SHORT SALE NEGOTIATIONS

 The biggest obstacle with most short sale negotiations has little to do with the buyer’s agent and quite a bit to do with the listing agent. If the listing agent is inexperienced with short sales and makes a mistake when pricing the home, coupled with minimal to no short-sale negotiation skills, the process will be time consuming and a very frustrating.

Short sales involve asking the existing mortgage note holder(s) to accept less on a sales price than the amount(s) currently owed. They are typically accepted by the bank due to the fact that the customer is what is commonly referred to as ” upside-down”  in their home. This means that more is owed to the bank(s) than the home is worth in today’s market.

Be advised that the seller is not required to be in default for a short sale to occur; however, the credit ramifications can be exactly the same for a short sale as a foreclosure. The impact to your credit will be negative. This will negatively impact your ability to obtain credit in the future especially as it pertains to mortgage loans.

Short Sale Negotiation Potential Obstacles

Many lenders do not like return phone calls in a timely manner or at all. Banks will place a call to the listing agent when it’s convenient or when they are ready to proceed with working on your request.

• If your file is incomplete, your request for a short sale will not be accepted and will further delay your short sale negotiations.
• You will start with the loss mitigation department and talk to numerous individuals each time you call. (take notes and write down names)
• If foreclosure is looming, ask for the file to be escalated to a negotiator immediately, but do not expect them to have a sense of urgency. (follow up daily)
• The seller must be facing a hardship. If you can’t substantiate the hardship, it is likely that your short sale will not be approved. Short sales are not intended for homeowners who want out of a bad investment decision or want to purchase another house cheaper due to the current climate of the market.
• Send comparable sales with your offer that support the offering price because if the bank feels that it can get more money through foreclosure proceedings, it won’t entertain offers at a list price too far below market value.  The banks goal is to minimize their loss on the loan.

Negotiating With the Short Sale Negotiator

Expect to be dealing with multiple negotiators throughout the short sale negotiations. There is no explanation as to why you will deal with multiple negotiators, so I strongly encourage you to keep detailed notes and make sure that your conversations are accurately annotated in the banks system. 

Here are a few tips on what you should do throughout short sale negotiation process:

• Get the name, phone number (and, if possible, email) of the negotiator you speak with
• Find out the bank’s objectives. Ask “yes/no” questions such as “Is this offer feasible?” “Does your bank ever do short sales?”
• Don’t take “no” for an answer. Ask for a supervisor.  Ask for options.   Be persistent.
• Be prepared to discuss your situation in extreme detail so that the bank will understand your situation and view the short sale as the best solution to the problem (have conviction)
• Do everything they ask quickly and accurately (don’t take shortcuts)
• BE HONEST AT ALL TIMES

Be Relentless in Short Sale Negotiations

The bank will be relentless, so you need to be prepared to cooperate with their requests. Be polite, be firm, be honest and don’t be intimidated. Most likely, the bank will want to negotiate the real estate commissions paid to the realtors involved prior to approving the short sale offer.

• Be aware that the bank isn’t forced to agree to anything.
• Request that every agreement to be in writing.
• Make notations and keep a record of every conversation, who you spoke to and the date and time of the conversation. You may need it in the future.
• Ask the bank for a timeline for their decision and when would be a good time to call back for an update. Place a call a few days prior to the date suggested.
• If you repeatedly receive voice mail when calling, leave a message and call again just before lunch, right after lunch, just before the day ends and again in the morning before the day begins.  Try not to call at times that may be considered high volume times.  The banks received many calls, timing is everything.

The short sale negotiation process can be very frustrating, but don’t let the day-to-day frustrations annoy you or your agent and stop you from making the necessary calls to the bank.  Many short sales do eventually close and help numerous homeowners out of difficult situations.  The end result will be worth the hard work and frustration that you may endure through the process.

VA Funding Fee

On VA Loans, the VA funding is a fee paid by Veteran home loan borrowers when they use the VA’s home buying program. It is paid upfront and is allowed to be included in the final loan amount itself. VA loans do not have monthly mortgage insurance – sometimes called PMI or Private Mortgage Insurance. This VA funding fee goes directly to the VA and allows them to continue to offer veterans home loans. This funding fee in essence “takes the place” of that mortgage insurance. The VA guarantees the loan to the lender and the fee varies depending on the type of loan, if it is a first time use, manufactured home, disabled veteran and so on.

