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Determine How Much Mortgage You Can Afford

By: G. M. Filisko

By knowing how much mortgage you can handle, you can ensure that home ownership will fit in your budget.

Homeownership should make you feel safe and secure, and that includes financially. Be sure you can afford your home by calculating how much of a mortgage you can safely fit into your budget.

Instead of just taking out the biggest mortgage a lender qualifies you to borrow, consider how much you want to pay each month for housing based on your financial and personal goals.

Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree Will a new child add day care to your monthly expenses Does a relative plan to eventually live with you and contribute to the mortgage

Still not sure how much you can afford You can use the same formulas that most lenders use, or try another of these traditional methods for estimating the amount of mortgage you can afford.

1. The general rule of mortgage affordability
As a rule of thumb, you can typically afford a home priced two to three times your gross income. If you earn $100,000, you can typically afford a home between $200,000 and $300,000.

To understand how that rule applies to your particular financial situation, prepare a family budget and list all the costs of homeownership, like property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care costs.

2. Factor in your downpayment
How much money do you have for a downpayment The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home’s cost, you may not have to get private mortgage insurance, which costs hundreds each month. That leaves more money for your mortgage payment.
The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher your monthly mortgage payment.

3. Consider your overall debt
Lenders generally follow the 28/41 rule. Your monthly mortgage payments covering your home loan principal, interest, taxes, and insurance shouldn’t total more than 28% of your gross annual income. Your overall monthly payments for your mortgage plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 41% of your gross annual income.

Here’s how that works. If your gross annual income is $100,000, multiply by 28% and then divide by 12 months to arrive at a monthly mortgage payment of $2,333 or less. Next, check the total of all your monthly bills including your potential mortgage and make sure they don’t top 41%, or $3,416 in our example.

4. Use your rent as a mortgage guide
The tax benefits of homeownership generally allow you to afford a mortgage payment-including taxes and insurance-of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.

Here’s an example. If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.

However, if you’re struggling to keep up with your rent, consider what amount would be comfortable and use that for the calcuation instead.

Also consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax situation more clearly.

More from HouseLogic
More on the mortgage interest deduction (http://www.houselogic.com/articles/mortgage-interest-deduction-vital-housing-market/)

More on the tax advantages of homeownership (http://www.houselogic.com/articles/tax-tips-homeowners-preparing-2009-returns/)

Other web resources
A worksheet on home affordability (http://www.ginniemae.gov/2_prequal/intro_questions.asp Section=YPTH)

Freddie Mac information on home affordability (http://www.freddiemac.com/corporate/buyown/english/preparing/right_for_you/afford.html)
G.M. Filisko is an attorney and award-winning writer who’s owned her own home for more than 20 years. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Visit houselogic.com for more articles like this. Reprinted from HouseLogic with permission of the NATIONAL ASSOCIATION OF REALTORS
Copyright 2010. All rights reserved.

Lender or Broker?

Make an Informed Decision

When it comes time to look for financing for your upcoming purchase, there are a couple of options. You can go directly to a lender or use a mortgage broker. Your real estate agent may have a list of good lenders and mortgage brokers in your area. In addition, most major daily newspapers have home buying sections in their weekend editions. This is another good place to find information about lenders and mortgage brokers in your area. And finally, a simple search on the internet will turn up many suggestions for home loans.

A lender typically is a bank, mortgage company, credit union or savings and loan. A mortgage broker is a middleman who is usually independent of a lender. Mortgage brokers arrange loans from various sources and earn a commission for their services.

Some lenders will charge for the pre-approval process given the extra effort involved. However, do not choose a lender solely because they don’t charge for this process. Look at all of the costs involved!

To choose a good lender, do research on those in your area. Check interest rates, fees and loan terms against other lenders. Just be sure to take the time to research and compare different lenders so you get the best deal. Often, lenders will look for borrowers without any special circumstances. That is, they’ll want a good or better credit score, documented income, and a standard piece of property to lend on.

