Why Do Short Sales Take So Long?

This is a question we get ALL. THE. TIME. Short sales can be a great deal, if you’ve got the time and patience to see them through! Our friends over at Zillow.com recently addressed the ever-popular question and we think they’re spot on. Here’s what they had to say, or you can read the original post here.

It’s a question many real estate agents hear from clients: Why do short sales take so long?

Despite improving real estate markets, short sales and foreclosure sales will be with us for the foreseeable future. Many homeowners are still underwater, and at any time in the coming years, these folks may face a situation, such as a job transfer or divorce, requiring them to sell at a loss.

Short sales happen because the loan on the property is larger than the sale price minus all the sale expenses. With a short sale, the seller is asking the bank to take less than the amount owed.

Even if you’ve made an offer and the seller has accepted it, it’s not a done deal. The seller’s bank must approve the sale, and this is where the big delays can happen. Banks are losing money in a short sale and aren’t too keen on it. It’s understandable. Imagine that you loaned a friend $100, and he came to you later saying he could only pay you back $75. Would you cave in easily? Probably not.

It’s important to know that a buyer and their agent have no control over the process. The success of a short sale — and how long a short sale takes — relies heavily on a listing agent.  If the listing agent isn’t experienced with short sales, you’re likely wasting your time. A good short sale listing agent will properly advise the seller and have a thorough knowledge of the bank and its process before your offer is accepted.

Here’s a look at why short sales can take so long, along with tips for what you can do about it.

The seller’s bank must review the short sale package

In order to approve the sale, the lender requests a complete short sale “package” from the seller. Much like the package you must submit to get a loan, the seller must submit their finances. The lender will want to see the seller’s debts and assets, review their credit score and the contract to purchase the home. After all, why would a bank approve a short sale if the seller had $1 million sitting in the bank?

What you can do: A good listing agent will have the short sale package in hand and even completed upfront. Once an offer is accepted, the agent can simply add the contract and buyer’s information and submit it.

Documents get lost, pages go missing, signatures are left blank

Most banks require hundreds of pages in the short sale package, and many of those pages require signatures from buyers, sellers and agents. If one page is missing or one signature left blank, the document doesn’t get processed. Often, the listing agent will fax in 100 pages and just wait. Sometimes it will take a month to get a response from the bank, informing the agent that things are missing.

What you can do: Be proactive. The listing agent should call the bank after submitting the short sale package, especially if sent by fax. Confirm that all documents have been received. Make sure to get the name and phone number of the person you speak to.

Some documents quickly become outdated

It could be weeks between the time the documents get “processed” and when the information hits the desk of a negotiator, who actually reviews and negotiates. Does one bank statement come at the beginning of the month while all the others come at the end? That one bank statement may soon be outdated, and the bank will require an updated one. If that’s the case, it could take the lender weeks to realize this and another week to contact the seller or their agent.

What you can do: Review the statement date on each credit card and bank statement so you’ll know if a new one will arrive soon. If so, send it over right away.

The lender wants more information

The lender may ask to see the buyer’s proof of funds, review the preliminary title report or request more verification of the seller’s hardship (job loss, divorce, job transfer). The negotiator could request just about any additional information.

What you can do: The seller and agent should be ready to respond, because a delay could add a few more weeks to the process. Try to imagine yourself as the bank and think of everything that might be asked for. Provide as much information as you can upfront.

2 loans complicate everything

The short sale process is difficult enough with one bank. Imagine two banks, each with its own processes, that don’t cooperate? It could set everyone back months. The second lender may request more information before approval. Or, the second lender may issue an approval good for 30 days. If lender No. 1 approves on day 31, the seller must go back to the first lender to get re-approved.

What you can do: Understand the approval timelines for each bank and anticipate deadlines.