The Funding Fee is paid by nearly every veteran home buyer.  The only exception is for veterans who collect disability from the VA.  The fee is waived in that case. It is paid on all VA home loan transactions unless VA disability is received by the veteran.  The VA funding fee can vary based on the type of service, whether you have been active duty or reserves and if the loan is a purchase, streamline refinance or cash out transaction.

Purchase & Construction Loans

Cash-Out Refinances

* The higher subsequent use fee does not apply to these types of loans if the veteran’s only prior use of entitlement was for a manufactured home loan.

Other Types of Loans

Understanding a VA Good Faith Estimate (GFE)

Veterans must understand how to read and interpret a good faith estimate (GFE).  This is probably one of the most important documents when deciding what company to choose to handle the financing on the VA LOAN.  This GFE disclosure IS REQUIRED by the Real Estate Settlement Procedure Act (RESPA).  If you don’t get one then the broker or lender is not adhering to laws that govern the mortgage industry.

WHAT IS A GFE?

In a nutshell this disclosure should list all the costs associated with the VA loan.  It will show the new monthly payment, payoff amount or purchase price amount, taxes and insurance and funds required to close or funds the VETERAN is getting back (refinance) and debts being paid off if applicable.  There are specific costs and they are broken down into categories or numbers. Some of these costs are as follows:

800’s – ITEMS PAYABLE IN CONNECTION WITH LOAN

These are all the charges that the lender or broker will charge.  In this section, would be listed the ORIGINATION or DISCOUNT FEE.  The appraisal and other broker or lender fees will be listed here too.  Please remember the veteran will not pay the “junk fees”.  The DEPT of VETERAN AFFAIRS will not allow an originating company to charge these fees which in return should benefit the veteran.  Here is a list of the NON allowable charges.  NON allowable means that the Veteran cannot pay them; on a refinance the broker or lender must pay them or not charge them at all, and on a purchase the seller can pay them.

NON Allowable Fees/Charges

• Attorney Fees
• Brokerage Fees
• Prepayment Penalties
• HUD/Inspection Fees
• Signing Fees
• Escrow/Closing Fee

813 – COMPENSATION TO BROKER

Yield Spread Premium (YSP) is the fee the bank or lender (the entity lending the money and who you will make first payment to) has the ability to pay the broker a fee or premium for sending your loan to their company.

1100 – TITLE CHARGES

All of the Title Charges will be listed here.  They are title insurance, title exam, wire and endorsements.  Just like the broker there are fees here that the title company cannot charge a Veteran.

1200 – GOVERNMENT RECORDING & TRANSFER CHARGES

The fees listed under this section would be recording fees, city and state tax stamps.  The recording fee is what the county recorder will charge for recording the new Deed of Trust.  State and City tax stamps are state specific.  Some states have tax stamps and other do not.

1300 – ADDITIONAL SETTLEMENT CHARGES

This area would list any pest, termite inspections and home inspections.

900 – ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE

This heading makes it sound like the VETERAN must pay for these before the loan can close.  This is not the case.  Is simply is referring to monies collected before the first payment.  The charges listed here are the interest that needs to be collected before the first payment is due.  With VA loans interest is billed in what is referred to as “arrears” which means when a payment is made in June the Veteran is paying for the interest accrued in May.  So let’s say you close on the 20^th of the month.  You will have 10 or 11 days of interest collected in this section.  With VA LOANS the VA FUNDING FEE is listed in this section.  If the veteran is receiving VA disability then there will be no funding fee.  Veterans should pay close attention to this.  An experience broker knows not to charge a VAFF when disability is being received by the veteran.

1000 – RESERVES DEPOSITED WITH LENDER

With VA loans your taxes and insurance will need to be collected with your monthly payment.  An escrow account is used to hold the money that is owed for taxes and insurance.  When a Veteran makes a payment a portion of the payment gets deposited into an account.  This account will continue to build payment after payment until the taxes or insurance are due.  The lender will make the payment for the Veteran.  This is very helpful because it will prevent unforeseen expenses on the home owner and delinquent taxes and insurance.  The amount collected upfront varies and is based on the dates that your taxes and insurance are due.  For example, let’s say that taxes are due in December and the Veteran is refinancing and their first payment is due in March.  The Veteran will have made 10 payments before taxes are due, but you must have enough for the year plus 2 months as a cushion.  So in this section we would collect 4 months.  This same principle applies to the insurance.