Comparing mortgage brokers is a good idea too. If one happens to offer rates and terms that are drastically better than anyone else out there, this could be a warning sign! Remember, if it sounds too good to be true, it usually is. A good mortgage broker will be able to do your mortgage shopping for you. They’ll compare rates and fees, while looking for a lender that suits your individual needs. They should also be able to explain the details of the loan to your satisfaction. In addition, if any of the special circumstances discussed above low credit scores, undocumented income or a unique piece of property apply to you, a good mortgage broker can help make a difference.

What s the Score

Your credit score or FICO score (for Fair, Isaac and Company, which created the system) is a number that indicates the health of your credit. The higher the score, the healthier your credit and the more likely a lender is to approve a loan with good terms. Scores can range from 300 to over 900, with the typical credit score falling in the 600s to 700s.

Credit scores take five different financial areas into account. The  five C s of credit that lenders will look at include:

Capacity. Are you able to repay the debt The lender verifies your employment information: occupation, length of employment, income.
He or she reviews your expenses: how many dependents you have, if you pay alimony and/or child support, your other obligations.

Credit history. Based upon your past payment habits, how likely is it that you will make your monthly payment The lender looks at how much you owe, how often you borrow, whether you live within your means, and whether you pay your bills on time.
BEWARE! As your credit score goes down, mortgage fees and costs, interest rates and other costs go up, up, up! A typical 7% mortgage with a few thousand dollars in fees can go up to an 18% monster with many thousands in fees if you have a low credit score.

Capital. Do you have enough cash on hand for the down payment and closing costs Are you receiving a gift from a relative Will you have reserve money left over after the purchase

Collateral. Is the value of the property worth the investment Is it in sufficiently good condition and is the price appropriate for the home If you do not repay the debt, will the lender be able to recover his investment

Character. Have you disclosed all your debts If you had previous credit problems, did you disclose them

5 Tips for Buying a Foreclosure

By: G. M. Filisko

Get prequalified for a loan and set aside funds, and you’ll be ready to purchase a foreclosed home.

When lenders take over a home through foreclosure, they want to sell it as quickly as possible. Since lenders aren’t in the real estate business, they turn to real estate brokers for help marketing their properties. Buying a foreclosed home through the multiple listing service can be a bargain, but it can also be a problem-filled process. Here are five tips to help you buy smart.

1. Choose a foreclosure sale expert. Lenders rarely sell their own foreclosures directly to consumers. They list them with real estate brokers. You can work with a real estate agent who sells foreclosed homes for lenders, or have a buyer’s agent find foreclosure properties for you. To locate a foreclosure sales specialist, call local brokers and ask if they are the listing agent for any banks.

Either way, ask the real estate professional which lenders’ homes they’ve sold, how many buyers they’ve represented in a foreclosed property purchase, how many of those sales they closed last year, and who they legally represent.

If the agent represents the lender, don’t reveal anything to her that you don’t want the lender to know, like whether you’re willing to spend more than you offer for a house.

2. Be ready for complications. In some states, the former owner of a foreclosed home can challenge the foreclosure in court, even after you’ve closed the sale. Ask your agent to recommend a real estate attorney who has negotiated with lenders selling foreclosed homes and has defended legal challenges to foreclosures.

Have your attorney explain your state’s foreclosure process and your risks in purchasing a foreclosed home. Set aside as much as $5,000 to cover potential legal fees.

3. Work with your agent to set a price. Ask your real estate agent to show you closed sales of comparable homes, which you can use to set your price. Start with an amount well under market value because the lender may be in a hurry to get rid of the home.

4. Get your financing in order. Many mortgage market players, such as Fannie Mae, require buyers to submit financing preapproval letters with a purchase offer. They’ll also reject all contingencies. Since most foreclosed homes are vacant, closings can be quick. Make sure you have the cash you’ll need to close your purchase.

5. Expect an as-is sale. Most homeowners stopped maintaining their home long before they could no longer make mortgage payments. Be sure to have enough money left after the sale to make at least minor, and sometimes substantive, repairs.

