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.