Top Tips to buy a Bank Owned Property (also called REO or Foreclosure

  Include a Pre-Approval (NOT Pre-Qualification) letter or proof of funds with your offer. Failing to do so will often lead to rejection or lost time while they have to ask you to provide it as another offer gets accepted while yours was delayed.

  Do NOT add contingencies to your offer more than needed as banks prefer offers with least contingencies possible. The lesser the contingencies, the more are your chances of offer getting accepted by the bank.

  If you are applying for a FHA mortgage, check before making your offer if the home can even get a FHA mortgage in it based on its condition. You can easily get a list of what is acceptable to check if the home meets the criteria or not.

  When making an offer, you should not base your offer on deducting a specific percentage off the Listing price. You do not know if that listing price is market value, priced above market value or already priced at a great discount below market value. Assess what the home is worth in today’s market and deduct for repairs.

  Do not include time limits for the bank answering your offer, Banks work at their own pace. Be prepared to wait for an answer and signed documents. Putting deadlines for answering your offer will simply get it rejected or ignored.

  Get a Home Inspection done by a Certified Home Inspector. Do not assume everything is in working order without testing it BEFORE you make an offer. Virtually all homes are sold ‘As Is” where the BANK will not renegotiate after a home inspection or fix anything not asked for in your initial offer.

  Do not assume the bank will just grant you an extension if you are not ready to close. Cash offers and conventional loans are expected to close within 30 days and FHA and USDA loans are expected to close within 45 days.

  Do not assume all Listing Agents of Bank Owned Homes are the same. There are a few very good ones and MOST are very bad ones. The sale also only goes as well as the listing agent is attentive to their listings and uploading and updating offers.

Tips For First-Time Landlords

For any REALTOR®, working with an investor is a dream. We get repeat business and we both have developed a comfort level over a period of time. Since the recession however, more and more homeowners are turning into landlords because

1. They couldn’t sell their home or

2. They didn’t want to sell their home.

3. The cost of owning another home < Income you could get for renting your existing home.

We here in the Washington DC Metro area have had double digits rise in housing prices year over year and right now is the best time to sell. However, it could take years to get back to the 2005-2006 prices.

The deal can even work if the home you move to costs the same as or even more than your current housing costs, provided your new housing costs are sufficiently offset by the rental income from your existing home.

Do the math

In the best of all worlds, the rent should cover not only your existing home’s mortgage, but property taxes, insurance, upkeep and other costs of owning a home. If not, you’ll have to make up the difference.

In today’s skyrocketing rents market, you likely can swing the rental income you need.

However, you face a greater obstacle than making the deal pencil.

Hiring a property manager could cut into your rental income, but being a landlord, especially for first-timers, is not a piece of cake.

8 Kitchen Trends to Watch in 2013

Modern style:

Kitchens are getting more modern in style, boasting simplified lines and offering up big, open spaces perfect for entertaining.

 

Tucked-away appliances:

Appliances designed to blend in with the rest of the kitchen, like with the same wood of the cabinets, are becoming more popular. Also, some appliances, like undercounter or mini refrigerators or trash compactors, are being tucked away into a kitchen island.

 

Lots of lights:

Great lighting in the kitchen is becoming more important, with lighting being layered with a mixture of task lighting and ambient lighting. Under-cabinet LED lights are becoming more commonplace.

 

Supersized kitchen islands: 

“2013 kitchen design trends are moving away from dining rooms and toward eating, drinking, and interacting in the kitchen itself, and a large kitchen island complete with bar stools is the perfect way to make this happen,” according to HomeThangs.com. this helps to create “a nice open-air feeling – especially if one can be used to bridge kitchen and living areas, another major 2013 kitchen design trend.”

 

Neutral color schemes: 

The use of neutral colors in the kitchen is on the rise, particularly in shades of grays and greens and a variety of wood tones. Bright colors are being reserved for only small accents in the kitchen.

 

Fancy appliances:

Professional gas ranges and induction cooktops are popular kitchen appliances for making a more gourmet kitchen.

 

Decorative range hoods:

Trends are moving away from a conventional stainless steel trapezoid-shaped hood to more decorative range hoods. These hoods may have built-in LED lights and are even serving almost like a decorative chandelier for a kitchen island.

 

Glass backsplashes: 

High gloss is “in” for cabinets, appliances, and backsplashes. A single-sheet, back-painted glass blacksplash is growing in popularity, which are also known for being easy to clean. These glass backsplashes are also reflective, adding a polished decorative touch to kitchens. Glass mosaic tile sheets are also increasing in popularity.

