Cash-out refinances on the rise

NEW YORK – April 27, 2015 – Could it be time to cash out some home equity by refinancing your mortgage? For growing numbers of owners, the answer this year is an emphatic yes, at least according to new data from some major lenders.

In a cash-out refinancing, you convert part of your home equity into money, adding to your mortgage balance. Say you have a $400,000 home with a $200,000 first mortgage. You have $200,000 of equity and a couple of worthwhile projects in mind – paying off high interest-rate credit card balances and renovating the house – that will cost you around $50,000.

Since mortgage rates remain attractive in the 4 percent range, and you can handle the higher monthly payments on a larger balance loan, you refinance your $200,000 existing loan and take out a new $250,000 loan to replace it. You end up with more debt, but you also walk away with roughly the $50,000 you need, less transaction fees.

Cash-outs were the rage during the housing boom years of 2004-2007. At their peak, in the third quarter of 2006, nearly nine out of 10 owners who refinanced pulled out money from their homes, according to mortgage investor Freddie Mac. But by late 2008, the bubble had imploded. Equity holdings plunged. Cash-out refis virtually disappeared.

Now, with home equity higher in many markets – especially along the Pacific and Atlantic coasts – cash-outs are making a comeback. Consider these summaries of in-house corporate data provided to me last week:

Bank of America saw the number of cash-out refinancings funded during the first quarter jump by 47 percent compared with the same period in 2014.

LoanDepot, a major non-bank mortgage originator, says its cash-outs during the first quarter were up by an extraordinary 78 percent compared with the same period a year earlier.

LendingTree, which connects borrowers online with multiple lenders, reports that requests for cash-outs rose in the first quarter by 40 percent over the same period last year.

Though not all lenders are seeing the same trend, something significant appears to be underway. Quicken Loans, one of the largest mortgage originators, says total dollar volume of cash-outs is up this year, even though the cash-out percentage of all refinancings is slightly below what it was last year – around 20 percent of total refi business.

Freddie Mac, which has not completed its first-quarter refi analysis, said preliminary data indicate that there has been only a modest increase in cash-outs. Wells Fargo, the country's highest-volume mortgage lender, said that it is not seeing anything like the splashy jumps in cash-out volume reported by Bank of America or LoanDepot.

What's going on? Some lenders clearly are tapping into pent-up demand from owners who find themselves with growing equity and have financial needs prompting them to put some of it to use. Even lenders who are not recording dramatic growth in volume agree that a cash-out refi can be an important – and responsible – financial option for owners who can qualify.

But qualifying for a cash-out in 2015 is much tougher than it was during the see-no-evil underwriting years of the boom. As a general rule, you need to retain at least 20 percent equity in your home after the addition of the new debt. And you've got to document that you have the income to support payments on the higher debt load.

Allyson Knudsen, executive vice president for national underwriting at Wells Fargo, says cash-out underwriting guidelines are "stricter than for traditional rate and term refinancings." That means banks pay special attention to applicants' debt-to-income ratios, purposes of the additional debt and credit profiles.

Bob Walters, chief economist for Quicken, told me that cash-outs are nothing like they were a decade ago. "People are not feeling like their homes are piggy banks" to dip into for everyday expenses, vacations and the like. Instead, most cash-out refi proceeds now go to debt consolidation and home remodelings.

John Schleck, who heads Bank of America's centralized and online sales, said in an interview that cash-outs "should never be the first thing borrowers think of" but rather be part of a thorough evaluation of their financial needs, resources and ability to handle more debt.

Bottom line: If you have a productive purpose for the money and can pass the underwriting tests, consider a cash-out while interest rates are still favorable.

Source: The Jerusalem Post Provided by SyndiGate Media Inc. (Syndigate.info).

Why buy a home? The reasons have changed

IRVINE, Calif. – April 27, 2015 – The first quarterly Homeowner Sentiment Survey finds that people's perception of home value in the post-crash era runs deeper than standard measures of price and location. Today's owners and prospective buyers define value in broader terms – personal confidence in their housing investment and how a property will meet their family's needs now and in the future.

