Mobile Bay Real Estate and Community News

Oct. 6, 2011

Mortgage rates fall to historic lows

Freddie Mac announced Thursday that 30-year fixed mortgage rates fell below 4% for the first time ever. The new rate - just 3.94% - is lower than the rate in the 1950s, according to the National Bureau of Economic Research. For buyers looking at homes in Daphne, Fairhope and Spanish Fort, you'll find the 15-year fixed rate in the lower 3% range locally.

For example, Mary Brabner, loan originator for Region's Mortgage in Daphne, AL, says her 30-year fixed rate is 3.875% today. This is for over buyers with credit scores over 740, with 20% down on a purchase. A 15-year rate is 3.25%, Brabner said. Dean Watson of WestStar Mortgage, also in Daphne, AL, says rates may be higher for those whose credit scores are below 740. WestStar offers mortgages that don't require the often pricey wind coverage for home owners insurance; for that the rate may be a bit higher, he said.

With a nice selection of homes for sale in Spanish Fort, Daphne and Fairhope, it's a great time to buy and lock in a low fixed rate. If you have sufficient equity, it's also a great time to re-finance.

Posted in Buying a Home
Oct. 5, 2011

VA funding fee changes Oct 1, 2011

Veterans closing mortgage loans after Oct. 1, 2011 will find that the funding fee has been reduced on VA loans.

Here's the new structure:

VA loans may not always be the best choice for financing, so be sure to do your research.

Posted in Buying a Home
Oct. 5, 2011

What is a short sale?

What is a short sale?

A short sale is the sale of a home or property for less than what is owed on the property. The seller must have also experienced some sort of “distress” and must sell. (Example, the seller of a home in Daphne AL owes $250,000 and the house value has fallen and it’s only worth $200,000. So there is an immediate $50,000 shortfall plus closing costs). It does not necessarily mean that the property is heading into foreclosure.

Why is it sometimes called a potential short sale?

That’s because it is ultimately up to the seller’s lender to approve the sale. After all, it’s the lender who is taking the major financial hit here.

What qualifies as a distress for a seller?

Many, many things from personal to financial misfortunes, to simple changes in circumstances. One lender even has a checklist. Death, divorce, illness, expanding family, loss of job, reduction in pay or hours, even increased home owners’ insurance payments. Many short sellers have experienced a combination of one of more of these.

Can anybody who has had a change in circumstances qualify for a short sale?

No. The seller cannot have a lot of cash available, no substantial assets. Basically a seller can have just enough to get by.

Who sets the price?

The Realtor sets the price according to the market value. When there aren't a lot of comparable solds to determine price, the Realtor may start the pricing at what is owed on the property then systematically reduce it over time to demonstrate to the lender that the house wasn't being shown at the higher price and the market value has declined.

How long does it take?

Short sales used to have a reputation for being a nightmarishly long experience. But over the years the time it takes has been reduced to around 45 to 90 days.

Is it really better for the seller to do a short sale or to just let it go into foreclosure?

The general school of thought is that a foreclosure will result in a larger hit to a credit score than a short sale. The same holds true for deed in lieu of foreclosures (where you give the house back to the bank). This is because foreclosures are recorded at the courthouse and end up on your credit. Short sales typically are not. Also, a short seller should be able to purchase a home again within a shorter period of time than someone who has been foreclosed upon.

Does a seller have to pay anything in a short sale?

It depends. The lender can file a request that the seller repay all or part of the difference between the sales price and what is owed. In my experience I have seen the lenders forgive the debt entirely, and I have seen then lender write off around $100,000 and request the seller repay just $2,500 over a period of years with payments under $100 a month.

So what does a seller have to do to get a short sale going?

A qualified Realtor can guide a seller through the short sale process. Generally, the lender will request the seller write a letter outlining their personal, work and financial history and why they are requesting a short sale. The lender will also request copies of bank statements, pay stubs, and tax records.

Sounds like a lot of work?

