How much earnest money should i put down on a foreclosure

By admin | Published: June 22, 2009

earnnest-money-foreclosures A very common question we get asked is how much money should I put down on a foreclosure property I am trying to buy? And like everything else in real estate the answer is, it depends.

If you are looking in the Phoenix foreclosure homes market you probably understand things have changed a lot over the last 4-5 months. If you were putting in an offer in January of this year $1,000 would have been a pretty standard answer for earnest money, but not any more.

The first thing you need to do is find out if you are up against other offers. If there are not any other offers on the house then a $1,000 earnest offer or 1% may be okay.

If there are other offers on the house and you are in a multiple offer situation then things change and you need to become much more aggressive. You need to ask yourself, how bad do you want this house and if it is one you really want your offer is going to need to be competitive.

If you are a cash buyer in a multiple offer situation then 10% should be your bare bone minimum. I have some investors right now that are offering 50% as earnest money. If you are financing then you may want to talk to your lender and figure out what you are planning on making as a down payment. If you are planning 3.5% down, 20% down or anywhere in between then you may want to put that as your earnest money to be credited towards your down payment.

The Phoenix foreclosure house market is a very competitive market right now for buyers, you need to be willing to put your best hand on the table and earnest money is one of your tools. And please never forget, there is always risk with earnest money, if you are not comfortable with the deal and the situation then be cautious about a large earnest money because you could lose it if the deal falls apart.

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Mortgage rates are up, but are they too high?

By admin | Published: June 10, 2009

interest-rates Anyone who has been home shopping over the last month knows that mortgage rates have been going up. A month ago the national average for a 30 year fixed conventional loan was close to 4.8% while today it is closer to 5.65%. So mortgage rates have jumped up, but is that to high to consider purchasing now?

While we may have been spoiled by those sub 5% rates over the last month, in no way is that indicative of what we should be expecting for interest rates. We won’t even go back to 1979 and 1980 when interest rates were close to 20%, we will just look at the rates from 1987. 

  • From 1987-1990 each year the average 30-year mortgage run above 10%
  • From 1991-2000 the average 30-year fixed mortgage ran 7.9%, and only once was it below 7.3%, that was in 1998 when it was 6.94%.
  • From 2001-2007 the lowest average rate for a year was in 2003 when the average rage was 5.83%.

So as you can see from recent history if a lender tells you they can lock you in at 5.7% it may seem high compared to what you saw on the news over the last few months, but historically we are still talking about low interest rates.

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$8,000 first time home buyer tax credit for down payment

By admin | Published: June 1, 2009

youngbuyers The HUD has given approval for first-time home buyers to use their $8,000 tax credit for additional down payment money or to help with your closing costs.

So how will this work? You will need to obtain an IRS Form 5404 from the IRS website to get started. The money will be credited towards your down payment or closing costs at the close of escrow then you will be required to pay the money back when you get your tax credit.

Yes you need to pay it back. This is not money going directly from the government to the lender, it is money being promised by the government to the lender. After you purchase the house you can amend your 2008 tax return and get a credit of up to 10% of your home purchase price up to $8,000.

Once you receive the check from the government you will need to use it for what it was intended for. If you choose to use it on furniture instead of the purpose that is okay, but the money you had promised as a down payment of to help cover closing costs will not be turned into a second mortgage on your house.

You will still need your 3.5% down for your FHA loan, this additional money will be added on top of that 3.5% if you choose, not in replacement of. When you are talking to your lender about your FHA loan tell your lender you are interested in using the tax credit for additional down payment money and they will get you started.

You can also use the money toward your closing costs. Again you will need to tell your lender you plan on using the first-time home buyer tax credit for your closing costs and they will get you started on the paperwork.

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Investors are not the only ones cashing in on Phoenix foreclosure market, first-time home buyers get their share

By admin | Published: May 28, 2009

First-time-home-buyers April of 2009 was one of the busiest months ever in the Phoenix real estate market, spurred by low prices and low interest rates the market went from ice cold earlier this year to as hot as the Phoenix summer in April.

It seemed just a few months ago we were talking about how the Phoenix housing market was in trouble, with over a year’s worth of inventory it could take years to bounce back. Year’s has turned into months as there is now just over three months supply of houses on the market, and less than one month supply of foreclosures.

