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LearnAbout Often Misunderstood Terms / About The Principle Group, Inc. and theprinciplegroup.net /
Topics covered: Financing / Appraisals / Down Payment / Interest Rates / APR / Variable (Adjustable) Rate Loans / Prepayment Penalties / DTI (Debt to Income)
/ Financing More than 90% of homes are purchased with borrowed money. The more a buyer knows about financing a prospective home the better the chances the transaction will go fast and smooth. Loans can generally be divided into four main groups. These are: 1) Government insured or guaranteed loans like FHA, VA, or Rural Development Advantages: competitive fixed rates—even with less than perfect credit. Low mortgage insurance. Low down payment requirements—or none at all, if combined with grant programs. Disadvantages: Strict rules regarding price limits, condition, and location (in the case of grant combinations) . Heavy documentation requirements
Advantages: very competitive fixed rates. Moderate documentation requirements. Disadvantages: higher down payment requirements. Higher credit requirements. Expensive mortgage insurance
Advantages: very little emphasis on location and/or condition. Lighter documentation requirements. Disadvantages: higher interest rates—usually interest only. (All of the monthly payment goes toward interest and none toward principal) Short loan terms. The need for well established credit, and/or a relationship with the bank making the loan.
Advantages: Moderate documentation requirements. Niche products for people with special needs or circumstances. Disadvantages: higher interest rates—possibly not fixed. High credit score requirements. Higher down payment requirements.
/ Appraisals The Appraisal is the process of determining the value of the home. This is most often done by means of the market comparison approach. Basically, this approach searches out what similar properties have sold for, within the last six months to a year, and determines the value of the subject home based on that data. For instance, suppose a three bedroom, two bath, two car garage home is priced at $150,000. The appraiser combs through records of recent sales and finds that most similar homes have sold for only $100,000 - $125,000, then the appraiser must conclude that the subject home is over priced. On the other hand, if the appraiser finds that comparable homes have sold for between $175,000 – $185,000. Then the home has good equity and represents a bargain. Appraisals are usually performed after the offer has been accepted and the inspection has been completed. It is important to know that appraisers are not home inspectors. Some buyers get the two confused. Why? Because appraisers will perform an abbreviated inspection to confirm that the condition of the home meets minimum FHA, VA or rural development standards (in the case of government backed loans). Those standards often center around health and safety. Appraisers for government backed loans don't want to see peeling paint, fuses rather than breakers, loose or missing rails, or homes which lack proper heating systems, and so on. FHA and VA loans require buyers to sign a specific form confirming that
they realize the difference between appraisals and inspections. Lenders offering government insured or guaranteed loans do not force buyers to get a home inspection. They only supply paperwork informing the buyer of the difference. Attempting to purchase a foreclosure with a government insured or guaranteed loan can be difficult, because foreclosures are often in poor condition, with the seller unavailable to make the repairs required by the buyer's lender.
The Down Payment is the amount of money a buyer must bring to closing as the portion they will pay toward their prospective house. It gives them a “dog in the hunt”. The theory being, when people sink some of their own money into a house, they are much less likely to default. Magic numbers for down payments tend to be 3.5%, 5%, 10%, 15% or 20%. Commercial loans may require as much as a 25% or even 30% down payment. When making a down payment, 20% is the often the magic number. It allows the buyer to purchase without having to carry mortgage insurance. (Please click here for a detailed explanation of mortgage insurance.) Closing costs and down payments are not the same. Closing costs are covered in more detail here. Where does the down payment come from? For government backed and conventional loans, it must be sourced and seasoned. This essentially means the lender wants to know where the money for the down payment comes from (sourced). What is more, they usually want to see it in your account for 30 to 60 days prior to closing (seasoned). The money can be gifted, but the gift must be documented. However, don't expect to come up with the down payment right before closing. / Interest Rates Rates change regularly. Think daily or even several times daily. Rates are tied to the bond market. Most of the time the bond market moves in the opposite direction of the stock market. It is called a “flight to safety”. When stocks look bad, investors “fly to the safety of bonds”. This is important. Most buyers watch, read, or listen to the news and learn that the Fed has lowered rates. They think that means mortgage rates will go down. That usually does not happen. Why not? First, the Fed doesn't set mortgage rates. The interest rates they tinker with impact businesses, particularly banks, not consumer mortgages. How do mortgage rates it work, then? Well, what makes up the stock market? Equities for businesses, including banks. This is why, when the Fed lowers rates, the stock market often goes up—and then the bond market goes down. Investors pull money from bonds to put into stocks. Translation? When the Fed lowers key interest rates, mortgage rates often go up. Not every time. But a lot of times. It is vital to realize this. Because even the most informed home buyers often watch, read, or hear the news and carry away only two words “rates” and “down” (or up). Mortgage rates are not that simple. The impact of rates is also closely impacted by the price of the home. If you are looking at a $65,000 house, and rates rise 1/8th of a point, it won't affect the payment to a great extent. If you have your eye on a $500,000 house, though, and rates go up 1/8th of a point, the impact is greater. Try it yourself with a good amortization calculator such as the one below.
