“QM” is a new term which stands for qualified mortgage. The new Bureau of Consumer Financial Protection (CFPB) will be responsible for defining QM thereby setting the consumer guidelines banks and lending institutions must follow before issuing a mortgage.

Richard Cordray, the Director of CFPB, plans to finalize the definition this summer. The Center for Responsible Lending quotes American Banker on this timeline:

“The Consumer Financial Protection Bureau will issue a final rule by the end of June defining what constitutes a ‘qualified mortgage’ that will be exempt from new rules compelling lenders to verify borrowers’ repayment ability.”

The fear of many is that the definition will be too ‘narrow’ resulting in many purchasers not being able to qualify for a mortgage under the QM definition. In a letter to Director Cordray, several industry organizations talk to this issue:

“Most economists and housing market analysts in government and in the private sector agree that today’s underwriting standards are tight and are contributing to a slow housing recovery. Our organizations believe that an unnecessarily narrow definition of QM that covers only a modest proportion of loan products and underwriting standards and serves only a small proportion of borrowers would undermine prospects for a housing recovery and threaten the redevelopment of a sound mortgage market…

We are convinced that the choices around this important rule, including in large measure the breadth of the QM standard, will affect sustainable homeownership for generations to come.”

What Could This Mean To a Home Buyer?

If a buyer does not qualify under the new ‘QM’ rules, the cost of financing a home will increase. As the letter mentioned above states:

“A narrowly defined QM would put many of today’s loans and borrowers into the non-QM market, which means that lenders and investors will face a high risk of an ability to pay violation and even a steering violation. As a result of these increased risks, these loans are unlikely to be made. In the unlikely event they are made, they will be far costlier, burdening families least able to bear the expense.”

Securing a mortgage before these new guidelines take effect may make sense to many buyers.

Read the original:  What Is ‘QM’ and Why Does It Matter?

Each quarter, Fannie Mae releases their National Housing Survey. They survey the American public on a multitude of questions concerning today’s housing market. We like to pull out some of the findings we deem most interesting each time it is released. Here they are for the most recent report:

84% of the general population believes that owning a home makes more sense than renting.

The Most Important Reasons to Buy a Home

When we talk about homeownership today, it seems that the financial aspects always jump to the front of the discussion. However, the study shows that the four major reasons a person buys a home have nothing to do with money. The top four reasons, in order, are:

1. It means having a good place to raise children and provide them with a good education
2. You have a physical structure where you and your family feel safe
3. It allows you to have more space for your family
4. It gives you control of what you do with your living space (renovations and updates)

The Home as an Investment

Though most people purchase a home for non-financial reasons, everyone realizes there is a money component to homeownership. Here is what they said on this issue:

• 63% of the general population believes that homeownership is a ‘safe’ investment.
• 53% believe that homeownership has more potential as an investment than any other traditional asset class.

Rent vs. Buy

We are always interested in the difference people see in renting vs. owning.

• 64% of renters have aspirations to someday own their own home
• 70% of renters think that owning is superior to renting

Bottom Line

Our belief in the value of homeownership grows each time this survey is released.

Originally posted here: National Housing Survey 2012

There are two aspects that must be evaluated: house sales and house prices. They will not recover at the same time. Sales are already increasing rather nicely while prices will still soften in many markets through 2012.

Home Sales

The National Association of Realtors (NAR) issues a Pending Home Sales Report each month. We can see by the graph below that sales have been increasing nicely over the last twelve months. Real estate professionals across the country are reporting that activity has increased  compared to last year. The sales side of the recovery is starting to show great promise.

Home Prices

Many price indices have shown that national home prices are continuing to stumble. Even with demand increasing, we must look at where the supply of housing stock stands. Though ‘visible’ inventory (homes currently on the market) is shrinking, there is  still a large overhang of ‘shadow’ inventory (foreclosures about to come to market as a result of the National Mortgage Settlement). This increase in inventory will outpace the increase in demand and thereby cause prices to continue to soften in many parts of the country.

