Discover One of the Most Powerful Tools in Real Estate Financing…

In most real estate markets throughout the country, sellers are trying to cope with a slower moving market burdened with an over supply of competing homes for sale and weak buyer demand. Buyers are struggling with rising mortgage interest rates, tougher loan underwriting qualifying standards, high prices and low affordability. Real estate investors want positive monthly rental income cash flow and a hedge against a softening rental market in the future.

Solution:


A mortgage interest rate “buy-down” allows the seller to expand the pool of qualified buyers and real estate investors.
The mortgage interest rate buy-down is a seller strategy with multiple options to maintain the seller’s price position
The property is offered for sale at the full asking price with a seller credit to discount the mortgage interest rate or a discounted price without a seller credit to discount the mortgage interest rate
It’s a “win-win” for both the buyer and seller
The seller can deduct the buy down credit as a selling cost expense
The buyer receives a 1098 form from the lender and a tax deduction for the buy down credit – “points” paid for the new loan to purchase the property
Higher sales price maintains neighborhood property values
The discounted mortgage interest rate helps to ensure the buyer will qualify for the loan
The buy-down empowers the seller to compete with new home builders offering substantial buyer incentives
The lower monthly loan payment increases the potential for positive rental cash flow for real estate investors

Why Buyers and Sellers are stuck:
In a slow real estate market, sellers usually experience long protracted marketing time-lines to find a qualified buyer. An over supply of competing homes for sale leaves the seller with few options except to make consistent and substantial downward asking price adjustments until the property sells. Investors are reluctant to buy income properties with negative monthly rental cash flow. Buyers cannot qualify for financing to move up into a larger home or move to a more desirable location. Buyers relocating from a lower cost area into a higher priced market must make a major lifestyle set back to buy a smaller home in a lesser location.

The process to solve the problem:
Sellers can align themselves with a reputable lender to find the best mortgage interest rate buy down program and integrate the buy-down with their marketing and pricing strategies Buyers can obtain a loan pre-approval with a reputable lender using a mortgage interest rate buy down program to increase their purchasing power.
How does mortgage interest rate buy-down program work?
The seller uses a credit from the proceeds of the property sale to pay additional loan points on the buyer’s loan. The additional loan points will “buy-down” the mortgage interest rate. The discounted mortgage interest rate applied against the same loan amount will reduce the monthly loan payment. So, there is no “out-of-pocket” cost to the seller. The credit paid to the buyer’s lender is a paper transfer at the close of escrow. The buy-down fee is a debit from the seller’s proceeds of the property sale.
Review the Example and the type of loan used – The five-year interest-only loan.
Example:$644,000 sales price with the Buyer purchasing with 20%down:
Down payment 20% $128,800
Loan amount 80% $515,200
Rate/payment 6.375% $2,737 per month
Option I
$644,000 sales price with Seller credit of $10,000 applied to interest rate buy down:Down payment 20% $128,800
Loan amount 80% $515,200
Rate/Payment 5.5% $2,361 per month**This results in a monthly payment reduction of $376.
Option II
Reduce sales price by $10,000 to $634,000 with the Buyer purchasing with 20% down:Down payment 20% $126,800
Loan amount 80% $507,200
Rate/Payment 6.375% $2,694 per month*** Your buyer saved only $43 per month.In order to achieve the same payment of $2,361 per month by using a price reduction you would have to reduce the sales price by $88,750! (see example below)

Reduce sales price by $88,750 to $555,250:

Down payment 20% $111,050
Loan amount 80% $444,200
Rate/ Payment 6.375% $2,361 per month

While a $10,000 sales price reduction is reasonable, an $88,750 sales price reduction is not. The loan interest rate buy down credit is a win/win for the buyer and seller.

Review Option I – Compare the difference in the interest rate and monthly payment between the Example and Option 1

How much will the buyer save each month using the buy-down loan?

$376 per month…multiply this monthly savings by 60 months and the buyer saves over $22,560 in five years.If the buyer decides to pay a lower price instead of taking advantage of the buy-down interest rate loan- how much does the buyer save each month if the seller lowers the purchase price by a sum equivalent to the 3% credit, in this case, $10,000?

Review Option II -The buyer saves $43 per month or $2,580 over five years.The buyer can pocket an additional $19,980 if the buyer chooses to pay the full asking price with the mortgage rate buy-down loan.

How much would the seller have to lower the asking price to achieve the same discounted monthly loan payment and the borrower financing 80% of the purchase price?
The seller would have to lower the asking price by $88,750 to achieve the same payment using an 80% loan to value ratio.(Review the “sales price reduction” example)The seller is more than likely to be unable or willing to make such a large price concession.

Why does the buyer receive a tax credit for the buy-down fees paid by the seller?
The lender is required to issue a 1098 form to the borrower for points paid on the purchase loan. The seller is not the lender’s customer. Therefore, the buyer receives a significant tax deduction of which could make the property purchase even more attractive.
How do lenders benefit from these buy-down loans?


It is easier for a buyer to qualify under a discounted loan interest rate and the bank receives upfront “pre-paid” profit from the additional points paid on the loan.
The discounted interest rate can make it easier to put a second loan behind the discounted first loan and therefore, the buyer can use a smaller down payment to purchase the property – like an 80-10-10 loan.
The discounted monthly payment can offset additional monthly association fees for buyers purchasing a condominium.
Is it possible to buy down an adjustable rate loan?
The interest rate index and margin are added together to create the “note rate”. The buy-down of the margin will lower the note rate and, therefore, the related monthly mortgage payment. The benefits of a margin buy-down in a rising interest rate environment include lower monthly payment increases. Is it possible to buy-down the interest rate in a loan refinance? The buy-down fee (points) in a refinance is built-in by obtaining a larger loan amount above the existing loan amount. You can reduce the monthly mortgage payment through a buy-down refinance loan. Buying down the interest rate on a new first loan may enable the buyer to qualify for “piggyback” second loan financing to minimize the buyer’s down payment requirement. A lower monthly loan payment on the discounted first loan leaves qualifying room for the buyer’s debt-to-income ratio for the monthly payment on a second loan. Also, a lower monthly loan payment leaves qualifying room for a buyer’s debt-to-income ratio to pay monthly condo association fees Here is a strategy to enable buyers to find sellers willing to pay the buy-down loan fees….

