Recently in Mortgages and Home Loans Category

January 24, 2011

For California Home Buyers and Sellers: New Editions of Nolo Books

What's so special about California real estate? Well, lets see: This state requires sellers to disclose more to buyers about the condition of the property than most other states do; its real estate market requires careful local study, with foreclosures the norm in some areas and bidding wars still taking place in others; and because California law doesn't require lawyers to be involved in the transaction, it gives buyers and sellers good reason to find a great agent and educate themselves about the process.

And that's just the beginning. (Notice I didn't even mention researching whether your house -- or prospective house -- is on an earthquake fault line?) All of these are among the many topics covered in the latest editions of Nolo's popular books, How to Buy a House in California and For Sale By Owner in California -- recently updated with the latest on legal requirements, market trends, mortgage options, and more.
September 20, 2010

Last-Ditch Ways to Scrounge Up Down Payment Money

Are you among the prospective homebuyers who's checking statements from your every bank account, and shaking every piggy bank, thinking, "There must be more here -- or somewhere?"

Every dollar counts in the quest to put together a down payment, especially now that the lending industry has gone back to requiring 20% down in most cases (though government-backed loans are available with less.)

It is, in fact, possible that you've lost track of some of your money -- and might want to take a look at Consumer Reports October 2010 issue, which contains an article called "Where to find lost loot."

For example, they suggest checking out www.missingmoney.com, a collaborative effort between state governments and various financial institutions. By entering your name, you can search for reports of unclaimed accounts or life insurance proceeds.

Your forgotten 401(k) plans might turn up at www.unclaimedretirementbenefits.com. Matured savings bonds can be located at www.treasurydirect.gov/indiv/indiv.htm.

This is when it actually pays to have been forgetful or careless in the past! Happy hunting.
September 7, 2010

Homeowners: Lower Interest Rates With a Cash-In Refinance

If by chance you've come into a bit of money lately, and are wondering where to invest it, Jack Guttentag offers a suggestion: a home refinance where you pay down a chunk of the loan balance and then reap the rewards of your lower loan-to-value (LTV) ratio in the form of a lower interest rate on your new mortgage.

Get the details here. Guttentag also provides a calculator letting you figure out your rate of return -- perhaps even leading you to decide that it's worth transferring funds out of other underperforming investments for this virtually no-risk strategy.
August 22, 2010

Home Repairs: Deal With Before You Move In, or After?

Like many homebuyers, we discovered during the course of the inspections that our new home-to-be wasn't entirely perfect -- in fact, it really needed a whole new foundation if we wanted a decent chance of surviving the next earthquake. (Not too surprising for a house that's nearly 100 years old.)

That led us to the same question many others have dealt with: Do the work right away, in the midst of all the craziness of moving, or wait a bit?

Of course, for some people, there's no choice, because their mortgage lender insists that the work be done before funding the loan. But our lender wasn't requiring this. So for us, the pros and cons looked something like this:

ADVANTAGES TO DOING WORK RIGHT AWAY:
1) Our lives were already in chaos, why not add a little more?
2) Once the work was done, we'd be able to settle in, hang paintings, and repaint if we wanted to, without having to undo it all and repaint over new cracks in the walls after the foundation work was done.
3) We could avoid buying earthquake insurance (which many homeowners with solid new foundations forgo)

DISADVANTAGES TO DOING WORK RIGHT AWAY:
1) The weather. It was one of the rainiest winters in my memory, which would have made it nearly impossible to store things outside that would have, but for the foundation work, normally been in the basement.
2) We didn't know anyone who'd need a house-sitter in January -- whereas, by waiting, we could house-sit for friends on summer vacations if the noise and chaos of construction got to be too much.
3) We'd have a chance to regroup, cash-wise. We moved into our new house before selling the old, which was already a financial challenge. We didn't want to be down to our last dollar when the inevitable new costs arose ("Hey, how about we replace your old, cracking floor slab while we're at it?")

So, three against three -- and we decided to wait. Mostly glad we did. We keep looking at the surrounding chaos, with a trench all around the house, deep holes underneath, and dirt piles in our back yard, and saying, "Can you imagine doing this in the rain?" fdn.JPG 

But it does sometimes feel like we're moving all over again. And we did end up house-sitting for friends. (Thanks, guys.)

A foundation removal is a big deal -- there was dust pouring through cracks in the house we didn't know existed. It was shooting up behind the mantel! And the downstairs plumbing had to be disconnected for nearly a week.

Does this lead me to any advice for others? Nope, I'm afraid there no universal answer. Wait, there's a better way to put that: There's no wrong answer. Do what feels more comfortable, and expect some chaos either way!

May 5, 2010

Short Sales: A Trap for the Unwary?

If you're among the homeowners worried about continuing to make mortgage payments, you've probably noticed all the media discussion offering up short sales as a way to "save" yourself from the horror and the damage to your credit rating caused by a foreclosure. I've been guilty of talking up the benefits of this option myself.

A quick definition: Short sales are when the seller of a home that has dropped in value to less than what the seller owes on the mortgage finds a buyer willing to pay the current market value of the property, and they get the bank or lender's permission to accept the sale proceeds as a payoff of the mortgage.

But I won't be promoting the short sale option any more, at least not without some major caveats. I recently attended a continuing legal education seminar at which a group of lawyers who spend their every day working with distressed homeowners discussed the "dark side" of short sales. Here, in a plain-English nutshell, is what they described:

1) A short sale is not significantly better for your credit rating than a foreclosure.

2) Even though the lenders express willingness to cancel the lien on the property following the short sale, many have started sneaking difficult-to-understand language into the short sale contract allowing them to come after the home seller for the remainder of what was owed on the loan! (That's despite law in the state of California, at least, that seems not to allow such behavior -- but someone's going to have to sue to make this crystal clear).

