Everyone in real estate should know about these key terms:

Amendments- A change—either to alter, add to, or correct—part of an agreement without changing the principal idea or essence.

Positive news lately.  Unemployment rates are lowering.  The Kiplinger Letter (Nov.23, 2011) states that "housing prices will stop sinking next spring.  Come 2013, a modest 3-4% average gain. "

The homes are looking affordable again, in Southern California.  In many newly built areas of Orange County, the short sales and bank owned dominate the sales.  In places like Talega, San Clemente, these distressed sales represent about 80% of the sales.  But most older established neighborhoods have lower distressed sales, 20-30%, for example.

Are there millions of households waiting to buy?  Many recent college graduates and newly married couples have been waiting to buy.  As the job market stabalizes and improves, I am expecting to see many more buyers emerge.

There are many legal issues in real estate.   Many times, you may need to get a real estate attorney involved.

For example, what if the property is in a family trust, and the family member says they have authorization to list it for sale.  The listing agent needs to see documentation that there is written permission for that family member to list the property.  You do not want to get into escrow and find out the rest of the family members in the trust do not agree to the sale.

A good Realtor should offer you referrals to real estate attorneys when you need it.

In today's real estate market, there are many Realtors ready to take Buyers out to look at homes.   However, many times the Buyers have not spoken to a lender to find out exactly how much they can borrow.  Why is this important?   Many buyers are finding it harder to get a loan than in the past.

Many lenders have pulled back the easy loan requirements we saw up to 2006.  Most buyers think that if they have a job and about 20% in the bank, they can go out and look at homes to buy.  The trick is when it is time to write an offer.

Most listing agents require a lender letter, showing some sort of Pre-Approval, before they present the offer to the Homeowner.  This display of the Buyers seriousness and true intent to close the deal goes a long way in making the Buyers offer look solid.   If a Buyer has not talked to a lender, the best time is not when it is time to write an offer.

Most lenders ask for some documentation, tax returns, bank statements, pay check stubs, and credit reports.  These items take time for the buyer to get to the lender and also take time to be reviewed.  And of course, most agents are writing offers on weekends and at night. 

So, is the best time for a Buyer to find out what they can borrow before they go out and look at homes?  YES!   If a Buyer is asking a lender after they have picked out their home, we are just asking the lending institution to go back to 2005, when lenders made loans for what you wanted, not what you could afford.

For the sellers, a pre-approved buyer is a sign that the loan will probably be approved, since it was well thought out and the buyer can actually afford the loan.  So, get the buyers to the lenders, before going out in a car with a Realtor!

 So, Buyers, please get Pre-Approved with a lender.

Risk factors which cause interest rates to move:
- Inflation: High inflation, high interest rates. Low inflation, low rates
- Unemployment : low and full employment, rates tend to raise. High unemployment usually means lower interest rates.
- Stock Market : Bullish stock market, lower interest rates. Strong stock market, strong economy interest rates move higher.
- Consumers: Economies are driven by the consumer, if they are spending, the economy is doing well and rates tend to increase. If the consumer is not spending, interest rates tend to move down.
- Turmoil and uncertainty: Outside, unforeseen and unusual events tend to drive interest rates, in the USA, down. Depending on the event, investors usually gravitate to “safe haven” investments in times of uncertainty. The US Bond market is that place. When investors buy US Bonds, interest rates decline. When these events pass or the market feels comfortable with a perceived or real outcome of these events, investors tend to sell bonds and move into other investments, which increase rates.
- Gross Domestic Product (GDP), Gross National Product (GNP), Consumer Price Index (CPI): Strength in any of these indices tend to move interest rates higher, weakness tend to move rates down.
- The Government: Monetary Policy can cause movements in rates. Tight policy means rates should increase, loose policy means the government is trying to generate a demand for money and rates tend to fall.
-Lastly, with all of this said, rates also move based on expectations/ rumors and realities/ facts. These can move a market for a short period but do not change the overall direction of the interest rate market.
(In other words, information deemed reliable but not guaranteed)

Or as I like to summarize, uncertainty drives interest rates down. 

