Denver Real Estate Trends

College View RE Trends: Pop Tops and Scrapes

Marcus Lee (Your Castle Real Estate) — Tue, 30 Dec 2008 12:17:07 -0800

Investing in Real Estate 9 - Scrapes, Pops and New Construction

This blog will discuss a type of real estate investment, scrapes, pops and new construction, in the College View area in Denver.

What this investment is: Purchasing a small home in an expensive neighborhood that may or may not need work. The home is bulldozed and a new home or duplex is put on the lot. Alternatively, the existing home is renovated and more square footage is added on. A pop-top is adding a second story to an existing home to add more square footage (commonly, a master bedroom suite).

Equity needed: Being able to document your income and your assets will be critical. For a commercial loan, your net worth should generally be at least as much as the loan you are seeking. The good news is that the commercial loan usually does not show up on your credit report, so it doesn't count towards the "four investment home limitation" from Fannie / Freddie.

Importance of credit: Essential. A 720 FICO is a must. A 740 would be better.

Importance of experience with contractors: Critical. If you have never done it before, start with an easier "paint and carpet" project to build your skills. The more sophisticated the project, the better your contractor management skills must be to make money. Not surprisingly, the simpler projects have lower profit margins than the complicated projects. Make sure you can take the time to really focus on the project. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

Important of experience with property managers: Generally not important for this type of investment.

College View RE Trends: Condo Conversion

Marcus Lee (Your Castle Real Estate) — Tue, 30 Dec 2008 12:16:26 -0800

Investing in Real Estate 8 - Condo Conversions

This blog will discuss a type of real estate investment, fix and flips, in the College View area in Denver.

What this investment is: A synthesis of the fix and flip and rental operations - purchasing an apartment building in a neighborhood dominated by owner occupants, then converting the building from apartment building to condominium. Often requires renovation of the units to meet the expectations of owner-occupant buyers in that area. Complex and time consuming, but has wonderful tax advantages compares to fix and flips and often has superior returns to all other asset classes. Ideally suited for the sophisticated investor with extensive experience.

Importance of credit: Essential. A 720 FICO is a must. A 740 would be better.

Important of experience with property managers: Not important; the majority of our clients manage their own rentals when they get started. Ideally you will have started with some smaller investment rentals and built property management experience. Now, when you have to finally manage a property manager, it will be easy since you have done the job yourself in the past.

College View RE Trends: Fix & Flips

Marcus Lee (Your Castle Real Estate) — Tue, 30 Dec 2008 12:15:50 -0800

Investing in Real Estate 7 - Fix and Flips

This blog will discuss a type of real estate investment, fix and flips, in the College View area in Denver.

What this investment is: Purchasing a home that needs work. The scope can range from the basic "paint and carpet" to extensive overhauls to scraping a decrepit property and completely starting over. Usually does not involve tenants, and the objective is to get in and out of the property as quickly as possible. Great for beginners with the right skill sets or the willingness to learn.

Equity needed: With hard money loans (defined in next paragraph), potentially 0% and they'll finance the construction costs, too. Expect a LOT of strings to be attached. A small local lender might give you 75% of the purchase price and the renovation budget, and the terms will be a lot more pleasant than the hard money option. Or you can do 20% down and get a convention, non-owner occupied loan and pay for the renovation with cash or your Home Depot credit card.

Importance of credit: If you get a hard money loan, your credit will not matter as much. These are harder to find than they were last year. If you get a traditional loan, it'll be a non-owner occupant loan, credit score will be very important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical. A hard money lender will lend you money based on the value of the property you are purchasing. If the property is worth $200,000 and you are able to purchase it for $150,000, a Hard Money Lender will probably give you a loan regardless of your down payment or credit score. However, the fees and the interest rate will be much less desirable than more conventional forms of financing. Hard Money Lenders can usually close very quickly, and from the Sellers' point of view, you are purchasing with Cash.

Important of experience with property managers: Not important.

College View RE Trends: Lease Option Purchases

Marcus Lee (Your Castle Real Estate) — Tue, 30 Dec 2008 12:15:08 -0800

Investing in Real Estate 6 - Lease Options

This blog will discuss a type of real estate investment, lease options, in the College View area in Denver.

