Friday, October 13, 2006

Foreclosure Auctions

Creative Real Estate Investing Forum

BRAND-NEW HOUSES AND CONDOS CAN BE GREAT BARGAINS

Many builders of houses and condos have unexpectedly found themselves in local buyer's markets, which rapidly changed within the last six months. The result is an oversupply of new houses and condos, which are competing with reasonably priced resale houses and condos. To cut their inventories, many home builders are offering amazing bargains, both in prices and included features or upgrades. For example, it is not uncommon to find builders advertising no down payments, no payments for six months, landscaping upgrades, upgraded appliances and carpets, easy mortgage qualifying, no closing costs, and other sales incentives. But smart buyers of new homes should understand that builders are very reluctant to cut their asking prices. The reason is that appraisal and mortgage finance problems arise when builders sell below what they sold the same model for a few months ago; the builder can avoid such problems by instead including more features at no additional cost. As house subdivisions and condo complexes gradually sell out their inventories, smart buyers realize the builders and developers become more anxious. The reason is their major profit is in the sale of the last few units. For example, if you see a builder's newspaper ad saying "85 of 100 homes already sold" that really means the builder is highly motivated to sell those last few units, which represent nearly 100 percent of the profit from that project.

Creative Real Estate Investing Forum

Foreclosure Auctions

Creative Real Estate Investing Forum

HOW TO AVOID OVERPAYING IN A BUYER'S MARKET

After determining if houses or condos within the location and price range where you want to buy are in a local "buyer's market," after finding a suitable residence to purchase, it's time to make a written purchase offer. However, there are several key steps to avoid overpaying: (1) Just as smart home sellers insist their listing agents prepare CMAs (competitive market analysis) showing (a) recent sales prices of comparable nearby homes, (b) asking prices of competitive neighborhood residences now listed for sale, and (c) asking prices of recently expired similar listings (usually overpriced), smart home buyers also insist on a CMA before making a purchase offer. (2) Home buyers, with the help of their buyer's agents, then discuss the pros and cons of the homes shown on the CMA to arrive at a fair purchase-offer price for the home under consideration. This key step is necessary to avoid overpaying. As smart home buyers know, you can always raise your purchase offer but you can never lower it after the seller accepts. Buyers can be sure their buyer's agent will show the CMA as justification to the seller when the purchase offer is presented. (3) Every house or condo purchase offer should contain two key contingency clauses: (a) one for the buyer obtaining a mortgage based on a satisfactory appraisal of the property confirming the sales price and (b) another for the buyer's approval of a professional inspector's report on the house or condo to be obtained at the buyer's expense within five business days.

Creative Real Estate Investing Forum

Foreclosure Auctions

Creative Real Estate Investing Forum

HOME BUYER'S MARKETS VARY BY LOCATION AND PRICE

A little-known secret is home buyer's markets can vary by ZIP code areas and price ranges within that area. Being within the boundaries of a top school district can also determine if a house or condo is in a high-demand seller's market or a lower-demand buyer's market. There are two criteria to determine if an area is in a buyer's or seller's market. Smart buyers and sellers understand the local situation is constantly in flux. The first criterion is to look at the number of houses and condominiums listed for sale in the local market and their average number of days on the market before sale. The local MLS (multiple listing service) has this number for resale houses and condos listed with the MLS. However, MLS statistics usually do not include brand-new houses and condos because most builders do not list with the MLS. As a general rule, if the average number of days on the local market is 60 days or less, that is a house and condo "seller's market." The result is home sellers feel confident their realistically priced house or condo should sell within 60 days in a seller's market.
The second criterion to tell if you are in a local buyer's or seller's market for homes is to look at the number of months' supply of residences for sale at the current sales pace. To get this number, simply divide the number of home sales closed during the last 30 days reported to the local MLS by the number of homes listed for sale. If the result is six months or longer, that means there is a local buyer's market with an oversupply of residences listed for sale. However, if this number is three months or less, then it is a local "seller's market" where sellers can hold firm on their price and terms with reasonable confidence a fairly priced home will sell within 90 days, usually less. A third but less scientific method is to look at the volume of local newspaper display ads by home builders and real estate brokers. In a buyer's market, these firms will greatly increase their newspaper ad volume and sizes. But in a seller's market, they don't have to advertise very much.

Creative Real Estate Investing Forum

Foreclosure Auctions

Creative Real Estate Investing Forum

HOW TO BE A SAVVY HOME BUYER

Although a few home sellers are in panic mode because they see so many homes coming on the market for sale in their vicinity, the truth is the current home-sale market is merely a "normalization," or return, to a traditional buyer's market for homes. The sellers who are most worried are the homeowners who bought in the last year or two at the peak of the market, and who have to sell now for valid reasons, such as a job transfer, unemployment, pending foreclosure, illness, death or birth in the family, and divorce. These are known as "motivated sellers" who are especially anxious to sell. However, just because the seller is motivated doesn't mean a home buyer will be able to negotiate a "good deal." The reason is if the seller bought at the peak of the market and is not willing to sell at that price or below, the buyer probably would be overpaying. To determine if a motivated home seller can offer a fair sales price, savvy home buyers ask their buyer's agents to find out (a) how many years ago the home was purchased, (b) what price the seller paid, and (c) what is the total of the existing mortgages and liens secured by the house. The answers will reveal if the owner, even a motivated seller, has home equity negotiation room. If not, savvy buyers move on to the next home.