Although lenders may do minor cosmetic repairs to make foreclosed homes more marketable, they won’t give you credits for repair costs (or make additional repairs) because they’ve already factored the property’s condition into their asking price.

Lenders will also require that you purchase the home “as is,” which means in its current condition. Protect yourself by ordering a home inspection to uncover the true condition of the property, getting a pest inspection, and purchasing a home warranty.

Be sure you also do all the environmental testing that’s common to your region to find hazards such as radon, mold, lead-based paint, or underground storage tanks.

More from HouseLogic
What you need to know about the homebuyer tax credit (http://www.houselogic.com/articles/homebuyer-tax-credit-what-you-need-know/)

How to claim your homebuyer tax credit (http://www.houselogic.com/articles/claim-your-homebuyer-tax-credits/)

Other web resources
How to buy a foreclosure from Fannie Mae (http://www.fanniemae.com/homepath/homebuyers/buying_fanniemaeowned.jhtml)

What to consider when buying a foreclosure as your first home (http://www.nolo.com/legal-encyclopedia/article-29589.html)

G.M. Filisko is an attorney and award-winning writer who purchased a foreclosed condominium and found herself in the middle of a months-long dispute between the former homeowner and the bank over whether the foreclosure was conducted properly. Six months after paying the full purchase price, she was finally able to enter the property. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Visit houselogic.com for more articles like this. Reprinted from HouseLogic with permission of the NATIONAL ASSOCIATION OF REALTORS
Copyright 2010. All rights reserved.

Q-A Series – GENERAL FINANCING QUESTIONS:THE BASICS

Q. WHAT IS A MORTGAGE

Generally speaking, a mortgage is a loan obtained to purchase real estate. The “mortgage” itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.

Q. WHAT IS A LOAN TO VALUE (LTV) HOW DOES IT DETERMINE THE SIZE OF MY LOAN

The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay,$2,500 as a down payment.

The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy.

Q. WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT ARE THE ADVANTAGES OF EACH

Fixed Rate Mortgages: Payments remain the same for the the life of the loan

Types
– 15-year
– 30-year

Advantages
– Predictable
– Housing cost remains unaffected by interest rate changes and inflation.

Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits

Types
– Balloon Mortgage- Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is clue or refinanced (though not automatically)
– Two-Step Mortgage- Interest rate adjusts only once and remains the same for the life of the loan
– ARMS linked to a specific index or margin

Advantages
– Generally offer lower initial interest rates
– Monthly payments can be lower
– May allow borrower to qualify for a larger loan amount

Q. WHEN DO ARMS MAKE SENSE

An ARM may make sense If you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren’t concerned about potential increases in interest rates.

Q. WHAT ARE THE ADVANTAGES OF 15- AND 30-YEAR LOAN TERMS

30-Year:
– In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions.
– As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.

15-year:
– Loan is usually made at a lower interest rate.
– Equity is built faster because early payments pay more principal.

Q. CAN I PAY OFF MY LOAN AHEAD OF SCHEDULE

Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for details.

Q. ARE THERE SPECIAL MORTGAGES FOR FIRST-TIME HOMEBUYERS

Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don’t have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities.

Q. HOW LARGE OF A DOWN PAYMENT DO I NEED

There are mortgage options now available that only require a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you’ll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you’ll also need money for closing costs, moving expenses, and – possibly -repairs and decorating.

Q. WHAT IS INCLUDED IN A MONTHLY MORTGAGE PAYMENT

The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner’s insurance, and mortgage insurance (if applicable).

Q. WHAT FACTORS AFFECT MORTGAGE PAYMENTS

The amount of the down payment, the size of the mortgage loan, the interest rate, the length of the repayment term and payment schedule will all affect the size of your mortgage payment.

Q. HOW DOES THE INTEREST RATE FACTOR IN SECURING A MORTGAGE LOAN

A lower interest rate allows you to borrow more money than a high rate with the some monthly payment. Interest rates can fluctuate as you shop for a loan, so ask-lenders if they offer a rate “lock-in”which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan.

