What about a Foreclosure property?

Get prequalified for a loan and set aside funds, and you’ll be ready to purchase a foreclosed home.

1. Choose a foreclosure sale expert. Lenders rarely sell their own foreclosures directly to consumers. They list them with real estate brokers. You can work with a real estate agent who sells foreclosed homes for lenders, or have a buyer’s agent find foreclosure properties for you.If the agent represents the lender, don’t reveal anything to her that you don’t want the lender to know, like whether you’re willing to spend more than you offer for a house.
2. Be ready for complications. In some states, the former owner of a foreclosed home can challenge the foreclosure in court, even after you’ve closed the sale. Ask your agent to recommend a real estate attorney who has negotiated with lenders selling foreclosed homes and has defended legal challenges to foreclosures.
Have your attorney explain your state’s foreclosure process and your risks in purchasing a foreclosed home. Set aside as much as $5,000 to cover potential legal fees.
3. Work with your agent to set a price. Ask your real estate agent to show you closed sales of comparable homes, which you can use to set your price. Start with an amount well under market value because the lender may be in a hurry to get rid of the home.
4. Get your financing in order. Many mortgage market players, such as Fannie Mae, require buyers to submit financing preapproval letters with a purchase offer. They’ll also reject all contingencies. Since most foreclosed homes are vacant, closings can be quick. Make sure you have the cash you’ll need to close your purchase.
5. Expect an as-is sale. Most homeowners stopped maintaining their home long before they could no longer make mortgage payments. Be sure to have enough money left after the sale to make at least minor, and sometimes substantive, repairs.
Although lenders may do minor cosmetic repairs to make foreclosed homes more marketable, they won’t give you credits for repair costs (or make additional repairs) because they’ve already factored the property’s condition into their asking price.

Lenders will also require that you purchase the home “as is,” which means in its current condition. Protect yourself by ordering a home inspection to uncover the true condition of the property, getting a pest inspection, and purchasing a home warranty.

Be sure you also do all the environmental testing that’s common to your region to find hazards such as radon, mold, lead-based paint, or underground storage tanks.

You KNOW that good credit pays off. It can make the difference between getting approved for a home loan or not.  It can also make the difference between being approved for a higher purchase price or a lower one, since the interest rate will vary depending on your credit.  But what happens if your credit isn't what you'd like it to be?  Well, actually there are a number of things you can do to make your credit look a little more appealing to a prospective loan officer: Pay off old balances - especially past dues and chargeoffs that have happened during the last 2 years. Items more than two years old have little effect on your current credit score. In fact, if you pay off delinquent items over two years old, it can actually bring your credit score down - something you don't want to do. Bringing that score up means you'll get a better interest rate on your loan.

Don't close existing unused credit card accounts.  Counter-intuitive tho it might seem, this can actually lower your score. Part of your credit score is based upon credit history. If you have old credit cards that you don't use very much, you still have the benefit of the credit history they represent.

Rather than trying to pay off all your credit cards, it does make sense to move part of the debt from one card to another to even out the distribution of debt. Try to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when trying to purchase a home. Also, if your credit provider will increase your line of credit, the ratio of debt to available credit is automatically reduced, without you having to pay down the balance.

When married couples have separate credit card accounts, the debt can be transferred from one spouse to another to clear up credit issues for the other spouse. That spouse with clean credit can be designated as the sole borrower on the loan, but ownership of the home can still go in both names.

Find and correct errors on your credit report.  These might be balances that have already been paid, or even entries that don't belong to you! Request that these items be removed by the credit bureau. They are obligated to rectify this within 30 days.  If you're paying off items that are less than 2 years old, send in your payment if possible and mark the back of the check with the following notation: "Accepting this check is evidence that the transaction is complete and this charge will be deleted from my credit record." If necessary, the cancelled check will be proof that this should be promptly removed from your credit report if it interferes with the closing of your loan.

Contact a good loan officer and ask them for help. Most loan officers are happy to give you free advice on cleaning up your credit report as quickly as possible.  After all, they WANT you to qualify for your new home loan! In some instances you may also want to work with a credit repair company as well. 

I'm happy to provide my clients with a free CD on how to improve "less than great" credit, and how to best position your credit to apply for a home loan.   You might also want to check out MSN Money for more information on what impacts your credit score & some ways to improve it. 

