Wednesday, December 30, 2009

Lock or Float Your Interest Rate?

When it comes to guessing the best time to lock in a mortgage interest rate, I’ve seen easier games on the carnival midway. Hitting everything just right so as to capitalize on the best rates and costs is not impossible, but it can be quite daunting in today’s volatile market.

Before the recent downturn in the real estate industry, the movement of mortgage rates was relatively easy to predict. But now the key indicators that once predicted the movement of mortgage interest rates are not as closely linked to the actual rates on any given day. Making it further difficult to predict, rates may fluctuate by 25 or 30 basis points in a few hours or a few days. Even the experts confess to having greater difficulty giving advance notice of rate movements.

Interest rates are usually locked for 30 to 45 days, depending on the time stipulated in the purchase contract. At the same time, rate locks are available for 60 and 90 days while some lenders offer locks up to 180 days. Borrowers can expect to pay a premium for longer lock periods, and these prices can very widely between lenders. Most lenders require that the loan be locked between 7 and 15 days before closing.

First, Find a Home. Most lenders require an address to lock a loan. This is one way the lender knows the borrower is serious about actually purchasing their financing. When the rate is locked, the lender is committing their money to you at that price. Once that amount of money is committed, they can’t use it to secure someone else’s financing. So, lenders take rate locks very seriously.

Second, Track the Time. The average purchase contract is written for 30 days. But if your situation is different, you need to make certain that your rate lock won’t expire before your scheduled closing date. In fact it’s a good idea to check with your lender the seven days prior to closing just to make sure your loan will close before the rate expires. If there is a question about this, request a rate extension.

Third, Bank the Benefit and Sever any Surprises. Most borrowers find a rate they can live with and lock it in. This way, they know what their monthly payment will be and can budget for it. Further, they simplify their home buying experience by limiting the number of distractions they have while waiting to close.

There are still some buyers who can’t resist the urge to “play the market” and they will choose not to lock their rate but instead “float” it hoping for a market improvement and a lower rate. What they hope for is a dramatically lower rate. In the best real life scenario what they actually receive is a slightly lower rate, perhaps as much as .125%. Unfortunately in many cases the rate actually increases by the same 1/8th of a percentage point. You win some, you lose some. This is why most borrowers choose to lock their rate instead of float.

Having said all of this, some lenders offer a “float down” option for their interest rates. This option (usually accompanied by a fee…of course) allows the borrower to re-lock at a lower rate, should rates drop by a specified amount during the time their loan is in processing.

Fourth, Follow the Fed. Earlier this year the Federal Reserve announced plans to buy up more than $1 Trillion in mortgage-backed securities. The reason this is so important is because interest rates on fixed-rate mortgages are determined by mortgage-backed securities that are traded on the bond market. When demand for these instruments goes up, fixed interest rates drop, and vice-versa. This promise by the Fed has helped keep rates lower throughout the last few months of the year.

It is not certain what the Fed will do after the first of the New Year. What could happen (emphasis on the could) is that the market for mortgage backed securities could shrink a bit driving down the demand and causing rates to rise.

Tuesday, December 22, 2009

HUD Provides Transparency and Clarity for Borrowers

January 1, 2010 is more than the first day of the second decade of the 21st century, it is also the day new guidelines from the Department of Housing and Urban Development (HUD) go into effect. And with these guidelines it is hoped a new day of increased transparency and improved clarity for borrowers seeking their best options for home financing.

Until now many of the fees charged by lenders, title companies and third party providers could undergo dramatic changes between the time the loan was originated and the time it closed. These changes could amount to hundreds of dollars in additional money being charged to the borrower. Some of these increases were unavoidable. In most cases not only were they avoidable, but one set of fees was quoted to get the business while the actual fees were withheld until closing.

In 2005 HUD held a series of roundtable discussions with industry representatives, trade associations and consumer groups to discuss the impacts of these practices. After two and one half years, HUD its proposed rule changes on March 14, 2008. Since then HUD has received over 12,000 public comments in response to these proposed rules.

The hope of HUD is that these new rules will help consumers shop for the loan that is best for their needs. HUD believes that shopping leads to greater competition and that increased competition leads to lower prices.

Because loan fees have been at the center of this controversy, HUD has attempted to simplify the shopping process for borrowers. By dividing all loan fees into three categories it is hoped that borrowers will be able to make more wise decisions when making their choice for home financing.

Category One: These Fees Cannot Increase at Settlement

The lenders origination charge – this is the up front cost the lender charges to provide their services. In the past, this fee has seen dramatic increases, sometimes based on the difficulty of processing the borrower’s file.

The credit or charge (points) for the specific interest rate after it is locked – many lenders have made it their practice to “float” the interest rate until pricing improves and the yield they make increases. This spread is called the yield spread, or YSP. If pricing is worse, the points charged for the “promised” rate have historically increased. Mortgage Brokers will no longer be able to pass on an increased fee but instead will be held accountable to own up to their own risk when floating an interest rate.

Just what is the YSP? - A bit of background is required for this explanation. Under the new ruling, HUD has determined that YSP is harmful to consumers and must be disclosed to borrowers. Further, HUD has mandated that the YSP be disclosed in the form of a credit to the borrower on the Good Faith Estimate of closing costs. In order to keep their YSP, mortgage brokers must now offset this credit by increasing their origination charge. In contrast, Mortgage Bankers are not required to disclose YSP, because they do not earn a yield spread.

Category Two: Charges that can increase up to 10% at settlement

Required services the lender selects – this can include appraisal, inspections and appraisal reviews.

Title services and lender’s title insurance if the lender selects the title company or borrower uses a company the lender identifies.

Owner’s title insurance if the borrower uses a company the lender identifies.

Required services that the borrower can shop for and if they use a company identified by the lender.

Government recorded charges.

Category Three: Charges that can change at settlement

Required services that the borrower can shop for as long as the company is not identified by the lender.

Title services and lender’s title insurance so long as the borrower does not use the company the lender has identified.

Owner’s title insurance (if the borrower does not use the company identified by the lender.

Initial deposit for the escrow account.

Daily interest charges.

Homeowner’s insurance.

There are other ingredients to these new rules and all are designed to protect the borrower from harmful or predatory lending practices. For the complete HUD booklet on this subject click here.

Tuesday, November 24, 2009

A Father's Love

The book lay under several layers of long forgotten personal items in the trunk of her car. Its binding showed evidence of neglect, yet it protected the unread handwritten pages. For more than a year the bound pages remained a part the items hoarded by the girl as she tried desperately to hold tightly to her fast fading youth.

Her senior year of High School became a distant memory in the rush of the fall semester of her College sophomore year. She was growing up; at least in many areas of her life. The discipline of regular class schedules and deadlines for papers and projects was reshaping her priorities. Values change. So do priorities. And so do friends. The old things pass away so that new things can come. In many ways, the girl was becoming a young woman. But still the book still lay under the growing pile of discarded items in the young woman’s crypt of her past.

For 263 days of her High School senior year, he sat at the coffee shop table sipping a mixture of coffee, cream and sweetener. And every day the unlined pages of a black bound journal were slowly and thoughtfully filled with the love he poured out for his daughter. He was a father and he loved his girl. He provided for her needs. He protected her from the encroachments of the world as best he could. And now in the pages of this book, he wrote the words of his life experience, dipping each thought into the ink well of his heart. His hope was that somehow this labor of love would help preserve his precious girl.

“My dear daughter”, headlined the top of each page. What followed was a different story every day; a new insight into life. A sliver of wisdom, a drop of knowledge, a pinch of experience, a glimmer of insight.

“When Niagara Falls was first discovered the flow of water over the falls was much greater than it is today. Then the amount of water going over the falls caused considerable erosion moving the lip of the falls backward up to 3 feet per year. But man’s need for electricity led to the construction of several dams upstream from the falls so that water could be redirected through turbines creating electricity. Now the volume of water passing over the falls is greatly reduced and the erosion caused by the water has slowed to about 1 foot per year. The Niagara Falls are one of many natural wonders that display God’s handiwork. And so your life was created as a wonderful miracle whose purpose is to demonstrate the magnificence of God. Construction of man-made structures, no matter how noble, has interfered with the natural flow of God’s wonder at Niagara. The same will be true should you allow the trappings of this world to impede the display of God’s wonder in your life. Not only will these impede the flow of His life through yours, it will greatly reduce His plans to reshaping and direct the flow of your life. Choose wisely those things you build into your life.”

The girl came home from college one day and her dad decided to clean out her car. In the trunk he found the black bound journal. Retrieving it, he placed it on the bookshelf of his office. Within a few days she returned to college and the book was never mentioned.

Two years past. On another visit home, she was talking with her father in his office when she noticed the journal on his shelf. “There’s my book,” she said. “Where did you find it?”

“Beneath piles of things in the trunk of your car” was all he said.

“Can I have it back” she asked?

“Sure” and he handed her the book.

Another two years passed and the girl was preparing to enter Medical School. The father was so proud. His little girl was growing up to be a beautiful productive woman. And he loved her.

Six months ago his phone rang. “Hello?”

Only sobs on the other end of the line. He knew the sound of her crying. “Sweetheart, what’s the matter?” The only response was, “Daddy” followed by more sobs. In a moment she regained her composure.

“Are you alright?” It was his only thought.

“Daddy, I’ve been up all night reading the book you wrote for me. It’s the first time I’ve read it. You put so much work into writing it for me, and I never appreciated it until now.”

“Writing it wasn’t work to me; and I knew you would read it when the time was right.”

Silence for a long moment. Then a sniffle on the other end of the line.

“Daddy, I never knew how much I was loved. Thank you.”

Then they both cried.

