Buying a home means you need to understand your credit score better and how it weighs in and out of your favor.

With all the misguided information flying around about loan modifications understanding these myths will prevent some misteps.

“Many Americans hold mistaken beliefs about credit scores,” cautioned  Ethan Ewing, who heads the free online consumer portal at Bills.com. “Misinformation on television and in hearsay from friends and neighbors only compounds the problem.”

Here are the top 10 commonly held myths surrounding credit scores:

Myth #1: A credit score is a credit report. The credit report is a detailed listing of all debts and payments, going back throughout an individual’s entire payment history, Ewing explained. For each entry, it shows the creditor’s name, amount owed, the highest balance owed, the available credit, whether the account is open or closed (and who closed it), the number of late payments and whether the account is in default. A credit score is a number between 300 and 850 that is based on complex formulas incorporating all the data in the credit report.   Most homes for sale in Los Gatos yield many offers so, you need to have the best credit score.

Myth #2: Those who are not in default do not need to check their credit report. Everyone should check his or her credit report at least once a year (quarterly is not a bad idea in today’s market) to be sure the report contains no erroneous information. Visit www.annualcreditreport.com for a free, no-obligation copy of the report.

Myth #3: Checking a credit report damages credit. Reviewing your own credit information has no effect on a credit score, Ewing said. Neither does a credit report review by a prospective landlord or employer.  Lenders will look, unfavorably, if you have had more than 3 credit reviews by lenders in recent weeks.  Try to do online research for a lender before you apply.

Myth #4: Everyone has one credit score. Credit score calculations are compiled using data from three different credit scoring agencies (Equifax, Experian and TransUnion). The resulting scores might vary slightly among the three agencies if they have slightly different information, but they will be similar.

Myth #5: Married couples share a credit score. If all of a couple’s accounts are joint, their scores will likely be similar, but each individual maintains a unique credit record and credit score. On the flip side, after a divorce, ex-spouses need to follow protocol to have creditors remove either party from a joint account.

Myth #6: Shopping for a loan destroys credit. It is true that “hard inquiries” – examinations of a credit score in preparation for extending credit can have a small negative impact on credit. However, credit bureaus take into account that consumers might inquire about a loan from multiple mortgage companies or auto lenders.

“If multiple inquiries are received from the same type of lender within a 14-day period, the credit scoring companies do not count each inquiry against the borrower,” Ewing explained. But credit card account inquiries to open new accounts are counted individually.

Myth #7: To improve a score, close unused accounts. An important component of a credit score is available credit, or the unused credit that has been offered (on a credit card, for instance) but not used. Closing unused cards removes those available balances from the equation and can actually lower a credit score. Today, some banks are automatically lowering limits or closing accounts to reduce their own credit exposure. Individuals whose debt load is manageable should not experience an extreme effect on their scores.

Myth #8: To boost credit quickly, just pay off bills. Credit scores reflect performance over time. Scores will not change overnight.  This is the worst myth of them all.   One of my clients did just that, without conferring with me, and dropped their score by nearly 60 points.   They failed to qualify for the FHA mortgage they applied for.    Working together we will get them in the front door of their new home sometime in the next few months.

Myth #9: For a fee, vendors can fix a bad score. Again, credit scores show historic behavior. Be cautious about companies that claim to “fix” or “repair” credit.

“You yourself can remove inaccurate information,” Ewing said. “Beyond that, be aware that some companies send credit scorers a deluge of letters asking that they verify – and in the process, remove all past negative information. If and when truthful finance information is verified, however, it will quickly return to the credit report.”

Myth #10: Never get help – it is too hard on credit. It is true that credit counseling, debt settlement and bankruptcy all can cause significant black marks on a credit report.

“If you are in real trouble, however, you can and should seek help,” Ewing urged. “Which option you choose will depend on the severity of your situation. Credit counseling can help to manage bills, and lower interest rates and monthly payments to creditors. Debt settlement firms can negotiate to lower the principal amount of your debts, typically providing a faster path to debt freedom than credit counseling. Bankruptcy, an even more serious alternative, should be discussed with a bankruptcy attorney.”

“Credit is important, but knowing the truth about credit might be even more important,” Ewing concluded. “Before taking action that might hurt or help your score, check your facts to be sure your actions will help your financial picture.”

]]> http://michaelrobertshomes.com/2010/01/07/home-buying-credit-myths-debunked/feed/ 1 http://michaelrobertshomes.com/2009/12/30/how-do-you-price-your-home-during-climate-change/ http://michaelrobertshomes.com/2009/12/30/how-do-you-price-your-home-during-climate-change/#comments Wed, 30 Dec 2009 15:22:25 +0000 Michael Roberts /?p=945

A) We all know that pricing is the most important part of marketing your home for sale.

