Promises, Promises, Promises…

We have all heard it before…the horror stories of a closing gone wrong.  “The loan officer told me that I was getting a fixed rate,” or… the rate that was promised which was ”so much lower than everyone else” was NOT what they received at closing.”  It is sad to see that in this business, that mortgage professionals are being labeled the same as “used car salesman” (yuck!) This “bait and switch technique” is VERY deceptive (not to mention illegal) practice among loan officers.  These originators feel that they can quote a low rate to reel the customer in and when they find out otherwise, it is too late for the customer to change their mind without endearing a major heart-ship, so to avoid that, the borrowers signs the loan documents.

Some loan officers are so eager to get the next loan (especially during slow times) that they will promise the customer the impossible.  I know this because I am very savvy on what is going on in the industry that when a customer calls saying they are being quoted a rate that is much as a 1.00 percent lower than my base rate, I start asking the borrower a few questions, such as pre-payment penalties, points, lender fees, and APR.  You see, rate is only ONE factor into the equation.  When you see a wide “spread” between the rate and APR, it might appear that you are getting the best rate in town, but actuality, you are paying a lot UPFRONT in finance charges.  Often times these charges end up costing the borrower more money in the long run if they don’t stay in the mortgage for at least 5 years.  That is why its important for borrowers to ask more questions than just, “what is your lowest rate.”  Some situations may look better to pay more fees to take a better rate, other times its better to take the higher rate, every borrower (and situation) is unique.  Borrowers need to educate themselves and ask the questions such as fees charged in the loan that don’t make sense like mulitple lender charges.  It is VERY important when comparing Good Faith Estimates against competiting lenders to ensure that the borrower is comparing apples to apples.  An ARM with a pre-payment penalty will have a more favorable rate, but what will lie ahead for the borrower a few years down the road?  My advice:  do your homework!!!

What is a Reverse Mortgage?

Answer: A reverse mortgage is a loan where the lender pays you instead of you paying the lender. Home equity is tapped to make these payments, which can be lump sum or monthly. Generally, reverse mortgages do not need to be repaid until you sell your home. Reverse mortgages are often used for retirees who have a lot of equity in their house but have a reduced income.

A reverse mortgage can pay a dividend to the homeowner from the equity in the owner’s home (annunity payments.) Reverse mortgages are also a plus when a homeowner is faced with the decision to either sell their home to get money to live or live in the home and have money, while the asset is increasing in value. If a homeowner has significant equity in a home, a reverse mortgage might be the answer.

How the loan works: Based on the home’s value, the lender makes payments to the borrower as monthly income, a lump sum of cash or a line of credit; borrower retains ownership; no repayment until the homeowner dies or sells the home. Home is then transferred to the beneficiary were it can be refinanced or sol at which time the lender is paid in full.

Qualifications: Homeowners must be at least 62 years old and live in the home or condo as their primary residence. NO credit score requirements.

Is Now the Time to Purchase a Home?

There is no doubt that the Maryland real estate market has slowed down and is not the hot market we had from 2002 to 2005 (although Maryland has held its values much more favorably than many other states.) The news media is quick to point out that more homes are on the market and that sales are down. Given the current market, is now a good time to buy a home?

“But the market is turning and prices seem to be falling, so why would I buy a home now?” The housing market has changed, prices are leveling and may even decline. But remember that a home should be thought of as not only an investment. This is the place where you live, rest, and raise your family. It is important that your home be the right home that fits your lifestyle now. If you are currently a homeowner and are looking to upsize, downsize or change towns, consider that even though your home may be worth less than it was last year, chances are that the house you intend to buy is also selling for less. The effect on you ismore than likely neutral. It does not really matter if you buy and sell in a rising market, a falling market or a stable market. Your house will rise or fall in value with the other houses in the area.

For the first time Maryland home buyer it may actually be better to buy in a cooler housing market than a hot market. Why? In the hot real estate market we have had over the last 4 years buyers had to move quickly to get a house before the next buyer got it. There was little time to look at homes, negotiate the best terms and think about whether or not that house was the right one. Sellers were in a very good position, there were lots of buyers and not many homes on the market, so sellers were able to get terms that were more favorable to them. The homes they were selling were often in less than perfect condition and buyers were still eager to buy them.

Now that the market has slowed, the buyer is in a much better negotiating position and is more likely to get terms that are in his or her favor. Perhaps the seller will make some needed repairs to the home or will contribute some money to the buyers closing costs. This gives the first time buyer a much better chance of buying the home they want.

Also, the first time buyer has one huge advantages over the homeowner who is trying to buy a home. That advantage is so obvious it often is overlooked by the first time buyer. The advantage they have is they have nothing to sell before they can buy! Consider this: Imagine that you own a home that you wish to sell. Two buyers approach you with an offer to buy your home. Buyer “A” makes a good offer but has a contingency in his offer that he must sell his current home before he purchases your home. Buyer “B” makes a good offer and can buy your home in a month because he has nothing to sell. Which offer do you take? Buyer “A” must sell his house in order to buy yours. Who knows how long that will take? Is his house priced well? What if he gets a buyer who can not complete the sale? There is a lot of risk to accepting Buyer “A”s offer. Chances are you would accept Buyer “B”s offer. And because Buyer “B” represents a lot less risk, you might even accept his offer if the price was lower than Buyer “A”s.

So the buyer with nothing to sell has a lot of advantages over other buyers and this gives them a better negotiating position. So do not let the media scare you from making a needed lifestyle change. There is no fundamental reason to not buy in this market.