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What’s That Status Mean?

April 20, 2011 By Leave a Comment

Not every property that is “on the market” for sale in Arizona is listed in the Arizona MLS. There may be reasons for holding onto what we call “pocket listings” but for the most part, when we list your home for sale, it’s done so where the widest variety of professionals have access to the information, namely, the Arizona Regional Multiple Listing Service (ARMLS).

When a property is initially listed, it shows up on the MLS as “Active.” If the data is syndicated, then it will also show up on most popular web searches such as Zillow, ListHub, and Realtor.com to name a few.

There are 4 categories of Active that we use in the Arizona MLS to denote specific situations. Unfortunately, most public web searches do not distinguish between those types of active properties, and thus, your searches may reveal properties for which there are special conditions that ultimately mean that it’s time to move on to the next property.

Recently, I have been receiving a few inquiries every week regarding properties that appear active on a public search, but are actually already under contract. For example, listings that require short sale approval remain active until there is a contract, at which point the listing will typically become Active with a contingency. On the Arizona MLS, that property reflects a status of AWC-I (Active with contingency, seller’s written instructions.)

In other words, this property is under contract already. Best bet? Move on to the next one and keep your eye out for a status change in the future. In some cases, the seller of that property may take a backup contract, and in other cases, the contract may completely fall out and be returned to Active status.

Making Sure You Have the Right Info

One of the best ways to ensure you have the right information about properties that you’re searching for is to utilize a property search that ties directly into the Arizona MLS, providing you with up to the second, accurate information rather than 24-hour delayed information.

Give it a try today. It’s free.

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15 Years Is Better Than 30

March 30, 2011 By Leave a Comment
Mortgage Calculator

The following outlines two scenarios. One involves borrowing $100,000 for 30 years, and the other for 15 years. The point is to show you how much more powerful your dollar will be if you go with 15 years, even if the payment is a bit higher. This should help you determine the amount of home that you can afford.

So…

$100,000 borrowed for 30 years at a fixed rate of 4% will cost you $477.42 per month, not including mortgage insurance nor property taxes. At the end of the 30 years, you will have paid $71,869.51 in interest making the total cost of your home $171,869.51.

Now, if the same amount was borrowed for 15 years at 4%, your monthly payment would be $739.69 not including mortgage insurance nor property taxes.

HOWEVER, at the end of the 15th year, the total amount of interest paid to the bank will be $33,143.00. That’s a savings of $38,726.51, and your total cost to own your home free and clear would be $133,143.00.

Just to put that into perspective, if you were to invest $38,726.51 in good growth stock mutual funds for 30 years at an average of 10% annual growth (yes, it’s possible), it would grow to a staggering number: $768,233.08.

A common argument would be to go with a 30 year fixed rate loan and put the difference of the monthly payment savings ($739.69 – $477.42) which is $262.27 into a retirement account. The results, after 30 years, would also be a big number, but not as big: $597,799.17.

The flaw in this thinking is that nearly nobody in our current culture has the discipline to save like this. So it’s likely that you’d spend the money, rather than save.

By choosing a 15 year fixed loan, your payment will be higher, OR the mount of house that you can buy will be lower. Start by dividing your NET take home pay (what you get out of your paycheck) by 4. This represents the payment that will become the best case scenario for your house. Once you have that number, you’ll know, based on a 15-year loan, how much of a home you can buy.

Let’s say you take home $2000.00 per month, after taxes. This means that you can afford a payment of $500.00 per month. If you think you can afford more, then you’re sacrificing other important areas of your life. That’s another topic for another day.

Based on $500.00, at today’s rates, if you go with a 15 year fixed rate mortgage, you can afford a $57,000 home, give or take. Don’t compromise all of the other areas of your life in order to buy a house that’s too much to handle.

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Are You Still Renting?

March 18, 2011 By Leave a Comment
Money In Trash

Guess what!  Interest rates are REALLY low.  They have been REALLY low for a while, and based on historical data, a) they can’t go much lower, if they go lower at all, and b) that means there is a relative guarantee that they will go up in the future.

So, if you’re renting, and you’re on a month to month, or your lease term is up soon, or the savings would simply justify making the change, you may be surprised to know that at today’s rates, you can buy an $80,000 property and your monthly payments will at about $700.00 / month.

Still renting?

Did you know that as a result of the economic climate over the past few years, millions moved back into their parents homes and are now considering moving out again?  That means (considering there are lots of people who are still skiddish about buying) that rental supplies are going to go down and rents are going to go up, as those people move out and rent.  That’s basic supply and demand.

