Short Sales Growing in Popularity

Short Sales can save borrowers that are underwater as long as everyone agrees. Short sales are for homeowners that want to avoid foreclosure or for those looking for a great bargain, if all goes to plan.

Short sales are transactions in which borrowers owe more on their mortgages than their homes are worth, known as underwater, where the lending company agrees to a discounted payoff. In San Diego County 18.7% of the home resale market for the month in June was short sales, which is up from 2% we saw five years ago, states local real estate tracker DataQuick.

Short sales are growing, however, the process of the closing take time, is uncertain, and changes all the time, which can hinder interested parties.

Kurt Wannebo, a San Diego broker that has over 6 years of experience in short sales stated, “Short sales are changing all the time,” and went on to say, “The banks change their processes all the time … and there are new laws and new short-sale government programs.”

A new state law that was signed in July is meant to help protect short sellers may make the process even longer, more uncertain, and cost the seller more.

Who should use a short sell?

In most cases, those that opt for a short sell are ones that can no longer afford their mortgage and want to walk away as their investment is no longer there.

Shelia Brady and her husband purchased a condo in Rolando for $285,000 in 2004; the condo is now in escrow being sold as a short sale for $120,000. The couple not only lost value but also was behind on their house payment due to surgery that stopped her from working for 2 ½ months while her husband has been unemployed for 2 years.

Why would this couple use a short sell instead of letting the foreclosure process take over?

“You have such a strong moral obligation toward your mortgage,” Brady said. “You sign a document saying, ‘I will do this.’ ”

Greg Ives, 33, purchased a downtown San Diego condo at the Hard Rock Hotel to be used as a rental investment for $405,000. The value on the property depreciated and the amount he could charge for rent depreciated. Once he paid his mortgage, he found he was $1,000 under for several months. He filed for a secure loan modification but was denied, he then decided on a short sale. After five long months, the deal closed. He still owes the lending company and will have to pay $340 per month for the next ten years. He stated that his best option was a short sale. “I’m grateful to be done with it,” Ives said.

For any questions regarding selling your property via a short sale or if you are interested in a buying a short sale property, contact one of our expert real estate agents in the San Diego area.

How to Raise a Credit Score

Millions of Americans are now among the list of those with falling credit ratings due to house prices falling, foreclosures, bankruptcies, and long-term unemployment. There are a few factors that will affect your credit rating along with the steps to improve your rating.

Bankruptcy – both Chapter 13 or 7 – is the worst thing that can be placed on your credit report and once it is there it will take somewhere between 7 to 10 years to fall off the report. If you are involved in a foreclosure, deed-in-lieu, tax lien, or short sale, this will also lower your credit score. If you are in a rough patch and you are pay a bill thirty days late your credit score will drop quite a bit and if the payment is 90 to 120 days late you will notice a larger decline.

In order to improve your credit rating, you need to pay your bills on time. The last two years reports are the most important which will be calculated as 35 percent of your credit score. Do not apply for credit if it is not absolutely necessary. This will also lower your credit score, as it is a sign that you are taking on more debt.

When you have credit cards or other forms of credit, do not use more than 50 percent for any current account as well as focusing on reducing the credit card balances before paying off the installment debt such as car loans and student loans. Credit scores track the oldest account along with the average age of all the accounts combined. Longer credit history will help raise your credit score, so do not close out accounts that have a long history, as they are the most important.

The credit scored is a fluid number that changes often. Consider using an online credit monitoring service that will provide you with access to your credit score and credit history at any given time.

What Are Discount Points?

If you want a lower interest rate, you can pay fees to a lender to buy a lower interest rate with the fees known as discount points and the process called a rate buydown. The result will be a lower mortgage payment each month for the life of the loan.

One point is equal to 1% of the amount of the loan, which will be paid at closing. This means if your loan is $150,000, the fee would be $1,500. In the majority of cases, one point will lower the interest rate somewhere between .25% to .375%, according to the type of loan you are getting.

If you are wondering if it is a good idea for your customers to purchase discount points, a few factors need to be considered. If your customer is only planning to be in the home for under four years, will refinance in a few years, or is applying for an adjustable rate mortgage it is best to stay away from discount points.

Discount points are normally a great idea if the family buying the home wants to live in the home for at least five years and does not have any plans to refinance for several years into the future.

When discussing discount points with the home buyer it is a good idea to show them a break even analysis. The way you do this is by calculating the mortgage payment they will pay each month without any points; next take away the mortgage payment they will pay monthly. The difference is the money they will save. Now, divide the cost of the discount points by the money they will save and the answer is the number of months it will take for them to break even.

Another great factor of discount points is that as long as they were used to purchase residential property they can be deducted from the taxes in the year the home buyer pays the fees. Discount points are also available during refinancing and are deductible over the life of the loan. Of course, the home buyer should speak to their tax advisor to learn more about the deductibles associated with discount points.

Using Renovation Loans to the best Advantage

While you are showing a home that needs a bit of tender loving care, the best approach is to provide your clients with information on the FHA 203K renovations loans. The loans are great for those looking for a bargain that have their heart set on a fixer upper or even on a foreclosure that needs repairs prior to moving in or even for a homebuyer that wants to add on another room.

Renovation loans will provide homeowners with the money they need to buy a home as well as all the renovation necessary. This means there will only be one loan application, one group of fees including closing costs, and only one mortgage payment each month. While in closing, the money for the home will be used to pay for the home, while the rest of the money intended for renovation will be placed in a trustee account and provided as all repairs are finished. For this type of loan all kinds of improvements can be done that will add more value to the home including new carpet, landscaping, room addition, roof, plumbing, or an updated kitchen. Along with this all energy efficiency improvements can also be used for a renovation loan as well as qualifying for tax credits found in the new stimulus package.

One more advantage of a renovation loan is that the loan amount is based on the value of the property after all the renovations are finished. Other great reasons to look at this type of loan include the down payment, which can be only 3.5%. In many cases, the loan may even offer a lower interest rate than you could receive from a second mortgage and all improvement costs can be spread out over the life of the loan. If you cannot live in the home until renovations are complete, the loan can even provide financing up to six months until the home is livable.

Just understanding what your clients can receive with renovation loans will certainly help your clients when they fall in love with a fixer upper.

Negotiating Your Purchase

Do you have dreams of the perfect home with all the amenities you desire but do not know what you can do to make it yours? When you are ready to start negotiating, there are a few tips that you should remember.

Be Self-Confident – Never trust what someone says and always have questions. If you do not agree with a statement, say something. Buying a home is a very important decision and a large financial responsibility. Always understand what you are getting and for how much.

Never act eager – Eagerness is a sign of weakness. If the Realtor and the lending company know you love the property so much you would do anything to own, you are in trouble. Always act nonchalant and ready to walk away from the deal if they do not listen to your desires.

Patience – Always have patience. Being impatient is just as bad as appearing too eager. If you want that dream home, you have been for quite awhile and you can wait just a bit longer to ensure you get what you want.

Listen – Too many times, emotions get in the way and Home-buyers do not listen. You should know all there is to know about a property before you considering buying. There could be second mortgage, the roof may need replaced, or a whole bunch of other surprises that you will learn about if you do not listen.

Be prepared for long negotiations that can be overwhelming at times. Just remember to take your time, think every action through before committing. In most cases, the seller is eager to sell so you can take your time to ensure you get what you want as long as it is reasonable. Another buyer may come in to purchase as long as the home is left on the market. Negotiations are your best bet but do not expect that every small thing will be handled as another buyer may take the home as is.