What's the new trend for NEW homes?

What’s driving it all is affordability,” says John McIlwain, senior fellow for housing at the Urban Land Institute in Washington, D.C., who notes that high unemployment, credit and student loan debt, stricter mortgage rules and a surplus of foreclosed homes will likely continue to scare many first-time buyers from the housing market and keep new home construction relatively slow.
The McMansion home of pre-recession years is on the way out, but a quality home with “well-designed bones” that is relatively inexpensive to operate has become more desirable, says McIlwain.
MainStreet talked to homebuilding experts to learn more about some of the key features home shoppers can expect to find in the new American home this year. Read on to learn all about the modern-day dream home and what not to expect on your house-hunting adventures.
Utility & Value
Homebuilders will continue to scale back on luxury add-ons, which are becoming more of an afterthought, says McIlwain, as homebuyers opt for a more modest and functional home, rather than a McMansion with a Jacuzzi and a heated pool.
“People are looking for shelter and value,” says Stephen Mellman, director of economic services for the National Association of Home Builders in Washington, D.C. “Everyone has their own lifestyle and they want to find a home to enhance their lifestyle and make it more efficient.”
Also with affordability still a huge factor for homebuyers, buying a new home no longer entails “doing fancy things” just for the sake of making a boom era statement, nor does it mean sinking the greater chunk of your cash into a long-term investment, as “the likelihood that that house value will appreciate is extraordinarily remote,” notes McIlwain.
The most noteworthy trend this year is that homebuyers are beginning to see their home as an extension of their lifestyle, whether that means making a strategic move from the suburbs for a shorter commute, having more proximity to downtown hotspots or finding a way to downsize after the children have flown the coop.
“This is shelter,” Mellman agrees, “it isn’t just an investment to sell in a year; you’re going to live here and raise your kids here and that colors everything: how you design it and what you’ll enjoy."
Fuss-Free Kitchens
Whether your lifestyle is fast-paced or decidedly more conservative, Americans are spending more time in the kitchen and less in the formal dining room, which is starting to disappear. The reasons behind this shift vary from more Americans deciding to cook their own dinner to save on the costs of eating out or our increasing dependence on a usable kitchen that can entertain family and friends. As a result, spacious, eat-in kitchens that open up to the common room are now a huge trend for homebuilders in 2011, and the dining room, once its own separate space, is now simply designated by a table and chandelier, as people “try to do more with less,” says Mellman.

Eating meals with a view of the kitchen is considered 'in'. Photo: Zillow

“You want an open kitchen because when you’re doing the cooking and entertaining, everybody gathers in the kitchen,” McIlwain says, noting Americans’ casual lifestyle and our ongoing obsession with food. “You don’t have a maid in the kitchen, but [when you’re cooking] you want to be part of the action. Cooking has become part of the whole entertainment process. And for couples, cooking together is a team sport, rather than an individual sport.”
But despite being the center of attention, the new American home’s kitchen doesn’t look quite as glamorous as it used to.
“The gourmet kitchen is on the way out,” says Mellman. “You don’t need eight burners” or a Vulcan stove, Mellman says. Americans post-recession are focused on standard appliances that they know they will use every day.
“A great stove, a fridge with an ice-maker and water filters, two sinks, a quiet wash dishwasher, or the equivalent—it doesn’t have to be commercial kitchen grade, but a decent quality kitchen that’s easy to move around in, and therefore cook in, with plenty of counter space and that’s easy to hang out in” is where the homebuilding trend is going, McIlwain says.
To save on kitchen construction costs, Dan Sandoval, a homebuilder with Republic Homebuilders in Fredericksburg, Va., says homebuyers are also forgoing traditionally pricey granite countertops for standard laminate countertops.
“Five years ago, they wouldn’t have sold, but now they’re OK,” he says of the materials. “It’s nice-looking, but very affordable,” unlike the dining room, which buyers now consider “wasted space” and an unattractive feature, says Sandoval.
“What I hear from customers is that they just don’t use it,” he says. “They don’t eat in there every Sunday, like their parents used to do. That’s not their lifestyle.”
Smaller Square Footage
It isn’t your imagination—the new American homes are actually getting smaller, according to a National Association of Home Builders’ report, The New Home in 2015.
In it, the NAHB found that the average size of single-family homes completed in 2009 dropped to 2,438 square feet, and in the first half of 2010, the average size of new homes completed continued its slide, dropping to 2,378 square feet.
What’s more, according to the NAHB study, bedrooms and baths have also downsized as well, as the share of single-family homes with four bedrooms or more has declined for three consecutive years, from 39% in 2005 and 2006 to 35% in the first half of 2010, and most new homes completed in 2008 and 2009 had either 2 or 2.5 baths (68%).

