Financing

How Paperless Banking Can Get in Your Way

My clients had finally found THE HOUSE, and we’d just finished writing up an offer to purchase.  When I explained to them how the earnest money check was to be made out, they took on that deer in headlights look and told me, “But, we don’t have checks.”  Ah, yes, paperless banking.  And since it was past 5, we spent the next fifteen minutes strategizing how they could come up with the $1000 so that could be converted into a money order.  I got to thinking about it and realized that paperless banking could really be a PITA for people wanting to buy a home.

Here’s a few situations that come quickly to mind, and why you just might want to have a checkbook available to help you accomplish your real estate and financial goals.

#1  Earnest Money Deposit–  when you write an offer to purchase, the buyer is required to tender a good faith deposit.  Yes, it’s true that you can use a money order.  However, if you’re taking out a mortgage, the mortgage company will want a copy of the front and back of the cancelled check.  If you can’t produce one then the amount of cash in the bank needing to be verified by your mortgage company will be affected- and that could leave you in a Catch 22 situation.

#2  If you’re doing contract financing, when you get ready to close, you’ll want the cash to close to come directly out of your bank account.  It will likely help you to satisfy lender requirements down the road when you get ready to refinance.  If you don’t have a bank account, it may be a real challenge to prove that those funds were “your money.”  If you have nothing but a cash card, you may not be able to create a satisfactory paper trail and your mortgage company will require you to come up with the down payment all over again.  Ouch!

#3  If you’re currently renting and are thinking about buying a house in the near future, you may want to pay with a check.  You see, when you get ready to buy, your mortgage company will be obligated to verify your rental payment history for the past twelve months.  (In fact, depending on circumstances, they may not be able to approve your loan without this crucial piece of information.)  Now, if you pay your rent to an individual, your mortgage lender will require copies of cancelled checks for the past twelve months.  (Paid receipts won’t work, and neither will money order receipts.)  If you pay a poperty manangement company, your mortgage lender will accept a form from the property management company.  That usually makes it fairly easy— that is, unless they refuse to cooperate or fill out the form in such a way that it puts you in a bad position.  In that case, you would be relieved to be able to produce cancelled checks.

#4  If you’re buying on contract and are thinking about refinancing anytime in the future, then Paragraph #3 above applies to you as well.

Paperless banking may otherwise fit your life style to a T, however you just may want to have a set of checks set aside just for your real estate and financing needs.

 

 

ing cloWhen you get ready to closee if they are to count that money in

How much $$$ will you need?

 “How Much Will I Need For A Downpayment?”

 This is a question I get asked— often.  And far too many people are surprised at the answer, as in “What! You mean I have ta’ have a downpayment?”  (Sigh)  Evidently, there is a whole lotta’ less than accurate information getting shared around the water cooler these days.

Near as I can tell, here’s what’s happening…  Seems that a lot of people haven’t been paying attention to the news for the past several years.  Some seem to think that nuthins’ changed from the easy money days of the early 2000’s.  Back then, all one needed to do to qualify for a zero down mortgage loan was to fog a mirror.  Alas, such is not the case today!  No sir, we’re in quite a different lending environment.  So, without further ado, listen close cuz’ here’s the skinny on what’s available in the current market-

FHA: On most FHA loans, the minimum required cash downpayment is 3.5% of the purchase price.  So, on a $100,000 property, a buyer will need a $3500 cash downpayment.  From time to time, FHA will run “$100 down” specials.  However, these are usually limited to people in certain occupations or properties in certain areas.

VA:  This loan program is available only to qualified veterans and certain qualifying spouses.  No cash downpayment is required.  (If you think you might qualify, but aren’t sure- then give me a call!)

Rural Development: The RD program is administered by the Dept. of Agriculture.  While no downpayment is required, only homes in certain rural areas are eligible and there are income limitations too.

