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Some Background on VA, (Veterans Administration) Loans?

March 11th, 2013 | Posted by Dick Thackston in Buying Tips | Mortgage News | Real Estate News | Real Estate Training - (0 Comments)

600px-US-DeptOfVeteransAffairs-Seal-LargeI thought it would be worthwhile for both the general public and service members to share some background information on VA Loans at this time. Many of our returning service members as well as members of the General Public are often not fully aware of how this excellent program works. I have edited a portion of my New Hampshire 40 Hour pre-Licensing Course here to help everybody have a little more information about the program.

The VA is authorized to insure loans for eligible veterans. Like the FHA the VA does not normally lend money, rather it guarantees loans made by VA approved lenders. Eligible veterans may purchase: multi-family homes up to four units, new condos or construction of condos, new or used mobile homes and lots for mobile homes, finance the construction of a new home on its own land, or the eligible veteran may also refinance existing loans.

To be eligible for VA financing the subject property must be owner occupied, the Veteran Borrower must have had 180 days of active military service and have received an Honorable Discharge from the service.

There are a few special characteristics of VA financing that are specifically built into the program to protect VA borrowers as well as the VA. Here are the big ones: The subject property must be appraised by a VA approved appraiser and meet special VA Loan specifications. Loan Specifications for a VA loan include: It can be from any regular lending institution that has been approved by the VA. Maximum loan is based on fair market value as determined by the VA appraisal or MCRV, (Maximum Certificate of Reasonable Value). The VA guarantees top 25% – eliminating PMI; no down payment is required: closing costs may not be financed with the exception of the VA Funding Fee, however there is no limit on seller contributions to the VA Buyer’s closing cost expenses. Should purchase price exceed appraised value, the difference must be paid in cash by the VA Buyer, the seller can decrease their price to match the VA appraisal or the VA buyer can withdraw from the contract without penalty from the seller. VA Loans have a maximum term of thirty years; no secondary financing is allowed on VA loans and there can be no pre-payment penalty on VA Loans. Co-borrowers on VA Loans must be married to the veteran or be Veterans themselves. (The VA does not recognize same sex marriages regardless of State Statues.) The Veteran must supply their Certificate of Eligibility – DD214.

By Dick Thackston CRB, ABR, ABRM, BrokerNH, MA & VT

A Brief History of VA (Veterans Administration) Loans

The original Servicemen’s Readjustment Act, passed by the United States Congress in 1944, extended a wide variety of benefits to eligible veterans. The loan guarantee program of the Veterans Administration has been especially important to veterans. Under the law, as amended, the Veterans Administration is authorized to guarantee or insure home, farm, and business loans made to veterans by lending institutions. Over the history of the program, 18 million VA Home Loans have been insured by the government. The VA can make direct loans in certain areas for the purpose of purchasing or constructing a home or farm residence, or for repair, alteration, or improvement of the dwelling. The terms and requirements of VA farm and business loans have not induced private lenders to make such loans in volume during recent years.

The Veterans Housing Act of 1970 removed all termination dates for applying for VA-guaranteed housing loans. This 1970 amendment also provided for VA-guaranteed loans on mobile homes.

More recently, the Veterans Housing Benefits Improvement Act of 1978 expanded and increased the benefits for millions of American veterans

Despite a great deal of confusion and misunderstanding, the federal government generally doesn’t make direct loans under the act. The government simply guarantees loans made by ordinary mortgage lenders (descriptions of which appear in subsequent sections) after veterans make their own arrangements for the loans through normal financial circles. The Veterans Administration then appraises the property in question and, if satisfied with the risk involved, guarantees the lender against loss of principal if the buyer defaults.

In association with the VA’s program, the Service members’ Civil Relief Act protects service members from financial woes on their home loan that may occur as a result of active duty commitments, freezing their interest rates at 6%.

What is the VA and what do they do?

A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs. The loan may be issued by qualified lenders.

The VA loan was designed to offer long-term financing to American veterans or their surviving spouses (provided they do not remarry). The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and to help veterans purchase properties with no down payment. Eligible areas are designated by the VA as housing credit shortage areas and are generally rural areas and small cities and towns not near metropolitan or commuting areas of large cities.

