Homeowner Consequences for a Successful Short Sale Vs. a Foreclosure

I have written previous articles defining short sales and foreclosures.  I will now compare the consequences to a homeowner of a foreclosure versus those of a successful short sale.

Future Fannie Mae Loan–Primary Residence

•  A homeowner who loses a home to foreclosure won’t be eligible for a Fannie Mae-backed mortgage for 5 years.
• A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae-backed mortgage after only 2 years. 

Future Loan with any Mortgage Company

• On any future 1003 application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 which asks, “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?”.  This will affect future rates.
• There is no similar declaration or question regarding a short sale.

Credit Score

• With a foreclosure, a person’s credit score may be lowered anywhere from 250 to over 300 points.  Typically, this will affect the score for over 3 years.  
• With a short sale, only late payments on mortgage will show.  After the sale goes through, the mortgage will be reported as paid or negotiated.  This will lower the credit score by as little as 50 points if all other payments are being made.  A short sale’s effect can be as brief as 12 to 18 months.

Credit History

• Foreclosure will remain as a public record on a person’s credit history for 10 years or more.
• A short sale is not reported on a credit history.  There is no specific reporting item for ‘short sale’.  The loan is typically reported ‘paid in full, settled’.  

As you can see, it’s better to have a short sale than a foreclosure.  If you have any questions regarding short sales or foreclosures, please contact me at steven@stevenhong.com.  I will be glad to help you.

A Brief Explanation of Foreclosures

These days, you can’t read the headlines without noticing that there are many foreclosed homes around the country.   Since it is so prevalent, we thought it would be best to offer a brief explanation of how the foreclosure process works.  First of all, a little clarification.  ”In foreclosure” is the process that leads up to being foreclosed.   In addition, we are offering an outline of the process, and the actual timeline will vary from bank to bank.  

As you know, there are monthly mortgage payments when you buy a house.  If you miss a month, you will get a notice reminding you that you missed a payment.  You will get a similar notice if you miss the next month as well.  If you miss another month, you’ll receive a stern notice.  The fourth or fifth month missed will net you a packet of legal documents that explain the foreclosure process to you.  You will also receive a notice of a Sheriff’s sale  that will take place two to three months out.  The bank that is owns your mortgage will most likely buy your house in the Sheriff’s sale.

Let’s break away from the timeline for a minute so I can explain something else.  Some people who’ve missed a month or two believe that if they resume their payments, they are no longer in the foreclosure process.  This is incorrect.  If you miss one payment, you are in the process.  The only way to get out is to be paid up in full.  Otherwise, you are still in the process of foreclosure.  Ok.  Back to the timeline.

After the Sheriff’s sale, you have a Right to Redemption period that lasts six months.  In the Right to Redemption period, if you repay your mortgage in full, then you get your house back.  Chances are, if you’ve missed a payment or two, you won’t be able to pay off your mortgage in full.  So, when the Right to Redemption period is over, and the mortgage hasn’t been repaid in full, the home is formally foreclosed.  

It helps to have an agent guide you in this process.  If you would like more information, please contact me at steven@stevenhong.com

A Brief Look at Short Sales

These days, in real estate, the term short sales is frequently heard.   What is a short sale, you may wonder.  Well, let me explain it to you by giving you an example.  Let’s say you bought a house two years ago with a mortgage of $200,000.  Let’s say you’ve paid of $5,000 of the mortgage.  I’m just using random numbers, so don’t worry about the math.  Fast-forward to now.  Your boss is offering you a job in California.  It’s more of an order, really, and you take it.  You have to sell your home, and it’s now worth $175,000 due to the recession.  So, after all the fees, you recoup $165,000.  You are still $30,000 short on your mortgage, and you don’t have the money or assets to pay down the mortgage.   This is a short sale.  You and your agent will have to enter into short sale negotiations with your bank.  

