By This Intero Insider – Video Series brings you Rick Soukoulis, CEO of Western Bancorp’s insight and projections on 2011 mortgage rates, the effects of the Japan crisis on our market and the potential after effects of a possible U.S. Government shut down.
Posts Tagged ‘home loans’
Are Bank Owned and Short Sales Always a Good Deal?
By All home buyers have one thing in common: Everyone wants a great deal. The buying public seems to think that “great deal” equals foreclosure, short sale or bank-owned property. The truth is that these properties may appear to be bargains, but in many cases you could be buying someone else’s problems. So the real issue is whether the foreclosure, bank owned or short-sale property you’re considering is a bargain or problem. If you’re looking for a bargain property, here are some key issues to consider:
1. What is your time line for purchasing?
You may find the perfect short-sale property, and the seller may accept your offer. The challenge is that you don’t have a deal until the bank approves the short sale. At many large lenders, a single short sale processor may have hundreds of files to handle at one time. I’ve experience delays of up six to get an offer approved. The wait can be extremely frustrating and it can also be costly.
For example, months from now the offer made today you may be too high or to low. Also, interest rates are more likely to go up rather than down during the coming year. And, just because the seller has accepted your price, it doesn’t mean the bank will. You will have a better shot at buying a short sale where the bank has preapproved the sales price. It still may take a long time to close, but not as long as it would if the price was not preapproved.
2. Are you prepared to be in a multiple-offer situation?
You’re not the only one looking for a “bargain.” Many buyers are searching for distressed properties and the approval process takes so long, multiple offers are common. The sellers agent or lender will not tell you about the details of other offers.
If another offer comes in at a higher price and at better terms, the bank is obligated to take the best offer. If the property is a short sale, the seller’s signature on the document merely opens the negotiation – it does not finalize it. Furthermore, the seller/lender may continue to market the property even after they have signed a contract with you.
3. Ask the agent if the seller participated in the “Cash for Keys” program
The best candidates for good bargains are those properties where the sellers are still occupying them. Many banks have a program called “Cash for Keys.” This program pays the owners of foreclosure and short-sale properties money to keep the owner from trashing the property when they move out. It’s not uncommon for disgruntled owners or tenants to remove or damage appliances, plumbing and electrical systems. Cash for Keys is designed to minimize these behaviors.
4. Beware of tenant occupied and vacant properties
It’s never a good practice to purchase a property without doing a physical inspection. Also, be sure you have stipulated the right to make a final inspection prior to closing. This is especially important with distress sales. Also, if the property is tenant occupied be sure the contract states the property must be delivered to you vacant. Trust me, you don’t want to be responsible for evicting a tenant. Also, the longer a house stays vacant, the more likely it is that problems will develop. Not only vandalism, but rats and mice are more likely to move into vacant properties. Rodents can chew through the wiring and generally wreak havoc with the home’s electrical systems.
5. Is the deal more important than your lifestyle?
A property can be a great deal in terms of the price, but is it worth it if it’s in a poorly rated school district or if you end up with an extended the commute? A “bargain price” won’t make up for a poor floor plan, airplane, train or traffic noise or the occasionally whiff of the sewage treatment plant? When you purchase, it’s important that you take all of these issues into consideration rather than focusing exclusively on the price. A property with any of these types of problems will be harder to sell in the future.
As you can see, it’s important to consider the price in conjunction with the quality and the convenience of your lifestyle once you move in.
Of course there are good distressed property deals out there. Nevertheless, don’t limit your search. Keep in mind that, depending on the neighborhood and price range, anywhere for 10 to 50 percent of the sales may be distress sales. This means that 50 to 90 percent of the available homes are likely occupied by owners that are maintaining their homes and in better neighborhoods. In the long run, they may be a much better bargain.
A true bargain is when you find a home in the neighborhood and price ranges that fits your lifestyle. A house you will be proud to call home.
Moving at the Speed of Opportunity
You’ve probably heard the old saying “You Snooze, You Lose!” I’m told that the line came from the character known as George Owens on the 80’s sit com, “Mr. Belvedere.”
I think the words spoken by “George Owens” say a lot about where some “homebuyers” are relative to this market. Hopefully that’s not you.
Some people are sitting on the sidelines…taking a wait and see attitude, waiting for the market to “change,” hoping that some of the perceived risk will be reduced by more stable credit and mortgage markets, and wishing that just one more piece of positive news would filter out of the media to convince them to become active and take action.
Well, guess what? It just isn’t going to happen that way. Not if you want to capture the market at the bottom, at least. Let me explain why, and how to avoid “staying sidelined,” so you are in the right position to capture current opportunities.
Imagine for a moment that you are attempting to merge onto the freeway, where traffic is moving at 65 miles per hour - now picture yourself coming to a stop.
Being behind somebody that stops on an on ramp waiting for the “right opportunity” can be scary, yet I imagine it’s happened to all of us at one point or another.
