Rates Are Starting to Rise.

Mortgage rates for 30 year fixed loans are starting to rise. Rates are starting to rise as the economy starts to recover. With the Dow Jones Average going in an upward direction, so do mortgage rates. The rates will soon be over 4% and will continue to rise as the housing market improves.

If you have not started your home search you need to do so as quickly as you can. Rates are not going to go down anytime soon. Housing prices are starting an upward trend in the Seattle, Washington area as well. Inventory is down to 4.5 months of inventory and that is good news for the housing market.

Prices at 2003 Level

If you look at today’s real estate prices you will find that they have fallen to the level of prices in 2003. That is good news for today’s buyers, but not so good for today’s sellers. But that is not what I want to talk about today. Markets, whether it is the stock market or the housing market, always seek equilibrium. We had a quick run-up of prices over several years before the “bubble burst” and prices started falling. I have heard a lot of real estate experts say that prices today are at the level they were in 2003.

What does that mean to you, the home buyer, in today’s market? If you bought a home in 2003 that was worth $200,000 with a 20% down payment, your payment for Principal, Interest, Taxes and Insurance (PITI) would be $1,122.92, assuming you were paying the average of the interest charged in 2003, which was 5.94% for a 30-year loan. If you were to buy that same $200,000 home with 20% down today—the interest rate as of Friday, January 27, 2012 was 3.70%. That would make your payment of PITI $910.78. That would be a savings of $212.14 per month, which calculates to a savings of $76,370 for the life of the loan.

Prices are the lowest they have been in eight years. The interest rate is at historic lows. So what are you waiting for? Contact me or a real estate broker near you and buy that home you have had your eye on.

John Paulson said in September of 2010:

“If you don’t own a home, buy one. If you own one home, buy another one. And if you own two homes, buy a third and lend your relatives the money to buy one.”

Examples of Mortgage Fraud

Kickbacks that are undisclosed

One kind of mortgage fraud is if you (the buyer) and the seller agree that you will receive a check or a cash payment for a new roof, for example. If your lender does not know about it because it is not disclosed in the Purchase and Sale Agreement nor any addendum to the P & S, nor disclosed on the HUD-1, then you are guilty of mortgage fraud.

Silent second mortgage

If you do not have a down payment you can commit mortgage fraud if you borrow the down payment from the seller. If you give the seller a second mortgage that is not recorded or is unrecorded after closing, then it is mortgage fraud.

Non-owner occupant claiming occupancy

You will pay a higher interest rate if the home you purchase is not owner-occupied. To avoid paying a higher interest you might tell your lender that you intend to occupy the home. You then rent the home to some one else and do not occupy the home. That is fraud.

Down payment gift repaid

You are allowed to receive a gift to assist you with the down payment. However, you must remember that a gift is just that, a gift. It can not be repaid.

Falsifying income

Overstating your income to the lender so that you will get approved for the loan to purchase your new home is committing mortgage fraud. You will need to supply your lender with current pay stubs and income tax statements to prove your income.

Falsifying earnest money deposits

Borrowers who state that their earnest money deposit is made outside of escrow are committing mortgage fraud. The buyers’ broker/agent should ensure that the earnest money deposit is turned over to escrow in the allotted time as agreed upon in the P & S.

Title And Escrow Explained

What is Mortgage Fraud?

Any one who lies or falsifies information on a loan application commits mortgage fraud. If you do not disclose all of the information that your lender asks for, or if you just adjust the figures a little bit so that you look better, you have committed mortgage fraud. This is often done because the applicant does not know any better. Sometimes it is because the lender, or even worse, the real estate professional, says it is not a big deal.

Creative financing is illegal in today’s real estate transactions. If your lender discovers that any of the information on the loan application is false, you could have your loan called due and payable, pay a fine, go to jail or a combination of all or part of the three. Worse, you could find the FBI knocking on your door.

The FBI defines mortgage fraud as “any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.”

Lenders can also commit mortgage fraud. Being in business for a long time is no guarantee the your lender is not committing mortgage fraud. A Pennsylvania broker was convicted of defrauding 800 borrowers over a 20-year period using a Ponzi scheme. He somehow managed to keep this fraud going for 20 years. The next 30 years he spent behind bars. A Kansas City, Missouri appraiser was sentenced to 20 years and had to pay a $500,000 fine for his part in a mortgage fraud scheme.

