Many people are holding off selling their current homes because of the declining property values in the metro Detroit area and frankly most of the country. What many people don't understand is that this may be the most opportune time to sell and buy a more expensive home (buy up).
If you wait until the market goes up, and your house value increases, then the homes you are looking at purchasing have also increased in price.
Here is an example of how buying in a down market can be beneficial:
Assume your current home was valued at $250,000 some time back. Now it is currently worth $230,000. You would assume that you have lost $20,000 in equity. But on the other hand, the more expensive home, you are considering buying was worth $500,000 a year ago and is now valued at $450,000. You will save $50,000 on the purchase of this new home. So in short, you lost $20,000 on the sale of your home but saved $50,000 in the purchase of the new one. You just made $30,000 in equity.
Another thing to consider when contemplating buying in a down market is interest rates. Interest rates are nearing all-time lows right now. As they creep back up you reduce your buying power. For every 1/2 percent interest rate increase you have $25,000 less in purchasing power.
To sum this all up, selling in a down market and buying a more expensive home, assuming both properties have depreciated at roughly the same rate, is a very smart thing to do. You can actually come out ahead, but waiting for the market to head back up can cost you more money than buying now.
A good strategy is to weigh all the pros and cons and consult a qualified realtor to assist you. If you would like to discuss all your options, please feel free to contact me at 248.854.3829.
Tuesday, March 24, 2009
Tuesday, March 17, 2009
Reasons Banks Reject Short Sale Offers
Unless a property is advertised as "Short Sale Approved", no one knows for sure if the property will sell as a Short Sale. Generally, if a property has had an offer submitted to the lender previously for approval and the offer was rejected by the lender or countered, the listing agent will have a pretty good idea of whether or not the lender will agree to a short sale and how much they are willing to accept for a particular property.
If there hasn't been an offer previously submitted, the listing agent is treading in uncharted territory and no one will know for sure if a Short Sale is viable. At that point, everyone involved in the Short Sale is hopeful the offer will be accepted by the lender.
Reasons Lenders May Reject an Offer:
1. Short Sales List Price Is Too Low: A short sale list price generally has little bearing on the actual price a bank may accept. The list price may be too high to attract an offer or too low for the bank to accept. The house needs to be listed at an attractive price to entice an offer from a prospective buyer, but not too low that the bank will automatically reject. Having an experienced Short Sale specialist that is very familiar with the local area and property values in your area will be your best defense in getting the lender to accept an offer on your property.
2. Seller Does Not Qualify for a Short Sale: If the seller is asking for debt forgiveness and they have assets they are at a disadvantage if they are unwilling to work out a repayment plan with the bank. The bank will want to see current financials and a hardship letter from the seller that explains why they can not afford to pay back the shortfall difference. The seller needs to explain what hardship they have suffered. Just wanting to walk away and get a cheaper house is not a reason to do a Short Sale and most likely the lender will deny the short sale request.
3. Short Sale Package is Incomplete: It is extremely important to have an agent that is experienced in Short Sales to put your package together and submit to the lender. These lenders are overwhelmed and understaffed. If the package is not labeled and packaged as they direct, they may reject the Short Sale just because it did not meet their specifications.
4. Buyer Does Not Qualify: The desire that many prospective buyers have to purchase a home at a great (below market) price and the financial means to do so are two different animals. It is important to have a qualified buyer before an offer is made. Agents will require proof of funds or pre-approval letter prior at the time an offer is made to alleviate going through the whole negotiation process with the lender only to have the buyer not be able to obtain financing.
Research the experience of agents before chosing the one you want to represent you in your Short Sale. Ask them their success rate and if they have any experience with your particular lender. The more experienced agent you have the better your odds of having your short sale approved.
If there hasn't been an offer previously submitted, the listing agent is treading in uncharted territory and no one will know for sure if a Short Sale is viable. At that point, everyone involved in the Short Sale is hopeful the offer will be accepted by the lender.
Reasons Lenders May Reject an Offer:
1. Short Sales List Price Is Too Low: A short sale list price generally has little bearing on the actual price a bank may accept. The list price may be too high to attract an offer or too low for the bank to accept. The house needs to be listed at an attractive price to entice an offer from a prospective buyer, but not too low that the bank will automatically reject. Having an experienced Short Sale specialist that is very familiar with the local area and property values in your area will be your best defense in getting the lender to accept an offer on your property.
