The real estate caused global credit crunch shows signs of spreading like a fierce cancer to areas of the economy no one would have expected or predicted only a few months ago.

News this week that some major banks are no longer giving student loans to those enrolled in two year community colleges because of concerns those students may be a bad credit risk–which in nonsense, but an excuse being used nonetheless.

The chief executive of Wachovia was forced to walk the plank while Standard & Poors sliced the credit ratings for three investment banks, Lehman Brothers, Merrill Lynch and Morgan Stanley.

In Great Britain, one mortgage lender has issued a very dark and somber report on the near future of the housing market in the U.K.

Optimism or Foolishness?

At a time such as this, it is okay to try and remain optimistic so long as you don’t slip into the realm of foolishness and unrealistic expectations.

Understandably, some in the real estate business are sticking to the age old bromide that when housing prices are low–as they are now in many markets–that is a good time to buy. They pin their hopes for a recovery on this sort of stimulus even though there is scant evidence that things are working out that way.

In point of fact, potential buyers, rightly, are concerned that the property they purchase today will be worth even less tomorrow. So, they are holding back.

And, even those who are determined to charge forward are finding it nearly impossible in many parts of the country to get lending institutions to take them seriously.

What’s different?

The simple answer, though complex in its ramifications, is globalization of the world’s economy. And, it works both ways, as we are sadly discovering. Just as the subprime mortgage debacle in the U.S. triggered panic in stock markets around the world, the economic problems now being experienced by Great Britain, France and to a lesser extent Germany, are having an impact on us in the form of reduced credit options.

I know that there are those who believe we have seen the worst in this country; I do not share that view and think the evidence supports my beliefs: Prices of existing U.S. single-family homes, says Reuters, have fallen so much that many see this as “the worst U.S. housing market in a century.”

Even some housing markets that up till now have shown great resistance to the credit crunch and overall downturn are starting to show signs of distress.

As I have said before, this is not a good time for the non-experienced person to jump into the real estate market, and certainly not for the purpose of investment. That is not to say everyone should stay clear. For those who know their way around and are savvy about such things, this may, indeed, prove to be a good time for them. But they are the few and what is good for the few is not good for the many.

But suppose you are a determined first time home buyer? Is there anything you can do to help yourself?

Yes. Buyer education is apparently all the rage in many parts of the U.S., usually offered through nonprofit lenders.

One news agency report quotes the executive director of one such nonprofit as saying that the first time buyers enrolling in his company’s classes want to go into their first home purchase with eyes wide open to avoid the pitfalls that have stricken so many others.

Among other things, buyer education classes help would-be first time home buyers learn how to avoid adjustable rate mortgages and some of the other evils that led to the subprime mortgage crisis which, in turn, ignited the global credit crisis.

Being better educated about home buying, however, does not in and of itself mean you should go ahead and buy. You may have a false sense of security. There are so many other aspects of the economic situation beyond your control, even the most prepared first time buyer may end up stepping into quicksand.

And, there is one other important thing a first time home buyer could and should do–talk to friends and family members who may have recently purchased a home and find out how they avoided some of the more nasty things lurking out there.

A site such as this one is also a valuable tool that should be taken advantage of. It makes your extended “family” the entire country and there are things about home buying we can all learn from one another.

If there is one common thread that runs through all these suggestions it is this: do not go it alone! Do you think even Donald Trump doesn’t consult trusted advisers and lenders before making a major real estate decision? Of course he does. He’d be foolish not to and he is not foolish. Bad hair, yes, but foolish, no.

Finally this: If you know you have a bad stomach, it’s not such a swell idea to take a roller coaster ride. Get my meaning? Be honest with yourself. If you are the type who bites your nails hourly while watching the stock market go up and down on CNBC, you really need to ask yourself whether this is the best time for you to jump into the real estate market. There will be some good news in the days and months ahead. But there is bound to be a lot more bad news.

Are you ready for the ride?

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Tags: home buyer, home seller, housing, real estate, real estate commentary

Do great rates and great service fail to impress you? Well you are not alone. We are in a time where you need to find out who can create value with their services and ideas. And what I mean by value is, attracting customers. A good number of investors plan to sell their property at some point and awareness of loan programs can help your potential sell.

Here are a few loans of value over the last few years:

• 100% purchase, non-owner, stated income, interest only
• 1% pay option ARM
• 100% cash out refinance
• 100% Jumbo Loans

There is great debate on whether these loans are good loans, but few can argue these loan did attract customers for Realtors, Builders, and Mortgage Companies.

