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.

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HOME “UNDER WATER”? REFINANCE IS POSSIBLE!

September 7, 2010
Short Refinance Program InitiatedPosted: 06 Sep 2010 02:01 PM PDTIn an effort to help homeowners who owe more on their homes than they’re currently worth, the government will initiate its “short refinance” program on Tuesday, September 7, 2010.

According to an August 6 Mortgagee Letter released by HUD (click here to download the entire letter), the program will allow “borrowers who are current on their mortgage to qualify for an FHA refinance loan provided that the lender or investor writes off the unpaid principal balance of the original first lien mortgage by at least 10 percent.”

While lender consent is required and program participation voluntary, the FHA has stated the program could modify between 500,000 and 1.5 million upside-down mortgages.

Following are a few of the eligibility requirements detailed in the Mortgagee Letter:

  1. Homeowner must have negative equity, be current on the existing mortgage, and have a FICO score greater than or equal to 500
  2. It must be for the homeowner’s primary residence
  3. Existing loan can’t be FHA-insured
  4. First lien holder must write off at least 10 percent of the unpaid principal balance
  5. Refinanced mortgage must have a loan-to-value ratio (LTV) no greater than 97.75 percent
  6. Second liens must be re-subordinated so the new loan does not exceed a combined LTV of 115 percent

Because of this last requirement, this program may have difficulty when confronted with situations involving second lien holders.

Reposted courtesy of CDPE blog – Certified Distress Property Expert Institute


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.


WHAT’S BEHIND DOOR #1?: LOOKING FOR A HOME IN ATLANTA^

May 26, 2010

 

One of the most interesting aspects to my job as a Realtor is “showing property”.  After the buyer consultation, I go back to my office, sit in front of my computer and search our Multiple Listing Service (better known as MLS) for properties matching the buyers needs and wants. I usually go right down the list – area of town, number of bedrooms and baths, age of home, subdivision, etc. until I have compiled a number of possibilities. I will then call the “listing” agents to make sure that these houses are available to show to my buyer and that there are no offers or conditions that I need to know about. The list is then e-mailed to the buyer for review and we then settle on the homes to see.

One point to make about showing homes; I usually work in 3-hour intervals with a buyer and will show 7-10 homes at one time. It is very difficult to keep track of more than 10 homes and eventually the details start to overlap. I have incorporated two practices in my buyer showings that seem to work well. First, I have the buyer write down the positives and negatives about each home while we are still in the house. I ask very specific questions about each house so that I know what is important, not so important and a “deal” breaker. Sometimes it is difficult for a buyer to know what they like and dislike until they see it in a home – especially first time homebuyers.

Second, I play a game of “Naming Each House” so that we can remember it. There has been the deck house, cat house, music, boyfriend house and so on. I can call past buyers a year later and they will remember a home by the name we used. The name can be positive or negative but it will always set off a trigger in our minds about a particular home.

But what truly makes my job interesting and exciting is the feeling I get when I first open the door! Have I just opened the door to someone’s new home? This may sound corny but it is true.

Often I am disappointed. Sometimes the on-line pictures look so good and I am familiar with the community; then I open the door and …. nothing. I can take it when I am disappointed but I hate it when the buyers were excited and then let down. On average an agent shows 10-12 homes before the buyer selects one. This number can increase in a “buyer’s market” because buyers want to feel like they have seen everything before they make the big decision.

However, there is nothing better than opening the door to a buyer’s dream home. When I can see it in their eyes that “THIS IS IT!”!  It is that look, the fast heart beat, the writing of the offer, the acceptance of the offer and the closing day that makes my job special. When I am able to hand over the keys to a buyer’s “dream home” – it is worth it all!


NAVIGATING THE MAZE of PURCHASING A HOME IN ATLANTA^ – PART IV: The Buyer Brokerage Agreement

May 4, 2010

 

I am not a lawyer nor do I play one on TV but I will take a few minutes to discuss the Buyer’s Brokerage Agreement. First of all, the state law in Georgia prohibits a Broker from representing a buyer as a client without first entering into a wrtitten agreement with the buyer. The key word here is “client”.  A Realtor can only work with a buyer in two ways – as a ‘client’ or as a ‘customer’. There are significant differences between the two.

