Tuesday, August 28, 2007
Home Buyer Survey Ranks Features That Are Important To Buyers
A recent survey of recent home buyers conducted by the National Association of Realtors (NAR) pointed out a bunch of home features that rank high with homeowners.
The 2007 Profile of Buyers' Home Feature Preferences found that buyers preference for oversized garages (two car or more) was increasing more than their preference for any of the other 75 home features and room types on the survey. Among those individuals who purchased homes in 2006, 57 percent considered a big garage to be very important up from 41 percent when the last survey was conducted in 2004, and in spite of the fact that gas prices were spiraling through most of the year. Of those people who did not purchase a home with an oversized garage 56 percent said they would have paid a premium for this feature compared to only 6 percent who were willing to do so two years earlier. 61 percent of people living in the Midwest put oversized garages high on their list of preferences as did 66 percent of Westerners.
The largest number of respondents, approximately 75 percent, ranked air conditioning as a "very important" feature in their homes. Among those who purchased a home without it, 65 percent of buyers said they would be willing to pay a median $1,880 extra for central air conditioning; a number we suspect would be much higher if the question had been asked anytime in the last two weeks. As might be expected, many more home buyers in the South and Midwest voted for central air conditioning as a priority, with 91 percent and 81 percent, respectively, saying this feature was very important.
53 percent of all respondents viewed a walk-in-closet in the master bedroom as a priority but Southerners were particularly fond of this feature with 66 percent prioritizing it. Hardwood floors ranked high with 28 percent of respondents and granite countertops with 23 percent, an increase of 7 percent for each over the last two years.
Having a satellite or cable TV ready home was highly ranked by 46 percent of respondents which seems a little strange given the wide availability of free installation of those systems.
While much has been written about a growing buyer preference for "green homes," those buyers who purchase existing homes are not nearly as demanding of such features as are buyers of new homes. The former place a high priority on energy efficiency in 39 percent of the cases compared to 65 percent of new home buyers who said it was very important. Older buyers, however, placed greater importance on energy efficiency than did younger buyers. 63 percent of buyers 75 and older said it was very important but only 32 percent of buyers in the 18 to 24 age group agreed.
Age, in fact, was overall the biggest determinant of home amenities. 74 percent of older buyers (those over 75) wanted a single-level home. A home that was less than 10 years of age was preferred by 43 percent and a walk-in-closet by 74 percent. More than half of buyers over 65 wanted a separate shower in the master bedroom compared to only 25 percent of those in the 25-34 age group. The younger buyers were more likely (60 percent) to want a backyard or play area.
Buyers still want bigger homes and newer homes, but they also want fewer bedrooms. In the two years between surveys the size of the typical home bought by survey respondents increased by about 100 square feet to 1,840 square feet but the median number of bedrooms went from four to three. The median age of the houses purchased was 12 years compared to 15 years in 2004.
Some good news for the construction industry; nearly 60 percent of recent home buyers undertook a remodeling or home improvement project almost immediately after purchasing their home. About half made improvements in the kitchen and half remodeled or improved a bathroom within three months after closing. These new homeowners spent a median of $4,350 on projects in that time period.
Finally, more than 50 percent of buyers believe that their home has high investment potential and another 40 percent think that the investment potential is at least moderate. Only 3 percent viewed the investment potential of their new home as low.
Monday, August 27, 2007
Understanding the Cost of a Second Mortgage Loan
You wouldn't fill up your car's gas tank without knowing the cost, would you? The same goes for second mortgages. Here are some tips to you understand the price of your loan.
There are two major costs for getting a second mortgage: banker fees and loan interest. Fees and closing costs are paid upfront, at the time of signing. Interest is paid over the entire life of the mortgage.
A homeowner can expect the same fees for a second mortgage as would come on a first mortgage. For example:
* Application fee
* Credit report fee
* Attorney costs
But these fees are likely to cost less than a full-blown mortgage. According to lending information website Bankrate.com, the fees usually total two to five percent of the loan balance.
Some of these fees are fixed; costs regulated by the government or other institution. But some fees are negotiable, such as the application fee.
The Cost of Money
Interest is often called the cost of money. Interest is how banks, lenders and financial institutions make the lion’s share of their money.
Second mortgages are a fixed rate loan. This means that the interest rate you agree to at signing is the interest rate you will pay for the entire life of the loan. The fixed interest rate that you get on your loan depends on a bunch of factors, including the length of the mortgage, supply and demand and the interest rate environment. Most lenders compete to offer the best rate, but it is still wise shop around.
More information on the cost of a second mortgage can be found at www.bankrate.com or www.lendingtree.com.
Change in FICO Scoring System Could Affect Mortgage Loan Availability
Aug 13, 2007 -- Fair Isaac Corp. will make some major changes to the FICO scoring system. Those in the know call this overhaul a very big deal, one likely to result in plummeting credit scores.
* The scheduled changes to the FICO system will affect 60 million consumers (30 percent of the credit report population).
* The FICO overhaul is most likely to impact the scores of young adults, women, and individuals trying to re-establish credit by piggybacking off another's card.
* Out of 50 top mortgage lenders in the U.S., 40 use FICO scores to determine loan eligibility and interest rates.
