Buying A Home? - Credit Is Key!

The good news is you can turn your credit score around

Work your credit into shape and be sure you have a steady

 income before purchasing a home.

Q: I have a credit score of 494 and work two jobs, but I still don't make more than $2,200 per month, including my child support. Would I be able to buy a house with my income?
— Christopher Credit

A: I think it's best for you to postpone your dream of buying a house and concentrate first on improving your credit score. No mortgage lender is going to want to lend to you with a credit score less than 500. Your score is roughly equivalent to one of a person who has recently filed for bankruptcy protection.

The good news is you can turn your credit score around. All you have to do is get current and stay current on your bills. Negative information, other than a Chapter 7 bankruptcy filing, stays on your credit report for seven years. A Chapter 7 bankruptcy filing stays on your credit report for 10 years. Once you get your credit score back up into the upper 600s or low 700s, you can consider applying for a mortgage.

Your income will limit how much house you can afford. In general, mortgage lenders don't want their customers spending more than 28 percent of their monthly income on principal, interest, taxes and insurance. The lender will have underwriting standards concerning how they count child support payments. In general, you have to have been receiving payments for the past year and expect to continue receiving payments for the next three years for the child support payments to figure into how much house you can afford.

Aside from income, you must also consider how you will come up with a down payment. When you have your credit in shape, approach your local housing authority about grants and down payment assistance programs to see if you qualify.

6 Mistakes Homebuyers Make With Lowball Offers -#5 & #6

5. Not making a clean and easy offer

Make sure there are as few contingencies as possible

When you make a low bid, you want other elements of the offer to be attractive to the seller. And a deal that can close quickly will often have appeal.

Make sure there are as few contingencies as possible. It's best if buyers don't have a home to sell in order to buy the one they're bidding on.

Also, have your financials in order from the start. Loan qualification is more difficult these days, so it's important to have a lender preapproval letter.

6. Assuming cash will always get you the best deal

Cash is king, but in the end, a seller often wants the most money for his home — regardless of whether the buyer needs a mortgage or not. So don't think making an all-cash bid will automatically mean an accepted offer.

That said, if the seller is a bank because the property is a foreclosure, the institution may accept a lower offer from a cash buyer, as opposed to someone who needs a mortgage. Banks often don't want to deal with mortgage-related delays.

How to save on mortgage closing costs

Shop around before choosing a mortgage lender

Shop around before choosing a mortgage lender, but don't stop there. When you receive your good-faith estimate of closing costs, or GFE, the negotiation hasn't ended.

The lender or mortgage broker is required to give you a GFE within three working days of accepting your loan application. The GFE comes in the form of an itemized list of estimated closing costs for everything from the lender's fees to the appraisal charge to the title insurance premium to a partial month's interest payment.

The lender or broker charges some fees, and third parties charge others. The first step is to find out which are loan-origination fees and which are third-party fees. Don't guess. Ask the lender or broker.


Simple advice, but a lot of loan applicants don't follow it.

On the GFE, fees are categorized by numerical codes ranging from the 800s to the 1300s. Most of the negotiable lender-charged fees are in the 800s: application, origination, commitment, loan discount, broker, tax-related service and underwriting fees.

Third-party fees

Fees charged by third parties are trickier to negotiate. A few third-party fees pop up in the 800s section of the GFE: those for the appraisal, credit report and inspection. The lender is supposed to pass along these charges without marking them up. Theoretically, they are negotiable and you can ask the lender to seek good deals on these three items and pass along the savings. In practice, you probably won't get a break on those services because the lender has contracted for them at a set price.
What's your home worth?

You can realize some of your biggest savings by negotiating the items in the 1100s section of the GFE: title insurance, title search, title exam, attorney's fees and settlement fees. Most borrowers use a title company recommended by the real-estate agent or lender. But you don't have to. You can shop for title insurance and settlement services, just as you shopped for the house and for the loan.

Be prepared for resistance. Some lenders have business affiliations with title companies, and they'll pressure you to keep the title work in-house.

