6 Biggest Mistakes Homebuyers Make

Article From CNN
http://money.cnn.com/galleries/2010/autos/1004/gallery.Costly_homebuying_mistakes/index.html

1. Not knowing your credit score

If you're even toying with the idea of buying a home, you must find out exactly what your FICO score is. If you find it is less than ideal, wage a systematic campaign to raise it. Too many borrowers ignore this step and get surprised when they get interest rate quotes. Once you've pored over your credit history and corrected any errors, your next step is to pay down revolving debt balances to no more than 30% usage. That will help raise your score significantly.

Why does it matter?

The lower your score, the higher your costs of borrowing. Fannie Mae and Freddie Mac, for example, charge higher up-front fees to borrowers with credit scores below 740.

For a buyer with a credit score between 680 and 700, the fee comes to 1.5% of the mortgage principal. On a $200,000 mortgage, that adds up to $3,000. Someone with a 740 score pays nothing.

Lower-score borrowers also get saddled with higher interest rates, about 0.4 percentage point more for the below 700 borrower. That costs an extra $62 a month -- $744 a year -- on a $200,000, 30-year, fixed rate loan.

2. Buying a car before a house

Anytime consumers open new credit accounts -- credit card, auto loan, etc. -- their FICO score could drop, according to Craig Watts, a spokesman for Fair Isaac, the creator of FICO scores."Hence the admonition to not open other new accounts while your mortgage application is in process," he said.

A big purchase would use up a considerable proportion of a borrower's total credit limit, which results in a drop in the score. Lenders often continue to check credit scores in the weeks before closing.

"The lender will likely slam on the brakes if the applicant's credit scores have suddenly dropped below the minimum required for the requested loan rate," Watts said.

3. Skimping on home inspection

Buying a pig in a poke can cost buyers big bucks -- just when they can least afford it. So It's vital to find all the costly flaws before you buy. Many homes on the market today are distressed properties -- foreclosures and short sales -- and that only increases the importance of good inspections, according to David Tamny, president of the American Society of Home Inspectors.

"The owners usually didn't have the money to keep up these homes," he said. "There's a lot of deferred maintenance."

A home inspection can find problems with the foundation, electrical, plumbing, roof, attic insulation, and heating and air conditioning. In some states, separate licensed inspectors offer mold or termite inspections.

Often homebuyers, who may be strapped for cash, stint on inspections and look for the cheapest way to go. That can lead to disaster.

4. No lawyer ( No escrow )

Nearly everyone involved in a real estate transaction -- the seller, the buyer's real estate agent, the seller's agent and the mortgage broker -- has a vested interest in getting the deal done because they only get paid when the house is sold. So they may push a deal even if it's not in the best interest of the buyer.

One of the best defenses against making am expensive purchase you'll regret is to hire a real estate attorney -- even in cities where it's not standard practice. These professionals charge flat fees and their advice is objective. It's nice to have someone on your side.

5. No contingencies

When signing a sales contract, buyers usually have to put up 1% to 3% in "earnest money," which they don't get back if they pull out of the deal except under certain conditions spelled out in the contract. Sellers try to limit the grounds for canceling, and inexperienced buyers may sign contracts that don't include common exceptions, such as uncovering major problems during the home inspection, failing to obtain financing and failure of the house to appraise.

Failure to obtain financing is common these days because lenders have become very picky; underwriting is very strict.

Even if your mortgage company is still willing to finance your purchase, the house itself may be worth less than you've contracted to pay for it, and the lender will pull its approval.

With residential real estate markets still slow, sellers usually accept contingency clauses, but if they resist, it may be better to rethink the deal. Losing a deposit of $2,000 to $6,000 on a $200,000 home hurts.

6. Not budgeting for insurance

Don't underestimate insurance costs and fail to budget for them.

Many homebuyers don't understand just what is -- and what is not -- covered. Standard policies pay for theft and wind, fire, lightning, hail and explosion damage. Not covered is flooding, earthquake damage or problems caused by neglect of routine maintenance, according to Jeanne Salvatore, spokeswoman for the Insurance Information Institute, an industry-sponsored educational group.

"The most important thing is before you buy a home, find out what it will cost to insure it," she said. "Insurance needs to be calculated into the cost of owning a home. Unlike a mortgage, which you can pay off, you'll be responsible for the insurance costs forever."

For flood insurance, most buyers use the National Flood Insurance Program. Earthquake coverage may be available through a state authority or some private companies.

