As a buyer, have you wondered why is what type of financing you use important? Or why does the seller need to know how you are financing your purchase? Or both?
The type of financing you use is important because, as a seller, you have the right to know how someone plans to purchase your property as well as to see evidence of that person’s ability to purchase. In addition, certain types of financing may not be accepted.
As a seller, you can choose what financing terms you will accept or will not accept. Most sellers are, of course, open to as many financing types as possible. However, in rare instances, specific financing types are sometimes prerequisites to being able to make an offer to purchase. For example, pending HOA litigation in a condo development would trigger this prerequisite. The HOA company will only allow sellers to accept owner occupied buyers with all cash offers or conventional financing.
Additionally, financing has its strengths and weaknesses. A general rule is outlined below recognizing there are always exceptions, and the seller has the final say.
FHA with DPA (Down Payment Assistance)
VA Loan WEAKEST
As you can see, cash is at the top of the list – it is still and will always be king. The VA loan is at the bottom of the list and it is bitter sweet.
Nicknamed the “No-No Loan” the VA loan is structured to be a great tool and benefit to allow our vets to become homeowners. No down payment, no closing costs. The VA buyer isn’t even allowed to pay certain costs associated with closing the loan. Sounds great in theory, however, those costs get passed on most times to the seller who gets to say yes or no to paying them. In a competitive market, this offer gets placed on the bottom of the pile because the seller is netting the least from these offers.
The other loans in between have varying resemblances to the VA loan because they require the seller to give up potential proceeds to make the loan happen for the buyer.
Ultimately, the more cash the buyer puts in, the more of the risk they are taking. The less cash the buyer puts in, the less risk. To a seller, the seller would rather see more risk to ensure your commitment and to increase the possibility of closing.
The above is offered as a guideline and is not set in stone as to what will always happen. There are many other ways your broker/agent can ensure you are making a strong offer no matter what your financing. In all that you do as a buyer, choosing a savvy broker/agent will ensure you are making the strongest offer for your money and budget.
Sales volume decreased for the third straight month, closing with 1,375 single family home sales. This is down 1.5% from the 1,396 homes sold last month. Month‐to‐month since July, sales have decreased 1,548 – 1,428 – 1,396 – 1,375, respectively. Compared with last year, the current figure is down .8% (1,386 sales). Making up this month’s total are 1,208 Equity Sales (87.9%), 83 Short Sales (6%) and 84 REO sales (6.1%). For the month, REO sales remained the same, short sales increased 17.6% and conventional sales decreased 1.1%.
Of the 1,375 sales this month, 256 used cash financing, 654 used conventional (mortgage‐backed) financing, 312 used FHA (Federal Housing Administration), 89 used VA (Veteran’s Affairs) and 64 used Other* types of financing. The average DOM (days on market) for homes sold this month was 37, while the Median DOM was 23. These numbers represent the days between the initial listing of the home as “active” and the day it goes “pending.” Breaking down the Days On Market, there were 816 listings that sold between 1 – 30 days, 293 listings that sold between 31 – 60 days, 148 between 61 – 90 days, 69 between 91 – 120 days and 49 sold after being on the market for over 120 days. This breakdown, as well as types of financing, is show in the graphic below.
The month‐to‐month median sales price decreased 1.1% from $275,000 to $272,000. The current level is 7.3% above the $253,500 median sales price of October 2013. The current figure is up 70% from the January 2012 low of $160,000. When compared to the all‐time high ($392,750/Aug. ’08), the current figure is down 30.1%.
Active Listing Inventory in Sacramento County decreased 2.7% for the month to 3,434 listings, down from the 3,529 listings of September. Year‐to‐year, the current number is up (29.1%) from the 2,659 units of October 2013. The months of inventory remained the same at 2.5 months.
With more available homes on the market for sale, California’s housing market will see fewer investors and a return to traditional home buyers as home sales rise modestly and prices flatten out in 2015, according to the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.) “2015 California Housing Market Forecast.”
The C.A.R. forecast sees an increase in existing home sales of 5.8 percent next year to reach 402,500 units, up from the projected 2014 sales figure of 380,500 homes sold. Sales in 2014 will be down 8.2 percent from the 414,300 existing, single-family homes sold in 2013.