Title insurance, settlement services

Where you shop for these title-insurance and settlement services depends on where you live, because different places have different ways of closing real-esta

te and mortgage transactions. In parts of the Northeast, closings are conducted in lawyers' offices. In some places, including Southern California, closings take place at escrow or mortgage companies. In much of the country, closings take place in the office of the agency that sells title insurance.

Government regulation can limit your negotiating room. In Texas, the state sets one overall fee for title insurance, title search and settlement services, so title agencies compete on service, not price. Regulations aren't as restrictive in most other states, and you could save hundreds of dollars in settlement services by shopping around.

And don't forget to shop for hazard insurance -- item No. 903 on the GFE. Compare offers for homeowners insurance policies, either on your own or with the help of an insurance agent. Make sure the insurance company and settlement agent communicate with each other. You're not going to get that mortgage without proof that you have a homeowner's policy. That requirement is not negotiable.

6 Mistakes Homebuyers Make With Lowball Offers - #4

Don't put limits in your 1st offer

4. Not knowing what you're willing to pay

Buyers these days have a strong motivation to get the best possible price on a property, especially if they believe that home values will fall even more, says Jay Butler, professor emeritus of real estate at the W. P. Carey School of Business at Arizona State University. Their biggest worry is often that people will say they overpaid, he says.

But sellers have limits, too, most often dictated by the amount of home equity they have, Butler says.

Before negotiations begin, it's important for a buyer to decide what his walk-away price is, Carlisle says. "At some price point, the deal is no longer worth doing, no matter how great the property."

While a buyer should know how high she is willing to go, don't put limits in the first offer. You lose integrity if you say it's your "best and final" offer, but then are willing to come up with a few thousand dollars more in order to buy the property.

6 Mistakes Homebuyers Make With Lowball Offers

Don't be too  harsh with your criticism

3. Not backing up your price

There's an art to presenting an offer that's substantially less than the asking price. A low offer could start negotiations off on the wrong foot if you're not careful. The key is for you or your agent to explain the offer when presented.
"Sellers want to know why you're coming in so low. Include recent (comparable sales in the area) or issues with the property that validate why your offer is so low," he says. Don't be too harsh with your criticism, however — that can also work against you.

Why Rent if You Can Buy?

With both home prices and interest rates low, everyone understands now is a great time to buy a home. At least borrowers hear this but they don’t always understand exactly how and why this is the right time, especially if the other option is to rent.

The cost of renting is going up every month. We hear borrowers tell us that their landlord wants to raise the rent again, and often in a large percentage. In order to appreciate where the difference lies in owning a home versus continuing to rent, please print out the attached PDF and I will explain some of the finer points so you may reach out to clients you may feel could use this information.

First, the example is a comparison of either purchasing a single family residence with a value of $450,000 and putting 10% down or renting the same home for $2,500 a month. The total payment includes the principal & interest, taxes and insurance along with the mortgage insurance that would be required with a 90% loan. The assumption is first time homebuyers or renters may not have more than a 10% down payment.

Second, the Income Tax Bracket is determined by the income necessary to qualify for the home in this example. At $70,000 a year income, the borrower would be in an approximate tax bracket of 25% federal and 6% state. This total of 31% was applied to that portion which can be written off, the interest on the loan and the property tax. This is where I am supposed to disclaimer with, “please consult a professional tax advisor”. As you can see the government, in this example, would allow a write off monthly of approximately $532.

Why Rent if You Can Buy?

Now, if the client is a W2 wage earner and has 0 to 1 as their withholding rate from their paycheck, they can make adjustments to their withholding. Basically, they have their tax advisor calculate what amount to claim for dependents so the borrower can net monthly more money, approximately $532. This way if the loan payment is higher than their rent, they can feel comfortable making the payment and not owing Uncle Sam any more money at tax time even though they withheld less.

FHA Loans: A Warning And Reminder On Short Sale Purchases

Robyn Seymour - Short Sales Specialist

In an FHA deal, the seller must agree that the buyer will not be obligated to close and will not lose their deposit unless the property appraises at purchase price.   In other words, regardless of what contingencies exist in the RPA, and whether they have been removed, the buyer does not have to close escrow if the property doesn’t appraise.  The FHA gives the buyer a second appraisal contingency that lasts until closing. 

