Joel Dameral's South Lake Tahoe Real Estate Blog (530-545-8827)

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The buying public seems to think that “great deal” equals foreclosure, short sale or bank-owned property. The truth is that these properties may appear to be bargains, but in many cases you could be buying someone else’s problems. If you’re looking for a bargain property, here are some key issues to consider:

1. What is your time line for purchasing?
You may find the perfect short-sale property, and the seller may accept your offer. The challenge is that you don’t have a deal until the bank approves the short sale. At many large lenders a single processor may have up to 500 files on his or her desk at one time. Realtors are reporting that it can take six or more months to get an offer approved. The wait can be extremely frustrating. It can also be costly.

For example, if prices are still declining in your area and price range, the offer you made six months ago may be too high. Also, if you qualify for a loan now, will you still qualify six to eight months from now if mortgage interest rates have increased? More importantly, can you afford to make a higher monthly payment? If possible, search for a short sale or an REO where the bank has preapproved the sales price. It still may take a long time to close, but not as long as it would if the price was not preapproved.

2. Are you prepared to be in a multiple-offer situation?
Since so many buyers are searching for distressed properties and the approval process takes so long, multiple offers are common. The lender will not tell you about other offers. They may, in fact, tell you that your offer will “probably” be approved — but you cannot rely on this representation.

If another offer comes in at a higher price and at better terms, the bank is obligated to take the best offer. If the property is a short sale, the seller’s signature on the document merely opens the negotiation — it does not finalize it. Furthermore, the seller/lender may continue to market the property even after they have signed a contract with you. This is simply smart business, as so many borrowers are having trouble closing transactions due to appraisal issues.

3. Ask the agent if the seller participated in the “Cash for Keys” program
The best candidates for good bargains are those properties where the sellers are still occupying them. Many banks have a program called “Cash for Keys.” This program pays the owners of foreclosure and short-sale properties money to keep the owner from trashing the property when they move out. I have seen copper piping ripped out of properties, concrete poured down the plumbing, and appliances stolen or destroyed. Cash for Keys is designed to minimize these behaviors.

4. Beware of vacant properties
Never purchase any property without doing a physical inspection. Also, if it takes more than 90 days to negotiate the transaction or if the house has been vacant, have the property re-inspected prior to signing off on the final deal. The reason for this is that the longer a house stays vacant, the more likely it is to have problems.

For example, pack rats and mice are more likely to move into vacant properties. They can chew through the wiring and generally wreak havoc with the home’s electrical systems. Also, if the dishwasher is not run at least once a week, the seals can dry out. If you live in an area where the pipes are not winterized and there are freezing temperatures, a pipe may burst. You may not discover the problem until you turn the water back on after closing.

5. Is the deal more important than your lifestyle?
A property can be a great deal in terms of the price, but is it worth it if it’s in a poorly rated school district or if the commute is an hour from your workplace? What if the property has a terrible floor plan, is in the flight path for a major airport, or occasionally gets a whiff of the sewage treatment plant? When you purchase, it’s important that you take all of these issues into consideration rather than focusing exclusively on the price. A property with any of these types of problems will be harder to sell in the future.

It’s important to consider the price in conjunction with the quality and the convenience of your lifestyle once you move in. For example, an extra 30-minute commute over a number of years can easily chew through thousands of dollars in terms of your vehicle costs, not to mention the wear and tear from the additional stress of commuting.

There are good distressed property deals out there. Nevertheless, don’t limit your search. Have your agent show you seller-occupied homes that are not distressed properties. Thirty-five percent of all properties are owned free and clear. These properties are often lovingly maintained, in top-notch condition, and in more desirable locations. In the long run, they may be a much better bargain.

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of “Real Estate Dough: Your Recipe for Real Estate Success” and other books.

 

Buying a home can be a dauniting task that has both risks and rewards.  The following is a shortened version of an article that first appeared in October on RISMedia.  I think that is offers some usefull information for those people who have their sights set on the “foreclosure”.

Buying a foreclosure often is appealing to buyers trying to stretch their dollars. It’s finding a good one can that can be a challenge.  Finding the bad one is easy.

The vast majority of the banks don’t want us to advertise them as ‘bank-owned’ because it comes with a negative connotation.   This means no sign on the front lawn indicating the home is anything other than a traditional sale. A buyer probably won’t find a property advertised as a foreclosure on marketing materials.

Plus, in some markets, including Las Vegas, foreclosure inventory is actually down compared with last year as government programs attempt to keep owners in their homes and banks aren’t putting as many homes on the market.   This is making it harder for buyers to purchace a foreclosure, and those paying with cash often win a bid over someone who needs financing.

If you’re considering the purchase of a home that is now owned by a bank, it’s also important to know at the outset just how much work you’re in for — and how much it is going to cost you. Many foreclosures are in various states of disrepair; some of the fixes are cosmetic, but some can be extensive.