TOTAL ESTIMATED FUNDS NEEDED TO CLOSE/ TOTAL ESTIMATED MONTHLY PAYMENT

This just gives the overall costs and details of the transaction and the total new monthly payment.  This is a very important disclosure and should be looked at very carefully.  Remember also, that this is just an estimate.  Usually this will never be 100% accurate to the final costs.  Those are listed on the HUD 1 or Settlement Statement, however, the GFE should be as close as possible and should give Veterans a good idea what to expect cost wise when buying or refinancing a home.

Veterans-Why do you Need Title Insurance on a VA Loan?

Between home owners insurance, property taxes, flood insurance, the VA funding fee and your mortgage payment, you may think to yourself, “What is title insurance and why do lenders require veterans to have it on VA loans?” Title insurance is a policy that protects your mortgage lender against problems relating to the property’s title prior to the date when you purchased your home. Because your home may have gone through several ownership changes, it is important to be protected against anything that could have gone wrong with your title prior to your ownership.

Title insurance insures the lender against a financial loss in case the title has any unknown judgments, outstanding liens against the property including foreclosure, unpaid real estate taxes on the property and the title insurance protects you and your lender if a lawsuit is filed against the title. An example of what title insurance protects the lender against would be if someone who previously owned the property had forged a signature in transferring title. Instead of the lender or you having to pay for this problem out of pocket, title insurance covers the insured party for any claims and legal fees that arise from such problems.

Before issuing a title insurance policy, the title insurance company will search the public land records for matters affecting title to the property. The purpose of this examination is to determine ownership of the property and to identify any possible problems and all liens against the property. If problems are revealed by the title search, frequently they can be resolved so that clear title can pass to you.

Title insurance is required in most states to close on a mortgage for both a purchase and a refinance. On a VA refinance you will need to purchase a new title insurance policy so that the new lender can be protected the same way that the old lender was.

So even though title insurance may seem like a useless expense it actually will save you and your lender in the long run in case you end up having any problems with the title on your home.

Reverse Mortgage Myths & Facts

“The lender will own your home.” FALSE!
You and your family or your estate continues to retain ownership of your home. The lender does not take control of the title. The lender’s interest is limited to the outstanding loan balance.

“Reverse mortgage lenders just want to sell your house.” FALSE!
Our lenders are in the business of helping you keep your home and maintain your financial independence. Reverse mortgage customers may remain in the home as long as they wish.

“Your heirs will be saddled with the loan.” FALSE!
The reverse mortgage is a non-recourse loan. This means that the lender can only derive repayment of the loan from refinance or sale of the property.

“You need a certain level of income, good credit or good health to qualify.” FALSE!
A reverse mortgage has no income, credit or health requirements.

“You have to make monthly payments on your reverse mortgage.” FALSE!
There are never any monthly payments. Payment of taxes, insurance and upkeep of the home are the only responsibilities of the homeowner.

“Your home must be debt-free to qualify for a reverse mortgage.” FALSE!
You may have a mortgage or other debt on your home. The mortgage must be paid off first with the proceeds of the reverse mortgage.

“The borrower could ending up owing more than the home is worth.” FALSE!
Two of the great safeguards for reverse mortgages are that they are structured so that the borrower or his estate can never owe more than the value of the home upon repayment.

“Once the proceeds are received, taxes will need to be paid.” FALSE!
The cash proceeds from a reverse mortgage are tax free because it is already your money.

With the number of REO properties increasing, Fannie Mae has decided to follow Freddie Mac in offering the HomePath Mortgage. HomePath financing is available for Fannie Mae REO’s with the HomePath logo found on http://www.homepath.com.  Here is a quick synopsis of the HomePath Mortgage:

