Dos And Donts Of Buying Distressed Real Estate

Distressed real estate is real estate in need of serious repairs. These properties are often called "handyman specials." If you have the skill or the money to complete the repairs, you can often find great deals. Here are some dos and don'ts of buying distressed real estate.

DO Get A Home Inspection

Distressed homes need repairs. Some of these repairs, like broken floor tile, are easy to see. Others, like water damage in the attic, can be easily hidden. The only way to know for sure what you're buying is to have the property inspected by a professional home inspector.

DO Pay Attention To The Home's Market Value

You don't want to buy a home and spend your hard-earned money for repairs only to find out the home is worth less than what you paid for it. Have your agent complete a comparative market analysis so you know what the home is worth.

DO Have An Estimate For Repairs

There's no point buying a distressed home if you can't afford the cost of the home and the repairs. Get an estimate from at least three contractors before you buy. Knowing the cost of repairs beforehand will help you make the best decision.

DON'T Think About Potential Profit

You've probably heard countless stories about people who bought distressed properties and sold them for outrageous profits. However, the reality is that most distressed homes are sold for a small profit or no profit.

DON'T Buy A Home Just Because The Price Is Low

When you buy distressed homes, you have to consider more than just the asking price. Add together the cost of repairs, insurance, and what you can realistically expect to make from the sale. This will tell you if the home really is a good investment for you.

DON'T Buy If You Don't Have The Money

No matter how good a deal you find on distressed homes, they aren't worth it if they will stretch your budget too far. The last thing you want to deal with is damage to your credit score and the risk of foreclosure in the event you can't pay for the home.

FOMC Statement: Quantitative Easing Tapered by $10 Billion

The Federal Open Market Committee (FOMC) determined that current economic conditions warranted another $10 billion reduction in the Fed's asset purchases.

Citing improvements in economic indicators including labor markets and national unemployment, committee members said that further tapering of its quantitative easing (QE) asset purchases was warranted. The Fed will now purchase a total of $35 billion monthly in treasury securities and mortgage-backed securities.

While continued reductions in the Fed's asset purchases could contribute to rising mortgage rates, the FOMC statement said that the Fed's "sizeable and still increasing" holdings of long-term securities is expected to hold down long term interest rates including mortgage rates.

The FOMC statement included its standard caveat that reductions to QE purchases are not on a preset course and that committee members will continue close analysis of financial and economic news and conditions as part of decisions to change the volume of QE asset purchases.

Committee Monitoring Unemployment, Inflation

Unemployment remains "elevated" according to the FOMC statement. Committee members said that they will continue to monitor unemployment readings, but committee members expect that overall improvement in economic conditions will continue to justify the current target rate for federal funds at between 0.00 and 0.25 percent.

The FOMC statement notes that this "highly accommodative" policy will likely remain in effect for a considerable period after the QE asset purchases conclude.

Committee members continue to monitor the inflation rate, which remains below the FOMC target rate of 2.00 percent. Noting that inflation persistently below the Fed's target rate could hamper economic growth, the FOMC said that it expects inflation to move toward its target rate within the medium term.

FOMC Releases Forecasts for Key Indicators

FOMC released a table of its forecasts for certain economic sectors. Highlights include a projected reading of 6.00 to 6.10 percent for national unemployment for 2014, and the rate of inflation for personal consumer expenses at between 1.50 and 1.70 percent for 2014. According to its projections, the Fed's target inflation rate of 2.00 percent is likely to be reached in 2015 or 2016.

Fed Chair Yellen Gives Press Conference

A major theme of Fed Chair Janet Yellen's press conference was that there is no set formula for Fed decisions concerning interest rates, inflation and tapering its volume of asset purchases. She cited geopolitical risks including conflicts in Europe and developing civil crisis in Iraq as examples of influences on U.S. financial markets, energy supplies and prices.

Ms. Yellen said that while consumer spending has increased, the Fed wants to see wage growth exceed inflation so that consumers would see an actual increase in their incomes. She also cited the Fed's target inflation rate of 2.00 percent as important to continued economic recovery.

A wide range of opinions among FOMC members about federal interest rates was mentioned by Ms. Yellen as an example of overall uncertainty about the economy and developing economic trends. She cautioned investors to be mindful of this uncertainty.

Should You Finance The Sale Of Your Home By Yourself?

You've decided to put your home up for sale. Now, how are you going to make the most money selling it and get it sold the fastest? Perhaps you should consider providing owner financing, also known as seller financing. 

Why Isn't The Buyer Getting Bank Financing?

Usually a buyer gets bank financing when buying a home. If the buyer approaches you with a deal that involves you doing the financing, you'll want to ask why. 

It could be that they can't afford a big down payment, and can't be approved for a loan without it. Or, they may not be able to get financing at all, due to no credit or bad credit.

In that case, you'll want to evaluate if you can afford the risk. Can you make the monthly mortgage payment in the event they default?

If you determine that the deal isn't too risky, you can finance the home yourself for a greater profit. But, there are some instances when you won't be able to owner finance your home for sale.

When Can't I Owner Finance My Home?

You may not know that in order to finance your home yourself, you have to be able to pay off your current mortgage in full prior to making the sale. If you can't afford to make the full payment, you won't be able to owner finance the property.

If you already own the house outright, you'll be able to finance the property. You may decide to owner finance part of the sale price for a higher interest rate. 

This would be an ideal situation for a buyer who can qualify for a bank loan for most of the sale price, but is unable to be approved for a higher loan amount to get the rest.