Q. WHAT HAPPENS IF INTEREST RATES DECREASE AND I HAVE A FIXED RATE LOAN

If interest rates drop significantly, you may want to investigate refinancing. Most experts agree that if you plan to be in your house for at least 18 months and you can get a rate 2% less than your current one, refinancing is smart. Refinancing may, however, involve paying many of the same fees paid at the original closing, plus origination and application fees.

Q. WHAT ARE DISCOUNT POINTS

Discount points allow you to lower your interest rate. They are essentially prepaid interest, With each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases With each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.

Q. WHAT IS AN ESCROW ACCOUNT DO I NEED ONE

Established by your lender, an escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner’s insurance, mortgage insurance (if applicable), and property taxes. Escrow accounts are a good idea because they assure money will always be available for these payments. If you use an escrow account to pay property tax or homeowner’s insurance, make sure you are not penalized for late payments since it is the lender’s responsibility to make those payments.

Short Sales Tips for Sellers

If you’re thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won’t cover your total mortgage obligation and closing costs, and you don’t have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.

1. Consider loan modification first. If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home. Your lender may agree to a modification such as: Refinancing your loan at a lower interest rate; providing a different payment plan to help you get caught up; or providing a forbearance period if your situation is temporary. When a loan modification still isn t enough to relieve your financial problems, a short sale could be your best option if:

* Your property is worth less than the total mortgage you owe on it.
* You have a financial hardship, such as a job loss or major medical bills.
* You have contacted your lender and it is willing to entertain a short sale.

2. Hire a qualified team. The first step to a short sale is to hire a qualified real estate professional and a real estate attorney who specialize in short sales. Interview at least three candidates for each and look for prior short-sale experience. Short sales have proliferated only in the last few years, so it may be hard to find practitioners who have closed a lot of short sales. You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won’t try to take advantage of your situation or pressure you to do something that isn’t in your best interest. A qualified real estate professional can:

* Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
* Help you set an appropriate listing price for your home, market the home, and get it sold.
* Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).
* Ease the process of working with your lender or lenders.
* Negotiate the contract with the buyers.
* Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval. You can t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.

3. Begin gathering documentation before any offers come in. Your lender will give you a list of documents it requires to consider a short sale. The short-sale  package that accompanies any offer typically must include:

* A hardship letter detailing your financial situation and why you need the short sale
* A copy of the purchase contract and listing agreement
* Proof of your income and assets
* Copies of your federal income tax returns for the past two years

4. Prepare buyers for a lengthy waiting period. Even if you’re well organized and have all the documents in place, be prepared for a long process. Waiting for your lender s review of the short-sale package can take several weeks to months. Some experts say:

* If you have only one mortgage, the review can take about two months.
* With a first and second mortgage with the same lender, the review can take about three months.
* With two or more mortgages with different lenders, it can take four months or longer.

When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back at square one. (Your real estate attorney and real estate professional, with your authorization, can work your lender s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.)

5. Don’t expect a short sale to solve your financial problems. Even if your lender does approve the short sale, it may not be the end of all your financial woes. Here are some things to keep in mind:

* You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can t pay back the balance, talk with your real estate attorney about your options.
* Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount. Under a temporary measure passed in 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify.
* Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will impact your credit score less than foreclosure and bankruptcy.

Reprinted from REALTOR magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS .
Copyright 2008. All rights reserved.

6 Tips for Buying a Home in a Short Sale

By: G. M. Filisko

By preparing for a real estate short sale, you can emerge with a great home at a favorable price.

When sellers need to sell their home for less than they owe on their mortgage, they’re shooting for a short sale. Short sale homes can sometimes be bargains, but only if you do your homework, stay patient, and remain unemotional during the sometimes lengthy and difficult short sale process.

Here are six tips for protecting yourself emotionally and financially when bidding on a short sale.