“Stringent underwriting guidelines and double-digit home price increases over the past two years have significantly impacted housing affordability in California, forcing some buyers to delay their home purchase,” said C.A.R. President Kevin Brown. “However, next year, home price gains will slow, allowing would-be buyers who have been saving for a down payment to be in a better financial position to make a home purchase.”
“Moreover, prospective buyers should know that it’s a misperception that a 20 percent down payment is always required to buy a home. There are numerous programs available that allow consumers to buy a home with less down payment, including FHA loans, which lets buyers put down as little as 3.5 percent,” continued Brown.
C.A.R.’s forecast projects growth in the U.S. Gross Domestic Product of 3 percent in 2015, after a projected gain of 2.2 percent in 2014. With nonfarm job growth of 2.2 percent in California, the state’s unemployment rate should decrease to 5.8 percent in 2015 from 6.2 percent in 2014 and 7.4 percent in 2013.
The average for 30-year fixed mortgage interest rates will rise only slightly to 4.5 percent but will still remain at historically low levels.
The California median home price is forecast to increase 5.2 percent to $478,700 in 2015, following a projected 11.8 percent increase in 2014 to $455,000. This is the slowest rate of price appreciation in four years.
“With the U.S. economy expected to grow more robustly than it has in the past five years and housing inventory continuing to improve, California housing sales and prices will see a modest upward trend in 2015,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “While the Fed will likely end its quantitative easing program by the end of this year, it has had minimal impact on interest rates, which should only inch up slightly and remain low throughout 2015. This should help moderate the decline in housing affordability we saw occur over the past two years.”
“Additionally, the state will continue to see a bifurcated market, with the San Francisco Bay Area outperforming other regions, thanks to a more vigorous job market and tighter housing supply.”
A pet-friendly home is not just a fun and safe space for your pet, but also a space that can stand up to the kinds of things pets do to houses. Making pet-friendly choices in landscaping, design, and the materials you use will ensure that both you and your pet can enjoy your shared space together.
Opt for durable flooring – Even if your pet is perfectly well house-trained, they’re bound to have an accident or two. Choose a flooring material that’s easy to clean and won’t be damaged by accidents. Linoleum cleans easily and is naturally anti-microbial. Bamboo, cork, tile, and stone are also good picks. If you want carpet, try a modular kind, made of separate carpet squares. Buy back-up squares so if a section gets ruined, you can pop it out and replace it. Avoid wood and laminate floors. Wood is easily scratched and damaged by water and slippery laminate can cause injuries.
Choose pet-friendly materials and décor – Opt for satin paint instead of flat paint on walls. A glossier finish won’t show stains as prominently and wipes clean. Chose low VOC (volatile organic compounds) paints, especially if your pet bites or licks walls. Match the colors of throw rugs, upholstery, and other décor to your pet’s fur color to give yourself a little more leeway in how frequently you’ll be vacuuming and de-furring the furniture. Set up a feeding area in a spot where you won’t be accidentally kicking over the water bowl. Find a nearby place to store dog food, ideally in a sealed container, like a plastic bin or a metal garbage can with a lid.
Protect furniture – Choose upholstered pieces covered in tough, easily-cleaned fabrics like leather or ultrasuede. Consider washable slipcovers, throws to protect furniture, or extra-durable fabric designed especially for pet owners. Keep pets from chewing furniture by spraying with store-bought, anti-chewing spray or applying a bit of cayenne pepper to their favorite biting spots. If you need to keep a pet out of a particular area, put up baby gates and provide the pet with plenty of sturdy toys for diversion. Set up a special bed or blanket so your pet has a comfortable, cushiony place of his own.
Eliminate dangers around the house – Walk around your house and assess possible pet hazards. Move chemicals and cleaning materials to high shelves or locked cabinets. Make sure trash cans are safely secured so pets don’t get into something that could be harmful to them. (Many common household articles are toxic to pets including: coffee grounds, onions, grapes, and even nutmeg.) Latch lower cabinets with child locks if necessary and keep curtain and electrical cords out of pet reach. Put screens in upper level windows and make sure they’re intact and securely attached. Keep toilet lids closed and avoid automatic bowl cleaners. Wipe up spills in the driveway and garage immediately so pets don’t ingest poisons like antifreeze. Remove any indoor plants that are toxic to pets. You can find a list of toxic and non-toxic plants on the Humane Society’s web site (www.humanesociety.org).
