Closing Escrow on Time

Closing escrow on time is so important and rare these days. There are several moving parts in a real estate transaction and many times sellers are counting on receiving their funds on a schedule.

In a recent transaction I was involved in a man had $300,000 cash sitting in the bank. He was getting a loan for about $175,000 on a home priced at $395,000.00. The lender had pushed the debt to income ratio out as far as possible so he could finance every possible penny and not use more than $230,000.00 cash.

Every thing was going great until the lender realized it was in a flood zone. This made it a condition of the loan to have a flood insurance policy on the property. The policy turned out to be about $1,200.00 a year which threw his Debt to income ratio off just enough to make a $35 credit card purchase cause the file to be suspended. When you are a couple weeks away from closing escrow getting the file suspended is no fun! We had to wait for the $35 payment to clear and then the lender had to order another credit supplement. It looked like things were going to be fine and we would close a day late and then a $45 credit charge from 2 months prior appeared out of no where! Suddenly instead of funding the lender needed another credit supplement! 5 days after the supposed close of escrow we are waiting for a credit supplement and the loan to fund.

The sellers moved out of the house the day before the original closing date and headed to Northern California. They are waiting for the money to get their new life started. The buyer is waiting to get his keys, change the locks and move in. Everyone’s in limbo while we wait for the loan to fund. Limbo is no fun unless Mai Tais, pina coladas, a tropical island and a bamboo stick are involved.

In conclusion I have learned a powerful lesson that I want to share with my readers:
* Never have your lender push the loan amount to the very limit
* Always leave a little extra room for something to come up
* Do not charge ANYTHING until after you close, even then ask your lender when it would be OK to use your credit cards again
* Anything that can go wrong probably will go wrong in escrow

Looks like we’re closing tomorrow ***sigh***

Buyers Looking for Short Sales

Today I want to talk about the short sale process. Many buyers want to look at short sales because they are really good deals what I tell them is you must wait anywhere from 2 to 12 month when you bidding on a short sale you make the offer and the seller signs off on it and then it goes to the bank for approval. You are asking the bank to take less for the property and then the mortgage on the property. this can be a long and grueling process. The lender will send someone out to do a BPO, broker price opinion, and they will come up with an valuation on the property. The bank will sometimes take 10% less than what the BPO is. The problem with short sales are there never guaranteed in many cases that property is sold on the courthouse steps without the listing agent even knowing about it this can be very frustrating for buyers I tell my buyers if they would like to look for a short sale, they should put in Multiple offers because there are never any guarantees.

One thing you can do it the BPO comes back high and there is deferred maintenance on a house is have a contractor go in and do a bid on the property. The contractors bid will have the price/ cost of repairs. The items that the house needs to be safe and comfortable for a buyer. After you get this contractors bed you can submit that to the bank and negotiate with them further on the price. Next you wait, that’s the problem was short sales they sometimes take a really long time.

Your chances are greater if the there is only one lender and if the short sale has been approved. An approved short sale is one where the bank has decided it will take a certain price. In these situations the bank is ready to accept an offer and the process will move much faster.
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The Speediest Escrow Ever!

I got an accepted offer on an offer on Monday. Wed my buyer came down from Warner Springs and signed all the escrow docs, got the property inspection, and released contingencies. Friday the wire was done and we are set to record on Monday.

Up through today two weeks is the fastest escrow I have done. That was with an all cash offer. On purchases that are funded by a bank (buyer gets a loan) the time frame is typically 30-45 days.

In some states you don’t have escrow. You hire an attorney instead. I have attached a document that outlines escrow for you. If you are buying or selling understand this crucial part of the process.

The following is from an article I found online.

“Your Escrow and You

Escrow: What is it?
Very simply defined, an escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a particular condition or event. The California Escrow Law : Section 17003 of the Financial Code : provides the legal definition.

Why Do I Need an Escrow?
Whether you are the buyer, seller, lender or borrower, you want the assurance that no funds or property will change hands until ALL of the instructions in the transaction have been followed. The escrow holder has the obligation to safeguard the funds and/or documents while they are in the possession of the escrow holder, and to disburse funds and/or convey title only when all provisions of the escrow have been complied with.

Escrow : How Does it Work?
The principals to the escrow : buyer, seller, lender, borrower : cause escrow instructions, most usually in writing, to be created, signed and delivered to the escrow officer. If a broker is involved, he will normally provide the escrow officer with the information necessary for the preparation of your escrow instructions and documents.

