Ask Realty Times

Written by Posted On Thursday, 28 February 2008 16:00

Question: My house has been on the market for four months now and has only had four people look at it. We have lowered the price as much as we can and are below the average price per square foot in our neighborhood, but interest has not picked up.

We have some great plans that all hinge on us getting out from under the house. With the current market should we continue to just leave the house on the market hoping for someone, or should we pull it off and just give up on our plans. We are in the Dallas-Fort Worth area.

Answer: There are several issues here.

First, when you say that you have "lowered the price as much as we can" you may not have lowered the price as much as the market demands. This is a difficult matter but it needs to be addressed realistically: Is your price competitive with like properties in your community?

Second, how long does it take to sell a typical home in your neighborhood? reports that at the end of 2007 the Dallas-Fort Worth area had some 37,000 properties which had received one or more foreclosure filings. This is a huge number, one which surely impacts both home values and sale times.

Third, how relevant is it that you have lowered your price "below the average price per square foot in our neighborhood?" For example, is your property the least expensive home in the community? Most people buy on the basis of gross cost and not cost-per-square-foot.

Sit down with your broker and review the marketing plan -- and see if any updates are needed to account for new market conditions.

Question: Have the loan limits for conforming loans been increased yet? If so, when did they increase them and how much higher did they go? I'm in California.

Answer: Under the stimulus package passed in Washington in early February, the conventional loan limit was raised from $417,000 to $729,750 in the lower 48 states. The FHA loan limit was increased from $362,790 to $729,750 for single-family homes in high-cost areas within the continental United States.

It will take a few weeks before the guidelines and standards for these new and larger loan amounts are in place. However, be aware of a few caveats.

First, the huge loans allowed under the stimulus package will only last through 2008 -- in other words, long enough for politicians to benefit. Second, mortgage investors have already signaled that larger loans are not especially attractive -- thus be prepared for a tough application process and rates which may be higher than expected.

Question: We own property which is for sale in a small community. Why is it that since we went with a broker outside our little town, local agents don't show our home? We were told of the possibility of being shunned for using an outside broker but is this really the case? We understand the market and what's going on, but are we to assume that NONE of the properties in our price range (there are only a few) have been shown?

Answer: Long ago, when I first acquired a real estate license, I listed a property in an exclusive Washington, DC neighborhood. A helpful local agent explained that while it was a nice property, I should not work outside of "my" area -- meaning I should not work inside "her" area. I could never figure out who made up such rules and boundaries.

It was no problem, I told the agent: If she and other neighborhood brokers didn't have a buyer I would find one and keep all of the commission -- and I did.

You have a property for sale. Real estate brokers who do not sell homes or represent buyers don't eat. If your property is competitive in terms of price, condition, location and the local market it will sell and some happy broker will earn a fee.

If the implicit suggestion is that local brokers have banned together to deny equal market access to other brokers, then the local brokers might want to take a look at the Sherman Anti-Trust Act.

Question: I have a three-family house. I'm doing a refi. My lender told me today she can get me three options:

First, a loan at 5.25 percent fixed interest for five years that will cost $3,260 per month.

Second, a loan with a 5.77 percent rate that will cost $3,429 monthly.

Third, a loan at 6.3 percent over 30-years that will cost $3,644 per month.

Which will be safest? What will happen to the real estate market in five to seven years?

Answer: The first loan is simply an adjustable-rate mortgage with a five-year start-period, meaning that after five years the monthly costs can rise substantially -- just look at the daily headlines to see what's happening to many people with ARMs that re-set.

The terms of the second loan are unclear. Is the interest rate set for 30-years?

The third choice makes the most sense if you expect to hold the property for the long-term. The first choice might be a good alternative if you expect to sell in the short-term, but is there a pre-payment penalty?

As to what will happen in five to seven years in any market, I have no idea.

Question: How do I purchase mortgage payment insurance?

Answer: Most likely what you mean is unemployment insurance.

