In high-priced housing markets, it can be difficult to afford a home. That’s why a growing number of home buyers are forgoing traditional fixed-rate mortgages and standard adjustable-rate mortgages and instead opting for a specialty mortgage that lets them “stretch” their income so they can qualify for a larger loan.

But before you choose one of these mortgages, make sure you understand the risks and how they work.

Specialty mortgages often begin with a low introductory interest rate or payment plan — a “teaser”— but the monthly mortgage payments are likely to increase a lot in the future. Some are “low documentation” mortgages that come with easier standards for qualifying, but also higher interest rates or higher fees. Some lenders will loan you 100 percent or more of the home’s value, but these mortgages can present a big financial risk if the value of the house drops.

Specialty Mortgages Can:

• Pose a greater risk that you won’t be able to afford the mortgage payment in the future, compared to fixed rate mortgages and traditional adjustable rate mortgages.
• Have monthly payments that increase by as much as 50 percent or more when the introductory period ends.
• Cause your loan balance (the amount you still owe) to get larger each month instead of smaller.

Common Types of Specialty Mortgages:

• Interest-Only Mortgages: Your monthly mortgage payment only covers the interest you owe on the loan for the first 5 to 10 years of the loan, and you pay nothing to reduce the total amount you borrowed (this is called the “principal”). After the interest-only period, you start paying higher monthly payments that cover both the interest and principal that must be repaid over the remaining term of the loan.

• Negative Amortization Mortgages: Your monthly payment is less than the amount of interest you owe on the loan. The unpaid interest gets added to the loan’s principal amount, causing the total amount you owe to increase each month instead of getting smaller.

• Option Payment ARM Mortgages: You have the option to make different types of monthly payments with this mortgage. For example, you may make a minimum payment that is less than the amount needed to cover the interest and increases the total amount of your loan; an interest-only payment, or payments calculated to pay off the loan over either 30 years or 15 years.

• 40-Year Mortgages: You pay off your loan over 40 years, instead of the usual 30 years. While this reduces your monthly payment and helps you qualify to buy a home, you pay off the balance of your loan much more slowly and end up paying much more interest.

Questions to Consider Before Choosing a Specialty Mortgage:

• How much can my monthly payments increase and how soon can these increases happen?
• Do I expect my income to increase or do I expect to move before my payments go up?
• Will I be able to afford the mortgage when the payments increase?
• Am I paying down my loan balance each month, or is it staying the same or even increasing?
• Will I have to pay a penalty if I refinance my mortgage or sell my house?
• What is my goal in buying this property? Am I considering a riskier mortgage to buy a more expensive house than I can realistically afford?

Be sure you work with a REALTOR® and lender who can discuss different options and address your questions and concerns!

Learn about the NATIONAL ASSOCIATION OF REALTORS® Housing Opportunity Program at www.REALTOR.org/housingopportunity. For more information on predatory mortgage lending practices, visit the Center for Responsible Lending at www.responsiblelending.org.

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Reprinted from REALTOR® magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Copyright 2008. All rights reserved.

• W-2 forms — or business tax return forms if you’re self-employed — for the last two or three years for every person signing the loan.

• Copies of at least one pay stub for each person signing the loan.

• Account numbers of all your credit cards and the amounts for any  outstanding balances.

• Copies of two to four months of bank or credit union statements for both checking and savings accounts.

• Lender, loan number, and amount owed on other installment loans, such as student loans and car loans.

• Addresses where you’ve lived for the last five to seven years, with names of landlords if appropriate.

• Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, such as a boat, RV, or stocks or bonds not held in a brokerage account.

• Copies of your most recent 401(k) or other retirement account statement.

• Documentation to verify additional income, such as child support or a pension.

• Copies of personal tax forms for the last two to three years.

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Reprinted from REALTOR® magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Copyright 2008. All rights reserved.

Washington, December 01, 2009

Pending home sales have risen for nine months in a row, a first for the series of the index since its inception in 2001, according to the National Association of Realtors®.

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in October, increased 3.7 percent to 114.1 from 110.0 in September, and is 31.8 percent above October 2008 when it was 86.6. The rise from a year ago is the biggest annual increase ever recorded for the index, which is at the highest level since March 2006 when it was 115.2.

Lawrence Yun, NAR chief economist, said home sales are experiencing a pendulum swing. “Keep in mind that housing had been underperforming over most of the past year. Based on the demographics of our growing population, existing-home sales should be in the range of 5.5 million to 6.0 million annually, but we were well below the 5-million mark before the home buyer tax credit stimulus,” he said. “This means the tax credit is helping unleash a pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future.

The PHSI in the Northeast surged 19.9 percent to 100.2 in October and is 44.2 percent above a year ago. In the Midwest the index rose 11.6 percent to 109.6 and is 36.6 percent higher than October 2008. Pending home sales in the South increased 5.4 percent to an index of 115.4, which is 31.6 percent above a year ago. In the West the index fell 11.2 percent to 127.7 but is 21.9 percent above October 2008.

