Real Estate Consumer News

Six Must-haves for Mortgage Approval

Fri, 23 Dec 2011 19:28:26 +0000

Interest rates are hovering around historical lows, and low interest rates increase affordability, making it easier for buyers to qualify. Yet stories of buyers waiting months to gain loan approval and home purchase transactions not closing on time due to lender's strict underwriting are all too common.

Some buyers are turned down for illogical reasons. For instance, if you have investments -- even if they're performing well -- an underwriter might deny the mortgage because your portfolio doesn't fall into the underwriter's risk assessment model.

One couple was turned down because the husband had worked at his current job for less than a year -- even though he was making more money at the new job than he was before.

These buyers were well-qualified. The wife had worked several years for one employer and was able to qualify for the loan on her own. So, the transaction closed, although two months late.

Generally, it's more difficult to qualify now than it was a year ago. Most conventional lenders require a 20-25 percent down payment. For the lowest interest rates, your credit scores need to be in the 700 range. You need to have verifiable income and cash reserves in addition to your down payment and closing costs.

You could run into underwriting problems if you're self-employed, as W-2 income is much easier to verify. Other hurdles are lapses in employment and owning a lot of property. Some lenders won't lend to buyers who have more than three or four residential properties.

If you're buying a new home before selling your current home, you'll need to have 30 percent equity in your current home. This needs to be verified by the lender's appraiser. Also, the lender will want to see a copy of the cashed check from the tenant for the first month's rent to verify rental income if needed to qualify.

HOUSE HUNTING TIP: As soon as you're serious about buying a home, find the best mortgage broker or loan agent you can to assist you. Don't make your selection based on interest rates alone. A good track record counts for a lot.

Closing the deal should be your primary goal. If you have to pay 0.25 percent more to assure your transaction closes on time and that you're not turned down at the last minute, it's worth it.

Be candid with your loan professional about anything in your financial picture that might impact loan qualification. A good loan agent or broker will be able to assess your financial situation and anticipate what you'll need to do to satisfy the underwriter.

Be aware that appraisal issues can impact your loan approval. For example, if a previous owner added square footage without a building permit, the additional square footage probably won't be included as livable square feet.

If the appraisal comes in for less than the purchase price, the lender might not lend you enough to close the deal. Include an appraisal contingency in your contract.

There are more jumbo financing options available now. Adjustable-rate mortgages that are fixed for 10 years and then revert to an adjustable have a starting rate about 0.25 percent less than a 30-year fixed jumbo. A five-year fixed starts about 0.5 percent to 0.75 percent lower, but is riskier.

THE CLOSING: Because of the risk factor, the lender may want you to have a large cash reserve. Your retirement account counts toward this.

By Dian Hymer

Check Home's Permit History Before Buying

Sun, 04 Dec 2011 17:09:33 +0000

Now more than ever, it's important to protect yourself from unexpected surprises when you buy a home. The goal is to find out as much about the house as possible before closing.

Your offer should include an inspection contingency even if you're making an offer in competition. The contingency wording should be broad enough for you to inspect whatever you deem necessary so that you are confident the home will satisfy your housing needs within a budget you can afford.

If the inspections reveal defects that can't be corrected, or ones that can but the sellers won't participate in the solution, you should have the option to withdraw from the contract and have your deposit returned.

Most buyers have a home inspected by a home and structural pest control ("termite") inspector. Additional inspections recommended, such as for roof or drainage, should also be done.

Ideally, you want to know not only the severity of a defect, but how much it will cost to repair. It's a good idea to ask for written reports and repair estimates, despite the additional cost. Written reports can be effective in negotiations with the sellers over inspection issues.

Even if you don't intend to negotiate, written reports provide a record that will help you complete the needed repair work. It will also serve to inform the future buyers about the condition of the property when you bought it.

HOUSE HUNTING TIP: An item that is often overlooked during buyers' inspections is the permit history on the house. It can be a hassle dealing with the city bureaucracy, and few buyers have time to go to the city planning department. Some even pay others to take care of this task. One way or the other, it should be done. Ignoring this detail can result in problems.

Several years ago, a buyer didn't check the permit history when she bought. When she applied for a permit to do work on her house, she was denied because of outstanding permits taken out by the previous owner that hadn't received final approval.

In order to obtain a permit, she had to have the property inspected by the city and do any work necessary to receive the final approval -- all at her expense. This can cost thousands of dollars.

Recently a home buyer obtained the permit history on the home she was buying. Two items became apparent that required further investigation.

