Is now any time to be thinking about buying a bigger home? The answer to that question in a honest to goodness, unqualified: It depends. First, do you have equity in you home at its current value? If not, do you have the cash reserves to pay off the difference and still put a down payment on another home? And also, how is your job situation (and that of your spouse, if his/her income will be necessary to make this purchase? There is no crystal ball and no one can claim to have one. But we do have indicators and many of them are good for the foreseeable future. The Pasadena Star News is just one example of them Click here. So once you know you can afford to sell you house and that you have a down payment (ideally 20% to avoid mortgage insurance), you are still wondering whether you should buy now. After all, you are sure that within the next five years your home will increase in value, now that the worst appears to be over. That may be true, but here's a little math that may help you reason it out for yourself: For simplicity's sake, let's say you bought your home for $100,000 and it has dropped 10% in value. So now it's worth $90,000 in the marketplace. And you want to buy a home that went for $1 million at the time you bought your home. So it's come down 10% as well. Now it's worth $900,000. So while you lost $10,000 on your purchase, you are saving $90,000 on the purchase of your bigger home, because it dropped $100,000 in value. Same 10%, different price tags. Usually in the real world of Southern California the next move up would not be so dramatic, but it's easier than trying to show it on a $213,000 home in Long Beach's Eastside moving up to a $340,000 home in the Los Altos neighborhood, which is a lot more common. So you get the point. In my opinion your decision should be based on whether 1. You can afford to sell you home at its current value, 2. You can afford to buy your new home (interest rates should not be a factor as they remain low, and just eased down a bit), 3. Your area of employment has been growing and shows stability, and you've discussed it with your family, financial advisor and any other trusted source with knowledge about your situation. Your realtor should help you after you make this decision, just to avoid any appearance of bias. This is not to talk you out of it, but to help point out anything you may not have considered. Because all told, for many people now is the ideal time to sell and trade up. Here is a recent article in the Washington Post that addresses this very issue. Click here
Remember you were told that this financial crisis is about all the bad borrowers who just lied about their income, got homes they could never afford, refinanced to the hilt and lived it up until everything came crashing down? Nice fairy tale to avoid responsibility. Blaming others is not new, but it also doesn't solve problems. And this problem didn't go away. Now, while there is plenty of blame to go around, and there certainly was a high number of borrowers who borrowed beyond their means, they could not approve and fund their own loans. Nor could they force the ratings agencies to give their risky mortgages Triple A ratings so that they could be sold around the world, tanking everyone else's economy.
What is coming to light now is the help that so many borrowers got from people in the real estate industry. It's all about money, and there are different ways to make that money. The less scrupulous go after kickbacks for easy referrals, or they simply fabricate information to get a deal through (and collect the commission). These are the ones who forget that working for the benefit of their client will also lead to a closed transaction that has a lot higher chances of lasting, turning into a new transaction for them a few years down, as well as a source for highly endorsed referrals from satisfied clients. The sales come in a whole lot more easily this way, rather than finding new people to bilk.
If you are looking to buy a home, here are a few things to watch out for if you don't know your realtor:
Unfortunately this is a buyer beware type of situation, because there is no Consumers Report list on all these companies. But for the huge amount of money you are about to put out on your home, a little homework in your own best interest is worth it. The good news is most companies are in business to do a good job and get repeat business. We all just need to watch out for those looking to make a quick buck without earning it. Read on about the latest indictments by the FBI and HUD right here in California. Click here
Lately an increasing number of people applying for mortgage loans are voicing their concern about their bank not closing their loans on time. While still under the radar of the news outlets, the volume is running at a high pace in the blogosphere. One example is that of a young couple, both with a high credit score (786 and 781), both employed consistently with a 20% down payment. They had all their paperwork together, turned it in usually the day it was requested, and yet several days before closing, the loan officer stopped communicating with them altogether. They wrote, sent text messages and telephone her, panicked about the date of the close, the locked interest rate and simply with a desire to know what was going on. On the date of closing they received a text message stating that it was hectic around here as a reason for the lack of communication, and that the bank had a condition (request from underwriting for information). That went in the next day and again, silence. They continued with all those questions, and after a few days they were sent a text message stating that their rate lock would be held for another 2 weeks. Then they were asked for papers they had already sent, and it continued. They got in touch with the branch manager who also guaranteed their rate. Then more requests for papers already sent in. They called the branch manager, who had accused them of withholding information (which they said they had already sent it) and when they sent the proof, he couldn't reply because he said he had to go to the hospital. Finally, a month and a half after the date of Close of Escrow, they were able to close the deal. There are countless reports such as this one or this other one. There is even a website wholly devoted to one bank (the biggest) in which customers vent their experiences. There is an article about late loan closings and the rate lock, which customers can pay to extend (and sometimes are extend at no cost). Click here for it. In Texas there is a class action lawsuit against one of the big banks.Â People are in search of a place where their story can be told, and Trustlink is one site that provides it. There is also a website where customers can lodge their complaints called Consumer Affairs.com.