What this investment is: A lease option (L/O) is Acquiring control of a property (though not necessarily ownership), then leasing the property to a tenant. The lease is bundled with an option, so the tenant can (but does not have to) purchase the property for a given price within a given time frame. Again you are seeking a tenant for a property, but usually for a slightly longer term (12-18 months) and frequently (though not always) with the goal that the tenant purchase the property from you at the end of the lease. If you purchase the property, then it's an easier process; if you find a highly motivated seller to let you re-lease the property to another tenant, it can be a lot of work to set up. However, the re-lease method doesn't require any cash out of pocket and does not rely on your credit score, so it is appealing to many investors. Great for beginners with the right skills and attitude.

Equity needed: If you get seller financing, potentially just a few thousand dollars for your operating account. If you purchase the property, 10% down (best case); more likely 20% down.

Importance of credit: If you leverage seller carry, not important at all. If you purchase the property, credit is important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical.

Important of experience with property managers: Not important; the majority of our clients manage their own rentals when they get started. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

College View RE Trends: Large Apartment Investing

Marcus Lee (Your Castle Real Estate) — Tue, 30 Dec 2008 12:14:33 -0800

Investing in Real Estate 5 - Large (5+ unit) Apartment Building

This blog will discuss a type of real estate investment, large apartment buildings, in the College View area in Denver.

What this investment is: Still targeting tenants for 6-12 months at a time, buildings with more than five units are considered "commercial" property. The loans are more difficult to qualify for, and usually a larger down payment is needed. Uncommon for the new investor; this is usually what landlords with several years of experience "trade up" to. Cash flows on larger buildings are more stable than for smaller buildings, and the economies of scale make it practical (and desirable) to hire a property manager to take over most the work for you. This takes reduces the hassle factor of the landlord process.

Importance of credit: Essential. A 720 FICO is a must. A 740 would be better.

Importance of experience with contractors: Some exposure would be helpful, but you are not likely to encounter construction projects any more difficult than you have maintaining your own personal residence. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

College View RE Trends: Small Apartment Investing

Marcus Lee (Your Castle Real Estate) — Tue, 30 Dec 2008 12:13:53 -0800

Investing in Real Estate 4 - Small (2-4 units) Apartment Building

This blog will discuss a type of real estate investment, small apartment buildings, in the College View area in Denver.

What this investment is: Purchase of duplex, triplex or quadplex to be rented to tenants, usually for 6-12 month terms. Usually what the rental home / condo landlords graduate to. In most markets they cost a little more than a rental home, but are much more likely to cash flow on the average month. Less cash flow risk; if one unit is empty you have other tenants that still help you with the mortgage payment so it doesn't all come out of your pocket. Many owners will start to delegate some of the property management tasks to an on-site assistant (typically the most responsible tenant), such as yard maintenance and showing empty units. The financing process is only slightly more involved than a residential loan. Relatively small down payment requirements make it affordable. The purchase process is also very similar to purchasing a home. It's a good way for beginners to get started.

Equity needed: 20% - 30% down would be typical.

Importance of credit: Very important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical.

Important of experience with property managers: Not important; the majority of our clients manage their own rentals when they get started. If you get a property manager, you'll be able to figure it out easily on this small of a scale. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

College View RE Trends: Rentals

Marcus Lee (Your Castle Real Estate) — Tue, 30 Dec 2008 12:13:16 -0800

Investing in Real Estate 3 - Rental Condo or Rental Home

This blog will discuss a type of real estate investment, rental condos or rental homes, in the College View area in Denver.

What this investment is: Purchase of a residential property to be rented out to tenants, usually on a 6-12 month lease term. This is how most new landlords get started. You can hire out all of the property management functions, but in many cases you will do many of them on your own. There are smaller down payment requirements than for larger rental buildings. The purchase process and financing process is very similar to what you experienced buying the home you live in now. It's a great way for beginners to get started.

Equity needed: Currently 20% - 25% Downpayment. In some cases you might be able to do it with 10% down, but expect the second mortgage to be at a higher rate. While Freddie / Fannie lenders might only let you have four loans, smaller local lenders will let you have more than that if you have strong credit. Contact me and I'll put you in touch with the right people.

Importance of credit: Very important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical.

College View RE Trends: Assigments

Marcus Lee (Your Castle Real Estate) — Tue, 30 Dec 2008 12:12:32 -0800

Investing in Real Estate 2 - Assignments

This blog will discuss a type of real estate investment, assignments, in the College View area in Denver.

What this investment is: An investor who is interested in Assignments gets a property under contract for an attractive price then assigns the contract to another buyer, usually another investor. The first investor will be paid a fee for the work. If you don't have much equity to work with, and/or if your credit power is limited, assignments can be a way to get started in real estate investing. You will need to have a strong "sales" personality to succeed at it, though.

