Might be pulling the trigger on a home purchase soon, need a little advice.

[buckeyensx]

So... some of the houses I'm looking at are short sales and/or forclosures. What do I need to know? Is the process the same on my end, or are there special considerations for the lender/buyer?

I have purchased foreclosures in the past. As the buyer, there was not much difference between buying a foreclosure and a traditional sale except. 1) The banks usually will not make any repairs to the property so a good home inspection is important. 2) Getting a response to an offer usually takes longer. The closing/purchase process was pretty much the same. I have also found that the terms (ie cash offer/ minimal contingencies/ etc.) may make your offer more attractive to the bank than a higher offer with more contingencies.

I am not a real estate professional. I am only trying to help a fellow Primer based on my past experience. In my area it seems the competition for rental properties/starter homes has really gotten stronger compared with a few years ago. I looked at a property a few days ago that was in horrible shape that already had 44 offers after being on the mls for only a few days. For me it seems like the buying opportunities are getting less and less. I have also found the county auditor's website a good resource to find comps and recent sale prices. They will have the sales price and sale dates of homes near any property you are considering. Good luck

 

[docjohn]

I'm not in residential RE either,,,but I do watch hgtv......think about a short sale...the sale price is going to be less than the money owed the lender...thats the short part.....so say the bank is the owner.....they will be looking for the most money as quickly as possible..but the process takes longer than you would think..and all bets are off that any real rules of engagement will be adhered to during the process...meaning don't hold your breath..but you could get a good deal.Also depends on whether the bank is a big national lender with little to no actual presence in the community vs a local bank where you could theoretically walk in and negotiate hard.

 

[steveny]

So... some of the houses I'm looking at are short sales and/or forclosures. What do I need to know? Is the process the same on my end, or are there special considerations for the lender/buyer?

RE agents usually get a fixed commission for REO properties and because of that your deal will not be on their front burner.

 

[drtruong]

Short sales/ foreclosures nowadays are hard to come by... Well, at least in CA. These foreclosures/ short sales have been cleared through the pipe by the big investors who have bought them all with cash and some are from Mainland China with cash in hand. I have noticed the main areas are Silicon Valley, San Francisco, LA., Irvine , San Diego... they don't have any more good houses for sale. If they do, you would have to have cash in hand to talk to the RE agents.

Otherwise, no luck. They don't want to deal with the lenders ...taking too long that is the reason ...only cash in hand ( I am talking a regular sale). Those RE agents want to close the deal quick..... "fast and furious" and move on.

I bought my new house from a short sale in June of 2011 ( I believe the housing market at the time was at the very bottom and very cheap) and I was fortunate enough to get it after the 1st buyer did not qualify for the loan, but I had to pay cash for it.

We decided to sell the previous house after moving in the new house, but no one wanted at dirt cheap price that I asked for. At the very beginning of 2013, certainly there was a ton of people started asking to buy it at more than what I asked for, even there was one couple wrote 2 personal letters to me ( the 1st I did not answer and the 2nd one I finally wrote a letter back to them) that they want to buy...... ( I wonder how they got address). I knew at the time the housing has turned around and I decided to keep it after it had been empty for more than1 year. I finally have rented it out for exactly one year now. However, it is not enough to cover the monthly mortgage ( I refinanced it for 15 yr fixed at 3%), tax and insurance.


I got a good deal for it. Took it from my PC.
View attachment 109114

Lastly, I want to share my story with you and I predict the housing price as well as interest rate will continue to go up at moderate rate and will not go down anymore. So if I were you, DON'T WAIT and why pay the rent why you can own one.

 

[naaman]

Ugh... Now I'm getting all nervous about submitting a loan application... Anyway, bombs away!

 

[drtruong]

Ugh... Now I'm getting all nervous about submitting a loan application... Anyway, bombs away!

30yrs fix interest has gone down a little bit this week. Maybe it is the right time or wait to go down further? Big question

 

[naaman]

I submitted this morning. The rates were down a little, which is nice... seems to make about a $30/month differnece in my price range. I have it narrowed down to two houses that my wife and I agreed upon. They are farther from work than I would like, and will cost me a little more than rent (after taxes and insurance), but rent always goes up, so after two/three years, it'll be cheaper, AND, I can refy after 5 or so years, once I'm ahead of my mortgage (I'm buying less house so that I can pay beyond the minimum... unforntunately, I still need enough house for my three boys, so I'll have to go with the 30-year loan instead of 15, but whatever).

