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| Mortgage approval is no easy task By Dian Hymer It wasn't too long ago that home buyers made offers without financing contingencies and closed the deal in as short as 14 days following acceptance. Quick closes are virtually impossible today if you're buying a home with the aid of a mortgage. And, it's highly recommended to include loan and appraisal contingencies in your offer. Following the credit crisis of August 2007, many mortgage lenders closed down. Those that are left have cut their staff due to low demand for mortgages. Also, it's now necessary to actually qualify financially for a home mortgage. This adds time to the loan approval and funding process. For most mortgages, home buyers are now required to have good credit. They need to provide verification of employment (W-2s or tax returns), verification of the funds needed to close (down payment and closing costs) and verification of reserve funds. If the funds haven't been sitting in your bank account for a few months, some lenders require proof of where the money came from. Be prepared to provide brokerage statements, and any other supporting documentation that will validate you as a bona fide borrower. Buyers who own other real estate will need to provide even more documentation. HOUSE HUNTING TIP: It's a good idea to start pulling together all of your financial documents as soon as you're serious about buying a home. Ideally, the paperwork required by the lender should be forwarded to your loan agent or mortgage broker within a couple of days of contract acceptance. You can't wait until the last minute to provide the lenders what they need and expect to close on time. Before you write an offer, check with your mortgage person to find out how long it will take to process and fund the mortgage. Some lenders are taking 35 to 40 days from acceptance. So, you wouldn't want to commit to a 30-day closing, if this is the case. Make sure that you allow sufficient time in your contract for the appraisal and formal lender underwriting approval. This could take two to three weeks, depending on the lender and on how diligent you are about supplying the documentation. Your lender or mortgage broker will order the appraisal of the home you're buying. It should be ordered as soon as possible. If you end up not buying the house, you might owe an appraisal fee. However, waiting to order the appraisal could cost you time. Many lenders require a review appraisal, which is a second appraisal to confirm that the first one is accurate in terms of market value. Ideally, this should be done before you remove your appraisal contingency. If it can't be done within that time frame, ask the seller for an extension. Before August 2007, it was common practice for lenders to prepare the mortgage documents for the buyers to sign even though all underwriting conditions had not been met. For instance, the lender might have needed proof that you paid a charge-card account down to a zero balance. Today, many lenders won't issue the mortgage documents until all of the pre-funding conditions have been met. So, you need to be prepared to provide additional documentation that the lender might request, even if it's at the last minute. Work with a good loan agent or mortgage broker who will help keep you on track throughout the process. And, as outrageous as the lender's requests might seem, don't let it get to you. Lenders have a lot of due diligence work to do to restore their credibility with investors. The housing market is dependent on investors buying mortgages so that buyers can buy homes. THE CLOSING: Properly qualifying buyers for mortgages is long overdue. |
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| Home seller quandary: Fix up house or offer credit? By Dian Hymer Sellers who anticipate losing money if they sell their home may wonder why they should spend a dime fixing the place up for sale. Isn't this throwing good money after bad? Even sellers with plenty of equity in their homes often figure the way to get the most out of the sale is to cut sale costs to a minimum. This attitude is directly contrary to the notion that the way to make the most money on the sale of a home is by pricing the property appropriately for the market, and by making cost-effective improvements that will result in a higher sale price in a shorter time. Job applicants don't show up for an important interview in tattered old clothes if they want to make a good impression, particularly if there were plenty of other qualified applicants. Likewise, if you wanted to get top dollar from the sale of a car you would have the car detailed so that it looked its best. The same principal applies to selling single-family homes. Today, many housing markets have plenty of homes for sale and far too few buyers. For years, buyers competed with one another in order to buy a house. Now, in general, sellers are being forced to compete with other sellers in order to get their home sold. Consider the competitive nature of the market when deciding if you're going to improve your home before selling it, and how much you'll invest. Keep in mind that the point of fixing up a home to sell is to maximize your return from the sale. Don't waste money on improvements that have little or no value to buyers. HOUSE HUNTING TIP: Ask your real estate agent or a staging decorator to walk through your home with you for the purpose of determining what fix-up projects you should ideally complete before marketing the property. For example, you might be inclined to replace worn-out carpet. Your agent, however, might advise otherwise. An agent who specializes in the sale of older homes in the area might recommend refinishing the hardwood floor that is hidden underneath the carpet instead. Buyers looking for charming older homes usually prefer hardwood floors to carpet. A common opinion expressed by sellers is that it's pointless to fix up a place for someone else whose decorating preferences might be quite different. For example, why not just offer a credit to the buyers so that they can either change the carpet or refinish the hardwood floors -- whichever they prefer? The problem with this approach is that most buyers have a difficult time imagining how a home will look fixed up. They remember what they see, not what the house could look like with this or that improvement. Imagine there are five homes listed for sale in an area, all similarly priced, but not all in the same condition. Three houses have old, worn carpet covering most of the floors; one has linoleum over the floor; and the fifth has pristine, recently refinished hardwood floors. Most buyers will gravitate to the home with the beautiful hardwood floors. The best houses in the best condition and offered for the best price usually sell quickly. A fast sale is important to some sellers in this market. The sooner your home is sold, the sooner you stop paying mortgage payments, property taxes and various maintenance costs. THE CLOSING: In areas where prices are declining, a quick sale can result in a higher price than might be attainable in a few months. |
