first time homebuyer

Beware: Lenders will add an extra step before close of escrow.

You are in escrow? Don’t apply for any new credit!

You have been seaching for months to find your deam home in a decent location and you think you have it in the bag, having outbid multiple offers along the way and you are now safely in escrow. Everything is going great, you are a few weeks away from closing and you are already shopping around for all of the home furnishings you will need to buy but, hold on! According to the Los Angeles Times, lenders will now order a new credit report just before the close of escrow, effective beginning of June.

Why? It seems that Fannie Mae wants to crack down on buyers who max out their the credit card while about to buy a property. If you purchase big ticket items on credit during your escrow period, understand that the purchases could jeopardize your lending ratio and throw off your application. And we all know how tight banks are today with their money.

So, if you are tempted by a new car to commute between your work and your new house, think twice. Be patient and wait that escrow has closed. Then you can go and have fun enjoying your place.

first time homebuyer

Signs of Bottoming In The San Fernando Valley?

DataQuick has reported that Southland home sales are up overall, and the same trend can be seen in the MLS data from the Northwest San Fernando Valley. Indeed sold prices have actually increased by 1% from a year ago. Also, since the gap between the “for sale” price and the “sold” price is now within 10%, which is considered to be a good sign for increasing sales, as the sellers’ expectations have gotten within striking distance of the buyer’s. This chart also appears to reflect some influence from the federal first time homebuyer tax credit and the pressure to close before it expired (although it has now been extended in a slightly different form).

Also check out the lower chart for a dramatic view of the shrinking inventory. This reflects the buyers’ frenzy that snapped up many of the better priced properties during the middle of the year (most of which were distressed.), For whatever reason, much of this inventory has not been replaced with new inventory. The moratorium on foreclosures may have had some impact on this number, as had the “shadow inventory” — properties that the banks have not foreclosed upon, for reasons of their own. Many are expecting more of these properties to be put on the market over the coming year.

first time homebuyer

First Time Homebuyers Going to Extremes Part Two: Getting Lucky at an REDC Auction

After months of looking for a property for my client, who was looking for a condo in the San Fernando Valley, we were both starting to lose hope in making the impending deadline for receiving federal first time homebuyer assistance.   When his purchase offers were not completely ignored by REO listing agents (despite the fact that he was offering well above asking price), they were rejected in favor of all cash offers.   We learned that his favorite property (which had been listed on the MLS) was put “on hold” by the listing agent, after he had already made an above-asking price offer on the property.   A little investigation revealed that the property was now due to be sold at an REDC auction in early August.  I had hoped that the bank would still consider our offer during the 3 weeks we had left till the auction; for some inscrutable reason, this didn’t happen, and the Bank never bothered to even respond to the offer.

So we went to the auction,  after having made sure we had done all the preliminary requirements posted on the auction website (pre-registration; pre-viewing the properties, etc.)  Arriving at 8 a.m. at the LA convention center to the sound of some blaring pop music, there was a carnival-like atmosphere, missing only popcorn and pompom girls.  We took our seats and waited.  Under the terms of this particular auction, some properties are cash only, but most can be financed. The properties are flashed on a big screen.  You need to have a good strategy for the property you want to bid on: once you get the bid, you are generally “stuck” with the property or you’ll lose your earnest deposit.

Before the auction started, there was a quick rehearsal of the bidding process: a fast-paced process with the auctioneer raising the bids as fast as he can.  Once the highest bid is reached, the auctioneer will either acknowledge that the bid is accepted, “closed”; or “subject to”.  “Closed” means that since the bid didn’t meet the (hidden) reserve price, it is rejected.  “Subject to” is a kind of limbo — it means that the bid will be submitted to the seller who has up to two weeks to accept, reject, or counter the bid.

When our property came on the screen, we were both feeling a bit nervous; but my client was able to ultimately win the bidding war!  Better yet, the deal was accepted on the spot (and was not “subject to.”)  We were then ushered into a back room where we had to pass the approval process, and were able to consult with three different lenders on site.  At that particular auction, REDC wants you to take the conventional loan route, since the properties are foreclosures and might not pass the FHA inspection.  Additionally, the escrow has to close in 45 days, and there is a penalty of $150 each day for missing the closing escrow date.  Once we got the green light from the banking tables, we were rushed to the escrow table where you pretty much sign and initial paperwork until your hand is aching!  Forget about any contingencies (e.g., loan, inspection, etc.) and you have to pay many costs that a seller would normally pay for in a non-auction context.  Further, you are committed — no matter what — so make sure you have done all the prep work well in advance.

In the end, my buyer had to go to extreme measures to secure a property — the advantage to him of the REDC auction was that the property went to the highest bidder, and the trump card normally enjoyed by cash buyers disappeared.

Finally, the question on everyone’s lips: did my client score a “deal” at the auction?  In purely financial terms, the answer is “no”.   With all of the competition, he was forced to pay pretty much the market price.   (On top of the bid price buyers are subject to an additional 5% or $2,500, whichever is highest and the buyer is on the hook for all inspection costs and pretty much all closing costs!)  However, my buyer was able to compete on par with every other bidder, saved himself months of frustration, and scored his absolute no. 1 favorite property.  All in all, it was a good deal for him, under the circumstances.  Now he can move forward and start thinking about what furniture to buy with his tax credit!

Do you need a Realtor® to purchase a property at a REDC auction?  If you can find someone willing to help you (the commissions are razor thin), you will likely be better off, as your Realtor® will be able to provide with some comparative market analysis for each property you have in mind, and can help you devise a strategy so that you don’t get lost in the somewhat confusing process.   (In addition, should you chose to use a Realtor®, you will be entitled to the C.A.R. H.A.F. Mortgage Protection Program).

first time homebuyer

Can You Afford to Throw Away Up to $8,000.00? November 30th Is Just Around the Corner.

The federal first time homebuyer tax credit will expire — poof! — and you’ll have officially blown your chance to access up to $8000 if you can’t get into escrow and actually CLOSE THE DEAL by no later than November 30th, 2009. Thus, some are suggesting that if you are a first time buyer that you try to get a property under contract by September 30, 2009 in order be able to have plenty of time to close before the deadline. (There is always a possibility, of course, that the credit will be renewed or changed by Congress — but are you feeling lucky?)

California is a very desirable place to live — but it is also the 47th lowest state in homeownership with a rate of only 56.9% according to the US Census Bureau. Since the last recession ended in the 1990s, it became increasingly difficult to afford to buy a property in California and, in particular, in Los Angeles. The recent real estate and financial market crash has had a silver lining — real estate is now more accessible then it has been in a long time.

In Woodland Hills, from the beginning of this year up to 7-26-09, a 3 bedroom 2 bath house with about 1315 square feet averaged just over $400,000. This translates to a monthly payment of less than $2,250.00 with 3.5% down payment (FHA) and a hypothetical interest rate of 5.6%. By comparison, it would likely cost you $2,300.00 to rent the equivalent place, a rent payment that is very likely to increase over the next thirty years. What you gain by owning vs. renting is the interest tax deduction, and up to $8,000.00 in the form of a tax CREDIT provided you qualify and close escrow in time. (Do keep in mind that there are other costs, taxes, insurance etc. — but also intangible benefits to homeownership. Plus, if you get a fixed rate mortgage, as we advocate, your investment will be sheltered from inflation.)

If you find yourself overwhelmed by the buying process (from getting pre-approved to selecting your property), please let me guide you so that the process is as smooth as possible — perhaps you will find yourself in a new home in time for the holidays.