Building Wealth By Owning Real Estate: Five Lessons for Us All

"Building Wealth By Owning Real Estate: Five Lessons for Us All" is the blog series I just completed.   These tidbits and antecdotal stories are the stories of my life, but they have served me well, and I am on the way to where I want to be financially; despite enduring some trying times financially as a family (which we've done without too much suffering).  I hope you'll read the short stories, and commit the lessons to memory.  Let them guide you in your real estate decisions.  You won't be sorry.

Lesson #1: Real Estate Always Has Value:  It was 1975, the market was down and the developer could not sell the homes.  How would he pay my dad - the builder?

Lesson #2: Pay Down Your Debt:  Have you ever been to a mortgage burning party?  Imagine never writing another check for rent or mortgage again.  Start planning your mortgage burning party today.

Lesson #3: Mortgages Matter:  Flash forward to 1981... Interest rates are soaring, averaging around 14%.  How could anyone buy a home?  Well, in this post, you learn how with "creative financing" that put more money in the seller's pockets and made buying possible.

Lesson#4: Buy As Early As You Can:  My first apartment... it was awful, and I couldn't imagine how I would ever be able to pay that rent.  Why were my parents' mortgages, and the mortgages of the parents of my friends, so much cheaper when their homes were so much nicer?  I learned, and now I am living it.

Lesson #5: Appreciating Real Estate:  OOOOHH... So it's not just about buying, locking in your housing payment and paying down your debt.  Real Estate is an ASSET, and it grows in value.  While you live there.  Magically.  But by how much?  You'd be surprised how predictable the rate of appreciation is over the long run.

I hope you enjoy these short stories from my life... you've learned a lot about me in the process, but hopefully you've learned even more about the real estate market and why you, too, need to own at least your primary residence.

DISCLOSURE: This is not a sales pitch - it was not when I was learning these lessons, and it is not now.  Yes, I would love to be the one to help you with your real estate needs - buying or selling.  But rest assured, the advice comes "no strings attached."   It is the same advice I give to my own children.... and there is no one in this world I care more about than my own children.  So if it's what I tell them, then you know I believe it.

I wish you much success in your real estate endeavors. If I can ever be of service, please don't hesitate to reach out to me:

Vicky Chrisner

Fieldstone Real Estate

703.669.3142

MyAgentVicky@Gmail.com

www.VickyChrisner.com

The Risks of a Short Sale

For a seller, a short sale is a success! It means you were able to sell your home and amicably negotiate a resolution with your lender, which may have included full or partial debt forgiveness, and other benefits.

The largest risk for a seller is being taken advantage of in a mortgage assistance scam. However, it is very possible to attempt a short sale and completely avoid that risk. For those sellers, the only risk is that the sale won't go through, and the property will be lost to foreclosure. That is a big risk, but for most sellers, BEFORE they start the short sale process they realize this is where they are headed unless they can intervene.

For buyers, there is significant risk.

* How much time will you lose? As a buyer, you don't really know how long it will take for the seller's lender to approve the sale; or worse, NOT approve the sale. If there is only one loan, we're seeing 6-8 weeks as the normal time frame for approval now. This is WAY down from 6-8 MONTHS a year ago.

* How will you compete with other buyers? I see listing agents who advise their sellers not to ratify an offer at all until the lender approves one. Some listing agents submit offer after offer to the lender without even responding to buyers to acknowledge the offer. I have seen listing agents who advise their sellers to ratify multiple offers as primary contracts - with the caveat of the 3rd party approval requirement. Their theory? The lender will only approve one contract. So, MANY buyers, an infinite number of them, may be sitting, waiting months to learn that their offer was accepted, or may never get a response at all.

* The lenders control the clock. Once approved, they expect you to settle quickly - usually in less than 30 days. If you can't, you must have the sale "re approved".