Understanding FHA Loans

Here’s what you need to know about the government program

Federal Housing Administration (FHA) loans often confuse people because the FHA does not make loans. Instead, it insures the loans made by lenders it has approved. This means if the borrower defaults, the FHA, which is a government program, will cover the losses.
Historically, the FHA allows some of the most liberal lending standards in the market and is often a good fit for first-time buyers, those with small down payments and those with less-than-perfect credit. But anyone is eligible to apply.
The FHA is also not a product for everyone and not all lenders offer FHA loans. But many do and you can find FHA lenders at its
Here’s a look at the pros and cons of FHA insured loans:Pros

  • Down payment. The minimum down payment is 3 percent and the FHA allows the money to come from a family member, charitable organization or even an employer. Most conventional loans require the borrower to prove he has the down payment amount.
  • Interest rate. FHA loans usually offer a lower interest rate because it allows a smaller down payment and lower credit scores. Lenders of conventional loans see more risk in a comparable loan and, so, have a higher interest rate.
  • Weak credit: Those with credit problems, even a bankruptcy, may be able to qualify for an FHA loan. The FHA puts more emphasis on income, length of employment and job security than do lenders of conventional loans.
  • Higher ratios. The FHA allows a ratio of 29 percent — of mortgage payment to income (divide the mortgage payment by gross monthly income.) –- or 41 percent -– of all monthly debt to income (divide all your monthly debt such as auto loans and credit card payments by gross monthly income.) Conventional loans usually only allow 28 percent and 36 percent, respectively.
  • No prepayment penalty. The FHA does not allow prepayment penalties, which some conventional loans require if you pay off the loan early. This penalty is charged because lenders are trying to keep people from habitually refinancing. Usually, lenders waive the penalty if the home is sold.
  • Loans for multi-unit properties. FHA loans are not just for single-family homes and condos. They are also available for 2- to 4-unit multi-family complexes. There is also a special loan program for buying a fixer (203k) that includes amounts to make the needed repairs.
  • Closing costs. The FHA allows closing costs to be included in the loan as long as the borrower qualifies for the higher amount. Most conventional loans require that closing costs be paid for at the close of escrow and not be part of the amount loaned.
  • Canceling MIP. The FHA has specific requirements that when met will allow you to cancel you Mortgage Insurance Premium. It is usually more difficult to cancel the Private Mortgage Insurance that is charged under conventional loans with a less than 20 percent down payment.

Cons

  • Higher mortgage insurance. FHA loans require a Mortgage Insurance Premium (MIP), which is similar to the Private Mortgage Insurance charged in conventional loans with less than a 20 percent down payment. The FHA MIP requires paying 1.5 percent of the loan amount up front and .50 percent of the amount owed annually, but paid monthly. (i.e.: A $100,000 loan balance will cost $500 the first year or $41.67 per month). PMI on conventional loans is usually less expensive.
  • Loan limits. The FHA has limits on the amount that can be borrowed because the program is designed for low- to moderate-income buyers. These limits are based on where the house is located. These limits can be changed at any time, so it’s best to check the FHA Web site for the latest information on your area.
  • Must be owner-occupied. An FHA loan requires the home, or one unit in a multi-family complex, be occupied by an owner. So, this program is not for investors looking to buy property to rent out.
  • Limits lender fees. The FHA sets limits it will allow lenders to charge. If the lender charges more, the seller has to agree to pay the additional costs. This can make a prospective buyer with an FHA loan less attractive.
  • Takes more time. FHA loans require more time to complete. In hot markets or in the case of multiple offers, an offer from a buyer wanting an FHA loan may not be considered as strong as an offer from a buyer with a conventional loan.

The Power of Assumability

One of the rarely touted advantages of people taking FHA mortgages today is the fact that they are assumable. What that means is, when the FHA home buyer of today is looking to sell his home, a qualified purchaser can “take over” their loan.

Most people believe that interest rates will return to a “normal” range (around 7%) in a couple of years. When you assume a mortgage, the terms remain the same. This means that a buyer five years from now can enjoy a 3.5% mortgage by assumption rather than the 7% mortgage they would get without it. Since most people buy homes based on how the monthly payment fits into their personal monthly budget, this is extremely impactful.

As an example, a $500,000 loan at 3.5% today carries with it a $2,250.00 mortgage payment on a 30 year fixed mortgage. If offered for sale in five years, the purchaser could assume the $448,485.36 balance with the same $2,250.00 payment and remaining term of 25 years. The total payments over the 25 years would be $675,000.

Compare that to a new $450,000 loan at 7% for 25 years, which would carry a monthly payment of $2997.00 (over $750 more a month than the assumption and more than $225,000 more over the 25 year term).

