Rates will likely stay below 5% for at least the first half of the year, industry experts say.

By Amy Hoak of MarketWatch

Mortgage rates should remain low in 2012, especially in the first half of the year, according to the predictions of several industry watchers.

“We may spend the entire year below 5%,” said Greg McBride, senior financial analyst for Bankrate.com, referring to the average interest rate for a 30-year fixed-rate mortgage.

Rates may even fall to new lows early this year, particularly if the European debt crisis hits a crescendo, McBride added.

Already, rates are sitting at record lows. The 30-year fixed-rate mortgage averaged 3.91% for the week ending Jan. 5, according to Freddie Mac’s weekly survey of conforming mortgage rates. That ties the record for the lowest rates that have been in the history of the survey. In contrast, the highest average was 18.63% set in 1981, according to Freddie Mac.

In general, the financial troubles in Europe, combined with the Federal Reserve’s pledge to keep short-term rates on hold at least through 2013, will keep mortgage rates from rising significantly, McBride said.

Europe’s woes have caused a “flight to quality” among investors, sending their money in the direction of U.S. bonds, which has the effect of lowering mortgage rates. The Fed’s short-term rate policy also reduces long-term rates, since long-term rates “reflect expectations of where short-term rates will be in the future,” he said.

Lately, consumers have been conditioned to expect low rates. Last year, the 30-year fixed-rate conforming mortgage had its lowest annual average on record at 4.66%, according to Bankrate.

According to Freddie Mac, the 30-year mortgage averaged 4.5% in 2011; the lowest weekly rates on record were posted toward the end of the year.

But whereas rates fell in the second half of 2011, they are expected to rise at least somewhat during the second half of 2012, said Frank Nothaft, chief economist of Freddie Mac.

“Operation Twist is scheduled to remain in effect until June,” Nothaft said. The intent of Operation Twist, or the Federal Reserve’s Maturity Extension Program, is to push — and keep — long-term interest rates low, which means rates should stay low for the first half of the year, he said. The Fed plan, announced in September, involves buying long-term securities and selling $400 billion in short-term debt.

But the Fed hasn’t made a commitment on whether it will extend the program beyond the June cutoff, Nothaft said.

Economic outlook
An improving economy could also cause rates to rise.

Rates on a conforming 30-year fixed-rate mortgage are expected to average 4.2% in the first quarter of 2012, and should average 4.8% by the fourth quarter, according to Freddie Mac’s forecast.

Meanwhile, HSH Associates, a publisher of consumer loan information, predicts conforming, 30-year fixed-rate mortgages will remain between 3.85% and 4.85% throughout 2012.

“Things appear to be improving domestically. The economy, employment, the housing market are showing signs of warming,” said Keith Gumbinger, vice president at HSH.

While the troubles of 2011 will certainly carry over into the new year, at least some upward emphasis on mortgage rates is expected “as things start to look a little more rosy,” he said.

But those who aren’t as optimistic about the growth of the economy have different rate forecasts. For example, Fannie Mae’s chief economist, Doug Duncan, expects rates will stay relatively flat all year, with the 30-year fixed-rate mortgage rising to 4.1% or 4.2% at the most by the fourth quarter.

The low-rate environment means that even people who have been improving their credit quality for the past five years may have a shot at scoring some of the lowest mortgage rates in history — and they may add sales to the housing market in the process, Duncan said.

Some mortgage market watchers also think that lenders may be more willing to work with borrowers with good but not great credit in the year ahead, as the housing market and economy show some signs of improvement and lenders look to grow their business.

“I don’t see credit becoming appreciably easier. But I think what you will see is more lenders willing to dip their toes into the waters of 700 and 720 credit-score consumers,” McBride said. “You may end up, as a consumer, seeing more lenders at the table for those that have good credit scores and not just those who have great credit scores.”

But despite continued favorable mortgage rates, don’t expect great strides in the housing market just yet. The economy is still weak and unemployment is still high — two strong headwinds pushing against housing demand, even though affordability is so high, Nothaft said.

“Consumer confidence is still relatively low. And what a low reading for consumer confidence means is that consumers are nervous about their economic well-being,” he said. “If you’re feeling ill at ease, you will be reluctant to buy something that costs $200,000 to $300,000 and commit to monthly payments for 30 years.”

By Polyana da Costa of Bankrate.com

Getting a mortgage loan has become challenging in recent years. Don’t expect that to change anytime soon.

Lending standards will remain tight in 2012, but that doesn’t mean you won’t be able to snag a mortgage with an attractive rate. Savvy borrowers who understand the rules and prepare will improve their chances of success.

These tips will help you stay on top of your game as you try to secure a mortgage in 2012.

Study your credit

Good credit is the key to snagging a mortgage in this tight lending environment. Get copies of your credit scores and credit history from the three main credit-reporting bureaus. Study the reports carefully to make sure there are no errors or issues to resolve before applying.

Most lenders require a minimum credit score of 680 to comply with Fannie Mae and Freddie Mac’s guidelines. Federal Housing Administration loans — which are guaranteed by the FHA — allow for lower scores, but most lenders want to stay away from scores lower than 620.

Prepare before you start

Every lender requests certain basic documents when you apply for a mortgage. Don’t wait for them to ask.

Have these documents ready when you walk into the lender’s office: your last two pay stubs, W-2s, income-tax returns and bank statements.

Save these documents and any additional ones the lender requests in an electronic format, so you can easily resend them if anything gets lost.

