� Sep. 2, 2009 - What does "Subject to Lender Approval" mean? Short Sale...
A Buyer just asked me a great question about a home with a price that looked "too good to be true". Here's a generalized version of my response:
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The home you asked about is a short sale... Often you would have no way to know this without asking me to check it out a little. However, if you ever see something in the description like "Subject to lender's approval" (as this one has) it means that the Seller can't make the final decision. At the current price, the Seller will not net enough money to pay-off their mortgage. So, any offer will be "Subject to lender's approval". Basically, the Seller is going to ask their lender's permission to take less than they are owed on the mortgage. Why? A short sale is usually better than a foreclosure on your credit, and most short sales are headed towards foreclosure. That's one of the reasons it takes so long to get an approval on these... the banks don't want to lose money and often don't move very to quickly to approve them. However, if they see that foreclosure is the only other option, they may (eventually) approve the short sale. "Normal" approval time to get a bank's blessing is 30-90 days (though it can take longer) before you can start the 30-40 day closing process. Communication is also poor (at best) from most banks, so you often won't hear anything about your offer for weeks at a time. The worst part is that, even if you offer full list price, there is no guarantee that the bank will take it. The real estate agent typically decides the list price, not the bank (and they're being asked to take a loss). If you do finally get an approval, short sales can be an ok deal and save you a little money. However, these deals are very dependent on the Listing Agent, the Seller and their bank. If any one of these parties doesn't know what they are doing, or decides not to cooperate, you'll just have wasted a lot of time. So, most Buyers who have a specific timeline (i.e. want to be in a home by a certain date) tend to stay away from short sales. Also, there aren't any hard-and-fast rules about how multiple offers are handled. It completely depends on the Listing Agent and the Bank. So, you may put in an offer, wait for several months, only to have a higher offer submitted just before your approval is issued. It can be very frustrating. So, you also need to have no emotional tie to any home (because you will likely go through a couple of them before you get one). The best candidates for short sales are Investor-Buyers with no particular timeline and no emotional attachment to any home. Traditional Buyers, looking to buy a home to live in, tend to get frustrated with the short sale process and end up moving on to traditional or foreclosure sales (where response times, and communication, are generally much better).
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I hope that helps! Not to say that I can't/won't help traditional Buyers with short sales... I just want them to know what they are in for before they get started down that long and winding road.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
� Aug. 28, 2009 - How do I get my funds after closing (and other money due to me)?
A client of mine asked a great question that I thought would make a great blog post. He asked for me to explain how his money would be disbursed to him after selling his home. Here is a slightly more generic version of my response:
You'll generally get your proceeds disbursed from three main sources:
1. The biggest check issued is generally that for your remaining equity, after all fees and expenses have been deducted. It is cut immediately after closing and funding. So, the title company will generally put it in the mail to you (or you can pick it up) the next business day. However, many people prefer to have their funds wired into their checking accounts as the funds get there much more quickly (hours instead of days) and you don't have to wait for a wire to clear like you may with a check (depending on your bank, they may hold a check for 7-10 days). Note: There is often a small charge from banks, around $10, for incoming wires... check with your bank to be sure. And if you want your funds wired, you'll need to include a voided check (or at least the account # and R/T # off the bottom of your check) with the docs you sign at closing. There's usually a form specifically for this... asking you about how you want to receive your proceeds from the sale.
2. Next, your escrow account is refunded... assuming that your mortgage escrows for taxes and insurance as part of your monthly payment (most mortgages do, but not all). Your escrow balance will be send back to you by your mortgage co. once they get your payoff and process the close-out of your loan. This usually means you get a check from them within about 15 days. It doesn't hurt to call them and update your address so they mail it directly to you (and not to your old address where the mail forwarding can take an extra few days).
3. Finally, your homeowners insurance company will refund you the balance of your un-used/pro-rated policy premium. This also normally takes a couple weeks, but varies by company. Again, letting them know your new mailing address helps expedite your receipt of your check... and you can ask at that time what their normal turn-around is for refunds when policies are canceled.
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Hope that helps! Let me know if you have a real estate question you'd like answered...
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
I found a great article from Lowe's Home Improvement about getting your home reado to sell and tweaked it a bit. Most of the ideas are right-on and will help you prepare you home for sale. However, it's always wise to talk to a Real Estate Professional in your area about what the latest hot-button items are for Buyers in your area, and what specifically your home is most in need of. You don't want to waste money on listed items that are less important than others a professional may feel need addressing in your home and/or the current real estate environment in your local area. This list will give you a great place to start the home improvement/make-ready though:
Ideas To Help That Home Sell & What You'll Need To Make It Happen
Ideas to Help That Home Sell
What You'll Need
Do a little landscaping. Potential buyers will get their first impression of your home from its exterior. So stand outside and take a few moments to look at your home objectively. Could the grass use some cutting? Do the flowerbeds need a bit of TLC? Trimmed landscaping indicates a home that is well cared for throughout. -Replace mulch.
-Pressure wash the house.
-Edge sidewalks.
-Remove vegetation between concrete and bricks.
-Trim tree limbs that are near the roof.
-Cut the grass.
-Prune hedges.
-Freshen flowerbeds.