• Minimum 5% down for primary residence, 10% down for investment properties
• Borrower can own up to 10 financed properties (but need 25% down if they own more than 4)
• NO APPRAISAL NEEDED
• NO MORTGAGE INSURANCE
• High balance (jumbo) and interest only products available
• Seller contributions can be 6-9% on primary residence (the larger the down payment, the larger the allowable contribution), only 2% on investment property
• This loan does price with a higher rate than your average 30 year fixed conforming loan.  If you want an equivalent rate to the going 30 year fixed, this loan would price with an additional approx 1.5% to 2.5% discount points.  Keep in mind, much of this can be covered by the seller and there is no mortgage insurance.  Of course one can just opt for the higher rate in lieu of the discount points.
• Same basic underwriting requirements of a conforming loan, but without the property issues (appliances missing – no problem)

This program is especially perfect for seasoned investors or even first time investors. For anyone who has been in investing knows that guidelines for investment properties tightened greatly over the past few years. Now, you have the opportunity to buy very reasonably priced homes with as little as 10% down with fantastic interest rates and NO MI. I personally think this is a fantastic program that will help you take advantage of a wonderful market to buy your first home or buy your next home! Take advantage of a down economy and invest in your future.

Things to know about an FHA Streamline Refinance:

An escrow account doesn’t just protect you, the borrower, it also protects the lender’s vested interest in your property.

Think of an escrow account as a safety net for your home. It financially safeguards both you and your lender against liens and property damage.

Since most of us do not have the means to buy a home outright, we rely on lenders and mortgages to help fulfill our dreams of homeownership. In turn, lenders rely on escrow accounts to ensure property taxes are paid on time and home insurance policies are kept up to date. Without the assurances provided by an escrow account, a lender’s financial risk could increase significantly.

To fully appreciate the benefits of escrow for lenders, let’s first review what escrow is, and how it works for borrowers.

What is an escrow account?
An escrow account is an account held by a third party agent who represents both the borrower and lender. The borrower makes regular deposits into the account — usually as part of a regular mortgage payment. Then, when property taxes and insurance premiums become due, the third party agent releases the funds to cover the payments.

Rather than paying your taxes or insurance in a large lump sum, many homeowners prefer the idea of spreading their property taxes and insurance premiums evenly over 12 monthly payments. Plus, with escrow, you don’t have to remember to send your payments on time. This means there’s less risk of missed payments or lapses in your insurance coverage.

The benefits of escrow to the lender
If your down payment is less than 20 percent of the property value, your lender will likely insist that you open an escrow account at the time of your mortgage closing. Even if your down payment is greater than 20 percent, your lender may recommend or require that you have an escrow account.

 The reason is simple: Escrow accounts provide lenders with added security and peace of mind that their collateral — your home — is protected in a couple of important ways:

1. Your property taxes will always be paid on time, which ensures tax authorities will have no reason to place a lien on your home or foreclose on it.

2. Your home insurance premiums will always be up to date, which means your property will be covered in the event of damage or destruction caused by a fire or natural disaster.

Lenders need these assurances just as much as homeowners.

Imagine if your property taxes fell into arrears and a lien was placed on your home. It goes without saying that it would be an unfortunate experience for you and your family. But your lender would also suffer because without the collateral of your home, it may not be able to get its money back should you default on your loan.

In another scenario, let’s say your property insurance has lapsed due to a few unpaid premiums. And then, during a storm, your house is destroyed. Just as you’re left without a home, your lender is left without any collateral, since there’s no insurance to cover the loss.

You can see why so many lenders insist their borrowers use escrow accounts.

For many new homeowners, escrow accounts are the norm. Even though the funds in escrow typically do not earn interest, the account provides a convenient, hassle-free way to ensure your taxes and premiums are always paid on time. And that can offer peace of mind to you and your lender.

Pima County Bond Program

Pima county has a unique mortgage revenue bond program that assists First Time Homebuyers in obtaining 100% financing when purchasing a home inside the county limits.  Please see a brief description of the program below:

Qualifications:

Borrower has to be considered a First Time Home Buyer.  This means that you can’t have purchased a home within the last 3 years (NO EXCEPTIONS). You must meet the income level qualifications.  Combined income for 1-2 individuals can’t exceed $66,000 per year.  Combined income for 3 or more individuals can’t exceed $77,000 per year.  The individuals per household and home ownership in the last 3 years will be verified through tax returns.  The borrower will need to have acceptable credit to qualify for a loan. The maximum purchase amounts are as follows:

1 – Unit $374,506 2 – Unit $479,427

Loan Types:

Allowable programs include FHA, but conventional and VA loans are acceptable too.  In the case of an FHA loan, the down payment and/or closing costs can be covered by a 2^nd loan of up to 7% of the purchase price on a 30 year fixed rate. This is especially valuable at this time when DPA has been legislated out of the business for the immediate future.  If a VA loan is used, there is no First Time Home Buyer requirement.  The property must be a primary residence and not an investment property.

