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It looks like we may all be home for Christmas after all.  

Freddie Mac and Fannie Mae, the mortgage-finance companies seized by the U.S. government, will suspend foreclosures and evictions over the holidays.

The six-week pause will begin Nov. 26, a day before the U.S. Thanksgiving holiday, and last through Jan. 9, the companies said in separate statements today.  The much needed reprieve is designed to give servicer’s more time to implement a streamlined loan modification program for struggling borrowers.

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 A new loan modification program was just unveiled that may help thousands of homeowners, that are facing foreclosure.  The loan modification program is the latest attempt by the federal government to stabilize the real estate market.  Thr program will not provide direct financial help, but it does provide assistance to those at risk of losing their homes.

The program will benefit borrowers who are at least 3 months behind on their mortgage payments, if they live in the home and have not filed for bankruptcy.

Borrower’s who fit the criteria would be offered a mortgage loan that would bring the payment to no more than 38 percent of their monthly household income.   Loan payments would be adjusted downward through interest rate cuts and longer terms of repayment.  Borrower’s would be allowed up to 40 years to repay the debt versus the traditional 30 year mortgage most of us are familiar with.

Borrower’s who are in danger of foreclosure should immediately contact the lender who services their loan.  The loan modification program was designed to be swift and efficient in stopping foreclosures.  It is expected that 1.6 million Americans will lose their homes this year, and another 1.9 million are projected to lose their homes in 2009.

Efforts by the government to work with borrowers and homeowners and keep them in their homes is good news for neighborhoods and communities.   The program is also good news for lenders and taxpayers as foreclosures typically cost the lender 50 percent of the loan value.  Ouch!

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Directors for the National Association Realtors (N.A.R.) formally agree on a real estate stimulus proposal.

The proposal calls on congress to use a portion of the $700 billion dollar bailout package to provide a temporary $7,500 first-time home buyer tax credit that does not have to be repaid.  In addition, they advised that the fed, should temporarily buy-down mortgage rates to 4.5 percent or less.

NAR, CEO Dale Stinton, said the  proposal would cost an estimated $100 billion per year and recommended that the temporary relief  remain in place for two years.

Stinton said NAR arrived at the 4.5 percent or lower interest-rate buy-down level as “a result of some surveys and focus groups and talking to some brokers around the country,” and the research indicates that a buying down  interest rates to 3 percent to 4.5 percent would get the market rolling again. 

“We think in a couple years things will come back to where they should be,” Stinton said.  “It’s a small price to pay, in my opinion, to stop the hemorrhaging,” he said, as much longer real estate slump could prove far more costly.  ”We have to find a bottom to this market, from the real estate point of view and from an economic point of view,” he said.

Realogy Corp., which owns Century 21, Coldwell Banker, ERA and other household franchise names, recommended the idea of government financed interest rate buy downs in October, saying the buy downs would unleash consumer demand for housing.  

Buy downs are not a new idea for increasing buyer activity.   Buy downs have been used successfully for years as an incentive.   To buy down a rate, sellers pay lenders extra points up front to obtain a reduced interest rate for a buyer, often for the first two or three years of a loan.

The NAR plan also stressed that the federal government should permanently increase in FHA, Fannie Mae and Freddie Mac loan limits to $729,750 in high-cost areas. Effect January 1, 2009, the limits are scheduled to roll back to $625,000.

The proposal from the NAR is on target in terms of what is needed to get things moving on Main Street.  And hopefully, when Congress is back in session, they will seriously heed the advise of the real estate community before more damage is done to homeowners.

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 High energy costs, the stock market crash and the dismal housing market have converged to make 2008 one of the scariest economies in over 70 years.  Many people fear that they can not meet their monthly expenses this winter.  Further, many feel trapped, living in houses that they can not afford  and can not sell.   One answer for those over the age of 62, may be a Reverse Mortgage.

What is a Reverse Mortgage?

A reverse mortgage is a program for Seniors age 62 and older.  The program enables homeowner’s to receive part of their home equity as tax-free income without having to sell their home, give up title or pay a mortgage payment.