The study was conducted by Berkshire Hathaway HomeServices, part of the HSF Affiliates LLC family of real estate brokerage franchise networks.

"Homeowners today seem to have a longer-term perspective for their properties," says HSF Affiliates CEO Gino Blefari. "Owners are telling us a home is more than its price tag, and they're placing more value in a home's intrinsic qualities of wealth building, safety, satisfaction and a place to raise a family."

A large majority of owners (89 percent) expressed satisfaction with their home and current living situation; about a third said they've considered selling their home in the near future. Those selling their homes seek properties that better fit their changing lifestyles and life events, among other reasons.

Home-value perception varies through the lenses of different age groups. Boomers and Gen Xers embrace homeownership first as a "smart, long-term investment." By contrast, millennials are "thinking in the now" about real estate, placing highest priority on the "ease of a purchase decision," including the ability to close quickly on a property, secure financing and afford monthly payments.

Of homeownership's benefits, millennials want a place they're proud to show family and friends. They value a community with great schools, and they seek locations that encourage healthier lifestyles. They also want a lively neighborhood: 61 percent said it's important to live in a neighborhood with a variety of trendy dining and retail options.

"As millennials become a larger part of the home buying market, their preferences become better defined and seemingly more traditional," says Stephen Phillips, president of Berkshire Hathaway HomeServices. "We have always believed there is more similarity than difference among home buying groups, and this new data seems to support that view."

With an eye toward enhancing long-term value, 88 percent of current homeowners say it's important to update or renovate their home over time, and they want improvements that stress energy efficiency and eco-friendly systems and materials. More than 60 percent of current homeowners favored "green" improvements even before kitchen, bath and flooring projects. Millennials are most enthusiastic about renovating: 61 percent want a home they can upgrade to their preferences.

Overall, homeowners and prospective buyers believe housing has turned the corner. A full 94 percent said homeownership is important to their long-term financial planning. With interest rates hovering near historic lows and the economy and job market growing, respondents said today is a more ideal time to buy a home than a year ago.

Still, a strong majority of respondents expect more competition for homes as housing inventory remains tight in many U.S. markets. A skilled sales professional will help in the search: Of prospective homeowners who hired agent, 93 percent said the agent has been effective in that home-finding process.

"This magnifies the value of sound real estate guidance today," says Blefari. "Sales professionals are the local-market experts with a keen understanding of home value, availability and negotiation. All things considered, when your agent finds you a great home in the right location and price point, it's time to make your move."

Source: Florida Realtors®

Credit unions: A not-so-secret mortgage source

CHICAGO – April 20, 2015 – Credit unions that proactively promote their mortgage business are offering much better terms than most banks. Some help buyers with expenses by refunding portions of real estate agents' commissions, for example, while others lower downpayment criteria or offer closing cost assistance.

NASA Federal Credit Union, for example, offers zero-down mortgages up to $650,000 with no private mortgage insurance.

Navy Federal offers zero downpayments, no private mortgage insurance premiums and, for those who qualify, the standard menu of mortgage products from FHA (3.5 percent minimum down) and the Department of Veterans Affairs (nothing down).

Potential mortgage borrowers looking for great credit union deals can explore local membership opportunities at http://www.culookup.com.

Source: Washington Post (04/18/15) P. 8; Harney, Kenneth R.

Why rents will rise again this year

LOS ANGELES (AP) – April 15, 2015 – Living in an apartment? Expect your rent to go up again.

Renting has gotten increasingly expensive over the last five years. The average U.S. rent has climbed 14 percent to $1,124 since 2010, according to commercial property tracker Reis Inc. That's four percentage points faster than inflation, and more than double the rise in U.S. home prices over the same period.

