I am consistently asked “why I would list the house for short sale instead of just walking away?”

Besides the financial benefits, the short sale process is the right, honorable choice instead of foreclosure. I am talking about when the home owner is just abandoning the property and not even considering the short sale. Why not when given an opportunity to create win-win among home owner (who is on title), the bank (lien holder) and provide extending benefits to real estate agents and the neighborhood community (where the home is located). The sale is handled just like any other sale.

When divorce, death, loss of income or any life circumstances strike a family, the home owner may not able to maintain the loan current, the first thing the home owner must do is to sit down with a short sale experienced listing agent to talk about how to plan out the sale.

All banks are motivated to complete a short sale vs foreclosure. The foreclosure is an expensive process to the bank. It is a legal process against the homeowner and later the bank has a vacant home. The condition of the home cannot be predicted after the home owner moves out.

Here are some emotional benefits of short sale:

• One may feel better knowing that they are selling their home, handled just like any other sale.
• Knowing who is buying the house, choosing the buyer for the future of the home.
• Avoiding  the social stigma, “my home was foreclosed”
• Integrity! Even one may not pay the full amount on the loan, home owner and listing agent are working with the bank to come to mutual agreement instead of walking away and be irresponsible.

Here are some financial benefits of short sale:

• If the loan is current, even though finding Fannie Mae loan could be very difficult but Fannie Mae guidelines allow the new buyer to purchase another home immediately.
• If the loan is current, one can qualify for FHA loan, as long as moving 600 miles away.
• If the loan is current, the lender will not have deficiency against the home owner.
• If fallen behind, 30 days late, FHA loan requirement is to wait about 3 years; Fannie Mae is 2 years for a new home purchase versus to wait 7 years after a foreclosure.
• Credit Bureaus report the short sale as “paid in full for less than agreed or settled for less”.
• FICO score drops from 50 points to 130 points as reported by some clients, mainly due to being in default rather than completing the short sale. Foreclosure impacts the credit scores about 105 points to 160 points.
• Loan application includes a question “Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years”, not have you ever had a short sale? The application is immediately denied with foreclosure history, lying is mortgage fraud.
• The lien holder will send in 1099C (cancellation of debt) to the home owner, under Mortgage Forgiveness Debt Relief Act of 2007, the provision excludes the debt as a taxable event on all primary residence purchases.

IRS website states: “This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return. More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.”

• A job application may be denied if the prospective employer runs a credit check if there was a foreclosure in the last 7 years, not over a short sale.
• Home owner may be qualifed for HAFA Program, as outlined at their website “Unlike conventional short sales, a HAFA short sale completely releases you from your mortgage debt after selling the property. This means you will no longer be responsible for the amount that falls “short” of the amount you still owe. The deficiency is guaranteed to be waived by the servicer.

During the short sale, home owner may reside in the property until the lien holder approves the sale. Just like any other sale, the home owner will have the closing date to plan out their move and walk around to neighborhood, holding their heads up to say goodbye to their neighbors instead out being forced out of the house by the bank  the middle of the night with no goodbyes…

In closing, feel free to call Sebnem Oden, Realtor®, Broker for additional information about your bank’s short sale procedure and never forget to contact a licensed professional for legal and tax advice before making a decision between short sale and foreclosure. In order to have affordable help for expert legal advise for this and any other legal help, go to www.RightsInUS.com

Oh by the way, if you happen to know anyone who would like the level of service I provide.   My purpose for you to be outrageously happy with the help I provide that you will gladly introduce me to friends, family and co-workers who are struggling with their home value being less than the mortgage amount.

Make it a happy day!

Seattle Condo

Fannie Mae HomePath Financing

The Fannie Mae HomePath program is an attraction solution for financing condos and townhouses.  Many people are familiar with HomePath’s attractive features for all types of properties: down payments as low as 3% of the purchase price, seller contributions up to 3.5% of the purchase price, no mortgage insurance required.  However, there is an added benefit for condos in that Fannie Mae waives the appraisal and guarantees financing without regard to the status of the condominium homeowner’s association (HOA).  Condos are increasingly difficult to finance as new rules from the FHA have cut off financing eligibility for the great majority of condominium associations.  As reported in the Washington Post (“FHA rules for condo purchases are causing major headaches for buyers and sellers“), less than 10% of condo HOAs whose FHA eligibility had expired have been recertified.