Next, the FHA will not insure a loan unless any items or systems identified by them are repaired.  Of course, the RPA specifically says that the seller doesn’t have to pay for those repairs.   However, if they are not made, then the buyer has a right to get out of the deal.  Further, unlike normal repairs, the buyer cannot waive them.  The FHA will not insure the loan unless the identified items are fixed.

FHA Financing For Homeowners In A Short Sale

There is life after a short sale

FHA has financing for homeowners who are short selling their home and wants to repurchase another home after the short sale is approved and completed thru their current lender.

There are a number of home owners who will qualify for this program by meeting the "extenuating circumstances" criteria.
If marketed correctly.....this loan program will deposit commissions into your bank account; by persuading those homeowners to "list" with you ..because YOU have a lender that can provide financing for their next property. In other words...there will be "life (home ownership) after foreclosure" following their short sale.

The caveats are:

1) They must be current on their mortgage and all other credit obligations for the 12 months prior to the actual short sale completion date.

Editor Note: Contrary to popular belief ..a "short sale" in and by itself is a not a credit score killer! The damage to a borrower's credit score by the number of lates incurred during the "ramp up" to the short sale. Also note...there is absolutely no discernible difference between a "short sale", a foreclosure or a loan mod in relationship to Fico scores. FHA/Fannie/ Freddie see all 3 events listed below as equally negative to each other .

2) Home owners must document "hardship" defined as:

a) Job loss and subsequent job transfer/ relocation... (a new stream of income will be needed to qualify for the new loan).
b) Catastrophic medical bills (and/ or possible death) incurred by a member of the borrower's "nuclear family" (i.e. co signer of the current mortgage..child...spouse..or other dependent as listed on the borrower's tax returns).

3) They must be downsizing and relocating. Buying a bigger home across the street will not fly.

4)Their current lender(s) must be willing to approve the short sale of their current residence.

5) Their credit scores need to be above 620and any outstanding collections (usually medical bills) need to be paid THRU ESCROW (ONLY) at COE.

6 Mistakes Homebuyers Make With Lowball Offers

2. Not picking the right real-estate agent

Robyn Seymour-The "right" agent!

Some real-estate agents caution buyers against making an offer that is so low it could offend the seller and halt negotiations. But sometimes agents are too reluctant to make aggressive offers, Carlisle says. They may be more focused on completing a deal and collecting their commission, rather than making the best deal, or their negotiation skills might not be up to par.

"If it's an appealing, well-priced property that has five or six offers on it, well, going in 10% or 20% under asking isn't going to get you anywhere," he says. But on a property that has been overlooked by the market and doesn't have multiple bidders, it often doesn't hurt to go in low.

6 Mistakes Homebuyers Make With Lowball Offers

1. Not understanding the market

Before submitting an offer, your real-estate agent should do a full comparative market analysis of the property to determine what its fair market value is, Carlisle says.

For instance, it's still a buyers market in the Richmond, Va., area, where Susan Stynes works as a real-estate agent for Long & Foster. Stynes says she wouldn't hesitate to encourage a client to make an aggressive offer, after considering the time the property has been on the market and neighborhood comparables.


But in other markets, a low offer won't get you far, says Stephen G. Kliegerman, president of Halstead Property Development Marketing in New York. "In general, sellers today in Manhattan see that inventories are down, interest rates are historically low, and there is a pretty large appetite for purchase right now because of those factors. Sellers will hold closer to their asking prices," he says.