Know how much you can afford

Don’t rely on your lender to tell you how much mortgage you qualify for and then borrow the maximum amount. Plan your budget, and leave room for unexpected expenses. That’s especially the case when you are buying a house.

Bankrate’s calculators can help you determine how much house you can afford and estimate your monthly mortgage payments.

Shop around

Shopping around for a mortgage should go beyond comparing interest rates. Rates are important, but would-be borrowers must consider points, closing costs and different types of loans. Get estimates from three banks and three mortgage brokers before you decide which combination works for you.

Time is of the essence

Once you submit your mortgage application to the lender, the clock starts ticking. Make sure you quickly send in any documents requested during the approval process.

For buyers, a delay in closing the loan could kill the purchase and cost them their deposits. When refinancing, a delay could mean losing the interest rate the borrower originally locked in. Ask for an expected closing date, and follow up with the lender periodically until the loan closes. Keep in mind, some lenders close more quickly than others.

Mortgage approved? Your credit must stay put until closing

After the lender pulls your credit and says you’ve been approved, don’t assume you’ve won the battle. Most lenders will pull your credit again before the loan closes.

It’s wise to avoid any moves that may affect your credit. Don’t apply for new credit cards or credit lines. Pay your bills on time. Don’t close any accounts. Don’t finance a new car. Stay put until closing.

Consider refinancing with no closing costs

You don’t always have to spend money to save money when refinancing. Many lenders offer mortgages with no closing costs. No, it’s not a free ride. Lenders usually make up for those costs by charging the borrower a slightly higher interest rate. Sometimes the slight increase translates into a few extra dollars in the monthly payment, and the borrower can save thousands in closing costs.

Consider a shorter-term loan

Because interest rates have been at or near rock bottom, short-term loans have become more affordable for many borrowers.

Those who have a 30-year mortgage with an interest rate of 6% or higher may be able to refinance into a 20-year or 15-year loan while keeping their monthly mortgage payments close to what they pay now. Consider this option even when the short-term loan means slightly higher monthly payments. This is your chance to pay off your mortgage more quickly.

Receive a gift? Be ready to explain it

Did your parents or in-laws give you a few thousand dollars as a gift to help out with the down payment? If so, congratulations — but make sure you can document and explain where you got the money.

FHA loans allow borrowers to receive their down payment as a gift from a relative. For conventional loans, borrowers may receive gifts, but at least a 5% percent down payment must come from their own funds.

Borrowers receiving a gift are required to present a gift letter signed by the donor, and they will need a paper trail of the money transfer. Be ready to present statements to show where the money came from when it was deposited into your account.

Unless the money is being used for the down payment, avoid receiving large cash deposits in your bank account until your mortgage closes. Any large deposits other than your paycheck will have to be explained to comply with federal regulations.

Be persistent

If one lender rejects your mortgage application, that doesn’t mean all lenders will. Most lenders follow Fannie Mae and Freddie Mac guidelines. In addition, they have their own internal underwriting guidelines, and some are stricter than others.

Ask why your mortgage was denied. Depending on the reason, you may be able to take some quick steps to improve your credit, or you might just need to try a different lender.

Appraisal isn’t enough? Try again

If the home appraisal your lender received isn’t enough to back the mortgage loan and you think the appraiser is mistaken, try another lender.

You can’t order a second appraisal or pick which appraiser the lender hires, but you can dispute the first appraisal or apply with a different lender.

In a perfect world, the appraised value of a home shouldn’t vary drastically from one appraiser to another. But you may find that it does. If you believe the first appraiser is wrong, try a different lender and hope that lender’s appraiser does a better job.

Seek help

If you are behind on your mortgage or are struggling to keep up with your mortgage payments, seek counseling.

The Department of Housing and Urban Development has counseling agencies throughout the country. Homeowners can receive free foreclosure-prevention counseling from HUD-approved counselors. To find a housing counseling agency near you call 800-569-4287 or visit the HUD website.

Instead of just taking out the biggest mortgage a lender qualifies you to borrow, consider how much you want to pay each month for housing based on your financial and personal goals.

Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree? Will a new child add day care to your monthly expenses? Does a relative plan to eventually live with you and contribute to the mortgage?

Still not sure how much you can afford? You can use the same formulas that most lenders use, or try another of these traditional methods for estimating the amount of mortgage you can afford.

1. The general rule of mortgage affordability

As a rule of thumb, you can typically afford a home priced two to three times your gross income. If you earn $100,000, you can typically afford a home between $200,000 and $300,000.

To understand how that rule applies to your particular financial situation, prepare a family budget and list all the costs of homeownership, like property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care costs.

2. Factor in your downpayment

How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home’s cost, you may not haveto get private mortgage insurance, which costs hundreds each month. That leaves more money for your mortgage payment.

The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher your monthly mortgage payment.

3. Consider your overall debt

Lenders generally follow the 28/41 rule. Your monthly mortgage payments covering your home loan principal, interest, taxes, and insurance shouldn’t total more than 28% of your gross annual income. Your overall monthly payments for your mortgage plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 41% of your gross annual income.

Here’s how that works. If your gross annual income is $100,000, multiply by 28% and then divide by 12 months to arrive at a monthly mortgage payment of $2,333 or less. Next, check the total of all your monthly bills including your potential mortgage and make sure they don’t top 41%, or $3,416 in our example.

4. Use your rent as a mortgage guide

The tax benefits of homeownership generally allow you to afford a mortgage payment-including taxes and insurance-of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.   Here’s an example. If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.

However, if you’re struggling to keep up with your rent, consider what amount would be comfortable and use that for the calculation instead.