How Does a Reverse Mortgage Work?

The homeowner pledges the home as collateral for the loan, but does not make any mortgage payments on the amount borrowed.  The borrower receives their equity as a lump sum, a monthly payment, a line of credit, or a combination of the three.   The amount owed to the lender can never exceed the value of the home

No money needs to be repaid to the lender until the borrower no longer occupies the property as a principal residence.   If the borrower dies, sells the home or moves, the lender will sell the property to pay back the loan.   If the amount owed is less than the sales price, the excess money is returned to you or your estate.

What Can I Use the Money For?

The money you receive can be used for anything.  You can use the funds to supplement your retirement income, repair or remodel your home, pay for health care, living expenses, pay off debt, buy a new car, take a vacation or prevent a foreclosure.

Why Should You Avoid a Reverse Mortgage?

If you intend to leave your home within 2-3 years, there are less expensive options you may want to consider.  Because of the upfront costs associated with a reverse mortgage (approximately 2-3 percent), home equity loans or a tax deferral program may save you money on borrowing costs.

If you want to leave your home to your heirs, you should also consider other options.   In most cases, the home will have to be sold in order to pay back the reverse mortgage.  A better option would be to sell the home to your heir’s now, and rent it back from them for your lifetime use.

How Did Reverse Mortgage Get Its Name?  

It is called a reverse mortgage because the typical flow of money is reversed.  Instead of the borrower making monthly payments to the lender, as is customary, the lender makes payments to you.

How Do I Find Out More About Reverse Mortgages?

The non-profit site Reverse Mortgage has all the facts and information you need to make a decision.  Topics on the site include the rates charged by different lenders, info about the effects of reverse mortgages on social security, medicare and medicaid benefits, special requirements and a whole lot more.

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As the owner of a small, woman-owned business for the last 25 years, I have experienced a lot of market up’s and down’s.  And, while the 2008 market is unique to itself, it does have similar traits with other declines in the real estate, financial and equity markets that we can draw from.

So, what does my experience tell me about predictions for equities and housing in 2009?

1. Housing has further to fall in 2009.    Housing has a bit further to fall as inventories remain at historical highs, and new inventory is being added daily.   We are currently foreclosing on 10,0000 homes per month on average, and the end is no where in sight.  The numbers of loan deliquencies and defaults are increasing, keeping downward pressure on home prices and upward pressure on unsold inventory.  
2. More Trouble Finding or Keeping A Job in 2009.   The U.S. unemployment rate is growing along with the national debt.    As business continues to slow, we will see more layoff’s and company closings in industries such as building and contruction, financial’s, auto’s, airlines, travel and retail.
3. Credit Problems in 2009.   Lenders will be very cautious about loaning money, even to their best customer’s, until they divest themselves of unperforming assets.  The spread’s on mortgage rates will remain high in 2009, increasing the costs to borrow.
4. Wall Street in 2009.   The stock market looks forward, not backward.  The recent sell off was not caused by horrific events which occurred in 2008 or earlier.  The recent, unprecedented stock market decline, tells us that Wall Street expects and has priced in, that 2009 will be one of the worst ecomonic periods in U.S. history.   If the street thinks the economy will improve in 2010, then 2009 should be an up year for equities.  But, sit on cash for now, as it is really too early to tell.

For all the reasons above, I do not see a rosy 2009.  But, that being said, I do see the opportunities that will present themselves.   With regard to housing, I think we are nearing the bottom and price declines indicate that a lot of the risk is off the table.  For those that are investing in real estate for the long term or for a place to live, I don’t see prices getting remarkably cheaper from here.  Buyer’s planning to hold for five years would probably do well to take advantage of today’s interest rates.  I see higher lending costs in the future, due to government borrowing, earning slowdown’s and regretable past mistakes.

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Home for Sale

While the present ecomonic situation in this country is uncertain, one thing remains unchanged.  Markets will rise.  Markets will fall.  Markets will Recover.  Savvy Investors/Buyers will Profit.

