Posts Tagged ‘foreclosure’

Using government loans after a derogatory credit event

February 21, 2017

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Last week, we focused on using conventional loans to purchase a home after a major derogatory credit event such as a bankruptcy, short sale, foreclosure, etc. This week, we will focus on VA and FHA loans offered by the government.

In every instance, a government loan has a shorter waiting period after one of these events. It is the loan of choice to use if it will fit your needs. Let’s discuss the waiting periods:

  • Chapter 7 bankruptcy: requires a 2-year wait
  • Chapter 13 bankruptcy: requires a 1-year wait from the beginning of the payout period
  • Multiple bankruptcy filings: VA requires only 2 years, but FHA is a case-by-case basis
  • Foreclosure: VA once again is only 2 years, but FHA is 3 years.
  • VA Specific: in order the qualify for a VA loan (in addition to being a veteran), there must be a 1 year minimum of re-established after the judgement dates and other derogatory events paid/resolved
  • FHA Specific: If HUD has a claim against a borrower for a foreclosed/short sold home (and that home was financed using an FHA loan), a borrower isn’t eligible for a new FHA loan until after 3 years from the date of the claim being paid.

As anyone can read here, government loans have a much shorter waiting period than conventional loans. As low as one year, but mostly just a 2-year wait. An FHA or VA loan would be the preferred method for buying a home after one of these major events. That said, there a couple of situations that make conventional loans the way to go:

  • the borrower is not eligible for a VA loan (so you go FHA unless….)
  • the loan needed to purchase a home will exceed the maximum FHA allowed loan amount
  • there is a claim against the borrower from HUD
  • a borrower is not eligible for an FHA loan due to CAIVRS (a government credit monitoring tool to ensure people who take out government loans pay them back)

The last two on the list are not that common, so buying a home within the FHA maximum loan limits would be the way to go. In addition to a shorter waiting period, the interest rate tends to be better than conventional loans, the borrower only needs a 3.5% down payment, and the monthly mortgage insurance rate is lower. A borrower’s credit score will confirm those items, but in general, those are all reasons why FHA loans are the best way to go after a derogatory credit event.

Completed a bankruptcy two years ago, and ready to buy a home in Georgia? If so, we can get started today in the process. Contact me and we’ll make sure you qualify for a loan, and then send you out looking for your next home.

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Mortgage life after a derogatory credit event

February 14, 2017

blog-author-clayjeffreys3

An unforeseen event takes place… a medical event, job loss, divorce, death of a spouse… before you know it, bills are piling up and they never seem to end. Eventually this buildup could result in a bankruptcy, foreclosure, short sale… a major derogatory credit event. Once it is over, will you ever be able to buy a home again?

The answer is yes. During the housing boom, someone could apply for a loan the day after completing a bankruptcy. Let’s just say guidelines are different now, but not insurmountable. Most people assume there is a 7-year wait after something as big as a bankruptcy or foreclosure. That is true if you are looking to qualify for a Jumbo loan (any loan amount over $424,100). On the other hand, if you are looking to buy a home for say $350,000 with the minimum down payment, is it still a 7-year wait?

No, definitely not.

This post will focus on conventional loans. Next time, we’ll discuss government loans.

What are the waiting periods? Using today’s guidelines*:

  • Chapter 7 bankruptcy: requires a 4-year wait
  • Chapter 13 bankruptcy: requires a 2-year wait from the discharge date, but 4 years from the dismissal date if the Chapter 13 bankruptcy application isn’t accepted by the courts
  • Multiple bankruptcy filings: 5-year wait
  • Foreclosure: 7 years unless the home was included in a bankruptcy filing. In that case, it drops from 7 to 4 years
  • Other: There is a 4-year wait for a deed-in-lieu of foreclosure, short sale, or the sale of a home during the foreclosure process

*Those are Fannie Mae guidelines. Technically, Freddie Mac does not have minimum waiting period. Underwriting goes by the Automated Underwriting Services findings from Freddie Mac. That said, the “findings” often mirror the guidelines of Fannie Mae. 

