Complete Listing Paperwork with Nextage Agent
Submit Listing Paperwork & Photo to MLS
Schedule Photo Shoot of Home
Publish Photo of Home to our Website
Schedule an Open House Tour
Schedule Agent and Broker Open House Tour
Order Yard Signs, Property Flyers, Inspections
Complete Property Disclosure & Provide Buyer with a copy
Aggressively Market the Property to the Public and Agents
Obtain and Secure an Offer
Assist Seller with Negotiations to Obtain the Best Offer
Deliver Contract to Attorney & Open a Escrow Account
Negotiate & Coordinate Repair Completion
Attend Closing, Sign Documents & Exchange Pay Checks
Set Appointment with Agent.
Sign required disclosures.
Agent delivers Contract & other documents to all parties.
Complete the Property Feature Checklist
wants & needs
Move in to your New Home.
Delliver Earnest Money to Broker
Offer presented to Sellers
Agent will contact Listing Agent and present your Offer
Submit an Offer, review Buyers Estimated Cost sheet
& submit Earnest Money
Schedule Property Tours with Agent to locate the perfect property for you.
Your Agent coordinates with lender on the loan.
Contract sent to Attorney, Escrow & Closing Agent.
Agent Coordinates Inspections, Removes Contingencies & reports to Broker
At first, selling your home seems daunting: Even if you have sold a home before, the market looks complex, and what worked for owners 5 or 10 years ago seems inappropriate today.
With that in mind, of all the decisions you face when selling a home, the most important is the person you choose to represent you. Success agents are ready to help you make informed decision throughout the entire selling process and provide you with the Success Property Marketing System™ personalized for your property.
Your Sales Associate will explain the process of selling a home, and familiarize you with the various activities, documents and procedures you will experience throughout the transaction including help in negotiating the final agreement.
Using a Success sales associate provides you with a team of professionals who are committed to you having a successful sale because they will benefit when their teammates have a closing. You have a team of agents to assist in solving any transaction problems.
There are countless decisions to be made when buying a home, and many of them will significantly affect whether or not you are able to get a contract to closing and move into your new home. A real estate agent can offer specialized knowledge in research, and negotiations to help you meet or exceed your goals. According to the National Association of REALTORS®, 82 percent of home sales are the result of agent connections.
Finding the right real estate professional requires doing a little research and asking a few questions. The agent you select must be diligent, knowledgeable, resourceful, and care about your needs. Below are some key points to look for in choosing your agent.
Your Real Estate Professional should:
•Serve as your advocate and representative when dealing with sellers, sellers’ agents and service providers.
•Make you aware of all the complicated local and state requirements affecting your transaction as a buyer including disclosure requirements.
•Assist you in looking at various financing options, protect you from predatory lending practice and in getting a pre-approval from a lender.
•Assist you with negotiations and in making counteroffers.
•Prepare a Buyer’s Estimated Cost Calculation Sheet for each offer.
•Represent you throughout the transaction from contract to closing.
•Be knowledgeable about the technology and the resources that facilitate the transaction.
•Attend the closing and mediate any last-minute obstacles to ensure a smooth, successful transaction.
•Provide referrals to proven service providers, including title companies, inspectors, appraisers, pest control, moving companies and more.
Locating a new home can be an exciting experience, but it can also be challenging. Success Realty is here to make the buying process easy for you. Of all the decisions you face when buying a home, the most important decision is choosing the right person to represent you. Success Realty agents are ready to help you make informed decisions throughout the entire buying process which lead to successful closings and lifelong relationships.
1) Get pre-approved for a mortgage before you make an offer.
When you are trying to buy a house in a competitive market, your offer to purchase should contain as few conditions as possible. An offer that is conditional on obtaining financing is often a deal killer. The seller may accept a competing offer for less money rather than take the risk that you won’t be able to raise mortgage money. A pre-approval letter from your lender tells the seller you are ready and able to commit.
2) Know when to quit.
When you act on emotion, rather than reason, you may end up paying too much money. This can happen when you fall in love with a particular house and start fantasizing about how great it will be to live there. Another reason you may be driven to pay too much is that a bidding war triggers your competitive instincts and you must buy the house at all costs – which you will regret later.
3) Set enough money aside to cover closing costs without having to forgo eating for a couple of months.
You’ve put together a down payment. Be aware that there is also a long list of expenses you may have to pay at closing, depending on where you live and who your lender is. Closing costs can add up to between two and six percent of your loan, so ask your lender to give you a Good Faith Estimate of the loan-related fees you’ll have to pay. Get your real estate agent to compile a list of other expenses.