While rates tend to be the poster children of home buying, in reality they are just a piece of the puzzle. A well informed home buyer never takes a “money is no object” approach to buying. But they also don't pass on a good deal if the rate ticks up insignificantly. (Just as they don't run out and sign a contract just because the rates eased slightly.) / APR APR stands for “annual percentage rate”. The APR is designed to help a buyer compare apples to apples in a transaction in which a lender could call various fees by very different names. Lets put that in real terms. When you get a home loan there will be lender fees. Different lenders will use any number of terms like origination fee, discount point, broker fee, underwriting fee, administrative fee, and on and on. If you had to get good faith estimates and go through them line by line, trying to figure out who had the best deal, you would soon be neck deep in confusion. APR, while confusing in its own right, is there to help. And once it is clearly understood, it does help. Here is a simplified explanation of how APR works. It pretends that all the fees your lender changes are part of the loan, even though these fees cannot be part of the loan. They have to be paid out of pocket. (Read about closing costs to get more information) The APR rate is always higher than your interest rate. You don't pay a higher rate—that's where it confuses most people—it is just there to show you how the fees you are being charged stack up against the money you are being loaned. Let's look at an example. Say you were quoted a rate by lender "A" of 5% interest. You get your good faith estimate (Good faith estimates are covered below) and the APR is 6.25%. What does this mean? Your rate is still 5%. (Most people are told that, and they go deaf for the rest of the conversation. But it is important). If, in fact, the lenders fees were part of the loan, it would impact the rate 1.25% (from 5% to 6.25%). What does that tell you? That those lender fees are sky high. It doesn't matter what they call it, administrative fee, origination fee, whatever—they are too high. Now suppose lender “B” quotes a rate of 5% and an APR of 5.25%. What does that tell you? No matter what lender "B's" fees are, what they are called, or how they are structured, they are lower. Notice, in both cases, your rate is still 5%. But the impact of the fees is very different between each lender. If it still seems complicated, (and it is), feel free to call or email me, Joel. I'll try to explain it further or give some reference material. In the meantime, here is a web-based APR calculator, or a downloadable one, if you prefer.
Variable or adjustable rate loans (also called "ARMs") are not too common anymore. As the name indicates, these loans adjust in rate over time. You may start with 5%. Then two years later, the rate may go up to 5.75%. The year after that, it may increase to 6%, and so on. Adjustable rate loans are usually capped. This means they won't double in six months. They can only go up so much at one time. And there is a limit to how much they can adjust over the life of the entire loan. So why were these loans so popular back in the day? Mainly because they came with a very low initial “teaser” rate. Plus, some did fill a need. Self-employed buyers or buyers with high DTI (debt to income) could often proceed with their purchase using this type of loan. Can you accidentally get an adjustable rate loan? Not likely. In Tennessee, you have to sign a big glaring “THIS IS AN ADJUSTABLE RATE LOAN” form (or several forms) at closing. It would be hard to miss it.
