Posts Tagged ‘First Time Buyers’

More (!) Good Ideas in Real Estate

I recently responded to a first time homebuyer question from my personal real estate blog. I mention it here as a way of introduction to this post because it seems to me like, this market, even if it is great in terms of prices for the first time homebuyer is harder than others because there are so many REOs and short sales.

First time homebuyers, already a little green behind the ears in the real estate purchase department now find it harder to buy a home than when it is a “normal” market. They have to contend with not just the stress of buying a home and making a six figure purchase with a loan, but also dealing with banks and more paperwork and not very obvious timelines. Everything seems to get a little more mangled when banks are concerned and the real estate landscape today obviously does not follow the norm. What then can a first time homebuyer do? Are there any good ideas for them?

Know your Friends

When you are a first time home buyer (or a subsequent one, I suppose) it is very important that you find a Realtor® who you can trust. A lot of the times people hire a real estate agent just because they are friends or relatives and then wonder if the professional is working in their best interest or they have a raw deal. Many people feel obligated to help a friend who is a Realtor®, but if they are not convinced of the person’s professionalism, it is best they don’t hire him. This kind of charity only results in strained relations long after the real estate is bought or sold. It’s never worth it.

Once you have picked a Realtor® (to represent you as a buyer’s agent); though, trust her. There is nothing worse than a client who is constantly worried that the professional is not on their side. The only way we get paid is if you buy the house. There is no other way. So there is no reason for us to keep you from the house we want. Knowing this, why do clients sometimes think we are trying to wedge a wall between them and their dream home? I believe it’s a lack of trust, that should have been established in the beginning of the relationship.

Know What’s Required

Many times, with REOs the lender has specific instructions that must be fulfilled by the homebuyer. One of them very likely is that the homebuyer get prequalified with a particular lender. The seller cannot require the home buyer to get a loan from a specific lender, but he can require that all applicants be prequalified with a lender they trust. It is in the interests of the bank to do this so they are assured that – were escrow to open – it would not fall through because the buyer did not qualify.

If such a requirement does exist, the listing agent will usually have the instructions on how to carry it out with the listing itself. Ensure that your Realtor® knows what the instructions are – emailing the offer as opposed to faxing it, getting prequalified and other requirements. Also ask your Realtor® to ensure that the offer has been received and acknowledged verbally by the listing agent. This will ensure that it doesn’t simply fall through the cracks and get ignored or missed.

Make Strong Offers – Don’t Play Around

Many times a home buyer will be very excited about prices dropping and will go out looking for homes because he believes he can afford a home at the price offered. But somewhere around the time an offer has to be made, he will decide it would be a much better deal for him if he offered a much, much lower price and “see what happens.” This approach, while seemingly rational, isn’t the best approach. I consider it getting cold feet, and stress and concern and worry almost always go hand in hand with a contemplated home purchase, but it’s not a good idea to base decisions on them. Decisions like offering prices.

A much better way to decide what to offer, instead of speculation, is to understand your mortgage and see what you can easily afford. Look at your personal budget instead of trying to see what’s the least amount the lender will accept. Calculate the difference between what you’re thinking of offering and what is reasonable and see the monthly difference in dollars and cents as it pertains to your pocket book.

Another good idea is to get your Realtor® to make you a CMA – a comparitive market analysis of similar homes in the area and their sold and asking prices. That way you know how much other homes have sold for and can base your judgment on the selling prices of other homes in the area to know if you (and the bank) are indeed in the right ball park in terms of price.

Stay Committed

With REOs, it is easy to get discouraged. Some of them – especially the ones you are likely to fall in love with right away – go fast. Offers are made above asking price, banks encourage multiple offers, there is competition and you wonder where the buyer’s market went! Not to mention the fact that it seems like timelines make no sense and the banks are entirely unpredictable in the offers they pick to work with. You may look at and make offers on ten homes and not get a single one. Yes, REOs are tough to buy. They are however also good purchases if you do your homework and remain committed to the process.

Home buying is stressful and sometimes downright disheartening. But the fruits of your labor are well worth it! So avoid the mental noise and try to remember why you embarked on this journey in the first place. Stay committed to it and you will do just fine!

REO Buyers – Get your Offer Accepted Part 3

Welcome to the conclusion of this three part series on getting your offer accepted! The basics we have covered so far if you are a home buyer making an offer on a bank-owned property are to come across as a “normal” buyer, increase your good faith deposit, let the seller decide which title company to use, increase your down payment, get preapproved with a direct lender, offer over asking price, shorten timelines, clear contingencies as soon as is reasonably possible and not to ask for repairs. These are the specifics. There are other general conditions that help get your offer accepted and I will be going over them today.

