When I was new in real estate, I was about to cancel an inspection appointment because it was raining. The inspector wouldn’t be able to check the outside properly, I thought.
Quite the contrary, the best time for the buyer to do the physical inspection on a house is a rainy day. Any roof or window leaks, or drainage problems will be evident.
It’s raining here today, but you can’t always time everything just right!
There are basically three reasons why a homeowner would want to refinance.
One, to get a lower interest rate, thus lowering his payments. In the past 5 years, most homeowners have refinanced at least once. Some have refinanced multiple times. Simple calculations will tell you whether or not you will save money by refinancing. Don’t forget to add in all the costs.
Two, to get cash out. Most lenders will lend up to 80% of the value of your house. You can get 100% cash out financing, but the interest rate is very high. The advantage of using the cash from the equity from your house rather than using your credit card is the tax advantages of deductible interest, as well as lower interest rates. However, the down side is, if you do not make your mortgage payment, you can lose your house. Not making your credit card payment cannot put your house in foreclosure.
Three, to change the term of the loan. You may have a 30-year loan, and decide you want to pay off the loan faster by refinancing to a 15-year loan. Or vice versa, you may refinance from a 15- to a 30-year loan in order to lower your monthly payments. You might also have a balloon payment due on your loan. You pay off the holder of that note by refinancing to a new loan. For example, some people have a 30 due in 5 type of loan which was very popular. This means the loan payments are calculated based on a 30-year amortization, but the loan is all due at the end of 5 years. Unless you won the lottery, most people would not have enough money at the end of 5 years to pay off the entire loan. So you pay off that balloon payment by refinancing.
Or it may be a combination of these three reasons that a homeowner chooses to refinance. If you are in any one of these situations, refinance now before rates go up any higher.
If your offer is contingent on the appraisal of the property, here is what could happen.
If the appraisal value is lower than the sales price, you, as the buyer has the option to cancel the sale and get your deposit back.
Before that happens, the buyer and seller usually renegotiate the sales price until they come to an agreement.
If the seller is willing to reduce the sales price to the appraised value, then there should be no problem for you to continue on with the purchase.
However, if the seller insists on a sales price higher than the appraised value, it is not unusal for the buyer to still buy the property for a price above the appraisal value for many reasons. If the market is going up, the comps for the appraisal just hasn’t caught up. So you are not overpaying because the market value is in fact higher than the appraised value.
Another reason is if the house is a unique property that cannot be compared with comps in the neighborhood. For example, if it has a very large lot, or very expensive and intricate woodwork, or special styling and design, an appraiser cannot give it an appropriate dollar value, but value is certainly there.
Another reason is if the property suits your needs in terms of location and amenities, you may be willing to pay a little more for it. I had this type of situation with a buyer. I told her honestly that the property is overpriced. But the house was exactly what she wanted, so she paid about $10,000 above appraised value. She has lived there over 15 years, and that $10,000 made no difference now. If she had not bought that house, later she would’ve regretted not paying a little more for it.
Another reason to pay more than appraised value is if there just isn’t anything else on the market that is any better. You may have seen other houses priced higher, but not any better than this property. So compared with everything else in the market place, the value is there.
Appraisal value does not take into consideration all these various factors.
This year, Christmas falls on a Sunday. It is a perfect day to go to church.
I will not be working that day! I don’t think anyone will showing houses or making offers that day.
As it is every year in the real estate cycle, the housing market picks up after all the holiday activities are over, decorations put away. It gains momentum gradually until March, when it increases at a great pace through the summer.
Bust or no bust, there are always people buying and selling. Jump in any time.
With everyone talking about the real estate bubble bursting, should you still buy now or wait?
I cannot guarantee that you will not lose money in real estate. I have sold homes for people who have lost quite of lot of their investment. They bought when the market was high, and had to sell when the market went south. I have sold homes of people who lost their jobs and couldn’t make the payment, had to sell their home and walked away with nothing. I have sold homes for couples who are forced to sell in a low market due to divorce, and lost money. I have rented homes to families who lost their home in a foreclosure and had to rent a smaller home in a less desirable neighborhood.
If you are uncertain about your own ability to budget and make the mortgage payment, if you have difficulty holding a steady job, if your type of work in seasonal or subject to fluctuation, if your job skills may become obselete, if you are transient and cannot see yourself living in the same place for more than 3 years, then I recommend you not take the risk.
Homeownership is more than monetary. There is pride in owning your own home. There is a feeling home instead of just living quarters. There is privacy, community, stability.
Every situation is different, but unless your uncertainty is grounded on good reasons, don’t let a little risk hold you back from enjoying homeownership.
Is it still a good idea to buy real estate? Should I wait until prices drop?
In 1990, we bought a house for $200,000. When the market was hot in the 80’s, that house would’ve sold for $250,000. As the market dropped, we thought we got a good deal.
As you may remember, home prices dropped some more in the early 90’s. Foreclosure was rampant, driving prices lower. If we had to sell then after 3 years, we would’ve probably lost $50,000. We held on.
As the real estate prices climbed back slowly, we were happy the value was regained to our original purchase price around mid 90’s.
Then the bull market began charging. When we could’ve sold it for $300,000, we were tempted to take our gain. But with no immediate need of the money, we held on.
Now it is valued at more than doubled what we paid.
After 15 years of owning this house, we’ve paid down the loan, taken advantage of the tax advantages, and it hasn’t hurt us any. Soon it will be free and clear of debt, and it will help put my children through college.
You may say, wouldn’t it have been better if we timed it better, caught it at the bottom of the market, sold it at the height of the market, and rebuy it when the prices are low?
Do you have a crystal ball? Hindsight is no sight. But even without the crystal ball, we did not lose, so that’s not so bad, is it?
