Real Estate Blog Now

You may have heard of a no-doc loan, but you might not know what it means. No-doc stands for no documentation. It is a loan that does not require documentation to prove income or employment. However, this type of loan does not mean that no documents whatsoever have to be provided. There are some documents that have to be given to the lender in order to get the loan.

Most of the times the people who apply for no-doc loans actually qualify based on their credit scores. This is because they made an effort to pay all their debts and financial obligations on time. So, when they apply for a loan to buy a house, they qualify immediately. These people have to go through the usual appraisal and verification procedures in order to get the loan. So, while they will not have to give proof of the amount of income, they would still have to provide some proof that they have a job or business. So, no doc actually does not mean no documents. The name is a misnomer. The borrower has to provide limited documentation.

Usually when a person applies for this type of loan, he should be prepared to pay a higher rate of interest compared to traditional mortgage loan. The reason is that he will be perceived as a borrower who is at a higher risk of defaulting.

The reason people opt for this type of loan is because they have no choice. For instance, you were unemployed the previous year, but this year you have a good job to be able to think about buying a house. The only option for you would be this type of mortgage loan.

Once you have documented income, this type of loan can be refinance for a better and more competitive interest rate.

There are many advantages for getting on to the property ladder. However there is one potential down sides too. This mainly relates to the negative equity that can occur if the property starts to lose value. Making sure you do not find yourself in this position is the hard part.

To avoid negative equity try not to pay over the odds for your property the first instance. It can be easy in the boom for people to start getting carried away when bids are going in and prices are rising all the time. People may believe that prices will keep going up for ever. Although historically house prices have consistently risen over time, there will be times when the house prices do tend to go down. Some people call this a blip or a correction in the market.

Negative equity is only really a problem when someone wants to sell their property. So when you are buying a property you should aim to buy it for the long term as prices are bound to go up over the years. The problem comes if you know you may have to sell in the short term. Work commitments may cause people to sell if they are relocated by the company or children may need to go to a different school. if necessary it may be an idea to try and find an exit strategy such as renting your house out and renting another until the market takes an upturn.

Some people avoid buying a house when they see the prices rising, The problem with that is if the house prices keep rising you could find you are priced out of the market anyway. Trying to time the market is a mugs game with different experts trying to predict what will happen from month to month and none of them getting it right. One newspaper could be saying the house prices are falling while another at the same time could be saying the prices are rising, and they both could be right because price changes do affect different locations at the same time.

So what’s the best thing you can do? Buy the house you want and don’t worry too much about negative equity until such a situation arises. If it does and you have to move think of an exit strategy at that point. An idea is maybe rather than sell try and rent your house out and rent another until the market picks up again.

If you want to own a house but sense that you will not be successful at it then you must look out for HUD grants committed for the low income groups. The first of these grants is urban grants and assist individuals from low income groups realize their dreams of owning their houses. To be able to measure up for these awards, your living home must meet the established elementary measures. You fiscal disciplines should facilitate you to satisfy mortgage payments and an sensational credit report is necessary. What Is More, you should be employed.

Eligibility for HUD grants demands that you satisfy particular standards coupled with a price that is lower than the worth cap. Rural Development Grants is another alternative that is accessible at your disposal. This will assist every low income or conservative income groups get funds for their dwellings in rural areas. The requirement to measure up for these grants is to purchase a home in a rural region that should meet the basic criteria required for valuation. To be in a position to measure up for these grants, your revenue should be within a specified range, your fiscal circumstances should be in a position of encountering the closing costs and not to ignore, you should have great recognition.

You should be aware that there are other ways of satisfying the expenses of a new house and Fed home grants are not the single ones. There are several Housing Assistance plans of HUD which can assist to lower your housing expenses to a great level.These plans are targeted towards families with low revenues. If you are taken for the HUD grants program then you will be awarded with stipend every month by the local HUD that can help meet your housing expenses. But if you are inhabiting on a rental property then it is crucial that your proprietor also concur to be a part of this program. The next stride would be to fill up an application where you have to describe the assets that you own. You will also have to give a statement to show that your revenue is below a certain standard in order to qualify for these HUD grants.

HUD takes special classes on these HUD grants as almost all individuals are misdirected in this regard and therefore their applications are eliminated more often. Taking these classes will ensure that you apply in the proper way and hence the prospects of you receiving these HUD grants rises considerably.

There is not an element of doubt that low income grants and Federal loans can cut down the day to day living expenses. These programs cater to prospective house owners and also renters. Both these plans offer monetary aid which is chiefly based on the finance that you need, your power to buy a home and last but not the least, your keenness to meet the conditions of the program.

