Month: September 2009

With the unprecedented drop in home prices, more people can now afford to get into the market. However, there are some things that first-time homebuyers should keep in mind.

Contact your mortgage professional to find out what you can afford before you start to look. Being realistic from the beginning of the process will enable you to set expectations appropriately.

Plan on putting down between 3.5 and 5% of the purchase price. This can come from either your own funds or be in the form of a gift from a close relative. Other up-front expenses will include closing costs and escrows.

If you’re looking at either foreclosures or short sales, allow extra time to complete the process, as these sales need to be approved by the holders of the mortgages on the properties. These lenders are undoubtedly overwhelmed at this point in time, so they might take several weeks or more just to respond to an offer submitted on a property.

Keep in mind that the $8,000 first-time home buyer tax credit will take effect when you file your taxes next year. The program is set to end December 1, 2009. Many people think you can use some of this money at closing, but you cannot.

There are very rare instances where an at-closing credit would apply, but these cases involve the use of a third party, such as a charitable organization.

Always have an experienced real estate attorney involved in the process, and have him or her review everything that you sign.

If it seems like short sales have suddenly exploded in the real estate arena, it’s not your imagination.

Once considered relatively rare, short sales have become a common phenomenon in the past 18 months, thanks in large part to the banking and mortgage crisis.

To find out if you can benefit from a short sale, here’s some helpful information about the practice.

What Is a Short Sale?

Short sales occur when the bank and seller agree to a purchase price for real estate that is less than the original mortgage amount and does not cover the entire cost of the existing debt obligation.

Who Benefits?

Depending upon how the deal is structured, everyone can benefit from a short sale.

The seller benefits from the ability to save his or her credit rating and avoid bankruptcy or face a mountain of debt, the buyer benefits from acquiring a property at below market price, and the lender benefits from a sure sale that reduces the risk of a property going to auction or of having to foot the bill for foreclosure and additional expenses.

Considerations and Consequences

Short sales are not without consequences, so take time to carefully weigh all options before making a decision.

Sellers need to carefully review the terms prior to signing a final contract.

Some lenders expect the seller to make up the difference between the selling price and the full amount of the original mortgage.

Buyers should also proceed with caution, as many properties have additional liens, deferred maintenance, back taxes or other expensive fees that become the obligation of the buyer.

Additionally, short sales may require substantial time before obtaining final approval, which can make it difficult to lock in favorable rates or result in the loss of other prospective properties.