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Below are questions sent in by visitors to our website. If you have a real estate question just send it to us and we'll try to find the answer.
Between January 1 and September 30, 11 homes marketed on the Multiple Listing Service sold at Brickyard Landing. Here are the models and prices of those sales:
Sales in 1200, 1201, 1300, & 1301
2 Bedroom “E” Plan – 3 sold. The prices were $615,000, $705,000, and $879,000
2 Bedroom “C” Plan – 1 sold for $675,000
2 Bedroom “B” Plan – 2 sold. The prices were $615,000 $675,000
1 Bedroom “A” Plan – 4 sold. The prices were $550,000, $565,000, $595,000, and $600,000
Sales in 1400
3 Bedroom – 1 sold for $825,000
If you recall the sales numbers from my Mid-Year Real Estate Wrap-Up, you will note that there was only 1 sale at Brickyard Landing during the entire third quarter. While that is not good news, it should not come as a surprise. All the economic and political issues that were causing a market shift 3 months ago are ongoing.
Adding to today’s financial uncertainty, the Federal Reserve continues to aggressively increase its rate. 30-year mortgage rates have more than doubled since January. Every time the interest rate increases, fewer buyers can qualify for loans. Consequently, local mortgage applications have dropped 90% over the past three months. In addition, many buyers believe the price of homes will decrease, so they choose to wait before committing to buy to see if prices go down. Here is a link to a video that does an excellent job explaining where the market is and where it’s headed. Make sure to turn on your sound before watching.
I’ve seen these market shifts before. I sold homes in Piedmont and Montclair in the 1980’s when interest rates hovered around 16%. I sold Brickyard condos in the early 1990’s as we lived through the fallout from the lawsuit against the developer. I sold homes after the 2008 real estate market crashed. And I am selling homes in today’s economic environment.
While it can be hard to adjust to the realities of a changing market, you need to remember that, even during these fluctuations, buyers and sellers continue to make deals. So if you are planning to enter the real estate market, how should you proceed?
If you want to buy, you will need help to find your best funding options. With my extensive financial background, I can explain the various loans being offered and help you choose the one that best serves your needs. This is a free service I have always offered to my buyers, as well as to my neighbors who may wish to refinance. Unlike many other Brokers, I am not affiliated with any lender and receive no compensation for this assistance, so you can rest assured that my advice is unbiased.
If you are planning to sell, it is vital that you work with a Broker who has experience and historic perspective specific to Brickyard Landing. The sale of our condos requires a very individualized marketing plan. The canned marketing packages offered by other Brokers does not serve to attract the largest number of buyers. Over decades of sales here, I have honed a market strategy that is so effective, other Brokers constantly contact me to ask to use my materials and to get tips on how to sell homes here.
Throughout decades of market fluctuations, I’ve provided my clients with honest advice based on careful research and years of experience. For 30 years I have enjoyed sharing this wonderful community with you as your neighbor. As your Broker, I’ve had the privilege of representing Brickyard Landing buyers and sellers.
Brickyard is not just where I focus my business; it’s also where I live. By preserving your home’s value, I am preserving mine as well. I have a personal, as well as a professional, stake in getting the best price for my sellers. And since my buyers are now my neighbors, I need to make sure they are happy with their purchases.
You can see my listings and sales information on my website. Brickyard Realty’s Facebook page will keep you updated on the Brickyard Landing Market.
As always, if you need additional information, or wish to discuss your confidential real estate needs, please contact me. And thank you for your continued trust and support.