Now, even with a surge in apartment construction, rents are projected to rise yet another 3.3 percent this year, to an average $1,161, according to Reis. While that's slower than last year's 3.6 percent increase, the broader upward trend isn't going away.

"The only relief in sight is rents in the hottest markets are going to go up at a slower pace, but they're still going to go up," says Hessam Nadji, chief strategy officer at Marcus & Millichap, a commercial real estate services firm.

The main reason: More people than ever are apartment hunting.

Young people who have been living with their parents are increasingly finding jobs and moving out. Rising home prices are leading many long-time renters to stay put.

In addition, most of the new apartments coming on the market are aimed at affluent tenants and carry higher-than-average rents. That's especially true in cities where new buildings are going up in urban core areas, which means builders need to recoup higher land and development costs.

Consider Denver, where rents have increased more than 5 percent a year since 2010 — 9.2 percent in 2014 — according to Marcus & Millichap. Of the 9,400 new apartment units added last year, 23 percent were in urban core areas.

Competition for apartments means renters are less likely to be able to negotiate with landlords, or win concessions such as a free month's rent.

Here's a closer look at why apartment dwellers will probably see rents go up for a sixth straight year.

More jobs, more competition

During the last recession many workers who lost their jobs moved in with relatives or took on roommates. About 32 percent of U.S. adults were living with roommates or adult family members in 2012, up from 27.4 percent in 2006, according to Zillow, an online real estate firm.

Stepped-up hiring has begun to reverse that trend. About 2.8 million more Americans have jobs than 12 months ago.

"The share of young adults with jobs has climbed in the past year, and that will help many of them move out of their parents' homes," says Jed Kolko, chief economist at online real estate firm Trulia. "Most of them will be renters first."

More people vying for apartments helps drive rents higher. And metropolitan areas with faster job growth are generally seeing higher-than-average rent hikes as well.

The three metro areas with the biggest annual increase in rent in January, according to Trulia: Denver (14.2 percent), Oakland, California (12.1 percent), and San Francisco (11.6 percent).

Job growth in each of those cities also eclipsed the national growth rate of 2.3 percent over the 12 months ended in January. Employment grew 3.7 percent in Denver, 2.7 percent in Oakland and 4.5 percent in San Francisco.

Home buying delayed

Traditionally, renting has been a stepping stone toward homeownership. When rents rise, tenants are motivated to buy sooner, especially when interest rates are near historic lows, as they are now.

But these days, renters are taking longer to buy. The U.S. homeownership rate ended last year at a 19-year low of 64.4 percent.

Between higher rents taking a bigger bite out of the bank account and sharply higher home prices, potential buyers are having more trouble saving for a downpayment and qualifying for a mortgage.

And many millennials, or 18- to 34-year-olds, simply prefer renting.

That's true for Alyssa Hankins, a marketing and social media strategist in Los Angeles. She moved in February to a newly opened complex where rents range from $2,325 for a studio to $5,920 for a two-bedroom unit. She wants to be able to move quickly if a job opportunity comes up.

"It's less about affordability and more about flexibility," says Hankins, 29.

When renters stay put, fewer apartments are available for new tenants, which in turn drives up rents.

New apartments are pricey

Developers added 238,000 apartments nationwide last year, a 14-year high, with another 210,000 expected this year, according to Marcus & Millichap.

In theory, more apartment construction should help bring down rents because landlords would compete for tenants. But 80 percent of new complexes, Nadji estimates, are high-end projects aimed at renters willing to pay a premium for amenities like gourmet kitchens and concierge service.

How much of a premium? The average rent for apartments completed last year was $1,721. That's 46 percent higher than the average apartment rent for older units, according to Marcus & Millichap and data provider MPF Research.

"There's very little new supply being added anywhere else," says Nadji, "so that's why there's so much pressure on rents and very little choice for the average renter."

Source: The Associated Press, Alex Veiga

What Lenders Are Looking for: The 4 C's

Low mortgage rates are helping to bring home ownership within reach for some borrowers. But qualifying for a mortgage remains a big challenge for many, as tight underwriting standards persist in the wake of the financial crisis.

