Tag Archives: finances

Understanding Foreclosure

Understanding Foreclosure

It is an unfortunate commentary, but when economic activity declines and housing activity decreases, more real property enters the foreclosure process. High interest rates and creative financing arrangements also are contributing factors.

When prices are rapidly accelerating during a real estate “bonanza”, many people go to any lengths available to get into the market through investments in vacation homes, rental housing and “trading up” to more expensive properties. In some cases, this results in the taking on of high interest rate payments and second, third and even fourth deeds of trust. Many buyers anticipate that interest rates will drop and home prices will continue to escalate. Neither may occur, and borrowers may be faced with large “balloon” payments becoming due. When payments cannot be met, the foreclosure process looms on the horizon.

understanding foreclosuresIn the foreclosure process, one thing should be kept in mind: as a general rule, a lender would rather receive payments than receive a home due to a foreclosure. Lenders are not in the business of selling real estate and will often try to accommodate property owners who are having payment problems. The best plan is to contact the lender before payment problems arise. If monthly payments are too hefty, it may be that a lender will be able to make some alternative payment arrangements until the owner’s financial situation improves.

Let’s say, however, that a property owner has missed payments and has not made any alternate arrangements with the lender. In this case, the lender may decide to begin the foreclosure process. Under such circumstances, the lender, whether a bank, savings and loan or private party, will request that the trustee, often a title company, file a notice of default with the county recorder’s office. A copy of the notice is mailed to the property owner.

If the default is due to a balloon payment not being made when due, the lender can require full payment on the entire outstanding loan as the only way to cure the default. If the default is not cured, the lender may direct the trustee to sell the property at a public sale.

In cases of a public sale, a notice of sale must be published in a local newspaper and posted in a public place, usually the courthouse, for three consecutive weeks. Once the notice of sale has been recorded, the property owner has until 5 days prior to the published sale date to bring the loan current. If the owner cures the default by making up the payments, the deed of trust will be reinstated and regular monthly payments will continue as before. After this time, it may still be possible for the property owner to work out a postponement on the sale with the lender. However, if no postponement is reached, the property goes “on the block”. At the sale, buyers must pay the amount of their bid in cash, cashier’s check or other instrument acceptable to the trustee. A lender may “credit bid” up to the amount of the obligation being foreclosed upon.

With the recent attention given to foreclosure, there also has been corresponding interest in buying foreclosed properties. However, caveat emptor: buyer beware. Foreclosed properties are very likely to b e burdened with overdue taxes, liens and clouded titles. A buyer should do his homework and ask a local title company for information concerning these outstanding liens and encumbrances. Title insurance may or may not be available following a foreclosure sale and various exceptions may be included in any title insurance policy issued to a buyer of a foreclosed property.

This article is by California Title Company and Cam Hunter.

More questions? Need help with your property being foreclosed on?  Please, call me and let me help!

John A. Silva, Realtor

(619) 890-3648 | www.JohnASilva.com

Low Rates, High Obstacles to Refinancing Mortgage

As interest rates have slid over the past couple of years, Gabriel Bousbib of Englewood, N.J., refinanced his 15-year mortgage not once, but twice-cutting his interest rate in two steps from about 4.6 percent to 3.375 percent.

He’s one of a number of homeowners who refinanced just a year or two ago, but decided it was worth considering again as mortgage rates hit record lows-now averaging around 4 percent for a 30-year loan.

refinancing your home“When you’re quoting rates in the high 3s, people are saying, ‘It’s worth it to me,'” says Steve Hoogerhyde, executive vice president at Clifton Savings Bank.

“My monthly savings are going down a few hundred dollars; it adds up over 15 years,” said Bousbib, a financial services executive. “And if rates keep going down, I would refinance again.”

Refinance applications have more than doubled over the past year, though they’re not as high as in previous refinancing booms because it’s harder to qualify in the current atmosphere of tighter credit standards, according to the Mortgage Bankers Association. With the volume of home purchases still low, refinancing accounts for about 80 percent of recent activity.