Ida
Ida Abelson
Broker
Brickyard Realty
license #00817693
voice and text: (510) 672-0330
www.BrickyardRealty.com
There were 10 sales at Brickyard Landing in the first half of 2022. Here are the models and prices of those sales:
Sales in 1200, 1201, 1300, & 1301
2 Bedroom “E” Plan – 2 sold. The prices were $615,000 and $705,000
2 Bedroom “C” Plan – 1 sold for $675,000
2 Bedroom “B” Plan – 2 sold. The prices were $615,000 $675,000
1 Bedroom “A” Plan – 4 sold. The prices were $550,000, $565,000, $595,000, and $600,000
Sales in 1400
3 Bedroom – 1 sold for $825,000
Economic Factors
If you have been following the financial news, you know that the economy may be moving towards a recession. All of the factors I discussed in my First Quarter Real-Estate Wrap-Up remain in place. The world-wide sanctions imposed as a response to Russia’s invasion of the Ukraine, along with disruptions in international supply chains, have created shortages in many essential products such as oil, food, and building materials. This has resulted in dramatic price increases in almost every sector.
In June, the Federal Reserve, trying to reduce inflation, raised its benchmark interest rate three-quarters of a percentage point, the largest rate hike since 1994. Financial markets anticipate another three-quarter percent increase this month.
As a result of these factors, the stock and crypto markets have declined dramatically since the beginning of 2022.
What This Means For Buyers
If you are planning to buy a home soon, you won’t qualify for as large a loan as you would have six months ago. As the graph below shows, interest rates have almost doubled in one year. And this graph does not reflect the anticipated July increase.
If you intend to liquidate a stock or cryptocurrency portfolio for your down payment, you will now have less cash to use, due to the decrease in the valuations of these investments.
The bottom line is that loans are more expensive, so buyers can borrow less. And, unless the buyers’ assets are already in cash, the amount they have for their down payment will also be less.
A New York Times article by Gregory Schmidt, published June 23, 2022, states that, for the first time in over 20 years, it is now more expensive to buy than to rent.
A little over a year ago, the monthly cost of owning and renting were virtually identical. Now, owning a home costs $839 more per month than renting. This differential is almost $200 higher than at any time since the turn of the century.
What This Means For Sellers
If you plan to sell your home, you will find a market dramatically different from the one that existed just a few months ago. Across every market sector, regardless of location, size, or price, home sales are down. There are far fewer multiple offers. Prices are leveling and homes are taking longer to sell. Many sellers are reducing prices on homes currently on the market.
In this environment, it is imperative that the home be priced and marketed correctly from the outset. Pre-packaged marketing materials and “formula” marketing systems will not work to your advantage. Now, more than ever, it is crucial that you list with a Broker who specializes in Brickyard Landing.
Does the choice of Broker really matter? Read this…
Story Of 4 Listings
So far this year, 4 one-bedroom condos have sold at Brickyard Landing. They all closed within a few months of each other. Brickyard Realty represented the seller in two of these homes. And we represented the buyer in the third.
My sellers were thrilled with the prices they got. One sold for $595,000; the other sold for $600,000. The other two listings, those not listed by Brickyard Realty, sold for substantially less, $565,000 and $550,000.
Clearly, your choice of broker does make a difference.
My targeted marketing strategies which include professional photos, narrated video tours, and 360-degree walkthroughs, help my sellers achieve the highest prices in the shortest time.
No other Broker is better positioned to introduce buyers to the benefits of living here. No other Broker has the depth of knowledge to answer the questions that serious buyers ask before deciding whether or not to buy.
My results are based on years of experience in living, and selling, at Brickyard Landing. Brickyard Landing is not just where I focus my business; it’s also where I live. By preserving your home’s price, I am preserving mine as well. I have a personal, as well as a professional, stake in getting the best price for my sellers.
For 30 years, I have had the joy of sharing this wonderful community with you. And for 25 years, I have had the privilege of representing buyers and sellers at Brickyard Landing.
You can see my listings on my website. You can also see a history of homes that I have sold. Brickyard Realty’s Facebook page will keep you updated on the Brickyard Landing Market.
As always, if you need additional information, or wish to discuss your confidential real estate needs, please contact me. And thank you for your continued trust and support.
Be safe,
Ida
There were 3 sales at Brickyard Landing in the first quarter of 2022. Here are the models and prices of those sales:
Sales in 1200, 1201, 1300, & 1301
2 Bedroom “E” Plan – 1 sold for $615,000 and 1 sold for $705,000
2 Bedroom “B” Plan – 1 sold for $615,000
There were no sales in 1400
The decrease in sales reflects a general slowdown in the real estate market. There are two main reasons for this.
