Posts Tagged ‘foreclosure’

Tales of a Home Buyer – part 4

May 26, 2011

Written by Shawn DeVries

After getting the purchase agreement signed I again pulled the needed documents for my Loan Officer.  (Yes, all 4,000 pages because 3 months had passed and updated information was needed.  We really do understand what buyers are feeling.) My information was entered into that program again that analyzes the data and based on preset criteria makes a decision on whether or not to approve my loan.  This “little” program can really freak you out sometimes, and all for no apparent reason.  

Ironically the same feelings can occur when you are refinancing your home.  These transactions are big deals and are a significant portion of your personal financial status.  It is no surprise that a borrower will feel some angst that is in direct proportion to their emotional investment to the home.  Highly emotional people will be highly invested into the process.  (I would like to say at this point that in case you have not guessed, I am a passionate person.  My mom will probably describe me in other words, but let’s not get her anymore involved than she already is, okay?)  Fortunately, these results came back just fine too on my loan.   

The next part was to develop my case in order for my Loan Officer to submit my file to an underwriter.  At this point in the home buying process your lender has gotten to know you fairly well.  They understand your financial situation and know what your goals and dreams are.  At least your lender should want this home for you as badly as you do.  If not, find out why.  The underwriter however does not know you.  All they have in front of them are numbers to compare and analyze.  The documents you submit need to tell your story for you.  Share what you need to support their decision so they see you as a low credit risk. 

Shortly after my offer was accepted and the paperwork fun began, I had a full inspection of the home done.  I was relieved to know there were no major issues to resolve or problems to fix.  For a home that was over 45 years old it was in amazing condition.  Getting an inspection is a crucial step in buying a home.  You want an expert without emotional ties to give you an unbiased opinion of what you are buying.  Follow them on the inspection.  Look at what they are looking at, poke where they poke and ask lots of questions.  A good inspector will tell you what needs attention and what is good with the house.  They should be able to also tell you how serious an issue is.  Telling you your furnace is getting old isn’t very helpful.  Letting you know the average life expectancy of a furnace and verifying the age of your unit is helpful.  Letting you know where your unit is beginning to show signs of wear is also beneficial.  Take good notes while on the inspection, but also get their findings and recommendations in writing.

Title work is another major piece in the process.  The title agent confirms that there are no liens against the property that would prevent the house from being sold.  It also confirms who the rightful owner(s) currently is (are), that property taxes are current, and prepares the paperwork so that there is a smooth transfer of ownership (among many other steps).  Title agents are also a great partner to have when buying a home from a trust (like I did), out of a foreclosure or short sale or any other transaction that may involve a bit more documentation.

The third significant step that happens at this point is having your home appraised.  Your lender wants to know the true market value of the home you are buying.  This doesn’t mean they are checking on how well you negotiated and if you got a good deal.  They are looking to protect their investment in you.  This house will be the collateral on the loan.  A lender does not want to lend more than what the property is worth.

After a slow start in finding my dream home, the loan process went very smoothly.  Supporting financial documents?  Check.  Good inspection?  Check.  Appropriately appraised home?  Check.  Title clear and without liens?  Check and check again.

Repair Escrows – a nice solution

December 8, 2010

What is a repair escrow and why would you need one?

When purchasing a home there are certain expectations and requirements for living conditions that must be met.  Most of these requirements address the overall health and safety of the home.  Different loan programs have different standards.  For example, homes purchased through an FHA or Rural Development program require that any and all health and safety repairs be completed prior to closing on the home.  If you are purchasing a home from a private party this can usually be negotiated, scheduled and resolved before the closing date. 

However, making repairs before the closing date can sometimes create a challenge.  For example, repairing brick work on a home can be a bit of a challenge with a foot of snow on the ground.  A repair escrow can easily resolve this challenge; and most lenders offer this option. 

However, a larger challenge can occur with the purchase of a foreclosure home.  With a foreclosure sale the seller is an institution who most likely has never seen the property.  For liability reasons, the seller does not allow access to the property for repairs to be completed prior to closing.  Plus you may not want to make repairs on a home you do not own yet.  Awareness Home Funding is a unique lender that offers you a repair escrow in this situation also.

A repair escrow is a temporary account with funds specifically set aside to pay for any required repairs that a licensed inspector has deemed necessary, and that must be completed within a certain timeframe.

How does it work?

When an appraisal is done on a home, the appraiser will include repairs that will need to be corrected.  Since the appraiser is not an inspector, he may require an inspection be done for certain areas, i.e., roof, electrical, etc.  The inspector will give a detailed report of the problem(s) that will need to be corrected.

Once you have this list of repairs, 2-3 quotes from a licensed contractor must be obtained for each area of expertise (mechanical, electrical, plumbing, general contracting).  The estimated cost of the repairs will determine the amount needed to set up your repair escrow.

An agreement will be drafted to be signed at close.  Funds for the repair escrow will be part of your cash-to-close.  Repairs must be completed within 30 days from your closing date, unless otherwise noted in the agreement.

What happens next?

After you have closed on your home the next step is to start on the repairs.  There may be repairs that are minimal that you can correct yourself, such as scraping and painting, replacing outlet covers, etc.  Please note:  any repairs that do not pass re-inspection will have to be repaired again, which can cost you more money.  It is always best to hire a licensed professional for any repairs that you are not completely familiar with and know how to handle.

Once all the repairs have been completed, contact your Home Loan Specialist at Awareness Home Funding.  We will request a re-inspection of the work required.  You will need to submit any invoices that are to be paid, which will be forwarded to Polaris Home Funding for payment.  Once Polaris has received the approved re-inspection report, invoices will be paid within three to five business days.  Any funds left over from the repair escrow account will be returned.