Team up with a Realtor to search for properties listed on the MLS for at least 30 to 45 days
Look for properties that are vacant and are still listed at the original asking price
Occupied properties are OK, too
Ask your lender to prepare a loan interest rate “buy-down” outline like the handout for this conference call
Draft a full price purchase offer with your Realtor
Ask your Realtor to contact the seller’s agent and make it a requirement that your Realtor meet with the seller and the seller’s Realtor in person or on a 3-way conference call including the seller’s agent to present your offer
Ask your lender to be on “stand-by” to answer any questions that may come up during the presentation of your offer

How to Avoid the Most Deadly Lending Landmines…

Here are some tips I learned from a seasoned California mortgage banker who successfully funded over 100 loans during the tough transitional 2007 real estate market. These tales from the trenches can prevent your deal from the shrapnel of a loan decline or last minute tighter “prior to document or funding” conditions:



Most conventional (up to $417k) and non-conforming (Jumbo) loans above $417k require Desktop Underwriting approval
Conventional secondary financing is very difficult to obtain. A maximum of 90% loan-to-value (LTV) ratio should be relied upon from the buyer
Jumbo interest rates are currently at least 1.375% higher than conforming loan interest rates
Secondary “seller carry-back” financing is a great sales tool strategy. In some cases 100% total loan-to-value will be allowed with the first loan at 80% LTV or less
Beware of “declining market” underwriting guidelines –
A 5% reduction on the guideline is required by most lenders, so if the buyer is applying for an 80/10/10 loan, the underwriting guideline would have to meet or exceed 85/15/5 underwriting guidelines
Be sure to work out these important details in advance during the loan “pre-approval” stage instead of in the middle of a transaction!
All of California is now considered to be in a “declining market”- check with your lender to see how your local market is rated
Credit scores of less than 620 will not pass

Appraisal reports are submitted to underwriting
Underwriting runs an Automated Value (AVM) which almost always comes in low
Desk/Field appraisal review is then ordered
Make sure the appraisal is always signed off by the underwriter within a reasonable amount of time
One more thing…don’t forget to wear your flack jacket in this ever changing lending environment.

In today’s challenging and uncertain lending environment, qualifying standards for home loans and refinancing are becoming increasingly more stringent. Many potential borrowers who were “pre-approved” under yesterday’s loan underwriting guidelines may discover that their loan program qualifying standards have changed or the loan program is no longer available.

Unfortunately, some unwary prospective homebuyers discover they cannot meet the revised underwriting criteria when they are in escrow waiting for the lender to fund the loan to complete their purchase transaction. The loan documents sometimes will arrive just a few days prior to the scheduled closing date with different loan terms and/or “prior-to-funding” conditions of which the borrower cannot comply.

Here are some tips to protect your transaction from the dreaded last minute failure due to unfulfilled financing to complete the purchase:


25 day maximum close of escrow deadline falls within the premium (least expensive) loan interest rate lock period and will avoid changing loan underwriting guidelines
Seller to insert a contingency clause into the purchase agreement “Buyer shall lock in loan interest rate within 24 hours of acceptance”
Buyers- demand that your Financing and Appraisal Contingencies remain in place until funding of the loan (usually the day before or day of close of escrow) to protect your good-faith earnest money deposit from forfeiture to the Seller
Sellers- instead of requiring the entire Financing Contingency removal in advance of the loan funding- insert a contingency clause that requires the Buyer to provide written evidence directly from the bank underwriter of full loan approval with all conditions met (within reason), verification of employment, down payment monies and a complete sign off of the appraisal report. The only item remaining to complete the financing are delivery of the loan documents and loan funds to the title company escrow account
For occupied properties, ALWAYS include a rent-back option in favor of the tenant or seller in the event there is a delay or worse, a cancellation of the sale due to financing problems. There is nothing worse than contacting the Seller that the deal is dead after they have moved out or all of their possessions are packed.


Many Sellers of occupied properties are buying and moving into another home and these suggested precautions can mitigate the pitfalls of these uncertain times in the lending arena.


BEWARE of using a Mortgage Broker to obtain financing. Direct lenders (banks) are closing their wholesale lending departments or eliminating the majority of Mortgage Brokers who fall outside of their performance requirements.

Additionally, Congress is likely to eliminate the Yield Spread Premiums (YSP) that Mortgage Brokers need to be competitive in loan costs to the borrower. Loan programs are being eliminated or modified on a consistent basis and many Mortgage Brokers are not in the direct line of communication when banks issue these memos to their in-house lending divisions.


Therefore, Mortgage Brokers are at a disadvantage in this tough lending environment. Don’t take unnecessary chances with your transaction. Use a direct lender such as a major bank, credit union or mortgage banker.


Sellers- if the Buyer insists on using a Mortgage Broker, insert a contingency clause into the purchase agreement “Within 3 days after acceptance, Buyer shall provide Seller a letter from a direct lender (Bank or Mortgage Banker) stating that upon review of Buyer’s written application and credit report, Buyer is pre-approved for the new loan stated and Buyer hereby agrees to accept the best available loan from either Direct Lender or Mortgage Broker at close of escrow”.

VA Loans Offer Attractive Financing Terms

The Veteran’s Administration has modernized the current VA loan programs available to qualified veteran borrowers. These loans are very competitive and can offer an affordable financing alternative to prospective home buyers and people who want to refinance their existing mortgage. Additionally, the current maximum VA loan limit is $1,000,000 which can be a great alternative to an expensive non-conforming jumbo loan (above $417,000) in high cost real estate markets like California and the San Francisco Bay Area.

