4 Ways Buyers Can Mess Up a Loan Approval

This happens all the time.  Home buyers have gotten approved for a mortgage and now they’re just waiting to make it to the closing table.

It is just a waiting game.  Don’t throw your loan approval into jeopardy by making one of these common mistakes:

1. Making a big purchase: Avoid making major purchases, like buying a new car or furniture, until after they close on the home. Big purchases could change the buyer’s debt-to-income ratio that the lender used to approve the buyer’s home loan and could throw the approval into jeopardy.
2. Opening new credit: Now isn’t the time to open up any new credit cards. Don’t do it!
3. Missing any payments: You need to be extra vigilant about paying all their bills on time, even if they’re disputing one.
4. Cashing out: Avoid any transfers of large sums of money between your bank accounts or making any undocumented deposits — both of which could send up “red flags” to your lender.

Step Outside The Box When You Remodel This Room!

One of the most dreaded chores around the house is laundry. Maybe that’s why when selling a house, the laundry room is one of the most forgotten areas to get in shape. The machines are often dusty, with detergent dripping down the sides and lint and old socks on the floor. Yuck!

Yet it’s an area that doesn’t take too much time to clean and can really make a difference when showing your house to prospective buyers.

The easiest way to make a statement with a laundry room is by adding more energy-efficient washing machines and dryers. Recent statistics by the U.S. Department of Energy show that installing machines with the ENERGY STAR label will decrease water costs by up to 50 percent. There are also machines that automatically adjust the water temperature and the amount of water used for each load to prevent excess and waste.

Many new models are available with designer colors, pedestals and sleek designs, which can make a bold statement. When purchasing a new washer, you’re also going to need to choose between a front- or top-loading machine.

While a top-loading machine requires enough water to cover all the clothes in its drum, a front-loading washer needs only a third of that amount because its drum is set horizontally in the machine. It requires less water and allows for larger loads, and it looks great.

On the downside, a front-loading washer is more expensive and can develop mold because it doesn’t empty dirty water as efficiently as a top-loading machine.

When it comes to dryers, new sensor technology is the rage. Dryers with moisture sensors recognize when laundry is dry more quickly than traditional machines and shut down sooner. This saves energy, cash and wear and tear on your clothing.

The use of steam washers and dryers for greater energy and water efficiency is also a growing trend. Steam machines offer enhanced clothing-care options such as short, steam-only cycles that help to reduce wrinkles and remove odors from clothing without using water and detergent.

Laundry rooms used to be relegated to the basement, but today moany of our clients are finding space for washers and dryers in more convenient areas of the house like the kitchen or upstairs, near bedrooms. Housing experts agree that installing a laundry nook will raise the value of a home, and make it more convenient as hauling baskets of clothing up and down flights of stairs become a thing of the past.

I say anything that improves the task of laundry is a good thing!

Are They Smarter Than Us?

People who are good with money are truly different from the rest of us. Know why? They use tax code to their advantage in ways the rest of don’t even know about or take the time to learn.

One example of this – they take the equity in their home, financed at a lower interest rate, then invest the it in tax-deferred accounts, according to a new study.

In other words, they are getting a tax break on both sides of the deal.  These investors deduct the mortgage interest on their tax returns and then sit back and watch their money grow tax-free.

The study found that taxpayers who itemize were more likely to have high mortgage debt and they also found that investing in a tax-sheltered retirement account was related to higher mortgage debt.

The results seem to indicate that the more sophisticated households are responding to government tax incentives by borrowing against their house and investing in their 401(k).

There’s nothing illegal here. The government has created this incentive.  It’s a wonder why even more people don’t take advantage of this this setup.

But is this a good idea to risk your home equity?

The downsides

In some ways, it’s not a good idea. For instance, the incentive — the mortgage interest deduction — that encourages homeowners to borrow against the value in their home results in this potential problem: It appears to encourage greater housing leverage and vulnerability to housing price shocks. Indeed, “there is increasing concern, especially in light of the recent housing crisis, that rising mortgage debt among older households is a prelude to foreclosure or financial distress during retirement.

Plus, you are more vulnerable to income shocks. If you lose your job at age 58 and you’ve got extensive mortgage debt and you’ve got all your money in sheltered accounts it might not be so easy to take your money early out of sheltered accounts to pay your mortgage every month.