3) Although common wisdom says that lenders never try to collect on these deficiencies, the experience of these attorneys is that they ALWAYS try to collect -- if not on their own, then by selling the debt to another entity that will try to collect.

My new caveats? Don't even consider a short sale without getting a look at the written documents from your lender and, even better, having them reviewed by an attorney who can discuss the comparative benefits of your various options.

Want to hear a more detailed explanation, straight from the source? I happened to mention this seminar to C.S. Soong of Against the Grain on KPFA radio, and he interviewed William Purdy, one of the lawyer-presenters. You can hear the interview here
March 8, 2010

New FHA Loan Guidelines

For anyone who was counting on getting FHA help with lining up a home mortgage -- via the FHA loan program, in which borrowers who present higher risks than others, most likely due to low credit scores, may qualify for a loan backed by the FHA -- that plan is starting to look a little more tenuous.

The FHA has tightened up its standards, including:
  • requiring down payments of at least 10% for anyone whose credit score is less than 580
  • cutting the allowable amount of seller financing to 3% of the transaction price, and
  • requiring buyers to pay a higher mortgage insurance fee at closing.

For a good summary of these provisions and their implications, see Al Heavens's article in the Philadelphia Inquirer, "On the House: FHA alters borrowers' guidelines."

If you're a home seller, don't panic. The changes don't address all borrowers, but only those who were having trouble finding and closing on a loan in the first place. Qualified buyers are still out there, and in some regions of the United States, eager to find a home. Research your local market before drawing any conclusions on whether now is a good time to put your home up for sale. 


January 26, 2010

Lenders Asking Every Question in the Book

I've been reading for months about how lenders have become nitpicky in the extreme when it's time to approve a mortgage loan. Gone are the days when a home buyer could prequalify and be assured that the rest would be smooth sailing.

But there's a difference between reading about something and living it. And having just bought a home -- the second one I've owned (gotta sell that first one now) -- I can say I've lived the mortgage applicant's experience in painful sensurround.

Maybe I was naive, but I thought having a great credit score (the legacy of having been insanely frugal even before it was chic) and making a big down payment would protect me from some of the most suspicious lender queries. Wrong.

First off, they wanted to know where every cent of money was coming from, apparently to make sure we weren't disguising any other loans from friends or family. An investment account? Ok, then how did that large-ish deposit get there? A transfer from my personal checking account? Let's see the bank statement. Getting gifts from parents? Better provide not only a gift letter and proof that they really have the money, but proof that it was in their account for at least ninety days, lest Mom and Dad have been borrowing money from someone else! (Mom and Dad, for the record, were not amused.)

Then they called my employer so often to ask whether I was still working there that the H.R. Director practically begged for mercy.

But here's the one that still has me in a state of mystification. Our lender -- and this is a big established bank, by the way -- wanted a signed letter from us explaining why we were moving a mere 1.24 miles from our previous residence. Huh? The obvious fact that the new house has one more bedroom, one more bathroom, and is in a nicer neighborhood didn't occur to them? Is there something inherently suspicious about moving within the same city? (I'm just happy I don't have to switch dentists.) And if there were some nefarious reason for such a switch (which my imagination has still failed to come up with), would I be dumb enough to say it in a letter in which I could -- and did -- explain that we wanted the extra space?

 But, all's well that ends well (I hope). The loan was approved, and I can move onto dealing with the other craziness of moving and selling . . . more on that to come.
December 19, 2009

Loan Modification Tips for Those Having Trouble Paying the Mortgage

Don't miss this transcript of a radio interview with Bob Diamond, real estate attorney and developer, about the realities of loan modifications -- namely, how to make a request that the overburdened lender will actually pay attention to, and why it's truly in both the borrower's and lender's best interests to work out a modification rather than descend into foreclosure.

Be prepared for some bursts of rage, however, as you read about lenders' slippery tactics for avoiding dealing with consumers -- like Bank of America's continuing to have a working fax line for submissions, while not telling people that it essentially tosses the faxes without looking at them or recording them in its system. Good grief.
December 16, 2009

All Homebuyers Need to Check Their Credit Scores

The headline of Sandra Block (of USA TODAY)'s recent column says it all: "Home buyers need good credit scores even with 20% down payment." Credit is tight, tight, tight, and even people who assumed they could sail in and get a loan before may have trouble now.

Block also offers some sound advice for raising credit scores, including the latest word on whether to close little-used credit card accounts.

And given that even making a 20% down payment is difficult without some family help, it's worth checking out this Wall Street Journal article by June Fletcher, which succinctly discusses issues like whether it's better to arrange a gift or a loan, and what happens if the giver doesn't file a tax return. (Big penalties despite the fact that no gift tax needs to be paid during one's lifetime!)
July 17, 2009

First-Time Homebuyers' Tax Credit Ends December 1, 2009

If you're planning to buy a home this year in order to take advantage of the $8,000 tax credit for first-time buyers, don't wait too long: Your home purchase has to close by December 1 of this year.  (No, that's not New Year's Eve, it's the beginning of December.)

And if you've been researching this process at all, you know that actually closing a sale can take several weeks after you've made an offer and then you and the seller have signed a purchase agreement. Forty-five to 60 days is common.

So, realistically speaking, you'd want to be in contract to buy by October 1 of this year. it's hard to imagine as you head for the beach, but that's less than three months away.

Meanwhile, for one homeowner's clever idea of taking advantage of the tax credit by having his 22-year-old daughter be named as the buyer, see this Wall Street Journal article.