Real Estate Search Direct

In these troubled times, buying a home is more complicated than ever. So where do you start when buying a house?

Homer Buyer was eager to begin his search for a home.  He had started planning to buy a home while he was still in graduate school. Now that he had a job and a decent income, he wanted to be a homeowner.

Homer started his search by looking in the newspaper classified ads and searching online for homes for sale. Homer saw many homes that looked interesting to him. He was judging mostly by location and appearance.

Homer had no idea how much room he needed or what amenities he needed. He had never bought a home before and he hadn’t really thought about what would be involved.

Homer was quickly overwhelmed by all the choices to sort through: Mobile Homes, Condominiums, Town Houses, Single Family Residence, Single Family Attached, Co-op. This was just the broadest of classifications. There were multitudes of options within each of these types.

There were houses with anywhere from 0 bedrooms to 5 bedrooms and 1 bathroom to 6.5 bathrooms. “What the heck is half a bathroom anyways?” Homer wondered?

There were some with a carport and others with 3 car garage. Air conditioning, central heating, swimming pool, basement… The list went on and on.

Homer wondered how he would ever figure out what property to buy. Then there was the matter of price. Homer knew how much he was paying for rent, should he use this amount to figure out what he could afford to buy? How did it relate to a house payment?

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Comments (2) Jan 31 2009

If you are reading the classified ads looking to buy a house, you are probably familiar with the term FSBO (For Sale By Owner).  Should you buy a FSBO?

Homer Buyer thought that he would be able to buy a home at a better price if he bought a FSBO.  He figured that if the seller didn’t have to pay a real estate broker’s commissions, he could pass some of the savings on to the buyer.

Homer bought a local paper and started searching the classified ads.  He saw many that were listed with an agent or broker, but he skimmed over them.  He was searching for those listings that contained the magic letters – “FSBO”.

Homer found several listings in the paper. He noticed there was a wider selection of homes in the ads that he skipped than there were FSBOs.  He also saw that the ads for those listed by a broker were usually more descriptive and sometimes even had photographs.

He started calling on ads labeled “FSBO”.  He frequently got answering machines and sometimes no answer at all.  The seller was probably at work.  He did reach one little girl who told him only that “Mommy is sleeping,” and asked “Do you like cookies?”  Homer decided to try again in the evening.

That evening, Homer reached a few more of the FSBO sellers.  The first man, when he said he was calling about the ad in the paper, asked gruffly “Are you an agent?”

“I am interested in buying your house,” Homer replied.  The seller explained that he had been getting calls from agents trying to get his listing ever since he put the ad in the paper.  He asked Homer if he could come over right away to look at the house.

Homer still had several calls to make and he planned to take Saturday to look at several properties at once.  Besides, he wanted some time to research the properties before he met the seller.  He knew that he needed to be prepared to negotiate.

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Comments (0) Jan 29 2009

When searching for affordable housing, it can mean many different things depending on your personal budget and minimum standards.  It can also mean different things depending on your goals. 

What do you call affordable housing?

Affordable housing to some, may be a small apartment in a bad neighborhood.  To others, it may be a nice house with an ocean view.

Homer Buyer has his own idea of affordability.  When Homer was in graduate school, he went out for lunch at McDonald’s one day.  He stepped up to the counter to order. He was expecting to see someone younger than himself working behind the counter.

Instead he saw a man with gray hair, and bifocal glasses.  He didn’t know how old the man was, but he guessed almost 70.  Homer ordered his meal and sat down to eat, but he was curious about the man who had served him.

Soon, the man took a lunch break and came to the dining room to eat, so Homer went over to him.  He saw the fellow’s name tag said Jacob.  He asked, “Jacob, can I join you for lunch?”

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Comments (3) Jan 24 2009

As a first time home buyer, there are many ways the government helps you get started as a home owner.  How can you afford to buy your first home?

Homer Buyer asked this same question.  He had heard that 20% was the minimum down payment required on a mortgage.  With home prices in his area being more than $300,000 he would have to save $60,000 for a 20% down payment.