Who has shown you how much you are loved? Take a moment this Thanksgiving to say two simple words to them. “Thank You”. Happy Thanksgiving to all!

Friday, November 20, 2009

Six Killers of Home Mortgage Financing

The recent extension of the $8,000 tax credit for first time home buyers and the $6,500 tax credit for home buyers who currently own a home holds promise for a more robust winter housing market than usual. Because more buyers will be entering the market for home financing I thought it beneficial to offer insight into six common pitfalls to securing home financing.

Low Appraisal Value: You’ve found a home you like and your offer has been accepted. The appraisal was done a couple of days ago but the value came in under the contracted sales price. This scenario is not as uncommon as you might think in our topsy-turvy real estate world. If this happens to you, you’ve reached a point where the lender will most likely decline the financing until the purchase price is lowered to meet the appraised value.

Too High Debt to income ratio: All lenders use a “debt to income” calculation to qualify borrowers for home loans. This threshold is different for different lenders but should be a point of interest for anyone seeking home financing. The ratio appears as a “percent” and is derived by adding the monthly payments appearing on the borrower’s credit report including the new house payment (principal, interest taxes, insurance, and private mortgage insurance) and dividing this amount by the total monthly gross income being used to qualify for the loan. If this number exceeds the lender’s threshold (usually between 36% and 45%) the loan will likely be declined.


Change in employment status: Perhaps you have recently changed jobs. It is the same line of work but your new employer now considers you a W-2 employee whereas before you reported your income on a 1099. Or you were a W-2 employee and you now own your own business. In either of these instances most underwriters will require you to provide your most recent two years tax returns demonstrating this type of income in order to qualify for a home loan.

Too many repairs: In today’s housing market a larger number of homes on the market are foreclosure homes and may be in great need of repairs. It the home is in particularly poor condition it may be difficult to find a lender willing to make the purchase loan.

After the appraiser examines the home and prepares the report, many of these deals simply fall apart because of leaky roofs, other water damage, broken windows, faulty HVAC, electrical or plumbing issues. Some of these homes are listed as “cash only” sales. In other words the seller has had other buyers who were refused financing and will not only entertain cash buyers.


Tax Trouble: You work hard every day but when you file your taxes you report a large amount of unreimbursed employee expenses. Any amount you deduct for expenses like these, must be deducted from the income used to qualify you for the loan. I recently had a customer who claimed over $10,000 in unreimbursed auto expenses. She had over $50,000 in total income, but subtracting the unreimbursed expenses left her with too little income to qualify for the loan she wanted.

Several years ago, you had a tax lien, but have since paid that lien. Everything is alright now, right? Not so fast. It is not uncommon for a paid tax lien to still show on your credit report as not paid and unreleased. Because getting this release can take some time, if you’ve had a previous tax lien filed on your home, check now to make sure that it shows as being released on your credit report.

Unclear CAIVRS: Credit Alert Interactive Voice Response System. This system is only used when processing FHA and VA loans, but because more strict conforming guidelines are being enforced requiring larger down payments and more reserves, these types of loans have increased in popularity.

CAIVRS is a government database that has delinquent borrower records from the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA), the Department of Education (DOE), the Department of Agriculture (USDA), the Small Business Administration (SBA), the Federal Deposit Insurance Corporation (FDIC), and the Department of Justice (DOJ). Your lender enters information into the CAIVRS system about everyone involved in the real estate transaction; buyer, seller, (or owner if it is a refinance), realtor, appraiser, inspector, etc. Any of these names show up on the CAIVRS list can cause a setback in the progress of your government back loan.

Friday, November 13, 2009

7 Deadly Home Buying Mistakes

It’s official; President Obama has extended the home buyer tax credit through April 30, 2010. This legislation translates into an $8,000 tax credit for first time home buyers and $6,500 for subsequent home buyers. It also means an increase in activity on real estate transactions.

Because of the deadline, everyone should anticipate that the market will be a bit more crowded than it has been of late. The more crowded the market gets, the easier it becomes for home buyers to commit one of the 7 deadly home buying mistakes.

Demand Advocate Accountability: Every home purchase involves several key players. These participants include the realtor, the home inspector, the pest inspection, the appraiser, and the lender. Because most of us don’t buy a home every year, it’s easy to get lost in industry specific speech shuffle. Words and terms that the average consumer doesn’t understand can easily lead the buyers to unnecessary confusion. Here’s the bottom line. Everyone involved in your home transaction works for you. They are providing a service you need to purchase a home. They are spending your money. That makes you the boss. If something isn’t clear, call a time-out and demand a clear definition. In short, question without fear.

Don’t be a house hog: This is a very simply mistake that many home buyers make; buying more house than they need or buying a home that they are barely able to afford. Life has a funny way of handing surprises to us. If you buy a home you are barely able to afford, you are setting yourself up for trouble the next time life surprises you with an unexpected change.

Flatten Financing Fees: When signing the paperwork for a new mortgage, always remember that you are actually purchasing financing. There will always be some fees associated with all financing; and this is not the concern. It is the excessive charges that cause home buyers to pay too much to get into a home. When it comes to financing, be smart and ask questions about the fees you are being charged. It’s your money, make it work for you.

Credit Roulette: Once you’ve been approved for financing, don’t do anything that could negatively impact your credit report and scores. One home buyer I know didn’t think that quitting his job three days prior to closing would impact his ability to buy a home. He was in for a surprise when the underwriter called his workplace to verify employment the day before closing. He lost his financing and the house. Another home buyer decided that their new home required a house full of new furniture. So right after being approved for financing; they opened a large account at a local furniture store and maxed it out. Their credit scores took a dive and when the underwriter pulled their credit just before signing off on their loan, she discovered that their new scores fell below the minimum approvable scores for home financing. They too lost their financing and couldn’t buy the house.

Know the Neighborhood: Simply because you like a house and the neighborhood, remember that the wise home buyer takes the time to get to know the area just a bit better. Drive through the sub-division at various times of the day. What is traffic like entering and exiting the neighborhood? Are there a lot of cars parked on the street at night? Stop and ask some of your potential new neighbors the things they like and dislike about living in the sub-division. If the neighborhood has a pool, give it a quick look. And don’t forget to read the neighborhood association by-laws. Make sure you can live with these guidelines.

Ready, Set, Think: You’re ready to buy a home. You have the down payment and closing costs and you have your financing arranged. Before signing the contract take a step back and think. Does this home do more than meet our present needs? Will it meet our needs for the foreseeable future? What are the projected values of this home for the next 5, 10 and 15 year? If we have to stay her longer than we anticipate, will we be happy here? Buying a home involves emotions, but don’t let the emotions rule the decision.

Paralysis of Analysis: On the other side of the spectrum is the tendency of some home buyers to delay making a decision because they are still thinking about it. Great home buys have been lost by home buyers who sit on the fence too long after gathering all the necessary data. Every real estate transaction has a point when it’s yes or no. When it’s time to paint, get out your brush, or get off the ladder.

Friday, November 6, 2009

Something Old, Something New in Tax Credits

I’m writing this post on Friday morning, anticipating that President Obama will sign into law the extension of the $8,000 first time home buyer credit. This new legislation is really not new, but a modification and extension of the tax credit set to expire November 30, 2009. A new feature added to this bill that provides a $6,500 tax credit for current home owners who sell their home and purchase a new home.

Here are the details. (Please remember, as of this writing, the President has yet to sign the legislation into law.)

Continuation of $8,000 first-time home buyer credit. With a few distinctions, the old tax credit becomes the new tax credit. What is the same is the definition of First-time home buyer: not having owned in a home for the previous 36 months. What is different is that the contract for the home purchase must be signed on or before April 30, 2010 and closing must take place on or before June 30, 2010.

Current legislation requires that closing on the property take place on or before November 30, 2009. This has created a rush to close some transactions in an unreasonably short time frame. The new legislation provides a pressure release allowing them to close after the end of November deadline and still claim the tax credit.

The new April 30, 2010 deadline for signed contracts and the extended June 30, 2010 deadline for closing provides a more flexible window for home buyers to find the right home, agree to a purchase price all the way up to the end of next April and still have 60 days to close and claim the tax credit.

Clarification of Tax Credit. Current legislation requires the use of IRS form 5405 (found at http://www.irs.gov/pub/irs-pdf/f5405.pdf). This is the only form available at this time, but it is certain that a new/amended form will be released to include new tax credit guidelines. If you have already purchased a home or are planning to take advantage of this tax credit, make certain to use the correct form.

Existing Home Owners are Now Included. Under the new legislation current home owners are eligible for a $6,500 tax credit when selling their home and purchasing a new home. The catch is the tax credit is available only to those homeowners who have lived in their current home for at least five years. The home must be sold and a new contract must be signed on or before April 30, 2010 and closing must transpire on or before June 30, 2010.

New Income Limitation for Qualifying Home Buyers. Under the legislation set to expire November 30, 2009, maximum adjusted gross income limits are $75,000 for singles and $150,000 for those married filing jointly. The new legislation increases these limits to $125,000 single and $250,000 married filing jointly. This increase should make the tax credit available to more middle class Americans.

Something for Nothing? The recent “Cash for Clunker’s” tax credit program was touted a success because over 600,000 new vehicles were purchased under the program. The surprise for many of these new car owners is that they will be required to count the $4,500 tax credit as income on subsequent tax years. If you are in the 33% tax bracket, this would mean a sizeable increase in your tax liability.

It has yet to be finally determined if those who have taken advantage of the existing $8,000 tax credit or those who will take advantage of the new legislation will be required to claim the amount of their tax credit as income in subsequent years tax returns. It would be wise to consult your CPA and get all the information before making your final decision regarding the existing and the new home buyer stimulus tax credit.