Accordingly, buyers of condominiums who aren’t paying all cash should either inquire about the FHA eligibility of a condo complex before making an offer or positively seek out only Fannie Mae owned condos to take advantage of these attractive financing features.

A client of mine recently got a HomePath loan approved at 4.5% interest for 30 years.  Fannie Mae contributed 3.5% towards his closing costs.  I believe he put down 7% in order to bring the loan amount down a bit to a level he could qualify at.

Seattle townhouse

Click here for a list of Fannie Mae owned condos.

Have heard the word there’s a new 100% financing program on the table and in some cases income isn’t a dis-qualifier. Its based on the income levels where you want to purchase you next property. All that’s needed is the address and if the income level is low-medium 100% financing is available  as long as its you primary residence really. In cases where income levels high there is an income cap of $68,480 but you can still finance 100% and this without that nasty PMI (Private Mortgage Insurance) that’s attached to your loan because you can’t put 20% down. Looking at a jumbo loan how about 5% down yea for real. exprealty and a major local lender have the exclusive rights to this fantastic loan program. If your a first time home buyer, down sizing, relocating, or just looking to purchase in the Greater Seattle area you need ^the Cobbin Group!

A news item today in the Finance section of Yahoo, showed a news article in the New York Times reporting housing might take another blow as President Obama’s administration is considering stopping the guaranty of larger home loans.  It quotes the “Obama administration’s position paper on reforming the housing market. “Larger loans for more expensive homes will once again be funded only through the private market,” it declares”.  Should the administration continue on this move the results could additionally weaken the already weak housing market.  Upper end homes valuation will fall in the market as new buyers may not be found.  The prognostications are that the interest rates on upper end homes will climb and will require more funds up front and qualifications will tighten as private funding will get tougher.

Typically, the upper end homes were the ones to continue to be traded as they were upper middle income earners or higher that could continue to afford different homes even during an economic downturn.  This group generally consisted of people that would continue to have good jobs even during the slow periods of the economy.  Now if they stop buying houses as the down payment qualifications rise, the upper housing market might be littered with foreclosures and short sales that have plagued the country.

So what happens if you live in an area where the average home is in that category?  Move!  Well not really, but you might want to consider not moving for the foreseeable future.  With an already weak economy and reported losses in value across the country, it is not the time to change the market in a negative way.  If you think about it and see how this could affect the housing market, it may also cause severe damage to the overall economy.

In the recent past, many people were in deep trouble due to Adjustable Rate Mortgages on their homes.  This was due to a couple of factors: first, they came due in short periods of time and had to be renewed; and secondly, their homes were devaluing quick enough that they could not qualify for the renewal.  Sound familiar.  It should, that’s what we heard fairly frequently during the past few years.  So how does that apply now?  Why would you choose an Adjustable Rate Mortgage?

At first glance what most people see is a lower rate than the 30-year fixed rate mortgage.  It is true that they are lower but that is because the commitment is for a much shorter time and the lender gets to adjust what they are getting during the course of the loan and when renewed.  If rates are falling this is probably okay but what people didn’t realize is that the value of the property would probably drop along with the rate.  Who do you think this scenario favors?  It favors the lender, especially if the rates are rising.  Normally the rates are changed every quarter based on a standard plus margin but luckily there is usually a cap of 2% over the course of the loan.  But guess what, just because you have a rate cap doesn’t mean the rates stop rising.  You just won’t feel the increase until you need to refinance.  Then it will hit you like a ton of bricks.