Homer had promised himself he would buy a home once he finished college.  Homer had just finished his Masters degree in Computer Science.   He had a great new job starting at $85,000 per year.  Even if he saved every penny it would take over six months to save that much, after taxes.

And he had other expenses too.  He was renting a nice apartment suitable to his new station in life.  He needed to pay utilities and food.  A car payment, insurance and gas.  When he added it all up, he had less than $1500 per month to save for a down payment.  It would take him 40 months to save up for the down payment.

Homer didn’t want to live the next three years in an apartment saving for a down payment, all the while helping the landlord pay his mortgage.  Homer wanted to start paying down his own mortgage, instead.  He looked forward to the day he owned his own home free and clear, and wanted that day to come as soon as possible.  What was Homer to do?
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Comments (0) Jan 23 2009

In these times many people are curious about the bank owned properties seen everywhere.  So why shouldn’t you buy a bank owned property?

The typical first time home buyer, Homer Buyer, started looking to buy a new home last November.  He checked the Multiple Listing Service (MLS) for his area to see what homes were on the market.

Homer saw that there were a lot of properties listed as Bank Owned or REO properties.  Then there were other properties listed as short sale or subject to lender’s approval.  He saw many that were listed as foreclosures, too.  Other properties that didn’t have these phrases in the listing were usually priced higher.

Homer was confused by all the unfamiliar terms.  He didn’t know what he should be interested in, or what to steer clear of.  He saw many short sale and bank owned properties that were listed much lower than comparable houses in the same area.  He didn’t trust these and thought they sounded too good to be true.

On the other hand, Homer was worried that prices might continue to fall as they have been lately.  He heard that the best way to protect yourself from decreases in the market was to buy well below market value.  Homer wondered if these bank owned, REO, short sale and foreclosure listings could actually be bought at the price listed and far below market value?

So what do you think?  Should you buy a bank owned property?

In some of the cases, Homer was justified in being skeptical about the low list prices.  Properties listed as short sales are actually pre-foreclosures.  These are homes where the list price is less than what is currently owed on the property.  The owner wants to sell in order to avoid foreclosure, but they know they can’t get as much as they owe.

Any offer is “subject to the lender’s approval”  because the lender will have to accept less than what is owed as payment in full for the sale to close.  The problem with these deals is that the lender doesn’t often say what they are willing to accept on a short sale until they have received an offer.

Because the property is in default the foreclosure clock is ticking.  In order to get some offers to give the bank before it is too late, the sellers real estate agent lists the property with a very low price.

There is no evidence that the bank is willing to accept anything near the list price in this situation.  Unfortunately, the low list prices, however unrealistic they may be, have the effect of driving the market prices down.

Bank owned property, on the other hand, has already been through the foreclosure process and now belongs to the bank.  This is also referred to as REO (Real Estate Owned) for the term the bank uses to classify the asset on the ledgers.  In this case the listing agent is hired by the bank to sell the property and the bank is involved in determining the list price.

This means that there is a good chance of getting the property for the list price if there are no higher offers made.  In some cases you may even get the property for less than the list price, even though it is listed below market value.  The closing time is usually less than what is involved in a short sale because the bank is actively trying to sell the property.

For more information on buying bank owned properties and short sales, visit Bargain Network Homes.  There you will be able to search for properties and learn how to make offers on them.  You can find an ad for Bargain Network Homes under the label Promotion in the right side of the page.

Allen Davis
Founder, RealEstateSearchDirect.com

Comments (1) Jan 22 2009

Comments (0) Jan 22 2009

Mortgage brokers are taking a lot of heat over lending practices that helped bring on the credit crisis and ultimately the current economic situation. So can you trust mortgage brokers?

The mortgage broker industry has gotten a bad reputation lately.  Many buyers prefer to go directly to a lender to avoid dealing with mortgage brokers.

