Why Watching Interest Rates Can Help Your Bottom Line

Depending on your age, you may or may not remember when mortgage interest rates soared to 18.45% in October of 1981. Can you imagine? It is 1981 and you want to buy a home that is valued at $100,000. You put down 20%, but your mortgage payment is still $1,235.08 per month for principal and interest. If you didn’t refinance when rates dropped, you would have paid $364,000 in interest alone on this 30 year fixed rate $80,000 mortgage.

Mortgage interest rates have a huge effect on buying power and ensuing monthly payments. Let’s look back to our 1981 moment in time as compared to August, 2016 and assume we are obtaining a 100% loan on a new median sales priced home (and calculating principal and interest only on the loan):

Of course, this is an extreme example, but isn’t it remarkable that it is only $191.27 more per month to buy a median-priced home today than it was 35 years ago at the respective interest rates?

Let’s look at a more-recent example – 10 years ago before the sub-prime mortgage crisis:

 
In this case, it is $279.03 cheaper per month to buy a new median priced home priced $40,100 higher!

The near-historic low mortgage interest rates represent a unique moment in the market for buyers and for those considering refinancing. After years of keeping the short term rates at zero, the Federal Reserve raised rates for the first time last September and has signaled they may raise rates again at their December meeting.  These increases have an effect on mortgage interest rates which, in turn, has an effect on buying power. The below chart illustrates the average annual interest rates from 1972 to year-to-date 2016.

Don’t let this opportune time pass you by! The clock is ticking. Give me a call or text: (253) 222-2626 or send an email to john@altitude-re.com to learn more.

Sources: http://www.freddiemac.com/pmms/pmms30.htm

https://www.census.gov/construction/nrs/pdf/uspricemon.pdf

Preparing for Multiple Offers – The Pros and Cons of an Offer Review Date

Buyers are out and demand for homes is high! When it is time to list your property and if multiple offers are expected, there will be a number of issues and strategy for us to consider. One of the primary issues is whether or not to have an offer review date, or a date in which any offers from buyers are due. In theory, this allows all offers to have a fair shot as they would be presented at the same time. However, there are pros and cons to this practice and there are still buyers who may try and circumvent the competition.
The pros of an offer review date:  In addition to indicating to the public that demand is expected to be high and therefore piquing interest, this also encourages buyers to act with haste. In addition, this generally encourages serious buyers to make serious offers.
The cons of an offer review date: In the event the property doesn’t get offers and need to retract the offer review date statement in the MLS, this may make the listing look less appealing or make buyers wonder why no offers were made.
If you do choose to have an offer review date, we will discuss a week to ten day strategy that includes a brokers open if possible (an open house for real estate agents), a public open house (if your home is in an area with successful open houses), and enough time for buyers to do their due diligence and learn what they need about the property before making an offer.
I will be gathering the offers and specifics at the deadline and will present them to you in a way where you can easily analyze the pros and cons of each. You will have an opportunity to negotiate with the buyers as well.
If you decide that an offer review date is a strategy you would like to employ, one thing we will discuss is what happens when a buyer decides to make a strong offer right out the gate that expires before the offer review date. This is a strategy that some buyers make, appealing to sellers’ desire to have an offer accepted and proceeding to close in order to avoid competing with other buyers (the bird in the hand is worth two in the bush philosophy). Of course, there are pros and cons to accepting an early offer; the offer may be lower or not as strong as the offers that come in at the offer review date and in the event that this offer doesn’t close, there may not be a backup offer in place. However, if the seller waits for additional offers to come in, there may be none forthcoming.
There are a lot of options here, but when it is time to list your home, if we expect multiple offers, I will review all your options with you, present all the pros and cons of each option, but you will ultimately be in the driver’s seat. Questions? Let’s talk! Give me a call, text, or email: john@altitude-re.com or (253) 222-2626.