Equity needed: None, just earnest money.

Importance of credit: Not important, since you are not purchasing the property yourself.

Importance of experience with contractors: Not important. The person that you ‘flip' the property to will be doing the work.

Important of experience with property managers: Not important. The person purchasing the property from you will be managing the tenants.

College View RE Trends: Market Improving?

Marcus Lee (Your Castle Real Estate) — Tue, 30 Dec 2008 12:11:41 -0800

Take a look at the first page, for AUN (Aurora North). Note these positive market trends this year:
-          number of active listings steadily declining
-          average list price pretty stable (finally!)
-          U/C up dramatically
-          Number of sales / month up (partially seasonality)
-          DOM dropping
-          Stability in average sold prices and sold price as % of list
-          Sold price as % original price UP a lot - banks are getting better at pricing
-          Number of expired listings down

Every indicator is improving this year in AUN. You will see the same trends in DSW (southwest Denver County), but not as marked an improvement as AUN.

By contrast look at DSE (southeast Denver County).
-          listings are up (they should be - seasonality)
-          Note the average list price ($758,000) is a lot higher than the average sold price ($418,000). Lots of expensive listings brining up the average ask price, but apparently they are not selling
-          DOM (Days on Market) declining as it normally would due to seasonality
-          Average price declining rather rapidly. Probably a mix issue - smaller, cheaper homes are probably selling better.

Since these homes in DSE are pricier, it has more of an effect on the "average" sales price on metro Denver. Oddly, we could see improvement led by the cheapo neighborhoods, with the lux neighborhoods falling behind for a while. It will be interesting to watch.

College View RE Trends: Mortgage Broker Licensing Changes...

Marcus Lee (Your Castle Real Estate) — Tue, 30 Dec 2008 12:10:55 -0800

Colorado Mortgage Broker Licensing

In response to the troubled national real estate market and Colorado's high volume of home foreclosures, efforts have increased to make higher caliber professionals involved in real estate. Licensing, rules and regulations have become more stringent for agents, appraisers, title companies and mortgage brokers. In regards to mortgage brokers, the below items are mandatory. No longer can someone open up the Yellow Pages, claim to be a mortgage broker and then be compensated for placing a loan --- what a novel concept. Before committing to a mortgage broker, please make sure that they are licensed in Colorado by searching for them on the following link: http://eservices.psiexams.com/crec/search.jsp

Licensing
All mortgage brokers conducting business in CO must be licensed with the Division of Real Estate and pass the criminal background check. Only those mortgage brokers who are licensed or exempt from licensure by law may broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker. Licensing Chatfieldtration and renewal is $200 every three years.

Surety Bond
Prior to licensing, an applicant for license shall post with the Director of the Division of Real Estate a surety bond of $25,000. Yearly premium approximately $190.00.

Errors & Omissions Coverage

All CO mortgage brokers must carry Errors & Omissions coverage. For mortgage brokers with less than five years of experience, the annual premium is $600. With five years or greater lending experience, the premium is $500 per year.

New Pre-Licensing Education & Continuing Education

1. Complete 40 hours of licensing education and pass the two-part licensing exam (Mortgage Lending Basics & State and Federal Law) by January 1, 2009. Approximate cost for course is $250 and $74 for the exam.
2. Complete a minimum of nine hours of continuing education every three years.