What’s more, you could lose on both bets. The value of your house could decline along with the value o your 401(k), which is exactly what happened staring in 2006.  If you are in your late 50s, having an extensive proportion of your retirement savings invested in equities funds is the rational thing to do,” said Finke. “It just didn’t work out very well in 2008 and 2009.

Another potential downside is this: If tax law changes, especially the mortgage interest tax deduction, then you’ve got a little bit of risk there.

And finally, there’s the risk that you won’t invest the borrowed money in a sheltered account. Paying down one’s mortgage is an example of thrift and sound financial decision making.  And that’s essentially a behavioral argument That is saying that people are able to accumulate wealth passively by paying down their mortgage. And, if you encourage people to start pulling money out of their house they might then spend it on things that are not in their long-run best interest. So, you also have to consider when you pull money out of your house, are you really going to invest it in a sheltered account or are you the kind of person to buy an RV and deplete your wealth right before you need it the most in retirement.

The upsides

One positive, however, is this: When you look at your total portfolio, not just your financial assets, but the entire portfolio from which you plan to fund your retirement, you’ll find that taking on more mortgage debt changes your overall asset allocation in ways that might be beneficial.

As we age, we tend to accumulate home equity which is essentially increasing the bond share of our portfolios.  Borrowing against this home equity allows us to maintain our optimal portfolio balance of stocks and bond-like assets.

The home equity, Finke said, is not providing you the same kind of upside potential as an equity portfolio will.  What an economist would say is that you should have a rational allocation of your household wealth in bonds and equities. But what happens over time, with your home is that you are essentially investing more and more in a bond-like asset. And, so, by simply paying off your mortgage you’re investing more and more in a bond. And it may be rational for you, especially if you are in your 50s to be shifting some of the wealth into the stock market.

In practice

So what if you decide lever up your home and invest in retirement accounts?  Make sure you’re in a position to maintain your mortgage payments should you suffer an income shock. You’re exposing yourself to a certain amount of risk so you want to make sure you have enough in emergency funds to make your mortgage payment.

The present system encourages upper income households to increase their leverage and that could make them more vulnerable during a recession. If they lose their job, they may also lose their home.

Voters Strongly Value Homeownership

By an overwhelming margin, American voters, including those in Seattle, strongly value homeownership and believe tax incentives are appropriate and reasonable.

Three-fourths of voters who took part in a new nationwide survey affirmed their belief in homeownership, saying owning a home is the best long-term investment they can make.

Survey respondents also said they object to efforts to weaken or eliminate the mortgage interest deduction or diminish a federal role to help qualified home buyers obtain affordable 30-year mortgages.

“The American electorate is sending a clear message that owning a home remains a cornerstone of the American Dream and preserving a federal commitment to homeownership is essential to maintain a thriving middle class and get housing and the economy back on track,” said Neil Newhouse, a partner and co-founder of Public Opinion Strategies. His company conducted the survey in early January to gauge likely voters’ attitudes toward homeownership and housing policy issues.

The comprehensive survey of 1500 voters, conducted on behalf of the National Association of Home Builders by the Republican and Democratic polling firms of Public Opinion Strategies in Alexandria, Va., and Lake Research Partners in Washington, D.C., includes data from key political “swing areas.”

The poll shows that three out of four voters (both owners and renters) believe it is appropriate and reasonable for the federal government to provide tax incentives to promote homeownership. That sentiment cuts across regional and party lines, with 84 percent of Democrats, 71 percent of Republicans and 71 percent of Independents saying they agreed with the statement.

Two-thirds of respondents said the federal government should help home buyers to afford a long-term or 30-year, fixed-rate mortgage.

Nearly three fourths (73 percent) of voters oppose eliminating the mortgage interest deduction. These figures held firm across the political spectrum, with 77 percent of Republicans, 71 percent of Democrats and 71 percent of Independents against eliminating the mortgage interest deduction.

More than two-thirds of those polled (68 percent) would be less likely to vote for a congressional candidate who proposed to abolish the deduction, a figure that was virtually identical across all party affiliations (69 percent of Independents and 68 percent of Democrats and Republicans).