Also consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax benefits.

Daily Real Estate News |

Many of the housing markets projected to have the biggest gains into 2012 tend to be the home to major universities, strong private sector employment, or have nearby military bases, according to a list of the healthiest housing markets by Builder Magazine. Builder teamed with Hanley Wood Market Intelligence to compile its annual list of the healthiest housing markets in the country, factoring in housing projections from Moody’s Economy.com. The list was based on projected price appreciation, population growth, income growth, and improving employment picture.

The following are the eight cities that topped Builder’s list, including projected housing permits in 2011 and 2012.

1. Minneapolis-St. Paul-Bloomington Minn.-Wis.

2011 Building Permit Forecast: 4,511

2012 Building Permit Forecast: 10,118

Home prices here are expected to rise 8 percent next year, the highest growth projected in the 100 cities analyzed. As a hub for medical technology and headquarters for several large companies, employment is expected to grow 2.5 percent in 2012.

2. Fort Collins-Loveland, Colo.

2011 Building Permit Forecast: 1,004

2012 Building Permit Forecast: 1,650

With Colorado State University the major employer here and often ranked as one of the best cities to live in the country, households are expected to grow by 2.7 percent in 2012 and employment is expected to grow 2.6 percent. Housing permits are expected to rise 50 percent as well, according to Moody projections.

3. Salt Lake City, Utah

2011 Building Permit Forecast: 1,294

2012 Building Permit Forecast: 1,181

With lots of high-tech businesses, Salt Lake City is poised to have some grains in employment and income in the coming year. After a drop in home prices, prices are expected to rebound and increase 4.7 percent next year.

4. Jacksonville, Fla.

2011 Building Permit Forecast: 2,284

2012 Building Permit Forecast: 4,363

Jacksonville has a strengthening employment picture, with a military presence and a growing financial services sector. Employment is expected to increase 3.2 percent in 2012. With stabilizing home prices already, prices are expected to rise 5 percent next year and housing permits are expected to double.

5. Miami-Fort Lauderdale-Pompano Beach, Fla.

2011 Building Permit Forecast: 2,708

2012 Building Permit Forecast: 7,522

This metro area is expected to reverse course with jobs forecasted to grow by 2.7 percent, home prices stabilizing, and housing permits expected to double. The rebound is expected to be mostly driven by two major projects, the CitiCentre and Resorts World Miami, are expected to add tens of thousands of jobs in coming years.

6. Charlottesville, Va.

2011 Building Permit Forecast: 634

2012 Building Permit Forecast: 798

The city is home to the University of Virginia and also continues to attract a surge in second-home buyers from the Washington, D.C., area. Home prices are expected to rise 1 percent in 2012 and median income is forecasted to grow by 3.7 percent.

7. Colorado Springs, Colo.

2011 Building Permit Forecast: 2,099

2012 Building Permit Forecast: 3,639

The biggest employers in Colorado Springs are military bases and the Air Force Academy, which are expected to see big growth when the troops from Afghanistan return. Home prices are expected to rise 2.6 percent, employment to grow by 1.4 percent, and households to increase by 1.8 percent in 2012.

8. Oklahoma City, Okla.

2011 Building Permit Forecast: 3,417

2012 Building Permit Forecast: 5,284

At 6.1 percent, Oklahoma City has one of the lowest unemployment rates in the country. Furthermore, the job market is expected to continue to rise there, and incomes are projected to increase 3 percent next year. While the area has a seen a drop in home prices recently, housing prices are projected to rebound and increase 2.6 percent as Oklahoma City’s low cost of living continues to attract businesses and new households.

By Tara-Nicholle Nelson

With so many homes on the market, many buyers house hunt for months, even years before hitting property pay-dirt. Even for the savvy buyers who have narrowed their house hunt to an affordable price range, the condition issues so common in distressed homes can make choosing a home difficult.
And on the flip side, some subdivisions have scads of similar homes, all of which are in good shape, all listed at a similar price, making it nearly impossible to choose just one.

Here are five indicators that a particular home you’re viewing might be “The One” – the property on which you’ll want to place an offer:

1. You feel possessive about it, instantly. I once showed a less-than-fabulous home to a buyer who stepped in the front door, opened her eyes wide, and uttered in a much-quieter-than-normal voice, “I would cry.” We got a good laugh out of this later, after she found and bought a home that made her feel virtually the opposite.

Not only did the winning home bring a smile to her face, it also made her instantly possessive. She didn’t just want it – she wanted it immediately. She could barely even wait to write the offer paperwork! When another agent showed up to bring a buyer through the place while we were still there, she lingered leisurely (in hopes they would just leave) and secretly looked at them with daggers in her eyes (out of competitiveness, because in her heart, the home had already become hers).

If you walk through a place and leave wondering how quickly you can get your offer in, how much you’d offer to beat someone else out, or what you can do to lock it down quickly, it might be “The One.”

2. You start rationalizing its flaws away. Train tracks 10 feet from the bedroom window? Next door neighbor that runs a pigeon-sitting service? Okay – I exaggerate. But if you find yourself viewing a home with traits that you would normally deem undesirable or as deal-killers, yet you like the place so much that you instinctively compile a mental list of reasons those traits just don’t matter, you might have found “The One.”