Friday, October 30, 2009

Trick-R-Treat Transactions

Tonight is the night thousands of Edmond children look forward to for nearly an entire year. It’s the night when most Edmond homes will have the porch light on welcoming the masquerading mob to “come by our house for Trick-R-Treat”. The Trick-R-Treating goes both ways. Children dress up to receive the treats, but it’s the adults who enjoy seeing the children who receive the best treat of all. It is also an unfortunate fact that there will be some Edmond residents who will become the target of some youth’s “trick” instead of “treat”.

The day of closing on a new home is equally exciting for the new home buyer. Unfortunately some of these transactions are much like Halloween night; closing is promised to be a treat, but instead it turns out to be filled with infuriating tricks.

George Carlton is a veteran real estate professional with Keller William Edmond, who has seen just about everything that can go wrong with a closing. But still even he is sometimes shocked at the changes that are passed down from some lenders even after the buyers have been pre-approved. Carlton relates this story. “The day before closing our seller loaded up the contents of their house in a moving van and started out for their new home in Atlanta. That same day the underwriter for the lender discovered something in the borrower’s application that caused them to deny the mortgage. Now our sellers are forced to live out the nightmare of finding a way to make two mortgage payments and deal with the stress of moving the family half-way across the country.”

Short sales are becoming a regular part of the real estate landscape. A short sale is a housing transaction where the amount owed against the property exceeds the market value. The lender must decide whether or not they will agree to settle the mortgage for less than it actually owed by the borrower. Without question, this type of transaction holds some of the greatest opportunity or surprise.

“Short sales are terrifying because most sellers don’t know what they are doing”, says Morrie Shepherd, Owner/Broker of Metro First Realty, OKC. Sellers in this “short” position typically wait too long before contacting a real estate professional experienced in short sales. Shepherd says the best advice for sellers in this position is to, “start early; don’t wait for the notice of the Sherriff sale to contact a short sale specialist.”

The short sale transaction is filled with more potential traps and surprises than are found in an Indiana Jones movie. Shepherd says, “One of the most terrifying aspects of these transactions is the seller find themselves held captive by the lender”. Because the lender holds the note they control any negotiation for a short sale. If you find yourself in this situation, who are you going to call? Ghostbusters can’t help, Shepherd recommends, “Call a real estate professional experienced in short sales.”

First time home buyers have found a great incentive in the $8,000 tax credit offered by Uncle Sam. This program is scheduled to end November 31, 2009 but it appears that congress will extend a modified version of this program until April 30, 2010. More to come when congress makes their final decision and announces the details of the program.

Eric Rognas is a real estate professional also with Keller Williams Edmond. He recently represented a young couple buying a home wanting to take advantage of the $8,000 tax credit as well as the monies available from the City of Edmond Community Development Block Grant (CDBG). When using down payment assistance funds the borrower’s file must pass underwriting from the lender as well as a battery of tests from the CDBG. In this couple’s example, their file passed the lender’s underwriting but failed one of the CDBG tests the day of closing.

The wife’s mother had co-signed with the couple and when her income was calculated together with the couple’s income, it exceeded the allowable limits established by the CDBG. Everyone scrambled, new documents were signed, the closing was delayed by a day and the couple closed on the house. But due to the changes, the funds for the transaction were not distributed for an additional three days. What a horror story for everyone involved.

Wednesday, October 21, 2009

Rookie Mistakes of First Time Home Buyers

There’s still time for first time home buyers to close on a home and take advantage of the $8,000 tax credit. There’s even talk on the hill of expanding and extending the tax credit. This is good news for all first-time home buyers (anyone who has not owned a home within the past 36 months).

Imagine having an $8,000 tax credit on your 2009 taxes. That’s a great incentive to buy a home. So if you’re thinking of rushing out to buy a home you might want to take a moment to learn from the mistakes others have made when purchasing your first house.

Not knowing how much home they can reasonably afford. This truly is the first step toward successful and happy home ownership. Before spending hours scouring free real estate magazines and Internet sites, and before you get in your vehicle and burn gasoline, find out how much home you can reasonably afford. It’s a simple process, really. Contact a mortgage provider who comes recommended to you and ask them to pre-qualify you for a home purchase.

Some lenders charge a small fee (usually less than $150) for this process, and usually will waive this fee when you secure your financing through their shop. You will be asked questions about employment and income and be required to provide your social security number and birth date. A credit report will be pulled and all of this information compiled to generate a figure called the “debt to income” ratio. Even though some lenders still allow these ratios as high as 41% and greater, it is advisable for first time home buyers to keep these ratios at a more comfortable 36% or lower.

Presuming foreclosures offer the best deals. We’ve all heard stories of the couple who found foreclosed property that had four bedrooms, two living areas and a three car garage and their house payment is under $750 a month. So we assume those kind of deals are available for anyone who will spend a bit of time home shopping. Truth is while a foreclosure may provide you with a good deal, it’s best to get the expert advice from an experienced real estate agent before taking the jump into a proverbial money pit.

Not showing a poker face. When negotiating a poker face is a must. Even though, in most cases you won’t be negotiating face to face with the seller, your offer and response to their counter offer can prove just as effective (or ineffective) as a poker player’s ability to keep a straight face. The best advice is to keep emotions away from the negotiating table.

Choosing the wrong buyers agent. Even though he is licensed to buy and sell real estate, your football buddy may not necessarily be the best professional to negotiate your home purchase. When it comes to negotiating a price on a home, the real estate professional you choose needs to be skillful in negotiating not only the price, but also other concessions you want. Choose the wrong professional, and you could end up paying too much for the house you want.

Miscalculating the true costs of home ownership. Many first time home buyers forget that once they own the home, they are responsible for all the upkeep and maintenance. Whether it’s a leaky faucet or a cracked foundation, the cost of home ownership exceeds the monthly payment. It’s a good idea to set aside at least 1% of the home’s purchase price each year for potential repairs and upkeep.

Passing up the home inspection. The costs associated with purchasing a home add up quickly. It seems that everyone has a hand extended looking to be paid. So naturally the hundred or so dollars required for a thorough home inspection can be easily dismissed. After all, both you and your agent have looked the property over. You’ve even taken several of your friends over to see the house, and they’ve bought their own homes. Surely if anything were wrong, it would be evident by now. Don’t be so sure. The few hundred dollars it costs to get a good home inspection can save you thousands in future repairs and may even keep you from buying the wrong house.

Friday, October 16, 2009

Avoid These Home Buying Bungles

There are plenty of incentives these days for people to buy a home. In most areas prices are lower, inventories are flush, sellers are motivated and rates are low. As if these weren’t incentives enough, until December 1st of this year, the $8,000 first time home buyer’s tax credit is still available.

At the same time there are still questions about the relative safety and stability of our housing market. The nation remains in a fiscal crisis and nationwide unemployment continues give signs that it’s not finished its climb. I spend a large portion of my time networking with people in the real estate business. They have a combined experience of hundreds of years and a knowledge base that can help just about anyone circumnavigate these potential home buying disasters.

Let’s Make a Quick Buck. Nationwide, home prices are beginning to stabilize but categorically are not showing any signs of growth. Homes in our local market for the most part have remained stable or shown only modest increase in value.

In recent years there were plenty of opportunities to find homes on the cheap, drop $10,000 to $50,000 in repairs and updates and still turn a quick dollar when the house sold in a few months. This practice is called house flipping and while it is still possible to find these diamonds in the rough, the shouts of “Eureka!” have become fewer and farther between.

If you’re buying a home to live in for the next three to five years, you’re probably in good shape. It may be another year or two before we see our local housing market get back on the steady path to growth. If you’re still thinking about making a home purchase to flip, make sure your plans can weather the “worst-case” housing scenario.

Myopic Misunderstanding of Our Local Market. Oklahoma is still one of the nation’s best and safest places to buy a home. This remains an established fact in just about every report both nationally and regionally. Not buying a home based simply on the national news reports of a continued housing slump is just not good sense. Throughout the OKC metro area, home values have remained steady and in most areas have actually seen a modest increase. Home values is just one reason Oklahoma remains one of our nation’s best kept secrets.

Not Finding the Best Deal. House shopping is a team sport. Finding the right house at the best price that meets all (or most) your expectation, requires the focus and efforts of everyone involved. Use every available resource.

Start by locating the right buyer’s realtor. Everyone knows someone in real estate, and just because they have a license doesn’t mean they are the best agent for you. Take some time to visit with several realtors before making the final decision on whom you will hire to serve as your guide.

Focusing on Foreclosures. Even veterans in real estate purchasing have been burned when purchasing a foreclosed property. If this is the direction you have decided to go, hunt down a realtor with experience in foreclosed properties. These properties come with baggage, some of which you may not be prepared to unpack. But once you buy the home, you also have bought the problems. You want the best information on your side before you write the contract to buy.

The Lender Says We Can Afford It…Let’s Get It! Come on, hasn’t the horror stories of the past two years convinced us that just because we can doesn’t mean we should? You may have found the perfect home, but it’s up to you to make sure it’s something you can afford.

Make sure you’re not being na├»ve in your thinking that your current level of income is guaranteed. Never forget that realtors and your mortgage provider both work on commission. The higher price home you buy most often translates into higher commission for them. That’s not to say the people you are dealing with are motivated entirely by greed. At the same time, they are human, so it’s up to you to use your head.

Friday, October 9, 2009

3 Steps to Higher Credit Scores

Credit scores have always been important and they are becoming even more important than ever before. We all know that lenders and creditors use your credit score to decide whether or not to give you a loan or a revolving charge card. In fact these same decision makers use your credit score to determine what interest rate you’ll receive should they decide to extend the financing to you.