The Great Room living space resonates more than ever. Photo: Zillow

So what’s the story behind all these shrinking homes? “New homes that are being built by and large are tending to be smaller because that makes them more affordable,” explains McIlwain, who adds that “even the very wealthy will buy a home much smaller than they could afford,” just to cut back on living costs or perhaps to funnel their money into retirement savings and other mid-life goals.
As a result, certain rooms, like the formal dining room and traditional living room, are becoming extinct species or taking new forms in the combination spaces that are beginning to crop up, such as the eat-in kitchen and dining area, or the second or third bedroom, which has begun to do double-duty as a home office, McIlwain says. “Whether they’re working at home or having a room to keep personal information, such as taxes, an in-home office is more to take care of personal matters,” adds Sandoval.
Meanwhile, Mellman says stairways are moving from their traditional post in the front of the house, or entrance/foyer, to the back and the side, in yet another effort by homebuilders to curtail construction costs and provide more room.
Energy-Efficient Materials
EnergyStar homes have become the gold standard, but homebuyers remain hesitant to splurge on solar roofs or eco-friendly siding, says Mellman.
“Some of my customers inquire about those systems, but they don’t see the return on it,” Sandoval explains about pricey green add-ons. “It’s too costly at this time. Unfortunately, a lot of our customers have lost a lot of their retirement in the stock market, and they’re just trying to get a basic house to last them in their retirement. They would love to have those sorts of things, but they have to think of the costs.”
Tax breaks also play a role, and the lack of them in Virginia makes them even less appealing for prospective homebuyers, says Sandoval. Adds Mellman: “People want to have a green home and incorporate those features, but to a certain extent they’re not going to stretch themselves to get those things. Also, appraisers weren’t including those things for awhile, so a home would sell for less than its actual value and the cost of construction.”
Still, energy-efficiency has become a mainstay for empty-nesters looking to cut down the costs of heating and cooling a home, while other amenities, like EnergyStar windows, are becoming more commonplace and widely embraced.
“Green is no longer an amenity,” says McIlwain. “EnergyStar, EnergyStar windows, very efficient HVAC systems, siding to take advantage of solar power—those are the homes that are selling and they’re becoming the standard. They’re materials you’ve got be attuned to.”

What to consider when choosing a lender.....

You're shopping for a mortgage and you've received four offers from four lenders. How do you choose? The first factor most people consider is the interest rate and other costs, but that's only the beginning. You'll also want to think about the lenders themselves, not simply the numbers they're tossing your way.
Here are five steps to follow when determining which lender is right for you:

1. Compare fees as well as interest rates

Comparing loans based on their annual percentage rate (APR) is a good place to start, but it's not enough. In the case of a mortgage, to get a more accurate breakdown of costs, ask the various lenders for a formal "good faith estimate" of all the fees you'll incur with your loan -- this is a standard form lenders must provide you that is more detailed than the overview you'll get with an offer. Also, ask about potential charges that may not appear on that list, such as prepayment penalties. You're not just comparing numbers here: determine how honest and upfront you feel the lender is being, and don't use a lender that you feel is evading your questions.

2. Consider your individual circumstances

Bigger lenders aren't necessarily better than smaller ones, especially if you have unusual circumstances. For example, some lenders specialize in loans for people with poor credit, while others may have more options for those with small down payments. If you have special borrowing needs, look for a lender with experience working with people in similar situations.

3. Look at the range of loan types available

There are more loan options available than ever before, so take advantage of all that choice. Look for a lender who offers a wide variety of loan types, from conventional fixed-rate and adjustable-rate to newer ones such as hybrid ARMs and option ARMs. Your lender should be able to match you with a mortgage that's right for your financial situation and risk tolerance.

4. Evaluate the level of customer service

When you're comparing offers, ask each lender about their policy regarding locking in their quoted rates and see whether there is a fee. Also, ask them to amend one of the terms (such as a payment cap) and see how willingly they agree. You're looking for flexibility and responsiveness. And also note how well they listen to you. If you ask for a 30-year fixed-rate mortgage, they ought to present that as an option, not push you toward something different, such as an interest-only loan. If you're not getting good service from a lender who is competing for your business, you're not likely to get it after you've agreed to work with them.