Those looking for the best deal probably shouldn’t rule out non-foreclosure properties.

On Wednesday the Senate voted, 98-0, to extend and expand the current first time home-buyer tax credit that is scheduled to expire at the end of November.  The house voted today 403-12 in favor. 

Buyers who have owned their current homes at least five years would be eligible for tax credits of up to $6500.  Anyone who has not owned a home in the last 3 years (including first time home-buyers) would still get up to $8000.   This tax credit is only good for primary residences costing less than $800,000.  There is a phase out for individuals with incomes of greater than $125,000 and $225,000 for joint filers. 

To qualify one must sign a purchase agreement by April 20, 2010 and close by June 30, 2010.  As always, consult your tax professional before making any tax related decisions.

The following is an interesting article a friend sent me from the Chicago Tribune dated 10/11/09.  I thought it might be helpful for anyone looking to buy or refinance a home.

With low mortgage rates and a federal incentive for first-time homebuyers, you might be enticed to buy a place or refinance the one you’re in.

But new regulations on brokers, appraisers and mortgage lenders have changed the rules for getting or refinancing a mortgage. Some rules went into effect this month, and others will kick in soon.

“Over the past year, getting a mortgage as a buyer or when refinancing has become more arduous and more expensive,” said Dale Robyn Siegel, author of “The New Rules for Mortgages.”

Here are a few tips, some accounting for fallout from the credit crisis.

Don’t use a mortgage broker unless you need hand holding. In the past, brokers typically shopped your loan to multiple lenders, which was a big help. But new regulations have hamstrung their ability to efficiently shop for the best deal. Among them is a rule that lenders can’t accept home appraisals commissioned by brokers. So, you’ll have to pay for new appraisals with each lender, which costs time and money.

In the end, you’re probably better off shopping for a mortgage by yourself, said Siegel, who owns a mortgage brokerage in White Plains, N.Y.

However, if you’re very busy or need hand holding, it could be worth using a broker, she said. Just realize you’ll pay a slightly higher interest rate because that’s how the broker gets paid.

Shape up your credit. You barely needed to fog a mirror to get a mortgage or refi a few years ago. Today, it’s different.

“Qualifying for a mortgage is the most difficult it has been in decades,” said Dale Vermillion, author of “Navigating the Mortgage Maze.”

Starting Nov. 1 or Dec. 12, depending on the type of loan, anybody with a credit score of less than 620 will have a very difficult time getting a mortgage. That’s because government-backed mortgage financier Fannie Mae is tightening lending standards to the 620 benchmark, even for loans backed by a federal agency such as the Federal Housing Administration or Veterans Affairs.

To get the best rates — and save money on monthly payments — you’ll need a score of about 720 and have a verifiable, steady income, Vermillion said.

So, take steps to raise your credit score. The scoring formula is complicated, and specifics are secret. But the best ways to raise your score are: pay bills on time and pay off debt. Less known are to never close an old credit card account and try to use a very small percentage of your available credit, regardless of whether you pay off your card balance every month. And check reports at Annualcreditreport.com.

Get a fixed-rate mortgage. The vast majority of buyers and refinancers are better off with a rate that won’t change, Siegel and Vermillion agree.

“Why are you taking out an adjustable-rate mortgage that’s going to change in five years when you can take out a 30-year fixed and never think about it again?” Siegel said.

With a primary residence, it’s usually best to think long term, and that means a fixed-rate mortgage.

Gregory Karp is a personal finance writer for The Morning Call, Allentown, Pa., and author of “Living Rich by Spending Smart.”

Short sales can occur if a lender (or multiple lenders) agrees to accept an amount less than what is currently owed against a home.  The more lenders there are on a home the harder it is to conduct a short sale.  It is often best if your real estate agent or lawyer contacts the lenders loss mitigation department to help in the process.  One common misconception is that when you proceed with a short sale there is not a “ding” on your credit record.  This is not true.  There is a hit to the credit score often 200 to 300 points.  Although unlike a foreclosure you may be able to buy another house in a little a 2 years.

A foreclosure usually starts when a homeowner stops making payments for whatever reason.  This ends with the mortgage holder selling the home at auction. If there are not any bids high enough the bank will bid and take control of the property.  Many times the homeowner can stay in the house for up to a year before being forced to move.  Like the short sale this can be a hit of 200-300 points on ones credit score.  It takes much longer (in some cases 7 years) before you can buy another home.

Neither of these options should be taken lightly.  If, as a homeowner, you are considering one of these options please consult an attorney, tax professional, and a real estate professional before signing any paperwork.  One reason you should contact a professional is because many times (not always) you are still obligated to pay the difference between what your mortgage company gets for your property and what your loan amount was.