Your Home Has More Than One Value

Your Home Has More Than One Value
BY: CARL TRAWICK

One of the challenges of all real estate transactions in our current market situation is answering the question “What is the property worth?” Before the market correction and mortgage meltdown began a couple of years ago, this was no problem; all prices were bubbling up consistently and there were plenty of sales of like properties from which to establish a value. And buyers, sellers, appraisers, real estate agents and lenders were all sure of one thing: the property was worth more than it was the last time it sold.

Since the correction, during which home prices have fallen considerably, and the tightening of credit markets, there is more subjectivity in appraisals because it isn’t as easy to find three or more properties like yours, and close enough to yours, from which to establish value. Appraisers sometimes have to go outside their standard parameters in order to determine a value, and therein lies the problem.

Lenders review appraisals much more carefully these days, and they focus on comparable sales – the sales that the appraiser used to establish the value of the subject property. How old are those sales? How far away are they from the subject property? After answering these and other questions, the lender may question the value arrived at in the appraisal or demand additional support for the value; if their demands aren’t met, they can reduce the value of the property for their loan purposes.

Naturally, this can throw a wrench into a real estate transaction in a hurry, and it usually does.

Just one more thing to be aware of in today’s real estate market.

www.carltrawick.com

What Do Mortgage Lenders See When They Look at You? (Part 3 of 3)

What Do Mortgage See When They Look at You? (Part 3)
BY: CARL TRAWICK

In our third and final look at what mortgage lenders consider when they examine your loan application, we will talk about liquid assets. No, we’re not talking about the full tank of gas you have in your car, nor is this about your well stocked liquor cabinet. We’re talking cash in the bank, savings accounts, money market accounts, certificates of deposit, mutual funds, brokerage accounts, IRA’s and 401K’s (I know IRAs and 401Ks aren’t supposed to be liquid; I’ll get to that).

Generally, lenders are looking at the liquid assets you will still have available to you after you complete the transaction at hand and have made your down payment and paid all associated costs. Incredibly, at least to me, most types of loans require very limited “reserves”, which is what lenders call liquid assets still on hand after a transaction is completed. However, many applications that are denied because of a persons overall financial picture would be approved for a person with significant reserves. First of all, it shows an ability to save money over and above normal living expenses, and it is a cushion that will keep you going for a while in the event of job loss, etc. This is also why IRA’s and 401K’s make an application looks stronger; even though they are for retirement, lenders know you could get cash out of them before you started missing payments.

Loans used for investment properties and second homes generally have much higher reserve requirements than those for primary residences.

Unfortunately, liquid assets do not include your car, even if it is free and clear, your boat, your furniture, your gun collection, your baseball card collection, and, believe it or not, cash, if it isn’t in the bank. Yes, they have cash value to you because you know you could sell them, but underwriters don’t care about them because ownership and actual value are hard to verify. There is one exception to this: you can borrow money against an asset such as a car, and you can use this money in the transaction or keep it as reserves, but remember the payments on the loan will be counted in your debt ratio (see previous article). Consult your mortgage person before implementing this strategy.

So that’s it for our series on “What Mortgage Lenders See When They Look At You”. To summarize, remember: A lender will gladly hand you an umbrella…unless it’s raining.

www.carltrawick.com

What Do Mortgage Lenders See When They Look at You? (part 2 of 3)

What Do Mortgage Lenders See When They Look at You? (part 2)
BY: CARL TRAWICK

This week in our series of discussions on how lenders look at you we will talk a little bit about your credit rating. Most people know, generally, what their credit is like. If you have never been late on a bill in your life, have had a few car loans, a couple of mortgages, and pay your credit card balances off every month, you probably have jam-up credit, with a credit score in the 700+ range. These are the people who actually get the incredibly low rates car dealers advertise on the radio, and who get the best available rates on their mortgage loans. In short, their whole life is a few percent less expensive than those with lower credit ratings.

Then there are those whose credit ratings, for whatever reasons, have gotten beaten up over the years. Late payments on loans and credit cards (for the purposes of your credit, “late” is anything over thirty days past the due date), car repossessions, unpaid student loans, judgements, all these things negatively impact your credit score, especially if you don’t have a lot of accounts in good standing to offset the negative stuff. Generally, once your credit score drifts below 660 things get challenging, and below 600 you are going to find it tough going to get a mortgage loan unless you have a substantial down payment.

Then there is everyone else who falls somewhere between, those with credit ratings between 600 and 700. This is where you need an experienced mortgage professional, who can either get you into a decent mortgage loan or tell you what you need to do in order to get your credit rating up to the level it needs to be to get a decent loan.

Credit profiles are like health profiles, every one is different, and the remedies prescribed are most effectively done on an individual basis, but here are a few things that everyone can do to improve their scores:

If you are behind on any loans or credit cards, get current and stay current. Late payments (over thirty days) are murder on your scores.
If you have credit cards that carry balances, try to keep the balance at 50% or less of the total credit limit. You want to avoid the “tapped out” look.
Settle disputes with creditors before they are late or written off as bad debts. The car you bought on credit may be a lemon, but the firm that lent you the money to buy the lemon still wants their money back, not the car.
If you have a judgement against you for an unpaid debt, try to make arrangements to settle the debt, even if it is small monthly payments. Then make the payments on time.
If you have no credit or bad credit in the past, get started again with a secured credit card.

These are just a few general things, like quitting smoking is good general health advice for everyone. Your mortgage person should help you map out a strategy to get where you need to be to get the mortgage loan that is right for you.

www.carltrawick.com

What Do Lenders See When They Look At You? Part 1 of 3

What Do Mortgage Lenders See When They Look at You?
BY: CARL TRAWICK

Over the years I have on occasion had clients tell me that they would have purchased a home sooner than they did, but they were holding off while they got their debts cleared up a bit, or until they got some more money saved, or until their kids started school, finished school, showed some interest in school, quit school, etc.
When I asked why they waited, they replied, “I thought it would help my chances of getting financed”. While there are certainly good reasons for waiting (such as putting that foreclosure on your last home further in your past), many times people are hoping to correct a perceived weakness in their financial situation that mortgage lenders care nothing about whatsoever. Meanwhile they continue to live in a home that is too small for their families, or worse renting, while opportunities to get into a more suitable home at a good price pass them by.

Mortgage lenders really only focus on three things when considering your loan application: your debt ratio, your credit rating, and your liquid assets. How do they look at these? This week, we’ll talk about the debt ratio.

Your debt ratio is your monthly debt payments divided by your gross income. Your debt payments include any installment loans (like car payments), credit card payments (usually the minimum), student loans, child support and alimony payments, and of course the loan, including taxes and insurance, that you are applying for.

Not included are utilities, auto and health insurance, phone and cable payments, season tickets (and you thought your loyalty to the Gators could hurt you), AND, get this, child expenses, such as day care and tuition isn’t considered either, regardless of how many kids you have. As the father of two teenage girls, if I were the one lending the money, that would be the first question I’d ask. Yes, these are all still expenses to you, and very real ones, but the lender doesn’t care about them, and in fact won’t even ask what they are.

The rule of thumb is to keep your debt ratio in the 45% range, although higher ratios may be approved with other compensating factors. Your mortgage person can go over this with you quite painlessly over the phone, without any red tape, to let you know where you stand. Don’t wait until little Susie gets out of day care in order to look better for the lender…they know that’s just the beginning.

www.carltrawick.com