Your Property - Meeting FHA Approval

Property conditions for FHA mortgage approval are an important part of the mortgage transaction. FHA property guidelines are put in place as a form of protection to all parties who have an interest in the transaction. FHA's minimum property standards are designed to include the safety, security and soundness of the home. In other words, the home must protect the safety and health of all those that occupy it and cannot have any deficiencies or conditions that affect the sturdiness of the structure.  In order to meet FHA approval, there are many items that must be remedied prior to closing. Some of these issues are electrical boxes that have exposed or frayed wires must be replaced, all rooms that will be lived in must have a heat source, the water heater must meet local building codes, the property must provide safe and adequate access including from the road, there must be a toilet, sink and shower and any asbestos found must be inspected by a professional. The appraiser must look in the attic in order to determine roofing issues. The roof must be expected to last at least 2 years and keep moisture out during that time period. The roof cannot have more than three layers of roofing and, therefore, if any problems are found with a roof that has three or more layers, an entire new roof is required. Property conditions and location are also looked at for any potential hazards such as contaminated soil, oil and gas wells on the property, distance to hazardous waste sites, airports and other sources of noise, distance to high voltage power lines or radio and TV transmission towers. Any structural deficiencies or conditions that can lead to future damage, such as leakage, decay, termites and dampness, must be also be repaired in advance of closing.

Foreclosures Still Wreaking Havoc

Foreclosures picked up in January

Foreclosures picked up in January, yet another sign that
the nation's huge glut of delinquent homes may soon
start making their way onto the market.
The number of homes hit with a notice of default, auction sale, bank repossession or some other foreclosure filing in January rose 3% since December, but it was still significantly lower than it was a year ago, according to RealtyTrac.

One in every 624 U.S. households, nearly 211,000 in total, got hit with some sort of foreclosure filing last month. That was down 19% since January 2011, the 16th month of consecutive declines.
While the declines seem like good news for the housing market, where the large number of foreclosed homes have depressed home prices, much of it was due to processing delays caused by fall-out from the robo-signing scandal that broke in late 2010.
Last year, banks spent more time making sure paperwork was legal and proper, creating a backlog in the foreclosure pipeline.

A Short Sale Needs A Short Sales Specialist - More Helpful Tips

Don't submit ridiculous offers

Don't Submit Ridiculous Offers

While you're out there fighting and marketing to get a buyer to make an offer on your client's home, it's not wise to take any offer and submit it to the bank. Lenders don't act in the same way as individuals in negotiations. A ridiculously low offer can often result in a flat rejection, not a counter offer to stay in the game.

A Short Sale Needs A Short Sales Specialist - More Helpful Tips

Work With Your Seller

Work With Your Seller - Know About ALL Loans and Liens

Whether it's intentional or an error brought on by the stress of the situation, your Seller may forget to inform you about a loan or lien on their home.  Keep asking for all documents and mortgage information, and every payment they make.  Sometimes they may even have a HELOC or other equity loan that they forgot was guaranteed by the home.

A Short Sale Needs A Short Sales Specialist - Helpful Tips

What Type of Loans Are Involved?

What type of loan or loans are against the property?  VA, FHA, Conventional, USDA, or something else can make a difference in the lender's response to offers.  Some loan types give them more flexibility, and some are quite limiting in how the lender can negotiate an offer.  Loans guaranteed by government or other entities can provide a hint as to how far the lender can come down based on how much they'll recoup from the guarantee.

A Short Sale Needs A Short Sales Specialist - Helpful Tips

Always Be On Top of The Time Line

Always Be On Top of The Time Line

Always be aware of where your seller is in the process, how many payments they are in arrears, and when foreclosure filing is likely to happen. Make sure that you are copied on all communications from the lender. Know what the lender is saying and when, and know all deadlines that are communicated to your seller from the lender.

A Short Sale Needs A Short Sales Specialist - Helpful Tips

Get The Lender's Short Sale Forms Package Right Away

Lenders  and banks LOVE paperwork and procedure

Lenders and banks LOVE paperwork and procedure.  They'll have their pet forms, some of which may not even seem relevant or important, but they're the forms you and your seller will have to submit.  There will be a lot of information to be gathered and entered on these forms.  Every lender, account and the specifics of all debts are only the beginning.  Very important is an authorization form allowing you to communicate with the lender on your client's behalf.  Then there's the hardship letter explaining all the details about why the seller cannot continue to pay their mortgage.

A Short Sale Needs A Short Sales Specialist - Helpful Tips

Which Lenders Are Involved and How Do They Operate?

If you're working short sales regularly, you should have a file of lenders you may encounter, and in it should be all the information you can gather on how they process a short sale, the time line involved, and the percentage that actually make it to closing if you can find that out.  Some lenders are much more difficult, and a short sale can take a lot longer with these lenders.