Yun cautioned that home sales could dip in the months ahead. “The expanded tax credit has only been available for the past three weeks, but the time between when buyers start looking at homes until they close on a sale can take anywhere from three to five months. Given the lag time, we could see a temporary decline in closed existing-home sales from December until early spring when we get another surge, but the weak job market remains a major concern and could slow the recovery process.

“Still, as inventories continue to decline and balance is gradually restored between buyers and sellers, we should reach self-sustaining housing conditions and firming home prices in most areas around the middle of 2010. That would mean broad wealth stabilization for the vast number of middle-class families,” Yun said.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

# # #

*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.

Existing-home sales for November will be reported December 22 and the next Pending Home Sales Index will be on January 5; release times are 10 a.m. EST.

“Copyright National Association of REALTORS®, Reprinted from REALTOR.org with permission.”

Washington, October 07, 2009

The best available tool for sustaining the still-fragile housing market is the $8,000 homebuyer tax credit, and it is essential that Congress extend the credit into 2010, the National Association of Realtors® testified at a hearing of the U.S. House Small Business Committee today.

The tax credit expires November 30.

NAR Regional Vice President Joseph L. Canfora, a broker-owner with Century 21 Selmar Realty in East Islip, N.Y., also told the panel that a major stumbling block for consumers has been the implementation of appraisal processes spurred by the Home Valuation Code of Conduct, which is causing delays in closings, as well as cancelled sales that led to artificially low existing-home sales numbers for August, reported last month.

“The credit is working,” Canfora said, pointing out that the 355,000 to 400,000 transactions directly attributable to the credit made a significant dent in the housing inventory and will help to stabilize home prices. Further, the credit has provided a huge indirect benefit to local governments, shoring up property tax bases in particularly hard-hit areas.

Further, NAR data has estimated that every home purchase pumps into the recovering economy about $63,000 – the equivalent of one new job added to the employment figures.

But, Canfora said, the threat of more foreclosures coming to the market caused by mortgage rate resets, job losses, and by lender’s unburdening themselves of additional properties to take advantage of today’s more stabilized prices could disrupt the fragile recovery.

In a “normal” market, optimal housing inventory is about six to seven months, he said. When the tax credit was enacted in February, inventory was 9.1 months. Because of the spurt in homes sales since then due to the tax credit, inventory declined to 8.2 months in August, closer to “normal” than at any time since 2007.

In urging Congress to extend the credit, Canfora said, “The more robust the credit and the greater its duration, the greater the chance that the housing market can perform its traditional role of helping the economy move out of a recession.”

“But problems arising from the implementation of the HVCC may reverse the market’s positive momentum at a time when the real estate industry is just starting to show signs of a rebound in many markets,” Canfora said. According to an NAR survey of its members, approximately 40 percent of Realtors® report having lost at least one sale since May 1 because of appraisal problems due to the HVCC rules. Twenty percent say they have lost more than one sale.

The culprit, he said, was that appraisal management companies, which have gained prominence because of the HVCC, have assigned appraisers to areas where they lack geographic competence. That has resulted in unreliable appraisals. It is not uncommon that second and third appraisals have to be done to ascertain fair market value. Appraisal fees have also risen and are being passed on to consumers.

Both Fannie Mae and Freddie Mac have issued guidance on appraisals, but NAR is calling upon the mortgage giants and the Federal Housing Administration to issue a consolidated guidance that should be codified and incorporated into the existing policy to ensure proper information on appraisals is available to the real estate industry.

FHA Commissioner David H. Stevens has asked FHA staff to explore that recommendation with Fannie and Freddie. Last month, Stevens reaffirmed FHA appraisal policy, taking into consideration the unintended consequences that have burdened Fannie and Freddie, and issued two Mortgagee Letters focusing on appraisal changes. The policy reaffirms appraiser independence and geographic competence.

The FHA announcement also included timely steps to protect taxpayers: implementing credit policy changes to enhance risk management; hiring a chief risk officer for the first time in the agency’s history; and shifting responsibility for mortgage brokers away from taxpayers to the lenders who use mortgage brokers.

Canfora told the committee that FHA has performed remarkably well through the housing crises, compared to Fannie and Freddie. “That’s because FHA has never strayed from the sound underwriting and appropriate appraisals that have traditionally backed up their loans.”

“The reason the FHA capital reserve ratio fell below 2 percent had nothing to do with FHA’s current business activities. It is simply a reflection of falling housing values in their portfolio.” He cited an FHA announcement that a 2009 audit will show that even if FHA does nothing, the cap reserves are expected to rise back to that required level within a few years. He also pointed out that FHA total reserves are not in as dire straits as some have reported since the cap reserve fund is not the only FHA reserve fund – FHA also has a separate cash reserve that is higher that it has even been – and the combined assets total $30.4 billion.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

# # #

“Copyright National Association of REALTORS®, Reprinted from REALTOR.org with permission.”