Christina Boyle, a senior vice president of single-family sales and relationship management for Freddie Mac, explains how your clients can be better prepared to qualify. Boyle writes at the mortgage giant’s website about the four C’s that lenders are evaluating when deciding whether to grant a borrower a loan. They are:

Capacity: “Your current and future ability to pay back the loan,” Boyle explains. “Lenders look at your income, employment history, savings, and monthly debt payments, such as credit card charges and other financial obligations, to make sure that you have the means to take on a mortgage comfortably.”

Collateral: The value of the home that you intend to purchase.

Capital: “The money and savings that you have on hand plus investments, properties, and other assets that could be sold fairly quickly for cash,” Boyle says. “Having these reserves proves that you can manage your money and have funds, in addition to your income, to help pay the debt.”

Credit: How well you’ve done paying your bills and other debts on time.

The down payment is also an important piece that lenders consider, Boyle adds. In 2014, buyers put down an average of 14 percent on their home purchase, according to a report by RealtyTrac. Freddie Mac’s new Home Possible Advantages mortgage allows qualified borrowers to put down as little as 3 percent. But those who put down less than 20 percent should expect to pay a higher interest rate as well as pay mortgage insurance, Boyle says.

Source: “The 4 C’s of Qualifying for a Mortgage,” Freddie Mac (April 6, 2015)

3 Mistakes Sellers Often Make

Home owners can get emotional about their home when it's time to sell. Here are a few mistakes sellers often make in letting emotions override logic during a transaction:

1. Being unrealistic about the home’s value.

Too often, what the seller believes their home is worth is not realistic. Despite tight inventories of homes for-sale in many markets, sellers still need to be careful not to get too greedy with their list price, say real estate professionals.

Home owners tend to get a much lower price when they overprice a home at the onset and then drop the price several times. The longer the home lingers on a market, the more likely it will receive a deeper discount, notes realtor.com®. McEnearney Associates, a real estate company in McLean, Va., found that to be true. Homes for sale in August 2013 sold within the first week on the market for an average of 2.08 percent above list price, while homes that stayed on the market four months sold for an average of 11.53 percent below the original price.

A reasonable price would be based on comparable properties that are selling for and the home's appraised value. "No offers within a 30-day period means the price is too high," real estate sales associate Djana Morris told The Washington Post.

2. Not making a better home presentation.

Another big mistake: Home owners who fail to spruce up their home's interiors and exteriors. "At a minimum, home owners should conduct a thorough cleaning, haul out clutter, make sure the home is well-lit and fix any major aesthetic issues," Chris Polychron, the president of the National Association of REALTORS®, said in a statement about findings from NAR's 2015 Profile of Home Staging, a survey of more than 2,300 REALTORS® representing buyers and sellers. 

Eighty-one percent of REALTORS® who represent buyers surveyed by NAR said that staged homes make it easier for their home buyers to visualize a property as their future home. Forty-six percent of buyer agents also reported that staging makes their buyers more willing to tour a home they viewed online, and 45 percent say that buyers tend to view the value of the home more positively if it is decorated to buyers’ tastes. 28 percent of agents said their buyers are even more willing to overlook other property faults if a home is staged.

3. Not being honest about the home’s history.

It can be tempting for some home owners to hide their home's history and fail to disclose flaws. But agents need to remind their sellers that covering up serious flaws – such as foundation problems, leaky roofs, mold, or more – could come back to haunt them later. The buyer may uncover the flaws during the home inspection and may want to then back out of the deal or ask the seller to fix the problem then. If the issues aren't discovered until after the sale, sellers may even find themselves in a legal battle later on. It's important to remind sellers upfront about any potential issues with the home.

