The Bergen County Homes Blog

My projection for Bergen County real estate is right on target - our housing market is improving.  New Jersey MLS data, bank appraisers and housing reports all say the same thing:  We have clearly bottomed out and are in a period of stabilization.

Today’s ratio of homes for sale to under contract is 4 to 1; early in the year it was in double digits.  Last spring Bergen County was classified by the mortgage industry as an “area in decline” meaning that values were falling.  Appraisers were deducting 1% per month of value; if a home appraised at $200,000 and was closing 2 months later, the appraisal was fixed at  $196,000.  Bergen County’s housing market is no longer classified as “in decline” and a Valley National Bank appraiser on Monday told me that price depreciation has ended.

Jeff Otteau in his latest real estate newsletter termed the NJ real estate market’s performance “remarkable” and forecast continued improvement.  The monthly Credit Suisse agent survey said that for the first time in a long time a majority of agents reported positive home buyer traffic and houses selling quicker.

With all time low interest rates, prices no longer dropping and falling inventory levels, there should be no surprise to find stability in the Bergen County real estate market.

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.

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.

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!

Buying a home for most of us means getting a mortgage and, of course, the interest rate on that mortgage is determined in large part by your credit score.  Actually, whether or not you qualify for a mortgage is often determined by your credit score alone.  While it’s true that your income as well as your debt and assets are also important, your credit score is critical to the interest rate charged on your mortgage.

Credit scores are vital to your financial well being in so many ways that have nothing to do with purchasing a home.  For example, your credit score can impact what you are charged for auto insurance or whether or not a utility company requires a security deposit in order to get the lights turned on in your new home.

Here’s a good tip to improve your credit score – don’t pay off your credit cards; instead, get them all down to half or less of what you’re allowed to charge.  Ellen Jacobson is a Senior Mortgagage Banker with JP Morgan Chase and someone I’ve worked with for years.  She told me that most of the folks she sees think that they should pay off one credit card at a time in an effort to have fewer credit cards.  “Nothing could be further from the truth” she told me.  In fact, she said that closing a credit card can hurt your credit score. 

Of course no one is advocating that you maintain credit card debt but if you have several credit cards, try to make sure you keep them all no higher than 50% of what you are allowed and you should see an improvement in your credit score.  It’s also a smart idea to consult with your mortgage banker before you do anything.  Being careful is always a good idea.