* Sellers disappear! Sellers have very little to lose and often feel hopeless about the situation - especially if it doesn't appear that the bank will be approving the sale. Believe it or not, we're seeing cases where the bank approves the short sale, and the sellers are no where to be found... and the sale can not be completed without the seller. In both cases, if the buyers deposit is in escrow, it is difficult to get it back. There's a process, but it is time consuming and frustrating.

These and many other situations are commonplace in todays market. In fact, they are quickly becoming the most frequent type of transaction in the Dulles region (Fairfax/Loudoun County). And, keep in mind that short sales are realitively new to the marketplace, and many agents are still extremely unfamiliar with the process. So, before entering this market, make sure your agent knows the market and all the various Types of Sales Seen in Today's Market.

A buyers agent's advice about how to structure an offer should vary dramatically for a short sale or an REO. Ask your agent about the differences.

Inflation Is Coming! Inflation Is Coming!

Can it get any worse?  YES.

Okay, so your 401K has retired without you.  You're so underwater in your house that you're thinking of turning the place into a house boat.  And, hopefully, you don't get hit by the next round of layoffs.  

Seriously, it has to get better.  But, could it get worse?  Well... yeah... if you don't watch yourself.

I don't like to be the one screaming the sky is falling.  But, what I have learned is that the more I keep my predictions to myself the less chance I have of forewarning people of what I see coming straight at us, like a speeding locomotive.

At the moment, it's inflation.  It's not here yet, but it's coming, I can hear it.  It will be here before you know it.  The fed is spending money like crazy - make the most of it and take what you can for yourself.  Whether you get any benefits or not, you'll be paying it back.

So, how can you make the most of things?

---If you're lucky enough to have cash to spend, check the Stimulous package to see if you might qualify for some additional tax breaks.  It just so happens I will probably need a new heating system in the next 2 years, and if I buy one this year, I get an extra tax break.  I plan on taking advantage of that. It's a shame I bought all new kitchen appliances last December, but that is the way it goes.  There are tax incentives for many things you do to improve the energy efficiency of your home, as well as incentives for major purchases of things like homes and cars.

---If you're thinking about buying your first home, don't put it off.  The combination of low interest rates, availability, and the extra government incentives (up to $8000 in tax credits) for buying this year are incredible.  So, do it, and close by 12/1/2009, so you get the tax credit.   

---Many finance companies will offer you FREE "job loss protection" insurance... this applies to new homes, mortgage loans through Bank of America, and even many loans on new cars when you buy at the dealership.  These programs will actually make your monthly payments for you if you do get laid off.   So, sign up, but make sure you know how long it's free; most require you to cancel before a deadline or you have to pay. 

---If you have a high fixed rate on your existing mortgage or are in an ARM, consider refinancing (even if you're underwater there are some options for you - Click HERE to learn more).  Get yourself positioned for rising interest rates.  When they start rising, it will go fast.

---Work on paying down your credit card debt or variable interest rate/revolving credit lines. Again, when interest rates are rising, you aren't going to want to pay 20-30% interest on something that used to be 8%  it will eat into your paycheck.

The upside, and there always is one, is that when inflation kicks in, all interest rates will be higher - including what you are collecting at the bank.  As consumers, we never quite get the same margin of profit as the banks and other professional lenders out there, but we do get benefits.  

Remember, inflation IS coming.  You can not stop a runaway train.  All you can do it get out of it's path.

What Do I Get For Paying My Mortgage On Time?

I hear it time and time again... consumers who may their mortgage on time consistently, but are feeling the pain of this market all the same. There is bailout after bailout for banks, insurance companies, and there's talk of loan modifications and debt forgiveness for those that are behind in their mortgage... but what about the rest of us that are doing the "right" thing?

Obama to the rescue!

Believe it or not, the Housing Affordability and Stabilization Plan (HASP) actually provides a little bit of something for you! Perhaps because of these changes you can refinance and take advantage of these unprecedented interest rates... maybe even if you're upside down. It's true.

