Short sales in our area are increasing more and more every month and take up a large percentage (and growing) of the homes for sale right now in our Sacramento real estate market.
I wanted to write this post to give you an idea of how obtaining a mortgage for a short sale will differ from a private party or bank owned home.
When you make an offer on a foreclosed home, you are dealing directly with the bank because they are the current owner. The bank has already completed the foreclosure process, set the sales price, and are actively waiting for offers to come in so they can sell the home and get it off their books.
A short sale is a little different in that the bank does not technically own the property... they only have a mortgage lien against the property. When you make an offer on a short sale home, your offer goes first to the homeowner for their approval and signature. Then the accepted offer is sent to the bank(s) that hold the mortgage lien(s) for the home in order to obtain a short sale approval.
The short sale approval is a document that gives the homeowner permission to sell the home for a specified amount and the bank agrees to release the mortgage lien even though they will not be paid in full. This process can take days or months... it really just depends on the bank(s) that currently hold the mortgage lien(s) for the home.
When you make an offer on a bank owned home, you usually know right away if your offer is accepted. Making an offer on a short sale is a little different in that the bank has to get clear about the current value of the home through broker price opinions and appraisals. They also need to review the current owner's hardship and financial documents to make sure the owner qualifies for the short sale. This is what takes so much time and can test your patience as the home buyer.
If you are patient and do your homework upfront, purchasing a short sale can provide you a great way to get a deal in today's market with less competition.
Even though the bank takes their time making the decision to approval the short sale... they will often ask the buyer to close escrow in a matter of weeks once the short sale is approved.
Right now the real estate market can be a little hectic. Mortgage lenders are picking apart perfect files and closing escrow in less than 30 days can prove to be a real challenge.
In order to make sure your loan goes through as quickly as possible here are a couple tips:
•1. Make sure you work with a mortgage professional who asks you for a complete loan file upfront!
A complete loan file should at least include (tax returns and W-2s, 2 months banks statements, most recent retirement statements, and 30 days worth of pay stubs). You need to make sure you are working with someone who will take your loan seriously and thoroughly review all of your documentation looking for red flags. Your mortgage professional will want to do as much work upfront as possible so there is no time wasted tracking these items down once you are in contract.
•2. Keep a file for new information as it is received!
You will want to create a file where you can hold any new bank statements, paystubs, or retirement statements as they come in. Your mortgage professional will needs these items once you are in contract. The quicker you can get these items to them, the quicker your loan can be submitted.
•3. Respond quickly to your real estate agent or mortgage professional when they ask you for something!
Even though you are in escrow... life still goes on as normal. You need to make it a priority to get back ANY items requested of you as quickly as possible. Remember your real estate team can only work as quickly as you allow then to! Every day wasted just makes your real estate transaction that much harder to close.
If you have patience, understand the short sale process upfront, and respond quickly when asked...short sales can prove to be a pot of golden opportunities for a homebuyer!
I hope this information has helped you understand the short sale process better. Please post a comment if you have any questions on this topic and I would be happy to answer them!
As always... Happy hunting!
Erin
The Escrow Institute of California announced that Governor Schwarzenegger signed Assembly Bill 957 into law.
This bill, authored by Assembly Member Cathleen Galgiani, protects consumers by ensuring that they have the right to choose their own real estate service providers when purchasing foreclosed properties.
AB 957, known as the Buyer's Choice Act, prohibits sellers of so-called REO properties - typically foreclosed properties owned by banks - from requiring the buyer to use a particular title company, escrow settlement or other real estate service provider. This unethical, anti-competitive practice drives up costs for homebuyers and takes business away from locally owned companies.
If you follow our Blog, you will know I have written countless posts about our escapades with bank owned title companies.
Here are just a few...
There ought to be a law! - Don't you hate it when the title company makes more than you!
Why do discount title companies hired by the bank get to charge whatever they want?
I chuckled when I found the first blog in my archive... Arnold must have been listening!
Overall I think this new law is a good thing... but the reality is I don't think it will change anything!
My biggest beef with the Bank Owned Title Companies is they give the banks a big discount on their fees... BUT they just end up passing them on to the Buyer.
Here is an example of one of our clients who got gouged by a Southern California title Company:
Escrow fee:
$891 (Wow.. that seems a little steep..Shouldn't it be more like $400?)
Title insurance:
$1674
Buyer Messenger Fee:
$35 (Did you send the Buyer a secret message I did not know about?)