Consider a pet door – If you are frequently away from home, consider putting in a pet door. Pet doors can be put in windows, doors, and walls. Smart models recognize your pet electronically and will only open for them, not for other animals. The doors can be controlled remotely and deactivated if you need the pet to stay inside. If you’re worried about the resale value of cutting a hole in the wall, consider a model that’s built into a glass sliding door. When you sell, you can replace that part of the door with a regular slider.
Create a yard for pets and people to share – Find safe, pet-friendly materials for plants and hardscape. Put in some mint or catnip for cats and a clover ground cover for dogs because it won’t yellow with urine. Outdoor cats like places to hide and things to climb and will make good use of trees and bushy areas. Dogs instinctively patrol the perimeter of the property and like running paths that follow the yard’s circumference. If your dog has already created a path, embrace it, covering it with mulch and lining with attractive plantings. Make sure your fence is in good condition with no secret ways out (including benches, large rocks, or other items that can serve as pet launching pads). Consider putting in a small eye-level panel in the fence so dog can peek out and keep a watch on things. For safety, keep sharp tools put away, keep compost bins covered, and avoid chemical like fertilizers and pesticides. Make sure plants are non-toxic and avoid plants with thorns. And pets like a lot of the same things humans like, so you’ll both be pleased if your yard has a shady spot to cool off and comfy places to sit.
You have done the hard part in the home-buying process and chosen a lender and a real estate agent to work with. You have also gone out and found the home of your dreams! Best of all, your team has done a great job of negotiating the best deal for you.
Now, as a buyer, all you have to do is sit back and wait for your loan to close … right? Wrong!!
Getting a home loan these days is a very interactive process. I am always amazed by how many clients I work with who come to me unaware of all the pitfalls they face during the loan process. To help avoid any surprises while waiting for final approval, I provide my clients with a short list of “do’s and don’ts” to follow.
Let’s start with the “do’s” …
Do keep the process moving by responding to your loan officers’ requests for documentation as soon as possible.
Do make decisions as soon as is reasonably possible.
Do convey questions or concerns you
Do continue to make all of your rent or mortgage payments on time.
Do stay current on all other existing accounts.
Do continue to work your normal work schedule with no unplanned time off.
Do continue to use your credit as normal.
Do be prepared to explain any large deposits in your bank accounts.
Do enjoy purchasing your home but remain objective throughout the process to help make decisions that are best for you.
After you have been preapproved for your mortgage you will want to refrain from the following…
Do not make any major purchases (car, boat, jewelry, furniture, appliances, etc.).
Do not apply for any new credit (even if it says you are preapproved or “xxx days same as cash”).
Do not pay off charges or collections (unless directed by your loan officer to do so).
Do not make any changes to your credit profile.
Do not change bank accounts.
Do not make unusual deposits into your bank accounts or move money around from one account to another.
Follow these simple rules and you will help to make your loan closing as smooth and hassle-free as possible! Good luck!
Homeowners who lost their homes at unprecedented numbers inadvertently created extraordinary opportunities of home ownership for both investors and owner occupants. Upside down home ownership blazed a grave trail with foreclosures and short sales (distressed sales) paving the way of Sacramento’s “buyers’ market”.
The recovery has been painful and volatile. At the height of the crisis, industry analysts were incredibly optimistic predicting it would last only a year or two at the most. Seven years later forecasting continues to be a challenge. Just as the mainstream media seems to sync with the analysts, Bernake speaks, interest rates bump up overnight, and you and I get to buckle up for another exciting ride in the wonderful world of real estate. However, there is actual evidence that recovery may truly be underway.
AND NOW THE LIGHT AT THE END OF THE TUNNEL
An analysis by RealtyTrac Inc. shows Sacramento as one of the hottest turn-around markets and predicts we are headed for a more normal pattern because of a rapid increase in new-housing permits at the start of this year and a significant drop in foreclosures.
To give you an idea of what that foreclosure drop looks like and some comparisons, the breakdown of sales for May was 115 REOs (6.9%), 371 short sales (22.2%) and 1,186 conventional sales (70.9%). Compared to one year ago, REO (bankowned) sales accounted for 27.8%, short sales 30.1% and conventional sales 42.2%. Since then REOs have dropped 75.1%, short sales dropped 26.2% and conventional sales have increased 68%.
