Last week, we spoke a bit about refinancing your mortgage and if it is worth doing. So this week we thought we would expand on the refinancing topic and take a look at a specific scenario.

For elderly home owners there can be some great advantages to refinancing especially if you are on a fixed income and are trying to get the most out of your monthly income. Even a saving of 50 to 100 dollars could go a long way in assisting to cover other incurred monthly costs. Keep in mind, most financial institutions will only consider refinancing if you have a strong credit score.

Let’s say, as an example, your financial institution has made an unsolicited offer to reduce your fixed rate mortgage in exchange for a flat 500 dollar fee. Your credit score is strong but you have some doubts about the offer and if it may have an effect on your current credit score. So, will this refinancing affect your current credit score?

Refinancing itself does not damage your credit score. What may affect your credit score is multiple credit score inquiries when lenders pull your credit history. If you have multiple lenders pulling your score again and again, these inquiries could add up. Most credit bureaus will count multiple inquiries in a short period of time as one mark against your credit score. Your credit bureau views shopping around to multiple lenders a responsible decision and does not want to penalize you for doing so.

With any financial decision, do your homework and confirm the flat fee offer is legitimate. Call your lender in regards to the offer and insure it comes from a source your trust. Remember, refinancing scams do happen. Be really careful, don’t send that $500 check to just anyone.

So you have owned your house for a few years now and you are considering refinancing your mortgage. Perhaps you have some credit card debt you want to pay down with the money you could save on refinancing the mortgage. Let’s take a look at whether it is worth refinancing or not.

The first thing to consider when refinancing is that is going to cost you money to refinance your mortgage. These costs could run you from several hundred to several thousand dollars depending on agreements you have with your current lender.

It may be possible to add these fees to the refinanced loan amount. However, if you have the money to spend, it might make more sense to just pay off your credit card debt, which is likely at a much higher interest rate. If you don’t have the money to pay the refinancing fees up front, and you end up folding that amount into the loan, just remember that your monthly payment won’t drop as significantly.

There are two rules of thumb when it comes to refinancing:

1. Only refinance your mortgage if you can drop your interest rate by at least one full percentage point.
2. Refinance your mortgage only if you’re planning on staying in the house for at least a few more years.

Remember, always consult with your lender, take a good look at what sort of refinancing options they may be able to provide and keep a close eye on those refinancing fees.

There’s a right way to do a short sale—doing it on your own and waiting for the bank to “come after you” is not the way to go about it.

So, let’s take a look at what you need to do to proceed with a short sale and not get yourself in hot water with the bank.

If you are planning on selling your house for less than it is worth keep in mind you will not be able to pay off the current mortgage nor will you have any collateral. Your options in this situation are a short sale, a foreclosure or a deed in lieu of foreclosure. All of these options will require that you prove to the bank that you do not have the ability to repay the debt owing on the mortgage.

Your bank may agree to a short sale as it is less costly than a foreclosure and does not require court action.

Keep in mind that proceeding with any of these scenarios will have an adverse effect on your credit score. Your credit score will drop between 200 and 300 points preventing you from garnering credit for several years.

Your first step should be to contact an experienced real estate attorney that specializes in short sale and foreclosure scenarios.
Your attorney will negotiate with your lender on your behalf and fully understands the process. Your lawyer will more than likely require their entire retainer up front; after all, you are having difficulty paying your bills as it is.

Providing proof of financial hardship is the key information required by your attorney. To do a short sale or a deed-in-lieu, you will have to show the bank that you cannot afford to make the mortgage payments, meaning that the house will go into foreclosure if the bank doesn’t allow you to proceed with a short sale.

Remember, depending on what state you live in, the lender could come after you for the unpaid debt that is outstanding on the mortgage. For instance, in you owe $500,000 and sell the home for $350,000 the lender could sue you for the $150,000 they have lost. The lenders recourse on the debt owed is dependent on the state that the mortgage was drawn in. In some states, known as “non-recourse” states the lender cannot sue you for the amount they have lost in a short sale or foreclosure.

Financial hardship can be an incredibly trying time. Keeping honest and open communication with your lender and consulting an experienced attorney will only make that hardship less traumatic in the end.