The first was predictable. As I stated in my 2021 fourth quarter report, the Federal Reserve, in an attempt to calm inflation, announced its intention to raise interest rates in 2022. The first of these occurred in March, and the Feds have made it very clear that they plan to aggressively raise rates throughout the year. With every increase, the pool of qualified buyers decreases. Either sellers will have to lower prices, or some buyers will have to abandon the hope of buying a home in the near future.
The second cause of the market downturn was not predictable, at least not by me. That was the Russian invasion of the Ukraine. War always destabilizes the economy, resulting in fluctuations in the stocks, bonds, and crypto-currencies markets. It also affects people’s emotional stability. Buyers were just beginning to feel a sense of normalcy after over two years of Covid-19 lockdown and were optimistic about owning a home. The war put a stop to that for many potential buyers. It forced them to rethink their personal financial situation - will supply chain problems affect my job? will the value of my investment portfolio decrease? When buyers feel insecure, most choose to stay put until life becomes more predictable.
The bottom line is that money is more expensive and jobs are unstable. This results in fewer buyers.
So what does this mean for my neighbors who may be planning to sell their home this year? As I suggested in my last report, if you want to sell this year, I strongly suggest you do so sooner rather than later. Interest rates will continue to climb, thus decreasing the pool of buyers. The Ukrainian war does not look like it will end soon, and if the Russians expand their aggression to other countries, this will cause more world-wide economic destabilization.
There are still buyers out there. But the listing must be priced and marketed correctly. It is not sufficient to simply put the home on the Multiple Listing Service and internet sites. The marketing must be top quality and specifically crafted to fit the attributes of both Brickyard Landing and the individual home.
Just two weeks ago, I listed a Brickyard one-bedroom condo. Within 2 days, I was able to deliver multiple offers to the seller at substantially above her asking price. The winning bid was all-cash, no contingencies, and made by a buyer who never stepped foot in the home! This was only possible because the buyers’ agent knew and trusted me. He could confidently assure his buyer that my photos and narrated video tour of the home accurately represented the condo. He also knew that, as the Brickyard Landing specialist, I would be able to answer all his buyer’s questions about the home and the complex.
No other Broker is better positioned to introduce buyers to the benefits of living here. No other Broker has the depth of knowledge to answer the questions that serious buyers ask before deciding whether or not to buy. My targeted marketing strategies which include professional photos, narrated video tours, and 360-degree walkthroughs, help my sellers achieve the highest prices in the shortest time.
My results are based on years of experience in living, and selling, at Brickyard Landing. Brickyard Landing is not just where I focus my business; it’s also where I live. By preserving your home’s price, I am preserving mine as well. I have a personal, as well as a professional, stake in getting the best price for my sellers.
For nearly 30 years, I have had the joy of sharing this wonderful community with you. And for 25 years, I have had the privilege of representing buyers and sellers at Brickyard Landing.
You can see my listings on my website. You can also see a history of homes that I have sold. Brickyard Realty’s Facebook page will keep you updated on the Brickyard Landing Market.
As always, if you need additional information, or wish to discuss your confidential real estate needs, please contact me. And thank you for your continued trust and support.
Be safe,
Ida
Start by getting your credit in order. Go to Annual Credit Report.com. There you can order free copies of your credit report and find resources to help you clear up any credit problems. The better your credit, the easier it will be for you to get a loan, so it's well worth your time to try and clean up your credit report before you apply for a loan.
Next, review your spending and savings habits. You will need money for a down payment. If you don’t have the money already saved, start saving now. If someone is planning to gift you the funds, see if they would be willing to do so sooner rather than later. Why? Let’s say your parents plan to give you $10,000 towards your down payment. You find a home you love, make an offer, and the offer is accepted. You call the folks, tell them the good news, and they send you the money which you deposit into your savings account. Suddenly you get a call from your lender asking where this money came from. You will now have to go through some hoops to prove the money is, in fact, a gift and not a loan. The folks may have to sign a document stating that they never intend to have you pay back the money. Often people don’t like having their motives questioned and I’ve seen situations where this has caused a rift between parent and child. If, however, you have the funds in the bank before you apply for the loan (usually 3 months will do the trick) the lender usually will not question the source of the funds.
