The last couple of months have been frustrating for a majority of my buyers. The issue that we are running into is that there are not enough quality homes on the market. I know a lot of you might be thinking that there are a ton of properties in your neighborhood for sale or that are vacant. The key word is quality.
Most of my first time buyers are getting an FHA loan (which requires 3% down payment). A home must qualify for FHA financing, meaning if the home is in bad shape the FHA appraiser will not approve the home unless the work is done. Most sellers (banks) list homes low so they don't have to do the work requested by the FHA appraiser. So the homes that are in good condition and can get FHA approval go quickly, because there are so many buyers looking for that type of home. I have a couple of clients that I have written well over 10-15 offers, and we are still looking for a home. My challenge is how to get these qualified clients into a home in their price range, in a decent area, and in decent condition.
The solution is the FHA 203K loan. At the end of this entry I am going to put the link to the HUD site. How this works is my clients find a home in a good area that needs work. FHA will loan them the money to fix these properties up and attach the "fix up" money onto the loan. Let's say my clients are approved to $200,000. They find a home in the area they want for $175,000, but it needs a lot of work done to it. The property has sat on the market because a majority of the buyers can't buy the property because it won't go FHA, and the bank is not willing to accept the low ball offers that are coming from investors.
So I go in with my buyers and we make an offer at asking price, ($175,000) with our FHA 203K loan. Then my buyers get 2 bids from general contractors to repair anything that needs to be repaired. Also, the buyers can choose flooring, countertops, paint, fixtures, and almost anything else they want for the home. So let's say the bids are around $25,000. An appraiser comes in and figures when the work is completed that the home which is now worth $175,000 will be worth $200,000. The lender will accept the $200,000 appraisal and lend the buyer the money to do the work. So the buyer has a loan for $200,000 and is now able to use $25,000 to fix up their home how they want it.
These types of loans take longer than the typical 45 day FHA loan. This loan can take up to 90 days, because of all of the inspections and contractor bids. For most of my buyers this is a great way to get a great home for a great price. This goes along with the saying, ‘buy the worst home in the best area.'
Below is the link to the HUD website that explains the loan in more detail. If you or someone you know is looking to buy a home send me an email or just give me a call.
I was going back and forth on what to write this week in my blog. I was telling my wife that I don't want to sound like a broken record, repeating the same information every week, so she suggested I write about short sales. I looked back and it has been awhile since I wrote about short sales and I am always getting calls from buyers who see a home $50,000 under price--what a steal! But, upon further investigation, I find out it is a short sale and then I have to explain what a short sale is exactly. So in this entry I will explain what a short sale is and what to expect when writing an offer.
The definition of a short sale is: a sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes. So the owner can sell the home and the bank is the one taking the true loss. There must be a real hardship on the seller's side, which the seller must prove with documentation to the bank.
What are some of the negatives for a seller shorting their home? This depends on how the bank reports the sale to the credit bureaus. It can be seen as paid in full or a negotiated payment. A negotiated payment has a more negative effect on their credit. Everyone's credit is affected differently because some people will start to make their house payment with their credit card and some people will stop making credit card payments to make their house payment. As I mentioned before, the bank wants to see a true hardship and if they see that you have money in the bank and a lot of "toys" that you bought with the equity from your house, they might not be as willing to let you just walk away with a little ding on your credit. Also, it is a long process where you are disclosing your whole life to a bank and asking them to see your situation as a true hardship. Some feel that it is easier to take the huge mark down on their credit and the extra time it will take to buy another home after a foreclosure than deal with a short sale.
For a buyer there is no telling when the bank will respond to your offer. This in turn creates frustration for the buyer. I will caution all my buyers that with a short sale it will typically take 3 months to close and the price will likely be higher then the listed price. If the price is reasonable and the listing agent is competent the offer might move more quickly on to the bank.
