June began a new requirement from Fannie Mae.  Mortgage applicants must now have their credit checked 3 days before closing.  If there are any significant changes, the terms may be adjusted or the mortgage may actually be cancelled.  While this may sound harsh, it also makes sense.

When you apply for a mortgage, your credit, debt and assets are checked.  The bank wants to verify that your credit history shows that you are a responsible person and your income, debt and assets are enough to allow you to comfortably carry the expenses.

Once you get your mortgage commitment, nothing should change.  You should be just as credit worthy on the day you close as you were when you first applied for your mortgage.  Fannie Mae is just checking to make sure.

Before the sub prime mortgage market existed, this was a normal part of the process.  Fannie Mae found that a good number of people abused the system by being irresponsible or commiting outright fraud.  By requiring this verification just before closing, Fannie Mae is hoping to avoid such trouble.   

In the past, some people actually took out other loans just before closing because they knew they’d never qualify once the mortgage closed and was on their credit record.  So, they got a car on a loan, bought an appliance on credit etc. and sometimes even quit a job just before closing on a house.  This sort of irresponsible behavior often ended up in foreclosure.

I believe Fannie Mae is taking the right approach; this will go a long way to ensuring the integrity of the mortgage system.  It also protects buyers from over burdening themselves with debt.  It does no one good when a home ends up in foreclosure.  So is Fannie Mae making life impossible for buyers?  Not at all.

Buying a home should always include a home inspection. Even if the home is new construction, it’s best to have the guidance of a professional home inspector. In New Jersey, home inspectors are licensed by the State but there’s also another resource for you – the American Society of Home Inspectors known as ASHI.

ASHI was started in 1976 by a group of home inspectors who wanted to set standards of practice and create a learning center for inspectors, buyers, sellers and real estate professionals. Every member of ASHI must take a Standards and Practices training module and agree to abide by their Code of Ethics. Today ASHI is the largest trade organization of home inspectors in the US. I consider ASHI to be a wonderful organization and only recommend home inspectors who are both licensed in New Jersey to perform home inspectors and members of ASHI.

BTW, when you’re on the ASHI website, be sure to check out the Virtual Home Inspection

You should always attend your home inspection. It’s one of the most important parts of buying a house plus you’ll learn a lot about your new home. The average inspection takes around 3 hours but this varies on the size and condition of a home. Be sure to bring a pen and pad so that you can take notes during the inspection. The inspector will tell you about the home’s condition and teach you how to maintain various aspects of it.

If you are selling, it’s a good idea to inspect your home before it’s for sale. An inspection can uncover problems you never knew existed and gives you an idea of what a buyer will hear.

Great news for home buyers! U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan announced yesterday, May 29th, that the Federal Housing Administration (FHA) will allow home buyers to apply the Obama Administration’s new $8,000 first-time home buyer tax credit on FHA mortgage loans. Previously the tax credit only applied to conventional mortgages. The only catch is that the tax credit cannot be used towards the minimum 3.5% down payment. But, this is still terrific and a great help for people who need to use a FHA insured mortgage loan.

Secretary Donavan said that the FHA’s objective in doing this was to help stabilize the housing market by stimulating more home sales across the US and it certainly should do so. With the ability to apply the tax credit to purchase costs, buying a home now becomes affordable for thousands of people and affordable enough to get thousands to jump off the fence and into a house.

FHA loans are extremely popular with first time home buyers because qualifying for a FHA mortgage is a lot easier than qualifying for a conventional loan. The ratios are easier and the down payment can be as little as 3.5% although I must tell you that I do not approve of buying a home with such a low down payment. What I tell my home buyers is to wait until you’ve saved up at least a 10% down payment.

While interest rates went up this week, they also came down on Friday so we’re still in the 5-5.5% range for what most people really qualify for in a mortgage. This has been where it’s at for the past several months throughout the spring.

The reason the first time home buyer market is critical to the housing market is because this is where the housing domino chain begins – when a home buyer buys a house, he buys it from someone who often moves on to a bigger house and so on and so on. The entire chain of transactions begins with the first house that is sold and that’s your first time home buyer.

If you look at the real estate market the picture you see is a pyramid with the least expensive homes on the large bottom (mostly first time home buyers) and the most expensive at the very top. Without those large bottom rows of buyers, the real estate market will collapse. So the FHA, by accepting the $8,000 tax credit on its loans, has helped tremendously to maintain the strength and stability of real estate.

When people decide to buy a home they naturally start to look at the real estate market, do some number crunching and find statistics which explain the market trends. Lately, a statistic on homes that’s been quite popular is the absorption rate.

Absorption rates simply put tell you how long it will take to sell off the existing inventory of homes. This shows you how properties are selling; it’s measured in months as in how many months it will take to sell all the homes for sale. Understanding market activity is important but I think that looking at absorption rates this early in the year can be misleading.