Don’t get Greedy

The real estate market can be a lot like the stock market at times in that it is constantly driven by greed and / or fear. If you base your decision not on those two feelings but instead concentrate on inherent value and your own pocketbook, you will do just fine in your purchase. What do I mean by that? Greed runs buyers in a buyer’s market just as it did sellers a few years ago at the top of the real estate market. Fear also runs rampant in buyer’s markets as well as seller’s markets, except it’s quashed pretty easily. Don’t be one guided by panic or folly. (I know, I know – easier said than done.)

But more specifically, don’t offer an amount ridiculously low with the wildly optimistic hope that the bank will take it, because, hey, they have to get rid of the house anyway! Also, many home buyers like to get closing costs rolled into the loan so they don’t have to pay them out of pocket. In this case, don’t guess at the amount and ask for a ton of money back to close. If the cash back to close is not supported by the appraisal and the final HUD-1, both lenders (seller and your own lender) will be unwilling to give it to you. So, at all times, keep your cool.

Respond Quickly

Here’s a time when it pays to be opportunistic. If you find the right home and you think the price works for you, make an offer. When you hear back and the counter seems fine, sign it and send it over. It might be a good idea to sleep on it for a while, but if you take too long to decide, the house might very well belong to someone else by the time you get back to the bank. I know what you’re thinking: isn’t this a buyer’s market? Absolutely. But that’s why you’re seeing homes selling for so little! And even if you don’t see the value in some of these houses, I can guarantee that other home buyers are. Sales have been up for a while now – a sure sign that demand is beginning to catch up with supply. Wait too long, let fear overcome you and your window of opportunity might be lost. So make up your mind before you make the offer; think hard and long before, but when it’s time to act, well… act!

Be Prepared!

Of course, to be able to perform, you must be well-prepared. And preparation is more than saying, “I’m going to buy a house this year,” or listening to a relative talk about his real estate fortunes made when he bought homes in the 70s. While both these can be great incentives to your buying a home, you should have at the very least (1) done the math to know if you can buy a home and how much it’s going to cost you every month and (2) figured out a way to get the money to buy a house – whether it is begging, borrowing or stealing. Just kidding. Keep the stealing out of it.

I feel the need to reiterate this because I once met a client ready and willing to buy a house – she even wrote an offer on it and then realized she had jumped the gun. Why? The money she was going to use to buy the second home had to come from a refinance of the first one. She had waited to refinance because she was afraid to keep money lying around, lest she get tempted to go shopping with it. Do you know the conclusion to the story? Everything fell apart – the entire plan. Waiting to refinance the first home had been the mistake. Prices had fallen further and her first home now didn’t appraise for the amount she needed out of it. So, to use a cliche, get your ducks in a row before you sign the contract!

Get Good People on your Side

This should go without saying, but I feel the need to spell it out because, I’ll admit it, there are too many people out there who think they can make a good deal with a bad person. If you are not comfortable with your real estate agent or lender and you get a sense of not being able to fully trust that they have your interests at heart or that they are otherwise – well, shady – find honest ones. There are plenty of honest, hardworking Realtors® out there (ahem, notice the toll free number at the top right corner? There’s a hint!) with their circle of hand-picked good lenders they can refer you to. There’s no reason to stay in an untrustworthy relationship. Also, ensure that besides being nice and honest, the professionals working for you are also competent. No sense in having an honest lender who can’t perform at a critical time!

I hope this series has been helpful to the home buyers out there. Feel free to send it your questions through our contact form and if it’s something we have not addressed, I’ll be glad to answer on this blog!

REO Buyers: Get your Offer Accepted Part 2

Welcome back! This post is the second in a series of three posts regarding how to get your offer accepted by a bank if you are buying a foreclosure or REO property. So, besides coming across as a “normal” buyer with all intentions of really buying the house, increasing your good faith deposit, getting preapproved with a direct lender and offering over asking price, what more can you do?

Don’t Ask for Repairs

Nine times out of ten, banks will not make repairs or pay for repairs to a property listed as an REO. Actually, make that 9.9 times, a bank will not make or pay for repairs. It is so rare that if the bank is willing to do such a thing that fact will be spelled out in the marketing and become a selling point. This is why the property you are buying is priced so low. This does not preclude the fact that you will know about the repairs (some banks will already have a pest report for you to take a look at) but if you think the required repairs are a negotiating point, remember that the lenders have taken them into consideration when they listed the house. Also, if you ask the bank to make repairs, chances are your offer will likely get rejected in a multiple offer situation. That being said, do keep in mind that sometimes the banks are not right in pricing the home. Get your inspections done and weigh the repairs against the price. If you think the asking price is not worth the work, move on. There are plenty of homes to view.