So, you are small business owner and you just tried to buy a home for 120-thousand dollars but were turned down by the bank. You have good credit, a zero balance on your credit cards, and a 250-thousand dollar home that is currently up for sale. The bank won’t lend you the money for the 120-thousand dollar home, because they say you don’t earn enough money as a small business owner. What are your options?

The bank is looking at the fact that you already own a home and that you probably already have a mortgage on that home. Chances are, if you add in another mortgage to the amount you already owe it will be too much debt compared to what you make. Your ‘debt-to-income’ ratio will be too high. The bank views this high debt as a liability and it is a risk that they are not willing to take.

Perhaps the home you are looking to purchase is just too good of a deal to be missed. You could ask your REALTOR® if the seller will accept a ’sale of home’ contingency. This means you put the new home under contract, and don’t have to buy it until your current home sells. However, contracts like this usually have what is called a ‘kick out’ clause. This type of clause stipulates that if someone else comes along and wants to buy the new home, you have to either buy it or step aside from the deal.

Realistically, your best bet is to wait until you sell your current home. Once your house is sold that mortgage will be off the books, and you should have no difficulty qualifying for a new mortgage.

Always keep in mind that your ‘debt-to-income’ ratio should be kept in check to avoid over extending your income. Discuss your financing options with your banker and consult with your REALTOR® in regards to creative purchasing options.

So you are planning on buying a home and your REALTOR® has suggested looking into a foreclosure or a short sale. You may have heard that each have their benefits but you are wondering which way to go. Let’s take a look at some of those benefits.

Short Sale

One of the major benefits in a short sale scenario is that the seller is motivated to keep the home in good shape in the hopes of selling for a better price. Unlike a foreclosure, the seller is more than likely living in the home and doing the day to day maintenance required.

In addition, banks are more open to short sale arrangements as it generally costs less than a foreclosure situation. Keep in mind that the seller may be willing to sign a contract with you quickly, however, all short sale agreements must be approved by the bank. Be prepared to wait for the bank approval as this can take up to several months.

Foreclosure

The biggest enticement of a foreclosure is the chance at a deal. A foreclosure can be a reasonably priced option for buying property but there are some considerations to take into account.

Buying foreclosed real estate can be risky. If you buy a foreclosure at auction, you might not have time to inspect the property and may have to rely on the information provided by the seller. Always get an inspection and if at all possible make the inspection part of the terms on closing the deal.

Remember that you will be dealing directly with the bank when purchasing a foreclosed property. This can be a far more time consuming process than a traditional REALTOR® / Real Estate transaction.

As in any real estate transaction, deal with an accredited REALTOR® that you trust and are comfortable with. Always keep in mind, if a deal is to good to be true then it probably is.

In last week’s post we talked about credit recovery and how a rent-to-own agreement may be an option while you work towards getting your credit back on track.

So, we thought this week we would expand on the rent-to-own scenario and talk about the pros and cons of entering into such an agreement. Keep in mind, entering into any rent-to-own agreement will require the services of a lawyer and a contract that is agreeable to both parties.

For Buyers

Let’s weigh some of the pros and cons from the buyer’s perspective. Looking at a rent-to-own agreement objectively will give you a better feel for what you can expect and perhaps how to avoid some of the pitfalls that can be associated with a rent-own-scenario.

First and foremost, rent-to-own gives you the benefit of building a down payment towards the home you are currently renting. Financially, this is a great benefit to you, the renter, as you now are building a nest egg towards the eventual purchase of the home. Your agreement may require that you pay higher than market value rent but the extra will come back to you when it comes time to purchase the home.

An additional benefit is that you are able to “test drive” the home, the neighborhood and what it would be like to own a home in the area. This is a benefit that a regular home buyer does not have.

However, there are some things to be aware of when entering into a rent-to-own agreement.

Probably the number one concern with any home buyer is price and this is where having an agreed upon written agreement is most important. Locking into a price early on can be a double-edged sword. If you agree on a price now, and then the home’s value goes up? The landlord might not want to sell to you. But if he does, you’ll be getting a great deal.

If the price falls, you are not going to want to pay more than the house is worth. In addition, your financial institution will not provide you with a mortgage on a home that you are paying too much for. You are better off to agree to a professional appraisal down the road, when you are ready to buy.