Still renting?

How much are you paying?  Think your rental rate will stay there?  Not likely.  CNN Money predicts that rental prices could increase up to 10% annually in some areas.

In some areas of the valley, home prices have fallen to levels that we haven’t seen since the late 90′s.  That’s a setback of more than 10 years of growth.  What that also means is that you got lucky enough to be growing up in a time when all real estate appreciation essentially was put on hold while you grew up.  And as a young professional with a burgeoning career and a bright future ahead of you, thousands of opportunities to build wealth are sitting right in front of you.

Still renting?

Stop!  It’s time to start putting your money to work for you instead of giving it to the guy who is doing the same.

A simple illustration:

12 months of rent at $800.00 = $9,600.00.  Gone…not deductible from your income, not put into retirement, simply gone.

Purchase an $80,000 home with 20% down on a 15 year note at today’s rates and your monthly payment would be $482.24.

Not including Taxes and Insurance, that’s $5,700/year.

For a more in depth look at what it would take to purchase an $80,000 home.

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When Would I Be Ready to Buy an $80,000 Home?

March 18, 2011 By 2 Comments

There are two answers to this.

Answer #1:  As soon as you have $80,000 cash.

Answer #2:  As soon as you can answer yes to all of the following questions.

  • Have I paid off all of my debt, including credit cards, student loans, auto loans and any other miscellaneous debts that I might have?
  • Do I have at least 3 to 6 months reserves to cover all expenses in my life based on the cost of owning the home?
  • If I calculate my living expenses, taking into account what it would cost me to own an $80,000 home (taxes, insurance, maintenance, HOA, etc,) would my total housing expenses be no more than 25 to 30% of my take-home pay?
  • Am I contributing 15% of my income to my retirement?
  • If I have children, am I contributing 15% of my income to their future education? (obviously not a concern if you don’t have children)
  • Above and beyond all that I’ve answered yes to, do I have 20% of the value of the home I’m looking for available for the down payment?

If you answered yes to all of those questions, then you’re probably going to retire a multi-millionaire cause you’re just smart like that.  If you answered no to any of them, my advice would be to position yourself so the answers become yes.  Reduce your costs, focus, live with financial intention, and make those conditions ring true so when you buy a house, it becomes a blessing, not a curse.

Is it an absolute rule to have all of these things in order?  Well, I would say that it is best practice, but not required.  However, you DO need to have money in the bank in order to purchase a home, because there ARE associated closing costs and not all of them are allowed to be paid by the seller, nor will every seller agree to pay them.

What about FHA?

FHA insured loans are an option, but they cost a bit more in the short and long run due to the requirement for mortgage insurance.  When you buy a house, if you don’t put enough down, the lender will require that there be an insurance policy in the event you fail to pay and default on your loan.  This usually runs in the $40-50/month range.  FHA allows you to purchase a home with as little as 3.5% down.  It’s actually the most popular loan product right now.

3.5% of $80,000.00 is $2,800.00, which is quite a big difference from $16,000 (20%).

So what’s it going to cost me every month to buy an $80,000 home?

Well, let’s assume you go FHA and you put $2,800 down.  Your closing costs, including your down-payment would require you to have approximately $6,500 cash to close the deal, assuming you don’t ask the seller to help with closing costs.  You’ll probably be able to negotiate 3% of the purchase price to be paid by the seller towards closing costs, which would reduce your cash required at closing, but for now, we’ll assume there will be no assistance.

So, cash at closing would be $6,500, give or take.  Mortgage insurance will be $60/month.  Your payment, based on a loan amount of $77,200 ($80,000 – $2,800) at 4.275% will be $581.70.  And there’s one last thing.  Property taxes.  On an $80,000 property, you’re probably going to be assessed somewhere around $800 annually.  That makes your monthly at $66.00.

Recap:

Purchase Price: $80,000.00
Down Payment: $2,800.00
Loan Amount: $77,200.00
Interest Rate:  +/- 4.275%
Closing costs: +/- $3,700
Cash due at closing: +/- $6,500
Monthly Mortgage Payment: $581.70
Mortgage Insurance: $60.00/month
Taxes: $60.00/month

Total monthly payment: $701.70 for the first 27 months, after which the loan to value will be 80%, dropping your need for that $60/month insurance payment.

Total cost to own the home once it is paid off in 15 years?  Approximately $118,000.00.  With appreciation, your home would be valued at approximately $125,000.00.  If you rent at $800/month for 15 years, you will spend $144,000 and have nothing to show for it.

