September 15th, 2007 by George

By Robert J. Bruss
Inman News

You’ve been looking for months for your first home, or you want to upgrade to a nicer home in a better community. It’s a great time to buy a home, everybody tells you.

Finally, you find the ideal home for sale, which has most of what you want (there is no such thing as the “perfect home.”)

But when you sit down with the mortgage lender to go over your income and credit to see if you can obtain the home loan you need, the lender says your FICO (Fair Isaac Corp.) credit score is too low to get an affordable interest rate. A mortgage at 7.5 percent interest is the best he can arrange, but he’s not sure you can qualify for the high payment.

Will you give up, resigned to waiting a year or two before buying a home? Of course not.

You know the house you want to buy has been listed for sale three or four months so the sellers must be anxious. The eager real estate agent phones to ask if you got your mortgage preapproval. You report the bad news that you’re not willing to pay 7.5 percent interest.

Fortunately, you’re working with an experienced realty agent. She suggests renting the house for up to two years until you can improve your FICO score. Then she explains you can lock in the purchase price at today’s market value. “Tell me more” is your swift reply.

WHAT IS A LEASE-OPTION? Your real estate agent then explains a lease-option, also known as “rent to own” in many communities, is a combination rental, sales and finance technique that has been used by thousands of home buyers and sellers.

However, a lease-option is not the same as a lease-purchase, which obligates the buyer to buy, usually within a year or two. With a lease-option, if home prices plummet, the buyer doesn’t have to exercise the option to buy.

Personally, I bought my current residence with a lease-option when I realized I was “cash challenged” without enough money for a down payment. Through my buyer’s agent, I offered the sellers a 12-month lease at $1,500 per month with $10,000 nonrefundable option money. As the vacant house had been listed for sale about six months, I asked for a 100 percent rent credit toward my option purchase price, which was just slightly below the asking price.

After hesitating about 10 days, my sellers accepted, but only for a six-month rental term. I readily agreed. Three days later, I hired a moving van and moved into my new home. About five months later, I exercised my purchase option and took title. At the closing, I received credit against the option price for my $10,000 option money plus the $7,500 total rent paid for five months.

Lease-options work especially well when there is an oversupply of homes listed for sale, such as the current “buyer’s market” in many cities. When a home seller needs someone to pay enough rent to cover the mortgage payment but doesn’t require an immediate cash sale, a lease-option can be ideal.

THERE ARE ALWAYS MORE LEASE-OPTION BUYERS THAN SELLERS. For some unexplained reason, there are usually more “rent to own” buyers than sellers. Having used lease-options to buy and sell houses for almost 30 years, I’ve learned a properly marketed lease-option can solve problems for both buyers and sellers.

The key to lease-option success is the amount of rent credit the tenant will earn each month toward the down payment. Although I negotiated a 100 percent rent credit when I bought my present home, as a seller I usually agree to only a 33 percent rent credit. As a motivated seller, I’ve agreed to 50 and even 100 percent rent credits.

Although the lease-option buyer doesn’t get any income-tax deductions, the buyer’s rent credit is far better, like a “forced savings account.” Of course, if the buyer doesn’t exercise the purchase option, the rent credit plus the option money is forfeited.

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August 3rd, 2007 by George

Closing the Deal

Here is where you exercise your negotiating muscles

Once you find the house you want, you need to move quickly to make your bid. If you’re working with a buyer’s broker, then get advice from him or her on an initial offer. If you’re working with a seller’s agent, devise the strategy yourself.

Try to line up data on at least three houses that have sold recently in the neighborhood. Calculate the difference between the original list price and the final price of the homes sold.

If the average difference is, say, 5 percent below the asking price, then you know you can make an offer 8 percent to 10 percent below, leaving yourself a little room to negotiate. If you really want the house, don’t lowball. The seller may give up in disgust.

Another factor to consider in determining your bid is whether the trend in recent home sales is up or down over the past year. For instance, if houses a year ago were selling at list, and recent ones are going at 3 percent below, then you might want to sharpen your pencil for your opening bid to just 5 to 8 percent below list.