Although the old guideline used to be that you should consider refinancing only when rates drop at least 2 percentage points, the new wisdom is that it can be worthwhile even with smaller drops.

“For most people, if you can shave three-quarters of a percentage point off your interest rate, it’s worth looking at,” says Greg McBride, an analyst with Bankrate.com, a personal finance website.

For homeowners who plan to stick with the same loan term and want to lower their monthly payments, the math is straightforward. Find out how much it will cost to refinance, figure out how much you’ll save each month and then how long it will take to break even. If you can save enough to offset the refinancing costs within a year or two-or even longer if you expect to stay in the house for a number of years-it’s worth considering.

Though low-interest rates are eye-poppingly low, the refinancing climate has changed from the easy-money days of five years ago. Generally, to get the best rates, homeowners need a 740 FICO credit score, well above the median score of 711. They also usually need at least 10 to 20 percent equity in the property. A recent expansion in the federal Home Affordable Refinance Program should allow refinancing this year by more so-called underwater borrowers – those who owe more than their homes are worth.

Lenders are also demanding much more documentation – including pay stubs, tax returns and bank statements – than they did five years ago, at the insistence of government regulators as well as Fannie Mae and Freddie Mac, which buy mortgages from lenders.

“You have to have a taste for doing paperwork,” says Keith Gumbinger of HSH Associates, a Pompton Plains, N.J., company that tracks mortgage data. “You’re going to be asked for lots of documents. No one loves the process to begin with, and in today’s environment, it’s even less palatable.”

These stricter requirements are simply a return to the kind of underwriting standards that prevailed before lending standards slackened a few years back, leading to the housing bust and foreclosure crisis, McBride says.

“We’re in this mess because money was too easy to get,” he says.

Refinancing costs roughly $3,000, according to several mortgage companies. That covers costs like an appraisal, title insurance, application fees, attorney’s fees and recording the mortgage. Some lenders also offer low- or no-cost options, which they can do by either adding the closing costs to the mortgage amount or charging a slightly higher interest rate.

Bousbib, for example, took a no-cost refinance with Equity Now, a New York-based lender that also lends in New Jersey. “It didn’t cost me a penny,” he says. Equity Now says it charges a slightly higher interest rate on no-cost loans.

Lowering the monthly payment is not the only reason people are refinancing. Many are shifting from a 30-year loan to shorter terms, said Matthew Gratalo of Real Estate Mortgage Network in River Edge, N.J. He has worked with clients in their 40s who hate the thought of carrying a mortgage into retirement.

“They’re looking ahead and saying, ‘I don’t want to pay a mortgage forever; can I get this done in 15 years? Can I be done with this and have it paid off?’ ” Gratalo says.

“Certainly shortening the term makes a lot of sense because you can cut years of mortgage payments,” says Carl Nielsen of Mortgage Master Inc.’s Wayne office.

Nielsen, for example, recently talked to a customer with a $375,000, 30-year mortgage at 4.5 percent. The customer is considering a 20-year mortgage at 3.75 percent. His monthly payments would go from $1,900 to about $2,223, but by shortening the life of the loan, he’ll save more than $150,000 in interest payments.

“That’s kind of a no-brainer,” says Nielsen.

Sources: Greg McBride, Bankrate.com ©2012 The Record (Hackensack, N.J.), Distributed by RISMedia and MCT Information Services.

Cash is king in today’s housing market

In these financially uncertain times in the housing market, all-cash sales are attractive offers to homesellers, but come with a condition–they usually must settle for less. In a typical housing market, if your home receives multiple offers (from prospective cash-carrying and/or those pre-approved for a loan), you will accept the highest bid.  But in this current market, mortgages can be hard to come by, and sellers often will take less in order to have the deal go through. 

The outcome: lowering prices despite fewer listings and rising demand.  According to the Star Tribune’s article below, the increased amount of cash offers is offsetting other postive trends that, if there weren’t these cash offers, should lead to higher prices.

