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my headshotThis is an interview conducted via email with California Realtor Lauri Trapp (License #01265988) regarding short sales. No compensation was exchanged for the purpose of this interview. 

1. Briefly describe how you became a professional Realtor and your experience dealing with short sales. 

I became a licensed Realtor in 1999. When the market began adjusting in 2008 I starting working with a broker that dealt primarily in the short sale market. I worked for this broker for about a year and learned how to advise distressed homeowners in their options and negotiate with their banks to obtain short sale approvals.

2. In your opinion, who should consider a short sale? 

I would say that anyone struggling to keep up on their mortgage payments or unable to make ends meet due to high payments should consider a short sale. In addition, it can be a great option for anyone who is significantly upside down on his or her home value.

I (Brent) would not advocate a short sale based solely on being underwater on your home, nor would I suggest a strategic walk away if you can make the payments. I believe a short sale should be used as a last resort to a foreclosure or in a case of extreme financial hardship.

3. Can you briefly describe how the short sale process works? 

In the short sale process the transaction is basically the same as a standard sale, except we must get lender approval to close the sale. Once a buyer is secured it is necessary to request approval from the lender to forgive the difference between the sales price and the amount owed on the loan.

Generally speaking the bank may request your last 2 months bank statements, 2 recent pay stubs, 2 years tax returns, a financial worksheet and hardship letter. The short sale is not contingent on any one of these items but is taken into consideration. The lender will evaluate the value of the home and If the offer is in line with the lenders value, the short sale should be approved.

The time frame for this process varies from lender to lender but can take anywhere from 2 to 4 months from the time the offer is submitted to the lender to close of escrow. Additionally the seller will not be required to pay any fees or closing costs and could qualify for a relocation fee of about $3000 or more from their lender to be paid at closing.

4. What are the major obstacles with a short sale? 

Since I began closing short sales over four years ago, I have seen a huge improvement in the process. In the past lenders were overwhelmed and understaffed and were unable to keep up with the request for short sales.

The process has become more streamlined and standard. Since we are waiting for lender approval, patience is required on everyone’s part. During the approval period there is a constant need to stay in communication with the lender in order to assure the process goes smoothly.

5. What advice do you have for someone considering a short sale? 

There’s no need to go through a foreclosure when your lender is willing to work with you to sale your property.

Be in communication with your lender so you know all of your options. If you feel you have exhausted all your options for keeping your property then start the process of the short sale. Hire a Realtor that has a proven record of bank negotiations and short sale approvals. They should take care of the entire sales process and help you to have a positive experience.

There’s no need to go through a foreclosure when your lender is willing to work with you to sale your property. If you are in a position where you are constantly struggling to stay afloat and make your mortgage payments and there is no equity in your home, a short sale is a great option.

Having little to no equity (being underwater) in your home is scary, yet irrelevant if you don’t have plans to move.

6. What is the role of a Realtor during a short sale?

The role of the Realtor is to bring the buyer and seller together just as in a standard sale. The added layer is negotiating with the lender for their approval. Some Realtors do their own negotiating with the lenders and others hire negotiators to work with lenders. I do all my own bank negotiations because I like to stay connected and involved directly with the lender throughout the process.

7. What else do you want to tell the readers about short sales?

If you are at a point that you cannot make your payments and it’s a constant struggle or if your house is significantly upside down, then you are no longer reaping the benefits of homeownership. Homeownership should not be a struggle or a stressful situation.

To contact California Realtor Lauri Trapp (License #01265988) about short sale questions or for help in a short sale in the Los Angeles area, email her at lauritrapp at gmail dot com.

Housing Question

Is it time to refinance your home mortgage? Credit nikcname

If you have a home mortgage it may be a time to think about refinancing. Who wouldn’t want to reduce their monthly mortgage payments? Is it a good time to refinance?

In general, Yes! As I write this in the end of August 2012 mortgage rates are hitting historic lows every other week. This could be the best time to get a home mortgage for generations to come.

The better question is should you refinance now? A deeper look into your personal financial situation to determine if now is the right time to refinance your home mortgage.

Should I Refinance My Home?

Several factors should be considered when considering if you should refinance. It’s not always a cut and dry situation, but these factors will help in your decision.

1 . Do you intend to stay in your home? If you’re considering moving in the next few years, then you’re not likely to break even with a refinance. You’ll have to do the math to figure out your break even point (see below).

2. What percentage of your take home pay is your mortgage? If your mortgage + PPI  is more than 30-40% of your take home pay, you’re probably having trouble making ends meet. It could be that you’ve got too much house. A refinance might help slightly, but you need to look at your overall financial picture to see if you can afford to stay in your home.

3. Are you underwater or do you have equity in your home? If you the value of your home is less than the amount of your mortgage, then you’ll be stopping in your tracks quickly. It is very unlikely a refinance is going to go through. Lenders like to see at least a 20% equity in the home for a refinance to go through smoothly.