So what about now.  Well, rates are projected to increase so it probably isn’t a great time to choose an Adjustable Rate Mortgage.  You may save some money now when the balance of you loan is the highest but when renewed you may be paying a rate higher than the current long term mortgages.  One lender that I talked to recently made a good point that flippers and investors who aren’t going to carry the loan that long will be able to sell the home before the loan becomes due so it is still a good choice.  The main issue is will you be able to sell the home before it comes due.  There are thousands of people that may have an opinion on that who have lost homes.  Just remember it is a gamble and for many years it was a good gamble to take a lower interest short term loan.  Many people saved money.  But many more in recent years have lost homes the same way.  So no matter what you do, think before you leap.  Long term loans are still cheap considering what they have been in the past, so if you pass it up, don’t complain when the three to five year renewal comes up and you end up paying for potentially all new loan costs and a higher interest rate.

Dave Sato

Real Estate Professional

425-213-6411

A couple years ago when the economy was at full steam 30 Year Fixed loan rates were in the upper 5 and low 6% range.   So the question that all home buyers need to ask is how will a rise in mortgage rates affect their purchasing power.  While the exact numbers vary based upon your intended purchase price, I’d like to give you an idea in the chart below.

A .5% increase in the interest rate from 4.875% to 5.375% would result in roughly a $25,000 decrease in purchasing power!  That could be a huge difference in properties to choose from or leave the buyer with limited negotiating flexibility.  

When you also look at the amount of money paid out in interest over the 30 year period of the loan there’s a savings of $40,000 in interest between the two rates for the same loan amount. 

So buyers who are thinking about buying now but holding back perhaps to wait for prices to drop slightly beware!  You may end up negating any gains there by being stuck with an interest rate that’s substantially higher a month or two down the road.

Michael Pollock is an Accredited Buyers Representative, member of the Seattle King County Association of Realtors and Licensed Loan Originator in Washington.  He also works with clients in the Tacoma/Pierce County area – visit EXP there at www.tacomapowersearch.com 

All borrowers regardless of credit scores should be able to get into at least 4.25% with standard 1% origination fees right now and High Balance loans up to $567k should aim for 4.5%.   These rates/prices are still available as we start this week and unless we see some huge positive economic news come out (such as really positive numbers on Friday’s Nonfarm Payrolls & Unemployment Report) they should remain for the first week of August.   If you’re a home-owner and haven’t refinanced in the last year or two you should at least be looking at the monthly savings vs. loan costs of doing a refinance with rates like these.   If you can make up the costs in a year or two and plan on being in the home longer than that then a refinance makes sense. 

For buyers contemplating a purchase but not quite sure whether to jump, here are some very important numbers for you take into consideration.  The chart below shows the decline in your purchasing power if you compare current interest rates vs. those you may encounter 6 months or a year down the road when they go up to historical 30 Year Fixed Averages.

If interest rates rose to 5.5% youd lose approximately $48,000 in purchasing power for the same monthly payment!

While we don’t know how long it will be until interest rates start rising again, it’s not a question of “if” but more of “when”.  You combine these interest rates with the currently low prices available for most homes in King/Pierce/Snohomish counties and it makes for a fantastic time to be a buyer.  While loan programs aren’t as flexible as they were several years ago and most borrowers will need to bring a down payment to purchase, this is almost a once-in-a-lifetime combination of mortgage rates/home prices. 

Michael Pollock is an Accredited Buyers Representative with EXP Realty and  Licensed Loan Originator with Northwest Home Center

Unbelievably low interest rates not seen in most of our life times.  We’re talking about 30 Year Fixed in the 4.25% range, 15 Year Fixed around 3.75% and 30 Year Fixed Jumbo Loans around 5.25%.  If you’re looking to purchase a home you’re going to be able to get a loan at a rate that will likely never give you a desire or need to refinance.  And if you’re one of the few people who didn’t refinance over the last year or two the opportunity to be in the low 4′s can’t be passed up.  