Did you know that your credit score could keep you from getting an apartment or a rental home? It could also prevent you from landing that new job. Landlords and employers are making much wider use of an applicant’s credit score to determine whether or not to make that lease or offer that job. So, how does one go about improving their credit scores?

First, pull your credit reports. Once each year everyone is allowed to pull all three of their credit reports (Transunion, Experian, Equifax) from www.annualcreditreport.com. This is a free site. There are businesses with sound alike names trying to sell you a service or products all the while offering you a free credit report that you may obtain for free, so a bit of care is advisable.

Once you have your credit reports, go through them carefully looking for serious errors. A serious error is not an incorrect or misspelled address, an old or incorrect employer, or a slight misspelling of your name, or a variation of your name. Instead, examine the past seven years for accounts that are not yours. These accounts could be negatively impacting your scores. Also look for inaccurate late payments or defaults. These are definitely harming your credit scores. Lastly, look for the number of inquiries. These may or may not be harmful to your scores, but it’s also a good idea to see who is checking your credit, or who is checking up on you.

If you find serious mistakes it’s time to take action. Dispute them with the specific bureau on which they appear. Write letters making reference to specific creditors; make the letter as clear as possible. The individual bureaus will notify the creditor/lender of your dispute and wait for their response. If they do not respond within a reasonable amount of days, the bureaus will correct your report and your scores should improve.

Sometimes creditors respond to the bureaus that the report is accurate. In this case (and if you still challenge the veracity of the report) you may need the services of an attorney. A $200 letter is definitely cheaper than thousands in higher interest payments.

Second, evaluate how you are using your credit cards. The rule of thumb is to keep balances well below the maximum limits. A better rule is to keep balances below 30% and to see maximum score improvement, keep balances below 10%. Also it is good to note that the credit bureaus do not give extra points for paying off a credit card balance every month. Their evaluation is based on a comparison of balance between the previous month and the current month.

Third, closing accounts can really damage your scores. It is best to leave all accounts opened and in place until you get your credit scores where you want them. After that you can begin closing accounts; but even then it’s a good idea to close them one at a time and to wait several months before closing the next account.

While trying to improve your scores, don’t open new accounts. Each time you open an account you risk damaging your scores. It is best to wait until you get the financing you want, or your scores are where you want them to be before opening any new accounts. Of course if you have no accounts and you are trying to improve your scores, opening new accounts makes sense.

Boosting your credit scores is not impossible, but it does require some strategic thinking, planning and steps of action. And the earlier you begin, the quicker you’ll be able to take advantage of the benefits higher scores will bring your way.

Wednesday, September 30, 2009

Real Ethics in Real Estate Transactions

Recently someone said I should write an article on the need for increased real estate ethics. I told them, “There’s no such thing as real estate ethics”. After a moment to let that sink in, I finished my comment. “There is only ethics.” We become our own worst enemy when we live under the assumption that every situation allows for its own code of behavior. For many, our ethics become malleable to a situation instead of our response to the situation becoming malleable to our established ethics.

Every real estate transaction potentially involves at least a dozen different parties. Two realtors and their brokers, the appraiser, the home inspector, the pest inspector, the mortgage provider and the national lender, the title company, a survey company, a well and septic inspection and a contractor to affect any necessary repairs. We all have heard of or experienced horror stories involving straw buyers, forged income documents, shoddy repairs, and grossly inaccurate home disclosure documents. Is it any wonder that buyers and sellers express an anxiety level that is off the charts?

Every participant in a real estate transaction has undergone some level of training, whether formal or informal, and each of these professions has at a minimum, annual “continuing education” programs that in most cases is required. Most of these remedial courses contain a small section on ethics for their particular business. The trouble is most people settle for a level of ethics that simply “keeps them legal”. This then becomes the standard of measure which everything they do in their business must pass.

But is this standard too low? Is it enough to do our jobs with the aim of performing only what is legally required, or do we need to raise our sights to some higher ground?

Think with me for a moment the difference that would be made if everyone in your next real estate transaction operated under one simple rule. “I will treat you in the same way I would want to be treated; and I will handle your business the way I would want someone to handle mine.” That’s it. The Golden Rule applied to real estate transactions. What would such a transaction look like?

Appraisals would portray accurate home values. In recent years one of the primary reasons home values shot up was because of inflated appraisal reports. As a result the entire appraisal industry is currently under close scrutiny and the natural response is paranoia. Many appraisals report an artificially low home value. This is because appraisers don’t want to risk losing their license. But left unchecked, this practice could prove just as potentially damaging to the real estate industry as was the practice of inflating home values.

Home inspections are a critical part of any real estate transaction with both buyers and sellers anxiously awaiting the inspector’s report, but for very different reasons. If the report reveals repairs, the sellers will have to pay and the buyers will demand that the repairs be made correctly and be performed by a licensed contractor. I have personally experienced customers who have closed on a home only to find out that the heating and air system that passed inspection only a few months prior now needs replacing.

Mortgages are a necessity for most home buyers. Investigations have shown that in many cases uneducated home buyers were steered into risky adjustable rate loans that now place them in jeopardy of losing their houses. The industry is filled with stories of surprises at closing that involve much higher interest rates and inflated closing costs. The buyers have already removed everything out of their old home while the workers wait for closing to move their belongings into their new home. They have few options but to sign the papers at the higher interest rate.

It’s a nice thought that everyone would conduct their business and personal lives under the same code of ethics. But how can this be accomplished? How is possible for the Golden Rule to become the standard of ethics? How can this be made the bar under which everything must pass? Let me suggest that when the cost of doing what is right exceeds the price we are willing to pay that we make the difficult choice to pay the price and treat others better than we would want to be treated. This is a great concept that almost everyone believes is true, all that is lacking is the will to implement its practice into our lives. Will you be the first to commit to living by this one simple rule?

Friday, September 25, 2009

Senior's Purchase New Homes Make No Payments

Right here in Edmond and all around the nation, Seniors are downsizing to smaller homes making the purchase with a mortgage that requires no monthly payment for the remainder of their lives.

It’s called a Reverse Mortgage and it has become more popular than ever before, especially with Seniors who are selling their larger homes and opting to purchase newer smaller homes to gracefully age in place. This is exactly what Lydia Cross (not her real name) is doing.

I met Lydia just this week after she had spent the better part of three weeks working with a local bank to get financing for a new home. Her existing home was too large and in truth, too opulent for her needs. Five years ago Lydia’s husband passed away and left her in good financial shape. She purchased the larger nicer home to entertain her friends and family. Lydia is 72 and after experiencing significant health problems earlier this year, she’s ready to simplify life.

She put her house on the market and it sold rather quickly. In the meantime Lydia had found another home that better suited her needs and made an offer to purchase which was accepted. About the first of September she signed contracts on both houses and spent the better part of three weeks working with a local bank to get financing. The bank exhausted every avenue to secure the financing Lydia needed and only after visiting with her financial planner was she directed to call our office.

We examined the Reverse Mortgage from every angel and Lydia was convinced that this was not only the only way for her to get the financing she needed, as it turned out, it also helped her maximize cash flow for her remaining years. Here’s how her scenario works.

First Lydia will receive considerable proceeds from the sale of her current home. Because every Reverse Mortgage is custom fitted to each Senior’s needs, she will need to bring $103,000 to closing to cover down payment and closing costs. The purchase price of her new home is $305,000 so her new which leaves her a new loan amount of $202,000.

Her fixed interest rate for the rest of her life is 5.65%, a rate just slightly higher than conventional 30 year rates. If she were to take out conventional financing for this amount at 5.25% her monthly principal and interest payment would be $1,115.45 but with the reverse mortgage, Lydia can live in her new home and never make a monthly payment for as long as she lives. I explained to Lydia that when she passes, her estate has 12 months to settle the mortgage by either selling the home, or securing replacement financing.

But Reverse Mortgages have a few associated costs that can be surprising if they are not anticipated. The first is the up front mortgage insurance fee. A Reverse Mortgage is an FHA loan and as such like all FHA mortgages has a mortgage insurance premium attached to the front of the loan. This fee is calculated as 2 percent of the maximum amount that can be borrowed plus a 0.5 percent annual premium. For Lydia this added $6,100 to her closing costs.

Another sizeable fee is the servicing set aside fee. Each Reverse Mortgage charges either a $30 or a $35 a month service fee. This amount is multiplied by the number of month until the borrower reaches the age of 100. For Lydia this was a total of $4,730. This amount is not added to the closing costs, instead it is set aside out of the equity of the home, and the unused amount is returned to the estate when the note is settled.

Closing costs are the most controversial part of the Reverse Mortgage discussion. For some Seniors it is the sticking point that finally deters them from pursuing the idea any further. For others it is a necessary part to realize the opportunity of living out their years with fewer liabilities and a greater cash flow to better meet their needs. Before making your decision about a Reverse Mortgage, consult your financial planner and a Reverse Mortgage specialist.

Friday, September 18, 2009

October to April; Best Time to Buy Home

The other day my wife and I were having dinner with a group of friends and I overheard someone with the group at the next table say, “We’re ready to buy a house, but we’re waiting until spring so we can get the best deal.” Really? The best deals are only available in the springtime?

It’s funny how an urban legend gets started.

Statistics at the Oklahoma Association of Realtors website (www.oklahomarealtors.com/mlsstatistics) support that more homes are sold each year during the second and third quarters than are sold during the first and fourth quarters. This has been true at least since 2002. I know this because that’s as far back as the OAR website displays the data. One quote from that website speaks volumes.

