For most people, buying a home is the largest purchase we ever make, and chances are it was largely an emotional decision.   There was something about the view, the trees, or the kitchen appliances; something spoke to us and we were ready to buy.  Over time, that emotional attachment increases as we put our personal stamp on the house and make it our home.  No wonder that the idea of losing a home through foreclosure can be emotionally shattering.

Grieving for the loss of a home and what it means to you and your family can be very upsetting.  Too often however, I see people avoid dealing with the reality of their financial situation simply because it is too painful to even contemplate.  These are the folks that ignore the letters and phone calls from their lenders and just pray that somehow it all goes away or that they win the lottery.

If any of this touches a nerve, it might be time to take a hard look at your situation.   Try to put aside the memories of holidays in your home, and ask yourself a few simple questions:

  1. Are you behind on your mortgage payments?  What about your property taxes, insurance and HOA dues?  Are you allowing maintenance items to accumulate because you can’t afford to fix things?
  2. Has your bank notified you and provided options to help?  Have you received a Notice of Default?
  3. Do you owe more than your house is currently worth?  Is the negative equity greater than 20%?
  4. Has your household income dropped in the last two years?  Are you dipping into your savings or other assets to make ends meet?  Do you doubt that your income will improve in the next 3-6 months?

If you answered “Yes” to one or more of these questions, it’s time to take action.  As difficult as it might be to face the reality of your situation, it is far less emotionally stressful to act now while you still have options and are still in control.  As soon as you miss a mortgage payment, the clock starts ticking on a countdown to foreclosure.  Wait too long to act and your options disappear.

If you live in San Diego County and are ready to discuss all the various options available, please give me a call for a no-obligation, confidential consultation.

Marti Kilby

Broker Associate, REALTOR

DRELicense # 01474222

619-846-9249

marti@kilby.com

I think we all agree that the lack of regulation in the mortgage lending industry was a primary cause of the housing market collapse.  Not everyone with a pulse should qualify for a zero- down, $400,000 mortgage.  However, the new rules being proposed by the federal government could be the fatal blow to a struggling housing industry that is barely surviving on life-support.

The cornerstone of the proposal is the idea that the very best rates and terms for conventional loans would be reserved for the very best borrowers…..sounds somewhat reasonable, until you understand what an exclusive club that would be, and how difficult it would make buying for first-time or lower-income borrowers.

First, a 20% down payment would be required.  In some parts of the country, you can buy a nice home for $150,000, but even so that would mean a down payment of $30,000 – a big number for a lot of people.  But here inSan Diegowhere a nice 2 bedroom condo is going to cost you around $320,000, a buyer would need $64,000, which is most likely a staggering sum for anyone considering a condo purchase.

If you think that sounds a bit harsh, you’ll love the other suggested requirements for the so-called “Qualified Residential Mortgage” or QRM:

  • Strict debt-to-income ratios.  A max of 28% of gross monthly income could be used for housing expense and total monthly debt could not exceed 36%.  Currently, both Freddie Mac and Fannie Mae guidelines take other factors besides DTI into consideration, and Freddie can go up to an overall debt-to-income ratio of 45%.  And of course, this is fully documented income, so tough luck for the self-employed.
  • To refinance your existing loan for a better rate you would need a minimum of 25% equity, and if you wanted to take out any cash, 30% equity would be required.  Today’s requirements vary by lender, but are no where near that strict.
  • Pristine credit.  If you were 60 days late on any account in the past two years you would not qualify.

So to put this into perspective, let’s see what someone might be able to afford here inSan Diegowhere the median household income is $67,000.  Their total monthly housing expense, including tax and insurance could not exceed $1,563.  This means they could purchase a single family home for $295,000 (if they could find one that would qualify for conventional financing), but would need a down payment of $59,000.  Presuming their monthly take-home pay is $4,466 and they are currently renting a 2 bedroom apartment for $1200, and after all other expenses they could still manage to save $500 a month, it would take these would-be home buyers 9.8 years to save for the down payment!

What if you don’t qualify?  Get ready to pay-up.  The mortgage industry estimates that non-QRM rates will be from .75 – 3.00% higher, again pushing more people out of the market with higher rates.  So if you are like the majority of today’s borrowers and don’t have a big down payment, make an above average income and have perfect credit you could be paying 8.00% interest while the QRM borrower will pay just 5.00%.  Sounds really fair and I’m sure that will mean a big boost to the housing market, right?