Here's to your great credit! 

Every Realtor's Favorite Question: Hows the Market?

How’s the market?  I hear that question every day!  The answer  (as is the case for most real estate questions) is It depends.”

If you’ve been looking for a home under $250,000, you know that there is very little to choose from, especially if you don’t want to consider a short sale and the uncertainty and long wait that goes along with it.   This means that non-short sale homes in that price range are a rare commodity – and can command a premium price.   Buyers, anxious to buy now and get their $8,000 tax credit and to take advantage of record low interest rates,  are competing for these properties and they are routinely selling for over the listing price!   Even short sale properties in this price range are going fast.

Three’s a brisk market for homes in the $250K-$350K price range as well, although its not as frenzied. Above $350, it’s a little slower, and if you get over $700K, buyers can negotiate some great deals.

What will happen when the April 30^th deadline for the tax credit passes?  The “feeding frenzy” will likely calm down, but as long as mortgage rates stay relatively low, your home-buying dollar will get you a lot of home for the money. Also, today’s mortage borrowers will be re-paying their mortgage in “cheaper” dollars if and when inflation takes hold. (Given the massive deficits run by the government, inflation is a very likely outcome!)

Once rates begin to creep up due to market & inflation pressures, homebuyers will be forced into less and less expensive homes.

Long story short – this summer is the time to buy! 

Getting a "Deal" with a Short Sale House

We hear a lot of buzz about short sales these days….Buyers call and say, “I want to buy a short sale or a foreclosure house!” For home buyers, a foreclosure or short sale can often be a good deal, although this is certainly not always the case.

But what, exactly a short sale? A short sale, or “short pay” involves the seller’s lender agreeing to accept less than what they are owed in order to avoid foreclosing on the house. Why would they do that? Contrary to popular belief, the banks really don’t want to own houses, or go through the huge amount of time and expense to foreclose on, and re-sell a house, which is why they will often agree to a short sale.

How much of a discount will they accept & what kind of bargain can you expect to get?

The final sales price is based on a negotiated figure, usually somewhere between the seller’s lender (who wants to get as close to a full payoff as possible!) and the buyer (who generally wants to pay as little as possible!). The lender will do an appraisal to find out what the current values are in the neighborhood, and what the specific value of the house is based on its condition. In today’s market these homes often appraise for much lower than the amount owed by the seller. This means the bank will need to agree to accept “current market value” for the home in order to avoid foreclosure. After all, if they foreclose, they will just have to re-sell the house in the same market! You can see how a short sale becomes a give and take between the seller’s lender and the buyer.

Perhaps surprisingly, many short sale properties are in good to excellent condition! Others need work – ranging from paint and carpet to major rehabilitation projects. The value of the property is definitely impacted by the shape it’s in. Either the buyer or the lender is eventually going to have to pay to fix it up! Banks generally do not concern themselves with the fact that a house needs new paint or carpet, or other “cosmetic” fixes. They will, however, allow significant discounts for real damage, such as missing cabinets, broken stairs, damaged roofing, foundation problems, plumbing problems, fire or smoke damage, mold infestations and the like. Buyers making offers on homes in good shape will probably not get much of a discount from the average market price, but that’s not to say that there’s not some “wiggle room”.

Short sale buyers do need to be aware that banks can take a long time to make a decision to approve or disapprove an offer. For example, I just closed on one that had been in negotiation for six months. Some are approved in 45-60 days, but there is no way to know what the timeline is, so just be prepared to wait for the house you want. If you make a short sale offer, you are not tied to that property, like you would be with a regular buy-sell contract. In Colorado, the short sale addendum to the contract will allow you to get out of the contract for any reason right up until the short sale is approved. This means you can continue looking for other homes while you are waiting for the bank to approve your offer, and if you find one you like, you can buy it, and terminate your other offer with no penalty. (The seller can also change their mind right up until the approval as well, but that is a rare occurrence.)

Short sales can be great deals – if you are willing to put in the time and patience. We’re expecting to see more of these come on the market as the next wave of foreclosures begins to roll across Colorado and the nation. So, don’t be afraid – just be prepared for the process!