Tuesday, May 1, 2012
2012 could be record year for short sales
2012 is on track to become a record year for short sales, according to a report from foreclosure data aggregator RealtyTrac. Sales of U.S. homes in the foreclosure process, typically short sales, rose 33 percent year over year, to 35,000, in January. A total of 32 states saw annual increases in short sales, and 12 states saw more short sales than REO (real estate owned) sales.
The short-sale increase comes after three years of declines following the inauguration of "a new presidential administration with a new approach to the foreclosure problem," wrote Daren Blomquist, RealtyTrac's vice president and author of the report.
"Short sales have long held great promise as a market-based solution to the nation's foreclosure problem, but short sales transactions over the past three years have actually declined after peaking in the first quarter of 2009," Blomquist said in a statement.
"January foreclosure sales numbers, along with first-quarter foreclosure activity, strongly indicate that downward trend is ending, and we believe 2012 could be a record year for short sales."
Several states saw triple- or double-digit yearly jumps in short sales in January, including Georgia (up 113 percent), Michigan (90 percent), California (52 percent), Texas (48 percent), Arizona (44 percent), Nevada (36 percent), and Florida (20 percent).
Although REOs continue to outnumber short sales nationwide, there were only 2,600 more REO sales than short sales in January. Nearly a quarter of states had more short sales than REO sales, including Utah, California, Arizona, Florida, Indiana, Colorado, New York and New Jersey, according to the report.
Six out of the 10 states with the highest share of short sales in January were in the West.
Of the 50 largest U.S. metro areas, nine out of the 10 metros with the highest share of short sales in January were in the West, six of them in California.
Even as short sales increase, the prices buyers pay for them have decreased. In fourth-quarter 2011, a pre-foreclosure property sold for an average $184,221, down 11.3 percent from fourth-quarter 2010. In January, such a property sold for $174,120, down 10 percent year over year.
Short sales are also selling for bigger discounts when compared to the average sales prices of nondistressed homes. Short-sale buyers received an average 21 percent discount in January, up from an average discount of 17 percent the year before. RealtyTrac does not take into account property condition or size when calculating discounts for distressed properties. Short sales in Massachusetts, Missouri and California saw the biggest discounts in January.
Short-sale timelines appear to be getting shorter. After peaking at 318 days in third-quarter 2011, the average number of days it took for a property to go from the start of the foreclosure process to its sale as a pre-foreclosure was 306 days in the first quarter, slightly down from 308 days in the fourth quarter.'
Although foreclosure starts -- either default notices or scheduled foreclosure auctions, depending on the state -- were down 11 percent from the previous year in March, last month also saw the third straight monthly rise in foreclosure starts. There are nearly 3.5 million delinquent borrowers nationwide; 41 percent of those borrowers are seriously delinquent and therefore at high risk for entering the foreclosure process and becoming short sales, RealtyTrac said.
Another, bigger potential pool of short-sellers are borrowers with underwater mortgages. More than 12.5 million borrowers owe at least 25 percent more on their mortgage than their home is worth.
"Even if these homeowners aren't struggling to make mortgage payments and therefore are at low risk for foreclosure, if they need to sell sometime in the next five years it's likely they'll need to sell via short sale," the report said.
Among lenders and loan servicers, Bank of America had the highest short-sale volume in January, followed by Chase and Wells Fargo. PNC Financial saw the biggest annual jump in short sales, followed by the Federal Housing Administration, Fannie Mae and Freddie Mac combined.
Those three government-backed entities also had the lowest average short-sale prices in January, the biggest declines in average sales price for short sales, the lowest number of average days to sale, and the biggest decrease in time to sell.
Home seller pitfalls to avoid
Six years after the market peaked in 2006 and prices started to decline, many sellers are still in denial about the current market value of their homes. It's difficult for most sellers to accept the reality of today's home-sale market, whether they bought at or near the peak and will lose money selling today, or bought decades ago but are still stuck at 2006 prices.
One homeowner recently remarked that she was aware that home prices had dropped quite a bit over the last five years. But she felt that her home hadn't lost any value.
It's hard for homeowners to divorce themselves emotionally from a home they've enjoyed. But this is what sellers need to do so that they can make rational decisions about a list price that will actually result in a sale.
This decision should be based on listings that have sold in your area that could be considered somewhat comparable to your home. Some sellers go to open houses to evaluate the competition. If you're still emotionally wrapped up in your home, the exercise can be futile. You return home feeling that the other homes aren't as good as yours.
Put yourself in the buyers' shoes. This is easier for sellers who are also buying in this market. They know what it's like to want to make sure they're getting a good deal. Your house needs to be listed at a price that is enticing to buyers because it represents a good value. In most areas, buyers are buying in a market knowing that prices may continue to decline before the market fully recovers.
HOUSE HUNTING TIP: Be wary of real estate agents who tell you that your home will sell for a higher-than-supportable price just to get the listing. Then they work on you over time until you reduce the price to market value. Agents refer to this as buying a listing.