So what happened to spur on the market? Investors came out of the woodworks as they say a great opportunity to buy houses at what appeared to be the bottom of the Phoenix housing market. But investors were not alone. First-time home buyers did not want to get left in the dark and they jumped in both feet too.

According to a recent article in the Arizona Republic, first-time home buyers are the fastest growing group of home buyers in the Phoenix area. Some believe that first-time home buyers will soon make up almost half of the buyer’s in the Phoenix housing market.

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In today’s Phoenix foreclosure real estate market you need to be educated

By admin | Published: May 20, 2009

Multiple-Offers If you are thinking of purchasing a Phoenix are foreclosure there are a few things you need to keep in mind:

  • The list price is a starting point
  • You need to move quick
  • Cash is king
  • Don’t expect it to go quick
  • The buyer’s market you heard so much about, is over at least for now
  • When selecting a buyer’s agent make sure they have worked foreclosures
  • Be patient, don’t force it

The Phoenix foreclosure market has changed drastically over the last two months. Two months ago you would give your agent your criteria and they could pull up dozen’s, if not hundreds of listings that matched what you were looking for. Today, if that list is a handful it’s good.

As of 6:42am on 5/20/2009 5,437 active foreclosure listings in the central Arizona MLS. That may sound like a lot, but it is a fraction of what it was a couple months ago. What that means for you today is if you see one you like, be ready to get aggressive.

One of our agents had an investor look at a house in South Phoenix a little over a week ago that was on the market for $39,900. After looking at the property both the agent and the investor thought the home was worth closer to $60,000, not $39,900. After running some comparables, their suspicions were confirmed.

Using techniques we teach our buyers agents the investor put in a bid at $39,900 and used language to ensure they would get the property if it did not go over $60,000. They were able to win the house by outbidding the highest bidder and landing the deal for $56,000. Did they overbid for the house? Not when you consider the actual value was close to $60,000. The list price of $39,900 was irrelevant and just a tool the banks used to get it sold quickly.

If you are thinking of putting an offer in on a house you need to act quickly. This weekend we got a call from a new buyer who was interested in looking at some properties. She gave our buyers agent a list of 11 she wanted to see and set an appointment for 9am on Wednesday. The agent warned her they may not still be available, but the new buyer did not seem concerned. The agent called for availability on those 11 Tuesday, and 8 of the 11 had already been awarded to buyers.

Just because the houses are going quick does not meant the process will go that quick. Banks are taking their time, partially because they are overwhelmed by the amount of work they have. When you consider all the factors that are going on in this market now one thing you really need to consider is how much experience does your agent have working in today’s market. Do they know how to get the most information possible from the sellers agent that will help you secure the home? Make sure you are picking an agent that has been in the trenches for the last few months and has seen the market change and can educate you.

One last thought, if you do not see the home you want, don’t force it. Wait, there is a good chance this market will be turning around again shortly. We recently wrote about how the market may seem to be at a bottom, but a new bottom may be around the corner. If you don’t see the deal right now you want just be patient.

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Phoenix foreclosure market, it is not the end

By admin | Published: May 13, 2009

phx-foreclosures We have been reading numerous blog posts over the past three weeks on how the Phoenix foreclosure market has hit rock bottom. If you were to pull up the MLS today you would see roughly 5,800 active foreclosure units on the market and over 6,000 sold in the last month meaning the supply of foreclosures is less than one month.

Those numbers have been slipping over the last couple of months, but that does not mean it is a trend that will be staying that way. While the number of foreclosure homes in the Phoenix market may be way down in the MLS, that does not mean the number of trustee sales in Arizona has taken a large drop.

Many of the largest banks in the nation agreed to put a temporary moratorium on foreclosures to give home owners a chance to work out loan modifications. There are some estimations that only one third of foreclosed homes are being marketed in the MLS right now.

So what is next? The Phoenix market will more than likely see a very sharp increase in the amount of bank owned foreclosures on the MLS in the very near future. There is even a chance that if all of the foreclosed properties in Phoenix are released quickly another drop in home values could happen.

