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Sellers: Think twice about high offers

October 27th, 2009 10:15 AM

Sellers: Think twice about high offers

Sellers who are lucky and receive more than one offer should carefully consider all aspects of the offers before accepting the one with the highest price. Even if you receive only one offer and it's lower than your asking price, you might want to consider bending some on your price in exchange for a transaction that is likely to close.

Ideally, you want a committed buyer who has a good credit score and financial resources, and who has been preapproved for a mortgage, as lenders have tightened their qualifying criteria considerably.

HOUSE HUNTING TIP: Your real estate agent should ask the buyer's agent for permission to contact the buyer's mortgage person directly to find out if there is any reason the buyer wouldn't receive credit approval. An offer from a gold-plated buyer at a lower price may be a better deal than a higher-priced offer from a marginally qualified or low-cash-down buyer.

Another issue to consider if you receive more than one offer is the likelihood of the property appraising for the higher price. Appraisals have become a problem recently, particularly in declining markets. Appraisers make downward adjustments for properties that are deemed to be in declining markets.

Are there at least three comparable sales that closed within the last three months that can be used to justify the buyer's offer price? If not, the appraiser might have difficulty appraising your property for the purchase price.

Buyers usually include an appraisal contingency in their offer. If so, the buyer usually has the option to withdraw from the contract if the property appraises for less than the contract price. Some buyers won't buy a home that appraises for less than they've agreed to pay.

A buyer who is committed to making the deal work is more likely to be able to accept an appraisal that is lower than the purchase price. In this case, the buyers and sellers negotiate a mutually acceptable resolution. For example, the sellers could agree to accept a lower price if the buyers agree to increase their cash down payment.

Many buyers don't have additional cash. In this case, if the seller wants to keep the deal together and the buyers won't or can't complete the purchase at a price higher than the appraised value, the contract price will need to be reduced or the deal will fall apart.

There are a lot of uncontrollable elements in a home-sale transaction. One is that you have no control over who represents the buyer. That is, unless you receive more than one offer. In some cases, it may be worthwhile to accept a lower-priced offer from a buyer who is represented by an agent with a good track record in your area -- one who is experienced, trustworthy and diligent.

A clean offer is one that is not loaded up with contingencies. Typical contingencies are for inspections, and loan and appraisal approval. An offer that's contingent upon the sale of another property is riskier than one that's not. A noncontingent offer, even at a lower price, might be the best offer because it has more certainty of closing.

An offer that is contingent upon the close of another escrow may be worth the risk, particularly if all contingencies have been removed from the buyer's contract. Request confirmation from the buyers that contract contingencies have been removed and find out from the closing agent or escrow officer when the closing is likely to occur.

THE CLOSING: The uncertainties in the current market make it important to carefully consider the terms of an offer, not just the price, before you accept it.

Dian Hymer is a nationally syndicated real estate columnist and author.

Posted by Amit Inamdar on October 27th, 2009 10:15 AMPost a Comment (0)

Is 80-10-10 financing dead? Can PMI be avoided?

October 13th, 2009 10:57 AM

Is 80-10-10 financing dead?

Can PMI be avoided?

One of the few certainties in the real estate business is that it's always changing. At this point, the financing end of the business changes daily. A lender may approve a loan one day and decide just before closing that it no longer offers that type of financing. Then, weeks later, they are back in the game.

It's widely known that the easy-qualifier loans that got so many homeowners into trouble recently are no longer available. Most conventional lenders want the borrower to put cash into the deal, have very good credit scores, and be able to verify employment. Mortgage lenders are in a very cautious mode.

The 80-10-10 financing, a popular financing vehicle for qualified, low-cash-down buyers, has virtually disappeared. With 80-10-10 financing, the buyer makes a 10 percent cash down payment. A conventional lender gives the buyer a mortgage for 80 percent of the purchase price, and the borrower takes out a second mortgage against the property for the remaining 10 percent.

When buyers put less than 20 percent down on a home purchase, the mortgage lender usually charges private mortgage insurance, or PMI. This insurance protects the lender in the event that the buyer defaults on the loan. PMI adds to the cost of the monthly mortgage payment.

In time, if the buyer can substantiate that there is 20 percent equity in the property, the PMI can be eliminated. But, it doesn't happen automatically. It requires a verification process.

