Buying a home in 2009/2010

Things sure are different than they were just a few years ago. All you hear about now are foreclosures, hud homes, Fannie Mae and Freddie Mac, short-sales, etc.

If you’re planning on buying a home today, you need to do some homework first.

Most all sellers will require seeing a preapproval letter from a lender if you’re planning on getting financing or proof of funds if you’re going to be offering cash. Contact your favorite local lender and ask them for a preapproval. Make sure you get a preapproval and not a prequalification. There is a difference!

Be sure your loan type you get preapproved for will work with properties you may be interested in. If you’re going to be searching for a home in the middle of Rogers, Springdale or Fayetteville, a USDA-RD loan won’t work. If you’re wanting to buy a fixer-upper, not only won’t RD won’t work, neither will FHA or VA. You’ll need a conventional loan type. Visit with your lender about down payment requirements too.

Be prepared with some ready cash. Most sellers will want to see at least $1000 earnest money tendered with offers. If the offer isn’t accepted, the money never changes hands. If it is accepted, the earnest money will go towards the purchase at closing. The days of purchasing a home and not having any money in the bank are long gone folks.

There must be some late night talk show or infomercial out there that is telling people they can purchase foreclosed homes for pennies on the dollar amount they are listed for. I hate to tell you this, but that is simply not true. Sellers are savvy about what their homes are worth and typically properties sell for within 5% of their offering price.

There are a million other things to know about buying a home today. A good lender and a good Realtor will help you with your preparation. Don’t expect realtors to jump in the car and show you homes without your having done your preparation.

Most of us will be glad to meet with you in our offices to help you with your preparation. Once you’re armed and dangerous with your preparations, we’ll head off into the wild blue yonder of home viewing.

HVCC and HERA Changes

The rules, they change daily.  Hat-tip to “Lending Group” for this summary of recent changes.

 

Recent Federal legislation can impact your closing date. When completing your Purchase Agreement, even if you are prepared to move forward and close quickly, a more conservative timeframe of at least 30-45 days from the time of the contract acceptance would be a more realistic expectation at this time.

Listed below is information on two pieces of legislation that stand to impact your closing date, and a few bullet points that explain the reasoning behind and effects of each measure.

HVCC: Home Valuation Code of Conduct
HVCC was designed to ensure that appraisals are conducted objectively and without pressure from parties with an interest in the transaction. Under HVCC:

• The appraisal and selection of the appraiser will be ordered by someone not directly involved in the origination of the mortgage. This could be either someone else within the mortgage company or a third-party appraisal management company.
• A copy of the appraisal must be provided to the homebuyer/borrower no less than three days before closing.
• The minimum time expectations for receipt of the appraisal should be a few weeks and not days. (While receipt of the appraisal may be received in shorter timeframes, conservative expectations are warranted.)
• Communication between the appraiser and the originating mortgage professional is prohibited. It is imperative that the agents involved in the transaction be prepared at the time of inspection to offer supporting value information if warranted.

HERA: Housing and Economic Recovery Act
HERA was designed to ensure that the borrower(s) involved in the transaction are given accurate disclosure information (Truth in Lending Statement pertaining to Annual Percentage Rate or APR) regarding the loan they are applying for and adequate time to re-evaluate their decision to proceed in the event of any changes that would impact their costs to finance. Under HERA:

• No fees may be collected for the transaction other than those for running a credit report at the initial time of application. Additional fees may be collected only after four business days.
• Should the APR change by more than .125% on a fixed rate loan or .250% on an adjustable rate loan, the lender must disclose the new APR and the borrower must have a minimum of three business days to review the information before the transaction may proceed.
• Items that can trigger re-disclosure requirements include a change(s) in the loan amount, closing date, loan program, any fees that impact the APR or interest rate from the rate indicated on the original loan application.
• In cases where documents are sent by mail to the borrower related to re-disclosure of APR and/or providing a copy of the appraisal, anticipate six business days (three to allow for mailing and three to allow adequate time to review them) before a closing can occur.