However, low inventory remains a serious issue for buyers, especially would be first time buyers. Compared with May 2012, the sales volume has decreased 7.9% from the 1,816 units sold. Although active listing inventory increased for the month of May, rising 7.7% from 1,381 units to 1,488 units, the months of inventory remained at .9. This number explains the amount of time (in months) that it would take to deplete the current inventory at the current sales rate.
SAR President Chris Little adds his observations: “The number of listings continues to decline and months of inventory remain exceptionally low with supplies lasting less than 3 weeks. Both the median and mean sales prices continue to increase significantly and cash buyers, though significant, are a declining portion of the buyers.”
WHERE’S THAT LIGHT AGAIN?
So when will we begin to see some of this new inventory from the housing permit increase? According to an article in the Sacramento Business journal, “Large homebuilders are snapping up the available lots out there, with plans to build on them as soon as possible, according to Jim Radler of Land Advisors organization in Sacramento… JMC Homes bought 54 finished lots called Sienna in an unincorporated area north of Elk Grove, between Calvine and Robbins roads and east of Elk Grove/Florin Road, near a strip mall.” As soon as this time next year we can begin to see move-in ready new home construction.
SAR President Chris Little continues, “Demand is high, supply is very low and investors are moving away. If interest rates continue to rise and lender practices continue to be stringent, it may flatten the rising demand due to challenges for buyers on the financing side. Therefore, homeowners with equity and a desire to sell should act on it and consult a REALTOR®.”
All these combine to make it a STRONG sellers’ market. With inventory on the rise and interest rates still at record lows, it’s STILL a great time to buy and sell. If you or someone you know is looking to buy or sell, give us a call.
(Market Data – Sacramento Association of REALTOR’s RESIDENTIAL RESALE STATISTICS May 2013)
Some buyers in hot markets with a low inventory of homes for sale are losing out over and over in multiple-offer competitions. You can improve your chances of having an offer accepted by clearing up any issues that might cause a seller to look askance at your offer when compared to one from another buyer.
If your purchase offer is littered with contingencies that protect you, the sellers are more likely to see the contract as risky, especially if they are looking at other offers that contain fewer contingencies.
A clean contract is free of contingencies, which can give buyers a competitive advantage, especially if they are offering less than full price or are in competition with other buyers.
Timing is everything in the home sale business. Buyers often lose out on the opportunity to make an offer on a listing because they are traveling for business or vacation. One partner may see the home of their dreams, but the other won’t be back in town to take a look for days or weeks.
Making an offer contingent on the absentee buyer’s approval of a property is risky from the seller’s standpoint. If the seller accepts the offer, he takes his home off the market not knowing if the absentee buyer will like the house enough to buy it.
It would be very difficult to get such an offer accepted if there are multiple offers from buyers who have all seen the property. The Internet can give a great introduction to a listing, but it usually doesn’t include photos of items that might cause you to pass on the property, like a neighbor’s home that is in poor repair or a location close to a noisy freeway.
Some buyers buy property without having seen it. To get an offer accepted, these offers usually have a generous price, and close quickly. The buyers may later find problems that they could have discovered had they seen the property before making an offer. It’s better for both buyers and sellers if all potential buyers have seen the property before an offer is made.
HOUSE HUNTING TIP: Try to anticipate if there is any condition of your home purchase that would cause the sellers to shy away from accepting or countering your offer. If such conditions exist, try to address them before you make an offer.
For example, let’s say your parents are willing to give you a large amount of cash for a down payment to make your offer more competitive. Make sure this will be acceptable to your mortgage lender.
Find out what verification the lender will require from your parents. If the lender needs a gift letter that stipulates you don’t need to repay the money, have your parents write this letter and include a copy with your offer.
Sellers are always concerned about the buyer’s financial capability to close the transaction. Your offer should include a letter from your lender stating that you are preapproved for the financing that you need. The letter should stipulate that the lender has verified the cash you need for the down payment and closing costs.
If the verification of funds needed to close is not included in the preapproval letter, make a copy of a bank or brokerage statement that verifies the amount you need. Black out the account number and include a copy of this with your offer.
In some areas, buyers are making offers without any contingencies. That is as clean as it gets. However, there can be problems with contingency-free offers. Buyers can feel pressured into waiving an inspection contingency because they’re sure they can’t compete unless they do. The sellers could end up in a legal hassle with the buyers after closing if problems arise that weren’t disclosed to them.
