What’s the difference?

There is so much confusion in the mortgage business that many consumers assume that “mortgage companies” are banks that lend their own money.  But in fact, a financial company that you deal with may be either a mortgage banker or a mortgage broker. If you’re confused, let me try and give you some direct answers.

Mortgage bankers (there are a lot here in South Carolina) are direct lenders; the bank lends you its own money - although it often sells the loan to the secondary market. Mortgage bankers retain servicing rights as well. In my opinion, you get more personalized service but sometimes not the best rates, as they tend to be more selective in the mortgage application process.

Mortgage brokers are middlemen; they shop around and analyze for the borrower and then put the potential lender and borrower together. Many of the lenders through which the broker finds loans do not deal directly with the consumer.  In the banking business you call this a “wholesale” lender.

Going direct by using a mortgage banker can eliminate a lot of fees tacked on by the middleman broker and makes the loan process easier.  But you must qualify and that's getting tougher. A mortgage banker can give you direct loan approval, but many mortgage banks are limited in what they can offer, which is essentially their own in-house loan strategy.  In addition, you will be presenting your own qualifications one-to-one with the lender.  Your initial impression is the one the banker will remember.

I am not suggesting you fudge your situation or mislead the possible lender, but understand that presenting a loan request to a lender is like presenting your yearly taxes to the government; there are many ways to do it, all of which are valid and legal. Some mortgage bankers also broker loans.  Using a mortgage broker allows you to present a loan application to different lenders in different ways - that’s what you pay the broker for. Mortgage brokers find financing for you second-hand and charge fees for their availability to oversee the loan process.  They have access to a wide variety of loan programs, so they also should have the knowledge of how to present your loan application to different lenders for approval. Mortgage brokers will not actually service the loans that they arrange for you, and you will probably never see your lender face to face.

With all the sub-prime mortgage default problems we are seeing in the news, lenders have become a lot stricter in their loan requirements. So shop around. Before you put in a contract for purchasing real estate get a feeling from your mortgage banker or your mortgage broker whether you actually “qualify” for a loan and what the rates will be now and in the future.

Bottom line: investigate where you can get the best deal. Do your home work and ask your attorney what you're getting yourself in for.  Make sure your broker has the right credentials to help you - some states have no regulation or licensing requirements. If you're a real estate investor, I believe you should seek out both a mortgage broker and a mortgage banker. Pick the one who can work with you for the best rates and then weigh your options.  It doesn't cost you too much except for an application fee - and sometimes that will be waived!

Over the two-year period in 2004 and ‘05, the average number of properties managed by vacation rental management companies grew by more than 7.5 percent and is projected to grow by another 2% in 2007.  The vacation rental market, in my opinion, will continue to increase at a solid pace once the mortgage business regains consumer confidence.

There is a major reason why this growth has occurred.  It is due to the entry of major hotel franchises into suite and condominium sales. That trend will continue, along with “fractional ownership” of luxury homes in resort areas around the world. A host of other factors contributed to the growth in the vacation rental market that is driven by individual sales.  It is the largest and fastest-growing segment of the second-home market.

Back in 2004, 36 percent of all purchases of homes were as second-home purchases, according to the "2005 National Association of Realtors Profile of Second-Home Buyers." NAR said 23 percent of all homes purchased in 2004 were investment properties and 13 percent of all homes were purchased as vacation homes. Among existing second homes, approximately 64 percent were investment properties while 36 percent were vacation homes, NAR said.

Even though the stock market has seen record numbers in 2007, there still is no place like home. Real estate investors have the luxury of having both enhanced benefits and flexibility. It’s more than just a positive-cash-flow vehicle - the tangible investment is a property the investor can use when it isn't occupied - it's a property the investor can exchange time in with other vacation property owners anywhere (not only here in the United States but globally as well) and the investor can retire to the home later, after the mortgage has been paid by vacation visitors.

Performance Development Corporation’s marketing division conducted a postcard-reply survey of almost 1,000 consumers who stayed in major hotels during their visits to Hilton Head Island.  Only 13% of the card responses said they had ever spent time in a vacation rental.  That shows tremendous upside potential for more growth, as a significant majority of the travel population has yet to stay in a vacation rental unit of any kind.

So regardless of the times, the vacation rental business is alive and well.  It will continue to be on solid ground for the foreseeable future.