So why aren’t we seeing huge amounts of activity in both purchase and refinance lending?  For refinances there are still home owners that unfortunately have not been able to take advantage of these rates because they are upside down or don’t have employment/income necessary to do so.  The creation of the Home Affordable Refinance Program allows some borrowers to get a loan if they are upside down although it has limitations and not every home owner can qualify.  Unfortunately the people it was mostly created to help sometimes don’t qualify because their loan isn’t backed by Freddie Mac or Fannie Mae or they are upside down more than is allowed by the program, have a non-conventional jumbo loan or perhaps they have no current employment.  There are some reasons why people don’t qualify but it’s in every home owners best interest to double check and make sure they aren’t missing out on an opportunity.

As the tax rebate program reached it’s end there wasn’t a huge glut of purchase activity due to many buyers jumping on the program when it first was set to end in fall of 2009.  There also has been a  lack of purchase activity due to the overall economic and employment conditions we’re all faced with.  Many people would like to buy a home but are concerned about their employment or income and it’s much easier to get out of a rental than face foreclosure.  There’s also the difficulties buyers face in getting financing these days.  Loan programs are much more stringent in terms of credit scores, documentation of income and qualifying debt to income ratios.  Many first time home buyers will need to put at least 3.5% down on an FHA Loan program which offers the lowest down payment option available to most borrowers.  That 3.5% of a purchase price in our metro area can represent a huge amount of money which most borrowers, if they have it, want to keep in reserve  these days.  The lack of first time buyers affects the repeat home buyers who need someone to buy their house in order to purchase another.   So despite these amazingly low interest rates, the level of purchases isn’t likely to explode due to all of the combined factors.   That being said, for those people who want to buy a home now, have decent credit, documentable income and the ability to make a down payment there are home loan rates unlike those we’ve ever seen before.

Michael Pollock is an Accredited Buyers Representative with EXP Realty and  Licensed Loan Originator with Northwest Home Center

Positive economic reports and other financial data during the last week of March pushed mortgage rates from their lowest levels in 2010 to their highest all in one day.  The information and sentiment from the Weekly Mortgage Application Index, Durable Goods Order data and a poor auction of 5 Year Treasury Notes took rates from 4.75% to 5.125% in a matter of hours!  Things got a bit better the last day of the month with employment data that was less than stellar but those improvements were erased the next day as soon as the Fed program ended.  

Mortgage rates then spent the first full week of the month attempting to improve with some mildly positive activity although no dramatic decreases to make up for what was lost the week before.  If you were in process to close on a loan and hadn’t locked your rate, it’s likely that you were either faced with a different rate or different costs than what you may have had on your initial application.  So where will go from here as we move away from the Fed program and towards the expected end of the Home Buyer Tax Credit?

The expectation amongst the mortgage industry is that rates will slowly continue to increase over the next several months.  That of course is dependent upon the overall economy contuining to slowly improve.  As more investors leave the safety of bonds and foray back into the stock market, higher yields and rates will be required in the mortgage industry.  The level of refinancing has fallen and after the Home Buyer Credit ends the number of purchases may also decrease.  That drop in mortgage applications may also contribute to an increase in rates as private investors look for higher returns.   Although most consumers aren’t really feeling the economy “improving” yet, it seems to have stabilized which alone shows some strength.   Economic data and movement in either direction will have a larger impact on rates in 2010 as there will not be government support keeping rates low as there was in 2009.

As rates continue to rise it’s important as a borrower to understand the impact it can have on monthly payments and purchase prices.  See my previous post about the Effect of Higher Mortgage Rates on Purchase Price to learn more.   While a rate of 4.875% for a 30 Year Fixed Conventional is still available, it will require a 720+ credit score, 20% equity and a borrower willing to pay some origination fees.   I encourage all borrowers to not only shop around but also to be prepared to make a move and lock-in if you’re satisfied with the rates you’re finding.  It’s likely that they won’t be going down much in 2010 and their rise is more a question of “when” than “if”.

Michael Pollock is an Accredited Buyers Representative, member of the Seattle King County Association of Realtors and Licensed Loan Originator in Washington.  He also works with clients in the Tacoma/Pierce County area – visit EXP there at www.tacomapowersearch.com