Here are some of the terms and conditions for current VA loan programs:

100% loan to value (LTV) up to $417,000
Over $417,000 – down payment is 25% of the difference between $417,000 to $1,000,000
580 minimum required credit score
Veteran borrowers need a DD214 (Notice of Discharge)
Seller allowed to pay up to 4% of the purchase price toward the Buyer’s closing costs plus 1% loan origination fee
2/1 loan interest rate buy-downs available
All recommended section 1 structural pest control repairs, all recommended further inspections of inaccessible areas and all recommended section 2 repairs which may lead to infestation must be completed by the Seller
A structural pest control certification must be obtained prior to close of escrow
45 day close of escrow
Other significant benefits include loans over $417,000 will be priced at interest rates as good as conforming loan interest rates; down payment on a $1,000,000 loan will be only $145,750 or 14.57% of the purchase price; no private mortgage insurance required (PMI).

FHA Loan Programs Offer Great Financing in a Tight Credit Market…

The current credit crunch in the financial and real estate markets have significantly eliminated a vast pool of borrowers with a desire to purchase or refinance a home. This especially rings true in high cost markets like California and the San Francisco Bay Area.


FHA loan programs offer great terms compared to conventional loan programs affected by challenging qualifying standards that require a large down payment. Congress and the federal government are on the verge of raising conforming loan limits for Fannie Mae and Freddie Mac mortgages in high cost areas.


Those in the know believe it’s a matter of when not if the conforming loan limit will be raised and when this happens, the FHA loan limit will be increase to match the higher conforming loan limit. Therefore, the revised FHA loan limit could be increased from $362,750 to $625,000 or higher.



The following are some of the attractive features of the FHA loan programs for owner-occupied properties:



Down payment is 2.85% of the purchase price
Down payment assistance / “Nehamiah” programs available *
No credit score required- good credit for the previous 12 months is OK
100% gift for down payment is allowed
Seller can credit the buyer up to 6% of the purchase price for Buyer’s non-recurring and recurring closing costs
2/1 interest rate buy-down and straight 30 year interest rate buy-downs are available
Pest control recommended repairs- all section 1 items, all section 2 items (that could lead to further damage) and all recommended further inspections of inaccessible areas must be completed with a pest control certification at close of escrow
Allow 45 days to close escrow
Collection accounts on credit report do not automatically have to be paid in full
Bankruptcies OK if older than 2 years (in some cases, older than 1 year is allowed!)
Non-occupant co-borrowers are OK (blended debt-to-income ratios allowed)
Back-end qualifying ratios from 41% up to 50% in some cases
1 to 4 residential units OK – 2 to 4 units have higher loan limits
Condominiums do not require private mortgage insurance (PMI)
Single family dwelling (SFD) and planned unit developments (PUD’s) require PMI at .5% of the purchase price (conforming loans require PMI at 1%)
Unapproved condominium complexes require “spot” approval
Not previously approved and then removed from approval list
No pending litigation against the condo homeowner’s association
No more than 10% of the units delinquent on HOA dues
51% owner occupancy ratio required
Up to 10 units maximum in complex under spot approval (some exceptions may apply)


* The Nehamiah down payment assistance program is a non-profit organization. The seller makes a charitable donation to Nehamiah then Nehamiah forwards the Buyer’s down payment to the escrow account. Please note that some title companies may not facilitate this program and you should confirm prior to opening and escrow account.

Fed proposes new restrictions on subprime, alt-A loans

Sen. Dodd says legislation still needed to rein in abusive practices

The Federal Reserve proposes imposing some restrictions that currently apply only to very costly loans — including a ban on most prepayment penalties — to subprime and some Alt-A loans.


The product of a series of hearings, the proposed changes in how the Fed implements the Truth In Lending Act, or TILA, are intended to protect consumers from unfair or deceptive home mortgage lending and advertising practices. While the proposed regulations drew a mixed reaction from lenders, Connecticut Democrat Sen. Chris Dodd issued a statement slamming them as “deeply disappointing,” and “a clear signal that legislation is necessary to help protect homeowners from abusive and predatory lending practices.”



The proposed amendments to Regulation Z, which spells out the Fed’s implementation of TILA, would require lenders making “higher-priced” mortgage loans to:

Verify a borrower’s ability to repay a loan with an adjustable-rate mortgage after a payment reset, including property taxes, homeowners insurance and other expenses.
Document income and assets, using a borrower’s Internal Revenue Service Form W-2, tax returns, payroll receipts, financial institution records, or other third-party documents that provide reasonably reliable evidence of the consumer’s income and assets.
Establish escrow accounts for taxes and insurance, which borrowers could opt out of after one year.


The new regulations would also ban prepayment penalties on higher-priced loans unless the consumer’s debt-to-income ratio does not exceed 50 percent of verified monthly gross income, and the source of the prepayment funds is not a refinancing by the same lender or its affiliate. Only higher-priced mortgage loans on a primary residence — including home-purchase loans, refinancings and home-equity loans — would be subject to those provisions in the new regulations. Mortgages on vacation properties, open-end home-equity plans, reverse mortgages, or construction-only loans would be exempt, and loans to investors are, for the most part, not covered by TILA.



Higher-priced loans would be defined as first-lien mortgages with an annual percentage rate (APR) of 3 percent or more above the yield on comparable Treasury notes, or 5 percent for second mortgages.



In addition to extending some provisions of the Home Ownership and Equity Protection Act (HOEPA) to subprime loans, the proposed regulations would also create some additional new requirements for all loans, including:

Written agreements between borrowers and mortgage brokers collecting yield spread premiums, before the consumer applies for the loan or pays any fees.
Prohibitions on coercing appraisers to inflate property valuations.
New requirements for loan servicers, including crediting consumers’ loan payments to the date of receipt and providing a schedule of fees to consumers upon request.


Dodd criticized the proposed language requiring lenders to evaluate a borrower’s ability to repay a loan difficult to enforce, because regulators would have to show a “pattern and practice” of violations. The Connecticut lawmaker called the language a “significant step backwards” from existing guidance on the topic from regulators. He said allowing borrowers to opt out of escrow accounts after one year could provide unscrupulous lenders a “tool to ‘flip’ borrowers into another, wealth-stripping refinance.”

While the proposed measures don’t go as far as some consumer groups and lawmakers had wanted, they represent a significant departure for the Fed, which has come under fire from critics who say it has failed to use its authority under the Truth in Lending Act to prohibit abusive lending practices during the boom.



