Short Sale : Writing A Letter Of Hardship

Short SaleA short sale is when a property is sold for less than its remaining mortgage principal balance, and executed as a way for both the existing homeowner and mortgage lender to reduce their respective losses.

Typically, although not always, short sales are reserved for situations of extreme financial hardship; just prior a bank beginning foreclosure proceedings.

Short sales are not automatic, however. Homeowners must often prove the merits a short sale to their lender, which often involves documenting that selling the home for less than its worth is the best and most viable option for all parties involved. 

The short sale process starts with a letter of hardship.

To prove your short sale worthiness to the bank, you’ll be asked to submit a cover letter which explains your hardship, and to provide full financial disclosure. You will also need your original purchase contract, a balance sheet of your income and expenses, your asset statements and proof of income, and two years of federal tax returns.

Lenders prefer handwritten letters and are more apt to agree to a short sale for homeowners who may have lost jobs or encountered significant medical bills, as opposed to those who engaged careless spending.

Draft a compelling letter and avoid extraneous details. Be short, be thorough, and be complete.

In addition, note that the following traits can help speed your short sale approval : 

  • The home is marketable
  • A second lien holder, if one exists, is amenable to short sale proceedings
  • A foreclosure is not scheduled within the next four months

Choosing to short sale your home in Seattle or anywhere else , though, is not something which a homeowner should pursue alone.

The process of selling a home in a “distressed” state is significantly different from selling a non-distressed home. Homeowners selling in a short sale should seek the advice and counsel of an experienced real estate agent.

How To Maintain Adequate Homeowners Insurance Coverage

Maintain adequate homeowners insurance coverageIn the aftermath of Hurricane Sandy, stories have emerged of homeowners whose hazard insurance coverage was too low to cover the damage to their respective properties. 

Unfortunately, this scenario is common among U.S. homeowners, and is not just limited to damage from natural disasters. Homeowners in Seattle and nationwide are often woefully under-insured against catastrophe in its many forms.

Whether you’re buying a home, or own one already, revisit your hazard insurance policy choices and be sure that your bases are covered.

Here are four common components of a homeowners insurance policy :

Dwelling/Building Coverage 
Look for the amount listed under this section and divide it by the square footage of your home. Talk to your insurance agent, your real estate agent and perhaps even your contractor to determine whether your current coverage is sufficient. Be sure to consider lot size and building materials.

Liability Protection
What if a person is injured on your property and decides to sue? Whether your dog bit someone’s hand or a guest slipped on a wet floor, lawsuits can be expensive. Most liability policies start at $100,000.

Valuable Add-Ons
Few homeowners policies cover valuables such as art, jewelry, antiques, gold, or wine collections. However, you can usually add coverage for these items for a small annual fee. Appraisals are sometimes required.

Condominium Stipulations
When you live in a condominium or a co-op, the building often has coverage for the “walls out”. Everything inside a unit remains the responsibility of the homeowner. To be sure, however, prior to purchasing coverage for a condo or co-op, show your insurance agent the homeowners association hazard policy for recommendations.

A little bit of insurance coverage goes a long way when it comes to unforeseen disasters — but only if you maintain proper coverage. Speak with your insurance agent regularly to make sure you’ve never under-insured. Accidents, after all, are unexpected by definition.

Which Is Better : 15-Year Fixed Rate Mortgage Or 30-Year Fixed Rate Mortgage?

15-year fixed rate or 30-year fixed rate?As a home buyer or refinancing household in Renton , you have choices with respect to your mortgage.

You can choose a loan with accompanying discount points in exchange for lower mortgage rates; you can choose adjustable-rate loans over fixed rate ones; and, you can choose loans with principal + interest repayment schedules or repayments which are interest only, as examples.

For borrowers using fixed rate loans, there’s also the choice between the 30-year and 15-year fixed rate mortgage. Each has its positives and negatives and neither is “better” than the other.

Choosing your most appropriate fixed-rate term is a matter of preference and, sometimes, of budget.