-Clear away dead trees and debris.
Make your home more welcoming. Before homebuyers even come into your home, they'll be greeted by the front door. So think of it as another chance to make a good impression. -Install a new door.
-Paint your front door.
-Add some new house numbers.
-Get a new lockset, kickplate and house number combination that coordinates with a new light fixture.
Materials: House Numbers, Kickplate, Lighting Fixtures, Paint, lockset
Refresh your deck. You want your outdoor space to be a place buyers can imagine enjoying during the summer with friends and family. Fuel their imaginations by rejuvenating the deck and furnishings. -Power wash deck clean.
-Reseal the deck.
-Use a wood lattice to enclose unsightly areas underneath.
-Add a bright umbrella.
-Replace cushions on furniture.
-Decorate with potted plants and flowers.
-Accent with a small fountain.
-Install wind chimes to create a serene atmosphere buyers are sure to appreciate.
-Use citronella candles to deter bugs.
Repair every imperfection. You probably no longer notice your home's little imperfections. Buyers, however, probably will. These small blemishes may stick out in the buyer's mind, so make sure to fix them. -Patch small cracks.
-Repair drywall.
-Replace broken tiles.
-Replace old fixtures.
Tools: Squeegee or Grout Sponge, Waterproof Gloves
Clean every spot. Even if your house hasn't always been kept immaculate, you can still make it look that way. Whether you clean yourself or hire a professional team, it can really help lead to a sale. -Scrub the bathroom and kitchen floors.
-Steam clean rugs or replace if traffic patterns are worn-in.
-Polish hardwood floors.
-Wash windows inside and out.
Minimize the clutter. Unique things that make your place more "you" may actually distract buyers from envisioning their own personal touches. Remove them so they can imagine your space as their new home. -Remove all personal items and pictures and place personal items in storage.
-Clear clutter from the floor by using a shoe cube organizer.
-Store all children's toys.
-Add wire shelving / closet shelving for additional storage space.
-Add a fresh coat of paint inside closets to make everything look clean and organized. -Place a few cedar blocks in your closet for a great scent.
Materials: Cedar Blocks, Moving Boxes, Paint, Shelving
Improve energy efficiency. Making your home more efficient saves buyer's money over the long haul. Be sure to point out all the upgrades to buyers so your hard work doesn't go unnoticed. -Install a programmable thermostat.
-Place weather-stripping on doors and windows.
-Wrap pipes to conserve energy.
-Insulate your water heater.
-Replace furnace filters.
-Replace old appliances with energy-efficient ones.
Materials: Filters, Programmable Thermostat, Water Heater Insulation, Weatherstripping
Give your favorite space a makeover. Chances are, you and your family spend the most time in the living room, but the last thing you want when selling is for the space to feel 'lived-in.' Refreshing the room with a few simple changes make the space more inviting to buyers while giving it a fresh feel. -Paint walls in neutral colors like linen, cream and beige.
-Use thin drapes in a neutral color to accent.
-Switch generic switches with painted or ceramic ones.
-Boost the look of natural lighting with daylight bulbs.
-Add a throw rug to give a touch of softness to the place.
Create a camera-ready kitchen. Buyers want a kitchen that feels open and light. You'll want to repair any signs of wear and tear and replace any items that look dated or aren't working properly. -Paint walls with white or neutral paint that complements the cabinets.
-Replace existing hardware with cabinet pulls and knobs for a new look.
-Install new lighting under the cabinet for a dramatic effect.
-Highlight the island or countertop with a simple fixture.
-Replace vinyl blinds with sheer bamboo or linen blinds.
Design a relaxing space. Bathrooms get a lot of use. You'll want to make yours look fresh to buyers by replacing outdated or overused fixtures and adding a few nice, crisp details. -Paint walls in soft, sedated colors like light blue, pale green or cream.
-Install a new faucet, fixtures and towel bars.
-Put in a medicine cabinet for added storage.
-Buy new towels in a light or neutral color.
-Replace the shower curtain and bathmat. A new shower curtain offers that "new car" smell.
-Keep the room looking clutter-free by organizing bath accessories in a shower caddy.
-Add a new bath mat.
Materials: Bath Mat, Faucet, Medicine Cabinet, Paint, Shower Curtains
Again, you should consult a Real Estate Professional before jumping into any major/expensive projects, but preparing a home to look it's best and appeal to a broad base of Buyers is a big part of getting it sold. Marketing, Pricing, Condition, and Location are the four critical factors in selling any home. The items listed above can help with the Condition and help maximize your Agent's Marketing efforts. Let me know if I can help with any questions about your area or preparing your home!
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
� May. 13, 2009 - Get your $8,000 (tax credit) in advance to use as a downpayment!
Free money, housing grants, down-payment assistance... call it what you will, but the U.S. government's recent announcement of an $8,000 tax credit available to virtually any first-time home buyer (or anyone who hasn't owned a home in the past three years) has sparked more buyers to start shopping for homes. I've run across several people recently who say their reason for looking is the $8,000 credit that expires 12/1/09. The only trouble has been getting your $8,000 tax credit up-front so you can use it for your purchase. As it stands, the money is only available after you purchase your home and file your taxes (which means early 2010 for most current buyers). This is great for those who can borrow the money from savings then repay it after filing their taxes. But what about those who don't already have the cash to drop on a down-payment?