The VA loan allows veterans 100% financing without private mortgage insurance or 20% second mortgage. A VA funding fee of 0 to 3.3% of the loan amount is paid to the VA and is allowed to be financed. In a purchase, veterans may borrow up to 100% of the sales price or reasonable value of the home, whichever is less. Since there is no monthly PMI more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment. In a refinance, veterans may borrow up to 90% of reasonable value, where allowed by state laws.

VA loans allow veterans to qualify for loans amounts larger than traditional Fannie Mae/Freddie Mac conforming loans. VA will insure a mortgage where the monthly payment of the loan is up to 41% of the gross monthly income vs. 28% for a conforming loan assuming the veteran has no monthly bills.

As of January 1, 2006, the maximum VA loan amount with no down payment is $417,000 and can be as high as $625,500 in certain high cost areas. VA also allows the seller to pay all of the veteran’s closing cost.

http://en.wikipedia.org/wiki/VA_loan

 

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Reality or Fear Based View of Real Estate in the US The Choice is Yours.

January 26th, 2012 | Posted by Dick Thackston in Buying Tips | Mortgage News | News | Real Estate News - (0 Comments)

Prior to 2007-2008 most of the American public and most mortgage lenders believed, and often would state in conversation, “real estate never goes down!” Since that time frame buyers and sellers have gone to the other extreme and now the common wisdom is “real estate will never go back up.”

Well never is a long time. Both perspectives are wrong.

For the last several years we have been pummeled for a seemingly continuous stream of negative events: tidal wave and earthquake in Japan, un-employment over 10%, European Debit crisis looms as Greece nears default on its debt, (The last one just kills me: the entire GDP of Greece in 2010 – $310 Billion +/- – is approximately the same as the State of Maryland in 2010 – $300 Billion +/-. Do we actually believe if the State of Maryland defaulted there would be a worldwide financial crisis?), and each of the events has run a shock wave through people’s emotions which does affect their willingness to make the long term commitment to home ownership. It’s not reality! Fear sells newspapers, magazines and broadcasts. Fear does not ever produce the best results or good decisions.

Truth be told, the down turn in housing started in the third quarter of 2005. In June of 2005 the Fed bumped rates up in order to stimulate “a soft landing in housing” the curves between housing units sold and housing prices began to diverge at that point with house prices continuing to increase for another two years, while units of sales began to decline at an ever increasing rate. By the time the reality hit it was already too late. That being said, let’s look at the sunnier side of the situation. All of this is clearly tracked by something called the Housing Affordability Index published by the National Association of REALTORS.

The Housing Affordability Index has two basic components: average mortgage rates and average house prices which is then compared to the average household income. The higher the number, the easier it is for people to buy homes, and the lower the number, the harder it is for people to own homes. The number is designed to indicate how affordable the median home is to the median income family in the United States. An index of 100 means that the median income household has exactly enough income to afford the median income home; when the index is greater than 100 then the median household has more than they need to purchase the median home and when it’s below 100 then they don’t have enough. (When I started selling homes in Pasadena, Maryland in 1982, the Housing Affordability Index was well below 100 due to very high interest rates, in the 13-15% range). Today due to all the price declines and interest rates being at historic lows, the Housing Affordability Index has soared to a record high number well over 100.

So what’s the point? The point is that a balanced perspective and a positive outlook on life are the key to making good decisions in housing as well as in other areas of ones life. Scientific studies have shown, (See Dr. David Lykken’s work), that your happiness set point is about 50% genetic and the rest is up to you. There can be little or no doubt that the homes that are being purchased today at historically low interest rates and the lowest prices in a decade or more will fuel the American economic powerhouse in a few years – so be positive, keep your perspective and never say “never”.

By Dick Thackston CRB, ABR, ABRM

Broker NH, MA & VT

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2012 is a Buyers Market! Six Tips to Keep in Mind if You are Using a Buyer Broker:

January 23rd, 2012 | Posted by Dick Thackston in Buying Tips | Real Estate News - (0 Comments)

So, 2012 looks like maybe hone buyers will be back out seriously looking at homes which means the whole issue of buyer brokerage will soon be among us again with untrained agents trying to represent buyers again. Thinking about that, I have created a six point template that every buyer thinking about getting a buyer broker should consider. Buyer brokerage is not for every buyer and/or every agent, and I believe all of these points should be considered before any buyer agency agreement is signed. Be sure the arrangement works for you!