Bottom Line

Housing is coming back. However, sales will come back before prices. We will not see prices appreciate until we work through the oversupply of homes on the market.

Read the original post:  Is the Housing Market Actually Recovering?

“Foreclosures and short sales can provide important information for appraisers, who develop valuations based on market data and market forces.”

On whether an appraiser should use distressed properties as comparables, the Institute was very direct (all items in bold were shown as bold in the original paper):

“An appraiser should not ignore foreclosure sales and short sales if consideration of such sales is necessary to develop a credible value opinion.”

And they explained the possible differences between short sales and foreclosures:

“A short sale … might have involved atypical seller motivations and so might not be an ideal comp…

A sale of a bank-owned property might have involved typical motivations, so the fact that it was a foreclosed property would not render it ineligible as a comp.”

Bottom Line

Some will argue that distressed properties should not be used when appraising non-distressed properties. However, there is no longer any doubt that they will be.

Continued here: Do Appraisers Use Distressed Properties as Comparables?

Let’s begin the discussion with loans that don’t require Mortgage Insurance. The suggestion is to borrow as much as you can afford. As an example, borrowing $310,000, as opposed to $300,000, will increase your mortgage payment by about $51 at 4.5%. Recognize that by doing so, you will have $10,000 in the bank. It is my experience that it is easier to find $50 more every month than it is to save $10,000. Even if you had the discipline to set aside the $50 monthly, it would take you 200 months to re-accumulate the $10,000 in principal (longer with lost interest).

Understand too, that the interest paid on the extra money borrowed is tax-deductible. In a 25% tax bracket the $51 additional has a real cost of about $38!

Having the $10,000 liquid has other potential advantages as well:

1. If rates go up in the future, you could potentially make more interest than you are spending.
2. If you can avoid using credit cards for furniture, home improvements, etc., you can save a bundle on those non-tax deductible interest rate costs.
3. In a world where home values have declined, the more you borrow, the less you have at risk. You transfer the risk of the future value of the home to the lender.

Now, many borrowers today will need some sort of Mortgage Insurance, whether it’s a Conventional Loan with less than 20% down or an FHA Mortgage. These borrowers should sit with their loan officer and run the numbers because the cost of the Mortgage Insurance can vary based on loan-to-value and other factors. Examine the costs and the relative benefits.

See the original post: How Much Should You Put Down?

The most prevalent question and one that continues to permeate the industry is:

“Why should a seller go through the short sale process rather than letting their house be foreclosed upon?”

While we cannot speak to every client circumstance, we can say one thing with complete conviction.  In almost all instances in which a potential seller is contemplating whether they should short sell their house or let it go through the foreclosure process, a short sale is the better option. The following are examples to consider:

Example A- Short Sale

Mr. Smith owns a home in which he has a mortgage balance of $220,000 and a current market value of $150,000. Mr. Smith has elected to short sell his property. His Realtor successfully obtains a buyer who puts forth an offer price of $120,000 (80% current market value according to Realty Trac Foreclosure Report 5/26/2011). After reviewing the buyers offer and the financial hardship information from Mr. Smith, Mr Smith’s bank agrees to accept the short payoff of $120,000 which would leave a deficiency balance of $100,000.

The transaction closes and is final.  Mr. Smith then pulls his credit report 30 days after the transaction takes place. On the report he notices that the mortgage trade line states “Mortgage debt was settled for less than full” and the balance on the mortgage is $0.  Mr. Smith is now on the road to financial recovery.

Example B- Foreclosure

For the ease of illustration we will use the same value and mortgage debt amounts as in Example A. However, Mr. Smith has elected to forgo the short sale process and let the bank foreclose on the property.  The bank holding his mortgage facilitates the proper legal procedures to foreclose on the property, all of which are costly.  Mr. Smith is notified and his property foreclosed upon of which is taken back by the bank to sell as an REO.