Now, smart buyers should be aware of a syndrome I like to call “Pottery Barn Psychosis,” whereby the aesthetics of a wonderfully staged home with amazing curb appeal can hypnotize a buyer, rendering them blind to the negative property features, which would be glaring or grave concerns if the place weren’t so stinking cute. It’s fine to make a conscious decision that the pros of a place outweigh its cons, and even to consciously re-rank your priorities in light of a particular property’s advantages. But buyers should take steps to avoid falling victim to Pottery Barn Psychosis (and the Buyer’s Remorse that often follows suit) by writing down your absolute musts and deal-breakers before you ever step foot in a single property – and by revisiting this document before you write an offer and again before you remove your contingencies.

3. The bathroom and kitchen don’t disgust you. We humans are born with only two fears in life: the fear of falling and the fear of loud noises. By about eight months old, we start to acquire new fears, and most of us never stop. Among the first fear most people learn: the fear of other people’s kitchens and bathrooms.
I exaggerate (again!), but it is true that generally speaking, other people’s kitchens and bathrooms hold definite gross-out potential. There’s just something about what goes on in those rooms that seems exceptionally intimate and even unsanitary. So, if you happen to find yourself falling in love with a home’s river rock shower floor or drooling over the pot-filler over the stove and the built-in cookbook stand on the countertop, that’s a sign that you’re falling head over heels with a home that might just be “The One.”

4. You involuntarily envision your own family, furniture, decor, daily activities or remodeling choices into the home. They say that the best staging helps prospective buyers envision their own idealized lives taking place in the staged home. But whether or not a property is staged, if you find your mind’s eye Photoshopping a given property to insert your own kids and sofa into the living room, your dining table and favorite wall hangings into place in the dining room, and your daily meditation in the breakfast nook – or even start mentally removing walls entirely – it’s entirely possible that the home you’re in could be “The One” for you.

5. You lose interest in seeing other homes. I once took some buyers out for their first house hunt in my territory after they’d spent two years looking for homes in a neighboring area, without ever making a single offer. I’d planned to show them seven homes, but when they got to the fourth property, they declared that they’d found their home, and they neither wanted nor needed to see any more. I insisted that they finish the list, if for no other reason than to confirm their choice and to avoid feeling later that they hadn’t seen enough nearby homes to compare theirs to. They humored me and saw the last three places on the list, then promptly bought house #4 and still live there, blissfully happy, to this day.

When you find “The One,” continuing the house hunt you may have obsessed over for months, even years, starts to seem silly, like a waste of the energy you could be using to move into your new home.

Banks aren’t ditching foreclosures at nearly the rate they were last year, which is helping to keep the housing market stable. But a recovery hinges on how long it takes to dispose of the huge backlog of distressed properties.

By Melinda Fulmer of MSN Real Estate

Distressed properties — those in some stage of foreclosure — edged up to 28% of all U.S. residential sales in the first quarter from 27% the previous quarter, according to RealtyTrac.

The percentage would have been higher, analysts say, but overall housing demand is weak and the banks are not disposing of these assets at nearly the rate they were at the same time last year, when distressed properties made up 29% of all sales.

The numbers tell the story: In the first quarter of this year, 158,434 bank-owned properties (or those in the foreclosure pipeline) were sold, a 36% decline from the first quarter of 2010 and a 16% decrease from the fourth quarter of last year.

Compare that with the nearly 350,000 distressed properties sold in the first quarter of 2009, and you can see why the foreclosure pipeline is so bloated.

“According to our numbers, if you just look at the properties in foreclosure or on the banks’ books, it will take us three years to work through that inventory at the current rate of sales,” says Rick Sharga, senior vice president of RealtyTrac.

Of course, this slowdown in foreclosure sales is — at least in the short term — a good thing for the housing market, helping to keep home prices more stable, Sharga says.

“The downside is that this approach ensures that we will be in the doldrums in housing for several more years,” he says.

Indeed, with such a large supply of distressed properties and foreclosures, the timing of a recovery hinges in part on how quickly banks and servicers dispose of these holdings.

Foreclosure bargains
The average sale price of properties in some stage of the foreclosure process — from default to bank-owned — was $168,321 in the first quarter, down 1.9% from the fourth quarter of last year and 1.5% from the first quarter of 2010, according to RealtyTrac.

Homes in some stage of foreclosure traded on average at 27% below the average for standard sales — a bigger discount than the 26% discount posted in the first quarter of last year.

Bank-owned properties sold for the largest discount — 35% on average, slightly more than the 33% discount taken by lenders at the same time last year. A total of 107,143 bank-owned homes sold in the quarter, comprising 19% of sales.

Pre-foreclosure properties — those in default or scheduled for auction (often short sales) — sold for an average discount of 9%, an improvement from the 14% average discount taken on them in the first quarter of last year. Sales of 51,292 such properties were recorded in the first quarter, down 45% from the same period last year.

While sales in this category overall were much lower than last year, some reports point to a recent pickup in short sales. That’s what Luis Mendoza, a real-estate agent with Century 21 Award in San Diego is seeing in his area.

“I have seen a huge increase in short sales,” Mendoza says, as some loan modifications have fallen apart. These short sales are bargains too, he says, trading at about a 15% to 20% discount to the houses around them.

This decline in prices is making mortgage payments rival rents in many areas. In downtown San Diego, he says, a two-bedroom condo can be rented for $2,500 a month, or bought for the same monthly mortgage payment.

Indeed, affordability has gotten a larger number of investors out in the market, says Christian deRitis, director of consumer credit analytics at Moody’s Economy.com.

“They’re buying up foreclosures, fixing them up and turning around and renting them,” he says.

Foreclosure hot spots
Not surprisingly, the most foreclosure sales are being posted in boom-and-bust areas of the West.

