Selling Long Distance — Thank You, You Tube!

I recently sold a beautiful home in the  Monte Malaga area of Palos Verdes Estates to a buyer who closed escrow without ever seeing the home!  How could we do this?  With technology!

The clients were people I had worked with since 2005 who now lived in Hong Kong.  Mrs. Buyer had grown up on the Palos Verdes peninsula and still has family there, so they knew the area well.  They had wanted to buy a home for a long time in this area so that when Mr. Buyer’s overseas assignment ends in a few years they would have a U.S. home; they felt that given our current interest rates and the rate of appreciation of homes, that if they didn’t buy something now, they might be priced out of the market in a few years.  Each time they were in town over the many years since I first met them, we would take a day and look at homes, but because they couldn’t agree on where to look, we always ended up not finding the right home.

Then this year, they were both on the same page regarding location, so the search started in earnest.  Once we had identified a few possibilities, I took her Mom out with me to see each potential home, taking LOTS of video with my cell phone and uploading it to YouTube with a private URL sent only to them.  This allowed the buyer and her husband (she was to be the sole buyer to simplify the tax situation) to evaluate the home choices and decide which of the ones they had liked on the internet really met their needs.  Using more technology to do all the signing digitally using Docusign, and with a few late night Skype calls, some Facebook messages, some texts and Google voice calls, we were able to determine what to offer.  We made an offer to close in two weeks and were able to beat out three other buyers.

Then came the fun part — inspections.  This time the buyer’s Mom AND her brother came with, and were able to communicate back to the buyer and her husband what they had heard.  We also did more video and more photos, more Docusigning and more late night calls.  At one point, I stayed up until 3 a.m. Pacific time (which was a busy Saturday morning for my client in Hong Kong) so that I would be available to forward a time critical document on to the listing agent so that he would have it first thing in the morning as promised.

We also had to solve a tricky problem about funding transfer limits between Hong Kong and the US, but my wonderful escrow officer was able to resolve this and find the “secret sauce” of US banking regulations that allowed the transfer of the funds in a timely manner while still following all the banking rules for international money transfers.

This was an amazingly fast transaction considering that the buyer was thousands of miles away.  The many forms and disclosures that are part of any California real estate transaction were flying through cyberspace on an almost hourly basis for a few days there!    But I can safely say that if it wasn’t for modern technology, we never could have done this.

The buyer and her children are arriving for the Summer soon — I sure hope they like it  :->

 

 

How Do I Hold Title in California?

The means of holding Title to real property in California can be done in many ways.  You may think that the method doesn’t matter, or you may think you should just choose what you always have, but this is not necessarily true, as some new choices such as “Community Property with rights of Survivorship” may override the “Joint Tenants” choice that most married people used to take.

The choice of title can have serious implications in the event of the death of one of the persons on title, a divorce, or even a refinance.  Although I am not an attorney and am not allowed to give legal advice, I can pass on this great article in the LA Times.  You may also wish to consult with your tax attorney, CPA, or an attorney who is handling your estate planning to be sure that the choice you make is the best for you.

Read the LA Times article here:  Picking the Best Way to Hold Title to Your Home

 

 

To FHA or Not FHA — That is the question!

dollar sign moneyI get asked all the time about whether people should use an FHA loan or not.  The answer is, as with most things in real estate, it depends!  First and foremost is the issue of whether you have enough down payment to NOT use an FHA loan.  The minimum down payment you can have for a non-FHA loan is 10 percent, and you need a FICO score of over 720 to even be considered for that program.  Under that FICO score, your only options are 20 percent or more down or FHA.  With an FHA loan, you can buy a home (note the word HOME — you must live in the property) for as little as 3.5% down.

FHA loans are limited, like other GSE (Government Sponsored Entity) loans like Fannie Mae and Freddie Mac, to the upper loan limit currently in effect.  As of this post, the loan limit in our area is $729,750, although if Congress doesn’t act soon, it will go to $625,500 on October 1, 2011.    So if you consider that you were to borrow the maximum of $729,750 with 3 percent down, you will see that you could get a home of approximately $756,000 with under $27,000 down.

The other advantage to FHA loans is that the down payment can be a gift and you can have a co-signer that is not on the title, such as parents.  This makes it possible for young couples starting out to buy a place instead of renting and to be able to build their real estate wealth sooner than they would have otherwise.

The drawback to FHA loans is MI and MIP — Mortgage Insurance and Mortgage Insurance Premium.  These are an upfront payment that you have to make (though it may be added to the loan balance) and a monthly payment you make as well, which increases your effective interest rate.  However, with all interest rates at record lows and with prices there also, this is a small price to pay if it allows you to get your foot in the door of the housing market when you otherwise would not have the down payment.  Once you get to a debt to equity ratio of .8 or less (when your new home appreciates in value) you can petition to have the MI eliminated.

FHA loans are not available for every property.  There are guidelines that must be met, such as appropriate sanitation, heat and cooking facilities, so these won’t work for those short sales where someone has ripped out all the appliances and fixtures.  It also is not always applicable to “condominiums” which legally include the many townhome style complexes we have in the South Bay, such as two and three on a lot type projects.  If a property is completely detached, it can be covered.  If it is attached to other units, however, then the entire complex either has to be on an approved list (see this website here) or else the whole complex has to BE approved, which is harder to do.  Finally, even in an approved complex, there are percentage limits to how many of the units can already have FHA loans.