If you suspect mortgage fraud, contact the authorities immediately and report the incident. It could save you a trip to jail and/or a large fine.

Next week: Examples of mortgage fraud.

Is The Market Picking Up?

Real Estate offices throughout the Greater Seattle area are seeing an increase in activity. There are even reports of bidding wars in the more desirable neighborhoods. Pending sales going into the holidays were up. That is a time when sales usually slow down. Closed sales have shown an increase as well. These sales will not be reported for one to two months from now, so the market is certainly picking up.

With interest rates at an all time low, and prices at their lowest since 2003, why are you not looking for that dream home? The Fed announced that they are considering an increase in the interest rate. If that happens then you can kiss the current interest rate of sub 4% good bye.

Current homes for sale have reached and inventory level of 6 months. That is a neutral market, but is lower than the 15 months we saw in early 2011. Prior to the bubble burst, inventory was at a 4-month level. The market is poised to do very well in 2012.

Give me a call and let’s talk about what your real estate needs are and how you can buy that dream home you have always wanted.

First Time Home Sellers Resource

While looking at the statistics for my website and blog, it was brought to my attention that there were several views on a post that was directed at the “First Time Home Seller.” This was enlightening information as I thought that there was no need for any more information on selling a home for the first time. It seems that I was wrong. I apologize to those that have come to my site looking for information and found it lacking in what they were trying to find.

If you look under the resources tab, you will find a copy of Guide to Selling a Home from Windermere Real Estate. You can print a copy of this booklet for your own use and I hope you find it helpful.

I hope that you will return to read more posts for the First Time Home Seller.

What Is Closing?

I have been asked many times, “What do you mean by closing?” The answer is actually quite simple. Simple when you understand what is being talked about, and confusing when you do not know what is being talked about. If you are unfamiliar with the terminology, how can you know what is being said? Closing is when the real estate transaction is finalized.

The first step to closing is done at the escrow office. After all of the conditions of the purchase and sale agreement have been satisfied, you will get a call to schedule an appointment for signing all of the documents related to the sale/purchase of your new home. You arrive and a large stack of papers are placed in front of you and you are asked to sign most of them. Then the other party in the transaction will come into the escrow office and sign the documents that they need to sign.

Once all of the documents are signed, and the money is ready to be transferred to the appropriate party, the escrow office sends their representative to the County Clerk’s office to record the change of title. The County Clerk will then record the change of title in their records and gives the escrow representative receipt for the filing with a recording number. At the instant that the title is recorded and a recording number is issued, the escrow transaction is closed.

Once the escrow office is notified of the recording number, they call the bank/lender and the funds are released to the appropriate parties and their job is done. You can now move into your new home.

What is PMI?

PMI stands for Private Mortgage Insurance. It is an insurance policy that your lender may require if you have less than a 20% down payment. Most lenders feel that if you paid 20% down and have what is referred to as an 80-20 loan that you are less likely to default on the loan. If you do get a loan with less then a 20% down payment the banks feel that you have less to lose so you must pay for PMI. It is an insurance policy in which you pay the premiums, but do not collect on if you default on the loan.

There are some loan packages that are less then 20% down and do not require PMI. You will, however, have a slightly higher interest rate then a conventional loan with the bank paying for the PMI out with extra money from the higher interest rate.

Once you pay the loan down so that the loan ratio is 80-20 your lender will no longer require PMI. You must ask that the requirement for PMI be lifted from the loan. The banks typically do not inform you when your loan reaches the 80-20 mark. So pay attention to your loan balance and get rid of the extra amount going to PMI as soon as you can.

Who Determines Which Escrow Company is Used?

It is usually the choice of the seller in a real estate transaction. When a real estate broker or agent gets a listing, they will contact a title company and “Open Title”. What that means is they are asking the title company to provide them with a preliminary report concerning the ownership of the property about to be listed for sale. It also sets up a title insurance policy to examine a title to determine any potential title issues before the property is sold.

When an offer is made on the home, if the potential buyer wants to use a different title company or escrow company, now is the time to negotiate the change. If both parties agree, the change of title and escrow companies will be noted on the purchase and sale agreement.

Find The Right Mortgage For You.

If you are thinking that you do not qualify for a mortgage, you are not alone. You think you need 20% for a down payment, so why even ask about a mortgage. You think you need a 700 credit score, or you have too much debt. Well don’t just think you can’t get a mortgage, go out and find out. What you may find could surprise you.