At 7% for 25 years, to wind up with the same payment as the assumed mortgage, our borrowers would only be getting $338,000…$162,000 LESS!

The point here is that, when rates go up, homes with assumable mortgages will have more value and will sell at higher prices because they are more affordable. As an additional bonus, the closing costs on assumable mortgages are significantly less.

The borrowers must be credit-worthy of course (have good credit, qualifying income,  & necessary assets to close), but they would have to be credit-worthy to get a new mortgage too!

Besides the multiple other reasons to obtain an FHA mortgage (low down payment requirements, extended income ratios, lower credit scores, and easier sourcing of funds), there is another perk. In the future, there is a good chance that you may be able to sell your home for more money because of the FHA loan’s assumability.

Ten Resolutions To Get You In A New Home For The New Year

Is one of your New Year’s Resolutions to move into your own home in 2013? One of the keys to making the home-buying process easier and more understandable is planning. In doing so, you’ll be able to anticipate requests from lenders, lawyers and a host of other professionals. Furthermore, planning will help you discover valuable shortcuts in the home-buying process. Follow these steps to achieve your goal of home ownership in 2013.

Resolution #1: Decide What You Want
Let’s start with the fun part. The first step is to decide what you are looking for. You need to determine the what, where, and when of your purchase. What kind of house are you looking for? Where would you like to live? When would you like to buy? Spend a lot of time thinking about this, a new home is a serious commitment and you want to choose somewhere where you can happily live for several years.

It can be helpful to write down all the information you have gathered. Be sure to take note of other important factors such as whether or not you hope to expand your family or if you plan to remain at your job for a long period of time. Consider such things as pricing, location, size, amenities (extras such as a pool or extra-large kitchen) and design (one floor or two, colonial or modern, etc.). You may want to order your priorities so that you will be prepared to make difficult decisions quickly.  If you can’t get a home at your price with all the features you want, then what features are most important? For instance, would you trade fewer bedrooms for a larger kitchen? How about a longer commute for a bigger lot and lower cost?

Resolution #2: Get Your Financial House in Order 
Once you have an idea of what you are looking for it’s time to get realistic and determine what you can afford. How much do you have available for a down payment? What is your monthly budget for a mortgage payment? Do you have money for closing costs and taxes? Is your financial house in order?  Few people can buy a home for cash. According to the National Association of REALTORS® (NAR), nearly nine out of 10 buyers finance their purchase, which means that virtually all buyers — especially first-time purchasers — required a loan. You should start the mortgage process before bidding on a home. By meeting with lenders — either online or face to face — and looking at loan options, you will find which programs best meet your needs and how much you can afford.

Resolution #3: Get Your Pre-Approval Before House Hunting
“Pre-approval” means you have met with a loan officer, your credit files have been reviewed and the loan officer believes you can readily qualify for a given loan amount with one or more specific mortgage programs. Based on this information, the lender will provide a pre-approval letter, which shows your borrowing power. You can visit as many lenders as you like and get several pre-approvals, but keep in mind that each one carries with it a new credit check, which will show up on future credit reports.

Although not a final loan commitment, the pre-approval letter can be shown to listing brokers when bidding on a home. It demonstrates your financial strength and shows that you have the ability to go through with a purchase. This information is important to owners since they do not want to accept an offer that is likely to fail because financing cannot be obtained. The loan officer will carefully review your financial situation, including your credit report and other information. The lender will then suggest programs which most-closely meet your needs.

Resolution #4: Find Your REALTOR®
Buying and selling real estate is a complex matter. At first it might seem that by checking local picture books or online sites you could quickly find the right home at the right price. But no two properties — even two identical models on the same street — are precisely and exactly alike. Homes differ and so do contract terms, financing options, inspection requirements and closing costs. In this maze of forms, financing, inspections, marketing, pricing and negotiating, it makes sense to work with professionals who know the community and much more.

The best place to find a local REALTOR® is from REALTOR.com’s® extensive listing of community professionals. In the Find A REALTOR® section you can browse profiles, read recommendations, and even use your Facebook or Twitter identity to find a real estate professional with whom you share friends or interests.  Other sources include open houses, local advertising, recommendations from neighbors and suggestions from lenders, attorneys, and financial planners. You may want to interview several people before selecting one professional with whom to work. These interviews represent a good opportunity to consider such issues as training, experience, representation and professional certifications.

