The answer is maybe the deal will be a good buy and then again, maybe not.  Here’s the reason why I say this.  If a property is being sold as a Short Sale it means that the loan on the property is for more money than the property can be sold for.  There is a shortage of funds due the lender.  Sometimes a lender will forgive this amount and sometimes it will not.  If the amount is forgiven it may not be a win for the seller because they may have to show this amount “forgiven” as income in their taxes the following year.  It must be shown as income because it was money that was owed by the seller through a note to buy the property, but not paid back to the lender and the IRS looks at this as money in your pocket even though you never see the money.  Update:  The IRS has put a hiatus on the tax due for a short sale in order to assist sellers.  This may not last forever but it is helping them today.

A Short Sale may save the home owner from going into foreclosure but there are potentially major tax consequences in doing one.  If you are a buyer looking for a deal is this the way to find one?  Maybe if the price being asked for the property is  where it should be in the market.  If the seller is trying to break even, pay off his loan, pay the commissions to the Realtors involved in the transaction, and then move on the price might be “at market”.  But if the market today says the property is over priced, it sits and sits and sits.  Sometimes we see these properties have been listed for hundreds of days and with no appreciable price reduction.  If the seller is truly anxious to sell, they aren’t reducing the price right way unless they are working with an agent who is specifically trained in foreclosure and short sale, like Alex, a CDPE.  If you need to sell you need to price aggressively and be willing to take the hit in order to get out from under.

Selling a home prior to it going into foreclosure when it is worth more than the loans on it involves a lot of steps and isn’t easy to do.  One has to swallow their pride and talk to the lender about their situation, follow every step the lender requires and price the home aggressively in order to sell it.  Many people do the first part but forget to do the latter part, the price aggressively part. You need an attorney and accountant as a part of your team.  You must follow every step you are told to or you’ll find a foreclosure on your credit record and that’s a 5 year hit.  A short sale is only a maximum of a 2 year hit and sometimes even less than that.  Think about it, which would you rather have on your credit report?  Your FICO score drops about 50 points with a Short Sale and 150+ with a foreclosure.

Buying a property during a Short Sale could also mean that you also buy past-due taxes owed by the seller and any other liens that might be placed on the property such as homeowner association fees that are past due.  In effect, you get it all — the good, the bad, and the ugly.

Around San Mateo County, for some reason we haven’t been seeing a lot of aggressively priced listings so these short sales sit and sit. We know there are a great number of homes close to default and these homes should be put on the market but when is the $64,000 question.  People are afraid to face the inevitable and unfortunately it’s often human nature not to do what is necessary before it becomes a panic.  A CDPE Realtor, like Alex Wilkas, can help facilitate the many steps necessary to price a home and get it sold.

Truthfully there is about a year’s gap between a buyer and a seller’s understanding on what’s happening in the real estate today.  Buyers are always ahead of the curve because they are out there looking at property a lot and they begin to see the pricing trends way before sellers do.  Sellers only see what their neighbor sold their home for and they want to sell for that same amount, or more and what the news is telling them.  They’re looking in the past not in the future, or even at today.  That past could be six months ago or longer.  They don’t understand what is happening to the market today unless they are actively out there looking to buy, and when they do figure it out they may find their mortgage is for more money than they could sell their home for today.  They are then  “underwater” because they owe the bank more than what their home is currently worth.  Is this bad?  Yes if you can’t afford the payments and can’t refinance to bring them down to where you can afford them.  It’s not bad if you went into your home with a fixed rate loan and you don’t plan on moving any time soon.  You keep on making those payments and hopefully by the time you are ready to sell your equity has moved back into a positive position.

The biggest issue in looking at buying a short sale is understanding that you may not get the property you place an offer on and the reason is complex.  Generally most lenders are huge operations with thousands of loans in their portfolios.  If some of those properties are “underwater” the lender isn’t concerned about this as long as the payments are current.  They do become concerned when the homeowner stops making those payments.  After several months the lender issues a Notice of Default to the owner and tells them they have a certain period of time to pay up what is owed or the property will be foreclosed upon.  How long this takes depends on the lender.  It is during this period of Notice of Default that one begins to see a home listed as a Short Sale.