Appraisals – A Critical Part of the Transaction

When a buyer takes out a mortgage, or when a homeowner refinances their home, the lending bank or entity will conduct an appraisal to verify the market value of the home. This protects the bank’s interest in the home and helps verify the percentage of equity the buyer or homeowner has or will have in the property.
It is important to know that when a buyer and seller agree on a price for a home, the appraisal may not reflect that same price. Especially in areas where prices have appreciated rapidly, it may be difficult for the appraiser to find comparable properties that have changed hands in the last three months which can help guide pricing on the current property. For example, say there were two comparable properties that sold four and six months ago in the area and in the last year, sale prices have gone up 15%. That means those two comparable properties may have sold for 5%-7.5% less than the property that is being appraised and the appraisal could be lower than the buyer and seller expect.
This is especially problematic in a transaction for two reasons:
1. The appraisal represents the maximum the lender will lend on the property. So if an appraisal comes in at $300,000, the buyer and seller have already agreed on a price of $340,000, and the buyer is taking out a loan with 10% down, obviously the math no longer works. Depending on the agreement between the lender and the buyer, the lender may not be willing to loan more than 90% which would mean the agreed-upon price would need to be lowered or the buyer may need to put more money down.
2. In the event the buyer is putting 20% down to avoid private mortgage insurance (PMI) (typically required when buyers or homeowners have less than 20% equity in the property) and the appraisal comes in low, then there is the potential problem of the buyer no longer having that 20% because some of the reserves may be used to make up the difference in the appraisal as in the following example:

• Agreed upon-price: $350,000
• Buyer is putting 20% down: $70,000
• Appraisal: $300,000
• Buyers and sellers renegotiate on price: $325,000
• Seller comes down by $25,000, buyer uses $25,000 of their $70,000 to make up the difference leaving them with $45,000 down payment which is only 15% of the loan, thus causing PMI to be assessed each month.

The bank may determine that the buyers have too many other monthly expenses to afford the PMI and denies the loan.
According to the National Association of REALTORS, in April of 2016, 12% of terminated sales failed due to appraisal issues which also led to delayed closings (28% of closings that were delayed were delayed due to appraisal problems). This is good information for you to know if you are a buyer or a seller, but rest assured I have tools for working with appraisals should the need arise. Please give me a call, text or email: (253) 222-2626 or john@altitude-re.com

Short-Term Housing Options – Successful Home Selling and Buying
If you are one of the millions of homeowners across the country with equity in their homes, congratulations! If you take a look around and realize your home no longer suits your needs, you may be thinking that a move is in your future. However, many areas around the country are currently experiencing a shortage of homes for sale, resulting in multiple buyers competing for the same property. Gridlock ensues with sellers reticent to put their homes on the market, concerned that they may not be able to buy their next property before they need to move out of their current one.
However, this problem can be solved with a little creative thinking and can actually spell opportunity for you in the end! In a multiple offer situation, sellers prefer offers without a contingency requiring that the sale of your current home be completed before the new home sale is complete. Therefore, if you can complete your home sale before you make an offer on your next property, you will be in a very strong offer position.
So where will you live between the time you sell and close on your new home? There are a number of options to consider:

1. Rent back your current home: Although this is something that you will need to negotiate into the purchase and sale agreement when you sell your home, renting back for a few weeks may be an option.
2. Stay with family or friends: Putting your belongings into storage and staying with family and friends can be a great short-term option. If you are considering this option, I recommend having a planning meeting with your short-term “landlord” to determine fair rent including utilities, and discuss how day-to-day living will commence. What is the bathroom schedule? How will food be supplied and tracked? Who does the dishes? Setting up expectations is the key to remaining friends after you move out. Agreements prevent disagreements.
3. Consider a vacation rental: Since many traditional apartment and homes rentals require a year or more lease, consider a vacation rental instead. Homes, condos, townhouses and even boats are available to rent for different durations. Why not take the opportunity to test living somewhere in town that you have always wanted to try? Furthermore, if you have a pet, you may be more likely to find that vacation rentals are more pet-friendly than their long-term counterparts. Check websites such as VRBO.com, AirBNB.com, and HomeAway.com for short-term rentals in your area.
4. Corporate housing: If you work for a company that provides housing to mobile or relocating employees, they may have housing available for you. Check with your company’s relocation department. Alternatively, companies who provide this kind of housing to businesses may have a solution for you.

Yes, you will need to store your belongings temporarily, but in the end you can take your time and eliminate the stress that timing brings. In my experience, it is well worth it! Contact me to learn more: john@altitude-re.com or (253) 222-2626.