Month: September 2014

Must-Know Info for the Self-Employed Home Buyer

In today’s work universe, we are a nation of independent employees, and it’s the “age of the freelancer,” Fortune magazine has declared.

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The self-employed workforce should total 40% of the whole by 2020, says another study—that’s 60 million people!

Are you a self-employed home buyer needing a mortgage? Loans can be tricky to get when something as straight-forward-seeming as what you earned last year gets bogged down in a pile of pay stubs from various clients.

Self-Employed Home Buyer Blues

Julie and Michael Kurtz can’t prove it, but they’re pretty sure their independent status delayed their expected home loan approval by a few weeks this summer—which called into question whether they could close on a new condo in Chicago.

Julia is a freelance editor of technical journals, and Michael is an attorney. He also referees high school and college football; she has a shop on the handmade Web portal, Etsy, as well.

Their story has a happy ending, albeit a stressful one—they ended up getting the keys a few days later than originally planned (which also caused some hiccups for the sellers), due to last-minute requests from the bank.

“It would have been better if we’d worked with a loan company where we could have had a personal relationship with the loan officer or broker,” Julia says.

Self-Employed Home Buyer Challenges

Quicken Loans Vice President Bill Banfield notes the unexpected paperwork requests can trip up the prospective self-employed home buyer.

“The challenge for those who are self-employed can be in verifying the legitimacy and stability of their income,” Banfield says.

And new regulations enacted earlier this year mean that the self-employed face even closer scrutiny, according to the New York Times: “Borrowers who have been self-employed for less than two years will find it difficult if not impossible to obtain financing.”

Self-Employed Home Buyer Sticking Points

These are the details that a self-employed home buyer needs to prepare for when seeking a mortgage.

Debt-to-income ratios. If your business carries debt and you are the sole proprietor, that could impact how much of a personal loan a bank will extend.
Earnings. Freelancers especially often have business deductions that come out of their overall pay. Banfield uses the example of someone who earned $100,000 last year but technically took home only $60,000 after all the business deductions.
History. This is the aforementioned “two year” rule. Lenders now want to see you’ve got a somewhat reliable income history, so they know you can make your payments. One year of solopreneurship isn’t much of a history. If you just started out on your own this year, you may want to wait another one before buying.

Self-Employed Home Buyer Tips

Here are some ideas to start you off on the right path when seeking to purchase a home as a self-employed worker.

Find good people. Use a mortgage broker and/or underwriter familiar with the challenges of securing loans for the self-employed. We all need someone who can guide us through the process with consistent communication and guide us through the potential paperwork pitfalls.
Prepare for paper. You will likely have to submit more paperwork and proofs of income, debt rations and business expenses than someone who is more traditionally employed. Forewarned is forearmed.
Drop your debt. That debt-to-income ratio can be a big deal with lenders. Make yours as friendly as possible.
Get pre-approval. Yes, we suggest everyone do this. But especially for freelancers—who can struggle to understand where they stand in the mortgage world for all of the above reason—this is a vital step.

The reality is there are going to be a lot of self-employed home buyer mortgage applications as we move forward in this new economy, and the mortgage lenders have to understand this as well if they want to stay in business.

So knowing what you need to do—in advance—will go a long way towards a successful home-buying experience.

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How to Find Distressed Properties

If you’re looking to save a bit of money, and you don’t mind making some hefty repairs, distressed properties may be your answer.

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Distressed properties are homes whose owners cannot maintain them. Either these properties suffer from neglect and are in poor condition, or they are at risk of foreclosure due to non-payment of mortgage and/or taxes.

And if you’re willing to do the legwork—and handle the repairs—these homes are often sold at below-market rates, but you’ll have to find them first.

Spotting Distressed Properties

One way to find distressed properties is to choose a target neighborhood, then drive around and eyeball the homes there. Be on the lookout for these telltale signs:

Properties that stand out from other homes on the block because they are in a state of neglect
Properties where the lights are not turned on at night
Homes with yards overgrown with weeds
Broken windows and shutters in need of repair
Faded and peeling paint
Notices post on doors or windows
Uncollected newspapers and junk mail
Once you spot a potential property, make a note of the address to save yourself time later.

Make Your Offer Directly to the Seller

After you have canvassed the neighborhood and identified homes that seem distressed, send letters to the owners of the homes. Your local tax assessor’s office will have the name and address of the property owner. You can also ask a REALTOR® to locate and contact the owner on your behalf.

Some homeowners will ignore you, but others might jump at the chance to sell to an interested buyer before entering into foreclosure.