The banks generally have several departments that handle these properties and if after a length of time the home has not been sold, it is bundled up along with hundreds of other properties and placed on a Notice of Trustee Sale notice where these properties are auctioned off, and yes it happens on the steps of the San Mateo County Court House in Redwood City.

You might be in escrow to buy one of these properties, but only one half of the bank knows this and if the other half decides to sell the place off and the Notice of Trustee Sale takes place, you lose your prospective home.  You do not lose your deposits but you have, in effect, wasted a lot of time trying to buy something at what you hoped was under market.  If you are willing to wait it out, and if the house you hope to buy doesn’t have a lot of mortgages against it, you will get a great buy.  Patience is a virtue and this is one you want to make sure you have.

The United States Government is trying to make the lending industry more honest and transparent in everything they are doing. In doing so, you need to become aware of some new guidelines for lending that may impact your closing date, and possibly not in a good way.  This new guideline is called the HERA Mortgage Disclosure Act.

What is the HERA Mortgage Disclosure Act and how will it help me?

We’ve been seeing many new government laws and other changes occurring in the mortgage industry of late, to help ensure that the home financing process is transparent and understandable to all customers.  Compliance with these new requirements is mandatory for all mortgage lenders and mortgage brokers.  The goals are to help prevent deceptive lending practices and to make sure that you, the borrower, are provided with the details and the time you need to make a more informed decision about the home financing product you choose.

The details that guide loan processing timelines have changed

Historically, the closing dates on the contract determined the financing timeline, but, not any longer.  From now on, both the consumers who are obtaining a new mortgage and their Realtors now need to take into account some new mandatory timelines that may impact the processing of the mortgage application.

These new guidelines went into effect yesterday, July 30, 2009, and include the following new requirements:

• When loan closings can be scheduled
• When new Truth in Lending disclosures need to be provided to a consumer
• What counts as a “business day”
• When fees can be collected from the borrower

It is now critical that you and your Realtor consult your lender first about potential closing dates for the contract in order to set expectations for everyone involved in the agreement – that means the buyer, the seller, the lender and both Realtors representing the buyer and the seller.  The minimum amount of time we need to plan on to complete the loan process is at least 30 days from our initial application.

What can affect the loan timeline?

A change in any of the following during the loan process could impact your Annual Percentage Rate (APR) and therefore impact your closing date:

• Change in the mortgage product (no more shopping rates after the contract has been ratified)
• Change in the closing or signing date (addendums have often change closing dates before, now we can’t do it)
• Change in the loan amount
• Unlocked rates
• Change in fees by third parties – such as settlement agents

The interest rate on your loan impacts the APR.  This means that until you lock in your rate, an exact APR cannot be determined.

What can you do to help keep the process on tract?

First and foremost, you must review the timeline and potential impacts with your mortgage professional upfront, and then throughout the entire loan process.  You can keep your Realtor in the loop and informed about everything during the escrow process.

Plan on at least 30 days to complete the loan process.  This is over and above the application phase, and after the contract has been ratified.  Therefore, it is a good idea to ask for at least a 45 day closing rather than the old norm of 30 days.

Obtain a credit-checked pre-approval before you start to shop for a loan. This is why I never work with a client who has not been pre-approved before we go out.  You know what you can afford, and I know what I can show you that you can afford.  No one is spinning their wheels in the process.

Review the initial disclosures you receive from your lender.  These initial disclosures include the Truth in Lending (TIL) which discloses in writing the terms and conditions of a mortgage, including the APR and other charges, so that you are clear about all of the details of the loan before moving forward.  If you do not understand something, ask for an explanation and keep asking until you do understand it. Don’t be embarrassed to ask questions as you’re not a lender and do not deal with these things on a daily basis.  It can become quite confusing so ask, ask, ask.

We are here to make sure your purchase is a smooth one and there are never any dumb questions in real estate.  Our job as your Realtor and that of your lender, is to educate you through the process.

When a lender evaluates a loan application, a process called underwriting, they try to evaluate the ability and willingness of the potential borrower to repay the loan. The application the borrower fills out is sent to an underwriter, who is a real person and not a computer program. The underwriter then  judges the borrowers ability to repay by reviewing the income and stability of past earnings. This practice helps the lender to determine if the borrower can afford the loan payments. The review of past credit history is used to judge the willingness of the borrower to repay the loan. This is the reason you are required to produce so many documents to substantiate your income when you’re filling out the loan application.

