Simi Valley Homes - Ted Mackel

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Please visit

www.homebuysblog.com

for updated information on Real Estate and local information for Simi Valley & Moorpark.

Thanks for stopping buy!

I was elected by the Simi Valley Moorpark Association of Realtors to serve as the Treasurer for the 2008 term. I have served on the Budget and Finance committe for three years and have been a director for 2007.

Credit and Credit scores are very mysterious. Mysterious to the point that many people do not pay much attention to their Credit status until it is time to make a purchase. The little (and I stress little) step you take today can pay huge dividends later when you go to purchase that next home, car or appliance, etc.

If you have not looked at your credit recently there are two way you can do this. Well there are more than two, but the following two are the best. You need to see your reports in a raw form. The best way to do this is to order a hard copy of each report from each Credit Reporting Agency (aka - CRA). Each report will cost approximately $10.00. If you believe you might have a few challenges then this first option is the best.

Let me stress............NEVER USE A FREE REPORT SERVICE.

Free reports make it more difficult to dispute and errors on your reports (this topic will be covered later). The $30.00 you spend for the hard copies will be well worth it if you need to dispute. Additionally DO NOT ORDER YOUR REPORTS FROM ANYONE OTHER THAN TRANSUNION, EQUIFAX & EXPERIAN. Third party company reports will not have many of the details you may need to see in order to optimize your report.

The second place to get your report is a little more expensive (between $45.00 and $50.00 for all three) and that is www.myfico.com. myFICO.com is the only website you can go to and get your REAL FICO SCORES. All the other websites that claim to have your score, have what is affectionately called a FAKO (Pronounced FAKE-O). The Fair Isaac Corporation owns the secret formula for the scores and does not share that with anyone. The formula is closely guarded just like the recipe for Coke and Kentucky Fried Chicken. The score you see on myFICO.com will be the same score that a car dealer will pull or any other lending source.

What is a Trimerge report? A Trimerge report is a report you can order from third party providers which will include all three reports combined into one report. While these reports are helpful, they are not as detailed as the reports recommended above. If you sign up for a credit monitoring service then you will have access to a trimerge report. This is good for monitoring purposes and costs less, but if you need to dispute or work on your credit, the hard copies are a must. The good news is if you dispute items on your report and they are removed, the CRA will send you a new updated copy of your report at no additional charge.

To order you report mail your payment and request to the following companies:

Equifax
PO Box 740241
Atlanta, GA 30374-0241
Currently $8.00

Experian
PO Box 2104
Allen, TX 75013
Currently $9.95

TransUnion
PO Box 2000
Chester, PA 19022-2000
Currently $8.00

You will need to include a copy of your Driver's License if you mail in your request. You may also order over the phone with a credit card.

Also when you request your report you will want to OPT-OUT at the same time. When you opt out you will have your name removed from the mailing lists the CRA sell to credit card companies and others. you will recieve less junk mail when you opt-out. This option is good for 5 years and must be renewed.

This is the first installment......More to follow......

Every newspaper seems to have an article on the mortgage industry and the dilemma of subprime mortgages. The Stock Market is taking a beating with fallout and consumers are now on the sidelines trying to figure out if a crash is in process and when the best time to buy a home might be.

If you are one of these buyers trying to decide, then ask the following question:

The home I am looking to purchase is going to be

a) A home I plan on living in longer than 5 years.
b) An investment which I intend to own less than a year to rehab and flip.

If you answered 'a', then the time to buy is now. The variables you cannot account for in the next 12 months include interest rates and lending requirements. Because of the lending fall out, requirements to qualify for loans is getting tougher not easier. If you have less than stellar credit your lending options are getting smaller everyday. If rates go up, even with a moderate reduction in prices your monthly payment will not go down. The Fall and holiday months in this area see a slow down in activity, which will open up buying opportunities as sellers who need to sell will not be as picky if an offer comes their way.

If you answered 'b', then now is the time to get a business plan and do your home work. I really feel unless you have the capital to show up at the foreclosure sales, the homes listed on the Multiple Listing Service will not be priced low enough for a short term flip. Inventory is up and the number of homes sold is low. You will not only need capital for rehab, but maybe several months reserves for payments & utilities while you try to sell.

I think this is a good time to buy. My wife and I answered the question under 'a' and we have purchase a home and are in escrow to close the first week of September.

My next blog entry will be on credit, how to boost your score and what to do to keep from lowering your score.

There are good investment decisions to be made in real estate, however, foreclosure proerties are not an automatic choice. There are major differences in the foreclosure market of the early 1990s compared to the foreclosure market today.

• Today, the market is not flooded with foreclosures.
  
• The majority of homes in foreclosure today had 100% financing so there is no equity at this point to negotiate over with the bank or seller.
  
• If the owners did not have enough money to pay the loans, then what is the likelyhood that they put any money into the property to maintain it, then just to give the property back to the bank in pristine condtion?
  
