Gilbert Real Estate Blog
~ by Randy Hooker of Dreamcatcher Realty
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Arizona’s 2011 AAR Mortgage Loan Pre-Qualification Form
If you run across any claims that the mortgage lending industry has in the past few years been (and still is) in a state of turmoil, I would heartily recommend you listen to them. There’s no doubt that tremendous changes have taken place, most of them federally mandated, but in this post I’ll try to avoid discussing the relative merits pitfalls of the new restrictions and guidelines.
The purpose of this post is to update you on a previous post of mine from November of 2010 in which I defined the then-current mortgage loan pre-approval process in Arizona. The new (effective February 28, 2011) terminology and form(s) have been released, so let the games begin!
Replacing the former Loan Status Report (LSR) is the Pre-Qualification Form. The purpose of the new form, according to the Arizona Association of REALTORS®, is
“to provide information on the buyer’s ability to qualify for a loan without a Good Faith Estimate (GFE)”
Say what?!?! A GFE is a document issued to a home buyer by a lender that details the fees and costs associated with their mortgage loan, monthly payment, interest rate, etc. But it’s also a document that is typically considered confidential between the lender and the home buyer. The new Pre-Qualification Form requires the lender to furnish a LOT of additional information about the buyer, type of loan, amount of loan, interest rate, etc., and thus can provide a great way of evidencing to a seller that the buyer is indeed pre-qualified for the mortgage loan.
The proper use of the Pre-Qualification Form is that it should be attached to a 2011 AAR Residential Real Estate Resale Purchase Contract whenever a home buyer submits an offer on a residential property. Here are a few highlights of the new form:
- The form is NOT property specific, meaning it can be issued without naming any certain property address.
- The form is to be completed and signed by the mortgage lender (loan officer), including their Arizona License number and NMLS number.
- The form is to disclose the marital status of the buyer(s), primarily because Arizona is a community property state and marital status can create contract issues and title requirements.
- The form is to disclose the property type, since different types require different loan programs, criteria and documentation. A good example would be the difference between a loan for a single family detached house and a loan for a mobile home – the differences between the two loan programs are HUGE.
- The form is to disclose the maximum total monthly housing payment, loan amount and interest rate for which the buyer is pre-qualified.
- The form is to include an expiration, which is typically when the buyer’s credit report expires.
- The form is to be signed by the home buyer(s), which is basically granting permission for the buyer’s broker to submit the form with the offer/contract. It also authorizes and instructs the lender to issue a Loan Status Update (LSU) to the seller and broker(s) within 5 calendar days of contract acceptance.
As I stated in my post in November 2010, my biggest beef with the Pre-Qualification Form is the form title itself, not the content. That may seem petty to some of you, but for as many years as I can remember, the term ‘pre-qualification’ has always implied a quick, easy, over-the-phone activity with no application or documentation from the buyer. But make no bones about it - this new Pre-Qualification Form requests and requires substantial documentation and commitment from the buyer and lender, and in my estimation is a giant leap forward in the world of residential Gilbert real estate and mortgage lending.
Of course, I’m always open to comments, supportive or dissenting.
What say ye, my friends?How can the price of this Short Sale house be so cheap?
Here’s the latest question to hit my ‘Ask the Broker’ Inbox, and to be honest, similar inquiries are posed to me several times a month.
“I saw a house I like. The price is $100,000 less than the other houses for sale in the same neighborhood. How can the price be that much cheaper?“
Without even looking up the listing in the Arizona Regional MLS, I would bet $100,000 that I already know the answer. Would you like to venture a guess before I tell you???
Now how exactly does that Jeopardy jingle go? Da Da, Da Da, Da Da Da… Dot, Da Da Da Da Da. Da.. Da… Was that close?
Does the term Short Sale ring a bell? Or what about the difference between a Short Sale and a Foreclosure? Okay… I’ll quit playing around and get down to business.