Increase your Down Payment

With today’s FHA loans, it is possible for a home buyer to put just 3.5% down (with closing costs paid by the seller) and buy a house. However, if you can afford to pay your own closing costs, maybe take care of escrow costs by yourself or increase your down payment, your offer is sure to stand out from the rest. Some home buyers will even succesfully get their offer accepted at asking pricesimply by increasing their down payment. Or you can get your closing costs paid by the seller and use your cash as additional down. It’s up to you. Bottom line: see if you can find any more cash to use as down payment to bolster your offer and it will be taken more seriously by a bank.

Let the Bank Pick a Title Company

This is a small one, but it does cut out extra paperwork. Chances are the listing agent selling the REO has a preferred title company and that particular title company is well set up with all the details of dealing with that particular bank. If you pick your own title company (and, of course, that is your prerogative), you might get a counteroffer and you will need to rewrite your good faith check. It is sometimes simply easier to let the title company be the seller’s choice and make your good faith deposit out to a generic “Title Company.”

Shorten Escrow Time

This might not always be in your control, but it does help your offer if you can close the loan in 45 days or less. Timelines have gotten a little stretched lately since paperwork review has become more thorough in the lending industry, but anything over 45 minutes will probably merit a counter offer from the bank. Be careful, however. Writing a short timeline which you know to be unrealistic just to get the offer accepted could cost you. Most banks will have a counter that levies a pretty hefty fine on every day beyond agreed upon days to close – something like $50 per day or more. So make sure your lender is ready to perform on your shortened days in escrow.

Shorten or Clear Contigencies

The default contingency period on the California Purchase Agreement is 17 days. This means that if you do not write in a shorter contingency period for approving all documents and completing all inspections, you will have said that you want 17 days to do them. The bank will usually try to shorten these to 7 or 10 days. Why? Well, if the buyer does decide to walk away during the contingency period, the house has wasted less days on market. A good idea for a buyer at this point is to know that the bank will want to do that and shorten the contingency period himself. Better yet, it’s a good idea for the home buyer to get at least the home and roof inspection done before making an offer. However, be advised that if competition is stiff, this can get pretty expensive, (Home inspections cost approximately $350 – $500, pest inspections cost about $100 – $200 and roof inspections are usually free, certification and repairs on roofs cost money depending on how much work is involved) so only get inspections done before making an offer if you’re absolutely sure you are in love with the home.

If you keep these tips in mind when making an offer on an REO, you should be in pretty good shape. These are specific pointers to follow to get your offer accepted. For more general ideas, check back tomorrow for our last post in this series.

REO Buyers: Get your Offer Accepted Part 1

Last week, we received this query from a home buyer:

Thank you for the Sacramento Real Estate Blog and the time you
take in putting out this information. It’s been really informative and
helpful to read through the blog, especially in the current Sacramento
market. Anyhow, I’m a first time buyer with a question about offers on REO
homes. In the current market, I’ve noticed REO listings typically elicit a
multiple offer scenario. Aside from offering over list price, what can a
buyer do to make their offer stronger in the eyes of a bank? Are there
certain things that a bank will view more favorably (e.g. larger down
payment)?

I think this is a very good question and one repeated by many first time homebuyers. Buying a home is stressful enough. Add to that the fact that you are a first time home buyer and also are dealing with a lender / bank directly to buy a house and the discounted price almost doesn’t seem worth it.

However, notice I said “almost.” There are a few things you can do to make your offer stand out when a bank is looking at it. I will give you the inside details on that in this series. This is a three part series and I will discuss what you can do to have your offer stand out from the multiple offers a bank (usually) receives if the house is priced right.

To understand what your offer needs to be like, you have to understand the bank’s point of view. Imagine this: you have an object which needs maintenance, which you have never seen and have no idea how to take care of. Now place the object far away from you – miles away in fact. The person you loaned money to who promised to care for it refuses to pay you back, so you have to take the object back. But it is heavy, so instead you have to keep the defaulting person away from the object. Mind you, the object is still miles away from you. All you’re thinking is, I need to get rid of this object. I need to salvage some money here. But I have to get rid of it!

Get the idea? Then these tips will help!

Give all impressions of being a “normal” buyer

Banks typically don’t like offers that are not straightforward. (Now, you can argue that the banks themselves play all sorts of games with loans and so forth and are not straightforward themselves, but remember your goal at all times. If your goal is to buy the home, you must be direct.) What do I mean by “direct?” This would mean that you are an individual buyer or write your offer as an individual buyer (not a business entity like a corporation, typically). Do not even try to use the games most so-called real estate investing books recommend. For example, do not write something like “and/or assignee/s” after your name on the offer. Most loans are not assignable and since it is the first line on the California purchase contract, chances your offer won’t get very far at all. Of course, this is just an example. If you haven’t read any game-y real estate investing books, keep it that way. Listen to the advice of your Realtor® and come across as a normal buyer. Don’t do anything that would be grounds for immediate rejection.

