How Much Will My Credit Score Drop with A Short Sale on My Home

How Will My Credit Be Affected After A Short Sale

A FICO score is a how our credit worthiness is measured. The FICO score takes into account the amount of debt one carries as any time, how long a person has been using credit to make purchases, and payment history. The FICO score is used by banks to determine if we will be granted credit. The most stringent of all forms of credit are mortgage loans and while the credit score look good overall the banks will look at payment history to determine if they will lend money. And again mortgage defaults and late payments are not good.

FICO scores range between 350 and 850 and according to Fair Isaac Corporation a score of “650″ is considered fair and “750″ or higher is considered excellent. It is not necessarily whether you have a foreclosure or short sale on your credit that is harmful, it is the late payments that will bring your score down.

Fair Isaac released a report that says credit scores are affected about the same, whether a seller does a short sale or foreclosure. Here is a breakdown of how your FICO score is affected by late payments:

  • 30 days late: 40 to 110 points
  • 90 days late: 70 to 135 points
  • Foreclosure, short sale or deed-in-lieu: 85 to 160
  • Bankruptcy: 130 to 240
  • Foreclosure or Deed-in-Lieu of Foreclosure
    Both of these solutions affect credit the same. Sellers will take a hit of 200 to 300 points, depending on overall condition of credit. This means if a seller’s FICO score before foreclosure was 680, it could dip as low as 380.
  • Short Sale
    The effect of a short sale (providing the sellers are more than 59 days late) on a seller’s credit report is identical to that of a foreclosure and can result in a loss of 200 to 300 points. If your score prior to a Short Sale was 780, your credit could drop to 480. Getting that score back up requires making payments on time, and not over extending your credit limit-not maxing out your credit cards. Only using a portion of credit available to you is apparently a key factor.

The range of points is based on Fair Isaac’s proprietary scoring algorithm.

Some people that I work with told me that their scores dropped to the high 500′s after a short sale, but then within months was back up to the high 600′s and low 700′s.

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Are Adjustable Rate Mortgages (ARM’s) Becoming Popular Again?

Adjustable Rate MortgagesAdjustable Rate Mortgages are Gaining Momentum Once Again

Adjustable rate mortgages make sense for anyone who believes they will not be staying in their home for the long term. What got so many people in trouble over the past few years is buyers eager to buy a home assumed that by the time the rate adjusted, there would be enough equity in the property to refinance to a fixed rate mortgage. WRONG – it didn’t happen that way. Many of these borrowers were on a 3 and 5 year adjustable rate mortgage and really got hurt when the market took a dive.

If you are almost certain you will only be in your home for 5 to 7 years then the new ARM’s might make sense as there can be a significant savings with an ARM versus a 30 year fixed rate.  Generally ARMs are  one to one and a half percentage points below those of 30-year fixed-rate loans.

The most popular ARMs are the “5/1″ and “7/1″ – interest rates are fixed for the first 5 or 7 years, then adjusted annually at a capped rate. It is important when evaluating these types of loans to understand what the “cap” is what index the rate is tied to.

The FHA 5/1/1 ARM is appealing to many borrowers. Essentially the rate is fixed for the first five years, then will adjust 1% each year for up to 5 years. So if you started out at 3.5% the highest the rate can ever go is 8.5%.

Lenders are much more conservative in qualifying borrowers for ARM’s. In many situations they are using the adjusted rates to qualify the borrowers to ensure that when at the end of 5 years and beyond using the worst case scenario for the rate adjustment that the buyer will  be able to handle the payments.

If you are someone who plans to stay in your home for more than the term of these adjustable mortgages, then a 30 year fixed rate is for you. Based on history, speculation that the market will appreciate enough for you to refinance has not been a good ally.

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Why Morgage Loan PreApprovals May Not Be A Sure Thing

At our office meeting today, one of the agents sold his listing, got bank approvals but then announced he was looking for back-up because he did not feel the buyer was going to perform. So my questions – if the buyer was pre-approved prior to making the offer – why back out now. The key component is that maybe the buyer was not pre-approved. There is a difference between pre-approval and pre-qualify, and neither one is a sure thing until final approval by the underwriter.

Pre-qualifying a buyer is taking their word as to income, expenses and possibly credit ratings. Pre-approval is verifying what the buyer claims about their ability to purchase a home is indeed fact. Two different things.