4) Try to coordinate the date you take possession of your new home and your moving date.
If possible, avoid a situation where you’ve got to camp out with relatives or find a short-term rental because you must vacate your old house or apartment before you can move into your new digs. Moving once is enough.
5) Insist on a home inspection.
The first really cold day you spend in your new house is way too late to find out that the furnace doesn’t work. The one condition you should always include in an offer to purchase is a home inspection. Find out how much it will cost to fix any defects and have the seller fix them before you agree to buy or deduct the estimated cost from the final price you offer. If the seller won’t help bear the costs, and you want to go ahead with the purchase, make sure you can afford the necessary repairs on top of your mortgage.
What is a Mortgage?
A mortgage is a loan secured by a property/house and paid in installments over a set period of time. The mortgage secures your promise that the money borrowed will be repaid.For most of us, a mortgage is the largest and most serious financial obligation we ever make.
There are many different types of mortgages, each with its own advantages and disadvantages, it is very important that you do your research.Remember that many people were impacted by predatory lenders and given mortgages that they could not sustain during the housing crisis of the last two years. Understanding these differences will enable you to choose the right mortgage for your financial situation and housing goals. Be an educated consumer!
Responsibilities that come with a mortgage:
Before taking on the responsibility of a mortgage, which is a legally-binding financial commitment that could last several decades, make sure you are ready.
- Are you currently in a financial position to comfortably make the monthly mortgage payment? Use our mortgage calculator to see what your payment might be.
- Do you have a financial cushion for sudden financial difficulties (for example losing your job)? This cushion should cover six months of your expenses.
- Do you know the risks if you cannot pay your mortgage in the future?
If you’ve answered these questions and think you may not be ready, then you should probably focus on building your credit reputation by paying your bills and arming yourself with knowledge as well as saving up the financial cushion most savvy homeowners have. By waiting until you are financially ready, you will help ensure your success as a long-term homeowner.
Choosing the right mortgage
Choosing the right mortgage means doing your homework about the different types of mortgages available to borrowers. It means shopping around because different lenders may offer different rates, points, and fees for the same type of mortgage. The guide below can help you understand some of the key advantage and disadvantages of today’s mortgage products and show you how to spot and avoid mortgage fraud.
Fixed-rate mortgages are the most common mortgage for first-time homebuyers because they're stable. Typically the monthly mortgage payment remains the same for the entire term of the loan – whether it's a 15-year, 20-year, or 30-year mortgage – allowing for predictability in your monthly housing costs.
What are the benefits of a fixed-rate mortgage?
If interest rates increase, your mortgage and your mortgage payment won't be affected. This is especially helpful if you plan to own your home for 5 or more years.
You know what your monthly mortgage expense will be for the entire term of your mortgage. This can help you plan for other expenses and long-term goals.
You always know what your mortgage payment will be, regardless of the current interest rate. This is why fixed-rate mortgages are so popular with first-time buyers.
There are additional considerations to be aware of with fixed-rate mortgages:
Your mortgage interest rate won't go down, even if interest rates drop, unless you refinance your mortgage.
Because the interest rate may be higher than other types of loans such as adjustable-rate mortgages, you may not be able to qualify for as large a loan with a fixed-rate mortgage.
While your actual mortgage payment will not change, your total monthly payment can occasionally increase based on changes to your taxes and insurance. In many cases you can choose to pay these costs as part of your monthly payment through an escrow account that your lender keeps for you.
Interest-Only, Fixed-Rate Mortgages
If you choose an interest-only option for a fixed-rate mortgage, the term of the loan is divided into two periods. During the first period, your monthly payment is lower because you pay only interest and no principal. In the second period, you pay both. For example, on a 30-year fixed rate interest-only mortgage, you might make interest-only payments for the first 10 years, and then pay both principal and interest for the remaining 20 years. The actual principal of the loan (the amount you borrowed) will be paid off in the second period.
While interest-only loans can free up cash for other purposes during the initial period of the loan, you should remember that during the interest-only portion you will not be reducing the principal amount you owe. When you begin paying both principal and interest in the second period of the mortgage your monthly payments will be significantly larger and you need to make sure the larger payment is something you can afford prior to entering into this type of loan. Most regulated lenders originating interest-only mortgages will qualify you based on the full principal and interest payment, and not the interest-only payment.
Some people who took out interest-only loans just before the housing crisis hit found themselves overextended when they began paying both principal and interest – and ended up losing their homes to foreclosure. While they can be an excellent mortgage for certain borrowers, interest-only mortgages are not for everyone.
