If you are a first time home buyer or it’s been awhile since you’ve experienced a Real Estate transaction, here is a time line of what to expect throughout the home buying process:

1) Get a copy of your credit report is the first step. A website I like to use is PrivacyGuard
2) Make a budget and determine how much you can afford. Keep in mind lenders will often approve you for a loan higher than you realistically can afford. A good estimate is 30%-40% of your net monthly salary towards a mortgage payment.

3) Pick a mortgage broker. Mortgage brokers have a pulse on the market and often times work with you to create the best plan that fits your particular needs.

4) Select a Real Estate Agent to help you “house shop”. Working with a Buyers Agent has many benefits to a buyer and what’s more, there is typically no charge for you to work with a buyers agent.

5) Apply for a mortgage & get pre-approved. Receive a copy of the pre-approval letter.

6) Shop for homes! When looking, keep in mind this is not only a place to live, but an investment. You want to make sure you 1) want to live there 2) it’s a good investment from a resale perspective. See what makes a home more “sell-able”.

7) Once you’ve selected a house you like, come up with a price point you are comfortable with (talk to your buyers agent regarding comps) and write an offer !

Stay alert and available during the negotiation process due to deadlines, your buyer agent will need to be able to get ahold of you so try to be available for the next few days once you put in an offer.

9) Once the offer is accepted, both parties will have a sign offer to purchase.

10) Depending on what contingencies you designated in the offer, there is a time frame in which those are to be satisfied. Standard contingencies are inspection & financing. Usually it is 7-45 days, depending how it was negotiated in the offer to purchase.

11) Home Inspection typically comes prior to the financing. Mainly because if the inspection doesn’t pan out & you no longer want the home you didn’t also pay for an appraisal of the property, which the lenders will charge you for.

12) Submit for a formal loan application. This is where the appraiser goes out and appraises the home to make sure the bank is not lending money to a home that doesn’t hold a similar value to the purchase price.

13) Purchase home owners insurance (if the sellers aren’t including it).

14) Receive an offical loan committment letter from your lender. This is then signed by the borrower and sent to the sellers, which is the last piece to satisfy the financing contingency.

15) Wait to close. You’ll receive your closing documents 1-3 days prior to close which you’ll want to carefully review with your mortgage broker & Realtor to make sure everything adds up.

16) Day of Closing you’ll want to do a “final walk through” of the property. This is to make sure everything looks normal it before taking possession. (No trees have fallen on the property, no fire, etc. )

16) Day of closing, you’ll want to bring a certified cashiers check to closing for closing costs, your personal checkbook (in case any added expenses) and your ID/Drivers License.

17) Celebrate & Enjoy your new home! Oh, and don’t forget to refer your fabulous Real Estate Agent -Jamie Miller- to everyone you know

For more information on the home buying process or more details, contact Jamie Miller at 608-335-3410.

If there was ever a time to buy real estate it’s now - with winter approaching & the market slow, there are many homes, condos & residential income properties out there that are incredible deals!

Many homes in wonderful neighborhoods are priced way under market assessment. Part of the reason is the time of year. Fall is traditionally as big of a season for real estate as spring. Many homes have been on the market since spring/early summer — prices have dropped dramatically because there has been little activity. Many sellers have already moved & are carrying 2 mortgages. If you are thinking of buying, there couldn’t be a more perfect time! Motivated sellers are out there and buyers are hard to come by which means most sellers are willing to look at all offers & negotiate.

On average there are 7 homes for sale in Madison per 1 buyer! This means buyers can be picky. If your home isn’t in tip-top shape with many desirable features - it HAS to be priced right to sell in this market so a buyer is willing to take the burden of the updates required, or quite simply, it needs to be fixed up & sold at the same price listed at now.

On average, Madison home prices increase 7-12% per year. If you purchased a home for $300,000, that is assessed at $325,000- you’ve already made $25,000. Add 12% increase year-over-year & you’ve landed yourself a nice investment.  Of course when you sell & the value of the property & what buyers are willing to pay will always determine the price you’ll receive.

Who should take advantage of these great deals:

-Those with extra cash to invest - the market will swing back up & you’ll get a nice return

-Those looking to diversify their investments - owning a property could be the biggest investment you’ll ever make & quite possibly the biggest return.

-Freshman students. Starting to look for a place to live next year? Your parents should consider an income property- which they can sell when you graduate in 3 years & make a nice profit to pay back college expenses! If you are planning to rent for 3 years, that is 36 months x $500 in rent, that is $18,000 going towards nothing when it could be going towards an investment.

-Those renting - yes, you have to have a down-payment to purchase & many renters do not have 10-20% to put down, but their are many available mortgage options that require much less than 10% down. In fact, it is quite common to have 3-5% down these days. The idea is your “monthly rent” is going towards an investment - not just in your landlords pocket.

-Those looking to purchase a second home. Looking to retire to Madison? There couldn’t be a more perfect time to buy !  There are many homes in wonderful areas of town that just need a little love.  If you purchase now, you’ll not only get a great price, but have time to fix it up to be move-in ready by the time you retire.

-Those currently living in a place they could rent easily, like a condo-many first time home buyers are living in condos - they’ve been there for 2 years or more & space is running out! They’d like a home, but it’s not the ideal market to sell a condo. There is an option:  rent your condo (if approved by your association) & purchase a home that is a good investment. Then, when the market swings up put your condo on the market.