The deal could die at the last minute

Once the bank has a complete package and you get a negotiator on the phone, there is light at the end of the tunnel. After all this time, the negotiator may counter the buyer on price. Or they may only approve the sale if the seller contributes money. They could always ask for the commission to be lowered. No matter what they say, the bank’s request could kill a deal in the moment. And there’s no way to anticipate exactly what they will come back with.

What you can do: Don’t think the bank will simply approve a low offer. If the seller has money in the bank, they need to be prepared to contribute or you may have to come up with more money. Sometimes the bank is just looking at its bottom line and doesn’t care how everyone gets there. Buyers, sellers and agents must work together to make the deal work.

Foreclosure trumps everything

Time and again, all parties wait and wait and follow along the process — only to see the sale denied. What’s worse is that sometimes the foreclosure department at the same bank does not work in conjunction with the short sale department. A good offer for a short sale may be on the table, but the seller may be six months behind on payments, causing the foreclosure process to kick in. And the foreclosure process can trump everything. When this happens, the buyer no longer has a deal on the table because the seller, forced into foreclosure, is no longer the seller. In a foreclosure, the home belongs to the bank.

How to speed up a short sale

The best way to expedite a short sale approval, and therefore your escrow, is to be certain the seller’s real estate agent is experienced with short sales. The seller’s agent interfaces with the bank 24/7. If the agent isn’t experienced in short sales, chances are this process will drag on and on.

An experienced short sale agent will know how certain banks work, what to anticipate and how to best work through the bureaucratic process. But even the most experienced short sale agent can come up against brick walls or challenges they just can’t overcome. If you see a short sale home you love but don’t have much confidence in the listing agent, try not to fall too deeply in love with it. You’ll only be disappointed if the sale doesn’t go through.

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Self-Employed Buying Hurdles

Are you self employed? Do you want to buy a house? If so, or if you’re thinking about becoming self employed, there are a few things you need to know before buying a home. And trust me – I’ve had to do these myself! As a business owner, you love to be in control and want to do things at your own pace and according to your own rules – after all, isn’t that why you started your OWN company?! I get it. But when it comes to real estate, there are several special rules and considerations for self employed folks.

This article from Zillow.com really summarizes the requirements for home buying when self employed. Check it out!

If there’s one type of borrower in this credit market whose profile has been scrutinized the most, it’s the sole proprietor. Self-employed individuals/sole proprietors used to be able to get stated-income loans that would allow them to provide supporting income documentation. But the paradigm has shifted, and these borrowers now have a more challenging time qualifying for a mortgage than ever before.

Financial professionals often advise the self-employed to write off as much of their expenses as possible in order to show less income on their taxes. While this is quite favorable from an accounting standpoint, taking expenses reduces the taxable income needed to offset liabilities, such as a mortgage payment.

The common self-employed borrower traps most sole proprietors will encounter when getting a mortgage include:

Not showing enough income on your Schedule C form

Showing little income on your Schedule C reduces the amount of income you’ll have to offset your liability (new mortgage), and showing a loss (negative income) makes things even tougher. To determine the income that will be used to offset a mortgage payment (including taxes, insurance and private mortgage insurance, depending on loan program), take your combined annual income (your annual profit) for the past two years then divide by 24. The income will need to be at least 55 percent greater than the mortgage payment, assuming no other liabilities.

Not being self-employed for 2 years

This is not to say your loan will be denied if you have less than two years of self-employment history. However, you’ll need to show a net profit, with a current year-to-date profit and loss statement as well as your most recent year’s self-employed income tax returns.

Not being able to document large cash deposits

Any deposits going into your bank account have to be part of your regular income and will need to be documented as such.

Not having a third-party business validation

This means either a business license — such as a real estate license if you’re a real estate agent, for example — or a CPA letter showing that you have filed self-employed income tax returns for the past 24 months. Another option is showing your business profile online.