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Phoenix housing market makes history

By admin | Published: May 3, 2009

phoenix-housing-market The Phoenix housing market made history this week, and not history it was hoping to make. The Phoenix housing market is the first American city market to have their home prices cut in half.

According to data released on Tuesday, Phoenix has become the first city to see a 50% drop in value as Phoenix housing prices have fallen 50.8% since their high in June of 2006. Prices fell 4.5% in February and with that drop the record was set.

The one bright spot for the Phoenix market is Phoenix area foreclosures have been selling quickly over the last few months. A look at foreclosures under $100k show the average property sold for 97% of asking price which shows a competitive market with multiple offers which could signal the bottom is close.

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Phoenix real estate market on fire, homes for sale in Phoenix are selling fast

By admin | Published: April 16, 2009

phoenix-sold If you have been active in the Phoenix real estate market over the last few months you know there are more houses being sold in multiple offer scenarios than not. Houses are selling in Phoenix.  Here are some market numbers to prove it.

These numbers are as of 4/13/2009

  • The current ARMLS inventory is 43,976 which is a drop of about 20% or over 10,000 properties since January of this year.
  • Of the houses currently on the market 42% of those are lender owned or short sale properties.
  • Currently there are 15,707 homes in pending which is one of the highest numbers anyone remembers seeing for ARMLS. Of those 15k homes, 78% of those are bank owned or short sales properties.
  • Closed homes YTD is 20,003 and half of those home sales in Phoenix have come since March 1st.
  • Of the Phoenix area homes that have closed in 2009 75%, or 15,019, were lender owned or short sales.  Of that 75%, 88%, or 13,234, were lender owned.

Many people ask us on a daily basis when the bottom of the Phoenix housing market will hit. While it is impossible to say for sure, based on these numbers the case can be made that the bottom may be here, if not just passed.

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Phoenix still growing, growth may help Phoenix real estate market

By admin | Published: April 7, 2009

phoenix One reason the Phoenix valley real estate market may recover faster than most is because we live in the Phoenix area and people still want to move here. According to a recent Forbes story the Phoenix, Scottsdale, Tempe, Chandler, Mesa area trails only Charlotte NC, Austin TX and Raleigh NC in percentage increases over the last year.

It is estimated that 350 new families a day are moving to the area. These new families are going to need somewhere to live, and with the housing prices and interest rates the way they are today there is plenty of great opportunities for them.

Last year we saw an increase of 2.78% in population. There are plenty of reasons to move to the area, the weather of course being one of the main ones. Another is our economy. We hear about the high unemployment numbers, but the Phoenix area unemployment numbers in January of 2009 was roughly 6.7%, much lower than the 8% national average.

Will the Phoenix housing market recover overnight? Of course not, but that does not mean it will not recover sooner than most parts of the country. The Phoenix area is a desirable relocation destination and as long as we continue to remain so houses will continue to sell.

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Are closing costs good or bad?

By admin | Published: April 3, 2009

Are closing costs good or bad?

It depends.

Due to some very slick marketing by the mortgage industry, many people know that “closing costs are bad” and that they don’t want to pay them. They aren’t exactly who is going to pay them, but they know that they don’t want to.

Here is an ad that I came across from Countrywide.

Does this add say “no closing costs”?

No.

It says “No Cash Required For Closing Costs.” - or in other words - there are closing costs and you are going to pay them, but they can be rolled in to your loan.

Hence the term “no out of pocket closing costs”.

The interchangeability of the two terms can be confusing, I realize this. But I just thought I would go on record as saying:

You can pay your closing costs or the seller can pay your closing costs. If you want the lender to pay your closing costs, be ready for a higher than market rate - because in exchange for paying your closing costs, the lender will require a higher interest rate.

Oh, and I rarely if ever see people bringing money for closing costs on a refinance - they are almost always rolled into the loan.

Is it better to pay your closing costs and have the rolled into your loan or is it better to get the bank to pay your closing costs for you in exchange for a higher interest rate?

It depends.

Make sure that when you speak with a loan officer about your situation, you ask them that question.

Justin McHood is a nationally published mortgage expert who lives and works right here in Arizona. You will normally find him wearing a blue starched shirt (he says that it goes well with is orange hair) and you can learn more about him at ArizonaMortgageTeam.com

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