Dog Days of Summer Likely to See Deluge of Short Sales

Housing and finance experts are predicting the dog days of summer are likely to produce a deluge of short sales.

“We’re seeing a rush already,” Daren Blomquist of RealtyTrac told Reuters. “There was a big increase in the first quarter and we’re expecting that to continue.”

The crush of short sales comes as more and more banks opt for a portion of what they’re owed rather than have a property go into foreclosure. The Obama administration has advocated short sales as a solution for both financial institutions and sellers.

RealtyTrac data shows short sales in the first quarter of 2012 were up 25 percent compared to the year prior. The total — 109,521 — represented a three-year high. In fact, 2012 may serve as the high-water mark for short sales.

Tax Break Ending

Homeowners considering whether to pursue a short sale are also staring down the calendar. Normally sellers in a short sale see their forgiven loan amount counted as taxable income. A temporary governmental provision suspended that to help unclog the foreclosure pipeline, but the tax break comes to an end this year. Short sales can often take months, which means prospective sellers need to move soon in order to retain the tax break.

They also need to begin the process with their bank. Most sellers will take a credit hit of anywhere from 85 to 160 points and be precluded from obtaining home financing for several years. Veterans and other VA-eligible borrowers will have to wait two years before being eligible for a VA-backed mortgage.

Short Sale Market

Short sales continue to be a great deal for buyers with the credit and income to secure home financing. Prices on distressed properties are often 2o to 25 percent less than non-distressed properties, but there’s increased competition on short sales, which tend to be in better shape than foreclosures.

Buyers expecting to land a deal may need to rein in their optimism and come prepared with a serious offer.

Important Factors To Consider When Getting Financing On A Foreclosure, Short Sale or New Construction

Short sales, foreclosures and new construction homes all have caveats that need to be considered when pursuing financing.

If the guidelines and potential pitfalls are not properly understood, you could face delays in closing or potentially even a denied loan.

Short Sales & Foreclosures -

Short sales and foreclosures are everywhere. They often represent great value when looking to by a new home.

However, they also present a unique set of problems that homebuyers need to be aware of and plan for.

1.) Property Condition

Typically, when homeowners are facing foreclosure or looking to short sell their house, it means they lack the financial means to pay the mortgage or maintain the property.

A property in poor health can cause many financing issues for traditional financing.  FHA loans have specific rules requiring that the property is move-in-ready, unless you’re using a 203(k) Rehab Loan.

2.) Timing Challenges

Short sales typically come with awkward timeframes for purchase contract approval and loan closing.

Each bank is different, but approval can take anywhere between a week to 120 days.  As a general rule, the larger the bank the longer it takes to get short sale approval.

The lack of a set timeframe for short sale approval makes the timing of loan submission, rate locks and closing very challenging. You have your approval conditions cleared to close on time, just to find out that new appraisals, income, employment and asset verifications need to be updated by an underwriter to cover the most recent 30 days. Worst case, purchase contracts and legal documents may have to be re-submitted to a bank for an updated approval.

Either way, be prepared for a lot of redundant paperwork when purchasing a short sale property.

New Construction -

Home buyers looking to purchase new construction using FHA financing will have more hoops to jump through than those purchasing through conventional (Fannie Mae / Freddie Mac) financing.

If you want to use FHA financing to purchase new construction then you need to be aware of a number of issues that can trip you up.

First, you MUST have a certificate of occupancy (C.O.) certifying that the property is complete and move-in-ready. If you do not have this then you typically CANNOT go FHA. You’ll need a renovation loan, but a FHA 203K WILL NOT work.

You’ll need to employ the Fannie Mae HomeStyle for a property without a C.O.

In addition to the C.O. you’ll need some combination of the following documents as dictated by your lender and your unique situation:

  • Builder’s Certification
  • One Year Builder Warranty (10 YR Warranty may be required)
  • Termite Inspection (when applicable)
  • Septic Inspection (when applicable)
  • Well Test (when applicable)
  • Construction Permits

There are a number of factors which go into exactly what combination of documentation will be required to satisfy your lender and FHA, so it is best to work with an experienced loan officer when purchasing new construction with FHA financing.

If you plan on using conventional Fannie Mae / Freddie Mac financing you’ll still have hoops to jump through, just not as many as FHA. You’ll also have a higher down payment requirement and the credit qualification guidelines tend to be stricter.

Whether it be FHA financing, conventional financing or renovation financing, it’s important to have a qualified home buying team in place that can lead you through the maze of paperwork and negotiations.

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You Might Be A Short Sale

PaulI believe it’s healthy to take a step outside and perhaps even laugh at ourselves so as not to be caught up in our own pride. Let’s face it; we are where we are. It’s time to fess up, identify it, and move forward.

Citigroup’s expected to announce a $24 Billion write down this week for the fourth quarter and Merrill Lynch, $15 Billion. They’re both running around trying to raise some cash and these losses are largely mortgage related. My question is: what about the home values, circumstances, and predicament for the individual homeowners? Are they quick to fess up?

As the owner of a mortgage company in Florida and taking a lead role in bringing healing back in the marketplace, I’m confronted with this issue daily. So, please don’t misjudge this post. It’s a serious issue. Nevertheless, I’m compelled to take a step outside and laugh at the insanity of the situation to help keep my sanity and boost the morale of my cohorts.

I don’t know how many of you remember the comedian Jeff Foxworthy and his “you might be a redneck” one-liners. They all go something like this:

“If your working television sits on top of your non-working television, you might be a redneck.”

Now for my version of “you might be a short sale.”

“If your mortgage balance is here” (raises hand up high) “and your property value is here” (lowers hand) “you might be a short sale.”

“If you work at Burger King and live in the Taj Mahal, you might be a short sale.”

“If you tap your left front pocket and say ‘checking’ and tap your right front pocket and say ‘savings’, you might be a short sale.”

“If you pay your mortgage payment with your credit card, you might be a short sale.”

Posted by Paul – Florida Short Sales