Your house looks great, by the way, congrats on the good deal! It's inspiration for a few years down the road in my career...

 

[PghMiller]

I submitted this morning. The rates were down a little, which is nice... seems to make about a $30/month differnece in my price range. I have it narrowed down to two houses that my wife and I agreed upon. They are farther from work than I would like, and will cost me a little more than rent (after taxes and insurance), but rent always goes up, so after two/three years, it'll be cheaper, AND, I can refy after 5 or so years, once I'm ahead of my mortgage (I'm buying less house so that I can pay beyond the minimum... unforntunately, I still need enough house for my three boys, so I'll have to go with the 30-year loan instead of 15, but whatever).

Your house looks great, by the way, congrats on the good deal! It's inspiration for a few years down the road in my career...

Feel free to send me a copy of your loan papers/quote before you start the real loan process... I can let you know if they are charging too much here and there, so you could negotiate a better deal for yourself. (I'm not trying to steal your business, I can't do loans in your state, just trying to help... I hate seeing mortgage companies charging too many closing costs)

 

[naaman]

Feel free to send me a copy of your loan papers/quote before you start the real loan process... I can let you know if they are charging too much here and there, so you could negotiate a better deal for yourself. (I'm not trying to steal your business, I can't do loans in your state, just trying to help... I hate seeing mortgage companies charging too many closing costs)

Oh, man! It's so over-complicated! I look at a 30-year fixed, and they offer 7 or 8 different products! Some with more interests/less closing costs, some with more closing costs, less points... Also, it's looking like a VA loan PLUS a down payment might be the most affordable option. I will likely be talking to the lenders on Monday.

Bottom line: what I want to do is get the lowest monthly payment possible so that I can pay extra toward the principle every month. Is this a sound tactic, or should I consider other things (I can't really afford a 15-year mortgage on a house big enough for my family, so taking a shorter term is not an attractive option at this point).

I appreciate your offer to help. I will take you up on it when the time comes. As for negotiating, what's the best way to approach it? Is it like negotiating the price of a car? (I'm not very experienced in this area, either). Is the lender prepared/accustomed to negotiating the terms of a mortgage, or do they simply offer "off the shelf" products based on my credit?

One last question. What's going to net me a better deal: having less DTI or having a bigger down payment? I have plenty of cash available/forthcoming which can be used to eliminate my short term debt, but I can also raise about $11000 (total; about 6-8% for a purchase price of $180,000) in time for a transaction in the next month-and-a-half or so. The longer it takes to get everything sorted out, the more money above $11k I will have on hand. Should I attack the credit cards and medical bills, or should I save the cash for the down payment. I'm asking from a lender's perspective.

 

[docjohn]

In general the higher your fico scores the less risky you are to the lender.You will receive better terms if you have an excellent credit rating.You should absolutely pay off your higher interest dept first.Anything charging you more interrest each month than what your mortgage rate will be should be payed.And if you don't plan on living in this house for more than 5-7 years or your job is variable ie you may have to move ,then don't throw more money at the house each month.

 

[PghMiller]

One last question. What's going to net me a better deal: having less DTI or having a bigger down payment?

DTI doesn't effect your "deal".... it doesn't effect your interest rate or anything like that... your DTI percentage is either "pass" or "fail". So the fact that you are already approved (or pre-approved) means your DTI is acceptable, so you don't have to think about that anymore.
So only pay down your credit cards/medical bills if you want to get rid of the high interest payments quicker (but if you spend your money on debts, then you'll have less for down payment/closing costs).