In only one of these instances is there a 7-year waiting period. That would be if there was a foreclosure on a home that was not included in a bankruptcy. In every other situation, one could be ready to purchase a home much sooner than 7 years. Government loans are much more forgiving, but conventional loans are to be used in situations where a borrower doesn’t qualify for a VA or FHA loan (more on that next week). Also, the maximum loan amounts on FHA loans are lower than conventional loans, so the purchase price could also play into determining which loan program to use.

Have you filed a bankruptcy, but want to own a home again? You don’t have to wait seven years. If you have re-established credit to a qualifying score, buying a home can come sooner than you think. Unsure of your situation? Purchasing a home in Georgia? If yes to both, contact me today. We can start the prequalification process and see how quickly we can get you into a new home.

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The possible end of short sales – an annual tradition

December 16, 2013

blog-author-clayjeffreys3

It seems like a year ago this scenario was making rounds in headlines. Well, that is because it was in the headlines.

When a home is sold as a short sale, the seller (former homeowner) receives a 1099 for the difference of what is owed on the home they just sold versus the amount they sold the home for in the short sale. For example… a seller owes $300,000 on a home that sells as a short sale for $200,000. The seller receives a 1099 from the bank for the difference of $100,000. That difference of $100,000 is taxable income due to the IRS. The seller could have a tax liability around $25,000 owed to the IRS.

This nightmare scenario for homeowners underwater and attempting to short sale their home has not been a problem over the past several years. The Mortgage Debt Forgiveness Act passed in 2007 allowed short selling homeowners to not be liable for the difference of what is owed from the sale of their former home. This Act expired at the end of 2012, but was extended by Congress for an additional year.

Since Congress is basically done for 2013, and didn’t agree on a lot over the course of the year, this Act will expire at the end of the year. The one hope homeowners still in the short sale process have is that Congress will reconvene in 2014 and extend the Mortgage Debt Forgiveness Act retroactively for another year. If Congress fails to do this, then the debt forgiven by the bank on short sales becomes taxable income for the seller on their next tax return.

Since short sellers already face financial hardships (thus the reason for the short sale in the first place), this would not be welcome news as their choices would be a short sale with a tax liability OR foreclosure/bankruptcy.

Hopefully Congress can begin agreeing and working together a little better in the coming year. Extending the Mortgage Debt Forgiveness Act seems like a “win” for both sides. Let’s see how it all unfolds in 2014.

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The end of short sales?

November 8, 2012

Homes being sold as “short sales” have increased over the last few years. A short sale is when a bank agrees to sell a home for less than what is owed on the current mortgage. It has been a driving force for some homeowners to get out of an underwater situation on their current home.

What many people do not know is that going through a short sale could result in additional income on your taxes. Let me explain. If you sell a home for $100,000, but you owed $150,000, you will receive a 1099 showing “income to you” at $50,000. The debt is forgiven by the bank (in most cases) on a short sale, but the IRS views the difference as taxable income. Depending on your tax bracket, this could result in taxes owed in excess of $10,000.

This scenario has NOT been a problem since 2007. Homeowners selling their homes as a short sale property have not needed to report the difference as income on their tax returns. Why? The Mortgage Debt Forgiveness Relief Act allows homeowners to be exempt from taxes on the difference between the purchase price and amount owned on a home when selling their homes as a short sale.

The Mortgage Debt Forgiveness Relief Act expires at the end of the year. If it isn’t extended, homeowners will be required to file their taxes with the difference as taxable income. This will cut down on the number of short sales as homeowners may turn to foreclosure and/or bankruptcy.

It will be interesting to see how this works itself out between now and the end of the year.

If you are selling a home as a short sale, you need to work now to do whatever you can to ensure the home closes before the end of the year as their is no guarantee of an extension to this act.

Flip this Alpharetta Foreclosure

May 3, 2011

I – Clay Jeffreys and overseer of this blog 🙂 – thought it would be great to include this post from regular guest contributor Van Purser. While this blog details flipping a home, it also provides some insight into work that can be done on a home as a primary residence or investment property using the Fannie Mae HomeStyle loan I discussed in an earlier post.

In our last newsletter we reported on the status of a HUD foreclosure we were planning on purchasing to renovate and sell.  Since that time the renovation was completed and the property was resold and closed on April 12th.