No matter the economy, the housing market has a unique rhythm of it’s own. Most homes for sale go on the market during the early part of the year and are sold during the summer so statistics for the first few months of the year that track the relationship between sales and available inventory can be tilted in the wrong direction. In fact, absorption rates at this point can be very confusing if you look at the report appraisers use when they do an appraisal on a house. This is the 1004MC Report.

Let’s look at Tenafly, NJ. If you go back 12 months from today, the Tenafly real estate market for homes really looks weird. For example, take a look at the number of Active Listings – it looks terrible doesn’t it? Well, what would you expect for this time of year? It’s always larger now because more houses are on the market between March and June. At the same time, how long a home is on the market for sale is currently half what it was previously. That is extremely important. In truth, Tenafly houses are selling very well. Tenafly homes are always in strong demand. The New Jersey MLS 1004MC Appraisal Report for Tenafly can be found at tenafly-1004mc-report

Fannie Mae and Freddie Mac buy mortgages which means that they guarantee them. Without the backing of Fannie and Freddie, mortgage lenders have to find other investors to sell their mortgage loans to and those investors charge more so interest rates are higher. Fannie and Freddie backed mortgages are called conforming; the others are called jumbo. The limit on a conforming mortgage is $417,000 but that is about to change.

There’s also an intermediate level which is a special allowance for higher cost areas like Bergen County. Such mortage loans are at $417,000 – $625,000 with moderately higher interest rates than conforming loans. This is a super conforming loan but marketing folks have coined the phrases Jumbo and Super Jumbo. You’ll see a Jumbo Mortgage at $417-625,000 and Super Jumbo above $625,000.

OK, now you should have a good basic idea of how things work. Here’s where it gets interesting:

Fannie and Freddie are increasing the conforming mortgage loan limits to $729,750 on May 4th. This came about due to the economic stimulus package which was signed into law on February 17th. Wells Fargo will start taking applications for these loans on Monday, April 27th and I’m sure other banks will begin before May 4th too.

New Jersey MLS data shows that the 2008 average sales price for a single family home in Bergen County was $570,217. Even with a 20% down payment, this put a buyer into jumbo loan territory. In several towns it was often impossible for many buyers to qualify and is part of the reason that upper mid range homes have had such a hard time.

In the upper mid range market, it’s really been tough due to the restrictions on conforming loans. Loosening up lending for these homes creates more buyers for sellers. For real estate in Bergen County this is huge. Bergen County is the 18th most affluent county in the US; many of our towns have been severely impacted by the $417,000 limit and even $625,000 didn’t quite work.

For example, Tenafly had an average sales price last year of $915,581, Old Tappan was $1,147,159 and Woodcliff Lake was $838,309 plus many other Bergen County towns have scores of homes that will benefit. If you are a home buyer who’s looking at $850,000 homes, think of how this will help you! You won’t have to pay a point and your interest rate just dropped.

Think of the impact this will have on real estate in Bergen County and across the United States. Buying a home is never an isolated transaction. Real estate is a chain of events – there are homes sold above and below your own transaction so anything that happens in one price range affects it all. This is going to have quite an impact.

“How’s real estate and what should I do?” I am receiving so many calls and messages like this that I thought I should post some answers. It seems that real estate is on everyone’s mind lately.

Here’s something to consider: A primary motivating factor for most people is simply because it was the right time. So ask yourself this question – Is this the right time for you?

The right time to move can be due to many reasons such as getting your kids out of the city and into a backyard, you’ve outgrown your home and need more space, you’ve had it with renting and want your own place, you’re ready to move to your dream retirement, everyone’s moved to California and you’re still in Bergen County etc.

If you’re wondering how to manage things based on how the real estate market is doing in Bergen County, here are some answers to help you:

Are you thinking of buying a home? Do it now – we’re at or near the bottom with mortgage rates at historic lows; inflation, with its high interest rates, is projected for the future.

Want to move up to a larger home? Move up now – the cost of upgrading is always the cheapest when you’re around a market’s bottom which is where we are today.

Own a home and not moving? Check your mortgage rate immediately. No matter when you purchased or if you did refinance recently, do this for your own benefit.

Thinking of selling your home? Get your home on the market now – you stand to lose another 5% this year so waiting will hurt you.

Not sure if this is the right time to move? Then don’t. If you’re not sure, its always best to stay put. However, it’s also best to investigate your options fully; I suggest you do this bi-annually.

Let me know if you have any other questions about how to handle the housing market in Bergen County.

The figures are in and the real estate market in Bergen County is doing OK.  It’s still a buyer’s market for homes but you can see some signs of improvement.

In January I had written that the real estate market in Bergen County would shift during the 4th quarter of 2009 and stabilize.  From then on for a few years we would be working in a narrow range before turning upward again.  This time it would take longer than it did in the early 90′s to rebound fully but being stable is good.  So far my projection is still on target.

Most of the reports at that time were for this to happen once we were solidly in 2010 – well, the media reports are singing a different song because things have changed.  And so has the market.

