-
Your Host
Brought to you by Ron Ares, an Oregon broker licensed with MRealty.
Contact: (503) 460-7992
Follow Along
Subscribe in a reader
More Loan Options for Homebuyers – Fannie Mae/Freddie Mac raise loan limits
Good news for homebuyers in a market that’s been cooling due to interest rate hikes.
As home prices have surged, buyers in some markets have encountered some challenges in qualifying for ‘conforming’ loans—those programs that feature lower interest rates and conform to standards set by two government-regulated companies, Fannie Mae and Freddie Mac.
In response, both companies announced that conforming loan limits for single-family homes will rise 16% from $359,650 to $417,000, the largest percentage bump in 25 years.
Conforming loans typically charge a quarter point less than alternative ‘jumbo’ loans—programs designed for larger loan amounts. In some parts of the country where even modest homes run $500K, borrowers would have been forced to buy jumbo loans, take out two smaller mortgages, or even purchase home equity loans, whose rates are tied to the prime rate (which has risen 1.75% since the end of 2004).
New loan limits go into effect January 1, 2006, but lenders will probably start offering bigger conforming loans before year-end. Higher loan limits now give new options for owners looking to refinance at fixed rates.
MSNBC has a nice article covering this. See also Fannie Mae’s press release.
If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
Oregon Ranks Favorably in Closing Cost Survey
Oregon is one of the least expensive states for fees and expenses required for buyers to close transactions, according to a 2005 Bankrate.com survey.
First, a definition. Closing costs are fees and expenses paid by a buyer to obtain a mortgage and transfer ownership of a property. These fees can include loan application and origination fees, title search, title insurance, fees for administration, appraisal, escrow costs, document preparation, processing, tax service and underwriting. Buyers are also responsible to pre-pay homeowner insurance and property taxes, but these expenses were not included in the Bankrate survey.
Bankrate found that fees and title insurance averaged $2,748 nationally on a $225,000 transaction with $180,000 being borrowed. Oregon ranked 45th of 51 states (including D.C.) with an average of $2,404 in closing costs. The top five most expensive states were New York (at a whopping $3,907), followed by Hawaii, Alaska, New Jersey, and Florida. Wyoming is the least expensive state.
From the survey:
Bankrate surveyed nine to 15 lenders in each state, plus Washington, D.C., and asked them to estimate the closing costs on a $180,000 loan to a buyer with an excellent credit history who had made a down payment of at least 20 percent on a single-family home in the state’s largest city. The survey showed that:
- The biggest differences among states came from the wildly varying costs for title insurance;
- fees for settlement services and title searches accounted for much of the rest of the disparities;
- origination costs — the fees that lenders control — didn’t vary much from state to state (but they did differ from lender to lender).
The cost of title insurance is tied to risk, and in the business of property, the top risk is fraud. Nice to know that Oregon is seen as a low-risk region.
Read here for details of the Survey and State Rankings.
The 7 Don’ts of Obtaining a Home Loan
One of the local lenders I respect the most, Naida Paris of Valley Mortgage, gave me this list of common pitfalls buyers sometimes encounter on the way to homeownership.
The 7 Don’ts of Obtaining a Home Loan
from Naida Paris, Valley Mortgage (courtesy of Countrywide Mortgage)
This is a list of things to steer clear of when you are seeking to obtain financing for a home. The following items may prove to be a detriment when you wish to move forward with the loan process.
Don’t buy or lease an auto!
Lenders look carefully at your debt-to-income ratio. A large payment such as a car lease or purchase can greatly impact those ratios and prevent you from qualifying for a home loan.
Don’t move assets from one bank account to another!
These transfers show up as new deposits and complicate the application process, as you must then disclose and document the source of funds for each new account. The lender can verify each account as it currently exists. You can consolidate your accounts later if you need to.
Don’t change jobs!
A new job may involve a probation period, which must be satisfied before income from the new job can be considered for qualifying purposes.
Don’t buy new furniture or major appliances for your “new home!”
If the new purchases increase the amount of debt you are responsible for on a monthly basis, there is the possibility this may disqualify you from getting the loan, or cut down on the available funds you need to meet closing costs.
Don’t run a TRW report on yourself!
This will show as an inquiry on your lender’s credit report. Inquiries must be explained in writing.
Don’t attempt to consolidate bills before speaking with your lender!
The lender can advise you if this needs to be done.