Sub escrow fee:
$62(What?.. Didn't they already pay you a hefty escrow fee?)
Loan tie-in-fee:
$200 (tie into what? There is only one loan?)
Processing Fee:
$150 (You mean the escrow fee did not cover it?)
Courier Fee:
$24
Buyer Archive fee
$50 (Wow.. now you are getting creative!)
Wire Fee
$25
Archiving Fee #2
$50 (OK... now you are pushing it!)
This is from a real closing statement! When I got the estimated HUD statement before my client's signing... I had to laugh... because it is all I could do!
I have tried calling the bank owned title companies to ask them to explain these fees. Every time I have called to discuss these crazy fees, the bank owned title companies (mostly located in Southern California) pretty much tell me to stuff it (my interpretation) and tell me they don't have to explain any of their fees to me.
Not only are the bank owned title companies making their money off the Buyer's backs... they are miserable to work with! I am not kidding here... ABSOLUTLY MISERABLE!
So let me get off that soap box and back to my point!
If you have made offers on Sacramento foreclosed property lately... you know there is a lot of competition right now in certain price ranges.
The Banks control a huge percentage of our Sacramento inventory and right now they make the rules. Buyers who ask for seller's concessions or repairs get their offer filed directly to the trash... in multiple offer situations.
So if you are one of those 10 offers sitting in front of the asset manager (works with the bank to sell their foreclosure inventory) and you are giving them grief about using their title company... where do you think your offer will be filed?
It is like asking a bank to modify their standard addendum they require all Buyers to sign that takes away many of their rights and their first born child (not really)! The Banks are never gonna do it!
That is my stance as of now...
Arnold.... It is the thought that counts!
Please join us at the Elk Grove Real Estate Investors Group next TUESDAY NIGHT - October 20th!
We have a special guest this month for our Elk Grove Real Estate Investors meeting who will discuss the Sacramento Rental Market!
Wonder what is going on with the Sacramento Rental Market?
Find out what other landlords are getting for rent in your area!
Join us and meet Bill Stanley from Realty Roundup.
Bill has been in the property management business for years and operates one of the largest property management companies in our area.
We thought it was appropriate to bring back Bill to give us an update on the rental market as we move into 2010.
Bill and Chris will cover...
Sacramento Rental Market statistics
What to expect when Investors manage their own units?
How to best select a tenant?
How to select the right property manager?
Question and Answer
Leverage their experience and bring your questions! Join us on October 20th at our Elk Grove Investment Club... Elk Grove REI!
Meet our Speaker!
Realty Roundup
(916) 685-6601
www.RealtyRoundUpinc.com
Realty Roundup, Inc. is a full service Management Company, serving owners of single family residences, duplexes, triplexes, multiple units, apartments, and small commercial.
MEETING LOCATION
9275 E. Stockton. Blvd., Ste. 100
Elk Grove, CA. 95624
Networking - 6:30pm
Market Update - 7:00pm
Main Speaker - 7:15pm
Members are FREE!
Guests are $15
Join us and meet other Sacramento Investors who are actively investing in the Sacramento Real Estate Market!
Visit the Elk Grove Real Estate Investor Group website >>
This blog by:
Team Newington
Sacramento Mortgage Planners
First Priority Financial
(916) 687-6868
The First Time Home Buyer Tax Credit goes away December 1st. Read our post about how to get into a home in time! >>
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Upcoming guideline changes will impact your ability to buy a Sacramento home
If you are buying a Sacramento home you will want to read this...
There are 2 ways to get a file approved with Fannie Mae. You can have your file manually underwritten or you can run the loan through their automated approval system.
In February of 2009, tougher guidelines were put in place by Fannie Mae. This change made it much more difficult to qualify for a new mortgage.
Since February, only manually underwritten loans had to follow the new rules.
As of December 12, 2009, Fannie Mae will update their automated underwriting system and close a loophole we were using to get our clients approved.
Here are 2 big changes included in this update that will impact many of our clients:
#1 Challenge: The Borrower's debt-to-income ratio can not exceed 50%
Ouch! I just got an approval for a client at 61%! As of December 12th... This client will not qualify! They are out looking for new homes as we speak!
I reviewed the last 10 Sacramento mortgages we funded ... This update will impact more than HALF of the loans!