Get Help From a Pro

Using a REALTOR® can cut down on a lot of the research and contacting legwork.

If you see a distressed property for sale, try contacting a REALTOR® directly and ask them why the owner is selling. If the owner is struggling or the home is need of repairs, it’s likely a distressed property.

This also gives you a chance to start a relationship with a REALTOR®. Decide which price levels and neighborhoods you are targeting, and ask an agent to contact you about distressed properties meeting your criteria.

Be Wary of Web Searches

Internet searches can yield a wealth of information about distressed properties, but there are a few risks:

Many sites charge a fee to browse their database. Since you’ll have to pay upfront, you won’t know if the cost was worth it until you’ve already paid.
Not all sites guarantee their information. What you’re looking at online may not be what you see in person.
Some listings are outdated. You may waste time by looking at already-sold homes.
If you’re browsing online, be sure to stick with a reputable free site. Try browsing realtor.com®’s Homes for Sale to get an idea of what is available in your area.

Watch Out for These Red Flags When Buying a Home

Oh, those crafty sellers, disguising the deferred maintenance of their homes!

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We’re not saying they’ll lie, but if they can get away with selling the house and not having to spend thousands of dollars on a moldy basement re-do?

Well, it’s hard to blame them: they want to make the most of their home investment, too.

When buying a home, keep a keen eye peeled as you asses the potential of your new house, and hopefully you can avoid the costly mistake of buying a place that needs a lot of pricey repairs soon after closing.

Or at least, gain some leverage in negotiating costs and/or required fixes, so you aren’t stuck with a new mortgage—and new repairs.

Here are some tell-tale signs to look for when buying a home:

Signs of Deferred Maintenance

How do you discover the true condition of a sale home? Use all your senses.

Look at the walls: cracks can indicate a shifting foundation. Signs of water damage, like peeling ceilings, can indicate the need for roof repairs. New paint on a single wall could hiding mildew, mold or water damage.

Smell the basement. Do you detect a hint of mustiness? This could signify mold. Touch the electrical faceplates—are they warm? Is that an odd shadow on a wall? Or a bump that means a shoddy repair?

Ask yourself these questions, too:

-Does the masonry have visible cracks or crumbles?
-Are there broken fixtures?
-Are there any barricaded spaces in attics, basements or corners of rooms?
-How do the electrical outlets and vents look?
-Do the doors and windows open and close as they should—with no sticking, uneven corners or drafts?
-Get Help From a Home Inspector When Buying a Home

Thankfully, you’re not alone in determining the conditions of prospective homes.

Home inspections become crucial here, as they locate red flags. A qualified home inspector is trained to spot structural and system problems that layman won’t notice. They can advise on potential repairs. They’ll check the reliability of your heating and ventilation system, and they also can spot foundation problems your untrained eye may skip.

Your reliance upon the expertise of the home inspector allows you to mount a little offensive when buying a home. You can use the defects described in an inspection report as an effective negotiating tool to get a better price with the seller.

The lender’s appraiser may also have some thoughts. While they are tasked with ensuring the lender is making a good investment, they may also spot some issues. A new rule gives buyers the right to see the appraisal, which could note issues with the house.

Look Closely at the Neighborhood When Buying a Home

You are buying into a neighborhood as well as into a home. Check red flags in the area, too. Abandoned and boarded-up buildings or excessive amounts of garbage and graffiti are obviously not good signs.

Is there local industry in the form of factories or business parks? Do neighbors park on the streets or in garages? Are cars and debris filling adjacent yards? In other words, do people take pride and care in their community? And are there signs of stability and growth?

Of course, you may also see the good signs: senior citizens walking, children playing, clean school yards, parks, convenient shopping, places of worship and a public library. You know what you want in a neighborhood. Make sure you see it.

Resolving Repair Issues When Buying a Home

If you do find red flags, they may not tank the deal, as long as you bring them up. A good REALTOR® can help you with this.

Major issues—like plumbing, electrical wiring problems or structural concerns—could push a motivated seller to agree to fix the problems or lower the price of the home. Because if one buyers spots them, another one might, too.

If the neighborhood, the home layout and the price all seem right, it might be worth trying to push the seller to mitigate those flags. And once they’ve finished, you’ll have the home you’ve always dreamed about right in front of you.

9 Things Buyers Regret Overlooking

At the end of the home-buying process, you will be faced with closing costs, the fees due at signing required to complete a home sale. Closing costs can be expensive, but some of those fees may be negotiable.

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Check the Market Temperature

The nature of the housing market may dictate whether the buyer or the seller picks up various closing costs.