2. Seller Does Not Qualify for a Short Sale: If the seller is asking for debt forgiveness and they have assets they are at a disadvantage if they are unwilling to work out a repayment plan with the bank. The bank will want to see current financials and a hardship letter from the seller that explains why they can not afford to pay back the shortfall difference. The seller needs to explain what hardship they have suffered. Just wanting to walk away and get a cheaper house is not a reason to do a Short Sale and most likely the lender will deny the short sale request.
3. Short Sale Package is Incomplete: It is extremely important to have an agent that is experienced in Short Sales to put your package together and submit to the lender. These lenders are overwhelmed and understaffed. If the package is not labeled and packaged as they direct, they may reject the Short Sale just because it did not meet their specifications.
4. Buyer Does Not Qualify: The desire that many prospective buyers have to purchase a home at a great (below market) price and the financial means to do so are two different animals. It is important to have a qualified buyer before an offer is made. Agents will require proof of funds or pre-approval letter prior at the time an offer is made to alleviate going through the whole negotiation process with the lender only to have the buyer not be able to obtain financing.
Research the experience of agents before chosing the one you want to represent you in your Short Sale. Ask them their success rate and if they have any experience with your particular lender. The more experienced agent you have the better your odds of having your short sale approved.
Friday, February 20, 2009
What is Needed to Submit a Short Sale Package to a Lender?
Each lender requires relatively the same documents. You should be prepared to provide supporting documentation for any financial information provided to the lender.
The Short Sale Packet:
Listing Agreement - Lenders want to see that the home is actively being marketed for sale. In addition, the lender wants to verify that actions are being taken to maximize the price for the property in order to minimize their loss. The lenders can be very wary of non arms-length transactions. These are transactions that involve related parties and are normally rejected by the lender. A listed property that has been exposed to the entire market place (and not to just a few investors) is more likely to be taken seriously by the lender.
Authorization to Release Information - This form will give whomever the borrower appoints, permission to speak to the lender on their behalf. Without authorization, the lender will require that all communication go through the borrower.
Short Sale Hardship Letter - Lenders require a hardship letter from their borrowers. The purpose of the letter is to tell the bank “what happened” and what led the borrower to becoming delinquent on the mortgage. Be honest, brief and persuasive. Don't blame a negative equity situation as a reason for your delinquency. Don't blame your loan officer for giving you a loan that you didn't understand or was not in your best interest. It goes back to the old saying "Buyer Beware". Every borrower should read their mortgage contract and if they do not or did not understand it should have sought the advice of an attorney. Avoid using obscenities.
Financial Work Sheet - Some lenders require this while most don’t. However, in my opinion, this is one of the most valuable pieces of evidence for hardship that you can provide to a lender. While the hardship letter can be useful, most don't illustrate the entire story. The financial work sheet will reveal a borrowers hardship much more accurately than a letter.
Two Most Recent Pay Stubs - The lender wants to verify any information that you provided on your financial work sheet.
Two Most Recent Bank Statements - Again, this is to corroborate your current financial standing. In addition, when going through the short sale process it is important to keep in mind that little recording you hear every time that you call the bank (or the bank calls you), “This is an attempt to collect a debt….” They are also checking to see if you can make this month’s payment!
Last Two Years W2s: Once again, they are looking for verification of the hardship and to make sure that your income matches what you put on your financial worksheet.
Last Two Years Tax Returns
Preliminary Settlement Statement: The lender will use this to calculate their loss. It is important for this to be as accurate as possible as it may be the difference between accepting your offer or not.
Sales Contract: Once again, this is used for the calculation of loss to the lender. Once they receive an offer to purchase they will have a Broker Price Opinion (BPO) or appraisal done completed. They will make a decision to accept the offer or not based on what the house is worth, what other bank owned properties are selling for in the area, amount of loss they might incur and the cost to hold the house as a REO property (taxes, insurance, maintenance etc). The time it takes for them to make a decision could be a couple of weeks to a couple of months.
Please feel free to contact me @ 248.854.3829, if you have any questions or would like assistance in a short sale of your home. I know this is a difficult time, but with the assistance of an experienced professional your stress can be reduced dramatically.
The Short Sale Packet:
Listing Agreement - Lenders want to see that the home is actively being marketed for sale. In addition, the lender wants to verify that actions are being taken to maximize the price for the property in order to minimize their loss. The lenders can be very wary of non arms-length transactions. These are transactions that involve related parties and are normally rejected by the lender. A listed property that has been exposed to the entire market place (and not to just a few investors) is more likely to be taken seriously by the lender.
Authorization to Release Information - This form will give whomever the borrower appoints, permission to speak to the lender on their behalf. Without authorization, the lender will require that all communication go through the borrower.