We felt that this particular home, located in The Hunters Forest subdivision, off of Jones Bridge Rd, should sell for the mid to upper $140’s.  We had originally planned on adding a sunroom to elevate the price to the mid $150’s, but decided not to.  We felt that with our purchase price of $71,000 we would still be able to make a profit without adding the sunroom.

Our plans were to close just before Christmas, and to begin the renovation shortly after the beginning of the year, so that we would have it ready to return to market by March.  Instead we closed on November 30th, and started the renovation immediately, in order to provide work for our crew in advance of Christmas.  It worked out great. We finished on Christmas Eve.  Three weeks, and over $32,000 later we were finished and ready to put property on the market.

We started out $154,900, but after a month realized that the market would not support it and reduced the price to $149,900.  This increased activity, but did not yield a contract.  We continued to monitor the market and decided to reduce the price again to $144,900 after a couple more weeks.  Within a few days we were under contract at $142,000.  Not exactly what we had hoped for, but still worth the effort.

We were so please with the renovation, and the BEFORE & AFTERS show the transformation that took place.  One thing we did differently on this home was re-trim the entire home.  This added a lot of character to the home.  Another thing we did was add the dividing wall between the living room and dining area, to provide some separation.  Also, we had to add a new deck and start over in the bathrooms.

Homes like these are available for purchase, and will provide an opportunity to improve the neighborhood and to make a profit.  If you would like to try one, let me know.

Flip this house

March 22, 2011

This home is a recent foreclosure we purchased in Lawrenceville.  It was actually listed through our Multiple Listing Service and was originally on the market for $69,000.  We made an offer for $58,000 which was accepted. The inspection revealed a couple of structural issues that needed to be addressed, so we amended our purchase price to $54,800.  For a complete Before & After click here or on the image below.

The renovation took a longer than usual, three weeks instead of two, but not bad considering the amount of work that was done.  The largest contributor to the extra week was the amount of landscaping that was needed.

The yard had eroded over the years due to water run off.  We decided to remove several trees in the front yard, add a rail road tie retaining will in the rear yard and front yard, and we added a tie wall and walk way on the right side.

Cris Abbott, a local contractor, did the work at a very reasonable price. Additionally Cris piped all of our downspouts away from the house.  The balance of the project included the normal things you would expect in a house with deferred maintenance; a new roof, siding repair, new gutters, exterior paint, and we had to side the utility building before painting.

On the inside new light fixtures, plumbing fixtures, new HVAC, plus appliances, painting, counter tops and new vanity tops plus refinishing the hardwoods completed the make over.

By the way; if you have extra money now is a good time to pick up some REALLY GOOD DEALS to resell or to rent out.

Van Purser is a licensed real estate broker in Georgia.  Since1981 he has successfully purchased and renovated over 400 homes.  His expertise is in the area of foreclosures, rehabs and fixer uppers.  Additionally, he has represented hundreds of clients over the years as a broker with Metro Brokers, RE/Max and now with his own firm.  He and his wife, Jeanne, who is also a broker, have been married since 1977.  Van can be reached at 770-623-3313 or by email VanPurser@VanPurser.com

Contingency Reserve Requirements on Renonvation Mortgages

March 15, 2011

I’m staying with the “renovation” theme from my last several posts. This week I want to address a common question I get regarding one of the requirements on the Fannie Mae HomeStyle Renovation Mortgage, Fannie Mae HomePath Renovation Mortgage, and the FHA 203k Mortgage… “Why do these programs require a 10% contingency reserve?

The first thing I should do is define a contingency reserve. Fannie Mae and HUD (FHA loans) require a 10% contingency reserve on these renovation mortgages for unforeseen costs associated with the project.

The last thing anyone wants is to get into a renovation project on a tight budget with no additional assets and an unexpected problem occurs. Some potential issues that arise during a renovation cannot really be accounted for until the process is underway. That is why the 10% contingency requirement exists.

The contingency reserve is not an option. Since this is the case, a better question becomes “what happens to the 10% contingency reserve if it isn’t used?