POINT# 1: Value: Will hiring a buyer broker actually create value for either party? Do you as the buyer actually plan to guarantee a buyer brokers compensation? Do really plan to buy a home through this buyer broker and only this buyer broker or do you plan to drift into open houses and call on ads that you see in the paper, or on line, or in homes magazines, directly to whoever ran the ad? As a buyer broker do you actually believe that this buyer will actually follow through with their obligations to you? As a buyer broker will you actually follow through with your obligations to this buyer or are you playing the game of you pretend that they will honor the contract and they pretend you’re actually doing any work for them when in reality you’re both fibbing?

POINT# 2: Effectiveness: It is very important that both the buyer and the agent view this as an effective relationship and both understand its boundaries. Do you as a buyer actually believe that you will get better representation, (any representation), by contracting with a buyer’s broker? Do you think you’d get a better price and terms than if you dealt with the listing agent directly? As a Buyer Broker do you actually think you’re going to make more money than if you just sold the house as a Facilitator/Sub-Agent/Transactional Agent? As an agent are you prepared for the long term liability and lawsuits or is that “my broker’s problem”.

POINT# 3: Contact & Skills: Do you as a buyer actually think this buyer broker knows any more than you do? Have they even looked at the listing on line? Will they put you on a search that is simply an automated feed from the MLS or will they call you and track properties that you have expressed an interest in? If they are tracking properties for you how will they do so? Will they develop a spread sheet that shows the properties you’re evaluating with notes and comparisons or will they just “remember what’s important”? When and how will you be in touch with each other?

POINT# 4: Best Properties: Will the buyer broker be committed to getting the buyer in front of the best properties? Will they put the client’s interest in front of their own? Will the buyer be prepared to act when good properties are available? Is the buyer prepared to provide confidential financial information to the buyer broker and get pre-qualified by the buyer broker’s chosen lender?

POINT# 5 Long Term Relationship: Is this relationship going any place long term? Can the buyer and the agent see themselves working together long term? Will the buyer be sending referrals to the buyer’s broker? Will the agent be following up on post closing issues, i.e. errors in the Seller’s Disclosures, Mechanic’s Liens, boundary disputes etc.?

POINT# 6 Timeliness: Is this the right time for the buyer to higher a buyer’s broker or have they already entered into an agreement to purchase and now should really be hiring a lawyer to fix it or litigate it? Does the agent really feel they are entitled to a fee or are they just “trying to make a quick buck”?

By Dick Thackston CRB, ABR, ABRM

Broker NH, MA & VT

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Will 2012 be the Year of The Buyer Broker?

January 9th, 2012 | Posted by Dick Thackston in Buying Tips | Real Estate News | Selling Tips - (0 Comments)

By Dick Thackston

By now if you’re in the housing market, have been in the housing market or are thinking about being in the housing market, you’ve heard about buyer brokerage. Most folks, consumers & REALTORS, have an idea about buyer brokerage but very few actually understand it or have the training and background to engage in it effectively. Most real estate consumers tend to only see the short term, regardless of the market situation rising or falling; consumers tend to not see the long term. One of the most important services a Buyer Broker can provide is a long term perspective – knowing why a property is worthy of buying selling or holding. If that sounds about right to you then read on.

Most of the information about buyer agency in particular and real estate in general is written by, well, writers – people who write blogs, newspaper & magazine articles, TV scripts etc. Unfortunately, these folks are not the best judges of what is actually happening in the real estate world; their analysis, while genuine, is not usually based in any actual experience. Higher an experienced buyer broker, like myself or the Accredited Buyer’s Agents that work with me, whose only goal is to help you make the best buying decisions, and can freely share our experience and knowledge with you, is one of the most critical services you can obtain in making your real estate profitable.

A good relationship with a buyer broker means that number one you speak the same language: you can readily and honestly communicate back and forth about the pros and cons of each possibility. Keeping thirty to forty properties under review and analysis is not unusual in this market; many times your buyer broker is studying the market changes to let you know of interest in properties, price changes, zoning changes, vacancy rates, employment and any number of other factors that are specific to your plans. Often a good buyer broker will look for the best property of the day that targets your situation; by this I don’t mean just putting you on an auto delivery from the MLS but they will actually review properties daily and let you know the best buy of the day. Conversely they should be watching the properties in your portfolio of prospective purchases that would take them off your list as well.