• If you purchase a foreclosure property, how much money will you need to repair and upgrade the property if you plan to keep the property? If you plan to flip the property how much more will you need for the costs to sell?
  

Considering the the above, it is easy to see that foreclosures are trickier than ever.

Looking at the option to flip, you will need to get the property far enough below market value to:

1. Repair and upgade the property
   
2. Cover carrying costs (i.e monthly payments, taxes, insurance and maintenance costs) until the property sells.
   
3. Pay the sales costs (i.e. escrow, termite, title insurance, commissions, etc.)
   

Let's look at pre-foreclosures. These are homes with a Notice of Default, notifying the owner that their home will be sold at Trustee sale if they do not cure the default. During this pre-foreclosure period you will have one of two options. If by chance the owner has equity in the property, you now have to try and negotiate with the seller to obtain a deep enough discount so you can meet the objectives in the list above. Finding owners in foreclosures with equity is very rare today. The second option is what you will most likely come across. This is a seller in foreclosure with no equity, which now you have to negotiate with the lender on this property for a short pay.

What is a short pay? A short pay is when there is more money owed against a property than what the property can be sold for. You are now in the position to try and get the lender to allow the seller to sell the property for less than they owe. This brings about a few issues that will greatly impact your success.

1. The banks are not bending over backward at this point to cooperate. The banks have been requiring sellers to take back an unsecured promissorry note for the difference of what they owe and what the property sells for. Where is the motivation for the seller in this situation? The seller's credit is already in shambles with multiple mortgage lates. The promissory note can be collected on in the future and if not paid, a judgement can be obtained. Lates on a promissory note combined with the lates from the mortgage and then a judgment would be far worse on the seller's credit than just letting the property go back to the lender. If the seller just walks away from the property they will have not have any more responsibility to repay the bank.
   
2. If the bank does not require an unsecured promissory note, then the seller will now have a tax liability for the difference in the sales price verses the amount owed on their property.
   

So where can you make money in the foreclosure market? If you have the money and banking connections to go to the Trustee sale and buy stright from the sale, then you will improve your chances. Otherwise there are other sectors that are unrelated to foreclosures and the subprime market that will hold good buys in this real estate market.

After reading the papers all week, you'd think that the economy is falling apart and that real estate was the culprit. Three issues are impacting the Real Estate Market and one is a bigger deal than the others.

1. Subprime Lender failures
2. Foreclosures are increasing
3. The ratios of the increase of incomes to the increase in home prices

If you guessed #1 or #2 were big issues, then guess again.

Subprime loans are not the bulk of the market, they make up a segment but certainly not the largest segment. Subrpime lenders with a combination of rapidly increasing home prices caused this problem and those people qualifying for these loans (for the most part) were not taking these loans out blindly. With homes going up in double digit percentages each month, many people wanted to get on the easy money train. These buyers willingly signed up for 100% financing with the carrot that their new purchase would increase 20% in the following 12 to 18 months and then they could refinance at that point into a better loan on the inflated equity.

This worked for a while. Buyers were encouraged by TV programs (i.e. Flip This House) and buyers heard from co-workers (at the water cooler) how they flipped houses and were making large profits. What the buyers and most real estate agents were not paying attention to was, that by the end of 2005 a very important ratio was changing and this ratio would end the party for novice real estate speculation.



The above chart shows how dramatically Incomes and home prices have behaved recently. The gap has reached a peak. This peak does not necessarily dictate a correction. The correction of the early 1990s was driven by high (10%) unemployment and local conditions including the Northridge earthquake.

Here is what is evident.........at least evident when you read past the headlines.

• Home prices above the median price are still increasing with no signs of stopping.
  
• Home prices below the median price are decreasing moderately in some areas.
  
• Home prices below the median price are taking the longest to sell.
  
• The number of homes sold last year compared to this year is dramatically down.
  
• Foreclosures are still only 50% of what they were during the real estate crash of the early 1990s
  

What does this mean for Sellers and buyers?

For Sellers - Price and condition equally are king, followed by location. If you do not have serious upgrades, your task will be harder. Do not put your home on the market unless you are serious about moving. This is not the time to test the waters and see what might happen.

For Buyers - Are you planning to keep the home you buy for 5 years or longer? If yes, then buy now. There is no guarantee that rates will stay this low forever, get a good loan at a good rate today and enjoy that next home. Historically the Real Estate market between 1926 and 1996 increased 11.1% annually adjusted for the highs and lows. From 1996 till the present we have had huge gains which drive the number up even higher. Will the next 5 years bring 11.1% gains? I am not a fortune teller so I cannot say, but the cost of living will be up in the next 5 years and most likely as the historical rates show, real estate will be up higher than the cost of living.

After some time away from trying to BLOG, I will make another attempt. I read the buisness section of the paper every morning and feel it is my duty to help decipher the information that is being protrayed about the current Real Estate conditions. If you would like to comment on my posts, you are welcome. Any comments that are advertisements for other businesses will be deleted. Please keep your comments related to the post.