College View RE Trends: Investment Loans

Marcus Lee (Your Castle Real Estate) — Sun, 14 Dec 2008 14:09:52 -0800

Loan Considerations for Buy and Hold Investors

As far as investment loans, little or no money down loans are impossible. However, lenders do permit the use of Home Equity Lines of Credit or second mortgages from other properties owned by the borrower as a source of down payment. Or, self-employed borrowers are using funds from business lines of credit to fund down payments or renovations (please note: there are asset seasoning guidelines for doing so and the debt incurred by accessing other credit lines must be accounted for against the borrower’s debt-to-income ratio). Thus, we have clients leveraging themselves with other homes they own in order to get in with little or nothing down.
There are exceptions, but practically every lender requires Full Income Documentation on any investment purchase. Full Documentation requires the proof of income through W2s, pay stubs and/or tax returns, as well as proving liquid assets with bank statements. The max LTV is 85% on a non-owner single family property (75% for a 3 - 4 unit); however, most homes are being affected with the ‘declining market’ tag. As such, the maximum loan permitted would be 80% of the purchase price. This is due to mortgage insurance companies refusing to provide MI on investment properties in declining markets. Also, if an investor does not have landlord experience in the past two years, new rules will now not allow any rental income to be included as monthly income. Hence, the buyer would need to qualify with the entire payment going against his/her debt-to-income ratio.
Another point to keep in mind is that Fannie Mae and Freddie Mac are only permitting a maximum of 4 financed properties on a borrower’s credit report. Hence, if a borrower is looking to purchase or refinance a fifth home and already have four loans on their credit, they will face a tremendous challenge in securing financing. This latter rule only affects someone purchasing or refinancing an investment property/second home and NOT an owner occupied purchase.
All this being said, if an investor can put down 20% (or borrow a good chunk of that 20% from other homes they own or lines of credit), is Full Doc, with a 680+ credit score and DTI below 50%, rates are in the upper 6% range on 30yr fixed mortgages with no prepay penalties. With home prices bottoming up in most neighborhoods, coupled with a bullish rental market with increasing rents and low vacancy, investors can easily generate hundreds of dollars of cash flow per month. In fact, many investors choose 15 year fixed mortgages to pay off the loan quickly, yet still cash flow tremendously.

College View RE Trends: Short Term Loans

Marcus Lee (Your Castle Real Estate) — Sun, 14 Dec 2008 14:08:57 -0800

Loan Considerations for Fix & Flip / Short-Term Investors

Securing conventional financing on a fix & flip or short-term loan is not recommended. Most conventional lenders sell off their mortgages to investors on the secondary market. If the loan is paid off early (before six payments are made), the investor has not recovered their initial investment. The investor will attempt to recover their loss from the lender, who will ultimately come after the loan originator. The loan originator would then be obligated to pay back any premium paid out by the lender. If such activity becomes habitual with the loan officer, the lender can cease doing business with them and their firm.

Furthermore, conventional loans require conventional appraisals. The lender will require that the home is a) habitable in its present state b) in at least ‘average’ condition and c) not in need of any repairs greater than 2% of the purchase price. All three points can be challenging to overcome for investments properties, especially bank owned homes. Consequently, many investors use private money, hard money, home equity lines of credit, cash or specialty investment lenders to avoid failing a conventional appraisal. All of the aforementioned sources of funds can be worthwhile to pursue, but they are meant for short-term loans. Hence, the borrower needs to have a clear exit strategy(ies) to avoid costly extension fees and holding costs. Such loans carry higher interest rates and up-front fees due to their considerable risk. They can be a great route to pursue; however, the investor better be prepared in case the home is not able to sell.

Fix & flip investors should also be cognizant of title seasoning issues. FHA guidelines require that a seller be on title for 90 days before a buyer can purchase the home with an FHA loan. Most flips take longer than 90 days to renovate, market and actually close. But, some deals need limited work and can be turned around quickly. Ultimately, you will want to verify that the new buyer’s lender understands the title guidelines of the lender being used. Furthermore, a flip investor is going to list the remodeled home for significantly higher than what they had paid for it. The lender providing financing to the buyer purchasing the renovated home will scrutinize the new appraisal to ensure the value is justified. Lenders got burned in the past on property flipping schemes and are wary of substantial value increases in short periods of time.

College View Real Estate Trends: Jumbo Loans

Marcus Lee (Your Castle Real Estate) — Sun, 14 Dec 2008 14:08:06 -0800

Loan Considerations for Jumbo Mortgages

For the Greater Metro Denver area, any loan amount greater than $417,000 is considered a jumbo loan. Fannie Mae and Freddie Mac assign different thresholds for various regions across the country. For instance, $417,000 is not considered a jumbo loan in a high cost city like San Francisco, yet there will still be higher rates for going above $417K.

Due to the size of jumbo loans, they are considered greater risk for lenders, resulting in higher rates. Rates have fluctuated greatly over the past few years on jumbos. As of today, a 30 year fixed could range from 7% - 8%; a full point higher than the prime rate below a loan amount of $417,000. Five year ARMs are popular on jumbo loans, as they typically price out a half point lower than fixed products.

Frequently, a borrower will need to put more money down on a jumbo loan to mitigate the risk. Investors that purchase mortgages are still skeptical of the lending industry, especially higher risk loans, which is why we haven’t been witnessing attractive jumbo rates of late.