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| Sellers list right to avoid price reductions By Dian Hymer In most areas of the country, 2007 marked a change in the residential home-sale market. Buyers gained clout for the first time in over a decade. Inventories of homes for sale grew to record levels in some places. Price reductions, which carried a negative stigma when listings were easy to sell, came to be seen as a necessary part of the home-sale process. That is not to say that price reductions are a good thing. They are not. The initial marketing effort is a prime opportunity to attract attention to a new listing. When the merchandising and pricing are on target, a timely sale occurs. If the opportunity is missed either due to poor planning and preparation, or to a price that's too high for the market, the only hope for success is to lower the price quickly to an acceptable level. Many sellers balk at the notion of reducing the list price soon after the property is listed. However, the timing of a price reduction is critical. If you wait too long, hoping for the impossible, it could be difficult to kindle enthusiasm for the property. This is particularly so in an area where there are a lot of new homes coming on the market and where the sales volume is low. This means that the competition from other listings grows as you wait for the unlikely: a knight in shining armor to appear and pay the asking price or more. HOME SELLER TIP: The best time to make a price reduction is as soon as you discover that your home is priced too high for the market. Waiting too long to lower the price can cost money in the long run if the market is moving lower. Reducing too little, too late can lead to a series of further reductions and ultimately to a lower selling price. Ideally, you should avoid such an unpleasant downward spiral. The goal is to sell without having to reduce the price. To do this, you must accept current market conditions. You also need to recognize that no matter how wonderful you think your home is a buyer will find fault with it. To be a successful seller in this market -- and to some extent in any market -- requires separating pride of ownership in the property from the task as hand, which is to sell for the highest price possible. It's not easy for most sellers to put their emotional feelings about their home on ice. It helps to stop thinking of the property as "home" and to start looking at it as a commodity you want to sell. Before listing a property for sale, sellers should seriously consider their motivation. Successful sellers in today's more difficult marketplaces have a compelling need to sell. They don't simply want to sell if someone will make it worth their while. Many of today's prospective home buyers have a wait-and-see attitude about the market. They are looking, but it will take a fabulous home offered at a great price before they'll commit to buy. Sellers should also check out the temperature of the local market. Residential real estate is a localized business. Even if you live in a city where prices are down, that might not be the case in your neighborhood. The supply of homes for sale and demand for housing are critical variables, as is the local employment picture. There is a common theme to the listings that sell well now. These listings look great, are in good condition, don't have incurable defects and are priced right for the market. THE CLOSING: Being realistic about what to expect is half the battle. |
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| Pros, cons of buying home in today's market Fixer-upper not necessarily best investment for first-timers By Dian Hymer When the housing market slows down, buyers often wait on the sidelines for a clear sign that the market has recovered. The only problem with this strategy is that you can only know for sure that a market has turned through hindsight. In other words, you can't time the market. A slow market is perceived as an opportunity by some buyers, as it takes longer for listings to sell. The inventory of unsold listings tends to grow, giving buyers more choice than is the case in a hot seller's market when listings sell quickly. In a high-inventory market, there are usually fewer multiple offers so buyers can cut a better deal with the seller. However, it pays to be careful about what you buy and how you finance the purchase. HOUSE HUNTING TIP: The least expensive home in an area may not be the best investment. Unless you are a contractor with years of experience fixing up properties, you should hire the best inspectors you can find to look carefully at the condition of a property before you buy. Many home buyers, particular first-timers, don't give enough attention to the cost of maintaining a home. Home maintenance is a necessary part of home ownership. It can be expensive, particularly if you need to hire others to do the work. Some homes require more maintenance than others. A good inspector should be able to give you a good indication about how much work a home needs now and how much it will need on an ongoing basis. Buying a well-maintained home that will also have relatively low ongoing maintenance is one way to keep your overall housing costs down. Inexperienced home buyers should resist buying a fixer-upper just because it's offered at a cheap price for the neighborhood. It's difficult to get a firm grasp on renovation costs during the inspection contingency period, particularly if it's a big job. Remodeling projects can run over budget because of unanticipated problems like faulty electrical or plumbing, or an old furnace that goes bad. Or the city inspector could require that you do additional work to correct non-code-complying improvements done by previous owners. These sorts of costs can mount up so that you end up with far more invested in the property than it's worth on the market. Try to avoid buying a home that has an incurable defect. This is something that you can't change, like a location next to a freeway. These homes don't hold their value well when the housing market softens. A risk of buying in a slow market is that the value of what you buy might drop before it rises. Or, prices could stay flat for some time, which means that you won't build equity unless you pay down principal on your mortgage. If you should have to move during a time when prices are soft, you might not be able to sell for the amount you paid. To decrease this risk factor, don't buy for the short term. Give careful consideration to how you finance your purchase. Stay away from mortgages that have short due dates and balloon payments. If the market in your area stays soft for longer than anticipated, you don't want to be caught having to refinance at a time when your home might not appraise for the price you need to complete the transaction. THE CLOSING: A benefit of buying in a soft market is that you have the opportunity to buy at a reasonable price, without having to compete with other buyers. But, it makes no sense if you put yourself at financial risk. |
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