What QRM Means To EVERY Home buyer

QRM will affect every person who buy’s real estate, period.  This stands for Qualified Residential Mortgage.  Basically it is a set of criteria a loan must meet in order for Fannie or Freddie to purchase the loan.  What could this mean to you? Higher down payments and tougher pre-qual requirements. These are “proposed” changes so please keep that in mind. Many in the RE industry are fighting these changes but with the gov. trying to remove themselves from the mortgage business, it could come to fruition. 

Let’s dissect what this really means…

1)  A Product-Type qualified residential mortgage is a first-lien mortgage that is for an owner-occupant  with fully documented income, fully amortizing with a maturity that does not exceed 30 years and, in the case of adjustable rate-mortgages (ARMs), has an interest rate reset limit of 2 percent annually and a limit of 6 percent over the life of the loan.

2.)  A PTI/DTI qualified residential mortgage has a borrower’s ratio of monthly housing debt to monthly gross income that does not exceed 28 percent and a borrower’s total monthly debt to monthly gross income that does not exceed 36 percent.

3.)  An LTV ratio qualified residential mortgage must meet a minimum LTV ratio that varies according to the purpose for which the mortgage was originated. For home purchase mortgages the LTV ratio is 80 percent.

4.)  A FICO qualified residential mortgage has a borrower’s FICO score greater than or equal to 690 at the origination of the loan.

This is not to say that every mortgage will fall under these guidelines. Banks that decide not to sell their mortgages (conventional loans with 20% down) will not have all of this criteria, however, fees are likely to increase as a result. 

The most complete study I could find on this issue was JP Morgan’s 55 page report on Securitized Products. According to their research, in order to entice lending institutions to replace government lending, mortgage interest rates could increase 3%.

 “…in this new world of higher capital requirements, mortgage rates would need to rise by more than 300 basis points (3%) from current levels…”  

That’s assuming the banks would be looking for the same returns they normally receive. The report went on to say that perhaps the banks would be satisfied with a smaller return.

“This is not to say that the new capital requirements will necessarily drive interest rates 3% higher…the mortgage rate impact could be anywhere from 1% to 3% higher.”

Let’s assume the eventual increase in mortgage rate is 2% (the middle of that 1% – 3% window). What impact would that have on a purchaser? Today, interest rates are approximately 4.5%. A two percent increase would bring them to 6.5% which happens to be about where they were prior to government intervention. On a $200,000 mortgage, a buyer’s monthly mortgage payment (principle and interest) would go from $1,013.37/month to $1,264.14/month.

Food for thought. If you are on the fence, consider jumping off.

Seller's Who Don't Want To Sell

Every agent has met one; the seller that does not want to sell.  “What? Is that possible” you say? Are these people who are out to waste an agent’s time? NO! These are people who are not informed about the market. I want you to be informed so you are NOT one of those people. Here are the basic principles you need to understand in order to be a seller who wants to sell!

#1 - PRICE MUST BE COMPELLING                                                                           

Homes ARE selling! Existing sales reports in April 2011 (courtesy of NAR) showed that homes were selling at a rate of 5.10M or approx. 14k a day! That’s a great statistic, but for this discussion I want you to keep this in mind also; 25% of homes that list don’t sell. This is most often times b/c of price. Of that 14k homes a day, 40% were distressed properties and 60% were “normal” transactions. Like it or lump it, distressed properties affect you if they are in your area. Good news; the number of distressed properties on the market is decreasing. However, there are thousands of properties , non distressed, that sellers want to move. Price point is most often the first criteria agents consider when finding homes to show. Know you area, your competition (active homes and withdrawn listings) and your comparable sales. Price compellingly with that data in mind and you won’t be disappointed. REMEMBER, right now with interest rates as low as they are, you can make it up on the buying side…cost vs. price!

#2 – MAKE YOUR HOUSE SHINE LIKE NEW MONEY

It is not uncommon to show several homes in a day. Most of them identical in every way; a virtual sea of sameness, I like call it. It is hard to remember one from the other.  Translation = none of those houses are screaming “buy me”.  Set yours apart! CLEANLINESS is next to godliness, especially when you are selling your home! Even an older clean home will show better than a newer dirty home.  STAGE your home! As a courtesy to my listing clients, I have a professional stager come in and make suggestions. It makes a world of difference! CONSULT A REALTOR BEFORE YOU GO ON THE MARKET. You can save your self the heartache of making a costly improvement that will not affect the value of your home one bit. There are simple, inexpensive things you can do that will give you the bang for your buck you are looking for. Ask your realtor and then make your improvements.

#3 – DO NOT TURN DOWN SHOWINGS UNLESS YOU ARE DEAD OR DYING

Is it a pain in the butt to have your house “show ready” at all times or to leave at an hour’s notice?ABSOLUTELY! But you are selling and that is the name of the game! It is a buyer’s market and when you get a chance to show your home, you do it!  Often times agents stack appointments to see the most they can in one day. Many times buyer’s are on a timeline and they make decisions in a day’s time. If you turn down the showing, you are in essence giving the sale of your home to someone else.

Obviously there are many things to consider in selling, I just hit the high points here. Location, obviously, is key also in selling. Having said that, you have little control over where your house sits or what is around you. I wanted to focus today on what you can control.