As with all interest-only mortgages, interest-only, fixed-rate mortgages are not for all borrowers, and should be offered appropriately only to borrowers who:
- Clearly understand that their payments will significantly increase when principal and interest payments begin.
- Can qualify for this type of mortgage at the fully indexed, fully amortized rate.
- Are able to make payments at the fully amortized rate (the second period of the mortgage).
Do not fall into the trap of believing that your financial circumstances will change in the future. If you cannot afford the fully amortized rate initially, do not gamble with your future, and instead select a mortgage you know you can afford.
Other Fixed-Rate Mortgages
Biweekly mortgages are mortgages that set up the payment differently. Instead of paying your mortgage once a month, you pay half the monthly mortgage payment every two weeks – which equates to 26 payments a year. A biweekly mortgage allows you to pay off your mortgage faster because you are making the equivalent of one extra monthly payment every year of the loan.
Biweekly mortgages are not offered by every lender and are not for every borrower; and they do require discipline since an additional payment is made every month.
After you begin paying on your loan, some lenders will offer you, for a fee, the option of changing to a biweekly mortgage or some other payment schedule advertising that it will save you money in interest payments. Be aware that most mortgages allow you to make additional payments of principal at any time (and save the same amount over the life of the mortgage) without having to pay a fee for the service of paying on a different schedule.
Adjustable-rate mortgages (ARMs) are popular because they usually start with a lower interest rate and a lower monthly payment. However, the interest rate can change during the life of the loan.
It's important to understand the specifics of an adjustable-rate mortgage:
All ARMs have adjustment periods that determine when and how often the interest rate can change. There is an initial period during which the interest rate doesn't change – this period can range from as little as 6 months to as long as 10 years. After the initial period, most ARMs adjust the interest rate periodically.
Indexes and margins
At the end of the initial period and at every adjustment period, the interest rate can change based on two factors: the index and the margin. Interest rate adjustments are based on a published index. There are many indexes but some commonly used for ARMs are the London Interbank Offered Rate (LIBOR) and the U.S. Constant Maturity Treasury (CMT). Indexes reflect current financial market conditions, which is why your ARM interest rate can change at each adjustment period. The margin is the percentage that can be added to the index. Based on these two factors, the interest rate on your mortgage can increase or decrease. This will cause changes in your monthly payments. Remember, if the interest rate on your mortgage increases, your monthly payment will also increase.
Caps, ceilings, and floors
All ARMs have rate caps, also known as ceilings and floors. Caps decide how much the interest rate can increase or decrease at each adjustment period and over the life of your loan. For instance, a 10/1 ARM with a 5/2/5 cap structure means that for the first 10-years the rate is unchanged, but on the eleventh year (the date of first adjustment), your rate can increase by a maximum of 5 percent (the first "5") above the initial interest rate. Every year thereafter, your rate can adjust a maximum of 2% (as noted by the second number "2"). But, your interest rate can never increase more than 5 percent (the last number, "5") throughout the life of the loan.
This type of ARM has a fixed interest rate for a certain period of time and then the interest rate adjusts for the remainder of the loan, like a conventional ARM. There are several types of hybrid ARMs, such as the 10/1, 7/1, 5/1, and 3/1. The first number (10 for example) is the length of the initial period, during which the interest rate doesn't change. The second number (1 for example) is how often the ARM is adjusted after the initial period. So, the interest rate on a 10/1 ARM won't change for the first 10 years, but can change in the eleventh year and be adjusted every year after that up to a maximum amount.
There are additional considerations to be aware of with adjustable-rate mortgages:
Because the initial interest rate is usually lower than a fixed-rate mortgage, you may qualify for a larger loan amount. If interest rates are high when you get your mortgage but drop during any adjustment period, your monthly payment may decrease. But a decrease is very unlikely, so don't base your choice of mortgage on this.
An ARM with a low initial interest rate and an initial adjustment period after 5 or 7 years can save you money.
ARMs can, and often do, have interest rate increases at adjustment periods. You may have an increase in your monthly mortgage expense after adjustment periods.
Balloon/reset mortgages have monthly mortgage payments based on a 30-year amortization schedule, but the entire mortgage balance is due at the end of the 5- or 7-year term, unless you choose to reset your mortgage at the current rates. So you have the advantage of a low monthly payment, like someone with a 30-year loan, but you must pay off the loan at the end of the specified term or exercise your reset option at the end of the term. Many borrowers think of balloon/reset mortgages as "two-step" mortgages.