This is a total over-reaction that threatens to kill the small gains and recovery that we’ve seen in the past year.  I agree that reforms are necessary, but requirements should not be so stringent that home ownership is only accessible to a privileged minority.  If only the wealthy can purchase a home, some of our troubled neighborhoods (where the QRM buyers won’t want to live themselves) will be owned by investors and would-be buyers will be doomed to a life-time of renting from them.  I don’t know about you, but to me this doesn’t sound like a way to re-build neighborhoods or salvage the American Dream of home ownership.

In a survey of the 50 largest U.S. cities, Trulia found that it is still more affordable to buy than rent, even in San Diego.  But does this survey tell the whole story?

According to the guidelines the company used, a price-to-rent ratio of 1-15 means that it is more affordable to buy than rent, a ratio of 16 – 20 indicates it is more expensive, but still might make financial sense, and a ratio of 21+ means that it is definitely much more expensive to buy than rent.  San Diego scored a 15, and only 4 cities were over 21, including San Francisco, Seattle, New York, and a surprise, Kansas City, MO.

That all sounds well and good, but it should be pointed out that the survey compared the cost of buying versus renting 2 bedroom apartments, condos and townhomes, not single family residences.  The company arrived at the numbers by comparing the median list price of homes offered on their website for 2 bedroom units to the median rent for a comparable home.  Also, I’m not sure that looking at list price is an accurate indicator as most homes do not sell at list price.

The other problem I have with the survey is that it doesn’t take into account the level of demand for apartments or townhomes versus single family homes.  In New York or San Francisco, there is a much higher demand for condo living than there is here in San Diego.  I believe a more accurate survey for our market would be the comparison of buying versus renting a 3 bedroom 2 bath single family home analyzing sales price and actual rent paid.

The survey results did however indicate an interesting shift in the demographics of who is buying and renting.  According to Tara-Nicholle Nelson, consumer educator for Trulia, “Lifelong renters are seizing the opportunity to become homeowners while affordability is high. At the same time, a growing number of long-time homeowners are finding themselves tenants – some by choice and others by necessity.”

In the end, I don’t really believe that renting or buying a home is just about the numbers, and who is under the roof with you is much more important than the cost.

We live on the edge of a canyon, and the homes across the street are on narrow lots, perched on a steep hill about 50 feet above our home.  Last night, I awoke in panic as the foundation on one of the homes began to crumble in the heavy rain and started sliding down the hill towards our home.

Luckily it was a dream, but I couldn’t get it out of my head.  Would we get out in time?  Would I have time to grab anything before our home was crushed?  What would I take?  When I got up this morning and reassured myself that both homes were very much intact up on the hill, I wondered if our insurance would cover our home if my nightmare had been a reality.  And the truth is, I have no idea.

We all heard the horror stories after the last two wildfires swept San Diego County…stories of those with no insurance, but even more frequently, those who were under-insured.  Disasters such as wild fires or flooding can happen to any of us, but how prepared are we to recover our losses and rebuild our homes and our lives?

My way-too-real dream reminded me that a call to my homeowner’s insurance agent for a New Year’s check-up might be a good idea.  Here are a few things to review: 

  • What is the deductible?
  • Are we covered for flooding?  Any limitations on fire coverage?
  • Are we sufficiently covered for loss of use?
  • Would our additional coverage pay for removal of debris if the house across the street did slide down the hill into ours?
  • Do we have an endorsement for guaranteed replacement cost of our home?
  • Is our personal property adequately covered?
  • And finally, are we getting all of the discounts that might be available to us?

This morning I’m very thankful that we didn’t have to make a midnight run for our lives, but I think I’ll sleep better once I know we’re covered, just in case……

If you think it’s OK to ignore the ketchup that dropped on the carpet, and that black fur growing in the bath tub is normal, do me a favor:   Don’t list your home for sale.  As a Realtor, I’ve seen more than my share of filthy, smelly houses, but yesterday’s showing put a surprising twist on what people consider acceptable. 