Some of the positive things for short selling your home are that you do not have to pay the excess amount back to the bank, and there is a new law passed by the President that states you do not have to report that short amount as income on your taxes. This is just a temporary bill and will be gone on December 31, 2010; and only the purchase money is forgiven. If you have a question about purchase money give me a call and I can explain it to you. Also, by doing a short sale you rid yourself of the dreaded foreclosure. You can typically buy a home 2-3 years after a short sale in contrast to 7 years after a foreclosure.
Now, back to my main point of why a short sale is advertised so much lower than a bank owned property. There are some listing agents that use the short sale as a marketing tool. They advertise the price low to get interest in the property to entice buyers to make an offer. This way the agent can pick up some buyers if this home doesn't work out for them. Some things that you, as a buyer, have to watch out for is that "sweet" deal; if you think it is a great deal, so does everyone else. If homes around this property are selling at $265,000 and this short sale is advertised at $200,000 that is the first sign that this price is more of a mirage than a concrete purchase price. Also, what does the home owner owe on the property? If the seller owes $365,000 and the home is advertised at $200,000 and bank owned homes in the area are selling for $265,000 then why would the bank sell it for so much under market value? They are already giving up $100,000 plus cost at $265,000 so why would they let it go for so much less? I can check the property taxes and see what the owner owes on the property and give you a better idea of what a reasonable purchase price would be. Some agents might say that the banks will sell it for less to avoid the high cost of the foreclosure process. Let's use our example above. The bank is owed $365,000 and the home is on the market for $200,000 in a $265,000 market. That is a difference in price of $65,000. This is a loss to the bank of about 25% from $265,000 to a sale of $200,000. At this point in the market I highly doubt the market will tumble an additional 25% here in California. The bank is better off denying the short sale and letting it go to foreclosure.
I just realized that this is a long post. I feel strongly that my clients need to understand the strange aspects of a short sale. I will in the future point all questions regarding short sales to this post on my website. If you have any other questions about short sales give me a call at 951-710-1662.
I showed an REO property to my first time buyers and they loved it. We came in full price asking for the bank to pay cost. The bank agreed to the offer and we opened escrow. We requested that the bank turn on the utilities to the house so that we could do the home inspection. The next day I went over with the buyers and home inspector. We walked in and in the kitchen ceiling there was a water bubble the size of a large bowl. The home inspector checked up stair and turned off the water to the toilet it had over flowed and been running for the whole day.
Needless to say my clients were nervous about buying a home that was now noticeably damaged. I called up the bank they called a contractor and in 6 days the ceiling was patched and the toilet repaired. I was surprised at how quickly the bank took care of the problem. I though we were going to cancel this escrow, my clients were doubting the condition of the rest of the home. But, the home inspector let them know that everything checked out and the all the systems were working fine.
Right now we are a week away from closing my clients signed loan docs. today and are excited once again about this home. I seriously couldn't sleep at night, I would go over to the home everyday to check to make sure that the home was not flooded. I am just very grateful that the issue was resolved in a timely matter.
Southern California's seasonal boost in home sales between February and March was less than half its normal level and a record low, and median prices of sales took a dive, according to a report today from data provider DataQuick Information Systems.
A total of 12,808 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in March. That was up 18.8 percent from 10,777 the previous month but down 41.4 percent from 21,856 in March 2007, DataQuick reported.
On the surface this news can seem bad. But, sales are up from February, and according to past articles, February is up from January. Prices are still stagnant to negative, but people are out there looking for homes. In my opinion, if April homes sales are up 10% or more from March, then this summer is going to be huge with buyers. Right now in the "slow" months we are seeing gains; imagine what is going to happen in the summer months.
There is no bell or alarm that sounds when the market has hit the bottom. The media will report the bottom of the market 6 months after it is already on the way up. You don't have to take my word for it. If you read the media reports you will see more positive news covered in negative jargon. If you need to wait and see, I will continue to keep you posted on what is happening to give you a better idea and feel more secure in your real estate decision.
