My Pinole Real Estate

A short sale is when an owner owes more on their home than the home will sell for on the open market but needs to sell regardless. The seller must obtain permission from the lender(s) to sell the home for less than the market value. The lender may or may not agree to forgive the portion of the loan not repaid at the time of the sale. A short-sale is typically a pre-foreclosure activity.

The seller should obtain a short sale package from their lender. Sellers should also check to see if the lender will forgive the debt and agree not to come after them when the short sale has occurred. If the lender will not agree to forgive the debt without recourse, a foreclosure may be a better option financially. Even if you are in the process of a loan modification with your lender, you may want to list your home simultaneously to obtain a short sale. You may  not like the modification terms the lender gives you in which case you will have a jump on the short sale process. Until you receive an approval from the bank, you are not in contract and can cancel the purchase should the loan modification meet with your approval.

Short sales have notoriously taken a long time to complete; a waiting period of 60-90 days has been typical for a response from the lender. Some lenders such as Wachovia are streamlining the process. Hopefully other banks will follow. There is some direction from the current administration to encourage banks to shorten their process. A lender will typically conduct a broker price opinion (BPO) and an appraisal to determine the market value of a home in short sale. Provided the offer is in line with current sales, the bank will likely agree to the short sale.

Again, the seller must determine if a short sale is financially better than a foreclosure. The IRS website has some very specific definitions which will help you determine if you will be responsible for the debt. Typically, if you are short selling your primary residence, you will be fine. If you are short selling an investment property and you either have your original purchase loan or you can prove you are financially insolvent, you may not be on the hook for the debt. Please make sure to check with a financial advisor. As a general rule, your long term financial health will recover faster from a short sale rather than with a foreclosure.

Selling a property in this tough market can seem like a challenge. Here are four factors that actually make this a good time to post a For-Sale sign.

1. Sell low and buy low. Because all property values are down, the sellers’ loss on a property is really only a paper loss because the next property they buy also will be a bargain. If they buy smartly, when prices come back up in a few years, they’ll be in better shape.

2. Down-payment help is widely available. While nothing-down loans have disappeared, it is easy to find down-payment assistance for lower-income and first-time home buyers. Programs vary all over the country, but one good way to find them is to search online for “down-payment assistance programs” and the name of your region.

3. Your uncle has money to share. Besides the $8,000 first-time home buyer tax credit and the $6,500 move-up credit, there are an array of energy tax credits that can make home improvements pay off in cash.

4. Good help is available. Really talented real estate practitioners, contractors, and designers are available and eager for business.

Source: McClatchy Tribune, Kate Forgach (02/07/2010)

Strong gains in existing-home sales were the predominant pattern in most states during the fourth quarter, with many more metro areas seeing prices rise from a year earlier, according to the latest survey by the NATIONAL ASSOCIATION of REALTORS®.

Sales increased from the third quarter in 48 states and the District of Columbia; 32 states even saw double-digit gains.

Year-over-year sales were higher in 49 states and D.C.; all but three states had double-digit annual increases.

Total state existing-home sales, including single-family and condo, jumped 13.9 percent to a seasonally adjusted annual rate of 6.03 million in the fourth quarter from 5.29 million in the third quarter, and are 27.2 percent above the 4.74 million-unit level in the fourth quarter of 2008.

Distressed property accounted for 32 percent of fourth quarter transactions, down from 37 percent a year earlier.

The Tax Credit Affect

Lawrence Yun, NAR chief economist, said the first-time home buyer tax credit was the dominant factor.

For many deciding to buy a home is an exciting and proud moment. Whether it’s your first or third home, the likely scenario is you don’t know what to do first or you don’t remember what you should do first. I can’t tell you how many times I’ve received phone calls from prospective buyers who, when I start asking them questions about financing, closing costs, repair costs, say, “I don’t know,” or , “I haven’t done that yet.” Talk about putting the cart before the horse!

Most of the time I start out with the requirement that they get their financing in place before we start actively looking for a home but in fact there is a lot to think about before you even decide if buying a home is a good idea for you.