HOUSE HUNTING TIP: Buyers who can't get financing without PMI should be prepared to pay PMI for the foreseeable future. Home prices may not have bottomed out yet. No one knows when we'll enter the next cycle of home-price appreciation. The future appreciation rate is uncertain. However, you can build equity, without depending on appreciation, if you pay down the amount owed until the mortgage equals 80 percent or less of the property value.

It's precisely because of the declining market that lenders are gun-shy about 80-10-10 financing. There are few, if any, lenders who do 10 percent second mortgages for home purchases. If the value of the property were to drop 10 percent, the property would be 100 percent financed. Should values drop further, and the borrower stopped making payments, the lender could lose out completely if the property couldn't sell for enough to repay the second mortgage.

Recently, however, buyers were able to purchase their first home in Montclair, a popular neighborhood in the hills of Oakland, Calif., using 80-10-10 financing. They were very well qualified financially, but they wisely decided to preserve some of their cash for home maintenance and improvements.

Their mortgage broker arranged a 90 percent mortgage for them -- one that required PMI. The buyers shopped around and were able to find an 80 percent first mortgage with a lower interest rate. They got a private second mortgage for 10 percent of the purchase price, so they didn't have to pay PMI. This alone saved them $150 per month. The first mortgage lender approved this financing arrangement.

Most lenders, at this point in time, won't permit buyers to obtain secondary financing. But, there are lenders that will allow this sort of financing. If you don't have access to a private-money second, see if the seller might be willing to carry back 10 percent. If you have 15 percent to put down, perhaps the seller would agree to a second mortgage for 5 percent of the purchase price. And, don't be bashful about asking your parents for an early inheritance.

THE CLOSING: Many parents are pitching in so that their children and grandchildren can settle in a good long-term home in a desirable location.

Dian Hymer is a nationally syndicated real estate columnist and author.

Posted by Amit Inamdar on October 13th, 2009 10:57 AMPost a Comment (0)

Appraisals killing deals in many markets

October 6th, 2009 1:01 PM

Appraisals killing deals in many markets

Finding the right house to buy is never easy; selling a home today is also challenge. It's best to prepare yourself for obstacles that could cross your path so that you're prepared should they arise.

In some markets, one in three transactions doesn't close. This is a high ratio compared to the fallout ratio in previous years when the housing market was stronger and financing options were plentiful. In past years, most transactions fell apart over inspection issues. The biggest hitch today is financing, which is not to say that property defects don't come into play.

For some time, lenders have tightened up on their qualifying criteria, making it more difficult for buyers to obtain the financing they need to close a sale. Recently, appraisals have become problematic, particularly in low-inventory, higher-priced neighborhoods.

There are three components to lender approval. The borrower must be financially qualified. This requires a good credit score, sufficient cash for a down payment and closing costs, as well as verifiable income. The lender also needs to approve a title report on the property to confirm that the seller has marketable title to the property. And, the lender needs an appraisal of the property to confirm that the buyer is not overpaying.

Previously, lenders' underwriters required three comparable sales in the area that occurred within the last six months to validate the purchase price. Due to the soft housing market, lenders now want to see comparable sales information on listings that sold and closed within the last three months. The listing inventory in some areas was very low from December 2008 through March 2009, making it difficult for appraisers to come up with enough comparable sales information to satisfy the lenders.

To complicate matters, some appraisers and lenders automatically lower the appraised value by a certain amount if the property is in an area that is deemed as a declining market. This can result in an appraised value that is lower than the price the buyer and seller agreed to in the purchase contract.

HOUSE HUNTING TIP: The most accurate appraisals are done by appraisers who know the local market well. Unfortunately, changes in the lender's practices are resulting in more appraisals done by appraisers from outside the local area. Many lenders no longer have their own, in-house appraisers; many are relying on large nationwide appraisal services to provide appraisal services.

Let's say a listing sold for $1 million, but appraised for only $950,000. One way to resolve the problem is for the buyers and sellers to split the difference. In this case, the sellers lower their price by $25,000 and the buyers put an additional $25,000 cash down.

For the cash-strapped, this is not an option. In this case, the sellers would have to lower the price by $50,000 to keep the deal together. Some sellers might be willing to carry a second mortgage as long as it doesn't exceed the lender's loan-to-value (LTV) limit and the loan isn't due for at least five years.

