Important Loan Tips For Owners and Buyers

Sometimes the best information regarding real estate is in the Saturday editions of the Seattle Times, rather than Sunday. This week there were two helpful articles, one for owners  with adjustable rate mortgages and one for prospective buyers providing tips on getting ready to apply for a new mortgage.

If you have an ARM that is poised to reset it is important to know exactly what the terms are. What is the index referenced in your loan? What is the adjustment differential? What is adjustment cap? what is the lifetime cap? If these terms are a little vague to you, you might be in denial about where your mortgage, and you, are headed. Read the linked article from the The Mortgage Professor to know what to do.

If you are getting ready to buy a home there are some key moves you need to make first.

1. Check your credit report before making loan application. The percentage of errors on credit reports is shocking. Better to get those errors corrected PRIOR to making application for a new loan.

2. Pay down unsecured debt i.e., credit cards. They weigh heavily against your creditworthiness.

3. But do not pay off and close an existing home equity line of credit ["HELOC"]. It doesn’t drag down your credit like credit cards, and could be a helpful resource when it comes to the myriad of associated moving costs, even the earnest money deposit for your new purchase.

4. Changing Jobs. If you must change jobs, make certain that it is in the same line of work, hopefully for better pay and/or position.

Read the article to get the entire picture on the best moves to make in preparing for a home purchase, whether you are moving up or it is your first home.

Sub-Prime Mortgage Mess Blame Game

I spotted a great article at CNN.com today which, in simple terms, defines the roles of those to blame for the current mortgage/credit problems. Borrowers, mortgage brokers, mortgage companies and banks, Wall Street, and the Federal Reserve are all named as co-conspirators. Use this link to read the article.

“Why Won’t My House Sell?”

There was a nice little article in the Seatttle Times Saturday Real Estate section which offered suggestions for increasing the appeal of your home to potential buyers. While there are some helpful tips, you may need more significant help if your property has been lingering on the market for more than 60 days.

I spent the early part of my real estate career working open houses for local builders John Buchan, Bill Buchan, Murray Franklyn, etc. This is what they do with “newbies” such as myself, who had about zero sales experience. Whiling away many, many hours at these new construction sites in the late 1980’s I learned a couple of things:

1. New home builders are highly averse to lowering the prices of homes to get them sold. Why? Because the lower price of any sale would potentially drive down the value of homes yet to be built in the same development. Oftentimes these builders would be forging new markets in places where historical values were well below what they wished to build. Thus they needed to establish new comparable values for the sake of getting their new, more expensive homes to appraise. So if they cut the price to get rid of a tough lot and/or house, it could negatively impact the likelihood of getting good appraisals for the others to be built in the same development.

2. How do builders counter the pressure to reduce the price to get a slow property to sell? They improve it. More than once I witnessed shrubs being removed by the landscape subcontractor and new, larger, and more plentiful landscaping installed. I also saw large beautiful decks constructed over what had been a small, insignificant patio. Sometimes blinds were installed on all the windows, the appliances removed and upgraded, garage door openers added, irrigation systems installed, larger and more expensive interior and exterior lighting fixtures replaced smaller ones. Fences built. Builders would add value,0 instead of reducing their price, until their homes sold. Time and again I watched this process yield the desired result.

When it comes to the average home seller, most often we hear, “what if the buyer doesn’t like what I do to improve the value?” Whether it’s replacing the carpet, painting, replacing hardware, all improvements are improvements and increase the chances of selling. It is easy to think that the battle is with buyers. It is not. The battle is with other sellers, especially when the market slows. Everyonw wants to sell, and pricing is an important part of the equation. But giving away value in the form of price reductions is much less effective, and much more expensive, than improving a home to make it more competitive.

So if you are on the market and think you’re not getting anywhere, you’re wrong. You are actually going backwards. While you are sitting still, the market is always changing around you. And every house that sells while yours does not drives the value of your home down. While price reductions might help, the fact is that what was unappealing at $535,000, for example, is not going to be much better at $525,000 or even $515,000. So rather than take the $10,000-20,000 price reduction, get busy. Make the improvements that will your house the best chance to compete. The best, most cost effective improvements are:

1. Update that exterior house color. Colors from the 80’s or 90’s don’t cut it in 2007.

2. Replace those appliances. If they are white or black, you’re in trouble. Stainless is what people want.

3. Do you have gold decorative light fixtures and door hardware. This is a subtle death sentence. Brushed nickle, oil rubbed bronze, brushed chrome are the finishes that buyers want.

4. Do you have laminate counters? Don’t even try. The only place you find laminate counters in new construction in King County will be in a mobile home.

While these improvements do cost money, all of them together will amont to less than the price reductions required to sell your home. Builders know this, and now you do as well.