Besides my solution in the article linked above, there wasn't a great answer until Tuesday. HUD Secretary Shaun Donovan announced yesterday that home buyers will be able to use the $8,000 first-time home buyer tax credit for down payments on FHA loans via bridge loans. Basically, Donovan said that FHA is going to allow those entities like approved lenders, nonprofits, state and local government agencies to issue short-term bridge loans which buyers can use for down-payments. Buyers would repay the loans after getting their tax refunds.
More details are said to be forthcoming, and there are still snags to work out (like the fact that the IRS won't allow your refund/tax credit to be designated to be sent to anyone besides yourself). However, a lot of people (including the National Association of REALTORS) are working on the IRS/refund issue and say they should have this worked out soon. Once it is, the $8,000 tax credit will become a true form of down-payment assistance, and not just a reward post-closing. This should further stimulate home buyers.
Seller-funded down-payment assistance programs were recently disallowed by the FHA as it was found that the assistance amount was usually being rolled into the cost of the home (and thus the sales price raised). The Buyers were instantly upside-down and default rates on these homes were exceptionally high. This shouldn't be a problem with the $8,000 tax credit as it won't cost the sellers anything; the money will be coming from Uncle Sam... and, if government spending isn't reeled in, be repaid by our children and grandchildren... but that's another article entirely. So go out and buy a home! Your $8,000 awaits!
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
� Mar. 1, 2009 - Can the First Time Homebuyer Tax Credit help with downpayment (and why it's not just for first-time homebuyers)
Lets start with the second half of the title. The "First Time Homebuyer Tax Credit" is basically an $8,000 gift from the government; but it's not just for those who have never owned a home before. Those who haven't owned a home for the three years prior to buying another will also qualify. So, if you last owned a home in June of 2006, you could buy one in July of this year and still get $8,000 (or 10% of the purchase price, whichever is less) back on your taxes. So, buying any real estate as your primary residence for $80,000 or above (before the plan expires on Dec. 1st) should make you eligible for the $8,000. Just be sure to check on all the details of qualification with your CPA. Here are a few scenarios to help explain the "Tax Credit":
Scenario 1: Your final tax liability is normally $6,000. You've had taxes withheld from every paycheck and at the end of the year you've paid Uncle Sam $6,000. Since you've already paid him all you owe, you get the entire $8,000 tax credit as a refund check.
Scenario 2: Your final tax liability is $6,000, but you've overpaid by $1,000 through your payroll witholding. Normally you would get a $1,000 refund check. In this scenario, you get $9,000, the $8,000 credit plus the $1,000 you overpaid.
Scenario 3: Your final tax liability is $6,000, but you've underpaid through your payroll witholding by $1,000. Normally, you would have to write the IRS a $1,000 check. This time, the first $1,000 of the tax credit pays your bill, and you get the remaining $7,000 as a refund.
So how does this "Tax Credit" help you with a downpayment (since you don't get the money until AFTER you've bought the home and filed your taxes)? There are some states looking into offering short-term loans (i.e. a loan until you get your tax credit) and some people are going to employers or other sources to ask for this help. However, this may prove difficult as downpayment monies are typically not allowed to be "borrowed" funds. So, I had an idea involving removing all of your payroll witholding. This would allow you to save this money each month towards your downpayment. Then, when the taxes are due, up to $8,000 would be canceled out (or able to be repaid) by the tax credit. Check with your CPA for advice before adjusting your payroll witholding, but this may be just the thing to help save that downpayment this year. Just know that if you don't buy a home before Dec. 1 (and meet all other criteria of the First Time Homebuyer Tax Credit) you'll still owe all of those taxes to Uncle Sam. Rates are low and who doesn't want an extra $8,000? So, let's get house hunting!
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity 214-789-9366 www.CaveRealty.com
� Jan. 14, 2009 - How can I afford to invest in real estate? I have kids in college!
So you have a kid or two in college (or headed there soon). Chances are that you're going to be paying for housing of some sort, tuition, books, meals, clothes, you name it... it's not cheap. Here are some ideas that may allow you to save some money, make some money, and/or add some write-offs to your tax bill all while investing in real estate. Let me preface these by saying that I'm not a CPA or a lawyer and I don't give tax or legal advice. These aren't even my ideas, but they sounded good so I thought I'd share. Please consult your own CPA, lawyer and/or tax advisor before making any moves.:
Get in-state tuition prices! If you have a son or daughter headed to a university out of state, investigate the residency requirements for the state (and university) they're headed to. Sometimes just buying an investment property a few months ahead of time may allow you to pay in-state tuition rates. Why would you want an investment property in another state? Keep reading...
Get some rental income! Besides housing for your own kid, renting a bedroom or two to friends can help defer the cost of the home and have everyone paying amounts closer to dorm or, at least, apartment rent. Afraid the roomies are not responsible enough to pay their rent? Get their Mom & Dad to co-sign their room lease (yes, you put the room lease in writing with shared use of, and responsibility for, the common areas). The parents are often paying for the housing anyway. If they won't co-sign, this may be a red-flag for this potential roomie. You might also check credit and, as with any rental, get a month's rent as a deposit.