Entering the front door of the home I noted several rows of shoes in the foyer.  Normally, this is a sign that the occupants care about keeping their floors clean and don’t want to track dirt from the outside world into their home.  However, as I gingerly stepped onto the carpet, not only did I keep my shoes on, but I was wishing I had worn waders to protect me from whatever life forms were living in the carpet!  What were these homeowners thinking?  The carpet was stained to the point that it was difficult to determine the color and piles of dog and cat hair billowed around my feet at every step.  And they remove their shoes?  Really?

Most sellers of course don’t live in a pig pen, and if your standards of cleanliness are a bit relaxed, that’s your business.  However, most of us become so comfortable in our own environments that we may not be able to see things that will distract a buyer.  When it comes time to sell your home, listen to your Realtor!  Most buyers lack imagination and will not be able to see past dirt or clutter.  Hand prints on the walls and less than clean appliances are seen by the buyer as work they don’t want to do. 

Ready to sell your home?  Ask your Realtor for a candid evaluation of items that need to be cleaned and/or repaired before you worry about the list price.

We all agree that reducing the national debt and annual deficit is important to the long-term stability and health of our nation’s economy.  But why, in a time when the housing market is so fragile, would anyone think that reducing one of the principal benefits of home ownership is a good idea?

Yesterday, the Deficit Reduction Commission issued its recommendations which included cuts to Social Security, Medicare, Defense spending, and the Mortgage Interest Deduction, among other programs.  The Mortgage Interest Deduction has been around for over 80 years and is one of the principal benefits of owning a home.  This provision allows homeowners to take the annual interest paid on their mortgage as an income tax deduction. Take away or significantly lower the deduction and the benefits of home ownership are reduced to choosing your own paint colors.   Values are not appreciating; no one is building equity, so why buy?

Coincidentally the Federal Reserve’s Beige Book was also released yesterday showing that the depressed housing market continues to be one of the biggest stumbling blocks to economic recovery.  So if I understand correctly, the Feds are saying that our economy won’t show significant improvement until the housing market recovers and at the same time the Deficit Commission is proposing that we make home ownership less appealing.   The logic eludes me.

I believe that the impact of this proposal will be a significant blow to the struggling housing market, whether or not it is ever enacted.   The public in general is still nervous that home values will continue to decline, so many would-be buyers are sitting on the sidelines waiting to buy.  The news reporting of this proposal, and even the remote possibility that the deduction will disappear gives them one more reason to stall, further delaying recovery.

Although I don’t always agree with their politics, the National Association of Realtors got this one right.  This is a stupid idea and I hope that you’ll join me in asking your Representative to defend the Mortgage Interest Deduction.

Whether you’re considering a short sale purchase, or the short sale of your own home, understanding the process will relieve some of the stress.

The first thing to understand about a short sale is that unlike a traditional equity sale there is an all-important 3rd party that controls the fate of the deal:  The lender(s).  In order for a short sale to occur, the lender or lenders must approve the transaction.  This involves 3 items for their consideration:

  1. Can the current owner show sufficient financial hardship to prove that he cannot pay his mortgage?
  2. Is the price offered consistent with comparable sales in the area?  The bank wants to re-coup as much of their investment as possible.
  3. Will the bank or investor agree to settle for less than the amount owed, or will they choose to foreclose?

Step #1 – Pre-Qualification

Let’s start with pre-qualification of the homeowner.  Before taking a short sale listing it should be the job of the Realtor to understand the financial requirements and pre-qualify the seller.  This involves having the sellers complete a financial worksheet and reviewing their income and assets.  Whether buying or selling, this is a critical step and one reason why working with an agent that is experienced in short sales is important.  If the sellers don’t financially qualify, there is no point going any further. 

Step #2 – Documentation

Once it has been determined that the sellers qualify, the Realtor or qualified short sale negotiator, will contact the seller’s lender and determine the exact requirements for submission as they are all slightly different.  It will also be determined at this point if the lender participates in the government HAFA (Home Affordable Foreclosure Alternatives) program as there may be incentives for both the sellers and the lender, and certain procedures may be streamlined.  In any case, the Realtor will work with the sellers and collect all the necessary documentation.  This will include: 

  1. A statement of general information
  2. Financial worksheet
  3. Handwritten letter explaining their hardship
  4. 2 months pay stubs or year-to-date Profit and Loss statement if self-employed
  5. 2 months bank statements
  6. Tax returns for the last 2 years
  7. Most current statements for all retirement accounts or other assets
  8. Authorization form to allow Realtor or negotiator to speak with the lender(s)

Step #3 – Sale of the Property

The house is then listed for sale as a short sale.  Both listing and selling agents must agree to equally split whatever commission the lender decides to pay.  Once an offer is received the Realtor should carefully examine the offer and make sure that it is an offer the lender is likely to accept; the price should be consistent with comps; the offer must not be contingent on the sale of the buyer’s home; and the buyer must understand that it is unlikely that the lender will pay for any termite work or other repairs.