Lenders have argued against stricter regulations, saying market forces have put an end to many of the most egregious practices and that new restrictions could worsen the credit crunch.



“There is much to commend and much to worry about in the proposed rules,” the American Bankers Association said in a statement on the proposed Regulation Z changes. While the ABA welcomed “uniform, national standards” that will apply to all lenders and target abuses by unregulated or lightly regulated nonbank lenders, the group warned that “replacing important lending flexibility with rigid formulas might also limit lending to some creditworthy borrowers.”



Some consumer groups wanted the Fed to simply lower the thresholds that trigger existing HOEPA requirements. Both first-lien loans with an annual percentage rate (APR) more than 8 percent above the rate on Treasury securities of comparable maturity and second-lien loans with APRs more than 10 percent higher are covered by HOEPA. Among the most feared provisions of HOEPA are the rights it gives borrowers to sue lenders who violate its requirements, allowing them to recover statutory and actual damages, court costs and attorneys’ fees. Borrowers also have up to three years to cancel a loan that is subject to HOEPA if they can show the requirements weren’t followed.



A bill introduced Dec. 12 by Sen. Dodd, The Homeownership Preservation and Protection Act, would lower HOEPA thresholds to a range of 6 to 10 percent for first mortgages, and 8 to 12 percent for seconds. Loans in which total points and fees exceed 5 percent would also trigger HOEPA requirements under Dodd’s bill. Opponents have warned that lowering HOEPA thresholds to cover subprime loans could discourage investors from buying mortgage-backed securities on Wall Street, further reducing the flow of investment capital into mortgage lending and increasing the cost of borrowing for home buyers.



“Any federal law that begins with amendments to existing HOEPA likely will be freighted with HOEPA’s effects,” industry lawyer and lobbyist Donald Lampe told members of the House Financial Services Committee in May. “Hardly anyone … in the secondary market funds or purchases HOEPA loans.”



Instead of lowering the threshold for triggering HOEPA requirements, the Fed proposes to create a new class of higher-priced loans that would be subject to new regulations. Lenders who followed the rule that they verify and document a borrower’s ability to repay a loan would be granted “safe harbor” from lawsuits if they had a reasonable basis to believe that borrower would be able to make loan payments for at least seven years. The proposed definition of a higher-priced loan — 3 percent above comparable Treasury notes for first mortgages, or 5 percent for seconds — is already used to collect data under the Home Mortgage Disclosure Act.



The definition is intended to “capture the subprime market, but generally exclude the prime market,” staff members of the Fed’s Division of Consumer and Community Affairs said in a Dec. 12 memo summarizing the proposed changes. There is no uniform definition of prime and subprime markets, however, the memo noted, and the proposed thresholds “would capture at least the higher-priced portion of the alt-A market.” The Fed is requesting comment on whether different thresholds, such as 4 percent for first-lien loans, “would better meet the objective of covering the subprime market and excluding the prime market,” and on ways to “limit creditor circumvention” of the thresholds.



The lending industry has argued that prepayment penalties can benefit borrowers by allowing lenders to charge lower interest rates.



But critics say many consumers aren’t very good at factoring in their potential cost into the price of a loan, which is not included in the annual percentage rate. Studies have shown most borrowers with adjustable-rate mortgage (ARM) loans seek to refinance before their interest rates reset, and prepayment penalties can decrease a borrower’s home equity and increase their loan balance when financed into a new loan. The new tougher restrictions on prepayment penalties “should allow the vast majority of subprime borrowers to refinance their mortgages without paying a prepayment penalty before the first payment increase takes effect,” Fed staff members said in a memo to the Board of Governors.



Dodd questioned the adequacy of provisions intended to limit the use of prepayment penalties and yield-spread premiums, which he said are used to put borrowers in more expensive loans than they qualify for. All in all, the proposal “raises serious questions as to whether the Federal Reserve is the appropriate institution to house consumer protection functions,” Dodd said in a statement. “This is a clear signal that legislation is necessary to help protect homeowners from abusive and predatory lending practices.”



The House of Representatives on Nov. 15 approved a bill, HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007, which would limit prepayment penalties, set minimum standards for all mortgages that lenders assess a borrower’s ability to repay, and expand HOEPA restrictions.

Copyright 2007 Inman News

Congress Reaches Agreement on Mortgage Relief Bill

Here is another facet of the financial “crisis” we face – whether or not you own real estate, this will be paid for by your taxes (and mine).

The House of Representatives will approve the Senate-passed version of H.R. 3648, the “Mortgage Forgiveness Debt Relief Act of 2007.” Thus, once the House passes this bill it will be cleared for the President’s signature.



Under the Mortgage Relief Act, effective for indebtedness discharged on or after Jan. 1, 2007 and before Jan. 1, 2010, taxpayers generally may exclude from income up to $2 million of mortgage debt forgiveness on their principal residence. However, the Mortgage Relief Act also includes the following important tax changes having nothing to do with mortgage debt tax relief:



· A three year extension of the rule treating qualifying mortgage insurance premiums as deductible qualified residence interest.



· An exclusion for qualified state or local tax benefits (e.g., reduction or rebate of state or local income or property tax) and reimbursement-type payments (up to $360 a year) granted to members of a qualified volunteer emergency response organization. The new exclusion will apply for tax years beginning after 2007 and before 2011.



· Effective for sales and exchanges after Dec. 31, 2007, surviving single spouses will qualify for the $500,000 home-sale exclusion if the sale occurs not later than 2 years after their spouse’s death and the requirements for the $500,000 exclusion were met immediately before the spouse’s death. Currently, the up-to-$500,000 exclusion is available only if spouses file a joint return for the year of sale.



· Effective on the enactment date, two alternative methods are provided for meeting the 80% rule for qualifying as a cooperative housing corporation.



· Certain full-time students who are single parents and their children may live in housing units eligible for the low-income housing tax credit if their children are not dependents of another individual (other than a parent of such children). In general, this change applies to housing credit amounts allocated before, on or after the enactment date, and to buildings placed in service before, on or after the enactment date.