A majority of voters are also against proposals to reduce the mortgage interest deduction, eliminate the deduction for interest paid for a second home, limit the deduction for those earning more than $250,000 per year, scale back the deduction for home owners with mortgages above $500,000 and do away with the deduction for interest paid on home equity loans.

“With the 2012 election season in full swing, candidates running for the White House and Congress would be wise to heed the will of the American voters, who have expressed broad support for government policies that encourage homeownership and oppose efforts to make it more difficult to get a home loan and to tamper with the mortgage interest deduction,” said Celinda Lake, president of Lake Research Partners.

Among the poll’s other key findings:

• An overwhelming number — 96 percent — of home owners are happy with their decision to own and 84 percent who are “underwater,” or owe more on their mortgages than their home is worth, expressed the same sentiment.
• 79 percent of home owners would advise a family member or close friend just starting out to buy a home, and 69 percent of those who are underwater on their mortgage would offer the same advice.
• 74 percent said that despite the ups and downs in the housing market, owning a home is the best long-term investment they can make.
• Homeownership and a retirement savings program are considered by voters to be their best long-term investments.
• 78 percent of respondents said that owning their own home is very important to them.
• Nearly seven out of 10 voters who are not currently home owners (68 percent) said it was a goal of theirs to buy a home.
• Job uncertainty and saving for a downpayment and closing costs are the biggest barriers to buying a home.

The survey findings are consistent with the results of other public opinion surveys. In a New York Times/CBS News poll conducted in June, 89 percent said that homeownership is an important part of the American Dream and more than 90 percent indicated that it is important for the federal government to continue the mortgage interest deduction.

According to a Pew Research Study conducted last March, 81 percent of respondents agree that buying a home is the best long-term investment a person can make and 81 percent of renters surveyed said they would like to buy a house.

“Even in a down housing market, homeownership remains a core American value, with the vast majority of citizens who do not currently own a home saying they want to buy a home,” said Bob Nielsen, president of the National Association of Home Builders and a home builder from Reno, Nevada. “Those running for office in November need to understand that voters will not look kindly on any candidates who seek to dismantle the nation’s long-term commitment to homeownership.”

Homes designed to produce as much energy as they use

How about your home paying you!  How cool would that be.  We been watching news and developments about homes designed to produce as much energy as they use — one of which is a stylish modern prefab to benefit Brad Pitt’s charity.

Since actor Pitt founded the non-profit Make It Right in 2007 to build low-cost, sustainable homes for New Orleans’ Hurricane Katrina victims, green building has exploded nationwide. On Friday, two builders are announcing plans to offer affordable homes designed to produce as much energy as they use — one of which is a stylish modern prefab to benefit Pitt’s charity.

California-based LivingHomes, a developer of high-end, ultra-green, factory-built homes, is debuting its lowest-cost model ever — the C6 — that will be available in most states. The 1,232 square-foot. $179,000 prefab, which is about half the size of the average new U.S. home, has three bedrooms and two baths as well as a courtyard that blends indoor and outdoor living. Part of the proceeds from each home’s sale will be donated to Make It Right.

“This is by far the most energy-efficient home we’ve built,” says LivingHomes’ CEO Steve Glenn, noting it’s designed to earn the top or platinum rating from the U.S. Green Building Council. He says it’s also the easiest and fastest one to build, since it’s fully constructed by Cavco — a manufactured housing company with factories nationwide — in less than two months and installed on-site in one day.

Also late this week, Scottsdale-based Shea Homes, the developer of Trilogy resort communities and a builder in eight states, is announcing the launch of its “no-electric bill” home aimed at the age 55-plus, Baby Boomer set. The “SheaXero” will combine energy efficiency with solar panels to produce all the power the house is expected to need.

FOLLOW:  Green House on Twitt

Other production builders have also debuted affordable, zero-energy homes as green building appears to be gaining market share in a still sluggish housing industry. Green homes, which comprised 17% of new residential construction last year, are expected to increase to 29% to 38% of the market by 2016, according to a report last week by McGraw-Hill Construction, a part of The McGraw-Hill Companies.

By value, the McGraw Hill report said this growth equates to a five-fold increase — $17 billion in 2011 to $87-$114 billion in 2016. It attributes the hike to consumers’ interest in “higher quality” and lower utility bills as well as the decreasing costs of building green — down from an extra 11% in 2006 to 7% today.