As anyone who has gone through a renovation project on a home knows, most of the times costs end up going over budget, so it probably won’t be a problem. 🙂 In the event there are funds remaining, usually one of the following occurs with these three programs (203k, HomeStyle, HomePath):

  • additional work on the home – in some cases, the contingency reserve could be used to fund additional work on the home. If this isn’t allowed, then the other option is a…
  • principal reduction – the remaining funds are used to pay down the loan balance. Depending on the renovation program (and lender originating the loan), the borrower could request a recast of the mortgage. In other words, re-amortize the mortgage to lower the monthly payment
  • receive the contingency reserve as cash back – this is typically not an option for the borrower

Contingency reserves can be annoying, but they are definitely needed. As previously stated, the last thing anyone wants is to get near the end of the project and run out of money. What happens then? That is a scenario you never want to face!

Fannie Mae HomePath Mortgage

February 8, 2011

About a year ago, Fannie Mae created this loan program to help sell properties they own. Most of these properties are foreclosures. When the program was initially rolled out, I threw up a blog post about the details. It has been a year, and some of the guidelines have loosened up… so it seemed like a good time to revisit this loan program.

The HomePath Mortgage program has some major selling points.

  • available for primary residence, second home, and investment purchases
  • borrowers only need a 3% down payment to get started
  • non-occupant co-borrowers are allowed with a 5% or greater down payment
  • allows for sellers to contribute up to 6% of the purchase price toward a buyer’s closing costs and prepaids (typical amount with less than a 10% down is only 3% toward contributions)
  • no appraisal is required
  • no private mortgage insurance will be on the loan regardless of the size of the down payment

Some of the changes that have occurred over the past twelve months include the qualifying credit score being lowered to 660 and investors now only need a 15% down payment to qualify. On all other conventional loan programs, investors need at least a 20%-25% down payment to get started. A requirement of only 15% down is a big deal in the investment purchase market.

Again, Fannie Mae designed this loan program to facilitate the sale of homes they own. There are numerous properties available, and you can search for them here. That being said, do proceed wisely. I’m not saying anything is wrong with the homes, but one should:

  • as with any home purchase, hire someone to do a thorough inspection of the home
  • since there is no appraisal required for the loan, I would ask your real estate agent to conduct research on the home against recent sales in the area to ensure the purchase price is a good deal for you
  • some of these homes will probably be classified as being purchased “as is,” so don’t expect the seller to do many (if any) repairs to the home prior to purchase

Anyone interested in making an offer on a home to take advantage of a loan program that doesn’t require an appraisal or private mortgage insurance will need a prequalification letter, and that is something I can assist in providing! If you are looking to get prequalified, learn more about interest rates for this program, total monthly payments, etc., feel free to call or email me. It would be my pleasure to help you through the mortgage process!

Tools for viewing foreclosures

November 29, 2010

With all of the foreclosures and great deals on the market having the right tools on hand when looking at a property can save you lots of time and money. By knowing the tools and by having them on hand, you will be able to properly evaluate a home on the first visit, resulting in being able to make an offer afterwards, without the assistance of an inspector or engineer, and without needing to return for a second or third visit prior to making an offer.  This alone will allow you to make offers more quickly and will result in more deals going under contract.

A Flash Light
I can’t tell you the number of times would be buyers show up with a pin light on their key ring to look at property.  A heavy duty flash will allow you to examine attics, crawl spaces and basements.  In many case houses do not have utility service on, so no power and no lights.  Additionally, a heavy duty flash light can provide a defense to any one who may be in a home who should not be there.

A Collapsible Ladder
This should be a no brainer.  Many of the collapsible ladders will fit in a trunk, and when extended will provide access to many ranch, split level and split foyer roofs. In addition they are great for entering small attic accesses which do not have pull down stairs.

Binoculars
This is a great tool to have.  It allows you to see from the ground many of the things that you can not see unless you actually get on the roof.  Additionally, it allows you to take a very close look at soffits, gutters, window sills, and of course chimneys.  Just be careful and don’t be looking too closely at the neighbors homes or you may get in trouble.

A Probe
The one I like to have is home made.  Crafted (if you can call it that) from an extend-able painters pole.  Cut the roller holder portion of the paint roller off with a hack saw, and straighten it, you will then have an extend-able probe with approximately a 12-14 inch heavy steel pointed rod on the end of it.  This makes probing around foundations to detect soft spots or cavities in soil a breeze.  Additionally, it provides the ability to extend your reach to test for damaged siding and wood as well as first story gutters.