It's hard to resist the temptation of trying for a higher price than the comparable sales indicate. However, you won't be happy if your home is on the market for months with no activity, and each time you drop the price it feels like too little too late. You can end up selling for less later if home prices in your area are still declining.
Refinance appraisals are notoriously inaccurate in terms of market value -- either too high or too low. An appraiser is attempting to gauge what price a buyer would pay when there isn't a ratified contract that states what a buyer will pay. A high refinance appraisal can leave the seller with a false expectation.
Listing your home based on what you want or need to net from the sale won't motivate buyers to pay more. Buyers pay market value. They're won't overpay in today's market.
Find out what buyers are looking for in your area and see how your home matches up to their expectations. Generally, today's buyers are looking for a home that is well-located, in good condition and is priced right for the market.
If your home needs a lot of work compared with the competition, you'll either need to have work done before selling, or discount your price accordingly.
Walkable neighborhoods are highly desirable in some areas. If your home doesn't offer this amenity, you may have to make a price accommodation.
THE CLOSING: For best results, be realistic about the current market value of your home and what preparation it needs in order to sell successfully in today's market.
Dian Hymer is a real estate broker with more than 30 years' experience and a nationally syndicated real estate columnist.
A purchase strategy for distressed real estate
Many of the houses coming on the market today are foreclosure sales, which usually sell "as is" and are often in poor condition. This may create a buying opportunity for some buyers, but it may be a hazard for others.
Purchase opportunity
A purchase opportunity arises because many potential buyers don't want the hassle of fixing up a house in poor condition, which means that there are fewer competing buyers. In addition, those who sell houses "as is" are frequently in a hurry to get it done, which means that they are disinclined to wait for a higher offer.
The buyers in the best position to take advantage of such opportunities are those with the skills and knowledge required to assess what needs to be done and how much it will cost.
Risk of value uncertainty
But purchasing a house in poor condition has serious risks. One risk is the greater uncertainty connected to its value. The worse the condition, the more costly the improvements required to make the house livable, and the larger the potential error in judging in advance what these costs will be.
The appraisal may reduce but not eliminate the uncertainty connected to the property's value. Appraisers mainly rely on the sale prices of comparable properties, after adjusting for the differences between the subject property and the comparables.
But because information on the condition of comparables is often difficult for appraisers to obtain, the error in making price adjustments is relatively large when the property is in poor condition.
Risk of not finding a mortgage
But today the greater risk in buying a property in poor condition is that the buyer will be turned down for a mortgage or forced to find a lender who will make the loan but at a premium price.
This problem seldom arose before the financial crisis because there were very few foreclosure sales, and lenders generally operated on the assumption that valuation errors would be erased by property appreciation. Today, those looking to buy a house in poor condition need to consider this risk very carefully.
Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) recently developed a classification system for housing condition ranging from C1 (the best) to C6 (the worst), but only C6 is unacceptable to the agencies in "as is" condition. Nonetheless, many lenders require a C4 or better.
Rationale for condition requirement
It is understandable why the agencies that bear the risk of default would either require that the condition of mortgaged houses meet some minimum standard, or base their purchase prices or insurance premiums on house condition.
As noted above, the potential error in appraisals is larger for houses in poor condition, which would result in greater losses on loans that default. When defaults occur early, furthermore, the house that was in poor condition when the loan was made is very likely to be in poor condition at default, which increases marketing costs.
Why some lenders are stricter than the agencies, however, is not clear. Presumably the servicing of loans on properties in poor condition is less profitable, perhaps because these loans have relatively short lives. It is also possible that the cost to servicers of managing foreclosures of properties in poor condition is relatively high.
Whatever the reasons for lender caution, homebuyers looking for bargains in the sale of distressed properties need to take it into account in planning their purchase strategy.
A purchase strategy for distressed properties
An inspection report from a licensed expert will help in the decision as to whether to buy the house but will not eliminate uncertainty regarding how an appraiser will classify the condition of the house. If the house is classified C5 or C6, a loan may not be available.
If the sales contract has a mortgage contingency clause, which is a standard provision in some states, the buyer who can't get a mortgage because the property is classified C6 or C5 will get his earnest deposit back and the deal is canceled. However, the thwarted buyer will not be reimbursed for the cost of the inspection or the appraisal, which might total about $700.
If a property is being sold "as is" and the standard sales contract does not have a mortgage contingency clause, I would pass unless the seller agreed to return my earnest deposit if the property is classified C6 by the appraiser. You could be more conservative and require the return of the deposit with a C5, which would avoid a mortgage problem because most lenders will accept a C4 or better, but it may substantially reduce the number of sellers who will deal with you.
While accepting a C5 will give you access to more houses, you must find one or more lenders who will accept a C5. You would be well advised to do this in advance of purchase.
Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
Purchase opportunity
A purchase opportunity arises because many potential buyers don't want the hassle of fixing up a house in poor condition, which means that there are fewer competing buyers. In addition, those who sell houses "as is" are frequently in a hurry to get it done, which means that they are disinclined to wait for a higher offer.
