Home Buyer Tips Archives - Page 4 of 12 - Real Estate News and Commentary

July 21, 2009October 5, 2019

Is it a scam, fraud, or legitimate transaction?

Simultaneous Closings

Some say it’s illegal, some say it’s fraud, some say it’s a scam, and yet others say it’s legal if disclosed. This is the mixed response that a real estate investor gets when trying to conduct a simultaneous closing. The fact is that that a simultaneous real estate closing is a legally complex transaction and has many pitfalls as well as consumer protection issues.

This does not stop the real estate investor who is looking to make a quick buck with little or no money down. A simultaneous closing (also known as a double closing) occurs when a single home is sold twice in the same day. The real estate investor (sometimes referred to as the “middleman”) settles his purchase from the owner, and almost immediately settles on the sale of the home to the home buyer.

Because of the obvious questions raised by such a transaction, investors sometimes use a technique called an “assignment” to get around some of the problems they encounter with a simultaneous closing. Rather than closing both the purchase and sale the same day, the investor assigns their sales contract to the home buyer for a fee.

Home buyers and Realtors may come across such sales as real estate investors advertise to attract home buyers to complete these transactions. Real estate investors may list the home in the MLS or place and ad as a FSBO- appearing to be the owner of the home (although they do not actually own the home). When entering into a contract with a home buyer, they may or may not disclose the nature of the sale.

Many times, home buyers take for granted that the home is being sold by the actual owner. As mortgage fraud and real estate scams increase, home buyers are encountering more irregularities. However, it may become evident to you and your Realtor that an investor is attempting a simultaneous closing or an assignment when: 1) the name on the public record does not match with the name of the person who is selling the home; and 2) the home is difficult to show- there are confrontations with the occupant (often the actual owner).

Buying a home through such a transaction poses some problems for the home buyer, including securing financing. A mortgage lender will not lend money to purchase a home from someone who does not actually own the home, an obvious stumbling block for the real estate investor. Although most title agents stay away from simultaneous closings, savvy investors will pressure the home buyer to use their title agent; the investor’s title agent may issue a title binder for the transaction making it appear that the investor owns the home to meet the buyer’s lender’s requirements.

Putting aside the obvious questions of meeting your lenders underwriting guidelines and possible fraud, it’s prudent to exercise your right as a home buyer to choose your own title agent for your purchase; a title agent uses due diligence to ensure there are no irregularities with the deed and title to the home to issue a title binder and title insurance.

The simultaneous closing or assignment transaction is legally complex for the home owner, real estate investor and the home buyer. If you find yourself in a simultaneous closing or assignment transaction, consult an attorney for legal advice.

Original published at https://dankrell.com

By Dan Krell

March 3, 2009October 5, 2019

Programs to Help Home Buyers

Tempted by terrific deals but frustrated by lack of financing, many home buyers are holding back from jumping into the real estate market. However, home buyers who qualify for a mortgage find themselves held back because they do not have the funds for their down payment or closing costs. If you are considering a home purchase this spring but find that financing and personal funds are limited, a few options you may want to consider include the FHA mortgage, the Maryland Mortgage Program, and the American Dream Downpayment Initiative.

While conventional financing has been reduced by increasingly restrictive underwriting guidelines, the FHA mortgage has re-emerged and re-established itself as the mortgage of choice for many home buyers (HUD.gov). The FHA mortgage’s low down payment, flexible underwriting, and provisions for gift funds make it clear why it is a poplar way to finance home purchases:

First, even though the down payment requirement for the FHA mortgage increased to 3.5% last fall, it is still lower than most conventional mortgages. Compared to a 5% or 10% down payment conventional mortgage, a home buyer needs thousands less to purchase a home.

Second, if you experienced past credit problems you may find it increasingly difficult to qualify for a mortgage. However, FHA’s flexible underwriting allows home buyers to have had past credit issues with documented mitigating circumstances and sufficient re-established credit.

Lastly, if you are short on funds, the FHA mortgage will not only allow the seller to contribute up to 6% of the sales price towards your closing costs, a family member may gift you the amount you need for your down payment as well! Of course, the source of funds needs to be carefully documented, but the combination of seller assistance and family gift could allow you to purchase a home with very little money down.

Another home buyer program is the Maryland Mortgage Program (mmprogram.org), offered through the State of Maryland’s Community Development Administration. The Maryland Mortgage Program includes several programs, when combined, can also allow you to purchase a home with little money down. First, the program offers mortgages through Community Development Administration (CDA) financing, which feature fixed, low interest rates. Second, the program offers the House Keys 4 Employees program, which matches contributions from participating employers (up to $5,000). And third, the program offers grant assistance through CDA for down payment and closing costs (either 2% or 3% repayable grant).

