I Am Ready to Buy a Home – What Do I Do First?

June 2, 2015

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Buying a home is still the American Dream and the hope of most people in this country. It is a sign of stability and progress and a way to show that you are moving up in the world. I have had buyers literally break down in tears during the closing process because they have finally achieved “the dream”. June is National Homeownership Month and I will be answering some of the questions that I am asked most often. If you have a question that you would like to have answered, feel free to leave it in the comments section or email me directly. Let’s start with the most obvious question….

I am ready to buy a home – what do I do first? 

Because the purchase of a home is as much a financial decision as it is a personal one, the first thing that you would have to do is check your credit and know your score. If you have not pulled your credit report in a while then use an established site like AnnualCreditReport.com to access your file. You can also use a site like CreditKarma.com which will provide your score, update you monthly concerning your credit activity and give you helpful tips for maintaining a strong credit profile. Once you pull your credit report, you are ready to move on to the next step if your score is at least a 620 and you are free of judgments, liens, bankruptcy, foreclosures and short sales. If you have any of these issues then you will have to do a little more research to see what type of timeframe is required before purchasing.

Buying a home is a huge financial undertaking and knowing your credit history and score is the first step of many towards making a reasonable purchase. A 620 credit score is the minimum starting point but lenders may require a higher score in order to get you the best loan and rate. If you have a 620 or above, then you can take the next step which is to call a Realtor.


Starting Your Short Sale Process on the Right Foot

February 23, 2011

The first step in the beginning the short sale process is for you to determine and document your reasons for falling behind in your mortgage payments. Most often the hardship is due to the loss of a job, medical expenses, divorce or the sharp increase in the interest rate. Once it has been determined that you have a legitimate hardship then there are two steps that can be taken simultaneously; the first is to call the lender and the second is to call a realtor.

Calling your lender takes time and patience but is necessary to begin the short sale process. Because short sales are so prevalent, banks have entire departments dedicated to handling incoming calls from homeowners on this issue.  Once you have a bank representative on the phone, express your desire to begin the short sale process. There are so many programs that you may qualify for and I will begin to discuss each one in subsequent posts; so just know that you have options as you begin this process.

At the same time that you are calling your lender, you will need to find a realtor that has experience with short sales. Your home must be listed with a realtor in order for the bank to process your short sale request. Because short sales are a specialty area, you need to find a realtor that is experienced with the process. There is a widely recognized certification for realtors – the Certified Distressed Property Expert or CDPE – whcih means that the realtor went through intense training to understand the short sale process. Often times, realtors will team up with attorneys and allow the lawyers to process the short sale once a contract is received. In either case, ask the realtor what process they use and what are the results. You have to be very comfortable with this realtor because as you will see, they will have access to personal family documents.

At your initial meeting with the realtor, they will assemble the ‘short sale’ package.  Included in this package are the following documents:

  • Hardship Letter & Supporting Documentation
  • Two Years Tax Returns
  • Two Months Bank Statements
  • Two Months Pay Stubs
  • Listing Agreement
  • Homeowner’s Association Contact Information
  • Last Monthly Mortgage Statement

Be prepared to sign off on the following documents at the initial meeting:

  • Authorization letter – authorizing the realtor (and attorney) to discuss your account
  • Financial Worksheet detailing your monthly income and expenses
  • IRS form 4506T- EZ authorizing the bank to pull your tax returns on file with the IRS
  • Short Sale disclosure form – detailing the issues surrounding the short sale

This can be an overwhelming process. It may seem like a lot of forms to sign and documents to bring but the lender wants to be able to evaluate your total financial picture when determining the strength of your short sale request. Also, remember the lender can refer back to your initial financial documents presented when you originally applied for the home loan as well as any refinance documents submitted at the time. Make sure you present a consistent financial picture.

The key to starting your short sale process on the right foot is twofold. First, notify your lender right away if you are falling behind or anticipate falling behind on your mortgage. Sometimes the lender will notify you if a previous program did not work and they will initiate a short sale. But don’t assume that no news is good news – they can foreclose quickly in the state of Georgia.  Second, get your documents ready for your first meeting with the realtor. Different lenders want information in various stages so you want your realtor to be prepared to hit the ground running from the first day of the listing. Don’t make them have to call and wait for you.

