To all our clients, Realtors, Attorneys, Accountants, Loan Officers and Operations Folks: Best Wishes for a Very Merry Christmas to you and yours!
Archive for December, 2009
Merry Christmas!
Thursday, December 24th, 2009More Headaches for Short Sale and Foreclosure Buyers
Tuesday, December 22nd, 2009We’re seeing a disturbing fact pattern emerging with regards to short sale purchases and bank-owned or “REO” purchases.
Several of our clients, after conducting their due diligence in the form of a Home Inspection have discovered black mold in these houses. Often these houses are vacant and the upkeep or maintenance is supposed to be handled by a managing agent or by the Listing Realtor. What our clients are discovering in these situations is the house has been empty for quite some time and the maintenance has not been properly kept up to date.
In one instance the mold was discovered in a downstairs bathroom. The reason the mold formed: apparently a previous visiting Realtor with a potential buyer left the house with a toilet “stuck” in flush mode. The resultant humidity caused the growth of the mold. The Seller of the house had to hire a professional mold remediation company to completely gut the basement and treat the entire house.
In another instance the Purchaser and her Home Inspector turned on a shower in an upstairs bathroom. When they did so leaks sprouted from pipes all through the house. In the course of the inspection mold was discovered. Now the Purchaser knew why the water had been turned off when they arrived at the house: leaks and mold. In this case the Purchaser has moved on and decided not to buy the house. In the first example cited above, the Purchaser has not made a final decision on how to proceed.
As if the process of buying a home were not daunting enough, and the instance of purchasing a short sale or REO property complicated enough, this problem with poorly maintained and vacant houses brings yet another level of complexity to the homebuying experience.
Our advice to clients here at PHS: buy a regular old house that your Realtor finds on MLS with a Seller living there who needs to move. Pass up on those “deals” in terms of short sales and REO’s.
Short Sales: Not Such A Good Deal
Sunday, December 20th, 2009A “short sale” is basically a situation where a homeowner owes more to the Lender on their current mortgage than the house is worth. The owner cannot refinance and, due to circumstances, cannot afford to make the mortgage payment. As an alternative to losing the home to foreclosure, the homeowner negotiates with the Lender to accept substantially less on the mortgage than is currently owed.
For example, a homeowner owes $375,000 on a mortgage for a house that is worth maybe $325,000. The homeowner negotiates with the Lender to accept the lesser balance, the $325,000 minus any local closing costs and/or Realtor commissions. The Lender must agree to accept this lower balance.
Buyers think in the current market there are deals to be had in purchasing a “short sale” property. This may be the case, but the process to complete such a purchase can be daunting. First, the Buyer and Seller must come to a meeting of the minds on the purchase price. Second, a contract of sale is agreed to and signed by all parties. This contract is then forwarded to the Lender to encourage the Lender to agree to this amount as settlement of the outstanding mortgage debt on the property. The Lender must perform detailed due diligence to determine if the proposed amount from the contract will satisfy the Lender. This process is lengthy and includes detailed analysis of the current property values for the house in question. The Lender might perform an independent appraisal and may request opinions from local Realtors (called “Broker Price Opinions” or “BPO’s”) to arrive at a value for the home.
Where this gets difficult for potential Buyers is the process: this evaluation process on the part of the Lender can be lengthy, often stretching out for months on end. And, when all is said and done, the number acceptable to the Lender to settle the homeowner’s outstanding mortgage obligation might be substantially higher than the original agreed upon price in the contract of sale. Thus the potential Buyer might find they are being asked to pay more for the house, or, worse, may not qualify for mortgage financing for the higher purchase price. Meanwhile, the Buyer has committed substantial resources to the process of purchasing this home without the firm knowledge of a final price acceptable to the Lender. Those resources include the costs of mortgage applications, appraisal fees, attorneys’ fees, home inspection costs, and other costs incurred in the process of obtaining a mortgage commitment (which the purchaser must pursue with all speed and diligence according to the terms of the contract of sale). Market conditions may change, with interest rates rising or, worst of all, Underwriting conditions at Lenders drastically changing. In both instances, the potential Buyer may no longer qualify for mortgage financing even without the final price of the home changing through the Lender’s analysis process.