Most importantly of all you need to have clear commitment between each of you as to how fees will be handled between you and the extent to which you want to work with each other.

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Homes Sales Reported to Drop 3% Last Month What Does that Mean to Me?

October 24th, 2011 | Posted by Dick Thackston in Buying Tips | Mortgage News | News | Selling Tips - (0 Comments)

By Dick Thackston CRB, ABRM, ABR

The actual answer to the question in our title is very little.

From the street level- were you and I both are as buyers, sellers and REALTORS – mostly what it tells us is it’s not our imagination the people who make up these statistics only give a portion of the story or leave large parts of the story out.

I have absolutely no doubt that Home Sales Dropped 3%! In fact I’m sure of it!

But here’s what I think happened. The majority of sales at this point are in fact bank owned properties and Short Sales. For the last several months a large percentage of REO’s have been tied up either with Title Problems and/or litigation. The stream of buyers in the market while not as large as it once was seems constant at this point. Since early this summer there has been a decline in available REO inventory for these two reasons. Value Conscious Home Buyers have been out looking but have not been able to find satisfactory properties or the properties they have found have been snarled up with Title Problems.

Why, you may ask, did these buyers just not buy regular retail properties on the market from non-REO sources? The simple answer is they are waiting. They are waiting for REO inventory to become available, they know it’s coming and they are VERY PRICE CONCIOUS. The majority of retail home sellers and their agents still have an unrealistic expectation about pricing and many have had their properties on and off the market at the same or very nearly the same price for several years. It’s just not going to happen. Home Buyers in this market have lots of information, most of it good, some of it bad, but it’s more information than any other group of Home Buyers has had in history before making a decision to purchase, and Home Buyers are not betting the market changes anytime soon.

The good news is that as the litigation and Title Problems now seem to be clearing more inventory is coming on the market and lenders have started to embrace the short sale process rather than fight it so Short Sales are becoming more far more viable then they were even a year or so ago. To be sure lenders are not going to leave money on the table or sell for less than current fair market value but the approach they are taking now seems like a good thing for everybody and that doesn’t get picked up in the statistics.

Bottom line is the viability of the inventory is improving and buyers are responding even though we are likely years out from an actual fix in the housing market.

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Short Sale Success Stories

October 19th, 2011 | Posted by Dick Thackston in Buying Tips | Mortgage News | News | Real Estate News | Selling Tips - (0 Comments)

By Dick Thackston CRB, ABRM, ABR

Since the down turn started in the third quarter of 2005, (yes that’s right it’s actually been over six years if your benchmark is real estate brokerage), and the economic seizures started happening almost daily after November 2008, I’ve actually had some excellent experiences helping sellers and lenders work out a short sale.

Initially mortgage lenders were less likely to work out a short sale for a number of reasons: they didn’t believe the property was upside down, mortgage insurance would cover their losses if it went to foreclosure and/or they were simply too overwhelmed with the volume of business collapse that they couldn’t function efficiently and make decisions.

In 2007 I began the process of helping people work out a Short Sales on their homes if they were over mortgaged. One of the most successful short sales I’ve done was a house inKeene,New Hampshire. The owner had purchased the home about twenty years before he called me. He had tried selling the home himself and tried a Virtual Real Estate brokerage from outside the area with no local support. All the time he tried this, his home was sinking in value.

Why, one might wonder, if he had owned this home for over twenty years would he owe more than he paid? Well, actually what he had done was borrow money incrementally over the years to put his children through collage and purchase each of them cars when they graduated. He literally used his home as a savings account.

The biggest hurdle in the transaction was the owner, he just couldn’t believe that his home would be worth the loan balances plus and additional ten thousand dollars so that he could start his life over again someplace else. Once I was able to get him to understand that the value just wasn’t there, and he agreed to price the house to the market comparable prices in his neighborhood at the time, we got some OK sales traffic and ultimately an offer. I presented the offer to both the owner and his lender. I obtained the owners detailed financial information and the bank agreed to accept the short sale. Little or no emotion, very rational, and very efficient successful transaction.

The entire transaction from day of listing to day of closing the short sale, including negotiating with lender, was about five months or one hundred fifty days to closing.

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How I got Started Doing Short Sales.

October 17th, 2011 | Posted by Dick Thackston in Buying Tips | Real Estate News | Selling Tips - (0 Comments)

By Dick Thackston CRB, ABRM, ABR

Short Sale Success Story:

Short sales have become a major part of my companys business.

