The general rule of thumb is strong economic news often causes money to flow out of bonds and into stocks, as investors leverage their money to take advantage of gains. This is partially what caused bonds to worsen late last week. Also affecting bonds and home mortgage rates was the news that inflation is on the rise. This was evident by the Consumer Price Index (CPI), which rose to highest levels since October 2008. Any mention of inflation in this market tends to worry bond investors, causing bonds and home mortgage rates to worsen, as inflation can reduce the value of fixed investments such as bonds.

The bottom line here is rates, though increasing slightly from last week, are still near all-time lows, which makes it a great time to purchase a home.

Outlook for the Week Ahead

The capital markets are closed Monday due to President’s Day and the economic calendar is moderate for the rest of the week.

On Wednesday Existing Home Sales report will be released, followed by the New Home Sales report on Friday. It will be interesting to see if positive news continues in light of the housing starts data from last week.

On Thursday the weekly Initial Jobless Claims Report will be released and on Friday, the Consumer Sentiment Report will follow.

Don’t forget strong economic news tends to cause money to flow out of bonds into stocks as investors look to take advantage of gains. This tends to cause bonds and mortgage bonds, to which home mortgage rates are tied, to worsen. Let’s see if this trend will continue.

The day the property is legally exchanged from seller to buyer is typically referred to as the closing or settlement. A great way to plan for your closing is to review a blank HUD-1 Settlement Statement. The HUD-1 is the standard, federally mandated form that your lender or mortgage broker will provide you by law a few days prior to the closing of the sale. A document that precedes the HUD-1 is the Good Faith Estimate (GFE). The Good Faith Estimate (download sample here) is a snapshot of what you should expect at closing and is provided to you by the lender or mortgage broker when they quote you an interest rate or you apply for a mortgage loan. It is simply an estimate of your settlement charges and loan terms if you are approved for the loan for which you apply.

HUD-1 Settlement Statement

The total purchase of your home will be summarized on page one. A breakdown with an itemized description of the charges can be found in Section L (Settlement Charges). Below is a sample HUD-1 Settlement Statement for you to review:

The Real Estate Settlement Procedures Act (RESPA) requires lenders and mortgage brokers to provide you with a copy of the following publication. It is good information and highly recommended that you read.

Our goal is to help you understand several aspects of buying a second home. Today we will help you decide, if you haven’t already done so, what you really want out of your second home.

Most people that come to Myrtle Beach looking for a second home are doing so for one of the following reasons:

What is your reason?

Investment

If the first thoughts in your head are, “Wow! With a coat of paint and some new carpet, imagine what I could sell this property for when the economy turns around,” then you are likely motivated based upon investment goals.

Investors view buying a second home as an alternative to investing in stocks or bonds, or some other investment vehicle. Their decisions about purchasing a second home are methodical and financially based. Instead of qualifying the purchase based on their favorite vacation destination, they are more interested in the track record of appreciation in home values, which is a reason investors are so interested in Myrtle Beach properties.

CONSIDERATIONS

• Planning on renting out your property? Your rental income may help you offset your monthly expenses, allowing you to buy a more expensive type of home. Our advice is to be conservative with your rental income projections. Make sure you understand the rental market in the area. This information can be obtained by your real estate agent. Also note, just because an area is more expensive does not mean it is a hot rental area. Consult with your real estate professional who knows what is going on in that area.
• Renting out a condo or townhouse? Some developments have limits on how many units can be owned and rented out by non-resident investors. Make sure you know the guidelines.
• Forming an LLC with your co-buyer may prohibit you from carrying out what’s called a 1031 Exchange (or “like-kind exchange“). This tax concept allows owners of investment properties to defer capital gains tax when the property is sold, so long as they purchase another investment property of equal or greater value within 180 days. Unfortunately, partnerships (i.e LLC’s) do not qualify for a like-kind exchange. However, if you and your co-buyer each establish separate LLC’s and have two entities purchase the property as tenants in common, then both of you will qualify for a like-kind exchange. Consult with a tax professional or attorney to make a proper assessment

Vacation

A vacationer is not to be confused with an investor. A true vacationer buys a second home for the mere enjoyment that the home and location of the home will provide. The decision is driven more by emotion than logic. If a vacationer has dreamed of owning a Myrtle Beach condo because of the experiences it provides, he isn’t going to be swayed to buy for a better price 10 miles down the road and off the beaten path.

CONSIDERATIONS

• Know how much you can afford to spend before you begin looking at homes or condos.
• Curious what other vacationers look for when buying a second home? Oceans, rivers, and lakes top the list of desired locations — around 66% of people surveyed by the National Association of Realtors said they chose a property because it was near water.
• How close is the house to recreational activities?
• Is the house in an area with high insurance premiums?
• Is the house resistant to renter wear and tear?
• Consider the words of famed investor Warren Buffet: “Only buy something that you’d be perfectly happy to hold if the market shut down for ten years.”