Prepayment Penalties hit you with a fee if you pay the loan off early—either through a sale or refinance. The fee is usually equal to about six months worth of interest. Prepayment penalty terms are also on a big glaring forms at closing, and often make clear the term of the penalty, which is usually a period of 2, 3, or 5 years. Commercial loans still may come with steep prepayment penalties. But, for residential mortgages they are largely a thing of the past. DTI stands for "debt to income". Lenders do not want your house payment coupled with your other bill payments to eat up too much of your total household income. They like to see a house payment stay around 25% of total household income. Exceptions can be made, though. Good credit, along with a stable job history may allow buyers to opt for a payment which is a bit higher. But, this is an exception—done on a case by case basis. You can't accidentally buy too much house, or get a payment which is out of your budget. Lenders just won't let you. Government backed loans are especially conservative when it comes to DTI. If you like, you can figure your DTI using this web-based calculator.
Which is best, a 15 year mortgage or a 30 year mortgage? The answer depends on how much cash you want at the end of the month. A 15 year mortgage pays the house off faster, but the obvious trade off is a higher monthly payment. A 30 year loan allows for a lower monthly payment but doubles the time it takes to apy off the loan. You can see the difference using this amortization calculator. What most buyers don't realize is that the loan term can, in a sense, be controlled by the borrower. For instance, if you make one extra payment per year toward a thirty year mortgage, you can easily cut the loan period by about half. Doing this can turn a 30 year loan into a 15 year loan jsut by making occasional extra payments. This option is something to consider. Click here to calculate the impact of early payoff. (TOP)
Topics covered: Closing Costs / Settlement Statement (HUD1) / Good Faith Estimate
Closing costs are part of any real estate transaction. They vary from lender to lender. To make it even more complicated, they are called by different terms. They can however, be divided into 1) Lender fees 2) Escrow fees 3) Title expenses and 4) Government fees. Each are considered as follows: Lender fees (what the mortgage broker charges to do the loan) are called by different names, including origination fees, application fees, underwriting fees, and so on Escrow fees are for things like homeowners insurance (called hazard insurance by lenders), city and county property taxes, and perhaps other fees specific to a neighborhood. These fees are collected in advance and then escrowed (added) into the monthly payment. Literally one-twelfth of these fees are collected each month so the homeowner does not get hit with the entire bill when it becomes due. Title expenses involve the fees to close the loan and prepare the necessary paperwork. The one-time title insurance premium is also be included in this group. An explanation of title insurance can be found here. The state, county and/or city in which a home is located carries with it certain fees to record the deed of trust. A state transfer tax must also be paid, although it is much lower than the Tennessee state sale tax rate.
A real estate transaction is closed using what is called a HUD1 settlement statement . Often your lender or the title agent will refer to it simply as the “settlement statement” or the “HUD”. The settlement statement is an involved document which covers both sides of the transaction—both buyer and seller. It can be difficult to decipher, since it covers everything, including the purchase price, the loan amount, property tax credits, escrows and impounds (portions of the property taxes and insurance collected in advance), all lender fees, title fees, government fees, real estate commissions, and so forth. It is a lot to take in at one sitting. So, no matter how much you may love the house and want to get moved in, it is better to get a copy of the settlement statement a day or so before closing to review it, rather than rushing to a closing and trying to take it all in there. New laws make this virtually mandatory anyway.
A Good Faith Estimate (also called the GFE) is provided to the buyers by the lender. The purpose of the GFE is to prevent surprises at closing. Good faith estimates will never be exact, but they should be pretty close to actual costs. As a matter of fact, the law only allows a small degree of variance between the GFE and what you ultimately pay under your loan terms. In other words, you won't get all the way to closing, only to find your payment and closing costs have significantly increased.