The listing my client asked about is a Short Sale that has an asking price of at least $100,000 below the nearest comps in the neighborhood. And given the mindset of most folks looking for a deal/steal in this Gilbert Real Estate market, who wouldn’t be attracted by this price?
So what’s the catch?? => On any given Short Sale listing, the asking price is what’s called a “phantom” price. The seller and a buyer can agree to the price, and even sign a contract at that price, but unless and until the seller’s lender(s) agree and approve of that price, the contract will NOT be honored and the purchase will NOT happen. End of story.
How is the asking price of a Short Sale listing determined? It’s determined solely by and between the homeowner and their listing agent.
Doesn’t the asking price have to be reasonable? Or doesn’t it have to at least be based on recent comps (comparable sales)? Nope!
What are the chances of the lender(s) being willing to accept a payoff amount that is substantially below current market value? Slim to none! Lenders have proven over and over again, by their behavior — that they would prefer to foreclose!
So now that I’ve dispelled the nefarious truth about Short Sale asking prices, or at least cast reasonable doubts about their efficacy and integrity, where does that leave the serious home buyer or investor? => With your eyes wide open! The next time you encounter a listing that seems too good to be true, trust your instincts and know that it IS most likely too good to be true. And when in doubt, consult with a Buyer’s Agent you know and trust, and that speaks the truth from her/his heart and experience.
What’s the difference between a Short Sale, a Bank Owned Home and a Traditional Listing?
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If ever there was a more confusing real estate question than the title of this blog post, I can’t remember it. Here’s my attempt at demystifying the three categories of properties that comprise the residential Gilbert Real Estate resale market in Gilbert, Arizona (and the greater Phoenix area for that matter).
A Short Sale property listing is one in which the homeowner owes more in mortgage loan(s) than the property’s current market value – commonly referred to as being ‘upside down‘ or ‘underwater‘. If the homeowner/seller finds a buyer that is willing to contract to purchase the home, then the homeowner’s lender(s) must be willing to accept LESS than full payoff on their loan(s). Being ‘short’ of payoff is where the term Short Sale originated. [Please note that a Short Sale is anything but short in processing time, as the vast majority of successful or unsuccessful Short Sale transactions take 6-18 months just to find out whether or not the homeowner's lender(s) are willing to play ball and approve the Short Sale.]
A Bank Owned property listing is one in which the former homeowner’s lender has already foreclosed and is now the legal owner of the property. With such listings, an asset manager has been assigned to negotiate the sale of the property, and compared to Short Sales, response times to an offer may be expected by a home buyer or buyer’s agent considerably sooner than with a Short Sale. (NOTE: The terms Foreclosure, Lender Owned and REO all mean the same thing.)
A Traditional Listing is one in which the current homeowner is neither upside down nor in a distressed situation. That can mean it’s owned by a classic homeowner, or it can mean the property is owned by an investor who purchased the property at a Trustee’s Sale (foreclosure), fixed it up and is now re-selling (flipping) it. Either way, the response time to a prospective buyer’s offer is typically quicker than Bank Owned listings.
I can already hear a few of you saying, “SO WHAT?!?! A house is a house, so what difference does it make what ‘type’ of property or listing it is!!” Here’s what –> If you’re a nonchalant investor who loves the thrill of gambling and has no worries about time or energy invested, then Short Sales should definitely be your game of choice. But if you’re a serious investor or home buyer who wants a modicum of predictability, respectability, control and sanity involved with your next purchase, then choose wisely – Bank Owned properties and Traditional Listings may very well hold the opportunities you’re seeking.
What is my house worth in today’s market?
I hear or receive this question no less than 2-3 times per month. On the surface, it would seem to be a rather innocent, simple question. However, on deeper analysis it becomes infinitely more complex and convoluted than most folks imagine. I’ve decided to tackle this question – “What’s my house worth?” – and give you my personal and professional response to it:
Dear Homeowner,
I don’t mean to sound flippant, but what your house is ‘worth‘ depends on the opinion of the specific person evaluating your property. An appraisal is an opinion of one person, a licensed appraiser. A BPO (Broker Price Opinion) or CMA (Comparative Market Analysis) is an opinion of one real estate agent or broker. An offer submitted by a prospective buyer is yet another opinion of one person.