1. Get help from a short sale expert
A real estate agent experienced in short sales can identify which homes are being offered as short sales, help you determine a purchase price, and advise you on what to include in your offer to make the lender view it favorably. Ask agents how many buyers they’ve represented in short sales and, of those, how many successfully closed the transaction.

2. Build a team
Ask agents to recommend real estate attorneys knowledgeable in short sales and title experts. A title officer can do a title search to identify all the liens attached to a property you’re interested in. Because each lienholder must consent to a short sale, a property with multiple liens, like first and second mortgages, mechanic’s and condominium liens, or homeowners association liens, will be harder to purchase.
A title search may cost $250 to $300 up front, but it can help weed out less desirable properties requiring multiple approvals.

3. Know the home’s fair market value
By agreeing to a short sale, lenders are consenting to lose money on the loan they made to the sellers to purchase the home. Their goal is to keep those losses as low as possible. If your offer is dramatically less than the home’s fair market value, it may be rejected. Your agent can help you identify the price that’s good for you. The lender will determine whether approval is in its best interest.

4. Expect delays
There are two stages to a short sale. First, the sellers must consent to your purchase offer. Then they must submit it to their lender, along with documentation to convince the lender to agree to the sale.
The lender approval process can take weeks or months, even longer if the lender counteroffers. Expect bigger delays if several lienholders are involved; each can make a counteroffer or reject your offer.

5. Firm up your financing
Lenders will weigh your ability to close the transaction. If you’re preapproved for a mortgage, have a large downpayment, and can close at any time, they’ll consider your offer stronger than that of a buyer whose financing is less secure.

6. Avoid contingencies
If you must sell your current home before you can close on the short-sale property, or you need to close by a firm deadline, your offer may present too many moving parts for a lender to approve it.
Also, consider ordering an inspection so you’re fully informed about the home. Keep in mind that lenders are unlikely to approve an offer seeking repairs or credits for such work. You’ll probably have to purchase the home “as is,” which means in its present condition.

This article includes general information about tax laws and consequences, but isn’t intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.

More from HouseLogic
What you need to know about the homebuyer tax credit (http://www.houselogic.com/articles/homebuyer-tax-credit-what-you-need-know/)

(http://thegreenists.com/food/ted-talk-being-a-weekday-vegetarian/5803) How to claim your homebuyer tax credit (http://www.houselogic.com/articles/claim-your-homebuyer-tax-credits/)
Other web resources
More on short sales (http://www.nolo.com/legal-encyclopedia/article-30016.html)

Real-life discussions of short sales (http://www.npr.org/templates/story/story.php storyId=104803015)

G.M. Filisko is an attorney and award-winning writer who luckily has avoided the need for a short sale on her properties. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Visit houselogic.com for more articles like this. Reprinted from HouseLogic with permission of the NATIONAL ASSOCIATION OF REALTORS
Copyright 2010. All rights reserved.

Seven Selling Mistakes You Don’T Want To Make!

SEVEN SELLING MISTAKES YOU DON’T WANT TO MAKE!

Mistake #1 — Pricing Your Property Too High

Every seller obviously wants to get the most money for his or her product. Ironically, the best way to do this is NOT to list your product at an excessively high price! A high listing price will cause some prospective buyers to lose interest before even seeing your property. Also, it may lead other buyers to expect more than what you have to offer. As a result, overpriced properties tend to take an unusually long time to sell, and they end up being sold at a lower price.

Mistake #2 — Mistaking Re-finance Appraisals for the Market Value

Unfortunately, a re-finance appraisal may have been stated at an untruthfully high price. Often, lenders estimate the value of your property to be higher than it actually is in order to encourage re-financing. The market value of your home could actually be lower.

Your best bet is to ask your REALTOR® for the most recent information regarding property sales in your community. This will give you an up-to-date and factually accurate estimate of your property value.