To limit the impact on the monthly payment and secure a better rate, many borrowers will take out a first mortgage of $417,000 and then try to find a second mortgage to cover the balance. For example, assume a buyer is purchasing a home for $600,000 and they are able to put 20% down. Instead of taking out one loan at 80% = $480,000, it will likely make sense to split the loan into a $417,000 first mortgage and $63,000 second mortgage. Since the combined loan-to-value is 80%, finding a second mortgage lender should be relatively simple. While the rate on the second will be higher than the first, the blended rate will be significantly lower than the jumbo loan option, resulting in a few hundred dollar savings per month.

College View Real Estate Trends: Medium Loan Trends

Marcus Lee (Your Castle Real Estate) — Sun, 14 Dec 2008 14:07:16 -0800

Loan Considerations for Loan Amounts Between $200K - $417K

With all the doom and gloom publications that are mostly exaggerated, many potential borrowers believe that home mortgage lending options have dried up. While underwriters and investors are scrutinizing files more closely, attractive rates and terms still exist for owner occupied purchasers seeking a conforming loan limit (under $417,000). FHA and VA can still lend up to 100% LTV and conventional permits up to 97% LTV. There are certain guidelines to meet when going to these high LTVs, but they are not impossible to surmount.

Every home buyer should first ask themselves what payment they feel comfortable in committing to on a monthly basis. Too many buyers over-extended themselves in recent years on homes they simply could not afford, but qualified for on loose lending guidelines. Just because you can qualify for a certain loan amount does not mean that it’s the best decision for you.

Once the comfortable payment has been established, you can back solve for what loan amount will yield an amount close to that payment and search for homes in that price range. You will need to take the amount of down payment into consideration, as well as whether a 30 year, 20 year or 15 year fixed option is best. While adjustable rate mortgages (ARMs) are blamed for much of the current lending turmoil, a sophisticated borrower can determine if an ARM product makes more sense for their situation.

As of today, 30 year fixed rates are hovering right around 6% with no prepayment penalties. But, it is important to keep in mind that if less than a 20% down payment is made on a home, there will be mortgage insurance. Mortgage insurance protects lenders in case of default. Loans above 80% LTV are considered greater risk, thus, carry mortgage insurance. Borrowers can pay mortgage insurance separately per month or it can be built into the rate. Mortgage insurance premiums will vary based on the LTV. In recent years, second mortgages were popular to avoid mortgage insurance. However, they are tougher to secure in this environment in light of the volume of second mortgage lenders that lost millions of dollars in defaulted loans. Since they were in second lien position, their priority in being repaid was subordinate to first lien holders. When homes were foreclosed upon, the second lien holders were typically paid back nothing.

College View RE Trends: FHA Loan Considerations

Marcus Lee (Your Castle Real Estate) — Sun, 14 Dec 2008 14:05:59 -0800

FHA First-Time Buyer Tax Credit

In an effort to boost the sagging real estate market and overall economy, first-time home buyers are being offered a limited time tax credit when purchasing a primary residence.
The highlights of the tax credit are:
•    The tax credit is available for first-time home buyers only.
•    The maximum credit amount is $7,500.
•    The credit is available for homes purchased on or after April 9, 2008 and before
July 1, 2009.
•    Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
•    The tax credit works like an interest-free loan and must be repaid over a 15-year period.

Due to the volume of questions that can be generated with the above, I would recommend clicking on the below link for answers to frequently asked questions: http://www.federalhousingtaxcredit.com/faq.php

College View RE Trends: First Time Buyers

Marcus Lee (Your Castle Real Estate) — Sun, 14 Dec 2008 14:05:05 -0800

Loan considerations for a first time buyer

Lending guidelines are changing on a daily basis for every type of loan: conventional, FHA, VA & commercial. Nevertheless, there are still very attractive first-time home buyer options available. If you are or will be a first-time buyer, it is critical to speak with a loan officer before looking at homes. It is a crushing feeling to view a home, picture making it your own and then find out that you cannot qualify to purchase it. A loan officer will pull credit, analyze debt-to-income ratios, review assets and income and determine what you can afford.

Presuming a pre-qualification occurs, the loan officer will then be able to provide an array of loan options. Presently, FHA loans are the predominant loan for first-time home buyers as they offer flexibility with down payment, income and assets. In 2009, FHA loans will require a 3.5% down payment; however, such funds can be a gift from friend or family member. Additionally, pending on where the home is purchased, many cities still offer down payment monies to assist borrowers with little or nothing down. There is even a program that permits someone to purchase a home for as little as $100. Please keep in mind that when a borrower does not make a down payment, their interest rate will likely be higher, since it the loan will have greater perceived risk.