• Consider comparables. What have other homes in your neighborhood sold for recently? How do they compare to yours in terms of size, upkeep, and amenities?

• Consider competition. How many other houses are for sale in your area? Are you competing against new homes?

• Consider your contingencies. Do you have special concerns that would affect the price you’ll receive? For example, do you want to be able to move in four months?

• Get an appraisal. For a few hundred dollars, a qualified appraiser can give you an estimate of your home’s value. Be sure to ask for a market-value appraisal. To locate appraisers in your area, contact The Appraisal Institute (www.appraisalinstitute.org) or ask your REALTOR® for some recommendations.

• Ask a lender. Since most buyers will need a mortgage, it’s important that a home’s sale price be in line with a lender’s estimate of its value.

• Be accurate. Studies show that homes priced more than 3 percent over the correct price take longer to sell.

• Know what you’ll take. It’s critical to know what price you’ll accept before beginning a negotiation with a buyer.

Reprinted from REALTOR® magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights reserved.

An NAR practitioner survey showed first-time buyers purchased 30 percent of homes in July, and that distressed homes accounted for 31 percent of transactions. NAR President Charles McMillan said the first-time buyer tax credit is working. “In addition to first-time buyers, we’re also seeing increased activity by repeat buyers. While many entry-level buyers are focused on the discounted prices of distressed homes, they’re also freeing some existing owners to sell and make a move,” he said.

“Realtors are the best resource for consumers in these changing market conditions because the transaction process has become more complex. Since it’s now taking longer to complete a home sale, first-time buyers who want to take advantage of the $8,000 tax credit should try to make contract offers by the end of September,” McMillan said. “Otherwise, they may miss the November 30 closing deadline.”

Inventory Up, Prices Down

Total housing inventory at the end of July rose 7.3 percent to 4.09 million existing homes available for sale, which represents a 9.4-month supply at the current sales pace, which was unchanged from June because of the strong sales gain. Raw inventory totals are 10.6 percent lower than a year ago when the number of unsold homes was at a record.

The national median existing-home price for all housing types was $178,400 in July, which is 15.1 percent lower than July 2008. Distressed properties continue to weigh down the median price because they typically sell for 15 to 20 percent less than traditional homes.

Single-Family Homes and Condos

Single-family home sales increased 6.5 percent to a seasonally adjusted annual rate of 4.61 million in July from a pace of 4.33 million in June, and are 5.0 percent higher than the 4.39 million-unit level in July 2008. The median existing single-family home price was $178,300 in July, which is 14.6 percent below a year ago.

Existing condominium and co-op sales jumped 12.5 percent to a seasonally adjusted annual rate of 630,000 units in July from 560,000 in June, and are 5.9 percent above the 595,000-unit level a year ago. The median existing condo price was $178,800 in July, down 18.9 percent from July 2008.

By Region:

The Northeast surged 13.4 percent to an annual pace of 930,000 in July, and are 3.3 percent higher than July 2008. The median price in the Northeast was $236,700, down 15.0 percent from a year ago.

Existing-home sales in the Midwest jumped 10.9 percent in July to a level of 1.22 million and are 8.0 percent above a year ago. The median price in the Midwest was $157,200, which is 5.9 percent less than July 2008.

In the South, existing-home sales rose 7.1 percent to an annual pace of 1.95 million in July and are 5.4 percent higher than July 2008. The median price in the South was $164,500, down 7.1 percent from a year ago.

Existing-home sales in the West slipped 1.7 percent to an annual rate of 1.13 million in July, but are 1.8 percent above a year ago. The median price in the West was $202,300, which is 28.0 percent below July 2008.

Source: NAR

Reprinted from REALTOR® magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Copyright 2008. All rights reserved.

Lawrence Yun, NAR chief economist, said he is encouraged. “The housing market has decisively turned for the better. A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales,” he said.

The monthly sales gain was the largest on record for the total existing-home sales series dating back to 1999.

“Because price-to-income ratios have fallen below historical trends, there are more all-cash offers. In some recovering markets like San Diego, Las Vegas, Phoenix, and Orlando, the demand for foreclosed and lower-priced homes has spiked, and a lack of inventory is becoming a common complaint,” Yun said.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 5.22 percent in July from 5.42 percent in June. The rate was 6.43 percent in July 2008.

Source: NAR

For the first time in five years, existing-home sales have increased for four months in a row, according to the National Association of REALTORS®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 7.2 percent to a seasonally adjusted annual rate of 5.24 million units in July from a level of 4.89 million in June. Sales are 5.0 percent above the 4.99 million-unit pace in July 2008. The last time sales rose for four consecutive months was in June 2004, and the last time sales were higher than a year earlier was November 2005.

Source: NAR