All-cash offers in today's real estate marketThis all-cash trend is especially prevalent in distressed sales, where investors are the main buyers, and who typically deal with cash as it is. Short sales and foreclosures accounted for 42% of active listings last month, on average in metro areas. Read more about what the Star Tribune has to say on this topic in their article below:

In today’s topsy-turvy housing market, cash rules

Financing uncertainties make those cash offers alluring, but sellers often must settle for less money to guarantee a deal.

When Chris and Diane Finney decided to buy a bank-owned condo in St. Paul, they knew there would be competition.

Their strategy? Offer less — but offer cash.

While others said they would pay more, they needed to finance the deal. The bank took less and took the cash.

“We were in the driver’s seat,” Chris Finney said.

In a normal housing market, multiple bids usually lead to higher home prices, and the highest bid wins. But when credit markets are tighter and appraisals are often lower, many sellers will take less to be sure that the deal will get done.

“If I get five offers on a property and the cash offer is darned close to being one of those top offers, I’d take the cash offer any day,” said Marshall Saunders, owner/broker at Re/Max Results.

In December, 33 percent of all U.S. home sales were cash deals — a record since the downturn started in 2006, according to Campbell Survey and Inside Mortgage Finance. As a result, home prices can’t gain much traction because many sellers won’t necessarily accept the highest offer.

For most home buyers, it’s confounding to be rejected because they are financing the deal. For the housing market, it means more downward pressure on prices despite tight supplies and rising demand.

“It’s a real sign of what’s going on,” said Guy Cecala, publisher of Inside Mortgage Finance. “All things being equal, cash wins.”

The volume of cash deals is offsetting other positive trends in the market that should be leading to higher prices. The number of houses on the market has fallen to an eight-year low, and sales are up double digits. At the same time, home prices continue to fall.

At least a third of all homes sales last year involved an investor, Cecala said, and they often pay cash…

Read more of this article from the Star Tribune: “In today’s topsy-turvy housing market, cash rules.”

Guest Post: Managing your finances before homeownership to save your home from a foreclosure

Managing your finances before homeownership to save your home from a foreclosure

Are you planning to purchase a new home? If yes, you have to buck up your finances so that you don’t fall in trouble in the near future and then risk losing your home to a forced foreclosure. Managing your finances is the most important job that you have to do when you plan to take out a home mortgage loan from a bank. The mortgage loan entails your home as collateral so that when the borrower defaults to make the payments on time, the lender can foreclose the house and recuperate the money. How much house can I afford is the most important question a borrower should ask himself before taking the plunge. Here are some important steps that you should take in order to manage your finances once you plan to take out a home loan.

  • Stop all the unnecessary expenses: Whenever you contemplate buying a new house and forget paying further rent, you should stop making all the unnecessary expenses that you can do without. If you don’t read magazines, stop the monthly subscriptions to magazines. If you can cook well, stop dining out every weekend as this will save your dollars in the long run. You can even do without the cable connection at home. If you can build an emergency fund, you can easily take out a mortgage loan at an affordable rate.
  • Stop using your credit cards: Are you aware of the fact that the mortgage lender will check your DTI ratio or the debt-to-income ratio that is the ratio between the total monthly debt obligations with your monthly income. If you keep on purchasing things with your credit cards, you’ll drown in unsecured debt and thereby be forced to take out a home mortgage loan at an unaffordable interest rate. Therefore, stuff your wallet with cash so that you may stop buying things when you’re exhausted.
  • Save enough money: Yes, this is the ultimate secret that will take you to the path of a smooth mortgage loan approval. The mortgage loan underwriter will check the amount you’re paying down while taking out the loan amount. The more you pay down, the lower will be the rate offered to you. You should save enough money so that you can at least pay down 20% of the loan amount and avoid paying PMIs later on.
  • Keep track on your credit score: Don’t take any wrong step that can hit your credit score. Pull out a copy of your credit score time to time so that you know where you stand financially. Repair your credit as much as possible so as to grab the best mortgage loan at the most covetable cost.