-Those who like to fix-up homes -if you are handy it is a great time to buy a home to fix-up & turn it when the spring market hits. Buyers are looking for sparking kitchens, new baths & a great location. Homes that have these features that are priced right are selling. If you have the talent/skills to fix-up a place without having to outsource the work, you’ll get a great return for your investment next spring. There are numerous places in Madison in great locations just needing a little love.

With all the headlines concerning a “Mortgage Meltdown”, “The Credit Crisis”, the “Liquidity Crunch” as well as overwhelming statistics about foreclosure activity, here are some straight forward answers to frequently asked questions.

What is the “meltdown” that I’m reading about in the headlines?

This refers to a culmination of factors that has led to massive tightening in credit standards among mortgage lenders. This tightening is due to an excessive number of mortgages that are both delinquent and in default. As a result of tighter credit standards and the devaluation of mortgage-backed securities, global investors are shying away from purchasing additional pools of loans, causing over 100 lenders to close and leaving many homebuyers and homeowners unable to locate financing alternatives.

How did this happen?

 The recent real estate boom was fueled by a period of robust home appreciation and historically low interest rates. Banks, in order to compete, loosened guidelines and began offering more funding to more borrowers through riskier, non-conforming or “exotic” mortgages.  The riskier nature of these mortgages was offset by the underlying appreciation of the homes financed.  

Then, in 2006, a slowdown in real estate led to a leveling off and deterioration of home values, an increase in inventories, and ultimately to today’s tightening of credit guidelines, leaving many investors unable to sell or refinance out of their existing positions. Many Americans who had tapped into their equity were suddenly tapped-out and overextended as home values fell. Foreclosures are following in record numbers and a re-valuation of mortgage bonds and other financial instruments is creating the credit/liquidity domino effect we’re now experiencing.

 Factors that contribute to the increase in foreclosures of these exotic mortgages (besides the risky underwriting standards) were just plain fraud on the part of borrowers, the loan originators, or both in overstating income to qualify combined with the practice of appraisers, desperate for business, overstating the value of homes—a practice know as “pushing” the appraisal.

Why should a home SELLER be concerned about this?

 
The pool of potential buyers has shrunk as many find it difficult, if not impossible, to obtain mortgage financing. Experts have speculated that the number of potential buyers will contract anywhere from 15% to 30%. Sellers should also be aware that increased foreclosures can depress community values and result in a glut of local inventories, which could further drive down home prices.  Now is not the time to sit and wait for the best possible price.  Have a serious talk with your real estate agent.  It is more important than ever to make sure potential buyers are PRE-APPROVED and STAY PRE-APPROVED throughout the entire transaction.

Why should a home BUYER be concerned about this?

 
Buyers need to get pre-approved before entering the market. While there are a lot of great deals out there, getting credit is becoming tougher and tougher, and it’s taking longer and longer to complete a transaction. What you qualify for today could change tomorrow in this volatile market.  This is NOT the time to be slow returning your application documents to your lender or making any changes to your finances that could jeopardize your loan approval.  This IS the time to make sure your lender has at least one back up plan, if not two, in case the first option falls through.  The two largest mortgage lenders in the country have cut back significantly on the types of loans they extend, so anyone is fair game.  If you are dealing with a single bank or credit union, it’s a good idea to get pre-approved at a second place just in case.

What types of loans have been most impacted by credit tightening?

Subprime and Alt-A have suffered the greatest setback because these borrowers are at greater risk for defaulting. Subprime loans are those loans which have typically been taken by borrowers with poor credit. Alt-A type loans are for borrowers that typically have good or excellent credit but are unable or unwilling to provide documentation for income and/or assets.

Also very hard hit have been the Home Equity loan and Jumbo loan sectors.  Home Equity loans are used primarily for debt consolidation, remodeling, etc., or for a purchase using both a first and a separate 2^nd mortgage—a “piggyback” Home Equity Loan.  Jumbo loans refer to first mortgages over $417,000 on a single family residence and a few other larger amounts.  Rates on these two types of loans have increased significantly–even for those borrowers with excellent credit.

The common thread here is Subprime, Alt-A, Home Equity, and Jumbo loans do not have government subsidy or securitization.  However, loans through Fannie Mae and Freddie Mac have been very safe and rates have in fact dropped recently.  These loans are primarily for good credit and loan amounts under $417,000.  The same goes for FHA and VA, programs federally insured for poor credit borrowers.  Also the State of Wisconsin WHEDA program remains a great option for many first-time homebuyers.

Finally, there’s an important concept to embrace: all markets, while cyclical in nature, are self-correcting, be it credit, real estate, stocks, or bonds. For the last 6 or 7 years, real estate was booming and riding high. The correction we’re experiencing now – while it seems harsh and could get much worse – is, in a sense, “natural” and directly related to the extremely loose guidelines and perhaps overzealous lending and leveraging during the boom cycle.  While there may be more intervention from the U.S. government and foreign central banks, this correction will, in the long run, be healthy for residential real estate.

By Troy Sainsbury, ChFC
Mortgage Consultant
Waterstone Mortgage Corp.