5. Check out the lender's reputation

Word of mouth is important in every business, including the loan market. If you've never worked with a particular lender, you'll want to find out the opinion of people who have.

provided by Lendingtree

The Closing......

Closing consists of all the necessary final steps involved in sealing the deal on a home purchase. It includes:

The offer to purchase

There's no foolproof way to make an offer that's guaranteed to be accepted by the seller. But once you find your perfect house, it's wise to move fast. A good rule of thumb is to make an offer that's eight to 10 percent below the asking price, though that might not work in some areas based on trends in the market. This gives you some room to negotiate, but don't top what you've predetermined to be the highest price you can afford.

The deposit

Also known as earnest money, this is a demonstration of good faith and commitment by the buyer to the seller. It is usually 1 percent of the home's purchase price and is included in an offer to purchase. Either the real estate agent or the seller's lawyer holds the deposit in trust until the deal closes. If you decide not to close on a deal once your offer has been accepted, you may lose your deposit and be sued for damages. If the seller does not accept your offer, your deposit will be returned. If the sale proceeds, your deposit is usually applied to your down payment.

Contingencies

These are certain requirements specified in a contract that need to be met before the buyer is required to close. Typical among them: the buyer's securing of financing and an acceptable house inspection. Generally speaking, an inspection contingency covers a 10-to-14-day period from the acceptance of the contract, and financing contingencies run for 30 days. But in a seller's market, buyers may be asked to fulfill their contingency requirements in shorter time frames.

Home inspection

In a home inspection, a professional conducts a thorough examination of a property to assess its structural and mechanical condition. The idea here is that a trained home inspector will be able to catch potential problems that a buyer might not detect.

The contract

This follows the acceptance of an offer by the seller, and it is a legal and binding obligation, on the part of the buyer, to purchase the property if any contingencies are met. It outlines the details of the transaction, including: a description of the property, the selling price, the date of closing, the possession date and any applicable contingencies.

Settlement sheet

Also called a "closing statement" or a "settlement statement," this is a document that the Department of Housing and Urban Development requires to account for all financial aspects surrounding the sale and purchase of a home. It provides an enumerated list of the funds that were paid at closing. Items on the statement include real estate commissions and initial escrow amounts (money or securities deposited with a neutral third party - the escrow agent - to be delivered upon fulfillment of certain conditions). The Real Estate Settlement Procedures Act requires that a copy of the settlement sheet be distributed to both parties at least one day prior to settlement.

Closing documentation

Before you can close on a house, some paperwork must be completed. This includes a title search to make sure the title is clear, title insurance to protect the buyer and the lender from an oversight regarding a claim on some aspect of the property and an application for homeowner's insurance (necessary for securing a mortgage).

Closing costs

The total amount of closing costs varies, but may include: a loan origination fee, an appraisal fee, the cost of a credit report, a lender's inspection fee, the cost of title insurance, a mortgage broker fee, taxes and a fee for document preparation. Your lender is required to give you prior notice of fees associated with your loan.

Final arrangements

Before the deal is closed and you take possession, you must make some practical arrangements regarding utility service and first mortgage payment.

Settlement

Settlement describes the payment of the balance of the purchase price the buyer owes on the property, and the transfer of the title. It takes place on the possession date specified in the agreement.

What is an Escrow account?

If you've ever made an informal bet with a friend, you may have asked a third person to hold the money until the wager was resolved. When you take out a mortgage to buy a home, you're doing something similar by opening an escrow account.

How it works

When you put money in escrow it is held by a neutral third party (called an escrow agent) who works for both the lender and the borrower. The agent's role is to carry out the instructions agreed upon by both parties. The money is released when all the terms of the agreement are met. Escrow can be involved in anything from multimillion-dollar building projects to purchases made on online auction sites.

When it's used

When your mortgage closes, your lender will usually require you to open an escrow account to cover property taxes and homeowner's insurance. You'll make an initial deposit, followed by payments to the account every month. (Usually these are added to your regular mortgage payment.) The escrow agent will then release these funds as your taxes and insurance premiums come due.