The buyers in the best position to take advantage of such opportunities are those with the skills and knowledge required to assess what needs to be done and how much it will cost.
Risk of value uncertainty
But purchasing a house in poor condition has serious risks. One risk is the greater uncertainty connected to its value. The worse the condition, the more costly the improvements required to make the house livable, and the larger the potential error in judging in advance what these costs will be.
The appraisal may reduce but not eliminate the uncertainty connected to the property's value. Appraisers mainly rely on the sale prices of comparable properties, after adjusting for the differences between the subject property and the comparables.
But because information on the condition of comparables is often difficult for appraisers to obtain, the error in making price adjustments is relatively large when the property is in poor condition.
Risk of not finding a mortgage
But today the greater risk in buying a property in poor condition is that the buyer will be turned down for a mortgage or forced to find a lender who will make the loan but at a premium price.
This problem seldom arose before the financial crisis because there were very few foreclosure sales, and lenders generally operated on the assumption that valuation errors would be erased by property appreciation. Today, those looking to buy a house in poor condition need to consider this risk very carefully.
Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) recently developed a classification system for housing condition ranging from C1 (the best) to C6 (the worst), but only C6 is unacceptable to the agencies in "as is" condition. Nonetheless, many lenders require a C4 or better.
Rationale for condition requirement
It is understandable why the agencies that bear the risk of default would either require that the condition of mortgaged houses meet some minimum standard, or base their purchase prices or insurance premiums on house condition.
As noted above, the potential error in appraisals is larger for houses in poor condition, which would result in greater losses on loans that default. When defaults occur early, furthermore, the house that was in poor condition when the loan was made is very likely to be in poor condition at default, which increases marketing costs.
Why some lenders are stricter than the agencies, however, is not clear. Presumably the servicing of loans on properties in poor condition is less profitable, perhaps because these loans have relatively short lives. It is also possible that the cost to servicers of managing foreclosures of properties in poor condition is relatively high.
Whatever the reasons for lender caution, homebuyers looking for bargains in the sale of distressed properties need to take it into account in planning their purchase strategy.
A purchase strategy for distressed properties
An inspection report from a licensed expert will help in the decision as to whether to buy the house but will not eliminate uncertainty regarding how an appraiser will classify the condition of the house. If the house is classified C5 or C6, a loan may not be available.
If the sales contract has a mortgage contingency clause, which is a standard provision in some states, the buyer who can't get a mortgage because the property is classified C6 or C5 will get his earnest deposit back and the deal is canceled. However, the thwarted buyer will not be reimbursed for the cost of the inspection or the appraisal, which might total about $700.
If a property is being sold "as is" and the standard sales contract does not have a mortgage contingency clause, I would pass unless the seller agreed to return my earnest deposit if the property is classified C6 by the appraiser. You could be more conservative and require the return of the deposit with a C5, which would avoid a mortgage problem because most lenders will accept a C4 or better, but it may substantially reduce the number of sellers who will deal with you.
While accepting a C5 will give you access to more houses, you must find one or more lenders who will accept a C5. You would be well advised to do this in advance of purchase.
Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
Six elements of a compelling home seller love letter
Recent reports suggest that the real estate market might be picking up. That said, sellers from coast to coast are still doing everything within their power to differentiate their home from the scads of other competitive listings.
However, there is one super-simple, vastly underrated marketing technique for homes that are having a hard time standing out from the rest of the market: the seller love letter.A seller love letter is a note, personally written or typed up by the home's seller. Among other things, it expresses the love the seller's family has had for the home, and explains the facts and events underlying that sentiment.I've seen these be as short as a single page, and as long as a binder containing a 10-page letter and a collection of supporting pictures and other documents.
If the power of staging lies in depersonalizing the property so buyers can picture their own family living out their own lives in the home, the power of a seller love letter is that it leaves buyers with a warm feeling that the home has a positive energy and history, which is especially desirable in today's distressed property-riddled market.
Here are six things smart sellers should consider including in their love letters about their homes to their buyers:
1. Fond family memories. Now, there's no reason to get all "TMI" (too much information) about it, but the fact is that buyers do love to hear sweet, fond family memories about a property. Buyers who like a home can fall desperately in love with it as they read about the seller's parents' building the home, and then raising a flourishing family there.
Even much newer homes can have their own endearing stories, whether they be about a hard-charging professional bachelor who is moving out of a loft to start a family; about retirees who raised their kids there and are now moving to downsize and be near their grandkids; or about a smart, single woman who was the first person in her family to own a home.
The goal here is to create warm fuzzies while you satisfy the buyer's craving to know why on earth anyone would want to move from such a lovely place. And if you can tell a happy story, you can kill another bird with a single stone – distinguishing your place from all the tragic stories and sadness surrounding the short sales and foreclosures with which your home is competing.
