Why would a lender approve a short sale?

Why would a lender approve a short sale? There are many ways to lose a home but signing away ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity is one of the hardest. For owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a “short sale.”

When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales.

 

If you are considering buying there could be drawbacks. You may have to wait about 3 years to repurchase a home after completing a short sale.

 

For your protection, I suggest that all borrowers:

* Obtain legal advice from a competent real estate lawyer     

* Call an accountant to discuss short sale tax ramifications            

As a real estate agent, I’m not licensed as a lawyer or a CPA and cannot advise on those consequences. Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. will consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid. This amount is known as a deficiency However, it’s important to get the deficiency waived in the short sale approval letter issued by the seller’s lender.

 

The Mortgage Debt Relief Act has yet to be extended past 12/31/13. As realtors, we are hoping this will be extended through this year.

  

Lenders have varying requirements, but most require similar documentation such as the following:

 

Third Part AuthorizationAllows a third party such as a relator or attorney to speak to the bank on behalf of the seller.

 

Hardship LetterThe sadder, the better. This statement of facts describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized or a truck ran over your entire family, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior.

 

Proof of Income and Assets -It is best to be truthful and honest about your financial situation and disclose assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value. Lenders are not in the charity business and often require assurance that the debtor cannot pay back any of the debt that it is forgiving.

 

Copies of Bank Statements -If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it’s probably a good idea to explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.

 

Pay StubsIf the seller is working the bank usually wants to see the last 2 consecutive pay stubs.

3 Ways Renters Lose Money: Renting Vs. Home Ownership

Home-Ownership-vs-RentingAre you still renting a home or apartment for yourself or your family?

If so, you’re losing money. Think about these three ways you lose money by renting:

1.  You’re paying for someone else’s mortgage payment. You’re missing out on the appreciation that the property gives to the landlord. Appreciation is a term used in accounting relating to the increase in value of an asset, which means in real estate terms, added value to the property.

2.  Renters don’t get to freeze their monthly housing expenses like home buyers can. By getting a fixed rate mortgage, you can guarantee consistent payments over the life of the loan. It’s advisable to refrain from entering into an “Adjustable Rate Mortgage” or better know as an “ARM” since they are just that, “Adjustable” and usually not in your favor.

3.  Renters don’t benefit from tax advantages. Home owners get income tax deductions. Tax deductions for interest costs, for instance, save tax payers thousands of dollars.

Emotional Satisfaction of Home Ownership:

Besides losing out on making money with real estate, renters don’t get the same satisfaction of home enjoyment that benefits home buyers. Many landlords won’t allow you to paint your walls in colors that you desire. Also, you won’t feel like fixing up the property with custom window coverings and you get little say in flooring materials. Because you can’t make your personal statement, you won’t feel like you’re HOME as much as home owners who feel emotionally connected to their property.

How to Buy Your First Home:

The biggest barrier to home ownership is often accumulating funds for a down payment. People think they have to have thousands of dollars for a down payment. However, if you have good credit and a decent job, you can get a mortgage for a home for 3.5% down by going FHA. And you can finance some of your closing costs as well as ask the seller to help you pay a good portion of your purchase costs. With today’s mortgage rates at an all time low,  you may be surprised to find out how much of a home you can afford with payments similar to what you currently pay in rent.

Talk to a mortgage loan officer and see how much of a home you can afford. If you need a recommendation on a loan officer don’t hesitate to call us.

If you’re renting, consider making one of  your priorities to buy your own home.

 

 

Dangers in Flipping Real Estate

Flip HouseIf you have recently purchased some real estate for investment purposes, you are in good company. Recent reports suggest that as many as 25% of these purchases are made by those who plan on using the property for investment purposes only. If you hope to “flip” the property there are 4 things you must be aware of that can put a crimp on your profits.

1. Property Taxes – Keep the property for a few years and you may experience a surge in property taxes especially if your taxes are reevaluated during that time. Some hot real estate markets have seen taxes nearly double in just 5 or 6 years.

2. Renovation Expenses – You may have purchased a “fixer upper” at a bargain rate. Once your project is complete will you be able to recover the expenses and make a profit especially if the value of your renovated property is above those in your neighborhood? In addition, can you withstand a correction in real estate values?

3. Insurance and Mortgage – You will pay more for homeowners insurance if you do not occupy the residence and you have tenants. If you are financing the property you know that your mortgage rate is higher as well.

4. Rental Pressures – A market saturated with rentals will mean that the rents you can charge will be less than what you had hoped to receive. In some markets you are required to get special licensing in order to be a landlord. In other markets the legal rights of tenants mean you could have a lengthy and expensive battle in ridding yourself of a bad tenant. Will the lower income levels coupled with the added expenses drag your investment down?

Of course, you can limit your risks [and costs] by doing the majority of the upgrades yourself, appealing excessive property tax increases, and finding for yourself a trusted and dependable tenant. It isn’t easy flipping a home, but with a lot of pluck and determination it can result in strong profits for you.

 

Buying Homes that have Faced Foreclosures

foreclosure picYou’ll find there are some people who tout the benefits and advantages of buying homes that have gone through foreclosures. Often, those homes are offered up for auction to the highest bidder and there are some really good deals to be had at that point.

There are some very important pieces of information you should have before you start planning to buy homes that have been foreclose upon.

First, understand that a lender gave money to the person who wanted to buy that house in order for that borrower to make the transaction. The lender had some expectation that he’d recover all that money plus some interest, but most lenders simply aren’t in a position to handle property. They don’t want to foreclose on the house because then they’re going to have to do something with it. That means that the foreclosure process could take a long time while they look for some way to recover the loan from the original borrower, but it also means that most lenders are going to foreclose and then quickly offer the property at auction.
You’ve probably heard about auctions that ended with buyers getting really good deals. That happens, but it’s not always the case. Why would a lender agree to let a particular piece of property go for less than it’s worth? Remember that the lender isn’t in the real estate business and their primary objective will usually be to recover the amount of the original loan plus interest, if possible. If the original loan had been paid down significantly, the lender could agree to sell the property for a fraction of its value.

Another important point is that these auctions will typically be made public. For the person hoping to bid on the property after the foreclosure is complete, this probably means you’re going to have some competition. This is the main reason it’s not a good idea to allow the foreclosure process to run its course before you try to buy a particular piece of property – or to buy it back if you were the owner before the foreclosure.

Most lenders aren’t anxious to see property in foreclosure. They’ll often work with the owner for a long time, hoping that the loan will eventually be repaid.  But when they have to foreclose, they usually don’t want to hold the property long while looking for a buyer who’ll offer up a good deal. If you’re planning to visit some foreclosure auctions, you may very well find some very good deals.