There are such policies available. For specifics ask insurance brokers such questions as: What is the premium? How long must I be unemployed before the policy kicks in? Does the policy send a check to me or directly to the lender? How long does coverage last? What are the alternatives? What if I am self-employed? Does the policy pay for property taxes and property insurance?

Question: I'm currently paying down debt so that I can buy a house next year. I heard that it's best not to completely pay off credit cards, but to have a low balance that you make payments against each month. Is this true?

Answer: Here's what's true. Many credit cards have interest rates above 20 percent, thus it is not only in your interest to merely hold down balances, Instead, it makes the most financial sense to pay credit card bills in full each month. This will also give you the lowest debt level for each card, something which looks good for credit scoring purposes.

Question: Why do mortgage rates change every day?

Answer: Mortgage rates are always in flux because investors are continually looking for the best combination of risk and reward. For instance, if the stock market looks good, then money migrates into equities, if stocks look unattractive then cash tends to move into bonds and mortgage-backed securities with the result that mortgage rates are pressured downward.

Always ask lenders about locking in rates. In some cases you can lock in a rate -- and also have a right to re-lock one time before closing.

Question: How far in advance can you lock-in a mortgage rate? Say I want to buy a house in six months -- will a lender typically let me lock in that early?

Answer: No. Think in terms of 30 to 60 days. A lender does not want to lock-in a loan for six months because if rates rise the lender would be obligated to deliver the loan to you at a lower rate. And lenders, of course, are not in business to rack-up losses.

Question: I'm looking to invest in real estate. Where are some of the hot markets right now?

Answer: Everywhere. As an investor you are not buying ALL real estate, instead you're purchasing individual properties. What you're really looking for are anomalies in the marketplace, properties that are undervalued relative to nearby real estate or which can be made more value. You can find these properties in all markets, the very reason why properties sell even in areas with large numbers of foreclosures.

Question: I'm trying to get information about obtaining a new mortgage 19 months after a Chapter 7 bankruptcy. Do lenders work with people like me and at what point post bankruptcy can you get a loan? We have fair-to-good credit scores, 700s post bankruptcy, and we make approximately $150,000 annually.

Answer: You need to provide a little more information. For instance, you had a bankruptcy, but did you also have a foreclosure? What was the reason for the bankruptcy?

You have a significant income and excellent credit scores at this time. The lesson should be that even those with financial strength can run into tough times.

As an example of loan standards, here again is what the FHA has to say regarding bankruptcies:

"A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA-insured mortgage," says HUD, "if at least two years have elapsed since the date of the discharge of the bankruptcy. Additionally, the borrower must have re-established good credit or chosen not to incur new credit obligations. The borrower also must have demonstrated a documented ability to responsibly manage his or her financial affairs. An elapsed period of less than two years, but not less than 12 months, may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited a documented ability to manage his or her financial affairs in a responsible manner. Additionally, the lender must document that the borrower's current situation indicates that the events that led to the bankruptcy are not likely to recur.

"A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage provided the lender documents that one year of the payout period under the bankruptcy has elapsed and the borrower's payment performance has been satisfactory (i.e., all required payments made on time). In addition, the borrower must receive permission from the court to enter into the mortgage transaction."

HUD also says there can be exceptions to its general rules "when the property was included in a bankruptcy that was caused by circumstances beyond the borrower's control (such as the death of the principal wage earner; loss of employment due to factory closings, reductions-in-force, or serious long-term uninsured illness), the borrower may be eligible" for an FHA loan.

The bottom line: Speak with an FHA-approved lender and get your situation reviewed. Look at both the FHA and private-sector programs.

Have a real estate question? Send your inquiry to Ask Realty Times . Because of the volume of mail received, Mr. Miller cannot respond to questions individually or privately. Published letters may be edited for space and style. For comments regarding other Realty Times articles, please contact individual authors by pressing here . For past columns, please press Ask Realty Times .

This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought.

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