2 Housing Market in Sacramento

The housing market across the country is seemingly turning around. Is the Sacramento housing market on trend along with the rest of the country? Yes it is. The number of people buying homes and selling homes is increasing throughout Sacramento.

The Market

This year has brought back new life to the Sacramento housing market. In general, the market has seen a staggering increase of 8% in home prices and it is expected to continue to rise over the next several months. This is well above average in many national regions. Even though the prices have increased, they are still half of asking prices before the housing crash. This is great news for any of you looking to buy or sell.

For those of you looking to buy, housing values are beginning to correct themselves, which will make the value of your house even greater in the coming years. You will no longer be entering into volatile market where uncertainty of one’s return has been incredibly risky for so many years now. A buyer will most likely benefit from selling at a higher price than they bought in the coming years. Sellers will also benefit. So many people were forced to take significant losses on their homes during the housing crisis forcing them into greater debt. Current homeowners looking to sell are far more likely to recoup their investment expenses, however it is unlikely they will make a tremendous profit. With that being said, some people are taking advantage of the rebound to make a profit.

The Trends

Sacramento has seen a surge in house flipping. These individuals are far different from the average individual looking to sell their home. House flippers seek out undervalued and underdeveloped properties to fix up and sell and a grossly inflated price to maximize the return on investment. Now that people are looking to buy houses again, flippers are taking advantage of the properties throughout the city which have been left unkempt whether it was through a foreclosure or individuals unable to afford the upkeep and maintenance on their homes. A house flipper will purchase the property at a very low price, fix up the interior and underlying problems, and quickly turn around and sell the house for tens of thousands of dollars more than they purchased the home.

Another trend, which began during the housing burst, is renting to own a home rather than purchasing the home outright from the beginning. Renting to own may not be for everyone, however it is ideal for a specific segment of potential homeowners. This option allows for people to secure a home now and pay for it later so to speak. The price is negotiated up front so that in a few years, when the agreement period is complete, even if the housing prices in the area have drastically increased, the originally agreed upon price is the selling price. This may seem like a dream come true, however it is important to note that during the rental period, the occupants must adhere to the terms of the contract perfectly or risk voiding the contract. Also, the renters will most likely have to make a deposit of 1% to 3% of the sale price and if they choose not to purchase the house or if they void the contract, the seller collects the money regardless.

The Sacramento housing market has improved and is fairing bettering than most cities in the US. The trends of house flipping and renting to own will continue to remain popular. As interest rates remain low and housing prices begin to correct themselves, the market will continue to flourish.

0 Mortgage Forecast for 2013

In 2013, the mortgage industry has the potential for change for lenders, brokers and consumers.

The Financial Services Authority (FSA) and the lenders and intermediaries in the mortgage market are closer to establishing a workable set of guidelines with an emphasis on affordability and solid underwriting standards.

Lenders, not brokers, under the proposed guidelines, assume the role of assessing whether a consumer qualifies for a home loan. Credit is issued only under the circumstance when a borrow demonstrates a strong probability of meeting payments without dependence on rising housing prices.

Future fluctuations in interest rate are also considered when determining affordability. Borrowers are discouraged to enter agreements where they assume low interest rates will exist infinitely.

Customers who undertake interest-only mortgages must prove credible resources to meet the repayment schedule as well, outside of considering potential rising property values.

The institution is also working on establishing guidelines for business owners who raise capital via home equity loans to fund their entrepreneurial ventures.

Chairman of the FSA, Lord Adair Turner, believes these measures ensure enhanced lending practices in the future when memories of the past crisis fade and the temptation to engage in more risky credit practices reappears.

The FSA encourages the implementation of these new guidelines for 2013, enabling them to be established prior to future growth in the economy.

Mortgage industry leaders like Paul Broadhead at the Building Societies Association believe these measures protect the consumer, while also giving lenders proper discretion in determining credit-worthy customers.