Don’t pack or ship information needed for the loan application!
Important paperwork such as W-2 forms, divorce decrees, and tax returns should not be sent with your household goods. Duplicate copies take weeks to obtain, and could stall the closing date on your transaction.
For more good mortgage advice, contact:
Naida Paris
Valley Mortgage
(503) 538-1072
Average Sale Prices in Portland Communities – October 2005
These are the average sale prices for properties sold in October 2005 in Portland’s metropolitan area. The area average was $298,700.
-
$476,700 – Lake Oswego / West Linn
$465,800 – West Portland
$397,600 – NW Washington County
$368,200 – Tigard / Tualatin / Wilsonville / Sherwood
$299,400 – Milwaukie / Clackamas
$278,500 – Oregon City / Canby
$265,300 – Northeast Portland
$259,800 – Hillsboro / Forest Grove
$258,600 – Beaverton / Aloha
$244,800 – Southeast Portland
$243,700 – Gresham / Troutdale
$240,000 – Yamhill County
$228,400 – North Portland
$198,000 – Columbia County
Shameless marketing pitch: You can search for properties for sale in these communities with a quick visit to www.findportlandhouses.com. Each morning, you get an email containing up-to-date property listings, including new listings and price changes. My HomeQuest service provides addresses, pictures, and plenty of listing data and descriptions.
Source: RMLS, October 2005 report.
12-Month Portland Appreciation – October 2005 vs. October 2004
Home prices across the Portland metro area continue to appreciate at prodigious rates through October 2005.
As reported by the Portland multiple listing service (RMLS), the average sale price in the Portland area was up 14.2% over the previous average from the 12 months prior.
Here are the 12-month averages for Portland metro communities:
-
21.3% – Tigard / Tualatin / Wilsonville
17.1% – North Portland
16.6% – Hillsboro / Forest Grove
16.4% – Oregon City / Canby
15.6% – Milwaukie / Clackamas
15.0% – Northeast Portland
14.9% – Lake Oswego / West Linn
14.3% – Southeast Portland
13.7% – West Portland
13.5% – Beaverton / Aloha
12.5% – Gresham / Troutdale
12.1% – NW Washington County
Note: Appreciation percentages are based on a comparison of average price from the last 12 months (11/01/04 – 10/31/05) with 12 months before (11/01/03 – 10/31/04).
Source: RMLS, October 2005.
Portland Reigns
I recently hosted a client from San Diego looking to move north to Portland and take advantage of Portland’s affordable housing. After 4 days of driving through a relentless Oregon drip-fest, I felt that even if we did find the perfect house for his family, the oppressive gray drizzle might convince him otherwise.
Ever the apologist for PDX, I rationalized the weather with comments like, “It’s not usually this wet.” and “We have a few days like this every year, but by and large, it’s pretty mild.” Then later, while looking at the growing green moss-slick on my driveway, I got to thinking about Portland’s rainfall versus other major cities.
So, here are the facts*: With an average of 37 inches per year, PDX ranks right in the middle of annual rainfall as measured at the country’s major weather reporting stations. In fact, Portland’s annual rain totals are comparable to cities like New York, Philadelphia, Pittsburgh, Chicago, St. Louis, Kansas City, Seattle, and far less than many towns in Florida and throughout the much of the South.
The perceptive reader would ask, “Ah, but how often does it rain?” Admittedly, Portland does not fare so well here. With 283 major weather stations reporting, Portland ranks as the 30th most rainy climate with an average of 153 days per year with at least 0.01 inches of precipitation per day. These numbers are comparable to the Rust Belt and the upper MidWest. The Southern cities don’t start to make an appearance until around 120 days per year. LA is down around 35 days per year.
Alright, alright. So Portland gets a trace (or more) of rain 42% of days throughout the year. “At least there’s no shortage of green here,” I say to myself as I power-wash the moss off my sidewalk.
* Statistics from the National Oceanic and Atmospheric Administration, average of 30-year tracking data.
October 2005 Market Activity
Good news for the potential homebuyer in Portland and surrounding communities. As of October 31, available home inventory (6,308) was on the rise, reaching the highest level since February. At the current rate of home sales, the current inventory would last 2.2 months.
However, the pace is still brisk. New listings (+13.9%), accepted offers (+5.7%), and closed sales are all up (+5.8%) over this time last year. The year-to-date average days on the market is still just 43 days.