For the second quarter of 2009:”The average cost of a home in Oklahoma has decreased by 3.4 percent compared to Second Quarter 2008. In Second Quarter 2009 the average cost of a home sold was $145,413 compared to $150,559 in 2008. Statewide, 12,130 homes were sold in Second Quarter 2009. This is 11 percent less than the number of homes sold in Second Quarter 2008 in which 13,626 homes were sold. The average Days on Market was 115, and the average Median Price was $106,901.”

If you wait until spring and summer to purchase a home, are you certain you’ll be getting the best deal? Or is it possible that just the just as many good deals and even great bargains could be available during the fourth and first quarters of the year?. Let’s briefly examine the conditions that could make this October to next April one of the best times to buy a home.

High Home Inventory: More homes are available for purchase now than at any time in recent history. Across the state the average days is on the market 115 days before being sold. That’s almost four months. That means that if a home was put on the market in June (one of the peak months for home sales) that same home could very well still be on the market today. And with 11% fewer homes being sold (April through June, 2009) you can expect to find more homes on any MLS database search that meet your criteria.

Time on Market Affects Price: When a home is first listed on the MLS, it receives a great deal of notice from Realtors. But the longer that home remains on the market the less notice that home usually receives. This is why many Realtors suggest dropping the asking price. This kind of change brings the home to the top of the search criteria when Realtors check the MLS.

Don’t Forget Foreclosures: The news is filled with numbers of new foreclosures throughout the country. Oklahoma has its share of these numbers and many of these homes are in good shape and can be picked up for a great price. If you elect to go down this path, make certain your Realtor has experience negotiating a short sale. This is a transaction where the holder of the lien agrees to accept a price that is less than the note they currently hold against the property.

$8,000 tax credit goes away December 1, 2009: There’s still time for first time home buyers to close on a home and claim this tax credit. However, time is running out. Check with your Realtor and your mortgage provider for all the details.

Hungry Realtors: One of the things I love about America is the structure of our economy. Hard work and industry are rewarded by greater income. When fewer homes are being sold, skillful Realtors survive by going the extra mile for their buyers and sellers. Skillful Realtors feed their families all year long by working hard to get you the best deal.

Hungry Mortgage Brokers: The same truth that applied to Realtors applies to Mortgage Brokers. The number of refinances has dropped right along with the number of applications for home mortgages. This motivates the skillful and hardworking Mortgage Brokers to do whatever it takes to get your business and that can include reducing the amount they make on your loan.

Friday, September 11, 2009

6 Vital Home Rehab To-Do's

A good friend of mine called me yesterday to continue a discussion we started about an abandoned home in his rural neighbourhood. Most of his neighbourhood lots are 1+ acres. The abandoned home sat on 5 acres and had a 20’ x 40’ shop next to the house. The 2,100 square foot home, the shop and the 5 acres just sold for $199,000!

There are plenty of good deals out there just like this one. If you’re interested in finding them, there are plenty of creative ways to go about that task. Just be careful because there seem to be more horror stories than fairy tails when it comes to successful home rehabs.

Well, here are 6 must do’s for anyone in the market for a home to rehab and sell, or for anyone with immediate plans to rehab a home they already have.

Limit your potential exposure: If you’re looking for a home to purchase and rehab, keep in mind that should you need financing, current lending guidelines limit financing to 70% to 80% for investment properties. This means that in addition to the money required for any updates and repairs, you’ll need a 20% to 25% cash down payment. Don’t forget to include 6 months of total payments (principal, interest, taxes and insurance) as verifiable reserves. Most likely the underwriter will require that much for each investment property you own. It’s probably best that you settle for properties with a maximum sales price of about 70% of the current appraised value. The property my friend and I were discussing was sold for about 72% of its value. But the necessary repairs would be minimal, so it was a great deal for the person who bought it.

Be conservative about what the home will be worth after affecting repairs: The correct industry lingo is After Repair Value (ARV). Our local real estate market is relatively steady, even still, changes regularly take place. It’s unwise to trust sales comparisons from over 6 months ago. Use sales within the past three months to establish the ARV. Also limit your search to one-half mile or less and only use home that are very close in size and share many of the same amenities. The local MLS will show the active listings and pending sales, but these are less effective comparisons and should be used discriminatively. There are plenty of REO (bank owned) sales and these should be included in your comparison to establish what the home will be worth after the repairs have been made.

Get multiple bids for the necessary repairs: Do yourself a favor and get at least three bids for the necessary repairs. If you don’t have a ready list of reliable and quality construction professional, contact several realtors you know and trust and ask them for referrals.

You’re the coach; build team consensus: America still has a capitalist economy and the contractors and real estate agents you hire want what you want. Maximum return on a minimum investment. Contractors want to do the least amount of work and make the greatest possible profit. Agents want to do as little marketing as possible and earn as much commission as possible. So why not commit to contractor bonuses if work is finished on time and under budget? Why not pay the agent their full commission and bonus them $1,000 if they sell the home by a specific (realistic) date? You’re the coach, so lead the team.

Plan for multiple exit strategies: In any building/remodelling project, there are always surprises, delays, added expenditures and the potential for disasters. Make sure you visit with your property insurance carrier and that you have correct coverage for your project. It’s also a good idea to have additional cash reserves to cover any cost overruns. What do you do if the property doesn’t sell? Make certain that the property cash flows well so you can rent it and hold onto the property.

Begin marketing the home for sale immediately: It’s never too early to begin letting everyone you know that you’ll soon have a home for sale. Tell your friends at the coffee shop, let your realtor friends know. Tell your friends at work. Attach a flyer to your email messages. Use Twitter, Facebook and LinkedIn. Take advantage of every available avenue to advertise your project. Market early, market daily, market often and market continuously!

Friday, September 4, 2009

Made in the Shade

Okay, I’m ready to laugh about it now, but only just now. And the time between now and the last wound suffered has been only a few days. So I may ramble on a bit, just to give you fair warning.

I’m smiling only because I’m amazed at how such a simple straightforward project as purchasing suitable coverings for two small windows, can turn into a screenplay for a new Pink Panther movie. Perhaps I’m overstating the case, but I swear that the comedy of errors surrounding this home improvement task would make Tim the Tool Man’s Top Ten List.

Our home faces the west, and well, since the sun sets in the west, we had to do something about the windows. We installed wood shades over the square windows and that worked well. But over the study window and over the front door were two “eyebrow” windows that would require specialized treatment.

My wife steadied the stepladder as I climbed, tape measure in hand to garner semi-precise dimensions for “close-enough-for-government-work” pricing estimates. These openings weren’t oversized, but every evening from late spring through early fall the brightness from the sun made it nearly impossible to navigate the kitchen; and the heat it generated made it unbearable in the study.

We took these measurements to several stores where blinds and shades are sold and one sales associate after another showed us our choices and tallied up the cost. I think it should be required for builders and sellers to disclose just how much it costs to properly treat an eyebrow window. At the prices we were quoted the word “treat” was inappropriate. I consulted my Thesaurus and found more appropriate terms such as, extravagance, indulgence, delicacy and luxury. This search led me to other words like doctor, nurse, cure and heal.

Our original thoughts were to have matching wood blinds custom cut. I’ve shopped for used cars that cost less. Seriously, are there people out there who actually pay thousands of dollars for something to hang in the window collecting dust? I guess so.

After several days browsing through decorating magazines, we settled on the idea of a shade. A window covering made of a durable material formed into cells that fan out from the bottom center of the window similar to a Chinese hand fan.

The look of this window treatment was pleasurable, but not extravagant, delightful but not luxuriant (yes, more Thesaurus words). And the price was more “general practitioner” than “specialist”. So we set the appointment for the installation expert to come and take exact measurements of our two windows.

Three days later I met the installer who not only took exact measurements, he also taped thick brown butcher paper over the openings and cut templates for the manufacturer to use when making the custom cuts. He left and the next day we returned to the store to place the order.

The sales associate called out the price and I actually smiled as I handed her my credit card. After consulting the computer she said, “Your shades should arrive in two weeks.” Okay, I thought, two more weeks of the heat and the sun spotlighting our dinner preparations. And we left the store.

Three weeks later (yes, that’s 3) the store called to let us know that our shades had arrived and that we needed to schedule installation. Four days later (yes, that’s 4) I met the installer who admitted, “I’ve never put these kind of shades in before. But hey, how hard can it be?”

Four hours later (yes, that’s another 4) the installer was leaving and I was on the phone with the store complaining that the shades for which we had waited an extra week were cut at least two inches short in all directions. How could that be? I mean the installer had cut an exact template of each window. I watched him do it myself.

We were assured that the re-order of our purchase would be made immediately and that we could expect delivery in three weeks.

Four weeks later (yes…) our new shades arrived. The installer came out five days later and we now have shades to cover the two eyebrow windows. The whole process required just over three months, numerous phone calls four installer visits and I now know why they call it window treatment. In the end, the windows get treated better than the customer.

Friday, August 21, 2009

Sell Your Home in the Next 30 Days

It’s difficult to stay positive and motivated when your home has been on the market for over six months without a single solid purchase offer being made. If you’re in a situation like two of my neighbors who say, “I don’t really have to sell my home, but if someone offers full price, I’ll take it”, well, you can stop reading right now. This article is for those buyers who need to, have to, really want to sell their homes as quickly as possible.

I read a quote early this morning from one of my Facebook, friends (I can’t remember who it was). He said, “If you’re in hell don’t stop, keep moving.” That’s good advice for folks whose home has been on the market for what seems like forever. Realtors tell me the longer a home remains on the market the fewer inquiries that listing gets and the more frustrated sellers become. So if you think you’ve tried everything to sell your home, I have a few ideas that will hopefully stimulate your thinking and reenergize your efforts to get your house noticed.