There are several types of short sales and I will begin to cover each one in subsequent posts. Bookmark this blog and tell others.


“Short Sales” are the New Norm

February 1, 2011

   Back in 2003, when I first got my real estate license, times were good. The prices of homes were going up, sellers were getting a great return on their investment, buyers were getting homes with ‘no money’ down and life was wonderful. But as everyone now knows, the housing bubble has burst and we are all left to pick up the pieces.

The first clear sign that the real estate market was tanking was the rash of home foreclosures. There have always been foreclosures but not in the sheer volume that we saw in 2008, 2009 and forward. In some areas of Metro Atlanta, whole communities were going under. New construction halted as we were seeing builders go out of business and their home inventory go into foreclosure.

But foreclosure is a “no-win” for everyone. The homeowner looses their homes, ruins their credit and is left to face the devastation that comes with it. Every homeowner in the community is affected by their neighbors’ foreclosure in the loss of property values and community cohesiveness. And finally, the lender looses in attorney fees, loss of value in the home, cost to resale the home and so on. The only winner that emerged in the foreclosure arena were the homebuyers with credit good enough to purchase. As with any crisis there is a silver lining and great home deals are the silver lining now.

Then along comes a different solution. What if the homeowner could sale their home prior to foreclosure and work out a settlement with their lender? Everyone knew that property values were declining so fast that virtually all homes sold today that were purchased in the last 5-10 years would sell for less than owed on the mortgage. That is the definition of a short sale. Sounds like the perfect solution… the homeowner agrees to sell the house for as much as they can reasonably get, the bank agrees to accept less for the outstanding mortgage than is actually owed and foreclosure is avoided. Everyone wins… sort of.

Not so fast.  Initially, the banks were not really on board with short sales. First of all, nobody knew what the heck they were. The banks were not staffed to handle any type of short sale volume or answer questions, Realtors were not prepared to facilitate a transaction between the homeowner and the bank and the buyers were not willing to wait until everyone figured this out.

It has taken a couple of years until everyone involved in a real estate transaction – homeowner, lender, realtor, buyer and attorney – has come to a clear understanding of how to complete a short sale transaction. All of the major banks are fully on board and many offer training to the real estate community. There are reputable companies offering comprehensive education to Realtors who want to offer short sale services to their sellers. The most recognized designation is the Certified Distressed Property Expert or CDPE.

Short sales are now the new norm and in some areas are surpassing foreclosures in volume. It can be a win-win for all parties involved but there are pitfalls for both buyer and seller. I will discuss those in subsequent posts.


Turning a Fixer Upper Into a “Dream Home”

January 15, 2011

Dream Home

 

Have you ever walked into a home and thought “this would be perfect if it just didn’t need work”? Well, I hear that comment all the time from buyers because there are so many foreclosures on the market. Many of these homes need carpet, paint, kitchen & bath remodeling, new flooring, etc.  In the long run, all of these repairs are minor if the home is in a great neighborhood, good school district and has a desireable floorplan.

What stops most buyers from turning a fixer upper into their dream home is work and vision. Some buyers simply can’t see past dirtly green carpet and riped tile floors. It takes vision to see hardwood floors and granite countertops in a home that has orange paint on the wall. For other buyers, the idea of calling 18 different contractors and getting bids for the work is overwhelming. They would just rather buy the house in the next community that doesn’t need all that work. Makes sense to me.

Now imagine this. I have two homes on the market; one for $36,900 and the other for $39,900. Both need no more than $20k in fixup work – carpet, paint, appliances, etc. ( I am not an inspector so this is what I can see). So can you imagine designing your kitchen, baths and living room according to your style? All of this for under $60,000 and a really low monthly payment. Does it become worth it to you?

Also, imagine three other things. One, the costs of the repair work can be rolled into your loan to purchase the home. You will only have one payment. Two, a renovation specialist will come out at no cost to you and help you visualize and price out the cost of your upgrades. This information is sent to the lender for review. Finally, the work can be completed within 60 days after you close on the house. The renovation specialist hires the contractors and supervises the work. You move in!