Beware when purchasing a home under short sale conditions. Ideally you’ll want to verify the short sale has already been approved by the Lender: you can get this in writing from the Lender through the homeowner’s attorney (usually the person negotiating the short sale in the first place). Absent such verification, you might find yourself being the “guinea pig” to test out the short sale price that ultimately will be acceptable to a Lender on any given home. If you like the idea of wasting your time and money on a potentially disastrous transaction that may never close under the terms you desire (that is, the “deal” you think you’re getting on this house!), then go on ahead and jump onto the short sale purchase bandwagon.
If you are a savvy Buyer, on the other hand, you’ll demand proof the short sale is approved (in writing) before you commit yourself to any such transaction. If you’re “smarter than the average bear” you might just go on out there and negotiate with a regular homeowner who’s not in trouble but truly wants to negotiate on price. There are plenty of regular homes out there that can be had at a great price: remember folks have things to do with their lives such as retiring or moving to larger (or smaller) homes and with the current market conditions, they may be very willing and eager to hear your offer even though it is substantially lower than the asking price. You won’t know unless you’re out there shopping and making offers.
In conclusion, be careful of the short sale phenomena. You might find you’re not getting such a deal after all is said and done. And with current market conditions there are plenty of homeowners who aren’t in trouble but have a stong need and desire to sell. They’re ready, willing and able to listen to your offering price and to negotiate with you. Now THAT’S the way to find a deal.
This Gal Knows Brooklyn!
Wednesday, December 16th, 2009If you are searching for a home or apartment in the Bed-Stuy, Clinton Hill and Fort Greene areas of Brooklyn, then Carolyn Romberg is your Realtor Supreme. We had the pleasure of meeting Carolyn this past weekend at an open house on Madison Street in Bedford Stuyvesant. WOW. This is truly a Realtor who knows her market—literally street by street and house by house. Further, this Realtor is a go-getter; she’s no-nonsense and wants to help Buyers and Sellers “meet minds” and get the deal going.
In the short time we spent with Carolyn it was obvious this charming and intelligent professional is eager to put folks together in the happiest of all transactions: a home sale/purchase! PHS Solutions Providers had the opportunity to prequalify several clients we met at the open house. When we contacted Carolyn to update her on the progress of her customers’ qualifications for mortgage financing, she answered her cell immediately (and in both cases, late in the evening!). When you speak with her, she uses language that’s affirmative and clear: she’s not going to waste your time, and she’s certainly not going to discourage you.
If you’re a Buyer, you want a Realtor who listens to your needs, then sets out to find the house that’s a match for your requirements and your price. If you’re a Seller, you want a Realtor who intimately knows the optimal market price for your home. As the old real estate adage goes, “If it’s Listed Correctly It Will Sell!” We feel that in Carolyn Romberg, both Buyers and Sellers will find exactly the kind of Realtor they will be well satisfied with.
Check out her website and give her a call. You’ll be glad you did.
The History of Homebuying: FHA Mortgage Loans
Sunday, December 13th, 2009The FHA is the Federal Housing Administration, a division of the United States Department of Housing and Urban Development (HUD). The FHA has been one of the single best ways for homebuyers to purchase a home since its inception in 1934 under FDR’s New Deal. At that time, the FHA was conceived as a method to convert a nation of renters into a nation of homeowners. To that end, and throughout it’s 75 year history, the FHA program has been spectacularly successful.
Today’s FHA guidelines continue to make the experience of homeownership more accessible to more people. The guidelines are designed in such a way as to provide Lenders with more flexibility. The FHA is an insurance program whereby the mortgage loan is insured by the United States government. Further, FHA is the only Federal agency that is totally self-funded; FHA does not take any taxpayer money!
Some of the many wonderful features of FHA Insured mortgage loans:
-Low downpayment requirements: 3.5% of the purchase price
-Purchaser’s can use more of their monthly income to qualify for a loan
-Downpayment can be 100% gifted by a family member or employer
-Credit score requirements are lower than for Conventional loans (as of this writing, 620 credit score is required)
-FHA Loans are fully assumable (subject to the new purchaser’s ability to qualify for the loan)
-A Seller can contribute up to 6% of a Purchaser’s closing costs. This is especially useful in the NY Metro region where closing costs average 6%. This allows a potential Purchaser to own a home with a substantially lower cash requirement than Conventional loans. (See Closing Costs In NY for more information about closing costs in NY)
1. Cash requirements lower: If a Purchaser obtains conventional financing with a 5% downpayment, the total cash required on a $475,000 Single Family purchase would be approximately $60,000 (downpayment, closing costs and 2 months PITI reserves). The same Purchaser using an FHA loan would need approximately $20,000 (3.5% downpayment; Seller can pay the Purchaser’s closing costs and no reserves are required).
