Monday, March 30, 2009

What Is a 203(K) FHA Loan?

Have you found a house that you love but needs some repairs to pass an FHA appraisal? Or do you have a house that you need to sell that needs some more work to get it ready to sell? In either case, if the work is $15,000 or less, then the houses may qualify for the 203(K) FHA loan.

There are only a few select lenders in Middle Tennessee that are certified to loan 203(K) FHA funds. In our current market, this has become a viable tool for people to be able to buy or to sell a home.

Here's how it works for buyers: Find a home that needs some work. Get estimates from licensed and bonded contractors (the lender will have a list of approved contractors). If the amount of repairs/replacements is under $15,000 to bring it to an average livable condition, then make an offer on the house. Here are some things to remember: (1) The appraisal value has to be the total of the contract price PLUS the repair amount; (2) The work has to be completed within 50 days of the loan application OR within 30 days of closing; (3) The $15,000 is NOT a line of credit or a second loan - the main mortgage and the repair loan are just one loan; (4) The $15,000 can be used for other things beyond basic repairs.

For sellers, talk with your real estate professional about marketing your home as a possible 203(K) FHA home.

For more specifics, check on details with your lender. If you're want to buy or sell a home that needs repairs or just needs to be improved, please feel free to give me a call or send me an email. I'm more than happy to help. Also, there are lenders I can refer you to who handle 203(K) FHA loans.

Friday, March 27, 2009

Swapping (Trading) Houses

The next best latest and greatest thing in real estate? Two homeowners swapping houses.

Why would anyone want to swap houses when they can sell them instead? There are several reasons make this an appealing situation:

1 - There's no need to do any repairs, upgrades or updates. Both properties are sold "as is".

2 - There's no time for the houses to have to sit on the market. Each house already has a buyer, so there's very little risk.

3 - There's no need for there to be any "creative" financing such as bridge loans, etc.

If this is for me, how does this happen?

1 - The hardest part is finding someone else who wants to swap houses. If a house is listed, it can be marketed as a potential swap as well as a regular sale. However, there are people who want to swap to alleviate all the hassles of having to do anything to their house to get it ready to sell. They are out there.

2 - Two contracts are drawn up. One is for your home and the other is for your buyer's home. Both contracts have agreed upon prices, conditions and terms acceptable to both parties. For this to work, both closing times have to be simultaneous.

3 - Both contracts are taken to each respective lender and the lender proceeds as usual. The contract for the purchase of each home verifies that the funds will be available, and that the debt to income ratios will be within the acceptable range allowed by the lender.

4 - Inspections are completed and the rest of the process proceeds as normal.

5 - Closing happens and everyone's happy.

Interested in swapping houses? Give me a call. I can help you with any and all of your real estate needs.

Monday, March 23, 2009

Short Selling Instead of Foreclosure

Short sales are becoming more common today as homeowners find themselves in a financial pinch. In fact, one of my current listings is a short sale. A short sale is when a house is sold for less than what is owed on it and the expenses to sell/close it. While not an ideal situation, a short sale is viewed as much better than a foreclosure sale. It's less expensive for the bank overall, and many times the bank will allow the seller to pay the difference through an unsecured note at little or no interest.

To get into a short sale situation, a seller must have lender approval. Sometimes a lender will NOT agree to a short sale up front, so the agent listing it posts a price that the seller hopes the bank will accept.

Once contractural terms have been agreed upon by both buyer and seller, the agent submits the contract, along with pages and pages of documents, to the lender (or lenders if there is more than one mortgage on the property). Those documents include:

1 - A hardship statement from the sellers

2 - Title work

3 - Preliminary (proposed) HUD-1 (settlement statement) prepared by the title company

4 - W-2s from the last two years

5 - Federal income tax returns from the last two years

6 - A promissory note signed by the seller to repay the difference (varies by lender)

7 - Notarized letter to the lender allowing the lender to talk with the listing agent about the sale

In all, there are about 35-50 pages of information that the lender must see and view prior to making a decision. Sometimes the decisions are very quick and other times they will take weeks and weeks.

If you are in dire financial straits, this may be the way to go (instead of foreclosure). DO NOT WAIT to take action. Doing nothing sometimes results in the lender taking legal action.

If you desire to purchase a home in short sale status, do not expect to "low ball" this property in your offer. Lenders will often just let it go into foreclosure if the short sale will be less beneficial to them. All offers are required to be presented to the seller, so if you do choose to low-ball the property, they still have to respond with either a "yes", "no" or a counter offer.