At LivingHomes, Steve Glenn says the new C6 is “less than half the costs of our lowest cost home.” He says his company has learned from its own experience and from its partnerships with both Cavco and Make It Right on how to get the most bang for the buck.

The model’s average price of $179,000 does not include the solar panels needed to make the homes zero-energy nor does it include the costs of transportation, assembly, permitting and site preparation. Those items could add another $50,000. Land is also not included.

Glenn says the homes are not only energy-efficient but also sustainable because they use Cradle-to-Cradle inspired products such as cork flooring and natural wood millwork.

“Many of the products are available at The Home Depot,” Glenn said, citing their affordability and accessibility should replacements be needed.

The C6 was inspired by the modern homes built by developer Joe Eichler throughout California in the 1950s and 1960s that were organized around a courtyard accessed through multiple sliding glass doors. It has floor-to-ceiling glass, clerestory windows, light tubes and transom windows, as well as a lighting control system accessible from an iPhone.

Glenn says there are much cheaper prefab homes available, but they’re not nearly as stylish.

“We’re targeting people who really value design and sustainability,” Glenn says, adding his customers are likely to shop at Whole Foods, drive a Toyota Prius and practice yoga.

I’d love your comments on this.  Feel free to chime in.

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The Ultimate Aphrodisiac? What a Third of Women and 18% of Men Say is a Big Turn On!

Is this true?  Is this true about Seattle?  When it comes to dating, homeownership can be the ultimate aphrodisiac.

In a survey of 1,000 single people, more than a third of women and 18% of men said they would much rather date a homeowner than a renter.

Only 2% of women said they preferred to date a man who rents, while only 3% of men said they would choose a woman who rents over one that owns her home, according to the survey, which was conducted by Harris Interactive for real estate site Trulia.

Both sexes also clearly prefer it when there’s no roommate in the picture; 62% of survey respondents, men and women, prefer to date singles who live alone.

How do you feel about it?  I know for myself, a woman that chooses to have a man in her life vs. “needs” a man is wonderful.  Many of you know that one thing I found exciting about Robin was the fact she was investing in single family properties . . . as a single mother of three!  She had more guts than I did.  And she was doing well at it.

I’d love your thoughts on this.

Housing market “healing itself,” numbers are “astoundingly good”

Pending sales may not appear to be much higher than 2011 (up 13.7 percent in January), but the numbers are very good, considering such factors as harsh weather and the tax credits that boosted sales at this time a year ago.

The latest figures from Northwest Multiple Listing Service show pending sales in January outgained the same month a year ago by 739 transactions. Brokers reported 6,132 mutually accepted offers in January to start the year with a 13.7 increase over the January 2011 figure of 5,393 pending sales.

Given that we lost a week with some of the worst weather in 16 years, the numbers are astoundingly good.  This is the first January in four that we can make a reasonable year-over-year comparison.  The numbers are no longer skewed by the artificial stimulus of various tax credits and incentives that date to 2009.  The improvement in the numbers show that the market is healing itself and standing on its own.

Declining inventory, extremely low interest rates, and positive job growth are contributing to rising optimism among industry professionals, but Northwest MLS directors say distressed properties continue to be a drag on the market’s recovery.

Inventory is down almost 20 percent from a year ago. Brokers added 6,666 new listings to inventory during January, with single family homes making up about 85 percent of those additions. At month end, MLS members reported 26,226 total active listings; a year ago, there were 32,647 active listings.

Despite the smaller selection, the price choices overall are wide ranging, from a low of $13,000 for a manufactured home in Sultan to an asking price of $26.8 million for a waterfront home on Mercer Island.

Snohomish County reported the sharpest drop in inventory, with the selection at about two-thirds of the year-ago levels (a decline of 32.6 percent). Several of the 29 MLS map areas within King County also reported declines of 30 percent or more in the total number of active listings.

The ongoing reduction of available inventory is still impacting the market.

The lower number of new listings coming on the market is due to a combination of factors, said J. Lennox Scott, CEO and chairman of John L. Scott Real Estate.  Among them are underwater sellers (who owe more on their homes than the current value), sellers with equity holding off for higher prices, and the lack of new construction/condominiums. The low number of new listings combined with the increase in sales activity is creating the shortage of homes for sale in specific areas and price ranges,” Scott reported.