One involved a remodel done by a past owner, not the current owner, for which a variance was granted. The permit received final approval. However, final permit approval was conditioned on the seller agreeing to record a notice of property use limitation on the title to the property. The preliminary title report on the property didn't show a notice of property use limitation.

The title company searched the title record again, aware of the dates around which the notice should have been recorded, and found it. The title company issued an amended report correcting its mistake.

The permit search also indicated that there were fees owed against the property. The buyer was concerned because she planned to do work after closing and didn't want to be stuck paying fees that she hadn't incurred, especially having no idea how much was owed.

It turned out that the fees would not be charged to the new owner. One was for an application made by a past owner that had expired. The city had not performed any services. The other was from 1997, which was deemed to be too old to collect.

THE CLOSING: While you're checking the permits, be sure to ask if any fees are owed. You may need to check directly with the cashier.

By Dian Hymer

Three Ways to Buy Into High-demand Real Estate Market

Sun, 04 Dec 2011 17:09:00 +0000

You'd think with so many homes for sale, there would be no problem finding one to buy. However, plenty of buyers who would like to buy now to take advantage of low interest rates and prices can't find the right home.

One problem is that the most desirable areas don't have an oversupply of good homes for sale. Sellers who don't have a good reason to sell now aren't, so the supply of good listings is low.

Many listings that are available in these coveted areas either need a lot of work or are overpriced for the market.

Fixer-uppers aren't popular because they add to the uncertainty of the transaction. Most buyers are already concerned about the market, their jobs and the state of the economy. They shy away from homes that need a lot of work because it raises more questions and uncertainty. How much will it cost? Could it cost more than expected? How long will it take to complete the job?

HOUSE HUNTING TIP: Buyers who have the vision to imagine a home in its fixed-up condition can keep costs down if they live in the home while the work is being done. Expect it to be a stressful experience and plan on the work taking longer than anticipated. Uncontrollable factors, like rain, can hold a project up due to no fault of the contractor.

Most contractors like to work on a time and materials basis, which leaves the ultimate cost unknown. A fixed-price contract may cost more, but if unanticipated work needs to be done, it won't cost you more. It's like paying for insurance.

A listing that has been on the market for some time is likely to be overpriced. Try making a low offer. You might be able to negotiate a mutually acceptable price. Before making an offer, ask your agent to find out if the sellers are planning on reducing the price. If so, make your offer quickly. When listings are lowered to the market price, more than one offer can appear.

Have your agent search the multiple listing service to see if there are any listings that might suit your needs that didn't sell and were withdrawn from the market. If the owners still want to sell and are willing to be flexible on price (the listing probably didn't sell because it was overpriced), make an offer and see if you can reach an agreement. First, ask to see disclosures and reports to find out if there's any reason, other than price, why you wouldn't want to buy the property.

Another approach is to broaden your search. If you've been focusing on only one area, you might consider several other neighborhoods that could work for you. This opens you up to more new inventory.

One couple was set on buying in a particular neighborhood for the location and schools. There was so much demand in their price range and so few listings that they were priced out of that niche market. They bought a home in a neighboring county where they got much more for their money and good schools, although they had to sacrifice on location.

Easing up on your homebuying requirements helps you to buy sooner rather than later. For instance, if you'd like a view but can drop that requirement, you'll have a much easier time finding a home to buy. All home buyers need to make compromises. But don't buy a home that won't serve your ongoing housing needs. In this market, it makes sense only to buy for the long term.

THE CLOSING: It's better to rent until the right place comes along than it is to buy a home that you'll need to sell again soon.

By Dian Hymer

Urgency Sells Homes

Sun, 02 Oct 2011 15:33:29 +0000

After the tech bubble burst, people were leery about putting money into the stock market, and instead poured money into housing. It was easy to get financing -- too easy, as it turned out. The inventory of homes for sale was low, and demand was high. When the demand is high and supply is low, prices go up.

Rising prices created a sense of urgency; buyers couldn't buy fast enough. They wanted to own as soon as possible in order to take advantage of home-price appreciation that was rising rapidly in many areas.

This resulted in the housing bubble that burst in 2007. The housing market has been struggling ever since.

Nationally, home prices have declined 30 percent to the level they were in 2002. Even low interest rates, coupled with low home prices, haven't been enough to ignite home sales.

Part of the problem is that there is still too much inventory of unsold foreclosure properties, mostly located in areas where people can't find work.

