The Deal Killer of Short Sales
Over the past year we have seen and read more about short sales than we probably ever wanted to know. For most pros out there it's a market niche that they have avoided because of the difficulty and uncertainty generally associated with short sales. And I think we would all agree that the process is, if anything, daunting. But there is one thing that is often overlooked that could increase your success rate.
Many times in the rush to get the lender onboard the documentation process becomes the primary focus. Everything is zeroing in on getting the price and the primary lender's cooperation and in the process a critical item sometimes get's put off or forgotten about.
The average loss on a short sale is around 19% of the loan amount versus 40% for homes sold after foreclosure. It's a great negotiating tool to use with the lender but you need to make sure you are negotiating with the one that makes the decision. Generally speaking to the lender's loss mitigation department can handle the negotiation even if the loan was packaged into a mortgage backed security. But the bigger issue is not with the primary lender.
Too often the failure to identify and factor in junior lien holders until later on in the process causes the deal to fall through. In the case of junior mortgages a rule of thumb suggests that if there is 20% left over after dealing with the first you are most likely in the ball park. But remember, nothing is cast in concrete until all parties have signed off ... and that is what usually causes the problem. You are fighting a time crunch from the "get go" and the more complex the financial issues are the harder it is going to be to hold all the parties together. The answer may be a simple step that gets overlooked in the heat of battle.
A simple title search up front before sitting down with the seller can save a lot of surprises. Yes, they told you about the first and the HELOC but they forgot about the tax lien or the 3rd that Aunt Cindy holds. The short sale is tough enough in a perfect world and the last thing you want is a buyer and seller in agreement on a price that doesn't have a chance of flying.
And while you're at it, don't forget the sale is sure to be in "as is" condition and your buyers need to be very confident that they know exactly what it's going to cost them to get the property in condition to meet their requirements. Be certain that they are getting the professional advice they need to make that decision and are not relying on something you said in passing - which needs to be "left unsaid." And don't forget to use those costs when negotiating with the lender on the final price. Put all this together and you have a whole lot going on with all 3 parties ... the last thing you need is for the "rabbit" to jump out of the hat at the last moment with a sign that says "what about me."
The short sale can be a good deal for all parties but there are very few of them that close easily. Do your homework and make sure that both the buyer and seller are fully aware of all the terms and conditions and are prepared for the eventual delays that are sure to come from the lender(s). Get Aunt Cindy or the tax man out of hat up front and keep them from killing the deal. If their presence makes the deal impossible you want to find that out as early as possible to avoid wasting everyone's time.
Moving into the short sale market niche can be very rewarding but it's a process that involves a lot of twists and turns along the way. If you want to learn more about short sales you should check out the Certified Short-Sale Professional (CSP) course from RealtyU. The CSP online course as well as all of RealtyU's other designation courses are being offered.
Hello from Dawn Tittsworth in York Pennsylvania!
A Sweet Deal for First-Time Homebuyers
The ins-and-outs of the $8,000 First-Time Homebuyer Tax Credit
If you are - like many Americans - trying to figure out the best time to make your first home purchase, then you may want to take a closer look at the first-time homebuyer tax credit included in the American Recovery and Reinvestment Act, which was signed into action by President Barack Obama on February 17, 2009.
Repayment
The 2009 homebuyer credit DOES NOT require repayment. Repayment of the credit is only required if the owner sells the property within three years of purchase.
Credit Amount
While the credit is equivalent to 10 percent of the purchase price of the home, the 2009 credit increases the limit of the credit from $7,500 to $8,000.
OTHER IMPORTANT NOTES REGARDING THE CREDIT
1. Qualifying for the homebuyer credit
The credit is for first-time homebuyers only. As it relates to this credit, a first-time homebuyer is defined as any taxpayer who has not owned a principal (or main) residence for a period of three years prior to the home purchase. The first-time purchase must be of a principal residence.
2. Income limitations
The legislation does limit availability of the first-time homebuyer credit based on modified adjusted gross income (MAGI). Single filers with MAGI of $75,000 or less and married couples with MAGI of $150,000 or less are eligible for the full $8,000 credit. Those individuals or couples with MAGI above these limits may be available for a reduced credit on a phase-out basis.
3. Purchase window
The 2009 first-time homebuyer tax credit is retroactive to January 1, 2009 and covers purchases through November 30th, 2009.
4. Refundable credit
The tax credit reduces your final tax liability and you will be refunded whatever portion, if any, of the credit that remains after applying the credit to taxes you owe for that year. For example, let's say you qualify for the full $8,000 homebuyer credit and your total tax liability (after withholding) is $2,000. Your tax liability will be zero, and you will receive a refund for the remaining $6,000.
5. Claiming the credit
Claiming the credit is actually very simple. To take advantage of the first-time homebuyer credit, you'll need to complete IRS Form 5405 which will help determine the tax credit amount. You'll then claim that amount on line 69 of your 1040 tax return form. No pre-approval forms or applications are required!
As with most issues related to a home purchase, be sure to consult with your REALTOR® for additional information or to ensure that you and your prospective purchase qualifies for this homebuyer tax credit.