DO YOU PLAN TO RETIRE IN THIS HOUSE?
If your answer is yes: Then it would be worth paying a few thousand in "Points" at closing in order to get your rate slightly lowered. This will enable you to save the most interest over the life of the loan (tens of thousands). BUT THIS IS ONLY ADVANTAGEOUS IF YOU PLAN TO STAY THERE FOREVER (or at LEAST 10 years+).
If your answer is no: Don't pay Points to "buy-down" your rate. It's not worth spending a couple extra grand at closing just to lower your payment $40/mo, if you're not going to stay there long enough to recoup the Points spent AND spend enough years past that to benefit and "save".

Here's what I did with my first house...
I KNEW I wasn't going to retire in the house... it was a 5-year house in my mind...
So I gave myself and INTEREST ONLY loan with an adjustable rate!
When I bought my house, my mortgage loan was for $130,000... my payment was $550 and that was INTEREST ONLY... so 5 years later I still owed $130,000. But I sold for $180,000 so I didn't care too much about paying down the balance because EVEN IF I would have taken a "regular" mortgage loan that had a payment of $720 (principal AND interest), 5 years later I would have owed $120,000 or so...... so when I sold it I STILL would have sold it for $180,000 (that's inevitable) so IT WOULD ALL WORKOUT TO BE THE SAME IN THE END.
So my thought was, why commit myself to having a payment of $720 when I could have a payment of $550. When in the end, it all calculates to be the same.

Here's the kicker with my loan described above...... Even though it was an adjustable rate mortgage, I still got a 3-year fixed period.... so my rate didn't change at all for the first 3 years (payment at $550). BUT once the adjustable period came, my rate WENT DOWN, so my payment dropped to $275!!! THAT was "fixed" for 12 months, at which point it would "adjust" again based on Prime and the Libor Index, which didn't change... so my payment remained at $275 for another 12 months. Then ANOTHER!!

So the loan program you choose... and the amount of Points you pay.... are all depending on your lifetime plans for the home. If you're going to stay there forever, pay Points to lower your rate. If you're not going to stay there for 10+yrs, do some sort of creative financing and benefit from it!

 

[steveny]

Oh, man! It's so over-complicated! I look at a 30-year fixed, and they offer 7 or 8 different products! Some with more interests/less closing costs, some with more closing costs, less points... Also, it's looking like a VA loan PLUS a down payment might be the most affordable option. I will likely be talking to the lenders on Monday.

Bottom line: what I want to do is get the lowest monthly payment possible so that I can pay extra toward the principle every month. Is this a sound tactic, or should I consider other things (I can't really afford a 15-year mortgage on a house big enough for my family, so taking a shorter term is not an attractive option at this point).

I appreciate your offer to help. I will take you up on it when the time comes. As for negotiating, what's the best way to approach it? Is it like negotiating the price of a car? (I'm not very experienced in this area, either). Is the lender prepared/accustomed to negotiating the terms of a mortgage, or do they simply offer "off the shelf" products based on my credit?

One last question. What's going to net me a better deal: having less DTI or having a bigger down payment? I have plenty of cash available/forthcoming which can be used to eliminate my short term debt, but I can also raise about $11000 (total; about 6-8% for a purchase price of $180,000) in time for a transaction in the next month-and-a-half or so. The longer it takes to get everything sorted out, the more money above $11k I will have on hand. Should I attack the credit cards and medical bills, or should I save the cash for the down payment. I'm asking from a lender's perspective.

I've always felt the best option is the lowest payment possible with the best terms then pay the most you can afford every month. Biweekly mortgages are usually paid off years sooner making the same payments most months except a couple that have three pay periods in them. Basically they force the borrower to make one additional payment per year.

 

[naaman]

In general the higher your fico scores the less risky you are to the lender.You will receive better terms if you have an excellent credit rating.You should absolutely pay off your higher interest dept first.Anything charging you more interrest each month than what your mortgage rate will be should be payed.And if you don't plan on living in this house for more than 5-7 years or your job is variable ie you may have to move ,then don't throw more money at the house each month.

Well, yeah, I want to pay off all the debt, but I also want to buy the house before interest rates get too high and home prices start to recover. Once I'm in the house, all surplus goes to debt.

DTI doesn't effect your "deal".... it doesn't effect your interest rate or anything like that... your DTI percentage is either "pass" or "fail". So the fact that you are already approved (or pre-approved) means your DTI is acceptable, so you don't have to think about that anymore.
So only pay down your credit cards/medical bills if you want to get rid of the high interest payments quicker (but if you spend your money on debts, then you'll have less for down payment/closing costs).