(TOP)
Topics covered: Credit Scores / Credit Repair / Bankruptcy
Almost every home loan is score driven. Is that fair? Lenders need to have some means of guidance, and since they don't know you personally, and can't afford the time to get to know you better, a credit score is their best tool. What is a good or bad score? The three credit reporting agencies, Equifax, TransUnion, and Experian, use three digit scores ranging from the about 350 to about 850. That is a generalization, but it gives you the idea. For mortgage acquisition purposes a credit score of about 620 or higher is needed to get a government backed loan. (Think FHA, Rural Development, etc.) A conventional loan will require a score greater than 620 unless a large down payment is made. There are also a handful of FHA lenders who will go down to a 580 on a case by case basis—at a higher interest rate, of course. Additionally, lenders look at DTI just as closely as the credit score. DTI is covered in more detail here. Collections and Charge offs are more common than people think. Even buyers with the best credit may have a collection that has slipped through the cracks. Health insurance is one culprit. Many times an insurance company will, for whatever reason refuse to pay a particular bill. The doctor will, rather quickly, send the bill to a collection agency. The insured may not even realize it. This occurs more often than you might think. Life is complex today. With insurance, divorce, medical bills, etc. it easier than ever to have something escape your attention and ding your credit score. Many, many buyers have to do a little tweaking to their credit report. Speaking from experience the credit report should be one of the first things addressed in the home buying process. Don't be surprised if you find a problem. It is common. Think of it this way—the sooner a credit problem is caught, the sooner it can be cleared up.
So does this mean credit can be repaired? Many times, yes. There are plenty of legal steps a person can take to improve his or her credit score. For instance, if a score is being brought down by too many inquiries, stop applying for credit. Look at the current inquiries. Are some duplicates? Are some just plain wrong? Then dispute them and get them off. That is just an example, though. Credit is its own huge and ever growing subject. If you need to know more about credit, contact me, Joel. I can point you toward a few reputable credit repair experts. Before leaving the subject, though, it must be said—you do not have to pay someone to fix you credit. You can do-it-yourself. But, realize it is complex and intricate. Be prepared to spend generous amounts of time to research each matter carefully so it does not become a bigger drag of your credit score—which can happen if it is not done right.
And what about bankruptcy? Believe it or not most government insured loans allow past bankruptcy. How long ago it was (2 years is often the magic number) and how consistently it was paid does matter. (TOP)
Topics covered: Foreclosures / Lender Owned (Bank Owned) / How To Buy / HUD Foreclosures
Note: this information is for owner occupant buyers who are new to forclosure/REO properties. Information for investors and more experienced buyers can be found here. The term "foreclosure" has gained wide exposure. The word is thrown around a lot. Let's get it sorted out from the get go. A true foreclosure in the State of Tennessee is auctioned on the local courthouse steps. It is sold for cash and may or may not be vacant. Basically, after an auction the winning party (the buyer) agrees to pay cash to buy the deed of trust which is secured by the property. That, in turn, gives the buyer rights to the property itself. This represents the highest risk, since the new owner has often not entered the property to see the interior condition. And any other liens or encumbrances, like a judgment, second mortgage title defects, etc, can become the headache of the new owner. (They won't just disappear. They must be resolved.) On the other hand, bank owned or lender owned properties are homes that went up for auction on the courthouse steps but didn't sell. So, it continues to be the bank's problem. So, they evict the previous borrowers, clean the place up and list the property with a broker. The home then becomes an "REO". That stands for "Real Estate Owned". Owned by a lender—who does not want it. It represents a mistake. A black eye. (You can search foreclosures/REOs using theprinciplegroup.net's specialized search engine.) Buying such a home still carries risks, to be sure. But overall, it is much safer than paying cash for a house you have not had a chance to inspect, with a title you are not sure is clear.
Lender owned homes have a clean title. They are “sellable”. They are open for showings just like any other listed home. You can get a loan to buy one, rather than having to pay cash at an auction and hoping you didn't buy a money pit. However, lender owned properties (REOs) are often sold AS-IS. This means if the pipes have burst, figure the cost of fixing them into your purchase price. If it needs appliances, figure the cost of replacing them into your purchase price. If the carpet is terrible, figure the cost of replacing it into your purchase price. You get the idea. Is it worth it? Most of the time it is. Many lender owned properties have equity from day one, since they are sold for less than they are worth. Almost all of them, though, will need at least a little work. Lender owned properties are rarely in move-in condition. But, it must be said, lender-owned properties are “prickly”. Lenders view these as losses. They have never seen the property and they usually just regard it as a number. Don't expect a lot of niceness during the offer process—although your broker will insulate you for the most part. Make sure you have your own broker (also called an agent). It will not add costs to the transaction, and will make it much easier for you. You'll probably also get a better deal. Click here for more information on how buyer brokers (agents) work. Then. feel free to contact me, Joel. Closely related to this is another important piece of information. Sellers of lender-owned properties will not tolerate delays. They charge a per diem (daily) fine for every 24 hours if the transaction runs past its closing date. I have seen that fee as high as $150 per day. That is a lot of money. And buyers get charged whether the delay is their fault or their lenders fault. So, time is of the essence. A good broker knows this, and will gently—or not so gently—remind your lender.