Now when you go househunting, don’t shy away from the fixer uppers. Start looking at them with vision. Look in magazines if you can’t visualize what you want. Turn that fixer upper into your dream home.

BTW, call me if you want more information on the fixer uppers that I have listed. I can make this work for you!


WAYS TO IMPROVE YOUR CREDIT SCORE BEFORE YOU SEARCH FOR A HOME

September 8, 2010

I get calls everyday from prospective buyers asking what they need to do to get into a home. The answer is always the same – they have to start with a lender, pull their credit, talk about their debts and then get “pre-qualified”. Once I get this information from the lender, we can begin the homebuying process. If you believe that there are ‘issues’ on your credit, the following article by Paige Tepping will give you some great tips to straighten them out before you begin the home search.

RISMEDIA, September 8, 2010–Many prospective homeowners find out the hard way the importance of a good credit score when they apply for a home mortgage, especially after the subprime loan crisis. If you are considering buying a home in the near future, it is a good idea to give your credit score a check-up and then take positive steps to improve your credit score if you find problems. Ideally, it is best to begin working on improving your credit score at least six months before you plan to start shopping for a home.

According to the experts at Buy-and-Sell-House-Fast.com, the following tips will help you improve your credit and should be taken before you begin your home search.

The first critical step in taking care of your credit is to check your credit report. Unfortunately, many people fail to take this all important first step. Instead, they wait until they have applied for a mortgage loan to find out from the lender that there are problems with their credit scores.

By checking your credit score before you apply for a mortgage loan, you gain the opportunity to find out if there are problems which you can correct and discrepancies that need to be removed. When you check your credit report, make sure you check all three of the national credit reporting agencies: Experian, Trans-Union and EquiFax.

Review your credit report carefully for items that may be erroneous. If you believe that an item on your credit report is reported in error, you have the right to contest it. To do so, you will need to contact the credit reporting agency and explain why you believe the item is inaccurate. Supporting documentation such as receipts and cancelled checks can help your claim. Alternatively, you can engage a credit report repair services firm to fix your credit report.

If there are derogatory items on your credit report that are accurate but which could cause problems in your loan application, you cannot have them removed; however, you can take positive steps to counteract them. In the event that you have missed payments in the past, take steps now to get your bills current. Even if it means tapping into money that you might be planning to use for a down payment, it is essential that you get your accounts current and keep them that way. Begin by immediately making your payments on time. There is nothing which can lower your credit score more quickly than late payments. Ideally, make an attempt to begin sending in your payments a few days ahead of time to make sure they arrive on time and you do not have any more late payments on your record. If necessary, begin taking advantage of electronic payments in order to make sure your payments are made on time. Over time, this can make significant difference.

Keep in mind that eradicating all of your credit balances is really not the solution. In fact, credit can be your friend when you are looking to make a big purchase such as a home. The key is to make sure your credit is positive, not negative. Toward that end, avoid actually closing out your accounts. Instead, make an effort to pay down your balances and keep them paid down well below the minimum or completely paid off, but do not close the account. When your lender runs your credit to make a decision on your mortgage application, he or she will want to see that you have had a long credit management history.

After reviewing your credit history, if you see that most, if not all of your credit cards are maxed out or nearly maxed out, it is time to sit down and plan an aggressive strategy for paying some of them down. One of the critical factors that often determine your ability to be approved for a mortgage loan is your debt to income ratio. In addition, high credit card balances can drag down your credit score. Therefore, it is important to look at paying off some of your balances.

It is generally better to begin with your highest-rate balances first. Many consumers are tempted to move around balances when they receive an offer from another bank that is good; however, before you do this, remember that the worst thing you can do when you are trying to make a major purchase is to open new accounts.

By following these guidelines, you can improve your credit score and improve your chances of being approved for your home mortgage loan.


DEPENDS ON WHAT “Is” IS

September 6, 2010

The foreclosure market at this level is a relatively new phenomenon. I have sold real estate in Metro Atlanta for over six years and in my first four years, I never sold one foreclosure. I didn’t even know of anyone whose home was lost to foreclosure. And then the chickens came home to roost, so to speak, and homeowners began to go under. Now the term “short sale”, pre-foreclosure and foreclosure are a regular part of our vocabulary.     