Get Preapproved

Today, most listing agents require a preapproval (not a prequalification) letter from a lender (not a broker.) This means that you have met with either your own bank or credit union and have an approved loan or you have been to a mortgage broker and he has submitted your information and has received a loan approval for you. This is the most basic requirement for writing an offer and most REO banks will not take your offer seriously unless you attach a preapproval letter with it. Also, it would be a good idea to have a copy of your credit report because some banks still require that even if you have a preapproval letter, you get approval from their lender. It’s an extra step, but necessary. Sometimes, you can send the bank’s lender your credit report to expedite the process.

Increase your Good Faith Deposit

This is the oldest trick in the book, except it’s not a trick. Again, think of this from the point of view of the seller. If he has two offers to consider and one is offering $100 that he would lose if he walks away from the transaction and the other offers $2000 that he would lose, which one would you consider to be more serious about buying the property? Remember the bank wants to ensure that once the house is in escrow that is stays that way and ends in the buyer buying it. Ensure that you have between 1% – 3% of the offer price to put as a good faith deposit. This money will be deposited in an escrow account after the offer is accepted. You can get this amount back if you find a problem during the contingency period and cancel escrow. You only lose it if you cancel escrow after the end of the contingency period. So make sure you schedule inspections immediately after the bank accepts your offer. More on this later.

Offer an amount over asking price

Banks will typically underprice a property, especially if it shows well or has been built in the last five to ten years. Why? It’s a sales technique to get home buyers into the home and create a sense of urgency. Also, the price attracts more buyers which ultimately leads to multiple offers and sends the price up. If you don’t have a substantial down payment or a decent good faith deposit, offering over asking price might be the best way to get your offer accepted. But be careful – don’t offer more than you think the house is worth. At this point, it would be a good idea to ask your Realtor® to get you a market analysis and make an offer on the high side of the market, but not over the top. Besides having buyer’s remorse if you pay too much, you might have trouble during escrow if the house does not appraise for the offered amount.

That’s it for today! Come back tomorrow for more tips on getting your offer accepted! There are many REOs out there. If you’re interested in buying one of them, search here or call us. We’ll be happy to help!

Should You Say Goodbye to Your Landlord in 2008? Have Your DNA Tested and Find Out

One of the criticisms of Realtors® that I really don’t like is when people say, “Of course, if you’re a Realtor®, any time is a good time to buy or sell a home”.

At the heart of the matter is a confusion over what we do for a living and what we endorse.  No one says about doctors, “Of course, if you’re a doctor, any time is a good time to get sick.”

Should you buy a home in 2008? 

Well, that depends on a lot of things.

Let’s Start by Testing Your DNA.

Let’s start with something obvious, your “D”.  Do you want to buy a home in 2008?  If you’re paying rent and you’re happy about it, and you like where you live, and you like your landlord, and you think building equity in someone else’s property is a fair trade for having a low monthly payment, then there’s a good case that you should rent.

Now let’s talk about your “N”.  How about your situation?  Are you (and your spouse / significant other, if that applies) in a fairly stable job situation, or do you think you’ll be moving in the next one to three years?  In the short term, prices of real estate can fluctuate, and (as importantly) there are closing costs involved when you buy or sell a home.  If you’re thinking you need to move in a short time, you might be better off renting for now, and saving for a home at your destination.  Do you have sufficient space where you are now, or do you have to make a move for some reason — starting or growing a family or the like?

And let’s not forget to cover your “A”:  Do you know what your housing payment will be for the types of home you might be interested in?  Have you looked at good, conservative loan programs like fixed rate mortgages and decided that you can afford the payment?  Do you have money saved for a down payment, or, if not, have you found out if you might qualify for 100% financing?  Have you factored in tax and insurance, and are you still comfortable with the payment?

DNA — Desire, Need, Ability.  If you want a home, if it meets your needs, and if you have the ability to get into a home without overextending yourself, then, yes, now is a great time to buy a home.  Interest is still low, and prices have fallen throughout 2007, so homes in the area are more affordable than they have been in the last few years.  Many bank owned foreclosures are priced well below market, and not all of these are run down or in bad shape.

To find out more about if home ownership is right for you, we’re always happy to help first time buyers find out more about the process, discuss loan programs and properties / prices that are available in different areas.