THE CLOSING: Check with your lender before attempting to negotiate a seller carry-back; some lenders won't allow it.

Dian Hymer is a nationally syndicated real estate columnist and author.

Posted by Amit Inamdar on October 6th, 2009 1:01 PMPost a Comment (0)

Bailout for the Bay Area

January 14th, 2009 7:31 PM

The bailout idea was originally started in September 2007 when the subprime crisis hit from nowhere. Many changes to home buying process were suggested by government and implemented to no avail. The HOPE NOW program implemented in late 2007 came to realization that refinancing of the troubled homebuyers was not as easy as it sounded. Lenders were not required to follow what the goverment proposed....

To truly understand if any type of bailout can work or not, one has to understand the loan process. Loan process then, when the market was hot, and the loan process now. Today's loan process and parameters scoff at the bailout idea.

Take situation in the market place until mid 2007. I am not telling anything that you have not heard; however, keep reading as I shade more light on the market place. One could buy a home with zero down payment. Many of the homebuyers we have helped with came in with 5-20% down payment. Loans were easy then. Now you can get loans up to 80% of the DECLINED home value. Here is an example...

Homeowner who bought a home for $600,000 in the boom times wants to refinance. Her home has dropped in value to $500,000. If the home owner paid 5%, 10%, 15%, or 20% down, she has to come up with cash of $170K, $140K, $110K or $80K to be able to finance in today's mortgage environment. The new loans limit loan to value ratio to 80%. This was first fall out from the Hope Now program.

Then came the FHA loans. These loans were available always, just got more visibility in this crisis. With FHA you can refinance up to 95% of new home value (and up to 96.5% for loans under $417K). Continuing the same example above, even under FHA refinance to work, additional cash of $85K, $65K, $35K or $5K is required from homeowner. Also FHA loans have upfront 1.75% insurance premium. However, this gets absorbed in the loan amount. Call for details.

So FHA loans helped compared to original HOPE NOW program. However they are not sufficient to bailout the bay area.

With Fannie and Freddie under its arms, the government realized that lower interest rates might spur the home buying, just like it did it in the boom times. Now the rates are hovering just about 5%. These rates are available for loan amounts up to $417K. Rate for higher loans, now called, conforming jumbo or high balance conforming, are anywhere from 5.5% to 7% depending on the lender. So the question is how does this play out in the home buying process and does this level of bail out help us in the bay area?

Well, with 20% down payment requirements, and to take advantage of the lower interest rates, one can buy a home not more than $521,250 (80% loan at or under $417K). How many homes in the bay area are under $500K that buyers really want to buy? Majority of the homebuyers making over $100K a year are looking into homes priced at or above $600K. Also, buyers are reluctant to put their cash for purchase in declining housing market environment (this is true even for low rate refinance).

When the rates were this low in the boom time and interest only loans were available, one could qualify for 7 times their income. A person making $100K could buy a $700K home with almost no money down. Today, interest only loans are unavailable under the similar terms as they were during the boom. Today, person with $100K income qualifies for 5 time their income to $500K and needs over 100K down to buy a home. This means with lowered interest rates, for one to qualify for a home that is declined in value still needs over 100K down and much lower home price than the boom time.

Bottom line in all this analysis is parameter called affordability. Loan programs made home buying affordable during boom. Any effort made in the credit-crunched environment with stringent loan requirements is not going to reach level of affordability achieved few years ago. So I call it a bubble.. not a housing bubble rather an affordability bubble… that caused greed to set in to get a home of one's dream.

Going forward the recovery will be slow. Job losses are going to impact the housing market. In my opinion, it's going to be 2012 or later before we see any level of housing boom.

(If you are planning to buy or sell a home, do attend our 45-minute one-on-one presentation... This will help you make an informed decision. Amit can be reached at 510-364-6686

Posted by Amit Inamdar on January 14th, 2009 7:31 PMPost a Comment (0)

Short Sale Anatomy

December 5th, 2008 9:45 AM

Short Sale simply defined means you are selling a home below what is owned on it. Say you have a loan of $500,000 on a home that is now worth $400,000, then if you sell it at $350,000 (someone wanted a deal, right?) with lender approval, lender was SHORT of the amount owed and it is a short sale.