4. Can you affording closing costs up front? Closing costs can be 2%-3% of your total loan. There is an option to roll those costs into your loan, but paying up front in best to avoid extending your debt any longer than you have to.

5. How long until you break even? This is the one of the biggest questions. How long until you recoup your costs involved (home appraisals, closing costs, points, etc)?

Use several refinance calculators to see how they compare:

  • The Mortgage Professor- very detailed for your situations and has the ability to roll in closing costs or pay upfront.
  • Bankrate.com- calculator that lets you factor in closing costs.
If you determine that your break even point is longer than you intend to stay in your home, then it may not be worth refinancing. Also, if you’re in debt and fighting to make ends meet–you’ve got bigger fish to fry than a home refinance. Get your cash flow and debt under control before attempting a refinance.

Common Mistakes When Refinancing Your Home

Extending the mortgage- If you originally had a 30 year mortgage and you’re 5 years into that mortgage, there is no reason to sign up for a 30 year again. You’re trying to get out of debt, not stay in debt longer. Sign up for a shorter time period like a 25, 20, or 15 year mortgage if you can afford the payments.

Not shopping for the best rates and closing costs- Don’t just refinance with your current lender. Shop around and compare mortgage rates with multiple lenders.

Overestimating your home’s value- Most homeowners overestimate the value of their home, especially if they’ve upgraded or done extensive remodeling.You’re probably overestimating by 5%-10%.

Use several sources when getting an estimate to use for your calculations. You home will be worth what the appraisal says it is, unless you can justify with valid information.

Being unprepared and slow to respond- You’ll want to keep on top of everything during this time. Don’t head off for a month long vacation after you start and expect a refinance to happen without a bit of effort.

Be ready to answer any emails, send documents, and be ready to sweet talk any appraisers. This process could take a few months due to the high volume of refinances happening, don’t delay your closing date by being unprepared.

Other mistakes include taking on new debt before or during your refinance, applying for refinance with bad credit, not challenging a bad appraisal, and many more I’m sure. Did you make any mistakes with your refinance?

A Fixed Mortgage is Best

You’ll want to avoid the adjustable rate mortgage, since they’ll start adjusting up at some point in the near future. When will this happen? No one knows, but these low rates won’t be around forever.

Lock in these low rates with a 15 or 20 year mortgage. With a fixed mortgage, you won’t have to guess about your payments from year to year. The rates won’t change!

Have you thought about refinancing your home? Go ahead and see if a refinance will save you money in the end. 

Did you know there is a ‘secret’ way to pay off your mortgage early? No doubt you’ve heard ads on the radio willing to sell you this secret for only thousands of dollars.

Guess what? I like you, so I’ll tell you for free.

Pay Off Your Mortgage Early

Before you start paying extra on your mortgage, make sure you’ve 1) paid off all other consumer debt, 2) have at least a 3-6 month emergency fund, 3) begun investing in your retirement, and 4) saving for your children’s college

Yes, you do want to pay off your home early, this is a key to wealth building. You’ll loose your tax deduction, but it’s not worth staying in debt and paying interest to get a tax deduction.

If you have a paid for house, just think of what you can do with all that money! You can pay it off early with a simple little trick.

I’ll assume that you already have a fixed mortgage of 15 or 30 years that is around 25% of your take home pay.

Also, if you have an ARM and plan to stay in your home for another few years–Now is the time to refinance and get a lower %–even if you have to pay 1 or 2 points

Bi-weekly Payments

This is the ‘secret’ that you hear many ads on the radio about. They’ll try to sell you software that magically helps you pay off your mortgage early. Bi-weekly mortgage payments.

It’s not magic, it’s math. If you pay bi-weekly, you’ll end up making an extra payment per year and thus paying off your mortgage early. You’ll also be knocking out interest, so more money goes towards the principal balance.

You could end up paying a 30 year loan off  years faster with this method? Sounds crazy right? Let’s look at an example below. If you want to figure your own bi-weekly amortization schedule try bankrate.com.

Bi-weekly Payment 30 Year Mortgage Year Example

In our 30 year example at 5% you’d save $44.417.33 and end up paying off your mortgage about 4 years early.

Mortgage comparison

Monthly payment:

$1,342.05

Biweekly payment:

$671.03

Total interest:

$233,139.40

Total interest:

$188,722.13

Avg interest each month:

$647.61

Avg interest each biweekly period:

$241.33

 

 Tips for Setting Up a Bi-weekly Payment Schedule

  • Make sure you don’t have a penalty for paying off your mortgage early. If you do, you’ll have to crunch some numbers and see what your break even point is.
  • Be certain the extra payment goes to principal and not to future interest. Your goal is to take a chunk out the principal with this method. The banks want you to keep paying.
  • Check with your specific bank or lending agency to see if they use a 3rd party to administer their bi-weekly payments. There is sometimes a set-up fee to get on a bi-weekly schedule.
  • Monitor your mortgage to make sure they are applying your payments correctly.

Have you set up or thought about setting up a bi-weekly schedule? 

Photo Credit  j l t (Creative Commons)