Is anything in life a guarantee? How often do you see a perfect scenerio? But in the long run, real estate probably won’t hurt you.
It seems everyone you talk to thinks prices are going to go down, the real estate bubble is going to burst. CNNMoney projected negative growth in 2006 and 2007 in some areas.
Yet, the current figures do not seem to bear this out. According to the Los Angeles Times , “average U.S. home prices climbed 12% over the 12 months that ended Sept. 30″ While it also says the home values appreciated only 2.9% during the third quarter from the second quarter of 2005,the annualized rate is still a double digit 11%.
So what can you expect in the coming year?
With the rise in interest rates, there will definitely be a hiccup in the purchase market. Buyers need some time to adjust back to reality. We are talking 6.5% to 7% interest rate, not the 12-14% that we had in the 80’s. We were spoiled by the incredible 4-5% interest rate which we really could not expect to continue. I don’t think a 7% interest rate for home loans will not kill the real estate market.
The second consideration is supply and demand. The last three years, we experienced an incredible increase in home prices literally daily. A house sells for $300,000 and the next door neighbor puts his house on the market the next day and sells it for $320,000. I don’t even know how to calculate the annualized increase, it is off the chart! We are certainly not having this same type of demand. However, I am still seeing low inventory is in the marketplace. A decently priced home will still sell within two weeks. This means there are buyers out there willing to pay a decent price. We are not having high unemployment figures; we are not having decrease in population in our area. We should continue to see appreciation in single digits or better.
(The houses that sit around on the market for over a month are sellers who think they can do what their neighbor did 3 years ago. They are either testing the market or will eventually lower the price to a realistic figure. When we do comps, we are not seeing houses selling below the last sold home in the neighborhood.)
After all the analysis and predictions, no one has a crystal ball. Just remember, real estate is a long term investment, and you won’t be disappointed.
Impounds, or an escrow account, is the monthly payment that a homeowner makes towards the payment of his property taxes and property insurance.
Property taxes are due twice a year, and property insurance is generally renewable once a year. Instead of paying a large sum as they are due, an impound account allows you, the owner, to pay it monthly by dividing those payments into 12 equal payments. When the payment is due, the servicing company who collects these payments will make the payment for you. There is no fee for this. However, your impound account collects two months of payment in advance to ensure you have the money there when it is due. So in that sense, your money is tied up in the impound account. It is actually a forced savings account with no interest paid for your money.
You pay towards your impound account at the same time you make your mortgage payment. It is beneficial for people who may forget to set aside money to pay the lump sum of property taxes and property insurance. If you are late in paying property taxes, even if by one day, there is a big penalty. The county extends no mercy.
If you generally have a cushion in your personal savings account, and disciplined in setting aside money, you should not have an impound account. It is better to have your money in your control rather than with the someone else.
However, you are required to have an impound account if your loan exceeds 80% of the value of your house. This is because the lender’s risk is high, and they want to protect their investment by ensuring that you will pay your property taxes and property insurance.
If you have a CLTV of over 80% but using a piggyback loan, you are not required to have an impound account. The first loan is at 80% which would not require impounds, and the second loan covered their risk with a higher interest rate.
If you are not required to have an escrow account, you can still choose to have one to help you budget.
How do you make an offer to purchase?
Your Realtor will have a comprehensive purchase contract for you to review and sign. It covers not only the price, which most people are concern about, but also a zillion other terms that you don’t even know you should be concern about. But your agent, if you have a good one, will cover all your bases.
You will need to put down a deposit. This money will not be cashed until the offer is accepted, acknowledged by both parties, and escrow is opened. It is generally made out to your agent’s company for safekeeping.
Your agent then will take the purchase contract signed by you, and your deposit check, and present the offer to the seller and his agent at the first available opportunity. You as the buyer are not expected to be present. You can imagine it would be an awkward situation for the buyer and seller to meet face to face to negotiate. This is why you have an agent to negotiate on your behalf. Your agent, if you have a good one, will do his/her best to negotiate the best price and terms for you.
The seller may give an answer to your offer immediately, or they may take some time to think it over. It is customary to allow 3 days for a response, but I like to push for an answer immediately if at all possible.
The response will come back to your agent in the form of an acceptance, a counter offer, or a rejection, and your agent will communicate that to you. You can then proceed accordingly.
If you are a buyer, looking to buy a home for the first time, what can you expect?
First, you get pre-qualified or pre-approved.
After you know your price range and decide on the area that you want to live in, you go out with your agent to look for homes. Southern California is still a market place where inventory is extremely low. It will not take you more than 3 outings to see everything on the market within your price and area.
After seeing everything, you decide if one of the ones you saw is something you can see yourself living in for the next 3 years. In the past, records show people on the average move every 7 years. Now it is 3-5 years. So your decision probably does not have as much pernament impact as you may think.
If you do not like anything you saw, you can expand your criteria, either a different area or look in a higher price range, or decide that a one bedroom is acceptable rather than the preferred two .
If you do not want to expand your criteria, then you wait and go look at houses as they come on the market. This is assuming you have no time frame for your purchase.
If after seeing all the houses, how do you decide if you should make an offer?
In the old days, my clients can be picky about amenities, such as “I must have a fireplace” or “The bedroom has to fit my big poster bed.” If the house has everything but a fireplace, they can shop for a house with everything including a fireplace.
The market now does not really allow you to be too picky due to the lack of inventory to choose from. Because prices are high, it is the #1 limiting factor. Because commute traffic is horrendous in my area, how far you are willing to drive is the #2 factor. You can see how just these two aspects will limit your search. Let’s not even consider the fireplace.
So if there is a house that is within your comfort zone to live in, do not hesitate to make an offer.