B) A willing buyer and seller are key to executing a sale and buyers set market price for everything.

Right? Not so fast.  We have experienced a climate change in the entire real estate market specifically, Los Gatos and comparable San Jose neighborhoods.

Today, the appraisal has become a problem for some.  Just look at Los Gatos  homes for sale they are like a floating iceburgs…. some underwater.  The appraisal issue has created some warming and chilling.  Why appraisals? It’s called HVCC (Home Valuation Code of Conduct).   Basically, it means a buyer’s lender will have little, if any, persuasion in the appraiser’s valuation.   Cooling home prices and heating up debate.

When the Poole family wanted to make an offer on a home recently they were surprised I suggested a number much lower than the listed price.  It was obvious to me the home was poorly priced.   Due to the HVCC issue the appraisal came back even lower!  This was great news for us and terrible news for the seller.

Appraisals are now ordered and obtained through appraisal firms who then distribute the appraisal orders to their list of appraisers. The chosen appraiser may not be familiar with the Los Gatos Real Estate market, the surrounding neighborhoods in Cambrian or the broader San Jose Real Estate Market that they are being asked to evaluate.  Real climate change.

Should you ask your Real Estate Agent to provide a market analysis to help set a Los Gatos ‘market price’ for you?  Yes, but not any “agent” will do anymore.

In the end the appraisal will make or break the pending sale.

A market analysis report provided by an agent is derived from the MLS and misses a few appraisal factors as part of the equation.  Alternatively, an agent who provides BPO (broker price opinion) to lenders will have experience using a more accurate formula as opposed to an ordinary agent’s market analysis.

Lenders order BPOs from qualified Broker/Agents, as an analysis tool,  for refinancing, loan modifications, short sale approvals and foreclosure pricing.   Using a Broker/Agent, who is qualified to provide lenders this kind of  information is a better choice.

So what do you do?

• Interview several Realtors to help you ‘range’ your price.
• Request contact information from their past clientele.  Not simple ‘textimonials’.
• Choose one who provides 3rd party resource material as part of their pricing quote.
• Try to find a Realtor who is a BPO provider and request their BPO documentation that supports their familiarity with your neighborhood.

Using these simple tips alongside a common sense marketing approach will help you price your home realistically.  Remember,  the appraisal will ultimately define the selling price and it is of enormous importance to get it right from the start.

How would you feel if you accepted a “pie in the sky offer” to only have the buyer’s lender not grant loan approval?  You would probably go off like Mt. Vesuvius and that won’t help the climate change debate.

I can give you a value

23 mistakes you better avoid

Realtors Lie?

In Real Estate we call it a Short Sale.   Alternatives are bankruptcy, foreclosure or granting a deed in lieu of foreclosure. I prefer a mortgage short sale.

Does your home resemble a non-performing asset?

The Basic steps you will need to accomplish The Short Sale process Start here.  Execute these simple steps and successful negotiations will follow.

First what is a short sale?  Here is the short sale definition:

In ”short”, a shortsale is when the lender agrees to settle the debt owed on the property for less than the full amount of the debt. In most cases “Settled” means the lender writes off the debt. You usually will receive a 1099 after a short sale for the amount of debt forgiven. The bank is agreeing not to go after you for the money they lost by filing a deficiency judgment in the future. The exception is the HELOC loan where they reserve the right to file a default judgment.

Step 1

Contact your mortgage lender. Don’t just call or email customer service or the “loan work out” department. You need to speak with the manager of the problem loan department or another individual who has the authority to approve a short sale request.

While mortgage lenders can be sympathetic to these problems, they are never anxious to allow a short sale. If you are uncomfortable in this role, let your lawyer or Realtor negotiate with your lender.   This article clarifies the latest trends.

Step 2

Write a letter authorizing your mortgage lender to disclose your loan information to real estate agents, lawyers, title companies, or other interested parties. Your loan information is subject to privacy laws so your lender needs your written authorization to release this data to anyone.

At a minimum, this letter should include the property address, your name, your loan number (or other identifying data), and, if appropriate, a list of the parties for whom you wish this information to be given.

Step 3

Compile some preliminary financial information (sometimes called a “Net Sheet”) about your prospective short sale. A HUD 1 can be produced by your local  Title Company. It should include the expected sales price and all costs that might be attached to the sale, including your current unpaid loan balance, payments due, real estate commissions, and loan or other fees expected to be payable.

If you’re unsure how to create this document, your real estate agent, lawyer or advisor should be able to produce it for you in collaboration with a local Title Company at no expense to you.