Another factor holding the market back is the stringent mortgage qualification requirements. In the San Francisco Bay Area in 2006, more than 50 percent of home purchasers bought using loans that didn't require conventional qualification, such as stated-income or no-cash-down mortgages. Those loans aren't available today.

Many lenders today require a cash down payment equal to 20 percent of the purchase price. To get the best interest rate, your FICO (Fair Isaac Corp.) credit score needs to be 720 to 740. Before 2007, 620 got you a good rate. You also need to be able to verify a meticulous employment history.

The pool of qualified buyers has diminished significantly due to tightened lending criteria. Equity loss has kept many would-be trade-up buyers from moving forward. Of those who can afford to buy, many are nervous about buying now because of recent economic news indicating that the economy is slowing and unemployment is rising.

HOUSE-HUNTING TIP: This doesn't mean that all homes aren't selling, just a reduced number. This is because, in most cases, sellers are marketing their homes to fewer buyers. To be a successful seller in this environment, the goal is to create a sense of urgency by preparing the listing for sale and pricing it right for the market so that buyers feel that if they don't buy it now, someone else will.

Sellers are often in denial about how much a buyer will pay for their home.

They have difficulty seeing their home from a buyer's perspective. This is unfortunate, because buyers know current market value better than most sellers do.

Today's buyers study the market carefully before they buy. They know the sale price of recent listings in the area that sold. They know when a listing is priced at, under or over market.

Sellers whose listings aren't selling should ask their real estate agent to give them feedback about buyers' reactions to their home. If the objections are about features that can't be changed, like a location on a busy street, the list price will need to be adjusted to account for the incurable defect.

During a hot seller's market, buyers often overlook incurable defects because they don't want to miss out on swift appreciation. Affordability is motivating today's buyers. They don't expect to see appreciation soon.

In some places, prices could decline further before turning around. Low interest rates make homes more affordable for buyers. So do lower home prices. Overpriced listings reduce affordability, and they don't sell.

THE CLOSING: The best time to reduce the price of an overpriced listing is as soon as the market indicates that it's priced too high.

By Dian Hymer

Seller Musts When Fixing Home Defects

Sun, 04 Sep 2011 15:53:58 +0000

Some experienced investors buy foreclosure properties cheaply without even having seen the property. However, most buyers shouldn't buy a property unless they have had it thoroughly inspected by qualified professionals. Inspections are a necessary part of the homebuying and selling process.

Sellers should be leery of buyers who offer to purchase without an inspection contingency. A well-inspected property protects both the buyers and sellers from after-closing claims that can be time consuming and expensive to resolve.

Many sellers have presale inspections done -- usually structural pest ("termite") and home inspections -- before they put their homes on the market. A question is when to have the inspections done: a reasonable time before the house goes on the market or after repairs that sellers know about are remedied?

Often sellers opt to have inspections done just before marketing so that there are fewer defects for inspectors to find. This can be problematic if there isn't enough time to make the repairs you'd like to have done before the listing goes on the market. In this case, the list price might need to be lowered to account for the defects.

It's not a good idea to have work in progress when your home is being shown to prospective buyers. But, you could delay the marketing while work is done.

This may or may not be a good idea depending on current market conditions.

The marketing of a property was recently delayed because the structural pest report revealed approximately $65,000 of damage.

There was no way to have the repairs done within a couple of weeks. It was a five-week job. In addition, the magnitude of work made it unsalable to most buyers who were intent on buying in the area. Most buyers don't have the cash to pay for this amount of work.

And, it's difficult to find a lender to finance renovations.

Selling a house that needs a lot of work as a fixer is not a good option in today's market. There aren't many speculators currently buying homes to fix up and resell, particularly if the work needed is infrastructure repairs, not a gorgeous new kitchen.

HOUSE-HUNTING TIP: Sellers who receive a "bad" report should get opinions from other contractors. In the case of the house mentioned above, the sellers were able to reduce the amount of the repairs by quite a bit by talking with more than one reputable contractor.

Make certain, if you do have someone other than a licensed structural pest contractor do the work, that he will guarantee his work for the buyers, and that his bid is a firm one. That is, if he finds more work than expected, he will take care of it at no additional cost to you.

Use a contractor who will stand by his or her work. It's a good idea to have the original pest inspector do a reinspection after the work is complete to make sure the house is clear of any active wood-pest infestation. If not, the contractor should take care of whatever he missed at no additional cost.