Sales of properties with foreclosure filings accounted for 53% of all residential sales in Nevada during the first quarter, the highest of any state, but down from 59% in the first quarter of 2010. Because so many of the sales there are foreclosures, and have been for so long, the discount rate is declining, Sharga says, reaching 18% in the first quarter.

California foreclosures accounted for 45% of all residential sales during the first quarter, up from 43% in the previous quarter, but down from 48% at the same time last year. The average foreclosure property in the Golden State sold for 34% less than the average price of homes not in foreclosure.

Foreclosures made up 45% of all residential sales in the first quarter in Arizona, down from 50% the previous quarter, and 47% in the same period a year earlier. Foreclosures here traded for a 25% discount to the average traditional listing.

Other states where foreclosures accounted for at least one-quarter of all sales were Idaho, Florida, Michigan, Oregon, Virginia, Colorado, Illinois, Georgia and Ohio.

The biggest discounts on foreclosure properties were in Ohio and Illinois, where foreclosures traded at an average 41% discount to the average nondistressed listing.

Could foreclosures kill the recovery?
To be sure, the large numbers of distressed properties in the housing market are taking their toll on prices this year.

The Federal Housing Finance Agency’s Home Price Index, which uses home-sale price information from Fannie Mae- and Freddie Mac-acquired mortgages, was 2.5% lower on a seasonally adjusted basis in the first quarter than in the fourth quarter of 2010, the biggest quarterly decline since the fourth quarter of 2008, the agency said Wednesday. Prices fell 5.5% between the first quarter of 2010 and the first quarter of 2011.

And that picture wasn’t looking any rosier, as the country entered what is traditionally the peak selling season. In April, the U.S. median home price declined 5% to $163,700 from the same time a year earlier, according to the National Association of Realtors.

Given the large backlog of distressed properties and the sluggish economy, Moody’s predicts a 5% decline in home prices for 2011 overall.

If banks decided to sell off a much larger number of the distressed properties on their books, analysts say, prices could erode further, postponing a recovery.

However that’s not something Sharga and deRitis are predicting.

“Banks are in a much better position now than they were in the past,” deRitis says. “They are not as desperate. I see a much more orderly process going on.”

2011 first quarter foreclosure sales by state
Foreclosure properties — bank-owned homes and those in some stage of foreclosure — continued to make up a large number of all home sales across the country. And with discounts averaging 27% below the average price of homes not in foreclosure, they weighed heavily on prices. Here are the foreclosure sales by state and the discount these distressed properties commanded.

Posted Under: Home Buying, Home Selling, Financing |

Once upon a time, homebuying was a much less dramatic affair then it is today. The house hunt was fun, if suspenseful, and then there was another exciting whirlwind of inspections, closing and moving in. Today, though, as soon as buyers get the gumption to jump off the rent vs. buy fence, they find themselves on another edge – the edge of their seats, through the entire escrow process waiting to see what obstacle will emerge next, and whether their transaction will survive it.

Deals get killed all the time, and buyers can’t relax until they have keys actually in hand. Here are three of the most common real estate deal-killers, and some steps buyers can take to deactivate them.
1. Appraisal too low. Some buyers incorrectly believe that the best thing that could happen to them is for the property to appraise below the agreed-upon purchase price, expecting that a low appraisal forces the seller to bring the price down. In fact, so many of today’s sellers are barely breaking even, that a low appraisal is probably the most common deal-killer around. If an appraisal comes in just a tad bit lower than the contract price, usually the seller will come down if they can, or the buyer will kick in a few extra bucks. But when it comes in 5, 10 or even 20 percent low, most sellers can’t – and most buyers won’t .
Low appraisals also seem like the most difficult deal-killer to avoid, as this process is entirely out of both buyer’s and seller’s control. But there are two things buyers can do to minimize the risk. First, check the comps – i.e., recent comparable homes that have sold in the area – before making an offer; your agent will help you do this. Then, don’t make an offer bizarrely above the average range of the comparables, even if the property has multiple offers, unless you’re prepared to deal with a low appraisal a couple of weeks out.

Also, consider working with a local mortgage broker who also originates loans through its own bank (vs. walking into a large bank’s branch off the street); these lenders have the ability to choose from a smaller pool of appraisers that they know are qualified and knowledgeable about your area.

2. Property condition dramas. When the market melted down, lenders found themselves with a lot of decrepit homes on their hands. This explains two things: (1) why lenders are more concerned about property condition now than ever, and (2) the raggedy condition of so many of the “distressed’ homes on the market. Homes that have extensive wood rot, dangerous decks or electrical systems, or peeling paint and missing systems (sinks, stoves and the like) are highly unlikely to pass muster when the appraiser walks through, even if they do qualify as being worth the purchase price. And while an individual seller might be willing to do some work, many just can’t afford to; short sale and REO sellers simply refuse to make fixes, 9 times out of 10.

Prevention is the best medicine for curing this transaction ailment. If you are buying a short sale or REO property, be aware that when the selling bank says as-is, it really means as-is. Ask your mortgage broker and agent to brief you on what sort of shape your lender will require your home to be in, at minimum, and keep that standard in mind during your house hunt. Your agent can help manage your expectations about which properties will and won’t likely pass muster.

3. Loan approval takes too long. Every buyer knows they must get preapproved for a mortgage before they start house hunting, but many don’t know that preapproval is just the first in a long list of steps that have to happen before the loan becomes a sure thing. In fact, it’s common now for buyers to get their loan preapproval many months before they end up in contract, and lots can change in the interim – further extending the time it may take for their loan approval to come in.