Step 4

Write a serious “hardship letter“, detailing all the surrounding events that have occurred to cause you to arrive in this financial situation. Explain your economic problems honestly and directly ask your mortgage lender to accept a less than full balance payment. While the more dire your circumstances, the better the chance your request will be granted, you should resist the temptation to over dramatize your situation. A concise explanation will be most acceptable.

Step 5

Write up a statement of your current income and all of your other assets for your mortgage lender to evaluate.   This step is usually helps the Lender identify assets to help pay down their loss.

List your other assets, including bank accounts, stocks or other investments, additional real estate, and anything else of value. This information should support your assertion  that you have neither the income nor the assets to repay your mortgage loan in full.

You will often be asked to submit the last 3 to 6 months’ bank statements, also. Your mortgage lender will examine these to learn if there are recent large cash withdrawals or high numbers of checks clearing your accounts. Lenders want some assurance that you haven’t been hiding or diverting funds that might go to them.

Step 6

Compile a current market analysis of real estate sales in your area to emphasize the wisdom of your request for a short sale. This document should show the selling prices of similar homes in your area for the past 3 to 6 months.  In rural areas, with little or no sales activity, a 1 year history will be acceptable. You should also include some similar properties currently for sale in your area.

During times of market value declines, short sales become more “popular” and this comparative analysis again reinforces the need for you to request this consideration. If you’re unsure how to create this analysis, your real estate agent can prepare this document for you.

Step 7

Next?   An interested (patient) buyer is all you need. After you reach common ground with a potential buyer, deliver a copy of your proposed Letter of Hardship Letter, Authorization to Communicate with Third Party, Purchase Agreement, Listing Agreement, MLS Property Report, Hud 1, to your mortgage lender.

Your Realtor should assist you at a very  high level here. They will want to examine the price, terms, and other conditions in the document.  Don’t be surprised if your lender attempts to renegotiate (downward, of course) some features, like real estate commissions or other financial considerations you’ve made.

Assuming your lender accepts the agreement, you can then proceed to bring your short sale to fruition. This is a test of patience for many. If you have hired a Realtor experienced in Short Sale transactions this process will go more smoothly.

download new FHA short sale guidelines

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If you were current when your short sale is made you have every chance of buying a new home according to the new guidelines from the Department of Housing

from FHA guideline-

Borrowers are considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage

• All mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale, and

• All installment debt payments for the same time period were also made within the month due.

Lenders are not allowed to approve  a new home purchase  if…

from the FHA guideline-

-Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Lenders may make exceptions to this rule under certain circumstances.-

Another caveat is that if you are simply trying to take advantage of the market a new FHA insured mortgage will not be approved-

Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to
• take advantage of declining market conditions, and
• purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.
Reference: For detailed information on converting existing principal residences into rental properties, see 4155.1 4.E.4.g

You can download the guidelines in a PDF format below here download FHA Guideline PDF

The purchase of a fixer-upper house is often a catch-22 situation, because the bank won’t lend the money to buy the house until the repairs are complete, and the repairs can’t be done until the house has been purchased. Fixing up your new house is a costly idea in Los Gatos, San Jose and the whole Bay Area, really.

HUD’s 203(k) program can help you overcome this cost obstacle by enabling you to purchase or refinance a property plus the cost of making the repairs and improvements in one mortgage.

Dian Hymer of Inman News suggests “design your offer with a 60 day close and a 45 day finance contingency.”

The FHA-insured 203(k) loan is provided through approved lenders nationwide and is available to persons wanting to occupy the home

The 203(k) loan includes the following steps:

1. A potential homebuyer locates a fixer-upper and executes a sales contract after doing a feasibility analysis of the property with his/her real estate professional. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
2. The homebuyer then selects an FHA-approved 203(k) lender and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.
3. The appraisal is performed to determine the value of the property after renovation.
4. If the borrower passes the lender’s credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.
5. At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
6. The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
7. Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines their will be no liens on the property.

Dian Hymer of Inman News suggests “design your offer with a 60 day close and a 45 day finance contingency.”

Now,  what are you waiting for?   Call your Realtor and find a fixer..Quick!

Image by Getty Images via Daylife

Last month BofA chose to work with REOtrans, a leading transaction vendor to the mortgage industry, to advance and streamline foreclosure solutions by reducing them all together.

They are working to move the short sale idea into the mainstream RE sale arena. This is great news no matter what side of the Real Estate market you find yourself standing in.

