Dennis' Mortgage Blog

Question of the week:  What steps do we need to take to buy a home?

Answer:  Last week we answered “When does it make sense to refinance,” but before you can refinance your home you have to purchase it.  Despite the Mortgage Bankers Association reporting in its Weekly Application Survey this week that purchase mortgage applications for the week ending August 19, 2011 were at their lowest level in the survey since December 1996, plenty of families are still considering purchasing their first home.  With prices still low and rates at or near all-time lows, the American Dream of home ownership is more affordable than ever.

While applications are down, house hunters still appear to be pretty active in the market.  We have plenty of families going through the pre-qualification and pre-approval process and looking at homes but not yet pulling the pen and signing and offer and completing their mortgage application.  The first question many ask me is the question above, “what steps do we need to take to buy a home.”  Here they are in some semblance of order.

Meet with a mortgage professional, get a trusted and experienced mortgage professional’s name and contact information from a trusted advisor, be it friend, coworker, real estate professional, accountant, financial planner, attorney, neighbor or family member.  Find someone who you can trust to put your interest above their own and provide you with proper guidance and advice as to the amount of mortgage and sales price for which you can qualify and meets your needs and objectives.  If you are reading this then your search is over, please call or email me to get started on your path to homeownership.

In your discussions you need to go over more than just your financial situation.  You need to discuss your family situation, work situation and projections for changes in each in the future.  This allows you to determine perhaps how long you may have the home and preparations you may need to make if you need to purchase a larger home in the future, or scale back your current purchase if your income may decline in the future.

Get pre-approved.  Have ready to provide all your financial records that will be needed, a list can be found on my website (do not worry about property information as you will not have that information yet).  Once you are preapproved stay in touch and convey any changes in your financial situation.

Get another partner.  Now that you are preapproved and have a mortgage partner it is time to get your next partner, your real estate agent.  It is important that your agent is someone you trust as much as your mortgage professional as s/he will be offering advice and assistance in locating the area and home that fits your needs and abilities.  Further your agent will be working with you in structuring the price and terms of your offer and negotiating with the seller and seller’s agent.  A good agent will listen to what you want in your new home and show you homes that match your needs; a good agent will also be honest with you and let you know if your expectations are unrealistic given what you want in a home and what you can afford as based on your pre-approval.

Determine what you want.  This process is one that can lead to much frustration for buyers and agents.  Buyers who begin looking at homes without a good idea of what they need and what they want.  This results in previewing too many homes and not having a focus to the search for your new home.

Some advice that I have given that has been extremely successful for hundreds of clients is the “What I Must Have and What I Won’t Have List.”  If you are buying alone this process can be a bit easier, if you are buying with your spouse or other partner this step is critical to determining the home that you both will want to buy.

Without discussing what you want separate yourselves and each write down the three or four features your home must have, three bedrooms, back yard, dining room, pool, two complete bathrooms, etc.  Below that write down any features that if you home does have you will not buy it, middle unit if buying a condo, power lines in back, across from a school or park, in my case it was a rock roof—I just don’t like them and told my wife if we found a home with a rock roof I wouldn’t buy it, silly but that was my list.  Make your own list and when each of you are finished compare them and give them to your real estate agent.

This process allows you to be selfish about what you want in your home without imposing your wants on your partner in the purchase who will also be living there.  In some cases after meeting with your agent and going over what is on the market and what your purchasing power is you may need to revise the list, but in many cases this list enables your agent to quickly narrow your search and find you the home you want at the price you can afford.

Go buy a home.  Once you know what you can afford and are comfortable with the funds needed to close and the monthly payment, and you have determined the size, type and location of the home you wish to own, go buy it! 

I often tell families, “don’t be afraid to buy the first home you see.”  If you have properly communicated what you want to your agent and your agent has done a good job of scouring through the Multiple Listing Service of available properties to narrow down the properties that meet your criteria and price point then you may find yourself previewing only one property.  That means you have done a great job communicating what you want and your agent has done an excellent job listening to what you want and what you can and will pay.  This does not happen often but it does happen.

If you find yourself looking at property after property after property then you need to communicate to your agent exactly what it is about each property that is preventing you from purchasing the home.  By not doing so you leave your agent guessing as to what you want instead of knowing what you want.  By properly communicating your likes and dislikes you can save yourself a lot of time and frustration.