* Fair Isaac is changing the system in light of complaints about abuse from the lending industry.
The new scoring model that Fair Isaac plans to roll out in September is known as FICO 08. Very few details have been released about the new scoring system - Fair Isaac does not publish much about their model for fear that someone will copy it - and as a result, most consumers are completely unaware that their credit scores could be in danger.
Fair Isaac spokesman Chris Watts has downplayed the changes, saying that the new system will be more dependable for lenders who are analyzing the scores of higher-risk consumers and those with little credit history.
Whether FICO 08 will really be more dependable for lenders is yet to be seen, but there is no doubt that it will have a huge impact on credit scores across the country.
Instead of dividing the population into 8 segments of good credit and 2 segments of bad credit, the new FICO model will divide the population into 12 segments-8 for good credit and 4 for bad.
For individuals who already have good credit, this change doesn't mean much. But for those trying to establish or re-establish credit, the new system may well cause problems.
Another huge change to the FICO scoring system involves the authorized user (AU).
Come September, being an AU on someone else's credit account will no longer be beneficial. An estimated 60 million consumers (most of them students or spouses) currently 'piggyback' on someone else's account as an authorized user. This means that they can use the account and share the benefits when the main account holder uses credit responsibly.
John Ulzheimer, current president of Credit.com and former manager at Fair Isaac, has gone on record as saying the AU change to the FICO system is a very, very big deal, because it will eliminate the benefit of being an authorized user and cause scores to go down.
'While FICO's move has largely remained under consumers' radar screen, its impact will be clearly felt when the change starts taking place in September, particularly among newly divorced women and a fresh crop of college students who will face a new hurdle in establishing credit for the first time,' says Ulzheimer.
Why the Change?
The change Fair Isaac will be making to the model is largely a result of complaints from the lending industry and trade groups like the National Association of Mortgage Brokers (NAMB ) who say that authorized users are undermining the system.
Most of the complaints about 'piggybacking' center on the practice of renting good credit from a third party service - a practice that has been growing in popularity.
There are already a number of companies out there acting as middlemen between people with good credit looking to make money and people with bad credit looking to boost their credit scores, and more services like this are cropping up every month.
The cost of renting credit depends on the service that you use. Most services charge somewhere between $300 and $3,000. It may sound expensive, but consumers can boost their score by as much as 200 points in a very short period of time.
A shady practice? NAMB says yes.
'We believe that renting the credit history of an unknown or unrelated individual in order to obtain a loan with a lower interest rate is an unethical practice,' said NAMB President Harry Dinham. 'This practice defeats the very purpose of credit scores.'
How Will the Change Affect Mortgage Loan Availability?
If credit scores do begin to drop in September as predicted, mortgage borrowers will feel the impact. Lenders are already tightening credit standards because of problems in both the prime and subprime sectors. Lower credit scores are bound to leave some borrowers out in the cold.
There is also a chance you may receive a rejection simply because you're an authorized user on someone else's account. According to an article by OriginatorTimes.com, there have been unconfirmed reports from around the country that any loans containing authorized user trade lines are being rejected by several of the major mortgage lenders.
What Can Consumers Do?
If you're an authorized user on someone else's account and want to maintain this benefit, the best thing you can do is become a joint account holder. This is the only loophole that will be left once the FICO model changes.
If you disagree with overhaul, you can also sign one of the many petitions currently circling the web. An example of one such petition can be found at StopFICO.com.
Thursday, August 23, 2007
Monday, August 13, 2007
Statement of Understanding
(Stated Income Loan)
I have applied for a so-called “Stated Income” loan, also known as a “Limited Documentation” loan. My loan officer has informed me that:
* A Stated Income loan is designed for borrowers with excellent credit and/or established employment in the same business (two years minimum).
* This product is available as either a Full or Limited Documentation loan. Limited Documentation loans do not require verification of income. Qualifying ratios are calculated on the basis of figures obtained from the loan application. The borrower’s stated income is considered an estimate based on either the previous year’s gross income or projected gross income for the next 12 months. Stated income should be consistent with income typically derived from the borrower’s occupation. It is assumed that stated income is the upper estimate of the borrower’s actual gross income.
* My loan officer asked how much monthly gross income I earn and recorded that monthly gross income in “Section V—Monthly Income and Combined Monthly Housing Expense” of the Uniform Residential Loan Application.
* My loan officer will submit my loan application to a lender for consideration based on my statements and the lender’s qualifying guidelines.
I understand that:
* A Stated Income loan is NOT designed to allow for declaring inflated monthly gross income merely to qualify for a loan.
* I understand that some lenders require that I also sign a Form 4506 when I sign loan documents. This form allows the lender to reference my Form 1040’s to verify that the monthly gross income I stated is in fact equal to the annual gross income I reported to the Internal Revenue Service.
* Even when a Form 4506 is not required, a Stated Income loan should be used only when monthly gross income actually supports the proposed monthly mortgage obligation and all my other debt.
I have been counseled not to compromise my integrity or my financial or legal standing by stating monthly gross income in excess of what I actually earn. By signing this Statement of Understanding, I acknowledge that the importance of factually stating the monthly gross income I actually earn has been fully explained to me and I fully understand the consequences of not doing so.