Northwest MLS reported 3,469 closed sales last month, up nearly 8.2 percent from a year ago when members reported 3,207 completed transactions.

“A sellers’ market has returned in the areas close to the job centers of Seattle and Bellevue, up to the one million dollar price point,” Scott noted, adding, “We are also seeing the same situation in the more affordable price ranges in the surrounding market areas, caused by a shortage of inventory and healthy-to-strong sales activity.”

Echoing that sentiment was Northwest MLS director Frank Wilson, who said, “Inventory in many price points and locations is dropping and what buyers are finding are overpriced or under staged homes.” Wilson, the branch managing broker at John L. Scott Real Estate in Poulsbo, also foresees upward pressure on prices as choices become narrower.

For now, however, prices are showing mixed signs –stabilizing in some areas while declining or increasing in other areas.

The median price for last month’s closed sales of single family homes and condominiums (combined) was $214,990, down about 11.7 percent from a year ago when the median selling price was $243,500. The price changes ranged from year-over-year increases reported in five counties (Ferry, Grant, Kittitas, Mason, and Pacific) to declines of up to 40 percent (in Clallam and Grays Harbor counties).

“Price increases are muted by short sales and foreclosures that are causing low appraisal values,” observed Scott.

MLS directors Jacobi and Wilson agreed.

“We are simultaneously seeing the continued rise in pending and closed sales,” Jacobi stated. “Usually pent up demand and rising sales means that prices will be going up. But, unfortunately, that isn’t the case thanks to the high level of distressed properties that continue to drag down the entire market,” he explained.

“What is tempering our real estate recovery in Kitsap and much of Puget Sound are the short sales and REO properties that are on the market and the way the banks are dealing with their sales process,” said Wilson, while pointing to several encouraging signs.

All the pieces are in place for a more normal market in much of Kitsap, Wilson said. “With pending sales up 17 percent in Kitsap, buyers are taking advantage of the values this market is offering and the extremely low interest rates. If this trend continues we should begin seeing price appreciation as we progress into the year,” he remarked.

Improving numbers show the artificial stimulus of the tax credits was not the key to the recovering market, suggested Anderson. “Instead, today’s affordability has buyers in all price segments returning – and feeling more confident about the future.”

Northwest MLS director Darin Stenvers believes “the perfect storm is brewing.” He said the pent-up need for homes in good condition is creating shorter market times and sales close to the original asking price. “It is a great time for sellers who have been waiting,” said Stenvers, the office managing broker at John L. Scott Real Estate in Bellingham.

“The market is almost done with the needed correction,” Stenvers stated, adding, “Distressed homes and REOs are not going away fast but have slowed and should soon level off.” He also foresees a loosening of overly restrictive lending guidelines.

Reflecting on a real estate career that dates to 1990, Wilson said, “I remember at the height of the market people would say ‘I wish I would have bought some waterfront back in 2001…or I wish I would have picked up a couple of rentals a few years ago’.”  For these people, “the clock has been rolled back and you now have an opportunity to purchase real estate near the bottom of the market,” he suggested.

Northwest Multiple Listing Service, owned by its member real estate firms, is the largest full-service MLS in the Northwest. Its membership includes more than 22,000 real estate brokers. The organization, based in Kirkland, Wash., currently serves 21 counties in Washington state.

Top 10 Cities: Green Living, Health, Air Quality and Other Stuff!

Top 10 Overall:

• San Francisco
• Washington, D.C.
• Seattle
• Boston
• New York City
• Minneapolis
• Denver
• Portland, Ore
• Los Angeles
• Chicago

These cities earned the highest combined scores. In order to earn a spot on this list, cities had to rank highly on positive lists (such as “best public transit”) and rank low or not at all on negative lists (such as “worst allergies”).

Top 10 Most Frequent List Appearances

• New York
• San Francisco
• Washington, D.C.
• Seattle
• Boston
• Minneapolis
• Denve
• Los Angeles
• Chicago
• Miami

These cities showed up most frequently on the lists featured in Scientific American’s top 10 cities lists for the past four days (green living, health, air quality, technology). New York City, the overall winner, appeared on more than 60 percent of all the collected lists, whereas the cities that tied for second earned spots on almost half the lists; the third-place cities showed up in the rankings about 30 percent of the time.