Conventional loans are very comparable to FHA loans in loan terms and fees. They can be more restrictive with down payment options, debt ratios and alternative forms of credit. But, they require less paperwork than FHA loans, which typically means a smoother underwriting process. Furthermore, they do not require an up-front mortgage insurance premium like FHA loans ---- although, their monthly premiums are higher than FHA. FHA, conventional and VA loans are in the low 6% range on 30 year fixed mortgages with no prepayment penalties. These rates, coupled with lower prices make it an opportune time to purchase real estate.

Overall, there are pros and cons to each option. As a first-time buyer start thinking through such factors as: what payment you would be comfortable in making, how much money you can put down, establishing a contingency plan for a job loss, how much you would like saved for unexpected expenses and if you were relocated or forced to sell how would handle the situation?

College View RE Trends: Improving Your Interest Rates

Marcus Lee (Your Castle Real Estate) — Sun, 14 Dec 2008 14:03:56 -0800

How can you improve your FICO score?
To improve one’s credit score, it’s critical to understand the factors influencing a credit score. The factors that contribute to a FICO score and the weighted percentages for each are as follows:
•    35% — timeliness of payments
•    30% — the ratio of used debt to allowable debt for consumer credit
•    15% — length of credit history (the more credit history and showing proof of consistent timely payment, the better the score)
•    10% — types of credit used
•    10% — recent credit inquiries and recent new credit
The greatest driver behind a score is making timely payments on all accounts. Scores will be adversely affected for any payment that is 30 days late or more. Being late on a mortgage payment will not only crush one’s score, but will also make qualifying for a new home loan extremely challenging. Collections and past due accounts are obviously bad; however, paying off old collections can actually hurt FICOs in the short term. Many collections report from years past. If that collection is paid off, the account activity date is brought current, which could initially drive down the score.
A common misconception is that having one’s credit pulled is the worst thing you can do to your scores. While it’s wise to keep credit pulls to a minimum, keeping the proportion of monthly debt to allowable debt at low ratios is far more critical in improving one’s score. For example, if a borrower has a credit card with a maximum limit of $15,000 and they owe $14,000, the proportion is almost 100% and the borrower is close to being maxed out. Getting the ratio below 50% would help and below 35% would be optimal. For revolving debt, I recommend borrowers contacting their credit card companies every six months to request increased maximum limits. It is vital not to use this new allowable debt, rather, use it as a means to always keep the proportions in check. Additionally, many borrowers will spread out their credit debt over a few cards to keep the ratios below 35% on all of the cards. Or, if liquid funds are available, it could make sense to pay down the debt.
Another method of improving FICOs is to establish credit history over prolonged periods of time. By doing so, the scoring formula treats longer credit history as a means of proving that a borrower can be extended credit, but do not put themselves into a compromising situation. Many borrowers will keep inactive credit cards open, instead of closing them, in order to increase credit history. Most lenders like to see at least four lines of credit on a report (called tradelines) that are open with at least two years of history. Of these tradelines, it’s ideal to have balance between the types of accounts: mortgages, installment loans, revolving debt. Too much revolving debt, such as credit cards, can adversely impact scores as it can make the borrower to appear to be over-extending themselves.

College View RE Trends: Interest Rates

Marcus Lee (Your Castle Real Estate) — Sun, 14 Dec 2008 14:03:02 -0800

How does your FICO score impact your interest rate on your loan?

Low credit scores are deemed greater risk for lenders since the likelihood for defaulting on the loan increases. As such, lower FICO scores translate into higher interest rates. Mortgage lenders will group credit scores in a range, usually in 20 or 40 point increments, with interest rates progressively getting better for each higher interval. For example, a borrower with a middle credit score between 660 – 680 will have a higher interest rate (presuming all other variables being equal) compared to one with a 680 – 700 score. Typically, when a borrower has a 750+ credit, they will be able to secure the best possible rate, assuming their income, assets, collateral and down payment are acceptable.

For qualifying, underwriters use the middle credit score pulled from the three bureaus versus an average of the three. For instance, a borrower with scores of 702, 717 and 749 would have a 717 FICO compared to an average score of 722. If there is more than one borrower on the loan, the lender will use the lowest middle score of all borrowers versus the middle score of the primary wage earner, like many lenders used to do. Often times, a husband and wife will have drastically different scores. When that occurs, it is best to qualify off of only the person with the good credit. However, if a spouse or partner is left off of the loan (they can still go on title though), none of their income or assets can be used to help qualify. Therefore, the sole qualifying person must have ample liquid assets, as well as gross monthly income to stay below the lender’s allowable debt-to-income ratio.

