The Bergen County Homes Blog

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.

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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.

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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.

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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

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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.

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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.

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Bergen County homes have done better than most in the US real estate market but like elsewhere, our home values have depreciated over the past few years. For many homeowners this has created a horrible situation where they are facing a short sale or foreclosure.

For those who have seen their mortgage rates reset to a loan they can’t afford, the situation soon deteriorates to a short sale or foreclosure because their loss of equity makes it impossible to get the appraisal needed to refinance to today’s low interest rates. This is why the Federal Government stepped in to help.

On July 1st HUD Secretary Shaun Donovan announced that Fannie Mae and Freddie Mac will begin refinancing mortgages with loan-to-value ratios as much as 125%. This means you can be 25% negative in the value of your house and still refinance. The idea is to try to match the loss of equity so that homeowners who’ve been paying their mortgages and have good credit can stay in their homes.

While this is just part of the Bergen County housing market, it allows many people to keep their home and helps stabilize real estate values by avoiding foreclosures and short sale transactions.

If this works for you or someone you know, get in touch with a licensed mortgage banker. You need a top level loan officer’s help to qualify for this program; if you need a recommendation, just let me know.

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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.

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There is a new thief who preys upon homeowners who must put their home on the market as a short sale. Simply put, a short sale occurs when a homeowner can no longer pay his mortgage, has no other assets and the loan amount is greater than the home is worth. As a result there is a shortage between what’s owed on the home and it’s market value. The only way a homeowner can sell his home is by getting the bank to accept this shortage, thus the term “short sale.”

These new thieves market themselves as having all the solutions to your problems because they have a “special” ability to negotiate a short sale with the bank. Nothing could be farther from the truth. What really happens is that a desperate homeowner is taken advantage of by these horrible people because the truth is that they are completely unnecessary.

Realtors do short sales all the time. If you must put your home on the market as a short sale, your listing agent can do the work and negotiate with the bank on your behalf. You can also ask your attorney to do this for you and many people do. What you don’t need is to encumber yourself with an unnecessary expense by hiring one of these charlatans. They are today’s version of the proverbial “snake oil salesman.”

I have worked on short sale transactions successfully. It is a tremendous amount of work and takes a long while. Everyone involved needs a lot of patience but eventually things do work out. Buying a home that is a short sale means a long wait for the buyer. Sometimes a buyer will cancel his contract out of frustration – it takes months and months to see if the mortgage bank will accept the buyer’s offer. But, hiring one of these thieves will not help you – it only wastes your money on these frauds. Every bank has it’s own unique process and no one can make a bank move any faster.

Don’t allow a predator to hurt you – if you have any questions, email me and if I don’t know the answer, I’ll find someone who does.

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