Seller Financing Escapes Extinction

Champagne Toast

I am thrilled to announce that seller financing has escaped extinction!

The conference committee addressing HR4173 – Wall Street Reform has agreed to a licensing exemption for those who do limited seller financing. Our goal when we went to Capitol Hill had been to keep the 5 transactions per year exemption in current NC law.  That did not happen, however, a compromise led to 3 seller financings allowed per 12 months.  This is a HUGE improvement over the one per 36 months in the original proposed bill!

As worded now, a private seller, trust or estate can provide seller financing 3 times per 12 months without licensing. Contractors do not qualify for this exemption as they were the target of the legislation in the first place. Those in the “business” of contracting must get licensed to offer seller financing at all.

The changes still have to be approved by the Senate and passed into law, but it has passed the House.

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Short Sale vs. Foreclosure – how does it impact you?

Lenders

Did you know:

Time lenders typically require to repurchase a home:
Short sale: 3 years
Foreclosure: 5-7 years

Points drop in credit score
Short sale: 50-130
Foreclosure: 200-400

Buying again after a short sale

If your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. The wait for an FHA loan is 3 years.

If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence.

Buying Again After a Foreclosure

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Strategic Default – Walking Away from a Mortgage

Currently, in the United States, there are about 7 million homeowners behind on their mortgages.

Banks are working with homeowners who are behind due to lost jobs. What if you haven’t lost a job but your home value has dropped, in some places by as much as 50%? Don’t make a judgment, really think about it. What if you had paid, say $200,000 just 2 years ago and your home is now valued at under $100,000. Would you want to continue making those payments? Suppose you could rent a much larger, nicer home for less than the cost of your monthly mortgage payment. For many in the country, that is a reality.

In this 60 Minutes clip from Sunday night’s feature, Chris and Dana’s house was purchased for $262,000 and is now worth $142,000, if they could even sell it. More than one third of the houses on their block are vacant due to foreclosure. Their bank refused to negotiate with them because they can afford their current payments. Their dilemma; should they continue to “throw money away” on what is, at this time, a bad investment. What would you do? Would you walk away?

Estimates show that, in the past year, at least 1 million people who could afford their payments simply walked away.

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How Large is a Trillion?

Dollar Rain

I was listening to NPR  (National Public Radio) and I heard an amazing and memorable explanation of “how large is a trillion.”

I thought it important to post the information here because we hear “a trillion” this and “a trillion” that thrown around today like it’s nothing. We get so used to hearing it that the meaning becomes insignificant. I’m sure our parents rarely heard it. I bet our grandparents never heard it – certainly not in relation to the economy.

And you may notice that, too often, “trillion” is used when discussing US expenditures or debt. Bummer.

So, ok, how large is a trillion?

If you stack up enough $100 bills to make $100,000 – the stack would be 4 inches tall.

If you stack up enough $100 bills to make One Million Dollars – $1,000,000 – the stack would be 40″ tall (just over 3 feet).

If you stack up enough $100 bills to make One Trillion Dollars – $1,000,000,000,000 – the stack would be 679 miles high.

In case you thought one trillion was just a bit more than one million, you were wrong.  Today, our national debt is quickly approaching $13 trillion.

The Outstanding Public Debt as of 31 Mar 2010 at 08:57:12 PM GMT was: $12,688,419,783,356.51.

Now, next time you hear the word “trillion”, think about what that means.

Guest Post

Guest Post

Eddie Kearns wrote to ask if he could put this guest post on Karen’s Perspective.  I appreciate his initiative!

As a disclaimer, Eddie  has never handled a short sale for me.  Nevertheless, here is what he has to say.  Please comment to let me know what you think about the article.

Short sale questions addressed

There are a lot of real estate professionals who are unsure about how to respond to homeowners and their concerns about short sales. Understandably, many homeowners are nervous about the idea of a short sale. The thought of going through one can be scary and unpleasant to go through with the amount of paperwork and disclosure involved. Here are a few responses you can use the next time a client expresses these concerns:

1. They want to review their options. Tell them you, as their agent (depending on your state and how involved you want to be) will help them check out other alternatives. In many cases the homeowner already knows they will not qualify for a loan modification because of unemployment, sickness or other unresolved hardship, and income levels that don’t meet the minimum requirements for a loan mod. In some cases their credit rating has already been too damaged to qualify. If these factors have not been reviewed before you sit down with the homeowner, do your client a favor, and make certain there are not other options. They’ll remember the kindness and come back to you should those other options fall through. It will also help boost your reputation as an honest, ethical agent who is looking to help people, not just profit off of them.

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How Many Ways can Lenders Prevent a Closing?

It’s a rhetorical question. I do not want to know. I am certain that the answer is a number way larger than I care to think about.

However, I did just find one more answer to add to my list of personal experiences.

We have a buyer for a flip who is very qualified; high credit scores, plenty to put down, good job.

Well, the closing took longer than promised (no real surprise today) and our buyer had to be out of the rental he was in. As we were scheduled to close any day (we had passed the first date because of “lender error”) we let the buyer move in and he is paying us a daily amount until we close.