Creative Real Estate Investing Forum

Tuesday, April 11, 2006

Foreclosure Auctions

Creative Real Estate Investing Forum

Important things a home buyer should know

Buying A New Home

Dear Future Homeowner:
Homeownership is becoming a reality for more and more Americans. During 2000, the US homeownership rate reached 67.7%, the highest rate ever. Yet many Americans don't realize that homeownership is within their grasp.
A home is a financial asset and more: it's a place to live and raise children; it's a plan for the future; it's an investment in your community. That's why we at the U.S. Department of Housing and Urban Development want all Americans to have an opportunity to enjoy the benefits of owning a home. And we are especially proud of our work to help first-time homebuyers: thanks to our special programs, more than 81% of FHA-insured loans went to first-time homebuyers during 2000.
Knowledge is said to open doors. This is literally true when it comes to buying a home. To become a first-time homebuyer, you need to know where and how to begin the homebuying process. The following questions and answers have been carefully selected to give you a foundation of basic knowledge. In addition to helping you begin, this brochure will give you the tools necessary to navigate the entire process - from deciding whether you're ready to buy, all the way to that final proud step, getting the keys to your new home.
Calling for this brochure was your first step. Now you can use this information to determine if you're ready to buy a home. if you are ready, contact a real estate agent, lender, or a housing counseling agency. They can help you decide your next step.
HUD's FHA has helped more than 30 million people become homeowners since 1934. We want to help you open the door to your own home. After all, HUD and FHA are on your side.
Good Luck!


GETTING STARTED

1. HOW DO I BEGIN THE PROCESS OF BUYING A HOME?art by thinking about your situation. Are you ready to buy a home? How much can you afford in a monthly mortgage payment (see Question 4 for help)? How much space do you need? What areas of town do you like? After you answer these questions, make a "To Do" list and start doing casual research. Talk to friends and family, drive through neighborhoods, and look in the "Homes" section of the newspaper.

2. HOW DOES PURCHASING A HOME COMPARE WITH RENTING?
The two don't really compare at all. The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits, and protect yourself against rent increases. Also, you may not be free to decorate without permission and may be at the mercy of the landlord for housing.
Owning a home has many benefits. When you make a mortgage payment, you are building equity. And that's an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities- like insurance, real estate taxes, and upkeep- which can be substantial. But given the freedom, stability, and security of owning your own home, they are worth it.

3. HOW DOES THE LENDER DECIDE THE MAXIMUM LOAN AMOUNT THAT CAN AFFORD?
The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the FHA,monthly mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, 4 should total no more than 41% of income. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.

4. HOW CAN I DETERMINE MY HOUSING NEEDS BEFORE I BEGIN THE SEARCH?
Your home should fit way you live, with spaces and features that appeal to the whole family. Before you begin looking at homes, make a list of your priorities - things like location and size. Should the house be close to certain schools? your job? to public transportation? How large should the house be? What type of lot do you prefer? What kinds of amenities are you looking for? Establish a set of minimum requirements and a 'wish list." Minimum requirements are things that a house must have for you to consider it, while a "wish list" covers things that you'd like to have but aren't essential.

5. WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT ARE THE ADVANTAGES OF EACH?
Fixed Rate Mortgages: Payments remain the same for the the life of the loan
Types

15-year

30-year
Advantages

Predictable

Housing cost remains unaffected by interest rate changes and inflation.
Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits
Types

Balloon Mortgage- Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is clue or refinanced (though not automatically)

Two-Step Mortgage- Interest rate adjusts only once and remains the same for the life of the loan

ARMS linked to a specific index or margin
Advantages

Generally offer lower initial interest rates

Monthly payments can be lower

May allow borrower to qualify for a larger loan amount

6. WHEN DO ARMS MAKE SENSE?
An ARM may make sense If you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates.
37. WHAT ARE THE ADVANTAGES OF 15- AND 30-YEAR LOAN TERMS?
30-Year:

In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions.

As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.
15-year:

Loan is usually made at a lower interest rate.

Equity is built faster because early payments pay more principal.

7. CAN I PAY OFF MY LOAN AHEAD OF SCHEDULE?
Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for details.

8. ARE THERE SPECIAL MORTGAGES FOR FIRST-TIME HOMEBUYERS?
Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities.

9. HOW LARGE OF A DOWN PAYMENT DO I NEED?
There are mortgage options now available that only require a down payment of 1% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you'll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you'll also need money for closing costs, moving expenses, and - possibly -repairs and decorating.

10. WHAT IS INCLUDED IN A MONTHLY MORTGAGE PAYMENT?
The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner's insurance, and mortgage insurance (if applicable).

11. WHAT FACTORS AFFECT MORTGAGE PAYMENTS?
The amount of the down payment, the size of the mortgage loan, the interest rate, the length of the repayment term and payment schedule will all affect the size of your mortgage payment.

12. HOW DOES THE INTEREST RATE FACTOR IN SECURING A MORTGAGE LOAN?
A lower interest rate allows you to borrow more money than a high rate with the some monthly payment. Interest rates can fluctuate as you shop for a loan, so ask-lenders if they offer a rate "lock-in"which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan.

13. WHAT HAPPENS IF INTEREST RATES DECREASE AND I HAVE A FIXED RATE LOAN?
If interest rates drop significantly, you may want to investigate refinancing. Most experts agree that if you plan to be in your house for at least 18 months and you can get a rate 2% less than your current one, refinancing is smart. Refinancing may, however, involve paying many of the same fees paid at the original closing, plus origination and application fees.

Creative Real Estate Investing Forum