The calculation I used to come to this conclusion included many variable factors.  Not only did I include the mortgage amortization schedule, but I also accounted for an historical increase in value of approximately 3% annually, which will inevitably affect the amount you’re paying in property taxes, causing an adjustment to your payment annually.  I also included the fact that after only 27 months, your monthly payment would go down by the amount of the mortgage insurance which was calculated based on .9% of your total loan, as is likely with FHA.

The moral of the story?

If you start now, when prices and rates are low, you can get yourself into a property that will help you build wealth in the future.  How?  Well, think about it.  If you live frugally for 15 years (for many of you that puts you at about 40-50 years of age), not including increases to your income as you grow to help speed the process up, you will have a paid for house and you won’t have any idea what to do with all of that disposable income, other than give, save, and spend.

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Loan Status Report Replaced by Pre-Qualification Form

February 24, 2011 By 1 Comment

The Arizona Association of Realtors, in an effort to solve some of the financing problems through the timeline of the transaction, is instituting some changes to the purchase contract and the associated financing documents involved.  Currently, and until February 28th, we still have the old contract and what’s known as a Loan Status Report.

When you apply for a mortgage, the mortgage lender provides you with what’s known as a Loan Status Report that defines the terms of the loan and is to be included with a purchase contract in order for the contract to be complete.  This is going away.  We will no longer be required to have a Loan Status Report as part of the Arizona Purchase Contract.

In lieu of the LSR, a new form has been created which is called the Pre-Qualification form.  One of the problems that I have faced as a listing agent when a buyer’s agent submits a contract is that often I’ll receive a contract without the LSR (remember, if there’s financing, the LSR is required currently) or the LSR won’t be signed.  Sometimes those purchase contracts have short response deadlines and without the LSR, valuable time is wasted and sometimes contracts expire.

Starting February 28th, we’ll not only be using the Pre-Qualification form, but we’ll also be using the new purchase contract which has a revamped finance section and other various changes for the better.  One of those changes comes in the form of an agreement by the buyer’s lender to provide a Loan Status Update to the seller within 5 days of contract acceptance.  There is no longer a requirement to provide the Loan Status Report, but there is a section on the new contract which allows the buyer to indicate whether or not a Pre-Qualification is included.  Obviously, a contract requiring financing without a Pre-Qualification form isn’t going to be a strong offer and may simply be ignored by the seller.

I’m okay with this.  I have had enough of a challenge a) explaining to a new buyer what a Loan Status Report is, b) chasing down buyer’s agents for Loan Status Reports, and c) writing addenda to extend contract expiration dates to make time to do so, that it’s about time we have a better flow of information.

Make sure you grab a copy of the Pre-Qualification form so you know what to expect when you start searching for the right mortgage.

Related Topics of Interest

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What The Heck is Escrow Anyway?

August 18, 2010 By 1 Comment

According to the Online Etymology Dictionary:

Escrow:  1590s, from Anglo-Fr. escrowe, from O.Fr. escroue “scrap, roll of parchment,” from a Gmc. source akin to O.H.G. scrot “scrap, shred” (see scroll (n.)). Originally “a deed delivered to a third person until a future condition is satisfied;” sense of “deposit held in trust or security” is from 1888.

A simple example:

You agree to buy a car online for $10,000.  The car is on the other side of the country.  You entrust your money to an escrow company, and the seller entrusts the title to them as well.  Upon delivery and inspection of the car, you decide that everything is in good order, and you report to the escrow company that all is well.  The escrow company releases the funds to the seller, and the transaction is complete.

The Life of an Escrow

This section explains the life of an escrow during a real estate transaction, and the very first step begins with an experienced real estate agent’s ability to negotiate the right purchase price on a home.  Once that happens, the following process kicks off.

The Buyer

  • Provides the Title/Escrow company with an offer to purchase (or acceptance of counter offer) along with a good faith payment called the Earnest Deposit, which is negotiable, but typically 1% – 2% of the purchase price.
  • Approves and signs the escrow instructions and other related instruments required to complete the transaction.
  • Approve the preliminary report or title commitment and any property disclosure or inspection report required in the purchase and sale agreement.
  • Approves and signs new loan documents and fulfills any remaining conditions contained in the contract, lender’s instructions and/or the escrow instructions.
  • Deposit funds necessary to close the escrow, such as the remaining down payment or renegotiated earnest deposit, etc.
  • Approve any changes by signing amendments in the escrow instructions.