Its purpose

The idea is to protect the lender by ensuring that you pay your taxes and insurance on time. If you default on your property tax, for example, your municipality can put a lien on the house, which would make it difficult to sell. Or if your house burns down and you've neglected to pay the insurance, the lender would be left with no collateral.

How you benefit

Escrow can benefit borrowers by helping them spread insurance and tax expenses evenly over 12 payments. For example, assume your yearly property taxes are two payments of $1,000 each, and your insurance is $400 annually. If you paid these directly, it would mean three large payments a year; your escrow costs, however, would be a manageable $200 a month.

Escrow payments

Your escrow account will have a built-in cushion -- if you miss a payment, the lender must still be able to pay your accounts on time. However, federal law prohibits lenders from requiring more than two months. expenses in escrow. And because your tax and insurance costs will change slightly from year to year, the lender will review and adjust your escrow payments annually.

When escrow may be waived

In most states, the money you place in an escrow account earns no interest for you. For that reason, many borrowers prefer to pay their taxes and insurance directly. Lenders may agree to this if your down payment is more than 20 percent, although some will raise your interest rate slightly to compensate. Once you agree to putting funds into an escrow account, however, it is difficult to cancel it, so make sure you fully understand the arrangement before your mortgage closes.

Understanding Points, Rates and Fees

Not only do you have to understand what type of mortgage you should choose, you have to understand the costs associated with your mortgage. All of these costs will be paid upon closing your mortgage.

Purchase Points

Purchase points, also known as a "buy-down" or "discount points," are an up-front fee paid to the lender at closing to buy-down or lower your interest rate over the life of the loan. Each point is equal to one percent of your total loan amount. If you have a $100,000 loan, one point would equal $1,000. The more points you buy, the lower your interest rate, but the more money you'll need at closing.
How do you decide whether you should buy points and if so, how many? Well, the decision should be based on how long you plan on living in your home and what you can afford to pay each month toward your mortgage. If you plan on living in your home for more than five years, it's probably a good idea to purchase points. The longer you live in your home, the more you can save on interest over the life of the loan.

Interest Rate

When you get a mortgage, you are charged an interest rate.this is the rate which the lender charges you for using their money to buy a home. It determines how much your monthly payments will be. Generally speaking, the higher the interest rate, the higher your monthly payment.
Mortgage interest rates change constantly.daily, even hourly. If you speak to a lender and are quoted a specific interest rate, that's not to say you'll necessarily get that rate when you close on your loan. Not unless you formally lock-in that rate with the lender.locking in an interest rate will guarantee you get your loan with a particular interest rate. Lenders will allow you to lock in for 15, 45 or 60 days. But the longer you lock in, the more expensive it will be, since it's more of a risk to lenders.

Fees

There are always fees associated with getting a mortgage, these fees cover the cost of processing and underwriting the loan. These fees can include charges for ensuring the title to the home is free and clear; paying for a land survey; or paying for a home appraisal which gives you the estimated value of the property (lenders require an appraisal to close on your mortgage).
Deciding which mortgage to get may depend on what each lender does because different lenders may charge different amounts. Some may charge lesser closing fees to lure you in, but may charge you a higher interest rate, which means you may pay more in the long run. But everyone has different needs.you may or may not be able to afford to pay more at closing and are willing to pay more over the long term.
Before it comes time to close, do your homework, make sure there are no hidden fees, and ask your lender lots of questions so that you understand all the costs involved with your mortgage.
*Please consult your tax advisor.

March at a Glance.....

The housing recovery isn't yet a success, but last week gave us a few good reasons to keep plugging along. First came March Housing Starts, bursting UP 7.2% to a 549,000 unit annual rate. February starts were also revised UP 6.9%. Then we found out new Building Permits surged 11.2% in March to a 594,000 annual rate and were revised UP 3.3% for February. Starts and permits are still down over 13% from a year ago, as residential construction has dropped to only 2.3% of GDP, its lowest level on record. But economists say it won't go much lower, and that's what these latest numbers are signaling.

We also had Existing Home Sales UP 3.7% in March and off only 6.3% compared to a year ago. The median existing home price rose for the month and is down just over 5% for the year, while average prices are off just over 3% from 12 months ago. Looks like existing home prices are stabilizing. Finally, the supply of existing homes dropped to 8.4 months in February. Some experts see existing home sales getting back to an annual level around 5.5 million units, but caution that the recovery will be volatile.

