Remember the excitement of preparing for the first day of school? Deciding to buy a home is also a very exciting time – be careful not to get too emotional in the home buying process. Smart buyers prepare, plan, and purchase when they are ready.
Some people take their credit for granted and don’t start paying attention to it until they need it. The problem with this is that it could delay if not altogether cause the loan to be denied.
The most common issue is not correcting items on your credit report. A large majority of credit reports have errors but not all of them are critical. Since it takes time to remove them, it is a good practice to review your free credit reports from each Experian, TransUnion and Equifax once a year at www.AnnualCreditReport.com.
Another problem is making late payments. One 30-day late payment could be enough to cause a borrower to pay a higher interest rate or even be denied a loan. Payments have a due date and even when they allow a few days before a late fee kicks in, if it isn’t on-time, it is late.
Maxing out credit cards is another big problem. Ideally, a person wants to have an outstanding balance of no more than 30% of their available credit. As the percentage of available credit decreases, the credit score will go down.
Bad credit can not only keep you from getting the loan you want, it can raise your rates on the insurance you buy. In a study released by the Consumer Federation of America, people with good credit paid less than people with average and poor credit. Their results indicate that some customers with poor credit scores were charged about twice as much as those with excellent scores.
A prudent idea if you are going to be moving to a larger home is to get pre-approved with a trusted mortgage professional before you sell your current home. Occasionally, sellers find out after they’ve sold their home that they can’t qualify for another mortgage.
by, Shannon Foster-Boline
What if you could live in a larger and possibly newer home for less than you are currently? Would you consider moving? Do you want to hear more?
Interest rates, while they’re expected to go up, actually took a small dip and are still hovering at the 4% or below mark for a 30 year mortgage and almost one percent less for a 15 year term.
Let’s assume that you have a $225,000 mortgage currently at 6% which has a principal and interest payment of $1,348.99. With a 4% rate, you could have a $282,561 mortgage with the same payment. A $57,000 more expensive home could help you get what you need most such as more square footage or a different location or a newer home.
If you’re going to be making that payment for years to come, why not allow lower interest rates to help you get the features you want without having to necessarily pay a higher payment. Taking that logic a little bit further, let’s see how utilities can make a difference too.
A newer home could easily have lower monthly utility costs than your current home due to being more energy efficient. Construction materials, windows, doors, insulation, modern HVAC systems and energy efficient appliances all contribute to lower utility costs. A new home with these advantages could easily save a homeowner up to 25-50% on utilities for the same size home.
The concept is simple: get the most home you can for the amount you spend on the payment and utilities. It will take some investigation and I am happy to help.
One question many Buyers ask me is, “What exactly is a short sale?”.
Most folks understand that a foreclosure means the bank is now the owner of a home, but when we get to Short Sales it can become confusing (and with good reason).
- What is a Short Sale?
- Why would Sellers do them?
- What are the pitfalls of a Short Sale for the Buyer?
Short Sale Terminology
“A Short Sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property and the property owner cannot afford to repay the liens’ full amounts, whereby the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt.”
In simple terms- the Seller(s)s owe more to their Lender(s) than the current market value of the home and they are asking the bank if they can sell it for the market value (at a loss).
A short sale or foreclosure home is typically referred to as a Distressed Property.
The difference/balance between the amount owed on a property to the Lender and the proposed purchase price is called a Deficiency.
Why Would Seller(s) do a Short Sale?
At the time of this writing, about 20 percent of the market in my service area is a distressed property. Some of the reasons a home owner may find themselves in need of requesting a Short Sale from their Lender(s) are because the market value has significantly dropped and they must sell their home. Those reasons for selling could be divorce, health issues, loss of income, death in the family etc. One can see how these homes became known as “distressed”.
There are different methods that Lender(s) use to determine if they will approve a Short Sale. This can make the buying process for a Short Sale much riskier (and longer) for the Buyer.
Common Pitfalls When Buying a Short Sale Property
In our market, it is reported that only 70 percent of those homes being sold as a Short Sale are actually closing. There are a number of reasons why the purchase will not actually make it to the closing table. Below is a partial list of why that might happen:
- The Buyer’s offered sales price is too low for the Lender to release the mortgage, and the Lender decides that the process of foreclosure will yield them a higher net.
- The Seller simply does not qualify for a Short Sale.
- The Lender will not approve Short Sales.
- The foreclosure process is too far along for the Lender to have time to process the Short Sale. Even with a binding contract from a Buyer, that will not stop the existing Foreclosure process.
- On rare occasions the Listing Agent hired to assist the Seller is not properly trained or capable to complete the process.
- There is more than one loan on the home and not all Lenders agree to the Buyer’s offer price.
- Lender/Seller will not make/allow repairs and Buyer will not/can not afford them and is denied their financing. Although many banks will allow Home Inspections, few will make any repairs (including those as serious as treating for Wood Destroying Insects).
Other Common Buyer Misconceptions about Short Sale Houses
- Low ball offers are a good strategy to get the bank to come down on price!
Remember the Seller is asking the Lender(s) to approve “deficiency amounts” (amount(s) owed on a loan(s) minus the actual sales price), and the Lender(s) are only going to forgive a certain percentage of debt. The price on a Short Sale is not a “deal” like one you might get in buying an already foreclosed on home. Typically the asking prices, or very close to it, are the lowest the Lender(s) will accept.
- Short Sale homes are a better value for the money.
Anytime you are purchasing a distressed property expect that the home is most likely to be in poor condition. When you look at cost of repairs, deferred maintenance etc. it may not always be such a great value.
- It takes the same amount of time to purchase as a “regular” home.
The Short Sale process can take from three to six months (sometimes longer) to be approved by the Lender(s). A typical sale, from binding agreement date to closing, is 30-45 days.
- How I finance the house is unimportant as long as I am pre-approved for a loan.
Typically lenders are most likely to reject offers that are made using a FHA/VA loan. One of the reasons is because the condition of the property may not meet FHA/VA criteria. Since the bank typically asks the Buyer’s to agree to an “As Is” sale on a short sale property, the Buyer’s financing may fall through if any repairs are required as a result of the FHA/VA appraisal process. The strongest offer in a short sale situation is cash, followed by a conventional loan.
So who should consider a Short Sale House?
Buyers without a short time frame are ideal for a Short Sale transaction. Also, it helps if you are not highly attached to the outcome, as these transactions have a higher rate of falling through. If you are a Buyer who has readily available cash to purchase the home outright, or you are using a conventional loan with a large down payment, you have a greater possibility of having your offer accepted by the bank.
If you decide to pursue a Short Sale make sure you have a Real Estate Professional who understands the “in’s and outs” of these types of transactions and does their best to protect your interests as the home Buyer.
Looking now and need a good Buyers’ Agent? Tell me about your dream home… I would love to help! Please feel free to use the Real Estate Property Search feature on my website, or Schedule a Showing.
Are you wondering what is involved in buying a home? Request your FREE copy of my Home Buyer’s Guide Book by completing the information below. Just hit submit to instantly receive the Download link and an additional copy will be delivered to your email. I promise I do not spam.
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Post by Shannon Foster-Boline