Future Retirement

If you see a home with deeded beach rights and your immediate thought is, “What a great place to live after I stop working or slow down,” you’re thinking like a future retiree, whether that date is just around the corner or years away. Retirees, like vacationers, often rent out their second homes to offset expenses and to see appreciation in property values. However, rental and appreciation are not the main driving force. Retirees’ goal is to have a second home they can ultimately call “home.”

CONSIDERATIONS

• Evaluate property taxes. Since most retirees are on a fixed income, many look to retire in states that offer lower property taxes. Know how property taxes and overall cost of living can impact your decision.
• Lock in a low interest rate. Interest rates are at or near all-time lows. If you know that you are going to hold onto your second home for the rest of your life, it is highly recommended you consider securing a rate soon.

The material provided is for informational and educational purposes only and should not be construed as legal, investment and/or real estate advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors.

Also in the news was an agreement that was finalized with the five large banks to settle alleged foreclosure abuses. The $25 Billion deal is the largest government versus business settlement since the tobacco lawsuits back in 1988. The deal is expected to include $1.5 Billion in cash payments to borrowers who were foreclosed upon between September 2008 and December 2011. However a larger portion of the settlement amount is being directed to potentially help thousands of homeowners who are presently current on their loans but owe more than their homes are worth. Details on this still forthcoming.

This week’s economic news has several reports that will be released. On Tuesday we will get the Retail Sales Report. We will get a dose of manufacturing news on Wednesday with the Empire State Index and FOMC Minutes. On Thursday Housing Starts, Core Producer Price Index, Building Permits, Jobless Claims, and the Philadelphia Fed Index will give us a good read on the housing market. We don’t want to forget Friday with the Consumer Price Index and Core Consumer Price Index that could impact interest rates should numbers come in lower than expected.

The bottom line, if you are in the market to purchase a home in Myrtle Beach it is a great time. Interest rates remain at near all-time lows and pricing is very competitive.  Contact us today and we will be glad to help you.

In the last few years, new lending rules have changed the lending process for homes in general, and for condominiums in particular. The primary reason is the condominium market nationwide has seen its fair share of mortgage defaults and foreclosures the past few years. For the most part many of those mortgages were insured by Fannie Mae, Freddie Mac and FHA. Because of these defaults Fannie and Freddie (as well as FHA) no longer make traditional loans on certain types of properties.

A “Non-Standard” Condominium

As lenders reduce their lending risk, certain condominiums around the country (and in Myrtle Beach) are being specifically excluded from securing traditional conforming financing. These are commonly referred to as “non-warrantable condos.”

A “non-warrantable condo” is a condominium that does not meet eligibility standards set by Fannie Mae and/or Freddie Mac and therefore excludes financing for condos that don’t meet their standard. Your lender will be able to help you assess whether a specific project meets Fannie or Freddie guidelines. If it doesn’t there are other resources to obtain financing including lenders who will make non-warrantable condo loans. So not to worry.

The same set of rules applies to another type of condo classification; one that is normally associated with luxury and vacationing. This is referred to as a “condotel.”

Condotel

A condotel is a blending of the words “condominium” and “hotel”. It describes buildings used as both a condo and a hotel, with owners keeping the rights to rent their units while they’re not actually using them. Most often the rentals of a condotel are managed by an on-site rental company or management team.

Like non-warrantable condos, condotels cannot be financed through Fannie Mae or Freddie Mac. The good news is that mortgage money is available for both non-warrantable condos and condotels.  There are some lenders that are deciding to make the loans in-house, and your real estate agent will have contacts and information in order to obtain one of these loans. Typically, the minimum down payment starts at 25 percent.

Getting a condotel or non-warrantable loan approval is simple.

That’s it other than some building/project considerations, but they’re not nearly as tough as what Fannie or Freddie would require for loan approval. And the building requirements are more geared toward making sure the building is well-constructed and insured than anything else. Every reputable condo and condotel in the country, especially Myrtle Beach is going to pass that test.

If you are a prospective condominium or condotel buyer, make sure you have consulted with your real estate agent and mortgage professional to discuss financing before submitting a purchase contract.

The Jobs Report last week showed 243,000 jobs created. This was much higher than the market expected. Also unexpected was the 257,000 private jobs that were created and the 0.2% decline in the Unemployment Rate, bringing it to 8.3% which is the lowest it’s been since February 2009.

The trend though much more positive than it’s been for quite some time is that we still have a struggling housing market, major problems in Europe, high unemployment, and a very fragile economy.

Therefore the news this week will have a moderate impact towards an increase in interest rates if any news is good on the economic front in regards to the Jobless Claims and Consumer Sentiment Index (UoM) reports. So let’s watch Thursday and Friday and see what happens. Also keep a careful eye on the events in Europe.

The bottom line is that now is a great time to purchase a home. Interest rates are still at historic lows and there are great deals that can be made.