Many balloon mortgages have a "reset" option. That means you can reset your mortgage interest rate at the market rate for the remainder of the amortization period. This option is typically only available if:
- You're still the owner and occupant of the home.
- You've paid your mortgage on time for at least a year prior to the balloon note maturity date.
- You have no other liens against the property.
- You've satisfied any other conditions of the reset.
- You may also qualify to refinance your balloon/reset mortgage. There are additional considerations to be aware of with balloon/reset mortgages:
If you plan to sell your home before the maturity date of the balloon/reset mortgage, this type of mortgage may be a good option. But, keep in mind that if you end up staying in your house when the loan matures, you will need to reset or refinance the mortgage.
Balloon/reset mortgages usually come with a slightly lower initial rate than most other mortgage types. You may qualify for a larger loan amount with a balloon/reset mortgage than you would with an ARM or fixed-rate mortgage. If interest rates increase during the term of the balloon loan, you may have a large increase in your monthly payments when you reset or refinance your mortgage.
Avoiding Mortgage Fraud
Mortgage fraud is becoming increasingly common. Scam artists often target homeowners struggling to meet their mortgage commitments or anxious to sell their homes.
There is help available when facing financial problems or foreclosure, but make sure you are dealing with a reputable organization before getting involved. A good rule of thumb is that unsolicited help, whether in person, on the phone, or by mail should be fully researched before accepting any help.
To protect your home and home’s equity and avoid falling victim to fraudulent schemes, recognize and understand the signs of mortgage fraud. Know how to report fraud to state and federal authorities so they can stop scam artists from preying on innocent borrowers.
Start by learning the motives behind mortgage fraud. They are generally classified into one of two categories:
- Fraud for property or housing
- Fraud for property, also known as fraud for housing, generally occurs when a borrower wants to purchase a property they cannot afford. Borrowers are often aided by dishonest mortgage industry professionals who submit or encourage the submission of false information about the borrower’s employment, income or assets in order to qualify for a loan.
Borrowers are often tempted to engage in this type of fraud by a strong desire for homeownership or for a home beyond their current financial means. The belief that no one will check the falsified information is wrong. Lenders detect fraud for housing schemes by thoroughly reviewing and validating documents and keeping diligent records. It is a federal crime to misrepresent any information in connection with the loan application. Anyone who is caught will be at risk of criminal prosecution. What a borrower may think is a little lie to help buy their house is not only illegal, it risks a borrower’s credit and investment.
To prevent fraud for property, make sure all the information is correct and all documents are completely filled out before you sign. Don’t believe someone if they tell you that misrepresenting information on your loan documents is not a big deal. It’s against the law, and it could cost you your home.
Real estate investors can frequently make very profitable purchases of real estate through a short sale. Many short sales do not get approved or fall through for a variety of reasons. Learn here the step-by-step process to initiate a short sale, starting with the homeowner-borrower and moving through lender negotiations to the closing.
1. The Property Valuation Analysis for a Short Sale
Short sales will not work if there is sufficient equity in the home for the lender to sell it and at least break even in a foreclosure. The homeowner must be "upside-down" in their loan. Learn how to determine if this is the case.
What makes a successful short sale? It's simple, everybody has to believe that they are a winner.
- The seller needs to know that they've gotten out of a bad situation with less credit damage and a new start.
- The buyer wants to make a purchase of a property below the true market value, at least in the near future.
- The lender must believe that the short sale will net them more money than a foreclosure action.
If we're the buyer, then our interests are best served by a purchase at the lowest possible price that will be approved by the lender. The seller gets no cash, so we are just showing them a way out of a foreclosure action.
Here's what you're looking for as the buyer in a short sale transaction:
- A homeowner upside-down in their loan. Their home is worth less than they owe on it in various mortgages.
- Clear title and no prohibitive liens or claims against the property.
- Enough time to complete the process before foreclosure action.
- A willing seller with a desire to help in order to avoid foreclosure.
- A current valuation that will allow you to buy the home at a bargain price, creating instant equity.
- True hardship on the part of the seller to convince the lender of the necessity of a short sale.
- VA or FHA, the situation meets their criteria for short sale.
In short, you are looking for a homeowner owing more on their home than they can get in a sale, and a situation where the lender will approve a purchase price that meets your investment goals.
2. Contacting the Lender for a Short Sale Application
Lenders will not talk to investors, potential buyers or real estate agents unless they are instructed to by the borrower. You will need to get their approval in writing, contact the lender with that approval, and make the first telephone contact. First, get written permission from the borrower to contact their lender. There are various forms available for this, and the lender may have their own required form. However, the main goal is to get the borrower to name you as a person authorized to discuss their situation with the lender.