Using business funds in a mortgage transaction

If the funds for the transaction are coming from a business account, the mortgage lender will assess your ability to use those funds as part of your regular cash flow and business model. In other words, if your regular cash flow, income and business are such that those funds would be plausible for your use, you’ll be OK. This will be determined by the mortgage underwriter. However, if the business funds do not support a way of how those funds were originally generated, you’ll need to provide a CPA letter showing that the use of those funds does not impact the cash flow of your sole proprietorship business.

Business liabilities

Debt obligations that the business pays will show up on your credit report, so be prepared to provide supporting documentation. If these are business debts, but are paid for personally, these debts cannot be omitted, and they will count against your borrowing power.

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Offer Accepted: What Happens During Escrow?

So the past few months you’ve shopped properties, submitted offers on many and gotten your hopes up, only to be let down. But you haven’t given up, and finally you get the call from your real estate agent: Your latest offer has been accepted!

You might think it’s the end of the road to property ownership. But really, it’s just the beginning of the hard work.

Once you go into escrow, many items still need to be reviewed, discussed and inspected as you move forward in the process. Here are several that you’ll encounter for the next 40-50 days until you finally close escrow.

Home inspection & renegotiations

First you’ll need to schedule a home inspection and have an independent, licensed and insured inspector go through the property to look for problems. Make sure to join the inspector at the inspection and ask a lot of questions, write down everything that needs to be addressed and get with a contractor to determine how much it will cost to make all those repairs. Then have your real estate professional negotiate with the seller for, hopefully, some additional fixes and/or cash credits at closing.

Mortgage financing

Hopefully you’ve kept your lender apprised of where you are in the process. Now it’s time to get into full-speed motion. Get your appraisal ordered and start resubmitting pay stubs, mutual fund statements and other document the lender requests. And lock in your interest rate, points and loan terms — and get those terms in writing.

Title insurance, plat/survey, schedule of exclusions

You’ll also get a thick packet of documents that you’ll need to review. Most people do not review them, and that’s a really bad idea. You need to look through the estimated HUD-1 costs, the title abstract, the title insurance policy schedule of exclusions and all other documents. Also review the plat or have a survey done and then walk the property to see if there are any encumbrances (get the title company to plot the easements). This is the time, before you close escrow, to figure out if there are title or physical property issues that pose a problem.

HOA documents review

If the property is in a common interest development, you’ll need to review all the relevant homeowners association documents — board of directors meeting minutes and notes, financial statements, state disclosures, reserve study, bank condominium certification, HOA unit demand statement, etc. This is a really time consuming, confusing and tricky process. Many people fail to do even the most basic HOA analysis, and if you don’t adequately review the documents, you might feel some pain down the road when issues occur — and they will occur.

Property and liability insurance

You also need to get with an insurance agent and make sure to discuss and procure the proper type and amount of insurance that you’ll need. This is especially true if you’re paying cash, as you don’t have the bank personnel to double-check that you are properly insuring yourself. Your best bet is to go meet with your insurance agent and get the appropriate coverage.

Sign documents, fund down payment, verify GFE

As items move forward, you will eventually be ready to sign documents, fund the down payment and verify the lender costs match the good faith estimate you were given. Make sure to read and review all these documents before you sign off that they are acceptable to you.

Close escrow

Finally, you will fund your down payment, the bank will fund the mortgage loan, escrow and title will prepare all documents, properly account for all the funds, then go record your purchase documents at the county courthouse. And you are now the proud owner of a nice piece of dirt!

This article originally appeared here, on Zillow.com

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How to Prepare for Homeownership

Homeownership has so many positives, it’s easy to get lost in them! But it also comes with a ton of responsibility, and it’s important to prepare yourself even before you sign on the dotted line. Here are a few things you need to do before starting your home search:

First, have a frank conversation with yourself or your significant other about how much home you can truly afford. You should take into consideration a wide range of scenarios. What if one of you loses your job? What if you become disabled? How long are you planning on living in this area?

You should also calculate the costs of homeownership — the real costs. You will need to consider closing costs, homeowners insurance, maintenance and repairs, and even decorating costs.