In 2007 I realized that more and more of the owners I interviewed during listing appointments were helplessly under water on the loan on their home.

During the Savings & Loan crisis of the late 80s and early 90s I first experienced short sales. Back then, it was mostly small business owners who had second business loans against their home and as the economy slowed, their businesses slowed or failed, and the bank came after their houses. This is where I learned to do short sales. Up until then, personally, I had never even imagined not being able to sell a house and not clear the loan balances and I had been in the business over ten years at that point.

So I learned to negotiate with lenders to help them understand Fair Market Value and accept the reality of the situation – not the ideal for anyone, but half a loaf is better than none.

So when I started to see homeowners under water again four years ago I felt it would be important to start trying to negotiate short sales – again. Unfortunately both home owners and lenders were still stubbornly unrealistic about the situation at that time. Many of the homeowners I initially advised to consider a short sale ultimately lost the property singing the “I need, I own, I won’t” chorus regardless of market realities, or they spent valuable months and years following the market down. Needlessly doing needless damage to their credit by loosing their home to foreclosure, most had they followed my initial advice would have in fact walked away from a sales with some money, less than they had expected but some money – far better than a short sale or total loss through foreclosure.

Some of the short sales I initially proposed to banks wound up going to foreclosure as well. Costing the lender $50,000 to $100,000 in equity that could have preserved for their company, however banks had a problem too because many had just done refinances or made new loans they would say something like “we have an appraisal that is only six months old” not recognizing how quickly the market was changing in those days. What a tragedy! What a tragedy for all parties!

So now Short Sales are commonly accepted as better than foreclosure and few, if any, lenders are waiting for the market to recover. The biggest issue with Short Sales remains sellers that are too slow to take action. I got a call today from a seller that is schedule for foreclosure sale in ten days. He turned down a short sale about a year and a half ago and now he wants to try and find a buyer and complete a short sale negotiation in ten days? Not going to happen. I suggested that he simply needs to plan on the foreclosure and arrange to move out of the house. Banks at this point are far more realistic than sellers and far more prone to look realistically upon a short sale and work on it realistically. Bank of America and Citibank have made tremendous improvements in their systems for handling short sales. In both cases they have gotten to be the best in the business to deal with, when a few years ago I really don’t think they allocated any serious resources to the Short Sale process.

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Top Ten Things to Think About When Buying A Home Today.

October 3rd, 2011 | Posted by Dick Thackston in Buying Tips | Real Estate News - (0 Comments)

The Great Recession that has shaken the American Economy and Housing Market over the last five years has taken many would be home buyers out of the market and loaded the Home Buyer psyche with skepticism however it has not generated an increase in the demand for buyer brokers. In fact if anything the willingness of buyers to contract with Buyer Brokers appears to be in decline and the willingness of agents and agencies to provide buyer brokerage services appears to have declined.

 

Buyer Brokerage, properly understood by the consumer and properly handled by the Buyer Broker is an excellent program and an excellent service for any home buyer in today’s market.

 

The top ten things when getting involved in Buyer Brokerage follow:

 

# 1. Find a Buyer Broker that you feel you can know like and trust. This person is going to need to have both your attention and confidence. Remember you’re not hiring them to be your best friend you’re hiring them to help you make solid business decisions.

# 2. Understand that you are HIRING the Buyer Broker which means you will be responsible for PAYING the Buyer Broker. Most agents will be happy to accept as compensation whatever fee is offered through their local MLS however sometimes listing brokers will not pay a fee or will not pay a reasonable fee and it will be your responsibility to handle this cost. Discuss this in detail when you hire the Buyer Broker.

#3. ONLY HIRE A BUYER BROKER WITH TRAINING IN BUYER BROKERAGE. Lots of agents and agencies will agree to be paid as a buyer broker but very few have actually training in Buyer Brokerage. The top level of training for a Buyer Broker is an Accredited Buyer Representative Manager a designation offered exclusively through the National Association of Realtors, Real Estate Buyer Agent Council.

#4. Have some idea of what you want and were you want to live. It’s the Buyer Broker’s job to help you figure out the best value for you but you need to understand your own needs and wants so the Buyer Broker can help you figure things out.

