How Loan Estimates Work

Okay. You have been doing some online house hunting and found a few homes in an area you like. This gives you the confidence you need take the next steps.

1. You see an ad on TV and call for a mortgage loan.

They take some basic information from you – your social security number to run a credit report, how much you make, how much you owe, and generally how much home you want to purchase. You begin getting all the back up documents together to provide to the loan officer.

2. You select a Real Estate Agent to represent you as you move forward locating the right home, making an offer, and completing all the things that have to be completed before you close on the deal.

But did you know?

Loan officers normally provide best-case scenario loan estimates. Depending on your credit score, there may be credit-score adjustments down the road that cause you to take a hit on the interest rate. The lower the credit score, the higher the interest rate adjustment. So ask what the likelihood of an adjustment is when you get the good faith estimate (fee sheet). Ask if this estimate is firm.

Shop Around!

I’ve had clients tell me that they don’t want to have multiple loan companies pulling their credit scores since everyone knows that multiple hits can negatively affect your credit score and if they are borderline, they don’t want the hits themselves to leave them out in the cold without a loan.

Well, guess what? If the credit score hits are mortgage-based, and done within a same 90 day period, only the first hit shows up as a hard hit. The others are considered to be within the same category of hits. Don’t go crazy though. To be safe, only shop around with two or three mortgage companies. More than that and you could (not will, but could) find yourself with more hard hits than are recommended. The credit companies take into consideration that smart loan shoppers are likely to check rates with two or three mortgage companies rather than going with the first one they talk to. Your Agent may be able to provide you with a list of other companies to shop your loan request to.

You have a good mortgage rate and company…

Now be disciplined! Do not increase your debt by taking out any other loans, buying or leasing cars, buying new furniture for the house, or running up your credit cards. Continue to pay your bills faithfully. Once you enter into a contract on a house, it will be another 30-60 days before you actually close on the deal and are able to move in. You should probably move your needed down payment and moving money in a separate savings account and out of your checking account so you don’t accidentally spend it. And it can earn interest for you in the meantime.

 

 

Buyers and Agents -What you should consider

Just a short blog today. This isn’t about how to select an agent, but if you are interested in that, please check my earlier blog. This is about what happens when you view a listing on a search site such as Zillow, Trulia, Realtor.com, and others – and next to the home you like you see three suggested Agents. You click on one and send the email that says, “I am interested in learning more about the property at 123 Main Street.”

Listing Agents Represent Sellers, not Buyers!

That agent may or may not be the one who actually listed the home for sale. The thing is, as a buyer, you don’t really want to talk to the the agent who listed the home. Why? Because they are representing the seller. As such, their relationship with you is the same as the clerk in Sears who shows you their athletic line of clothing. You are a customer to them.

Advertised Agents are usually Buyers’ Agents – Just what you need.

It is more likely that the agent you select is one who wants to work with you as a Buyer/Client. They want to represent you as you move forward to buy a new home. If you don’t already have an agent, this is an excellent way to find one.

Be Sure of Your Buyer/Client Relationship

So, if you are already working with an Agent, and you have signed a contract with them basically hiring them to represent you, should you be clicking on another Agent’s name simply because it showed up next to a house you are interested in seeing? No. Make note of the address and get to your Agent. When you signed that contract, you basically hired them to help you find a home. Put them to work.

Why not work with more than one Agent?

Think about this. Working with Real Estate Agents isn’t like working with that Sears sales clerk. They aren’t paid a regular wage from a company. They make money working exclusively with clients. When you click on an agent next to a property, they get notified (sometimes with an email, text and phone call) that you are looking for information about a particular home. Most Agents will ask you if you are already working with an agent during their initial conversation with you. If you are, say so, but as I stated earlier, if you are working with an agent, don’t click on any of those advertised agents. Just call your agent and ask them about the home. Why do they ask? Because reputable Agents don’t try to steal clients away from other agents. Agents only get paid when the deal is done – the closing ceremony has happened and the keys have been exchanged. Sellers typically pay the commissions for both the listing agent and the agent who brings the buyer to the table. Buyers shouldn’t assume that Agents just run around showing people homes. Agents have very real fiduciary (legal) responsibilities to their Buyer/Clients. They have a costs associated with working with Buyers that Buyers aren’t expected to pay. So they spend money on you whether or not you actually buy a home. The goal of course is to help you find the best home for the best price in the shortest amount of time. And then get paid – by someone else than you. If you have more than one agent running around thinking you are their client, you are taking unfair advantage of them.