THINK ABOUT YOUR DECISION!

1. In today’s housing market, buyers need to think long term. If you cannot safely say you will be living in your home for 7 years or more, it’s not a good idea to buy.  It’s likely that a slow or depressed trend in housing is going to continue for a few more years. If you suddenly had to move or are thinking of starting a family and needed to sell, you would most likely not recoup your costs if you sell within those seven years. The one caveat to that sentiment is that if you could rent your home for as much as or more than your total payment, that would be a good option. However, most people use their equity from their existing home when they sell to put down on another home. You will not be able to do that for a while as no one is doing seconds on homes when the first is over 65% loan to value.

2. Where do you really want to live? Of course price is always a factor in purchasing your home. Consider what you have to pay for a home and know where you can afford to buy. Visit those areas extensively and decide where you will be happy living. If you won’t be happy living where you can afford to buy then don’t. Keep saving your money. But if you will be happy, be specific. When I was buying my last home, I had specific zip codes where I wanted to live and I told my Realtor to only send me listings in these zip codes.

3. How much can you really afford? This is a very important. BE REALISTIC!The money to buy a home is not just your down payment. Closing costs can be somewhere between 3-4% of the purchase price of the house.  Many cities and counties have point of sale ordinances that are the buyers responsibility in this market. A sewer lateral replacement can cost up to $4,000 and must be done within a certain time period after the sale. If you are buying a foreclosure, it’s likely the condition will be poor and repairs will be needed. Assume you will need at least $5,000 in reserve money for repairs to the home.

4.  Find a good agentwho you can work well with, whom you trust, and who knows the local market. Be willing to trust their knowledge. Being a realtor myself, I can’t tell you how important this last point is. I can’t tell you how many times I’ve received calls from people who are looking for homes but who refuse to work directly with an agent. They drive around and call when they see a property they like. What a waste of time! That’s the Realtors’ job. Realtors make sure you are getting the listings that match your criteria. I’ve also had conversations with prospective clients who don’t want to hear what I have to say about pricing and writing offers. I have refused to write offers for people who won’t listen to me. I had a client the other day want to offer $55,000 on a house listed for $65,000. I told him he would have to offer at least $80,000 to be competitive. I have confirmed that all 8 offers that were received were at least $20,000 over asking.

5. Keep your options open!Most people think that in today’s market, the deals are the foreclosures but that’s not necessarily true. For people purchasing with cash or large down payments, foreclosures may the right purchase for them. Keep in mind that these home are in poor condition generally and need a lot of work. For most home buyers, you’re goal is to purchase your first home, not your first project. Additionally, if you are using an FHA (Federal Housing Administration) loan to purchase, you will be limited to homes in relatively good condition. Short sales are becoming a good option too as more of them are closing and with less wait time.

Fannie Mae is offering a 3.5% incentive for buyers who purchase and close on a Fannie Mae-owned home between January 28 and April 30, 2010. Buyers purchasing properties being sold by Fannie Mae that are closed within this period may receive up to 3.5% of the final sales price. Please contact me for more details.

1. REO/ Foreclosure

REO stands for Real Estate Owned and is a foreclosed property that goes back to the mortgage company after an unsuccessful foreclosure auction.

 2. Short Sale

A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed.

 3. BPO (Broker Price Opinion)

A BPO is like a Comparable Market Analysis (CMA). Banks pay local Agents to give their ‘opinion’ on how much a house would sell for, using comparable Sold, Pending, and Active listings.

 4. PMI

Private mortgage insurance is required by the mortgage company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

 5. LTV

Loan-to-value is the percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower). For example: you purchase a home for $100,000 and you get a mortgage for $90,000. Your loan-to-value is 90%, therefore, the mortgage company would require PMI. 

7. ARM

Adjustable Rate Mortgage is a mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes. There is usually a cap (ceiling) on the amount to which the interest rate can increase.

 6. Negative Amortization

Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment, it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment. The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.