There are loan products out there that do not require a 20% down payment. There are even products that will accept a credit score of 580. FHA requires a score from 620 to 640.

The point I a trying to make is; Get out there and talk to a mortgage professional. What you find may just surprise you.

Read more on this topic at http://seattletimes.nwsource.com/html/realestate/2017057675_harney25.html.

RESPA

The escrow analysis provisions of the Real Estate Settlement Procedures Act (RESPA) are designed to ensure all lenders are handling borrowers’ escrow accounts in the proper manner. Among other things, RESPA:

• Provides for the establishment of mortgage escrow accounts to collect 1/12 of the annual escrow disbursements, on a monthly basis, for the payment of taxes and insurance.
• Allows lenders to maintain a cushion equal to 1/6 of the estimated total annual payments. (A cushion is an amount of money held in the escrow account to prevent the account from being overdrawn when increases in disbursements occur.)
• Requires lenders to provide borrowers with an Initial Escrow Account Disclosure Statement within 45 days of closing, and an Annual Escrow Account Disclosure Statement at least once every 12 months thereafter. These statements are designed to provide information regarding the anticipated tax and insurance activity in the escrow account.
• Allows lenders to close loans using the aggregate (low-point) method. The aggregate method of mortgage escrow analysis simply means the escrow account, based on projected taxes and insurance for the next 12-month period, should at its lowest balance not exceed two times the monthly escrow payment.

 Rates Are Still Low. What Are You Waiting For?

Interest rates on a 30-year-fixed rate mortgage this morning is 3.75%. How long it is going to stay under 4% is anyone’s guess. If you are planning on buying a home in the next 2 to 3 months, get your pre-approval letter from your lender, lock in your interest rate and find that home you want to buy. Interest rates this low will not last forever, so start your search today.

With a lot of shadow inventory hanging out in the banks’ back pocket, prices on homes are going to remain low for some time. The inventory that is currently for sale in King County Washington has shrunk in the last few months. Six months of inventory is considered a balanced market, and that is exactly where we are at this time. Look under the Resource Tab above for the Trend Graphics file for South King County. The market is set for some more inventory to come on in the next two months with the banks releasing their Real Estate Owned (REO) inventory to lessen their debt load.

The right time to buy is NOW!

Do I Need An Escrow Account Cushion?

The RESPA statute and regulations do not require the lender to maintain a cushion. However, since 1976 the RESPA statute has allowed lenders to maintain a cushion equal to one-sixth of the total amount of items paid out of the account, or approximately two months of escrow payments. If state law or mortgage documents allow for a lesser amount, the lesser amount prevails.

The accounting method generally requires borrowers to maintain lesser amount in the account than the single-item method predominately used by lenders. However, many lenders have recently increased the escrow account cushion to the maximum allowed by law.

The regulations require lenders to reduce the size of the cushion in some accounts. Unfortunately, to avoid customer disapproval, some lenders may be giving their customers the impression that the HUD regulations require them to make this increase. This is a false impression. The lender, not HUD, has chosen to increase the cushion.

Avoiding Foreclosure Fraud.

Although the rate of home foreclosures is slowing, that does not mean the rate of foreclosure fraud has slowed. If you receive a flier from a company stating that they can stop your foreclosure or get a you a needed loan modification. Read it carefully and if it falls under the old adage, “if it seems too good to be true, it probably is”, throw the flier away.

Companies saying that they can “stop your foreclosure”, or get you a loan modification “for a fee” seem to want to help you. They want to help you out of your money. They collect the fee up front and do not do what they say they are going to do to assist you. Usually the home owner winds up in a worse situation then before, and several dollars lighter in their checking account.

The most common scam is the fraudster will tell that they can stop your foreclosure. They ask you to stop all contact with your lender, financial adviser, and your lawyer. They then ask you to send them your mortgage payment and they will take care of everything. By the time you find out that they are not doing what they said they will, you are facing foreclosure and have lost a lot of money.

Another scam that has appeared in the housing market is called “Rent to Own”. The scammer gets you to sign over your title to them to stop the foreclosure process and will rent the home to you. You will be able to buy the home back at a later date and everything will be fine. Unfortunately the cost of buying your home back will be too high for you to afford. Another way for this scam to end is the scammers evicts you from their home. Either way you are without your home and several thousands of dollars.

Remember; If it is too good to be true, it probably is!