It’s common for contracts to include a standard loan contingency period of 17 days, give or take a few. But the appraisal might take longer than that to come in, or the underwriter might have lots of questions and seemingly random nitpicks about the appraisal, or about you: they want to see your driver’s license, then your marriage license, then your divorce decree, and after that, a letter from your employer agreeing that you’ll be keeping your job even though you’re moving an hour away. It never seems like they ask for everything at once, thus it can take longer than 17 days to obtain all the requested items, turn them in and get the underwriter to sign off on them.

Until you get that green light, it’s foolhardy to remove your loan contingency, as that step renders your earnest money deposit non-refundable, under most contracts. Many a buyer is forced to either secure an extension from the seller or to let the transaction die, rather than forfeiting their deposit funds. And again, some sellers understand and will play ball, but bank sellers can be particularly resistant to loan contingency extensions, especially if there are backup offers on the table.

Best practice for buyers to minimize the chances of an overtime loan approval process killing the deal? Be ready: be ready for lots of bizarre documentation requests, be ready to provide things you’ve already been asked for, and be ready to do so quick-like – without pushing back. The faster you can turn around the things the underwriter wants, the better.

Also, it can be very helpful to work with a mortgage broker and agent that have worked together before and have close communications, so that your agent can stay abreast of any and all loan process glitches and keep the listing agent apprised of the legitimate reasons you may need an extension throughout the contingency period, rather than assuring them everything’s speeding along then having to ask for a last-minute extension.

Agents: what other deal-killers are you commonly seeing? How do you help buyers correct for them?

A house is probably the biggest purchase you’ll ever make. And, if you can avoid these missteps, chances are you’ll be happy with the home you choose.

Are you gearing up to buy your first place? Shopping for a home is exciting, exhausting and a little scary, especially in this market. In the end, your aim is to end up with a home you love at a price you can afford. Sounds simple enough, right? Unfortunately, many people make mistakes that prevent them from achieving that simple dream. Arm yourself with these tips to get the most out of your purchase and avoid making 10 of the most costly mistakes that could put a hold on that sold sign.

1. Not knowing what you can afford

As we learned from the subprime mortgage mess, what the bank says you can afford and what you know you can afford or are comfortable with paying are not necessarily the same. If you don’t already have a budget, make a list of all your monthly expenses (excluding rent), including vehicle costs, student loan payments, credit card payments, groceries, health insurance, retirement savings and so on. Don’t forget major expenses that occur only once a year, like any insurance premiums you pay annually or annual vacations. Subtract this total from your take-home pay and you’ll know how much you can spend on your new home each month.

If you end up looking at homes that are outside your price range, you’ll end up lusting after something you can’t afford, which can put you in the dangerous position of trying to stretch beyond your means financially or cause you to feel unsatisfied with what you actually can afford. You may even learn that you can’t afford the type or size of home that you desire and that you need to work on reducing your monthly expenses and/or increasing your income before you even start looking.

2. Skipping mortgage qualification

What you think you can afford and what the bank is willing to lend you may not match up, especially if you have poor credit or unstable income, so make sure to get preapproved for a loan before placing an offer on a home. You’ll be wasting the seller’s time, the seller’s agent’s time and your agent’s time if you sign a contract and discover later that the bank won’t lend you what you need or that it won’t give you a mortgage you find acceptable.Taxing the wealthy – class warfare?

Be aware that even if you have been preapproved for a mortgage, your loan can fall through if you do something to alter your credit score, like finance a car purchase. If you cause the deal to fall through, you may have to forfeit the money that you put up when you went under contract.

3. Failing to consider additional expenses

Once you’re a homeowner, you’ll have additional expenses on top of your monthly payment. Unlike when you were a renter, you’ll be responsible for paying property taxes, insuring your home against disasters and making any repairs the house needs (which will occasionally include expensive items like replacing the roof or furnace).

If you purchase a condo, you’ll have to pay monthly maintenance costs regardless of whether anything needs fixing because you’ll be part of a homeowners association, which collects monthly fees from the owners of each unit in the form of condominium fees.

4. Being too picky

Go ahead and put everything you can think of on your wish list, but don’t be so inflexible that you end up continuing to rent for significantly longer than you really want to. First-time homebuyers often have to compromise on something because their funds are limited. You may have to live on a busy street, accept outdated decor, make some repairs to the home or forgo that extra bedroom. Of course, you can always choose to continue renting until you can afford everything on your list — you’ll just have to decide how important it is for you to become a homeowner now rather than in a couple of years.

5. Lacking vision

Even if you can’t afford to replace the hideous wallpaper in the bathroom now, it might be worth it to live with the ugliness for a while in exchange for getting into a house you can afford. If the home meets your needs in terms of the big things that are difficult to change, such as location and size, don’t let physical imperfections turn you away. Besides, doing home upgrades yourself, even if you have to hire a contractor, is often cheaper than paying the increased home value to a seller who has already done the work for you.

6. Being swept away

Minor upgrades and cosmetic fixes are inexpensive tricks that play on your emotions and elicit a much higher price. Sellers may pay $2,000 for minimal upgrades or staging that you’ll end up paying $40,000 for. If you’re on a budget, look for homes whose full potential has yet to be realized. Also, first-time homebuyers should always look for a house they can add value to; this ensures a bump in equity to help you up the property ladder.

