Short Sale or Foreclosure?

Thursday, January 21st, 2010 | Real Estate | No Comments

Short sale or foreclosure what is the difference? Which is better for me.

Being in the real estate business and dealing with these two terms all day, it is still a little surprising that so many people are still asking that question. But then, if you have no interest in real estate you probably don’t hear much about these two and very different financial situations.

I am writing this short article with the disclaimer that I have heard from a radio program. “Handle(SP) on the law.” This is marginal legal advice. My law degree is not in the mail. The only law classes I have ever taken were in the law school – The University of Hard Knocks!

Lets deal with the term “short sale.” The only thing short about a short sale is the mortgage company gets shorted it’s money from the borrower. The mortgage company will review the sale contract and decide if it will except the partial payment to allow the seller to sell the property without encumbrances. That doesn’t mean the mortgage company actually loses money, our tax money went to AIG and AIG might reimburse the lender. Many lenders have a very long approval process. As a Realtor(R), I am supposed to explain it could take weeks to months to complete a home purchase.

A seller in a short sale frequently but not necessarily has late mortgage payments hitting their credit during the sale process. Some banks seem to encourage late payments to even allow their sale approval process to begin. So the seller’s credit score will start to decline. After the property sale is complete the seller will probably have to wait 24 months to get a new mortgage.

A foreclosure is a different animal all together. The home owner is not a seller. The lender takes the property and evicts the former owner. The bank will sell the property. If it’s note is satisfied additional proceeds may in some states, the former owner may receive the excess proceeds. The former owner will have a very negative credit item added to the credit history.   Don’t expect to get another mortgage for five years!

For me personally, I feel even though a short sale can be a hassle, it is the least damaging of the three options. The foreclosure as far as I am concerned is worse than a bankruptcy. A person can get another mortgage after a bankruptcy much faster than a foreclosure if the borrower has obtained other credit and developed a good credit history after the bankruptcy.

There you have my humble explanation with very marginal and unprofessional legal advice.

Can It Be NOW is a Good Time for a Mortgage?

Friday, January 15th, 2010 | Real Estate | No Comments

Can It Be NOW is a Good Time for a Mortgage?

Buying a home

Every now and then, the economy produces a time when it is a good idea to refinance your

mortgage or purchase a home.  For many, that time is now. 

Low interest rates are bringing first time homebuyers out by the score and that’s driving the

resale market.  Those of you on variable rates or coming off of fixed rates can benefit, too. 

Today’s prime is at 2.25% compared to last year’s prime at 4.75%, or two years ago at 6.25%. 

Conventional wisdom would say that now’s the time to take the money and run by lowering your  payments and pocketing some cash.  Instead, you could decide to keep the payments the same, and assuming nothing has changed for you in that you could afford the payments two years ago and you can still afford them today, you could shave serious time off the term of your mortgage. 

Or you could still lower your payments and take some money for other things.  The current

circumstances allow you the choice.  Ironically, this is all a result of the recession.

In fact, homeowners facing resets on their adjustable rate mortgages or hoping to refinance into less burdensome loans may be the biggest beneficiaries of the recession.  As many as two million homeowners may be facing ARM resets this year and declining interest rates hold out the hope of refinancing to an affordable fixed rate.  If you bought your house with an adjustable rate mortgage, as many did, a few years back, then you want to be sure to note when it changes from a fixed rate mortgage to the adjustable rate portion. For many of you, it could be getting real close, if that time has not already occurred. Refinancing could give you a stable payment and a new interest rate, too.

While it’s impossible to predict what will happen to rates for the rest of 2009, and beyond, many mortgage professionals are advising clients to act now.  Right now is the time to consider what you need to accomplish.  If cash flow is a concern, why wait?  Increase your cash flow by refinancing and have one less concern.  With lower rates, more people are able to qualify for refinancing and more people who were left out from buying homes before will be able to do so now.

 Contributor:

Ted Canto, Sr. Mortgage Consultant

Academy Mortgage