Too much inventory, and too much absurd lending and borrowing, have Americans facing the worst housing market since the great depression.  While this is not new news, the opportunities in this market may be.   

Home buyers with money in the bank, a job and good credit have not been in such a great position in decades.   Price declines and record loan defaults have made bargain hunting for a home a lot more fun.   The McMansion, many believed they could never afford, is now well within their grasp. 

So, what is the truth about getting a great deal in this market?   Are some properties easier to buy than others?    Can you really get a steal from lenders sitting on unsold inventory?   

The answer is YES, but there are big differences in the types of distressed property being offered for sale.

• SHORT SALES:  A short sale is one in which the borrower is behind on their mortgage, but they still own the property.   Usually, the borrower owes more to the lender than they can sell the home for (upside down).  Usually a short seller will ask the bank to consider any offer on the property and “forgive” the outstanding loan balance.   A short sale is good for the home owner because short sales do not reflect as poorly on their credit report.  Short sales are good for the lender because they don’t have another vacant home on their books.
• MAKING A OFFER ON A SHORT SALE HOME:  This is the most difficult type of distressed housing to make an offer on.  Unless you have a lot of patience or an unlimited amount of time to sit and wait for a response to your offer, you may want to seriously avoid properties advertised as Short Sales.  Truefully, very few, if any, offers made on Short Sales ever close.
• REO’s and Foreclosures:  These are bank owned properties and there are plenty to choose from.  These types of listings sell very quickly.  Generally the buyer can be sitting in their new living room in less than 30 days after submitting an offer on a lender owned property.
• MAKING AN OFFER ON A FORECLOSURE OR REO:  Banks are completely detached and unemotional from their home listings.   They know exactly what they need in terms of price, they know the local market and they love quick closings.  That being said, you won’t be successful offering 75, 80 or even 90 percent of the list price.  You will more than likely be out bid, as often the winning bid is over the list price.  Keep in mind that the bank is not like a human home seller, they usually never counter low ball offers, they simply move on to the next offer in the pile.

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Hope for Homeowners is a new program, created by congress, to assist homeowners in refinancing their “at risk” loans into more affordable FHA, insured mortgages.

It is estimated that over 400,000 homeowners could avoid foreclosure through participation in the voluntary program, by enrolling before September 30, 2011.

In order to qualify for the special refinancing, the original loan must have been originated on or before January 1, 2008. In addition, the existing mortgage payment must exceed 31 percent of the borrower’s gross monthly income.

FHASecure is another program designed to help homeowners refinance and avoid foreclosure. The program, which went into effect on July 14th, offers borrowers with ARM’s, the option to refinance with an FHA insured mortgage designed to lower the monthly mortgage payment. Under the FHASecure program, lenders can not disqualify borrowers based on loan payment deliquency and the lender may actually offer a second mortgage to make up the difference between the appraised value of the property and the outstanding balance due.

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The Case Shiller index of home prices across the US was just released.  Follow the link to learn about the present market in your city.

Home Prices in My Town

Thank you for visiting InfoTube.net. We will keep you posted on the market.

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With news of the financial crisis and the possible federal bailout of US lenders looming over our heads, it comes as no big surprise that August existing home sales were dismal.

In brief, the numbers provided by the National Association are as follows:

• Existing home sales were down another 2.2 percent in August, bringing the drop to 9.7 percent compared to 2007 levels.
• The average sales price of an existing home fell to $203,100 compared to $224,400 one year ago.
• The inventory of existing homes on the market fell in August to a 10.4 month supply.   A slight uptrend from the 10.9 month supply on the market in July.

Falling inventory levels are a bit of good news among all the bad news.   But keep in mind that the slight dip in inventory is not due solely to a growing number of sales.  Cancelations, listing expirations and owners who chose to withdraw their property from the market until activity picks up, also decrease the total number of homes on the market.

The current 10.4 month supply means we are still in a buyers market.   An inventory of 5-6 months is usually a sign of a balanced market, with an equal number of buyers and sellers.

To read the report from the National Association of Realtors, click the link.

