Archive for August, 2013

ANALYSIS/PARALYSIS Syndrome

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Raven's Progressive Matrices Example

Raven’s Progressive Matrices Example (Photo credit: Wikipedia)

A nasty medical condition has been diagnosed amongst a small segment of the population here in Santa Clara’s Silicon Valley.

It affects only Highly Educated, Computer Literate, people between 25 and 35, and only when they decide to try to buy a house.

The virus feeds off such people’s addition to “DATA” regardless of accuracy, or relevance to the Home Buying process, and despite the lack of sufficient knowledge to accurately evaluate it.

In a very short time they lose all sense of purpose and truly believe that if they could just know everything there is to be known about the history of a house and all persons who have ever lived in it, plus the ethnicity of every family living within 2 miles of it, and the IQ of all children of these families, there is a “DATA” supported formula which will tell them if they should buy it, and if so, how much they should be willing to pay.

The lack of such a formula throws them a frenzy of inaction leading to the diagnosis of the dreaded ANALYSIS/PARALYSIS Syndrome. Unofficially this is referred to as the “I can’t decide” problem.

Being Highly Educated (NOT THE SAME AS INTELLIGENT) they will blame the problem on their Real Estate Agent who is obviously not finding them the relevant “DATA” needed to make the correct decision.

They then select a new Agent based on his/her promise to provide them all the “DATA” they ask for and to never offer them advice.

To this date no-one suffering from this debilitating condition has  actually bought as house as long before they reach any decision the subject property has already sold at, on average, 15% higher than the price their process suggested.

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APPROVED LOAN CANCELLATION RISK

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Home buyers may face an unexpected delay or cancellation of their loan if subsequent financial activity raises any red flags for lenders, especially since Fannie Mae now requires a borrower’s credit to be rechecked right before closing a mortgage.

Making sense of the story

  • Borrowers are advised to keep their credit      picture in the clear by refraining from any purchases that may be seen as      a liability from the lender’s view. For example, the sudden addition of a      $3,000 balance to a new credit card account for an item you’re planning to      enjoy in your new home may cause the lender to send back the loan to      underwriting in order for the calculations to be redone, which could      result in a higher interest rate.
  • If in doubt, borrowers are advised to check      with their loan officer before accruing any new debt so that the purchase      of a new home is not jeopardized.
  • Fannie Mae allows the maximum debt-to-income      ratio to be 45 percent (meaning that a maximum 45 percent of your gross      monthly income can go to cover debt, mortgage and housing expenses).
  • When only one spouse of a couple is named on a      loan, credit rechecks can cause problems if the other spouse has a low      credit score. When the loan is based on one spouse’s income instead of      two, the lender will see a higher debt-to-income ratio.
  • In addition, lenders now routinely re-verify      the employment status of borrowers just before closing, which represents a      standard practice being reignited after the financial crisis. If a      borrower’s employer is undergoing a name change, then the lender also      should be notified to avoid delays.
  • The most creditworthy borrowers may not have      their loan status affected by large purchases before a mortgage is closed,      but those with tighter finances are advised to be more cautious.

 

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