Conventional: With the exception of some houses that are in need of repairs (3% down on those) the standard amount required down is 5% of the price.  (Note that contrary to the urban legend that no downpayment is required if the property appraises for more than the purchase price, a minimum of 5% is required regardless.)

Contracts & Rent-to-Buys: The percentage down varies greatly on these, and is a matter totally open to negotiation between the buyer and seller.  And while I’ve seen as little as $1100 negotiated, more is typical.  ($5000 or more makes a BIG difference in being able to buy a good house on good terms.)  Plus, keep in mind that the more that’s put down the bigger the selection of homes you’ll have to choose from and the more leverage you’ll have in the negotiations! But, all that having been said, I’ve helped people put together deals for just a grand or two (but it’s quicker and easier with 10 or 20K).  It does take a lil’ more creativity to make that work though.  The less cash you have the more creative and flexible you will need to be!

Ok, please let me know how I can be of help!  Talk with you soon, Bob

2014— the Year in Review

 

When it comes to real estate, we live in two worlds.  There is the national market which we hear about on the nightly news— and which is dominated by the boom/bust cycles of the outlandishly priced east and west coasts.  The other market- the local market- is the one we buy, sell, and live in.  The national effects us mostly in terms of what financing is made available (as those guidelines and prices are set in DC and on Wall Street), and “psychologically” (think of the constant message we hear).

PRICES across the country have risen for 33 straight months, but the amount of the increase is now running just half of what it was a year ago.  Locally, we were up 5.4% year-over-year, for the 12 months ending in November.  The local average now stands at $174,000.  However, the median point (where half of all house sales are above or below) stands at $140,000.  The median number is more important to most of us, as that is the market most people relate to.  Local prices were growing more last summer and have cooled since (but that is consistent with previous years).  Nationally, prices were pushed stronger a year ago when 43% of sales were cash.  To be sure, it wasn’t the average guy in the street all of a sudden finding a wad of cash under the mattress and deciding to pay cash for a house.  No, not hardly.  It was wealthy investment funds, taking advantage of cheap money from the Fed, buying bank repo’s and turning them into rentals.  When the Fed-induced bubble got too high, investors backed away and the real market took back over (and by this November only 25% of sales were cash).  The investment firms largely skipped over Indianapolis in favor of places like Las Vegas and Phoenix— and we should be thankful they did!

CLOSED SALES in Central Indiana numbered 29,382 (down 2.7% from a year ago).  Newscasters blamed this on last winter’s polar vortex.  But I’m thinkin’ the job market probably had more to do with it.  The official unemployment rate is down, however, if you read the fine print what you discover is that many people have either left the workforce (disability claims, early retirement, cash work, gone back to school) or taken a part-time job without benefits just to get by.  Neither of those scenarios contributes much to increased home buying.

FINANCING- mortgage rates hovered in the 3-4% range (remarkably low by any historical measure).  And now Fannie Mae & Freddie Mac are coming out with 3% down programs.  That may help a few people to buy, however, what I see as the bigger issue is a large number of people waiting out short sales, foreclosures, and bankruptcies which occurred during the great recession.

First time homebuyers increased nationally to 29% of all buyers in November.  However, this number is still hovering around the lowest reading ever.  Why?  The burden of student loan debt?  Happy to live at home?  Maybe, but a better bet might be job and income numbers among the 20 something set.  Another unspoken factor just might be that many saw their parents get beat up in the housing market just a decade ago, and those wounds haven’t fully healed yet.

Locally, houses sold on average for 93% of their original asking price (the same as last year).  Most houses sold after reducing their original price, and finally sold at around 98% of the final asking price.  Some buyers got shut out because they didn’t pull the trigger soon enough or bring enough ammo to their bids.

All in all, those who wanted or needed to sell were able to do so reasonably close to their asking price.  And buyers were generally able to find a good home at an affordable price (and even more affordable mortgage interest rates).  I think most people will look back and say that the central Indiana market was rather healthy overall in 2015.