OK – you’ve cleaned up your credit and stashed away the down payment. Now you need to find a home. Before you go house-hunting you need to know your price range. Start by talking to your lender to see how much you can borrow. Add your down payment to the loan amount and you’ll have a good sense of the price range the lender thinks you can afford.
But that’s only half the story. You need to do some soul-searching before your start house-searching. Let’s say the lender says you can afford monthly payments of $2,000 per month. Presently, you pay rent of $1,000 per month. That’s $1,000 less per month you presently pay for rent than you would need for your proposed loan payment. But at the end of each month when you look at your checkbook, the balance is $0. What happened to that extra $1,000? If the answer is you spent it on movies, vacations, and going out to eat, you need to decide whether or not you can live without these luxuries. Remember, you are not just buying a home; you are also buying a lifestyle. If you cannot- or will not - live without these “extras” then you either need to scale back on the price of the home or keep renting.
You've checked your credit, saved up for the downpayment, and decided on an appropriate home price. Now all you need is a great Realtor to help you find your new home. If you need help finding one, just let me know!
Before you buy any investment, you need to ask yourself some basic questions.
First, are you emotionally prepared to be a landlord? If the toilet starts to leak on a Friday night, will you be willing to cancel your weekend plans so you can meet the plumber out at the property? If the tenant stops paying rent, can you handle the emotional upheaval that comes with an eviction?
The second question you must ask is whether or not you are financially prepared to carry the cost of owning property for at least three months. There will be times when the property is vacant or when repairs are needed. This will require you to come "out of pocket" to cover these expenses. You simply can not assume the rent will always be there. If you do not have a reserve from which you can draw when problems arise, you will soon find yourself in financial trouble.
Next you need to consider what type of property to buy. This will be dictated, to some extent, by your finances. Assuming you are looking at a small investment property (1-4 units), you need to decide if you want a multi-family or a single family home. Multi-family units are more expensive to purchase and maintain. However, the vacancy risk is spread out over a number of units. For example, if you have a single family home as a rental, when it is vacant, all your rental income is gone. If you have a duplex and one unit is vacant, you still have rent coming in from the other unit. On the other hand, the more units you have, the more maintenance is required, both in terms of managing the property as well as managing the tenants.
If this is your first rental, you may want to consider a condominium. You will have to pay homeowners dues, but you will be relieved of many maintenance issues such as gardening, roof, exterior paint, etc. Before you buy, make sure to check whether or not the Homeowners Association restricts the number or type of rentals. If you don't, you may find that you have purchased a home that can not be rented. It's hard to manage property and harder to manage people. Of course, you can always hire a property manager. But that becomes an additional expense that must be factored in to the cost of ownership. And you need to be prepared to manage the manger.
Then there is the question of rental control. Check both state and local ordinances to see if there are any rental restriction policies governing the property. And you should also see if there are additional fees for rentals in your community. These could be fees required by a local rent board, or your city requiring that you get a business license.
The bottom line is, you must approach real estate investing as a business. And, as such, it requires research to make sure you know what you are getting yourself in to, both financially and emotionally.
In a word - "yes". Instead of calling the listing agent, you should have had your own agent make an appointment to show you the property.
Look at it from the listing agent's point of view. They took the time to meet you at the property, show it to you, answer all your questions, maybe even give you pricing comparables for the house and advise you on the best structure for an offer. You used their time and their expertise. But you didn't want them to get paid for that.
Instead, you handed the fruits of their work over to another agent. In effect, you said that their time and knowledge were worthless. Sure, they would still get part of the commission if you bought the home through another agent. But you increased their work without increasing their pay. And you took up their time that they could have spent working with their own clients.