Lenders want this evaluation to be as accurate, objective and consistent as possible.  To help achieve this goal, home mortgage lenders use credit scores to assist in the underwriting process. Credit scores are numerical values that rank individuals according to their credit history at a given point in time. A credit score is based on past payment history, the amount of available credit, and other factors. According to Fannie Mae and Freddie Mac, two largest investors in mortgage loans today, credit scores have proven to be very good predictors of whether a borrower will repay his or her loan.

Credit scores are just one of many factors considered in the underwriting process. A lender will review all of the components that make up the financial situation of each borrower. Even when a credit score is low, there are other factors that could overcome the negative credit issues and satisfy other underwriting criteria.  Today, FHA loans are filling the bill for people with low credit scores, less than 20% for a down payment or perhaps other reasons that make this loan enticing since it only requires 3.5% for the down payment.

What is a FICO Score?

“FICO” scores are a type of credit score developed by Fair Isaac & Company. FICO scores use credit bureau information to obtain a score which indicates how likely someone is to pay their loan payments on time. FICO scores range from approximately 350 to 900. The higher the score is the lower the probability of default on the loan.

How Can Credit Scores Affect the Price of the Loan?

Just as credit scores are one factor in determining loan qualification, they may also be a factor in determining the price of the loan. The price of a loan means the interest rate and the points charged by the lender. The price charged for a loan will be higher or lower depending on various factors.

Credit scores are used in determining the price of a loan because they are believed to be good predictors of a borrowers ability, and willingness, to repay the loan. Because of this, applicants with lower credit scores will pay higher prices for their loans because of the higher risk of default and loss on the loan. Many home loans are sold to investors, and investors will pay a more favorable price for loans they feel have a low risk of default.

There are lots of other factors relating to an individual borrowers situation that may also affect the price of a loan, often even more than credit scores. These include the type of property securing the loan, the amount of the borrowers equity in the property (meaning your down payment), the value of the property compared to property value in the area, the lenders cost to make the loan and the type of loan selected. For example, a loan secured by a single family residence will have a lower price than a loan secured by a condominium because condominiums are more difficult to sell than single family houses.  Likewise, the price of a loan for which the borrower has made a 20% down payment may be less than a loan for which the borrower has made a 3.5% down payment because the first borrower has more equity in the property and, thus, a greater incentive to make the payments of the loan.

Here’s the scoop. What the Fed just announced is huge – they have committed to buy another $750B in Mortgage Backed Securities, and $300B in Treasuries.

But what does this mean and why do you care?

Their actions provide a demand for Mortgage Backed Securities, which should help keep a ceiling on home loan rates moving much higher in the foreseeable future. That’s good news, for homebuyers who are seeing the bargains out there and understanding that now is the time to act. Good news for those who are ready to refinance too.

But an important distinction – this does not mean rates may move significantly lower. Depending on exactly which coupons the Fed purchases when they go shopping for Mortgage Backed Securities, their actions may keep a lid on rates, but not push them very much lower. And based on what they’ve been buying since the beginning of this year when they started their purchasing program – that is exactly how it has played out.

Present home loan rates are within inches of historic lows. What is keeping you on the sidelines from acting now to refinance and get some dollars back into your own pocket, where they belong – or moving forward to buy the home of your dreams, while it is still on sale?

If you have questions – call me. You know there’s no pressure, but let’s discuss options and see if there is something we should be looking at to improve your situation.

Lilyette Uriarte
Certified Mortgage Planning Specialist ®
Bankers Preferred
1819 Trousdale Drive
Burlingame, CA  94010
Cell: 650-303-9779
Office: 650-227-1018 x. 325
E-fax: 650-227-2341

Prices were trending downward last week.  So are the number of days it’s taking to sell and the total number of homes for sale.  We will have to wait and see if this becomes a long term trend.  There is a misconception that there is no money to lend for homes around the Median Price in Burlingame, but guess what, that isn’t so.  Wells Fargo is lending jumbo-jumbo loans up to $3 million if you put at least 20% down and have a 720 FICO.  So, what’s holding you back?

Looking at the Median Price trends over the past 4 years you can clearly see prices are remaining down in comparison to the peak in 2006.  It had to happen folks.  Prices were just unsustainable and had to come down, and so they have.  