Additional Factors

  • There is a maximum limit on repairs of $5,000.
  • Individual bids or a combination of bids for different repairs totaling more than $5,000 are considered major structural and must be completed prior to the closing of the loan.
  • Roof “repair” is acceptable, but roof “replacement” is considered major structural and will not be allowed.

 If you have additional questions on repair escrows or any other home loan question, please contact us at Awareness Home Funding.  We are here to help you.

What’s the Difference?

February 16, 2010

What’s the difference between a Short Sale, Foreclosure and HUD Home?

Some time ago, we posted a series of articles on different terminology related to home purchases that can often create confusion.  This post covers three more – Short Sales, Foreclosures and HUD Homes.  The current housing market has more homes available that are not the traditional transaction.  Here are just three you may want to know about.

A Short Sale is a home that is being sold by the current owner where the selling price is less than the current balance owed on the mortgage.  Many times there are outlying factors that force a short sale, such as relocation for a job change or a homeowner who has fallen behind in payments and is trying to salvage some equity or avoid foreclosure.  The advantage of purchasing a home in short sale is that you can get the home for its true market value, and not an artificially inflated price. 

The primary disadvantage to purchasing a short sale home can be the time involved.  In many cases, the bank is unaware of the seller’s intentions to sell the home, therefore once the bank receives the offer they must spend a great deal of time investigating the details.  This process can take months.  Unless you have written a deadline to your offer being accepted, you could be locked into this transaction until it is either approved or denied by the bank.  In some cases, the bank can pre-approve a short sale, but keep it mind it has been approved for a specific price.  Any other offer must be resubmitted and approved by the bank.

A Foreclosure sale means that the bank has full possession of the home and is the seller you will be negotiating with.  A foreclosure purchase is most like a traditional home purchase out of these three examples.  The biggest advantage of foreclosure sales is that you are dealing with a seller who has no emotional ties to the property.  It is simply a matter of recovering as much of their money as possible.  The second advantage is that you can purchase a home at a value much below market value.  You are free to negotiate price and seller concessions, but keep in mind the bank has based the selling price on a recent appraisal done to determine value.  The final selling price boils down to how desperate the bank is to sell the property.  So while you can offer a lower price, don’t be insulting.

The disadvantage of foreclosure homes is that they generally require repairs before you can assume occupancy.  The seller (the bank) also has more control of the sales process and can back out for any reason, such as an amended contract with a condition they find unacceptable.  Start by writing a sales contract that you understand, protects your interest and with terms you can agree with.  By reading your contract carefully and in detail you can generally avoid most areas of contention.

A HUD Home is an FHA owned property where the home is made available to individual, owner occupied buyers for the first 10 days it is on the market.  After these initial 10 days, all bids are reviewed at one time.  If no offers are accepted investment buyers can then place bids on the property.  Again the advantage of these types of sales is the ability to get the home for a price under the typical market value. 

The biggest disadvantage to a HUD home is that the asking price is set at an “as is” appraised value.  Any bid for more than this amount must be paid in cash at close by the buyer.  If your sales price is higher than the asking price, you can only mortgage the asking price less your down payment.  Be prepared to move quickly if you have your eye on a HUD home; if the repairs are at a minimum these homes will move quickly.  Generally homes purchased by investors require significant improvements to bring them back to acceptable safety standards.

Don’t be afraid of these types of transactions, just do your homework and work with licensed professionals who have experience with these types of purchases.  They can help you navigate the process successfully.

Physical and Financial Fitness – Who is Responsible?

February 9, 2010

We recently found a blog post by Philosophy Professor Nina Rosenstand from San Diego Mesa College where she raised the question of whether or not staying slim was a moral responsibility.  She implicitly asked who should ultimately be responsible for our own physical health, and whether or not an employer could assume this task.  While the focus of her article was on physical fitness, it got us thinking.  Who is ultimately responsible for your financial fitness? 

In the same way our weight is used as one indicator of physical health, a person’s credit score is used to portray a person’s financial fitness.  Your credit score measures your fiscal responsibility from the past up to the present.  Like your weight, this too is only one indicator of your overall financial health.   A credit score doesn’t account for factors outside of your control like a company closing leaving you without a job and therefore no income, that potentially leads to foreclosure.  Your credit score doesn’t explain a divorce that suddenly cuts your income in half. 

However, do the occurrences of life totally void us of all responsibility when it comes to our finances?  Are “we the people” to some degree responsible for this messed up economy due to our collective lack of financial accountability?  Can we be allowed to wash our hands of financial integrity just because “life” happens?  Shouldn’t we expect the unexpected to happen?   

Being financially sound (i.e.: strong credit scores, emergency savings, balanced budgets, living within our means) has many benefits such as lower health and auto insurance rates, better interest rates, and even job offers.  Should we push the blame of financial blunders onto someone else?  At what point do we say this is my life, my finances, my responsibility?  Along with teaching our children about living healthy, we need to also teach them financial responsibility.  Perhaps we might find that sound financial health can lead to better physical health.

We are not so ignorant (nor arrogant) to think that hiccups are not going to occur along the path of life.  They do.  And if you have not experienced one, odds are you will at some point.  As a company we are bound by industry and legal regulations to enforce set standards of acceptable financial health.  However, we also want to help our clients improve and maintain optimal financial health.  We cannot fix a client’s struggling credit any more than we can do sit-ups for you, but like a personal trainer we can offer guidance, suggestions and helpful ideas. 

What are your thoughts?