2. Favorite neighborhood vendors and local businesses. One reason people dread moving so much is that it forces them to find new vendors for everything, especially for the practicalities and minutiae that can derail our schedules and lives if they don't run well. If you have neighborhood businesses you love, making a list of them and including them with your love letter is very much appreciated by buyers.
Take care to include things like: dry cleaners, house cleaners, landscapers, carpet cleaners, produce markets and butchers, and especially restaurants that have great take-out and delivery services.
You get extra points if you know the proprietor and authorize the buyer to drop your name, or you include menus with your list of restaurants that deliver to the property address.
3. Lifestyle amenities that map to local buyer wish lists. Give some thought to the sorts of things people looking to buy a home like yours might be looking for, from a lifestyle perspective, and include notes about any of those amenities in the neighborhood that you and your family or housemates have especially enjoyed. Things like dog parks, playgrounds, running trails, yoga studios, libraries and bookstores, museums and outdoor recreational opportunities make great fodder for this list.
4. History of upgrades. Of course, your state-required disclosure forms will include a pithy section for relating the repairs and upgrades you've done in the time you owned the property, but you can take that to a new level in your seller love letter with a free-form description of the work, color commentary (if it makes sense) around why and how you had it done, and a little appendix that includes any relevant plans, permits warranties, receipts, service contracts and the like.
(Obviously, you don't want to include the originals of these items if this love letter document will be left out in the property during showings.)
If there are any issues or repairs that are likely to come up in the buyer's inspection reports that you want to explain in more detail, the love letter can give you your chance to do just that.
5. Property details and tricks. If you have a detailed landscape plan that identifies all the plants and trees in your yards, tricks for how to work the heating and cooling timer or the tricky downstairs doors, details on when the neighborhood trash pickup happens, or info about your alarm, termite or other service contracts, prospective buyers will feel well taken care of if you compile and include all this information with your love letter and let them see it before they even make an offer.
6. Neighbors. If you have particularly close and friendly relationships with any specific neighbors, or there are block parties, online or email Listservs, homeowners association (HOA) or neighborhood watch meetings or other favorites, ones with kids, block party, watch meetings, other things being planned/organized, let the buyers know.
You see, a good seller love letter is equal parts lovey-dovey and logistical, but the care that goes into preparing it and the love that is evident in its content can be a significant selling point to buyers weary of dealing with bank sellers or stressful short-sale situations.
Whatever you do, if you decide to write a seller love letter for your home, review your plans and thoughts about what to include with your local agent first. You want to make sure not to run afoul of any equal opportunity housing laws or disclosure laws.
As well, waxing rhapsodic about all the weekends you invested in the terrible mural on the wall might be more concerning than compelling to buyers who think they could live in your home easily -- assuming they paint over the mural on day one as the new owners.
Tara-Nicholle Nelson is an author and is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com.
However, there is one super-simple, vastly underrated marketing technique for homes that are having a hard time standing out from the rest of the market: the seller love letter.A seller love letter is a note, personally written or typed up by the home's seller. Among other things, it expresses the love the seller's family has had for the home, and explains the facts and events underlying that sentiment.I've seen these be as short as a single page, and as long as a binder containing a 10-page letter and a collection of supporting pictures and other documents.
If the power of staging lies in depersonalizing the property so buyers can picture their own family living out their own lives in the home, the power of a seller love letter is that it leaves buyers with a warm feeling that the home has a positive energy and history, which is especially desirable in today's distressed property-riddled market.
Here are six things smart sellers should consider including in their love letters about their homes to their buyers:
1. Fond family memories. Now, there's no reason to get all "TMI" (too much information) about it, but the fact is that buyers do love to hear sweet, fond family memories about a property. Buyers who like a home can fall desperately in love with it as they read about the seller's parents' building the home, and then raising a flourishing family there.
Even much newer homes can have their own endearing stories, whether they be about a hard-charging professional bachelor who is moving out of a loft to start a family; about retirees who raised their kids there and are now moving to downsize and be near their grandkids; or about a smart, single woman who was the first person in her family to own a home.
The goal here is to create warm fuzzies while you satisfy the buyer's craving to know why on earth anyone would want to move from such a lovely place. And if you can tell a happy story, you can kill another bird with a single stone – distinguishing your place from all the tragic stories and sadness surrounding the short sales and foreclosures with which your home is competing.
2. Favorite neighborhood vendors and local businesses. One reason people dread moving so much is that it forces them to find new vendors for everything, especially for the practicalities and minutiae that can derail our schedules and lives if they don't run well. If you have neighborhood businesses you love, making a list of them and including them with your love letter is very much appreciated by buyers.
Take care to include things like: dry cleaners, house cleaners, landscapers, carpet cleaners, produce markets and butchers, and especially restaurants that have great take-out and delivery services.
You get extra points if you know the proprietor and authorize the buyer to drop your name, or you include menus with your list of restaurants that deliver to the property address.
