Home Loans At Your Convenience

HOA's...are they worth it? What's average? What's too high? Are they negotiable?

HOA’s or homeowners associations are housing developments governed by a group of elected officers of the HOA board. Condos have the same type of governing structure called a Condo Association. There are several important benefits to living in a development governed by a homeowners association. The most significant is the proven track record homeowners associations have in maintaining (and often enhancing) property values. Developments with homeowners associations better property values because the associations provide some critical benefits to residents that they normally would not be able to obtain on their own.

First, the association provides greater certainty that the community will remain physically attractive over time by imposing, and privately enforcing through fines and assessments, rules on architecture, landscaping, accessory buildings, fences, signs, and related matters. Residents don’t have to worry that a neighbor will park a 30-foot RV, boat, or commercial vehicle in their driveway for months at a time, or that a neighboring home will be painted orange with lime green trim, or that the landscaping will be allowed to die.  Second, associations often provide recreational amenities for residents – such as tennis courts, swimming pools, Golf courses and “community centers” – that many residents would not be able to afford on their own. Third, the association provides a variety of services to residents, including maintaining common areas and managing the development’s recreational facilities. Third many homeowners associations offer residents a heightened sense of personal safety and security because the development is a “gated” community that restricts access to community residents and their guests and invitees (such as repair or delivery services). Even if the community isn’t gated, some HOA’s will pay private security to routinely patrol the subdivision.

Drawbacks of Homeowner's Associations

The principal drawbacks of homeowners associations result from the very same factor that allows associations to provide significant benefits - the homeowners give control over several aspects of use of their property to the HOA.  Most HOA’s require the homeowners to be a member of the HOA and pay an annual HOA fee.  The HOA wields significant power in forcing you to pay the dues, as well as any special assessments.  It can be bad enough to have to abide by HOA rules with which you disagree, but in homeowners associations, you also have the obligation of having to pay for them. Residents who strongly disagree with association decisions may be left with little recourse other than to consider the drastic step of moving.

In my experience, most home buyers are happy to live in an HOA development.  They like the benefits of having the common areas maintained; they like security in knowing that their neighbors’ yards and house exterior will remain attractive and they enjoy the use of common area amenities.  Home buyers who absolutely refuse to live in an HOA typically has a special need – they own a motor home or a boat that they want to store in the driveway or front yard; they own or work for a company that operate trucks with advertising on the exterior of the vehicle or they had a bad experience in the past with an HOA and don’t want history to repeat itself.

Before you get too far in the home purchase process, you need to review the HOA documents that detail the restrictions. You need to make sure you are comfortable with the restrictions – besides the ones I’ve just talked about, restrictions can also affect personal decisions as: the number and size of pets allowed in the home; the right as to where to fly the American flag; what type of fence (or no fence) whether or not you can have a storage shed in the backyard.

What's average? What's too high? Are they negotiable?

No, they are not negotiable.  Most of the time, everyone home owner pays the same fee.  There are some HOA’s that charge differently for the various areas of the subdivision – larger homes or homes on water/golf course pay more than smaller homes.

 As to what’s average or what’s too high, I don’t think one can state an average overall.  Do your research as see what the HOA charges are for the particular area in which you are looking.  If an HOA fee seems excessive, it’s probably because there are more common area amenities or because there is a high delinquency rate for the HOA payments.  The maintenance must be paid for so sometimes the HOA has to raise fees to compensate for the dues that are in arrears.

What are Trigger leads and how can it affect the person applying for a home loan?

I took a seminar this week about trigger leads just because I wanted to see how anyone can justify purchasing this type of mortgage lead.  Trigger leads occur when a person applies for a home loan and loan originator pulls a tri merge (3 credit bureaus) credit report.  The 3 credit bureaus then sell (almost instantaneously) your private information – name, address, social security number, credit score, debts to anyone who wants to purchase these leads for loan solicitation.  Typically, telemarketers will call the borrower and try to steal him away from the original loan originator.  I personally feel this is very wrong – I have never purchased leads or names of people I can call to solicit business as I hate receiving those calls myself.  My business comes from referrals and my websites – people contact me if they would like home loan information.

I think trigger leads are especially offensive as it’s the credit bureaus that are selling this information – the same companies that we trust to preserve and protect our personal and financial information.

I was curious as to how one could justify purchasing these trigger leads and the argument basically was - it’s legal and if you don’t do, someone else will.  There are ways I can protect my clients so they aren’t subject to being sold as a “trigger lead”.  Please ask your loan originator if he’s doing to same.

I’m looking to buy a home but I’m concerned about my debt ratio.  Is it better to pay off all or part of my debt or is it better to have that money for a down payment?

It depends on what time frame we are looking at.  If you are actively looking to buy a home, and, you already have enough money saved for your down payment, closing costs, and some reserves, it’s best to not pay off your debts before applying for a mortgage.  If your debt ratio is too high, we can always arrange to make payment at time of closing and still get your loan approved.  Any time you do something that impacts your credit report, you will initially see a lowering of your credit score.  This includes paying OFF any debt (not paying down); making any large purchase on a credit card or installment loan; opening up any new credit cards or loans and even allowing your credit score to be pulled repeatedly.  Lenders and the automated processing software program that is used by Fannie Mae, Freddie Mac, FHA & VA look at a number of factors before approving a mortgage loan – credit scores, debt to income ratios and RESERVES – the money you have left over after you buy your house.  Homeownership is different from renting.  If something breaks down, you can’t call the landlord but you have to fix it.  In the case of an air conditioning unit or roof, this could be several $1,000’s.  The lender wants to know that you will be in a position to properly maintain your home after you buy it so cash reserves (checking, savings, money market and stocks) are very important.  Paying off a $2,000 credit card might not help your credit worthiness as much as having a spare $2,000 in the bank.  An experienced mortgage professional, like myself, can help you make that determination.