BUSINESS TIP OF THE WEEK...The secret to success in business? Give terrific value, treat your customers well and watch your expenses. Experts say to focus on these three things and everything else will take care of itself.

>> Review of Last Week

STOCKS REVERSE RECENT SLIDE...In a four-day week of trading, investors sent stock prices back in the right direction (UP!), as all three major indexes posted gains. This happened in spite of some negative items that could have easily pulled things the opposite way. The biggest bit of bad news came Monday when Standard & Poor's lowered its outlook to negative on the U.S. AAA credit rating. They threatened to downgrade this rating unless Washington can cut its huge federal budget deficit in the next two years. We also had the Philly Fed index showing manufacturing sentiment in that region dropping to a five-month low.

But a bunch of blow-out corporate earnings reports got everyone feeling more hopeful and started the stock market rallies. Big winners who exceeded Q1 earnings expectations included Intel, United Technologies, Yahoo! and Freeport-McMoRan. Then Capital One, Qualcomm and UnitedHealth joined the party, but the big star was Apple, with a 95% boost in earnings during its last quarter, mostly from iPhone and Mac sales, since the new iPad 2 has been slowed by a production backlog. The week ended with March Leading Economic Indicators UP better than expected.
For the week, the Dow ended UP 1.3%, at 12,506; the S&P 500 was also UP 1.3%, to 1,337; and the Nasdaq was UP 2.0%, ending at 2,820.

Bond prices drifted slightly higher for the week, as the market figured that all the federal government belt tightening would slow economic growth. This helps bonds and the price of the FNMA 4.0% bond we watch ended the week up .05, closing at $98.20. National average rates for conforming mortgages eased lower in Freddie Mac's weekly survey, and remain at historically low levels. The Mortgage Bankers Association reported demand for purchase loans UP 10% compared to the week before.

DID YOU KNOW?...Existing home sales are now at an annual rate of 5.1 million units, 32.1% above their low of 3.86 million units. This occurred in July 2010, just eight months ago.

>> This Week’s Forecast

HOUSING, THE FED, INFLATION AND A FIRST LOOK AT Q1 GDP...This is a week full of popular topics, starting with March New Home Sales, forecast to be up a bit from February. Thursday's Pending Home Sales for March will give us an idea of existing home closings a couple of months out, expected to be up a tad too. Wednesday, it's the Fed's FOMC rate decision. No one expects the rate to budge, but the policy statement will be scrutinized for signs of when that situation might change.

The inflation watch continues with Friday's Core PCE Prices for March. It should be up slightly, but not enough to concern the Fed. This key inflation indicator excludes food and gas prices which we all know are on the rise. Finally, we'll check into the overall state of the economy during Q1, with Advanced GDP expected to show growth, though at a slower rate.

>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of April 25 – April 29

Date	Time (ET)	Release	For	Consensus	Prior	Impact
M Apr 25	10:00	New Home Sales	Mar	280K	250K	Moderate
Tu Apr 26	10:00	Consumer Confidence	Apr	64.4	63.4	Moderate
W Apr 27	08:30	Durable Goods Orders	Mar	1.9%	-0.6%	Moderate
W Apr 27	10:30	Crude Inventories	4/23	NA	-2.322M	Moderate
W Apr 27	12:30	FOMC Rate Decision	4/27	0%-0.25%	0%-0.25%	HIGH
Th Apr 28	08:30	Initial Unemployment Claims	4/23	390K	403K	Moderate
Th Apr 28	08:30	Continuing Unemployment Claims	4/16	3.700M	3.695M	Moderate
Th Apr 28	08:30	GDP-Adv.	Q1	1.7%	3.1%	Moderate
Th Apr 28	08:30	GDP Deflator	Q1	2.3%	0.4%	Moderate
Th Apr 28	10:00	Pending Home Sales	Mar	1.5%	2.1%	Moderate
F Apr 29	08:30	Personal Income	Mar	0.4%	0.3%	Moderate
F Apr 29	08:30	Personal Spending	Mar	0.5%	0.7%	HIGH
F Apr 29	08:30	PCE Prices-Core	Mar	0.1%	0.2%	HIGH
F Apr 29	08:30	Employment Cost Index	Q1	0.5%	0.4%	HIGH
F Apr 29	09:45	Chicago PMI	Apr	67.1	70.6	HIGH
F Apr 29	09:55	Univ. of Michigan Consumer Sentiment-Final	Apr	69.6	69.6	Moderate

>> Federal Reserve Watch   

Forecasting Federal Reserve policy changes in coming months...Economists are sticking to their guns about no hike in the Fed Funds Rate for the near term. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

After FOMC meeting on:	Consensus
Apr 27	0%–0.25%
Jun 22	0%–0.25%
Aug 9	0%–0.25%

Probability of change from current policy:

After FOMC meeting on:	Consensus
Apr 27	<1%
Jun 22	<1%
Aug 9	<2%

Summer is coming! Heating and Cooling tips!