3. Lifestyle amenities that map to local buyer wish lists. Give some thought to the sorts of things people looking to buy a home like yours might be looking for, from a lifestyle perspective, and include notes about any of those amenities in the neighborhood that you and your family or housemates have especially enjoyed. Things like dog parks, playgrounds, running trails, yoga studios, libraries and bookstores, museums and outdoor recreational opportunities make great fodder for this list.
4. History of upgrades. Of course, your state-required disclosure forms will include a pithy section for relating the repairs and upgrades you've done in the time you owned the property, but you can take that to a new level in your seller love letter with a free-form description of the work, color commentary (if it makes sense) around why and how you had it done, and a little appendix that includes any relevant plans, permits warranties, receipts, service contracts and the like.
(Obviously, you don't want to include the originals of these items if this love letter document will be left out in the property during showings.)
If there are any issues or repairs that are likely to come up in the buyer's inspection reports that you want to explain in more detail, the love letter can give you your chance to do just that.
5. Property details and tricks. If you have a detailed landscape plan that identifies all the plants and trees in your yards, tricks for how to work the heating and cooling timer or the tricky downstairs doors, details on when the neighborhood trash pickup happens, or info about your alarm, termite or other service contracts, prospective buyers will feel well taken care of if you compile and include all this information with your love letter and let them see it before they even make an offer.
6. Neighbors. If you have particularly close and friendly relationships with any specific neighbors, or there are block parties, online or email Listservs, homeowners association (HOA) or neighborhood watch meetings or other favorites, ones with kids, block party, watch meetings, other things being planned/organized, let the buyers know.
You see, a good seller love letter is equal parts lovey-dovey and logistical, but the care that goes into preparing it and the love that is evident in its content can be a significant selling point to buyers weary of dealing with bank sellers or stressful short-sale situations.
Whatever you do, if you decide to write a seller love letter for your home, review your plans and thoughts about what to include with your local agent first. You want to make sure not to run afoul of any equal opportunity housing laws or disclosure laws.
As well, waxing rhapsodic about all the weekends you invested in the terrible mural on the wall might be more concerning than compelling to buyers who think they could live in your home easily -- assuming they paint over the mural on day one as the new owners.
Tara-Nicholle Nelson is an author and is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com.
Monday, April 2, 2012
Real estate tips to guard against losing your home
Time and time again, home-buyer wannabes state that the reason they are still fence-sitting is that they don't want to end up in the same trouble the last generation of homeowners did.
Well, there's a very slim chance of that happening, given the changes in the market climate: Homes are at rock-bottom prices (not sky-high), and mortgage guidelines are so conservative it is nearly impossible to even find one of the zero-down, quick-to-adjust, stated-income mortgages of yesteryear.
With that said, though, there is a handful of rules today's home buyers and homeowners can follow to dramatically minimize the chances they will ever face losing their homes:
1. Never a borrower or a lender be. OK, so maybe NEVER is strong, but you'd be surprised at how many foreclosed homeowners actually bought their homes with conservative loans and at low prices many years ago, but got into trouble taking new mortgages and pulling cash out at the top of the market (then not being able to refinance or make the adjusted payment at the bottom).
Today's home buyers can avoid this fate by starting out their homeowning careers with some ground rules in place around borrowing against their homes.
A good (albeit conservative) place to start is this rule: Decide not to borrow against your home equity for anything but well-planned home improvements.
Here's another one: Whatever you do, don't borrow against your home to lend money to someone else. I've seen dozens of homeowners over the years borrow to make an "investment" in a friend's business or to lend money to a child or a parent. Borrowing against your home's equity to make an investment in a business you know nothing about is a complete gamble with your home. Don't do it.
2. Stop financial codependency. Related to the rule of thumb about borrowing to lend is this change of the bad habit of financial codependency.
This comes up most often when homeowners borrow money against their home or tap into their emergency cash cushion (leaving themselves unable to make their mortgage payments if they lose their job, etc.) to help an adult child make their own mortgage payments or bail them out of another crisis situation.
It also comes up where one spouse supports another spouse's habit of overspending, debting, underearning, gambling, or even substance abuse, and ends up going into a financial hole as a result. Over time, these cases can create the temptation or even desperation to further leverage your home, and can run through a savings account, leaving the homeowner exposed and vulnerable in the face of a temporary disability, job loss or recession.
There are a number of powerful books on the market about how to cease being codependent, but many people struggle to recognize they even have this issue until it's too late. Here's a hint: If you regularly use money to protect a loved one from the natural consequences of their behavior, you are engaging in codependent behavior.
3. Stay conscious. Going on money autopilot, without occasional check-ins, is the root of many financial woes. Many money experts recommend automating your monthly payments so that your recurring bills are paid on time, every time. And almost any homeowner will vouch that there are few bills that seem to come up as frequently as your mortgage!
The problem is that once you automate your payments, it's very easy to fall into the habit of simply ignoring your actual statements -- and they may contain information that flags issues before they snowball into serious problems.
One homeowner recently realized that through no fault of her own, and despite never having missed an auto-payment, her home was facing foreclosure -- all because the bank had somehow erroneously started crediting her payments to someone else's mortgage account!
