REAL ESTATE - Carlini's Comments

REAL ESTATE STIMULUS: RE-FINANCING ISN'T FOR EVERYONE

Filed Thursday, April 9. 2009

If you have a credit score of 620 or less, you will not qualify for hardly anything.

Watching the hype and listening to the politicians isn’t the same as talking to your real mortgage broker when it comes to refinancing a mortgage. With all the money floating around to different banks, it would appear that money is easily available for refinancing and buying the next house.

Guess again.

What piece of the stimulus package are you thinking you’re going to get to help your financial situation? The only “stimulus package” you might qualify for in our recovery mode is to refinance your mortgage. If you can, you might think about taking advantage of it.

Check Your Credit

Is your credit score 620 or less? You should have figured that maxing out your credit cards and taking out some second mortgages to get that must-have BMW would catch up to you. It has.

In talking to a longtime source and mortgage banker (Larry Goldberg, who is branch manager at Home Savings of America in Huntley, Ill.), I was surprised to see what’s available to the people who have a house with the following background that I would think would be typical for the “average” borrower:

Pays the mortgage on time Is not overextended No second mortgage

Goldberg, who processes applications nationally, says some types of mortgages that you could have gotten a year or two ago are not even available today. He wasn’t too enthusiastic about any special program for the average mortgage holder. He also pointed out the fact that many who got into mortgages several years ago qualified because they were in a higher-paying job.

Plus, the requirements to qualify for a mortgage have really tightened up. He said the only people getting the “good rates you see advertised” are those who have a credit score of 740 or better.

Aside from credit scores, other underwriting factors can add on fees or push you up into higher rates for a mortgage. Depending on what state you live in, this will make a difference in what type of “risk-factor fee” is attached onto the upfront fees. As Illinois is in the middle for risk, its fee is not the highest.

What if you got a mortgage based on a salary of $90,000 and you’re now underemployed and only earning $45,000? It’s likely that you’re stuck in the mortgage that you negotiated several years ago because now you don’t qualify as your income is severely lower.

I know many people in that category. So much for the vast majority of people who didn’t overextend themselves and are trying to scrape by. There doesn’t seem to be a “help package” for anyone keeping up even though they could be stretched very thin and need relief.

Midnight Madness: Let’s Make a Deal

The real estate experts on TV after midnight are telling you how to buy foreclosures and how now is the time to buy properties with no money down to make all those killer super deals. That said, the reality is “cash is king”. Many foreclosures and those about to be foreclosed on have a “cash-only stipulation” tied on to them.

No bank is giving away a $600,000 house for $1,300. If you see that on TV, you must be watching the Fantasy Channel because no banker is named Monty Hall.

Maybe foreclosures were a hot commodity when there weren’t so many on the market, but now there are a lot more foreclosures than “qualified buyers”. Goldberg claimed that one out of every 10 houses are in foreclosure. There are also less "qualified buyers" out there.

What is a qualified buyer? You may think you are one but in today’s market. Guess again.

You Can Get Financing If…

You can get financing if your credit score is high. How high? Try 740 or more. That is a pretty high credit score and many people are not close. If you don’t have that good of a score, be prepared to pay points or extra fees on the loan. Some banks don’t even want to bother with you.

There are several key issues facing every borrower:

Personal situation (your job, capability to pay and credit score or ranking) Lack of products (no more borrowing over the value of the property) Cost of borrowing (what are all the associated fees and tack-on costs being added?)

You may have a job and make a decent salary, but if your credit rating sinks below 700, you will have a harder time getting a mortgage. You can if you want to pay points (i.e. 1 percent or more on the total value of the loan, which means a $200,000 mortgage with a point added costs an extra $2,000 in advance)

There are also formulas that have been put in place to provide more scrutiny as to the viability of you and your “deal”. The ratio of loan to value is also a checkpoint. Sure, 80 percent of the appraised value is fine, but don’t think you are going to easily get 100 percent or even 90 percent of the value of your owner-occupied house. With second homes, the limitations are even stiffer as to cashouts and refinancing.

Weak Real Estate Market?

The Chicago Tribune had a full-page article on the rise in mortgage foreclosures this past Sunday. Where have they been? Back in Dec. 2006, I focused on the rise in foreclosures in many if not all municipalities and warned that residential foreclosures were climbing rapidly:

Many people overbought and now the market is correcting itself. As the statistics show, other states have a lot of foreclosures. Illinois has its fair share as well and they are on the rise.

That column was followed up with several columns in 2007 and 2008 as the real estate market continued its downward plunge. This has been caused by the vortex of more people losing jobs with the end result of being less capable to pay off their current mortgage.

There are many clear indicators that say now is not the time to sell a house. Offers are weak and any serious buyer is looking for a fire-sale price. As for refinancing, there are some who are stuck with mortgages they can’t refinance due to their lack of income from lesser-paying jobs.

Beware of Florida and other states with seaside properties offering a “great deal that’s 50 percent off a prior value of $1 million” that must be a cash offer. Sure, they want to cash out with $495,000, but make sure you get it appraised. That great deal of 50 percent off might be very overpriced. What if the condo or townhouse gets appraised at $375,000?

Remember the basic economics of supply and demand. If you have one out of every 10 houses in default, finding a great deal is easy. Steer clear from the “this is the lowest price possible and won’t last” sales pitch. Remember that those were the same properties that were zooming 30 percent a year in the boom days. Now those prices have fallen down back to Earth.

Carlinism: Houses have gone from your largest single investment to something to just live in.