How do you buy a lender owned (REO) property? Like any other listed home, you make an offer. For lender owned homes this means having an earnest money check for $500 or $1000. Lender-owners also require a pre-approval letter to come in with the offer. They have to know that you have been to a mortgage broker and have the green light to buy. If they do not get a copy of the earnest money check and a pre-approval letter, they ignore or reject the offer. Simple as that. It is as if the buyer does not even exist. If the offer is accepted, you will have to sign some additional forms called addenda (usually about a dozen pages or so—maybe more) which the particular lender selling the home uses. Can you buy lender owned homes for pennies on the dollar like they say on TV? Nope. What they don't tell you on late night infomercials is that competition for bargains is intense. Usually lender owned homes are already priced well below surrounding houses. The equity is already there. Savvy investors know this. A well priced lender owned property will have half a dozen offers, or more, within 72 hours. The lender will look at all the offers and pick the best one. If the property is $20,000 below market and the lender gets six offers, one at their asking price, three below, and two for half of what they are asking, which offer do you think they will take? Now, late night TV says it's a numbers game. If you make 100 offers one seller will bite. The question to ask is how long will you be paying rent (or loosing out on profits if you are an investor) until you can find that magic deal? One year? Two? More? Remember, pigs get fat. Hogs get slaughtered. If a lender owned property already has many interested buyers and is priced well below market value, it is time for a reasonable offer. Not a lowball. Otherwise, you will watch in disappointment as another buyer walks away with all that equity. There are two circumstances in which a buyer should diverge from this rule, however. First, if the lender owned home has been on the market a while, a lower offer will likely lead to a flurry of counter offers, then hopefully a contract. Second, if a lender owned property is new to the market and is obviously overpriced. (A good buyer's broker can tell almost immediately) In this cases, a lower offer is in order, since the lender has a distorted view of the market and how much the home they are selling is worth. But, realize, if the home is fresh on the market, your offer will likely be rejected. It will take time for the lender-owner to realize the price is too high. You can give it a few weeks and try again. In the meantime, there will be other good deals to look at. There is one notable exception to all the above information about lender owned (REO) properties. It is the HUD foreclosure market.
A HUD foreclosure is an FHA loan gone bad. HUD then becomes the entity to repossess and resell the home. Buyers don't make offers on HUD homes. They bid on them. Here is the biding site. Your broker will have to bid for you. All brokers must be registered with HUD to bid. This should not cost you any money, since your broker is paid by HUD, although he represents you. How should you direct your broker to bid? Well, there is a fine line between bidding too little (they will ignore you and post your bid for all competing buyers to see) and bidding too much. To get a HUD home at the best possible price, your broker must know what he is doing. Additionally, with the exception of extreme cases, HUD will not make a single repair to the property. So, property condition becomes a huge issue. Bidding on HUD homes at a bargain is almost an art and entails more than can be covered on this web page. Please feel free to contact me, Joel, if you are interested in a HUD foreclosure. I have extensive experience with HUD. I will be happy to explain the process and place a bid, if you so desire. In the meantime you can use theprinciplegroup.net's specialized search engine to find them in our area. (TOP)
Topics covered: Earnest Money / Making An Offer / Closing The Deal
Early in your home search it is a good idea to think about how much earnest money you want to put down. Earnest money is not a fee you pay to put an offer on a house. It is a good faith gesture to show you are serious. Earnest money is not usually required, and there is no set amount. Sellers can set a predetermined amount of earnest money they require but this a rare among indivduals. But, Lender owned properties (REOs) often do this. The more earnest money you put down the more serious you appear to a seller. Where does the earnest money go? It goes toward your transaction. For instance, if you have agreed to pay all of your closing costs, and those closing costs add up to $4,000, your earnest money is applied to the $4,000. So, if you put $1,000 down as earnest money, then you would need to bring only $3,000 to closing. The same is true of down payments. This above explanation is somwhat over simplified, but it conveys the idea. Who holds the earnest money? Usually your broker will. In the case of lender owned properties, they often require earnest money to be held by their broker. (the listing broker) That often cannot be negotiated. Certain local listing brokers may want to hold earnest money as well, rather than letting your broker hold it. That may be negotiable, however. Is earnest money at risk? Not if you follow the contract. A good rule of thumb is this: you usually don't loose earnest money for something that is not your fault. So, if the house fails to appraise for the purchase price, the earnest money is likely going to be returned. If you are denied the home loan, the earnest money is likely going to be returned. If the seller can't supply a clear title, again the earnest money is likely going to be returned. If you get to closing fully approved and able close the transaction, only to tell the seller you found a house you like better, the chances of you getting your earnest money back are very slim.
