Market Update

The Return of the Loan Contingency?

In the East Bay's go-go-market of the last few years, loan approvals happened without a second thought. And, since buyers have to be competitive in that market climate, they often dropped the loan contingency from their offers. Well, the credit market is tightening up--especially with American Home Mortgage and others like them closing their doors--and loans won't be so easy to come by.

I think this means we'll start seeing the return of the loan contingency. Buyers are going to have to cover themselves, as in the past, when it comes to getting their loans funded. Firms like AHM stopped funding new loans last week, and then closed their doors. What happened to buyers who were ready to close escrow last week, but their lender disappeared on them? I hope they had loan contingencies in place.

We'll also start to see a return to conforming loans--aka those loans that conform to federal Fannie Mae and Freddie Mac standards--and fewer and fewer jumbo loans. I also think we might start seeing more seller financing, which could be very interesting. What do you think? Comment below or drop me a line at Msmartt@jps.net.

Financial Tips

Watch out for that Pre-Pay Penalty!

If you are thinking about selling your home, make sure to check your existing home loan(s) for any pre-payment penalty. They can be quite stiff!

Remember back when you were setting up your mortgage, and perhaps you got a better deal by including a pre-payment clause? The lender gave you a better deal because they thought you might stick around for awhile sending them regular checks. They like checks! Well, if you go away before 3 years or 5 years (depending on your own loan), you could get stung with a hefty penalty costing you thousands of dollars.

Even if you are selling your home close to the date, it could throw a wrench in the process. Say you want to schedule close of escrow for right after the pre-payment cut-off date, but if you submit a loan payoff demand even 24-hours before the the penalty phase ends, you could still owe the fee. So, watch the dates in addition to watching the money.

For more on pre-payment penalties, including a great summary of why they exist, check out Mike Mueller's blog. Or if you have further questions about the little details you have to watch out for when selling your home, let me know. I'm always happy to help. I can be reached at 510-547-5970 x57 or MSmartt@jps.net.