A preapproval letter may be expressed in terms of a maximum monthly mortgage payment, a maximum loan amount, and/or a maximum ratio of loan to value. If a mortgage payment is shown, the interest rate used to calculate it may be shown, but the rate used is not guaranteed and won’t be until the borrower submits a complete application and the rate is locked.

If a maximum loan is specified, it will be contingent upon an appraisal of some minimum amount. The preapproval also will be dependent upon verification of information provided by the borrower and underwriting approval of the transaction. Check the date on the pre-approval letter.  If interest rates have increased the buyer may no longer qualify for the higher mortgage payment.

A mortgage preapproval is stronger than a prequalification because preapproval includes an assessment of the borrower’s credit, but prequalification does not. A preapproval is weaker than an approval, however, because the property value is preliminary and the mortgage rate is not known.

In addition, lenders may not take the same care in verifying the borrower’s income or assets for a pre-approval as they would for an approval. Also, pre-approvals do not take into consideration the any conditions the underwriter may impose on the borrower. While some loans look good on the surface and the buyer is strong, I have seen many a buyer not get final loan approval.

Lenders are never obligated to make a loan that does not meet their conditions. Conditions have become much tougher than they had been, and especially so for self-employed borrowers, who now must run a gauntlet of rules and checks.

The bottom line for home sellers is that the reliability of preapprovals is not what they once were, especially for self-employed borrowers. While I always have my clients get preapproved prior to making an offer, we never know the final outcome until the buyer is in for final approval.

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San Ramon Valley Foreclosures Up or Down?

Home prices are down but number of unit sales are up over the past 3 months. Because we have seen more foreclosures coming on the market it would make sense that the median sales price would drop a few percentage points, and unit sales would increase. The properties that are bank owned sell quickly and in some instances with multiple offers and we can only hope this will help drive the sales prices back up soon.

Nationally as reported by RealtyTrac 26% of homes sold are foreclosures.

Let’s look at the numbers for San Ramon Valley to see if our local areas fall within the national averages.

2010 Single Family Detached Homes by City:

  # Sales # Foreclosures Percent
Blackhawk 99 18 18.1%
Danville 497 34 6.8%
Dublin 358 59 16.5%
San Ramon 661 69 10.4%

2010 Town Houses & Condos

  # Sales # Foreclosures Percent
Blackhawk 9 1 1%
Danville 134 24 17.9%
Dublin 232 63 27%
San Ramon 314 79 25%

Evaluating the numbers, Townhomes and Condos took the hardest hit in 2010.  Most of these were at the lower price ranges, i.e. below $200K. Total for Single Family homes is approximately 11%, while townhomes and condos were the hardest hit with an overall 24.2% of sales being foreclosures.

2011 January & February Single Family Detached Homes By City

  # Sales # Foreclosures Percent
Blackhawk 17 2 1.1%
Danville 50 14 28.2%
Dublin 37 5 13.5%
San Ramon 64 8 12.5%

2011 January & February Town Houses & Condos

  # Sales # Foreclosures Percent
Blackhawk 0    
Danville 16 5 31.2%
Dublin 38 7 18.4%
San Ramon 28 10 35.7%

2011 figures are higher than 2010, with overall average for single family detached foreclosed homes at 17.3% and condos right at the national average of 26.8%.

 

 

 

 

 

 

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Danville January 2011 Home Sales Results

Home sales activity in January for Danville, CA as compared to January 2010 has improved slightly in the number of units sold, but the median sales price dropped almost 2%.  The chart below indicates the market data for the first month of this year.

2010 2011 Percent Chgd
New Listings 57 60 +7.1%
Pending Sales 34 43 +26.5%
Closed Sales 20 19 -5.0%

Median Sales Price

$857,500 $842,500 -1.7%
Average Sales Price $946,780 $865,883 -8.5%
Percent of Original List Price Received 88.8% 93.4% +5.2%
Average Days on Market 93 95 +2.8%
Inventory of Homes at the end of the month 115 121 +5.2%

Source: CCAR.org

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California Home Sales Up January 2011

January marked the third month that home sales were on the rise in California. While the number of units sold and closed are heading in an upward direction, the median sales price is declining.