DO YOU PLAN TO RETIRE IN THIS HOUSE?
If your answer is yes: Then it would be worth paying a few thousand in "Points" at closing in order to get your rate slightly lowered. This will enable you to save the most interest over the life of the loan (tens of thousands). BUT THIS IS ONLY ADVANTAGEOUS IF YOU PLAN TO STAY THERE FOREVER (or at LEAST 10 years+).
If your answer is no: Don't pay Points to "buy-down" your rate. It's not worth spending a couple extra grand at closing just to lower your payment $40/mo, if you're not going to stay there long enough to recoup the Points spent AND spend enough years past that to benefit and "save".

Here's what I did with my first house...
I KNEW I wasn't going to retire in the house... it was a 5-year house in my mind...
So I gave myself and INTEREST ONLY loan with an adjustable rate!
When I bought my house, my mortgage loan was for $130,000... my payment was $550 and that was INTEREST ONLY... so 5 years later I still owed $130,000. But I sold for $180,000 so I didn't care too much about paying down the balance because EVEN IF I would have taken a "regular" mortgage loan that had a payment of $720 (principal AND interest), 5 years later I would have owed $120,000 or so...... so when I sold it I STILL would have sold it for $180,000 (that's inevitable) so IT WOULD ALL WORKOUT TO BE THE SAME IN THE END.
So my thought was, why commit myself to having a payment of $720 when I could have a payment of $550. When in the end, it all calculates to be the same.

Here's the kicker with my loan described above...... Even though it was an adjustable rate mortgage, I still got a 3-year fixed period.... so my rate didn't change at all for the first 3 years (payment at $550). BUT once the adjustable period came, my rate WENT DOWN, so my payment dropped to $275!!! THAT was "fixed" for 12 months, at which point it would "adjust" again based on Prime and the Libor Index, which didn't change... so my payment remained at $275 for another 12 months. Then ANOTHER!!

So the loan program you choose... and the amount of Points you pay.... are all depending on your lifetime plans for the home. If you're going to stay there forever, pay Points to lower your rate. If you're not going to stay there for 10+yrs, do some sort of creative financing and benefit from it!

Now that's clever! I will be living in this house indefinitely, so I'm not sure whether I should do anything like a short term, adjustable rate. On the other hand, I could see buying another (bigger) house, sometime down the road and then using this one for a non-profit/charity project I've been thinking about....

I've always felt the best option is the lowest payment possible with the best terms then pay the most you can afford every month. Biweekly mortgages are usually paid off years sooner making the same payments most months except a couple that have three pay periods in them. Basically they force the borrower to make one additional payment per year.

I plan to do even more than that, actually. If I can get ahead of the interest, I was thinking about refinancing down to a shorter term after a few years.

 

[naaman]

Well, I submitted for the preapproval, but was only quaified for $95K since I have only been working at my job for 1 year. The credit union said that I need 2 years of consistant overtime for it to count (without out that, they only counted my base salary).

So, for now, my plan is to wait, but I've also been thinking about finding a house for sale that I like and offering to rent it until such time as I can get approved for the purchase price of the home. My current apartment will be too small for my family in the next few months/year as my toddlers get bigger...

Obviously, home values may be different 1 year from now, so there is that to consider. What's everyone's take on this idea?

 

[docjohn]

If you can negotiate that your rental payments will lower your final purchase price than rent to own can be an option....I don't think prime rates on mortgages will rise greater than 2% from where we are now in the next 2 years.

 

[PghMiller]

If you and the landlord/seller execute a "Land Contract" (not a "rent to own" contract)... and you have the Land Contract notarized and recorded... and pay your rent for 1 year with a check (never cash)... and have the terms list that $xxx of your monthly payment goes towards the balance due (sales price)...

Then at the end of 1 year when it is time for you to "buy" the house from the seller, the mortgage loan could actually be processed/closed as a REFINANCE loan (instead of a PURCHASE loan)!!