Hello All !!!
Real Estate related web sites keeping us in the loop!!
School Matters (reports on schools around the country)
Department of Justice Competition and Real Estate
Build Your Route (Compliments of MapQuest)
Real Move Value (includes fliers with home moving tips to remember to send your closed buyers
Hello All
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Credit Inquiries and Your Credit Score |
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Do you know if FICO and the three major credit reporting bureaus have changed the rules for credit card shoppers? It's frustrating when you shop for better interest rates and get them only to have them punish you on your credit score for shopping. Any info would be appreciated. Punish may be a somewhat harsh word. A credit inquiry typically lowers your score by five points or less. In addition, credit inquiries stay on your credit report for 24 months, but are only calculated into your score for 12 months. |
Hello All,
My lender just sent me this!
"What's your rate?"
If I had a dollar for every time I've been asked that question, I'd retire! While that is never the right question to ask when searching for an appropriate mortgage package, in this market it is an open invitation for your clients to be "taken to the cleaners" by those "not so honest" lenders that are still "out there" in big numbers!!
Everywhere you turn you are hearing the drumbeat of "4.5% mortgage rates" or even lower. While it's true that 4.5% money is available, what most of the ad's and "proclamations" don't divulge is how many points one must pay to actually acquire that low rate!
If you have been in the business for any length of time, you were used to getting rate quotes for 0 points. This was pretty much the standard for most people, as they did not want to pay points to get a better rate. Well those days are over for at least the near future!
Here's why:
In order to get 0 points, a lender must receive enough money in "premium pricing" to allow them to provide the loan for no cost, other than the normal fees. When this happens, you get a 0pt loan. Now for an "end lender" to give back enough for this to happen, they needed to hold the loan for a good period of time assure they would reclaim what they paid the originating lender upfront. With rates not fluctuating wildly, there was a pretty good bet they'd get their money back.
Now, put those same "end lenders" in the current environment and they see the possibility of wild swings in rates with no predictability and they are saying "we're not paying anyone money to originate a loan that might be refinanced in a few months!"
So you have a situation where the lenders are just not providing money with 0pts for anything near the level of rates we would see in a "normal" market.
So if you want 0pts you have to pay around .625% or more in rate, higher than a 1pt loan, which will make the 0pt loan unattractive and reduce the risk to the "end lender". (End lender being the bank that will "service" the loan.
Now, let's throw in another, BIG factor---CREDIT SCORE!
Once upon a time, if you had 640 credit you would get the same rate as someone with 780. That all changed in the Fall of 2007. Now we have RISKED BASED PRICING, which means the lower your score the more your costs.
Take for instance a borrower with a middle score of 650, with 10% down. IF this borrower can get an approval for a Conventional loan, they will pay as much as 3.25 pts "risk premium" to acquire any rate they may choose. Even borrowers with scores as high as 740 can be penalized by some lenders, depending upon the downpayment!
In one of the odd "twist" in this pricing structure, there are times where putting more money down will result in a higher "risk premium" being charged. This is due to the reduced level of mortgage insurance that is required. Loans with less than 10% down have a higher level of mortgage insurance and are thus viewed as less risky by the end lender. A borrower with 20% down and a lower credit score can pay more than a borrower with the same score and 5% down, all due to the absence of mortgage insurance.
While there are times that you may see exceptions to these "new rules", the vast majority of conventional loans now available in this country will follow along these lines.
FHA loans do not have as many "risk based" tiers as Conventional, but many end lenders have recently begun to increase those that do apply.
Add to these factors the issue of "lock term" and you have even more potential cost.
For the past several years, 30 day closings became the norm. Now, with increased scrutiny of all documentation and appraisals, and the increasing prevalence of foreclosures and short sales, it can take longer to get to closing.
The costs of 45 or 60 day locks can add an additional .25pt to .75pts, depending upon the lender.
So, to accurately quote a rate to your clients, a Mortgage "Professional" will ask many questions BEFORE quoting a rate to a client. Please make your clients aware that the following information is required to assess a client's level of risk for the purpose of pricing:
1. Credit score--unless I know the "middle score" of the 3 repositories used, I cannot know for sure what to quote. I can take their word for it, but I don't know for sure until I see it myself.
2. Loan Amount- Lower loan amounts, and sometimes higher than $300,000 will trigger small adjustments to the price as well.
3. Lock Term--How long is needed? If you have a foreclosure or short sale, you better allow 60 days.
4. LTV- How much is being used for downpayment? As indicated above, this can make a big difference.
5. Type of property- Some lenders are now charging as much as .75pts extra for condo's---more risk.
6. How many units? More than 2 will cost an extra 1.00 pt.
So, as you can see--"What's your rate" should be replaced by "I'd like to see what options you can provide for someone with my qualifications!"
This market is very complex and full of challenges, with more coming everyday. The current interest rate environment is one of the best in 50 years, but it is, at the same time, the most complicated. Educating your clients about the "nuances" of the marketplace can make all the difference in how smooth the whole process goes--and how many referrals they can generate!
My pledge to you is to be honest and fair at all times and to serve you with the highest intergrity.
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