Source: "5 Mistakes People Make When Selling a Home," CheatSheet.com (April 11, 2015) and "Your Home’s First Price Should Be Its Best Price," realtor.com® (2015)

Owning cheaper than renting in 76% of U.S. metros

IRVINE, Calif. – April 9, 2015 – RealtyTrac released its Residential Rental Property Analysis the first quarter of 2015 and found that the monthly house payment (median-priced three-bedroom home) is more affordable than the monthly fair market in 76 percent of U.S. counties included in the analysis.

The report also ranked the markets with the best – and worst – potential returns on residential rental properties from a real estate investor perspective, along with the most affordable – and least affordable – markets for renting from a renter perspective.

The analysis included 461 U.S. counties with a population of at least 100,000 and sufficient home price, income and rental data.

On average, fair market rents (set by the U.S. Department of Housing and Urban Development) were 28 percent of estimated median household income; monthly house payments on a median-priced home (10 percent downpayment with property taxes, home insurance and mortgage insurance included) were 24 percent of the estimated median income.

"From a purely affordability standpoint, renters who have saved enough to make a 10 percent downpayment are better off buying in the majority of markets across the country," says Daren Blomquist, vice president at RealtyTrac.

However, Blomquist says "factors other than affordability are keeping many renters from becoming buyers – a reality that means real estate investors buying residential properties as rentals still have the opportunity to make strong returns in many markets across the country." He also notes that the data RealtyTrac analyzed are not the only variables in a buy-versus-rent decision.

Florida

Only two metro areas and cities in Florida ranked in any of RealtyTrac's top 10 or bottom 10 lists for renting or investing. Miami-Dade (including Fort Lauderdale and Pompano Beach) ranked No. 4 nationwide in the "least affordable rental markets" list. The analysis finds it takes 45 percent of an owner's median income to rent, while it takes only 34 percent of median income to buy a home.

For real estate investors, only Pasco County made the top 10 list for annual investment return. According to RealtyTrac, the annual gross rental yield for a cash buyer in February 2015 at 19.20 percent compared to the nation's top investment city, Baltimore, Maryland, which saw 24.82 percent returns.

Nation

Among the 56 counties with most favorable conditions for buying, the most affordable for buying was Bay County, Michigan in the Bay City metro area, where it takes only 11 percent of the area's median income to make house payments on a median priced-home.

The top U.S. market for renting is Delaware County, Ohio, in the Columbus metro area, where it takes only 14 percent of the area's median income.

While the Miami-Dade area ranked fourth for high market rents, Bronx County, New York, led the list. In the Bronx, a median-income home pays 69 percent monthly in rent. However, the cost of ownership is so high that renting remains the preferred option there.

Investment returns

The average potential annual gross rental yield for homes purchased in February 2015 was 9.34 percent for all metro areas, calculated by annualizing the rental income and dividing that amount into the purchase price of the property.

Markets with the highest potential annual gross rental yields for homes purchased in February 2015 were:

Baltimore City, Maryland (24.82 percent),

Clayton County, Georgia (24.26 percent),

Wayne County, Michigan (21.08 percent)

Pasco County, Florida (19.20 percent)

Trumbull County, Ohio (18.36 percent)

Markets with lowest returns on residential rental properties:

New York County/Manhattan, New York (2.34 percent)

San Francisco County, California (3.20 percent)

Kings County/Brooklyn, New York (3.63 percent)

Marin County, California (3.84 percent)

Williamson County, Tennessee (3.89 percent)

Investment markets with rising rental returns

Douglas County, Oregon (potential returns up 119 basis points from a year ago)

 Linn County, Iowa (109 basis point increase)

Henderson County, North Carolina (109 basis point increase)

Kendall County, Illinois (89 basis point increase)

Sussex County, Delaware (80 basis point increase).

Cook County, Illinois (43 basis points increase)

King County, Washington (12 basis point increase)

Long Island, New York (49 basis point increase)

Nassau, New York (24 basis point increase)

Wake County, North Carolina (30 basis point increase)

Source: 2015 Florida Realtors®