Start with a fresh outlook: Invite someone from where you work to come and tour your home. The idea is to get someone who has never been to your home to come see your home as if they were house hunting. If you elect to use this idea, put your “thick skin” on. Watch their facial expressions and listen to the tone and inflection of their comments. You can learn just as much from what they say as you can from they way in which they say it.

Change the price: Before changing the price, take the time to tour other homes in your neighborhood to make an honest comparison. Most of us will have a difficult time remaining objective, so consider having that friend from work tour these homes with you. After visiting other homes check your price. If it’s too high, lower it. If it’s too low, raise it. If it’s just right, then leave it alone. The reason I include the option to raise your price is that common wisdom is that if a home hasn’t been shown, then perhaps the price needs to be dropped. When the price of a home listed on the MLS is changed it is picked up on more Realtor searches. The idea here is to generate interest in your home.

Hold a neighborhood open house: Use your neighborhood’s newsletter, website, or just mail postcards to your neighborhood and invite everyone over for a weeknight open house. Provide light snacks and hand out flyers to everyone who drops in. Most neighbors are curious about what your home looks like on the inside and many will come. Consider offering a “finder’s fee” for information leading to a buyer for your home.

Make use of Twitter: There are 170 characters in every Twitter post and with careful planning you can maximize each letter. Consider the following: “We’re moving and can’t take out house with us. Know anyone wanting a great place to live?” “Great home, new carpet, fresh paint inside and out, leaving great karma behind, no extra charge.” “$500 finder’s fee for sending me a buyer for my home” Ask your friends to use a few of their Twitter posts to help you sell your home. You might even make the finder’s fee available to them as well.

Have a candid talk with your Realtor: If your home has been on the market for several months and you’re getting limited or not interest, it’s time to have a candid talk with your realtor. But before jumping to the conclusion that they haven’t been doing their job I encourage you to take the opposite approach and listen to the way they answer this one simple question. “If this was your home and you needed to sell it, what would you do differently than what we have already done?” Be sure that you have both ears on and a notepad; and resolve beforehand that you will not take any of their suggestions as a personal attack.

The idea is to do something different that what you have already been doing. Mixing things up can be a great way to re-energize everyone’s activity and hopefully attract that buyer within the next thirty days.

Friday, August 14, 2009

More Boomers Choose Aging In Place

My parents have chosen to do it, and they are in their mid-70’s. I’m nearing my mid-50’s and if I have the choice to stay at home rather than move to a retirement village or an assisted living center, I too would choose to Age in Place. So would 89 percent of 50+ year olds, in an AARP survey conducted in 2005.

But many are not prepared to remain in their homes. Most have not taken even the most basic steps to make their home more senior friendly. In response to this growing Boomer trend, the NAIPC (National Aging in Place Council) has formed an education and resource website for aging adults who choose to remain at home (www.naipc.org).

The self-stated purpose on the NAIPC website is: “The National Aging in Place Council is a membership organization founded on the belief that an overwhelming majority of older Americans want to remain in their homes for as long as possible, but lack awareness of home and community-based services that make independent living possible.”

The identifier “Aging in Place” may be a new term to you but already there are hundreds of “specialists” identified in this field. The list of experts includes Legal and Financial assistance, Healthcare, In home care giving, Interior redesign, Remodeling, Insurance, Lifestyle transitions, Public and non-profit resources, Products specific to senior safety, Reverse mortgages and Real estate services.

The National Association of Homebuilders has also taken up this cause by offering an extensive training and certification course of study. CAPS certified professionals have completed the course of study that includes understanding senior demographics and the aging in place concept, how to make the home safe for seniors and extensive training in ethical business practices.

The NAHB website (www.nahb.org) has an extensive list of items around the home that anyone choosing to age in place will want to consider. Here I have provided a few of the highlights.

Exterior of the Home: Low-maintenance exterior of brick or vinyl siding; trees, shrubs and plants should be low maintenance; and deck, patio or balcony surfaces should be no more than ½ inch below the interior floor level.

Entry and Hallways: Hallways should be a minimum of 36” wide; provide at least one covered entry to the home with not step up or down; non-slip flooring at foyer; and provide a place for package delivery that is easily accessible to home owner.

Interior Doors and Windows: Doors should allow a clear path of at least 32 inches; replace doorknobs with levered door handles. Plenty of windows for natural light; low maintenance exterior and interior finishes; with easy to operate widow hardware.

Faucets: Install lever handles or pedal controlled faucets and make certain anti-scald controls are in place.

Kitchen and Laundry: Upper cabinets should be lowered three inches for easier accessibility; install glass-front cabinet doors and install pull-down shelving. Appliances should have easy to read controls; washer and dryer raised 12 to 15 inches to facilitate loading and unloading, or replace with front loading machines; replace stove with electric cook top with level burners for safety in transferring pots and pans between the burners.

Bathroom: Provide at least one wheelchair accessible/maneuverable bat on the main level; bracing in tubs and showers, with seat in shower; raised toilet with grab bars; stand-up showers should be curbless and be a minimum of 36 inches wide; and install slip-resistant flooring.

The website’s list is quite a bit more extensive and continues with suggestions for stairways, lifts and elevators, Ramps, Storage, Electrical, Lighting, Safety and Security, Flooring, Heating, Ventilation and Air Conditioning, Energy-Efficient Features, and Reducing Maintenance and other convenience features.

Friday, August 7, 2009

Sell Your Home on Facebook

Social networking has always been a part of our lives. We interact with people at church, at work and in the neighborhood. Let’s admit it, we would often be finished at the store much quicker if we didn’t constantly run into people we know and stop to speak. The Internet has made social networking even easier and made it easier for all of us to expand our social network to an almost unlimited scope.

Many social networking sites have become popular, and Facebook seems to be one of the most used among all demographics. My young nieces and nephews each have a Facebook account and so do my 70+ year old aunt and uncle. This tool is a great way to stay in touch, share pictures and videos and communicate both public and private messages. So why not take advantage of this free networking tool to sell your home?

First of all, if you haven’t activated a Facebook account you won’t have any idea what I’m writing about. If you have, then follow along and I’ll give you a few tips on how to use the various facets of your Facebook account in ways that could help you sell your home.

Status Updates: Update your status with good memories of things your family has done in your house. It could be as simple as, “Remembering Memorial Day family cook-out at our house. 12 adults, 16 kids and a 10lb box of hamburger patties. Great memories!” This simple post communicates that your house is spacious enough for big groups and entertains well. Use the status box in this way to communicate different benefits of your home.

Photos: Your photo page allows you to create albums and post photos of anything you like. Why not create several photo albums that really show off your home. Take pics of your home when it is “open house ready”. Post other photos in another album of times when friends and family are being entertained there. A powerful feature of Facebook is that it allows you to add a description to every photo. Tag your photos with information about the newly remodeled bathroom or kitchen, etc.

Video: Shoot a video tour of your home and post it here. Take a few minutes to storyboard the shoot, but begin with a shot from the street, slowly pan through all the rooms and finish with a tour of the backyard.

Blog: Post about how you found the house and why you decided to buy it. Post about late night slumber parties and movie nights. Post about landscaping you’ve added and updates you’ve made. The more personal your posts, the more the home is made personal and attractive to the reader.

Friends: The more Facebook friends you have the more potential “salespeople” you have helping you sell your home. The best way to grow your list of friends is to ask the friends you already have to recommend to their list of friends that they connect with you; then they will see your status updates on their Facebook homepage and have access to all the things you post. If you really want to expand your list of friends, go to your account settings and click on Networks. There you will be able to find other local networks and request friendships with a great many people you don’t currently know. Who knows, they could be looking for a home just like yours.

Messages: Facebook has its own email feature that you can use to request friends and family to place a picture of your home on their “Wall” so anyone viewing their profile can see your home for sale. Ask your friends and family to request their friends to help you sell your home by place the picture on their “Wall” as well.

Facebook has many other ways to get the word out about your house that is for sale. Spend some time getting familiar with the features of the site and think creatively about ways you might use the standard features of Facebook to sell your home. If you have other ideas or would just like to visit about this topic more, you can find me on Facebook. Let’s chat.

Friday, July 31, 2009

Looking Out My Backdoor

Darker than usual. That was the best way to describe the flowers I watered early this morning. It was earlier than usual when I turned on the hose and adjusted the nozzle to the “shower” setting. Sipping my coffee, I watched the hues of the eastern horizon slowly scroll through the color wheel from blue black to ultramarine and finally to streaks of cadmium orange and yellow just before the Venetian red and gold sun crested over the rooftops of the neighborhood across the street. Coffee tastes best in my backyard bistro.

The four empty lots next to ours lay freshly mowed and new footings stood tall on the fourth lot over. It won’t be long before the framers show up and erect the skeleton of a new home. By Christmas, there will be another newly completed home on our street.

It was light enough now to clearly see where to step so I grab the doggie shovel and start picking up after the dogs. My dogs are prolific. I’m glad the lot to the north is still empty. A quick flip of the shovel over the fence top and….

I was amazed at just how much our neighborhood had grown in the past two years. Immediately following our move in June 2007, the housing bubble popped and builders everywhere slammed on the brakes.

During the interim completed housing inventory has been sold and new homes are beginning to show up in neighborhoods everywhere. The number of new homes is more modest and less speculative than in years past. But at least there are clear signs that our local housing market is on the mend.

We were the fourth family to move into our subdivision and just the other evening we had a “block party” where 75 adults and children showed up. I used to be able to see the houses three streets over. Now when I look that direction, I see the front door of Dan and Aly’s home.

For many months our subdivision was quiet and our streets were clean. Now it’s not unusual for the streets to be caked with dried mud from the tires of delivery tucks and workers. When I come home for lunch radios blast mariachi music and quite often I’m forced to take an alternate street because ours is blocked by flatbeds dropping off piles of lumber and stacks of shingles.