The Buyer’s Lender

Obviously not considered if the sale is all cash (yes, it happens, and it happens a lot.)

  • Accepts the new loan application and other related documents from the Buyer(s) and begins the qualification process.
  • Orders and reviews the property appraisal, credit report, verification of employment, verification of deposit(s), preliminary report and other related information.
  • Submit the entire package to the loan committee and/or underwriters for approval. When approved, loan conditions and title insurance requirements are established.
  • Informs Buyer(s) of loan approval terms, commitment expiration date and provides a good faith estimate of the closing costs.
  • Deposit the new loan documents and instructions with the settlement agent for Buyer’s approval and signature.
  • Reviews and approves the executed loan package and coordinates the loan funding with the escrow officer.

The Escrow Settlement Officer

  • Receive an order for escrow and title services.
  • Place order for the preliminary report or title commitment for the subject property from Fidelity National Title.
  • Acts as the impartial “stakeholder” or depository, in a fiduciary capacity, for all documents and monies required to complete the transaction per written instructions of the principals.
  • Prepare the escrow instructions and required documents in accordance with terms of the sale.
  • With the authorization from the real estate agent or principal, orders demands on existing deeds of trust and liens or judgments, if any. For assumption or subject to loan, orders the beneficiary’s statement or formal assumption package.
  • Reviews documents received in the escrow: preliminary report or title commitment, payoff or assumption statements, new loan package and other related instruments.
  • Review the conditions in the lender’s instructions including the hazard and title insurance requirements.
  • Present the documents, statements, loan package(s), estimated closing statements and other related documents to the principal(s) for approval and signature, and requests the balance of the buyer’s funds.
  • Receive the proceeds of the loan(s) from the lender(s).
  • Determines when the transaction will be in the position to close and advises the parties.
  • Assisted by title personnel, records the deed, deed of trust and other documents required to complete the transaction with the County Recorder and orders the title insurance policies. Depending on the property location, the recordation of the documents may occur after the closing date.
  • Close the transaction by preparing the final settlement statements, disbursing the proceeds to the Seller, paying off the existing encumbrances and other obligations.
  • Deliver the appropriate statements, funds and remaining documents to the principals, agents and/or lenders.

The Seller(s)

  • Accept Buyer’s Offer to Purchase and initial good faith deposit to open escrow.
  • Submit documents and information to escrow holder, such as: addresses of lien holders, tax receipts, equipment warranties, home warranty contracts, any leases and/or rental agreements.
  • Approves and signs the escrow instructions, grant deed and other related documents required to complete the transaction.
  • Orders inspections, receives clearances and approves final reports and/or repairs to the property as required by the terms of the purchase and sale agreement (Deposit Receipt).
  • Fulfills any remaining conditions specified in the contract and/or escrow instructions; approves the pay off demands and/or beneficiary’s statements.
  • Approve any final changes by signing amendments to the escrow instructions or contract.

The Title Company

In Arizona, title and escrow are one in the same.  They perform both functions.

  • Receive an order for title service.
  • Examines the public records affecting the real property and issues a preliminary report or title commitment.
  • Determines the requirements and documents needed to complete the transaction and advises the escrow settlement officer and/or agents. Reviews and approves the signed documents, releases and the order for title insurance, prior to the closing date.
  • Records the signed documents with the County Recorder’s office and prepares to issue the title insurance policies.

Once recordation takes place, the home has transferred hands and the keys can be given to the new buyer.

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The Benefits of Ownership

February 9, 2009 By Leave a Comment

Buying a home doesn’t mean all of your problems will go away.  There are plenty of responsibilities that come with home ownership, but the benefits far outweigh those responsibilities.

Owning a home involves a down payment, property taxes, potential home owner’s association fees, and other various expenses that can seem at first to be a burden, but when put into perspective, are all positive aspects of home ownership.

  • Down Payment – the downpayment becomes part of your home’s equity, or the amount of money your home is worth above and beyond what you’ll owe on it.  Equity is what you would walk away with if you sold the home.  Traditionally, since homes increase in value on average by 3% – 4% annually, your downpayment is now part of that investment.
  • Property Taxes – Did you go to school?  Are you children in school?  Will they be?  Education is just part of what your property taxes pay for, and as I mentioned, contrary to popular belief, purchasing a home is not the most important investment you’ll ever make.
  • HOA Fees – The homeowner’s association is responsible for keeping your neighborhood looking good for the purpose of retaining property values.  Nobody likes a run down neighborhood.  There are other benefits that you’ll learn about in their documentation (Covenants, Conditions, and Restrictions.)  Remember, not every neighborhood has one.