Lastly, keep in mind that you will still need to qualify for a mortgage when you decide to buy the home.

For Sellers

In the rent-to-own scenario the seller’s pros definitely outweigh the cons.

In today’s tough real estate market a rent-to-own agreement may be able to attract buyers you might otherwise not get.

One of the key benefits to such an agreement is your renters now have a vested interest in the property and it is in their best interest to take care of the home they are currently renting.

Additionally, if the renter decides not to buy at the end of the lease you will have still earned significantly higher rent during the tenancy.

There are very few scenarios where the seller would lose in signing a rent-to-own agreement with a current tenant other than locking into a price early on in the agreement and selling the home below market value. However, this could easily be avoided by not determining a price on the home and agreeing to a professional appraisal down the road, when the tenant is ready to buy.

How To Make It Work

As a buyer or seller it is imperative that you speak to a REALTOR® and your attorney to insure the contract is fair for both sides.

Buyers will need to approach their mortgage lender and be sure they will qualify for financing when the time comes. Remember, if you cannot qualify for the mortgage at the time of purchase it is more than likely any money amassed towards the down payment will be lost.

Make sure that the agreement covers maintenance and repairs as these are common points of contention, for both the buyer and seller, in rent-to-own scenarios.

Whether you are buying or selling, a rent-to-own agreement can be a creative solution in a tough real estate market. Just remember, consult an attorney before you step into any agreement.

So you have never owned your own home and your credit score is weak. What are your chances of becoming a homeowner? Certain FHA loans are available for individuals with credit scores lower than 580. These types of loans may be difficult to find but you may want to pursue this path in securing financing. However, let’s look at the best way to improve your current credit rating and get your credit rating back on track.

With discipline and focus you can repair your credit rating enough to buy your own home. The first step to recovery is to request a copy of your current credit report and review it carefully. If there are any errors in your credit report inform the credit bureau and go about rectifying the errors. Once you have reviewed you current credit report, begin assessing the current debts you hold and how you can begin to pay down those debts. Keep your current debt payments up to date and don’t’ take on additional credit without careful consideration. Depending on the scale of debt you currently hold always keep in mind that paying down debt takes time, diligence, focus and a plan of action.

Negative credit can appear on your credit history for up to 7 years but building positive credit history can begin now. Creditors look at the longevity of your credit history and prefer to see long established relationships with lenders. Don’t rush to close those accounts – a credit card with a high limit but which you only use a little bit and pay regularly will improve your score.

If your goal is to buy a home in the short-term, there is another option. You may want to look into a lease-to–own arrangement.

Here’s an example:

Perhaps you are currently renting a home and the landlord has agreed to apply a percentage of your rent towards a down payment. Currently, your monthly rent is $1000 dollars and the landlord is applying 25% of that towards the purchase. In this type of arrangement you would have saved $3000 a year towards the down payment of the home you currently rent. When it comes time to purchase the home any of the money amassed is applied to the down payment on the purchase of the home.

Seems like an ideal situation if you have a landlord who is willing to enter in to such an agreement. However, there are some downsides when entering into a lease-to-own arrangement.

If at any point you decide not to purchase the home any money saved will be lost. In addition, do not overlook that those monthly set-asides will only apply to your down payment on the property. You will still need to qualify for your own mortgage. Between now and when you want to buy the home you will need to continue with a plan to recover your credit rating.

Keep in mind; paying down your debt takes time, diligence, focus and a plan of action. Sticking to that plan will help you pay down that debt faster and put you on the path to being a proud home owner.

This week we take a look at your best approach for choosing a contractor. Knowing which questions to ask will ensure that you are making a smart choice when it comes to who is working on your house. After all, it is the number one asset you own and you don’t want to trust it to just anyone.

Speak to their suppliers

Most people know to get referrals of contractors from friends and to ask prospective contractors for references. However, another source to assess a prospective contractor is by speaking to their primary suppliers. Ask the contractor you are interested in where his favorite lumberyard or homecentre is. Those proprietor’s will know what it is like to do business with the contractor on a daily basis, if he pays his bills and will be able to give you great insight into his professionalism.

Client References

Ask for references from the contractors first one or two clients. Why? This will give you great insight into how long he has been in business and you will get the perspective of a homeowner who has lived with his work over the span of years.