Save Money on Mortgage Insurance

When borrowers do not have a 20% down payment they are required to have mortgage insurance on their loan. With FHA, the government insures the loan. When purchasing Conventional, private mortgage insurance companies insure the loan. Either way the additional monthly cost limits the borrower’s purchasing power or for how much they qualify for.

 As an example, on a sales price of $400,000, the monthly mortgage insurance premium for a 3.5% down payment with FHA is $370.  For a 5% down payment with Conventional financing, the payment is $298. These payments require the borrower to earn an additional $8,800 a year in order to qualify for the loan as opposed to a loan in the same amount without mortgage insurance. The solution is to pay up-front mortgage insurance on Conventional loans eliminating the monthly payment.

Private mortgage insurance companies allow a one-time up-front lump sum to be paid to them which will allow the borrower to not have the monthly mortgage insurance premium. The amount is considered part of the closing costs and can also be paid by a credit from the seller.

Typically, monthly mortgage insurance remains on the loan until the principal balance is at 78% of the value of the home down, from the original 95%. One could assume that would take a minimum of 5 years. If the monthly premium is $298 the amount is almost $18,000 in mortgage insurance paid in the first 5 years.

The one-time up-front lump sum premium in this example is $7,410. This is less than half the cost of paying it for at least 5 years. There would be no monthly payment of $298 increasing the borrower’s buying power by $60,000 on a sales price and allows for easier qualifying by $8,800 less income required. The cost of paying the up-front insurance is recouped in 2 years with this savings.

Of course, talk to your lender to confirm how this affects you.

  NON-RECOURCE LAW OF JULY 15, 2011.

Governor Brown signed into law on July 15, 2011 a C.A.R.-sponsored bill, Senate Bill 458, prohibiting a deficiency after a short sale for one-to-four residential units, regardless of whether the lender is a senior or junior lienholder. Effective immediately for transactions closing escrow from this day forward, both senior and junior (1st and 2nd lenders) lienholders cannot require a borrower to owe or pay for a deficiency in a short sale. This law also prohibits any deficiency judgment to be requested or rendered for senior or junior liens after a short sale of one-to-four residential units. Any purported waiver of this rule shall be void and against public policy.

Although a lender cannot require a borrower to pay any additional compensation in exchange for a short sale approval, the new law does not prohibit a borrower from voluntarily offering a monetary contribution to a lender in hopes of obtaining a short sale. A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, relatives, and the like.
Exceptions to the new law include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.

Essentially, what this means to sellers is that the law now prohibits any lender from pursuing the seller for the deficiency after the sale closes. In the past, the 2nd (or junior) lienholders would often try to collect on their loss by selling their note to a collection agency. This will now become an illegal practice and will provide sellers with peace-of-mind that the transaction is a closed chapter once the sale is complete. This law is fully set forth as Senate Bill 458 (Corbett)

What is in place for San Onofre Nuclear Generating Station (SONGS) to deal with a Earthquake or a Tsunami?

California Association of Realtors reported that fewer than 3 of 5 short sales close in California.  (03-08-2011).   Many REALTORS report that the lenders are difficult or extremely difficult to work with, while few reported it was easy.

Keep It Smooth with Difficult Clients

In the real estate business, you're bound to come across clients and customers with challenging personalities.  Here's how to stay cool and make sure those difficulties don't jeopardize the transaction.

1.  Learn your customers objectives.  That will give you a better perspective.

2.  Make a plan to learn their expectations.  Does the buyer expect the home to be delivered in pristine condition?  Does the seller think that it is a "fixer" and is expecting a construction crew to show up the day after close?  

3.  Review all details of upcoming steps of the escrow process with your client.  A properly detailed plan achieves the best results.  Everyone likes to be kept informed, too.