The 15-Year Mortgage
With a 15-year fixed rate mortgage, mortgage rates are often lower as compared to a comparable 30-year fixed rate mortgage. However, because loan repayment is compressed into half as many years, the monthly payment will necessarily be higher, all things equal. On the other side, though, homeowners using a 15-year fixed rate mortgage will build equity faster, and will pay less mortgage interest over time.

The 30-Year Mortgage
With a 30-year fixed rate mortgage, mortgage rates tend to be higher as compared to a 15-year fixed rate loan, but payments are much lower — sometimes by as much as 50%. Lower payments come at a cost, however, as mortgage interest costs add up over 30 years. Regardless, 30-year fixed rate mortgages remain the most common mortgage product for their simplicity and low relative payment.

Which One Is Right For You?
There is no “best” choice between the 15-year fixed rate mortgage and the 30-year fixed rate mortgage. Choose a product based on your short- and long-term financial goals, and your personal feelings regarding debt. Mortgage applicants choosing the 30-year fixed rate mortgage can qualify to purchase homes at higher price points, but those using the 15-year fixed rate product will stop making payments a decade-and-a-half sooner.

There are benefits with both product types so, if you’re unsure of which path works best for you, speak with your loan officer for guidance and advice.

When It Pays To Refinance Your Mortgage — Literally

Why Refinance

To refinance a mortgage means to pay off your existing loan and replace it with a new one.

There are many reasons why homeowners opt to refinance, from obtaining a lower interest rate, to shortening the term of the loan, to switching mortgage loan types, to tapping into home equity.

Each has its considerations.

Lower Your Mortgage Rate
Among the best reasons to refinance is to get access to lower mortgage rates. There is no “rule of thumb” that says how far rates should drop for a refinance to be sensible. Compare your closing costs to your monthly savings, and determine whether the math makes sense for your situation.

Shorten Your Loan Term
Refinancing your 30-year fixed rate mortgage to a 20-year fixed rate or a 15-year fixed rate is a sensible way to reduce your long-term mortgage costs, and to own your home sooner. As a bonus, with mortgage rates currently near all-time lows, an increase to your monthly payment from a shorter loan term may be negligible.

Convert ARM To Fixed Rate Mortgage
Homeowners with adjustable-rate mortgages may want the comfort of a fixed-rate payment. Mortgage rates for fixed-rate mortgages are often higher than for comparable ARMs so be prepared to pay more to your lender each month.

Access Equity For Projects, Debts, Or Other Reasons
Called a “cash out” refinance, Renton homeowners can sometimes use home equity to retire debts, pay for renovations, or use for other purposes including education costs and retirement. Lenders place restrictions on loans of this type.

A refinanced home loan can help you reach specific financial goals or just put extra cash in your pocket each month — just make sure that there’s a clear benefit to you. Paying large closing costs for small monthly savings or negligible long-term benefit should be avoided.

Many lenders offer low- or no-closing costs options for refinancing. Be sure to ask about it.

Questions First-Time Home Buyers Should Ask

First-time home buyer questionsNationwide, mortgage rates are low in WA and home prices remain relatively low, too. This combination, plus rising rents, is pushing renters in some cities — including Renton — toward first-time homeownership.

Buying your first home can be exciting, but you should also do your research to make sure that you ask the proper questions of the process, and make the best choices for yourself and your household.

For example, recommended questions for first-time buyers to ask home sellers include :

What major repairs have been made to your home?

Although standard disclosure forms are supposed to provide information regarding past damage and renovation to the property, there are occasionally repairs that are omitted or otherwise forgotten.  Be proactive and ask pointed questions about the roof, the foundation, and the electrical system. Some home issue have a way of resurfacing many years later and it’s best to know in advance. •

To which school district does the home belong?

As a first-time homebuyer, you may or may not have school-aged children. However, in many areas, public school rankings positively (or negatively) affect home values. Ask your real estate agent for school district data. Consider asking the seller for feedback, too.