Whether the Fed raises or lowers short-term interest rates is anyone's guess. It makes for good elevator conversation because the sharpest minds in America disagree about what the Fed does.  The Federal Reserve governors aren't always in agreement among themselves about the meaning of economic indicators, how much impact they will have, or if they are long-term trends. In the opinion of many, the jobs report is the most significant factor.  The last indication said that 9,000 more people had lost jobs from one week to the next.

In the coming months of October and November there is no question that we need those quarter percent cuts as well, but the Fed governors might take a wait-and-see approach.  Is there a trend developing where people are losing jobs week after week? Does that correspond with lack of job creation? If it does, they better make that move.

Since the .50 basis point cut we have seen home builders’ stock prices rise some 8% and financials are up almost 10% across the board.  How long that lasts is anyone's guess, but let’s all look at the half-full not the half-empty glass here.  So thank you, Mr. Bernanke, you can come to dinner at my house anytime - but please bring some more good cheer in the next couple of months because it’s certainly needed!

Agents and brokers know having an open house serves has a marketing tool for themselves, to show other potential buyers they are visible.  Also, if they get a lot of traffic walking through an open house, it gives them a database of potential new clients. These open houses are perfect marketing tools for a broker looking to increase his/her roster of buyers and sellers.

Gene O’Neil, an independent investor/broker from New York, says he doesn't like open houses, preferring to match his seller clients with appropriate buyers. “At open houses, you get all kinds of people walking in. Some are trying to see how much they should sell their own places for; others just want to get a look at what's out there. Think about it," O’Neil points out. "The agent is devoting a couple of hours of his time on the weekend - do you think he/she is doing it for his health?”

The National Association of Realtors estimates that over 80% of consumers looking to buy real estate are turning to the Internet.  People hoping to sell their property might assume that using a broker with a website can help make a sale happen, but unless that site is seen by the search engines like Google, Yahoo, MSN, etc., it’s not going to be noticed by this ever-increasing audience.  Look beyond an agent’s well-designed home page to figure that out. You need to type in key word phrases used by prospective buyers to make sure what they say is true.

One common mistake many agents/brokers make is that they can’t keep their websites current with their local MLS and they continue posting houses that have been sold.  While the mistake can arise from simple failure to update transactions in a timely manner, potential buyers think it's a bait-and-switch-style ploy. It brings people in, but it gets consumers upset when they find out that the property's been sold or taken off the market. "If an agent continues advertising properties that are already sold, it tells you he doesn't keep up with his own market.”

As a seller you need to check on a site's prominently placed listings.  Prospective sellers should also make sure that the site is easy to navigate for potential buyers. Charlene Neste, broker with the Neste Realty Group, says, "You want to use a broker who keeps herself/ himself high on the search engine rankings.  We have a full-time team for our www.HiltonHeadRealEstateS.com site, whose mission is to do this constantly. Others need an outside professional search engine optimizations company to make sure it happens for their sites.”

I also believe in helping our customers get as much information as possible,” she continues. “One of the important features brokers should have on their sites is community data - schools, recreation facilities, churches, localized maps of each area, etc.  We believe strongly that an educated consumer is our best consumer!  If they’re looking to relocate, all this information will attract people who are moving to the community."

Women make the ultimate decisions about buying almost every product and service offered today, and other women are helping make it happen, providing uncondescending and constructive marketing influence.  Couples, families and single women looking for property often feel more comfortable, less intimidated and less pressured dealing with female sales agents than with men, even when offered the same sales information!

Women are also sitting in the Broker’s office in increasing numbers, giving advice, support and encouragement to their sales staffs.  Among the current member firms of the MLS of Hilton Head Island, 66 are headed by women as Brokers-in-Charge!  Additionally, the presidents of both the MLS and the local Association of Realtors are…WOMEN!

>It also came very apparent that women just got fed up waiting for Mr. Right to come along to buy things for them.  Women - as well as men - began to exert a new independence; the old fashioned ladies’ fashion magazines morphed into periodicals with a more professional perspective that said “take me seriously.”  Women started their own businesses. The influence of women and their buying power emerged with a vengeance.

Women are buying real estate at a faster pace than any other demographic group. My friend Cathy said, after purchasing her villa last year, "It's symbolic of success — of getting out there and doing it on my own and saying, 'I'm just as capable of doing it as the next person and doing it on my own and making it happen.”  A lot of women seem to feel the same way.  Last year, single women snapped up one of every five homes sold. That's nearly 1.5 million, if you're counting — more than twice as many as single men bought, according to the National Association of Realtors.  That’s power!