College View RE Trends: FICO Scores

Marcus Lee (Your Castle Real Estate) — Sun, 14 Dec 2008 14:01:56 -0800

What is a FICO score?
FICO stands for Fair Isaac Corporation, a company that created the most used credit scoring model in the United States. An individual’s credit score is calculated through a statistical algorithm and is used as a factor in determining the likelihood of a borrower defaulting on a loan. FICO scores are generally used for obtaining mortgages, car loans or consumer credit. The scores are provided from the three major credit reporting agencies: Equifax, Experian and Transunion. Typically, there is a variance amongst the scores since each agency has a slightly different scoring formula. FICO scores range from 300 – 850, with higher scores being considered less risky. For mortgage lending purposes, any score over a 680 is considered good and above a 750 is considered excellent. Any score below 580 is considered great risk and will be challenging for such a borrower to secure financing.
The factors that contribute to a FICO score and the weighted percentages for each are as follows:
•    35% — timeliness of payments (adverse dings to scores for any payment greater than 30 days later, collections, past due accounts)
•    30% — the ratio of used debt to allowable debt for consumer credit (an individual that maxes out their credit cards will see a decrease in their score)
•    15% — length of credit history (the more credit history and showing proof of consistent timely payment, the better the score)
•    10% — types of credit used (installment, revolving, mortgage)
•    10% — recent credit inquiries and recent new credit (taking out a fair amount of new credit with multiple credit inquires can adversely impact a score)

College View RE Trends: Market Update

Marcus Lee (Your Castle Real Estate) — Sun, 14 Dec 2008 14:00:47 -0800

There are some signs of strengthening in our Denver market. The metro area's inventory of available resale housing decreased 20% to 23,120 units in October from October 2007. Some of this reduced inventory is attributed to homeowners taking their properties off the market in frustration because their property is not selling, but lower inventory implies a strengthening market. Remember, the Denver area had housing inventory of 31,989 units in July 2006. Home sales rose 14% to 4,265 in September compared to the same month last year. This is due almost entirely to the lower-end of the market (under $180K) selling like hotcakes. October's median selling price for single-family homes decreased 12% to $206,000 from the same month of '07, and was down 4.7% from September's median of $216,150. Median selling price for single-family homes dropped 10.5% to $222,000 through October, from $248,000 through October '07.Prices are still falling, but at a slowing pace. This trend should continue into 2009 when it is expected to bottom out and slowly climb back. Hang on, it's gonna continue to be a wild ride!

Central Denver, Colorado -3Q 2008 Condo Price Performance

Marcus Lee (Your Castle Real Estate) — Fri, 31 Oct 2008 09:57:51 -0700

The big message has not changed since last quarter - it's still a great time to be a buyer in the condo market. Prices are at a three year low in many areas, and interest rates on mortgages are still historically low.

The average condo price in Metro Denver declined 4% between 2006 and 2007: from $187K to $180K. Homes dropped 3% in that time period. Looking just at the first nine months of 2008 vs. the same time period in 2007, the price dropped 6%: from $181K to $172K. Homes dropped 11% in that time period. From their peak prices in 2006, condos have dropped around 9.5% while homes have dropped 12%. These numbers will be slightly different than Metrolist, as they are just Denver Metro and don't include outlying areas like Fort Collins, Colorado Springs, or Boulder.

Some areas did better than others. The attached chart shows different neighborhoods in our region. Each region has the neighborhood's name and the percentage of sales in the last twelve months that were either short sales or bank-owned properties. The second line has the price change the twelve months from October 2007 to September 2008 vs. the twelve months immediately preceding. Next, you'll see the average condo price in the last twelve months and the average days on market (DOM) in the last twelve months. There had to be at least twenty sales in the last year for an area to be included. The numbers are more reliable in areas where there were more sales.

Last quarter, we reported that days on market (DOM) had been declining for condos, which should be a leading indicator that we are due for price increases soon. That still seems to be the case.

South Metro Denver, Colorado 3Q 2008 Home Price Performance

Marcus Lee (Your Castle Real Estate) — Fri, 31 Oct 2008 09:55:40 -0700

The average home price in Metro Denver increased +2% in the full year 2005 to the full year 2006. Comparing 2006 to 2007, the average home price across the metro dropped 3%, to $303,000. The average price in the first three quarters of 2008 was $272,000 vs. similar period of 2007 was $308,000: an 11% decrease. These numbers will be slightly different than Metrolist, as they are just Denver Metro and don't include outlying areas like Colorado Springs or Boulder.