Sellers who have presale inspections done well in advance of marketing their home and then correct some defects will want buyers to be aware of the work they addressed. One way to do this is to create an addendum to the report in question and list the items that have been repaired, either by the number referenced in the report or by the report page number where the defect is described.

THE CLOSING: Include this along with the reports and make them available to buyers to read before they make an offer to purchase your home.

By Dian Hymer

A Seller's Game Plan for Hearing Offers

Mon, 04 Jul 2011 14:06:34 +0000

When the market strongly favored sellers in 2005 and 2006, they usually didn't entertain offers the first day their listing showed up on the multiple listing service. If they had, they might have left money on the table. There were so many buyers chasing so few listings that waiting a week or so to hear offers often resulted in over-asking-price offers.

Today, that strategy is still used in some hot niche markets that defy the national trend. Listings in some locations and some price ranges are in high demand. If the inventory of listings in these areas is low, it creates an imbalance that favors sellers in what is otherwise a buyer's market.

For example, a house in a city with a great public school system recently sold for $200,000 over the list price. The seller waited to hear offers until after two public open houses and a broker open house. Had he accepted offers earlier, he might not have done as well.

HOUSE HUNTING TIP: Waiting to hear offers can cost you money if your home isn't priced right for the market. If you price too high and also insist on waiting to hear offers, you're letting agents and their buyers know that you expect to sell for an unwarranted price.

On an overpriced listing, if offers aren't written by the designated date, you need to lower the asking price, usually by a significant amount, in order to rekindle enthusiasm for the property.

It's natural for sellers to want to get as much money as possible for their homes, particularly if they have a high mortgage balance. It's important to remember that the market sets the price, not the seller's expectations, dreams or how much they owe against the property.

One of the hardest exercises for sellers is to look at their home objectively, through the eyes of buyers who are hypercritical. Sometimes it helps for sellers to look at open houses of listings in their neighborhood that are similar to their home. However, some sellers are so emotionally attached to their homes that looking at other listings only strengthens their resolve that their home is worth more.

It's imperative for sellers to detach themselves from their homes in order to price for the market. Even in the hot segments of the market, overpriced listings don't sell. It helps to have an objective party advising you. Choose a local real estate agent who you respect and trust to represent you in the sale of your home.

Ask your agent to explain to you how your home compares with comparable listings that have sold in your area recently. What you might consider a benefit to your house may not be desirable in buyers' eyes. Listing at a price that's too high for the market will only hurt the marketability of your home in the long run.

Some buyers have an aversion to making an offer in competition against other buyers, especially if the news is that prices may not have hit bottom. In this case, you might not want to broadcast that you're waiting to hear offers until a specific date.

Here's another strategy to consider. Have your real estate agent tell agents and buyers who inquire about your game plan for offers that you haven't set a date, but that you want your home to have exposure to the market before you hear offers. In this case, you would at least want to have broad Internet advertising with photos, an open house for agents, and a public open house.

THE CLOSING: Putting off buyers who are interested in your home could backfire. So, don't wait too long if there are buyers who are serious about making offers.

By Dian Hymer

Buyer Strategies for Negotiating Home Improvements

Mon, 04 Jul 2011 14:06:08 +0000

Buyers often make mistakes when they buy based purely on emotion. They fall in love with the view or charm of the home, but fail to take into account the ongoing maintenance that will be required to keep the French doors operating properly, the garden looking pretty and the skylights free of leaks.

Home maintenance is generally more expensive on older houses than it is on new homes. However, a poorly built newer home can develop problems in the early years of ownership.

This is not to say that you shouldn't buy a home that catches your heart. Just make sure that maintenance costs are included in your housing budget. If you can't afford the maintenance and you let the home fall into disrepair, its appeal will diminish, as will its value.

Buyers who walk into a listing and know they want to live there are fortunate. Most buyers never have this experience. Usually compromises are made when buying a home. You should make a wish list of everything you'd like to have in a home and then prioritize it. You probably won't find everything you want in one home.

There are a couple of issues that complicate homebuying decisions in the current market. One is how to deal with deferred maintenance. Another is: How do you evaluate improvements you want to make to the property for your own enjoyment? When home prices are moving up quickly, buyers don't give much thought to these matters.

HOUSE HUNTING TIP: You have several options when the house you're buying has been neglected by the seller. Let's say there's $10,000 of termite work recommended in an inspection report. One option is to ask the sellers to have the corrective work completed before closing.

Sometimes there isn't time to have the work done before closing. Or perhaps you want to incorporate improvements into correcting the deferred maintenance, in which case you might not want the sellers to do the work.