2. FHA allows for a higher “Debt-To-Income” ratio. Also, FHA allows on a single family or condo that the Purchaser can have Non-Occupying cosignors from the Purchaser’s family assist in qualifying for the mortgage loan.
3. Credit scores lower: FHA does not have a credit score requirement. However, Lenders are permitted to overlay their own Underwriting criteria on FHA guidelines. Currently the credit score standard among most Lenders for an FHA loan is a minimum credit score of 620 (some Lenders go down to 580). For a Conventional loan with PMI (Private Mortgage Insurance) a Purchaser need have at least a 720 credit score.
4. Expanded Opportunity to Purchase: On any given day there are many people wishing to purchase a home who don’t have the money for a large downpayment PLUS closing costs. Living in New York is expensive. For the average New York family earning approximately $100,000 annually to save $60,000 is an extremely difficult undertaking considering the high housing expense and other high cost of living expenses. Saving a $20,000 downpayment is an easier exercise thus making the dream of homeownership more accessible.
5. After Purchase Marketability: The FHA Purchaser in today’s market is effectively locking in today’s interest rate for a future homebuyer in the resale of the home. For example, if a Purchaser of a Single Family home closed today at a 30year fixed rate of 5.000%, that purchaser/owner could conceivably resell the home seven years from now to a person who would assume the FHA loan at today’s rate. If rates are higher in the future, this makes for a more opportune marketing potential.
In conclusion, the FHA program surprises potential homebuyers with its accessibility. These are people who never thought they could own a home. Specifically to the New York market, given the high hurdles for potential purchasers to overcome with regards to credit and cash, the FHA program eases the path to homeownership.
More about FHA and where to find an approved FHA Lending Institution at The FHA Website.
Definitions: Appraisal Fees
Wednesday, December 9th, 2009Closing costs include all the fees a Buyer pays in the provess of purchasing a home. These may include the Home Inspection fee (Engineer’s report), Buyer’s Attorney fee, First year of Homeowner’s Insurance and the appraisal fee.
Today we’ll talk briefly about appraisal fees.
For FHA Loans, the Federal Housing Administration sets a schedule of acceptable fees an FHA Certified Appraiser may charge to appraise a home for an FHA Insured mortgage loan.
For a 1 Family home, for example, the appraisal fee can range from $350-450 depending upon the appraisal company, with $450 being the highest fee.
Appraisal fees are typically paid “up front” at time of application. The Lender must have an FHA Appraisal in order to make an decision on your loan application. Appraisal companies will not complete appraisal inspections and reports unless they have received full payment for the appraisal service they provide. As such, a Buyer should expect to pay this portion of your closing costs at the early stage of the loan application process.
Rainy Days In December
Wednesday, December 9th, 2009Holiday time is upon us, and, while it may not be snowing here in New Rochelle this morning (it’s POURING RAIN!), still there is the holiday spirit in the air.
There’s something to be said about rolling out your door to your car parked in your very own driveway on a day like today. You don’t have to go running down the block in the rain looking for where you parked your car last night, dodging splashes from the other cars on the street all the while. No, when you own your own home, what you do instead is pop out the side door of the house, usually right by the kitchen where the smell of the morning cofee still hangs fresh in the air, and you hop into your car parked right outside your door. If you have a house with a garage, better still. No rain, and certainly no snow to wipe off the car as you back the car out of the garage and make your merry way to work.
The benefits of homeownership can’t be beat, especially on a nasty, gray and rainy (or snowy, depending upon where you are) day in December. You can get to that ideal place for the Holidays today, easier than ever with an FHA mortgage. And next year, Uncle Sam will give you a belated Christmas present: an $8,000 refundable tax credit (that’s CASH!) for First Time Homebuyers!