Sweet Home Chicago

Short Sale Advice for Buyers

Most home buyers right now are looking for bargains.  And, there are plenty of them in the Chicago area - the North Shore is no exception.  The best bargains are "distressed" properties, here are the most common situations: 

• Bank-owned properties - These are homes that the banks had to foreclose,  and yes the North Shore is not exempt from foreclosures.
• Short sales -When the owner owes more to the bank than the property is worth on the current market it is a short sale.  The owner must either come to the closing with money to make up the difference, or they must prove to the bank that they have a hardship and cannot make up the difference.  If the seller cannot make up the difference, then the sales contract and all terms of the sale must be approved by the bank.  Since the banks really aren't in the real estate business, depending on the bank, the purchase process can be lengthy.
• Bankruptcy - The homeowner has declared bankruptcy and the sale of the home is being directed by the court system.

In general any distressed property will sell at a price below the market value.  This is particularly true in those cases where the property is not in good condition.  For short sales, the lower market value reflects the added inconvenience of purchasing a home that is a short sale, even if the home is in relatively good condition. 

If you are interested in purchasing a home that is going to be a short sale, here is what you need to know:

• The short sale process takes longer than a normal sale.  It  also takes longer than purchasing a bank-owned property or a home being sold for bankruptcy.  If you want to purchase a short sale, be prepared to WAIT between 30 - 120 days for the bank to approve the purchase.
• Do not wait until the bank approves the deal to do your own due diligence. You should have  home inspection immediately so that you can decide whether or not you want to go through with the purchase (usually these sales are for the property in "as is" condition).
• Ask if the homeowner's bank is offering special financing.  One bank that I am dealing with offers 4% mortgage rates to buyers that are purchasing their short sales.  Buyers still need to qualify with strong credit score and a downpayment.
• Hire a lawyer that has a successful track record with short sales.  You need a pro-active attorney that will work hard for you to make sure that the sale makes it to the closing table.  Some real estate lawyers just sit back to wait and see what happens with the bank - if your lawyer does this, the sale will most likely fall through.  Your lawyer needs to be in touch with the seller's lawyer and the bank to make sure that the process is moving forward.  The banks are inundated with short sales and foreclosures and it is very easy for these deals to fall through the cracks if at least one of the lawyers doesn't know how to work with the banks.
• Once the sale is approved, you will need to be ready to move quickly.  Typically, after the sale is approved, the bank will want the transaction to close within 30 days. This is another reason that you need a pro-active lawyer that can move quickly to make sure that nothing falls through the cracks.

I have a property for sale in Highland Park right now that is a short sale. This particular home is in great condition, and has had many updates.  Click here for more information on this home.

Thank you for reading.

nsk

Real Estate Market Stimulus Package

I'm not an economist, and I don't play one on TV.  However, as a Realtor, I do have an opinion on what it will take to get all of the excess inventory sold everywhere.

The $8,000 tax credit

I applaud the $8,000 tax credit for new home buyers in the Federal stimulus package - however I don't think that this is going to do much in the short term.  If someone that is considering buying a home right now, they won't see that $8,000 tax credit until they file their 2009 income taxes next year.  That is a long way off, especially for first time buyers that could probably use the extra money for a down payment NOW.  In fact, I don't think that this tax credit will have an impact until Q4 of this year.

Subsidized interest rates

I'd like to see the banks use the money they've received from the government (or that they are going to receive) to subsidize mortgage rates for ANYONE buying a home.  A great incentive that would motivate buyers immediately would be a 4% interest rate. This type of program would help shrink the huge inventory of homes for sale - including the homes that are short sales, pre-foreclosures and bank-owned (foreclosed) properties.  Of course this rate would only be for qualified buyers.

Additionally, people meeting certain requirements that need assistance keeping their current home should also get access to this type of rate.  Unfortunately, someone that has purchased a home that is way beyond their means should just get out of that home and move on to something that is more realistic for their situation. 

Help for unemployed

Maybe banks could offer temporary relief for those that are recently unemployed (again meeting some specific criteria) to help them out temporarily until they get work.  I know so many people that have lost their jobs or have had dramatic pay cuts in recent weeks.  They shouldn't have to lose their homes due to these temporary situations.  This would prevent their homes going up for sale and adding to an already glutted market.