When you’re dreaming of homeownership, make sure you follow the money tips mentioned above. By taking all the tips mentioned above, you can get the most appropriate loan in accordance with your affordability. Don’t forget to ask yourself “how much house can I afford” before taking out the loan.

San Diego timeshare owners beware!

Are you in the timeshare business?  There’s been an increased awareness by the San Diego division of the FBI, which sent out a warning to San Diego timeshare owners. 

bbbApparently, timeshare scammers are becoming somewhat of a problem in San Diego county, with some unsuspecting timeshare owners being conned “out of millions of dollars by unscrupulous companies” (Union Tribune San Diego).  According to the county assessor’s office, there are more than 72,000 timeshare properties–making San Diego a huge lure to these scammers.

Be aware of potential scammers–these con artists will typically approach you without solicitation, and offer to sell or rent your properties quickly.  But to do so, they require an upfront fee for services–a huge red flag.  Once they have your money in hand, they tend to disappear without providing the offered services. 

Some tips to avoid being scammed:

  • Be cautious if you’re asked for an up-front fee before they do any work
  • Read the fine print on their sales contracts and rental agreements
  • Check with the Better Business Bureau to see if the business is reputable

This information is from the Union Tribune San Diego; read the original article here: “Scammers prey on San Diego timeshare owners.”

November 2011’s Market Condition

Existing-Home Sales Continue to Climb in November

Existing-home sales rose again in November and remain above a year ago, according to the National Association of Realtors. Also released today were periodic benchmark revisions with downward adjustments to sales and inventory data since 2007, led by a decline in for-sale-by-owners.

Lawrence Yun, NAR chief economist, said more people are taking advantage of the buyer’s market. “Sales reached the highest mark in 10 months and are 34 percent above the cyclical low point in mid-2010, a genuine sustained sales recovery appears to be developing,” he said. “We’ve seen healthy gains in contract activity, so it looks like more people are realizing the great opportunity that exists in today’s market for buyers with long-term plans.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 3.99 percent in November from 4.07 percent in October; the rate was 4.30 percent in November 2010; records date back to 1971.

NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said housing affordability conditions have set a new record high. “With record low mortgage interest rates and bargain home prices, NAR’s housing affordability index shows that a median-income family can easily afford a median-priced home,” he said.

“With consumer price inflation rising by more than 3 percent this year, consumers are looking to lock-in steady payments by taking out long-term fixed-rate mortgages. However, the problem remains that some financially qualified families who are willing to stay well within their means are being denied the opportunity to buy in today’s market by the overly restrictive mortgage underwriting situation,” Veissi said.

Source: National Association of Realtors

Six must-haves for mortgage approval

Interest rates are hovering around historical lows, and low interest rates increase affordability, making it easier for buyers to qualify. Yet stories of buyers waiting months to gain loan approval and home purchase transactions not closing on time due to lender’s strict underwriting are all too common.

Some buyers are turned down for illogical reasons. For instance, if you have investments — even if they’re performing well — an underwriter might deny the mortgage because your portfolio doesn’t fall into the underwriter’s risk assessment model.
checklist
One couple was turned down because the husband had worked at his current job for less than a year — even though he was making more money at the new job than he was before.

These buyers were well-qualified. The wife had worked several years for one employer and was able to qualify for the loan on her own. So, the transaction closed, although two months late.

Generally, it’s more difficult to qualify now than it was a year ago. Most conventional lenders require a 20-25 percent down payment. For the lowest interest rates, your credit scores need to be in the 700 range. You need to have verifiable income and cash reserves in addition to your down payment and closing costs.

You could run into underwriting problems if you’re self-employed, as W-2 income is much easier to verify. Other hurdles are lapses in employment and owning a lot of property. Some lenders won’t lend to buyers who have more than three or four residential properties.

If you’re buying a new home before selling your current home, you’ll need to have 30 percent equity in your current home. This needs to be verified by the lender’s appraiser. Also, the lender will want to see a copy of the cashed check from the tenant for the first month’s rent to verify rental income if needed to qualify.

