Archive for the 'Closing' Category
Will You Take Advantage of the $8,000 First Time Buyer Credit?
I’ve been working with a lot of first time buyers this year. Many of them have been motivated by the $8,000 first time buyer tax credit that the government is offering. A good number of them have already closed on a property and are set to receive their refund next year when they submit their Federal Income Taxes.
Some of my buyers are still looking though. They are waiting for the right house. Or they found a house and it’s fallen through for inspection reasons, so they’re back out there again. As an aside, this is more common than you’d think; I have 4 buyers looking right now that are in this inspection situation.
Anyway, in order to take advantage of the $8,000 tax credit being offered this year, a first time buyer needs to close on that property on or before November 30, 2009. That gives us approximately 3 months remaining to find a property and close before this opportunity goes away.
Some buyers are asking me if I think there will be a similar program next year. I honestly don’t know. Last year there was a buyer incentive program, but it changed for 2009. I don’t know what next year will bring and if Congress will decide we still need this type of housing stimulus option.
Buyers are also asking me if they should buy this year, simply because of the $8,000 credit. I honestly don’t know that one either. Each person is different, so that needs to be assessed individually.
But what do we need to do if you do want to buy this year and be able to take advantage of the credit? Er, get moving! Closing on a property typically takes anywhere from 30-60 days. That takes into account how long it takes to get a mortgage processed, in addition to giving most sellers enough time to move on to their next place. Working backwards from November 30, that means you should have an accepted contract no later than October 1, 2009.
I would actually recommend trying to have something in place before October 1 though, for a few reasons.
First, mortgages have been taking longer to process recently due to stricter underwriting guidelines, particularly FHA loans, as well as an increased volume. I believe this is only going to get worse in the next few months as a slew of buyers try to jam in a purchase before November 30 and lenders continue to deal with more underwriting guidelines and leaner staff levels.
Second, home inspection issues could cause a delay or the deal to blow up, so you may need to start over.
Third, closing attorneys have limited capacity and good closing attorneys are going to find themselves slammed in November. People normally like to try and close at the end of the month (or the Friday closest to the end of the month) and this tax credit situation is going to only make it worse for November.
If you want to take advantage of the credit, I would recommend trying to close in the middle of November, or sooner, if at all possible. That way if you have problems with your mortgage, there is some wiggle room for you to still get the transaction closed before the end of the month. This would most likely not be possible if you’re scheduling a November 27 or 30 closing and there are issues. And how annoying would it be if you’ve planned to get everything done so you can take advantage of the credit and then you miss the deadline at the very end? Uh, very. So budget enough time if you can.
Happy property hunting!
The Appraisal Dilemma
The real estate appraisal business has been under increased scrutiny in the wake of the national housing bust. An article in today’s Wall Street Journal highlights the current challenges in securing an independent, yet accurate, property valuation.
Appraisals are an important part of a real estate purchase, helping to make sure that the negotiated purchase price is in line with recent comparable sales. Mortgage underwriters require an appraisal so that they can feel comfortable that the loan they extend to the buyer is adequately secured by the underlying property. Essentially, they want to be sure the deal’s Loan-to-Value Ratio is correct.
During the boom times, appraisals were often seen as an unnecessary step. Some mortgage lenders were more interested in writing the loan than in making sure that the home was a solid asset. They knew that the loans were going to be securitized, so the focus was on doing the deal and then handing off the risk to someone else. Unscrupulous mortgage lenders would have go-to appraisers that they could count on to value a property at whatever price was needed to make sure the deal closed. Appraisers were no longer seen as objective, writing reports that supported whatever value was needed by the mortgage lender that hired them.
These days appraisals are taken more seriously by banks and the unscrupulous mortgage lenders are generally out of business. In the meantime, different problems have emerged. The appraisal industry is being pressured to break the direct relationship between mortgage brokers (though not banks) and appraisers. Regulators want to see Appraisal Management Companies (AMCs) in charge of assigning appraisers to deals, hoping to restore objectivity to the process. As of May 1, 2009, Freddie Mac and Fannie Mae adopted the Home Valuation Code of Conduct, effectively creating a national standard for appraisals in single-family mortgages.
The unintended consequence of creating AMCs is that there are increasing complaints about the accuracy of appraisals. The Journal article highlights a number of examples in California where the appraiser assigned to a deal traveled outside of their local area for a job. Because real estate is a local industry, the dynamics of a market can be quite different one town, or even neighborhood, away. An appraiser not familiar with a market’s specific dynamics could assign a wildly inaccurate value to a property, which could unfairly impact the deal.
Local appraisers we have met who receive business from AMCs echo the concerns expressed in the article. They are being asked to travel further for jobs, do more work for each appraisal, and accept less compensation. It’s putting them in a difficult position, challenging their ability to make a living as an appraiser.
The informal solution to the dilemma seems to be to work around the new rules. Lenders that have underwriting capabilities are still able to hire appraisers directly, so many mortgage lenders are not actually impacted. Full-time appraisers with strong reputations are able to fill their schedules with work from the unregulated lenders, allowing them continue on with business as usual. All sides are watching the regulations closely, waiting to see what happens next.
The current direction of the regulatory activity seems to have two possible outcomes. In one scenario the AMCs increase the appraisal fee charged to lenders, which allows them to pass more money through to their appraisers. The higher fee would very likely be passed on to the buyer, adding to the closing costs associated with a home purchase. The other scenario is that appraisers are forced to find second jobs, or new careers entirely. If enough appraisers were forced out of the business, it’s possible that there would be a shortage of appraisal capacity during the busy spring market.
Neither scenario seems particularly attractive, and the regulation itself feels like it is addressing problems that have already been corrected by market forces. Since the new rules are not uniformly applied across all lenders, and workarounds have already been established, perhaps it would be better to roll back the regulation.
Amy & Kyle Bergquist’s Home Buyer’s Guide
Kyle and I are proud to announce the release of our brand new Home Buyer’s Guide.
We are dedicated to sharing as much information as possible about the real estate markets and the process of buying and selling homes. This website is one way in which we communicate, telling stories, analyzing data, and reporting on real estate related events. We try to make it interesting, and we try to be timely.
The Home Buyer’s Guide is a new way for us to share information. It focuses on challenges that home buyers face as they search for a property in Greater Hartford. The guide is broken down into two sections. The first walks through the purchase process in an orderly manner. It helps buyers plan appropriately and know what to expect each step of the way. The second section elaborates on important concepts and discusses topics that buyers often ask about during the purchase process. It serves as a resource, giving buyers a place to start their research when they have questions.
Our Home Buyer’s Guide is available as both a Preview Edition and a Complete Edition. The Preview Edition provides basic information needed to get started on a home search, and is available to everyone. The Complete Edition is 26 pages and thoroughly covers the entire home buying process, and is available exclusively to our clients.
Kyle and I are both full-time agents that provide a high level of service. In our experience, buyers who take the time to learn about the purchase process have a better overall experience than those who start looking at homes without any preparation. We’re always happy to sit down and talk – feel free to give either of us a call.
And if you know anyone considering a purchase, please pass on the Preview Edition of our Home Buyer’s Guide as an example of how we try to go above and beyond for our clients.