In a couple of years we have moved from a “seller’s” market to a “buyers’ market” which means that we have more homes to sell than we have buyers to purchase them. Buyers are being told by the media that they are in the drivers’ seat in the homebuying process and the sky is the limit. I have seen stories about sellers offering cars, vacations, plasma televisions, etc. just to get their home sold. I have also read where sellers are finishing basements, upgrading appliances, painting and re-carpeting  also as a means of getting the home sold. While these stories might be true in the competitive world of traditional resale or antsy new construction, here is the reality in the Metro Atlanta foreclosure market.

Banks sell their foreclosures “AS IS”.  No matter how many times I tell this to a potential buyer, I will still have someone ask if the bank will replace the carpet or paint the master bedroom. Usually the answer is “no”. Here is the reason. Banks have already lost a great deal of money on every foreclosure stemming from lost mortgage payments, attorneys fees, utilities, household maintenance and the general drop in value due to the economy. Every bank asset manager is asked to manage their bottom line and recoup as much as possible on the sale of the home. For this reason, bank managers are reluctant to make repairs, do cosmetic upgrades or replace appliances in the home. It is much simpler to set a marketable “as is” price and sell the home. What buyers have to understand is that the banks have already taken the homes’ condition into consideration when setting the list price.

So if you are a buyer looking for a foreclosure in the Metro Atlanta area, consider the following:

  • If the carpet is dirty and in need of repair … AS IS
  • If the walls desperately need painting … AS IS
  • If there is no stove, refrigerator or dishwasher … AS IS
  • If there are no light fixtures … AS IS
  • If the kitchen center island is missing … AS IS
  • And the list goes on ….

There are times when the bank does some basic maintenance to the home prior to listing it with a Realtor. This move only makes good sense because a “move in ready” home attracts more buyers and top dollar. Also, a bank may be prepared to do some minor repairs when the lender requires them prior to closing on the loan. Usually buyers applying for FHA financing will find that their lender is more strict on the condition of the home because FHA requires that the home is “livable”. 

There is much to consider when purchasing a home. One big consideration is that when it comes to purchasing a foreclosure – the home is sold AS IS. Whether you purchase one foreclosure over another …. well, that depends on what “is” really is.


SITTING ON THE HOME BUYING FENCE? BUY NOW & SAVE ‘REAL’ MONEY!

September 1, 2010

FHA Gives Home Buyers One-Month Window

September 1, 2010–The Federal Housing Administration (FHA) is giving homeowners and buyers until October 4 to lock in a low monthly insurance premium, according to Gibran Nicholas, chairman of the CMPS Institute, an organization that trains and certifies mortgage bankers and brokers. “After October 4, the monthly insurance premiums on FHA loans will increase by over 63%.”

What does this mean for home buyers?
A home buyer purchasing a $200,000 home using a $193,000 FHA mortgage before October 4 would pay an insurance premium of $88.46 per month. If the same home buyer waits until after October 4, the insurance premium would jump to $148.01.

“In this example, the home buyer would lose $59.55 per month, or $7,146 over a 10-year timeframe,” Nicholas said. “Although the upfront mortgage insurance premium is going down after October 4, the real impact to the home buyer is actually a net increase in their out of pocket costs because the monthly premium is going up by 63%. Remember, sellers can pay the upfront premium or it can be financed into the loan amount, so homebuyers rarely pay the upfront premium out of pocket. On the other hand, the increase in the monthly premiums will be paid right out of the home buyer’s pocket with their mortgage payment each month.”

Ironically, home buyers who plan to be in the mortgage for less than three years and decide to pay the upfront fee themselves (instead of having the seller pay it for them), may actually save money by waiting until after October 4 to apply for an FHA loan.

“Home buyers with a short term time horizon may actually benefit from this change because the upfront premium will be reduced to 1% from 2.25%,” Nicholas said. This change will impact over 30% of the home buyers in today’s market who use FHA-insured financing. Home buyers considering an FHA loan should find and contact a CMPS professional in their area to discuss their options and what this means for their situation.

Taken from an article in the Daily Real Estate News.