HOUSE HUNTING TIP: As soon as you’re serious about buying a home, find the best mortgage broker or loan agent you can to assist you. Don’t make your selection based on interest rates alone. A good track record counts for a lot.

Closing the deal should be your primary goal. If you have to pay 0.25 percent more to assure your transaction closes on time and that you’re not turned down at the last minute, it’s worth it.

Be candid with your loan professional about anything in your financial picture that might impact loan qualification. A good loan agent or broker will be able to assess your financial situation and anticipate what you’ll need to do to satisfy the underwriter.

Be aware that appraisal issues can impact your loan approval. For example, if a previous owner added square footage without a building permit, the additional square footage probably won’t be included as livable square feet.

If the appraisal comes in for less than the purchase price, the lender might not lend you enough to close the deal. Include an appraisal contingency in your contract.

There are more jumbo financing options available now. Adjustable-rate mortgages that are fixed for 10 years and then revert to an adjustable have a starting rate about 0.25 percent less than a 30-year fixed jumbo. A five-year fixed starts about 0.5 percent to 0.75 percent lower, but is riskier.

THE CLOSING: Because of the risk factor, the lender may want you to have a large cash reserve. Your retirement account counts toward this.

Dian Hymer is a real estate broker with more than 30 years’ experience and is a nationally syndicated real estate columnist and author.

How to bargain shop for mortgages

Shoppers, I bet many of you scoured the Sunday ads and bounced to several stores for deals over Thanksgiving weekend.

What if you applied that same effort and vigilance to shopping for a new home loan or refinance? That same attention to detail could translate into hundreds to thousands of dollars in savings over time.

“People think nothing about going to many different stores to buy a toaster or oven or dishwasher,” said Norma Garcia, attorney at Consumers Union, publisher of Consumer Reports magazine. “They just don’t shop for (home) loans the same way they shop for other products, but they ought to.”

Consumers likely are more comfortable comparison-shopping for microwaves than mortgages because the home-loan process can be cumbersome, with reams of paperwork, unfamiliar jargon, and of course, the rush to close and move to a new place.

The U.S. government is working to make the process easier. Since May, officials have been trying to simplify and combine two required forms that show would-be borrowers their final loan terms and costs before closing. The “Know Before You Owe” campaign, spurred by sweeping financial reforms in 2010, has produced two drafts of the merged documents that are still in testing phase…

FORMS TO KNOW

This gives you an approximation of what you may owe at closing. It lists the basics including loan amount, interest rate and potential penalty costs. The form also shows you different loan scenarios to illustrate whether it would make sense, for instance, to buy points upfront to reduce your interest rate. (One point typically equals 1 percent of the loan’s value, or $1,000 for each $100,000 borrowed.) Click here to see the whole form

 

FORMS TO KNOW

You get this at the closing table. The form lists every single expense and credit involved in the transaction. Click here to see the whole form

 

You also get this at closing. The document breaks down how much you will owe in a different way. Perhaps the most important detail is the annual percentage rate, which rolls in all of your costs and is defined by HUD as the “true cost” of a loan. Click here to see the whole form

TO-DO LIST BEFORE CLOSING

• If there’s a line item you don’t understand in any of the forms, ask about it.

• Scan for hidden costs. Third parties get proceeds from loans in the form of fees and commissions, said Norma Garcia, attorney at Consumers Union, publisher of Consumer Reports magazine.

• Know who’s going to service your loan. The holder of your loan can sell the loan to anyone, but they have to disclose the percentage of loans that are sold. “If you choose to go with that lender, just know that may not be the person you’re dealing with down the line,” Garcia said.

• If you sense your lender isn’t being upfront or answering your questions, find someone else. It may take interviewing two to three people to find the right lender.

• Get a second opinion on your loan documents from HUD-approved counselors at little or no charge. But be sure to do this before closing. For San Diego, you can call the Housing Opportunities Collaborative at (619) 283-2200 or (800) 462-0503. Someone will direct you to the right agency.

• Don’t sign anything unless you understand it.

Read the whole article by SignOnSanDiego.com here: “How to Bargain Shop for Mortgages“.