How does a seller typically arrive at a short sale decision? First of all in most cases, seller is unable to pay the mortgage due to life changing situations like, job loss, divorce, backruptsy etc. The lender issues a Notice of Default (NOD) to the property owner. At this point seller has few options: Negotiate with lender on payment delays or reduced payments (like loan modification we discussed last month), become current on the payments and remove the NOD, or sell the property to cure NOD. However, if sell of property involves reduced market price then a short sale situation arises. This sale MUST be approved by all creditors to have a clean break from the property. Any creditor not apprving a short sale, may recover their money by other means.

By all creditors I mean, all lien holders on the property. They usually are, the county assessors office, first lender, second lender, HOA liens, and any other recorded liens on the property. County Assessors office always has priority and it usually never gets negotiated. First lender is next in line and they can negotiate so the sencod lender, HOA dues and other lien holders. To find out list of all liens on the property, one can research the county recorder's office or get a preliminary title report from a title company for a fee. If your home is already with a Realtor for sale, this typically is obtained in the process.

Depending on the market value of the property these liens may or may not get paid.

Let's continue with our previous example...Assume all loans are obtained at the time of purchase.

Total Loan on Property $500,000

Amount of first loan: $350,000

Amount of Second Loan: $150,000

Sale price of property $400,000

Costs and Commissions:

HOA dues deliquency $1200

Property tax deliquency $3000

Misc Closing costs $6000

Real Estae Commissions: $25000

Total Costs and Commissions: $35,200

Net after all costs and commissions: $364,800.

At this point the first lender gets $350,000, second lender if agrees to settle for $14,800 gets that amount and the short sale gets consumed. If there was loan deliquency on the first worth $14000, then the second lender may get just $800. It is also possible that first lender may take a loss to have the second lender approve the sale and recover majority of the first loan.

This process may take any where from 3 to 6 months. Note that the Mortgae Relief act of 2007 (see FAQ in IRS website) allows for all purchase money loan forgiveness to be NON Taxable until end of 2009.

It is important to price the property right, lender will do their own appraisals and broker price opinions and they all have to fall in place. Afterall the lender has to answer to their investors in accepting a particular price. If you offer too low, your offer may get rejected. Also, by the time the lender accepts your offer and market prices have fallen, you may choose to back out. Make sure your contracts are written properly to accomodate various possibilities and to make your deposit secure.

If you have refinanced your original loan, or taken a second loan or equity line, it may not be forgiven under the Mortgage Rellief act of 2007. Please contact your tax professional for your specific situation. Any loan or debt not forgiven the debter may come for collection later in time as allowed by the law. If you or someone you know is in a situation where short sale can be an option feel free to contact me. (Amit 510-364-6686).

Posted by Amit Inamdar on December 5th, 2008 9:45 AMPost a Comment (0)

Loan Modifications: Are You Eligible?

October 16th, 2008 2:02 PM

I have received quite a few phone calls for the new buzz word circulated among the home owners.. Loan Modification. So I decided to blog it and answer some common questions once in for all.

Why fix if it ain't broken and prioritization, are the two major rules for loan modification. First of all, it is against the California law to charge upfront fees for loan modification process unless prior approval is obtained from Department of Real Estate. So anyone calling you to have your loan modified for a fee, beware.

Recently issued DRE commissioners report indicates that: "Unscrupulous operators comb the public records to obtain information on the properties against which a notice of default (NOD) has been filed. These operators then contact the borrowers with promises of rescue in exchange for an advance fee. Often, the advance fee is collected by credit card and ranges from several hundred dollars to several thousand dollars. To induce the borrower to pay the fee, scammers tell the borrower they have expertise and connections that ensure a loan modification can be negotiated with the borrower's lender to permanantly reduce the payments to sustainable levels. However, once the money is collected, no work is performed and the victim loses their home to foreclosure."

This does not mean that there are no legitimate businesses that engage in foreclosure consulting and, in fact, collet perfectly legal advance fees. Real estate broker providing such service must get the advanced fee agreement approved by the department of real estate. All advance fees are held into broker's trust account until specific services are performed. However, once NOD is filed Foreclosure Consultant law (civil code 2945 et seq.) precludes from collecting advance fees.