The property itself also passed qualification with flying colors; passed inspection, appraisal came in high (we always sell below market value to keep our properties moving).

So here’s the rub, the warning and the frustration.

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Mortgage Resets – Here comes the next wave

Mortgage Resets

I know everyone really wants to believe the housing market is going to get better in 2010. I know we’ve all had enough of the gloom and doom, but it appears we have to brace ourselves for more of the same, at best.

We’re so used to turning the channel when we get bored with what’s on. We expect to drive up to the window and have our food ready. We swallow a pill in anticipation of instant headache relief.

But, from the looks of this graph, we’re going to be in this one for a while.

From the graph, you can see the first wave that’s already passed, the grey wave.  It peaked mid ’07 then again in January ’09.  Those were the sub-prime loans resetting that put us into the tailspin we’re just now trying to come out of.

The next, and far more layered wave is just beginning to form.  You can see the dotted line where it began in January 2010.  It is 4 layers deep – the grey sub-primes, the red prime loans, the blue Alt A’s and the yellow Option Arms.  Everything peaks mid year 2011.

Add to that all the “shadow inventory” the banks have taken back and are still holding that some people say is more than they’ve already released.  Hang on, boys and girls, it’s going to be a bumpy ride.

It’s better to know ahead of time to be prepared. Stop spending. Save what you can, when you can. Scale back, downsize, reuse, recycle.

The real estate market will come back strong. It always does. We’ll just have to be patient a while longer.

So, what’s the good news?  There’s never been a better time to invest in real estate.

If you live in the Triad area of North Carolina, we’d love to help you with your investing.  Check out our Triad Master Mind. It’s a great group of local investors and we’re all working together to help each other profit through real estate.

Don’t wait to invest, invest and wait!  Huge returns will be there to reap in your future.

Happy investing!

Mortgage Escrow – What is it? How does it work?

Escrow

Investopedia defines escrow as:  A financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions or until obligations have been fulfilled.

In the case of a home purchase, the lender or mortgage holder, takes funds from the buyer to pay taxes and insurance.  The funds are “escrowed” until the time they are due when the lender sends payments from the escrow account to the appropriate tax department and/or insurance provider.

Lenders usually require that borrowers pay money monthly into “escrow” so that the lender can pay the real estate tax and property insurance as due.

If you decide to “escrow” your taxes and insurance, at closing you will see on the HUD1 statement that monies have been taken from you to cover the next 12 month’s worth of property insurance and property taxes.  That is so the escrow company will have enough money set aside by you to cover the first payment you need to make for your taxes and insurance on the property you are purchasing.

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What Does It Mean to You, the Buyer, that You Have to Go “Full Doc”

Guest Post

Following is another Guest Post. This one was written by Lisa Delzompo. Lisa sells real estate in Temecula, CA. I appreciate her allowing me to re-post her article here.

What Does It Mean to You, the Buyer, that You Have to Go “Full Doc”

Over the past year, lending guidelines have tightened so much that, if you’re paying attention at all you know, buyers have to qualify “full doc” for loans. That means, full documentation of the buyer’s income, debts, and assets.

It is to the point that I provide my clients an overview letter, explaining the buying process in detail, including the fact that you’re going to be asked for information up front, during, and at the end of the loan process.

That sounds straightforward, but let’s take a look at what that means. First, keep in mind that if you provide an item of information, it needs to be Legible. I capitalize the word to point to its importance. The item you provide will be faxed or scanned another time after you send it to your loan officer; the people receiving that last copy are the underwriters, the ones whose job it is to sign off on every item of the checklist for your loan, saying you fulfilled that condition. Their job is on the line; they don’t know you from anyone; they don’t trust you; and they don’t distrust you. It simply is their job on the line to make sure that the loan they approve contained each item required on their checklist. If an item is blurry enough that they can’t read enough of the important details there, they will not sign off on that condition. If you have provided the same copy several times, and they are still saying they cannot read it, then you should go get a new, clean copy and send it in, asap. If you take several days to provide items you’ve been asked for, the process will take that much longer. In this age of internet and fax, it is common for clients to be able to provide items within minutes of being asked for them.

Let’s get to more details:

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New RESPA rules take effect 1/1/10

HUD

The Real Estate Settlement Procedures Act or RESPA, as defined on the HUD site, is about closing costs and settlement procedures.

Federal regulations have just changed RESPA requirements.

Some of the major changes are:

  • There is a new HUD-1 statement. The old one was 2 pages, the new one is 3.
  • There is a new GFE, Good Faith Estimate, which gives you an estimate of your settlement charges and loan terms you are likely to incur to obtain a specific loan.
  • The government has eliminated the cap on FHA origination fees.
    Previously HUD limited origination fees to 1 percent of the mortgage amount for most FHA loans.

According to the HUD site, the intent of the standardized GFE and HUD-1 is to provide borrowers an easier means of comparing loan offers, and to determine that they are getting the loan at settlement that they were offered in the GFE.

If you already had a loan in process, HUD states that, if your GFE was issued on the old form prior to January 1, 2010, then the old HUD-1 form must be used even if closing will occur after January 1, 2010.

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