When a Realtor works with a buyer as a “customer”, they are limited to performing what are called “ministerial acts”.  For example, an agent can identify property for sale, show the buyer the property, provide pre-printed real estate contracts, complete the forms at the direction of the buyer, and assist the buyer in completing the purchase process. The Realtor, however, can not provide any advice in purchasing a home, make any recommendations or offer counsel in any way. The Realtor-Customer relationship is very difficult for all but the most savvy buyers because the Realtor can not offer any advice at all.

In most cases, the Realtor works with the buyer as a “client” which means that they can not only provide the above services but make recommendations, suggestions and offer advice.  The buyer is still required to do their own due dillengence meaning that they have to get the home inspected, make the best choice of a lender and check out the neighborhood and surrounding areas however, the Realtor is not limited in the amount of information they can provide.

When a buyer chooses to work with a Realtor as a “client” they are required to sign a Buyer Brokerage Agreement. The roles and responsibilities for the agent and the buyer are laid out in this agreement. The agent is responsible for finding the buyer an acceptable property and working within all of the state laws and guidelines to assist the buyer in purchasing this property. The buyer is required to do seven things once this agreement is signed:

  1. To work exclusively with this Realtor throughout the contract term. The buyer can terminate this agreement but must do so in writing.
  2. To be available to see properties
  3. To respond to all communication in a timely manner
  4. To provide the agent with accurate financial information
  5. To inspect the property and become familiar with surrounding areas
  6. To become familiar with the Purchase and Sale agreement and all other documents which they are required to sign.

In Part V of Navigating the Maze, I will discuss the other issues in the Buyer Brokerage Agreement and make sure that you are aware of the right questions to ask your agent.


NAVIGATING THE MAZE of PURCHASING A HOME IN ATLANTA – PART III: Buying a Condo

April 6, 2010

 

I know I promised to continue this series with ‘Understanding the Buyer Brokerage’ agreement but I have to pause and address another issue.  I have had several people ask me about the rules of buying condos and townhomes and I wanted to make sure I spoke to this issue quickly. Buying a condo or townhouse in Atlanta is very different than purchasing a single family home. The financing rules are different unless you are purchasing with all cash. Most buyers right now are using the government backed FHA loan program because the down payment is 3.5% versus the 10% or greater with conventional financing. Because most buyers are going FHA, they are subject to the governments’ rules regarding condo purchases.

First of all, not all condos will qualifiy for FHA financing. There is a section of the HUD website that you can plug in the condo name, city and state and find out if you can purchase your particular unit with FHA financing.  The link is https://entp.hud.gov/idapp/html/condlook.cfm   Why does the government care about the condo or townhome unit that you purchase? There are four main reasons:

  1. Lack of Occupancy – There are quite a few developments in the Metro Atlanta area that were started and not completed. The occupancy rate may be under 50% with a lot of vacant units or sections that have to be finished. In this current housing environment, many builders have gone out of business and the timeframe to complete these developments and get them sold is uncertain. The government is not willing to take the chance on financing in this situation.
  2. The Financial Position of the Homeowners Association – A strong condo association is what drives any community. The board is responsible for managing the upkeep on the property, ensuring that the residents follow the covenants and maintaining the overall welfare of the community.  Any weakness in the financial position of the board can create an instability in the community and again the government weighs this before backing the loans.
  3. The Rate of Foreclosure in the Community – A high foreclosure rate causes instability in the condo community and again is one of the areas that the government examines prior to approving the condo for FHA financing.
  4. The Number of Rentals in the Community – A high number of rentals is a red flag for the government because it also signals a lack of stability. Renters come and go but homeowners are committed for the long haul.

Again, if you are considering the purchase of a condo, visit the HUD website and plug in your particulars. Find out before your commit money, time and energy only to find out later that you can not purchase the unit with FHA financing.

In Part IV, I will discuss the Buyer Brokerage Agreement and what it means to you.