Short sale guidelines/subsidies 

A huge bottle neck with the excess inventory is short sale properties.  I've written a lot about short sales already, but here is my $.02 on what needs to happen to get rid of this inventory quickly,  The sooner these homes are off the market, the sooner the market will stabilize.

• The government needs to provide financial incentives for banks to shorten their short sale approval process from the current 12 - 16 weeks, to something more realistic like 2-4 weeks.  Buyers have no patience to wait 3 or 4 months to find out if the bank is going to accept their offer.  By the time that happens, many buyers have moved on to something else.

• Create subsidies or some other financial incentive for banks to approve more of these contracts (or maybe use some of the $ that they've received, or will recieve, for this purpose). Buyers right now are looking for great deals, and many short sales could satisfy that desire.  However, in addition to taking too long to approve these deals, they won't even approve some reasonable deals. And each bank has different criteria on what what is an acceptable deal.

• Create uniform guidelines for banks to follow for these deals.  If they follow the guidelines (which would be structured so that more of these deals are approved) then the bank qualifies for some some of the bail-out money, or a tax break, or something like that.

I  talked to one bank that said that they already "wrote off" the home equity line (in other words they've already assumed the loss on their books) on a home that is going through the short sale process, and yet they were still holding out for a larger amount of $ to release their lien on the property.  I understand that they are trying to minimize their losses, but if a home goes through foreclosure and/or the sellers declare bankruptcy, they bank won't get any money at all. So why not agree to release the lien and collect some $ from a buyer that is offering CASH to purchase the home NOW?  This way we can put someone into the home that can afford it and the home won't go into further disrepair (the current owner can't even afford to maintain it).

Loan restructuring

Let's say someone is having temporary financial issues and they know that in a month or two it will be difficult or impossible to make their mortgage payment.  If they call their lender/bank today to try to renegotiate their loan or ask if they can get some temporary relief (e.g. skip a payment or make partial or interest only payment with no penalty), the bank will tell them that there is nothing they can do unless the homeowner is already in default.  In other words they won't talk to you until you've already screwed up your credit score and missed a few mortgage payments. 

There needs to be some way for homeowners to negotiate with the banks BEFORE they are in default.  I realize that there is risk that some people would take advantage of this - there must be a way to do this to help some of the hard-working people that have been affected by the economic downturn.  These people have been playing by the rules, paying their mortgages and their other bills, and now the rug has been pulled out from under them.  A job that was secure only a couple of months ago is gone - or a self-employed person has seen their business drop by 60 - 70% within a few short months. These people need a little time to get their footing back, to find temporary employment or find a new job. (Hey, how do they apply for one of the new jobs that is being created with the stimulus money - give 'em a shovel?)

That's my thoughts for now.  Would love to hear your comments.

Thanks for reading.

nsk

Kiplinger Forecast for 2009

Toward the end of 2008, Jon Frandsen wrote an article at Kiplinger.com titled  "12 Things to Look Forward to in 2009."

Here is my favorite part:

2009 Will Be a Great Time to Buy or Refinance a Home. The median home price nationally has fallen 20% since the housing market’s peak in July 2006, according to the National Association of Realtors. That’s especially good news for first-time home buyers or anyone who doesn’t have to sell a home before they buy, as well as patient buyers who can handle the time consuming process of buying a distressed property. In mid-December, the 30-year fixed rate fell to 5.17%, according to Freddie Mac. Mortgage money hasn’t been this cheap in nearly 40 years. Buyers who are having trouble coming up with a 10% to 20% down payment or who have dings in their credit record may be able to get Federal Housing Administration financing with as little as 3.5% down. And there may be help for people already in their homes.

Borrowers facing a reset on adjustable mortgages may get relief, since key indexes have dropped. And for those teetering near foreclosure, the Obama administration and new Congress will help more distressed homeowners keep their homes.