So assuming you do find a legitimate loan modification provider, there are no guarantees that you will get the results. As everyone knows the number of borrowers defaulting on their mortgage payments has skyrocketed in recent months. This in itself has clogged the service providers bandwidth. So your lender when he looks at your case, looks at how long before your home forecloses. If you are close to getting foreclosed, your case is looked at immediately than if you just received a notice of default. If you are current on your payments and struggling to make them, tough luck. You cannot get a benefit of loan modification unless you are ready to let go your credit worthiness. This loan modification process, is a simple result of prioritization which lenders must do in order to work within their aleady streched resources. Logic is, why fix if it ain't broken?

If you need specific advice on your situation, call me. No guarantees, however, there is a posiibility of refinance by negotiating the payoff from the current lender(s), assuming you qualify irrespective of the property value.

Look out for my next month's blog: "Short sales and how to benefit from it?"

Posted by Amit Inamdar on October 16th, 2008 2:02 PMPost a Comment (0)

Is DOT-COM Boom Driving Prices in Good School Districts?

March 18th, 2007 9:46 PM

Remember the days of the dotcom? Number of foreign workers coming to the bay area for the prospects of better jobs and lifestyle. Well, as you may find out they may just be fueling the home prices in good school disctricts. Well, you heard it here first!

The young, early to late twenties H1B inflow during the days of dotcom is settling down as their green cards are arriving and they feel confident about purchasing their first home. Most of their kids are of school going age and we are seeing better schools as the primary requirement for home purchase. Even though bay area saw surge of home inventories in past 6-9 months, the inventories in the areas like Cupertino, Fremont Mission District, Warm Springs, Parkmont and Ardenwood-Forest park are have been low. Not only the sales in these area are strong but we are witnessing upward trend in prices of homes in this area. Many of the first time home buyers are also focusing in on the San Ramon area where the schools have achieved outstanding results.

One of the major questions first time home buyers focusing on good schools have is: Should we send our kids to Private Schools or Public Schools? Assuming the output in top-most public schools is comparable to the private schools, it always makes sense to pay a premium for the homes in the good public school areas. The tution money paid towards the private schools can be used towards the homes near good public schools and one can participate in future appreciation of real estate with that extra investment. Well, that said, all you have to pray for is redistricting of school boundaries does not affect your home location. But then again, wouldn't you make investment based on what you know today? Also, remember, teh private schools primarily focus on elementary education and you will still move again for middle and high school.

Call us get free copies of detailed school reports for the neighborhood od your choice.

Posted by Amit Inamdar on March 18th, 2007 9:46 PMPost a Comment (0)

What is so special about Bay Area?

March 15th, 2007 7:53 AM

Bay area real estate has doubled in value historically every 10 yrs. Is it our weather or our population and just the supply of land? It is all that and some more. California is the 7th largest economy in the world (the ranking keeps changing, however we are ranked in the single digit). Majority of the GDP driven by the bay are with population of about 8 million people.

We saw last year, all the news media trying to apply the US housing trends to the bay area, scaring the buyers and sellers alike. What really happened? Many buyers stayed on the sideline and did not buy, many sellers came on the market and waited for the buyers.. This standoff was finally over as the 2007 began. Sideline buyers came out in fears of rising interest rates or the lure of lowered interest rates from June 2006 by almost a full percentage. This translated into multiple offers.. but wait, not necessarily above asking. Properties closed at prices very close to asking or at asking. Good properties went above asking and the bay area came back to life.

So when is the best time to buy? NOW. I say that because you can only make decisions based on what you know today. Tomorrow rates may go up, and a half point increase may reduce your qualification by 10% of the properties you are so picky to choose. Imagine liking something then below your original search price. If the rates drop, just refinance if it makes sense. Just to recap the last two years, when the rates went down, more affordability caused the prices to jump with increased demand. When rates went up from 4.5% to 6.5%, that is approx 40% jump in the rates.. your loan qualification affected by almost the same amount downward..and the home prices did not even move downward by 10%.. So make your decisions today based on what you know today. Its all about your cash flow and price of the home by few perccentage may get washed in the long run. Open doors as the opportunity knocks.

Posted by Amit Inamdar on March 15th, 2007 7:53 AMPost a Comment (1)