· Effective for returns filed after the enactment date, the per-partner penalty for failure to file partnership returns is $85 per month, and the period for calculating the failure to file penalty is 12 months. Additionally, a like per-shareholder penalty is imposed on failure to file an S corporation return.



· The required installment amount for estimated tax payments by corporations with assets of $1 billion or more that is otherwise due in July, Aug., or Sept. of 2012 increases from 115.75% to 117.25%.

Senate Passes FHA Loan Limit Increase!

On Friday, December 14, 2007, the U.S. Senate voted 93 to 1 to pass S. 2338, the FHA Modernization Act, which will reform the Federal Housing Administration (FHA). A conference committee will now meet to resolve differences between this bill and the one passed by the House of Representatives earlier this year.

This is a huge victory for REALTORS® who have lobbied Congress aggressively all year to pass FHA reform and provide troubled homeowners with safe and affordable refinancing options. Senator Diane Feinstein supported the measure and though Senator Barbara Boxer was not present to vote on the bill, she did issue a statement supporting it.

While the issue of FHA reform enjoys broad bipartisan support, including the administration, there are still a number of details to be worked out between the Senate FHA reform bill and the House passed version. Additionally, legislation to reform Government Sponsored Entities (GSEs) Fannie Mae and Freddie Mac has not yet been introduced in the Senate.

Thank you to every Realtor®, lender or concerned citizen who participated in the call-for-action on this bill and the issue of GSE reform by contacting Senators Feinstein and Boxer.

The Power and Benefits of “Buying Down” the Loan Interest Rate

In most real estate markets throughout the country, sellers are trying to cope with a slower moving market burdened with an over supply of competing homes for sale and weak buyer demand. Many potential home buyers can no longer afford the prices of homes in high cost real estate markets like the San Francisco Bay Area in California.

Buyers are struggling with rising mortgage interest rates, tougher loan underwriting qualifying standards, high prices and low affordability. Real estate investors want positive monthly rental income cash flow and a hedge against a softening rental market in the future.


Solution:

· A mortgage interest rate “buy-down” allows the seller to expand the pool of qualified buyers and real estate investors.

· The mortgage interest rate buy-down is a seller strategy with multiple options to maintain the seller’s price position

· The property is offered for sale at the full asking price with a seller credit to discount the mortgage interest rate or a discounted price without a seller credit to discount the mortgage interest rate

· It’s a “win-win” for both the buyer and seller

· The seller can deduct the buy down credit as a selling cost expense

· The buyer receives a 1098 form from the lender and a tax deduction for the buy down credit – “points” paid for the new loan to purchase the property

· Higher sales price maintains neighborhood property values

· The discounted mortgage interest rate helps to ensure the buyer will qualify for the loan

· The buy-down empowers the seller to compete with new home builders offering substantial buyer incentives

· The lower monthly loan payment increases the potential for positive rental cash flow for real estate investors


Why Buyers and Sellers are stuck:

In a slow real estate market, sellers usually experience long protracted marketing time-lines to find a qualified buyer. An over supply of competing homes for sale leaves the seller with few options except to make consistent and substantial downward asking price adjustments until the property sells. Investors are reluctant to buy income properties with negative monthly rental cash flow. Buyers cannot qualify for financing to move up into a larger home or move to a more desirable location. Buyers relocating from a lower cost area into a higher priced market must make a major lifestyle set back to buy a smaller home in a lesser location.


The process to solve the problem:

Sellers can align themselves with a reputable lender to find the best mortgage interest rate buy down program and integrate the buy-down with their marketing and pricing strategies Buyers can obtain a loan pre-approval with a reputable lender using a mortgage interest rate buy down program to increase their purchasing power.


How does mortgage interest rate buy-down program work?

The seller uses a credit from the proceeds of the property sale to pay additional loan points on the buyer’s loan. The additional loan points will “buy-down” the mortgage interest rate. The discounted mortgage interest rate applied against the same loan amount will reduce the monthly loan payment. So, there is no “out-of-pocket” cost to the seller. The credit paid to the buyer’s lender is a paper transfer at the close of escrow. The buy-down fee is a debit from the seller’s proceeds of the property sale.

Review the Example and the type of loan used – five-year interest-only loan.

Example:$644,000 sales price with the Buyer purchasing with 20%down:

Down payment 20% $128,800
Loan amount 80% $515,200
Rate/payment 6.375% $2,737 per month



Option I

$644,000 sales price with Seller credit of $10,000 applied to interest rate buy down:

Down payment 20% $128,800
Loan amount 80% $515,200
Rate/Payment 5.5% $2,361 per month

**This results in a monthly payment reduction of $376.


Option II

Reduce sales price by $10,000 to $634,000 with the Buyer purchasing with 20% down:

Down payment 20% $126,800
Loan amount 80% $507,200
Rate/Payment 6.375% $2,694 per month

*** Your buyer saved only $43 per month In order to achieve the same payment of $2,361 per month by using a price reduction you would have to reduce the sales price by $88,750! (see example below)



Reduce sales price by $88,750 to $555,250:

Down payment 20% $111,050
Loan amount 80% $444,200
Rate/ Payment 6.375% $2,361 per month


While a $10,000 sales price reduction is reasonable, an $88,750 sales price reduction is not. The loan interest rate buy down credit is a win/win for the buyer and seller.


Review Option I –

Compare the difference in the interest rate and monthly payment between the Example and Option 1.


How much will the buyer save each month using the buy-down loan?

$376 per month…multiply this monthly savings by 60 months and the buyer saves over $22,560 in five years. If the buyer decides to pay a lower price instead of taking advantage of the buy-down interest rate loan- how much does the buyer save each month if the seller lowers the purchase price by a sum equivalent to the 3% credit, in this case, $10,000?


Review Option II -

The buyer saves $43 per month or $2,580 over five years.

The buyer can pocket an additional $19,980 if the buyer chooses to pay the full asking price with the mortgage rate buy-down loan.


How much would the seller have to lower the asking price to achieve the same discounted monthly loan payment and the borrower financing 80% of the purchase price?