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Every offer to purchase a home will contain a repair contingency.   The contingency will outline the options for seller and buyer, in the likely event that repair issues are discovered during the buyer’s property inspection. 

Before we begin to address the repair issues, I would like for all sellers and buyers to remember that there is no perfect home.  Every house, new or old, will most certainly turn up a list of repairs.   If you are a buyer searching for a perfect house, you can stop searching.   There are no perfect houses.

The purpose of home inspections is to identify safety issues or serious (ie: expensive) problems that are in need of repair, before the buyer complete’s the home purchase.  The buyer will use an inspection report to compile a list of repairs that they want the seller to fix, before closing.   Since both parties desire to maximize their cash, sellers are often left to make a decision about which repairs are necessary or reasonable, and which are not. 

So, what helpful facts should sellers and buyers know about handling repair requests?

1. First, all Buyers should have an independant, professional home inspection and seller’s should only accept inspection reports done by a qualified, home inspector.  Sellers are not obligated to accept the opinions of the buyer, the buyer’s friend or cousin, or any non-professional, for that matter.
2. The Buyer should provide a copy of the inspection report, along with the list of items they want the seller to fix.   If the seller hasn’t received a copy of the report, they should ask the buyer to provide it, before responding to the buyers repair request.
3. The Buyer should not “nit pick”.  A request for repairs should focus on major problems and safety issues.   The buyer should not ask the seller to fix cosmetic problems, such as a bad paint job or peeling wallpaper.  The buyer should have addressed those issues in the purchase offer, during their initial walk through.
4. If a seller receives a long list of repairs, they can consider offering a home warranty that covers major defects.  This insurance can save a deal by easing the buyer’s fear that the home is a money pit.  For a few hundred dollars, companies such as American Home Shield, provide an insurance policy at closing, which  covers major items and gives the buyer peace of mind.
5. In a buyer’s market, they often want everything fixed.  Sometimes the seller can ascertain inside information about which “big ticket” items are the most important to the buyer, but the seller should always keep in mind that they risk the buyer walking, if they don’t agree to complete the entire list of repairs.
6. When a seller is presented with a lengthy repair list, they should remember that known problems become material facts.  If a seller declines to fix buyer requested repairs, the problems are now “known” and must be disclosed to any future purchaser, in the event the buyer walks and the deal falls through.
7. If a seller wants to cooperate with a buyer, but is unable or unavailable to oversee repairs, the buyer might be willing to accept a cash credit at closing to cover the expense estimates.   Many buyer’s are comforted by the fact they can use the seller’s money and hire their own contractors to make the repairs in a way the seller may not have done.

What Repairs Requests are Deal Breakers?  Which are Reasonable for the Seller to Refuse?

