The Benefits of a Good Faith Estimate and Pre-approval When Buying Real Estate
Posted on 14. Jan, 2010 by admin in general
Most real estate purchases are bought with loans so getting a good faith estimate and pre-approval letter from your lender helps the process start off on the right foot. The good faith estimate, or GFE for short, is required by law to be provided by lenders when you are seeking a loan. It lists out the estimated closing costs, monthly payments, and interest rates for the loan program you are looking at getting. The pre-approval letter is provided by lenders once they have run your credit and get your income / debt information. By getting the GFE and pre-approval letter, you can be confident that the loan will get processed with no surprises. There are also additional benefits to getting pre-approval and GFE before you even begin the property search. For one, by discussing your debt to income ratio with your lender and obtaining the GFE, you can determine your maximum price. It helps to know the maximum sales price when shopping around so that you do not waste time and energy looking a over-priced properties, and also vice verse, you do not waste time and energy looking at under-priced properties. You can find an area in your price range that fits your needs and narrow down your search. You also will determine your monthly payments with the GFE. The monthly payments should include the property taxes, insurance, principle, and interest plus any private mortgage insurance (PMI). If the monthly payments are higher than you wanted, then you can adjust your sales price to be lower. Another reason to get your pre-approval and GFE before starting your home search is that you may find out some issues with your credit or financial situation that you could clean up before moving forward with a purchase. For example, the first time I bought a house, I found out that I had a $50 charge on my credit report from 3 years ago, which brought my credit score down. And with a lower credit score, I would have gotten a worse interest rate on the loan. I say ‘would have’ because I was able to pay off this collection and clear up the ding on my credit before going into the loan underwriting process. Finally, by getting a pre-approval letter, you have proof for a seller that a lender has confidence in being able to fund the purchase on your behalf. This helps with presenting offers and negotiating. Many sellers will not even accept an offer unless it is accompanied by a lender’s letter. Furthermore, if you do not have a letter, the seller may counter higher given that he feels he is taking on more risk that you may not be qualified for the loan amount. Also, if you happen to get into a multiple offer situation, your offer will be much stronger with a pre-approval letter.
Commercial Real Estate: Outlook at the Power Breakfast
Posted on 07. Jan, 2010 by admin in general
A GOOD OUTLOOK FOR COMMERCIAL REAL ESTATE IN 2007
I had the opportunity to sit in at the International Council of Shopping Centers (ICSC) annual “Power Breakfast” that featured some high powered institutional investors as panelists. They included Erwin Aullis, the Managing Director of Transwestern Investment Company, Stanley L. Iezman, the President of American Realty Advisors, Inc., and Glen Sonnenberg, the President of Legg Mason Real Estate Services. The panel was moderated by Mark Schurgin, the president of the Fesitval Companies.
These are some high-powered commercial real estate fund managers who don’t even get out of bed for a deal less than $50 Million! They were there to give us some of their thoughts on how the economy will impact commercial real estate investment, where interest rates might be headed in the coming year, and how buying and selling parameters have changed for shopping center owners.
Some of the thoughts that came from these guys were fairly insightful. Here’s what I got from the breakfast that I think you’ll find interesting:
1. Commercial real estate lenders are awash in money thanks to Collateralized Debt Obligations. These are derivative debt instruments that allow lenders to dramatically increase their ability to raise money at low overall costs.
2. The ageing of the population and the retirement of the Baby Boomers means that there is a large chunk of retirement money looking for alternate income opportunities … think “income property.”
3. Large funds are taking on more real estate, making it a legitimate “investment class” like stocks and bonds.
4. The REIT Index was up 35% last year, trouncing the S&P 500. Large urban areas can expect low cap rates in the months ahead, meaning that there are opportunities in secondary areas, but you still need to beware in “tertiary” markets, like Detroit and St. Louis.
5. Oversupply of commercial properties is not yet in evidence.
1031/Tenants-In-Common buyers are drying up, slowing price appreciation.
6. “A” quality commercial properties are becoming “commoditized,” meaning that there are real opportunities in “B” and “C” product.
7. The big players are getting out of condominium product at significant discounts to original asking price (which means you might get a nice home for cheap). This was in evidence in San Diego and South Florida. Residential projects are taking a back seat to commercial in the minds of the big investors.
There’s some good intelligence in these observations for anyone serious about investing in commercial property this year.
The final few minutes of the session were devoted to a group consensus on where interest rates and cap rates would be a year from now. While not a real prediction, the sense of the room was that the Prime Rate would be .75% to 1% lower, commercial mortgage rates for “A” product would be about .25% to .5% higher than today, and cap rates for class “A” properties would be essentially unchanged.
My conclusions are that there will be some opportunities to make money in smaller commercial properties in outlying areas and smaller urban markets. New construction and other “value added” projects should also do well. One caveat is do not make the mistake that rents will continue to trend upward, though. Stay conservative in your projections and you should be able to ride out any recession that might follow in the wake of possible Congressional tax hikes.