Bottom Line

Do your online search. When you find a home you are particularly interested in, select and agent to the right. When they get back to you, interview them even as they will be interviewing you. If you feel like they might be a good person to work with, meet with them and if that goes well, sign a contract with them to represent you. Then you will go through the process of finding you new home – but the buying process is the topic of another blog.

Is Buying a Foreclosure a Good Idea for You?

Foreclosures occur when a home owner has fallen into arrears on their mortgage payments and the bank is taking over. Banks don’t really like taking over. They prefer to remain in the money lending business, not the home ownership business. If you are falling into arrears, or anticipate the possibility of not being able to meet future payments due to some change in your financial status, reach out the your lender immediately. Don’t  wait until you are months in arrears. I don’t know of any that won’t work with you to come up with a solution that will keep your credit in good shape and keep your payments coming until you can get back on your feet. But that isn’t the topic of today’s blog. Today we will discuss the stages of foreclosure and whether or not buying a foreclosure is a good idea for you. The pros and cons of buying a home involved in foreclosure vary with the phase of foreclosure the property is in when purchased.

More for Less

Buyers interested in purchasing foreclosed homes can often buy more house for their money. That’s because foreclosures are usually priced below market value. The banks and other financial institutions that take over foreclosures want to sell the properties as quickly as possible. They often price them low so that a greater number of buyers will make offers.

Lower Down Payments

Foreclosures may also present opportunities for first-time home buyers. Traditionally, down payments can prove a serious hurdle to new home buyers. Most conventional mortgage lenders require buyers to come up with down payments of 10 percent to 20 percent of a home’s purchase price. Because foreclosures tend to have lower price tags, buyers have to come up with smaller down payments when purchasing them.

Nicer Neighborhoods

Buyers may be able to move into higher-priced neighborhoods that they otherwise might not be able to afford. A house in a neighborhood of $250,000 homes might go on the market for $190,900 when it is sold as a foreclosure.

Investment Opportunity

The foreclosed home can be an ideal investment for the amateur or professional handyman. You can often make a number of improvements to the property yourself before selling the house for a handsome profit. If you have experience fixing up homes, the foreclosure auction is a place where you can get your foot in the door of real estate investment. Your sweat equity can pay off in real dollars when you sell the house.

Phases of Foreclosure

1.  The Owner has started missing payments.

In this case, a seller wants to sell before the lender gets involved. They will be motivated to achieve a fast sale and may create an opportunity for a below market purchase price. In this case the seller may be more likely to do repairs and might even be able to assist the buyer with some major closing cost credits or other concessions. As a buyer, you can use use regular mortgage financing and you can obtain desired inspections within standard due diligence/contingency period. The seller must legally provide a complete history of property’s condition, problems, repairs, etc.

Having said that, the seller probably won’t be able to negotiate a price below the outstanding balance of their mortgage. And since they are likely living in the home, they still have to find somewhere to move in which case you will not be able to move in on closing day and will have to rent the house to the previous owner until they move out.

2.  Pre-Foreclosure/Short Sales

In this case, the missed payments have gone on long enough that the Lender has filed a Notice of Default (NOD) or Lis Pendens and the Seller is now attempting to complete what is known as a Short Sale.  This seller will be motivated for a fast sale, increasing the buyer’s bargaining power. As before, the Buyer can do all the standard inspections during the due diligence/contingency period. Unless the purchase price will pay the mortgage and closing costs in full, the lender’s approval of price and terms of sale will be required (i.e. short sale). The Lender may not approve the price, seller concessions or closing cost credits and short sales generally take longer to close. They may take 45-90 days longer than a normal purchase. And in this case, the sellers still have to move out.