I just wanted to share my success in this last month. I have been working with a lot of first time buyers to help get them into a great home. Most of them are looking at reo homes. I have learned to be patient and upfront with my clients about what to expect. This month I have put 3 people in to escrow and have 2 other offers out waiting for response. I am not naive and I know that we still have some ways to go to get out of this mess. I am just grateful that I do not have to convince my buyers that it is a good time to buy, they can see that for themselves. I have a feeling that in our local board we will be losing more agents but that is what happens when the market lingers for over 2 years at a negative growth. This just helps those of us out there working. This year we are going to see some positive changes. We are going from good to great in 08!
I just read an article from our local newspaper The Press- Enterprise. It stated that we are up in the amount of foreclosed homes from last month by 30%. But, Realtytrac and real estate data source stated that they were surprised that the numbers were not a lot higher. Some of the credit goes to the programs that are out there to help struggling homeowners. We are still expecting to see a large reset of these ARM loans, but reo homes are selling. Most reo agents have seen a surge in the amount of homes sold under $300,000. Meaning there are more buyers coming out to buy. Just more good news.
I heard in a news report on Tuesday that the amount of homes that went pending in February was down 1.9%. Of course this is a national average. I was sort of surprised because here in my office our open escrows have grown since January. As I looked closer at the data I found some really good news for us here in the Western states.
The Pending Home Sales Index is a forward-looking indicator based on contracts signed in February. The PHSI in the Northeast rose 3.2 percent in February (to 71.8) but remains 25.4 percent below a year ago. In the Midwest, the index declined 3.7 percent (to 82.7) and is 17.4 percent lower than February 2007. The index in the South fell 5.5 percent in February (to 85.0) and is 30.3 percent below a year ago. In the West, the index rose 2.1 percent in February (to 95.8) but is 6.1 percent below February 2007.
As you can see from this data the West is still putting more homes into escrow, meaning more homes are selling here than other places in the country. I have stated this before; in California we always grow quicker, decline sharper, and rebound faster than almost every state in the union. We are not out of the woods yet. The National Association of REALTOR's states that they predict a national decline this year of about 1.4%. NAR chief economist Lawrence Yun stated, "Existing home sales could start to show a sustained increase within a few months, unless there are some additional economic problems or excessive inflationary pressure." He said, "We're looking for essentially stable sales in the near term, before higher mortgage loan limits translate into more sales in high-cost markets. The wider access to affordable credit should increase sales activity notably this summer as pent-up demand begins to be met."
I am excited to see what will happen this summer. Most of my clients are very anxious to get out and buy a home. There are still loans available that are at low rates with low down payments. Most of my buyers are going FHA and the sellers are willing to pay up to 6% in closing costs. This will cover all the closing costs and the 3% FHA down payment. If you are renting, look at what you are paying and check with a lender to see what you can afford to buy. Then look at what the tax advantages are to owning a home. If you have any questions about those tax benefits give me a call.
I heard in a news report on Tuesday that the amount of homes that went pending in February was down 1.9%. Of course this is a national average. I was sort of surprised because here in my office our open escrows have grown since January. As I looked closer at the data I found some really good news for us here in the Western states.
The Pending Home Sales Index is a forward-looking indicator based on contracts signed in February. The PHSI in the Northeast rose 3.2 percent in February (to 71.8) but remains 25.4 percent below a year ago. In the Midwest, the index declined 3.7 percent (to 82.7) and is 17.4 percent lower than February 2007. The index in the South fell 5.5 percent in February (to 85.0) and is 30.3 percent below a year ago. In the West, the index rose 2.1 percent in February (to 95.8) but is 6.1 percent below February 2007.