Also, financial autopilot mode can support habits like overspending and overdebting; the minimum payments may always get made without much attention from you, but the overall balances will rear their ugly heads and possibly pose a threat to your ability to pay your mortgage, in the event you ever face a job loss, medical bills or other financial crisis.
4. Do your own math before you buy. Only you can know the full extent of your non-housing-related financial obligations and values. Things like catch-up retirement savings, tithing and charitable giving, private school tuition, medical costs and the like can take big chunks out of your monthly budget that your mortgage pro is not accounting for when he or she tells you how much of a mortgage you're qualified to borrow.
So, before you ever speak with a mortgage broker, it's up to you as a responsible buyer and adult to get a very clear understanding of your own personal income and expenses, assets and priorities, and to use that knowledge to decide how much you can afford to put down and to spend monthly for a home.
Fortunately, an increasing number of are buyers doing this, and actually choosing to buy a home that costs much less than they are technically qualified for.
5. Don't buy a house to fix a family or psychological problem. Beware of "pulling a geographic" -- moving to a new neighborhood or town to try to run from your problems and bad habits.
Experts caution against expecting the move to solve the problem on the grounds that, in the words of mindfulness guru Jon Kabat-Zinn, "wherever you go, there you are." If you have bad habits in Chicago, moving to L.A. doesn't purge the bad habits -- only working on the actual dysfunction itself will do that.
There's a real estate-specific version of pulling a geographic, which we'll call "pulling a residential." This is where people buy a home or buy a new home in an effort to cure a deeper family or psychological issue; sort of like that old (and equally bad) idea of having a baby to try to save your marriage.
If your children are fighting because they lack personal space, that's one thing. But if there are deeper issues going on with your children, your family or your relationship (even your relationship with yourself), do not fantasize that owning a home or moving up is going to automatically solve them.
In fact, the opposite is often true: The larger the financial and maintenance obligations that come with a home, the more a mortgage and property taxes can add strain to already troubled relationships.
Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.
Well, there's a very slim chance of that happening, given the changes in the market climate: Homes are at rock-bottom prices (not sky-high), and mortgage guidelines are so conservative it is nearly impossible to even find one of the zero-down, quick-to-adjust, stated-income mortgages of yesteryear.
With that said, though, there is a handful of rules today's home buyers and homeowners can follow to dramatically minimize the chances they will ever face losing their homes:
1. Never a borrower or a lender be. OK, so maybe NEVER is strong, but you'd be surprised at how many foreclosed homeowners actually bought their homes with conservative loans and at low prices many years ago, but got into trouble taking new mortgages and pulling cash out at the top of the market (then not being able to refinance or make the adjusted payment at the bottom).
Today's home buyers can avoid this fate by starting out their homeowning careers with some ground rules in place around borrowing against their homes.
A good (albeit conservative) place to start is this rule: Decide not to borrow against your home equity for anything but well-planned home improvements.
Here's another one: Whatever you do, don't borrow against your home to lend money to someone else. I've seen dozens of homeowners over the years borrow to make an "investment" in a friend's business or to lend money to a child or a parent. Borrowing against your home's equity to make an investment in a business you know nothing about is a complete gamble with your home. Don't do it.
2. Stop financial codependency. Related to the rule of thumb about borrowing to lend is this change of the bad habit of financial codependency.
This comes up most often when homeowners borrow money against their home or tap into their emergency cash cushion (leaving themselves unable to make their mortgage payments if they lose their job, etc.) to help an adult child make their own mortgage payments or bail them out of another crisis situation.
It also comes up where one spouse supports another spouse's habit of overspending, debting, underearning, gambling, or even substance abuse, and ends up going into a financial hole as a result. Over time, these cases can create the temptation or even desperation to further leverage your home, and can run through a savings account, leaving the homeowner exposed and vulnerable in the face of a temporary disability, job loss or recession.
There are a number of powerful books on the market about how to cease being codependent, but many people struggle to recognize they even have this issue until it's too late. Here's a hint: If you regularly use money to protect a loved one from the natural consequences of their behavior, you are engaging in codependent behavior.
3. Stay conscious. Going on money autopilot, without occasional check-ins, is the root of many financial woes. Many money experts recommend automating your monthly payments so that your recurring bills are paid on time, every time. And almost any homeowner will vouch that there are few bills that seem to come up as frequently as your mortgage!
The problem is that once you automate your payments, it's very easy to fall into the habit of simply ignoring your actual statements -- and they may contain information that flags issues before they snowball into serious problems.
One homeowner recently realized that through no fault of her own, and despite never having missed an auto-payment, her home was facing foreclosure -- all because the bank had somehow erroneously started crediting her payments to someone else's mortgage account!
Also, financial autopilot mode can support habits like overspending and overdebting; the minimum payments may always get made without much attention from you, but the overall balances will rear their ugly heads and possibly pose a threat to your ability to pay your mortgage, in the event you ever face a job loss, medical bills or other financial crisis.