Depending on location, flood insurance can run into a lot of money. The cost of $250,000 worth of government flood coverage on the building and $100,000 of its contents can go as high as $5,714 in high-risk, coastal areas.

How Foreclosure Impacts Your Credit Score

By Les Christie, staff writerApril 22, 2010: 4:44 PM ET
NEW YORK (CNNMoney.com)

http://money.cnn.com/2010/04/22/real_estate/foreclosure_credit_score/index.htm

If you're delinquent on your mortgage, your credit score will suffer. Everyone knows that. The question is, by how much?

Until recently, those answers were hard to come by. Credit bureaus were uncommunicative about expressing, in points, just how much impact different foreclosure types of mortgage delinquencies have on scores.

Recently, Fair Isaac, which developed FICO scores, pulled back the curtain a bit, revealing some estimates of point-score declines following mortgage delinquency problems.

Here are the average hit your credit will take:
30 days late: 40 - 110 points
90 days late: 70 - 135 points
Foreclosure, short sale or deed-in-lieu: 85 - 160
Bankruptcy: 130 - 240

To come to these figures, Fair Isaac created two hypothetical consumers, one who starts out with a fair-to-middling score of 680 and the other with a very good one of 780. (FICO scores range from 300 to 850.)

The hypothetical person with the 780 FICO has 10 credit accounts versus six for the 580, plus a longer credit history, lower utilization of total credit limit and no missed payments on any account. The other consumer has two slightly damaged accounts. Neither have any accounts in collection or adverse public records.

See the chart above to see how each scenario affected each borrower.
Notice that for both borrowers a single one-time black mark results in steep drops, but it is when they fall further behind that things get really harsh, according to Craig Watts, a spokesman for Fair Isaac.

"The lending industry tends to regard an account differently when it has become 90 or more days late," he said, "The likelihood that consumers will resume paying their overdue obligations drops off significantly after the delinquencies have reached 90 days."

One reason credit companies were so closed-mouthed is that they often can't definitively state how much each delinquencies will affect scores because there are too many variables.

Some borrowers will fall much more steeply than others for the same payment problem, according to Maxine Sweet, vice president for public education at Experian, one of the nation's main credit bureaus.

"If you picture someone who has just one mortgage and one other credit account versus a mature credit user like me with 15 accounts, if they miss one payment that would impact their scores a lot more," she said. "For me, one missed payment would just be a blip."

The point loss also depends on the borrower's starting point: People with very high credit scores have more to lose than low-score borrowers; the impact of a single blemish on an 800 score is more than on a 500.

Of course, it just gets worse when you face foreclosure.

Mortgage borrowers can lose their homes three basic ways: a foreclosure; a short sale, where the home is sold for less than than is owed and the bank (generally) forgives the difference; or a deed-in-lieu, in which the borrower gives back the property and the bank again forgives any unpaid balance.

Sweet said credit bureaus generally slash scores equally for those three resolutions to someone losing their home. The important factor, she said, is that "it's reported that you paid less on a settled account."

Some borrowers may think that because they never missed a payment, they can "walk away" from their homes with relatively little impact on scores. Not true. "When a deed-in-lieu or short sale is reported as a partial payment, it's treated as a serious delinquency," Watts said, "just like a foreclosure."

Even if borrowers made payments faithfully for years before short selling or doing a deed-in-lieu, their credit score will still take a hit. The total decline will run about 85 points for the 680 score borrower to as much as 160 for the 780 score.
Mortgage debt, combined with other financial problems, can send borrowers into bankruptcy, the worst thing that can happen to your credit score.

The effects are long-lasting, according to Sweet. In a Chapter 13 bankruptcy, which involves partial repayment over several years, the stain will take seven years to remove. A Chapter 7 bankruptcy, which involves liquidation, takes 10 years to get over.

It's gonna cost you

Absorbing a big credit-score hit can make many transactions more costly. It's not just paying more for credit card debt and auto loans, insurance can cost more as well.

The average savings for someone with a good versus mediocre credit score is about $115 a year for auto insurance and $60 for home, according to Loretta Sorters, of
the Insurance Information Institute.

A low credit score can even make it harder to rent a home because landlords often use credit scores to weed out prospective renters.

Despite the problems a poor credit score can cause, Experian's Sweet recommends that people who are in financial dead ends, like totally unaffordable mortgages, it's better to recognize that and cut your losses quickly; don't prolong the problem.

"You need to do what you need to do to get your finances back in order," she said. "Don't worry about your credit score."

