Closing on your home is one of the least understood home buying process. And many times, new home buyers underestimate the total costs associated with closing. So understand the closing process and associated costs before you finalize the offer.

tip: view your estimates of home closing costs

I was having a discussion with a friend last week when our conversation turned to the housing market. Bleak news upon bleak news for some people, but not for my friend.

Instead, he has been eagerly scouring the area for foreclosed homes and is of the mind to buy one or two at deeply discounted prices, fix them up, and selling each at a substantial profit. Though the local housing market isn't as strong as it was just a year ago, people are in the market for a nicely kept ranch or colonial that costs less than $250,000, a price that is common in our area of the country.

On the surface, such an idea seems interesting especially since my friend knows how to fix just about anything and has an eye that can assess what it will take to get a home market ready. What our conversation also revealed was some inexperience in locating foreclosed homes and the best process to snag one at a price that was sensible.

Though I am no expert in the buying and selling of foreclosed homes, I have found some resources and tips to streamline the process, information I have forwarded to my friend and am willing to share with you as well:

Search Online -- Several websites provide information about real estate owned (REO) properties, bank-owned foreclosures available where you live. Redfin.com, RealtyTrac.com and Foreclosures.com each feature listings of homes banks would rather not own. As the saying goes, "banks are in the habit of managing money, not property." Therefore, if you do your research right you could offer the bank substantially less than the home's market value especially when calculating the cost for repairs.

Repairs, Maintenance -- My friend has an excellent grasp of what costs are associated with making repairs and has a good eye to inspect and find problems. Not every person in the market for a foreclosed home has that talent, necessitating that a home inspector be retained to help find these problems for them. In addition, a contractor will probably be needed to help oversee this type of project.

Use a Broker -- Unless you have the skills to bid for a foreclosed home at an auction, you would be better dealing with a broker when searching for a foreclosed home. Some banks will only deal with professionals in the first place, while a broker can give you access where none would be available otherwise.

I do not know whether my friend will go ahead and snap up a foreclosure or two, but I have no doubt that he is now better equipped to handle this type of transaction if and when the opportunity arises.

2008/07/07

Financing Your Home

Prior to 2007, at least for the first several years of this decade, qualifying for a mortgage wasn't nearly as difficult as it is today. Mortgage qualification standards were lowered for a time, meaning tens of thousands of homeowners purchased homes who should have never been qualified in the first place.

As a result of the lowered standards, many of these same homeowners have defaulted on their loans, unable to keep up with payments. Creditors have finally raised the bar, making it tougher for consumers to qualify for a home loan.

If shopping for a home mortgage, there are four criteria you must keep in mind when applying. Where you stand in each area can determine if you are approved or not and what your loan terms will be.

• Home appraisal -- You purchased a 4 bedroom, 3 bath colonial, paying $385,000 for the home, be putting $85,000 down. With $300,000 to finance, your mortgage broker will make sure that the home is worth the amount you are paying for it. In this current market of declining home values, that isn't a sure thing.
  
• Your credit rating -- Your credit reports will be accessed and your credit score will be obtained. Depending on how high your score is, the mortgage terms (interest rate) will be set accordingly. Expect a lower rate if your credit is excellent.
  
• Your capacity to repay the loan -- Can you afford to repay the loan? Do you have sufficient assets and income to meet monthly payments? These questions must be answered before a loan offer is given.
  
• Your employment -- How long have you been employed? Where do you work? Are you paid a salary, salary plus commission, or are you paid hourly? These questions are the final determining factor on whether you will be offered a loan or not.

The tougher standards may seem unfair to some consumers, but they are in place for your protection and to protect the lender's assets. If your credit is good or excellent and all of the other criteria have been met, then receiving approval for a home loan will likely happen.

2008/03/17

REOs -- Are They Worth It?

Home buyers looking for a bargain are taking a close look at the housing market and are witnessing some unique opportunities. For one, prices have fallen -- dramatically so in some areas -- opening up home buying to people with very good credit and the cash to put down on a home.Even in local markets where home values have remained steady there are additional options for consumers looking for a bargain including REO -- real estate owned property. Let's take a look at REOs to learn what they are and what is involved with buying one.

REOs - Real Estate Own Properties

REOs are real estate owned properties which are owned by the lender -- mortgage company or bank -- that weren't sold at foreclosure. The previous owner is no longer on the premises as foreclosure action transferred the home to the lender.

In most cases REOs present a serious drain on the lender who is now holding onto a piece of property that is typically worth less than what is owed to the bank especially when attorney fees, loan balances and maintenance costs are factored in.

When To Consider An REO

If an REO property fails to sell at foreclosure, the lender will try to sell the property again, sometimes through a realtor or by means of an auction. In this case, an REO is worth considering especially if the following criteria have been met:

• Most of the liens or expenses related to the home are not included with the sale. This means that if property taxes haven't been paid for some time or loan related expenses haven't been recouped, the bank will not pass these expenses on to you. Instead, the lender will absorb most of the costs and sell the home to you as is.