So.   How do you know if you are a candidate for a short sale?  First of all, you have to be experiencing a hardship.  The example I hypothesized above (relocation) is just one of 17 acceptable hardships.  Here’s the full list:

1. Loss of job
2. Business failure
3. Damage to property
4. Death of a spouse
5. Death of a family member
6. Severe Illness
7. Inheritance
8. Divorce
9. Mandatory job relocation
10. Medical bills
11. Military service
12. Payment Increase or mortgage adjustment
13. Insurance or tax increase
14. Reduced income
15. Separation
16. Too much debt
17. Incarceration

In addition to having one or more of the above, you must be financially insolvent.   As I said,  you cannot have any liquid cash or assets that could be used to pay down the mortgage.  

This is a brief summary of a short sale.  If you are in a situation like this, it’d would be helpful for you to contact an agent in order to help you with the process.  If you have any questions about short sales, feel free to contact me at steven@stevenhong.com.

How to Enjoy the Fruits of Your Labor

You’re selling your house.  It’s a big process, and you aren’t sure where to start.  You need to price it correctly; you  need to get it in tip-top shape for all the showings; you need to fix up a few things.  Now, many people think of the last item last.  In fact, many people put off the last item until after they have the house sold (on contigency, perhaps).  There are several reasons why people put off making the necessary updates and fixes to their house, e.g., buying new appliances, sealing the windows.  First of all, it’s time-consuming to fix up the house.  If the house doesn’t sell, it may seem for naught.  Secondly, it takes money.  Again, if the house doesn’t sell, it might feel like money that wasn’t well spent.  Why put in the time, effort, and energy if the house isn’t going to sell anyway, the thinking goes.

Think of it this way instead.  If you are going to put in new appliances and spruce up the house, shouldn’t you have some time to enjoy your freshened-up house before you sell it?  In addition, repairing the ceiling or putting in a new stove will attract buyers more readily than you telling them that you will get it down AFTER an offer is made on the house.  It’s far better for a potential buyer to see for him/herself how great the house is rather than how great the house could be.  Who knows?  Once you get the house all gussied up, you may fall in love with it all over again and not move after all.  

In the end, it’s a win-win situation for you to fix up your house before you put it on the market or in the early days of the selling process.  The possibilities are endless.

$8,000 Free Cash!!!

That should get your attention.  The government is giving cash to home buyers! Now, there are some stipulations, but if you meet the criteria, you can get $8,000!

This is part of the Economic Stimulus package that was signed into law this week by President Obama. First-time home buyers can claim an $8,000 tax credit on their tax return. A tax credit is different from a tax deduction in that a tax credit is basically money in your pocket. Let’s say that you owed $6,000 in tax liabilities but you had your employer take out $7,000. That means your normal refund would be $1,000. But if you were a first time home buyer, and if you made less than the income restrictions, you would gain an additional $8,000 in refund, making your total refund $9,000.  The article on CNNMoney.com was incorrect in the fact that the got the amount of the refund in this scenario wrong. They seem to have corrected it today.

The basics:

1. First time home buyer (not owning a home in the past 3 years)

2. Purchase a primary residence home between Jan 1, 2009 thru Nov 30, 2009.

3. Income restrictions to $75,000 for singles, $150,000 for married couples. Above these income restrictions, the dollar value is phased out.

With the low interest rates, the depressed housing prices, and now $8,000 of FREE MONEY, it’s a GREAT time to buying a home!

How You Search For Your Dream Home

How do people search for a new home?  I am a tech person, so I use technology for almost everything.  However, I realize that many people may not want three different maps of the houses on their wish list, nor want to look through a hundred ‘just for you’ houses that really may or may not just be for them.  They think in terms of how a house will support and bolster their way of life, and that is not something that the internet can measure.

If you are passionate about gardening, the backyard of your potential home is going to be very important to you.  If you love to cook, then you most likely want a kitchen that is updated, roomy, and has all the newest gadgets.  Likewise, if you are an inveterate reader, you’d probably like a sun room with plenty of natural light.