The fact that purchasing a home involves large dollar amounts is what typically drives the would-be buyer away.  But let’s face it.  Most of us don’t have $100,000 sitting around in our bank account, and so we remain stuck in a pattern of believing we cannot afford to buy a home.

So what makes buying a home such a financial benefit?

  • Tax Deductions – When you finance a home, part of the payment you pay to the bank is interest and part of the payment is equity.  During the first 20 years of a 30 year fixed mortgage, the interest portion is actually disproportionately larger than the principle payment.  Under current tax regulations, you are permitted to deduct the interest payments from your income to lower your tax liability.  Renting does not allow this.
  • Appreciation – Real estate, over time, will increase in value by an average of 3-4% annually.  In some cases more, in some cases less.  As your home’s value increases, your equity grows, which equates to you and your family walking down a road towards financial independence and complete freedom from the rat race.
  • Equity – Part of your monthly payment goes towards chipping away at the balance of your loan and becomes equity in your home.  Equity is something you can recover when you sell the house, provided the value has increased.  When you rent, you don’t build any equity.
  • Buying Power – As the equity in your home grows, so does your ability to borrow that equity to improve your home or invest in additional properties down the line.  While the reason we’re in this economic crisis is because of cash mongering greed, home equity loans are a potential solution to emergencies should they arise.
  • Economic Stability – A 30-year fixed loan is just that, fixed.  The payment never changes.  Rent continually shifts from lease term to lease term and over time can increase.  Buying a home ensures your payments will always be the same.
  • Freedom to Choose – Owning a home gives you the right to do just about whatever you want to it, from the landscaping to interior decorating, you’ll no longer be bound by the landlord’s rental agreement and you’ll have the freedom to express yourself exactly how you want.  Not only that, but you’ll also have the freedom to rent your home out to someone else.  Renting out your home is a great way to continue to reap all of the benefits above without having to pay for it.  In fact, your renter pays for it and helps move you toward financial freedom.

When you own, you have a voice, and you gain a sense of greater community, as though you matter more to the world.  I have owned my own home since I was 30.  I wish I had purchased sooner because I would be way ahead of the game.  Get on it today!  It’s time for you to buy a home.

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More First-Time Home Buyers Than Before

November 8, 2008 By Leave a Comment
We've Never Seen

According to the National Association of Realtors, in 2007, 39% of all home sales were by first-time home buyers.  So far in 2008, we’ve seen that number increase to 41%.  First-time home buyers have some very attractive incentives to enter the market, and it’s much easier than many would think for a first-time buyer to purchase a home because they aren’t tied to another property.

When you don’t have something to sell, you don’t have to worry about waiting.  You have complete freedom to shop the market and quickly purchase a great property. You don’t want to be renting forever.

Renting is money lost.  Purchasing a home puts some of that monthly payment back into the home which can be recovered when you sell (Equity.)  Not only will you recover it, but it will grow at an average of 4% – 7% annually over time as proven by history.

Even thought recent growth rates have receded due to economic conditions brought about by the mortgage crisis, if you choose the right area to buy your home, such as an affluent area of your city, or a city such as Scottsdale, Arizona which has seen year over year increases in value, you’ll be positioned well in the market and your home will increase in value.  They aren’t building anymore land in Scottsdale.

We’ve never seen a better time to buy than now especially IF you are a first-time home buyer with a LONG TERM VIEW.

Getting into the market to make money on your home quickly is not the attitude that you need to have.  Lenders are less forgiving when approving loans for investors or people who already own their first home and are looking for a second home or a rental property.  Since you are a first-time home buyer, you want to make sure that your perspective is one with a long term view of ownership.  Sellers in this market are either desperate to move because of adverse conditions, or they’re wasting their time hoping for an offer at a price that the market will not bear.  Lenders won’t lend when the home’s appraisal fails to meet the accepted price.

Understand that the average first-time home buyer stays in their first home for five to seven years on average in a normal market.  In this market, where inventory is high and demand is low, the only common denominator is price, and the purchaser must meet the seller in order for there to be a sale.  In a buyer’s market, this means the seller will have to move more than the buyer, which puts you in the driver seat. (Article Reference: Supply and Demand, X Marks the Spot)

Buying your first home can be a stressful venture, which is why you need to enlist the services of a professional.  By working with a Realtor you will protect yourself from the pitfalls associated with the home buying process.

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