The seller would have to lower the asking price by $88,750 to achieve the same payment using an 80% loan to value ratio.

(Review the “sales price reduction” example)

The seller is more than likely to be unable or willing to make such a large price concession.


Why does the buyer receive a tax credit for the buy-down fees paid by the seller?

The lender is required to issue a 1098 form to the borrower for points paid on the purchase loan. The seller is not the lender’s customer. Therefore, the buyer receives a significant tax deduction of which could make the property purchase even more attractive.


How do lenders benefit from these buy-down loans?

1. It is easier for a buyer to qualify under a discounted loan interest rate and the bank receives upfront “pre-paid” profit from the additional points paid on the loan.

2. The discounted interest rate can make it easier to put a second loan behind the discounted first loan and therefore, the buyer can use a smaller down payment to purchase the property – like an 80-10-10 loan.

3. The discounted monthly payment can offset additional monthly association fees for buyers purchasing a condominium.


Is it possible to buy down an adjustable rate loan?

The interest rate index and margin are added together to create the “note rate”. The buy-down of the margin will lower the note rate and, therefore, the related monthly mortgage payment. The benefits of a margin buy-down in a rising interest rate environment include lower monthly payment increases.


Is it possible to buy-down the interest rate in a loan refinance?

The buy-down fee (points) in a refinance is built-in by obtaining a larger loan amount above the existing loan amount. You can reduce the monthly mortgage payment through a buy-down refinance loan. Buying down the interest rate on a new first loan may enable the buyer to qualify for “piggyback” second loan financing to minimize the buyer’s down payment requirement. A lower monthly loan payment on the discounted first loan leaves qualifying room for the buyer’s debt-to-income ratio for the monthly payment on a second loan. Also, a lower monthly loan payment leaves qualifying room for a buyer’s debt-to-income ratio to pay monthly condo association fees


Here is a strategy to enable buyers to find sellers willing to pay the buy-down loan fees….

· Team up with a Realtor to search for properties listed on the MLS for at least 30 to 45 days

· Look for properties that are vacant and are still listed at the original asking price

· Occupied properties are OK, too

· Ask your lender to prepare a loan interest rate “buy-down” outline like the handout for this conference call

· Draft a full price purchase offer with your Realtor

· Ask your Realtor to contact the seller’s agent and make it a requirement that your Realtor meet with the seller and the seller’s Realtor in person or on a 3-way conference call including the seller’s agent to present your offer

· Ask your lender to be on “stand-by” to answer any questions that may come up during the presentation of your offer

Home Sellers: How To Sell Your House In As Little As 24hrs — Without Ever Putting It “On The Market!”

There is a principle in psychology called scarcity — it’s the desire that’s in all of us to want something that we can’t have.

There are some strategic ways that this principle can be applied to a real estate situation. That’s right I said applied — you can actually control it. Often, the illusion of scarcity can be orchestrated and often appears in real estate situations without people even knowing that it’s there. Have you ever heard of a situation where a home was on the market and more than one person was interested in it? In most cases like this, the house will sell for more than the owners are even asking for the house — and the buyers feel great about it because they won. Someone else wanted the house, but they got it. Situations like this are called the auction effect. To create this powerful situation requires creating an environment where as many buyers as possible are made aware of the property at the same time and under the right circumstances. As you know now, most of the time when a property is advertised in a traditional way, it’s almost impossible to create this kind of environment, because your property is just another property on the market. You need to be able to reach buyers in a way that you are presented as “New Information”…

One of the things I do to create this situation is profiling your house in my MarketWatch database before you even put it on the market. As I mentioned earlier, I started looking for the buyer for your house about 180 days ago and I keep in touch with these buyers through an exclusive bi-weekly report that I send them to keep them up to date on all the new houses that come on the market — and new houses that will be coming on the market soon that they would have no other way of finding out about. We may be able to find the buyer for your house without ever having to put it “on the market!” By the way, Scarcity is just one of the six weapons of influence that can be skillfully applied to the marketing of your home.

Questions/comments, please post to the blog, call me at 925-407-0606 or visit www.GetRealEstateHelp.com (c) Copyright 2000. NewInformation!

Urgent Call to Action for California Residents, Realtors, Mortgage Brokers, Lenders, Bankers and Loan Officers

Call-for-Action!
The California Association of Realtors (C.A.R.) and the National Association of Realtors (N.A.R) Need Your Help to Increase Public Access to FHA and GSE Loan Products!
Contact Senator Boxer Today!


C.A.R. and NAR are SUPPORTING Senate Bill 2338 (Dodd) which, among other things, increases FHA loan limits to 100% of conforming loan limits (current loan limit is $417,000)

C.A.R. and NAR are also urging the U.S. Senate to introduce and pass legislation, already passed by the House of Representatives in the form of H.R. 1427 (Frank), to reform the Government Sponsored Enterprises (GSEs) — Fannie Mae and Freddie Mac — and dramatically increase the conforming loan limits in high-cost areas (Alaska and Hawaii conforming loan limits are currently above $600,000).

As the mortgage crisis grows deeper, it is crucial that home owners and buyers have access to as many safe and affordable loan products as possible. Passing both Senate Bill 2338 and legislation to increase conforming loan limits in high cost-areas will help tens of thousands of families avoid the pain of foreclosure and remain in their homes and will help new buyers get on the first rung of the home ownership ladder.

Realtors…

Even if you have already responded to NAR’s Call-for-Action, C.A.R. is asking that you call Senator Barbara Boxer to voice your support for these two measures.

Action Item

Please call Senator Barbara Boxer

and leave her a message urging her to vote YES on Senate Bill 2338 and

legislation to increase conforming loan limits in high-cost areas.


Senator Boxer can be reached by calling

1-800-961-3302

and entering your NRDS ID.



If you are not a Realtor and do not belong to C.A.R. or N.A.R. ,then do this now…

Call Senator Boxer at her local San Francisco office
(415) 403-0100


For More Information
Contact DeAnn Kerr at deannk@car.org.

