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Four steps to buying a house in 2012

Q: I am on a mission to buy a home. I’ve wanted to own a home my entire life, and thought I would miss the opportunity to buy while the market was down, because I had no real savings when the market crashed. I think I’m ready, though, and prices still seem low. What should I be doing now to make this happen in 2012?

A: The recession has done lots of favors for buyers-to-be, including dropping prices and interest rates to bargain levels. But it has also created a lending and housing market climate in which loans are tough to get, tensions about buying into a down market run high, and transactions are harder and longer to close than they have ever been.

Here are the things to do now, to buy a home this year:

1. Fix credit problems. More deals than ever are dying on the vine, and credit problems are a top reason home-sale transactions fall out of escrow. Detect and correct errors on your credit report now by reviewing the federally mandated free reports you can get at AnnualCreditReport.com.

2. Study up. Do some research, both online and offline, into things like:

Areas: Start your online research into decision points like tax rates, school districts, neighborhood character and even prices in various areas. Check out NabeWise.com for some local insight into neighborhood flavor and personality.

When you start connecting with local agents, ask them to brief you on neighborhood market dynamics. They can give you a deeper view into need-to-knows like how long homes typically stay on the market and whether they generally go for more or less than the asking price, so you can be smart about how you search vis-à-vis what you have to spend.

Agents: This is the perfect time to ask your family and friends for a referral to an agent they know, have used and love. Then, follow up by doing an online search for the agent’s name and seeing what sort of online reviews and activities you find. When you’ve narrowed the field down to a few, call them up and set up a meeting to find out if you’re a good fit.

Distressed properties: In some areas, more than 40 percent of the homes on the market are short sales and foreclosures, and they involve a very different timeline and set of facts than traditional home sales. Read up and talk with the agent candidates you interview about what you should expect from these types of listings, to minimize surprise and manage your expectations way in advance.

3. Save even more. Sounds like you’ve worked hard for a number of years to save enough cash that you think you’re in the clear when it comes to funding your down payment and closing costs. Studies show that after months of saving, people often let up and relax into a spending season. Even at your early stage in the process, it’s easy to start noticing and buying the furnishings and touches you want to install in your new home.

Although you shouldn’t feel deprived or forgo amazing and affordable deals on things you know you’re going to need, rest assured that no matter what amount of cash you have on hand, when you start house hunting, making offers, closing your transaction or moving in, the time will definitely come when you’ll wish you had more.

You might want to ratchet up your offer a bit to best another buyer, or you might just end up with a place that needs a little sprucing up. It might be months before you know exactly what you’ll need extra cash for, but now is not the time to press the gas pedal when it comes to your monthly spending.

4. Purge. Now’s the time to sell, donate or give away as much of your personal possessions as you can. Use the proceeds to pad your cash cushion, or tuck the donation receipts away for your tax records next year.

Start here, and chances are good that your house hunt — and purchase — will be in full swing by spring, if not sooner.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.

Payment calculator

If you’ve been shopping around for a home to buy, it can be difficult to know what price range to stay in.  Unfortunately, you cannot look just at the sales price as the total amount you will be paying over the years; you must also calculate in the loan and interest rate on the mortgage to figure out the monthly and yearly amount you will be paying.  Want a quick way to figure that all out?  You can use this easy calculator below; just click on the picture to be directed to it.

payment calculator

Obama casts lifeline to underwater homeowners

With interest rates at record lows, any homeowner with good enough credit and enough equity to can lower his or her mortgage payment by refinancing the loan.

But that option isn’t available to millions of “underwater” homeowners — people who bought their homes at or near the top of the home-price bubble, only to see their homes’ value drop below the amount they owe after home prices collapsed.

Now, the Obama Administration has unveiled a plan that will let some homeowners refinance their mortgages — and take advantage of lower interest rates — even when they owe more than their home is worth.

Among the provisions will be a measure increasing loan amounts made above the value of the home. The program is being offered under the federal government’s two-year-old Home Affordable Refinance Plan, the Federal Housing Finance Agency announced today.

Currently, the ceiling for refinancing a loan is 125% of a home’s value — for example, a $125,000 mortgage on a home worth $100,000. That ceiling would be removed for fixed-rate mortgages backed by Fannie Mae and Freddie Mac, the FHFA statement said.