Six months later, the bank finally sells Mr. Smith’s home only they sell it for $90,000 (60% of current market value according to Realty Trac Foreclosure report dated 5/26/2011). Remember, as a short sale, the home would have sold for $120,000 keeping the deficiency to $100,000. In addition to the deficiency now being $130,000, the bank has elected to add on legal costs of $15,000 and asset preservation costs of another $5000 for a total deficiency liability of $150,000. Mr. Smith pulls his credit report 30 days after being notified that the bank has sold his property and of his liability.

On the report he notices that the mortgage trade line states “Foreclosure” and the balance is $150,000. Because of Mr Smith’s choice to choose foreclosure vs. short sale his road to financial recovery has taken a major detour. He not only has a foreclosure on his credit report but know has a much larger deficiency balance in which the bank, in most cases, will report on his credit report as a balance owed.

The Best Option is clear

While the financial and credit advantages are clear when choosing a short sale over a foreclosure, other advantages are sometimes overlooked. The most important of all of them is maintaining the seller’s dignity and peace of mind.  We have heard too many stories of families having to leave their homes because of a Sheriffs order or some other type of legal action. The short sale process alleviates this negative social impact. The process puts the control back in the seller’s hands so that they can get back on the road to financial recovery and start providing for their families.  In the battle of the two evils, a short sale always wins!!!

Read the original post: Short Sale vs. Foreclosure: A Short Sale Always Wins

An overview: VA mortgages are bundled, securitized and sold in the secondary market with the backing of the Federal Government. In order to insure these mortgages, the government charges a type of insurance premium, called a VA Funding Fee, which is typically added to the loan amount (thereby financed).

Remember, too, that the VA (subject to some restrictions) will insure loans up to 100% of the purchase price for the home.

What is happening next week? On loans that close effective October 1, that Funding Fee is being reduced. Because it is typical that the fee is financed into the loan, the VA is effectively lowering the monthly cost (because the loan amount is lower) AND the amount that will be paid back when the home is sold (again, because the loan amount is lower). It’s a win/win for the verteran.

If you have any questions about purchasing a home with a VA loan or if you already have one and are considering a refinance of it because of the low interest rates, reach out to your favorite mortgage professional and explore the possibilities. There has never been a better time!

Continued here:Some Good News for Veterans!

When getting a mortgage, one of the steps in the process is to “lock your rate” which is a simple agreement between you and the mortgage lender that your rate is “locked in” and won’t change between the time you lock it and the expiration date of the lock.

Common lock periods for lenders include 10 days, 15 days, 25 days, 30 days, 60 days and 90 days — although each lender has different increments for which you can lock your rate.

Common sense tells you that if you are early in the process of getting a loan and the lender says that it takes on average 20 days to get a loan done, you would want to lock your rate in for 30 days and not 10.

If only it were that easy.

The process of getting a mortgage has always had some element of the unknown when it comes to planning exactly when you can close the loan. Things in the process “come up” and as a result, the closing date can be pushed off. Common issues that can delay a loan are delays in underwriting due to lender workloads and appraisal issues that result in a longer time required for the appraisal to be done (or re-done in some cases).

Regardless of what actually causes delays in the process, here are 3 important questions you can ask your loan officer before you lock your loan:

1. How do I know for sure my loan is locked?

Thanks to the new Good Faith Estimate, it is easier than it used to be to know for sure that your rate is locked and how long it is locked. When you get your first Good Faith Estimate (GFE) from your loan officer, it will outline what to expect regarding how long the interest rate is good for, how long you have to close and how long before closing you must lock your rate.

Your rate is not locked in when you get your first Good Faith Estimate.

Should you decide to go to with a particular lender, when it comes time to lock, you will be issued a document called a Mortgage Rate Lock Disclosure along with an updated Good Faith Estimate and Truth in Lending document, Some lenders also require an additional document or two at the time of lock. You will be required to sign these documents acknowledging that you are aware that your rate is locked, for what period it is locked and the type of loan program.