Here’s a story that illustrates some of the practices that are damaging mortgage brokers’ reputations.  Brian had little money for a down payment and barely enough income to qualify for the house Brian was interested in.  He went to his bank to ask for a loan, but was told he didn’t qualify because his debt to income ratio would be too high.

Brian heard from a friend that Sky High Lending would be able to get him a loan.  Brian went to Sky High Lending and met a broker there.  The broker told Brian he would be able to get him a loan to buy the house he wanted.

Brian was thrilled.  He was going to get the house he really wanted.  He didn’t want to ask the mortgage broker too many questions as long as he could buy his house.

The mortgage broker told Brian that he wouldn’t have to pay any broker fees, they would be paid by the lender.  Brian thought that was great since he didn’t have much money to pay closing costs.

What Brian didn’t know was that the mortgage broker went to the lender that would pay him the highest fees, not the lender that had the best loan for Brian.

The lender paid the broker a Yield Spread Premium of $2500 for getting Brian to agree to pay a 0.5% higher interest rate than the market rate.  Brian could have gotten the market rate if he had gone directly to the same lender.

The mortgage broker got Brian an option ARM loan so Brian could afford to make the interest only payments.  Brian also had options to pay more or less each month.  The mortgage also had a balloon payment due in 3 years.

The broker suggested that Brian refinance his house in two years to avoid making the balloon payment.  He told Brian that by then the appreciation should bring him enough equity to get a better loan.

The mortgage broker also hoped to get paid more fees in two years when Brian came back to refinance.  He knew Brian would have to refinance or lose his home when the balloon payment came due.

He also knew that with the option of paying less each month Brian would probably not have enough equity built up to qualify for a better loan, so he would refinance into another similar loan that would need refinancing in another two years.  Should Brian have trusted this mortgage broker?
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Comments (11) Jan 20 2009

Comments (0) Jan 18 2009

Have you seen the increase in houses for sale over the past year? Do you wonder why? Here is an example to illustrate.

Bill bought a house in 2006 for as much as he could afford. He got an option ARM. Have you heard about those in the news lately? They are loans with a low introductory interest rate and give you the option to make different payments. You can pay a payment that will pay off the principal in 30 years, an interest only payment, or a minimum payment that doesn’t even pay all the interest.

Bill rented the house out for more than the minimum payment and had a positive cash flow on the property. So Bill did it again with another house. And another. Bill ended up with 6 properties and they were all rented for more than the minimum payment.

Bill thought he was doing well. He had $3000 extra cash from his rental properties each month. But then Bill’s loans started adjusting. One by one his minimum payments increased. Soon he was paying $2000 per month for people to live in his houses.

He tried to refinance, but the extra interest had added to his principal and he owed more than the properties were worth. No bank would lend him the money.

Bill stopped making the payment on one house and used the rent he received to help pay the mortgage on the other five. He still couldn’t make ends meet, so he stopped making payments on a second house.

Now he was able to make the payments on four of the houses by collecting the rent on all six. But after a few months, the bank foreclosed on the two houses he wasn’t making payments on.

The renters moved out and Bill was stuck again. Finally, Bill gave up making any payments at all. He lost all of his houses to foreclosure.

Now the bank owned six houses that they didn’t want, so they put them up for sale.

So do you wonder why so many houses are for sale lately? Of course not all of them were from Bill or people like him, but many of them had option ARM loans on them before the bank took them back. So how can you get the right financing for your house?
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Comments (0) Jan 18 2009

Have you heard all the things that can go wrong when building a new home?

My brother bought a newly built house in a big development tract.  After living in the house for less than six months he noticed some discoloration on the wall of his daughters bedroom.  He found out that a slow leak had been soaking the interior of the wall for months and now it was full of mold.

He had to put his daughter in the same bedroom with her two brothers while the leak was fixed, the mold removed, and the wall repaired. His children were sharing the same room for months before her room was livable again.

A friend of mine bought a new 3 bedroom condominium.  He found it was hard to afford the $175 to $250 electric bill to keep it cool because it was so poorly insulated.
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Comments (11) Jan 17 2009