After a year of making payments to the bank, the buyer may be able to finance the remaining amount, and then you'll receive a lump sum for that amount. 

What Else Do I Need to Know?

There are a lot of things to take into consideration before deciding if owner financing is right for you. Be sure to do your homework and understand the benefits and risks of owner financing. It is also wise to consult with a real estate lawyer and a professional real estate agent.

Thinking of listing your home for sale and offering owner financing? Let me help you determine if owner financing will benefit you. Call your trusted mortgage professional today.

What To Do When Your Real Estate Loan Is Declined

There are many reasons why a mortgage loan could be declined. It doesn't have to be the end of your real estate dreams. Here are a few things to consider if you've been turned down for a mortgage.

Loan-To-Value Ratio

The loan-to-value ratio (LTV) is the percentage of the appraised value of the property that you are trying to finance. For example, if you are trying to finance a home that costs $100,000, and want to borrow $75,000, your LTV is seventy-five percent.

Lenders don't like a high LTV. The higher the ratio, the harder it is to qualify for a mortgage. To reduce the percentage, you can save up a bigger down payment. Some lenders may approve the loan if you buy mortgage insurance, which protects the lender in the case of default, but makes your mortgage payment higher.

Credit To Debt Ratio

Lenders will be less likely to approve your mortgage loan if you have a high credit-to-debt ratio. The ratio is figured by dividing the amount of credit available to you, on a credit card or auto loan, and dividing it by how much you are currently using.

High debt loads will scare away most lenders. Try to keep your debt to under fifty percent of what is available to you. Lenders will appreciate it, and you will be more likely to be approved for a mortgage.

No Credit Or Bad Credit

Few things can derail your mortgage loan approval like credit issues. Having no credit record can be as bad for your approval chances as bad credit. With no record of timely loan payments from anywhere, a lender is unable to determine your likelihood to repay the mortgage. Some lenders will consider other records of payment, like utility bills and rent reports from your landlord.

If you have frequent late charges or collections, you'll need to work on getting those paid on time, every time. There aren't many lenders who will approve someone with bad credit, especially in today's market.

Talk to your loan officer to determine which problem applies to you, and learn the steps to fix it. Then, you can finance the home or condo of your dreams.

If you're ready to buy a home or condo, I can help. Together, we'll determine how much you can afford, and I'll negotiate to get the best price and terms for you. Get in touch with me so I can help you. 

What's Ahead For Mortgage Rates This Week - June 16, 2014

Last week's economic news was quiet in the housing sector, but retail sales and employment-related reports provided indications of less consumer spending and reduced consumer confidence.

On Monday, James Bullard, St. Louis Fed President, commented that inflation appears to be rising. Although not a voting member of the Fed's Open Market Committee (FOMC), inflation has been a topic of concern to the FOMC in recent years. Mr. Bullard had previously noted that inflation was stable.

His remarks set the stage for this week's FOMC meeting and press conference by Fed Chair Janet Yellen. Analysts expect the Fed to continue tapering its asset purchases as it winds down its quantitative easing program.

Labor related reports were mixed last week. Job openings in April rose to 4.46 million in April; this was the highest reading since September 2007 and exceeded the March reading of 4.17 million job openings in March.

More good news came from the U.S. Labor Department, which 4.71 million hires in April. This was the highest rate of hiring since June 2008 and represented a year-over-year increase of 6.00 percent. At the start of the recession at the end of 2007, about 5 million job openings were reported.

Mortgage Rates, New Jobless Claims Rise

Weekly jobless claims were reported at 317,000 as compared to expectations of 310,000 new jobless claims and the prior week's reading of 312,000 new jobless claims. The four-week rolling average of new jobless claims rose by 4,750 new claims for a total of 315,250 new jobless claims. The four-week gauge of jobless claims evens out weekly volatility and is viewed by analysts as a better indicator of labor market trends.

Mortgage rates were higher according to Freddie Mac. The average rate for a 30-year fixed rate mortgage rose by six basis points to 4.20 percent; discount points rose from 0.50 to 0.60 percent.

The average rate for a 15-year mortgage rose by eight basis points to 3.32 percent with discount points unchanged at 0.50 percent. The average rate for a 5/1 adjustable rate mortgage rose from last week's reading of 2.93 percent to 3.05 percent. Discount points were unchanged at 0.40 percent.

The Fed's quantitative easing program was implemented to control long-term interest rates, including mortgage rates. Gradual tapering of this program is allowing mortgage rates to rise. Other influences include investor concerns over recent decisions made by the European Central Bank.

Consumer sentiment slipped slightly for June according to the University of Michigan Consumer Sentiment Index. June's reading was 81.20 as compared to an expected reading of 82.80 and May's reading of 81.50.

What's Ahead

Next week's scheduled economic news includes the NAHB Housing Market Index for June and Housing Starts for May. These readings are important indicators for housing supplies, as a lack of builder confidence can translate to fewer housing starts. Housing markets were impacted by high demand for homes against low inventories of available homes during 2013 and into 2014.

Also noteworthy is the FOMC post-meeting statement and Fed Chair Janet Yellen's press conference. The FOMC sets the Federal Reserve's monetary policy and is expected to announce further tapering of the Fed's quantitative easing program. It will be interesting to learn the Fed's perspective on inflation, which has been stuck below the Fed's target level of two percent.

Friday's release of Leading Economic Indicators for May round out this week's economic reports.