What are the next generation of loans to attract customers?

• 3-2-1 buy-down
• PITI Abatement
• FHA/VA
• My Community
• Credit Repair

One might say that 2008 is the year of government backed mortgages. All the loans high lighted above are directly tied to the government through Fannie Mae, Freddie Mac or FHA/VA. Unfortunately the line is drawn right at $417,000 and some high cost areas have limits as high as $729,750.

3-2-1 Buydown
Sellers and Builders can use a temporary 3-2-1 and 2-1 interest-rate buy-downs as a sales incentive. In a 3-2-1 buy-down, the interest rate is reduced by 3 percent the first year, 2 percent the second year, and 1 percent the third year. A 2-1 buy-down lasts for two years, with a 2 percent reduction the first year and a 1 percent the second.

The 3-2-1 Mortgage Buydown

• This is a 30-year fully amortized mortgage.
• The interest rate increases 1% every year for the first three years.
• Then the interest rate is fixed for the remaining term.

Here is how it works. Your loan balance is $375,000 and the interest rate is fixed at 6.5% for 30 years. The seller incentive could buy down the interest rate by paying a lump sum of $16,764.

1. First-year interest rate is 3.5%, payable $1,684 per month.
2. Second-year interest rate is 4.5%, payable $1,900 per month.
3. Third-year interest rate is 5.5%, payable $2,129 per month.
4. Years four through 30, interest rate is 6.5%, payable $2,370 per month.

• First-year savings (as compared to $2,370 per month) is $686 per month or $8236.
• Second-year savings (as compared to $2,370 per month) is $470 per month or $5642.
• Third-year savings (as compared to $2,370 per month) is $241 per month or $2,892.

Add up the annual savings: $8,236 + $5,642 + $2,892 = $16,770. Therefore, it costs $16,764 to buy down the interest rate and payments for three full years. It costs approximately 4.5% of the loan amount to buydown.

Benefits of 3-2-1 Mortgage Buydown

• The borrower qualifies for this loan at the 3.5% interest rate and payment amount of $1,684 versus the real rate of 6.5% and the payment of $2,370.
• Instead of the payment jumping all at once, it goes up in smaller increments, about $200 each year, for the first three years.
• It keeps payments low for 36 months for borrowers whose income is expected to later increase. Perhaps a spouse is returning to work after a hiatus or a person expects to graduate and land a higher paying job with that newly earned degree.

The 2-1 Buydown Mortgage

• This is a 30-year fully amortized mortgage.
• The interest rate increases 1% every year for the first two years.
• Then the interest rate is fixed for the remaining term.

Here is how it works. Say your loan balance is $350,000 and the interest rate is fixed at 6.5% for 30 years. The seller’s incentive could buy down the interest rate by paying a lump sum of $8,063.

1. First-year interest rate is 4.5%, payable $1,773 per month.
2. Second-year interest rate is 5.5%, payable $1,987 per month.
3. Years three through 30, interest rate is 6.5%, payable $2,212 per month.

• First-year savings (as compared to $2,212 per month) is $439 per month or $5,268.
• Second-year savings (as compared to $2,212 per month) is $225 per month or $2,700.

Add up the annual savings: $5,268 + $2,700 = $7,968. Therefore, it costs $7,968 to buy down the interest rate and payments for two full years.

This loan program can help more individuals qualify from and income documentation stand point.

PITI Abatement
What is PITI Abatement?

• An incentive to the buyer to have the first 6 months of the mortgage paid by the seller.
• PITI Abatement program is a product designed specifically for home-buyers. You can give a 6% Seller Contribution that can be used for Principle, Interest , Taxes and Insurance payments.

What are the General Guidelines?

• Loan amounts up to $417,000
• Up to 100% of the purchase price (5% reduction for declining markets)
• Minimum score of 575
• Fixed Rates and ARMs
• Interest Only is available
• Income limitations may apply
• Closing costs can be paid by seller too
• No prepay penalty

What is the Realtor marketing element?

• 6 MONTHS PAID!
• BUY THIS HOME AND I WILL PAY YOUR FIRST 6 PAYMENTS
• 6 MONTH PAID MORTGAGE INCENTIVE
• BUY MY HOME AND I PAY CLOSING COST AND 6 PAYMENTS

FHA Loans

FHA loans have been helping people become homeowners since 1934. How do we do it? The Federal Housing Administration (FHA) – which is part of HUD – insures the loan, so your lender can offer you a better deal.