There are 3 HUGE benefits to this:
Normally if you were "buying" a house for $100,000 (for example)... and you put down say 5%... your "Loan To Value" would be 95%... which would 1.) give you the highest interest rates on the market because rates are based on LTV and 95% is extremely high so the rate gets penalized, and 2.) you would have a PMI payment.
But if you were to do it as a Refinance loan, the LTV is calculated on the balance due [divided by] the appraised value (a year later)... of course, the house would appreciate over that year of renting, AND your balance due would actually DECREASE (as long as you include in the contract that a portion of your payment will go towards the balance)... but my point of the appreciation is really that it would help improve your Loan-To-Value EVEN MORE (due to a combination of the appreciation AND paying the balance down)! So this would help you achieve a lower LTV which in turn helps your rate, and you could also possibly avoid PMI if it appreciates enough and you pay the balance down enough.
3.) With a PURCHASE loan, you have to pay a "down payment" PLUS pay the closing costs as well (THOUSANDS!)...... but with a REFINANCE loan, your loan is allowed to cover the balance due AND the closing costs.... so you would literally need $0 to close if you did a refi loan instead.

I do about 1 of these a month, for customers that I advised to do this 1+year ago (those who: had lower credit scores and couldn't qualify at that time but I told them what they could do to improve their credit; or someone with little job history and needed more time to qualify; or someone who had a bankruptcy or foreclosure within the past 3 years and needed another year to pass so it would surpass the 3 year mark; or times when a family member wants to rent/sell to family, etc)... this is really helpful for people and they end up very happy they did it.

 

[naaman]

Holy smokes!!! That is awesome. Do you know if this works in any state?

If you and the landlord/seller execute a "Land Contract" (not a "rent to own" contract)... and you have the Land Contract notarized and recorded... and pay your rent for 1 year with a check (never cash)... and have the terms list that $xxx of your monthly payment goes towards the balance due (sales price)...

Then at the end of 1 year when it is time for you to "buy" the house from the seller, the mortgage loan could actually be processed/closed as a REFINANCE loan (instead of a PURCHASE loan)!!

There are 3 HUGE benefits to this:
Normally if you were "buying" a house for $100,000 (for example)... and you put down say 5%... your "Loan To Value" would be 95%... which would 1.) give you the highest interest rates on the market because rates are based on LTV and 95% is extremely high so the rate gets penalized, and 2.) you would have a PMI payment.
But if you were to do it as a Refinance loan, the LTV is calculated on the balance due [divided by] the appraised value (a year later)... of course, the house would appreciate over that year of renting, AND your balance due would actually DECREASE (as long as you include in the contract that a portion of your payment will go towards the balance)... but my point of the appreciation is really that it would help improve your Loan-To-Value EVEN MORE (due to a combination of the appreciation AND paying the balance down)! So this would help you achieve a lower LTV which in turn helps your rate, and you could also possibly avoid PMI if it appreciates enough and you pay the balance down enough.
3.) With a PURCHASE loan, you have to pay a "down payment" PLUS pay the closing costs as well (THOUSANDS!)...... but with a REFINANCE loan, your loan is allowed to cover the balance due AND the closing costs.... so you would literally need $0 to close if you did a refi loan instead.

I do about 1 of these a month, for customers that I advised to do this 1+year ago (those who: had lower credit scores and couldn't qualify at that time but I told them what they could do to improve their credit; or someone with little job history and needed more time to qualify; or someone who had a bankruptcy or foreclosure within the past 3 years and needed another year to pass so it would surpass the 3 year mark; or times when a family member wants to rent/sell to family, etc)... this is really helpful for people and they end up very happy they did it.

 

[PghMiller]

Yeah, state doesn't matter... if the Lender does it, then they do it in any state. And this is a common loan program, almost all Lenders do it. It's just called a Land Contract Refinance.

I have a Lender that doesn't even need it to be notarized/recorded!....... so there have been times where a customer came to me and said "I want to buy my home that I've been renting for over a year", and I explain this loan program to them.... then he calls me a few days later and what do you know, he has a signed Land Contract that is 1 year old with 12 months rent checks!!

