House financing, refinancing? Hidden fees..

Let's be technical here, just a bit, to understand better what is in a loan "rate".

A hidden fee is set to rise
The guarantee fee – a hidden fee inside the interest rate quoted on a home mortgage – has been mandated by Congress to increase this spring, and other increases are likely later to take place later this year and next.

A little bit of background on the subject:

The guarantee fee has been charged by government sponsored entities like Fannie Mae and Freddie Mac for more than three decades. The fee does not show up in borrowers’ mortgage documents or good-faith estimates, and it is little known outside the industry. According to a Fannie Mae spokesman, the fee “gets incorporated into the underlying rate the borrower pays.”

An interest rate is usually made of up 3 parts: The largest goes to the bank or the investors who buy the loan; the smaller portion is for the mortgage servicer that collects monthly payments; and then there’s the guarantee fee. Fannie and Freddie charge guarantee fees as a form of insurance against default for the loans they acquire and resell to investors.

The guarantee fee will rise 10 basis points on April 1; the increase was included in the two-month extension of the payroll tax reduction last December. A basis point is equal to one one-hundredth of 1 percent, or 0.01 percent.

One way to avoid the guarantee fee is to use a lender that does not sell off its loans – for instance, a community bank or a credit union.

In addition to offsetting risks, the fees provide a primary source of revenue for Fannie Mae and Freddie Mac. Both organizations started raising fee rates in 2008 during the housing crisis, as foreclosure costs rose.

Read the full story in this New York Times article.

Francis

Silicon Valley Real Estate

Local market trends

useful links

Current Mortgage rates

Inspections before sale of property...

Just like home buying must start with a pre-approval, home selling really should start with some inspections.

I have been involved recently in a transaction where no inspections had been done before putting the property on the market.  The result was difficult to watch as the transaction unfolded, as problems started to show up after I ordered a termite inspection and a property inspection for my client, the buyer.

First we discovered the almost "usual" termite problems, as the recommendation was to tent the house, but we were also faced with a description of the problems that entailed opening up an area to see exactly how much damage was occuring.  The termite company knew there were problems in that area, but had to remove the heating ducts in order to know exactly how much it would cost to correct the termite infestation.

Then with the property inspection we learned that the foundation needed significant repairs, which we had priced by a foundation specialist.

The problem with this is that the seller did not know about these problems, and most likely these repairs would have to be done in order to sell the house.  Buyers and sellers entered into a contract without the information.  Then there is a catch 22: you can cancel the transaction, but then you are still faced with the necessity to address the issues with another buyer, or you continue and you have to pay for the unexpected repairs.

These were not the only problems discovered by the inspections, and I felt very sorry for the very nice people selling this house, and for the lovely client I had buying it.  Both were somewhat shaken up by the process.

I made a mental note to keep in mind this story to illustrate the definite need for inspections done ahead of time, for my clients sellers.
When time comes to negotiate, you want to negotiate with as many known facts as possible, and avoid very costly unknowns.

Thanks for reading, let me know your own experiences...
Francis

Silicon Valley Real Estate

Local market trends

useful links

Current Mortgage rates

Refinancing: fixed rate, or ???

A fixed rate alternative


With interest rates at historically low levels, many borrowers are finding value with a reliable fixed-rate mortgage.
However, as clients often turn to me and ask me what they should do, I point out that borrowers who think they will be moving/ selling in the not-too-distant future have another alternative: an adjustable-rate mortgage that offers several years at a fixed interest rate.

Hybrid adjustable-rate mortgages, or ARMs, originated in the jumbo-loan marketplace at the end of the 1980s. They fell out of favor – along with the riskier ARMs that offered extremely low teaser rates and interest-only components – after the subprime mortgage market collapsed.

Some adjustable-rate mortgages have an interest rate that changed every year, but a hybrid – also known as a delayed first-adjustment ARM – has a fixed interest rate for a period of time. Most loan officers refer to a hybrid by the period during which the rate is fixed. A 5/1 loan, for example, has a fixed rate for five years, then adjusts annually for the remainder of the term; a 7/1 loan adjusts after seven years.

ARMs account for only a small segment of the overall mortgage nowadays, financing just slightly more than 10 percent of home purchases. However, market share for hybrid loans is expected to increase to 14 percent this year, according to an annual survey released last month by Freddie Mac. The 5/1 hybrid was the most popular adjustable-rate loan product in the market, according to the survey. The least popular was a 3/3 ARM, which adjusts once every three years.

A common reason for choosing a hybrid ARM is projected length of homeownership. It’s a nice option for buyers who don’t expect to stay in their home for longer than three to five years.

Rates on hybrid ARMs are also attractive. As of last week, the average rate on a 5/1 loan was 2.81 percent, compared with 3.88 percent for a 30-year fixed-rate loan, according to Freddie Mac.