Once you have signed all of these documents and returned them to the lender, your loan officer will then lock your rate. Once your loan officer indicates that your loan has been locked, it is always a good idea to request a Lock Confirmation – just to be safe. The Lock Confirmation document is something that your lender may generally have as an internal document, but they shouldn’t have a problem giving you a copy, if requested.

2. Can I get lock extension if needed?

Each lender will have their own guidelines as to who pays for a lock extension. Thanks to the new loan officer compensation rules, there are only two possibilities as to who pays for a lock extension — the borrower, or the lender. The loan officer is no longer allowed to pay for a lock extension out of their commission.

The most common answer I see as to “who pays” if a rate extension is needed is that it depends on why the delay happened in the process. If a lender is at fault for unforeseen delays that cause a rate lock extension to be required, I commonly see the lender pick up the extension. If a borrower is at fault for not getting requested items in a timely manner, I have seen the lender require that the borrower pay for the rate lock extension.

3. What happens if rates drop? Can I get a lower rate?

Policies about what happens if rates actually drop between the lock date and the close date also vary between lenders. Believe it or not, some lenders offer a “float down” in rate — meaning if rates went down, you can actually get a lower rate. But, the most common policy among lenders is that if rates went down during the lock period, you are still obligated to close the loan (assuming that you close with that particular lender) at the agreed-upon lock rate.

Perhaps the most important thing to know when locking a loan is to have the conversation with your loan officer about these three important things up front.

Justin McHood works for Academy Mortgage and is based in Chandler, AZ. He is a contributor to Zillow Blog and has conversations about mortgages whenever he can. Learn more about Justin at http://www.mortgagecommentator.com.

Whether buying a home is a goal way down the road, or you’re considering buying in the next few years, it’s never too late to start saving for a down payment.

Although you can purchase a home with as low as a 3.5 percent down payment using an FHA loan (Federal Housing Administration), the more you put down on your home, the lower your monthly mortgage payment will be.

But saving for the ideal 10 to 20 percent down payment for a traditional 30 year fixed loan, especially in today’s cash-strapped economy, can be daunting.

Here are a few tips to get you started.

Calculate what you need to save

Many sites, Zillow included, have mortgage calculators that can help you figure out how much you’ll need for a down payment and what your resulting monthly payment will be depending on current mortgage rates. Play around with different amounts to calculate your ideal home loan. Zillow’s mortgage calculator shows you the breakdown of your monthly payment as well as provides definitions of terms. See an example:

Set up a separate savings account

Create a separate account, ideally a high-yield savings account, that you can begin adding to. You’ll be less likely to dip into an account separate from your checking or other savings account.

Contribute regularly or automatically

To ensure steady growth, create a saving time line for yourself and add funds regularly. The easiest way is to set up an automatic deposit into the account.

What can you cut?

If you’re really on the fast track to save for a down payment, you should begin looking at your budget and identifying things you can cut. (Ideally you should have a budget to begin with.) Start out with looking at extra expenses. Do you go to lunch everyday at work? Try packing a lunch a few days a week. Do you need that $3 coffee everyday, which ends up costing you $15 a week and $60 a month? Trimming little expense like this can make saving a reality.

Get advice

If you have significant debt or credit problems, you may consider looking into meeting with a financial planner who can help you develop a saving plan specifically tailored to your needs.

Featured image from Flickr user Images_of_Money.

Taken from: How to Save for a Down Payment

Whether the property is in New York, New Haven or Nevada, here are 5 things I look for when evaluating a property. Keep in mind that these days, first impressions — a real estate agent‘s as well as those of buyers and sellers — are often formed online.

1. Location

When I see a new listing hit the market, the first thing I consider is its location. I know that if the property is on a prime block in a good neighborhood, it will automatically get a lot of credibility and attention from potential buyers. Conversely, if it’s on a bad block, or even a so-so, or good block in an undesirable neighborhood, it’s going to be a tough sell.

2. Period charm

The next thing I consider is if the property was built during a historic or earlier time period and if so, if it evokes the charm and style of its era. In San Francisco, for instance, you’ve got lots of peaked roof Victorians. In Los Angeles, there are mid-century modern-style homes. And in New York City, brownstones continue to be desirable.