The traditional Short Sale process has led to immense frustration and outright anger, not only here in California, but throughout the nation for all parties involved. As a Real Estate professional, having to negotiate short sales on behalf of distressed homeowners, I have learned that many people charged with Short Sale approvals agree…the short sale process, as it is implemented now, is ridiculous even archaic.

B of A has been the penultimate banking institution in the United States for decades and it goes without saying their agreement to work with REOtrans is a window into Real Estate sales for the near term.

The strategy for B of A is to streamline this otherwise frustrating process of selling a home when it is worth far less than is owed. This agreement will affect in the market in two ways, one good, immediately and one not so over time.

The good side is simple…Distressed homeowners will sell their nonperforming asset and cut their losses. Similar to a stop loss order often used by stock market investors.  In Real Estate it does exactly the same thing. Availability of affordable homes will increase demand over time.  This action will increases supply and lead to more buyer opportunities.

Uh Oh!  Another bubble?  Maybe.

Over time, The “not so good” applies to the buyer’s market (the bubble?). When the affordable opportunities become more in demand and prices start the natural course of creeping up from the bottom. Supply and Demand!  We have seen some instances where this is already happening.

BofA understands they have lost Billions in their inability to mitigate all the losses the Countrywide purchase has bestowed upon them.  Who’s fault is that anyway?

I realized this almost 2 years ago.  A buyer found a home available that was a short sale (WaMu) and we offered $630K  and the short sale was not approved.  WaMu foreclosed on the owners and had to sell for a $180K a loss.  Terrible!

Diana Olick CNBC  Real Estate reporter exclaims…”What I have found is that the foreclosure process is so convoluted..”

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Read this article to learn about the possible new trend.

New FHA lender short sale guidelines

The Home Mortgage Preservation Program is now Turbocharged enough to help high Los Gatos mortgages hopefully.

In May the government stepped up the pace to modify mortgages to stave off the 10–12 million potential foreclosures looming on the horizon.   This was to be done first, by allowing homeowners to qualify for modifications on a temporary basis.  650,000 homeowners are now in that process.

However, only 2000 have been approved for modifications through the program.

Request Loan Modification .PDF

Chase Loan Mod Docs .PDF

GMAC Financial Statement .PDF

“We now must refocus our efforts on the conversion phase to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones,” said Phyllis Caldwell, the newly appointed chief for the Treasury Department’s upstart Homeownership Preservation Office, in a statement released Monday.

The MakingHomeAffordable.gov Web site will include links to all required documents and an income verification checklist, as well as explanations of how the trial and conversion processes work. The Homeowner’s HOPE Hotline, at (888) 995-HOPE, will provide direct access to housing counselors

The temporary modification idea was meant to allow the homeowner time to submit documentation the lender would review to potentially grant an approval.   This has caused much anxiety on the part of the participants as evidenced in the following quote.

“Now it’s up to the banks to do their part to convert borrowers to permanent modifications,” said Michael Barr, an assistant Treasury secretary. “Servicers to date have not done a good enough job.”

We just don’t know what penalty the participating lender is facing if they do not comply with the pressure.   Without proof of substantial numbers of permanent modifications there is a real sense that this will just be another case of hot air.

This will lead to MORE foreclosures that may well have been prevented if the homeowner had time to seek out alternatives like a short sale or deed in lieu of foreclosure.

“If we don’t see a big increase in the permanent modification numbers, then there’s something seriously wrong with this program,” said Alan White, a law professor at Valparaiso University. “I can only assume the number is appallingly low.”

The Treasury Dept. began to publish reports naming those institutions that were lagging which proved to increase the numbers of temporary modifications from 235000 to 650000 by the end of July.

It is likely there will be another attempt to list their names if the number of permanent modifications does not rise soon!  Not quite Turbocharged.

There are new guidelines, now in place, that servicers are not going to like very much.

This is directly from the HMP press release …

Top servicers will be required to submit a schedule demonstrating their plans to reach a decision on each loan for which they have documentation and to communicate either a modification agreement or denial letter to those borrowers. Treasury/Fannie Mae “account liaisons” are being assigned to these servicers and will follow up daily as necessary to monitor progress against the servicer’s plan. Daily progress will be aggregated by the end of each business day and reported to the Administration.

If you or someone you know needs to get on board, forward this link to them. http://makinghomeaffordable.gov/index.html

Here they will find…

• Links to all of the required documents and an income verification checklist to help borrowers request a modification in four easy steps;
• Comprehensive information about how the trial phase works, what borrower responsibilities are to convert to a permanent modification, and a new instructional video which provides step by step instruction for borrowers;
• A toolkit for partner organizations to directly assist their constituents.

I think this is a mess that still needs cleaning up… and I am hear to watch ‘em.