Home Valuation: How To Find Out What Houses In ANY Neighborhood Are Really Selling For — And How Long It Takes…

Have you ever talked with someone who tells you that they sold their house and “got what they wanted?” You remember that they were asking $429,000 so that must be what they sold for – or so you’d think. Or someone tells you that all the houses in your neighborhood have been selling for full price because the market is so hot right now, or the buyers are out their like never before.

One thing you can be sure of when you are getting ready to price your house for sale is that most of the information you hear on the street is not what is actually happening in reality. Buyers and sellers tend to over or understate the prices that they sold for or bought for, but the reality is that you can get information on what houses are actually selling for.

Here’s How To Get A Free Market Analysis On Any Neighborhood Before you consider buying a home in any neighborhood, you need to get the real information on what’s happening in the market. You can find out what houses are really selling for and how long it takes them to sell by calling my office to tell me what area you are considering and I will complete a market analysis on that neighborhood for you. Having the right information can literally save you thousands of dollars – especially when you are buying a home, so don’t end up overpaying for a house because you don’t know the market.

Questions/comments, please post to the blog, call me at 925-407-0606 or visit www.GetRealEstateHelp.com (c) Copyright 2000. NewInformation!8

Home Sellers: Why Buyers Love Model Homes –And How To Make Your House Show Like One…

Now let’s go inside.

Go through room by room and pack up 30% of the accessories. If you doubt the wisdom of this, go back to those model homes and compare their countertops with yours, their coffee tables and end tables with yours. See what I mean? The cardinal rule is this: “The way you live in a home and the way you sell a home are two different things.” I know this will take some time and may seem like a nuisance, but remember you are in competition with other properties. He who wins the Good Housekeeping Award probably sells his house first… and for the highest dollar. Also look at it this way, you are going to be moving anyway, so just consider this advance packing.By the way, label the moving boxes and stack them easily in the garage - floor to ceiling. Specifically, pack any collections and family photos you have displayed. Too much of your personality in evidence does not allow for the potential buyer to “mentally move in.” Pack everything from the cabinets and all closets that you do not need on a routine basis. You want to create the perception of roominess. In the linen closet, remove everything but a week’s worth of linens. Fold them neatly and color coordinate them. I’m not kidding; this is the stuff sales are made of. In the clothes closets, remove out-of-season clothes. Pack them away and put them inthe garage. Arrange your shoes neatly. Hang your clothes by category: all blouses together, all shirts together and so on.

Now take another walk around the house. Are there rooms that are cluttered with too much furniture? Remove extra chairs, side tables and maybe even the 100″ sofa which is really too big for the room. (Notice how decorators use small pieces of furniture.) Minor redecorating is recommended. If your carpet and vinyl are outdated colors or style, change them. Off-white carpet and vinyl are best; this makes the rooms look larger and cleaner. If the existing carpet padding is 5/8″ thick or more and is not worn down, reuse it (unless the pets have done a number of it). If replacing the pad, select a very thick one and then install just a modest grade of carpeting. The feel will be plush and expensive but it’s not.If carpeting is in good condition and neutral in color, have it cleaned. If your vinyl flooring is worn or outdated, replace it with off-white vinyl. If the vinyl is in good condition and light colored, scrub it thoroughly paying special attention to buildup of dirt or wax around the baseboards and in corners. Off-white painted walls are best. If painting is required, use flat latex except in kitchens and baths where you will use semi-gloss latex. If walls are dirty, experiment to see if scrubbing them is easier than painting. If you have wallpaper, make sure it is clean and up to date. If not, strip it. (Hint: some wallpaper is easy to strip if first sprayed with window cleaner.) After stripping it, either paint or re-wallpaper, depending on the condition of the walls. Sponge painting is also an easy, attractive alternative. Repair badly cracked plaster, loose door knobs and crooked light fixtures. Correct faulty plumbing. Leaky faucets can discolor porcelain and call attention to plumbing defects. To remove mineral stains from such leaks, pour hydrogen peroxide on the stain, then sprinkle with cream of tartar. Leave this for 30 minutes before scrubbing. Bad stains may require 2 or 3 applications.

Stayed tuned for our final post in this series where we’ll have a real estate tip – “How a 25 Cent Upgrade Could Earn You $500 - $1000 More When You Sell”

Questions/comments, please post to the blog, call me at 925-407-0606 or visit www.GetRealEstateHelp.com

Home Sellers: Why Buyers Love Model Homes –And How To Make Your House Show Like One…

One of the major factors in getting your house to sell quickly is simply put: make it attractive. Most buyers select their home based on emotion and then justify the decision with facts, so it is important to make the house inviting and pleasant. Yours is not the only property the prospective buyer will see. Your are competing with model homes, homes that may have been professionally decorated and homes that have no children, no pets and Mr. and Mrs. Perfection as owners.

Start with the outside.

Are shrubs overgrown? Oil in the driveway? How does the grass look? Do the flower beds need weeding and mulching? Try very hard to see your grounds through an independent observer’s eyes. Trim the shrubs or plant new ones if they are lacking. Houses with no landscaping in the front lose thousands of dollars of value in the mind of the buyer. Adding a few well-placed blooming flowers also adds appeal. If the grass in the front yard is particularly non-existent, consider sodding. Do some price shopping on this; sod is not cheap but there are some good prices available. Let’s say it cost $1000 to sod the front yard, but your house payment is $2800 per month. If you save one month of selling time, you are $1800 ahead. (By the way, you can probably get away without sodding the back yard.) Kitty litter in the driveway will absorb the oil and grease stains. (Then remove the kitty litter.)

Next, go around and clean up the yard.

Remove any toys, tools and/or building supplies. Here’s the acid test: if you don’t see it in a model home yard, don’t have it in yours. That goes for the bag of charcoal by the grill, too; however, the (non-rusty) grill can stay. If your grill has rusted, remove the rust spots by scrubbing with a wire brush or with coarse steel wool dipped in kerosene. After the rust is removed, clean the entire piece with mineral spirits. When the grill is completely dry, paint with a brush or spray paint. Now look at the exterior.Is the paint fading or chipping? Is the color outdated or too personal? Is mildew or mold growing? If the house needs painting, choose a neutral color. White, cream (not yellow) and lightgray are good colors for appealing to most people. If you want some ideas for paint combinations, go look at 3 or 4 model home communities that cost $50,000-$100,000 more than your neighborhood and copy one of them. One last note on painting: always give the front door and door trim a fresh coat of paint or stain even if you paint nothing else. Buyers stand at the front door waiting to get in; give them a good first impression.