As reported by the California Association of Realtors:

“The statewide median price of an existing, single-family detached home sold in California was $278,900, down 8.6 percent from a revised $305,020 in December and was down 2.0 percent from the $284,600 median price recorded for January 2010.  The January 2011 median price was the lowest since June 2009, when it was $274,640.”

The good news for buyers is that while interest prices may be rising, home prices are stable or decreasing, making buying a home still in the affordable range. Many of the declines in pricing are due to foreclosures and short sales.

Here is  the activity for all counties in California:

January-11 Median Price of Existing Single-Family Homes
State/Region/County Jan-11 Dec-10 Jan-10 MTM% Chg YTY% Chg
CA Single-family homes (SA) $278,900 $305,020 $284,600 -8.6% -2.0%
CA Condo/Townhomes $234,560 $248,140 $254,540 -5.5% -7.8%
S.F. Bay Area
Alameda $435,110 $478,730 $423,080 -9.1% 2.8%
Contra-Costa (CentralCounty ) $565,790 $568,600 $605,980 -0.5% -6.6%
Marin $657,890 $753,680 $729,170 -12.7% -9.8%
Napa $313,890 $350,000 $358,700 -10.3% -12.5%
San Francisco $597,760 $678,190 $646,430 -11.9% -7.5%
San Mateo $587,500 $715,000 $633,500 -17.8% -7.3%
Santa Clara $530,000 $560,000 $525,000 -5.4% 1.0%
Solano $192,170 $204,290 $215,980 -5.9% -11.0%
Sonoma $338,090 $344,680 $365,820 -1.9% -7.6%
Southern California
Los Angeles $305,940 $330,990 $316,700 -7.6% -3.4%
Orange County $511,590 $503,210 $527,480 1.7% -3.0%
Riverside County $197,550 $205,220 $193,690 -3.7% 2.0%
San Bernardino $138,040 $134,760 $135,000 2.4% 2.3%
San Diego $370,100 $375,790 $366,780 -1.5% 0.9%
Ventura $411,760 $441,570 $420,690 -6.8% -2.1%
Central Coast
Monterey $258,000 $244,900 $246,500 5.3% 4.7%
San Luis Obispo $342,450 $377,550 $383,330 -9.3% -10.7%
Santa Barbara $365,620 $453,850 $466,670 -19.4% -21.7%
Santa Cruz $425,000 $503,250 $495,000 -15.5% -14.1%
Central Valley
Fresno $136,020 $145,280 $145,960 -6.4% -6.8%
Kern (Bakersfield) $127,000 $125,000 $128,340 1.6% -1.0%
Kings County $147,140 $158,000 $175,000 -6.9% -15.9%
Madera $146,150 $143,080 $140,670 2.1% 3.9%
Merced $100,620 $117,500 $96,430 -14.4% 4.3%
Placer County $261,930 $271,740 $287,080 -3.6% -8.8%
Sacramento $171,690 $179,040 $174,830 -4.1% -1.8%
San Benito $280,000 $280,000 $325,000 0.0% -13.8%
Tulare $113,330 $131,510 $134,140 -13.8% -15.5%
Other Counties in California
Amador $160,000 $173,330 $170,000 -7.7% -5.9%
Butte County $180,000 $230,000 $252,500 -21.7% -28.7%
Humboldt $244,790 $248,440 $246,870 -1.5% -0.8%
Lake County $107,500 $113,750 $137,140 -5.5% -21.6%
Mariposa And Tuolumne $158,750 $181,430 $218,180 -12.5% -27.2%
Mendocino $225,000 $220,830 $237,500 1.9% -5.3%
Shasta $152,140 $176,870 $180,910 -14.0% -15.9%
Siskiyou County $145,000 $163,330 $132,500 -11.2% 9.4%
Tehama $140,000 $136,670 $140,000 2.4% 0.0%
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Californians Help Is On The Way To Save Your Home

4 Programs to Help Californians Save Their Homes Now In Process

Save My HouseThe California Housing Finance Agency has fully implemented 4  programs to help families keep their homes.

The programs called “Keep Your Home California”, are federally funded as part of the U.S. Treasury Dept.’s Hardest Hit fund, and are aimed at helping low and moderate income homeowners struggling to pay their mortgages amid the worst real estate crisis in decades.

California received a total of nearly $2 billion through the Hardest Hit fund.