Mistake #3 — Forgetting to “Showcase Your Home”

In spite of how frequently this mistake is addressed and how simple it is to avoid, its prevalence is still widespread. When attempting to sell your home to prospective buyers, do not forget to make your home look as pleasant as possible. Make necessary repairs. Clean. Make sure everything functions and looks presentable. A poorly kept home in need of repairs will surely lower the selling price of your property and will even turn away some buyers.

Mistake #4 — Trying to “Hard Sell” While Showing

Buying a house is always an emotional and difficult decision. As a result, you should try to allow prospective buyers to comfortably examine your property. Don’t try haggling or forcefully selling.

Instead, be friendly and hospitable. A good idea would be to point out any subtle amenities and be receptive to questions.

Mistake #5 — Trying to Sell to “Looky-Loos”

A prospective buyer who shows interest because of a “for sale” sign he saw may not really be interested in your property. Often buyers who do not come through a REALTOR® are a good 6-9 months away from buying, and they are more interested in seeing what is out there than in actually making a purchase. They may still have to sell their house, or may not be able to afford a house yet. They may still even be unsure as to whether or not they want to relocate.

Your REALTOR® should be able to distinguish realistic potential buyers from mere lookers. REALTOR®s should usually find out a prospective buyer’s savings, credit rating, and purchasing power in general. If your REALTOR® fails to find out this pertinent information, you should do some investigating and questioning on your own. This will help you avoid wasting valuable time marketing towards the wrong people. If you have to do this work yourself, consider finding a new REALTOR®.

Mistake #6 — Not Knowing Your Rights & Responsibilities

It is extremely important that you are well-informed of the details in your real estate contract. Real estate contracts are legally binding documents, and they can often be complex and confusing.

Not being aware of the terms in your contract could cost you thousands for repairs and inspections. Know what you are responsible for before signing the contract. Can the property be sold “as is”? How will deed restrictions and local zoning laws affect your transaction? Not knowing the answers to these kinds of questions could end up costing you a considerable amount of money.

Mistake #7 — Limiting the Marketing and Advertising of the Property

Your REALTOR® should employ a wide variety of marketing techniques. Your REALTOR® should also be committed to selling your property; he or she should be available for every phone call from a prospective buyer. Most calls are received, and open houses are scheduled, during business hours, so make sure that your REALTOR® is working on selling your home during these hours. Chances are that you have a job, too, so you may not be able to get in touch with many potential buyers.

Homebuyer Education Resources

Homebuyer education is an important component of homeownership, as it prepares the buyer for the acquisition process and provides the necessary tools for remaining a successful homeowner.

Counseling proves to be a valuable tool that makes the buying process more attractive by providing buyers with knowledge of the basic steps of purchasing, financing and making timely mortgage payments; and information on how to avoid pitfalls. In addition, completing a course fulfills one of the qualifying criteria that many lenders require of first-time buyers.

The providers of homebuyer education are the government, government sponsored enterprises, mortgage bankers, housing advocates, and non-profit organizations. The courses have been made available to the public online, on-site (class imparted by an instructor) and as printed material; they have the common objective of helping buyers to become successful homeowners. Some courses specialize in financial topics, such as FICO scores or predatory lending, and some others offer a comprehensive approach to homeownership issues such as how to find the best loan or how much home one can afford. A handful of courses are not designed for the buyer, but for the real estate professional that desires to instruct others about the home-buying process.

We have divided this document into three parts. The general homebuyer education section points out the most relevant courses and materials available for gaining broad knowledge of the home buying process. The local homebuyer part will help you find a local agency that offers classes on site. This is particularly important for the homebuyer that needs counseling and to complete a course when qualifying for a loan. Finally, the predatory lending education section lists the sites that offer specialized information on how to avoid this practice.