The Crew

Most contractors are working multiple contracts and will not be the actual people working on your house.
Ask to meet his general foreman and to see him at work on a current job site. This will you a great view of the people who will be working on your home and give the contractor a great incentive to highlight his best people, his A-team.

The Bid Process

When the discussion turns to money, always insist on an itemized bid from your contractor. An itemized bid will help both you and the contractor understand the scope of the project, avoiding any disputes further down the road. The contractors bid should provide a thorough item by item cost break down of demolition, framing, plumbing, electrical, tile, fixtures—all the elements of the job. If the prospective contractor will not provide you with an itemized breakdown of costs then don’t hesitate to move on to a professional that will.

For more information on this topic and other information about fighting back against bad contractors, contractor scams, and getting the very best work from your contractor. Just visit HouseLogic.com and search by “contractor”.

In most cases, when you secure a mortgage on a home the collateral is … the home. Your lender may foreclose on the mortgaged property if certain conditions – specifically, non-payment of the mortgage loan. When foreclosures takes place and the funds recouped from sale of the mortgaged property are insufficient to cover the outstanding debt, the lender may not have recourse to the borrower after foreclosure. These types of loans are commonly referred to as “non-recourse loans”.

However, certain states those commonly known as “recourse states” give lenders the ability to seize other assets owned by the borrower to recoup what is owing. Recourse loans give the lender the option of taking legal action against the borrower. The scope of this legal action is dependent on the lending laws of the state – these laws usually cover the powers the lender has to enact what is commonly referred to as a deficiency judgment.

So what do you need to know if you are facing foreclosure? Learn your rights by seeking legal advice from a lawyer who understands the lending laws of the state you are in. While it is more than likely your current mortgage is a “non-recourse” loan, verify this with your lender and a legal professional.

For many homeowners, becoming friendly with your neighbors really starts with your children. They play together and go to school together. Before long, they’ll be playing soccer or little league together, too, and you will find yourself meeting the other parents. Don’t be surprised if you end up with some great friendships that continue long after your kids have moved on to other activities.

Of course, not every family on your block will have kids that are the same age, so you may need to find another common bond to break the ice – or thaw the ice – this spring. So here’s a concept that always motivates people – the smell of money. If you want to get your neighbors out and visiting with each other, try organizing a community yard sale. It’s a great way to make a few bucks, clean out the garage, and to reconnect. Plus, you might find some great stuff!

Another idea that many communities have embraced…is a ‘kick it to the curb’ day. In that scenario, for one day, everyone in the neighborhood is invited to clear out all their junk…and toss it into a rented dumpster. Now of course, you’d have to pay for the dumpster, so there would be a small fee for anyone who participates, but you’ll probably find most people would jump at the chance to throw out stuff that the regular garbage pickup wouldn’t take.

Or, perhaps a call to action would do the trick. Do you have a playground or a park in your neighborhood that could use some tender loving care? Getting your neighbors to chip in to pull some weeds, pick up some trash and plant some flowers will not only encourage you to socialize with each other, it’ll also beautify your community and help maintain everyone’s home value.

While we’re keeping the cul-de-sac looking good, work with your younger neighbors to help out the older residents. Do you have an elderly homeowner on your street who could use a hand with some spring gardening? By donating a couple of hours of time and working together, you and your neighbors can erase an eyesore and earn the everlasting gratitude of an elderly friend.

And, surely, the best route to your neighbor’s heart is through his stomach. Now that spring is here, people are taking the covers off of their grills, and sending all sorts of delicious smells wafting down the street… What better way to complete that friendly neighborhood atmosphere than by doing it together? Plan a community potluck or barbecue, and have everyone bring a dish. While you’re at it, throw together a neighborhood softball game or even just toss a football or Frisbee. Before you know it, you’ll find yourselves arranging Friday night happy hours, and finding you have more in common with your neighbors than just a zip code.

And that really is the case, if you think about it. You and your neighbors all chose to live where you live for a reason. You share common values though your children’s’ schools – you shop in the same stores, go to the same churches and temples, and frankly, depend on each other to keep your neighborhood safe and attractive.

Cynics may say that good fences make good neighbors, but if you get out there and get to know your neighbors this spring, you just may find yourself knocking those fences down.