Stop paying your kids expenses! Instead, pay your property manager a salary. While tuition is tax deductible, books, food, clothes, housing, and other expenses are usually not. However, if you pay your son or daughter a reasonable salary for keeping the house in good shape, making sure rent checks are mailed, etc. you can deduct this salary as a business expense associated with your rental property. Then, let them pay their bills from their salary!
Take business trips! Instead of visiting your kid at college, go visit your property and property manager. Instead of paying for kids to come home for the weekend to visit Mom & Dad, pay for your property manager to come meet with the boss(es). Chances are you'll talk about the property anyway, right? This may make part or all of the trip tax deductible. How much may depend on how much business you talk (and document). Just expect your property manager to always arrive bearing laundry to wash and asking for a raise...
There you have just a few ideas on how investing in real estate can be affordable, or even profitable, for those with kids in college. I have heard other ideas too, but this will get you started. Find a good real estate agent to help find a good property in a good location and the property may eventually become a profit center as your kid moves out (let's hope because they graduate) and others move in. At that point, you can hire a professional property management company to oversee the property if you choose... keeping the Mom & Dad co-sign, credit check and deposit rules in effect if you want. Or, after 4-5 years of college, you may find that you have the equity to sell and make a little money on the house... and that's not counting the tax breaks and money making/saving ideas above.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
� Dec. 16, 2008 - Waiting for Housing Prices to Bottom Out Before Buying?
The only thing the "Experts" can all agree on, when it comes to housing prices (and interest rates), is that NOBODY can predict the immediate future but they will eventually go up. You see, nobody really knows how low interest rates or prices will go, or when they will start upwards again. All that is known for sure is that Interest rates are at their lowest point in several decades (with little room to fall much further)... and housing prices, at least in Texas, weren't ever skyrocketing (they're some of the most affordable in the nation) and our local economy is still strong, so our prices have been mostly flat and there is no reason to expect them to tumble. So, the important question is, what are you waiting for? Prices and interest rates are very low (and you're supposed to "Buy Low" so that one day you can "Sell High", right?). The biggest mistake most people make in situations like this (whether the housing market or the stock market) is waiting for the "bottom" before they buy. Unfortunately, the only time the bottom can be clearly identified is after things have started upwards again (i.e. interest rates, housing prices, the stock market). At that point, much of the savings have been missed... this is when people mistakenly "Buy High". Keep these 30-year (fixed) Principal and Interest (P&I)* mortgage payments in mind each time you catch yourself thinking that you might should wait to see if we've "hit bottom" for prices and/or interest rates:
You buy a $200,000 home at 5.5% and your monthly P&I payment is just $1,135.58
If prices remain stable, but interest rates rise just 1%, that same $200,000 home (at 6.5%) is $1,264.14 (the same home costs you $128.56 more per month).
If prices take a BIG tumble (for Texas) and fall 5%, but interest rates remain stable, the house is $190,000, which, at 5.5% is $1,078.80 (the $10,000 savings only saves you $56.78 per month).
Worst case, you wait 'till you're 100% sure that interest rates and prices had hit bottom before you buy (remember, the world only knows they had bottomed out because they're going up again) and so you jump on the home for $210,000 at 6.5% and your monthly P&I payment is $1,327.34. The same home costs you almost $200 more per month!
So, the moral of the story is: Housing is on sale right now! Both pricing and mortgage interest rates are LOW and are expected to increase again (and remember, it's "Buy Low, Sell High"). Could this sale get slightly better? Perhaps... but experts agree that the sale will certainly come to an end, so don't wait until it's all over to go shopping or you'll simply get much less for your money. And ultimately, who cares if a sale gets "slightly" better, as long as you get in before the sale goes away... that's when housing prices have rebounded and interest rates are on the rise. Then you'll be sitting pretty in a home with rising equity and a low interest mortgage. Heck, you might be able to get EVEN MORE when you sell if your low interest mortgage is assumable**... but that's another article entirely.
*Note that P&I payments don't include property taxes or homeowners insurance. Your total house payment is known by the initials PITI (principal, interest, taxes and insurance). Two of those items are tax deductible and will usually save you some money on your income taxes... do you know which ones or what the decuctions mean for your wallet? Call or email me for details.
**Note that FHA loans are still assumable, but the buyer has to qualify. Call or email me for details.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
If you've ever bought a home, you might have found yourself thinking "I wonder who else has a key to this place?" Most good Real Estate Agents suggest that new owners have the locks changed. If the home was pre-owned, chances are good that SOMEone else has a key. It could be the Seller's friends, neighbors, babysitters, housekeepers, or who knows who. Even a brand new home might have had keys given to contractors or sub-contractors so they could finish up work, or to a Real Estate Agent (I've been handed keys before by Sales Reps. to go open new homes I wanted to view). Often, new homes have special "builder keys" that, once the new homeowner uses their keys, no longer work. But how can you ever be sure of this and/or sure that there aren't copies of the keys you're given after closing on a home (new or pre-owned)? Generally, you can't... so you change the locks just to be safe. Well what exactly does "changing the locks" mean?