If you look at the number of homes coming onto the market and going under contract, what you’ll find is very interesting.  For the homes becoming active in the New Jersey MLS, there’s been an 11% drop during the first quarter of 2009 but the pace of homes going under contract is the same this year as it was last year.  Do I hear the word stable anywhere?  Yes, this is indeed a sign of stabilization and that’s, to quote Martha Stewart, a good thing.

For the first quarter in both 2008 and 2009 the Active to Under Contract ratio is 3.9 to 1 in the New Jersey MLS data.  This means that the pace of home sales is maintaining itself and it’s also quite respectable – the ratio of a strong seller’s market is 2 to 1.

Looking closer to see what happened we find that in 2008 the rate at which homes became active was pretty normal – a gradual progression as you moved more into the year.  But in 2009, January and February were anemic and then we had a 32% explosion upward in March.  Do you think that the spring real esate market is back in Bergen County?  I sure do.

Home buying activity has really picked up since March 1st and home sellers have correspondingly jumped into the real estate market.  Why would they wait until now to put their home on the market for sale?  Because the atmosphere was so negative at the end of 2008 that it made many homeowners hold off.  What’s changed?  Well, just to mention a few items – the $8,000 tax credit, liberalization of FHA mortgages, even lower mortage rates, home prices not seen in nearly 8 years and the natural spring rhythm of home buying.

While home values are still going down – another 5% for the rest of this year – I still feel that the market will be stabilized by the 4th quarter.  What we’ve seen so far this year in maintaining the pace of sales and in the recent surge in home buying activity certainly point to this and also to a good spring market for Bergen County homes.  In fact, I won’t be surprised to learn that the bottom of the real estate market in Bergen County was the end of 2008 and the very beginning of 2009.  2009 will be a year of change.

Here’s the New Jersey Association of Realtors announcement for a free webinar on the tax credit for buying a home that expires on December 1st – sign up for this Friday’s free  webinar to find out how to qualify for up to a $8,000 tax credit whether you’re buying a home in Bergen County or elsewhere:

FREE Home Buyer Tax Credit Webinar – April 3 at Noon

The countdown to December 1, 2009 has begun. Learn how to take advantage of the tax credit during a free Get the Real StorySM webinar on Friday, April 3, 2009 at noon. Register for the webinar on Friday by visiting http://www.njar.com/rs_register.php. The website address for participating will be e-mailed to you in advance of the event. Please note, space for the live event is limited.

NJAR^® Executive Vice President Jarrod C. Grasso, RCE will officially kick off the new REAL Story website during the webinar, and then Linda Goold, tax counsel for the NATIONAL ASSOCIATION OF REALTORS^®, will discuss the detailed advantages of the first-time buyer tax credit and how purchasers can claim the credit

If you can’t make the webinar, you can find answers to questions about today’s market in New Jersey anytime at www.REALstoryNJ.com. The webinar will also be available on the site to view after it is presented live.

The most important first step in buying a home is financing which involves getting prequalified for a home mortgage.  It doesn’t matter if you’re buying Bergen County real estate or a home somewhere else – because your mortgage loan is so critical to your home buying process, you are naturally interested in any news about these loans.  Here is where you begin what I call Mortgage Rate Madness.

People afflicted with this disease believe that they can get mortgage rates at levels not seen because they don’t exist.  The other day I had a call from a consumer who had this disease – a really bad case of MRM!  She thought she could get a mortgage rate of 4%.  The reason she was so sure of this was simply because one of her friends heard this on the radio and someone else saw it on TV.  Hmm…..maybe at 3 in the morning you might see some infomercial where all sorts of nice people are sitting in their Bentleys (which they rented for the hour) telling the world all sorts of mysterious fables.  You know, the folks who make millions without working and get tons of free money.  It isn’t your fault if you get the MRM disease.  This virus is everywhere – it’s on the radio, it’s on TV, it’s online, it comes from a friend who heard it from a friend who heard it from…and on and on and on.

OK – how about a good dose of reality?  Mortgage rates are indeed low.  In fact, they’re so low that they’re truly at historic lows.  But the interest rate on your mortgage depends on many things – for example, if you have a small down payment, for almost everyone that means a FHA loan.  Because your down payment is small, the risk is greater to the lender so the interest rate is a little higher; the FHA specializes in such loans.  It’s all in the details as they say.

It also depends on how much money you are going to borrow.  Up to $417,000 it’s one rate, at $417,000 – $1 million it’s about one half point higher, etc.  Mortgage rates vary depending on how much you borrow, your down payment and, of course, your credit score.  What I can tell you is that there’s a cure for MRM disease – work with a good licensed mortgage banker.  Invest some time in getting properly educated and pre-approved for your mortgage.  It’s usually the biggest loan you’ll ever have.  If you go to the Financing section at www.BergenCountyHomes.com you’ll find several.  Trust me – if it’s too good to be true, it’s MRM disease!