One of the main questions looming is WHY is this happening? This was a question in the business networking site Linked In, and a mortgage broker answered that it was because we are now back to full doc loans again, as if that were some sort of punishment against the consumer for the banks pattern and practice of delivering liar loans instead of properly checking people's credit worthiness and ability to pay on the loan.
Unfortunately we do not have the true answer to this question, and speculation may or may not be accurate. Some of the speculation is that the banks have a stranglehold on Congress and therefore need not fear further regulation or enforcement of existing regulations. Evidence such as Bank of America's only paying $2.8 billion back to Fannie Mae and Freddie Mac out of the $10-15 billion they owe in bad mortgages could add validity to a very soft arm from the U.S. government. It has also been speculated that some of the large beleaguered banks are raising fees and penalties, while moving slow on processing loans in an effort to recuperate some of the losses they incurred in recent years of wild mortgage lender and its attendant losses. The last area of speculation has to do with the fact that the big banks are so much bigger now, as a result of their buying out other banking institutions with their bailout money, that they are not only too big to fail, but too big to know what they are doing internally. There are different bank cultures (and systems) for doing things all in the same company, as well as conflicting heads of departments, new geography, etc. Many are the comments about how one department in dealing with a borrower has absolutely no idea what another department is doing with the same borrower on the same loan, and therefore they ask for the same information over and over again.
Who Oversees Them? This is the overwhelming question people ask in nearly all their complaints. In fact, because it is unclear to the average person who the government and other consumer protection entities are, they write anywhere in the blogosphere, usually starting with "Does anyone know?". People feel helpless and this is a potentially danger place for them to be. If they feel their government is not there to help them, and if they feel their banking institution will only abuse them, this could potentially lead to a breakdown in the trust a good citizenry with both its government and financial institutions, leading to greater trouble in the future.
Actually there are five federal agencies and at least one state agency consumers can turn to for information and to lodge a complaint, in addition to the Better Business Bureau, the local TV station, newspaper, etc.
They are: the Office of the Comptroller of the Currency, the office of Thrift Supervision, the National Credit Union Administration, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System. The Securities and Exchange Commission have a web page that explains them and gives the web site and contact information for each one. Click here.
Each state also has a department or other entity in dealing with the banks doing business there. In California it is The Department of Financial Institutions. Consumers can also lodge their complaints with the Consumers Union.
Big Banks vs. Local Community Banks or Credit Unions There remain sharply divided opinions in this area. In the past it was argued that the larger institutions could provide more services and products. A consumer had a wider choice of types of checking accounts and could invest and take out a loan all in one place. And there was the convenience of a greater number of ATM locations.
Now that doesn't seem to be much of an advantage, since fees have crept up on just about everything, from telephoning the bank (or going inside in person), to the number of times the ATM is accessed. One notable difference is customer service. Overwhelmingly customers complain about rudeness at the big banks.
Those in favor of local community banks and credit unions argue that while sometimes they are stricter on approving loans, now that full doc loans are mostly in place at all lending institutions, there isn't much difference any longer. With the advent of free debit card usage at supermarkets and many other retailers, users need not pay foreign ATM fees. With competitive loan rates, the biggest difference goes back to customer service.
There was a radio broadcast on this very subject that took place on National Public Radio, with transcripts provided. Street Easy, a New York real estate website, featured an article as well in this regard.
Not a few people argue that the big banks have gotten too big and that they do not deserve more business and more economic clout from the American people. They have launched a web site loaded with information about moving your money away from the big players to one that is local and invests its money locally. It is called Move Your Money Project. They even provide the names of banks and credit unions in communities across the country. The user just inputs his or her zip code.
No doubt one critical factor is the loan officer (or loan representative). This person is important because he or she is the center of communication between the bank (underwriting, processing, funding, etc.) and the customer. The loan officer does not process or approve the loan, but can help in the loan's stewardship, communicating in a timely manner with the customer, helping to get information to where it should go, keeping all parties informed and staying present so that the clients feel that there is an advocate working on their behalf. In the end this person is the face of the bank to the borrower.
Tips to Get Your Mortgage Loan Through In the end, a person buying a home has some homework to do: 1. Find a realtor that is the right match one who is communicative and will deal with the bank as well as the home buyer, and 2. Interview the lender in depth. You are hiring the bank and not vice versa.
To help avoid problems on the borrower's end, have the last two tax paperwork ready (not I think I know where it is. Have the last six months of all banking statements copied and ready to go. Have prepared the name, address and phone number of your employer(s) going back at least 3 years. Get in touch with them and let them know that they will be contacted by your bank to verify employment. Go through your check book. Did you deposit money that was not related to a pay check? Then document it: reimbursement from job, mom, etc. The bank will question a deposit as low as $50 that is unexplained.
From the moment you start looking for a house, do not even think of making a large purchase (new car, expensive trip, etc.) or change jobs. This will halt your loan process and it may disqualify you.
People are still buying homes, and loans are still closing on time. And the above suggestions will help you be one of those people. Real estate in Long Beach and in Southern California still is a great long-term investment for you and your family.