More U.S. residents on the move

46% of movers cite desire to own home, live in better neighborhood
By Inman News, Wednesday, May 12, 2010.
Inman News

The percentage of U.S. residents who moved between 2008 and 2009 jumped to 12.5 percent (37.1 million people), according to a report by the U.S. Census Bureau. That increase comes after a record-low move rate between 2007 and 2008: 11.9 percent, or 35.2 million people.

The bureau's data comes from the 2009 Current Population Survey conducted between February and April every year at about 100,000 U.S. addresses. It includes residents who are at least 1 year old.

Renters were far more likely to move in 2009 than homeowners (29.2 percent vs. 5.2 percent). At the same time, movers seemed to shun main cities within metropolitan areas, which lost a net 2.1 million movers, while the suburbs gained a net 2.4 million movers.

"Most often, people cited housing-related reasons as their main reason for moving," the report said.

"About 17 million movers (45.9 percent) said they wanted to own a home or live in a better neighborhood.

Other reasons for moving included family concerns (26.3 percent), employment needs (17.9 percent) and other (9.8 percent)."

Poverty and unemployment were also factors in the move rate.

More than a fifth (20.9 percent) of those unemployed had moved in the past year compared with 12.5 percent of employed persons, the report said.

People with incomes below the poverty line were also more likely to have moved in the past year than those with incomes between 100 and 149 percent of the poverty line (23.6 percent vs. 17.5 percent), the report said.

Non-Hispanic whites had the lowest move rate (10.7 percent), followed by Asians (13.8 percent) and Hispanics (15.8 percent), while blacks had the highest rate (16.7 percent), the report said.

More than two-thirds of movers (67.3 percent) stayed within the same county, rising to 2.4 million movers from 2.1 million the year before. The next-highest share of movers (17.2 percent) relocated to a different county in the same state. The remainder either moved from a different state (12.6 percent) or moved to the U.S. from another country (2.9 percent), the report said.Regionally, only the West saw a significant increase in its move rate, to 14.8 percent from 13.2 percent the year before -- the highest rate among the four U.S. regions. The Northeast saw the smallest share of its population relocate (8.1 percent), followed by the Midwest (11.6 percent) and then the South (13.7 percent), the report said.

California Median Home Price Over Time

Following Message Is From Irene Kiang

Now this is a fascinating chart because it shows how big the bubble got during the boom. The fact of the matter is, the median family income in California still can’t afford the median priced home. However, much of the data is distorted because the mix of sales. That is, many of the homes that sold over the last year happened at the lower end of the market thus misrepresenting the median price. So although the median price is down, it is a reflection of the massive amount of foreclosure resales. In the mid to upper tier of the market prices remain stubborn on the downside.

That will change as more and more shadow inventory makes its way to market in 2010. There is simply no other way around it. Many of the Alt-A loans, those made to “better income” borrowers occurred in more expensive areas. When these hit recast dates, a new inventory surge will hit the market and a simple rule of economics will play out. That is, more supply equals lower prices. There is no way around this fact.

California Commercial Mortgage Delinquencies Drop in Q110

Article by JON PRIOR

Monday, April 26th, 2010, 2:09 pm

In California, the delinquency rate of commercial mortgages fell to 0.63% in Q110, a 34-basis point (bp) drop from 0.97% at the end of 2009, according to the California Mortgage Bankers Association (CMBA).

On a dollar basis, the delinquent rate reached 0.63%, which translates to a 0.29% delinquent rate on a loan-volume basis. Of the more than 6,400 commercial loans surveyed by the CMBA, 19 loans totaling $344.6m were more than 90 days delinquent. The survey included 16 mortgage banking firms and $54.7bn in commercial and multi-family loans.

Fifteen of the delinquent loans, worth $317.6m, were still three or more payments behind while four reached foreclosure. The largest delinquent loan was a $16.1m retail property in Riverside County.

Retail was the second worst performing category with $19.4m of loans more than 90 days late. Leading the way were office properties. More than $306m of those loans fell into delinquency, or 3% of the surveyed portfolio.

Ten of the 16 participating companies reported no delinquent loans.

“It is encouraging to see the delinquency rate fall, and it reinforces the overall strength of the portfolio,” said Peter Ulrich, commercial real estate consultant for the CMBA. “While the commercial/multifamily real estate sector is not out of the woods yet, the fact that over 99% of loans in a $50bn-plus portfolio are still performing well is a sign that the fundamental underwriting and subsequent servicing of these loans is excellent.”