Buying the listing is when an agent will do anything to stick a sign in your flower bed, including listing at a higher price just to get you to sign on the dotted line.  I call it,  sticking it to you.  That’s exactly what it is when you consider the fact that your home will see little exposure, sit on the market longer and end up selling for less than you expected.  It happens every time!

Elizabeth Weintraub writes “…Maybe the first agent knows there will be two other agents competing for the listing, so the first agent names an astronomical figure. The second agent, upon hearing the first agent’s price, beats it. The third agent comes in higher yet.”

This is all based on the fact you have already implemented the basic tips to sell your home.

Are you thinking “but, if a buyer offers less than we are asking we can’t negotiate”?  If your home is priced right you will have several buyers considering an offer.  This presents a problem for the buyers, a level of uncertainty that you will even consider their low offer.  Hence, the offers that come will be more in line with the market.  Less serious buyers will go fishing elsewhere and not waste your time.

This salesman ‘buy the listing’ tactic only leads to more work than is necessary. I had a similar experience of my own when I recently sold my personal residence.  I don’t use ‘buy the listing’ tactics but, market conditions led to the same result.    The market was falling and I had to lower my price two times to catch a buyer.  It was like chasing the market downhill.  If I had known the banking system was going to experience such failures I would have listed at the eventual selling price from the onset to avoid the trouble.

In reality, the chance a home will sell in the first few weeks is far greater when it is priced correctly and prepared well.  Sounds intuitive enough, Right?   Go look at some homes for sale and see how little thought is given to home preparation.   This is especially important when considering a short sale.   The sooner you can yield a willing buyer the sooner you can move the time consuming process forward.

Showhomes, a national franchised home stager staged Tracy Truitt’s listing and it sold in eight days.   Tracey said…“I had an almost full price offer within a week of Showhomes’ staging, and a 25% higher offer than the two offers that had come in previously to the home being staged,” Truitt says.

I found keeping my house prepared well, clean and neat, was tiresome after just a couple of weeks.  I am a terrible merry maid.  If I had to deal with a Realtor I would have lost my mind!  I know can do better than some..look at what  these people did.

Each time I made a price adjustment more people called and disrupted breakfast, dinner and quiet family time.  It was unnerving more than once.  Buyers  sense  desperation when you drop your price and lower offers will follow.

You can guard against this by simply stepping outside your bubble and looking at the competition in an unbiased fashion.  This means you will have to forget all the trouble and expense you suffered when you updated and improved your home.  A buyer’s eye only sees your home compared to other like properties that are available.  You must do the same. No one cares if Aunt Clara helped you cook your first Turkey there.

Is this boring yet?

Wake up!  Do a Walk Score or a Megans Law search for your home? How about a Crime Report review?   I will bet my favorite tie that buyers considering your home are.  Think like a buyer!

Following your internet searches and open house viewings you can reasonably determine what your home should sell for. This will afford you the knowledge and understanding to say no to –salespeople-.  Half hearted buyers will resist the urge to make low ball offers and serious buyers will make their highest and best offers.

Would you be interested in learning what buyers complain about most?  If so, please comment and I will provide a definitive list and some ideas to overcome them.

Tips on Appraisals

One in Four Homes Lowered Price

Why do agents take over priced listings

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Do you remember that commercial?  Was it a Mr. Goodwrench add?   We now know we payed them then and bailed them out this year!  Payed both times.   Ugh!

Pay now or Pay Later?  That is the question in our mortgage market now…not  Shakespearean,  but profound considering….Should you jump?

Mortgage rates eased for the fourth consecutive week, hitting historic lows well below 5 percent this week, Freddie Mac said in releasing the results of its latest Freddie Mac Reports.

Rates on 30-year fixed-rate mortgages averaged 4.78 percent with an average 0.7 point for the week ending Nov. 25, down from 4.83 percent last week and 5.97 percent a year ago.

This is what we have been expecting and will lead to higher rates as the market change cycles.  Not to mention the 1.25T  the Federal Reserve is spending to buy mortgage backed securities from Freddie Mac and Ginnie Mae.

The program is going to continue through March 2010 which makes you wonder…Why are they delaying the inevitable?   The program was supposed to be finished up at the end of this year.   The answer is:  To keep the rates low.   Thank you for that.  What happens when the rates increase?

The Mortgage Bankers Association last month projected that 30-year fixed-rate mortgages will hit 5.4 percent next year, 6 percent in 2011, and 6.3 percent in 2012.   Inflation?

I would suggest buyers take this seriously.  Would you rather pay rate to a mortgage bank or a few thousand hard dollars now?

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