Is this a “distressed” property, and what does that mean to me?

For many home buyers, the allure of a foreclosed home or a home in short sale can be large. Prices are discounted as compared to comparable real estate — sometimes by as much as 20%. However, many distressed properties are sold as-is,” with little room for negotiation. This means that homes may be defective or, worse, uninhabitable. Ask your real estate agent for help with distressed homes and their suitability to your home buying needs.

After asking the above questions, and other questions, too, it’s important to remember that buying a home can be an emotional decision; and one that requires using your “brain” as much as your “heart”. Try to keep emotions in check so that you don’t overpay for a home that’s unsuitable, for example.

How To Improve Your FICO Score

The U.S. housing market recovery is underway. New home sales are at a multi-year high, housing starts are at pre-recession levels, and home builders plan for a strong 2013.

Since late-2011, falling mortgage rates have boosted buyer purchasing power. Now, today, in many U.S. markets, the number of active home buyers outnumbers the number of active home sellers. It’s among the reasons why home supplies remain scarce and why home prices are rising.

Roughly 20 percent of today’s home buyers purchase homes with cash. For everyone else, the ability to gain mortgage approval depends on income, assets, and, most importantly, credit scores. Your credit score is a predictor of your future payment performance and lenders pay close attention. 

If you plan to buy a home in Kent or anywhere else in the next 12 months, spend some time with this The Today Show interview. It’s five minutes of practical credit scoring advice, including separation of credit score myth from credit score fact.

Among the credit scoring tips shared :

  • How to get your credit checked without harming your credit score
  • The value of using automatic payments with credit cards
  • How to use “old” credit cards to boost your credit score

You’ll also learn about utility companies and why you should never be late with payment.

As compared to August 2011, last month’s average, mortgage-financing home buyer’s FICO score improved 9 points to 750. The average “denied” mortgage applicant’s FICO score was 704. Clearly, standards are high. However, credit scoring is a system and, with time, you can improve your rating. 

Watch the interview and find ways to make your credit score better. With better credit comes better mortgage rates.

Buyers Win 6.6 Percent Increase In Purchasing Power

Purchasing Power 2010-2012

Mortgage rates in WA continue to troll near all-time lows, boosting the purchasing power of home buyers statewide.

According to Freddie Mac’s most recent Primary Mortgage Market survey, the average 30-year fixed rate mortgage is now 3.39 percent nationwide, just three ticks off an all-time low. At the start of last quarter, 30-year fixed rate mortgage rates averaged 3.62 percent.

One year ago, they averaged 4.12%.

When mortgage rates are falling, they present Kent home buyers with interesting options. Because of lower rates, buyers can choose to tighten their household budgets, buying an ideal home but paying less to own it each month. Or, for buyers who shop for homes by “monthly payment”, falling mortgage rates put more homes with affordability’s reach.

As a real-life example, for a buyer whose monthly principal + interest mortgage payment is limited to $1,000 per month, and whom opts for a 30-year fixed rate mortgage, as compared to January of this year, the maximum property purchase price has climbed 6.6%, or $14,000 in list price.

Consider this comparison:

  • January 2012 : A payment of $1,000 afforded a maximum loan size of $211,756
  • October 2012 : A payment of $1,000 affords a maximum loan size of $225,771

The 6.6 percent increase in affordability outpaces this year’s rise in home prices and is one reason why the U.S. housing market is improving. Slowly and steadily, the U.S. economy is improving and “good deals” in housing are becoming harder to find. In addition, because homeownership is now less expensive than renting in many U.S. cities, home demand among buyers continues to rise.

For today’s home buyer, market conditions appear ripe. Mortgage rates are near all-time lows, low-downpayment mortgage program remain plentiful, and home values have been rising since late-2011. Within 6 months, rates may be up and homes prices, too. Purchasing power would decline, decreasing home affordability nationwide.

The best “deals” in housing, therefore, may be the ones you find today.