The numbers do tell a story, but 25 years ago those numbers were the same for male and single female home buyers. Since then, the percentage of buyers who are single women has almost doubled, while the percentage of single men buyers slipped one percentage point to 9% last year.

There may be a few dinosaur salesmen out there who might make the mistake of asking, “Did you bring along your husband or your father to help make your decision?”  The smart Realtor recognizes the power of women investing in their own real estate!

But when is the right time?  And how do you know?

One problem with attempting to time your purchase to the business cycle is that even the experts have problems accurately predicting the economic future, both here and around the world. The real estate market does not necessarily move in tandem with the stock market or the economy; it’s a need in some cases and a want in others.

Back to basics...

When the economy is doing well, interest rates rise. The result is that fewer people can afford houses - increasing rates just might stretch their budgets too far. When the economy slows down, interest rates come down, or at least stabilize. The Fed keeps a close eye on this regardless of who sits in the White House. When the "affordability index" moves up, more people can afford to buy.



One of the best ways to keep peace within yourself is to watch the job market indices - that, to me, is the key. Better jobs, more money flow – it’s that simple. What I believe to be the strongest long term recommendation when investing in real estate or upgrading is the "buy and hold" strategy. By these criteria, you should buy a home you expect to live in for at least seven years. If you are investing in a vacation home, plan on holding it for at least five years.



Why You Should Not Wait to Purchase

Even if you could "time the market," that strategy would most benefit qualified first-time buyers.

You see, people who already have a home usually need to sell it in order to come up with the down payment for their next home. Otherwise, they would have to carry the debt and obligations on two homes at the same time. This can totally complicate life for years, even when owners rent out their former home.  There are maintenance costs, renters don't always make their payments on time, the rent may not cover the mortgage and other costs, and sometimes the property may be vacant.  If you buy a vacation home, be prepared to weather good and bad years - never count on the money.  Always remind yourself, “this is a bonus, if we get weekly or long term tenants!”



If you are a move-up buyer and want to purchase your next home during times of uncertainty (even thought that new house looks great - what a terrific buy!) you should sell your current residence first.  If you have extra cash on hand and want your family to enjoy the use of a vacation home, look at all the angles.  If you sell during a boom, then you’ll also be purchasing during the same boom. It’s the old pay me now or pay me later situation. It all works out in the end.



SUMMARY:

Pick the opportunities that fit your needs.  The buy and hold method is the safest bet. Enjoy the journey now, as the destination will always be there in buying Real Estate, especially on the coast of South Carolina.

Defaults on mortgage loans have already caused a downgrade in the credit rating of mortgage backed assets. Just over the past week the European union and the United States federal government have stepped in to bail out major lenders, pumping in some $75 billion. And now even Japan has put in $5 billion in mid-August 2007. As investor demand for mortgage-backed assets becomes less and less attractive, banks will tighten the credit standards.   Many programs offered for the past couple of years will not be available and the traditional 20% down-payment provision will come back into play. That means fewer buyers will be eligible for mortgages, which results in lower real estate prices; and reduced real estate prices will cause an increase in defaults by homeowners who are unable to unload their homes. This will bring about higher interest rates for even the best-qualified candidates.

That brings me to the GOLD VS. REAL ESTATE world of investing.  The appeal of gold is often portrayed as a way to protect yourself from catastrophic life events.  Terrorists, hurricanes, tornadoes, cyclones - you get the picture. All chief economists tell us that people buy gold because they are fearful.  There is no question that there is some truth to that concept.  However, I would argue that the real appeal of gold is that it enables you to protect yourself from constant money flow, with the infusion of capital into our economy which erodes the purchasing power of paper currencies. The U.S. dollar is down some 32% against a bucket full of foreign currencies, only in the past 5 years. The endless creation of credit and the dollar's decline has not gone unnoticed by many investors.  Now that the mortgage business is on the fence and real estate is seeing major declines, the investor world begins to stockpile gold.

When gold was hovering around $250 per ounce some 5 years ago and the real estate market was beginning to resurrect itself after 9/11, nobody cared much about GOLD.  Now with all the troubles with the dollar and oil prices in the high $70s, gold is approaching $700 an oz.  Maybe investors should stop and take good hard look at whether to invest in Gold or Real estate!