No wonder they were upset - wouldn't you be if someone did that to you?
With that wide range of advice, it's no wonder you're confused! Without seeing your home, it is impossible for me to give you specific suggestions, but I can give you some guidelines to help you sort out what is the best course of action.
First, you need to have an accurate perception of your home's condition. From your question, I am assuming we're not talking about serious structural problems (broken stairs, falling retaining walls, etc.). Instead, you are asking about cosmetic issues. For most of us, it is very difficult to see our home as others do. You might want to ask a friend to walk through the home and give you an honest assessment of its cosmetic condition. You want to stress that you are prepared for some brutal comments and will not be offended to learn that the clown collection you have so prominently display in your living room looks ridiculous to others, or that the sea-green color you chose for the bathroom makes people nauseous.
Now that you have your list of "problems", prioritize them. Some problems are cheap and easy to fix and you should do them. Clutter usually comes under this category. Pack the clowns away. Remove excess furniture and clear away some bric-a-brac. You might consider renting a storage space if you don't have room in your home to hide these items. But you don't need to go overboard. There are some Realtors who believe that a home should be "sanitized", that all personal items like photos and mementos should be removed. I don't agree. I like showing a place that feels like someone's home rather than a motel room.
Next, consider doing upgrades and repairs that are inexpensive. Are there areas that need a fresh coat of paint? If you can do this yourself, this is a relatively easy and cheap fix and will certainly brighten up the home. One of the agents suggested you replace the carpet. If that carpet is not damaged or badly stained, perhaps a deep cleaning would make it acceptable. Small repair jobs should certainly be considered - recaulking bathtubs, fixing cabinet doors, replacing broken electrical faceplates - all these can be done for minimal amounts of money and effort.
Now to the big ticket items. This category usually includes things like remodeling the kitchen or bath, replacing carpet, etc. These take time and money. Do you have both? If not, then this is a moot point. But the bigger question is, should you, for example, remodel your kitchen before selling? In my opinion, unless the kitchen is in very bad condition, the answer is no. A home with a remodeled kitchen may sell faster than one without, but you almost never get back the money you spent for the remodel in the sales price. And more to the point, the buyer may not like what you're done.
As an example, let's say you decide your carpet needs to be replaced. Not that it's torn or horribly stained, but it looks "tired". So you spend $5,000 and install a lovely, good quality tan Berber. A buyer walks in the door, and says, "this is a nice house, but that tan carpet will look terrible with my furniture. The first thing I'd need to do is rip up this carpet and put in a different color. So I'll offer $5,000 less to make up for the cost of a new carpet." Now you're out $10,000 - $5,000 for the carpet you installed and $5,000 in reduced sales price. Instead, you might consider listing the home "as is" but with a $5,000 credit to the buyer for new carpeting. That way, the buyer can put in what they like and it has only cost you $5,000.
The bottom line is that you need to start by looking at your home through a buyer's eyes and getting a real sense of what needs to be done. Do those things that are cheap and easy. Next, consider those things that will give you the most "bang for your buck". And finally, for those items that are expensive and time consuming, consider a giving a credit-back to the buyer.
You are wise to be skeptical. Remember the old adage "if it looks too good to be true, it probably is"? That applies here.
Contrary to what you may think, an agent's primary job is not to market your home to potential buyers. Their job is to market your home to other agents! Why?
Every agent has a "stable" of clients. At any moment in time, I have dozens of qualified buyers with whom I am actively working, who may be interested in your home. And if I got your listing, I certainly would advertise the home to them.
But each agent I know also has their "stable". So when I interest an agent in your home, I am, in essence, contacting all their clients! When an agent lists a home on the multiple listing service, they are advertising to all other agents that the home is available.
Sometimes an agent will offer to cut their commission in exchange for being the only agent who can sell the home. As the seller, you see a dollar savings in the commission. What you don't see is how expensive this "savings" can be.