You will be contacting the loss mitigation department or the person named in letters to the homeowner. This is your most direct contact, thus the most efficient. It would be best if you contact them by phone with the borrower present. That way they can ask the borrower questions if necessary. In this step, you're starting to build a relationship with the loss mitigation group in order to get help through the process, request an outline of what they want and how they will make a decision on a short sale.
3. Writing the Hardship Letter for a Short Sale
The hardship letter is the cover for the short sale package. It is a lot like the cover letter for a job resume. It must be convincing and complete. The lender must get the first impression that it's a short sale or a foreclosure or bankruptcy. Whether you're a real estate broker or an investor, if you're helping the borrower behind in their mortgage to negotiate a short sale, an important piece of the puzzle is the hardship letter.
Lenders are all about numbers, so the letter isn't a sob story about the borrower's difficulties. It should be a factual description of a financial situation that is leading up to a bankruptcy or a foreclosure on their home, or both. The lender must be convinced that their only other option is foreclosure, and then they can analyze the numbers to see if a short sale is a preferable alternative. Different sources quote different numbers, but the average seems to run around $50,000 in costs to the lender for the average foreclosure process. Then there are the reserves that are required to be held to back up non-performing loans. The lender must tie up resources that could be invested elsewhere to back up these loans. So, they are open to alternatives.
The borrower should write the letter in their own words, but they need to make sure that there is a clear picture of their financial condition, and back up their claims to hardship with documentation, such as pay stubs, medical bills, job layoff letters and more. The numbers should clearly illustrate that the borrower is headed for foreclosure or bankruptcy.
4. Backing Up the Numbers With the Short Sale Package
The meat of your short sale presentation backs up the statements made in the hardship letter. You prepare a thorough and detailed set of documents and financial data to support the claim that a short sale is a good solution for the lender. The hardship letter is the beginning of the financial documents process in a short sale package. The items you attach to that letter will ultimately have a great deal of influence on the decision of the lender about whether to approve a short sale or not, and for the amount of the offer they'll accept.
Whether you're the borrower, a real estate agent, or an investor trying to purchase the home in a short sale, everyone involved should be concerned about providing all the documentation that will sway the decision of the lender.
It's a game of adding up numbers to show that the borrower is in an impossible situation leading to foreclosure or bankruptcy. It's the opposite of the process to get a loan. Then you're trying to prove you don't need it and that you're prosperous. Now the goal is to prove a hopeless payment situation.
The attachment of all of these supporting documents will give the lender a clear picture of the financial condition of the borrower. If the numbers support the hopeless situation, and the lender sees the opportunity to complete a short sale with a better return than a foreclosure, then you're on your way.
The other piece of the financial documentation is about the property. The lender, if they foreclose, will need to have the home cleaned up and prepared for sale. This would include repairs for items that would de-value the property. By documenting, with repair estimates, the cost of these repairs, the case for a short sale is bolstered. The purchaser is willing to buy the property without having the repairs made. It's another cost saved by the lender.
5. Elements of a Short Sale Purchase Agreement
Learn the things you need to consider in the preparation of a short sale purchase agreement. Where should you get one? Do you need an attorney? What elements need to be present in the purchase agreement?
The elements of a good real estate purchase agreement are not really different than those necessary for any deal.
- Competent parties and signatures
- Adherence to current state laws
- Adequate legal description of the property
- A very clear statement of when seller will vacate and what items are included or excluded from the sale
- Contingencies for inspections and well-defined deadlines for them
- Contingencies for title research and discovery of liens
- A schedule of document deliveries and the obligation of both parties
Though many a real estate investor has been tempted to use an off-the-shelf office supply store purchase agreement, it is a really poor decision. Likewise, it is not a good decision to write your own, or to use an online contract you find on the Internet. None of these are likely to be up-to-date with current laws in your state, and they aren't written with your best interests in mind.
Likewise, using the purchase agreements that the local Realtors use isn't wise either. Two reasons:
- They are usually copyrighted by the Realtor Association, so you aren't legal in their use.
- A great deal of effort goes into making these agreements balanced and fair to both buyer and seller. You want an agreement biased in your favor.
The ultimate best solution is to use your attorney to draft a purchase agreement that protects your interests. And use an attorney who specializes in the practice of real estate law. Though you may need a divorce attorney if you lose your savings in a bad real estate investment, you don't want one for the preparation of your real estate purchase agreement.