In the last couple of weeks the world has been treated to the unfolding scenes of what has generally been described as the worst financial crisis in over 80 years and what has come to be known as the Global Financial Crisis (GFC).

Taking its roots from the sub-prime mortgage crisis of 2007, the crisis has led to the failure of large financial institutions in the United States (Lehman Brothers, Washington Mutual, Wachovia, etc) and has crossed the Atlantic into Europe equally resulting in the near failure of a number of banks there too.

These institutions have been saved by a quick combination of government bail outs and guarantee of depositors funds. The crisis had also led to a liquidity problem and a sharp drop in the value of equities and commodities worldwide.

In fact there are fears that Iceland could be the first country to declare bankruptcy as a result of the crisis. This has propelled its government to use new powers that allow it to seize control and administer public companies in the country’s financial services sector.

Back home in Nigeria, our own crisis has been highlighted in the stock exchange where the market has lost over six (6) trillion Naira in the last few months.

In the midst of all these daily slide and loss of value of assets, the questions that local investors are worried about is what do the global and local crisis portend for real estate and real estate values in Nigeria.

In answering that question we might need to go back a bit. For the last 3 years of the Obasanjo government and possibly into early 2008, the Nigerian economy expanded rapidly and this was also reflected in the way the stock market grew by capitalization from N875 billion in 2003 to N10.20 trillion by 31st December 2007.

It can be defended that the vibrancy of this market drove real estate prices as investors/speculators cashed out on the huge profits being made and invested same in real estate.

Values of properties – land, and land and buildings – on the Island rose by over 100% and the ripple effect spread to the Mainland where capital and rental values rose in leaps and bounds.

The issue now, is, with the global finance crisis and our own local crisis, (Stock Market) can these rental and capital values be sustained or shall we witness a drop or “correction” in the market.

The opinion of the writer is that on a scale of 1- 10, the chances that these values would be maintained can be put at 9.5.

In the first instance Nigeria is predominantly a cash economy, i.e. transactions are still concluded on a cash and carry basis. Access to and availability of credit is limited. The significance of this is that there are very few properties purchased through mortgages, possibly less than 5% of available property stock. In instances, where credit is advanced by a financial institution for property purchase the sources for offsetting these loans are hardly tied to the property i.e., rental income. Other streams of income generated by the purchasers alternative investments and business concerns, are employed.

Since there are few mortgages existent, even in the event of a crisis such as this, there is no pressure to pay off loans as most properties have been purchased by cash. This is in contrast to the developed countries where a loss of employment could mean inability to meet up mortgage payments and other obligations and subsequently lead to the loss of ones home as we are currently witnessing.

In fact in Nigeria, most Landlords would rather hold out until their asking price – rental or capital, is achieved. The usual phrase is “Leave the property. I am not feeding it so it can stay as long as is necessary for me to achieve my asking price”.

This said, there will be the distressed borrowers who have been hard hit by the downturn in business, and would need to offload their real estate to reduce or pay off their indebtedness to the financial institutions. These parties will throw properties into the market, but experience has shown that the properties hardly sell at less than 5 -10% of their open market values. In deed, most distressed sales are undertaken very quietly and hardly feature on the radar of property sales for a long time.

In the last decade or thereabouts, Nigeria, (Lagos & Abuja) witnessed the surgence of properties which rents were denominated in US Dollars.

In Lagos it started off primarily on residential properties in Victoria Island and Ikoyi, but eventually spread to office developments most of which rents are now denominated in foreign currency.

These are still early days of the crisis and it is being speculated that as the crisis bites harder and uncertainty spreads across financial and economic landscape, (coupled with falling oil prices) there will be possible negative effects on these rents.

Once again the writer wishes to differ and would postulate that the effects will be minimal.

It is true that a lot of the multinationals currently established in Nigeria have their parent bodies in Europe, North America and Asia and these parent companies have been hit hard by the global financial crisis. In times like this it is only natural to cut back, by closing down subsidiaries etc.

Though not statistically proved, it is well known that most operations of multinationals in Nigeria with the exception of a few is really insignificant to their bottom line. Therefore in circumstances such as this shutting down their operations here, would have little or no effect. On the scale of global economies our economy and output are very insignificant.

If indeed the decision to reduce expenses / running costs is taken, by cutting back on residential or office accommodation, it would be a difficult one. The Nigerian property market hardly offers much choices at any particular time and thereby limits flexibility in terms of those matters.

Using Europe or North America as an example, companies could move out of one part of town to another and maybe save rent and infact get concessionary rents and terms for the change in location from the developer/owner of the new property.