1. Lender Required Repairs-Any problem noted on an appraisal, such as a bad roof or structural problem, is grounds for the bank to refuse to lend money on the property until the problem is fixed and the structure is properly protected.   Sellers are advised to make all repairs noted on an appraisal.  They affect the buyer’s ability to borrow funds and complete the purchase.
2. Leaking Pipes-It is not unreasonable to ask a seller to repair water leaks and the damage which the leaks may have caused.  Unrepaired leaks raise mold issues and other problems seller’s don’t want to have if the deal falls through.
3. Water Penetration-Sellers should address water penetration issues.  Most are caused by improper drainage of water away from the home.  Adjusting the grade or installing a french drain is usually the fix. 
4. Roofing System-As stated in item #1, the seller should expect to repair or replace their roof, if deferred maintanence has caused water penetration issues.   If your roof is in good shape, sellers can aleviate problems ahead of time, by providing the buyer with a roof certificate, since most inspectors do not cover roof inspections.
5. HVAC and Hot Water Heaters-Usually, age is a good indicator of whether the seller should replace these systems.  The average life expectancy of a HVAC system is about 20 years, and about 10 years for a water heater.  It is not unusual for the buyer to ask for new systems, if the existing ones are on their last legs, but these are big ticket items for the seller to repair, so no easy answer here. 
6. “Tar Paper” Sewer Lines, aka “Orangeburg” Sewer Pipes-These pipes, which are made from tar paper, are famous for collapsing.  Generally, they last about 30 years before they disintegrate.  While replacing sewer lines is expensive, they are an item most sellers will replace.
7. Unsafe Decking or Handrails-Sellers should generally fix any items that effect the safety of the occupants, or are matters of local code enforcement.
8. Galvanized Water Pipes-Many homes built 30 years ago have galvanized, steel water pipes.   These pipes become clogged with minerals overtime, which is often the cause of low water pressure.  These type of pipes are also prone to rust and leaks.  While it isn’t unreasonable to expect the seller to fix leaks, few sellers are willing to replace all the plumbing lines.
9. Electrical System-The electrical panel should be safe and not overloaded.  The breakers should be marked with the name of the area of the home that they service.  Sellers, again should expect to repair any safety or fire issues that are found during the inspection.   If your home was built before 1960, it is likely the electrical service is Ungrounded, meaning the plugs have only two outlets.   Most sellers will refuse to rewire a house, simply because the service is Ungrounded, since it does not cause any problems.  A tip might be for the seller to offer to run “Romex” from the electrical panel to any new receptacles that the buyer intends to use for sensitive electronics and large appliances.  As a general rule, buyers who require grounded wiring should be looking for newer homes.
10. Foundation or Wet Basement-These are difficult issues that effect the very structure the home is built on.  These homes are best purchased “as is” at a steep discount.   Buyers should always think twice about purchasing a home with this type of problem.  Problems with or repairs to these systems never go away.  These are material defects and must be disclosed to any future purchaser.

Before seller’s make a judgement about what items they will, or will not, repair, they should strongly consider that we are in a buyer’s market.  Buyers are hard to come by and they have a lot of home choices available to them.  If you need to sell, you should realize that it is likely the buyer will walk, if you refuse to address reasonable problems with your home.  In addition, if another buyer comes along in the future, it is likely they will ask that the same items be fixed.  Smart sellers should take a deep breath, and if you have to err, do it on the side of caution.   A qualified buyer has a great deal of value in this marketplace.  Please don’t lose your deal over a small deferred maintanence issue.

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This is how You See Your House

Your Banker See

Your Tax Assessor See

1. Are the measurements of your property accurate?   Accessments are based on a price per square foot basis, so make sure you aren’t paying for a larger lot or home than you own.
2. Verify the accuracy of the number of buildings shown on the assessment roll.
3. Are you being assessed for any improvements you DON’T have, such as central heat and air, garages, fireplaces, basement, bathrooms, etc.
4. Is the stated age of the structure correct?  If not, the depreciation may be incorrect.

Second, you need to do some research and provide key information at your assessment hearing.   Generally, you will need to show…

1. Sales information about comparable properties in your neighborhood.  You can obtain this information from a realtor, your tax office or websites such as Zillow.com (Note:  Zillow is a national database and their information should be verified with a local source.)
2.  Make adjustments for special features such as pools, tennis courts, lot sizes, etc. and note age if you have one of these features, too.  A 20 year old tennis court should be accesssed for less than an new one, for example.
3. Check the condition of the property and take pictures of any problems that would require repair before you sell.
4. Gather bids on the costs to make the repairs and deduct the amount from the comparable properties.
5. If you don’t want to do the research, hire a licensed appraiser to do the work.  An actual appraisal is inexpensive.  One that is less than 3 months old works the best, if you need to argue your position.     

If after doing research, you believe your assessments are too high, schedule an appointment to appeal the valuation.   Pay attention to the deadlines.  If you miss the deadline, you will be stuck paying the higher tax.

Appealing your tax assessment is your legal right.  You deserve to be treated with respect and the tax offices’ job is to work with you, not against you.  With a little preparation and patience, you can get your tax bill lowered.   

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The National Association of Realtors reports that 30%-40% of all homes currently on the market are foreclosures, bank owned or distressed property.    For the average home seller, that means a lot of competition from banks and lenders when they sell their home. 