There’s no foolproof system for negotiating a fair price. Occasionally it’s best to deal directly with the seller yourself. More often it’s better to work exclusively through intermediaries. In general, don’t let the other side begin to believe you are negotiating in bad faith or being deceptive — any deal you eventually reach has to involve trust on both sides.

Be creative about finding ways to satisfy the seller’s needs. For instance, ask if the seller would throw in kitchen and laundry appliances if you meet his price — or take them away in exchange for a lower price. Remember, too, that your leverage depends on the pace of the market. In a slow market, you’ve got muscle; in a hot market, you may have none at all.

Once you reach a mutually acceptable price, the seller’s agent will draw up an offer to purchase that includes an estimated closing date (usually 45 to 60 days from acceptance of the offer).

Have your lawyer or buyers agent review this document to make sure the deal is contingent upon:

1. your obtaining a mortgage;

2. a home inspection that shows no significant defects (make sure you’re clear on the definition of “significant”);

3. a guarantee that you may conduct a walk-through inspection 24 hours before closing. This last clause allows you to check the home after the sellers have moved out so that you have time to negotiate payment for repairs, just in case the movers cause any damage, or that big living room sofa was hiding a hole in the floor.

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July 28th, 2007 by George

Getting the Money Right

For most people, buying a house involves a double financial whammy.

First you have to assemble a pile of cash for the down payment and closing costs. Then you must convince a bank to lend you an even more staggering sum - generally 80 percent or more of the purchase price.

So your first step, even before you start the actual hunt for a property, should be to get your financial house in order.

Start with your credit

Credit reports are kept by the three major credit agencies, Experian, Equifax, and TransUnion. Among other things, they show whether you are habitually late with payments and whether you have run into serious credit problems in the past.

A credit score is a number calculated by Fair Isaac based on the information in your credit report. You have three different credit scores, one for each of your credit reports.

A low credit score may hurt your chances for getting the best interest rate, or getting financing at all. So get a copy of your reports and know your credit scores. Try Fair Isaac’s MyFICO.com, which charges upwards of $50 for all three reports and scores.

Errors are not uncommon. If you find any, you must contact the agencies directly to correct them, which can take two or three months to resolve. If the report is accurate but shows past problems, be prepared to explain them to a loan officer.

Know what you can afford

Next, you need to determine how much house you can afford. You can start with one of the Web’s many calculators. For a more accurate figure, ask to be pre-approved by a lender, who will look at your income, debt and credit to determine the kind of loan that’s in your league.

The rule of thumb here is to aim for a home that costs about two-and-a-half times your gross annual salary. If you have significant credit card debt or other financial obligations like alimony or even an expensive hobby, then you may need to set your sights lower.
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July 28th, 2007 by George

Buying 101 Parts 1-6 brought to you by money.cnn.com
Top things to know…

1. Don’t buy if you can’t stay put.

If you can’t commit to remaining in one place for at least a few years, then owning is probably not for you, at least not yet. With the transaction costs of buying and selling a home, you may end up losing money if you sell any sooner.

2. Start by shoring up your credit.

Since you most likely will need to get a mortgage to buy a house, you must make sure your credit history is as clean as possible. A few months before you start house hunting, get copies of your credit report. Make sure the facts are correct, and fix any problems you discover.

3. Aim for a home you can really afford.

The rule of thumb is that you can buy housing that runs about two-and-one-half times your annual salary. But you’ll do better to use one of many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford.
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July 27th, 2007 by George

to be continued…

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July 26th, 2007 by George

450, 550, 650, 720, 800…

What do these numbers mean?

(find out what is on your credit report, for free, by going to the Government’s website at annualcreditreport.com - this website gives you a copy of your credit report from the 3 reporting agencies once per year)

FICO scores places a value on the types of accounts you hold, as well as your credit history. The formula that determines your FICO scores, however, is not disclosed to the consumer.