If the homeowner comes back with a counter offer with changes to the language of your purchase agreement, you can have your attorney bless it or make appropriate changes for your counter.
6. What the Lender Does With the Short Sale Package
If you prepared a thorough short sale package, the lender will be evaluating your numbers and getting some of their own. Hopefully, the short sale package that's submitted to the lender will be very complete, documenting the inability of the homeowner to continue their mortgage payments. The lender should get a clear picture from the numbers in the supporting documents that the borrower is heading toward foreclosure and/or bankruptcy.
What does the lender do with this package? The numbers are analyzed and verified. The borrower's ability to pay the mortgage is calculated with these new numbers, usually showing the hopelessness of the situation. The lender then derives a value for the property and compares that value to the amount due on the mortgage and the offer from the purchaser.
With the average cost to a lender for foreclosure running around $50,000, there is some incentive for them to consider a short sale offer if the numbers work. The may use a AVM (Automated Valuation Model) or a BPO (Broker Price Opinion) or both to determine the price at which they could sell the property in foreclosure.
If the lender sees the possibility of recouping more of their investment from the short sale route, they may very well approve it. After all, the process will be less costly, and it will be completed sooner than a foreclosure. The lender's assets to hold reserves to back up this loan will be freed up sooner.
We're back to your original package here. Many times lenders will commission a real estate broker to do a "drive-by" BPO. They never even enter the home. And computer AVMs do not show the current condition either. So, if there are repairs that will be necessary to get the home sale-ready for foreclosure, then you want the lender to know about them. Be complete with repair quotes in your package.
7. Negotiating the Short Sale with the Lender & Going to Closing
You may have to go back and forth with the loss mitigation department at the lender to get an acceptance of a short sale. Learn about this negotiation and the importance of a fast close. As an investor, seller or a real estate professional, you've put a huge amount of time and effort into preparing a short sale package and sending it along to the lender. You have gathered all types of information and documents, including financial statements, medical bills, divorce decrees, tax returns and more. Don't waste an excellent package with poor lender relations.
You will likely be working with a person in the "loss mitigation" department. Loss mitigation explains their goal - mitigating how much money they lose on this loan. It's not about how much money the homeowner is going to lose. From your first contact with the lender, be courteous, but professional. You should have sent along written authorization from the borrower for you to work with the lender. Make the first phone call with the borrower present to verify details with the lender's representative.
From the first phone call, always assure the lender that you are available to answer questions or gather more information. If your short sale package was thorough, it is likely that you will just be waiting for approval. The quality of your market analysis and comparable properties is important, and there may be questions as to how you chose them.
If the lender contacts you with a difference of opinion as to the offer price and your valuation, be ready to defend your comparables and calculations. They may have just paid for a drive-by BPO, Broker Price Opinion. Your more thorough photos and details may do the trick.
Once you get an approval, the statement that they will accept a "short payoff," act quickly to pull the closing together. Most approvals have a time limit, many only 30 days. If you aren't closed within that time, the deal could be over forever.
When interest rates fall, home owners rush to refinance mortgages, often without pausing to consider whether doing a refinance is a good idea or if it makes financial sense. Unfortunately, home owners can be easily lured by the siren song of lower mortgage interest rates; however, the rates themselves are only a tiny portion of the bigger picture.
Serial refinancers, as I like to call them, take out new mortgage loans every time rates drop a quarter point. I knew a lawyer who refinanced his home seven times in the past eight years. This was a person who should have been smarter than that because every time he refinanced, he added more principal to the end of his loan and extended the term of his loan.
What is a Refinance?
A purchase-money loan is an original loan secured by a borrower to buy a home. A refinance loan is a new loan taken out by a borrower to pay off the original loan or, in the case of a serial refinancer, the loan pays off the last refinanced loan. The refinanced loan is typically in first position; however, it is also possible to refinance a home equity loan.
Types of Refinance Mortgage Loans
Just because you may presently be paying on a fixed-rate mortgage, doesn't mean that you can't take out a different type of mortgage loan when you refinance. However, before you consider switching out a fixed-rate mortgage for another type, make sure you completely understand the terms of the new loan.
Refinance Mortgage Loan Costs
Although it is possible to obtain a no-cost refinance loan from a mortgage lender, remember that lenders are in the business of making money. If the lender is not making income by charging upfront costs to make the loan, those fees are either rolled into the loan or paid through a higher-than-market interest rate.
