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By now, you should have heard that the real estate market is picking back up. Low interest rates and low inventory are spiking the average home price here in Washington State. Homeowners are now deciding on their options of either letting go of their underwater homes via short sale or foreclosure, continuing to live in it, or even rent it out and becoming a landlord. Which option would be best for you?
According to Corelogic, home prices nationwide increased on a year-over-year basis by 8.3 percent in December 2012 compared to December 2011. The spike is largely attributed to investors buying out most of the inventory thus increasing demand. This appreciation rate will most likely be unsustainable but of course, only time can tell. Zillow Home Value Forecasts (ZHVF), expects home values to increase 3.3% (Dec 2012 to Dec 2013).
Ah good news, home prices are rising again! So shouldn’t we keep our home that is underwater until we break even so we can avoid a short sale and a ding on our credit?
Let’s explore this option.
We will use the example of Mr. and Mrs. Smith who are barely making their payments and have a home that is worth $230,000 but owe $300,000 to their lender. The Smith’s think to themselves, if they live in their home in hopes to sell it once they come out from underwater, they don’t have to sell short. Assuming we will get a 5% appreciation rate (being optimistic), it will take them about 4 years just to break even. The Smith’s realize that it isn’t worth throwing away about $57,000 over the years in a home that has negative equity.
So they discuss their option of making their home into a rental property for the next 4 years to avoid the ding on their credit. Most likely, they will have a negative cashflow situation for all four years if you include PITI (principle, interest, tax, insurance) along with maintenance and repairs. Most importantly, the Smith's do not realize how difficult it is to be a landlord. Dealing with tenants (finding and maintaining), lease contracts, property maintenance/repairs, among others difficulties many times suck the life out of landlords. Many homeowners who opted to rent their homes because it was underwater are concluding to short sell years or even months later. Just ask friends or family about their experiences as landlords.
Mr. and Mrs. Smith’s situation is very typical and if they took the route of holding until breaking even, they will most likely be left with an even bigger headache.
What if Mr. and Mrs. Smith chose to short sell now?
A short sale is when you sell your home for less than what is currently owed on the property. The Smith’s decide to find a short sale expert and talk to their lender to see if they qualify for a short sale. IF they short sell now, they will finish in about 120 days which means if they started now, they will be done and out of their negative equity situation by summer time.
How would the financial rebound look like for the Smith’s? If they were not delinquent on their payments but was able to show inevitable delinquency, the ding on their credit score would be significantly less. If they were delinquent prior to closing the short sale, you will be facing about a 80-160 point ding in your FICO score.
Now how soon will they will be able to rebound on their credit depends on different factors. If the Smith’s end up using Lexington law to expedite rebuilding their credit score, they can easily repurchase another home within 2 years (possibly sooner) using the money that they saved from the mortgage payments that would’ve wound up in their underwater home. Once they are in a home, again, assuming that there is a 5% appreciation rate, they will start BUILDING equity.
So what is the best choice for Mr. and Mrs. Smith?
What do you think?
Peter
In my previous blog post, I estimated that in 2014, home prices were expected to rebound. 2012 however surprised all of us with sharp price increases. What is causing this price increase? A number of factors may play into it but one of the main variables is the lack of supply thus increasing demand and prices. It is a seller's market and will probably remain until the latter half of this year. However, I don't believe this will last.
Based off our research, there is a artificial lack of inventory meaning, home prices may very well halt its increase and decline for some time. Let's explore why short selling now would be in your best interest.
What will the status of the housing market be in the next couple of years? Only time can tell. What we can investigate are the factors that led to the volatile home prices.
We are seeing large hedgefund investors like blackstone and other cash investors, buy out most of the inventory. Concurrently, new legislation as seen in California, Oregon, Nevada, and Washington, are slowing down the foreclosure flow in those areas which according to Daren Blomquist, VP of RealtyTrac, will result in a backlash of foreclosure activity at the end of this year and into 2014. RealtyTrac is still expecting to see about 600,000 REO's enter the market in 2013. This indicates a hit on home prices to come.
At the same time, homeowners are vulnerable to a large tax liability at the end of this year. The mortgage forgiveness debt relief act is set to expire Dec. 31, 2013. For more information, please read our previous blog post.
A short sale is when you sell your home for less than what is owed. The remaining balance owed is negotiated so if home prices decrease, the difference between the sale price and the amount owed will only grow meaning you have a higher risk of owing more to your lender after you short sell your home.
Moral of the story, no one can fully time the housing market but the uncertainty should create urgency this 2013 year.
Hope this helps
Peter
How to Purchase a Home in 2013
As this new year begins many people are setting goals, making resolutions and generally planning for a better year. If you are one of the people considering a home purchase in the upcoming year there is some sound advice to follow in order to make the process smoother and ensure that you get in to a home that truly makes you happy.
Be Realistic About Your Finances
If you are currently renting a nice place for $650 a month then it would seem unreasonable to think that you could afford a home with a loan payment of $1,000. WHY, you may ask? Because the expense of owning a home goes well beyond the monthly payment. There are other things like mowing the lawn, keeping the furnace and air conditioner maintained, repainting every few years, updating the bathroom, replacing an appliance or two, and the list goes on. Understanding the expense for these items will help you set your budget accordingly and hopefully prevent you from getting in to a home that you cannot afford.
Talk to an Experienced Mortgage Broker
After determining how much you can comfortably afford for a home, it is time to chat with a mortgage broker. The broker can look over your finances, your credit history, employment history and the length of time you have lived at your current address and determine the best loan for your needs. A broker can also get offer from multiple lenders in order to get the best rate for your mortgage.