If your loan is backed by Fannie Mae or Freddie Mac, you are eligible to do a refi under HAS. The maximum loan amount can be up to 105% of the current value of the home, and it can subordinate another loan. The real power here is that second part - it can subordinate another loan, and it works for investment properties, too!

Also, if your current loan is an FHA loan, then you can likely refinance with a Streamline FHA - regardless of your credit, debt to income ratio or even the ratio of your current property value to loan amount, so long as you've been paying your mortgage on time.

I encourage everyone to look at their current loan and decide if they should refinance. With the way the government is spending money, we are bound to see increases in the interest rate. And, when it starts, they are likely to rise quickly. So, take advantage of the options available to you. Make sure you're in a strong, fixed rate product at a comfortable level before the inevitable happens.

Interested in learning more? Contact me to register for a presentation by one of our strategic partners, Bank of America. Can't attend in person? Join us by phone! Email me to register.

Virginia Home Owners Alliance

There is an exciting new service provided by REALTORS® specifically for homeowners in Virginia.

While REALTORS® have always represented the interests of their clients as individuals, until now homeowners have never had a voice to represent their interests as a group. Recently launched, the Virginia Homeowners Alliance is that voice. Automobile owners have AAA, and retirees have AARP. Finally, homeowners in Virginia will have the Virginia Homeowners Alliance to represent and serve their interests.

What is the Virginia Homeowners Alliance?

· The Virginia Homeowners Alliance (VHA) is an exciting new service provided by REALTORS® to help homeowners protect their most treasured investment, their home.

· It’s not an organization with boring meetings and a bunch of bureaucracy. It’s an organization comprised of a free, online one-stop-shop (http://www.vahomeownersalliance.com/) for improving the value of your home and keeping up with local government decisions that affect your home, your community and your quality of life.

· By joining VHA, you can stay informed of all the latest news relating to real estate taxes, property assessments, new residential and commercial developments, transportation, school construction and a host of other issues affecting your home, family and neighborhood.

What other features can you find on http://www.vahomeownersalliance.com/?

· Easily contact local government bodies including your City Council, Board of Supervisors, School Board, Planning Commission, and Housing Authority to name a few,

· Lawn care and other valuable home maintenance tips,

· Local school report cards,

· “Kids’ Room” where children and parents can access practice SOL tests and learn more about the Commonwealth of Virginia.

How do you join the Virginia Homeowners Alliance?

· Visit http://www.vahomeownersalliance.com/ and register as a new member. It’s that easy! And, tell them that Vicky Chrisner sent you! (I am in a little competition with some fellow REALTORS to see who can sign up the most people.)

As a REALTOR®, I am dedicated to looking out for your best interests and to serving as your most trusted advisor when it comes to your real estate investment. I hope you will take advantage of the tremendous benefits offered by the Virginia Homeowners Alliance, stay tuned to my blog, and contact me anytime you'd like to talk about your specific situation. I am hear to help!

First Time Home Buyers

First time home buyers are starting to learn about the new tax credit of up to $8,000, and it is exciting them! It's evident in the online chats and at the water coolers across the nation. Combining that incentive with the incredible interest rates available today (many are under 5%), and the supply of available homes, it's a combination difficult to resist. Homes are more affordable today than they have been in a very, very long time.

And, first time home buyers are doing more than just chat. Here in Loudoun, they are taking action. In March, approximately 45% of the home purchases in the market were done with FHA and VA loans, most of which are first time home buyers.

Sales activity is up, again, in the region. In a year over year comparison, Loudoun's activity level has exceeded the prior year's activity for 10 straight months.

The result is that in the lower price points, inventory is declining. Buyers are finding that there are far less homes available than they anticipate, and the purchasing process can be very competitive, with contract prices often exceeding the list price.