There are a few banks turning to true no-cost loans, but those are few and far between. Read your fine print and compare lenders. Get a GFE, a Good Faith Estimate. Demand the lender guarantee the GFE. These estimates are not required by law to be guaranteed, which makes a GFE virtually worthless. But lenders who want your business will guarantee their estimates.
Here are costs you may be required to pay:
Lenders charge what we in the business nickname "garbage fees," which means they can be negotiated by the borrower. Those fees are document preparation, administration, processing, application and the like. If you ask, the lender might waive them.
On top of these fees, you may notice an item marked "paid outside of closing" on your closing statement called a YSP. That is money the bank gives back to the mortgage broker for bringing the lender your loan. Bear in mind that if the lender did not pay a YSP to the broker, you might have received a lower interest rate on your loan or paid less in points. By the time you discover this, you are probably closing the loan. So, ask upfront.
Drawbacks to Refinances
- Costs. If you are paying fees to obtain the loan, it is costing you money to get the loan, which you might not recoup through a lower interest rate for a number of years. To figure this out, add up all the fees. Figure out the difference between your old mortgage payment and your new payment. Divide that difference into the loan fees, which will equal the number of months you must pay on your new loan to break even.If your loan fees are $4,000, for example, and the monthly savings will be $100 a month, it will take you 40 months to break even on the refinance.
- Longer amortization period. Although you have the option of shortening your amortization period, you might not qualify for the higher payment nor may you want to pay more each month just to pay off the loan faster. Borrowers generally extend the term of the loan. If you refinance a loan with 25 years remaining for a new 30-year loan, you have turned what was originally a 30-year loan into a 35-year loan.
- Bigger mortgage. By rolling the costs of your loan into the loan itself, you are taking out a bigger mortgage. A bigger mortgage eats away at your equity position. Moreover, if you take out cash, called a cash-out refinance, your loan balance will be increased.Some borrowers take out cash from a refinance to pay off bills incurred by unsecured purchases. If you bought furniture, for example, and you pay off the furniture store, you have now financed furniture for 30 years, which may have a useful life of ten.
Paying off unsecured credit cards eliminates present debt but only if you never use the cards again. Consider cutting up your cards if you've managed to get yourself so far into debt that your only recourse is to refinance the roof over your head.
- Lower monthly payment. If you plan to stay in the home long enough to break even on the refinance costs, a lower interest rate and payment will result in greater monthly cash flow.
- Shortening the amortization period. If your lower interest is substantially lower than your previous rate, you might want to consider shortening the term of your loan in exchange for a slightly higher mortgage payment. Before you do this, figure out if you could invest that extra principal portion elsewhere for a better rate of return.
- Cash in hand. Many obtain cash to invest at a higher rate of return than the new interest rate.
When you purchase a company's stock certificates, you're looking for appreciation in the stock value, and perhaps dividend income if it is paid by the company. With bonds, you're looking for income yield on the interest rate paid by the bonds. With a real estate investment property, there are more ways in which to realize a superior return on your investment. Learn the ways in which your real estate investment can increase in value, as well as provide good cash flow.
1. Cash Flow from Rental Income
As with a stock that pays dividends, a properly selected and managed rental property will provide a steady stream of income in the form of rental payments. Historically, this percentage of return has exceeded that of dividend yields on average.
The real estate investor has a bit more control over the risks to that cash flow also. Though there are downturns in real estate prices and homes sold in some years and areas, generally those renting property in which to live will continue to rent and without a corresponding decrease in rent amounts.
2. Increases in Value Due to Appreciation
Historically, real estate has shown to be an excellent source profit through the increase in investment property value over time. Of course, one cannot predict that this trend will always be true, and it varies significantly by area.
3. Improving Your Investment Property - More Value at Sale
While it's providing rental income cash flow, your property can also be improved in order to garner a better price and more profit when you do choose to liquidate it as an investment.
Upgrades to the appearance and functionality of a real estate investment property can significantly increase value. As trends and styles change, keeping the property interesting to renters will at the very least help you to retain value.
4. Inflation is Your Friend When it Comes to Rent
Though your fixed mortgage will remain constant over time, inflation that drives up home construction costs will also drive up rents. Population growth creates housing demand, again driving up rent prices if supply cannot keep pace.
5. Paying Off Your Mortgage
As you pay down your mortgage, the increase in equity can be used for other purposes and investments. Though it's frequently accessed by selling the property, a real estate investor can also take out equity loans if the terms are right and use those funds for more investing or other purposes.
6. You Could Just Find that "Steal of a Deal"
This is the last item, though it's one of the first ones many investors think about. There are opportunities to buy below market, but the other advantages above will probably be what the average investor experiences most of the time.