It is wise to let the broker know how much you are comfortable paying each month so that they can use this information to establish a price range for your home. Most people can financially afford more than they are willing to pay. Having the right budget amount will help when you begin looking at homes.
Talk to an Experienced Real Estate Agent
Now that you are firm in the amount you can afford monthly for a payment and you have an approval from a mortgage lender it is time to talk to an experienced real estate agent. A good agent will sit down with you and listen to your wishes in order to decide which homes could meet your needs. Using the price range provided by the mortgage lender, the agent can focus on homes that fall in your budget and prevent wasting time on homes that are too expensive. An agent can also focus on other parameters such as a specific school zone, homes with particular features, size of the home and other things that are important to you.
Don’t put it off any longer. Sit down with a calculator and decide how much you can afford. Then make the decision to make 2013 the year that you become a homeowner!
Related posts:
7 Reasons to Avoid a Foreclosure
Families who typically end up foreclosing on their home often didn’t understand the foreclosure process or simply just gave up because they no longer cared or could handle the stress. The foreclosure process is typically an emotional rollercoaster and it’s not uncommon for us to hear they simply wanted to “wash their hands of the headache”. In situations like this, we urge homeowners to become aware of their options and really understand what a foreclosure means.
We’re prepared a quick list of foreclosure consequences that will help you understand exactly what a foreclosure means.
1) If your property forecloses, you will be required to disclose this on all future mortgage applications, and on many job applications. This can have an adverse effect on your future mortgage rates.
2) According to Fair Isaac Corporation, credit scores will be lowered by 300 or more points. A foreclosure is considered the most devastating credit issue in relation to future credit availability and if coupled with bankruptcy can be very hard to recover from.
3) A foreclosure is very difficult if not impossible to have “repaired” on your credit report.
4) It could open up the possibility for your mortgage lender to seek a deficiency judgment and attempt to collect the difference not accounted for from the sale of the home.
5) A foreclosure can put a new job in jeopardy, as many employers are now running credit checks on potential hires.
6) A current job could be in jeopardy. There are many employers who run credit checks annually to make sure employees are not underwater in their finances.
7) Government jobs can be jeopardized with a foreclosure showing on a credit report, especially those with security clearances.
With these points in mind, if you find yourself underwater and unable to make a mortgage payment, it’s important to seek out options. One option that will allow you to still exit the home is called a short sale. A short sale is often the better route and provides a more favorable outcome for both you and your mortgage company. The ability to find experienced short sale team with a proven successful track record will help you protect yourself from a diminished credit score and the possibility of losing employment opportunities.
We are here to help – call us today – 888-746-7820.
Interesting that they were last minute listings here in the Palm Springs, CA area. One in North La Quinta and the other in West Indio..both had Sale Dates set of approx. 21 days out. Both Sellers had been denied Loan Mods and were at wits end and OVER the banks!
Chase has always been tough for me, but this Short Sale was approved and sale date postponed within 3 weeks! We are now about 3 weeks from closing which is amazing considering it's a VA loan. Had to get around the Seller non-allowables, but so far, we're moving to close.
Wells Fargo, on the other hand, has always seemed relatively sane in my Short Sale dealings, so it was no surprise that they pushed their Sale Date back and gave me some time to maneuver my HAFA docs into position. Just received the approval and we're set to close 11/7.
Now..as we all know, getting approval letters, HUD-1's corrected, net sheets in order, inspections done, tenants moved, and whatever else can happen during the closing stages, does NOT guarantee a close and a pay check in the Short Sale Ether World. But..it appears today that things are moving along as well as can be expected.
Focusing on Equity Sales today. I've got an offer to write!! Equity Sales are still happening in my area as long as the Seller can list their home for a number that WORKS with the current market.
I'm listing and closing about 50% equity Sales and 50% Short Sales so we're running neck and neck for 2011.
If you find yourself in the position of having to sell your home and it is not worth as much as you owe, you may be wondering what you should do. I am assuming here that you have either been turned down for a loan modification or have to move because of divorce, job transfer, or other circumstance.
So you have to sell. Here is what you should do.
1. You can not do this on your own. The banks will want the home to be extensively marketed and you can not do that as a FSBO. Since the lender will pay the real estate commissions that should not be a concern.
2. Gather your financial information. You will need 2 years tax returns, 2 months bank statements form all accounts, 2 months statements from all investment accounts, profit and loss for 2 years from any self employment.
3. Fill out a financial statement which shows all your income and expenses
4. Write a hardship letter which explains why you need to do a short sale
5. Make your home available for showings and open houses
6. Keep your financials updated every month and give the bank everything they ask for
7. Accept the best offer you can get on the property
8. Be PATIENT
If you have any questions about short sales in San Mateo or Santa Clara County please feel free to contact me.
Marcy Moyer
marcy@marcymoyer.com
650-619-9285
D.R.E. 01191194
Marcy Moyer Keller Williams Realty Palo Alto, Ca. Specialist in Short Sales and Trust and Probate Sales
Short Sale , Deed in Lieu, Loan Modification, Foreclosure, HAMP, HAFA in California and what they mean to you.
Under the HAFA program you have the option of doing a Short Sale or Deed in Lieu. According to current FHA guidelines you can buy another home 2 years after the short sale. The lenders are required to give you at least 120 days to market the home and obtain an offer. The lender does not have to give you more time and you are required to follow the guidelines set forth by the lenders. Many lenders are closing short sales sooner than 120 days so be prepared to move. The only thing I have seen that has been extending the short sale timelines is Mortgage Insurance.
A Deed in Lieu is when you sign the deed over to the lender and walk away from the house. The lender has to give you permission to do so and it has to be a clean marketable title. That means no other liens on the property, second mortgage, mechanics lien, taxes are paid, etc.
Visit my website: www.edsellsre.com
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