Short Sale Hardship Letter - Lenders require a hardship letter from their borrowers. The purpose of the letter is to tell the bank “what happened” and what led the borrower to becoming delinquent on the mortgage. Be honest, brief and persuasive. Don't blame a negative equity situation as a reason for your delinquency. Don't blame your loan officer for giving you a loan that you didn't understand or was not in your best interest. It goes back to the old saying "Buyer Beware". Every borrower should read their mortgage contract and if they do not or did not understand it should have sought the advice of an attorney. Avoid using obscenities.
Financial Work Sheet - Some lenders require this while most don’t. However, in my opinion, this is one of the most valuable pieces of evidence for hardship that you can provide to a lender. While the hardship letter can be useful, most don't illustrate the entire story. The financial work sheet will reveal a borrowers hardship much more accurately than a letter.
Two Most Recent Pay Stubs - The lender wants to verify any information that you provided on your financial work sheet.
Two Most Recent Bank Statements - Again, this is to corroborate your current financial standing. In addition, when going through the short sale process it is important to keep in mind that little recording you hear every time that you call the bank (or the bank calls you), “This is an attempt to collect a debt….” They are also checking to see if you can make this month’s payment!
Last Two Years W2s: Once again, they are looking for verification of the hardship and to make sure that your income matches what you put on your financial worksheet.
Last Two Years Tax Returns
Preliminary Settlement Statement: The lender will use this to calculate their loss. It is important for this to be as accurate as possible as it may be the difference between accepting your offer or not.
Sales Contract: Once again, this is used for the calculation of loss to the lender. Once they receive an offer to purchase they will have a Broker Price Opinion (BPO) or appraisal done completed. They will make a decision to accept the offer or not based on what the house is worth, what other bank owned properties are selling for in the area, amount of loss they might incur and the cost to hold the house as a REO property (taxes, insurance, maintenance etc). The time it takes for them to make a decision could be a couple of weeks to a couple of months.
Please feel free to contact me @ 248.854.3829, if you have any questions or would like assistance in a short sale of your home. I know this is a difficult time, but with the assistance of an experienced professional your stress can be reduced dramatically.
Tuesday, February 17, 2009
What's Worse: Foreclosure or Short Sale?
If you are one of the many Metro Detroit homeowners who have fallen behind on their mortgage payments, you are probably wondering what is worse "Foreclosure or Short Sale".
A short sale is when the lender agrees to accept a mortgage payoff amount less than what is owed in order to facilitate a sale of the home. The lender forgives the remaining balance of the loan.
What is in it for the Seller?
The ideal scenario would be for the seller to catch up on their payments and stay in their home. But for an increasing number of Metro Detroit homeowners, this is not a realistic possibility. This is why we look at Short Sales....to resolve the problem rather than hide from your lender and hope the issue will go away on its own or worse being put out of your home on the lenders time table rather than your own.
As a seller, there are cons to a short sale. Such as you will lose your home--but that will happen anyway with a foreclosure. There are pros as well, such as your credit score will recover faster than with a foreclosure; you will be eligible for a new mortgage in two (2) years rather than four (4) with foreclosure; eliminates the risk of employment issues because you may lose or not be eligible for the issuance of a security clearance. This is particularly important for persons in the military or government jobs, police officers etc.
In foreclosure, the lender has the right to file a deficiency judgment against the borrower for any shortfall, but with a Short Sale the lender may agree to waive this right. In some cases, a lender may send you a 1099 tax form, which will list the "shortfall" as income to the seller. The Mortgage Forgiveness Debt Relief Act of 2007 gives Short Sellers a tax break by removing the tax liability for your primary residence. This does not pertain to investment properties.
What Motivates the Lender?
Why would a lender let you walk away from the home and forgive the shortfall on your loan? To save time and money. The foreclosure process is a long and expensive process. Once the lender realizes a foreclosure is eminent, a Short Sale may seem like the lesser of 2 evils. Also, with a short sale the property was never listed as a foreclosure, therefore improves the lenders foreclosure rate.
Short Sale Killers
An attempt to short sale your may fail if:
A short sale is when the lender agrees to accept a mortgage payoff amount less than what is owed in order to facilitate a sale of the home. The lender forgives the remaining balance of the loan.
What is in it for the Seller?
The ideal scenario would be for the seller to catch up on their payments and stay in their home. But for an increasing number of Metro Detroit homeowners, this is not a realistic possibility. This is why we look at Short Sales....to resolve the problem rather than hide from your lender and hope the issue will go away on its own or worse being put out of your home on the lenders time table rather than your own.
