The One Client I Can't Help

I have always enjoyed and take great satisfaction in helping people buy their dream home or buy their first home. Especially with first time home buyers it often can be a long and deliberate process for the client and me. I have seen it take 2 years before. Thankfully, I am persistent and/or stubborn. I have always told my clients that I am willing to work as hard as they are.

But, there is one client or one type of client I can’t help sometimes. And that’s a client who does not listen to and act on my advice. I have one client I have been talking with for nearly a year.

In the spring of 2009 I ordered her credit report and she only had one credit score because she has so little credit in her name. At that time, I had 4 or 5 banks who would lend to her with just one credit score. I encouraged her several times to open an additional credit card or personal loan or to add her name as a co-borrower to a family member’s credit account to establish more credit and 2 or more credit scores so that she could be easily approved for a mortgage.

She recently called me about getting pre-approved again for a FHA loan as other mortgage lenders she talked to were not helpful and did not call her back ever. So, I ordered her credit report and guess what? She still only has 1 credit score and only 1 credit account. Ugh!

Now, I only have 1 bank that will potentially approve her loan IF we can document non-traditional credit. And this bank charges extra for her lack of credit scores and credit history. In fact, she will now be out of pocket an additional $2,000 because of this decision.

Why Can't I Find a Home?

If you are a first time home buyer you may be asking youself why is it so tough to find a home I/we can afford in Denver? You hear the news stories on the radio, TV, and internet about how bad the real estate market is nationally. However, it's a different story here in Denver for homes priced under $250,000.

Yesterday I attended a class taught by Your Castle Real Estate and they have the best local real estate data in my opinion and here is what I learned--
* For single family homes priced between $135,000-$215,000 there is less than 3 months of
inventory for sale. This is a sign of a Seller's Market.
* Inventory levels at this price point dropped last year.
* The average home price in this range increased 6% last year.
* In the Denver southwest area, prices increased an amazing 12% in 2009.

As a buyer you want inventory levels to be over 6 months and they are half of that. Plus, a huge majority of homes in this price range are short sales on top of it. This is why it is so tough to find a home you can afford.

So, what do you do? Here are a few ideas--
* Look every day on-line for new homes or have your Realtor do this.
* Tour the new listings that day as they will probably go fast.
* Look at your budget. Is it possible to squeeze another $100 a month towards a house
payment in your budget? That $100 will buy you close to another $20,000 of buying
power!
* Widening your search area can help too.
* If you don't have kids yet, good schools should not matter as much to you. In Aurora for
for example a $200k home in Cherry Creek Schools might have a monthly tax bill of
$150 a month; whereas, a $200k home in Aurora Public School might have a monthly tax
bill of just $75-$100 a month.
* ACT FAST! Mortgage rates will be rising in April or earlier as the Fed quits buying
mortgage bonds and this could cause your expected monthly payment on your home to
rise $75 to $100 a month.

Is Shadow Inventory Bad?

I have read several stories in the last month from organizations like RealtyTrac and others that they estimate that banks own another 3 million homes nationwide that are NOT on the market to be sold yet. This inventory is called shadow inventory and is widely considered to be bad news. Why? This further supply of homes will drop real estate prices lower is the expectation or it will cause the housing recovery to be slower.

But, let's look at the Denver market. Most "experts" think that banks own about 13,000 homes in shadow inventory currently in the Denver area. I would guess that half of those homes are worth $200,000 or less.

According to the local MLS data there is fewer than 3 months of unsold homes on the market priced under $200,000 here in Denver currently. And I would bet a large majority of those homes are short sales that most buyers don't have the patience to wait for.

In fact, over the last 6-8 months most of my clients buying homes under $200,000 have gotten into bidding wars on homes that are not short sales because there is so little inventory available.

Thus, it would be GREAT NEWS if the banks were to release to the market 1,000 or 2,000 of these homes every month in my opinion. What do you think?

Number 1 Reason To Buy A Home Now

The number one reason to buy a home right now may surprise you. The number one reason to buy a home now is NOT that the first time home buyer tax credit or the repeat home buyer tax credit is ending this spring. However, both of those are good reasons to buy a home right away.

The number one reason to buy a home NOW is found in the following quote from last week--

“April 1 will be the first day that the Federal Reserve will end its debt purchase program and allow the struggling U.S. mortgage market to operate unassisted. As a result, the Fed believes mortgage rates will rise about three-quarters of a percent to about 6 percent,” Boston Fed President Eric Rosengren said recently.

Here is the projected economic impact if you a buy a home in April or later according to the Fed—
· If you buy a $200,000 home with a FHA loan and put 3.50% down your monthly payment just increased by $93 a month or $1,120 a year! That’s equal to eating out 4 times a month at Chili’s and their 3 Courses for $20 Menu.

· Your monthly payment increase is 8.6%, this is equal to every home seller in the country raising their prices by 8.6%. Yuck!

· Finally, if your debt-to-income ratios are really tight your pre-approval for a home price of $200k, just got decreased to $182,800.

· Or if your pre-approval is good for a price of $175k, it just got decreased to $159,950.