Many buyers will pay more for a property with Old World charm and a type of construction that isn’t done anymore. It’s just not possible to rebuild in, say, the Art Deco or Victorian style, and expect the rebuild to have the same desirability as the original. Bottom line; If you own a piece of history, it will always hold more value than another property that lacks period character or charm, even if the historic property isn’t in the best condition.

3. Curb appeal and first impressions

Curb appeal, in the form of landscaping, the front door, and a front-yard flower garden, used to be the first impression most people had of a home for sale. Nowadays, many people get their first impressions of a home through a property listing or an email from their real estate agent. They may take a virtual tour of every room in the house, look up the sales or permit history, or even Google the seller before setting foot inside the home. And so, curb appeal has gone online, in a sense.

However, many times real estate agents will list a property online before they take photographs or without taking photographs. Or the agent may take pictures of the property with their phone’s camera — which often produces low-resolution images — and post these photos online. And so, prospective buyers get their first impressions of the property by looking at old pictures or low-quality photos. That’s why it’s so important to have sharp, high-resolution, professional photographs of your home taken before it’s listed. Those pictures are, in essence, the new curb appeal, and if done improperly, you may discourage prospective buyers from even driving by your home.

4. Fixtures and finishes

Let’s say you’ve got an attractive property in a desirable location. Excellent; you’re way ahead of the game. The next thing I look for is how up-to-date (or not) the fixtures and finishes are.

Many buyers tell me they can’t imagine renovating. They want a house that’s already “done done done.” Or they might say they’re OK with a small renovation over time, but that they want a property in move-in condition. Maybe they want to add value to the property by making more substantial upgrades on their own. I factor all of this in as I look closely at a property’s fixtures and finishes.

Do the bathrooms have high-end or cheap fixtures? Is the kitchen outfitted with modern Caesarstone countertops or older granite? Is the stove electric, the refrigerator a relic of the 70s? For kitchens and baths, I look to see if this property is move-in ready, if there’s room for a buyer to add value by updating or if the property needs a gut renovation.

The worst-case scenario is when I see a property that’s been recently renovated, but the fixtures, finishes or style of renovation aren’t appropriate to their particular market, or that obvious corners were cut to save money. A buyer isn’t going to pay top dollar for a renovated property if they have to re-do the second-rate renovations.

5. Layout

How the property is laid out makes a big difference to buyers. You can have an awesome renovated home in the best location. But if the layout of the house doesn’t fit the profile of buyers in your area, that can be a problem.

For example, many families in San Francisco look for homes with all bedrooms on one floor. This makes it easy to check on the kids or to have everyone nearby. A small mid-century home, in which the previous owners added a basement bedroom and bathroom, would therefore be a tougher sale in a San Francisco neighborhood popular with families.

Another example: Many people today like to entertain at home (a trend that’s likely to continue, especially during tough economic times), with guests hanging out in the kitchen together as the host cooks. As a result, a floor plan with an open living/kitchen/dining area will be more attractive than one in which the kitchen is tucked away at the end of a hallway, far from the living or entertaining areas.

Adding it all up

Of course, every market is different and every buyer has different needs, wants and requirements. There may be buyers out there who want to be in a less-desirable, but up-and-coming neighborhood. That buyer may also hate older homes and only wants something new and modern. Regardless of the buyer’s particular interests or needs, these five qualities will always be among the first things a realtor looks for when reviewing properties.

A seller can’t physically move his house to a better neighborhood or transform a 1980s home into a 1880s Victorian. Even so, the more you can do to make your property as attractive as possible in these five categories, the easier it will be to sell your home.

Brendon DeSimone is a Realtor and real estate expert based in San Francisco and New York. He is a contributor to Zillow Blog, has collaborated on multiple real estate books and is often quoted by major media outlets. You can follow Brendon on Twitter.

More here: 5 Things a Realtor Looks for When Listing a Home for Sale