Step #4 – Submission of the Short Sale Package

The listing Realtor or negotiator submits everything to the lender for approval of the short sale and the sale is noted in the MLS as “Contingent”.  Again, it is important to have an experienced Realtor or negotiator who makes sure that the submission is not only complete, but that it is packaged neatly and easy to read and understand.

The package goes to a special department at the lender where it is reviewed.  If there is any documentation missing or unclear, they will request additional information. Unfortunately, even this initial review can sometimes take 4 weeks or longer.

Once this initial review is completed and the package confirmed as complete, a negotiator representing the lender will be assigned.  It is the job of this negotiator to carefully review the file and make a recommendation as to whether it should be approved, or not.  If there are 2 lenders (a 1st and 2nd mortgage), this entire process must be completed for both lenders. 

Step #5 – Negotiation

During the actual review and negotiation process, the lender’s negotiator may counter specific items in the offer including the purchase price and the requested commission.  In the case of the second mortgage holder (who stands to lose the most), they may also request that the buyers make a financial contribution.  Again, this is where experience counts.  The seller’s Realtor or negotiator should be in communication with the lender’s negotiator several times a week, working to move the deal along and arrive at terms that are favorable to the seller and buyer.  This part of the process can drag on for weeks, or even months, although some lenders have streamlined the process.  Also, keep in mind that many of the 2nd mortgage holders won’t even begin the review process until the 1st lien holder has approved the sale.

Step #6 – Approval

If the lender’s negotiator recommends approval, the file goes to upper management or the investor for final approval.  Generally speaking, if the file makes it this far, it is usually approved.  But again, this final leg of the process may take an additional week or two.

And finally, the letter everyone has been waiting for – the approval letter.  Assuming all terms are acceptable to sellers and buyers the sale will now proceed as a “normal” sale.  The approval letter will stipulate a date by which the sale must close or the approval is no longer valid, usually 30 days.  Hopefully the buyer has hung-in during the approval process, and at this point the clock starts ticking for buyer inspections and contingency removals.

Navigating a short sale as either a buyer or seller can be overwhelming.  Making sure you’ve got an experienced professional on your team is the best way to protect your interests.  Questions?  Just give me a call.  619-846-9249.

Considering a major home improvement?   Updating a kitchen, replacing windows or adding living space are just some of the expensive renovations that homeowners tackle to add functionality or enjoyment to the use of their home. But which projects are the big winners and losers when it comes to adding value?

Winners

Kitchens are at the top of the list in terms of adding value to your home.  Renovating an outdated kitchen can add thousands to your bottom line when reselling your home.  Because remodeling a kitchen is a big, disruptive project it is something most buyers want to avoid.  An updated kitchen requiring no work is definitely an added value.

Bathrooms are another winner.  Just like kitchens, an outdated bathroom represents a major project and expense to most buyers.

A master bedroom suite can also be a big plus.  An added walk-in closet and larger private bathroom are very appealing selling points to most buyers.

Popcorn ceiling removal is a relatively inexpensive project that definitely adds value.  Again, this is a messy, disruptive project that buyers want to avoid.

Replacing windows and or the roof are projects that are marginal winners.  Most buyers expect these items to be in good condition.  So while replacing them may not add tremendous value, not replacing them if old or worn could significantly detract from resale value.

Losers

Swimming pools lead the list of projects that don’t add significant value to your home.  Because they can be viewed as dangerous, and are expensive to maintain, swimming pools can actually be seen as a negative to many buyers.

Room additions that don’t conform to the original design or floor plan also detract from value.  While enclosing a back patio or converting a garage to living space, may add to usable square footage, most buyers don’t want a dining room that has a window into another room and probably do want a garage.