7. Compromising on the important things

Don’t get a two-bedroom home when you know you’re planning to have kids and will want at least three bedrooms. By the same token, don’t buy a condo just because it’s cheaper when one of the main reasons you’re over apartment life is because you hate sharing walls with neighbors. It’s true that you’ll probably have to make some compromises to be able to afford your first home, but don’t make a compromise that will be a major strain.

8. Neglecting to inspect

It’s tempting to think that you’re a homeowner the moment you go into escrow, but before you close on the sale, you need to know what kind of shape the house is in. You don’t want to get stuck with a money pit or with the headache of performing a lot of unexpected repairs. Keeping your feelings in check until you have a full picture of the house’s physical condition and the soundness of your potential investment will help you avoid making a serious financial mistake.

9. Not hiring your own agent or using the seller’s agent

Once you’re seriously shopping for a home, don’t walk into an open house without having an agent (or at least being prepared to throw out a name of someone you’re supposedly working with). Agents are held to the ethical rule that they must act in the best interest of their clients, but if you’re a buyer, you’ll probably have a stronger advocate for your interests if you use your own agent and not the seller’s.

10. Not thinking about the future

It’s impossible to perfectly predict the future of your chosen neighborhood, but paying attention to the information that is available to you now can help you avoid unpleasant surprises down the road.

Some questions you should ask about your prospective property include:

· What kind of development plans are in the works for your neighborhood?

· Is your street likely to become a major street or a popular rush-hour shortcut?

· Will a highway be built in your backyard in five years?

· What are the zoning laws in your area?

· If there is a lot of undeveloped land? What is likely to get built there?

· Have home values in the neighborhood been declining?

If you’re happy with the answers to these questions, your house’s location can keep its luster.

Buying a first home can seem stressful and overwhelming, and it isn’t without its share of potential pitfalls. If you’re aware of those issues ahead of time, though, you can protect yourself from costly mistakes and shop with confidence.

For many people, a home is the largest purchase they will ever make, but that doesn’t mean it has to be the most difficult.

This article was reported by Amy Fontinelle for Investopedia.

Everyone knows you’re supposed to be proactive and assertive when you take out a mortgage, carefully collecting and evaluating all sorts of information before you make the biggest deal of your life. But when the mortgage broker starts shooting sheaves of papers (OK, PDF documents) at you, it’s easy for your eyes to glaze over at the sight of so many zeroes, and tempting just to start signing whatever it takes to get that house!
Here are 5 questions every smart buyer (or refi-er) should add to the list of issues to cover with your mortgage professional:

Are you a bank, a broker, or both? Generally speaking, mortgage lenders that are banks or have their own banking divisions (which many reputable brokerages do) have more control over the appraisal process, including the ability to submit your file to a pool of appraisers they know have some knowledge of your local neighborhood. Given the fact that non-local appraisers and the inability to communicate with appraisers under relatively new guidelines for brokerages are responsible for killing loads and loads of deals, working with a company that is or has a bank could be a deal-saving move, especially if the property is in an area that hasn’t had many recent sales or is otherwise challenging to appraise.

Also, some broker/banks that originate loans and sell them straight to Fannie Mae or Freddie Mac under the FHA loan programs offer the same benefits of an FHA loan – low down payment and moderate qualification guidelines – without the “overlays” imposed by some larger banks, which actually place a more restrictive set of guidelines on FHA loan programs. For example, FHA guidelines do not impose a minimum credit score, but many banks overlay their own 640 minimum FICO requirement. Broker/banks that sell straight to Fannie and Freddie often mirror the FHA minimum guidelines precisely.

Finally, brokerages with their own in-house bank and a large roster of lenders and programs provide the advantage of offering a wider range of fallback options than plain old banks or plain old brokerages – Plans A, B, C and D, if you will – which many borrowers need these days, in the (increasingly common) case your first choice bank or loan program doesn’t work out.

Will you explain my Good Faith Estimate to me? May I also have a fee sheet or estimate of funds to close? The current, national standard Good Faith Estimate (GFE) is pretty clear, clarifying all sorts of deal points, from the broker’s commissions to the costs associated with the loan, but as a point of customer service, you should ask your mortgage pro to explain it to you (if they don’t do so under their own initiative).

The one shortfall of the the latest edition of the GFE is that, while it clearly shows the costs associated with a particular loan scenario, it does not always show so clearly the actual amount of funds you’ll need to close the transaction (which might be more or less than those costs)! So, ask your mortgage representative to prepare a fee sheet or an estimate of funds to close as early in the transaction as possible.

How long will it take to close my loan? How much time will I need for loan and appraisal contingencies? The time frames for closing your mortgage – which often drive the time frames for closing your home purchase – often vary widely depending on the type of loan and even the type of lender you work with.(Large bank loans originated by the bankers who sit inside the branch are notoriously slower to close, on average, than loans originated by brokers.) Similarly, the time it takes to get through the FHA loan appraisal and underwriting process might be much longer than it would take, all things being equal, to clear those hurdles and remove your loan and appraisal contingencies on a Conventional (i.e., non-FHA) mortgage.

When you first meet with your prospective mortgage pro, talk with them about these time frames, so they can help you set realistic expectations and insert realistic time frames into your offer when you make it, to minimize the drama of a contingency clock that ticks way faster than your mortgage process.

Are there any fees for the mortgage loan application/approval process? Some lenders charge for credit checks up front, and most require that you pay for your appraisal in advance (although the latter happens only after you find and get into contract on your property. One of the first questions you should ask, when you sit down with a new mortgage broker is how much cash you’ll have to come up with just for the privilege of having them run your application and take the first steps down the road to loan approval.