Camera or Phone for Photos
If you’re like I me, sometimes if I look at several homes I may get them confused.  Taking a few photos will help me recall the property and remember some to the more critical items associated with each property.

25’ & 100’ Tape Measures
Ok the 25’ tape will be used the most. for items such as counter tops, floor covering, windows, and the list go on and on.

The 100′ tape comes in handy for roofs, gutters, some decks, fences and driveways.

An Old Credit Card or Flexible Putty Knife
Talk about a time saver, this is huge.  I can’t tell you how many times I have gone out to look at house and there was no lock box, which means no key. By having one or both of these tools you will more than likely be able to push the edge between the door and door frame so that as you slide it down it will compress the door latch, allowing for the door to open.  Talk about a time saver, another trip out could be at least two hours and another day, and might cause you to miss the cut off time for an offer.

A Marble & a 4’ Level
OK, I know it sounds stupid, but using a marble is a great way to quickly determine if a floor is not level.  Believe me, you set it down on tile or hardwood and if it takes off, you better take a closer look at the structure below.

As for the 4’ level, it too is great for determining if floors are level and if door frames and walls are plumb.  I find it very helpful in checking out block or poured wall foundations for deflection or leaning.  Oh yea, it is great for determining if chimneys are pulling away excessively from exterior walls.

A Couple of the Basics
Don’t’ forget a pair of pliers and a can of WD-40.  The pliers are great for pulling up edges of carpet to see if hardwoods are underneath, and the WD 40 is great for spraying door knobs and keys so that they will actually unlock the doors.  You can’t depend on anything working the way it should.

Have fun with the tools we have discussed.  And do know, I am not suggesting or advocating your use of these tools in the ways I have described, however if you choose to use them in a similar way, I can assure you, you will save time and money.

types of home purchases

November 2, 2010

My post last week debunking the myth of short sales led to several questions about the different types of purchases. That is a great question, so I thought it would be ideal to follow up the “myth” post with more details on the different types of home purchases.

The first category would be the retail sale. A retail sale is a more traditional view of the home buying process. It involves a buyer looking to purchase a home from its current owner. The current owner may have a mortgage on the house, but they are looking to sell the home for more than what is owed on the house (distinguishing this from a short sale). A retail sale would include homes for sale by owner, negotiated with a real estate agent, and owner financing transactions. This is the quickest purchase transaction.

The next category would be a foreclosure sale. With a foreclosure sale, the bank that held the mortgage (also known as a NOTE in Georgia) took the home back into its possession because the home owner failed to make their mortgage payments.  Theoretically, the bank owns the foreclosure and there are no title issues (though there has been some debate lately. See this recent post for more info).  In most cases, buyers must work with a real estate agent to purchase a foreclosure. These transactions take a little longer than a retail sale for two reasons.

  • As we’ve read/heard lately in the news, there could be title issues or delays in getting clear title back from the attorney on the bank that owns the property.
  • The bank that owns the property typically wants the closing package 3-5 business days in advance of the closing date. In retail purchase cases, the closing package can arrive the day before closing (day of in some cases), but the 3-5 day requirement simply adds 3-5 days onto the total time needed to close.

The final category is the short sale. If you read my previous post, you already know about short sales. In this transaction, the current home owner sells the home for less than what is owed on the mortgage. In order to do this, the bank that holds the mortgage (NOTE) must also agree to this. It is the agreement process that delays short sales from being completed in a timely fashion. The average time is about six months to complete a short sale start to finish (I worked with a couple buying a short sale and it took 10 months).

Which is the right path for you? That is a much better question to ask a real estate agent, but my quick thought is that it all comes down to two factors – time & money.

  • if the goal is to get the best deal possible, that is more likely to happen looking for a foreclosure/short sale property.
  • if the goal is to be in the home as quickly as possible, then one should definitely look to go the retail sale route

I am not in a position to help anyone look for homes. BUT before looking at homes, getting prequalified to buy a home is essential. If your future home is in Georgia, that is something I can do for you. To get started, call or email me!