twelve to eighteen months, you will get a better price. If you have to sell now, price it right and get it sold now as we could still see a drop in value in the mid and high-end price ranges over the next 3 to 6 months.

If you want to talk further about the impact of this stimulus package, give me a call or drop me an email about your situation and I will give you my recommendation.  Also check back here on a regular basis for updates on what is happening in our real estate market.