You have diligently searched the market and have found the home you think is the one for you. The price is right. The location is great. And it fits most of your wants and needs. Now what? It is time to make an offer. First
though your broker will need to get the disclosure for the seller. It will
either be If
the home was built prior to 1978, you will also need to sign If you have questions about how disclosures work, feel free to contact me, Joel. Now on to the offer. An offer is essentially filling out the buyer side of the contract. That one-sided contract is presented to the seller. Once they sign it, it becomes full fledged, two-sided, binding contract.
A contract is a legal agreement. It states clearly 1) who is buying and 2) who is selling, 3) where the property is located, 4) who pays closing costs, 5) how inspections are to be handled, and finally 6) legal language to remind everyone to do their part. Of course, this is not an official breakdown, but it covers the basics. Once
the one-sided contract (called the offer) is presented, one of three
things will happen. The best is that it will be accepted. The worst
is that it will be rejected. In between is the counter offer. At this point, the ball is in your court. You can either accept the lessened closing costs and put the house under contract, or you could send back your own counter offer to close the gap. Say, asking the seller to pay $3,700. When you hear people talk about negotiating a home purchase, they are really referring to the "Offer-Counter offer" process. But your goal is to buy a house, not just shuffle papers. So you want to get the offer accepted. Most sellers and buyers close the gap and get a binding contract in place. What then?
The transaction now heads towards closing. And how long might that take? The answer used to be 30 days. Today 45 or even 60 days is more common. During the time between the accepted offer and the closing, things should proceed in this order: First the home inspection which costs about $300 - $400. An inspection is a good idea but it is not required. It is up to the buyer. Next, comes the appraisal. (You don't want to pay an appraiser only to find the home needs more money or work than you thought. So you do the home inspection first.). An appraisal will be required by your lender. It also costs about $300 - $400. You will have to pay for this up front. But, if the seller has agreed to pay all your closing costs, you should get the appraisal fee back at closing. Finally, comes the termite inspection. It costs about $45 - $75. In this part of Tennessee the seller often pays this fee apart from any closing costs they agree to pay. While all of this is happening the title company is searching the title to insure that it is clear. And after that? Go to the title company for the closing. Sign a stack of papers (deed, escrow agreements, etc.) and then move in. Done. (TOP)
About Often Misunderstood Terms / Topics covered: Title Insurance / Hazard Insurance / Mortgage Insurance Title insurance protects buyers against title defects. For example, a person may have willed the family home to a grandchild, nephew, etc. That heir did not know of or claim their inheritance for whatever reason. You buy the home. Suddenly, there is the heir trying to claim the property. Title insurance protects you from something that could threaten your home ownership. The title policy carries a one-time premium. It is paid at closing. Why only one-time? Well, think about insurance for a moment. All other policies are in place to protect you from things that may happen in the future—life insurance, health insurance, car insurance. The title policy protects you from things that may have happened in the past. So, a one-time premium. It is a small price to pay for peace of mind. Who pays for the title policy? In this part of Tennessee, usually the seller. The reasoning behind this is simple. If someone puts a home up for sale, they should warrant that it is “sellable”. But it must be part of the offer terms. Seller paid title insurance is not automatic. There is one occasional exception. New home builders may balk at paying a title policy. Their reasoning is: the
home is new. There is no chain of title. But is the land new?
