Mortgage product fundamentals – part 1

Once again, Coldwell Banker Mortgage Advisor Steve Nimmer NMLS # 186680 ph. # 912-604-3834 comes through with a great article to share.

Useful information you need to make an educated decision. And if you live in the Savannnah, GA MSA and are ready to buy give me a call 912-352-1222.

Conventional Loans

Conventional loans are the most traditional type of financing for a home purchase or refinance. Conventional loans are underwritten by government-backed enterprises, including Fannie Mae and Freddie Mac, and have their own set of guidelines (see Eligibility below).1

 
Benefits

Individuals with good credit, a steady income and who can afford the down payment on a conventional loan can take advantage of a number of benefits:

• competitive interest rates, typically lower than FHA, VA and jumbo loans,
• faster mortgage processing in most cases,
• avoiding private mortgage insurance if the borrower puts 20% down,
• building equity faster.

Eligibility

Borrowers must meet several criteria for conventional loans including demonstrating stable employment and having a maximum debt-to-income ratio of less than 33/45 (a borrower's mortgage payment cannot exceed 33% of their gross monthly income and total debt/obligations cannot exceed 45% of their gross monthly income). They also need good to excellent credit, specifically, FICO scores of 620 or above. Larger down payments are also required for conventional loans between 5%-20% of the home's sale price for the down payment plus additional cash/savings for closing costs.2


Mortgage Types
Fixed Rate Mortgages: A fixed rate mortgage is an option for conservative borrowers, those who want to lock in near historically low rates and homeowners who plan to stay in the home for a long time. With a fixed rate mortgage, interest rates remain static, and the borrowers' principal and interest payment will remain the same for the term of the loan.³ Fixed rate loan terms are generally amortized over 30, 20, or 15 years.

 Adjustable Rate Mortgages: Conventional adjustable rate mortgages (ARMs) can be beneficial for borrowers who don't plan to live in the home for a long period of time, or when mortgage interest rates are high or increasing. ARMs begin with lower initial interest rates and monthly payments; however, after an initial fixed period, the interest rate will adjust. (Most ARM rates are tied to the performance of one of three major financial indexes.)³ This type of mortgage is often considered by borrowers ARMs typically offer initial fixed-interest periods of 3, 5, 7, or 10 years.

 Sources:
1.Conventional Loan vs. FHA Loan by Karina Carrillo Hernandez
2.Conventional Home Loans Explained by Daniel Duffield
3.Adjustable-rate Mortgages by Realtor.com


A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Platinum Partners Helps Pack the Pantry this Thanksgiving

Our firm donated twenty large Rubbermaid tubs to America's Second Harvest of Coastal Georgia.
These tubs created a mountain in the lobby!

Read the full article at Platinum Partners Helps Pack the Pantry this Thanksgiving

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Crime Affects Commercial Property As Well As Residential

Yesterday my co-worker Kim Iler asked me to ride with her to one of her commercial property listings to meet a customer there. She was smart to ask me because the property, on Ogeechee Road, is vacant and set back from the street.

She wanted my company because she didn't know the person/people she was meeting and mace can't prevent all criminal attempts.

When we pulled up we saw the front door to one of the buildings was forced open and the door on another building were swaying in the breeze. So she called the Chatham County Sheriff's Office to report the incident.

We sat in the car upon the advice of the dispatcher, which was just as well considering it started to rain. Officer Bena arrived, got our story and then called for back-up. Officer Marshall (no relation) quickly arrived. As they searched the first building Kim's customer pulled up.

It can't be a good thought that crosses a customer's mind when he makes an appointment to walk a property and arrives to find two cops yelling "Police!" from inside it.

Kim explained the nature of their visit and he volunteered that the doors had not been busted open when he drove by the property at 7p.m. the night before. So now the officers could narrow the time the crime occurred. After they cleared each building Kim walked around explaining the virtues of this investment to the customer.

While I'm not looking at any statistics right now, I think it is safe to say break-ins are on the rise. The community recently saw the theft of A/C units from just empty churches on Isle of Hope and the Boy Scouts Coastal Center. So what can a property owner do to protect her property? (In this case, the owner lives in Florida.) You can use an alarm system (most practical), file paperwork with the Sheriff's Office to permit them to patrol the property and arrest anyone on it (practical) and alert the neighbors (generally effective).

Fortunately for me and Kim, it isn't our job to protect your property in your absence, but we can help out when something goes wrong.

This particular property owner is lucky- nothing was stolen (A/C units, appliances, wiring, etc...) and there was no extensive damage from smoke or graffiti. All the trespassers left were a broken door and empty Twinkie wrappers.