Should you be fortunate enough and have the experience to locate a value-priced property, this is an immediate way to increase your net worth and the value of your investment portfolio.
Home Staging & Interior Decorating
Home staging is a business that grew rapidly during the fast-paced real estate markets of the 1990's into 2006. The slowing of existing home sales beginning in 2006 did not damage the business of staging homes for sale. If anything, there should be a greater need to improve the presentation of a listed home in times of slower sales.
When there are fewer buyers and more listings in competition, every strategy should be employed to make a home stand out among the competitive listings in the area. Staging a home can make a huge difference in how it's perceived by prospective buyers. If the home is vacant, the home stager will bring in rented furnishings and decorative items to make it look occupied and pleasing to buyers. Some of the techniques used by stagers include:
- Removal of clutter in all areas of the home
- Removal of personal items or artwork that might distract buyers' attention
- Re-positioning of furnishings for better room appeal or spacious feel
- Addition or replacement of furnishings
- Landscape changes or additions
- Lighting changes to make rooms brighter or accent items
If a real estate agent is going to recommend home staging to their listing client, they should thoroughly research the staging person or company for experience and recommendations. The popularity of the business has caused many fast-track certification courses to spring up that offer little in the way of training, but grant a certificate or designation that implies expertise. A poorly-stage home will not make it sell faster, and could even make the situation worse.
Definition: Staging of homes is a growing trend in real estate. It is especially important in slow markets with high inventory and many competing homes. Some of the things that stagers do are:
1. They advise removal of personal items that might make the home look crowded, or they might distract buyers. Too many personal photos on the walls are a sure way to have buyers commenting on your ski trip instead of your kitchen.
2. In staging a home, many times the furnishings are rearranged to enhance the look of a room or make it look larger. This can mean the rental of a storage building for those that have too much furniture.
3. In new or unoccupied homes, the stager will provide rental furniture that fits the style of the home and makes it look more livable. Large expanses of open floor space may look large, but it's hard for buyers to envision their furniture in the home or get an idea of what would fit where.
4. There are even cardboard televisions and computers to place on desks in the home to make it seem more hospitable and help buyers to imagine their belongings in each room.
Home buyers who want a good deal in real estate invariably think first about pursuing foreclosures. Buyers have this picture in their mind of a cute little house, surrounded by a white picket fence that is owned by a widowed mom who fell on hard times, but that scenario is generally far from reality.
Why Do Sellers Go Into Foreclosure?
Sellers stop making payments for a host of reasons. Few choose to go into foreclosure voluntarily. It's often an unpredictable result from one of the following:
- Laid-off, fired or quit job
- Inability to continue working due to medical conditions
- Excessive debt and mounting bill obligations
- Squabbles with co-owner, divorce
- Job transfer to another state
Negotiating Directly with Sellers in Foreclosure
Investors who specialize in buying foreclosures often prefer to purchase these homes before the foreclosure proceedings are final. Before approaching a seller in distress, consider:
1.Foreclosure proceedings vary from state to state. In states where mortgages are used, home owners can end up staying in the property for almost a year; whereas, in states where trust deeds are used, a seller has less than four months before the trustee's sale.
2.Almost every state provides for some period of redemption. This means the seller has an irrevocable right during a certain length of time to cure the default, including paying all foreclosure costs, back interest and missed principal payments, to regain control of the property. For more information, consult a real estate lawyer.
3.Many states also require that buyers give to sellers certain disclosures regarding equity purchases. Failure to provide those notices and to prepare offers on the required paperwork can result in fines, lawsuits or even revocation of sale.
4.Determine whether you're the type of person who can easily take advantage of a seller's misfortune under these circumstances and / or put a family out on the street. Oh, critics will argue it's just business and sellers deserve what they get, even if it's five cents on the dollar. Others will feign compassion and trick themselves into believing they are "helping" the home owners avoid further embarrassment, but deep inside yourself, you know that's not true.
Buying a Home at the Trustee's Sale
Check with your local county office to find out how sales in your area are handled, but common threads among those are:
- Proof of financial qualifications
- Sizeable earnest money deposits
- Purchase property "as is"
Sometimes buyers are not allowed to inspect the house before making an offer. The problem with buying a house sight unseen is you can't calculate how much it will cost to improve the structure or bring it up to habitable standards. Nor do you know if the occupant will retaliate and destroy the interior. On top of that, you may need to evict the tenant or owner from the premises after you receive title, and eviction processes can be costly.