 

[naaman]

I put an offer on a house yesterday and it was accepted. The house is amazing and meets 100% of my needs, and almost all of my "wants." The interior is updated with a lot of aftermarket stuff (cammed lighting, granite [or maybe marble?] countertops, custom cabinets, hard-wood floors in the common areas and each room has a different type of flooring. There is a pool (no spa) which is already fenced, a barbecue "station" and a pretty nice backyard (11,000 sq.ft lot) with a sotrage shed. My favorite part of the house, though, is the master shower. It's a snail shower with multiple shower heads and a bench (which I guess is mostly a consideration for women).

Some things that I "settled" on are the two-car garage (was hoping to find the right house with a 3-car), the bare minimum interior square footage (a little under 1800) and it has "only" 2 bathrooms. On the bright side, the hallway bathroom has dual sinks and has a nice amount of space.

I also had to pay more than my original target as decent homes in good neighborhoods big enough for my boys (and no HOAs) do not come cheap, and have only been getting more expensive. But, my wife loves the house, and her parents who have seen the MLS pics greatly approve, which reinforces her confidence that the house is actually a good investment (they are very nitpicky and keen on preparation and due dillignece for these kinds of things).

I'm researching inspectors right now and hope to set up the inspections/appraisals for tomorrow or the next day...

Fingers crossed.

 

[naaman]

So...

When it comes to repairs on a home, what should I absolutely demand? Some of the items on my list, the seller does not want to fix, since they "came down" in price to match the appraisal. Is it typical to buy a house with some stuff still needing to be done? I originally offered $5K over asking. Appraisal came in right at the original asking price. As of now, the offer I gave is full asking price, no contingencies. Seller started to do the repairs, and when the appraisal came in $5K below the offer, they want to lower the price in lieu of completing the remaining repairs.

I'm not sure I want to accept that; I don't want to get swindled.

When it comes to a warranty, can something be covered if I close escrow while that thing is broken? Sounds backwards to me... but... this whole experience has been an adventure, to say the least. Even with all the help I've gotten, there is a lot of learn-as-you-go... :redface:

 

[Big_D]

Are you getting a home inspection? Anything listed on the inspection report as being in need of repair I would absolutely require them to repair.

The seller should offer to include a 1 year home owners warranty.
You could verify that any pre-existing issues are covered.

Anything minor that you could do yourself I would let go.

 

[docjohn]

when buying a home your most powerful negotiating tools are either having plenty of money or being able to walk away.

 

[naaman]

Are you getting a home inspection? Anything listed on the inspection report as being in need of repair I would absolutely require them to repair.

The seller should offer to include a 1 year home owners warranty.
You could verify that any pre-existing issues are covered.

Anything minor that you could do yourself I would let go.

Already had the inspection. I talked to my realtor who talked to the selling agent and some clarifying details have come to light. We are going to get an estimate on the cost to repair the remaining deficiencies and then go from there.

when buying a home your most powerful negotiating tools are either having plenty of money or being able to walk away.

I'm seeing that more and more throughout this process.

 

[Big_D]

Any updates? I hope you were able to negotiate the repairs and close escrow!

 

[naaman]

Okay, so the final result:

The appraisal came in $5K below, and most of the repairs had already been done. At that point, the sellers wanted to eschew the rest of the repairs in exchange for coming down to the appraisal price. After discussing it with my realtor and her handyman, I decided that I would go ahead and buy the house with that deal.

A lot of factors played into the decision. The neighborhood (nice place, no HOA), the school district (the state of AZ recognizes Peoria as WAAAAY better then where my son is at now, in Avondale), the location itself (amenities, hospitals, etc). There was more to lose by walking away than by yielding on what is most likely less than $1000 worth of remaining repairs.

I have a month of overlap between my last rent payment and my first mortgage payment, so I will use that time to do some work on the house and move, etc...

I will be closing escrow next week and then the fun begins. Probably going to opt for $0 down so that I can use the cash to take care of some things (wife has been wanting a new sofa, new bed... the house needs a washer/dryer, etc...). The cash I have on hand isn't such a major amount that it will significantly lower the monthly, so I'm just going to use it to make the house livable (it's much bigger than where we're at now, so it will need some additional furniture, etc).