#5. Listen to the Buyer Broker. Most Buyer Brokers can send you to good service providers: Loan Officer’s, Title Companies, Home Inspectors etc and do so to help you get good service – no other reason, really.

#6. Find out if your chosen Buyer Broker requires a retainer and how that’s handled. Many Buyer Broker’s require a retainer when you contract for services. Most refund that after a successful closing, some do not establish how this item is handled when you sign your contract.

#7. Establish the level of service you expect and the level of service your Buyer Broker is ready willing and able to provide. Some buyer brokers will check zoning, building permits and title issues; some will not work with For Sale by Owner and non-MLS listings be clear about how these issues are handled.

#8. Establish an exit plan. Sometimes relationships just don’t work out or sometimes your situation will just change. Be clear at the beginning of your relationship with the Buyer Broker how things can be ended if you don’t feel the relationship is working out.

#9. Understand the agency laws in your state. Every state has different rules governing the actions and relationships of the real estate agents with the public – no two are exactly the same.

#10. Make sure you know who the boss is. When contracting any licensed professional for services make sure you know who they report to and who regulates Buyer Brokerage in your state. There is NO STATE where Buyer Brokerage is regulated by the REALTORS.

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Whats happening in the economy, and how does it affect housing and me today?

September 19th, 2011 | Posted by Dick Thackston in Buying Tips | Mortgage News | News | Real Estate News | Selling Tips - (0 Comments)

By Dick Thackston

Whether the US Economy is entering or has entered a double dip is a hard call and seems less than clear to most of us. Remember as President Nixon famously said over forty years ago: “Unemployment’s a matter of perspective which mostly depends on whether you’re working or not.”

Happily, New Hampshire and Vermont are among the most economically successful states in the country at this time. New Hampshire gained approximately 12,000 jobs from the peak of unemployment and Vermont has gained 5,700 in the same time frame. To be sure both states still have a net loss since 2008 however both states show that they are making the long crawl back from the bottom. New Hampshire’s economy is outperforming the US economy overall by adding jobs faster which has lead to increasing income and spending and our lower unemployment and is likely to do so in the foreseeable future according to most Economists.

So where’s housing?

Why aren’t prices stable and buyer’s buying at such low interest rates?

House prices have fallen about 20% overall in New Hampshire: more in the poorer areas and on poor quality properties and less in the wealthier areas and better quality properties. The number of homes available for sale in New Hampshirehas ranged from twelve to sixteen months worth of inventory over the last three years and seems to remain in that range.

Why is that?

If homes are selling at some pace why can’t we get ahead and drive the amount of inventory down to a more manageable backlog and generate some appreciation and good news? There are several critical factors: consumer age, nature of inventory, consumer confidence and banking regulation.

Since the year 2000 the populations of New HampshireandVermonthave seen their highest growth rate in the categories ages 55-64 and 65+. This seems to be driven by two major dynamics. The low rate of economic growth means younger families are not as attracted to the region as they might be to other more dynamic regions and the tax climate is very favorable to wealthier households that tend to be older. Older consumers tend to not spend as much in general and tend to not be as mobile in housing. They tend to stay put reducing the velocity of sales in the region.

The inventory of available homes in our region tends to be of poor quality over all – to be sure there are many fine homes in excellent condition available – which generate little or no interest in housing consumers of any demographic. During the housing bubble these homes sold at unreasonable high prices because they might be the only property available to many consumers most of whom might have been better off without the property. Many of these properties have no future and this is the range where we see sales in the region in the < $50,000 range. The prices often reflect lot cost minus the price of removing existing structures. Even at that low price level there is very limited demand and these properties are likely to remain a glut on the market statistically for years not months.

Consumer confidence remains weak. If economic uncertainty is to remain the ruling dynamic for the foreseeable future is it any wonder that household savings is likely to continue increase dynamically? Is it any wonder that large corporations are mimicking households as a rule and holding on to large amounts of cash at a time when lending is not guaranteed to be available to even the most qualified of borrowers?

Banks have positive economic incentives to hold up foreclosures and release them onto the market slowly. The longer banks hold delinquent properties off the market the longer they can put off recognizing losses so they look better to both regulators and investors but more significantly they aren’t forced to compete with themselves and there is an increasing trend among lenders to work out short sales with their delinquent accounts. Most industry analysts in the mortgage banking industry expect a surge in short sales in the next twelve to eighteen months. Shortsales reduce lender losses by so estimates as much as $50,000 per property and is far better from a public relations point of view with the consumer that has is over mortgaged.