· Or if your pre-approval is good for a price of $150k, it just got decreased to $137,100.

So, how do you avoid this from happening to you? First, you could hope or pray that the Fed will extend their purchases of mortgage bonds. Second, you could buy a home BEFORE the Fed’s purchase plan expires on March 31st.

It’s your choice. You have been warned.

Your Closing Costs Could Skyrocket in 2010

Last Friday the House of Representatives passed H.R. 4173 the Wall Street Reform and Consumer Protection Act of 2009. One of the facets of this bill that will be incredibly damaging is this--for every mortgage closed the lender or bank who closes the loan must set aside 5% of the loan amount into a Loss Reserve Account in hopes of reducing the amount of bad loans that are written by requiring each lender to have "skin in the game" as they say. The House is thinking that by doing this far fewer people will receive a bad loan and thus far fewer people will face foreclosure.

Sounds like a good idea, doesn't it?

Here is the problem--we as a mortgage lender or mortgage bank don't make anywhere near 5% on any loan. On average a mortage lender has gross revenue before expenses of about 2% of the loan amount; after expenses a mortgage lender is lucky to earn .50% of the loan amount as net income after expenses.

Here are the numbers on a $200,000 loan--

* Net income to the company is about $1,000 ($200,000 x .50%)

* With this bill we must set aside $10,000 ($200,000 x 5%)

How can we possibly set aside $10,000 for every loan we make IF we only truly earn $1,000 on that loan? The answer is: it's not possible! We would go bankrupt very quickly as we would run out of money. You can't spend $10,000 if you are only making $1,000. Unless you are the government.

Thus, I have calculated how much a borrower's origination fee would have to be for us to comply with this new rule if the Senate approves it as well and it is signed into law by the President.

* Not including taxes we would have to earn 7% on every loan that we close; which would typically mean you must pay a 6% origination fee or an additional $10,000 out of your pocket beyond what is today with a 1% origination fee.

* Including taxes (corporate tax rate is 35% plus state tax of 4.65%) means we must earn 11.60% on every loan we close to comply with this rule. This means you are now paying a whopping origination fee of 10.6%!!! On a $200,000 loan this is another $21,320 out of your pocket.

If you would like to pay this extra large sum of money to obtain a mortgage please write your House Representative and thank them. If not, please call and "curse" them. Or even better call our two Senators and tell them to not less this portion of the bill pass when this bill goes to the Senate in 2010.

3rd Highest Appreciation Rate in the Country

Zillow.com reported yesterday that Denver home prices have risen 5.2% this year through November which is good for third best in the country.

You might be thinking to yourself how? This is what I think is happening. Before 2006 very very few homes sold in Denver for under $100,000 in the previous 5 years. It was almost unheard of. Then, by 2007 and 2008 thousands of homes sold in Denver for under $100,000 and this dragged down our average and median prices of homes.

This year far fewer homes are selling for under $100,000, especially since March. Looking back it appears that February or March was the bottom of our real estate market in Denver. Demand for these homes far exceeds the supply of homes available and this causing prices to rise.

Now there are still hundreds of homes listed for sale for under $100,000; but a large majority of them are selling for over $100,000 as nearly every home priced this low will receive multiple offers. The home might be listed for sale at $90,000; but, don't be surprised if the winning offer or bid is $110,00 or even $120,000 or higher.

Both first time home buyers and investors are swarming to these properties. For example, I have a first time home buyer under contract on a HUD owned home appraised and listed for sale at $80,000 in NE Denver. In 2006 this home sold for $180,000 and she is buying it for $83,000. Since this house did not qualify for a traditional FHA loan due to it's inferior condition she was able to buy it for not too much more than the list price. I am helping her with a FHA Streamline Renovation loan to remodel the home into far better condition.

The FHA Streamline Renovation loan allows you to finance up to approximately $31,000 in improvements to the home. But, these loans are a lot of work for me and for you. Next, your out of pocket costs for these loans will dramatically increase January 1st 2010 as HUD believes it is better for you to pay more money at closing and to have a lower monthly payment than to have less money out of pocket at closing and a larger monthly payment. Unfortunately, you will no longer have that choice.

Denver Home Sales Surge 23%

It was reported today that Denver home sales increased an amazing 23% in November compared to November 2008 as nearly 3,600 homes sold last month.

Second, the median price also increased 11.8% year over year up to $218,000. This is a sign of more move up buyers buying new homes as the mix of homes that sold in November changed from being predominantly first time home buyers who typically buy homes priced under $200,000.

In fact, sales of homes priced over $1 million increased a whopping 30%, its first increase in almost 3 years as reported by the Denver Post.

Jeff Thredgold, an economist for Vectra Bank of Colorado said, "An increase of 23% versus a year ago suggests that confidence levels of potential buyers are higher."

Consumer Confidence is shaped by 3 primary factors: job stability and growth, real estate, and the stock market. Colorado does have one of the lowest unemployment rates in the country at under 7%. The stock market has increased over 40% since mid-March as well and maybe people are starting to feel a little more confident about our economy. Are you?