Here is a brief overview of the “Keep Your Home California” programs:

  • Mortgage assistance of up to $3,000 per month for unemployed homeowners who are in
    imminent danger of defaulting on their home loans.
  • Funds to help homeowners who have fallen behind on their mortgage payments due to a
    temporary change in a household circumstance. The program will provide up to $15,000
    per household to reinstate mortgages to prevent foreclosures.
  • Money to reduce the principal owed on a mortgage for a home where the low or
    moderate income homeowner is facing a serious financial hardship and owes
    significantly more than the home is worth. The program requires lenders to match any
    assistance provided by the Keep Your Home California program.

To apply for assistance contact the Keep Your Home California call center toll-free at (888) 954-5337 or to the bank who is holding your mortgage. Each of the mortgage assistance programs requires the participation of the mortgage servicer.

There are some stipulations for qualification such as owner occupant, income limits and currently facing a financial hardship.

As of Feb. 9, the following servicers are participating in all four Keep Your Home California programs:

  • GMAC
  • Guild Mortgage
  • California Housing Finance Agency
  • California Department of Veterans Affairs

Bank of America, JPMorgan Chase, CitiMortgage and Wells Fargo are currently participating in some, but not all programs at this time. Be persistent if you contact one of these lenders to find the right department to help you. In each one of these institutions there are many departments, and most times they are not aware of the programs available.

Also, if you mortgage company is not on the above list, check the website as it is anticipated that more lenders will be coming on board.

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Sellers Don’t Be Offended By A Low Offer On Your Home

Do Not Take A Low Offer On Your Home Personal (even though it seems like it is)

Consider before you ignore or outright refuse a very low purchase offer for your home. A counteroffer and negotiation could turn that low purchase offer into a sale.

A purchase offer, even a very low one, means someone wants to purchase your home. It deserves an answer even if it is a rejection. Your Real Estate Agent can advise the best way to respond to an offer you definitely do not want to accept.
Depending on your competition, how long  your house has been on the market and your motivation to move, you should counter the offer with the price and terms that are acceptable to you. Buyer’s want to try and see what they can get, how low they can go. Also, keep in mind in many cultures negotiating is how they do business.

A counteroffer signals that you’re willing to negotiate. One strategy for your counteroffer is to lower your price, but remove any concessions such as seller assistance with closing costs, or features such as kitchen appliances that you’d like to take with you.

Consider the terms

Price is paramount for most buyers and sellers, but it’s not the only deal point. A low purchase offer might make sense if the contingencies are reasonable, the closing date meets your needs, and the buyer is preapproved for a mortgage. Consider what terms you might change in a counteroffer to make the deal work.

Review your comps

Ask your REALTOR® whether any homes that are comparable to yours (known as “comps”) have been sold or put on the market since your home was listed for sale. If those new comps are at lower prices, you might have to lower your price to match them if you want to sell.

Consider the buyer’s comps

Buyers sometimes attach comps to a low offer to try to convince the seller to accept a lower purchase offer. Take a look at those comps. Are the homes similar to yours? If so, your asking price might be unrealistic. If not, you might want to include in your counteroffer information about those homes and your own comps that justify your asking price.

If the purchase offer is too low to counter, but you don’t have a better option, ask your real estate agent to call the buyer’s agent and try to narrow the price gap so that a counteroffer would make sense. Also, ask your real estate agent whether the buyer (or buyer’s agent) has a reputation for lowball purchase offers. If that’s the case, you might feel freer to reject the offer.
Buyers are sensitive to signs that a seller may be receptive to a low purchase offer. If your home is vacant or your home’s listing describes you as a “motivated” seller, you may be communicating that you will accept a low offer.

If you can remedy the situation, maybe by renting furniture or asking your agent not to mention in your home listing that you’re motivated, the next purchase offer you get might be more to your liking.

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Down Payment Assistance-Grant Money

Grant Money for DownPaymentNeed Cash to Buy a Home

Many buyers are still faced with the challenge, especially in California, to come up with the money required for a down payment, closing costs and prepaid items.

Many renters are aware the money they are paying in rent would be equivalent to a mortgage payment based on the decline in home prices over the past few years, and would probably save them money over the long term. Yet they don’t quite have enough saved to take advantage of the current market.

A program providing Grant Funds to Californians is now available.This is a lender funded down [Read more...]

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