Typically, you can only refinance your loan and take advantage of lower interest rates if your home is worth more than the amount you owe. After all, lenders need to have enough collateral in the home to pay off the mortgage if you stop making payments.

This has been a bind for many underwater borrowers who managed to make payments until now, but have been unable to take advantage lower rates. And being able to refinance may help many avoid foreclosure — and reduce housing’s drag on the overall economy.

According to news reports, the new plan likely will help 600,000 to 1 million borrowers refinance their mortgages. MSNBC reported, however, that is only a fraction of the estimated 11 million homeowners who are underwater.

FHFA said that details about the program should be released by Nov. 15.

But highlights include:

  • Eliminating fees for borrowers who refinance into shorter-term loans (for example, converting a 30-year loan into a 15-year).
  • Eliminating the need for a new property appraisal where there is a reliable computer-generated value estimate.
  • Waiving warranties that lenders make on loans sold to or guaranteed by Fannie Mae and Freddie Mac — so Fannie and Freddie won’t force them to buy back loans that go bad.
  • Removing the current ceiling that limits eligibility to those who owe a maximum of 25% more than their home is worth.

Two local mortgage brokers hailed the proposal as a way to help both homeowners and the overall economy.

Paul Scheper, regional manager of Greenlight Financial in Irvine, said the plan will provide a “snorkel” for underwater homeowners with good incomes and credit scores.

“Such a measure would boost the hopes of the homeowner while reducing the credit risk via lower payments of the bank,” Scheper said. “It also helps the economy because this frees up additional funds to inject back into the economy. It’s a classic Win-Win-Win.”

The best news is no appraisal and nominal underwriting rules, added Laguna Niguel mortgage broker Jeff Lazerson.

“There is a great chance each participating borrower is going to save hundreds of dollars per month on his or her house payments,” he said.

Lazerson said the program will encourage more lenders to participate because FHFA essentially promised lenders that Fannie and Freddie won’t have recourse if these loans go bad. That, he said, will increase price competition among lenders.

Lazerson believes the program will be “the single greatest program” to stabilize the housing market.

“Fewer homeowners will be mailing their keys back to their lenders,” Lazerson said. “Next thing you know, we’ll actually be spotting buyers at weekend open houses again.”

Here’s more on the proposed refinancing plan …

This article is from the Orange County Register: Obama casts lifeline to underwater homeowners

How to take advantage of a short sale

If you’re shopping for a home with a bargain-basement price, a short sale could be the answer.

This is where a lender allows borrowers who can’t keep up with the mortgage payments to sell their home
for less than they owe on the property. The bank or mortgage company takes whatever you pay to purchase
the home and forgives the remaining debt.
Short Sale
How low can you go and still expect a lender to approve the deal?

Lenders usually will accept offers that net at least 82% (after expenses) of the home’s  current fair market value, regardless of what the borrower owes, says Tim Harris, co-founder of Harris Real Estate University in Las Vegas.

Why would a lender do that?

Because it will lose less by allowing a short sale than by going through a foreclosure.

Taking advantage of a short sale is less risky than buying a foreclosure, because so many repossessed homes need tens of thousands of dollars’ worth of repairs. The worst of the bunch have been deliberately vandalized by angry owners just before they were evicted.

Here are 4 smart moves for buying a short sale property:

Smart move 1. Make sure you’re a good candidate for a short sale.

Short sales are all about presenting the lender with a deal it can’t refuse. Banks and mortgage servicing
companies are most likely to approve buyers that:

•  Have a substantial down payment.

•  Have been preapproved for a mortgage.

•  Place no contingencies on their contract, such as having to sell their current home before
proceeding with the purchase.

Smart move 2. Hire a real estate agent who’s experienced in short sales.

You need someone who can steer you away from short sales that aren’t likely to succeed.

Vincent Bindi, a real estate broker for ShortSalesASAP in Orange County, Calif., says your real estate agent should interview the listing agent to determine whether the seller has done everything that’s needed to win lender approval.

You need to know whether the home has been aggressively marketed — the bank won’t like it if the seller hasn’t made a good-faith effort to get a reasonable bid — and whether the bank has received a broker’s price opinion, which it will use to determine the home’s market value.