Our research company, Altos Research, divides real estate markets into quartiles by high, mid-high, mid-low, and low.  In Burlingame the bottom Quartile has shown the most activity with the average number of Days on the Market a little over 2-1/2 months in comparison to the higher priced Quartiles, with Days on the Market over 3 months.  Obviously there is a vast difference between Quartile One’s median house and Quartile Four’s median house.  But all of them sit in Burlingame and as an owner one gets the Burlingame Elementary School District and Burlingame High School for public schools.  The elementary district has great schools and BHS is one of the better high schools in the San Mateo High School District.

Burlingame is considered a Cold! Buyer’s Market sitting solidly below the red line that divides the Altos chart above.  It’s easy to see we’ve been slogging along the bottom of the market for a very long time.  Will things go further south?  I sure don’t think so.  The Fed has done a good job of getting the banks to remember that their business is to lend money and the banks are doing just that right on our Peninsula.

This is a fantastic time to buy a home in Burlingame.  It’s a beautiful city close to SFO, San Francisco, Silicon Valley and Bio-Tech centers along the County.  We’d love to show you one of those 63 houses for sale.  We have a fantastic lender at Wells Fargo to refer you to so you can see if you, too, qualify for the loans they have.  Give us a call at 650-696-2820 or send an email.  We are here to help you make your real estate dreams a reality and now is a great time to begin doing just that.

• How much can I afford?
• Where will the down payment come from?
• How much will I need and where can I find the best loan?
• How do I begin the look for a home, what should I expect from my real estate agent and what type of home is right for me?

These questions are just the beginning. Buying a home is one of the largest financial transactions in ones lifetime, yet most people know very little about it. When embarking on the path to home ownership here are two very important points to remember:

• You can and should understand everything that is happening in the home buying process, and as your Realtor, it is our job to educate you along the path to purchase.
• You will need to learn some new terms, apply some new concepts, and take the time to learn about purchasing a home

Always remember that you are the most important person throughout the entire real estate process. It is easy to think that many others may have more expertise or clout, but the truth is that you, the buyer, are the one person in this transaction that makes it all happen. If you decide not to buy, the entire process comes to a complete stop.

If you plan from the beginning to approach the home buying process intelligently and with confidence, you are much more likely to buy the home youve always wanted, and have the confidence that the best decisions were made.

Steps To Buying A Home

1. Make a decision to rent or buy.
2. Figure out how much you can afford.
3. Find the right real estate agent the Wilkas Group, of course!
4. Get pre-approved.  This is the most important step to home buying.
5. Decide what kind of home you want.
6. Find the right neighborhood.
7. Begin the home search.
8. Preview the homes.
9. Make an offer.
10. Apply for a mortgage.
11. Have the inspections conducted.
12. Close the transaction.
13. Move into your new home.

How can one estimate how much of a monthly mortgage payment they can afford? It’s really not hard if you
use my calculation table below.  This is a great exercise to take yourself through before meeting with a lender so you have a pretty good idea of where you stand financially.  Along with this exercise and your FICO numbers you’ll be prepared for a reality check on rates.  Remember the higher your FICO the lower your interest rate.  Go get your pencil and begin!

First, calculate your monthly household income, including that of your co-borrower, if you have one. In addition to regular wages, don’t forget to include overtime, bonuses, commissions, dividends/interest, alimony/child support and any other income.

A. Your Maximum Allowable Housing Expense:
After you total your gross monthly income, multiply it by 28 percent to get your maximum allowable
housing expense.
1. Gross Monthly Income  $  .
2. Multiply By 28%   x  28%
3. Your Maximum Allowable Monthly Housing Expense  $ .

B. Your Debt:
Now, determine your debt. Credit cards, car payments, student loans, alimony or child support should be
included here, as should any debt incurred by your co-borrower, if you have one.
1. Installment and revolving debts (credit cards)    $
2. Car Loans    $ .
3. Student Loans    $ .
4. Alimony/Child Support    $ .
5. Other Long-Term Monthly Debts    $ .

Total Debt $ .

Now that you know this number, what can you afford relative to your overall debt?
Most lenders generally will allow you to allocate up to 36 percent of your household income to overall debt, although some lenders will allow you to go up to 40 percent under the right circumstances, including a
larger down payment. You can calculate your maximum allowable combined housing and monthly debt in the space below:
1. Your Total Gross Monthly Income    $ .
2. Multiply By 36%         x  36%
3. Your Maximum Allowable Combined Housing and Monthly Debt    $ .