While this fact may seem dire on the surface, smart home sellers see the silver lining.  The successful have learned to use the vacant, abandoned foreclosure home as a tool to sell their well-loved and cared for home.  

Smart Sellers Know:

The Comparable Sales Data for all competing homes on the market in their area because banks don’t do give aways.   Sales facts can quickly dispell the misguided shopper who believes they can purchase a Mac Mansion for $50,000. 

• Contrary to the “Buy a Foreclosure and Get-Rich-Quick” late night infomercials, buying a foreclosure is usually no bargain unless the home is a dog, or medicore property at best.  
• Banks list homes that are in good locations and condition near the full market value, so the upside is extremely limited.  The lender typically recoops their investment and the costs of the foreclosure sale, when the property is sold.  Many buyers falsely believe that foreclosures are deals of the century.   For the most part, they are certainly not.

Smart Sellers Know:

To make all home information readily available to buyers because foreclosures are a crap shoot.   This includes warranties, guarantee’s for work done, appliance and equipment manuals, details about workmanship and home improvements.  Utility bills and a list of contractors who have performed work or maintanence should also be prominently displayed for the buyer on the first showing. 

• Foreclosures are sold as ”Buyer Beware” properties.  In other words, the Seller has no knowledge about the property or its condition, and full responsiblity for purchase lies with the buyer.
• Lenders are exempt from disclosure laws that alert buyers to home defects and problems.    Meaning that the lenders often have no knowledge about the property and have no duty to disclose major problems, even if they are aware of them.

Smart Sellers Know:

Their home should be “in move” in condition because foreclosures certainly aren’t.   All repairs and maintenance should be done before the buyers inspection.   The home is free of clutter, freshly painted, landscaped and shows a geniune “pride of ownership”.

• Abandoned, unkept foreclosed homes often sit vacant on the market for months.  They are overrun with weeds, dirt, vermin, and are as a whole, disgusting to imagine oneself living in.
• Foreclosures are sold “As Is”.  The buyer can not ask the lender to pay for basic repairs.
• Many foreclosures are complete wrecks.   The homes have been stripped, vandalized and abused.   Buying a neglected home is a gamble at best.
• Most foreclosures can’t be properly inspected, if at all.  The power and water is disconnected.  Hidden water pipes were probably exposed to freezing temperatures last winter.   Cluelessly buying anything , especially foreclosures that offer no legal recourse or seller responsiblity, are deals for those with experience and high risk tolerance only.
• Foreclosure buyers usually spend $400-$600 for a limited home inspection, just to find that the repair list is more terrifying than a late night horror flick.   When the lender refuses to fix problems, the buyer walks the deal.  The buyer is back on the street and the money paid for the worthless inspection is gone.

Smart Sellers Know:

To make the purchase of their home very certain, quick and easy for the buyer.   A “No Brainer”, if you will.  

• Only 1 in 10 offers made to banks and lenders ever makes it to the closing table.   If a buyer needs a home to live in, odds are, a foreclosure won’t work.
• There is always a problem getting accurate information about a foreclosure.  There could be liens, judgements or more than one note or deed of trust.   If buyers don’t know exactly what they are doing, they can lose their shirt.
• Buyers have to deal with mounds of paperwork when buying a foreclosure.  Most of the added legalise pertains to covering the tail of the lender.
• Buyer can not usually designate a closing attorney or title company to work with. 
• Buyers often wait months to close on a foreclosure.   Contrary to common sense, lenders are in no real hurry to get deals done.  Weeks can pass before questions are answered or contract terms are addressed.  Buyers can count on additional problems with legal work, title insurance, appraisals and financing.  If time to possession is important, buyers would be well advised to avoid bank deals entirely.

While competing against banks to sell your home can be a challenge, smart seller realize that the sword cuts both ways.   Home buyers are not investors.  They buy a home from the heart.   

If you need to sell your home, show a little love for the ole ”Home Sweet Home”.  The bank won’t stand a chance.

