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You are here: Home » 2015 » September

WHAT DOES “ACTIVE-CONTINGENT” MEAN?

If you are currently looking for a home to purchase, chances are you’ve called to check the status on a home and been told that it is “contingent.” This is agent shorthand for the “Active-Contingent” status that we use.

 

What this is SUPPOSED to mean is that there is an accepted offer on the home, but the buyer needs to sell their home. The seller still has the right to solicit other offers and if the seller accepts another written offer, they will give the first buyer written notice (usually 72 hours) that they need to remove the contingency of their home selling AND the loan contingency, or the second buyer gets to bump the first buyer out of contract. Many people (agents included) think that once the buyer’s home is under contract they are no longer contingent, but that’s not the case. As long as the buyer needs that home to close escrow, they are a “contingent” buyer.

 

The purpose of this is to warn any buyers that have a home to sell that they are pretty much wasting their time looking at a home marked “Active-Contingent.” However, if a buyer is truly non-contingent, they should still be able to go look at the home and have a chance at “bumping” the non-contingent offer out.

 

Sometimes the “Active-Contingent” homes in the MLS today really aren’t available to be bumped. Maybe the first buyer has been able to get their home sold, and the agent just hasn’t had a chance to update the MLS status. On others, the agent has listed the home as “contingent” so the home continues to be shown, but for back-up offers only. Check with the listing agent to get the facts of the situation.

FED INACTION ON RATES

So last week nearly all the “experts” expected the Federal Reserve to finally raise their key interest rate by a quarter of a percentage point. It’s been hinted at for quite a while now. The last few jobless reports and inflation reports seem to support the decision. Most of the financial world had factored that rise into the expectations, formulas and financial products. But then the Fed surprised with NO change, and stock markets across the globe dropped at the announcement.

 

So what gives? If lower interest rates are “good” for the business world (I put that in quotes because many people DON’T think they are good long-term, but that’s another article, or two!), then why wouldn’t people be cheering low interest rates? Borrowers can borrow more at cheaper rates for cars, homes, etc. and that stimulates buying, which leads to more profits, so why the concern?

 

Since the Fed was expected to raise rates based on the data that was out there for public consumption, people are wondering what other negative data are they looking at that isn’t made public? The worry investors have is that maybe things are worse than we’ve been told!

 

I think the Fed just didn’t want to rock the boat after the recent collapse of China’s stock market, which isn’t anywhere close to being resolved. So they were trying to provide some stability and project an image of calmness to the market, which seems to have backfired on them in the short-term. They did leave open the option of raising rates “soon” so we’ll just have to wait and see.

 

DELAYED CLOSINGS

The effects of the mortgage meltdown from several years back are still being felt today and will continue into the future. One of the biggest regulatory changes that came out of that crisis is the Dodd-Frank Act, which created the Consumer Finance Protection Board. The goal was to protect consumers and hopefully avoid another major mortgage problem.

 

They have already made some pretty major changes to the lending process in regards to what goes on behind the scenes of how mortgages are approved and then sold on the secondary market. Up next are some MAJOR changes to the disclosure documents borrowers receive in regards to the terms and costs of their loan. They will simplify them in the hopes of making them more understandable for the borrower. There will actually be fewer forms, which is amazing. The first one is the Loan Estimate which comes after you apply for a loan. The next is the Closing Disclosure which spells out exactly all the fees, rate and terms of your loan.

 

I’ll save you all the boring details except to say that borrowers will have to receive the Closing Disclosure at least 3 business days PRIOR to signing their final loan documents. ANOTHER 3 day waiting period is triggered if the Annual Percentage Rate goes up more than 1/8th of a percent for fixed-rate loans or ¼ of a percent for adjustable loans, or a prepayment penalty is added or the basic loan product changes (say from a fixed-rate to adjustable or interest-only).

 

These changes go into effect for mortgage applications submitted on or after 10/3/2015. So if you apply for a loan after that date, don’t count on a 30 day closing for most transactions. It may take 40-45 days. Maybe once everyone gets used to this we can get back to 30 day closings.

NEW TWIST ON STUDENT HOUSING

For those of you faced with children heading off to college soon, here is an idea you’ll want to consider. Instead of paying rent for 4 (or more) years, consider buying a small home. Your child (children?) can live in the home, and also be in charge of renting out the rest of the bedrooms.

 

There are several advantages to this strategy. The rent you collect on the other bedrooms may cover part or all of the mortgage payment and other costs. This could mean your child’s housing costs would be less than a straight rental for them. Hopefully, the property will appreciate in value over time. However, even if the value never changes, you will still benefit from having the mortgage paid down each month which is kind of like a forced saving plan. There can be some nice tax benefits, too. For example, you may be able to deduct several trips per year to go check on your rental. How convenient for you since your child lives there! [I’m assuming that you’ll WANT to see your kids again…]  If you have other children and they attend the same college, that gives you even more time to accumulate the financial benefits of this plan.

 

The second advantage to this plan is that if you put your children in charge of the rental, it will provide an invaluable “real world” education to them about responsibility, fiscal management, budgeting, paying bills, etc.

 

You don’t even need to wait to employ this strategy. If you are certain about where your kids are headed, buy the home now and have a property manager rent it out for you. And once they graduate, you can even consider keeping it as a rental property if you wish if it makes sense to keep it.

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