It’s a good feeling to drive into the place where we have invested thousands of dollars and see that other families also believe that this will be a good place to settle in and raise a family. There’s landscaping in most of the yards; spots of color, young trees still staked to the ground, pots of plants and sprinkler systems to keep it all watered.

Every evening now there are couples who walk their dogs and children who ride their bikes. When we first started walking the streets of Silverhawk, it was a challenge just keeping the dogs out of the empty lots and sticker patches. Empty lots have now been filled with houses, and stickers have been replaced by thick stretches of fescue and Bermuda. We no longer pick stickers out of paws, but we do carry little blue bags to pick up the canine left-behinds.

The general feeling is that things are improving. Slowly but surely new homes are being started. There’s more traffic flowing through the model homes. They sit on our street and some weekends it’s tough to drive between the cars parked on both sides of the street. We see young couples with kids, older couples with no kids taking the tour. SUV’s and sub-compacts, Ford, Mazda, SAAB, Mercedes, sit in the driveways of homes already owned.

Similar scenes are being relived in new subdivisions throughout our area. The builders I talk with are encouraged and excited that they can once again do what they do best, build. And I’m glad too. I hope they keep on building and that homes continue to sell. I just hope they don’t start a new home on the lot to my north anytime soon. Otherwise, I’ll have no place to toss my doggie droppings.

Monday, July 27, 2009

Settling with Your Lender

A few weeks ago she opened an envelope and discovered that July 23rd was the date set when her home would be among many others on the Sherriff’s Sale docket. Widowed many years ago she purchased the home two years before this year’s birthday; her eighty-third. She put all she had into the down payment for the home knowing, in all likelihood, it would be the only thing of substance she would leave to her children.

The modest home sits in a neighborhood that is showing the beginning signs of deterioration. Her home is in fine shape, but some of those around her are in desperate need of paint and new roofs. One down the street has been boarded up and bears a “CONDEMNED” sign. Two years ago she bought the house for $145,000 and that’s still about what it’s worth.

Where will she go? For financial reasons, her daughter lives with her and her son lives in another city with a family of his own. No assets, fixed income and facing foreclosure, her options are in short supply.

She is learning first hand that lenders are eager to lend money for a home purchase and even happier to take a customer’s payments. But a customer quickly experiences the lender’s Mr. Hyde side when they miss a payment or two.

One of the busiest departments in any mortgage servicing company is Loss Mitigation; especially since many homes were purchased with adjustable rate mortgages and those rates have started moving upward. The department of Loss Mitigation is responsible to ease the company’s losses by collecting past due debts or negotiating various forms of repayment from borrowers.

The people who work in this department are faced with a daunting task made more difficult by delinquent borrowers who fabricate more stories than Aesop. Yet even when dealing with fables, they are still charged with minimizing the company’s losses. And they are ready to do so but there is a protocol that can help any borrower who finds themselves talking with the Loss Mitigation department.

First, get to the right department. The generic customer service representative can only help you find the number to the Loss Mitigation department. Run of the mill customer service is not equipped to negotiate these matters.

Second, make the choice to respond not react. It’s nerve wracking when dealing with anyone to whom a delinquent debt is owed and when it’s your home, the emotions can run especially high. So make the purposeful choice to give calm, accurate and direct answers. Try and remember that everyone involved is interested in minimizing their losses.

Third, understand that they hold the note, so they make the rules. They will require a written letter called a “hardship letter” explaining the circumstances beyond the borrower’s control that led them to the place where they can no longer afford the monthly payment. Just a reminder; evidence will be required for every claim made in the letter, so write a convincing letter, but be able to back it up.

Fourth, be ready to provide financial records. Most likely they will request many of the same documents provided when the loan was closed. Records like two years taxes (all schedules), most recent pay stubs showing year-to-date income, bank statements, and any investment statements, all give the lender a clear picture of your situation.

Fifth, if a settlement is reached or a note is modified, there could still be both credit and tax consequences. Most likely any settlement with your lender will report negatively on your credit report. But hey, over time credit repairs and the house is saved. Some settlements or loan modifications can mean tax consequences so be sure to consult a tax advisor for a more complete understanding of these ramifications.

I’m still negotiating to save the widow’s home and I don’t know the final outcome. But one day at a time we work together to provide the documentation the lender representative requests. Most likely her home will remain on the docket for Sherriff’s Sale, but the amount owed against the property makes it unlikely that it will sell on July 23rd. We’re already planning on continuing the negotiation on the 24th.

Friday, June 19, 2009

Ready for Sale (Part Four of Four)

Over the past three weeks we have taken a look at what some local experts say is the best way to get your home ready for sale. Some have commented that the ideas have been helpful, while others have offered their own suggestions, some of which were good enough to be included in future articles.

For this, the final installment in the series, I want to share some of the ideas that have come from discussions I have had over countless cups of coffee with scores of people involved in various areas real estate. These ideas have been synergized into my way of thinking so unfortunately I won’t be giving credit where it is most likely due. So in advance let me apologize to anyone whose idea I have “borrowed” whether or not I have had permission.

The current housing market is more oriented toward the buyers than the sellers. Housing inventories are high and interest rates are still low. (Okay they’re higher than they were a few weeks ago, but seriously, 30-year fixed rates in the 5% range are fantastic rates.) This combination makes tilts the balance such that the seller is walking uphill to get every dollar they can out of their home.

Conversely, buyers are looking for the best value for their home buying dollar. Buying a home is in some ways like buying a vehicle. Sure it runs well on the test drive, but what unexpected repairs could I be facing in the near future? And how much will these repairs cost me? The home may pass inspection, but after three weeks of ninety-degree heat, the A/C compressor may just give up the fight. That could be a financial challenge.

So here are three suggestions that can go a long way to help quell buyer suspicions and reinforce the price the sellers set. I will give fair warning that these suggestions will cost the sellers a bit of money, but could make the difference on whether or not you have to drop your sales price to get an interested buyer.

Get Your Home Inspected. Sure most buyers will have the home inspected before they close, but if a seller orders a professional inspection and then affects the suggested repairs this pro-activity could encourage prospective buyers to give extra consideration to that home. Have the inspection report laying out on the kitchen counter along with the paid receipts for the repairs. Buyers will be impressed that the seller is not trying to hide anything negative about the house. Once they put an offer on the home they will hire their own inspector, but if the necessary repairs have already been affected, everyone will be more comfortable with the transaction.

Get a Pest Inspection. This should be an annual event for most homes anyway. So contact a pest control company and get a licensed termite inspection. Again, have this report available for prospective buyers to see before deciding whether or not they will make an offer on the home. Yes, the buyers will more than likely want to hire their own pest inspection, but when their report matches the one the sellers provided, the home’s value is established even more.

Get an Appraisal. By now some of you have already clicked off and have decided that I’ve lost my last marble. But hear me out...uh, I mean, you’ve read this far so finish the article. Here’s what I’ve discovered. Realtors representing the sellers look for comparable properties that justify the highest possible price for the home. That’s okay they’re supposed to do that. Realtors representing the buyers look for comparable properties that validate a lower price for the home. And that’s okay too. They’re supposed to do that. But if an complete appraisal is done and paid for buyers (and Realtors) have more difficulty making an effective challenge to the seller’s asking price.

Buying a home is an emotional journey for everyone involved. These three suggestions will cost the seller some money up front, but can go a long way toward helping minimize stress in everyone’s corner.

Ready for Sale (Part Three of Four)

Most home owners know what they would look for in a home, if they were shopping for a new place to live. The problem comes when the home seller tries to second guess what qualified potential buyers are looking for when they schedule a tour of a home. In this, the third installment of the four-part series we will address a couple of “inside the home” topics that can make all the difference in how your home shows.

Even before potential buyers can appreciate how the inside of your home looks, they are already making judgments by the way your home smells. Just like people we know who smoke and then douse themselves with cologne or perfume; covering up inside home odors doesn’t work either.

There are products on the market that claim to absorb and eliminate odors when sprayed on drapes and upholstery. I’ve used these in my home. At the risk of getting into trouble with my wife let me say that we have a very clean home. But it seems we have to use these products on a somewhat frequent basis to once again remove the odors that were supposed to be eliminated in the previous application. Perhaps it’s just our home, or we aren’t applying the product correctly. I don’t know.

“If you have indoor pets, smokers, frequently cook spicy fried foods, or clean fish in the kitchen sink (yuck!), a thorough carpet and upholstery cleaning is recommended”, says Steve Dowling, owner of Oklahoma Steam Clean and Restoration (sdowl@cox.net). “Regardless of who the homeowner contracts to do the job, they need to make sure the company uses the right equipment and the right products to remove the source of odors, not cover them up” Dowling said.

Of course home owners do have the option of renting carpet cleaning equipment from the grocery store. And who hasn’t done this? Dive to the store, load up the equipment, unload it at home, figure out how to work the thing, push and pull it for a couple of hours, work on high traffic areas and tough stains, empty the water collector several times, load the equipment back up, drive to the store, unload it and then wake up the next morning to carpets that are still wet.

But perhaps the most frustrating things about the do-it-yourself route, is that often too much of the cleaning product is left in the carpet, which when dry attracts new dirt like a magnet. Within weeks the carpet can look worse than it did before the do-it-yourself self-torture.

Another important area of the home is the tile and grout. This area is more often overlooked than it is addressed by sellers. “It’s just plain bad to go into a house and immediately be knocked out by a mildew odor coming from the bathroom” said, Brad Womack, owner of Integrity Tile Services (www.gotdirtygrout.net). “Grout that has molded or mildewed in and around the tub and shower areas is usually the culprit for mildew odor” Womack added.