Borrowers should be aware though that with rates starting at rock-bottom levels, there’s generally only one direction for them to go. And even though there are caps on the rate change amount, the jump could be as much as six percentage points, when it adjusts.

Here is an interesting article from the New York Times on the subject.  Food for thoughts....

Francis

Silicon Valley Real Estate

Local market trends

useful links

Current Mortgage rates

Real Estate and Politics...

Yes, Real Estate is very political, no way to avoid that.

Part of my yearly dues to be a member of the National Association of Realtors, and of the California Association of Realtors (not all agents are members, and it makes a big difference. Members in particular adhere to a code of ethics that is much more stringent), go towards political action aiming at protecting the rights of homeowners, and preventing unnecessary involvement into the real estate transaction, with unwanted fees and requirements.

As such, here is a little news from that front:

C.A.R. leadership meets with members of Congress

Next week, C.A.R.’s Leadership Team will be in Washington, D.C., meeting with members of California’s Congressional Delegation, Fannie Mae, Freddie Mac, FHFA, FHA, and other real estate industry groups. C.A.R. will be advocating on members’ behalf on housing policy issues such as
- protecting the mortgage interest deduction,
- improving short sales,
- reforming the mortgage finance system, and
- modifying the FHA condo rules to encourage more FHA certifications.
C.A.R. also will voice its concern with a proposal to sell large blocks of Fannie Mae- and Freddie Mac-owned foreclosed homes to large investors and ask the GSEs to increase the number of loans to small investors.

Francis

Silicon Valley Real Estate

Local market trends

useful links

Current Mortgage rates

A 3.8% tax on all real estate transactions?

Some of my clients have been asking me now about a "tax" that is supposed to be imposed on all real estate transactions soon, in order to pay for a (small) part of the health care reform law of 2 years ago.

I thought I would post this link to the National Association of Realtors web site article that clarifies this concern.  This is a very limited tax event, if and when it applies.

Francis

PS: I recently posted a link to the "Full Circle Farm Glean Team" in Sunnyvale, for those who have extra fruits to give away, extra fruits growing in your backyard.  A friend of mine pointed out to me that in Mountain View there is also the CSA where you can donate extra fruits in the same manner:
http://www.csacares.org/  Our Community Services Agency who says:
" Backyard Gardeners: Bring in homegrown produce to CSA "

Local zip codes ranking by wealth ...

How do the local zip codes rank by wealth, as compared with all zip codes nationwide??

Just for mere curiosity, here is a short list of most of the local ones, sorted out by median disposable income, in 2010:

Atherton - 94027 - ranks # 1

Los Altos - 94022  - ranks # 4 nationwide

Portola Valley - 94028 - ranks # 7

Saratoga - 95070 - ranks # 18

Los Altos - 94024 - ranks # 23

Los Gatos, 95030 - ranks # 43

San Jose - 95120 - ranks # 65

Palo Alto - 94301 - ranks # 138

Cupertino - 95014 - ranks # 194

Palo Alto - 94306 - ranks # 329

Sunnyvale - 94087 - ranks # 458

The complete list appeared in the December 2 issue of the Business Journal.

Francis

Silicon Valley Real Estate

Local market trends

useful links

Current Mortgage rates

What is considered a bedroom?

Little question, big answer... 

The question often comes up in real estate as to what is considered a bedroom.  In fact, sometimes the County records even have it wrong, and the answer lies in fact with local building codes, and health and safety requirements - which can usually be accessed at your City Hall's building department.

Without going into the details of exact dimensions, which of course make a big difference, we can say that the following characteristics have to be there, at the very least:

- there needs to be heat, and electricity

- natural light, and ventilation,

- a smoke (- and possibly a CO) detector,

- a sufficient way to exit directly to the outside of the house (door or window), also called ingress and egress --a little note here, think "firefighters".

- and a bedroom cannot have direct access  to a garage (either a window or a door) because of possible toxic fumes.

There are a few more requirements, like the size of the windows, spacing of the electrical outlets, a minimum of heat, but among all these criteria, believe it or not, a closet is not a must, although it is often considered such by real estate agents ...  A good source of info is always your local building department.
Have more input on the matter, or a story to share?  Feel free to chime in, I love stories...

Francis

Silicon Valley Real Estate

Local market trends

useful links

PS: worthy cause: have you considered donating your extra fruits this season (if you have fruit bearing trees)?
contact: FullCircleSunnyvale.org

Facebook and the Silicon Valley Market....

Everyone is speaking of the effect of the Facebook IPO on the real estate market around here.  This is an interesting article that I wanted to share:
Coldwell Banker "Table Talk".

I have already experienced in all my activity in Palo Alto a definite "tightness" of the market.  Several of the offers that I have placed recently met with many other offers, most of them very strong (like in: - cash! and very much over asking price).

Francis

Silicon Valley Real Estate

Local market trends

useful links

PS: worthy cause: have you considered donating your extra fruits this season (if you have fruit bearing trees)?
contact: FullCircleSunnyvale.org