Can I finance a house that doesn’t have kitchen appliances, A/C – heat; bathroom fixtures, etc?

Many times in today’s market of bank owned properties, we find the houses are missing major appliances and fixtures.  The house must be habitable - The rule for this is that the house must be safe and sanitary so the utilities must be on during time of appraisal and inspection; the kitchen must have a stove, sink, cabinets and counter tops (doesn’t require that it have a fridge or dishwasher); the bathrooms must have the toilet, sink and bathtub/shower and the house must have heat/A/C.  We can do a loan for a “stripped down” home in a few different ways – Do a rehab loan – which means that we will get written estimates on what it will cost to make the house habitable.  We get a “subject to” appraisal – what the house is worth once the improvements have been made.  Once the repairs are made, we send the appraiser back to do an inspection. He will take photos of the new appliances and submit a new appraisal report to the lender. This type of loan is a little more complicated and takes longer to get loan approval.

Another way we can close a loan on a non habitable house is to do a “dry closing”.  This means that we will sign all of the paperwork for the purchase and loan on the new home but the loan will not fund – the seller, real estate agents and loan officer will not be paid until the repairs are made.  The buyer will be given the keys to the house so he can legally enter the home and make the repairs.  All of this is accomplished in a day or two so that means you’ve got your appliances, repair people and appraiser on standby…as soon as you do the dry closing, you move very quickly.  Once the appliances are installed and repairs are made, the appraiser does a new inspection and the lender will fund your loan.  If the repairs will take more than a day or two, we’ll need to do a rehab loan.

How do they determine mortgage rates?

Have you heard of the phrase “supply and demand”? That’s the general idea that when demand goes up, so do prices. When demand for a product goes down, so does the price. With mortgages, when there is a great demand for new mortgage loans, lenders have the upper hand and can charge higher interest rates. When demand falls, borrowers have an advantage and the rates usually get better.

You hear about the Fed Lowered Rates --Why Aren't Mortgage Rates Going Down?

When the Fed lowers the short term discount rate, this is designed to stimulate consumer spending on short term credit - credit card rates.  The short term discount rate has little effect on long term mortgage rates.  Because most mortgages are packaged as 30 year products, and the average mortgage is paid off or refinanced within 10 years, the movement of the 10 year Treasury bond is said to be the best indicator to determine whether mortgage rates will rise or fall.  10 year Treasury bonds and long term mortgages, know as Mortgage Backed Securities (MBS) also compete for the same investors because they are very similar financial instruments.

However, Treasury bonds are backed by the federal government and have the full faith and credit of the United States; while mortgage backed securities don’t have such guarantees.  We’ve all heard about the recent high foreclosure and delinquency rates with mortgages the past 2 ½ years.  Mortgage rates are more susceptible to economic activity than Treasuries because the average homeowner may lose their job or get sick or have an accident and not be able to make their mortgage payment, while the US government hopefully doesn’t miss payments.  That is why mortgage rates are typically higher than the 10 year bond rate – they are considered riskier. 

This is good in theory but there’s more to it than that – during our recent housing slump, mortgage demand dropped off significantly, but interest rates stayed fairly constant. Demand is only one of the factors influencing interest rates. Another major factor is the perceived condition of the economy.  This has a lot to do with the Federal Reserve and inflation rates.

When the economy is doing really well, prices for goods and services tend to go up even though their value hasn’t changed. This is called inflation. When inflation rates start rising too much, the Federal Reserve will raise their rates. The point of raising interest rates is to make borrowing seem less attractive and thereby decrease demand and pull the inflation down. 

There is yet another part to the interest rate equation.  Mortgage rates are also heavily influenced by the stock markets.  When the economy is doing well and stock prices go up, interest rates go up.  When it is doing poorly, rates go down.  For this reason, jobs reports, home sales, consumer confidence and other date on the economic calendar can move interest rates significantly.  Investors want the best return for their money.  If stock prices are rising, the bond market has to pay higher interest rates to compete for those dollars that could be used to buy stocks.

Why do they change so often?

If you pay attention to the stock market, you see that stock prices change minute by minute.  If you watch the financial channels on TV, you’ll see moving printed scroll or ticker that show constantly changing stock prices during the day.  The financial markets are constantly changing, therefore mortgage interest rates are constantly changing – not as fast or as frequently as stock prices but mortgage rates usually change at least daily and sometimes as many as 3 or 4 times a day, depending on how much the stock market moves that day.

What is the advantage of using a mortgage loan originator (formerly called a mortgage broker) over a bank?

A mortgage loan originator is a loan originator who has access to numerous banks and lenders.  This gives her more options for home buyers or home owners who want to refinance their current loans.  A bank has their own line of products and that’s all they can offer you.  Also, each bank or lender has their own set of rules or guidelines for making mortgage loans.  These guidelines have become more and more stringent because of the declining values in real estate and the increase in loan defaults and foreclosures.  Some banks won’t lend on town homes because they are typically “attached” to each other like a condo; some banks won’t do houses on acreage.  They aren’t allowed to deviate from their guidelines.  A mortgage broker has options – if one of her lenders won’t do your loan, there’s a good chance she has another lender who will.

Remember what we just talked a bout with supply and demand and how it affects interest rates?  Each mortgage lender has their own supply and demand for their loan products.  If an individual company is struggling to close enough loans, it might offer slightly lower interest rates than competitors in order to attract more business.  If they are experiencing more demand for their mortgage loans than they can handle, they will raise their rates over the short term to have less competitive rates until they get caught up with their existing clients.  A mortgage broker can watch her investors' rate trends and place your loan with a lender who has the best rates at that point in time.