General Homebuyer Education

  • BorrowSmart: Online source sponsored by lenders with information on how to manage credit and loans.
  • C.A.R. Homebuyer Education and Housing Counseling: First-time and low-to-moderate income buyers have several programs through all levels of government and non-government organizations willing to assist.
  • Fannie Mae Foundation: This agency offers Home-Buying Guides that outline the basics about owning a home, knowing your credit, borrowing, and choosing the best mortgages. The homeownership education programs help underserved populations gain access to affordable housing and become homeowners. Resources are available in several languages. Finally, Fannie Mae s Home Counselor Online provides a tool that enables counselors to increase their business productivity while managing their counseling functions. It enables users to enhance their level of service while helping more clients prepare for homeownership.
  • Fair Isaac: This organization offers a very complete credit education page focused on the FICO score.
  • Freddie Mac s Route to Home Ownership: This online program provides easy to understand and in-depth information on all aspects of buying a home, from understanding the pros and cons of homeownership to demystifying the mortgage process. Freddie Mac also offers Recursos en Espa ol.
  • Ginnie Mae Homeownership Information Center: The site has a series of links with information about the home buying process.
  • Homebuyers Education Center: This website offers information about home buying and educating the consumer on the importance of using a REALTOR during the process.
  • HomeOwnership Alliance: The consumer will find extensive information on how to buy a home, moving, mortgages, insurance and equity.
  • Homeownership Alliance of Non-profit Down Payment (HAND) Providers: HAND s members are some of the most important non-profits offering down payment assistance. These organizations also offer home buying classes, online courses, ebooks and educational tools for the buyer and the real estate professional.
  • Homes for All Program: This non-profit site offers counsel on how to choose a real estate agent and advocates for the use of REALTORS only. It has a buyers and a seller s guide.
  • HCD has a Memo for Local Homebuyer Program Operators and Sponsors: Contains a Sample Homebuyer Program Guidelines and a Homebuyer Program Guidelines Checklist for those who want to set up their own homebuyer program using HCD funds.
  • HUD s HomeBuying Resources: Includes information on: homebuyer rights, mortgage, finding a real estate broker, home-buying programs, shopping for a home, home inspections, appraisals, homeowners insurance, closing, and moving. HUD Counseling will help you find a local counseling agency. The US Homebuyer Education Center offers a homebuyer education online course and provides the student with a certificate upon completion.
  • Mortgage Bankers Association: Has posted information on financial literacy, homebuyer education and predatory lending. The website contains useful links.
  • Private Lenders: Lenders such as Bank of America, Countrywide Home Loans, Wells Fargo, IndyMac Bank, Washington Mutual, Citi Bank, just to name a few, have online home buying resources. Check with your bank or credit union about available information.

Local Educational Programs

In addition to the above resources, there are several non-profit organizations that offer homebuyer s education. We recommend also contacting your local housing authority, as new programs might be in place. HUD keeps a list of approved house counseling agencies for all California.

The Southern California Association of Non-Profit Housing maintains a list of homebuyer education programs for the counties of Los Angeles, Orange, Ventura, San Bernardino, Santa Barbara and Riverside.

Predatory Lending Education

Lending and credit issues deserve a special category since many homebuyers have fallen prey to unscrupulous mortgage brokers and many others do not understand how credit works. Several sites offer information on how to detect signs of predatory lending and what to do if one has already fallen into a mortgage fraud scheme.

  • HUD Predatory Lending: The agency informs thoroughly on the issue of predatory lending.
  • Stopmortgagefraud.com: This site features information on the borrower s bill of rights, warning signs of abusive lending and a place to report abusive lending.
  • City of LA Don t Borrow Trouble: It offers advice on how to prevent loan scams. Several documents about the topic are available both in English and Spanish. The site also features an extensive list of counseling organizations and a link to Freddie Mac s site (below).
  • Freddie Mac s Don t Borrow Trouble: The site posts information on how to avoid predatory lending practices.

Glossaries help homebuyers find definitions to real estate terms they are not familiar with or are difficult to understand. Fannie Mae s Mortgage Terms Glossary Glossary of Real Estate Terms HUD s Mortgage Glossary (available translation in Spanish)

HOUSING PRIMER

Making an Offer on a Short Sale What You Need to Know

Are you looking to buy a new home Are you thinking that now’s a great time to find bargains Before you make an offer, it pays to know a little about the seller’s situation.