A Recovering Economy with Falling Commercial Real Estate Prices?

What's going on in the marketplace? I'm asked this at least once a day.

On a local level, I'm stirring several pots, but having difficulty getting those pots to boil. Until lending is freed up (see yesterday's post), the job market picks up and investors are confident it looks like they're just going to simmer a while longer.

Why are we optimistic that the market is recovering?

First, we see that solid assets in all markets are selling close to where they were in 2006. This is a good thing for the markets in general and we've seen a few examples of that in Savannah (think the old Backus Building, 516 Drayton, 1326 Eisenhower, 27 Bull Street). Second, activity around U.S. ports is increasing and ports are considered to be bellweathers of the economy.

"On the whole, despite the uneven nature of the recovery, surveys seem to indicate that commercial real estate investors remain optimistic about the recovery despite ongoing issues with the economy[2]. In fact, a “lack of new supply and low interest rates” are actually driving up investor interest in the sector, reported PriceWaterhouseCoopers LLP. The fact that there will likely be “very few additions” to the commercial property market supply in the short term is also contributing to the absorption of space, PwC reported, adding that tenant demand would likely increase in the coming months." This quote comes from a Bryan Ellis commentary that explains the two-tiered commercial marketplace.

Third, commercial real estate brokers and investors are excited about the innovations they're seeing in the marketplace. Because there isn't demand for new construction, investors, developers and businesses are doing more with less, reinventing current spaces, making buildings "green" and using technology to better the business.

Gary Shapiro writes for Forbes that, "...innovation can – and does – occur in every industry of our economy, from consumer electronics to health care. Commercial real estate is no exception. With millions of Americans employed at retail or working in office buildings, this once sleepy industry is smartly innovating and benefiting from new markets and technology."

"At last week’s RealComm technology real estate conference in Orlando, Fla., I enjoyed the vision shared by Bill Hankowsky, President and CEO of Liberty Property Trust, who, among other ventures, recently completed Comcast’s new Philadelphia headquarters. He noted that with rising energy prices and companies cutting back on space, the commercial real estate market must start innovating. He mentioned how GlaxoSmithKline’s office-space needs at their headquarters have shrunk from 600,000 square feet to 205,000 square feet, but not because of a fall-off in business. Rather, technology, innovation and changing human behavior have reduced the amount of required office space. Companies and employees are able to do more with less space – the very heart of innovation." You can read the rest of Shapiro's article here.

The L.A. Times reports that big box retailers like Best Buy and Sears are actively seeking tenants for up to 20% of their retail space. Online sales and online rivals are driving the decrease in demand for building space. The Best Buy here in Savannah hasn't announced that it seeks a tenant for relinquished space, but the downsizing experiment works well in California, I wouldn't be surprised to it happen across the country.
Lastly, you have to examine how and where commercial real estate prices fell. The declining prices are happening across the country, true. However, these prices come from distressed properties- a lot of them. Large numbers of distressed properties selling for rock bottom prices simply drive down overall industry numbers.

"The Moody’s/REAL Commercial Property Price Index dropped 3.7 percent from March and 13 percent from a year earlier. It’s now 49 percent below the peak of October 2007 and at its lowest point in data going back to December 2000, the company said in a report today. The index, which measures broad national price trends, has fallen for five straight months as sales of distressed properties undermined real estate values." This market snapshot reported by Bloomberg is a very close look at very big picture.

PricewaterhouseCoopers offers a comprehensive explanation of the big picture. "Buyers are pursuing deals as the market improves, and concern that that the economic recovery will falter has deterred “very few” investors from acquiring assets, PwC said. The Standard & Poor’s 500 Index has fallen 5 percent from this year’s high on April 29 after signs of slower U.S. growth, including data showing that employers in May added the fewest jobs in eight months.

“The lack of oversupply, strong corporate earnings and a pattern of job creation, not just one bad report -- that’s what is fueling cautious optimism that the economy will recover and rents will rise,” Mitch Roschelle, partner at PwC’s U.S. real estate division, said in a telephone interview yesterday."

The agents here at Coldwell Banker Commercial Platinum Partners agree with the latter report. Commercial vacancy rates may be high, but they are decreasing. We've all seen an increase in leasing activity. Investors are curious, new investors and businesses are leasing, and investors with money are buying. There is definite excitement around considering the two new VA hospitals that are to be built, the expansion at Mitsubishi, the eventual harbor deepening and the Gulfstream expansion.