This is a time to be brutally honest because you future lender will become intimately aware of all of your finances.  Bring this along to your appointment and see how he/she comes up with their numbers,
just for fun.

Danger!

If you are fairly new to buying and selling real estate, meaning you
entered the real estate market this decade, you are probably unfamiliar
with the term Points.  Points are unique to our country, no where
else in the world is the buyer offered the opportunity to buy down
their interest rate.  But in the USA, our banking institutions are
always trying to figure out ways to make more money on us, and points
is one way to do it.  Oops, do I sound cynical?  Perhaps I
am.

What are Points?
They are fees a borrower pays to the lender to get a lower interest rate.  The good news is they are tax deductible.  The bad news is they are up front fees you must pay in cash, should you want to “buy down your loan”.

Is this something you should do?
It depends on many things, but is whether you plan to be living in your new home for a while. Now I know
it is something hard to know that when you buy a house, but try to  project what your life will be like in the next 5 years and if you think you might still be living in the house then it might be worth
considering.

Why are there so many combinations of points?
There is a menu of options for prime buyers, those with cash in the bank.  If you only have enough cash
to bring to the closing and then the coffers are bare, points aren’t an option for you.  If you have money in the bank, and it won’t all go to the escrow office in order to close that escrow, then ask about the menu of points available.  Once you see what the banks offer you can decide if it’s worth taking the cash out before the purchase or using that cash for other things.

The payment of points is like an investment in your future.
If you will be living in your new home for many years to come you will save on the interest rate of your loan
and because of this savings you should consider this an investment in your future.  It only works if you stay put and keep that loan for a lengthy period of time.  If you decide to refinance in the future, the savings you thought you were getting will evaporate.

We are in an interesting time for mortgage ending.  Take your time and evaluate everything your lender provides you.  If you want to see what your rate of return might be check this calculator out and then decide what is best for you.  The pressure of multiple offers is generally over today so you can stop, think and evaluate.

Sold!

Today is Friday and the end of another work week.  This weekend will find Open Houses waiting for you to visit and hopefully you will want to buy one for your family.  With everything that has gone on in the lending world lately, you may be asking yourself, “Can I buy a home now?  Is
there any money out there to lend to me? ” Can I afford to live in San
Mateo County?

I’ve got good news for you.  The short answer is “YES!”.

1. Yes, if you have money to put down.
2. Yes, if you have good credit.
3. Yes, if your FICO score is above 700.
4. Yes, if you are willing to go through an amazing detailed look at your finances by your future lender, their underwriter and anyone else who needs to justify
   that loan.
5. Yes, if you go to the Bank of America.
6. Yes, if you have a good Loan Broker.
7. And, Yes if you take your time and have already sold your first house and are ready to move.

The good news is that the Bank of America can even move on a loan in as short a period of time as three days!

Call Us

Get out there this weekend and go through those Open Houses.  Your new home is waiting for you.  I am here to help you buy it.  All you have to do is call me.  650-696-2820.  Yes, Yes, Yes!

Bouncing lenders

If you have a loan from one of the many companies that have declared bankruptcy this past month is theresomething you should worry about?  The short answer is NO.

The problems we are seeing right now are due to Wall Street buying up loans that were packaged for resale and sold off across the world.  These loans, the good ones and the bad ones, were packaged off as soon as they were made and the monthly payment you make has nothing to do with them.  Someone services your loan and you receive the monthly statement or coupon to pay your payment to that service company.  If the original lender is no longer alive, it will not affect you or your current mortgage.
Part of the problem with the mortgage industry right now is the way business has been conducted.  Very few lenders hold their own loans once they have been made.  Most of them have been selling them off to the Secondary Market (Wall Street) and that is one reason for this mess we are in. The market is in a huge flux right now.

If you are looking to buy a home right now, be sure you are Pre-Approved and have had your lender put you through the Underwriting Process to guarantee your pre-approval.  If this has been done, and it will take extra time to accomplish this, you will have no problems buying a house today.

Should the lender you are using go under, you can move to a major bank and continue the process, even if you are under contract for a home.  Both Realtors serving the purchase and sale will be very helpful to you in getting to a secure lender.