Madison WI Real Estate Blog

I'm just looking...not really ready to buy...

Last week I got a call from my friend named Jenna. She has a good solid job at an educational facility. She had been renting for a number of years with a few roommates. She started to get a little curious about buying a home only recently with the $8,000 first time homebuyer tax credit and extremely low interest rates. However, she thought originally of waiting for another year so that she could save up a little more money. Then all of a sudden her curiosity got the best of her because a nice condo came up for sale in her neighborhood.

As of the 4th quarter in 2008 there were 1902 condos for sale in Dane county and based on the rate of sale there are 26.8 months of inventory. Clearly a number of options are available for the discriminating condo buyer. But this particular condo that piqued her interest was in a neighborhood that she really likes. And the price was listed below the recent tax assessment. And she really liked the layout. And she really liked the neutral color scheme. And there are 3 bedrooms so she could have at least one roommate to assist with the monthly payments.

Here's a person who is "not really looking" but just happened to become interested with a combination of factors: tax credit, low interest rates, nice neighborhood, good layout, and plenty of space. In fact, when she first called me she said that she's not really interested and, "doesn't want to waste my time." I have to chuckle a little bit because this is basically my job. I help people buy and sell real estate. The step before buying and selling is to start looking. In fact, last fall I helped a couple to purchase a home on Lake Kegonsa. They were, "just looking" for nearly two years. Then all of a sudden this house came along with a number of factors that they couldn't walk away from and they decided to buy.

My goal as a Realtor is to become your source of real estate information. I'm not here to sell people a home that's not a good fit. Rather, I'm here to help...

Foreclosures, short sales, and other real estate deals

In today's real estate market there's a lot of talk of foreclosures and bank owned properties for sale. I know I've heard somewhere that, "Values are falling and there's great deals everywhere." That's somewhat true, but not entirely. Like any open market, the real estate market is constantly changing. As I've said in the past, property values are a floating number and what a property is worth today may not be the same value as tomorrow. Just like the car that you drive, groceries you buy, or goods at the farmer's market, prices are constantly changing.

Value can also be a function of motivation. A grocery store that has to sell food that is about to expire will typically set it out on the shelves at a discounted price. Similarly, the foreclosures (also known as REO or real estate owned) currently on the market are priced at levels that say, "buy me today at a discount". For example, I just came across some foreclosed condominiums in Sun Prairie that have been on the market since July of 2008. They are newer 3 bedroom condos and started out priced at $139,900. Some have sold in 2007 and 2008 for nearly $150,000. However as the economy started to decline in the fall of 2008, these condos also saw a decline in their asking price. Until the past few weeks they bottomed out at $104,900 and quickly received an offer at this price.

Wow, $104,900 seems like a pretty good deal, doesn't it. Well, maybe it is. Maybe it isn't. The person who bought their condo next door for $150,000 probably doesn't feel too good about this. But the buyer at $104,900 bought this property without much knowledge of conditions. When purchasing a foreclosure property from a bank, the seller (aka bank) will not give any representations to the condition of the property. They have never lived their and typically will always sell the property in the "as-is" condition. If you have an astute eye for estimating repairs then you might get a good deal. However, if you buy the property and then...

What are interest rates today?

Last week I attended a seminar put on a Waterstone Mortgage about the current state of the mortgage industry. Wow, have there been some changes in that industry over the past year. One thing that really caught my attention was how much credit scores really affect interest rates.

As you may or may not know, the amount of mortgage you qualify for to buy a house is dictated by debt to income ratios, amount of down payment or equity, and credit scores. In fact, if you're preparing to purchase a new home you might check around a few different mortgage lenders to find the "best rate". I put "best rate" in quotes because your interest rate can be dramatically different based on your credit score.

For example, below is an illustration of how credit scores affect the interest rate on a conventional, plain vanilla 30 year fixed rate loan.

For the average consumer borrowing $175,000 for 30 years, the difference in payment between 4.875% and 7.250% is $267.70.

These pricing adjustments are a lot more dramatic than in past years. I recall when anything above 680 was considered A+ credit. Now the threshold is 740. The bottom line, is that you should do everything in your power to protect your credit score.

Genxfinance.com says that the number one thing you can do to help your credit score is to pay your bills on time. "This one is probably quite obvious, but it has to be mentioned right out of the gate. The single greatest factor that determines your credit score is your payment history. If you pay on time and continue to do so for years, this will lay a solid credit foundation. One thing you do have to keep in mind is that this goes beyond just paying your credit card, mortgage, or car loans on time. Even things such as utility bills, cell phone, rent, and so on will likely be reported if late. While these types of accounts don’t generally show up on your credit report if you’re in good standing, they usually will still show up as a blemish...