Collateral Types:

As long as the residence is in Pima County, it qualifies.  This means any new or existing SFR, town home, condominium or permanently affixed manufactured home are acceptable.  If you utilize FHA financing, the collateral must meet FHA guidelines (especially important with MFG homes and condo’s ).  2 unit properties are also eligible as long as they are 5 years or older and the borrower is occupying at least 1 of the units.

Valuable info:

This is not a Grant program.  This program is funded with tax exempt mortgage revenue bonds, it allows FTHB to purchase homes with no money down.  You can finance 100% of the purchase price AND closing costs if needed.  Earnest money can be refunded at the time of close.

Reverse Mortgage Basics

What is a reverse mortgage?

If you are over the age of 62 and have paid off more than 35% of your mortgage balance, a reverse mortgage will allow you to borrow against the equity in your home. Instead of continuing to make mortgage payments, you get paid back the money you already have in it—that’s the “reverse” part.

How do I get my money?

The reverse mortgage program provides the widest array of cash-advance choices, giving you “flexibility for life.” You can take your money in several ways:

• Take a single, lump sum of cash (tax-free).
• Establish a “credit line” account that you control.
• Have the lender send you a monthly payment for life.

In addition, you can choose any combination of these options, and even have the ability to “change your mind” later. You can modify these options at any time down the road, and will not be charged to do so. Remember, the choice is always yours to make.

What can I do with the money?

This is the best part! Once you receive your money, it is totally up to you. Some seniors will choose to save the money, some will establish an emergency fund for long-term care, and many will simply “enjoy life to the fullest.”

What about my children?

Many children of reverse mortgage borrowers are pleased that their parents are able to use their equity and remain living in their homes. Often it is a great relief to these children, that their parents are able to take care of their own needs; many even encourage their parents to do so.

Whether or not you decide to discuss this matter with your children or other Heirs, depends on a variety of personal and family factors. You may value their advice or want to know what they think. Or, you may think it best not to discuss it before making a decision, or not to tell them after you have closed a loan.

On the other hand, to avoid future misunderstanding, you may want to make a note of your decision in your will. Whatever you decide, the important thing is to give some thought to your heirs. We believe you should.

Who should NOT get a reverse mortgage?

A reverse mortgage is not right for you if you have:

• Low home equity (still owe 70% of home’s value) For example, if you own a $100,000 home but still owe $70,000, we do not recommend a reverse mortgage
• Short time left in home (less than 2 years) You wouldn’t buy a house if you planned to move out in just 2 years. The same is true of a reverse mortgage. The closing costs of a reverse mortgage get spread out over time making the reverse mortgage quite inexpensive due to low interest rates. However, in two years there is too little time to spread out the costs.

Home Purchase Assistance in AZ

Did this title get your attention?  I thought it would.  The title is correct, there is a home purchase assistance program available in the State of Arizona.  Please do not confuse this program with down payment assistance.  This is a common misconception with various state programs that are available to potential buyers looking to buy the homes for sale in Phoenix AZ and the rest of the state.  All programs of this type are home purchase assistance programs, not down payment assistance programs.

Funding has been made available through the U.S. Housing and Urban Development (HUD) Neighborhood Stabilization Program (NSP) for potential homeowners in the state of Arizona.  This is a financing tool that will make it easier for eligible, credit-worthy homebuyers to obtain mortgages.  The Your Way Home AZ Program has been created in order to help homebuyers purchase foreclosed homes for sale in the State of Arizona.  The potential home owners and properties must meet certain requirements, including income level, location and purchase price of the property and other conditions.

The program is administered by the Arizona Department of Housing (ADOH).  ADOH has designated $20,000,000 of the NSP funds for the Your Way Home AZ Program.  Many of the programs requirements are directly mandated by HUD and are non negotiable.