Next, assess the status of your credit report and score. Identity theft runs rampant today. You should make sure that everything on your report is accurate. You should also take a gander at your score. This will give you a good idea what sort of rate you may qualify for. The higher the score the better the rate.

In a final step of groundwork, you should speak to a bank or lender about getting pre-qualified and then pre-approved. Pre-qualified means that the lender is willing to write you a loan. Pre-approval gives you a more exacting budget and proves to a seller that you mean business. Get your paperwork in order for this step. You’ll need W-2’s, paystubs, and other financial documents.

Want more tips? Check out this article from Realty Times – or give us a call!

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First Time Homebuyers – What to Know Before You Buy

With low interest rates and home prices lower than in years past, we’re seeing a lot of first time homebuyers right now – even one of our own Realtors!

Buying your first home is exciting – but it’s important not to get caught up in the fantasy and get yourself in over your head. All too often, first time homebuyers lose track of what they can really afford, getting themselves in hot water from the very beginning.

Here are a few things first time homebuyers need to know, even before they look at their first home:

1. Fix your credit. The first step toward buying a home takes place months before walking into your lender’s office. It’s crucial to check your credit score at least three to six months ahead of your mortgage application. You can request a free copy of the report from each of the three credit bureaus (Experian, TransUnion and Equifax) at annualcreditreport.com.

2. Know your limits. What kind of lifestyle do you like to have? Eating out a lot? Shopping weekly? If you intend to keep this up, you’ll need to make sure your mortgage payment (including taxes and insurance) are in check. When it comes to mortgage payments, we advise spending no more than 30% of your gross monthly income – even though some loans may qualify you for up to 50% of your monthly gross income. Remember – the more you borrow, the more money banks make – just because you’re approved, doesn’t make it realistic for your situation!

3. Understand you’re paying more than a mortgage. If you put down less than 20% (as most people do), you’re required to get private mortgage insurance (PMI). You also have to factor in your annual property taxes (most people pay in monthly installments, rather than a lump sum at the end of the year.) Additionally, the bigger the home, the larger the heating and cooling bills – another added monthly expense. Add to that repair costs (you no longer have a landlord to handle that!), yard costs (lawnmowers, watering, plants/flowers, etc.) and other items, and you’re paying far more than just a mortgage. And don’t forget your down payment and closing costs!

Want some more tips? Head over to the AOL Real Estate guide, or give us a call!

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What is Character Lending??

You’ve heard it’s hard to get a loan in today’s market – in fact, most banks won’t even consider you if your FICO score is less than 620 (and that’s just one of many considerations)! But have you heard of Character Lending? It could be your answer if your credit score isn’t as high as you’d like it to be.

It sounds too good to be true – bad/no credit, no money for a down payment and seeking a loan for up to $200,160 – but getting approved? It IS possible, through Character Lending. Lenders look at your financial discipline for the last 2 years and how you managed your money. If you meet their criteria, you can be approved for certain areas within a 100 mile radius of Houston.

Even better news – RE/MAX Rewards can take you to the qualifying areas! We know what homes are eligible for Character Lending approval, and you can be on your way to home ownership. However, there are more factors to consider before determining your eligibility – here are the program’s general guidelines:

1. You must provide your Social Security Number or ITIN number
2. No applicant or household member can own another home at the time of closing
3. On time payments for all accounts during the most recent 12 months including utilities or explanations for any late payments
4. No overdraft changes in the most recent 90 days
5. Debt to Income ratio 40% or below
6. All charge offs and collections that occurred in or have had activity on the past 24 months have a zero balance or an approved payment plan with on-time payments for at least six months
7. All liens, judgements and defaulted federal debts (child support, back taxes, student loans) must be resolved.
8. Provide past two years of rental history and verify most recent 12 months rent payments or have residence letter covering 12 months.

Interested in learning more? Think you may qualify for Character Lending? Give us a call today and we’ll discuss your options and start your home search!

Source: HAR.com

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