The typical vacation home buyer down here was in there mid forty's and had a median income of $126,000 compared to a national average of $112,000 This I find hard to believe due and seems low as the cost of oceanfront, march view or lakefront property is a little pricey. They also purchased a property on average, slightly over 230 miles away from their primary residence. This breaks down further to thirty two percent of vacation homes were closer than 100 miles and thirty-two percent were 500 miles or greater from their primary residence. The demographics favor vacation home sales because most consumers are in their prime buying ages and buyers want recreational property for personal use.

Their reasons for the purchase break down as follows: seventy-nine percent want to use the vacation home for a family retreat; thirty-four percent want to diversify their investments; twenty-eight percent want that property as a future residence; twenty-five percent want the tax benefits; twenty-two percent want it for a friend, relative or family member; twenty-one percent because they had extra money; and finally, 34% percent want to use that property as rentals.

This leads me to another question with the lending institutions cracking down on borrowing will Mr. CASH be the king ? Currently over  twenty five percent of vacation home buyers pay cash for their property. Also in a recent survey conducted by NAR, eight in ten second home buyers considered it a good time to invest in real estate, are we really at the Bottom. I think so or very close to it…here's my take with all 1031 tax exchanges out there  the best way to continue your portfolio is buying into the vacation and secondary home market if interest rates for commercial keep climbing and cap rates continue to dwindle and residential rates keep climbing if you can afford it go for it especially on Hilton Head Island which I believe is still undervalued, this market could do well as others in this area and lets not forget the baby boomers. 

Here is another statistic that reaffirms this believe that fifty-five percent of vacation-home buyers and sixty-six percent of investment buyers said they were likely to purchase another property within two years. WOW!

On Hilton Head Island and the areas that surround it, Bluffton and the like we fit perfectly into the The 2006 National Association of Realtors Profile of Second-Home Owners, they want to be close to an ocean, river or lake; almost 40% percent want recreational or sporting activities such as golf, tennis, horse back riding etc in their community of chose. And to be in a high vacation or resort areas..

Our own web site questionnaire for rental property owners who have the property with our sister company HiltonHeadRentals.com says owners plan to keep their property for a median of eight years.  Investment buyers plan to hold their property for a median of five years, with thirty-five percent planning to keep for six years or more.  Even with the cautions on speculative investment, twelve percent of investment buyers plan to sell in one year or less, but in all case they all seem to want to know when a better property comes along as they might want to trade up as their family grows.

If your thinking of buying a piece of paradise to enjoy with your family year round and the stock market looks a little shaky at best a second home, or a true vacation home might just be the ultimate way to go.

How has Hilton Head Island's luxury real estate market fared this summer?  

People who own vacation homes and property and want to sell, know very well what has happened this summer, because they can feel tension in the air, there is know reason to turn on the TV. As far as the extreme luxury homes on Hilton head go there is some movement as prices have come down slightly. But the fact remains …with the stock market at all time highs and the o`ll mighty dollar being weak there still is no urgency to buy especially in our resort community known as Hilton head, things have come to all but a stand still compared to years past in the mid tier market. Prices haven't really come down much, and therefore we are still seeing a whole lot of real estate for sale, but relatively few buyers.

Our real estate site HiltonHeadRealEstateS.com continues to get thousands of unique visitors  which bodes well for our webmaster but In Real Estate everything takes time, so prices might have to  come down a little more, and homes will begin to sell. That having been said, it is safe to say that we are in a buyer’s market right now. Statistics aren't everything, but they do sometimes tell a story, and in Beaufort county, which includes Hilton Head, Bluffton, Beaufort and a number of surrounding communities, there is definitely a story to be told. As an  example, according to Hilton Head'ss MLS, in the months of June and July the entire market was down about 35% overall from 2005 numbers based on the same time frame,  the stats go on and on, but with the stock market soaring to new levels and without any gas in the engine and oil prices hovering in the mid 70`s a barrel and Gold stabilizing over$650.00 an oz ... the urgency to buy is not there.

The fact is that the Hilton Head real estate market and its surrounding  communities needs a boost, and that might takes some time. Real estate agents need to create a need to bring in the buyers and help there clients its time to work our area . The Chamber of Commerce needs to look at there marketing plan and  say to itself lets look at the entire united states and see where the success areas are and how can we copy … there model to draw more attention to our area. It might take some time but it needs to be done.

The good news is that Hilton Head Island is a very special place,  built around its cultural and natural beauty made up of people who give of themselves  everyday, where people from so many parts of the world feel right at home, so real estate is still undervalued. Owning real estate on Hilton head will always be  not only a good idea but a great investment for your family to enjoy one another... year after year.