Under the federal legislation and NSP regulations, these funds may be used to “establish financing mechanisms, … including such mechanisms as soft seconds,” to assist in purchasing homes that have been foreclosed upon.  Potential home buyers of these homes for sale in the State of Arizona must have a household income no greater than 120% of the median income for the area they intend to purchase a home in.  HUD is requiring that the purchase price of the home be at least 1% lower than the appraised value of the home.

Your Way Home AZ will provide a second mortgage to eligible home buyers for up to 22% of the purchase price of the property.  The second mortgages will have a term of 5 to 15 years depending on the amount of assistance and will be forgiven at the end of the term if all program requirements have been met and the borrower continues to occupy the property.

If you would like to learn more about this program and if you or your customers qualify, please complete the contact form below.

Top 10 Mortgage Financing Questions

1) Do I need 20% down to buy a home?

No. You are able purchase with as little as a 3.5% down payment. In certain instances, you can buy with no money down.  If you choose to finance more than 80% of the purchase price, you will most likely be required to have mortgage insurance.

2) Can the seller pay my closing costs?

Yes. The seller can pay for your closing costs and pre paid items (taxes and insurance).  Lenders will have guidelines as to how much a seller can contribute to your closing costs.  Most lenders allow between 3%-6%.  Please check with your lender prior to making an offer. The seller is not permitted to give you your down payment.

3) How is my interest rate determined?

Your interest rate is determined by a variety of factors. The most critical are your credit score, down payment %, property type and upfront closing costs paid. Typically, the more closing costs that you pay upfront, the lower your rate will be.  Your seller concessions will be valuable in this area.  Always ask for options from your lender/broker about rates and fees.  Your lender/broker will give you the necessary information to make an intelligent informed decision.

4) Do I need perfect credit scores to be able to buy a home?

No. With certain types of loans you can have a credit score as low as a 530. Credit scores range from 300-850.

5) What is Pre-Approval and does it cost money to get Pre-Approved?

A pre-approval is free and highly recommended. A pre-approval helps you establish an amount that you are able to qualify for when purchasing a home. Once you are       pre-approved you can make an offer on a home. The pre-approval letter shows the seller that you are able to purchase their home and have already pursued financing.  Most sellers will not entertain offers without a pre-approval from a bank/broker.

6) Do interest rates change daily?

Yes. Interest rates changed daily and sometimes hourly based on the positive or negative activity in the mortgage bond market. Mortgage bonds trade a lot like stocks on Wall Street, this is why rates change so frequently.

7) When can I lock my interest rate?

You can lock your interest rate once you have the property you wish to purchase under contract. Once your interest rate is locked the rate cannot change.  This either works for you or against you.  You will either avoid a market crash or miss out on the market improving.  Rule of thumb is to lock your rate if you like it.  The market is too volitale currently to take a risk looking for a lower rate.  Every .125% on the interest rate on a $100,000 loan amount equates to approximately $8 per month.  In most cases, it is not worth the risk to wait.  “If you like it, lock it!”

What is an FHA loan?

An FHA loan is a government insured loan.  This type of loan requires a minimum of 3.5% as a down payment.  Gifted funds for a down payment are allowed.  You may also have a co-signer that does not intend on occupying the property if this helps you to qualify.  FHA loans tend to be a little more flexible on their underwriting guidelines.

9) Does the $8,000 dollar first time home buyer credit expire?

Yes. The tax credit is set to expire on December 1st, 2009.  Please anticipate lenders getting inundated with loans in the months of October and November.  This will slow down underwriting and loan closings.  Do not miss out due to procrastination.  Weigh your options, is making an offer on this short sale or bank owned property to save $5,000 of the purchase price worth not being able to take advantage of the first time home buyer tax credit?

10) What am I looking for when I chose a lender?

Cost isn’t everything! Look for experience.  With the market changing constantly, you will need an experienced mortgage professional to assist you in making the biggest purchase of your life.  Loan products change daily and lenders are going out of business, so you need to make sure that the lender/broker you chose will be there and be able to deliver the financing on your new home purchase or refinance.  What good is a slightly lower rate or slightly lower fees if you never get the loan?  Too many potential homeowners end up paying unnecessary fees or losing purchase opportunities due to choosing a lender/broker that wasn’t experienced and able to deliver.  Don’t bargain hunt for financing on the biggest purchase that you will ever make.  Be prepared to spend a little more if need be to insure that you get you a quality loan, it will be worth it!