The Bergen County Homes Blog

My listing at 184 Manhattan Avenue in Teaneck received an offer this week with a ”pre approval” from a major bank.  The buyer refused to commit to any mortgage bank (his agent told me he’d spoken to 5 banks) so he could shop for the best rate when he was ready.  The major bank told him not to worry – they’d give him a pre approval based on what he told them and could fill in the details later when he found a house.

This makes sense, doesn’t it?  Isn’t this what you’re told to do?  Absolutely but it’s absolutely wrong.

The strongest emotion is fear.  When it comes buying a home, fear is the #1 reason buyers make tragic mistakes.  The young man who wanted my listing could not afford it.  He had no idea about the true cost of a mortgage loan and no idea about closing costs.  How could this happen?  He spoke to 5 different banks and shopped through the web.

It’s very simple - his fear of commitment allowed him to be used by mortgage loan salespeople.  They did what he demanded instead of what was right hoping to “build rapport” to secure the loan when he found a house.  He is now upset because he can’t afford a home he loves.

In the early 80′s marketing folks came up with a neat idea:  Let’s redefine a pre qualification as a pre approval.  Buyers love this – they get a meaningless piece of paper to go along with their offer and have total control.  Well, that’s great.  You have total control of nothing when you’re jumping off a cliff.

I blame the buyer, the bank and his agent.  I’ve never had a buyer disappointed like this.  I teach my customers how to buy a home the right way and insist that they speak to my banker, Emi Kalici of Weichert Financial.  Why?  Because Emi has the right model of taxes and home insurance so the monthly payment amount is real.  You can’t get that from walking into a bank branch or going online.

Don’t allow yourself to be sucked into a feel good no commitment approach – don’t allow your fear to put you in a precarious position.  Buy a home the right way so your home buying experience is fun, rewarding and successful giving you many happy years in a home you can definitely afford.

When the financial crisis exploded in 2008, new construction financing ended.  Actually, most credit was taken off the table then and for good reason.  On new homes being built, many banks pulled existing mortgage loans creating havoc for builders and individuals who were in the middle of new construction projects.

Since then, getting a bank to loan on new construction in Bergen County has been difficult if not impossible.  But there has been one bank that’s kept its new construction loan department open – TD Bank.  In addition to TD Bank, Wells Fargo and Provident Bank of New Jersey also do new home financing.

I called TD Bank this week to review financing for a new 3 lot subdivision in Ho-Ho-Kus that I’m working on with Beverly Mitchell in my office; the interest rate quoted was very attractive – only just over prevailing mortgage rates with no points.

Each Ho-Ho-Kus lot is around 1 acre and we have packages for buyers at $1.5-1.7 million with architect plans for gorgeous 5,800 sq ft houses and a master builder in place.

If you drive up the Tenafly East Hill, you’ll be amazed at all the new houses being built there.  Tenafly has always enjoyed a strong demand for luxury new construction on it’s East Hill acre lots.  Buying a new Tenafly home is no problem for qualified buyers today.

Whether you’re building a new home in Tenafly, Ho-Ho-Kus or anywhere in Bergen County, you can get a mortgage as long as you’re qualified.

FHA mortgage loans are extremely important to the real estate industry.  The FHA insures, on average, 30% of all mortgages in the US so any change in FHA policy is big news and something like 70% of all first time home buyers use FHA loans.  Why does that matter?  Because the first time buyer is the home sale that drives the real estate engine.

On October 4th the FHA announced new credit requirements for mortgages which raised the bar for home buyers.  To get a 3.5% down payment loan, a buyer now needs at least a 580 credit score.  For home buyers with FICO scores of 500-579, down payments must be at least 10% and if your credit score is under 500 you’re out of luck – you won’t get a FHA loan.

At the same time, the up front mortgage insurance premium was reduced from 2.25% to 1% and the limit on annual premium increases was raised from .55% to 1.55%

Some people criticized the FHA for making it tougher to get a loan in Steve Bergsman’s excellent article on these changes, he quotes an expert as saying that while only 2% of all FHA borrowers have FICO scores under 580, 27% of them default.  Ouch!

What should be criticized, in my view,  are the wide FHA mortgage ratios allowed.  How about allowing up to 55% of your gross income to qualify for a FHA mortgage?  I think that’s a disaster in the making.  Do you think spending close to 75% of your take home pay on your mortgage makes sense?

Emi Kalici, the Weichert Gold Services Manager in my Tenafly office, said that Weichert Financial Services as a licensed FHA underwriter can be more relaxed with FICO scores for qualified Weichert buyers.  This sounds a whole lot beter for financially able people than widening their ratios recklessly.