Overbuilding or high-end upgrades are big losers.  Improvements should be comparable to other homes in the neighborhood.  Increasing a home to 5000 square feet in a neighborhood of 2000 square foot homes is money that will never be recouped.  Likewise, using the most expensive fixtures, appliances or flooring will generally not add more value than using a slightly less expensive selection.

Extensive landscape and professional hardscape features may be very enjoyable and add to overall appeal of your home, but will most likely not significantly add to resale value.

Invisible improvements such as replacing plumbing, electrical or HVAC systems are not big winners.  Again, buyers expect these items to be in good condition and it is seldom that you’ll recoup your investment here.  Consider these a part of general home maintenance.

When planning a major home improvement project, keep in mind that even if your project is a winner, you’ll probably not recoup more than 75-80% of your investment when reselling your home.  Especially in today’s market with home values remaining flat, the primary reason for undertaking any home improvement project should be for your own enjoyment of the home, not adding to your bottom line at resale.

The sarcastic answer in today’s market might be, “Not much.”  My husband thinks that some sort of insanity has a grip on his otherwise logical wife.  He just shakes his head as I watch one more episode of House Hunters or Property Virgins and asks, “Don’t you get sick of looking at houses?”

And I guess for me, that’s where the answer lies:  I love houses!  Big houses, little houses, modern, traditional, tree houses…..I am completely intrigued by the shelters we each call home.  From the time I was a little girl, I enjoyed drawing pictures of different types of houses and designing floor plans.  And today, every time I unlock a door to show a home I’m still excited to see what we’ll find inside.  Okay, sometimes its cockroaches and filthy walls, but looking past the mistreatment, the bones of the home have something to say.

Houses solve the most basic problems of existence.  Our homes provide shelter, protection, and a place to prepare and eat food.  And if that is where their function and purpose ended, being a Realtor would be pretty dull.  But houses speak volumes not only about who we are individually, but who we are as a country and civilization.  Houses reflect how we as people, wherever we live, respond to the challenges of our physical and economic environment.

Since WWII the U.S. has witnessed a huge housing boom where we’ve seen our houses change along with our economy and lifestyle.   The small bedrooms, closets and bathrooms of the 1950s have given way to master suites that often occupy as much as a third of the total square footage.  Kitchens are no longer cloistered behind a swinging door, but are open to the living area. And who would have thought that you’d ever hang a TV above the fireplace?

As we all continue to feel the economic squeeze of recent years, we see new trends developing in our homes as well.  The mega mansions so popular at the early part of this century are just too expensive to maintain, and we see many people downsizing to more manageable homes.  Little used rooms, such as a formal living room are becoming obsolete as the great room becomes the center of the home.  And as interior space shrinks we develop our exterior spaces as outdoor rooms.  Less is the new more, and I predict that the need to reduce our footprint will drive significant changes in our homes over the next twenty years.

So do I love being a Realtor?  Absolutely!  Can’t wait to see what I’ll discover tomorrow behind the next front door.

If anyone had told me four years ago that today over 90% of my business would be short sales and REOs, I would have said they were crazy.  The reality of course is that the boom of those days is the bust of today, and it doesn’t look much brighter on the immediate horizon.

According to California Association of Realtors Vice President and Chief Economist, Leslie Appleton-Young, “The wild cards for 2011 include federal housing policies, actions of underwater homeowners, and the strength of the economic recovery.  What is certain is that favorable home prices and historically low interest rates will continue to make owning a home in California attractive for those who are in a position to buy.”

 OK.  Sounds like a glimmer of hope….unless you’re one of the homeowners that is underwater with no life boat in sight.  Knowing that you can no longer afford your home is incredibly stressful, and for most home owners, their lenders offer little help, despite federal programs.

This blog is dedicated to every homeowner who can’t sleep at night and is asking themselves, “What do I do now?”  My goal is to provide information that will help homeowners understand their options for buying, keeping, or selling their homes in this troubled market. With the banks and the government changing the rules every day, I’ll help make sense of the news, share my experience and insider perspective,  and have some fun along the way.  Most fear is based on lack of knowledge.  By sharing what I know and being here for your questions, I hope to take the “stress” out of distressed property sales, whether considering a short sale, or an REO purchase. 

So let me know how I can help.  If I don’t know the answer, I’ll find a reliable source that does.  It’s that simple.  Over the next two weeks I’ll be adding some good resource information about short sales, so check back soon!  Looking forward to sharing and hearing from you!