For help with a short sale, talk with a knowlegable real estate agent about this process and how you should proceed. If you'll give me a call, I will be happy to help you.

Saturday, March 21, 2009

How Does a Property Go Into Foreclosure?

You haven't been able to make your payments on your house recently. Maybe you bought a house with the thought that your house would sell quickly. Or perhaps you lost your job or someone in your family had a serious illness. In any event, you moved into the cash shortage column after the depletion of money in the savings column.

Lenders determine when the foreclosure proceedings start based on their relationship with the homeowner, but once it is determined by the lender to move into foreclosure, a house can be sold in 30 days or less. Laws vary by state, but in Tennessee, the only requirement is that three consecutive printed notices appear in a local publication notifying the public of a foreclosure sale.

Contrary to popular opinion, lenders DO NOT want to take a house back. A lender looses money by taking a house back and the cost for a bank to foreclose on a house is an additional $30,000 to $40,000. This is not a deal for the bank, and it's definitely not a deal for the homeowner.

Options homeowners have when they have trouble making their payments:
1 - Contact the lender immediately and explain the situation. In EVERY phone call, document the date, time, the name/ID number of the employee, and the contents of the discussion.

2 - In your conversations, ask if you can restructure your loan. DO NOT just buy into what they tell you they will do. Calculate the TOTAL cost to restructure.

3 - Before you agree to restructure, talk with relatives, friends, etc. to see if you can make a short-term loan with them, interest free.

4 - Cut back on your household expenses. Why pay $250/month for cable, internet and phone service when you can find the best plans out there that are much less expensive? Be creative and frugle. This is NOT the time to be extravagent.

5 - Once you realize that you may not be able to continue making your payments, talk with a knowledgable real estate agent. I can help you get your house sold.

6 - If things are beyond trying to sell the house, ask the bank if they you can give them the deed in lieu of foreclosure. Some lenders are not willing to do this, but others are. Ask!

7 - Get your agent to ask the lender if they will accept a short sale on the house. A short sale is when the lender will accept a lesser amount for the sale of a house than what is owed on it. More on this topic next week.

8 - If you're at the end of the line in all finances, talk with an experienced bankruptcy attorney.

If you are not sure where you are in this process and need real estate advice, please feel free to contact me. I'm more than happy to share with you what I know to help you in this process.

Wednesday, March 18, 2009

Buying a Foreclosure Property

Tennessee has the 11th highest number of foreclosures in the United States. If it weren't for Memphis, then Tennessee wouldn't even be on the map, but that doesn't mean that Nashville is devoid of foreclosures.

Foreclosure prices range from under $50,000 into the millions for homes in our area. Yes, even Brentwood has been touched by the foreclosure market.

Many people think that buying a foreclosure is the way to go. In fact, many of the calls I receive are inquiries about buying foreclosure properties. Banks do not like to own properties through foreclosure. For them to foreclose on a house costs them anywhere from $30K to $50K - not a great investment for banks these days.

If you do find a foreclosure you want to purchase, there are several things to keep in mind:
1 - You have to move quickly. Foreclosure properties are priced to sell. If you don't go get it, someone else will. There's no time to waste.

2 - Foreclosure properties are sold "as is". Buyers can hire a home inspector to do the inspection, and can even include a contingency based on the outcome of the inspection, but banks will not do any repairs to the house.

3 - Sometimes the properties are in great condition; other times they are in very poor condition. Former homeowners will sometimes take the stove, copper wiring, carpet, dishwasher, faucets, lighting fixtures, etc. from the house when they are required to evacuate the premises. And there are the houses where the pets have been allowed to wet the floor, so the stench is horrible. I've seen immaculate to uninhabitable.

4 - Many times banks will not pay any closing costs, title insurance, the termite inspection or other expenses related to the sale of the property.

5 - Do not plan on a quick answer to your offer. While the process is getting quicker, it still may take up to 60 or even 90 days for an answer. Even when there is a closing date, the seller (bank) may not have the deed ready so the house cannot close on time.

6 - If the buyer is not on top of things and the closing is late due to the buyer or the buyer's lender, the seller may charge the buyer a daily fee for the late closing.

So, are foreclosures a good deal? Yes, but buyers need to be well aware of what they're getting into. A good real estate agent can help buyers who want to pursue this type of invesment. If you need a knowledgable agent who can walk you through this process, please give me a call. I'm here to help.