There are usually at any point in time over 100 developments to choose from.

In Nigeria that is hardly the case. There are on the average only about 4/5 properties to choose from, 1 or 2 of which may be fundamentally flawed by way of design, construction, location etc. This is itself limits choice drastically.

It is unlikely that in a bid to cut costs staff of the multinationals will be relocated to Surulere, Gbagada, Ikeja etc.

Truth is that the corporations and individuals who pay those rents don’t have the luxury of such choices.

It must always be borne in mind that the reason why these rents are so high is not exactly better infrastructure on the Island – there is no difference with the rest of the country – but the perception that the Island is the home of the elite, and for numerous expatriates there is the cluster advantage and closeness to the embassies. There is also a measure of improved security.

That said, the global financial crisis may impact in various other sectors. The fact that a lot of Nigerian banks have taken foreign facilities to bolster their operations here cannot be discountenanced. These lines will no longer be available as the crisis bites harder. It will mean a drying up of credit for these banks.

The banks will therefore be a lot more cautious in terms of businesses to whom loans are extended. In this case, and with the writer’s personal experience with Nigeria banks, projects with long incubation periods are usually the first to suffer.

Real estate development is one of such.

The lack of credit to real estate would mean that less development will take place and considering the already known fact of demand far outstripping supply and the inelasticity of supply, the entire scenario portends increased rental and capital values in the short, medium and long terms.

In the final analysis, the Nigerian real estate market is unique like no other and a lot of factors that prevail/influence other markets do not hold in the Nigeria market.

Our socio-cultural set up demands that property is a first line of investment even before stocks, etc. This alone ensures that demand for real estate far outstrips supply. Therefore we have a situation where real estate is purchased with cash and in a few cases with limited short term funding. This is undertaken by the purchaser with the full knowledge that even the rental income from such properties cannot offset the interest accrued, not to mention the principal. The intention by most purchasers is usually to sacrifice and make payment from other income streams in the shortest possible time; so as to avoid high interest rates – now at a high of 25% and more.

It is really the ingenious personal engineering carried out by real estate purchasers/investors that end up giving the impression that the Nigerian property market is dynamic or active.

The truth is that it cannot be said to be so, despite the perceptions to the contrary.

There are no reliable statistics available on the volume of transactions either monthly or annually or even their approximate values. But the writer being a practitioner with over 20 years experience in the real estate industry it can comfortably be said that with the absence of a mortgage system whereby prospective purchasers can put down 10% – 20% of the capital value of a property and pay the balance in equal installments over a 15 – 25/30 year period, the Nigerian property market is operating at 10% – 15% of its capacity.

And so long as the country lacks a dynamic mortgage industry coupled with trading on mortgage backed securities, we will continue to operate at the current abysmal level.

On the other hand. If we did have a dynamic mortgage market, the overall effect of the international and local crisis on our system may have been a different story from what it is now.

To say the mortgage industry has changed is an understatement. Words of RESPA and Hud are dancing in the heads of all lenders currently. RESPA has enacted a major change in the way mortgages are applied for. Notably is the good faith estimates. The simple one page report with a summary of numbers and bottom line figures, are no longer in existence. A one page easy to understand document has turned into a 3 page survey that shows no bottom line to the consumer and is really a doctorial of things that could be shown by a numerical summation. It has caused much frustration throughout the industry. Also the process of loans has differed.

A lender must now show a borrower upfront this 3 page good faith estimate and must receive a “intent to continue” before 10 days or your loan will be withdrawn. Rate locks cannot occur unless this intent to continue is issued by the borrower. Also make note for potential home purchasers is that a firm pre-approval that Realtors covet will no longer be issued, only pre-qualification notices can be issued to write contracts. This could have an effect on competitive contracts and offers. Understanding the new Good Faith Estimate and new settlement statements are a must for all who are participating in a real estate transaction. We all must adjust to new rules, but as much as lenders need to adjust, the public needs to be just as educated on the changes, which in my opinion is just not happening.

Even if the real estate market is strong, the cause of the non-performing loan status may be directly related to a weak management policy or “home work”. Management can make decisions, which in the short or long term can increase expenses and reduce the level of net operating income, thus increasing default risk on loan’s periodic payments. There can be different reasons for this.