Once they enter the market, first time home buyers are sometimes surprised at the amount of time it can take to find the right home and then successfully negotiate a deal. Short sales and REOs make for a complicated and turbulent process, and competent representation from a strong knowledgeable real estate consultant is required. With the tax credit set to expire December 1^st, home buyers interested in taking advantage of this credit should start talking to real estate professionals and lenders very soon.

----------------------------------------------------------------------------------------------------------------------------

Buyers interested in learning more about the local real estate market in Loudoun and the Dulles area can contact me at vchrisner@kw.com.

Need Help with your Mortgage? Watch Your Back!

As a real estate professional, I get calls from people that are struggling to pay their mortgage, or concerned because they have to sell, and they owe more than their homes are worth. Many in my profession have been recommending services from "professional negotiators". These are companies that brag about large success rates and large volumes of completed transactions - either in loan modifications or short sales, or both. But, these "professional negotiators" cost money - anywhere from a few hundred dollars to several thousand. Most of their fee is not contingency based, and it's often required to be paid up front. Many of these companies are SCAMS. (Click here to see the CBS Articles on these scams and how the government is working to stop them.) No, I do not believe that the agents who are referring these companies recognize they are scams... I think they've been duped like everyone else. I think these agents and loan officers want to help the consumer, but they simply don't know where to send troubled homeowners to get the assistance they need. Here's the straight truth: There are different groups of consumers, with different needs, and each should be seeking the type of help they need from different types of professionals. So, WHO YA GONNA CALL? Some homeowners want to stay in their homes, but are struggling to make ends meet. These people need to be talking to their lenders, particularly if the reason they are struggling financially is a temporary hardship which will be resolved in the foreseeable future. When homeowners are overwhelmed or unsuccessful they can ask for help through HUD approved loan counselors who do not charge a fee to the consumer for their services. The reality is very few loan modifications have been done, and of those that were completed, many homeowners are delinquent, AGAIN, despite the temporary reprieve. So, they may have to find a way to sell or allow the bank to foreclose. Some owners MUST sell - perhaps because of a job relocation, divorce, or other life change, but they owe more than their homes are worth. These people need to be talking to a real estate agent they trust and working on a short sale to avoid a foreclosure. Real estate agents will charge a commission, and the fee is usually only paid if there is a successful sale. Some agents will require the use of a professional negotiator. If that negotiator's fee is a large, upfront, non-refundable fee to the seller... run. If the negotiator charges a fee to the seller, the buyer, the agent, the buyers agent, the title company and anyone involved in your transaction- run, run, as far as you can, as fast as you can. These are definately scam artists - and if they are going to require that everyone who is involved in the transaction pays a fee, then your house's chance of successfully selling is significantly reduced. Some very busy real estate agents may think it makes sense to hire professional negotiators to assist them with getting the sale from contract to close. If the agent is paying for this, and it is included in their fee, then I think this is okay - it would be the same as if the agent was hiring more administrative help to support the increased work load. I also think it is fair when agents charge more for a short sale than another type of transaction. But, commissions are negotiable, and any consumer (and agent) involved in a transaction needs to know that the bank - who is ultimately paying the commission - will have to approve the commission expense, so it must be within certain limits. [Fannie Mae issued a guideline that a maximum of 6%, with a small administrative fee is acceptable.] Still other owners are comfortable paying their mortgage and may or may not have equity, but want to take advantage of programs that are available that may help make them more comfortable - forgiving part of the debt, lowering payments, whatever is available. These people need to make friends with a good loan originator who stays up on the current trends and can tell them when there is an incentive or a loan program that will benefit them. Loan officers do get paid for originating any loan that is successfully closed, but again, only if they are successful. Consumers - watch your back. Many people out there see you as vulnerable, and they will take every last dollar you have. The government has made free help available to you, and true professional loan officers and real estate agents will be skilled in helping you navigate the ins and outs of today's market - for selling or refinancing.