For example, if the bathroom floor needs to be replaced because of water damage to the floor joists and the shower pan leaks, you could redo the entire bathroom to your taste, if you could afford to. Even if you just want to replace the floor and redo the shower, you might prefer to use finishes that you select.

In cases where you don't want the sellers to do the work, reduce the offer price by $10,000 and buy the property "as is" regarding the termite work.

Buyers who don't have extra cash for repairs could offer a price that doesn't reflect a reduction and ask the sellers to credit them $10,000 in escrow to be applied to their nonrecurring closing costs. Even though the buyers pay a higher price, they bring $10,000 less to closing -- money that can be applied toward deferred maintenance.

Almost any home you buy will need modifications so that it will satisfy your taste and intended use of the property. Perhaps the house lacks a developed backyard or deck. You might not like the color scheme. It may look too plain; you envision spending money to improve the curb appeal.

Most people feel they should recoup investments they make on improvements when they sell. However, studies have shown that most remodel projects don't pay back 100 percent of the amount invested. For this reason, you should select your projects carefully and keep resale value in mind.

Making changes to a home to make it reflect your taste improves the quality of your lifestyle while living there. It's hard to quantify this. The longer you live in the home, the more valuable the enhancements will be to you.

THE CLOSING: Before improving your new home, make sure you won't be over improving for the neighborhood.

By Dian Hymer

Make Cost-Effective Home Improvements

Sun, 01 May 2011 15:13:59 +0000

Imagine walking into an important job interview looking like you just dragged yourself out of bed. You'd be unlikely to make a good impression and diminish your chance of securing the job.

The same goes for selling a home. First impressions are lasting. Some buyers won't even look at the inside of a listing that doesn't have good curb appeal.

Today's buyers are picky. There is no sense of urgency in the market, so buyers are holding out for the best home they can find that will work for them for years to come. In some areas, there are a lot of homes for sale. It's important to make sure that buyers will be attracted to your home before they even walk through the front door.

Fortunately, exterior improvements needn't be expensive. The recent Remodeling Cost vs. Value Report 2010-2011 found that the improvements that yielded the highest return on the investment when sold were a new steel front door and a new garage door.

The average cost nationally for a new front door was $1,218; the return was 102 percent. The average cost for a new garage door was $1,191; the return was 83.9 percent. The top nine of 10 most cost-effective improvements nationally were for exterior projects. Curb appeal is as important as ever, and may be more so in this market.

The Remodeling Cost vs. Value Report is a collaborative report done annually by Remodeling Magazine and the NATIONAL ASSOCIATION OF REALTORS®. It compares construction costs with resale values, which are based on estimates from more than 3,000 REALTORS® and appraisers.

Sprucing up the front yard for sale needn't be costly. Clean out weeds and dead plants. Add flowering plants for color and mulch to tidy up areas that aren't heavily planted. Replace a lawn that has seen better days with less lawn and a border bed of flowering shrubs.

Do in-ground planting well in advance, if possible, so that plants have a chance to get established before your home goes on the market. If you have no choice and must plant at last minute, be sure to remove the ID tags from the nursery.

A deteriorated fence should be removed, repaired, or replaced. Any peeling paint on the front walk and steps and house exterior and trim should be refreshed. The side of the house that gets the most exposure needs the most maintenance. If you've let it go, you'll be docked dollars by the buyers unless you repaint where needed before you sell.

HOUSE HUNTING TIP: The amount returned on home improvement investments varies from one location to the next. It's important to consult with your local real estate agent before you embark on an upgrade to make sure that you don't overpay on an improvement that won't generate the desired result.

Most homeowners assume they'll get their money back and more when they sell. In fact, most upgrade investments often don't return 100 percent of the amount invested, particularly in a down market.

A minor mid-range kitchen remodel returns 72.8 percent nationally, according to the 2010-11 Remodeling Cost vs. Value Index. In the Pacific region of the U.S., you're likely to recoup 84.1 percent.

However, a major upscale kitchen remodel pays back only 59.7 percent nationally and 66 percent in the Pacific region. It makes sense to take on a major remodel project only if you're staying in your home and can enjoy the use of the improvements before selling.

A deck addition ranked high on the list of popular exterior improvements. Although, nationally the cost recouped is only 72.8 percent, it may be an essential enhancement if your home has no outdoor living space and all the homes for sale in your neighborhood do.

THE CLOSING: Supply and demand in your local area will also impact how much you'll recoup from your fix-up investments.

By Dian Hymer