Sometimes, pre-owned home buyers are planning on replacing the locks and associated door hardware for cosmetic reasons. Since the new locks will come with new keys, this solves the problem... but it's not the cheapest way, that's for sure. New locks and hardware will often cost hundreds of dollars. And you can plan on spending even more if you have them installed by a locksmith or contractor (i.e. if you're not going to install them yourself).
If the existing locks and hardware are acceptable to you, and you just want a new set of keys (and the assurance of knowing the old ones do not work anymore), most people will call a Locksmith to have the locks re-keyed. Generally, for a hundred bucks or so, you can get a few locks re-keyed without much hassle. If you have a good Real Estate Agent, they might know specialists who do this even cheaper because Agents, obviously, deal with this a LOT. For example, I just got an email about someone who will re-key up to six locks for just $60. So, this route (re-keying via locksmith) is certainly cheaper, and more convenient, than replacing hardware (and much more practical for new homes with nice, new locks and hardware).
For the do-it-yourselfer, you can remove the locks and take them to your local hardware store. Home Depot, for example, will re-key for just $5/lock. So, even with a doorknob lock and deadbolt on front and back doors, plus the garage, you're looking at just $25-$30. For the ultimate cheapskate (or "smart shopper" as I like to call myself), you can re-key the locks yourself with a kit. The kits can be bought in many hardware stores for $10-$20 or you can even order them online. I googled "rekey your locks" and found this: http://changealock.com/. It's good for up to 6 locks for around $15 after shipping! This is not an endorsement (as I've never used their products), but it shows (as usual) that the more you're willing to do yourself, the more you can potentially save. Just remember that if you don't "change the locks" upon move-in, you'll never know for sure who all has a key to your home.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
� Oct. 20, 2008 - Auctions, Foreclosures and Other "Deals"
A friend and business associate who is looking into real estate investing (for rentals) asked me question about homes up for auction and what I thought of them (i.e. homes with a starting bid of $50K yet an appraised value of $250K). I thought I might share my email response with the world (keep in mind real estate is local; these comments are about the DFW area/market):
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I believe that homes up for auction can be a high-risk/high-reward proposition (especially high-risk for the novice real estate investor). [I was asked about doing the inspection before bidding] Inspection rules (i.e. when they are allowed) are dependant on the auction house, so we would have to check with each one (not just on when you can inspect them, but on who pays for utility connection & service). I'm not a big fan of auctions because (in most novice investor's cases) you have to outlay money for an inspection with no guarantee of getting the home. If the inspection results show the home is horrible, like a traditional purchase, you probably don't want it and have already wasted your time and money (as is often the case with auction & floreclosed homes). If the inspection results are moderately clean, the home will probably sell at auction for much higher than you had hoped... only there is no guarantee that you'll get it (in which case, again, you wasted time and money on the inspection). Most of the hard-core investor-buyers are doing inspections themselves on these homes (costing them nothing but their time). However, I've seen it cost them plenty more as things were missed (depends how good at inspecting they are [and if they do a more formal inspetion later]). The biggest difference is when you buy a home through traditional means (i.e. not at auction), you lock the property up for very small amount (usually <$100) with a contract before you spend anything on an inspection (and the Seller turns on/pays for the utilities).
That brings up one of the things I wanted to discuss in-person, but now's as good a time as any: How much work are you two are looking for?
If the answer is "lots" (i.e. we're going to live, eat & sleep there while making most of the repairs ourselves; hiring out only the "biggies" like foundation repair & roofing) then there can be significant "Sweat equity" found in homes in need of lots of repairs (as is often the case with auction homes). However, if you plan to hire the work out, then there is generally not much (if any) equity left after the bills are paid. Of course, hard-core investor-buyers put together crews that can do the work for less (because they are going to be doing work on multiple properties for the investor). This can quickly become a full-time job though...
If you're just looking for homes in need of "a little" work (i.e. paint, carpet, a little sheet-rock, etc.) you should know that these homes tend to sell for much more. The free-market tends to adjust for condition pretty well (i.e. better conition = better price) [in a market that is flooded with more homes than DFW, you may find better prices]. Again, if you do the work yourself, you might have a little extra equity. If you hire it out, I've seen it cost more than what little extra equity was supposedly in a "deal" of a home.
In closing, I'll say that I think an auction is a fine place to find deals if you're very risk tolerant (i.e. it can be a fine place to lose your shirt; so as long as you can afford to buy more shirts and try again [you'll probably be ok]...). I prefer the more traditional method of finding a fair deal on a home that is in good condition and in an area that will rent well and provide income for years to come. The idea is to pay it off and cash-flow. I think too many people fall into the trap of looking for a "deal" only to find that the price-tag to repair it, and the time it sits vacant, cost them far more than if they just bought something that was in good shape to start (unless you're talking about fixing & flipping houses, a whole other topic). Remember, our market is not that bad here. So, there aren't tons of wonderful homes selling dirt cheap like the media might have you believe. Maybe in CA, NV or FL (where home prices were severely over-inflated before), but no so much in TX (where our prices have been stable). Typically, if a home is cheap [here in DFW], there's a reason for it... and unless our market becomes much worse, the reason is almost always the home's location or condition. Hope that helps.
--- Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
10. What might delay approval of my loan?
If you provide your lender with all of the information and documents they as for (complete and accurate), the loan process should run smoothly. They will provide this information to the underwriters who will review the information for final loan approval. If the underwriter discovers credit, debt, or income problems, or incomplete/inaccurate data, you can generally expect delays. Also, most good lenders will advise you to try not to do anything to affect you credit worthiness between the time you submit an application and the time the loan is funded. What might cause a delay (or blow up your financing all together)? Changing jobs, an increase or decrease in your salary, incurring additional debt (i.e. a new loan or line of credit), or even change marital status. Something as simple as applying for a new credit card, or even a "6 months no interest" deal on that TV you want for the new house, can really cause delays or even mess up your loan. So, be careful what you do between the time you submit an application and the time the loan is funded... and be sure you notify your lender as soon as possible if you do anything that you think could have an impact. This just might save you a last-minute delay (and headache) right before closing.
If you don't have a great Real Estate Agent who can recommend a great Mortgage Loan Officer, use the 10 questions from these ten blog articles when interviewing candidates and compare their answers. The results should help lead you toward a Mortgage Lender who knows his stuff.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
9. How long will it take to process my loan application? This answer to this question usually depends on a number of variables. When the loan business is brisk, underwriters (the people in charge of loan approvals) can get backed up, verification can take longer (for employment, financials, etc.), appraisals can move slower and other bottlenecks can develop along the loan pipeline. Lenders may say two weeks, but 30 days is a little more realistic in most cases. However, a great loan officer, affiliated with a great lender, can often push a loan through much more quickly. You'll also need their knowledge and experience to determine how long to lock in your loan for (and when the best time is to lock it). Of course, this is why I reccommend starting the approval process early (before you even start shopping for homes). Being truly pre-approved means you can offer a quicker closing to the Seller, and shorter time for financing approval, and these can be excellent barganing chips.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
8. What documents will I have to provide?
You can generally get "pre-qualified" with no documentation at all. A quick phone call to a good Mortgage Loan Officer and/or short loan application is generally all that is needed to find out how much mortgage you qualify for and what your rate might be. However, most lenders will require proof of income and assets before approving your loan (or truly "pre-approving" it), and often they may require other documents as well. I've seen them ask for everything from tax returns, to paycheck stubs and/or bank statements, to a note from your parents. Seriously, if you were gifted part of your down payment from Mom and Dad, the lender may want it in writing that it was a gift and not a loan. Turning these documents in to your lender early in the process may allow you to get pre-approved and breeze through the purchase process more quickly (and, thus, make your offers stronger as well). Note that many less-knowledgeable Mortgage Loan Officers (and Real Estate Agents) use "pre-approved" interchangeably with "pre-qualified". They are not the same thing... I have seen many people who were "pre-qualified" for a loan based on what they told the lender over the phone (or wrote on their loan application) but then failed to produce the documentation to support their claims of income and assets (so they are unable to get approved). Theoretically, if you are truly pre-approved you should fly through underwriting (final loan approval) since they have already seen and approved your supporting documentation. Don't want to dig around for all of the supporting documentation (or have a job where it's tough to document your income)? Buyers with excellent credit may qualify for a no-documentation or "no-doc" loan, but they can typically expect to pay a higher down payment and/or higher interest rate (and these loans have gotten even harder to get since the "mortgage meltdown" of late 2007). Do yourself a favor and find a great Mortgage Loan Officer, provide the requested documents, and get 100% pre-approved before you even start shopping... this can save a lot of heartaches, and headaches, when buying a home (and even put you in a better negotiating position). Of course, great Real Estate Agents usually know a few great Mortgage Loan Officers (you can bet I do) so ask for an introduction.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
7. What are the qualifying guidelines for this loan?
Qualifying guidelines/requirements can relate to your income, employment, assets, liabilities, credit history and more. First-time home buyer programs, VA loans and other government-sponsored mortgage programs (like FHA) typically offer easier qualifying guidelines than conventional loans. While many lenders just tell you if you qualify or not, you may want to ask about the qualifying guidelines (i.e. why you do/don't qualify) because what you may not qualify for today, you may tomorrow (or a month or two down the road). Truly great Mortgage Loan Officers will point you in the right direction so that, even if you don't qualify for your preferred mortgage loan today, perhaps you will qualify in the not-too-distant future. And, of course, great Real Estate Agents tend to know great Mortgage Loan Officers (I know I have my short list) so just ask...
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
6. What is the minimum down payment required for this loan? Sometimes the rate and terms of your loan will be based on your down payment, so ask what different downpayment amounts might do to change things. A typical down payment is 3 to 20 percent of the sales price. If you can put more money down, you may be able to lower your rate and improve your terms. Don't have the cash? You may be required to get mortgage insurance, but many buyers are still able to buy with very little money down with help from grants and/or downpayment assistance. For example, I just helped a Buyer close a deal with less than $1,000 out of pocket (and that included and inspection and and appraisal). They didn't have perfect credit either; so ask someone who knows the mortgage business well. Great Real Estate Agents know great Mortgage Loan Officers.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity 214-789-9366 www.CaveRealty.com
4. When can I lock the interest rate and what will it cost me to do so? Since interest rates are always in flux, the interest rate on your loan will likely fluctuate between the time you apply for a loan and closing. To prevent it from going up, you may want to lock the rate, and even points, for a specified period. Ask your lender for more details like how long you can lock for and if lock fees apply. Also, find out what the experts are expecting rates to do, check out a Rate Trend Index.