A final home buyer resource is the American Dream Downpayment Initiative (ADDI) offered through the Montgomery County Department of Housing and Community Affairs. The program is a government subsidized down payment and closing cost program for first time homebuyers. Since funding is limited throughout the country, Montgomery County has specific eligibility guidelines.
Since each program may have specific eligibility requirements and funding limitations, you should check with the each program provider to see if you qualify; and although FHA guidelines are well established, you should check with your FHA lender for specific credit and underwriting requirements as you may find that many FHA lenders impose additional credit requirements and other limitations on top of the flexible FHA underwriting guidelines. Finally, because interest rates and fees vary from lender to lender, HUD recommends that you compare rates and lender fees.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of February 23, 2009. Copyright © 2009 Dan Krell

October 20, 2008November 23, 2021

How do you know if you are ready to buy a home?

by Dan Krell
Google+

Did you know that we are in the midst of the best home buyers market in since the 1970’s? Real estate guru and national speaker, Bernice Ross (Realestatecoach.com), thinks so and that’s why she proclaimed 2008 as the “best buyer’s market in thirty five years!”

Ms. Ross asserts that the combination of low interest rates and high inventory makes this real estate market prime for home buyers. She supports her claim by explaining that interest rates have not been this low since the seller’s market of several years ago (when inventory was very low) ; and previously in the 1970’s. Additionally, mortgage interest rates during the previous major home buyer markets were much higher (18 to 20% in the early 1980’s and about 11% early 1990’s).

Certainly, it may seem to be a time filled with home buyer opportunity: Housing inventory is at a level unseen for years, giving home buyers many homes to choose from as well as negotiating leverage in neighborhoods filled with homes for sale. Additionally, interest rates are relatively low making homes more affordable. Furthermore, home buyer tax incentives (including the recent tax credit of up to $7,500) as well as rising area rents may make home buying a viable alternative.

Would economic turmoil put a damper on the excitement that would otherwise be generated by “the best home buyer’s market in thirty five years?” Some financial commentators say “yes.” For example, Luke Mullins states that you should not buy a home unless you have a compelling reason to do so (USNews.com, August 14, 2008). Steve Kerch of The Wall street Journal’s Market Watch (MarketWatch.com, September 24, 2008) reported that the best indicator of economic confidence is the purchase of a home.

The truth is that “the right time to buy a home” depends on the home buyer. Relying on broad sweeping statements (positive or negative) about the real estate market may not be helpful. Many personal and regional factors need to be considered and assessed. Before you decide to buy a home, you might want to examine such issues as (but not limited to) your personal and financial goals, your current financial condition, and your career outlook.

The question, “How do I know if I am ready to buy a home?” is answered by HUD’s (HUD.gov) “100 questions and answers about buying a new home.” If you can answer yes to the following questions, HUD believes you may be ready to buy home: Do you have a steady source of income? Have you been employed on a regular basis for the last 2-3 years? Is your current income reliable? Do you have a good record of paying bills? Do you have few outstanding long-term debts, like car payments? Do you have money saved for a down payment? Do you have the ability to pay a mortgage every month, plus additional costs? Other experts add these questions as well: how long do you intend to stay in the area, do you have emergency funds available, are you ready for the responsibility of homeownership, and do you live within your means?

In addition to consulting with your personal financial adviser and accountant, HUD recommends you attend home buyer counseling to help you determine if you are ready to buy a home.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 13, 2008. Copyright © 2008 Dan Krell.

October 6, 2008November 23, 2021

Be Prepared to Repair Home Before You Purchase It!

by Dan Krell
Google+

The FHA mortgage has recently changed to accommodate the changing marketplace. Due to its broad availability and higher loan limits, the FHA mortgage is more prevalent now than it has been in the recent past. So, if you are a home buyer, it’s a good chance that you may be applying for a FHA mortgage to purchase your home.

You can expect the FHA underwriting to be flexible yet careful and thorough. You know that FHA underwrites your credit as a buyer, but did you know that FHA underwrites the property condition as well?

FHA underwriters and appraisers are required to assess a home for security, safety, and soundness. To protect your interests as a home buyer (security), as well as the interests of the FHA and lender, the home you are buying must meet minimum health and safety standards, as well as being structurally sound. Any deficiencies identified by the FHA appraiser will be required to be repaired prior to your closing (HUD.gov).