While there might be more optimism on the default side of the commercial space, the national Mortgage Bankers Association (MBA) reported worse news on the origination side.

The volume of commercial and multifamily mortgages originated in 2009 declined 46% from a year earlier, to $82.3bn of loans, according to the MBA.

The state of the commercial market varies from analyst to analyst. According to Cushman & Wakefield, the market is in better shape than many anticipated given the largest employment declines in more than 70 years, but regional markets with the highest job losses, and the related overabundance of commercial properties vacant as businesses fail, will take longer to dig out of the recession.

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Southern California apartment rents are expected to keep falling

A study shows the average cost dropping as much as 3.5% in L.A. County this year, 2.4% in Orange County and less than 1% in San Bernardino and Riverside counties but inching up in San Diego County.

Apartment rents are expected to fall as much as 3.5% in Los Angeles County this year, according to a study released Wednesday, as landlords compete for tenants in a market battered by stubborn joblessness and saturated with freshly constructed housing units.

For apartment dwellers, falling rents have been the housing bust's thin silver lining: During the boom, rents had climbed in tandem with housing prices.

Southern California's high number of foreclosures and the rampant overbuilding during the housing bubble has resulted in a glut of rentals as demand has slackened with high unemployment, according to the Casden Real Estate Economics Forecast.

Meantime, many struggling young adults have moved back in with their parents, and older people who have lost their homes have started living with relatives, according to a separate study for the Mortgage Bankers Assn.

That study -- by Gary Painter, a professor in USC's School of Policy, Planning and Development -- found that a net 1.2 million American households disappeared from 2005 to 2008.

While rents are likely to fall 3.5% in Los Angeles County and 2.4% in Orange County, those declines are expected to be more moderate than in 2009. Rents should fall less than 1% in Riverside and San Bernardino counties but inch up less than 1% in San Diego County, according to the Lusk Center study.

"The take-away is that the economy is showing some small signs of improvement. All markets are going to perform better than the previous year, but for some that still means a decline," said Tracey Seslen, a professor at the USC Lusk Center for Real Estate who co-wrote the Casden study. "L.A. is going to perform the worst."

In Los Angeles County, the average monthly rent fell to $1,488 at the end of 2009, a 5.8% decline from a year earlier.

More than 5,700 apartment units were completed in the county in 2009, about 42% of the new supply for the region last year. This year, 4,805 units are scheduled to be built, representing more than half of new construction in Southern California.

Property owners are feeling the pinch.

"It is a way more competitive marketplace now, where before at the high end you could still rent an apartment quickly," said Mark Howell, who owns the historic La Fontaine building in West Hollywood as well as several smaller rental properties in West Hollywood and Beachwood Canyon.

"You really have to sit on that apartment to get that tenant, so you will often wait two or three months to get what the apartment is worth. You really have to lower the rents," he said.

Howell estimates the income from his buildings has fallen 2% to 3% since 2007. While rents at La Fontaine and other high-end properties have held up, he said he has had to lower his price on units in another building, to $2,200 from $2,500 for a two-bedroom apartment, for example, or to $1,550 from $1,700 for a one-bedroom. His portfolio hasn't declined more because he has brought other units up to market value as tenants have left, he said. Nevertheless, 2009 was intimidating, he said."

Everywhere you would go in West Hollywood you would see a 'for rent' sign," he said. "It was scary."

The average Orange County apartment rented for $1,464 in 2009, a 4.4% decline from 2008, as the fallout from the subprime mortgage crisis took its toll.

Jessica Nicole Filicko, 30, said she was renting a condominium in Fullerton last year for $1,100 a month when it was foreclosed on by the lender. While the experience was stressful, she said, the lender ultimately paid her $3,500 to vacate the property, and she found a comparable unit in the same complex for $995.

"It definitely is a noticeable change," she said. "I do see a little bit more of my income, and I don't have to live paycheck to paycheck. If something were to happen, there is that cushion, which is a little less stressful."

The average rent in the Inland Empire -- San Bernardino and Riverside counties -- fell 3.8% to $1,024 in 2009 from the year before.

Seslen of USC said that, while investors have poured money into the region snapping up foreclosed properties, they are not putting many on the market as rentals but are rather holding on to them.

"Their holding costs are relatively small compared to your average Joe," she said. "So they may find that it is worthwhile to keep the home unrented until they decide the time is right to resell."

San Diego County's average monthly rent had the smallest decline in the region, 1.3% to $1,323 at the end of 2009 compared with a year earlier.