New Fannie Mae Rules – Just out!

Programs that use public funds to purchase REO properties promote neighborhood stabilization and can be an effective way of helping qualified homebuyers into a home. There is increasing interest in the use of these funds for the purchase of Fannie Mae REO so it is critical that these sales are handled appropriately.

 Fannie Mae supports these programs and, to ensure these types of sales are consistent and transparent, is clarifying its policies and processes.

 Pay particular attention to the following two changes:

• During the first 15 days any Fannie Mae REO property is listed in the MLS, only offers from owner occupants or public entities (and their designated partners) will be considered. This is true for all Fannie Mae REO. For more information on this change, read through the “First Look Initiative” section of the attached document.
• Offers that use funds from the Neighborhood Stabilization Program (NSP) (either a public entity, their designated partners or an owner occupant using NSP funds) require special handling, including supplemental verbiage in section 38 of the purchase addendum.

Investors will have to wait until after the property has been in the MLS 15 days in order to make offers…………

‘Armed, Educated, and Dangerous’

I got a call from a man last night – he was in front of one of my listings and wanted to see it RIGHT THEN.  If you’ll remember my last post, I did a bit of a rant on being ‘armed and dangerous.’ 

Little did I know just how appropriate that phrase really was.

When I asked the man if he was prepared to purchase a home, meaning did he have proof of funds if he wanted to pay cash or a preapproval letter from a lender if he was going to be financing the purchase, his response was “Yes – I’ve been to XXXX Bank and they have approved me for $X amount.”

Wow – I was not only shocked, I was pleasantly surprised.  He was preapproved, AND he was preapproved for approximately 30% more than the price of the home he was calling about!  I congratulated the man for being a prepared person and getting the loan preapproval prior to searching for a home.

I asked the man on the phone what loan type he was preapproved for.  His lender didn’t even explain to him that there were differences.  He didn’t know.  After asking a few questions and finding out what the lender had told him he would need for a down payment, I narrowed it down to FHA was his type.  Imagine his disdain and anger at me when I told him his loan wasn’t appropriate for this home.  The seller won’t even consider any offers with standard FHA financing.

Mr. and Mrs. Lenders – PLEASE – explain to your customers/clients what limitations their loans may have on the homes they will be looking to purchase. 

Remember, I’m the listing agent on this home - I’m aware of it’s…..limitations……meaning, I’m aware of some of the things it needs in order to be financed.  What most people don’t realize, just like different clothes fit different sizes, different loans fit different properties.

An FHA loan is like a speedo.  When worn by the correct body, meaning lean, muscular, and no flab, it works really well.  When worn by someone like me, it just doesn’t work–meaning I have too many things to fix in order for it to be appropriate.

Houses are the same way.  FHA, VA, and USDA-Rural Development loans all fit properties that don’t really need a lot of work….they might need a few small things.  For a home that needs more than a few small things, you’re going to need a conventional loan – and if it needs a LOT of things, you may need a lender to do an “in-house” type of loan.

This property has some……well, issues.  The floors are uneven, it has single pane windows with storm windows over them, it has damaged soffits and fascias, there are no interior doors as well as only a few door frames left.  This home won’t go FHA, VA, or USDA RD.

FHA does have a special program called FHA 203K rehabilitation loan.  It can be used to purchase a property needing some attention, but there are limitations on what can need attention.  Nothing structural, not over a certain amount, etc.  They are difficult loans but for the right person who has the ability to do all the necessary things, they can be a wonderful thing.  Ask your lender if they do 203K Rehabilitation type loans – most don’t.  I know of a handful in this area that will.

Buyers of the world – When you’re getting preapproved, ask your loan officer what limitations might be on the properties you may purchase with different loan types.   Let’s get ‘armed, educated, and dangerous.’  Otherwise, your time may be wasted in your home search.