Negotiating the many ins and outs of FHA loans versus property type is one of the many reasons why you need to work with a knowledgeable REALTOR®!  Let me know if I can help you figure out how to leverage Uncle Sam’s loans and help get your own piece of the South Bay real estate market!  And if you need a lender who can get these loans done without a huge hassle, visit my recommended lenders page.

Loan Downpayment Requirements

Latest Downpayment Requirements


Here’s the latest minimum Down Payment requirements and current rates for owner occupied single units — these are shifting rapidly due to the credit crisis, so be sure to verify with your bank or one of our Recommended Lenders! 

Current Minimum Down Payment Requirements
Loan Amount Percent Downpayment Maximum Home Price Loan Type
$625,500 3.5% $648186 FHA 30 Yr. Fixed
$625,500 10% $695,000 FHA, Fixed and ARM*
up to $1M 20% $1,250,000 ARM
up to $2M 25% $2,666,667 ARM
up to $5M 30% $7,142,857 ARM

 

*ARM = Adjustable Rate Mortgage

ARM’s are defined as fixed for 1,2,5,7 or 10 years and then adjust to
30 year amortization with floating interest rates.
The length of time determines the initial interest rate.
Generally, lower fixed periods have lower interest rates.

FHA Loan Limits for Multi-Unit Properties (Owner Occupies 1 Unit) 

No. of Units FHA Conforming Loan Limits
1 $625,500
2 $800,775
3 $967,950
4 $1,202,925

 

 

Understanding the Short Sale and REO Negotiation Process

(cross posted at our column in The Beach Reporter on-line Real Estate News)

These days, many clients come to us to find deals in the distressed property market, including short sales, homes with notices of default, homes scheduled for foreclosure, and finally, bank owned properties known as REO’s.

Negotiating on these properties requires that you understand what stage of the process the home is in, so let’s start with a few definitions and the differences in negotiations for each.

A “short sale” is when the current owner owes more than the home is currently worth and needs to have the bank accept a sale at an amount that is “short” of the amount owed.  These homes may or may not also be somewhere along the foreclosure process.  In these sales, the bank MUST agree to accept the reduced amount or the sale cannot proceed unless the seller is willing to contribute cash to the process.  Generally, the seller must prove hardship to the bank, such as why they need to sell, why they can’t just keep paying the mortgage, etc.

There is a LOT of paperwork in the Short Sale involved for the Seller, and these sales can often stall because the Seller, who naturally is in somewhat a state of denial, drags their feet on this paperwork.   The bank must also obtain Broker Price Opinions (BPO’s) on the property from several real estate firms in order to satisfy their shareholders that they did the best they could to collect the monies owed, which also takes time.    Further, the banks do not even begin the process of approving a price until at least one bonafide offer (and possibly dozens of offers) is/are submitted, and then they typically take 4 to 6 weeks to analyze the offers, only perhaps to decide that the offers (and the asking price) was nowhere near high enough.  In order to provide an offer attractive to the bank, it is important to make the best possible offer, including limiting contingencies and having the most possible down payment.  Short sales can be VERY frustrating for everyone involved as there is typically a LOT of competition — we have heard of several cases where there were over 20 offers and the final price was over $100,000 over the asking price.

A home that has a Notice of Default, or NOD, is at least 90 days late with the mortgage payments and the bank has begun the process of foreclosure, but the seller can still bring the note current and “cure” the default.  When buying a home that is in this stage, it is important to remember that not only does it have all the problems of the short sale, but additionally there is now a 90 day clock ticking on the home.  If the home is not sold before the 90 day foreclosure period is over, and if the bank’s bureaucracy does not allow an extension, you can be very close to buying the property and then lose it to another pile of bureaucratic nonsense.

Once the home is officially “in foreclosure” the home is scheduled for sale at an auction at the courthouse.  Although it is possible to get a really good deal on these, it is important to realize that if you bid and win, you MUST buy the home or lose the required 10 percent deposit (which must be brought in Cashier’s checks to the auction.)  There is NO right of inspection, no investigations possible once you’ve bid.  You had better have your financing lined up or be prepared to pay all cash … and perhaps get a few rude surprises when you take possession and find problems.  As Realtors, we feel that this process is so risky that we will not represent people at auction proceedings.

Finally, often the home will not sell at the foreclosure auction and the bank effectively “sells” it to itself or to another bank.  The property is now known as an REO, which stands for Real Estate Owned.  At this point, the bank generally analyzes the price, hires a real estate agent who specializes in representing the bank, and tries to sell the home as quickly as possible.  You can often get the best deals on these, as the bank’s loss mitigation department has already done the analysis and figured out the price they will accept, and the bank is now carrying the cost of the home such as utilities and taxes, so they are very motivated to get it “off their books.”  It is very important to have your own Realtor represent you on these purchases, as the homes can sometimes have been “stripped” of appliances, plumbing fixtures, and even the copper wiring in the walls; you need to have someone who cares about your interests and isn’t just working on the bank’s behalf.

Each distressed property sale is different — some are priced so agressively the competition will be fierce, some are not really very good deals, and some will not qualify for the low cost FHA financing that most people want.  Be sure you don’t attempt to wade through the shark infested waters yourself — get a Realtor involved.

Finally, don’t limit yourself to only these properties — because distressed properties have affected average pricing, many ordinary properties are out there that are very good buys — and they won’t have the bureaucracy, delays, and hassles that characterize distressed property sales.  Let your Realtor (hopefully us) know what kind of home you need, not what legal status the property is in – and then let us do our jobs for you!