THE CLOSING: Buyers should ask the sellers for permission to preinspect the property before they make an offer without an inspection contingency.
The current industry trend of short sales has caused a large amount of hopeful home owners to place a hold on their dream of homeownership. So it’s no surprise that this new trend of short sale leaseback programs, popping up all over the country, seems like an answer to prayer. The exposure is overwhelming. What could be better than a distressed homeowner being able to get out of a financial hardship and keep their home?
Short sale leasebacks became a hot topic when the HAFA Supplemental Directive 12-03, was released on April 17, 2012 allowing for leasebacks. It states:
“A servicer may in its discretion approve a transaction under HAFA that provides an opportunity for the property to be sold to a non-profit organization with the stated purpose that the property will be rented or resold to the borrower so long as all other HAFA program requirements are met.”
So let’s take a look at how this new short sale leaseback program is supposed to work. The short sale is purchased by an investor (a non-profit organization). Instead of the owner moving out, the property is leased back to the homeowner so that the homeowner can stay for a period of time. At the end of the lease agreement, the homeowner buys the property back from the investor.
The challenge is, prior to the supplemental directive, leasebacks were considered a violation of the Arms Length Affidavit provision of most short sales due to:
Fraud committed by sellers who are not supposed to benefit from the forgiveness of their debts
Investors taking advantage of sellers who had hopes of purchasing their homes back
The chief issues with the short sale leaseback program are increased potential for fraud to the homeowner and other parties to the transaction which in turn causes the program to garner almost no support from the major servicers, U.S. Treasury, and GSE’s.
So what are the major lenders saying about short sale lease backs? Only one major lender has agreed to allow them, and to date (as of the date of this article), “They have only closed one” states Certified Distressed Property Expert CEO Alex Charfin. He said the major banks do not see leasebacks as viable option because they attempted pilot programs and the pilot programs were not successful.
Bank of America, one of the nation’s top mortgage holders of distressed properties, won’t allow short sale lease backs. Per a recently released memo, B of A now requires all short sale listings must be marketed in the local MLS and remain there throughout the short sale listing process until closing. Short sale lease back are not marketed in the MLS because they are sold directly to the investor.
If only a few have closed, then why does this sound like the next big answer for distressed property owners? Unfortunately, the marketing of the program, by certain companies, is very good. But their closing ratio is not. Short Sale leasebacks do not protect the homeowner or the real estate agent.
That brings us to the risk of fraud to the homeowner. The increased risk for fraud occurs when the investor purchases from homeowner, and when it’s time to buy back, the investor does not sell back to homeowner. HUD approved charities (non-profit organizations), have only closed a few, nationwide.
However, as with any big opportunity, we will see a surge of companies professing to be able to train you how to successfully close a short sale leaseback. They have done some good marketing and PR as are touting it as if it is a great and highly successful program. But the reality is they’ve literally only done a few and the flood gates of fraud will open wide.
If you are a homeowner or an agent interested in doing short sale leasebacks:
Never allow a third party to have any negotiation control over the transaction – you and your broker (or your agent if you are a homeowner) are ultimately responsible for the results
Exercise extreme caution
Know that there are many short sale leaseback training programs. The good programs will require agents to take training and to give up 1% of their commission so that they can negotiate the sale and the leaseback. But agents, before signing up for training be cautious and consider the challenge you may present to a homeowner. This is a new strategy that is completely unproven and most servicers do not have an appetite for. The property is never really in the MLS, so it’s not properly marketed and you are relying on this non-profit to negotiate the deal and provide an approval (which most lenders have already said they won’t do it), all of which may take more than the average six months because of the involvement of additional parties. Then, if there is no approval, you will have to go back to the homeowner and explain that you were unable to make that happen for them and you lose 1% of your commission in the process because you signed an agreement.
On a final note, before you sign up for any training or place any homeowner into this type of pipeline, qualify the organization. Can they show you evidence of completing transactions, can they show you the paperwork, can they show you the properties which were successfully leased back, and can they let you talk to a homeowner who is actually living in a property today and has successfully completed a short sale and has now leased their property back? Verify that before you put yourself and your client into a challenging situation. And remember; don’t get tangled up in fraud.