What I learned about 203Ks

I finally had a buyer that used an FHA 203K loan to purchase a home. We closed on Friday. The entire process was exhausting, and the buyer will be continuing to deal with this through the next few months as renovations are done. Now that I've had this experience, I want to share with you some things that I learned:

1. All FHA loans have a minimum down payment requirement of 3.5%. It is an easy calculation when you are considering a straight purchase, but when you are doing a 203K, it is 3.5% of the total acquisition and renovation cost. Ask your lender to break that down in detail for you.

For example:

203K loan: $200K purchase price + renovation budget ($15k) + contingency reserve ($1500)+inspection fees ($1000) +mortgage insurance = $221,306 total acquisition/renovation cost x 3.5% = $7746 down payment requirement; when cash is tight, the extra $746 you might not anticipate paying at closing can be a tough hurdle.

As I learned, you can't count always count on the loan originator to remember to add in those "extra" costs when estimating your down payment... so ask lots of questions.

2. Cost Consultant: For a 203K, a HUD approved cost consultant must be involved for several reasons: (1) To ensure that post renovation, the home will meet the minimum FHA standards; (2) To ensure that you are hiring competent contractors and the contractors are doing renovation according to applicable codes; and, (3) It's an effort to reduce fraud - otherwise, FHA may be insuring loans for people who are claiming they will do renovations to a "fixxer upper" and the home may not need the repairs and/or the renovation funds may not be spent as the lender and FHA anticipate.

Remember it is FHA that is requiring this person be involved, and regardless of what anyone tells you, that cost consultant is NOT there to protect you, they are required to protect FHA's investment in the property. Allowable fees for cost consultants increase based on the amount of renovation... so, buyers beware - plan to advocate for yourself. If your cost consultant is trying to persuade you to do renovations his way, speak up. This is your home. Set a budget and priorities, and stick to it. And, beware if you are using contractors referred by the cost consultant. A good systems of checks and balances will protect you, so use unrelated parties if you can.

3. Processing Time before closing: Any government loan right now will take at least 30 days, however, for a 203K, you need a minimum of 45 days, maybe more depending on the types of renovations. As soon as you ratify a contract, talk to the contractors you plan to use and start getting proposals. Once you have these estimates, they need to be blessed by the cost consultant and lender before you can close. This likely will include needing to provide copies of their contractor license and a certificate of liability insurance, so ensure all contractor's you are working with are properly licensed and insured BEFORE you spend time with them getting estimates.

4. Renovation Funds: This could potentially be the most important thing. When will you get your funds? The lender we were working with initially said the funds would be available 10 days after closing, then, he later said 2-3 weeks. The day OF closing, we learned that it would be 6 weeks before the buyer got the first dollar for renovation; and that is not guarranteed. In the future, I will not use Sandy Springs Mortgage, as I now know this is specific to their loans; but I will REQUIRE a copy of the escrow management agreement from the lenders well before closing. That agreement should spell out how dispersements (sometimes called draws) will be managed.

I hope sharing this information with you is helpful and will help you avoid potential unexpected events in dealing with this type of loan for the first time.

Types of Sales Seen in Today's Market

This post is intended to help you understand the types of sales in today's marketplace. Whether you are a first time home buyer, or it is just one of many times you've purchased real estate, today's market is simply not the same as yesterday's. Read on to understand what you might find once you start your great house hunt.....

Traditional Sales If the prices are right, these are the best transactions! This is when "Joe the Plummer" is selling his home, and there is no third party involved on the seller side of the transaction. The contract is more “normal” in nature, allowing reasonable negotiations between the parties. Each party genuinely hopes for the sale to be completed and therefore works together to meet deadlines and ensure everything is resolved to the mutual satisfaction of all parties. Each party is likely only conducting one or two real estate transactions at a time, which are usually the largest financial considerations in that particular moment in time ~ therefore, each party gives this transaction his priority attention, and the process goes more smoothly as a result.