This is where I come in.  During our first interview, I sit down with you so we can converse at length as to what you want in a home.  Once you tell me what is and isn’t important to you, I can set you up in our automated search system using your specific criteria.  With this system, I can send you targeted homes on a daily basis.  You can leave me notes, and I can respond to them so we are constantly in touch about the status of your search for the perfect house.  If your needs change, you can just post a note, and I will adjust accordingly.  Nothing could be easier, and my clients are raving about it.  It’s a great non-tech tech site that just about everybody will love.

HPDL Minneapolis Real Estate Market in Review, 2008 Y-T-D

Minneapolis Real Estate Market Update

As you know, the Minneapolis real estate market for 2007 was in flux.  America, as a whole, was experiencing what felt like a recession, even if it didn’t fit the technical definition of the term.  The fundamentals of the economy may or may not have been strong, but the housing market began to slow down. 

What you may not know, however, is that the housing market in the Hale Page Diamond Lake (HPDL) Minneapolis neighborhood experienced a comeback of sorts in 2008, after taking the expected hit in 2007.  Of course, it is November of 2008, so we don’t have data for the full year, but here’s what we know for the first three quarters of 2008. 

The average price of a home sold in the HPDL area rose from $274,000 in January, 2008, to $286,000 in September.  That’s an increase of 4%.  In addition, the average days on market (DOM) decreased from 102 days in January to 94 days in September.  Finally, the percentage of list price to sales price stayed roughly the same throughout the year at 93%.  In other words, on average, people received ninety-three person of what they originally wanted for their homes.

3 Fixer Upper Considerations

Fixer Uppers

I have a client that is looking for a fixer-upper house in Minneapolis. This client wants to purchase a house, fix it up, and then sell it for a profit. I’m going to share some insights on some of the considerations that go into buying a fixer-upper home. 

Location

1. One consideration to keep in mind is location. You want to select a location that has houses that sell in a wide price range. For instance, you want to purchase a home that is well below the average price of other houses in the area. Find a neighborhood that has homes that sell in the $120k price range as well as the $200k price range. That leaves room for the cost of improvements, as well as profit.

Number of Sales

2. A second consideration is the number of sales in the higher price bracket. In the above example, you’ll want to see how many houses sold at about $200k within the past 6 months. If there is only 1 sale in the past 6 months, but there are a bunch of houses currently available, that may indicate a difficult sale. On the other hand, if there are 15 sales around $200k, then the house will have an easier time selling.

Level of Improvements

3. A third consideration is the level and quality of improvements. You want to aim for the middle of that neighborhood’s price range to have access to the most buyers. Don’t overimprove which could put your house into a higher bracket than the average, which then would put the house into a bracket with less buyers.

Water, water everywhere

Did you know that the average American person uses about 90 gallons of water per day?! For a family of four, that amounts to more than 125,000 gallons per year!! Water is a precious resource and we should be conscious about how much we use. So, what can we do to help reduce our water consumption? Let’s take a look at where and how the water is used.

According to The Water Encyclopedia (1990) for a family of 4, the average family uses 29000 gallons per year for baths, 35000 for toilets, 12000 for laundry, 36000 for lawn, 3000 for cooking and drinking, 1400 for garbage disposers, 5800 for dishwashing, 3500 for washing cars. I think some of these numbers are high, but the survey was done in 1990. One newer survey shows usage at about 118,000 gallons per family of 4 per year. I read an overview of water usage/treatment/etc., in Minneapolis (found at this link, http://www.ci.minneapolis.mn.us/water/ under “Water Facts”), and it states that in Minneapolis, 60-70 gallons per capita a day is being used. I took the high-end number, multiplied it by 365, then multiplied that number by four. I came up with 102,200, which is lower than the national average, but still quite high. How can we start conserving?

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