So, when you’re at a standstill, how hard it is to find just the right opening between the rapidly moving cars. You know how hard it is to get your car to go from zero to 65 miles an hour in a very short distance and merge into flowing traffic. It’s not easy.
Now, picture yourself in this same situation – only this time, you continue moving down the on-ramp, and, once you find the right opening to merge, you join effortlessly into the moving traffic.
Simply put – it’s hard to find an opening when you are standing still. You know this – but did you know that this principle is not just a question of physics – it’s a question of money and opportunity? And did you know that it applies to many would be home-buyers?
Movement creates opportunity. It invites new things to happen. Movement means you are ready to take action – that you are responding and adapting to the changing marketplace.
As the market continues to evolve we are past the time to watch, to wonder and to wait. Now is the time to pay attention! Watch what’s happening, and look for your opportunity. Believe me the growing positive statistics, like those at our Market Activity website, www.bayareamarketmetrics.com reveal that there are plenty of buyers ready to jump at the right opportunity. Remember, if you are sitting on the sidelines, all you can do is watch.
But what about those that “just got lucky”, right? Well here’s how people get “lucky”, they (1) they get into motion, (2) they get their financing lined up, (3) they find a great agent who welcomes their business and they start looking for the right home (4) They make an offer that fits the circumstances, (5) and THEN they “get lucky”. In other words, they are people willing to move at the “speed of opportunity”.
Remember, just like you can’t easily merge onto a highway from a dead stop - neither can you find the best home buying opportunity unless you are moving at the “speed of opportunity.”
If you want to move at the “speed of opportunity”, a good place to start is understanding the current level of market activity. Our Bay Area Market Metrics Report can be viewed at www.bayareamarketmetrics.com.
Intero Insider: How Will The New FHA Guidelines Affect YOU?
By For many years, the Federal Housing Administration, by virtue of its policies designed to help people with lower incomes or those just starting out, made it possible for millions of Americans to purchase their own homes. They made it possible for these people to take part in the American Dream.
Fast-forward to 2006, at the height of the “boom” real estate market, and the FHA found itself backing just 3 out of 100 home loans, as “non-conforming” loans were being given to, pretty much, whoever asked for them, and their requirements were virtually hassle-free when compared to those that the FHA had in place.
Today, the FHA backs 3 out of every 10 new home loans, because, as other lenders have tightened restrictions, FHA has followed the status quo, keeping things fairly liberal.
The result of all of this? Problems. Big ones.
On December 2, 2009, the Secretary of Health & Urban Development, Shaun Donovan, stood before Congress and announced that the FHA’s cash reserves have fallen well below the Federally-mandated level of 2%, to a staggering .53%.
To try to alleviate the FHA’s problems and raise reserves to their legally-required levels, Mr. Donovan indicated sweeping changes would be coming to the FHA’s loan process. Here’s some of what you should expect:
More Money Down. One of the big reasons that FHA loans have been so popular over the years was low down-payment requirements — just 3.5%. FHA’s withering balance sheet, however has the agency requiring that buyers put more money down. The new down-payment requirement? As high as five percent.
Higher Fees. Fees for FHA loans have always been high. There are upfront and annual fees that borrowers must pay, which the agency uses to reimburse lenders in the event of default. The fees are already as high as the law will allow, but the agency is considering asking for increases.
Better Credit. Mr. Donovan said that the agency would, at least for now, increase the minimum credit score for new borrowers. The FHA’s current low-limit is a score of 500, though it’s important to note that most of the lenders funding FHA loans won’t accept a score of below 620, even now.
Lower Debt-to-Income Ratios. FHA has been lenient in the past, making exceptions with people with higher debt-to-income ratios (DTI) in the event of extenuating circumstances or those with longer credit histories. No more. The maximum allowable DTI will be 45%. This means that if your debt is more than 45% of your total income, you won’t be approved.
These changes will likely be implemented in early 2010, with the first kicking in during the first week of January.
The bottom line is that with the new FHA guidelines, a borrower’s bottom line will have to be straight, narrow, and raised much higher.
On a related note – the FHA Section 203K home loan is becoming an increasingly popular mortgage loan choice for home buyers purchasing a distressed property. This unique mortgage loan offers all the benefits of FHA financing along with the ability to provide funds for both the purchase and the renovation of a new home. Think about the possibilities – a single loan to buy and fix your home up!
As mentioned in last week’s Insider, Intero recognizes the need to educate our agents to keep them informed and up-to-date with the latest programs aimed at helping those within the distressed home market. With the help of the Re-buildUSA program Intero agents will now become FHA 203K experts helping our communities rebuild and grow.
We are excited to share more on this opportunity – so look forward to more detailed information in next week’s Intero Insider.
The Intero Insider
A weekly e-newsletter with fresh market data and candid insights from Intero CEO Gino Blefari