First of all, even if demand will be strong for a longer period in the real estate market, the cause of the non-performing loan may be related to a real estate developer’s weak ” home work”. Excluding “hog cycle” here, developers, who use raw land as collateral, may stand face to face in a situation, where they will not be able to repay a loan. This may occur for the following reasons:

• Poorly done market analysis
• Miscalculations of the effective demand and the competitive supply in the market area
• “Bad” location for particular project
• Wrongly chosen main target group
• Cost overruns and late competitions
• Letting risks and voids
• Miscalculated absorption rates
• High financial gearing of a company
• Weak marketing
• Decreasing population and diminishing export base of local community

Under the circumstances described above, the developer’s income cash flows are arbitrary and prolonged, and income and liabilities do not match. Developer’s default risk is the highest if a building is built for resale without getting a buyer before the project initiation, and if a building is built for lease without getting pre-contracted tenants.

Secondly, every property deteriorates over time.

• Functional deterioration is caused by flaws in the structure, materials or design that diminishes the function, utility, and value of the property. For example outdated design, poorly done “the high and the best use” analysis, inadequate property management diligence, lack of financial support, or any combination of the foregoing may increase vacant tenant spaces as a tenant finds that the property is not suitable for his/her business activities. As the market value of commercial property is directly related to totally leased space and contracts’ conditions, the value of the property as collateral and cash flow are diminishing, thus default risk is higher. Consider, for example, an industrial building that was built in the early 1970′s. The structure’s 3.60 m. ceiling, which was the market standard then, might be considered totally inadequate today when 5 m story heights are the norm.
• Economic deterioration is an impairment of the utility or property due to negative influences outside the property. Because of fixed location, real estate is subject to external influences that cannot be controlled by the property owner, landlord or tenant. Consider a situation, where the property is ready for use in a central business district (CBD) today, but in future it will be located nearby the CBD due to the CBD movement towards more competitive areas. Thus, trough the years the main target group of potential users has been changed, rents and net operating incomes are declined due to changes in the neighbourhood. There is a higher degree of default risk on a loan, especially if the loan is given for long-term. Additionally, cash flows will decrease.

Comparing other reasons for non-performing loans and defaults mentioned above with economic and functional deterioration has a small magnitude of impact to a borrower’s default.

Bank is a kind of enterprises that is engaged in money management, it will be faced with a variety of risks. In face of the rapidly developing market economy, the enterprises need huge capital. So a valid credit rate for enterprise is necessary if the bank wants to reduce risks when it issues a loan. As the pillar industries in the national economy, the real estate enterprises have some features such as high degree of association, strong power of drive, wider outreach and so on.

On account of the enterprises have some problems such as big investment scale, long development period, long consumption period, huge occupation of capital and long recover time, it can’t leave the support of commercial banks. The real estate enterprises have become business object of commercial banks, because they need to borrow a large number of money from commercial banks. These days real estate enterprises are influenced by the financial crisis, they are lack in cash flow.

There is a symptom of financing chain breakdown between the real estate enterprises and commercial banks. The price of real estate merchandise is moving towards weaken and gliding, this will lead to more crisis for commercial banks because of the influence of real-estate merchandise to the price of land. So an analysis for credit to the real-estate enterprise is necessary for the commercial-bank to reduce risks and the possibility of bad debts. Standing in the place of commercial-banks, it introduces the concept, feature, beginning and development of credit risks.

After categorizing and summarizing the current research situation at home and abroad, choosing proper evaluation indexes and methods and using the financial information from stockjobber and enterprises we create a Logistic model. The data is done by special method, and then tested by SPSS software. Following a Logistic model is got from test samples. At last the Logistic model is tested by a new case to prove its explanatory.

Mortgage lead generation is a fairly common concept, which involves collection of information related to potential customers who’re currently looking out for a mortgage plan, or a mortgage refinance deal. So, let us analyze the importance of mortgage lead-generation, and various aspects related to it.

There are several points a mortgage broker lead generator needs to keep in mind; here are the top 3 considerations -

1. Lead value
2. Product consistency, and of course
3. The demand!

Now, let us now try to analyze these three factors in detail.

Firstly, the lead value is one the most important components of mortgage lead generation. In order to generate potential leads that may result in very high conversion levels, it is crucial to asses the right lead value.

Remember, US real market is considered to be at historical all time low point; during such market conditions, only leads that have a strong reason to purchase mortgage plan should be counted. Consequently, it will be a wise idea to count only those leads that have a very high lead value.

Now, lead value inherently correlates with demand. There is a high demand for mortgage products pertaining to the high peak estate places in US, so if you offer such products that you can generate mortgage broker leads with very high values.

The third important consideration is product consistency; apart from the million people in America, it is crucial to offer consistent mortgage products that will interest a wider range of customers. So, it is not a great idea to offer something that will interest only the local crowd; you must always try to target the global audience!