HEATING AND COOLING TIPS
Programmable Thermostats
You can save up to 10% a year on your heating and cooling bills by simply turning your thermostat back 10% to 15% for eight hours. You can do this automatically by installing an automatic setback or programmable thermostat. Heating and Cooling

Heating and cooling your home drains more energy dollars than any other system in your home. Typically, 43% of your utility bill goes for heating and cooling. What's more, heating and cooling systems in the United States together emit 150 million tons of carbon dioxide into the atmosphere each year, adding to global climate change.
Heat Pumps
Heat pumps are the most efficient form of electric heating in moderate climates, providing three times more heating than the equivalent amount of energy they consume in electricity. There are three types of heat pumps: air-to-air, water source, and ground source.
Air Conditioners
Buying a larger room air-conditioning unit won't necessarily make you feel more comfortable during the hot summer months. In fact, a room air conditioner that's too big for the area it is supposed to cool will perform less efficiently and less effectively than a smaller, properly sized unit. Sizing is equally important for central air-conditioning systems, which need to be sized by professionals.
Solar Heating and Cooling
Using passive solar design techniques to heat and cool your home can be both environmentally friendly and cost effective. Passive solar heating techniques include placing larger, insulated windows on south-facing walls and locating thermal mass, such as a concrete slab floor or a heat-absorbing wall, close to the windows..
Excerpted from U.S. Department of Energy.

To BUY or NOT to buy.........

  Los Angeles Times
Confidence in value of homeownership persists through bust
Despite the decline in home prices, 81 percent of U.S. adults believe buying a home is the best long-term investment a person can make, according to a national survey by the Pew Research Center.
MAKING SENSE OF THE STORY

• Homeownership topped the list of long-term financial goals for Americans, according to the study.  Respondents rated homeownership, as well as living comfortably in retirement, as more important than sending children to college or leaving offspring an inheritance.
• “Owning a home is really a part of the American dream, and that is just part of the American psyche and something that people aspire to,” according to one of the study’s authors.
• Although the vast majority of adults surveyed are in favor of owning a home, the public’s faith in real estate has somewhat declined compared with the last time a comparable survey asked people about the wisdom of investing in real estate.  In the Pew Research Center survey, 37 percent of respondents said they “strongly agree” that homeownership is the best investment a person can make, while 44 percent said they “somewhat agree.”  The same question was asked by a CBS News/New York Times survey in 1981, and at that time, 49 percent “strongly agreed,” and 35 percent “somewhat agreed.”
• While home prices have entered a renewed decline after showing some improvements last year, many economists believe that the worst of the housing crisis is probably over, which could help explain the resiliency in Americans’ optimism.
• Homeowners in the survey were more positive about the financial wisdom of owning a home than were renters.  Among renters, the desire for homeownership remains strong.  According to the survey’s findings, 24 percent of renters surveyed said they rent out of choice and 81 percent said they would like to buy.

31533 Crystal Sands Dr, Laguna Niguel, CA | Powered by Postlets

31533 Crystal Sands Dr, Laguna Niguel, CA Powered by Postlets

31533 Crystal Sands Dr, Laguna Niguel, CA | Powered by Postlets

31533 Crystal Sands Dr, Laguna Niguel, CA Powered by Postlets

Distressed properties: What to consider when you make your offer!