• Low down payments
• Low closing costs
• Easy credit qualifying

Benefits for your buyer·
Your down payment can be as low as 3% of the purchase price, and most of your closing costs and fees can be included in the loan. Available on 1-4 unit properties.

FHA has a loan that allows you to buy a home, fix it up, and include all the costs in one loan. Or, if you own a home that you want to re-model or repair, you can refinance what you owe and add the cost of repairs - all in one loan. Sellers and investors should be aware that FHA requires 90 days of season ownership of a seller in orders for a buyer to use a FHA loan.

What is the Realtor marketing element?

• FHA can provide 100% Financing when combined with gift, grant or down payment assistance program
• One loan with low fixed rate

  My Community Mortgage

  What is My Community Mortgage?

  • A conforming affordable housing program offering high loan-to-value/combined loan-to-value financing for income-eligible borrowers
  • Government backed mortgage program

  What are the General Guidelines?

  • Loan amounts up to $417,000
  • Up to 100% of the purchase price (5% reduction for declining markets)
  • Minimum score of 575
  • Fixed Rates and ARMs
  • Interest Only is available
  • Income limitations may apply
  • Closing costs can be paid by seller too
  • No prepay penalty
  • Allows “roommate rent” for income qualification

  What is the Realtor marketing element?

  • Automated underwriting = more approvals
  • Government backed loans available
  • Let us pay your closing costs

  Having all the tools to properly sell your property can be critical.

Tags: cash out, community first financial, home buyer, home loan, jumbo loan, loan, Mortgages, option-arm, refinance loan, troy schuricht

Nine Ways to Turn a Solid Walkthrough to a Solid Negotiation

If you’re new to real estate investing, trying to determine how/when you should buy a place you plan to resell, rent, or rehab, these tips will guide you through the rough spots of deal-making:

1. Do your homework
If you know the specific location where you want to buy, compare listing prices of similar homes in the area. In this buyers’ market, you can afford to make a lower offer than the listing price. Yet keep in mind that insultingly low offers will only make for bitter sellers, so plan to make as fair a judgment as you can, keeping in mind that, right now, the ball is in your court.

2. Know what cards you hold
Talk to mortgage institutions before you start negotiating. Knowing exactly what you can afford will guide you to properties within your budget, meaning you won’t waste your or the seller’s time. Also, being prequalified immediately makes you a more serious buyer and thus more attractive to sellers.

3. Ask questions
Bring a standard list of questions to ask for every home walkthrough, but do your research and ask very specific questions on the nuances of each home. What are the maintenance costs like? What appliances need to be updated? This can all affect your offer, if you decide to make one.

4. Engage the seller
“Oh, I love these window treatments and that refrigerator. Can these stay with the home?”
You may have already known that the treatments and appliances stay with the home, but if you are visiting with a home seller, asking “dumb” questions will engage the seller to talk in greater detail about the extras and amenities offered with the home. The more you know, the more negotiating power you will have.

5. Use “positive manipulation”
Manipulation isn’t always bad–you know that the seller wants to sell the home. Understand the selling motives, and let them work in your favor. If you know the sellers are moving because of a job, they will want to sell as soon as they can. When time is of the essence, offer them expedience and you might be able to make an offer in your favor.

6. Call their bluff
Take a closer look at the home. Notice wear and tear, scuffing, and the overall condition of the home. If the seller claims “new” carpeting and you can see that it clearly isn’t, they could also be bending the truth about much larger issues. Don’t buy Funny Farm when there are countless new and impeccably maintained homes on the market.

7. Always be willing to walk
While you may not literally be “walking away” from the home, many sellers are certainly eager to grab your attention if you express a mild interest in the property. If they know that you are interested, but more than willing to look elsewhere, they will use what they can to grab your attention. Lowered prices, add-ons, and included amenities can sweeten any deal.

8. Act fast
While it’s comforting to know that you’re buying in a buyers’ market, your ideal property is still liable to be taken by someone else. If you find the home that you really want, don’t hesitate to make the offer. While the odds may favor you, don’t forget that there still are other buyers to compete with.

9. Know that your best ally is yourself
After you’ve gained all the knowledge you can about the home, the seller, and your own finances, trust yourself to make the best decision. Knowing that you have a multitude of choices means that you deserve to find your dream home! Playing “dirty” really means that you should be a savvy buyer, with lots of knowledge (and the favorable market) on your side.

Tags: buyer, home buyer, housing, real estate, Real Estate Market