Having a good lender is essential

A Short Sale Needs A Short Sales Specialist - Helpful Tips

Some sellers want or need an attorney

2. Are You The Only Negotiator for the Seller?

Some sellers want or need an attorney or short sale specialist involved in their sale.  This could be something you may not know until it happens, because you took the listing at the beginning without a short sale in the plans. Involving an attorney or short sale specialist isn't necessarily a problem for the real estate professional, but get the rules spelled out up-front, especially about fees and commissions.

A Short Sale Needs A Short Sales Specialist - Helpful Tips

Robyn Seymour - Short Sales Specialist

Are You Experienced in Short Sales?

While short sales are becoming more common, and lenders are overwhelmed with foreclosures, it's still far from a slam-dunk in getting one through the process. If you're going to handle short sales for seller clients, it's critical to thoroughly understand the process, the lenders, their motivations and procedures, and how to handle your seller to get the information you need to help them. Here is one tip to help you make it happen for your sellers.

• If you're about to become involved in your very first short sale negotiation, you need to go into a high gear learning process. Get advice from someone who is experienced, and read everything you can about the process and especially why short sales fail. If you have a few successful short sales under your belt, you still need to keep up with current events and news, as things change and lenders change policies and procedures.

The Importance Of A Qualified Home Inspector

Find a qualified home inspector

Like with most professions, you will find qualified and unqualified individuals calling themselves a professional. Home inspectors are no different. In some ways, it's even more difficult to differentiate the good home inspectors from the bad home inspectors, primarily because few states regulate or license home inspectors.
This means any Joe or Jane Blow can print up business cards that identify the individual as a home inspector, and go about the practice of collecting fees from unsuspecting buyers while sucking up to, excuse me, I mean networking with agents for more business.
Here are a few ways you can protect yourself from hiring an unqualified inspector:

Review a Sample Home Inspection Report

A home inspector should be able to e-mail you a copy of a sample report. If it's three or four pages long, don't hire that person. While lengths of reports may vary, comprehensive reports average between 20 and 50 pages and contain color photographs highlighting defects or problems.

Types Of Mortgages

Find a mortgage type that works best for you

There are two categories of mortgages: conventional and governmental.

Governmental loans are mortgage programs sponsored by a government agency. These include the Federal Housing Administration (FHA), the Veteran's Administration (VA) for veterans, and the Rural Housing Service (RHS) or Farmers Home Administration (FmHA) for those living in rural areas. These loans work best for homebuyers with low or moderate incomes, because they require low down payments and have less stringent qualifying guidelines. None of these agencies actually loan you the money; they only guarantee loans granted by lenders who participate in the program.

Conventional loans are loans that are not guaranteed by the government.

There are various types of mortgages:

A Fixed Rate Mortgage (FRM) is a mortgage with an unchanging interest rate. This is a lovely option for people who think they'll own their homes for a long period of time, or those don't like change and who prefer an unvarying monthly payment. Lenders charge higher interest rates for these loans because the money is loaned for a longer time and is more of a risk to the lender.

The opposite of a fixed rate mortgage is the Adjustable Rate Mortgage (ARM). An ARM has an adjustable interest interest rate that changes over the life of the loan. The benefit -- ARMs usually offer a "teaser" interest rate that is exceptionally low for the first year or so of the loan, and even after that ARM rates are typically lower than those on fixed mortgages. Why? Because ARMs are "capped," often at around 2 percent per year and 6 percent over the course of the loan. Still, ARMs can be risky -- especially when you look at how high interest rates can go (topping 18% in the 1980s). If you get a 30-year fixed rate mortgage at, say, 5 percent interest, it stays at 5 percent for 30 years. If you get a 15-year ARM at 4 percent and interest rates jump to 12 percent a few years later, you'll be paying 3 percent more in interest, even with a cap of, say, 4 percent.

Jumbo loans are loans that exceed conforming loan amounts specified by Fannie Mae and Freddie Mac. Currently, jumbo loans on single-family homes exceed $417,000 ($625,500 in Alaska and Hawaii). Interest rates are generally higher on jumbo loans due to the larger risk of default involved.