Title insurance is always a good idea. Even if the seller won't pay
for it.
Hazard
insurance is just another term for homeowners insurance. For some
reason, buyers use the term "homeowners insurance", and title companies use the
term "hazard insurance", for the same thing. It makes an already complex
transaction slightly more complicated. Mortgage insurance is an extra monthly premium you pay when you put less than 20% down on a home. It may also be called “MI” or “PMI” by your lender. It is figured into your DTI when you apply for the loan. What is it for? Mortgage insurance is there to protect the lender. If a buyer defaults, the lender files a claim, to recoup or lessen their losses. How much is mortgage insurance? It varies depending on the loan you choose. FHA typically has lower mortgage insurance than a conventional loan. Feel free to contact me, Joel. I'll be happy to give a general idea of the cost. Rural development and VA loans do not have mortgage insurance, which results in lower monthly payments. (TOP)
Topics covered: The
Bubble / The
Chattanooga Market / Currently / Explore The
Chattanooga Market / Tip Of The Week / The Bubble A person would need to have been living under a rock to have not known about the housing market's rapid rise, then spectacular fall. What happened? In short, unsustainable growth. Looking back it is easy to see. While it was happening, though, it was not so easy. From 2000 – 2006, home prices rose a whopping 89%. The argument always was “home prices always rise”. And traditionally, they do—just not at a pace of 15% per year. That kind of growth could not continue. Nothing goes up in a straight line. But, when oceans of lenders were literally begging any homeowner who would listen to tap into his or her equity, the party was going to continue. The few voices of warning either get ignored or shouted down. Wacky loan packages both fueled and fed off the situation. Then when prices started to show signs of faltering, all those lenders pulled back (or went out of business) adding to the vicious cycle. Large numbers of foreclosures resulted. This led to an inventory glut. Prices fell further.
/ The Chattanooga Market Did the bubble affect the Chattanooga area? Well, the runaway prices were never a part of our local market. Price declines were not as severe either. Think of it more as a “pause” in the local housing market. Why would the market suffer if it didn't experience hyper-appreciation? The answer is lending. If people can't get loans, they can't buy. Lending is nationwide. So, lenders approach a borrower using the lowest common denominator. Even though Chattanooga was a far cry from Arizona, California, Nevada, Florida, etc, lenders looked at Chattanooga borrowers as if they were from those areas. This created a drag on Chattanooga housing. Loans were fewer and harder to come by. Mortgage brokers who used to have access to hundreds of loan packages, were now restricted to a just a few. The market here was not immune.
/ Currently At this time the Chattanooga housing market is moving ahead. Prices continue to rise—but not by double digits. Financing is still available, but it is mainly restricted to government backed loans. Conventional loans are available as well, if borrowers have great credit and a sizable down payment. Should the current mortgage climate discourage you? Not at all. If you are thinking of buying a home, by all means get busy and start looking. The market is improving, rates are good, and an experienced broker can help you get that home you’ve been eyeing. Contact me, Joel. I'll be happy to help.
/ Explore The Chattanooga Market To learn about the most recent statistics for our local market, or to learn about the greater Chattanooga area (especially if you are considering moving here) please click our explore Chattanooga section.
To get inside information on buying your next house and the housing market, stop by our buyer's tip of the week (TOP)
About Agents / Topics covered: An Overview Of Agents / Listing Agents / Buyer's Agents / Facilitators / Dual Agents
Real
estate brokers/affiliate brokers either serve as listing agents, buyer's agents, dual
agents, or facilitators. (
A listing agent works for the listing broker which, in turn, works for the seller of the home. The listing agent's job is to get as much for the house with as favorable terms for the seller as possible. Are they villains? No. Remember, the listing agent represents the seller, not the buyer. They are simply doing their jobs. How are listing agents paid? They get a full commission from the sale of the home. When
a buyer calls the agent named on the "For Sale" sign, they are
attempting to buy the home though the listing boker and listing agent.