Distressed homes are likely to be a significant part of the market for years: At the current pace of sales, it would take 2½ years just to clear out the more than 1 million unsold foreclosures -- and another 550,000 probable short sales -- currently on banks' books, and then there's another 1.4 million properties likely to become short sales and foreclosures over the next 12 months, according to data firm RealtyTrac.
Unfortunately, buying a distressed property is far more onerous than purchasing a regular house. Instead of an individual, you're often negotiating with multiple third parties, each with a particular agenda and a standardized process to follow.
The house may be in worse condition than you expect. And though new laws and government relief programs are speeding up deals, they can drag on for many months, as the Moores discovered.
"The buyer has to be twice as diligent," says Greg Markov, a Phoenix distressed-property specialist who teaches classes in short sales to real estate agents.
So why go through the hassle? Because if you do it right, not only will you get a home you love, but you'll get it at a lower price than comparable properties in your market. To find out how to take some of the stress out of buying distressed, read on.
Bid low -- but not too low
Given the overload of troubled properties in the market, you might assume you can drive a hard bargain on a foreclosure. But since banks are eager to unload the properties they own, they list the home at a price at which they think it will sell quickly -- and in markets where eager investors are swooping in with cash (in California, 31% of recent deals were cash), offers above list price are common.
Also, the bank that services the mortgage on a foreclosed home may not actually own the loan; during the boom many loans were securitized and sold off to other investors.
In that case, the bank that now owns the property also has to consider the amount that investors who own the loan are willing to accept, says J.K. Huey, the executive in charge of Wells Fargo's short sale and foreclosure servicing department.
Some have rules preventing them from accepting less than a certain percentage off the list price based on how long the property has been on the market. On loans insured by the Federal Housing Administration, for example, lenders can accept no less than 88% of "as/is appraised fair market value" in the first 30 days; that declines to 84% after 60 days.
For short sales, banks will price close to market value, but they're often willing to take less rather than see the home fall into a costlier foreclosure. In the Minneapolis area, where about a quarter of the sales are distressed properties (roughly the U.S. average), the average short sale in the past year sold at a 14% discount off the list price, compared with a 7% discount for foreclosures and regular sales.
When it comes to bidding, forget that negotiating class you took; banks generally aren't interested in multiple counteroffers. After your initial bid, there may be one counteroffer, then a request for the buyer's "best and final" offer. So you have to come up with a fairly realistic bid the first time.
First, remember that the longer a property sits on the bank's books, the more negotiating power you have. For a newly listed short sale or foreclosure, an initial bid that's 10% to 20% below list price is reasonable, says foreclosure expert Patrick Burton, an executive with Quicksale.com, an online home-auction company.
If the bank nixes an offer and the property doesn't sell quickly, resubmit.
"An offer that's rejected on day 13 might be accepted on day 113," says Savannah broker Joe Drescher.
If a home has been sitting for a few months and your area is saturated with distressed properties, go for at least 20% below list price, says Burton. You'll also have leverage if you can prove that a property's condition justifies a lower price.
If you think the home needs serious work, ask your mortgage lender to go ahead and order its required full appraisal (about $350) to submit to the selling bank. If the appraisal comes in lower than the bank believed the property was worth, it may bend, because it knows the appraisal is necessary for you to get financing.
Find a bank that's ready to make a deal
For a short sale, the bank that serviced the seller's loan has to agree that the homeowner is at real risk of default -- meaning that some hardship (a job loss, for example) has made payments unaffordable. The servicer will also evaluate the home's market value and determine the price it's willing to accept.
If that bank doesn't own the mortgage, it will need to involve the investor that holds the loan, and possibly a mortgage insurer as well. That complicates negotiations further. This is why short sales take longer to close than any other type of sale: In the Miami area, for example, the average short sale has been on the market 144 days, vs. 88 days for a regular transaction.
"If you have any kind of deadline -- a lease that's up or a school schedule -- then you don't want a short sale," says South Florida agent Toni Reeder.
Foreclosures, on the other hand, sell faster because the bank actually owns the home and has eliminated other lien holders, such as a condo association or second-mortgage holder, before it lists the property. "This dramatically simplifies the process," Burton says.
To speed up a short sale, find out from your realtor if the property qualifies for the federal HAFA program (Home Affordable Foreclosure Alternatives). If so, it will move faster because HAFA has required servicers to weigh in on the price within 30 days.
Also keep your eye out for properties listed as "approved short sale," meaning the bank has already signed off on a sale and a contract price. Jerry Tamayo bid on one such listing in a Fort Lauderdale suburb; by the time the bank approved the deal, the buyer had gotten frustrated and walked away.
