In the past few years, we have seen many changes in the real estate market and in how we buy and sell real estate. For instance, home prices have fallen making it more affordable for buyers to purchase a home or an investment property. There are many opportunities to purchase distressed properties that are in good condition in popular neighborhoods. There are also luxury homes and vacation homes available in hard hit areas such as California, Florida, Arizona and Nevada.
Financing is tougher to get with banks demanding higher credit scores and larger down payments. The Internet is used to find and even purchase homes including online foreclosure auctions. Short sales and mortgage modifications are the norm. Underwater mortgage holders account for 27% of single family homeowners.
The good news is that interest rates are at historic lows. So low in fact, banks are reporting a surge in refinancing applications. Lenders are struggling to handle all the applications since many have cut back on staff. It is now taking as long as 60 days to close on a loan. According to the Mortgage Bankers Association, refinancing applications are up 83% from February 2011, when they were at their lowest. The average rate on a 30 year fixed mortgage fell to 4.15% a couple weeks ago, and that is the lowest rate since 1971 according to Freddie Mac sources. Other reasons for closing delays are stricter underwriting guidelines and disclosure requirements. Also staff at title companies, appraisers and mortgage insurers have also downsized creating delays in processing paperwork.
Refinancing helps homeowners reduce their monthly mortgage payments by paying off their existing mortgage with the new mortgage and offering the homeowner a lower interest rate on their new mortgage. Banks make money on refinancing fees. Fees may range around 1% of the loan. However, in order to take advantage of refinancing, homeowners must have equity in their home. Those homeowners who qualify for refinance benefit substantially with lower monthly mortgage payments. Underwater homeowners have also been taking advantage of mortgage modifications. Modifications differ from refinances in that the lender modifies the homeowner’s existing mortgage by lowering their interest rate and/or extending the loan term so that their monthly payment is lower and affordable. Now the Obama Administration is proposing a mortgage relief program to further help meet troubled homeowners who are upside down on their mortgages so that they can take advantage of the current low interest rates by refinancing their existing Fannie Mae, Freddie Mac and FHA mortgage.
With the ever changing real estate market conditions, today’s investors and home buyers need to kept up on current housing industry and mortgage trends to make the most of this buyer’s market and take advantage of the affordable housing prices and low interest rates.