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Foreclosure Alternative?

There’s been lots of talk about how to get out from under a mortgage that is more than the value of your home.  One of the possible choices is a short sale. definitely a better choice than foreclosure.  Another choice that may be often overlooked is a deed-in-lieu-of-foreclosure, or deed-in-lieu for short.

Choosing a deed-in-lieu might be a viable option for many.  It allows you to cancel your mortgage in exchange for turning over the deed to your house.  In most cases, it is a much faster process than either a short sale or foreclosure.  Another advantage is that Fannie Mae has reduced the time that a borrower has to wait from four years to two as compared to a foreclosure.

Want to know more?  Check out this article from the LA Times, or use the Contact page to phone, text or email with your questions.

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What is a Short Sale?

Lots of people have questions about short sales.  What is it? How does it work? Is it good for me as a buyer?  Is it good for me as a seller?  None of the answers are easy, but let’s try to sort out some facts.

What is a short sale? A short sale situation exists when a homeowner owes more on his property than it’s value.   For example, a homeowner purchased a home in 2005 for $350,000 and wants to sell it now.  If the current mortgage amount is $275,000 but the house is only worth $250,000, the seller is “underwater” or upside-down.”  A short sale occurs when the lender agrees to accept less than is owed on a mortgage.

How does it work? When a homeowner realizes he is in a short-sale situation, he should take immediate action and contact the lender to request a short sale (or short pay) package.  The lender will require a number of documents to substantiate that accepting a short pay-off on the mortgage is appropriate.  A competent real estate agent with specialized training in short sale transactions can help guide you through the process.

Is it good for me as a buyer? That question is a little complicated.  Whether or not a short sale is good for you as a buyer depends on many factors.  Short sale transactions often take longer than other types of transactions, so if you need to move on a specific deadline, it may not be the best bet for you.  If you have a flexible schedule in arranging your move, a short sale can be good.  You will likely be able to purchase a property at a reasonable price and feel good for helping out a distressed homeowner.

Is it good for me as a seller? Generally, yes.  The advantages to sellers are many.  In the first place, you can feel good about doing your best to make a bad situation better.  Lenders understand that things happen — jobs are lost, catastrophic illness, or any number of other legitimate issues.  For the most part they are willing to work with homeowners who are suffering from a  hardship.

The downside?  The process will feel invasive and embarrassing.  The lenders are going to exercise every legal method at their disposal to make sure that the homeowner is deserving of help.   At the end of the process you should understand that your credit rating will be adversely affected, but not nearly to the extent that it would in the event of a foreclosure.  And, finally, won’t you fell better knowing that you did your very best to live up to the obligations you incurred?

Get more information. The best thing you can do whether you are interested in buying or selling a home that is a short sale is get more information.  It’s important to work with a real estate agent who understands the short sale process.  One good choice when interviewing an agent is to ask if he or she has any special training in short sale transactions or holds any certifications.  There are many certifications available, such as the SFR® (Short Sale & Foreclosure Resource) available through the Natianal Association of REALTORS®.

You can ask more questions by leaving a comment below, or contact me privately (see the Contact page for email and phone details.)  You can find out more about me here.

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Real Estate Market Snapshot

The California Association of REALTORS® offers many benefits to its members.  CAR also provides outreach to consumers in the form of Market Snapshots.  This one is for May 2010.  It offers a one page overview of what’s going on in the real estate market.

The CAR perspective is statewide.  How do you think the statewide perspective compares to current conditions in Tehachapi or Kern County?

If you are thinking about buying or selling a home, this is important information that could help with your decision.  One of the most important aspects of your real estate transaction may well be the research you do before you begin a transaction.  For tips on your transaction use the  form on the Contact page, or feel free to call with any questions.

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How Long Before You Can Buy After Foreclosure?

After foreclosure: How long until you can buy again?
The short answer is: it depends.  If you are a Tehachapi or Kern County homeowner that is in foreclosure or has already lost their house, you may be able to purchase a home again is 2 to 7 years.
Getting a mortgage to finance a home after foreclosure is possible for most homeowners. If you defaulted on your mortgage due to economic hardships, such as job loss, you may receive approval for another mortgage in as little as two years.  If you chose to engage in a strategic default (intentionally not meeting your mortgage obligations although you have the financial means to do so), it can take up to seven years to get approved.

Points to remember:
  • Lenders use several methods to determine whether to grant mortgages, including the how much money you have saved; your employment history; and your payment history.
  • Lenders may be more willing to finance a mortgage for a borrower who defaulted on their mortgage as a result of factors beyond their control.
  • If you are thinking about a strategic default, you should know that future loan underwriters will scrutinize your entire credit history very closely.  Some homeowners who strategically default believe they can raise their FICO scores by paying their others bills on time.  If the new lender determines the borrower strategically defaulted on their previous mortgage, the repaired credit score will not overshadow the walkaway.
  • Although not impossible for strategic defaulters to finance another home purchase, it likely will be more difficult. Lenders may ask for down payments of 30 percent or more to provide sufficient collateral to enable the bank to recoup most of its money in a foreclosure. These borrowers also may be charged higher interest rates, even above the levels other borrowers with similar credit scores would receive.
Read CNN’s take on this story, by clicking this link.