3.  The Foreclosure Auction

The short sale process hasn’t worked or the owner has walked away from the property and isn’t trying to work with the lender, so the property is now being offered up in a Foreclosure Auction. As a buyer the advantages are that the property will be sold for the outstanding mortgage balance owed to foreclosing mortgage holder and because auctions require cash payments, there is generally less competition for the purchase.

The obvious disadvantage is that the auction purchase price must be paid in cash on the same day as the auction and no mortgage is usually allowed. In addition to this, auctioned homes are “as-is” which means no inspections are allowed and the property condition might be suspect due to damage done by upset homeowners. And the buyer needs to do some research on the state of the title before bidding since the house may come complete with other liens, back taxes and mortgages. No commissions or attorney’s fees are paid and the buyer must pay for their own representation.

If the bank believes the auction will not recover a good price it may buy the property at auction.

4. Post-Foreclosure. The Bank now owns the property.

This is known as an REO property (Real Estate Owned by Lender). Remember I said banks don’t like to be in the property owning business so they are generally motivated to get it sold and will negotiate prices, down payments, closing costs, escrow length and a myriad of other concessions. The title will be clear, so the buyer won’t have to worry about any other liens or back taxes. Inspections and mortgage financing are allowed within normal due diligence/contingency periods. The house will be vacant and can be moved into immediately after the closing ceremony. REO sales close within a normal escrow period of time.

The properties are usually listed on MLS and the bank will pay real estate agents’ commissions.

What is the down side? Well although you can do normal inspections, they are just for your information because the Bank will not agree to do any repairs treating this as an as-is sale. Banks will usually require additional paperwork. And because they have never lived there, they cannot provide disclosures as to property history/condition issues.

Alternatives to the Foreclosure

Okay, that is the story behind foreclosures. But is it a good deal for you? Think about this.

1.  New Homes

When you purchase a new home you are protected by a warranty. Builders provide a one-year limited warranty on workmanship and materials, as well as a ten-year structural warranty.

When buying a new home, many builders have special incentive programs to assist buyers. These incentives may include below market financing or help with closing costs and they can save you thousands of dollars and make it easier for you to qualify for your home purchase.

If you need a quick response to your offer, a new home is a smart way to go. In most cases, you’re dealing directly with the builder, which ensures a prompt reply and as long a the new home is ready for you to move in, you can expect to close in a timely manner and move in.

Of course, the main benefit of buying new is that everything is pristine, sparkling, and brand new. In many cases you can work with the builder customize the home, selecting items like cabinetry, countertops, and flooring.

2. Resales

By law, conventional sales on new or resale homes require full disclosure of any known details or drawbacks on the property. The seller can be held liable if a problem arises as a result of an issue that wasn’t fully disclosed at the time of the sale. With foreclosures, it’s always “let the buyer beware.”

Resales homes are generally in pretty good shape. The sellers are moving because they want to. Perhaps they are moving up in size or downsizing, or maybe they are moving because of better paying job opportunities or to be closer to an aging family. Whatever the reason for selling their home, they normally work with an agent to sell it at fair market price and take a little profit out to use as a down payment on their next home. Real Estate Agents working with buyers help determine what is a good price to offer, walk them through the inspection, and work with them through every step of the home buying process. The inspection will point out everything from major to minor issues a home buyer should be aware of and offers an opportunity to re-negotiate the terms of the sale or for the seller to make repairs before the closing ceremony. And you can always get a home warranty to cover unexpected equipment malfunctions within the first year of purchase. I recommend to my buyers that they make the purchase of a home warranty a condition of the sale. It actually benefits both the buyer and the seller since it covers the house on behalf of the seller up to the day of closing and then one-year after that for the buyer.

Hopefully, this has given you something to think about. Just remember – whatever your decision, I am here to help you with you Real Estate needs.