5. Is there a prepayment penalty on this loan? There may be a prepayment penalty on your loan, meaning you cannot pay-off the mortgage without paying a penalty. This is important as it can hamper your attempt at the sale or refinance of your home. Some penalties are 1 percent of the loan amount, others are equal to six months' interest, some apply only when you refinance or reduce the principal balance by more than 20 percent, and some kick in if you sell your home. Find out the duration of any penalty period and how the penalty is calculated. Some lenders offer lower interest rates to buyers who accept prepayment penalties... just be sure you think through the positive and negative consequences before signing for a loan with a prepayment penalty.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity 214-789-9366 www.CaveRealty.com
2. How many discount and origination points will I pay?
Lenders may charge prepaid mortgage interest points to lower your interest rate or other points that have no benefit to you at all. Find out how many you'll be expected to pay and which kind of points they will be. Origination points are typically how mortgage companies and loan officers earn a living, and one origination point is fine if your getting a fair market rate. Often, lenders will "waive" the origination point to "save you money" (and/or make your closing costs lower), but they have to make a living... so they usually cannot give you the best rate in these cases. Increasing their margin (i.e. bumping your rate slightly) is another way for them to make their living. It's not a crime for them to make a living, just try to make sure you're not paying multiple origination points or paying one origination point AND getting a slightly higher than normal rate.
3. What are the closing costs?
Mortgages come with fees for various services provided by lenders and other parties involved in the transaction (i.e. title company, attorneys, county court house, etc.). You want to know what those fees will be as early as possible to plan ahead. Lenders are required to provide a written good faith estimate (a.k.a. "GFE") of closing costs within three days of receiving a loan application, but just ask for one and they can provide it almost any time (even a preliminary one before application, though it will pertain to your situation more after you have completed an app.). Ultimately, you can compare loans and lenders by comparing GFEs. Just make sure that you are not comparing apples to oranges (i.e. you can't compare the closing costs of a 30 year fixed mortgage with 5% down, to a 20 year fixed, 10% down, or 5 year ARM, etc.). A good REALTOR® can help make sure that you are comparing apples to apples, that lenders/Loan Officers aren't leaving out anything important, and help you differentiate between non-lender fees (such as a recording fee for your deed) and those that are unique to a given lender (like their origination or attorney fees). The differentiation of fees is particularly important as two comparative GFEs should have all non-lender fees equal to truly compare the difference in closing costs from one lender to the next.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity 214-789-9366 www.CaveRealty.com
� Mar. 26, 2008 - 10 Critical Mortgage Questions (#1)
This will begin a series of ten critical questions to ask when you are shopping for a mortgage. Just like a great REALTOR® can make all the difference in the world when it comes to finding, negotiating and closing on the home of your dreams, so to can a great lender/Loan Officer… and great REALTORS® usually know great lenders and Loan Officers.
1. What is the interest rate on this mortgage?
To help determine exactly what you'll pay over the term of the loan, you need to know the rate. Rates change quickly (sometimes hourly) but new rates are generally published twice a day. So, you can't call one lender today and another next week, and really compare apples to apples when it comes to rates. Also, if your credit is less than perfect, you may not be offered the lowest rate available. Interest rates are based on credit scores, as credit scores generally indicate a person’s ability to make good on their financial promises.
To effectively compare different lenders' programs, ask for the annual percentage rate (APR) of the mortgage interest, as well as an itemized breakdown of rates, points and fees (called a GFE... we'll discuss this in another question in this series). Note that the APR is generally higher than the initial quoted rate because it includes some of these fees. But beware: the APR found in advertisements can be misleading. Mortgage lenders don't always include all the fees they charge in the calculation that determines APR, so customers who use that figure to shop without also having an itemized breakdown of rates, points and fees may end up comparing apples to oranges.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity 214-789-9366 www.CaveRealty.com
For the last several years in Texas, home Buyers have been re-using surveys. That is to say, Buyers have accepted the Seller's property survey (which may even be from a previous Seller). Typically, this is done to save the cost of a new survey... which usually cost around $400 for a "normal" lot in a subdivision (i.e. could be more for acreage). However, when you're spending hundreds of thousands of dollars on a home, do you really want to scrimp on $400? No, and here's why...