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In today’s tight credit market, obtaining approval for financing BEFORE shopping for a home is a crucial step that borrowers must take.   Sellers and buyers are familiar with the phrase Pre-approved” or “Pre-qualified” for a loan.  Many of us assume they mean the same thing.  They don’t.  There is a huge difference between the two terms. 

Pre-Qualification:  Pre-qualification is not a loan commitment, it is a quick indication of whether a borrower should qualify for a loan or not, based solely upon the opinion of a loan officer.  With a pre-qualify situation, the loan officer peeks at the borrowers finances, pay stub and credit report and estimates the approximate amount of a mortgage that the buyer should be able to qualify for. 

The loan officer will usually issue a “pre-qualification” letter or certificate which indicates the borrowers finances have been reviewed and that it appears they could qualify for a mortgage loan.   It is not a guarantee that the borrower will actually be able to get a loan.

• It is easy to determine if you have received a “pre-qualification” letter.  If you have not signed an application and/or you have just given information over the phone…your approval is nothing more than an estimate or opinion made by a loan officer.
• If you have not paid non-refundable fee’s along with the signed application, you have not received a loan commitment by the lender.
• Pre-Qualifications should not be taken seriously by borrower or seller.   Pretty much anyone can get the favorable opinion of a loan officer these days, as they are paid only on commission.

Pre-Approval:  In the case of pre-approval, the borrower actually applies for a loan.  Pre-approval is a written commitment by the lender, not a loan officer, which states the specific amount of money the applicant is qualified to borrow.  Pre-approval involves a loan underwriter and takes some time to complete.  The file contains a detailed credit report, income and down payment verification, along with a confirmation that the borrower has the ability to pay closing costs.   

• If you have met your lender in person, completed an application and paid fee’s, you have started the process to become pre-approved for a loan.
• A letter of pre-approval states a maximum amount of money the borrower can obtain financing for.
• The property address will be added to the loan application and the appraisal will be ordered, once the borrower locates a property.
• The borrowers’ bank and employer will be contacted and the information submitted on the loan application will be verified.

 In Conclusion:

Unfortunately for seller and buyer, the terms pre-qualified and pre-approved are not interchangeable.  The difference between the two terms causes a great deal of confusion and problems.  

Please keep in mind that neither is a guarantee that a mortgage will be issued.  The home must qualify, too.  But, a borrower that is pre-approved for a loan, is the only type of buyer a seller should take seriously.  

                      Your Credit Score has a huge effect on your life and personal finances.  Your credit score not only determines your ability to borrow money at all, but also directly affects the costs of borrowing money.  

Under today’s scoring system, an individual with a high credit score can get a loan for cars, houses, vacations, credit cards, etc. at a much lower rate of interest (ie: lower monthly payments) than a person with a lower score.   To save real money every month…take our advise and boost your credit score with the following 7 Tips.

1. Less Isn’t More:  When it comes to your credit score. Lenders like to see different types of credit in your history file including credit cards, car loans and personal lines of credit.   Lenders are looking to see how you handle different types of debt repayment.
2. Don’t Close Accounts:  Keep your old credit accounts open, even if you have paid the loan in full.  The more available, unused credit you have, the better your score will be.  Your older, established accounts are also more valuable to your credit score and raise your score more than newer ones. 
3. Raise Your Credit Limits:  While it helps your score to have a lot of available, unused credit, opening a new credit account will drop your score in the short term.  A good strategy is to ask your credit company to increase your current credit limit on a regular basis.  A high line of available credit is valuable, whether you need the additional credit or not. 
4. Your Net Worth, Income and Savings Don’t Matter:  The only thing that matters to your credit score is what lines of credit you have open and how you use them.   A cash paying millionaire will likely have a lower credit score than a maid or gardner who use credit.
5. Small Balances and Lots of Cards are Better:  Since you credit score is sensitive to how much “available” credit you have, having small balances on a number of credit cards is better than having a big balance on one card only.  As a rule of thumb, you should only use 30% of the available credit on any one card.  70% of your credit limit should be available and unused.
6. Don’t Shop Around or Apply for Credit:   As ironic as this sounds, your credit score drops each time you have an inquiry to your credit report.   Lenders see inquiries as borrowing activity, whether you accept a loan or not.   (Note: Pass up the come on’s from department stores who offer you 10% off your purchase for applying for a store credit card.   A 10% discount is generally worth far less than the points lost due to the inquiry.)
7. Watch the Calendar:  Pay attention to due dates and minimum payment requirements.  While “pay on time” sounds basic, it can be difficult for many of us to do.