Resolution #5: Find Your New Home 
Now we are back into the fun stuff. A home is more than just a collection of bedrooms and bathrooms. Several properties — each with four bedrooms, three baths, and the same price — may well represent radically different designs, commuting distances, lot sizes, tax costs, interior dimensions, and exterior finishes. Here’s where the information you gathered in Resolution #1 comes into play. You already know what you want.

Some buyers like to search REALTOR.com® by looking at listings on the basis of location or price; others prefer to have local REALTORS® suggest properties; and many buyers prefer both approaches. Maintain a file with information on each of the homes you like either online, in the REALTOR.com® mobile app, or in a notebook or folder. How do you know if a house is THE one? Probably the best approach is to look at as many homes as possible.

Resolution #6: Understand Your Mortgage Options
Financing is routinely greater than the original purchase price of a home (after including interest and closing costs). Because financing is so important, buyers should have as much information as possible regarding mortgage options and costs.

How much down? Loans with 5 percent down or less are available — in fact, loans from major lenders with no money down have appeared in recent years. If you place less than 20 percent down, lenders will want the mortgage guaranteed by an outside third party such as the Veterans Administration (VA), the Federal Housing Administration (FHA) or a private mortgage insurer (PMI, or private mortgage insurance, is required by lender to protect against any mortgage defaults).

The best rates and terms are only available to those with solid credit. To get the best loans, make a point of paying credit cards, installment payments, rent and mortgage bills in full and on time.To obtain a loan you must complete a written loan application and provide supporting documentation. Specific documents include recent pay stubs, rental checks and tax returns for the past two or three years if you are self-employed. During the pre-qualification procedure, the loan officer will describe the type of paperwork required. Mortgage financing can be obtained from mortgage bankers, mortgage brokers, savings and loan associations, mutual savings banks, commercial banks, credit unions, and insurance companies.

Resolution #7: Make An Offer

Once you have found a home you want to make an offer on you have three choices: accept the listed price and create a contract; reject it and not make an offer; or suggest different terms and make a counter-offer. If you choose this last option, the seller may accept, reject or make a counter-offer. You sometimes hear that the amount of your offer should be x percent below the seller’s asking price or y percent less than you’re really willing to pay. In practice, the offer depends on the basic laws of supply and demand: If many buyers are competing for homes, then sellers will likely get full-price offers and sometimes even more. If demand is weak, then offers below the asking price may be in order. The process of making offers varies around the country. In a typical situation, you will complete an offer that the REALTOR® will present to the owner and the owner’s representative.

A number of inspections are common in residential realty transactions. They include checks for termites, surveys to determine boundaries, appraisals to determine value for lenders, title reviews and structural inspections. During these examinations, an inspector comes to the property to determine if there are material physical defects and whether expensive repairs and replacements are likely to be required in the next few years.  This is an opportunity to examine the property’s mechanics and structure, ask questions and learn far more about the property than is possible with an informal walk-through.

Resolution #8: Protect Yourself With Insurance
No one would drive a car without insurance, so it figures that no homeowner should be without insurance. Title insurance is purchased with a one-time fee at closing, title insurance protects owners in the event that title to the property is found to be invalid. Coverage includes “lenders” policies, which protect buyers up to the mortgage value of the property, and “owners” coverage, which protects owners up to the purchase price. In other words, “owners” coverage protects both the mortgage amount and the value of the down payment.

Homeowner’s insurance provides fire, theft and liability coverage. Homeowners’ policies are required by lenders and often cover a surprising number of items, including in some cases such personal property as wedding rings, furniture and home office equipment. In high-risk flood-prone areas, flood insurance may be required. This insurance is issued by the federal government and provides as much as $250,000 in coverage for a single-family home plus $100,000 for contents.

For new homes, home warranties bought from third parties by home builders are generally designed to provide several forms of protection: workmanship for the first year, mechanical problems such as plumbing and wiring for the first two years, and structural defects for up to 10 years. Home warranties for existing homes are typically one-year service agreements purchased by sellers. In the event of a covered defect or breakdown, the warranty firm will step in and make the repair or cover its cost.

Resolution #9: Close On Your New Home
The closing process, which in different parts of the country is also known as “settlement” or “escrow,” is increasingly computerized and automated. In many cases, buyers and sellers don’t need to attend a specific event; signed paperwork can be sent to the closing agent via overnight delivery.

Settlement is a brief process where all of the necessary paperwork needed to complete the transaction is signed. Title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. From the amount credited to the seller, the closing agent subtracts money to pay off the existing mortgage and other transaction costs. Deeds, loan papers, and other documents are prepared, signed and filed with local property record offices.