Smart move 3. Offer the right price.

Short sales aren’t the time or place to do a lot of dickering.

Lenders don’t have the time or staff to evaluate an endless bunch of bids, each a little higher than the last. If you deliberately lowball a bank or mortgage company, it will just write you off as a waste of time.

You need to come up with a cheap but reasonable offer, which the bank or mortgage company will accept, in one try.

Start by estimating the fair market value of the home for yourself, using comps (values of comparable properties that have sold near the home in the past few months).

Take the condition of the home into account and reduce your estimate if the home needs repairs. It’s a buyer’s market, and you don’t have to treat a fixer-upper like it’s in pristine condition.

Calculate 82% of the home’s value, throw in a few thousand dollars to cover the lender’s cost of doing a short sale (ask your agent what that typically is for your area), and you have a good starting point.

Now look at the quality of your comps.

If they’re straightforward deals, and the homes spent at least three or four months on the market, then you’re good to go.

But if all of the comps are foreclosures that sold within a few weeks of hitting the market, you’ve got to assume those were damaged homes being dumped at fire sale prices.

You’ll have to adjust your offer upward, perhaps all the way to the full fair market value calculated with those comps.

Check how close your offer is to the asking price on the home. Remember, the sellers won’t get any of the money, so they have no incentive to demand an unreasonable price.

They’re just trying to find a price you’ll pay, and the bank will accept, to relieve them of their debt.

If you’re close, then you’ve probably come to the same conclusions as the sellers and their real estate
agent.

If not, then your agent needs to have another talk with their agent to find out why.

Smart move 4. Be patient.

It almost always takes longer to close a short sale, because it takes so long for lenders to review and accept
your proposal.

We’ve heard of deals closing in as little as five weeks when the lender has preapproved the short sale and asking price and you agree to meet that price.

But that rarely happens.

Most sellers don’t seek the lender’s approval for a short sale until they have a signed purchase contract in hand. (Here’s a step-by-step look at what sellers must do to complete a short sale.)

More often than not, it takes two to four months to get a “yes” or “no” from the bank or mortgage servicing company.

Although lenders say they’re trying to process these requests more quickly, there still aren’t enough loss mitigation specialists to deal with the rising demand for short sales, and we’re not seeing a big improvement.

By Bonnie Biafore  |  Interest.com Contributing Editor

Mortgage Modifications are a Mess

You have probably heard about the robo-signing fiasco and the fact that mortgage modifications are grinding to a standstill. We’re also seeing foreclosures occur after a modification has been approved–even occasionally when borrowers have the ability to make the payments. The whole process is a mess, and according to a top federal regulator, major U.S. banks are about to be penalized for “critical deficiencies” and shortcomings in their handlings of foreclosures.

One of the problems is that it is in loan servicers’ best interest to stall a foreclosure or modification.  This is because they can continue to charge fees while they’re servicing the loans. They charge fees for paying taxes, sending payments to the investors after receipt from borrower, maintaining records, etc.–and those “nickels and dimes” add up.

Having gone through the modification process firsthand, I can confirm that the process is daunting at best. The most painful part was when I had to pay 11% interest on my $400,000-first mortgage when the loan was adjusting at one point; only to have the bank tell me (on multiple occasions over a three-year period) that I either made too much money…or not enough. I went to court to stop a threatened foreclosure, but I still had to pay the ridiculous interest until my modification was approved.

While I won the victory of a modification, every situation is different. Like probably many of you, I’m still upside-down on the property, but at least I’ve lowered my payments while I await the market’s recovery.

In the interim, the Controller of the Currency and Federal Deposit Insurance Corp. has put sanctions on the banks, as I mentioned above, but the sanctions barely amount to a slap on the wrist. The reality is that the regulating agencies have a history of negatively impacting borrower’s rights rather than protecting them. So where does this leave you if you are fighting to keep your homes?

My personal experience has inspired me to grow my expertise in this area so that I can help others. No American should be subject to the whims of the system, and no American family should lose their home because of the negligent practices of a third party. If you need help fighting through the process, give me a call. I’ll stand by your side.

John A Silva
www.johnasilva.com
619-890-3648