The escrow officer will process the escrow, in accordance with the escrow instructions, and when all conditions required in the escrow can be met or achieved, the escrow will be “closed.” Each escrow, although following a similar pattern, will be different in some respects, as it deals with your property and the transaction at hand.

The duties of an escrow holder include; following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with the instruction; paying all bills as authorized; responding to authorized requests from the principals; closing the escrow only when all terms funds in accordance with instructions and provide an accounting for same : the Closing or Settlement Statement.

Who Chooses the Escrow?
The selection of the escrow holder is normally done by agreement between the principals. If a real estate broker is involved in the transaction, the broker may recommend an escrow holder. However, it is the right of the principals to use an escrow holder who is competent and who is experienced in handling the type of escrow at hand. There are laws that prohibit the payment of referral fees; this affords the consumer the best possible escrow services without any compromise caused by a person receiving a referral fee.”

Writing offers 101

I wanted to talk about writing an offer that will get accepted. There are 3 items that make your offer look serious and they are:

Verification of funds for the down payment
Earnest Money Deposit This should be a minimum of 1% but the more the better
Pre-approval letter from your lender

To verify funds you need a current bank statement that has you name and the amount in your account to cover the down payment. You can black out the account number for your protection but it must have you name and the amount of funds.

The earnest money deposit check will need to be set to escrow 3 days after the offer is accepted by the seller. It must be at least 1% of the purchase price but if you increase that amount it can make the offer look more serious. This comes off the balance owed on the purchase toward the end of escrow.

The pre-approval from your lender just verifies you will be able to get the loan.

These items, submitted with the offer, please the listing agent and the seller. It shows you are a serious, organized buyer with the ability to close escrow on time.

Let’s talk a bit about pricing. Many times buyers ask me what I think they can get a home for. If it’s a cash offer, and you are willing to close in 2 weeks, you might want to bid 10% under the list price.

Some people think that the best deals are REO’s (Bank Owned Foreclosures) and Short Sales (owner has defaulted on their mortgage and the home is in the pre-foreclosure stage). I think the best deals are realistic owners (traditional sales with owners who understand what their home is worth).

The foreclosures and short sales are driving the market down. That’s right when one sells in your home for $50,000 less than the market value the next comps will include that pricing, driving the market down. Now all the homes in the area seem to be worth less money. Traditional owners must take these numbers into consideration before they list their home.

If you want your home to sell quickly, you price it right. That is the #1 thing you can do to insure a speedy sale. The longer a home stays on the market, the more concerned potential buyers become. “Why has it been on the market for 112 days?” Smart sellers listen to their listing agents and price their home fairly.

Call me with any questions at 858-717-0070

A Day on the Courthouse Steps

I recently attended an auction on the courthouse steps. It was very interesting. I wanted to observe this step in the foreclosure process. Now I have a more complete picture of the foreclosure process.

1. Home owner defaults on mortgage; lender sends owner a notice of default.

2. If the payments are not reconciled bringing note current the courts will order the trustee sale.

3. If no one buys the home on the courthouse steps, it becomes a foreclosure returning to the bank.

4. The bank is the owner and will attempt to sell the property as a REO.

I arrived at 220 W Broadway at 10am. There was a crowd of about 20 people gathered around the front right side of the building. Many had their clipboards with a list of the properties and some had their blue tooth in so they could communicate with whoever was helping make the decisions. Some of the bidders where there to buy a specific property, the experienced ones had done their research. At 10:20am the auctioneer comes out and gives everyone directions about where to sit, keep the doors clear and stay on the right side and sort of huddle around him. He makes sure everyone is qualified, has a cashier’s check up to the amount they are willing to spend. If they don’t use the total amount of the cashier’s check, it is refunded to them at the end of the auction. The auctioneer then goes down a list of withdrawn or postponed properties.

Finally the bidding begins! He begins by describing the property with the address and some numbers including the county assessment number; then a disclaimer about how there are no guarantees as to the condition of the property and how it is being sold as is.

The bidding starts with the banks minimum. That is the price the bank has decided it is willing to take. Sometimes that price was close to the balance on the defaulted mortgage and other times it was less than half.

The auctioneer calls out the opening price and the first bidder can go a penny over that. If no one else bids they win that property for that exact price. If others bid it goes up in increments of $100. If there are a lot of bidders the auctioneer might go up $500.00 to weed out some of the bidders. Highest bid wins the property.

It is very important the buyers do as much as they can to inspect the property and its records. They should be sure there are no liens against the property. Do a drive by and try to physically inspect the property as much as possible. If it is vacant they can try to peak in the windows.