The FICO scoring scale runs from 300 to 850. The vast majority of people will have scores between 600 and 800. A score of 720 or higher will get you the most favorable interest rates on a mortgage, according to data from Fair Isaac Corp., a California-based company that developed the credit score. (Its own score is called the FICO score.)

The 5 most important factors to determining your FICO credit score are:

1. Your payment history
2. The amount of outstanding debt you have compared to your credit limit
3. Your credit history
4. The types of credit you use
5. Credit Report Inquires

Key factors of your FICO Credit Score
Just what goes into the score? Pretty much everything in your credit report, with different kinds of information carrying differing weights, says Fair Isaac consumer affairs manager Craig Watts. The model looks at more than 20 factors in five categories.

1. How you pay your bills (35 percent of the score)
The most important factor for your FICO score is how you’ve paid your bills in the past, placing the most emphasis on recent activity. Paying all your bills on time is good. Paying them late on a consistent basis is bad. Having accounts that were sent to collections is worse. Declaring bankruptcy is worst.

2. Amount of money you owe and the amount of available credit (30 percent)
The second most important area for a FICO score is your outstanding debt — how much money you owe on credit cards, car loans, mortgages, home equity lines, etc. Also considered is the total amount of credit you have available. If you have 10 credit cards that each have $10,000 credit limits, that’s $100,000 of available credit. Statistically, people who have a lot of credit available tend to use it, which makes them a less attractive credit risk.Carrying a lot of debt doesn’t necessarily mean you’ll have a lower score. It doesn’t hurt as much as carrying close to the maximum. People who consistently max out their balances are perceived as riskier. People who never use their credit don’t have a track history. People with the highest FICO scores use credit sparingly and keep their balances low.

3. Length of credit history (15 percent)
The third factor is the length of your FICO credit score history. The longer you’ve had credit — particularly if it’s with the same credit issuers — the more points you get.
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July 8th, 2007 by George

From wikipedia

Subprime lending, also called “B-Paper”, “near-prime” or “second chance” lending, is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history. Subprime loans or mortgages are risky for both creditors and debtors because of the combination of high-interest rates, bad credit history, and murky financial situations often associated with subprime applicants. A subprime loan is one that is offered at a rate higher than A-paper loans due to the increased risk. Subprime lending encompasses a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others.

Subprime lending is typically defined by the status of borrowers. A subprime loan is, by definition, a loan made to someone who could not qualify for a more favorable rate. Subprime borrowers typically have low credit scores and histories of payment delinquencies, charge-offs, or bankruptcies. Because subprime borrowers are considered at higher risk to default, subprime loans typically have less favorable terms than their traditional counterparts. These terms may include higher interest rates, regular fees, or an up-front charge.

Proponents of the subprime lending in the United States have championed the role it plays in extending credit to consumers who would otherwise not have access to the credit market. But opponents have criticized the subprime lending industry for predatory practices such as targeting borrowers who did not have the resources to meet the terms of their loans over the long term. These criticisms have increased since 2006 in response to the growing crisis in the U.S. subprime mortgage industry, wherein hundreds of thousands of borrowers have been forced to default, and several major subprime lenders have filed for bankruptcy.

Criticisms of subprime lending

Our capital markets operate on the basic premise of risk versus reward. Investors taking a risk on stocks expect a higher rate of return than do investors in risk-free Treasury bills, which are backed by the full faith and credit of the United States. The same goes for loans. Less creditworthy subprime borrowers represent a riskier investment, so lenders will charge them a higher interest rate than they would charge a prime borrower for the same loan.

To avoid the initial hit of higher mortgage payments, most subprime borrowers take out adjustable-rate mortgages that give them a very low initial interest rate of around 4%. But with annual adjustments of 2% or more per year, these loans typically end up charging around 10%. So a $500,000 loan at a 4% interest rate for 30 years equates to a payment of about $2,400 a month. But the same loan at 10% for 27 years (after the adjustable period ends) equates to a payment of $4,470. A 6-percentage-point increase in the rate caused an almost 100% increase in the payment. Ouch!

source: http://www.fool.com/investing/value/2007/07/10/the-skinny-on-subprime.aspx

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July 3rd, 2007 by George

Let me start off by saying… I am not tax expert. I know I pay them, I get good services because I pay them, and they are inevitable. Here is a little information regarding what you can expect.