Others remain skeptical, like Charles Haresnape, managing director at Aldermore Residential Mortgages, who is concerned why intermediaries have been given a pass to determine affordability in giving counsel.

Grenville Turner, chief executive of Countrywide, favors the measures to clarify which party is responsible for determining affordability, but he thinks the timing of the new standards is questionable.

He fears that the current market climate inhibits 39 of 40 potential customers from qualifying for  mortgage loans. To prevent further market sluggishness, he argues lenders need to become more flexible in assessing affordability for new applicants notwithstanding a solution for the self-employed and current homeowners trapped in negative equity.

The timing aside, the FSA seeks ways to facilitate the process for consumers navigating the mortgage application process. To reduce a daunting abundance of information, the organization has streamlined its prescribed disclosure requirements for lending institutions. These entities are mandated to share 'key messages' with the potential customer at the appropriate time, instead of using the Initial Disclosure Document (IDD).

Independent firms, according to the new FSA guidelines, are no longer mandated to offer their customers a ‘fee only' option. They must disclose to consumers whether they are mining direct-only agreements. Should these intermediaries desire to propose a direct-only deal, the FSA wants to eliminate the mandate to disclose a Key Facts Illustration, thereby streamlining the process for the intermediary.

In addition, lending firms must consider whether rolling fees into a credit agreement is suitable. Should the customer desire this method, the lender must move forward with the loan in this matter.

For non deposit taking institutions, the FSA seeks to implement capital requirements for these types of lenders. Non-bank institutions must abide by a more risk-based criteria, where the capital requirement is augmented. Subsequently, these firms will have to establish protocols and controls to manage their liquidity risk judiciously.

The FSA seeks to streamline processes for niche markets in lending as well, thereby galvanizing the entire industry. Under consideration are equity release products like lifetime mortgages and home reversion plans, high net worth lending, sale and rent back, home purchase loans, business lending and bridging finance. The FSA desires to establish clear guidelines for the niche markets as it does in the conventional mortgage arena, ultimately providing a consistent, straight criteria for its affordability standards, income requirements and other pertinent factors in determining credit worthiness.

4 Doctor Mortgage Loan

After the housing bubble burst, securing a mortgage loan became a difficult task. Many people no longer qualify for the mortgage loans they desire without putting money down or offering proof of adequate income. In recent years, however, some banks have begun to tap into a new corner of the mortgage loan market: doctors. With several thousand doctors graduating from medical school and residency each year, banks have begun looking to this section of the population for offering mortgage loans.

Doctors begin with lofty debts, no income, and nothing to offer for a down payment. However, with the high future potential of their earnings and a very low risk of default as compared with the general population, doctors have become a notable resource for banks to do business with. Despite the lack of income when doctors begin practicing medicine, banks realize that the future potential of doctors' earnings represents not only opportunities for mortgage loans, but also for doctors doing other business with banks in the future, such as investing.

A doctor's loan is made to new resident doctors or doctors a few years out of residency, although such loans may be made to specialized doctors, dentists, and veterinarians as well. The loan typically requires very little money down since new doctors have little money to spare, and the doctor's potential future earnings are considered when the loan is made. Additionally, the doctor's student loans are not calculated into the loan-to-income ratio. In exchange for not needing a down payment for the loan, the interest rate tends to be higher than that of a typical loan.

The loans are typically tailored for use in purchasing single occupant homes, such as garden homes or town homes. As part of the deal, the doctor often must open an account at the bank, as the bank hopes for the doctor's continued business and referrals in the future.

Well known banks, such as Bank of America, Regions Bank, Compass Bank, and Suntrust Bank are among the increasing number of banks to offer special loans for doctors, and the loans are available in many of the fifty states. Banks that offer doctor loans do not always advertise these services, so it is advised to check with each bank to make sure whether or not this type of loan is available.