You can read the entire article by clicking here:  12 Things to Look Forward to in 2009

My thoughts (a month after the above article was written):

• The new administration and the new Congress will only be able to help a limited number of people that are facing foreclosure.  If you don't have a job or some type of income, there is little that they can do for you.  If you do have some income, and your payments got too high due to an ARM adjustment, you may be able to get some relief.
• Buying a distressed property (short sale, pre-foreclosure, or foreclosure) takes more than time.  It takes patience, and nerves of steel.  I'm working on a couple of these deals and they are not for the average buyer.
• Refinancing sounds like a great idea when you hear the current interest rates....unfortunately, my mortgage resources tell me that many of the re-fi deals are falling through because properties aren't appraising high enough, or the borrowers aren't qualifying.  Doesn't mean that you shouldn't try refinancing, but beware, it may not work.

Thank you for reading.  Your comments are always welcome!

See all homes for sale in the Chicago area

How to raise your credit score

Even if you aren't planning to purchase a home in the near future, it is always a good idea to take steps to increase or maintain a strong credit score.  You never know when you will need credit for something - it could be something unexpected, or a planned purchase.  But either way, better to keep an eye on this. 

With all of the uncertainty in the financial markets right now, your credit score is more important than ever.

So, here are a few things that you can do to improve your score:

1. If you have fallen behind on any payments, you need to fix this asap.  The companies that calculate your credit score severely penalize you of you have accounts with a past due balance.  If you aren't sure, then get a free copy of your credit report and check it!
2. Late payments are another red flag for your credit score.  Even if you pay all of your bills each month, if you are consistently late, you will be penalized.  I know that there are some bills, like your mortgage payment or maybe an insurance bill, that have a grace period. If you consistently wait until the last minute to pay these bills, this may affect your score.  To find out if you've been "zinged" by this, take a look at your credit report and see if any companies have reported late payments to any of the credit reporting agencies.  If there are any reported late payments, you should contact the company and request that they remove the late payment record on your account.  Point out that you have been making regular payments and that you have been a good customer, etc.  Explain that you didn't realize that if you paid within the grace period that it would be considered late.  Be persistent, be polite, be friendly, and hopefully you will be successful.   It may take several calls.
3. Many people don't realize that their credit score includes an assessment of their usage of available credit.  What this means is that they look at how much credit has been extended to you (available balances on your credit cards, or from any other lenders, such as a home equity line) and how much of that credit you are actually using (balances due).  Ideally, you should have a lot of available credit, and your aren't using all of it.  One very simple way to improve your ratio of actual debt to available credit is to ask for an increase in the credit limit on any credit cards you may have (and don't spend it!).  This is a simple way to improve your credit score and it just takes a few quick phone calls.
4. If you are young and do not have a long credit history, you can become an "authorized user" or "joint account holder"on someone else's credit card account (maybe a parent's account?).  When you do this, this account will appear on your credit report, and the credit scoring companies will treat this account as though it is one of yours.  These are the criteria you should use for selecting an account for this purpose:
   • on-time payment history
   • continuation of on-time payment and low balance
   • low balance (ideally using less than 10% of the credit limit)
   • long payment history of at least 7 years
5. Having the same credit card for a long period of time can have a positive affect on your score.  So, if you have some older credit cards that you aren't using, don't be so quick to close the account.  First of all, the length of time that you've had the credit card is helpful for your score.  Secondly, the credit limit that you have on the card, even if you aren't using it, improves the debt to available credit ratio that was discussed in #3 above.  If the card is listed on your credit report as "inactive" then it isn't doing anything for you - it is ignored by the credit scoring companies.  So in order to get any benefit from your older credit cards you do need to use them at least once every 6 months.

I am not an expert in this area, but this is what I have learned from some of the mortgage brokers that I work with.  If you have any questions about this, please let me know and I will ask the experts for you.  Also, if you have additional info to add, please post your comments for my readers.

Thanks for reading.  Next post will be getting back to the topic of going green.

nsk

Energy Efficient Mortgages!

When I first heard this term it didn't make sense to me.  How can a mortgage be energy efficient?  So, I went on a quest to find out more about this.  Basically an EEM allows you to finance as part of your mortgage the purchase of energy efficient upgrades to your home.  So, the next time you purchase a home (or refinance your current one) this might be something to consider.   Especially if you are purchasing a home that needs some updating or renovation.