Now keep in mind... most of our clients are investors have good income and assets. What these clients also have is ton of write-offs! Their CPA does such a good job... Their client no longer looks like they make any income!
A common misconception many clients have... They think they can use their current rental income to qualify for their mortgage. Nope! Lenders will most likely reference their last year's tax return to determine the rental income to qualify the borrower. So... if you have had any vacant units or spent a ton of money in repairs... you could find you can't claim as much of the rent as you think.
It is not just rental income that is a problem! The lender may require your regular earned income to be averaged over the last 24 months. This means you might not be able to use your current higher income to qualify! Instead, you may need to average your current income with a lower income year.
This change is a big deal! If I were you... I would find out exactly where you are at in regards to your debt-to-income ratios in the next week or so... if you plan on buying a home by the end of the year.
If you are looking to purchase in 2010, you will want to work closely with your mortgage professional and your CPA to see if you can roll over some write-offs into the 2010 tax year.
#2 Challenge: New asset rules mean you need more money in the bank to buy a home!
In the past you could use 100% of the current value for stocks, bonds, and mutual funds. Fannie Mae now requires you only list 70% of the value. They are also reducing retirement accounts from 70% to 60%!
This only really becomes an issue if you do not have many assets to work with.
Just when you thought it could not tighten any more... it does! That is OK... we will just modify and adapt!
They are going to force us to sharpen our pencils. That is OK!I agree with that... it is a goog thing!
THIS IS A REMINDER FOR US... PLANNING IN THIS MARKET CRITICAL!
If you think this may impact you... please call Todd at (916) 687-6868 Ext. 1 to discuss your options!
This blog by:
Team Newington
Sacramento Mortgage Planners
First Priority Financial
(916) 687-6868
The First Time Home Buyer Tax Credit goes away December 1st. Read our post about how to get into a home in time! >>
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Did you know that as of the first of the year Sacramento County is putting into effect a new rental housing inspection program?
This week we had a Sr. Code Enforcement Officer from the County of Sacramento speak at our Sacramento Investment Club meeting.
Not only did we talk about making offers on Sacramento bank owned homes with code enforcement issues, he also informed us of a new Sacramento County rental inspection program coming in January 2010.
The good news is that it appears the County of Sacramento's program is much more user friendly than the one adopted by the City of Sacramento. These are my words not his by the way.
In fact, Sacramento rental owners can do the required inspection themselves and it only needs to be done every 5 years. The County of Sacramento worked with the Sacramento Rental Housing Association to develop this new program so it met the needs of Sacramento County, local tenants, and local landlords.
The best way to get up to speed to make sure you are in compliance is to register for a class at the Rental Housing Association!
Here is a quick blurb from their website about the matter!
According to the Rental Housing Association...
Local jurisdictions across the nation have adopted ordinances requiring inspections of rental properties by government officials with high fees to cover the costs of the program. These programs are designed to address health and safety issues, although properties that operate in a professional manner subsidize the overall program. Local governments generate millions of dollars each year by assessing a per unit annual fee (usually $30-$50 per unit) on rental owners to hire new employees.
Thanks to RHA, rental owners with properties in the unincorporated areas of Sacramento County (meaning in Sacramento County, but not within the cities of Folsom, Elk Grove, Citrus Heights, Rancho Cordova or Galt) will not be subjected to a mandatory rental inspection program run by local government. Instead, rental owners will have the option to conduct self-inspections, designate another individual or have a county official conduct these inspections beginning January 2010. As a result, rental owners will save millions of dollars in fees that could have been paid to local government.
With the exception of the property owner, whoever conducts the inspection must: 1) attend a two-hour course that explains how to comply with the new ordinance and 2) obtain an official certificate of completion of the training. Only the actual property owner may conduct an inspection without attending the certification course. RHA is the only organization approved by the County of Sacramento to provide this training. Until further notice, the training and certificate of completion will be provided for free as a public service of RHA.
Ok folks... not only is the Sacramento Rental Housing Association out there lobbying for common sense inspections programs... they are offering these classes for FREE so you can get up-to-speed!
You can download a flyer that lists their upcoming classes or visit their online calendar at their newly designed website.
These classes will fill up fast! So make sure that you get registered quickly!
This blog by:
Team Newington
Sacramento Mortgage Planners
First Priority Financial
(916) 687-6868
The First Time Home Buyer Tax Credit goes away December 1st. Read our post about how to get into a home in time! >>
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