How long have you been originating loans? And how long have you been with your company? Mortgage pros who have been around for a long time have the knowledge of advance troubleshooting, workarounds and backup plans, and the current underwriting practices it takes to get a loan closed in this restrictive mortgage market. If you found them in some way other than a referral, you can even ask for references from a few clients. Most mortgage pros who have been in business for awhile will be able to give you names and numbers of clients they’ve worked with on multiple purchases and/or refis: that’s a very good sign. You’ll rest a lot easier if you know that your loan is in the hands of a seasoned pro who others like you trust with their largest asset – and largest financial obligation.

In most parts of the country, the housing market is good (or great!) for buyers right now – interest rates are bizarrely low, lots of inventory means lots to choose from, and the cost of renting has increased in a lot of markets. But just because the market’s good doesn’t mean it’s the right time for everyone to buy. The decision whether to buy a home is a very personal one; you need to carefully examine your own situation to determine whether it’s right for you.

So, what are the questions you need to answer in deciding whether you’re ready to buy? Here are some of the big ones:

1. Do I have enough money for a down payment?

And how much, exactly, is “enough?” Today’s minimum down payment requirements range from 3.5 percent on an FHA loan to 10 or even 20 percent for conventional loans. That means coming up with anywhere from $7,000 to $40,000 on a typical $200,000 house. While there are still programs that can give you a down payment assist (see last week’s post, 5 Insider Secrets for Coming Up With Cash for Down Payment), much of the heavy lifting here will need to come from you – in the form of saving up your hard earned cash. And keep in mind there are also closing costs you’ll probably have to pay in cash, which can run as high as 3-4% of your total purchase price.

Talk with a real estate pro and a mortgage broker in your areas to start wrapping your head around how much “cash to close” (i.e., down payment + closing costs) will run, approximately, on a local property that would meet your needs. Can your savings cover this? If not, where will you get the money – what’s your plan for coming up with it? Putting down as much as you can a) makes you more attractive to lenders, so you might qualify you for better loan terms and b) gives you additional purchasing power, either decreasing your monthly mortgage payment or increasing your purchase price limit for a home.

2. Can I handle the not-so-glamorous aspects of homeownership?

If you can’t even fathom the prospect of having a home maintenance crisis without having a landlord to call to fix it, you might want to reconsider homeownership – or at the very least, buy a lower maintenance condo or townhome in great condition, and make sure you get a home warranty! As a home owner, after all, you essentially are your own landlord. Pipe bursts in the middle of the night? Guess who’ll be up fixing it or calling (and paying) the plumber? (Hint: you.)

There are also some less-than-glamorous bills you’ll have to deal with in your new role as a homeowner that you never laid eyes on as a renter: property taxes and hazard insurance, to name two. When you go from renter to owner, you also need to account for the cost of appliances and maintaining the property’s roof, windows, and landscaping, among other things.

3. How long do I intend to stay in the house?

If you think you might move out of the area next year, then you really shouldn’t be thinking about buying a house (unless of course, you want to play landlord and rent it out after you leave – a prospect which requires its own risk/rewards analysis). For your home purchase to pencil out as a good deal, financially, you’ll shouldn’t buy unless you’re comfortable staying in the house at least 5-7 years – even longer, if you’re buying a home in a foreclosure hot spot or an area with a sluggish job market.. This gives you some time to build up equity and make up for the costs of buying, selling and moving.

4. Are my job and finances stable?

Maybe you just went through a major career change and are in the process of working your way back up from the top. Or maybe you work in a field that has been hit really hard by layoffs and cutbacks. The worst case scenario is to find yourself in a spot with mortgage payment you have no way to make, when you could have avoided that by seeing the writing on the wall. If you feel like there’s a real chance you could lose your job or income tomorrow, you may want to hold off on buying a house – that has the added bonus of giving you the geographic freedom to move, if needed, to get a new job.

Is there really such a thing as 100 percent job security in today’s economy? Probably not. But the best practice is to be confident that your finances could handle a temporary loss of income and still make your mortgage payments, before you buy. One way to do this is to have enough money in the bank to cover 4-6 months’ worth of living expenses, calculating them to include your mortgage payment – before you deem yourself ready to buy. That way, even if you lose your job with no warning at all, you’ll at least have a reasonable window of time to find a new one without digging yourself into a hole – or worse, losing your home altogether.

5. What are my real reasons for buying?

Buying a home is a long-term commitment that will have massive impacts on your lifestyle, your family and your finances. In other words, don’t do it unless you’re really sure you want to and are ready for the lifestyle change – don’t let someone else talk you into it. Worthy reasons renters with homeowning readiness give for their decision to buy include some or all of the following:

· You want to build equity instead of paying a landlord. Fact is, if you get a fixed rate mortgage and make the payments for the full term of the loan, you’ll eventually pay it off. That’s not possible when you’re renting.

· You want a place to call your own, where you can paint a wall purple, add a pottery spinning studio or build your dogs an obstacle course (oops – that’s my reason for homeownership!), because it’s your prerogative.

· You want the tax advantages of homeownership.

· You want a stable place you and your family can live for as long as you’d like.

Ask yourself these questions, and be honest with your answers. If you really want to buy, but your answers to these questions today don’t weigh in that direction, it doesn’t mean you’ll never own a home. It’s usually just a matter of strategically timing your purchase out a year or two when your savings, your career and your lifestyle are in alignment with the implications of ownership – consider working closely with a real estate broker and a mortgage professional to get an action plan in place and start working that plan.