4. Do your own math before you buy. Only you can know the full extent of your non-housing-related financial obligations and values. Things like catch-up retirement savings, tithing and charitable giving, private school tuition, medical costs and the like can take big chunks out of your monthly budget that your mortgage pro is not accounting for when he or she tells you how much of a mortgage you're qualified to borrow.
So, before you ever speak with a mortgage broker, it's up to you as a responsible buyer and adult to get a very clear understanding of your own personal income and expenses, assets and priorities, and to use that knowledge to decide how much you can afford to put down and to spend monthly for a home.
Fortunately, an increasing number of are buyers doing this, and actually choosing to buy a home that costs much less than they are technically qualified for.
5. Don't buy a house to fix a family or psychological problem. Beware of "pulling a geographic" -- moving to a new neighborhood or town to try to run from your problems and bad habits.
Experts caution against expecting the move to solve the problem on the grounds that, in the words of mindfulness guru Jon Kabat-Zinn, "wherever you go, there you are." If you have bad habits in Chicago, moving to L.A. doesn't purge the bad habits -- only working on the actual dysfunction itself will do that.
There's a real estate-specific version of pulling a geographic, which we'll call "pulling a residential." This is where people buy a home or buy a new home in an effort to cure a deeper family or psychological issue; sort of like that old (and equally bad) idea of having a baby to try to save your marriage.
If your children are fighting because they lack personal space, that's one thing. But if there are deeper issues going on with your children, your family or your relationship (even your relationship with yourself), do not fantasize that owning a home or moving up is going to automatically solve them.
In fact, the opposite is often true: The larger the financial and maintenance obligations that come with a home, the more a mortgage and property taxes can add strain to already troubled relationships.
Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.
NAR: 2012 home sales will be strongest in past 5 years
The NATIONAL ASSOCIATION OF REALTORS® is predicting existing-home sales will jump 7 to 10 percent in 2012 to the highest level in five years, based on an "uneven but higher sales pattern" so far this year.
Pending home sales fell a seasonally adjusted 0.5 percent from January to February, which was up 9.2 percent from the same time a year ago, NAR said in releasing its latest Pending Home Sales Index.
NAR also reported a similar trend for existing-home sales, which were down 0.9 percent from January to February, but up 8.8 percent from a year ago.
The pending sales data released today provides a glimpse into more recent trends, because it tracks homes that were under contract in February -- deals that will in most cases be finalized within one or two months.
NAR said 31 percent of REALTORS® experienced contract failures in February, in some cases because buyers' mortgage applications were rejected or because appraisals came in below the negotiated price.
In the Northeast, NAR's index slipped a seasonally adjusted 0.6 percent from January but was up 18.4 percent from a year ago.
The Midwest saw a month-over-month gain of 6.5 percent and a 19 percent gain from a year ago.
Pending home sales fell 3 percent in the South from January to February, but were up 7.8 percent from a year ago.
In the West, the index declined 2.6 percent from January to February and was 1.8 percent below the index rating in February 2011.
In its latest economic forecast, NAR predicts existing-home sales will total 4.65 million in 2012, up 9.1 percent from last year. That forecast assumes that the U.S. economy will grow at a 2.3 percent annual rate and add 2.7 million jobs this year.
Pending home sales fell a seasonally adjusted 0.5 percent from January to February, which was up 9.2 percent from the same time a year ago, NAR said in releasing its latest Pending Home Sales Index.
NAR also reported a similar trend for existing-home sales, which were down 0.9 percent from January to February, but up 8.8 percent from a year ago.
The pending sales data released today provides a glimpse into more recent trends, because it tracks homes that were under contract in February -- deals that will in most cases be finalized within one or two months.
NAR said 31 percent of REALTORS® experienced contract failures in February, in some cases because buyers' mortgage applications were rejected or because appraisals came in below the negotiated price.
In the Northeast, NAR's index slipped a seasonally adjusted 0.6 percent from January but was up 18.4 percent from a year ago.
The Midwest saw a month-over-month gain of 6.5 percent and a 19 percent gain from a year ago.
Pending home sales fell 3 percent in the South from January to February, but were up 7.8 percent from a year ago.
In the West, the index declined 2.6 percent from January to February and was 1.8 percent below the index rating in February 2011.
In its latest economic forecast, NAR predicts existing-home sales will total 4.65 million in 2012, up 9.1 percent from last year. That forecast assumes that the U.S. economy will grow at a 2.3 percent annual rate and add 2.7 million jobs this year.
Who's responsible for defects discovered after closing?
Home buyers who buy during the dry season can be in for an unpleasant surprise when the roof leaks or the basement floods after the first rain. Who is responsible for damage caused by water intrusion and for making the necessary repairs to prevent it from happening again?
It's possible that you are responsible if information about potential water intrusion was disclosed to you before you closed the sale and you accepted the property in its "as is" condition regarding this.