• The home is salvageable despite needing extensive repairs. One big reason why a foreclosed home might not have sold is that the house is in poor shape. Perhaps new roofing, drywalling, flooring or some important structural work needs to be done to the house before it can be inhabited. Buyers must factor in the costs of these types of repairs when bidding on an REO.

REOs, An Opportunity For Some

In housing markets which have seen many foreclosures and a dip in home values, REOs are plentiful and great buys can be had. Banks are not in the business of holding and maintaining property, therefore if you do your homework and offer a fair price, an REO can be one way to profit from the current down turn in the real estate industry.

2008/03/14

Understanding Escrow

Congratulations, you found the home of your dreams and are ready to put some money down and finance the rest. Getting approved for a mortgage (assuming you still need to take this step) involves understanding several matters, items we'll take a look at right now.

Your Monthly Payments -- What a PITI!

PITI is a term you may hear about when you buy your home, an acronym that stands for the following:

Principle: The amount you will be borrowing, to be paid back over the life of the mortgage loan.

Interest: This represents the cost of the money lenders will charge for your using their money to buy your home.

Taxes: The government will tax you to pay for schools, road improvements, and other local services. Property taxes is the chief way that these funds are raised.

Insurance: If you have a loan on your home, then homeowners insurance is required and strongly recommended even if you don't. Offers protection against fire, theft, earthquake (sometimes) with flood insurance something you can purchase separately through a federal program.

Principal + Interest + Taxes + Insurance (PITI)
= Total Cost of Your Mortgage Loan

Prospective homeowners can forget that beyond principle and interest payments, property taxes and homeowners insurance can impact affordability. PITI is part of the formula that lenders use when calculating your affordability ratios.

Your Escrow

Oftentimes, your property taxes and homeowners insurance will be paid out of an escrow fund and sent directly to the local taxing authority and to your insurance provider. This insures that everyone gets paid (including the mortgage company).

Likely, at the time you make your down payment you'll have to come up with additional funds which will be deposited into your escrow account and tapped as needed -- something to consider when determining if you can afford a home or not.

Ultimately, your mortgage lender will decide whether you can afford to make payments when PITI is taken into consideration.

2008/03/10

Negotiating the Offer

You're ready to start shopping for a home, understanding that mortgage rates are low and the housing market has cooled. As a buyer, this could be a great time for you to snag a deal, especially if you have done your homework.

The Market: Hot or Not?

If you listen to the news, you may be under the impression that the housing market is in bad shape. True, overall sales have eased on a national level, but there are some markets which are very weak while there are also some that are quite strong.

In the northeast USA, home sales are down and housing prices are flat or dropping. In my area, Raleigh, NC, the market isn't as hot as it was one year ago, but it is still favors the seller -- lots of people want to move to Wake County. Therefore, if you are planning to negotiate the price of a home, you need to understand what the local market conditions are before you proceed.

Buyer v. Seller

Concerning real estate, it is truly a buyer v. seller market. The seller wants top dollar for her home and you, as a buyer, want to find a home that you can afford and is a decent buy.

In a strong selling market, you'll likely be up against other buyers who can bid against you, driving the price of a home up and beyond the seller's asking price. In a weak selling market, you may be the only buyer or at least the only one qualified to buy. You may not be able to shave ten or twenty percent off of the price of the home, but you could possibly save several thousands of dollars.

Making An Offer

When you are ready to present an offer, your real estate agent will provide you with the standard documents that list the terms of the contract. The agent should review the contract with you and understand what your purchase price is, the terms of the sale (e.g., is the refrigerator included or not?), your earnest money, financing, down payment, etc.

Before You Make Your Offer

Before making an offer, you'll want to be clear what you are buying. You're getting the house and the property, but does that include all fixtures, window treatments, appliances, etc. What if some work still needs to be done on the home? Who will pay for these repairs? Your contract should have a provision outlining what must be done before you close on the house.

Presentation and Counter Offer

If the seller accepts your offer, then you are done and the contract will be signed by both parties. If rejected, you'll likely get a counter-offer which you can either accept or reject. Until you come to an agreement on the price, then the deal hasn't been finalized.

Keep in mind that if a deal isn't quickly reached, the seller has the right to entertain other offers. It is in your best interest to move quickly and craft a deal acceptable to both parties. Once the contract has been signed, then a binding contract is in place.

If you back out of the contract, you could lose your earnest money and even be subject to litigation. Conversely, if the seller backs out after the contract has been signed then the earnest money must be returned to you. Moreover, you can sue the seller for financial damages.

Work With An Agent

A qualified and experienced real estate agent can help you through the home buying process. The seller pays your realtor's fees, but you get the wisdom and experience of an agent who can help your home close smoothly.

Happy house hunting!

2008/03/03