NAR wants you to know about the $8000 Tax credit

Here is what the National Association of Realtors® has to say about the $8000 tax credit available through December 1 of this year:

NAR’s Website info

 

There are HUNDREDS of signs in front of homes in Northwest Arkansas that have “$8000 Tax Credit” sign riders attached to them.  Advertisements on-line and in print have it boldly splashed all over the place.

Surprisingly, it seems to be working.  Home sales are up, particularly in the <$150,000 market.  Buyers are coming out of the woodwork and are purchasing these homes with borrowed Down Payment money with the promise they’ll “repay it with their $8000 credit.”

Shoot – there is/was a program in the works where the buyer could get the $8000 back AT CLOSING.

I know our economy is in the toilet.  I know our economic growth is based on spending, not saving.  I know we have extremely high levels of inventory on the market with more coming on everyday.  I know that inventory is driving home prices down (in general, every market is different).  HOWEVER, having said that, it just doesn’t make sense to me to encourage people to get locked into a 30 year debt with the lure of getting $8000 back now.  Feels like a car sales pitch to me!  At the end of the year or end of the month when there is too much inventory on the lot, they start giving rebates.  But there’s a catch….isn’t there always a catch?

If you can afford a home, buy one.  If you can’t afford a home and would like to purchase one, work with a reputable lender that will help you generate a plan that will get you to where you can.  That $8000 might sound good right now.  You could put it toward some credit card bills or even buy yourself some furniture and a flat screen TV with it.  But then what?  14 months from now and your home warranty has run out and the furnace breaks, or your deck needs to be replaced, or your employer decides you should move to BFE which means you should sell your home here that’s now worth less than what you paid for it – where’s that money?  It’s hanging on your wall spewing sports and news at you.

When you buy a home, you have to be prepared for the upkeep on that home.  You have to be prepared to pay on your other debt obligations as well.  If the $8000 tax credit sounds appealing to you because of your lack of current available funds, will you have available funds when you need them in the future?

I’m primarily an REO Realtor®.  This means I list and sell foreclosed properties.  It’s a difficult job.  I see families leaving in the middle of the night because their house is going up on the courthouse steps in the morning.  I see toys and clothes and furniture left behind.  There are times I find people still living in the homes that got foreclosed and have to assist them in finding other housing so the bank can take possession and sell the house again.

Let me tell you, it sucks.

I see hard-working, well-meaning, proud and honest people losing their homes.  What they intended to do was buy the home they’ve always wanted and to live the American dream.  But money got tight, jobs got lost, medical bills piled up, and they started making cuts in their spending.  Cable TV became a luxury, not a necessity.  Then came the second car that had to go.  They stopped buying brand name foods and went to store brands.  Then the electricity bill came due, so they dropped their car insurance to keep lights on in the house.  Eventually, they knew what was going to happen after the second mortgage payment didn’t get made.  They tried to get second jobs, but who is going to look after the kids after school and how can they pay a babysitter on the little income their second job will give them?

If you’re a buyer right now and you have the credit and the finances to get into a house, this could be the ABSOLUTE RIGHT TIME to buy a home.  But please, don’t be swayed by the $8000 tax credit.  Don’t look forward to the furniture or fridge or credit card payments that could make.  Buy the home, take that $8000 and set it aside.  Forget you have it.  Use it as a cushion for when it is ABSOLUTELY needed – and not for a vacation either!  Consider it a gift from the government that provides you with a nice buffer should your own finances take a hit in this uncertain economy.

So, having said all that, I’m the Realtor® WITHOUT the big $8000 Tax Credit sign riders in front of homes.  I’m not advertising it with my listings.  I will discuss it with you should you call and ask, but I will NOT encourage you to purchase a home today just so you can get the credit tomorrow.

Am I wrong?  Many would tell you yes.  I’m not being aggressive enough.  I should be encouraging everyone to buy right now.  The only thing is, when I sell your home again 2-4 years from now, I want to see you at the closing table as the seller, not the lender that loaned you the money.