Before closing, buyers typically have a final opportunity to walk through the property to assure that its condition has not materially changed since the sale agreement was signed. At closing itself, all papers have been prepared by closing agents, title companies, lenders and lawyers. This paperwork reflects the sale agreement and allows all parties to the transaction to verify their interests. For instance, buyers get the title to the property, lenders have their loans recorded in the public records and state governments collect their transfer taxes.

Resolution #10: Tie Up Loose Ends
You’ve done it. You’ve looked at properties, made an offer, obtained financing and gone to closing. What’s next?

Those papers you received at settlement are extremely valuable, so hold on to them! In the short-term they can help establish tax deductions for the year in which the property was purchased. In the future, such papers will be important for tax purposes when the property is sold, and in some cases, for calculating estate taxes.

Also at closing, determine the status of the utilities required by the home, items such as water, sewage, gas, electric and oil service. You want utility bills to be paid in full by owners as of closing and you also want services transferred to your name for billing. Usually such transfers can be done without turning off utilities. About two weeks after closing, contact your local property records office and confirm that your deed has been officially recorded. Such records are public notices that show your interest in the property.

When you move in, you may want to replace all locks just to be safe. Many owners make a photo or video record of the home and their possessions for insurance purposes and then keep the records in a safety deposit box. Your insurance provider can recommend what to photograph and how to secure it. You want to maintain fire, theft and liability insurance. As the value of your property increases such coverage should also rise.

Enjoy your home. Owning real estate involves contracts, loans, and taxes, but ultimately what’s most important is that home ownership should be a wonderful experience.

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Truth behind “I Don’t Want My Credit Pulled Because It Will Lower My Credit Scores!”

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We have an office policy that ties a “Pre-Approval Letter” to “Property Tours”.  It states,

A Buyer “must” have a “Pre-Approval Letter” from a lender verified by us before we show them any properties. Lenders who are verified by us DO NOT give a “Pre-Approval Letter” without pulling your credit, W-2/1099 or last 2 yrs tax return.
We will show buyers properties with a “Pre-Approval Letter” that is less than 90 days old.
We will show buyers properties which are less than or equal to the amount in the “Pre-Approval Letter”.

So, I hear “I Don’t Want My Credit Pulled Because It Will Lower My Credit Scores!” on a fairly regular bases, when I tell a Borrower who is looking to be Pre-Approved for a mortgage that a lender needs to run their credit in order to Pre-Approve them.  The reason why a Borrower will give me this response is usually because of one of two reasons.

The first is because they have already talked to another Loan Originator who has told them to not let anyone else pull their credit, because it will lower their credit score.  Generally the reason why a Loan Originator would tell a Borrower this is because they want to eliminate the competition, so they will scare the Borrower by telling them this.

The truth is that if two Loan Originators pull a Borrower’s credit within 14 days of each other, it will only count as 1 credit pull, and has absolutely no impact on the Borrowers credit score.  In fact the Borrower’s credit can be pulled several times within that 14 day period, and it will only count as one credit pull.  Could the Borrower see a change in their credit score from one pull to the other?  Absolutely, but it will not be as a result of the credit pull, it will be because a Creditor has reported to the Credit Bureaus in between credit pulls.  Having said this, a Loan Originator maybe correct in advising a Borrower to not have their pulled if the Borrower is boarder line on being able to qualify for a mortgage.  But the Loan Originator should clearly explain why, and that the Borrower has the 14 day window to talk to competitors.

The second reason why I get the response “I Don’t Want My Credit Pulled Because It Will Lower My Credit Scores!” is because the Borrower knows that their credit is not good, and wants to see if they can get a Loan Originator to give them a Pre-Approval with out pulling their credit.  To do so is silly on the part of the Borrower and Loan Originator.  If the Borrower makes an offer on a property, and it is accepted, the Borrower’s credit will have to be pulled in order to submit a loan, and everything will fall apart at that point.  By the way Borrowers who don’t want to have their credit pull for this reason will ALWAYS tell me that they have great credit.

If a Borrower does not let a lender pull their credit, our conversation is a very short one.  A good lender will not consider even giving a Borrower a Pre-Qualification Letter based on looking at their credit later. If a Borrower does not let a lender pull their credit, they are wasting their Lender’s time, their Realtor’s time and their time.

There are two things that are an ABSOLUTE MUST when Pre-Approving a Borrower:

  • Running a Borrowers Credit Report, which will show their credit scores, and monthly revolving debt.
  • Looking at a Borrowers Income, so that Debt-To-Income Ratios can be established early on in the Pre-Approval process.

These two things are an ABSOLUTE MUST, anything short of this early on in the process is a waste of everyone’s time.