If it’s a buyer’s market—a bit cold and homes aren’t selling well—sellers may be more willing to bargain and take on some closing costs.

If it’s a seller’s market—the market is hot and homes are selling quickly—the seller has the advantage and little incentive to give the buyer a break.

However, you shouldn’t accept any fishy-looking fees without asking first.

Which Closing Costs Are Negotiable?

When you apply for a loan, your lender or mortgage broker must provide a good faith estimate (GFE) of fees due at closing.

This is a very useful tool, but bear in mind these are estimates—not guarantees. Compare the GFE to the final closing costs statement and the HUD-1 settlement statement to look for big differences.

Some fees are generated by third parties and typically don’t change very much, no matter where you find your loan. Then there are additional expenses you can’t control, like taxes and government fees.

Other fees may be junk fees—costs that are put in by the lender to pad out the bill. These fees should be able to be negotiated or waived.

Negotiable fees are generally found in the 800s section of the GFE. They may include the following:

Title Insurance: The lender will recommend one, but you don’t need to accept it. You can shop around, compare fees, and go with the one that suits you best. However, you can’t have this waived.
Commitment fee: These are just there to make sure you don’t jump to another lender. Ask to have it waived. If you can’t, negotiate that if the loan falls through due to the lender, the fee will not be charged.
Application fee: Some loans have an application fee. Ask your lender if they will waive or credit this fee towards closing costs.
Miscellaneous fees: Ask exactly what these are for, especially if they are high.
Courier and mail fees: With almost everything being digital, your lender should provide evidence these fees were necessary.
Discount points: These increase your closing costs but reduce your interest rate. If you have discount points and your closing costs are too high, you may want to eliminate them. Talk it over with your lender and be sure to figure out the new monthly mortgage payments if you do.
Just Ask If You Have Questions

It is your right to question anything on your HUD-1 and GFE documents, so do ask questions if you feel a cost is too high or doesn’t make sense.

Simply asking the lender to explain certain fees might be enough for the lender to waive them, particularly if they were junk fees to begin with.

Don’t Get Intimidated by Closing Costs

Even if your closing costs rise significantly beyond your GFE, you may feel pressured to accept them to avoid losing the home to another buyer.

Don’t!

Many lenders would rather close a deal instead of going through the process again with another buyer. Use that to your advantage and be prepared to walk away from the table.

As you review your closing costs, be your own advocate. It’s a good idea to visit a few different lenders and compare GFEs.

Always make sure you receive a thorough explanation for any fees that seem unusual, unnecessary or just too costly.

Listing Agent vs. Buyer Agent: Who Works for You?

It may seem perfectly logical to call the agent on the yard sign while driving around your dream neighborhood searching for your next house.

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The sign might have a QR code or text code to allow you to quickly access more information—but beware. Your information goes directly to the listing agent and the listing agent works for the seller, not the buyer.

Sellers and agents have a written contractual agreement outlining their relationship. It’s called the Exclusive Listing Agreement. It outlines the role of the listing agent, how they will market the party, the commission and the terms of the listing.

The Listing Agent is the Seller’s Representative

That means the listing agent has a legal obligation to work on the seller’s behalf—to get the highest possible price and the best terms available for the seller, not the buyer.

The listing agent legally is obligated to share any information they learn about the buyer with the seller. If a potential buyer walks into an open house and strikes up a conversation with a personable listing agent, any information divulged there can be used against the buyer during eventual negotiations.

So telling a listing agent you are relocating within the next month for a new job at a high profile company with a great offer that increased your salary so now you can afford more house than before? That can hurt you later if it comes to a bid on the property.

Listing Agents Wear Many Hats

There are many facets to a listing agent’s job. They work closely with the seller and provide a bevy of services. Here is a sample of what most listing agents do for each seller client:

-Create a marketing plan for the house
-Have professional photos taken of the house
-Advise the seller about the best ways to stage the house for sale
-Generate Comparative Market Analysis reports to suggest the best selling price
-Recommend contractors and vendors to help prepare the home for market
-Evangelize the benefits of the house and neighborhood to potential buyers
-Coordinate showings with buyer agents and unrepresented buyers
-Host “Broker Opens” to get as many potential buyer agents into the house for feedback and to attract buyers
-Make the house easily accessible for showings
-Provide showing feedback
-Communicate market activity to the seller with weekly updates/reports
-Present and advise sellers of all offers
-Negotiate the highest possible selling price
-Coordinate the purchase process with inspectors, attorneys, appraisers, title company agents and others
-Verify buyer eligibility to purchase
-Make the home selling process as easy for the seller as possible

The listing agent is the homeowner’s biggest advocate.