For example, if there are trees overhanging the roof gutters, and the sellers and your home inspector told you the gutters need to be kept free of debris, you probably won't get very far asking the sellers to repair roof leaks if it turns out they were caused by your lack of maintenance. When gutters get clogged, water can back up and run into the house.
The first thing you should do if you discover a defect after closing that you think is either a new condition or something you're sure has happened in the past is to look through the inspection reports and disclosures, if there were any, to see if you were made aware of this before you bought.
Plenty of paperwork is generated during today's home-sale transactions, but many buyers and sellers are prone to recycle most of it as soon as the sale closes. It's a good idea to reduce the amount of paper, but not the critical information you'll need for tax purposes, such as your settlement statement and documentation of the property's condition.
Ideally, the purchase contract and addenda, any disclosures and all inspection reports should be burned to a CD for your records before recycling the paper copies.
What should you do if you clean the gutters but the roof still leaks during the next rain? Did you have the roof inspected before you bought? Was maintenance recommended? Did you have the work done? If so, call the roofer. If the seller hired a roofer to maintain the roof, make sure you have documentation that identifies the work that was done, and contact that roofer.
Dealing with defects discovered after closing is not always black and white.
For example, let's say the sellers told you that they occasionally found a small amount of water in the basement after a heavy rain.
In fact, the basement floods when it rains so that it can't be used for storage, and the flooding is rusting the bottom of the furnace and the hot water heater. A fix for a problem like this could be expensive if it requires a new drainage system.
HOUSE HUNTING TIP: Your purchase contract should detail how disputes will be dealt with if they can't be solved by the parties involved or with the help of their real estate agents.
Some contracts call for disputes to be mediated before they are either resolved through arbitration or in court. In any event, you should contact a knowledgeable real estate attorney for answers to any questions regarding who's responsible for defects disclosed after closing.
Be sure to hire the best inspectors you can find in your area. Disclosure requirements vary from state to state. Also, many buyers buy bank-owned or estate-sale properties where there typically aren't thorough disclosures because the owners didn't occupy the property and may be exempt from providing disclosures.
A good home inspector would see signs of flooding in the basement, such as bubbling paint on the foundation walls, rust on the bottom of the furnace, and water stains, unless they have been intentionally covered up by the seller. If the home inspector recommends hiring a drainage specialist to look at the property, be sure to follow through with this.
THE CLOSING: It's best to resolve property defect issues before closing, if possible.
Dian Hymer is a nationally syndicated real estate columnist and author.
It's possible that you are responsible if information about potential water intrusion was disclosed to you before you closed the sale and you accepted the property in its "as is" condition regarding this.
For example, if there are trees overhanging the roof gutters, and the sellers and your home inspector told you the gutters need to be kept free of debris, you probably won't get very far asking the sellers to repair roof leaks if it turns out they were caused by your lack of maintenance. When gutters get clogged, water can back up and run into the house.
The first thing you should do if you discover a defect after closing that you think is either a new condition or something you're sure has happened in the past is to look through the inspection reports and disclosures, if there were any, to see if you were made aware of this before you bought.
Plenty of paperwork is generated during today's home-sale transactions, but many buyers and sellers are prone to recycle most of it as soon as the sale closes. It's a good idea to reduce the amount of paper, but not the critical information you'll need for tax purposes, such as your settlement statement and documentation of the property's condition.
Ideally, the purchase contract and addenda, any disclosures and all inspection reports should be burned to a CD for your records before recycling the paper copies.
What should you do if you clean the gutters but the roof still leaks during the next rain? Did you have the roof inspected before you bought? Was maintenance recommended? Did you have the work done? If so, call the roofer. If the seller hired a roofer to maintain the roof, make sure you have documentation that identifies the work that was done, and contact that roofer.
Dealing with defects discovered after closing is not always black and white.
For example, let's say the sellers told you that they occasionally found a small amount of water in the basement after a heavy rain.
In fact, the basement floods when it rains so that it can't be used for storage, and the flooding is rusting the bottom of the furnace and the hot water heater. A fix for a problem like this could be expensive if it requires a new drainage system.
HOUSE HUNTING TIP: Your purchase contract should detail how disputes will be dealt with if they can't be solved by the parties involved or with the help of their real estate agents.
Some contracts call for disputes to be mediated before they are either resolved through arbitration or in court. In any event, you should contact a knowledgeable real estate attorney for answers to any questions regarding who's responsible for defects disclosed after closing.
Be sure to hire the best inspectors you can find in your area. Disclosure requirements vary from state to state. Also, many buyers buy bank-owned or estate-sale properties where there typically aren't thorough disclosures because the owners didn't occupy the property and may be exempt from providing disclosures.
A good home inspector would see signs of flooding in the basement, such as bubbling paint on the foundation walls, rust on the bottom of the furnace, and water stains, unless they have been intentionally covered up by the seller. If the home inspector recommends hiring a drainage specialist to look at the property, be sure to follow through with this.
THE CLOSING: It's best to resolve property defect issues before closing, if possible.
Dian Hymer is a nationally syndicated real estate columnist and author.
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