As a seller, there are cons to a short sale. Such as you will lose your home--but that will happen anyway with a foreclosure. There are pros as well, such as your credit score will recover faster than with a foreclosure; you will be eligible for a new mortgage in two (2) years rather than four (4) with foreclosure; eliminates the risk of employment issues because you may lose or not be eligible for the issuance of a security clearance. This is particularly important for persons in the military or government jobs, police officers etc.
In foreclosure, the lender has the right to file a deficiency judgment against the borrower for any shortfall, but with a Short Sale the lender may agree to waive this right. In some cases, a lender may send you a 1099 tax form, which will list the "shortfall" as income to the seller. The Mortgage Forgiveness Debt Relief Act of 2007 gives Short Sellers a tax break by removing the tax liability for your primary residence. This does not pertain to investment properties.
What Motivates the Lender?
Why would a lender let you walk away from the home and forgive the shortfall on your loan? To save time and money. The foreclosure process is a long and expensive process. Once the lender realizes a foreclosure is eminent, a Short Sale may seem like the lesser of 2 evils. Also, with a short sale the property was never listed as a foreclosure, therefore improves the lenders foreclosure rate.
Short Sale Killers
An attempt to short sale your may fail if:
- No Default on the Loan: Lenders almost never accept a short sale offer if the borrower is not behind on their mortgage payments or no true hardship exists. Just wanting to walk away because there are better deals out there is not going to get you an accepted Short Sale offer.
- Bankruptcy: If the seller has filed for bankruptcy don't even attempt a short sale. Lenders will not consider a short sale offer when the seller has filed for bankruptcy because negotiating a short sale is considered a collection activity and collection activities are prohibited during the bankruptcy process.
Negotiating a short sale is not for the faint of heart. It can be very time consuming and take months to negotiate from start to finish. A well put together short sale package along with an experienced Realtor will net the best results with dealing with the lender.
Wednesday, February 11, 2009
Short Sales - A Buyer's Market. Get On The Band Wagon
Here in metro Detroit it seems everyone is looking to either sell or buy with the assistance of a Short Sale. This is a great avenue for seller's who are facing foreclosure or are upside down on their mortgage. It is just as beneficial to the buyer who is looking for a great deal.
A short sale means the seller's lender is accepting a discounted payoff to release an existing mortgage. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it. One huge benefit for both buyer and seller is the lender pays ALL fees and commissions
Buyers' markets exist when there are a lot of homes on the market and very few buyers. If inventory--the number of homes on the market in your neighborhood--have been rising, it's likely that the days on market have been increasing. Couple that with declining sales figures over previous months, and home buyers are in an enviable position to negotiate. When purchasing a home that is listed as a Short Sale, the savings on the purchase price could be immense. Less money = more house.
The negotiation process with the lender is delicate dance that you will need an experienced Short Sale Specialist to perform. Negotiations can be long and arduous, taking in some situations months to accomplish an acceptance of an offer. If you are thinking of purchasing a home that is listed as a Short Sale, be aware this could be a long process but the payoff in the end could be a great house at a huge discount.
Saturday, February 7, 2009
Foreclosure vs. Short Sales
Many Metro Detroit homeowners are experiencing financial difficulties and find themselves falling farther and farther behind on their mortgage. Michigan foreclosure rates are at an all-time high. Know that you are not alone. During this time, many do not know what actions they should take. For the non-mortgage savvy homeowner, knowing which direction to turn is difficult and often times very frustrating.
First thing a homeowner who is having trouble making their mortgage payment should do is contact their lender. Do not wait until you are 2 or 3 months behind. Call as soon as it is apparent you will not be able to make your payment. If your situation is temporary, try asking for a 1 or 2 month forbearance. This means that 1 or 2 months worth of payments are added to the end of your loan bringing you current and stopping any foreclosure process.
If you are facing a more long-term hardship, ask your lender for a loan modification. There are many options with loan modifications that you can request of your lender. It is not uncommon for lenders to convert Adjustable Rate Mortgages (ARMs) to fixed rates; reduce interest rates; give a few months forbearance; or grant a principal reduction if the value of your home is a great deal less than what you currently owe. Don't be afraid to ask.
Once you have exhausted all these options and you were not successful dealing with your lender, you may be wondering "Should I Short Sale My Home"? There are advantages of short sales over foreclosure and any homeowner that is in this situation should know the difference and how each one will effect your credit score, employment and mortgage eligibility in the future.
Time is of the essence. Don't procrastinate as this could be the difference between saving your home or walking away successfully.
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