Yes, it's some for the seller, but even more for the Realtor who has the house listed. But it's an good option for homeowners in financial distress who need to move.

If I've received a default notice is it too late to do a short sale?

It depends on where you are in the foreclosure process and whether you meet the short sale criteria.

Do I have to be late on my mortgage payments to qualify for a short sale?

I cannot tell you to not make a mortgage payment, but the general school of thought is you have to be late or make a partial payment for a lender to consider a short sale. I have heard of one lender that doesn’t require you to be behind on payments to do a short sale. But be careful here: If you are late too many months, you will trigger the big, bad foreclosure process which can complicate the short sale.

If you think you may qualify for a short sale and need more information, feel free to call me at 251 591-2411.

Posted in Selling Your Home
Aug. 30, 2011

How to do a lease purchase and why you shouldn't

"Would your sellers consider a lease purchase?" two separate agents have asked me in the last two days on two separate listings.

And each time, I've explained the pros and cons of such an arrangement to my sellers. Both sellers passed and here's why.

First, the Wikepedia Definition: "A lease purchase contract is a shortened name for lease with option to purchase contract. It is a form of real estate purchase which combines elements of a traditional rental agreement with an exclusive option of right of first refusal to later purchase a home."

The initial challenge of a lease purchase is to make sure everyone knows what they are talking about, even the agents. Often, the buyer is thinking "lease with option to purchase" while the seller is hearing "purchase with delayed closing."

This hybridized contract has come and gone over the years, most recently with the soaring interest rates in the ‘80s, and now with the difficult market we face today. It's a product of desperation, really no better than simply renting a house. In the end, it's like like trading in house futures.

Here's a typical scenario:

Mr. Buyer has a home on the market in another city. But his job - and the kids' school - starts in your market in one month. He wants to get his family settled. He's found the perfect house for $200,000.

Mr. Seller is thinking about building a $300,000 house and has his house on the market. It's a slow market, a soft market and maybe he'll get full price if he agrees to this lease purchase. Mr. Buyer comes along with the lease purchase proposal. Ms. Seller thinks he can rent elsewhere and get started building his new house. The agents negotiate the offer - one part lease and one part purchase -- with Mr. Buyer providing $10,000 non-refundable earnest money if he doesn't close within the year. (In some cases, Mr. Buyer will want a portion of his "rent" applied to the purchase price.)

If you can get past the obstacle of Mr. Buyer agreeing to non-refundable earnest money, then on to the more mundane home inspection issues, here's what the principals and agents could encounter.

Benefits to seller:

  • Possibly higher selling price.
  • Cash flow, particularly if property is vacant (which is why this may be attractive to some builders.)
  • House is under contract (maybe or maybe not)

Cons for seller:

  • Equity still tied up in house and seller cannot proceed with his plans to buy, etc.
  • Housing prices could rise and the seller is locked into a lower purchase price.
  • Market could decline and tenant/purchaser decides house is not worth agreed upon price. Or tenant/purchaser may find another house they like better in the interim.
  • Interest rates could rise and tenant/purchase may not qualify for a loan.
  • Tenant/purchaser may not keep up property.

Benefits to buyer:

  • Making only one move saves time and money vs. renting, buying and moving again.
  • Buyer gets to shakedown period to really figure out if they want to buy this property.
  • Housing prices could rise and tenant/purchaser now finds he's made a pretty good deal.

Cons for buyer:

  • Locked into agreement and they decide house is not worth price or find another property.
  • Interest rates could rise and tenant/purchaser sees his payment going up when the house closes.

Money always talks and in this case it's the $10,000 non-refundable earnest money that's keeping this deal together.

The longer the terms of the contract, the more likely that housing and financial markets will change, making what once seemed like a good deal, merely a memory.

For agents, it's a lot of work with little promise that the house will close. Chances are, no one will be happy. Not the buyer. Not the seller and certainly not the agents.

Posted in Selling Your Home