Once a year, it comes in the mail. The value of your property is X, you owe Y.

Click here to check out the details of the sample tax bill.

Taxes on your home depend on the value of your home, for example:

If you are a Charleston county resident, you can get a 4% assessment rate, versus the normal 6%, if you meet certain conditions. The form can be picked up at your local DMV. More information regarding the special rate can be found here.

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June 30th, 2007 by George

Selling Agent: So you have spoken to the lender?

Buying Customer: Oh yes, I received the approval the other day. Everything is in order Ms. Agent.

Selling Agent: Great! Well let’s close this out and put you in your new home.

A few days later…

Selling Agent: Ummm, Mr. Customer, I thought you said you were approved? You were merely pre-approved and now it looks like you are not going to actually be approved.

Buying Customer: Ummm, aren’t they the same thing. Approved is approved.

Selling Agent: Approved is approved, Mr. Customer. But, pre-approved is not approved!
It has happened many times before. A customer has their pre-approval letter in hand, only to learn the bitter taste of rejection down the road.

So what is the difference between an pre-approval and an approval?

Pre-approval

• shows seller that the buyer has had their credit evaluated by a professional. The information is entered into the underwriting system and an automated result is produced… Yay or Nay. There is no documentation provided to the lender at this time, therefore, the buyer typically provides the information verbally, over the phone, online, or in-person.

Approval (finito, the end goal, you are here!)

• Everything is verified. Pay stubs,W-2’s, stock holdings, collateral, everything that is put together for the lender. Here an underwriter will sign their name to the loan after everthing is reviewed and the result is the green light.

So, if you have only talked with someone over the phone, and they said you are qualified for $135,000 and they provide you with a letter, this is a pre-approval letter. Believe me, you will understand that an approval is not nearly as easy and painless. Be prepared to find documentation. No time like the present to start keeping a folder filled with those old paystubs.

Time to buy a shredder!

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June 21st, 2007 by George

Homebuying fees… where to begin. Let’s start at the beginning. And since I just went through all of this, representing myself, who better to take a renter thinking of buying or a first time buyer through it all?

I bought my first house earlier this year. My wife and I were so very proud! It is such a great feeling when you are sitting at that closing table and signing your name 74,345 times (did I mention I at least got a nice pen out of those signings?). The American Dream, as it is so termed, and it is fitting (Congress has even funded an initiative titled The American Dream). We are proud of our house. But… let me tell you about something that will make you wonder, is this really the American Dream?

A little thing called the settlement statement…

What all is contained on the settlement statement?  Everything you can think of, and plenty more you can not.

• Points and/or origination fees
• Escrow fees/prepaids
• Homeowner’s insurance
• Lawyer fees
• Private mortgage insurance (PMI)
• Recording fees
• Title search fees
• Credit report fees
• and on, and on, and on
• (read more here)

You need to be sure your lender is doing you justice.  Warehousing fees, markups, etc. may just be another way for the lender to pad their pocket.  When you get your HUD statement (be sure you review it prior to closing), make sure you go through it with a fine tooth comb.  If you are not sure what you are looking at, have someone qualified to take a look at it for you, or talk to your lawyer for the transaction.  They are typically unbiased and are experts when it comes to the buying/selling of a home.

When I received my HUD statement, the night before closing, there was over $2,000.00 worth of errors on it.  Panic began to settle in.  It ended up that taxes were credited to the seller when they should have been credited to me (which was an oversight on the lawyers part) and there were a couple of extra fees from the lender that should not have been there.  The point is to check and double check, after all, it is you who are writing the check.

 Some other savings tips:

• Appraisals, credit reports, & title insurance fees should be the same from lender to lender
• Your lender may be willing to drop or discount some fees
• Try to close your mortgage near the end of the month (which will save you money on prepaid interest)
• Negotiate, negotiate, negotiate!  You can have the sellers pay part or all of your closing costs!

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