The average home price in PDX over the last 12 months was $276,700–up from the $242,000 average for the twelve months prior.
The moral of the story is that buyers are gaining a little leverage, but there’s no real estate bubble in Portland just yet.
Source: RMLS, October 2005
FHA Loan Amounts Increase In Portland
First-time buyers recently got a boost as FHA lending limits were raised to keep pace with Portland-area house prices.
FHA financing is one of the most popular first-time homebuyer loan programs. The Federal Housing Administration (a department of the U.S. Department of Housing and Urban Development) was established in 1934 to encourage home ownership. FHA creates favorable qualification standards for first-time buyers by insuring the loans offered through private lenders, thereby reducing the lender’s risks.
Benefits of FHA loans to buyers include low down payments (as low as 3%), low closing costs, and easier credit qualifying.
As of October, the maximum mortgage limit was raised from $243,200 to $284,600, a 17% increase over last year. Homes within Multnomah, Clackamas, Washington, Yamhill, and Columbia counties qualify for the higher loan amount.
How does it all break down? Consider a 30-year, 6.0% FHA loan for a $293,400 home.* A 3% down payment equals $8,802, leaving $284,600 (the FHA max) to be financed. Monthly principal and interest will run $1,706. That kind of payment can buy you a home priced above the average in all markets except Lake Oswego, West Linn, and northwest Washington County.
* Talk to a qualified loan officer for your specific case.
The Importance of Being Earnest
One of the first discussions I have with first-time homebuyers is the Earnest Money talk. Many potential buyers are familiar with the concept of the down payment, but are caught a little off-guard with the prospect of having to write a check to accompany their offer and have those funds imminently available.
First a definition. Earnest money is a good-faith deposit given to the seller at the time a sale contract is signed. In fact, the sale agreement is often referred to as the Earnest Money Agreement, and in Oregon, the standard real estate contract spells out the conditions of how the earnest money will be handled between the buyer and seller.
The money does not go directly to the seller (in most standard transactions). Upon mutual acceptance of the offer, the money is deposited into a client trust account or more typically in an escrow account. The money cannot be released to the seller or back to the buyer unless the escrow agent receives instructions from both parties that the transaction has either concluded successfully or has mutually terminated.
To protect their earnest money deposit, it is important that buyers act decisively and conduct their due diligence within the timeframes expressed in the sale contract. This means getting formal loan application completed, if needed. It means getting the home inspection done and negotiating any repairs. It means reviewing the preliminary title report for any red flags. It means ensuring that any needed information is quickly delivered to the lender to keep the closing date on track. A good real estate broker will communicate the timeframes and educate buyers about their options with respect to protecting their earnest money.
Earnest money also serves as ‘liquidated damages’ in the event that the buyer does not perform to the specifications of the sale contract. For example, if at the eleventh hour, after all timelines for home inspection, title report inspection, etc. have passed, the buyer has a change of heart and simply wants to withdraw from the contract, the seller may be entitled to keep the earnest money as compensation (or liquidated damages) for having taken the property off the market for a period of time.
While there is no set amount or percentage of earnest money required, a good practice is at least 1% of the sales price, sometimes more when the property is a hot commodity and you want to make a good impression. However, sellers may test your commitment by asking for additional earnest money as part of a counteroffer.
Mortgage Tax Deductions Under Fire?
Every April, we’re reminded of another benefit of home ownership: tax deductions for mortgage interest and property taxes. Well, according to the President’s tax advisory panel, those perks could be at risk for reform in efforts to simplify the tax code.
Along with other measures, the panel last Tuesday recommended a significant trimming of the mortgage deduction and the outright elimination of state and local tax deductions. The potential effect: a loss of a nearly $75 billion subsidy for homeowners. The panel’s rationalization is that the real estate deductions aren’t necessarily encouraging home ownership, and that they favor more affluent citizens and pull investment dollars out of other areas of the economy.
Because the loss of tax deductions would affect most monthly budgets and reduce buying power, most observers agree that home prices would likely be pulled down, by up to as much as 20% in some markets and particularly for expensive homes.
The recommendations fly in the face of President Bush’s request to the panel to maintain support for home ownership, and seem unlikely to make it through Congress. And as you would expect, anyone associated with the building or real estate industry is waving big red flags. But many economists validate the long-term impact of the recommendations. It’s an interesting debate and the New York Times has an informative article covering it.