Some lenders offer alternative financing for buyers with weak credit histories, previous bankruptcy, or unique financial situations. For instance, No Documentation Loans, are designed for homebuyers who are self-employed, work off commission, or have sources of income that are difficult to document.

Home Inspection Checklist Items Sellers Should Fix

Home Inspection Checklist Items Sellers Should Fix

If you have a choice, it is smarter to hire your own contractors and supervise repairs. Before issuing a formal request to repair, consider the seller's incentive to hire the cheapest contractor and to replace appliances with the least expensive brands.

Although home inspectors are reluctant to and, in many cases, refuse to disclose repair costs, call a contractor to determine the scope and expense to fix minor problems yourself. No home is perfect. Every home will have issues on a home inspection. Even new homes.

A repair issue that will be be a deal breaker for a first-time home buyer, causing the buyer to cancel the contract, will not faze a home buyer versed in home repair. Talk to your agent, family, friends and call a few contractors to discuss which types of defects are minor. Perhaps a simple solution is available such as replacing a $1.99 receptacle, which can resolve many outlet problems.

Pat yourself on the back, too, for getting a home inspection. Some buyers feel a home inspection is unnecessary, especially if they are buying new construction. If a light switch doesn't work or the air conditioner blows out hot air, those are problems you can see and test. The problems that aren't readily identifiable to you such as code violations, a furnace that leaks carbon monoxide or a failing chimney, are the types of defects a home inspector could identify in a new home. Builders' contractors make mistakes, too.

Things You Should Know About a Short Sale

Robyn Seymour-  Your Short Sales Specialist

When you spot a short sale house that interests you, take your hand off the mouse and step away from the computer. Before you get all excited over the prospect of buying that short sale house, pick up the phone and call your real estate agent - preferably a short sales specialist. Your agent needs to research that short sale listing first.
In some real estate markets, fewer than one in 10 short sales close. Just because that home is listed as a short sale doesn't mean it's really for sale (because it's subject to lender approval), nor does it mean it will sell at the advertised price. Here are 6 things you need to know before trying to buy that short sale.
I specialize in short sales and have decades of experience in real estate.

Back Up Offers - A Brief Tutorial

Do Backup Offers Have to Be Higher Than the List Price?

Whether your backup offer needs to be higher than the asking price depends on how many offers the seller receives. In a multiple offer situation, you can be fairly certain there will be offers for more than list price. This is how many multiple offers go:

Whether your backup offer needs to be higher than the asking
price depends on ow many offers the seller receives.

• First offer: less than list price, because the buyer doesn't know anyone else is interested.
• Second offer: List price, because often the first and second arrive close together.
• Third offer: Slightly more than list price, because the buyer really wants the home
• Fourth offer to 10th offer: Somewhere in between because these buyers know it's a long shot.

The seller has an incentive to stick with the first buyer's offer, especially if it's a higher offer. But you are saving the seller time and trouble by submitting a backup offer, so the seller might be willing to accept a little bit less to give you an incentive to wait. But if multiple offers are the norm, it's generally best to match the offer on the table.

Why Writing Backup Offers Is a Good Idea

What is a Backup Offer?

Let's start by looking at what makes your offer a backup offer. First, the seller has already accepted another offer. That first offer is probably a contingent contract, which depends upon a certain number of events that may or may not happen to close. Some of those contingencies might be:

• Contingent on the buyer selling an existing home
• Contingent upon inspections, which include a satisfactory home inspection
• Contingent upon the home appraising for the sales price, and a low appraisal is a possibility
• Contingent upon the buyer obtaining favorable financing, and anything can happen in underwriting

Writing a Backup Offer Is a Good Idea

If any one of those situations hit a snag, the transaction might cancel. If the transaction cancels, then the seller would need to put the home back on the market and start showing the home again. A backup offer acknowledges the existence of an existing offer and says if the first buyer cancels, then you are automatically in contract with the seller.
A backup offer needs to be signed by all parties to the contract to be effective. Sellers can sign more than one backup offer providing the seller makes the position of each party known. For example, you could be in #3 or #4 position if there are four backup offers. Ideally, you want to be in #2 position.