Having a home inspection may allow you to identify easily seen deficiencies within the home. If there are any safety or structural issues, you can be fairly certain that the FHA appraiser will see these as well and require these items to be repaired. However, since your home inspector is not an appraiser nor is the appraisal a home inspection (and having different purposes), there may be disparity between the two.

Items that are often identified by the FHA appraiser as needing repairs include (but not limited to): defective (peeling or chipping) paint surfaces in homes built before 1978; broken windows; roof having less than two years of useful life remaining; drainage problems; lack of handrails on stairwells of three or more steps; pest infestation; damaged and/or non-functioning electric, plumbing, or HVAC systems; foundation and structural defects; underground fuel (i.e., oil) tanks; and any other health or safety issue (fhainfo.com).

The FHA addendum (GCAAR form 1330 in this area) explains who is to make the required repairs: the buyer typically gives the seller notice what repairs are to be made. However, if the seller refuses to make the repairs the buyer has the option to make the repairs themselves. If both the buyer and seller refuse to make the repairs, the contract becomes void.

Many times, the buyer and seller negotiate as to how the repairs are to be made prior to closing. However, if you are purchasing a bank owned home, the bank usually prohibits the buyer from making any alterations to the home prior to settlement- including repairs.

If the home is in poor condition, however, the FHA appraiser will likely reject the home for FHA 203b financing. Don’t worry, though, you can apply for the FHA’s renovation mortgage (FHA 203k). Additionally, you can apply for a FHA 203k if the home you are purchasing is conveyed “as-is” (such as a bank owned home or short sale) and repairs are required. Be careful though, not all FHA lenders offer the 203k loan; you can find a FHA 203k lender at HUD.gov.
The FHA mortgage is an excellent way to finance your home purchase. However be prepared because property condition can sometimes turn a seemingly good deal into a no-deal.

October 2, 2008September 27, 2018

Buyer beware when purchasing distressed property

Buying a bank owned home might be a great way to get a great deal on your first home or the home of your dreams. However, you will find that buying a distressed home from a corporate owner is slightly different than purchasing a non-distressed home from an owner-occupant.

When you are purchasing a bank owned home, the bank requires you to sign addenda that favor the bank in many ways. Foreclosed homes that are sold by banks are exempt from many disclosures, including the Maryland Residential Property Disclosure And Disclaimer Statement (which discloses the home condition as well as any latent defects). Additionally, banks selling foreclosures (and their real estate agents) will sometimes want to take control of the entire transaction by coercing you to use their vendors, including their title company.

First and foremost, the bank is selling the foreclosure in as-is condition. This means that “what you see is what you get.” Often, what you don’t see is what you get as well. The bank addenda will warn of possible mold and other hazards that may be in the home. Even the best of homes can develop issues due to having utilities disconnected as well as being vacant for many months. A thorough home inspection, that may include testing for environmental hazards, is highly recommended to determine the condition of the home.

Another consideration in purchasing a foreclosure is that the bank will only offer you a Special (or limited) Warranty Deed. In a typical residential transaction, the seller will provide to you a warranty deed that guarantees that the seller has the ability to sell the home, and all debts held against the home are paid. However, buying a foreclosure is a bit different in that the bank will only provide a deed that covers the period the bank has had ownership of the home. Owner’s coverage title insurance will usually protect you from title defects not corrected by the bank; however, as policies vary, you should read the fine print.

Lastly, your deposit will become non-refundable after a short period of time. The bank will give you a short period for due diligence (obtain financing, conduct home inspection, etc); be prepared to act quickly!

So, is it a good idea to purchase a foreclosed home? Buying a foreclosure could be a real coup for you- but you must do your due diligence. Before you write an offer on a foreclosure, line up your vendors (such as home inspector, title attorney, contractors) so you can act quickly by having your team determine the home’s condition and legal status.

Unfortunately, the proliferation of distressed properties has some real estate professionals believe that consumer protection laws do not apply (such as RESPA and Maryland’s Wet Settlement Act). Make sure you are well represented! As a home buyer, you have the legal right to choose your vendors (including home inspector, title attorney, lender, etc.).

If you are planning to purchase a bank owned home, it is highly recommended that you review these special addenda carefully as well as consulting an attorney if you do not understand what these addenda require of you. Remember, “caveat emptor” applies when buying a bank owned home.

Original published at https://dankrell.com/blog/2008/10/02/buyer-beware-purchasing-a-bank-owned-home/

By Dan Krell