So what’s the best plan for the average consumer at this time? For seller’s it’s simple: be realistic about your price; if you’re over mortgaged select a REALTOR with success handling short sales and begin working with your lender early in the process. This is likely to allow you to obtain the best terms from both your lender and the home buying public. For buyer’s it’s more complicated: understand what you really want and can afford; get pre-approved by a lender early in the process – bank owned properties and shortsales won’t normally consider any offer from a buyer that can’t produce a pre-approval from a lender with a contract; and most importantly understand that the really inexpensive properties are mostly trash and will not be financeable – there are no free lunches in housing!

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So, Its a buyers market! Now What?

August 8th, 2011 | Posted by Dick Thackston in Buying Tips | Mortgage News | Real Estate News - (0 Comments)

By Dick Thackston

Its a buyer’s market – true – but what does that mean to you if you’re a home buyer? Are you looking to get “a great deal” and tell all your friends that you bought a house from a bank for $20,000 or are you looking to buy a home that you can live in and build equity and “have a life” over a reasonable period of time? Do you have the temperament of or for being an investor or do you not have the willingness or ability to take risks and experience losses? These are all REALLY, Really important questions you need to be able to answer if you thinking you want to play in this market.

First let’s consider what’s a good deal. Certainly you can buy a house for under $50,000. Many properties are being sold for small fractions of what they last sold for or were mortgaged for at the top of the market. DO NOT BE CONFUSED ABOUT WHAT THIS MEANS! These homes are in poor condition; most were not really qualified for the mortgages they had based upon condition but one of the characteristics of the B & C lending market of a few years ago was that they did not require homes to be up to speed. The loans were made on the hope that the borrowers would fix them up or that the housing market would inflate further or more likely both.

To buy these homes now for the most part you need lots of cash: cash to buy them and cash to renovate them. You also need to know that you may be years from getting your cash back. Normally lenders will require that your ownership and repairs be “seasoned” for at least a year before they will allow a new loan. Also, you will need to know that just because you want to make certain repairs that will “make it yours” it does not mean that you will be adding significant or any value in today’s real estate market. Roof’s, septic systems, electrical work, plumbing are all things that are expected by most home buyers to be in fair or better condition when purchasing home so you don’t get extra credit for those.

What if you miscalculate on your repairs? You eat the loss. That’s why these are called investor specials you and can win or loose. I work with several teams of investors who take on these projects. They are well capitalized and they have a plan for doing the work, they have studied each property sixteen ways from Sunday and if doesn’t look like it will work exactly as they have calculated they don’t do the deal. If your plan is to buy and work on it, will you really be prepared to live in a construction site for the next three to five years? The work always takes more time and money than the average buyer expects – even in normal times – and these are not normal times – and what typically happens is that people get bored or overwhelmed and the sell at or slightly above their costs and move on because home prices have inflated. There is no expectation that home prices will be inflating anytime soon. Most experts plan on housing to stay about where it is right now for at least another three or four years. It may get worse first.

Buying the house you want may prove to be a paradox. The value of well maintained homes has not declined as much as the averages would lead you to believe. Why, you may ask, is this? Simple if people who bought their homes in the last ten years, for all the right reasons, still have their jobs, still like their neighbors aren’t dead or getting a divorce why would they sell in this market? They don’t. Remember that in our area,Central New England, unemployment is some of the lowest in the entire country – generally under 5%.

When you hear about the million houses projected to be going to foreclosure over the next year that sounds like a big number, but remember that home sales in this country have regularly topped 5 million in the last generation, so while the number of foreclosures is huge relative to all the homes that exist in this country that are privately owned, it’s a relatively small number. The truth here is that as a country we never expected to have any significant number of homes go to foreclosure.

What does that mean for you as a home buyer in this market? It means that if you want a home now you can get a good value but you need to know who you are how, much you want to spend, and how long you want to stay in a home before you think you might need to or want to sell. Prudence is certainly important and the most important aspects of buying a home in today’s world are that you plan on using it as a house not a piggy bank and know that it’s a place to live for three or more years, maybe the rest of your life, maybe a decade, maybe till the kids are out of school. You won’t make $10,000 trouble free dollars by painting the bedrooms neutral colors and selling the house in a year.

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