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.


Do You Qualify for a Short Sale?

February 20, 2011

 

For the past few years foreclosures reigned supreme in the real estate market. As a realtor, I had to get used to the bank’ additional paperwork and timetables for closing a foreclosure transaction. Every bank was different not to mention the paperwork on the government or HUD properties. But we all learned the system and got used to the new foreclosure normal.

Now we have another ‘new normal’ – short sales. As I said in a previous post, short sales are overtaking foreclosures in the real estate marketplace. Given all of the other options for the homeowner, a short sale can actually be a ‘win-win.’  How do you know if you qualify for a short sale? It all begins with the nature of the hardship.

Your lender will want to know why you can no longer make your mortgage payment. Here is where it gets interesting… the answer can not be:   1) my house is not worth what I paid for it, 2) I no longer like the neighborhood or  3) I just want something else.  I am not making light of a very serious situation but sometimes people want to use the short sale process to dump one home and move into another. That will not work.

An example of a real hardship is as follows:

  • Loss of a job
  • Job relocation
  • Reduction in income
  • Serious medical issues
  • Dramatic change in interest rate
  • Death of a family member
  • Divorce or separation

The lender will want to see proof of the hardship such as a divorce decree, death certificate, termination notice, medical bills, etc.  This will provide proof that you are in a very serious situation and that while you would like to continue to make your mortgage payments, you are no longer in a position to do so.  A defined hardship is the first step in researching your eligibilty for a short sale.


“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!


Can I Still Sell My Home in Today’s Market?

November 1, 2010

Not in recent history has there been a more uncertain time in the real estate market. We have record numbers of foreclosures, some of which are being challenged because of unclear documentation and possible fraud, as well as the introduction of short sales on a massive scale. Short sales bring uncertainty because none of the parties involved know exactly what the bank will do as far as accepting the terms of the contract and releasing the homeowner from any future liability. We have homeowners “under water” meaning that they owe more on their homes than the homes are worth and many of these people are simply choosing to walk away. We have home sitting on the market longer and selling for less if they sell at all. When was the last time that the terms ‘house’ and ‘depreciate’ were mentioned in the same sentence?

It is in this environment that I am frequently asked by homeowners if they can still sell their home given today’s market. My answer is “YES” but only in certain circumstances. If the seller can answer ‘yes’ to three of the four following questions, then they are in a position to sell their home; otherwise they have to stay put and wait for the market to fully recover. (Whatever that means).

Question #1 – Do you have sufficient ‘equity’ in your home? We used to include appreciation in our calculation of equity meaning that your equity was the difference between what the home could be sold for on the open market and what was remaining on the loan. This is still the calculation of equity but now we have to be realistic about the value of the home. Very few people have any equity if they purchased their homes in the last 5-8 years and marginal equity if they purchased in the last ten unless they had a substantial down payment. However, if you have owned your home for a while and know for sure that you can answer ‘Yes’ to having sufficient equity, then you are one step closer to being able to sell your home.

Question #2 – Do you have substantial savings to cover a shortfall? If you did not answer ‘yes’ to the first question but can answer ‘yes’ to this one, you are still in business. Perhaps you have enough money saved to cover any shortfall at the closing table meaning that if your home sells for less than your loan balance, you can make up the difference. Some people will pay the difference because they are getting a tremendous deal on the home they are moving into.

Question #3 – Can you price your home aggressively and continue to adjust the price until the home is sold? When a home is priced correctly, it will attract buyers and ultimately an offer. When it is priced above the current market, it will sit without notice. As a matter of fact, an overpriced home will actually help to sell other homes as buyers will use it for comparision purposes. If you can afford to price your home aggressively (at or slightly below market) and can also afford to adjust the price until an offfer is received, then you can still sell your home. By the way, price adjustments are usually in increments of at least $5,000 per adjustment depending on the price point of the home and community.

Question 4 – Can you afford to modernize/update your home? One of the hardest jobs of a realtor is to market a home that is not in ‘show ready’ condition particularly in this market. Outdated wallpaper, light fixtures, personal photos, massive collections all amount to clutter and expense to a potential homebuyer. If you can not afford to have the home professionally cleaned (particularly carpet) and freshly painted, then at a minimum remove all clutter including personal photos, collections, etc. When a buyer goes through a home that is outdated, they begin to see massive costs in modernizing it. As realtors, we used to be able to offer allowances but many lenders will not allow this. If you have lived in the home so long that you can no longer be objective, bring in a friend or ask a realtor for an evaluation. Be ready for the truth and be ready to take action. Remember your overall goal.