If a home is being sold for below what the current seller owes on the property and the seller does not have other funds to make up the difference at closing the sale is considered a short sale. Many more home owners are finding themselves in this situation due to a number of factors, including job losses, aggressive borrowing against their home in the days of easy credit, and declining home values in a slower real estate market.

A short sale is different from a foreclosure, which is when the seller’s lender has taken title of the home and is selling it directly. Homeowners often try to accomplish a short sale in order to avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Know the risks before you pursue a short-sale purchase.

You’re a good candidate for a short-sale purchase if:

* You’re very patient. Even after you come to agreement with the seller to buy a short-sale property, the seller s lender (or lenders, if there is more than one mortgage) has to approve the sale before you can close. When there is only one mortgage, short-sale experts say lender approval typically takes about two months. If there is more than one mortgage with different lenders, it can take four months or longer for the lenders to approve the sale.

* Your financing is in order. Lenders like cash offers. But even if you can t pay all cash for a short-sale property, it s important to show you are well qualified and your financing is set. If you’re preapproved, have a large down payment, and can close at any time, your offer will be viewed more favorably than that of a buyer whose financing is less secure.

* You don t have any contingencies. If you have a home to sell before you can close on the purchase of the short-sale property or you need to be in your new home by a certain time a short sale may not be for you. Lenders like no-contingency offers and flexible closing terms.

If you’re serious about purchasing a short-sale property, it’s important for you to have expert assistance. Here are some people you want to work with:

* Experienced real estate attorney. Only about two out of five short sales are approved by lenders. But a good real estate attorney who’s knowledgeable about the short-sale process will increase your chances getting an approved contract. Also, if you want any provisions or very specialized language written into the purchase contract, a real estate attorney is essential throughout the negotiation.

* A qualified real estate professional. You may have a close friend or relative in real estate, but if that person doesn t know anything about short sales, working with him or her may hurt your chances of a successful closing. Interview a few practitioners and ask them how many buyers they’ve represented in a short sale and, of those, how many have successfully closed. A qualified real estate professional will be able to show you short-sale homes, help negotiate the purchase when you find the property you want to buy, and smooth communications with the lender. (All MLSs permit, and some now require, special notations to indicate that a listing is a short sale. There also are certain phrases you can watch for, such as  lender approval required. )

* Title officer. It s a good idea to have a title officer do an initial title search on a short-sale property to see all the liens attached to the property. If there are multiple lien holders (e.g., second or third mortgage or lines of credit, real estate tax lien, mechanic s lien, homeowners association lien, etc.), it’s much tougher to get that short sale contract to the closing table. Any of the lien holders could put a kink in the process even after you ve waited for months for lender approval. If you don t know a title officer, your real estate attorney or real estate professional should be able to recommend a few.

Some of the other risks faced by buyers of short-sale properties include:

* Potential for rejection. Lenders want to minimize their losses as much as possible. If you make an offer tremendously lower than the fair market value of the home, chances are that your offer will be rejected and you ll have wasted months. Or the lender could make a counteroffer, which will lengthen the process.

* Bad terms. Even when a lender approves a short sale, it could require that the sellers sign a promissory note to repay the deficient amount of the loan, which may not be acceptable to some financially desperate sellers. In that case, the sellers may refuse to go through with the short sale. Lenders also can change any of the terms of the contract that you ve already negotiated, which may not be agreeable to you.

* No repairs or repair credits. You will most likely be asked to take the property  as is. Lenders are already taking a loss on the property and may not agree to requests for repair credits.

The risks of a short sale are considerable. But if you have the time, patience, and iron will to see it through, a short sale can be a win-win for you and the sellers.

* Not all real estate practitioners are REALTORS . A REALTOR is a member of the NATIONAL ASSOCIATION OF REALTORS and is bound by NAR s strict code of ethics.

Note: This article provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA.

Reprinted from REALTOR magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS .
Copyright 2008. All rights reserved.

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