Considerations

• Generally, private homeowners can not compete with the aggressive pricing strategies of a bank/seller.
• Properties are often in better condition, requiring less fix up. Owners may also complete some repairs.
• Private owners generally do not consider a cash offer more valuable than common financing terms.

Short Sales In these sales, the Seller must negotiate with their lender(s) for approval before selling. They may be asking for full or partial debt forgiveness or a note payable for any deficit. Banks agreement to these sales are dependent on the ability of the family to repay the debt, and the circumstances that have changed since the loan was originally approved. This process can take several months, and sometimes does not result in a closing. Considerations:

• How many lenders are involved?
• What is the hardship/ability of the owners to repay?
• Will they be asking for debt forgiveness or a note payable?
• Who is negotiating with the bank and what is their experience level?
• Which bank is it; what is their process and has it been started?

Contract considerations:

• Longer contract periods with floating deadlines, all based on the approval timeline of the bank.
• Banks generally will not agree to a below market sale – this is determined based on an independent appraisal they conduct.
• While owners may consider doing some repairs, generally contracts are “AS IS”.
• Inspections are usually OK, but buyer can not ask for any repairs; their only choice is to terminate the contract.
• Cash offers are considered favorably, but not to the extent they are with bank owned properties.

Bank Owned (Post Foreclosure) Properties: These tend to be some of the best deals available in today’s market. Contract considerations:

• Banks are pricing aggressively, and when they do, often there are multiple competing offers for properties. You may consider submitting an escalation addendum in these cases, although some banks will not consider escalation addendums during negotiations and simply come back and ask for “best and final”, or accept an alternative offer.
• Cash is king! Banks realize the struggles and risks involved in some buyers obtaining financing. In addition, they are aware of property condition guidelines from FHA or other types of loans, which might REQUIRE repairs prior to closing… and they want to avoid this.
• By targeting homes which might not qualify for government financing, and making cash offers, you may be able to buy at a more reduced rate.
• If you are using a government loan to purchase, be prepared to have offers on REOs rejected.
• Often properties are in “fixer upper” condition, and properties are sold strictly AS IS.
• Inspections are usually OK, but buyer’s only recourse is contract termination.
• Banks require that you agree to the terms in their addenda, with NO CHANGES.
• Some banks require certified funds as deposit and/or specify who will hold the deposit.

Banks are like the military – it’s “hurry up and wait”. The timeline looks something like this:

Offer Submission

• 3-10 days later, Offer “Acceptance” (verbal or email)
• 1-2 days later, Counter Offer sent w/bank addendum
• Within 1 day – resubmit offer w/ acceptance of bank terms
• 3-10 days later, Ratified Contract.

Closing is as specified in the counter offer, which is generally a fixed date. Challenges here become getting utilities turned on to complete the home inspection; completing title searches; & obtaining HOA docs within the time frame permitted by the contract.

Banks will close AFTER you, and you will not get possession until they’ve signed off on everything. This can cause delays, I have seen more than 1 take over 2 weeks. I suggest attempting to negotiate a penalty to the banks should this occur.

Read more about Buying Post Foreclosures/REOs HERE.

Auctions: Public Auctions/Courthouse Steps: These are the foreclosure auctions. The vast majority of these are purchased by the bank who owns the mortgage/lien, which is generally more than the current market value. There are some opportunities here, but they are more limited than many expect. There are also more challenges in these transactions. Generally, no contingencies are allowed. Should your financing fall apart, you will be considered in default and not able to recover your deposit. Private Auctions/Ballrooms or at property: These are often done by banks (or other parties) and most commonly are done with a RESERVE. Again, there are sporadic opportunities here. Terms are very similar to those by any Bank Owned Homes. Be sure to understand the purchase agreement, as there may or may not be allowances for contingencies.

Read more about Real Estate Auctions HERE.

These are the primary types of sales we are seeing today... depending on your specific circumstances, you can decide which of these types of sales are ones that you would like to consider for purchase; and now you have at least some idea what you might encounter.