The broker and agent are
required to deal honestly and ethically, but their primary
obligation is to the seller of the home. The seller is the client. The
buyer is just a customer. Unrepresented buyer's (buyers who buy
directly from the listing agent without using their own agent.) must
sign a form
acknowledging the listing broker and listing agent are not working for
them. Buyer's
brokers and buyer's agents work for a the buyers of a home. Typically, they have access to
the entire local market. If there are 5,000 plus homes listed in the
Chattanooga area, your buyer's broker and buyer's agent have access to those homes.
There job differs from that of listing brokers/agents. They are there to
look out for the buyer's interests and help them get the home for the
most favorable terms possible. Both buyers and sellers must sign a
form acknowledging who their respective agents are. How are listing agents paid? They split commission with the listing agent once the home sells. And while technically the buyer's agent is paid by the seller, they ethically and legally work only for the buyer. Some buyers forgo using their own broker/agent because they fear they will incur additional charges. Or they forgo using their own broker/agent in attempt to save money. However, the opposite may happen. They may have to work harder to buy the home, at less favorable terms, and even pay more for it than they otherwise would have. All the while the listing broker retains the entire commission. Again, the seller usually pays the commission, not the buyer.
Facilitators are brokers which represent neither the buyer or the seller. Their primary responsibility is to the transaction. They are there to make sure it goes through. The seller usually pays the commission in this type of transaction as well.
As the name may indicate. Dual agents represent both buyer and seller at the same time on the same transaction. Most agents will not practice dual agency due to its potential for conflicts of interest and other problems. I do not work as a dual agent. (TOP)
About The Principle Group and theprinciplegroup.net / theprinciplegroup.net is where I present The Principle Group, Inc—a Chattanooga, TN real estate broker. It is also where I introduce myself, Joel Prince, the managing broker. It is designed for one purpose. To give those interested in buying, selling, or investing in real estate the information they need presented in a clean, straightforward format. You will find no flashing banners, blinking buttons or forms to get you to sign up for seminars. Buyers, sellers and investors need one thing. They need accurate and useful information. Without frills. Without distraction. My goal is for theprinciplegroup.net to provide such information in it's purest form. Most buyers, sellers, and investors focus on searching the market. Search has its place. This site offers search. But what do you do when you find your home—if you are a buyer? Or how do you scope out your competition—if you are a seller? And, how do you find good inventory—if you are an investor? Search is just the beginning. There are many important steps after that. Getting a good deal, whether you are buying or selling, takes knowing the facts. This site is here to provide these facts. When you feel the time has come to move beyond the search and research process, please contact me. You won't get a sales pitch or pressure to buy or sell a home. Rather you will get pointed answers to you questions and concerns. And, you will get a broker you can talk to. In today's ever changing market that is more than just an advantage, it is a necessity And, if you decide to use my services, then great!. You’ll find me approachable, knowledgeable, experienced, and dedicated to my profession and to my clients. It is my goal to see that quality information will be added to this site on a regular basis. If there are any statistics or subjects you would like to see posted, please contact me. Thank you for your visit. (TOP)
Topics covered: Personal / Professional
My name is Joel Prince. I am the founder and managing broker of the The Principle Group, Inc. and administrator of theprinciplgroup.net. I live in the Hixson, Tennessee area. I am married with a young daughter (just over 2) and a boy on the way. I love real estate. Feel free to learn more about real esate, and about me, at my blog joelprince.net
I am a Realtor®. I have been practicing real estate in the Chattanooga, Tennessee area for about a decade now. My qualifications are listed here. Along the way I have learned a lot about what works and what doesn't, when it comes to buying, selling, and investing in real estate. I am proud to have helped many buyers, sellers, and investors meet their goals of property acquisition and sales. My professional aim is to give clients as much information as possible—without sales pressure. Making a good business decision is difficult enough without someone standing over your shoulder trying hard to “nudge” you to sign on the dotted line. It is infinitely better to give reliable, accurate answers to a client's many questions. You need good information, and you need to get it without a pitch. That's what I do best, provide good information without a pushy sales pitch. That way, you can make the choice that is right for you and your family. And the bonus to you an me? We will have a good relationship and hopefully you will recommend me to others. It's a win - win. (TOP)
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