Lease Options, popular in the 70’s and 80’s, are resurfacing  as financing options in the 2008 housing market.    For those unfamiliar with lease options, I will outline what is a lease purchase or lease with the option to purchase?  What are the benefits and drawbacks?  What are the things to watch for? 

NOTE:  Please keep in mind that the information is an overview and is not meant to be construed as legal advise.  Buyers and Sellers should always consult an attorney before signing any legally binding document.

ABC’s of a Lease with an Option to Purchase:

• The buyer pays the seller an option fee for the right to purchase the property on or before a future date.  The amount of the option fee may be substantial or as low as $1.00.
• The purchase price can be fixed at the time of contract or set at the fair market value at the time the option is exercised. (Note:  Most buyers will lock in the future price when the option contract is signed.)
• During the Lease Period, the buyer leases the property from the seller for an agreed upon rental amount.
• The term of the lease option is negotiable, but the term is usually from 1-3 years.
• The Option Fee is generally non-refundable.
• If the buyer does not exercise the option to purchase the property at the end of the lease, the option expires and the seller keeps the option fee.
• Usually, a portion of the rental amount is applied to the future purchase.  (Example:  If the lease is $1200 per month, the seller will apply a credit of $200 per month toward the future purchase price or down payment.)
• The buyer can not assign the lease option without seller approval.
• The Buyer is not obligated to buy the property.

ABC’s of a Lease Purchase: 

• Includes all the standard terms above with the following exceptions.
• The option money is non-refundable and does not apply toward the purchase price or down payment.
• No one else can purchase the property unless the buyer defaults or the option period expires.
• The buyer is responsible for maintenance, all expenses for upkeep, taxes and insurance.
• The buyer is obligated to buy the property.
• The Seller can sue for specific performance in the case of buyer default on a Lease Purchase.

Benefits for Sellers and or Buyers:

• Lease Purchases or Lease Options are usually offered by distressed homeowners or builders. 
• The Seller can often get a higher price than they would with a normal sale.
• The Seller is able to sell the home in a slow market.  Think about it, if the property was easy to sell, the owner would sell it out right for the cash.
• The Seller benefits from locking in today’s prices and gets relief from paying the monthly mortgage.
• In theory, the Seller gets a renter that keeps up the property.  Since the renter intends to purchase the property, they should take care of the home, as if it were theirs.
• The Buyer builds equity through a forced savings plan, as a portion of rent is credited to him, even though the lease payments may exceed market rents. 
• The Buyer hopes to build equity, if the property appreciates during the option period.
• Buyers usually make a small down payment, with little to no qualification, which makes lease purchase a good way to ease into home ownership.
• If the Buyer defaults, the Seller does not refund any portion of the lease payments or the option fee. 

25 YEARS OF REAL LIFE EXPERIENCE:

I have written dozens of Lease Purchase or Lease Option Contracts during the 1980’s real estate crash in Texas.  During that entire period, I never saw one person actually  purchase the property they had an option on. 

The primary reason is often the reason they try to buy with a lease option in the first place…they can’t qualify for a loan.  The second reason for default was that prices continued to fall during the option period and they could buy another home for less money.   The third reason was that the property was in poor condition when they leased it and things became worse with the passing of time. 

If a Seller can not sell, then a lease option or lease purchase may be a sales tool to consider.  They generally generate more monthly cash-flow than renting alone and an option fee is the sellers to keep.  

But note, history proves by a large margin that the tenant will not become the owner, unless their credit situation has improved and the property values increase above the option price.

Bottom Line:  Chances are that 95% of the time, the Seller will get their house back at the end of the option period.