Besides replacing broken, chipped or missing tiles anywhere (including kitchen counter and backsplash areas), all tile and grout should be thoroughly cleaned in order to eliminate stains and odors and to make the home look its best.

Womack suggests, “If you choose to clean/seal the tile and grout yourself, make sure that the surface to be sealed is very clean; you don’t want to trap any dirt under the sealer.” There are a number of products on the market that effectively seal grout. But if you don’t have time or the energy to do the job yourself, Womack suggest calling a professional who has the knowledge, skill and equipment to do the job quickly and effectively.

After you have done everything you think needs to be done in order to make your house shine, try this. Shoot a video of your home as if you were a potential buyer. Begin filming by driving up to your home and continue the shoot as you walk up the sidewalk, enter the door and tour the home. Once the video is complete (and unedited) sit down and watch it with your realtor. Then humbly and calmly accept their suggestions.

Ready for Sale (Part Two of Four)

Last week I began a four part series on the subject of getting your home ready for sale. If you missed last week’s installment you missed current real estate market trends that can help any prospective home seller set appropriate expectations.

This week we take a look at the outside of your home. Making certain that your home is the house prospective homebuyers remember and are attracted to. I called on Edmond Realtor, Ryan Hukill for help with this article. Hukill is a veteran Realtor with Paradigm AdvantEdge who has helped many sellers get the maximum value when selling their homes.

Me: “Let’s cut to the chase. When it comes to getting your home ready for sale, what is the most important thing people need to do?”

Hukill: “When it comes to selling your home, curb appeal is King. Quite simply, it's a beauty contest. A home can have the nicest interior amenities in the neighborhood, but if that home’s exterior doesn’t invite prospective buyers inside, these interior amenities will go unnoticed. I’ve seen it time and again, investing the time and money in boosting the home’s curb appeal will pay big dividends with more showings and a quicker sale.”Me: “So what are some of the specific suggestions you make to your typical client?”

Hukill: “The top three things I ask of my selling clients are that they clean, paint, and trim. Scrubbing the outside entry area of the home is critical for making a great first impression. Cob-webs, dirt, and wasp nests must be removed. Very often my clients are waiting at the homes entrance while I unlock the door. If the first thing they see is dirt and grime, it would be logical that they would assume that the inside of your home is unkempt as well.

Me: “So get specific. What should people do to boost curb appeal?”

Hukill: “If the street side entry is congested or cluttered, clean it up, even if that means getting rid of it all. The biggest mistake some people make is thinking that if their home looks good to them, it will look good to prospective buyers as well.

Me: “So your saying trust your Realtor to tell you what other people will think when they look at your home from the street?”

Hukill: “Absolutely. And don’t assume that a complete exterior makeover will be necessary. Perhaps all that is needed is a fresh coat of paint to the porch and front door to make it shine! Then get all the weeds out of the beds and lay down a fresh bed of mulch. Planting some colorful flowers will help brighten the front of your home as well. But take it one step further and edge all areas of your lawn to show potential buyers that the current owner really does care about the details. If that’s the impression projected by the home’s exterior, it'll be assumed that the interior details are just as perfect.”

Me: “Give the readers a summary thought. One thing they can hold on to that will help them sell their home in the least amount of time and get the highest sales dollar.”

Hukill: “If your home looks like the most cared-for one on the block, potential buyers will see the value and will be more willing to pay the top of the market in your neighborhood. That’s it. Like I tell all my clients, MAKE IT SHINE!”

Next week we’ll address some of the most important features on the inside of the home that are guaranteed to make your home irresistible to prospective buyers.

Friday, May 29, 2009

Ready for Sale (Part one of four)

This week I begin a four-part series on getting your home ready for sale. This week I will share some current local market trends that can help you get mentally prepared to sell your home. Over the next three weeks I will interview several experts in various professions and share with you their best tips on getting your house ready to sell quickly and for the maximum dollar amount.

Foreclosures: Sorry to start off with the worst news, but this information is important to stabilizing the market. According to Realtytrac.com (www.realtytrac.com) Oklahoma saw 1,177 new foreclosure filings this past April. Year to date that figure is 4,299. Sounds dismal doesn’t it? So let’s compare it to a couple of our neighbors.

This past April, Arkansas saw 1,864 new foreclosure filings and that figure year to date is 6,919 according to Realtytrac.com. With 22% fewer residence than Oklahoma, Arkansas saw 58% more foreclosures in April and a staggering 62% more than our state year to date.

In April, the OKC metro area saw 199 total new foreclosure filings. Edmond realized 35 of these, Bethany had 10, Choctaw 9, Spencer 5, Harrah 3, and Arcadia showed only 1 new filed foreclosure. Compared to Tulsa which saw a total of 419 new foreclosure filings, our market is quite a bit more stable.

Housing Sales: Data from this section is taken from the OKC Metro Realtor website (www.okcrealtors.com). Thus far through April, the OKC real estate market has seen 4,258 home sales. In January 741 homes were sold for an average sales price of $146,639. 997 homes were sold in February with an average sales price of $139,491. March saw and average sales price of $141,071 of 1,259 homes. And April realized 1261 home sales at an average price of $142,166.

Compared these figures with the same month last year and you have very little other than a snapshot of our market from one year to the next. April of 2008 saw 202 more homes sold than this past April. In April ‘08 the average sales price was $146,511 or $4,345 more than the same month this year. But the average interest rate this year is less than last year; 5.41% in 2008 and 5.18 in 2009. Homes selling last April were on the market for an average of 83 days while those selling in April 2009 were on the market an average of 91 days. And the % of selling price to list price was down only 2% in April 2009, down from 98% in April 2008.

Current Listings: A brief comparison of numbers of houses on the OKC market completes the snapshot for this article. In April 2008 there were 9,528 active listings on the OKC Metro MLS. In March of 2009 that number had dropped to 8,659 and again this past April that number dropped to 8,422. There is any number of reasons for this drop in active listings. For some sellers the number of days on the market without a reasonable offer has proven too much, prompting them to remove their home from the MLS. For other sellers, they have come to realize that if they are going to sell their home, there are some improvements that must be done.

Over the next three weeks I will share with you insights from experts who can help you address the most pressing needs your home has in order to be ready to sell. We will discuss recommendations for the outside of your home and the interior space as well. And finally we will discuss several of the mechanical aspects of your home and how even these things that are out of sight can actually help your home sell faster and get top dollar while doing it.

(Trey Bowden is a licensed mortgage consultant in Edmond, OK.)

Friday, May 15, 2009

Presidential Order Provides $8,000 Down Payment for First Time Home Buyers

As it stands right now, the announcement made by HUD Secretary Donovan earlier this week will make it possible for first time home buyers to use the $8,000 tax credit as down payment toward the purchase of a home. All the details have not been released, but the broad brushstrokes of understanding have. “We think the policy is a real win for everyone”, Donovan said in a speech delivered May 12th to the National Association of Realtors. “FHA will be publishing the details shortly.”

This plan is part of the American Recovery and Reinvestment Act of 2009 and is supported by the FHA (Federal Housing Administration) to promote homeownership. The plan contains stipulations from the IRS as well as guidance on how Federal, State, and local government agencies and other FHA approved nonprofits may assist homebuyers that are eligible for the tax credit.

Generally the tax credit is the lesser of $8,000 or 10% of the purchase price of the home. A phase-out of the credit amount begins when the taxpayer’s modified adjusted income exceeds $75,000 for an individual or $150,000 if married filing jointly. The credit is eliminated completely at $95,000 or $170,000 if married filing jointly. For those considering taking advantage of this tax credit, it should be understood that is a “refundable” tax credit, and as such includes taxes owed by or refunds due to the taxpayer in the calculation. Please consult your tax advisor for the specifics of how the “refundable” tax credit affects your specific situation.

To claim the tax credit, IRS form 5405 must be filed (available at http://www.irs.gov/pub/irs-pdf/f5405.pdf) along with the 2008 tax return, if not already filed, or an amended 2008 tax return if already filed; or included with 2009 taxes when filed early next year. The IRS defines “first-time homebuyers as those not having had any ownership, including that with a spouse if married, during the three-year period ending on the date of purchase.

Closing on the home purchase must take place on or before December 1, 2009 and first-time homebuyers must purchase the property from a source unrelated to them. This rules out purchasing a house from a spouse, parent, grandparent, child, or acquiring the home as an inheritance.

Because the $8,000 is a tax credit and not immediately available as liquid cash, secondary financing must be acquired to substitute for the down payment (as a tax credit advance) until such time as the tax credit is received and applied to any unpaid balance. We should expect a rush of “willing providers” of this secondary financing to appear, and it should be noted that only FHA approved entities will be allowed to provide this type of financing. The list of these providers will be available on the FHA website.

The tax credit advance when combined with the FHA-insured first mortgage cannot provide any cash back to the borrower. And the secondary financing may not exceed the total needed for the down payment, closing costs and prepaid expenses. The secondary financing must provide language that if the borrower does not repay the amount borrowed by the agreed deadline that principal and interest payments will automatically begin.

If payments on the secondary financing are required, the lender must include this amount when qualifying the borrower for the first mortgage financing. If payments on the advance are deferred (for a minimum of 36 months), these payments are not included by the lender for buyer qualification. Any secondary tax advance financing may not have a provision for any balloon payment before the ten year mark.

These are just the rough guidelines for this portion of the Recover Act of 2009. Full details will soon be released. In the meantime it is important that potential home buyers who are considering taking advantage of this plan have a clear understanding of just how the system works. It is also important that lenders, brokers and real estate agents understand how to set clear and appropriate expectations in the minds of clients and home buyers.