Be realistic.  When looking for a new home, especially your first one, it is important to be realistic as to the market and what it can provide and what you want.  Keep in mind for the entry level housing market you are competing with investors, many of whom are professionals in the industry, that often quickly find and purchase the best “deals” before they hit the open market.  Keep in mind that no seller has to sell you their four bedroom, three bath, 4,000 square foot pool home in a high price neighborhood for the same price as the two bedroom, two bath, 1259 square foot home in tract home neighborhood just because you want to buy it for that price.

Also be realistic as to the rate and terms of your mortgage.  Over the years I have had many clients who left me for a “better deal” chasing an unrealistic rate quote from another lender.  These clients usually ended up finding out at loan closing they were either going to have to close on the adjustable rate mortgage they had loan docs on but were unaware of or they were going to lose the home they wanted.  If it seems too good to be true….it usually is not true.  Work with trusted, honest and experienced professionals for  your mortgage and your real estate agent.

Happy house hunting, contact me to get step one started!

Have a question for me?  Ask me!

PRODUCT ALERT: DON’T FORGET THAT THE LOAN LIMIT OF $729,750 FOR MOST OF SOUTHERN CALIFORNIA IS DECLINING TO $625,500 MIDNIGHT 9/30/2011 Deadline for applications to be submitted for most lenders is Thursday, September 1^st.

This week’s blog postings:

A visual on YouTube showing the increase in interest rates posted on Wednesday.

This week markets were defined by speculation on what Federal Reserve Chairman Ben Bernanke would say in a speech today in Jackson Hole, Wyoming.  Given that QE1 and QE2 from the Fed resulted in no real economic or employment growth and huge gains in stock values, the possibility that the Fed may engage in QE3 caused stocks to reverse their losses that drove prices below 11,000.  As stock prices climbed on the prospect of QE3, bond prices dropped (reminder drops in bond prices mean increases in interest rates).  Through the week from last Thursday through Wednesday Mortgage Backed Security (MBS) prices dropped steadily.

In his speech this morning Bernanke did not announce a new round of Quantitative Easing and influx of money from the Fed into the economy.  As the pre-speech moratorium was lifted on his remarks and the financial media reported on what Bernanke would say the Dow Jones dropped over two hundred points and MBS rose, it looked like rates would benefit from the no news speech.  As the remarks were read in more detail however Bernanke left the door open for QE3 the markets reversed.  "The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability," Mr. Bernanke said.

“...employ its tools…” leaves open the possibility of more Fed money in the future.  From down over two hundred points the Dow then climbed four hundred points before pulling back and as I write this at noon Pacific is up 120 points on the day.

Economic news, however, has driven bond markets today.  As expected (I predicted in my July 29, 2011 Weekly Update) the Commerce Department today has revised the 2^nd Quarter GDP estimate from a pretty week 1.3% growth in the quarter to 1.0%.  This is the first of two revisions that Commerce may make to the GDP numbers.  For the 1^st Quarter GDP the Commerce initially reported 1.9% growth and the final revision was only 0.4% growth. 

Irene.  Depending on the severity and breadth of damage hurricane Irene inflicts our stumbling economy could serious blow.  Already millions of dollars of revenue has been lost to businesses along the path due to evacuations.  On the East Coast almost the entire coastal area being evacuated is prime summer vacation locations, from the Outer Banks of the Carolinas up through Fire Island and Long Island, vacation homes, hotels, restaurants, golf courses, and other tourist dependent businesses are losing visitors and income, not to mention costs to try to repel the damage Irene may affect.  If Irene is extremely severe and impacts all the way up the Eastern Seaboard we can expect rates to decline further next week due to the economic impact and cost.

Rates for Friday August 26, 2011: Despite the creeping through the week gains yesterday and today have resulted in rates being flat from last Friday, stalling the four week drop in rates.  Will the drop continue?  Irene and the economy will let us know.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS*

30 year conforming                               3.875%             Flat

30 year high-balance conforming           4.125%             Flat

30 year FHA                                         3.75%               Flat

30 year FHA jumbo                              3.875%             Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. 

* Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment with an impound account for taxes and insurance and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

Happy birthday Mom, you were in my thoughts and smiles as I thought about some special times we spent together.  You did great as a mom, hoping I am doing as well as a dad! 

As we get older our ability to send a card, make a call, give a gift diminishes as those we care about leave us.  We can still wish them a happy birthday or anniversary and know that they mattered in our lives, and still do.  Call someone you haven’t spoken too in a while, write a real letter instead of email, let people know they are important to you.  Think of how you feel when you get these calls and letters.

Have a great weekend and a great week!

Dennis