Qualifying for a mortgage loan requires a good credit history.  Banks want a proven record of responsible financial behavior and lines of credit answer this requirement.  It’s not enough to use a mortgage loan calculator to figure your mortgage payment amount, you need to demonstrate that you can handle credit successfully. 

What is a line of credit?  A line of credit (aka credit line) is when a bank grants an unsecured loan amount.  Unlike a regular loan, interest is only charged on how much of the credit line you use.  For example, a department store credit card has a limit of $500.  That’s your line of credit.  You spend $50 which leaves $450 left on your line of credit to use.  When the bill comes, if you pay it off in full, there’s no interest charged.  If you don’t pay it in full, the amount you owe incurs a credit charge. 

Harry Vanezis, Vice President and Senior Loan Officer at Bank of America, said that for mortgage loans, banks consider a car loan/lease and rent/mortgage payments as lines of credit too.  Harry advises that you get a bank and department store card.  “Charge your gas every other month on the bank card and use the other for gift purchases but pay off the bill in full when it arrives so you don’t incur interest expenses” said Harry.  “If you do this and pay your other bills in full and on time, you’ll have an excellent credit history.”  While 4 lines of credit are best, 3 will work if your other credentials are strong.

Amazing as it is, paying cash for everything makes getting a mortgage difficult because you have no verifiable record of good financial behavior.  Prudent and regular use of lines of credit creates an excellent credit history.

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.

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.

JP Morgan Chase announced this week that they will be hiring 1,200 new mortgage loan officers by the end of 2010.  This means that Chase will increase their loan officer numbers by 60% which is huge because the bank is one of the major players in mortgage loans in the US. 

JP Morgan Chase said that the bank sees early signs of stabilization in the US real estate market and believes that the housing market has bottomed out .  Expecting the real estate market to recover after next year, JP Morgan is hiring new loan officers to put themselves in the best competitive position by making sure it has the best market share coverage for home loans. 

CNN’s article on this is at  http://tinyurl.com/New-Chase-Loan-Officers

If you are a home buyer and you qualify for the first time home buyer tax credit, time is running out for you to find a home.  You must buy a home by November 30th and because getting a mortgage these days often takes 45 days, many buyers feel pressured to make a decision now.  As a result, a first time home buyer who qualifies for the $8000 Tax Credit may find himself scrambling to get into contract this week.  However, I’m wondering if some of you aren’t making a mistake.

$8000 is nothing to sneeze at but a buyer may be missing out on a home value that far exceeds the $8000 credit – short sale opportunities are still available.  There are many homes for sale with steep discounts because they are a short sale and you may find a house that is a better “fit” for you in a short sale than trying to buy a home that you really don’t love just because of the tax credit.

In the New Jersey MLS this morning, searching for short sale homes shows that of the 3,796 single family homes for sale, 352 are a short sale.  There are also many that are described as potential short sales.  For our purposes, let’s say that a bit more than 10% of the Bergen County housing market is a short sale.   This figure has been pretty constant this year.  The bottom line is that there are other opportunities out there.

Even if you can’t find a home that works in time for the tax credit, you shouldn’t go into contract on something that isn’t the right home for you and your family.  Opportunities come in many ways.

When the Home Valuation Code of Conduct went into effect by Fannie Mae and Freddie Mac on May 1st, appraisal protocols for mortgage loans changed. To protect consumers, loan officers, mortgage brokers and real estate agents can no longer choose appraisers.

Why is this so important? Because the mortgage bank and the home buyer rely on an appraiser’s determination of value; a lot of abuse and fraud has been uncovered. If, for example, an appraiser sets a home value to fit the sales price, that’s obviously wrong.

I just had a short sale listing close; the bank took nearly a 50% loss on a $1.8 million loan. The homeowner had been building a new home for himself. When he gave me his loan amount, I was stunned. There was no way to justify that mortgage loan and yet it happened.

To comply, banks no longer have their own appraisers; they use real estate appraisal services with pools of appraisers from which appraisers are randomly selected. This creates an added expense for the mortgage process and increasingly results in appraisers valuing homes who’ve never been to the area before and aren’t members of the local MLS. Recently my office experienced this.

An office listing had an appraisal that was ridiculously low. Both buyer and seller knew this but the bank, which had to use the appraisal, could no longer justify the mortgage. The appraiser had never been to the area before and used the wrong MLS. Bergen County homes are listed in the New Jersey MLS; the appraiser used the Garden State MLS which has only a few Bergen County listings. Without expert knowledge of the local inventory and no access to all the data, he wasn’t able to do a correct valuation.

Eventually things will straighten out but until it does, there will be higher costs to obtaining a mortgage for home buyers and for both buyers and sellers, there will be appraisals that unfairly cancel mortgages.