Tamayo bid about $15,000 less than the $305,000 list price and closed in six weeks. "It was a good opportunity to step in while the file was still warm," Tamayo says.
If you can't find a HAFA property or an approved sale, at least try to find a short sale that involves as few parties and is as far along in the process as possible. Your agent should be able to tell you whether the transaction will involve getting approval from a second-mortgage lender or a mortgage insurer as well as the primary mortgage holder, for example, and whether the bank has already begun the paperwork required for a short sale.
Both short sales and foreclosures will close faster if you're working with an agent who knows the routine and can speed the process by keeping in close communication with the seller's agent and lenders.
Look for a broker who has special training, such as the National Association of Realtors' Short Sale and Foreclosure Certification Program, and who has sold at least a dozen short-sale or foreclosed properties.
Make sure a foreclosure can be financed
When you're shopping for a distressed property it's essential to be pre-approved before you make an offer, says Margaret Kelly, CEO of brokerage firm ReMax. The pre-approval not only will verify how much you can borrow but also indicate to the lender that you are serious about completing the deal.
The twist with foreclosures: You'll probably be required to prove that the home is in good enough condition to be financed since lenders won't write a mortgage for a home deemed unlivable. Homeowners angry about foreclosure may have ripped out flooring, appliances, and copper pipes before abandoning the property.
"Lenders want to see copies of all the inspections and maybe even ask for their own assessments," says Susan Kreyer, president of the New York Association of Mortgage Brokers.
You may need to provide proof of repairs or set aside money for fix-ups in an escrow account before you can qualify for a mortgage. Or, get an additional construction loan. Federal programs such as FHA's 203(k), available through many lenders, wrap rehab costs and the purchase price into one loan.
Even before you make an offer on a foreclosure, spend $300 to $500 for a comprehensive inspection. (Find a qualified inspector through the American Society of Home Inspectors or the National Association of Home Inspectors). It's also a good idea to walk the home with a licensed contractor to get an idea of costs.
"Make a list of everything that will need fixing, and if it's $8,000 worth of little things, factor that into the offer," says Fishers, Ind., agent Laura Musall.
After your offer is accepted, it's worth spending another few hundred dollars for "specialty" inspections for mold, swimming pools, and underground septic systems. If you uncover problems that make the home unlivable -- such as mold -- the bank may still be willing to make fixes.
If you don't mind putting in some work, however, a home that needs rehab can be a great deal. The Sykesville, Md., five-bedroom foreclosure that Celeste Stratton and her husband purchased last year for $268,000 needed new plumbing and a deck, plus major renovations to the bathroom and kitchen, and was riddled with rodent feces and dog urine.
The Strattons, who are doing the repair work themselves, will spend about $25,000 to make the place livable. That still put their total costs well below the $375,000 they would have spent for a typical nondistressed home in the area, says local realtor David McIlvene.
Don't finance a short sale too fast
For financing a short sale, the biggest challenge is timing. You must be pre-approved, since the seller may need to show the lender that the buyer is qualified to purchase the home. But if the deal drags, it's likely that the bank will require additional rounds of documentation of income and credit; credit reports, for example, are good only for 90 days.
It's best to wait until the bank has approved a price to finalize your mortgage paperwork, because short sales can take so long that your lock-in period can expire, says mortgage broker Kevin Goldman, president-elect of the Michigan Mortgage Professionals Association. Ask in advance whether your lender will extend the rate-lock period for a fee if the process should take longer than expected.
Get a contract that lets you out
Once your bid is accepted on a foreclosure, make sure your contract specifies that you can walk away from the home if the property's condition turns out to be worse than expected, inspectors discover mold damage requiring more than $500 worth of work, or a title search uncovers additional judgments -- such as unpaid association fees or a city code violation -- above a certain amount.
With a short sale, by law your paperwork must spell out that the deal depends on the bank's approval. Buyers can use this to specify deadlines for the seller's bank to respond; if you don't get the approval, you can cancel the deal. Laws can vary by state; in California, for example, lenders have 45 days to approve unless the contract says otherwise.
"Most contracts have blank lines so you can pencil in as much protection as possible," says Dallas real estate lawyer Chris Christensen, who chairs an American Bar Association housing committee.
Above all, keep in mind that persistence pays. Take the Moores, now living in their Long Island home. "We almost walked after all those months," says Chris. "But this is a really different house, not something that we could ever find again."
And if a deal falls through, says Scottsdale agent Brian Gubernick, relax: "There are lots of properties, so if you don't get one, something else will come up," he says.
Distressed properties like these typically sell at a discount to similar homes in their area