I really wanted to see if this was really a good option to purchase property. In conclusion I found there were some excellent deals. If you can do enough research to ensure you are getting a good deal, have the cash sitting in an account somewhere, and factor in costs of repair, this could be a viable option.

Finding a Great Lender

I wanted to talk a bit about lenders today. I work with a great lender and the reason this is important is buying your home in San Diego could depend on it!

I have a client who is looking for the bottom line best deal he can get. He went onto a website and just pulled a random company off the Internet. I have never heard of them and when the escrow was proceeding I asked the lender for some documentation and he dropped the ball. He sent me a underwriting-approval that wasn’t signed by him. I thought that was a little strange and when I asked for a signed version he never supplied it.

We ended up going with another condo that didn’t have quite as many issues and the agent asked us work with his lender. Now the days of agents getting kicked back on deals is over. Regulations forbid it. The reason he asked us to use his lender is because he knows she is awesome. She is getting her loans approved and closed.

Pre-approval is easy but underwriting can be very nerve racking. Underwriters are investigating buyers more than I have ever seen. You need to make sure all your financial info checks out before your pre-approval. It’s good to get your documentation in right away so if there are any issues that need to be resolved you can take care of it ASAP. It is very risky to try to fix things once you have found a property, gotten pre-approved, are in escrow waiting for the loan to fund.

You don’t want to risk losing the home your heart is set on so be diligent in getting your ducks in a row. Find a great lender with lots of experience, success and great response time. Ask them tons of questions and trust your instincts. If you don’t get answers that make you feel safe and comfortable “NEXT” them. Your agent and lender will be your greatest assets in your home buying process.

Buy VS Rent in San Diego

With the Foreclosure market hitting another peek soon experts are predicting a serious increase in rent prices. Plenty of foreclosures should hit the market this year and we will see another great buyers market. There has been a lot of talk about increasing the amount a buyer would need to put down to make the sale go through. If this happens it will make qualifying more difficult.

The interest rates are still low although they are starting to climb slowly. Buying a home should always a long term investment. With rental rates going up and property value staying relatively low this year, maybe even going down a little, I think it is definitely the right time to buy. The trouble is getting the loan to fund.

I want to caution all buyers looking for a loan. Pre-Approval is a nice indicator but when it comes to funding the loan and the underwriting process there are many hurdles to overcome. You must have a good debt to income ratio, a great work history, taxes in order and paid in full, and decent credit. Also under FHA guidelines you will need 3.5% down, presently, and you need to show that in the bank for at least 2 months or where it came from. Unless you have cash. If you have cash none of this matters.

Closing costs are another major cost on top of the purchase price. They are usually about 3% of the purchase price. When writing your offer, have the agent ask the seller to credit the buyer for closing costs. They might say no but in many cases they say yes! That will really save the buyer some cash. In the last short sales I have been involved in the bank said yes to all or some of the closing costs.

So if you are planning to buy and you don’t have all cash, get you financial statements in order and be persistent. You have to stay positive and jump the hurdles. If you come to a roadblock, find an alternate route. If you stick with it and succeed chances are you will walk away with a GREAT deal on San Diego real estate.

Credit and Pre-Approval

If you are buying a house remember to keep your credit in check. Meaning no major purchases during the transaction. The lender will qualify you based on your income to debt ratio. A major purchase can throw that number off and put the transaction at risk. They pull your credit in the beginning to get you pre-approved but then again when the loan funds at the very end of escrow. You might think that you are safe after you get pre-approved but it is better to put any purchases on hold until after escrow closes.

If You Realized This is THE Time to Buy…

If you are one of the many people who realized this is a great time to buy there are a few things you should consider;

Getting organized is extremely important to so your transaction will go as smoothly as possible.

Get pre-approved by a lender first. This will show you how much you actually qualify for. This is a really important step because many people think they qualify for more than they actually do and you don’t want to look at homes that are not even real possibilities.
Next be sure you have funds for the down payment and closing costs unless you are going VA. (VA loans are 0% down!) Some lenders suggest 3% of the purchase price for closing costs, which you can ask the seller to pay in the residential purchase agreement, and depending on what type of loan you are getting as little as 3.5% down.
Go shopping! Look at as many homes as you like until you find the one you just don’t want to live without. Then have your agent write the offer. Make sure you have a clear idea of what you are willing to pay in your mind because you might get a counter offer in which the seller could ask for more money of any number of things.

That’s a start. If you have questions call me at 858-717-0070.

Gold List Properties 858-717-0070

By Janett Lewis – San Diego Real Estate Broker

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