If you have answered ‘Yes’ to three of the four questions, then you are in a position to sell your home. A properly priced updated home will draw attention and offers. In this world of uncertainty, a buyer may welcome a chance to purchase a home without the risk associated with a foreclosure or the wait associated with a short sale.


WHAT YOU SHOULD CONSIDER BEFORE YOU ACCEPT A ‘LOWBALL’ OFFER

September 13, 2010

We live in a real estate environment where two factors are true – one, it is a buyer’s market and two, values are declining. It is in this environment that “lowball” offers have become the norm. Buyers are always wondering what a seller ‘will take’. In addition, no buyer wants to purchase a home today at $200,000 only to watch the value decline to $150,000 within six months. This does not mean that we don’t see full price offers and even multiple offers, but the home has to be priced aggressively and the buyer has to be certain that this is a ‘good deal’ given the current market.

Given all of this, how do we, as Realtors, prepare our sellers for ‘lowball offers’. I ran across this article on Inman News and it addressed the issue perfectly.

5 TIPS FOR ASSESSING A LOWBALL OFFER

Know when to counter, when to ignore

By Mary Umberger, Wednesday, September 8, 2010.

Your house is for sale for $350,000, and you’re confident it’s well-priced. You get an offer, but it’s for $300,000, and you’re stunned and disappointed by how low it is.

If your first instinct is to feel insulted and to hurl an epithet — don’t, said Jeffrey Stanton, a real estate instructor based in Modesto, Calif., and Staten Island, N.Y. Stanton’s company, Your Professional Development, teaches courses in negotiation techniques.

That seller might still end up with an acceptable sale price, Stanton said: The key is being ready.

Five things for home sellers to know about lowball offers:

1. It’s critical in this market for sellers to be prepared for the possibility of an unacceptably low offer, Stanton said.

This is the job of the seller’s agent — managing expectations and emotions — and too often this particular educational task is overlooked, with uncomfortable, potentially time-wasting results for all, he said.

“Most agents wait for an offer and say, ‘Oh, shucks, now I’m going to have to present this to my seller,’ ” he said.

Not only should the agents tell the homeowners to be prepared for a low offer, they need to come to agreement on just what constitutes “lowball.”

“Each market is going to be totally different. In one, it may be 5 to 10 percent below list. In a different market, it may be 30 percent below list,” Stanton said. “That’s a unique conversation that has to happen between agent and seller.”

2. Lowball offers may have any number of motivations, and sellers shouldn’t automatically presume they stem from somebody’s desire to be insulting.

“A lot of times, a lowball may be all the buyers can afford,” he said. “It could be an investor or a buyer looking to steal the property, or a buyer who really likes your property and is just taking a shot at it, never knowing if you’re going to say yes or no.

“Just don’t take it as them disrespecting you.”

3. If the initial offer seems out of the question, should the seller just ignore it or make a counter?

Stanton said that some negotiators suggest making no written response at all, which tells the would-be buyer that the offer isn’t even being considered, in order to get across the point that the offer must increase considerably. The thinking is that the most powerful thing an individual can say is, “If it’s that low, I’m not selling,” Stanton said.

But he suggests that buyers in such cases make a counteroffer.

“You want to keep the negotiation lines open, so come back with something,” he said. “If the house is listed for $350,000 and the offer is $300,000, the seller may want to counteroffer at $345,000, just to see what the buyer is going to say.”

4. In such a case, the next move will be revealing, Stanton said.

“One of the signs in negotiations is how much of a move they make,” he said. “The smaller the move, the closer that person is to his goal.”

Take the aforementioned counteroffer of $345,000, he said. If the buyer responds to that one with $305,000, usually it can be interpreted as the buyer not having much price flexibility.

But if that (buyer) response is $320,000, that’s a big move, Stanton said. And if the countering continues but the buyer goes up only to $322,000, he’s probably near his limit, he explained.

5. Another technique right at the beginning of the whole process might save everyone time, Stanton said.

If the buyer’s agent tells the listing agent that he or she is going to present an offer that’s significantly below the asking price, “then I absolutely would require that the other agent present that offer in person — I’d say, ‘Be here tonight at 7 o’clock,’ ” Stanton said.

If it’s a true lowball offer where the buyer is just fishing for a price and the agent knows it, it might speed things along if the agent’s presence is required, rather than just faxing the offer, Stanton said.

“The buyer’s agent will say, ‘Let me get back to my buyers,’ ” Stanton said. “It’s called a problem transfer. I’m going to take my problem — that lowball offer — and transfer it to the agent. All of a sudden, that $300,000 offer has turned into a $320,000 offer.

“You’d be surprised how often that actually works,” Stanton said.

Mary Umberger is a freelance writer in Chicago.