On the Eve of Foreclosures?

Q: "Are we on the eve of an abundance of foreclosed properties on the Outer Cape?"

A: Most likely we won’t see this in Provincetown, Truro and Wellfleet. Here’s what we’ve seen so far this year.

Sellers who have a large equity stake or those who need to sell, have priced their properties in line with what the market is doing. This alone presents opportunity for those buyers waiting for the right time. There has been talk of more adjustment over the next year, but even so, the time to buy is now. On the average, Provincetown, Truro and Wellfleet have experienced a 10% adjustment in the market.

Most sellers who had been aggressive with their pricing and wanted to stick to a certain bottom line, took their homes off the market. They are waiting for the turnaround.

The factors that produce buyers this year are pretty straightforward. Besides the low prices, when mortgage interest rates adjust down, a flurry of buyers rush to town and take advantage of the low priced homes and condos. They buy creating a hiccup of activity.

When rates go up, the activity seems to stop. When this happens, cash buyers have strong negotiating leverage and use their buying power to make the dream of owning on the cape a reality. A cash buyer is now worth his or her weight in gold. 

One thing is for sure. The remainder of 2008 will be an interesting time to see how the market performs.

In regards to the question: we have seen very few foreclosures and may see some more, however, the outer cape will most likely not see an over abundance of foreclosures.

Insurance: Will I be Covered?

Q: "I have heard that it is difficult to get insurance on the Outer Cape. How will this affect me in my search for a property and the ability to get financing?"

A: It is true that in recent years, and especially since Katrina, many large insurers have pulled out of Cape Cod and other coastal markets based upon the great potential risk of a hurricane. But don’t worry, you will be able to get insurance (and therefore financing) and depending upon what type of property you are buying, it may not be a concern for you at all. 

For example, if you are purchasing a condominium, insurance will already be secured for the property, and you will be paying your share through the monthly condo fees. Insurance policies for condominiums cover you for most damage to the building(s) and allow for rebuilding after a catastrophe. We recommend that you take out an additional policy to cover the interior of your unit and your contents.

If you are purchasing a single-family home, first try the local insurance companies to secure coverage. If there are no private insurers that will take your property on, you are guaranteed coverage through the Massachusetts FAIR Plan, which is a legislatively created program to provide coverage for those who cannot secure private insurance. Our local insurance agents (call us for recommendations!) can guide you through the process with the FAIR Plan. 

One note to property owners, whether you are in a condo or a single family. Discuss flood insurance with your insurance agent. If a property is not located in a flood plain, you are not required to carry this type of insurance. But being so close to the water, it is not a bad idea to opt for additional coverage. If you are in a condo, bring it up at your annual meeting.

Basics of a Refinance

Q: "I just went through a three month process trying to refinance my Provincetown home. After all was said and done, the loan was not approved due to lack of accurate comparable homes that sold. Can you please address this issue and provide some advice in regards of what my next step should be."

A: This is a very good question and one that has been appearing repeatedly lately. Firstly, let us outline the basics of a refinance:

1. Once you have a pre-approval from your bank or mortgage professional, you complete the official application process.

2. The appraisal is ordered.

3. You will receive an approval letter from the bank or mortgage professional usually stating an appraisal contingency.

4. The property is appraised.

5. Your loan closes.

This is the most basic break down of the refinance process and of course, each case can be different and come with its own set complications. We are using this simple outline to answer your question.

Where your loan met its demise, based on your question, is on item 4. This is very common today as home sales are still slow. We are in the middle of our third consecutive year of a declining real estate market. This is important to know because banks will only use an appraisal that is six months old. The reason for this is the need for banks to use current comparable sales to justify the amount of the loan. In most cases there have been no sales in certain categories and the banks have nothing to use. Instead of taking the risk, they decline the loan. 

You may want to check with a local bank. Rates may be a bit higher, but local institutions know the market and may be more inclined to be flexible with the appraisal process. The key word is “may.” Your local bank may also be rigid in the qualifying process if there are no accurate and current comparable home sales that match your property type.

If you can, an option may be for you to put more cash on your property and refinance less than what you originally wanted. The lower loan amount may meet the appraisal criteria of the original lendor you were working with. This, however, may be contrary to why you wanted to refinance.

We hope this helps.

To Re-fi or not to Re-fi, that is the Question

Q: " Interest rates have gone down since I got my mortgage a few years ago. How do you know when it makes sense to refinance?"

A: Homeowners refinance for many reasons. Common reasons include: the desire to change the type of mortgage you have (for example to go from an ARM to a fixed rate loan), the need to use the equity in your house for another expenditure (like a remodel or a child’s tuition), or simply to save money on your monthly payment. 

The formula to figure out whether a refinance will be favorable for you is quite simple. First, you need to figure out how long you plan to be in the house. Take the amount of your monthly savings with the new loan, and multiply it by the number of months you plan to be in the house. Compare this number to the fees that you will be charged for the refinance. If the fees are higher than the savings, then it may not be worthwhile to refinance at this time. Many people never get past the illusion that a lower monthly payment can create. Remember, you must consider the long-term equation.

It is always a good idea to consult an expert. Speak with your mortgage broker and ask him/her to lay out the comparison for you. If you don’t have a trusted broker, ask a friend for a referral, or ask us. We work with many trustworthy professionals.