A survey is how you can tell where your property boundaries, easements, and more items lie. More importantly, it's a tool you can use should a dispute over such items ever arise. For example, if a neighbor says that your fence, deck or even part of your home is on their property, it's hard to argue when you're using a survey that was done ages ago for a previous owners (and not you). And should you then decide to buy a new survey, only to find out that they are correct (oops), it's even harder to hold anyone accountable. You're certainly not going to be able to get any action from the surveyor if there were errors. Most surveys are copyrighted or protected and not (technically) allowed to be copied or transfered to new owners. So, you can't even really go after the old surveyor in court... that would be like trying to sue the manufacturer of the car that you stole from the dealer's lot. Be safe and get your own survey, or don't complain when you find out that part of your pool is in a utility easement and the power company can lawfully tear it up without repair. A new survey will show you the most up-to-date boundary lines, easements and more... and give you someone to hold accountable should they turn out to be incorrect.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity 214-789-9366 www.CaveRealty.com
There are many reasons why people get behind in their mortgage payments. Some of the most common have always included the loss of a job, bills associated with severe illness or injury, the death of a spouse or divorce. However, more recently we have seen a growing number of homeowners missing payments due to their adjustable rate mortgages (ARMs) simply doing what they should have been expected to to: adjusting. If these homeowners were properly educated during the buying process, and had good representation from a caring, professional Real Estate Agent and/or Mortgage Loan Officer, many would not have financed with ARMs in the first place... and of those that did, most would not be in a financial bind as they would have known what to expect. In actuality, many Americans bought homes with ARMs because these were the only loans that would allow them to qualify to purchase a home in the price range in which they were looking. In other words, in the last several years ARMs allowed many people to buy homes that they really couldn't afford with "normal" fixed loan rates. So, can you guess what happened when those ARMs started adjusting to rates at or above the fixed rates?
The idea of an ARM is simple enough. Your mortgage interest rate is fixed for a set period of time (i.e. one year, six months, five years, three years, etc.). This "introductory rate" (or "teaser rate") is typically nice and low and expected to adjust, often upwards (unless mortgage rates are unusually high to begin with), hence the name "Adjustable Rate Mortgage". So, after the introductory period, the rate adjusts based on the terms of your ARM. How often it adjusts, and how much, are all determined by the terms of your loan/ARM and, typically, tied to an index like the LIBOR. The Federal Reserve has compiled good info. on ARMs here. There is nothing wrong with an ARM, as long as you know what you're getting into. For someone who wants a lower payment initially, but fully expects to be able to afford the home, even after adjustment, ARMs can work well. Situations calling for ARMs might include someone who plans to sell or refinance in just a few years, or a couple with one spouse raising the kids for the next few years then going back to work. However, things change and you really need to be able to afford the adjusted payment in case you can't refinance or sell (or that spouse can't find work).
The only real problem with ARMs was that, for the past several years, mortgage lenders were qualifying people based on the introductory rate, not what the rate would be after the loan started adjusting. Combine that with the housing boom in this country which saw a surge of new, uneducated/inexperienced Loan Officers and Real Estate Agents. Many of these newbies (and some not-so-new predators) only saw $$$ and didn't look out for what was best for their clients. That has since changed as lenders have been forced to qualify buyers on the ARMs post-adjustment rate and as home buyers, Real Estate Agents and Mortgage Loan Officers have become more educated about ARMs. A side note: hundreds of thousands of Real Estate Agents and Mortgage Loan Officers are predicted to leave the business this year. The exodus began as soon as as the red-hot housing market started to cool off. Back to our topic at hand though: ARMs still have their place, and can still prove valuable for some Buyers. Thankfully, gone are the days of unscrupulous salespeople just barely squeezing someone (financially) into a home with no regard for what would happen once their Adjustable Rate Mortgage started adjusting. Of course, life is cyclical and those days will certainly return for a whole new group of buyers. You can probably expect this in a decade or two, once the housing market is again flying too high and lending practices are again too relaxed.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
� Jan. 29, 2008 - WI4C2TS - Who's Behind Your Real Estate Agent?
How much do you know about the company behind your Real Estate Agent? Generally speaking, Agents are independent contractors and you're really just hiring them, not their company (right?). Well, early in my real estate career I learned that the company behind the agent has a lot to do with their training, attitude and even their integrity. Plus, should you ever have a problem with the Agent you've hired, you may be turning to his or her office to get things set right. You see, technically, when you hired your agent you actually hired their broker... though you'll probably never be aware of this unless something goes wrong (and then it's too late). That's one of the reasons I chose to join Keller Williams Realty. From the company's beginning they chose to encourage a positive culture of integrity and honesty that today permeates most Keller Williams offices and agents. I could feel it in the air when I visited my office for the first time (versus several other firms I visited that just didn't have it... the culture). That positive culture fit right in with my business and personal beliefs and it can be summed up with the company-wide acronym WI4C2TS (pronounced "Why-Four-See-Two-Teas"). These initials stand for:
Win-Win - Or no deal Integrity - Do the right thing Customers - Always come first Commitment - In all things Communication - Seek first to understand Creativity - Ideas before results Teamwork - Together everyone achieves more Trust - Begins with honesty Successs - Results through people
If you read the brief paragraph about my business and personal beliefs it's pretty easy to see why I not only found Keller Williams a perfect fit, but why I have prospered in their environment. While the real estate world can be rough and full of questionable business people and practices, it's nice to work in a place full of positive, ethical people that are committed to doing the right thing. I can't speak to every agent and every office, but every Keller Williams class or event that I've been to, and every KW training material that I've ever read, has been right in line with WI4C2TS... and THAT's the kind of company you want behind your Real Estate Agent.
Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366 www.CaveRealty.com
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