Not all of the lists on which these overall scores are based were created using conventional statistical or scientific methods, therefore their validity should be suspect. We have presented this information mainly for discussion. Scientific American gathered the lists from several online sources. To earn a place on the “overall performance” list, cities had to appear on multiple lists, and earned points based on their rankings. Each city’s points were added up to arrive at the overall score. A high rank on a positive list such as “best public transit” earned a city points whereas a spot on a negative list such as “worst allergies” detracted points. Each city’s points added up to its overall score.

What do you think?  I can speak for a couple of these cities.  How about you?  I’d love your comments.

Single Moms – Where Is The Best Place To Live?

I recently saw report with a list of the metros across the country that are thought to be the best places for single moms to live.

They looked at different aspects of a city that might make it more attractive for a single mother to raise a family and came up with this list of five metrics, and the following top 10 list:

1. Women’s Income 2. Housing Affordability 3. Crime 4. Education Spending 5. Walk Score

What do you think?  How does Seattle rank on those metrics?  I’d love your thoughts!

Why Sellers Sold and Buyers Bought in 2011

Study results show a shifting seller demographic

The 2011 National Association of Realtors® Profile of Home Buyers and Sellers recently surveyed 5,708 home buyers and sellers and reports that buyers are now more mature, higher income, often married couples as lending tightened this year in the down economy, which means those that were selling their homes also shifted this year.

Home sellers in 2011 are also older, richer and almost exclusively white, according to the trade association report.

Home sellers’ situations

Most repeat buyers (68 percent) report that their home selling situation is that they had already sold their previous home with 13 percent saying they don’t intend on selling their previous home, rather keeping it, and 7 percent say they have a home that has not sold and is currently vacant, with the remaining 7 percent saying they have a home that has not sold and are renting it to others.

Two in three recent home sellers are selling a home for the first time, a large portion of the home seller demographic in America.

Sellers with unsold homes are more concentrated in the South and the volume of unsold homes in the South that are being rented out are larger than the volume of vacant and sold homes. In the Northeast, more homes are sold than are vacant or rented to others and in rural areas in all regions, there are more vacant homes than homes that are rented or homes sold.

Homes sold vs. homes purchased

Fully 66 percent of home sellers remain in the same state when they purchase their next home while 21 percent move to a different region with 14 percent moving to a different state within the same region.

The most frequent type of home sold in 2011 was a detached single-family home (79 percent) and the second most frequent type is townhomes or rowhouses.

The typical home sold in 2011 was a three bedroom, two bathroom house. Nearly half of all recent sellers purchased a home larger than the home they just sold, 31 percent bought a home roughly the same size and 23 percent downsized. Buying a larger home is most common in buyers under age 54 while buyers 55 to 64 bought homes the same size and those age 65 and older most frequently downsized.

Roughly half of all sellers purchased a home more expensive than what they just sold, one in four bought a home in the same price range and the remaining one in four bought a less expensive home. Buyers under 54 typically bought a more expensive home while buyers over 65 bought a less expensive home.

Home sellers typically bought a newer home than what they recently sold (60 percent) while 20 percent bought an older home and the remaining 20 percent purchased a home around the same age.

Why did sellers sell in 2011?

The top reason cited for selling a home were job relocation, and the home being too small, followed closely by wanting to be closer to friends and family, a neighborhood that has become less desirable, and change in family situation (divorce, etc.).

The motivation to sell varies widely by age with buyers under 44 citing the need for a larger home while sellers over 55 are most likely to move to be closer to friends and family. Sellers aged 45 to 54 are most likely to move for a job relocation or because the neighborhood has become less desirable.

The takeaway

Every two in three homes sold in 2011 were first time sellers and many sellers are renting out their homes as they didn’t sell, especially in the South. Most people don’t move far away and the majority of all sales in 2011 were detached single-family three bedroom, two bathroom homes. The reasons for selling varied wildly depending on age with job, friends and family and a neighborhood becoming less desirable as the top reasons across the board.

Brokerages that are aware of the national shifts in who is selling will likely change the direction of their marketing and communications plans for 2012.