For doctors considering these special loans, there are many aspects of mortgages and home-ownership to consider. A doctor in residency will not make as much as a doctor who is established and practicing. Therefore, a higher interest loan may not be in a new doctor's best interest. As a doctor's income rises over the years, the prospect of staying in small beginner's home may not be very appealing. Homes require maintenance, which will cost time and money that a new doctor may not have. Taking out a doctor loan bigger than one needs and then investing the difference could also yield some financial benefit.

An alternative to a doctor loan is to save up for a down-payment of twenty percent or so and then taking out a normal loan so as not to incur higher interest. Renting a home or an apartment is another alternative. A doctor loan is best for doctors who are serious about home ownership or doctors who are most likely to stay in the area, especially after their residency is finished. 

0 Using Your Bank as a Mortgage Lender

A mortgage is probably the biggest financial agreement you will ever enter into. For that reason, it is understandable to be concerned with who you end up receiving that massive loan from – not the least because it is, by definition, secured by the building you and your family call home. One major decision budding homeowners face is whether to go with their own bank for their mortgage, or contact a specialty mortgage company who makes home loans the bulk of their business.

Mortgage brokers can be best compared to a local independent insurance agent, or even a supermarket. They maintain relationships with a pool of lenders and usually offer several different “brands” of mortgage with small, but notable, differences.

There are two main benefits of choosing a mortgage broker over a bank: first, because of the range of mortgages they offer and the increased number of lenders they do business with, they can usually find a solution for borrowers with substandard credit or who otherwise find it difficult to borrow. They also have a greater range of options for unusual properties that a standard bank may not choose to deal with. Second, this freedom of lending and the fact that mortgages are their sole focus means that they are often faster to process paperwork, speed up closing times, and can work on your behalf to find the best interest rate available to you.

This service absolutely does come with a cost. Brokers are middlemen by definition, and so will have larger closing fees than going to a lender (such as your personal bank) directly. The brokers are also compensated by the lenders for making the deal. In addition, any given mortgage broker will probably work with a customer once and only once. This leaves no space for relationship building that may otherwise have had a positive impact on the loan and interest rates.

This contrasts strongly with banks. Often, by the time you are seeking a mortgage, you have been with your personal bank for at least a few years, giving them an insight into your cash flows and how you seem to handle money. This is increased even more if you maintain checking, savings, and credit accounts all within that same bank, or have taken advantage of other financing and investing products offered.

If you are responsible with your money, that relationship can make the bank more comfortable giving you improved an improved interest rate on the mortgage. If you have a history of doing extra business with the bank like purchasing CD rates and other instruments, for example, they may give you a break in hopes that you remain a faithful bank customer.

Both mortgage brokers and banks almost always end up selling mortgage loans on the secondary market. For that reason, the language in almost every mortgage is standardized. Notably, this erodes a concern some might have with a mortgage broker leaving the picture as soon as the deal is done: in the end, the borrower works with a lender who has sold the loan no matter what.

The primary difference between any two mortgage contracts will be the interest rate. Considering the size of most mortgage loans, even a tiny difference in the interest rate can reflect a substantial amount of money over the life of the mortgage. For that reason, it should be the number one concern when shopping around for a servicer no matter what.

Rarely, you may find a bank that offers what are known as “portfolio mortgages,” which means they will not be packaged with similar loans and sold off as an investable security. In this scenario, the bank may end up being a better option because they do not have to worry about the marketability of your mortgage loan on the secondary market. A prime example is a borrower just out of college with substantial student loans: the secondary market sees a borrower with a huge amount of debt other than the mortgage, whereas a bank holding the loan for themselves might be more willing to look at the greater picture of financial responsibility the borrower presents.

In the end, the interest rate should still be the driving force behind deciding on a servicer. Tight competition between mortgage brokers might mean you receive a better rate using one, but using a bank might let you take advantage of relationship building and history not considered as strongly with a broker. If the interest rates are identical, stick with a bank.