Much of the decline is a mix issue. For example, sales volume of homes over 4,000 square feet has plummeted in the last twelve months. Middle-market homes have generally been steady in their sales volume. Very inexpensive homes under 1,000 square feet have greatly increased their sales volume. You can explain it to your clients like this: Imagine you own a car dealership and you sell Chevys and Cadillacs. If you sold 50 of each type of car last month, but then you sold 75 Chevys and 25 Cadillacs this month, the average price at your dealership would have dropped quite a bit. This would be true even if you didn't change the price of the cars. This is what we mean by a mix of what is sold issue.

Our guess is that the buyers of the 4,000 square foot homes are sitting on the sidelines since very few people really need that much space - it is a decision that can be postponed. They are probably waiting for the bad news in the headlines to blow over and for the rates on jumbo loans to return to more reasonable levels. While they wait, the investors are snapping up bargain REO properties to use as rentals.

This market behavior is likely to continue for at least another nine to eighteen months. However, once the REO volume starts to decline a little, and the jumbo rates come down, we'll see a reversal to the mix problem. Suddenly, the pent-up demand at the high end of the market will be unleashed, and we'll finally start to run out of bargain basement REO homes. Using the car dealer analogy, we'll be selling 25 Chevys and 75 Cadillacs each month. You can guess what will happen to the average prices - in some neighborhoods they will increase as fast as they have dropped in the last few years.

The attached chart shows different neighborhoods in our region. Each region has the neighborhood's name and the percentage of sales in the last twelve months that were either short sales or bank-owned properties. The second line has the price change the twelve months from October 2007 to September 2008 vs. the twelve months immediately preceding. Next, you'll see the average home price in the last twelve months and the average days on market (DOM) in the last twelve months. There had to be at least twenty sales in the last year for an area to be included. The numbers are more reliable in areas where there were more sales.

Source: Your Castle Real Estate analysis, MLS data

South Metro Denver, Colorado 3Q 2008 Home Price Performance

Marcus Lee (Your Castle Real Estate) — Fri, 31 Oct 2008 09:52:52 -0700

Looking at a Foreclosed Property? Please Read...

Marcus Lee (Your Castle Real Estate) — Fri, 31 Oct 2008 09:50:23 -0700

As investors we face a number of very real and very scary challenges. Making sense of this market is no mean feat and one has to be very careful with his or her investment. However, we usually think about danger as financial. Unfortunately, on rare occasion it can be even worse than that. The majority of the homes investors are buying these days are vacant and once in a while people break in and live in these properties illegally. The last thing you want to do is walk in on someone camped out in a house, perhaps conducting illegal an activity. This is no joke, you want to be HEARD when you walk into a property that is supposed to vacant. So make a lot of noise when you're at the front door. I always knock loudly before entering. Stomp your feet a little. Yell "Hello!" a couple of times. When you start walking down into the basement repeat the process. The goal is to have whoever is inside hear you and not panic and do something stupid. I hope you never need this advice, but keep it in mind the next time you visit a foreclosed home.

Investors: Egress Windows

Marcus Lee (Your Castle Real Estate) — Fri, 31 Oct 2008 09:47:46 -0700

A lot of investors ask what an egress window is and when one is needed. Technically, it's a window for a room below grade that a municipality has deemed large enough to be safe for exit in case of emergency. While there are some variations, the window needs to be large enough that a firefighter with an oxygen bottle on their back could get in, then carry out an injured person in a fire. Most often, it's associated with a basement bedroom window, making it a legal bedroom. Basement bedrooms without egress windows are illegal. Installing an egress window makes them legal. The confusion is that different cities, counties and agencies have different size requirements and height-above-floor requirements for these windows. Therefore, before you start cutting into the concrete foundation you better make sure you've visited the local building department to get their requirements. In addition, HUD, distributing Section 8 vouchers, also has their own requirements for egress windows. So if you're going to rent to a Section 8 tenant make certain you know what their requirements are. If you don't, you won't get credit for that basement bedroom and get way less rent than you expected - believe me it happens every day. To be honest, there are probably hundreds if not thousands of rentals in Metro Denver that have basement bedrooms without egress windows. In my opinion, this is not only illegal, it's immoral. And if that wasn't enough to discourage you from having one, ask yourself what happens if there is a catastrophic fire and someone dies in your illegal basement bedroom. Not good! For about $1,500 - $2,500 you can get a competent contractor to install an egress window (only one is required per basement bedroom) and sleep better at night.