As you can see from this data the West is still putting more homes into escrow, meaning more homes are selling here than other places in the country. I have stated this before; in California we always grow quicker, decline sharper, and rebound faster than almost every state in the union. We are not out of the woods yet. The National Association of REALTOR's states that they predict a national decline this year of about 1.4%. NAR chief economist Lawrence Yun stated, "Existing home sales could start to show a sustained increase within a few months, unless there are some additional economic problems or excessive inflationary pressure." He said, "We're looking for essentially stable sales in the near term, before higher mortgage loan limits translate into more sales in high-cost markets. The wider access to affordable credit should increase sales activity notably this summer as pent-up demand begins to be met."
I am excited to see what will happen this summer. Most of my clients are very anxious to get out and buy a home. There are still loans available that are at low rates with low down payments. Most of my buyers are going FHA and the sellers are willing to pay up to 6% in closing costs. This will cover all the closing costs and the 3% FHA down payment. If you are renting, look at what you are paying and check with a lender to see what you can afford to buy. Then look at what the tax advantages are to owning a home. If you have any questions about those tax benefits give me a call.
The changes that I have seen in the last couple of weeks have been amazing. I have been writing offers for clients on bank repo's. Nine out of ten repo's have multiple offers on them. A lot of counter offers that I receive from the banks ask for my clients to come in with their highest and best offer to even be considered. Four homes I have written offers on have been on the market for less than a week. When it is a good deal the home goes quick. Many banks receive multiple offers on properties and actually wait to respond so that they can get as many offers as possible to review; it is in the banks best interest to wait. In Riverside, last month, 11% of the homes sold were bank owned and in Moreno Valley 25% were bank owned.
So why is there such a change in the market? Easily put, a lot of people have been sitting on the sidelines watching prices go down. But, now they are seeing prices and interest rates go down. After awhile it is too tempting to sit on the sidelines anymore. Some of my clients that I have been communicating with for over a year are finally ready to buy, and they are buying repo's.
Many first time buyers are rushing into the market to snatch up these great deals. The deals are not without some frustration. The bank could take 3 weeks to respond to you, the counter could ask you to give up a lot of guarantees, and you typically buy the property "as is". I know there is still bad news coming from the media, but we are seeing more positive numbers each month. I will keep you posted on what is happening. For those of you still sitting on the fence, don't wait too long. Once prices start to level out and home sales increase, interest rates will start to climb.
Throughout the week I have read a couple of reports that have shed some positive light on the whole housing situation. With the Fed injecting money into the financial markets and banks desperately trying to help out defaulting homeowners, more good news is coming out in regards to the housing market. Here are a couple of excerpts from these articles.
From INMAN News March 20, 2008 California's foreclosure rate fell in February compared to January, research and data company ForeclosureRadar reported Wednesday.
Foreclosure sales at auction in the state fell 15 percent compared to January, with 16,931 sales at a combined loan value of $6.85 billion. Notices of default dropped 7.6 percent to 37,362, and notices of trustee sale (which set the auction date and time) fell 20 percent.
"February declines are a welcome break from the astonishing increases in December 2007 and January 2008," said Sean O'Toole, ForeclosureRadar founder, in a statement. Click HERE to read full report.
From INMAN News March 20 , 2008
Long-term mortgage rates tumbled this week after the Fed cut a key short-term interest rate because of news that inflation in February was weaker than expected. The average rate on 30-year fixed mortgages dropped to 5.87 percent from last week's 6.13 percent, and the average 15-year fixed rate plunged to 5.27 percent from 5.6 percent. Click HERE to read full report.
From the Anderson Report March 14, 2008 In its first quarterly report of 2008, the UCLA Anderson Forecast remains confident the national economy was not in a recession through January 2008 and continues to forecast weak growth but no official recession in 2008. Click HERE to read full report.
From a more local point of view this week I have written 4 offers. Out of those 4, two homes have multiple offers written by other buyers. Some of my buyers are getting beaten out . I have one individual who has been beaten out of 4 homes. He is at the point right now where he is coming in at above asking price and not asking for closing costs. My mantra for this week is: if you think the home is a steal, then so does everyone else.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
;)
;)