How many opinions of value might there be? >>> As many as there are people on the planet!
Here’s a reality check for you homeowners: Valuing a property is an art, not a science, and the folks who are best at this art are those who consider ALL of the factors relative to any given property. Here’s a short list of the 5 biggest factors to consider:
- Recent ‘comps’ (comparable sales) within the past 3-6 months that are reasonably similar to your property
- Major improvements, options or upgrades (or lack thereof), e.g., private pool, granite counter-tops, new roof, new AC, etc.
- Age of the home and surrounding neighborhood/subdivision
- Location of your property
- Curb appeal of your property
Beyond these, there are an infinite number of other factors and variables that can weigh on the perception of any given person. You simply cannot rely on the tax assessor’s valuation, Zillow’s Zestimate, or any of your friends, family or neighbors. You need the advice and counsel of an objective, third party professional who can give you an experienced, knowledgeable opinion. And even then, there is not one finite number that can possibly represent the TRUE value of your home – but a projected sales price range can be estimated by the right professional.
The best advice I can give you is to contact a local, experienced real estate agent or broker with whom you feel good, and that you trust. S/he should be able and willing to do the appropriate research and then counsel you regarding your options and objectives – and ultimately, the best strategy for YOU. Make sense?
Fun Friday: A Day in the Life of a REALTOR
As insane as this parody is, there is a tremendous amount of every day reality in it. My thanks to a new friend for bringing it to my attention. Enjoy!
If after viewing this video you are still interested in buying a home in Gilbert, then click on Gilbert Real Estate to search all homes for sale in Gilbert.
Greater Phoenix Real Estate ~ May 2010 vs. May 2009
Courtesy of the Arizona Regional MLS, the below two charts offer up a quick overview of the current market conditions in the Valley of the Sun. Whether you’re into comparing consecutive month over month stats (like May 2010 vs. April 2010), or year over year (like May 2010 vs. May 2009), the charts are provided to help us grasp the overall picture.
Greater Phoenix Market Conditions
Greater Phoenix Market Conditions
I’m always extremely cautious about using real estate “averages”, as they can and do often skew the true picture of individual communities and areas. Nevertheless, there are a couple of points that are worth noting in the above charts.
It’s interesting that normally at this time of year we experience an increase in listings – and yet the past 2 months has seen a decrease in listings. Anybody care to speculate on the reason(s) for this anomaly?
The next observation is that the greater Phoenix market is holding fairly steadily in the number of Active listings as well as sales.
Additionally, at roughly 4.5 months inventory, the greater Phoenix market appears to be showing some consistent stabilization. As always, time will tell.
NOTE: The information and statistics contained in the above charts are deemed reliable, but not guaranteed. If you’re contemplating a major financial decision regarding residential real estate, please do yourself a huge favor and consult with a reputable real estate broker, attorney and/or accountant.
FHA Updates
The FHA Reform Act of 2010 has passed the House in an overwhelming fashion. The amendments calling for increased FHA down payment requirements have been rejected. A second potentially damaging element that called for FHA exposure to be limited to 10% of the market has been shot down. Bottom line is that FHA loan default rates are down significantly and the program is operating more effectively than it has in quite some time.Another hot FHA issue still in the “proposal” stage surrounds monthly mortgage insurance premiums (MIP). Right now, FHA’s MIP is calculated at .55% of the loan amount per year. This translates to a $91.67 MIP on a $200,000 FHA loan. The current FHA Reform Act requests a monthly mortgage insurance cap lift to 1.55% (from the current .55%). This represents a nearly 300% increase. HUD/FHA has stated that while it is requesting the “right” to go up to 1.55% they will likely only raise the factor to .90% for the time being. If so, the change would take that same $91.67 MIP payment to $150.
Stay tuned, folks. The FHA ride is likely to be a long and wild one!
