THE 5 THINGS YOU MUST KNOW ABOUT BUYING REAL ESTATE AND GETTING A MORTGAGE IN 2010

THE 5 THINGS YOU MUST KNOW ABOUT BUYING REAL ESTATE AND GETTING A MORTGAGE IN 2010

1. NEW Good Faith Estimates take effect- on January 1st, 2010, RESPA(Real Estate Settlement and Procedures Act) which is one set of governing bodies over the real estate, mortgage and title industry is implementing a new 3 page estimate of settlement costs and new settlement statement that all industry providers must use. The goal of RESPA with these changes is to make settlement costs more transparent to homebuyers and home refinancers and at the same time guarantee certain costs to consumers. We do see it as helpful to the industry and consumers however it will take several months for all industry players to get all the working parts of it working smoothly. How could this affect you? Consumer will be more informed however RESPA has implemented very tedious rules for lenders that may cause the need for homebuyers and sellers to be more flexible with a settlement date. Bottom Line: A target date for settlement may become more normal versus a specific day and time for settlement.

2. INTEREST RATES- On March 31st, 2010 the Federal Reserve will end a program in which they have purchased $1.25 Trillion in Mortgage-Backed-Securities(MBS). The reason mortgage rates have been so low in the past 12 months is because of MBS purchases. The Federal Reserve did this to purposely drive down mortgage interest rates to potentially spur more home sales to in turn help the economy return to some sort of normal sooner rather than later. To keep it simple, mortgage interest rates drop when there are a lot of buyers of MBS and inversely mortgage rates go up when there are a lot of sellers in the MBS market. So, if rates went down to around 4.5% APR for the last year because the Federal Reserve was systematically buying $1.25 Trillion of MBS, what needs to happen as they end this program and start to sell their MBS portfolio? If you said rates must go up you are absolutely correct! As the largest investor(Federal Reserve) in the MBS market sells their holdings rates will rise. The biggest question still looming is how fast will the Federal Reserve sell their MBS portfolio after March 31st? The answer to this will be determined by how well the economy does in 2010. Many Federal Reserve members have stated that they understand that they need to be cautious in how fast they sell MBS because if they sell too fast rates could rise dramatically and quickly which would not be in the best interest of overall economic stability. We expect mortgage interest rates to stay relatively low in the 1st quarter of 2010 but will rise significantly by mid year with average rates expected between 6% to 6.5% on 30 year fixed mortgages for the second half of 2010. Bottom Line: It is possible that the next 3 months will be the last time in our lifetimes that we can get a 4.5% APR 30 year mortgage! I would recommend that if you can, buy a home or refinance your current home before the end of April 2010.

3. TAX CREDITS - On April 30, 2010 the tax credit for first time homebuyers of $8000 and the $6500 tax credit for those who have owned a primary residence 5 of the last 8 years will end. Tax credit recipients will have until June 30th 2010 to actually settle on the home purchased. Bottom Line: You must find a home to buy by April 30, 2010 and settle by June 30, 2010 to take advantage of this opportunity.

4. INDUSTRY CHANGES- 2009 saw more than 60% of mortgage companies go out of business and many good mortgage consultants have been forced from the industry as well. More than 60% of mortgage products that existed 3 years ago are gone. The Department of Housing and Urban Development and the Federal Reserve along with State regulatory bodies have forced new and imposing regulations on the mortgage industry on a regular basis throughout 2009 with more coming. A lot of the regulations will eventually be helpful however to have multiple changes and new rules implemented multiple times monthly every month makes for a lot more red tape for consumers to get a mortgage. There is currently a 1271 page document floating through congress that will add even more regulation change to the industry and until lenders know what the rules will ultimately be which appears to be coming in mid 2010, requirements to obtain a mortgage will continue to be tough and get tougher. Bottom Line: Start working on your mortgage options well in advance of choosing a home to purchase.

5. YOU- What can you do with this information to take advantage of the situation for you and your family? Understanding that mortgage rates will be rising at some point in 2010 and that tax credits are due to end by the end of April it is highly recommended that you start looking into your mortgage options as soon as possible. Also, be sure to get educated on all current market conditions. Ask how new mortgage regulations will affect you, ask about tax credit pre-approval, ask for free mortgage pre-approval, ask about buying short sale and foreclosure properties, ask about seller assistance, ask about low and no money down mortgages, ask what you should budget for a housing payment to be safe. Bottom Line: Get educated, search your options now and if you can buy a home before April 30, 2010.