My nephew Zachary Karp, a successful mortgage broker with GC Lending, gave me the skinny on what is currently available in these loans - of course this is always subjct to change.  You can always contact Zack for an update or if you have any questions.  send email to Zachary Karp. 

Here is the info Zack provided to me...

Fannie Mae got rid of their Energy Efficient Mortgage in 2006, so it is not currently available with conventional financing.

The only option is with FHA, and here are the updated guidelines directly from HUD:

Eligibility Requirements:

1. The borrower is eligible for maximum FHA-backed loan, using standard underwriting procedures. The borrower must make a 3-percent cash investment in the property. This 3- percent cash investment is based on the sales price. Closing costs are not included in the 3- percent calculation but may be used to satisfy the requirement. Any upfront mortgage insurance premium can be financed as part of the mortgage.
2. Eligible properties are one- to four-unit existing and new construction.
3. The cost of the energy-efficient improvements that may be eligible for financing into the mortgage is the greater of 5 percent of the property’s value (not to exceed $8,000), or $4,000.
4. To be eligible for inclusion in this mortgage, the energy-efficient improvements must be cost effective, meaning that the total cost of the improvements is less than the total present value of the energy saved over the useful life of the energy improvement.
5. The cost of the energy improvements and estimate of the energy savings must be determined by a home energy rating report which is done by a home energy rating system or energy consultant. The cost of the energy rating may be financed as part of the cost-effective energy package.
6. The energy improvements are installed after the loan closes. The lender will place the money in an escrow account. The money will be released to the borrower after an inspection verifies that the improvements are installed and the energy savings will be achieved.
7. The maximum mortgage amount for a single-family unit depends on its location, and it is adjusted annually. You can click here to find out FHA Mortgage amounts by county . The cost of the eligible energy-efficient improvements is added to the mortgage amount. The final loan amount can exceed the maximum mortgage limit by the amount of the energy-efficient improvements.

By the way, for those of you planning to do some rehab work, Zack Also mentioned that there is also a FHA rehab loan called the 203(K), which is starting to make a comeback.  A few of the lenders  that Zack works with have just announced they brought this program back.  It allows (for either a purchase or refinance) for the financing of up to $35,000 in repairs, and does include a provision to allow Energy Efficient upgrades.

Thanks for reading!

nsk

Lenders "Calling In" Home Equity Lines?

In the wake of falling home values, I guess this was bound to happen.  I'm sure some people have been thinking about the possibility - and now it is here.  A friend of mine called yesterday.  She was wondering if I could pull up some information about recent sales in the area of homes comparable to hers.  The reason - her bank wants to have her home re-appraised. The bank suspects that the line of credit they've given her (a home equity loan) exceeds the equity in her home.  I'm assuming that the bank will want to lower the size of my friends line of credit, depending on the appraisal (that they want my friend to pay for!)   The good news for my friend is that she hasn't used up the entire line of credit...though she was hoping to have it available for college expenses in the coming year, or just for possible emergency use.

I have a home equity line too, as I'm sure many people do,and I've been wondering if the banks were going to start taking a look at their level of risk in these loans and what they would do to manage the problem.

Obviously, I'm not in the banking business, so I don't know all of the legal issues involved here.  So, what I'd like to know is this:

What if my friend, or I, or anyone for that matter has actually used their full line of credit and they now owe more than their home is worth.  Even without home equity loans to consider there are many home owners facing a similar situation - they're upside down on their mortgage.  What are banks allowed to do in these situations?  If someone is upside down on their mortgage, can the banks require them to remedy the situation and pay the difference? As long as these people can continue to make their payments on their primary mortgage and any equity lines, is there really a reason for the bank to take action.  I understand that the banks need to have collateral to guarantee their loans...but where does the line get drawn?

I would love to hear from any one that knows more about this so that I can tell my readers what to expect in the coming months.  I'm sure that many people with conventional (30 year fixed) mortgages have been feeling somewhat smug as the news goes on and on about the sub-prime mortgage crises.  This issue is much closer to home for many people (excuse the pun).

Thanks for reading.