First of all, it may take longer to sell your home since you have severely cut the numbers of potential buyers. And because the home is not being allowed to respond to market forces (i.e. the greatest number of buyers looking at the home), you will never know if the sales price you ultimately settle for is the best you could have gotten. Prices can really escalate when there is competitive bidding for your home. The more agents involved, the more likely you are to be in this enviable situation.
So if you agree to this agent's suggestion of an "exclusive", you may be invoking another old saying - "penny wise and pound foolish"!
Here are some guideposts to consider when shopping for a loan.
Avoid any lender who suggests or requires you to falsify information on your application. If you’re caught, you could be prosecuted and, if convicted, penalties range from fines to jail term. Even if the bank does not prosecute, they could require you to immedaitely pay back the loan in full. Do not allow yourself to be pressured into borrowing more than you need. The only reason a lender wants you to borrow more money is to increase their commission.
And, along the same lines, don’t be pushed into accepting monthly payments you can’t afford. Even if you qualify for higher payments, your lifestyle may not allow you to use every spare penny to pay your loan payment.
Every lender is required to provide you with loan disclosures within three days of applying for a loan. If your lender fails to give one to you, they are breaking the law. The disclosure must include the loan’s annual percentage rate (APR) as well as an itemized list of closing costs. The APR is a formula that takes into account both the rate and the fees of each loan. It is a way for you to be able to compare loans of varying terms.
Be wary of terms that change during the course of the approval process. It is possible that rates and terms may legitimately change during the weeks of loan approval. But be sure to get an explanation from your lender. And if anything smells funny, back up and review all the paperwork again. You might even consider contacting another lender.
If your lender tells you it’s OK to sign blank forms, cancel the deal. You should NEVER sign a blank form.
And finally, if the lender refuses to give you copies of what you are being asked to sign, RUN!
ARM’s, or Adjustable Rate Mortgages, were designed in the 1970’s to help those who might not qualify for more traditional, fixed rate loans. As the years went by, ARM’s got “twisted” until today we have a myriad of loan products with a multitude of features.
However, all ARM’s have one thing in common – the interest rate “adjusts” rather than stays “fixed” over the life of the loan. So whatever ARM rate your loan agent quotes you, one thing is certain – it will change as the loan matures. How often the ARM rate changes is up to the bank. Some adjust monthly, some yearly. But how much it changes is a function of its index.
An index, in lending terms, is the benchmark a lender chooses as a baseline for your loan. In simple terms, it is the wholesale rate the lender pays for money. As the cost of money constantly changes, so too does the baseline interest rate used to calculate your loan payments. This is the component of your loan that “adjusts”. Lenders use different indices. These indices vary in both rate and stability. Some, like the 11th District Cost of Funds, are quite stable, i.e. they move very slowly and in small increments. Some, like the T-Bill Rate, move rapidly. Ask what index your loan is tied to, what that index’s rate is, and how often and how widely it fluctuates.
The next most important factor affecting your loan rate is the margin. To continue the retail analogy, this is the lender’s profit margin. There is no magic formula for this number. It is simply what the lender feels they need (or can get) to make lending profitable. It is the combination of the index rate (wholesale cost) and the margin (profit) which determines your loan’s interest rate (retail cost).
Points and fees are the final pieces needed to understand the loan puzzle. Like margins, they are added on as a source of additional profit for the lender. The higher the margin, the lower the points. For example, a lender might offer a loan with a margin of 2.5 and 1 point, or the same loan with a margin of 2.75 and ½ point. Each point equals 1% of the loan amount.
Fees are also variable. Some lenders charge a separate fee for each service they provide – appraisal, documents drawing, underwriting, etc. Others charge a single flat fee for all these services. What matters is the total cost.
One last note…most lenders allow for a variety of payment plans on ARM’s. You can chose to pay the fully amortized 30 year rate or the fully amortized 15 year rate. You may decide to pay only the interest. Some lenders even allow you to pay a reduced payment. This usually results in “negative amortization” where the monthly payment is insufficient to cover even the interest due, so the balance is added back on to the loan principal. This will result in a larger loan balance.
When you are trying to compare ARM’s, be sure to ask about the index, margin, and points and fees. Lending is filled with confusing jargon. Don’t allow a loan agent, using a few unfamiliar terms, to arm-twist you into getting a lousy loan!
Over the years, lending guidelines for the purchase or refinance of a home have become increasingly standardized. For example, credit scores must not exceed specified numbers, and down payments must meet a lender’s minimum criteria.
All of these come under the heading of “underwriting guidelines”. And one of these is how to calculate the borrower’s “top and bottom ratios”. No, this does not refer to a borrower’s ideal bust and hip measurements. Rather, it is a formula to assess whether or not the borrower can meet their loan payment obligations. If a borrower falls within certain ratios, the lender feels comfortable with the borrower’s ability to repay the loan. Here’s how these ratios are calculated.
The “top” ratio refers to the monthly cost of running the property divided by the borrower’s monthly gross income. The lender calculates the proposed monthly mortgage payment, adds the monthly property taxes, insurance and homeowner’s dues (if any). This number is divided by the borrower’s gross monthly income and the resulting number is the “top” ratio.
The “bottom” ratio is calculated the same way, except that, along with the property costs, the lender includes all other regular monthly expenses. This would include such items as child support, alimony, car payments, credit card payments, student loans, boat docking fees, etc.
Let’s look at an example of how to calculate a "top" ratio. Say a borrower makes $50,000 a year and wants to borrow $100,000 at 7% for 30 years. The monthly payments would be $662. Property taxes and insurance might be $250 per month, bringing the total monthly expense for the property to $912. The borrower’s monthly gross is $4,167, and when that is divided by 912, the result is 22%, well below 28%, the maximum lenders like to see for a “top” ratio.
Now let’s calculate a "bottom" ratio. To do this, take the "top" ratio expenses and add in other monthly expenses like $300 for credit cards and $175 for a car loan. Add this to the monthly $912, and our borrower now has a projected monthly expense of $1,387. Divide this by the monthly gross and you have a “bottom” ratio of 33% which just meets most lender’s guidelines.
Many lenders have a variety of loan programs for borrowers who don’t fit into these ideal ratios. But they are generally at less favorable rates and terms. And many of them will be adjustable rate loans, rather than fixed rate.
While it is still possible to convince an underwriter to consider “extenuating circumstances” when reviewing your loan, more and more, the human element in underwriting is being replaced by cold numbers. The trend in the industry is towards computer programs designed to evaluate a borrower’s credit-worthiness. And though they may be efficient, computers are rarely sympathetic.
Generally, when a borrower applies for a loan, the rate "floats", or moves up or down with market conditions, until the loan is approved. So if rates rise between application and approval, you get the higher rate. Conversely, if rates go down, you get the lower rate.
If rates are on the rise, a borrower might want to "lock in" their rate early on, before rates go any higher. This is called a rate lock and it can offer a borrower peace of mind.
Simply stated, when a borrower locks in the interest rate, the borrower gets the rate as contracted, whether rates move up or down. In a climate of rising rates, this can be very appealing. But there are a few things to be aware of before you turn the key on your rate lock.
Many borrowers believe that, once they lock in their rate, the rate is secure until they close escrow. This may not be the case. Most lenders will lock the rate for 30 days. Unfortunately, the average escrow is 45 to 60 days. So be sure to ask your lender the exact date your lock will expire.
If your lock does expire prior to closing your escrow, how do you protect your rate until closing? You could delay locking-in the loan by waiting 15 to 30 days after you have a signed purchase agreement. If you suspect rates may drop in the short term, this could be a wise strategy. But in a rising interest rate market, you could end up with a higher rate.
You could ask the lender to extend the lock-in period. Most lenders will allow this - but for a price, usually a small additional loan fee. You will need to weigh the cost of the extended lock against your guess as to whether rates will go up, down, or remain level.
Finally, some lenders offer the option that, if you lock in and rates go up, you have the contracted rate. But if rates go down, they will give you the lower rate. This option seems to be getting harder to find, but it's worth asking your lender if they offer it.
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