Stayed tuned for our next post where we’ll have real estate trade secrets for preparing the interior of your home for sale.

Questions/comments, please post to the blog, call me at 925-407-0606 or visit www.GetRealEstateHelp.com

Home Seller Secrets-You’re About To Learn Marketing Secrets That Not One In A Hundred Home Sellers Knows — And It’s Going To Give You A Big Advantage

For the next few weeks, I will be providing real estate trade secrets for home sellers. This revealing title and some of these upcoming posts are compliments of colleague of mine from c) Copyright 2000. NewInformation!

If you would like these seller secrets delivered to you by email, just click on the “Subscribe via Email” button and each post will be emailed directly to you.


If you have any questions/comments, please post to my blog, contact me at 925-407-0606 or visit www.GetRealEstateHelp.com

Discover Why Most Real Estate Advertising Will Never Sell Your House

Most real estate advertising will never sell your house because it’s speaking to the wrong people at the wrong time.

When people are looking through the real estate section and calling on ads, they are looking for a house right now, and less than 3% of the time do people actually buy the advertised house for sale.

Most real estate sales occur because a person has built a trusted relationship with a Realtor dedicated to show them the houses on the market that meet their needs and wants in a home.

The truth is many Realtors use real estate advertising as a short-term marketing plan to placate the seller, hoping to advertise the home on Sunday, have someone call on Wednesday and come out to buy that house on Saturday.

The sad thing is that a sale rarely happens from advertising in a “retail environment” such as classified newspaper ads. Most serious buyers rely on their Realtor’s network and resources to find the right home in the best areas at a price supported by recent sales of similar homes nearby.

The key lies in understanding that for every one buyer that’s looking in the real estate section and calling on an ad today—there are ten buyers who are just beginning to consider buying a house and will buy in the next six months…

The secret is to tap into the buyers who are just starting to explore the market – and most Realtors don’t use anything but traditional advertising to attract buyers. These Realtors are missing a huge segment of the buying public.

These people are not calling on properties yet, but they are looking to educate themselves about local real estate values, financing options and community information.

How do you attract these buyers?

You have to offer them something of value to them at the stage they are now. That means offering them free reports and guides designed to give people an education that will help them get to the point where they are ready and able to buy a home.

We started attracting buyers for your home over six months ago using something called “direct response “ advertising tied directly to our internet web site.

Making contact with these buyers at this stage gives us an opportunity to build a relationship with them far upstream in the sales cycle with useful and accurate information. We provide them with the resources to empower their decision to buy a home.

The net result is a steady pipeline of qualified and educated buyers that may be the perfect match for your home.

Call Pete Sabine (925) 407-0606 for a consultation or visit www.GetRealEstateHelp.com

RE/MAX C.C. Connection.

Don’t Be Clueless About Your Home Owner Insurance

Leaky roof? Stolen bike? Broken rain gutter? You may want to think twice before even calling your insurance company.

Many home insurers count inquiry calls – calls in which homeowners simply ask informally whether their policy will cover certain damages and are told that it won’t – as unpaid losses.

Most insurance companies file loss information, paid or unpaid, into a centralized database called the Comprehensive Loss Underwriting Exchange, better know as CLUE.

Even if a policyholder just makes a phone call and doesn’t report any damage, there’s still a chance the call will be logged into the CLUE database as an unpaid loss. The information stays on the record for five years, and can mar homeowner’s chances of obtaining a standard policy the next time they apply for insurance.

When a homeowner applies for a new policy, the insurance company usually orders a copy of his or her CLUE report. Two or more reported losses, depending on severity, can cause an applicant to be charged a double or triple premium or to be denied coverage altogether.

While lawmakers in several states are trying to rein in insurers over this issue, there’s not much consumers can do to fight back. But homeowners can take basic steps to protect their CLUE reports:

Know the specifics of your insurance policy and the deductible. Refrain from calling your insurance company to ask about coverage questions that can be answered elsewhere.

Avoid preliminary calls to your insurance company. It’s not necessary to call the insurance company unless you plan to file a claim and know the damage will be covered.

If you do need to call the insurance company, don’t mention actual damage unless filing a claim. Any mention of damage will likely be recorded as a loss, regardless of whether it’s covered.

When in doubt, call a professional repairman first to get an estimate. Insurance companies will often send out a repairman to estimate damages before committing to covered damage anyway.

Report only major damage. Reporting small damages can add unnecessary claims on your report.

Check your CLUE report. Make the effort to clean up any disputed claims before it has a negative effect on selling your home or renewing your policy.

If there is an error on your CLUE report, the disputed item will be sent to the reporting insurer for verification. If the item is not removed, you have the right to append a statement to the report. CLUE reports can be ordered by calling Choice Point (866) 527-2600 or on-line at www.ChoiceTrust.com. The cost is $12.95 for California residents. You can’t get a CLUE report for someone else’s home. However, if you are buying a home, the sale can be made contingent upon your approval of the CLUE report provided by the seller.

Call Pete Sabine (925) 407-0606 for a consultation or visit www.GetRealEstateHelp.com

RE/MAX CC Connection

Sell Your Home:Choosing the Right Purchase Offer

Most sellers would be delighted to receive multiple offers from prospective buyers. However, figuring out which offer to accept is not always as simple as you might think. Suppose you receive three purchase offers. One is for $495,000, your asking price. Another is for $10,000 more. And the highest offer is for $525,000 - $30,000 over the list price. If you consider all the factors of each offer, then the best offer might not be the offer with the highest price. Let’s look at each offer a bit more closely.

Offer 1:There’s more to consider about an offer than the price. The $495,000 offer might be from a pre-approved buyer who has a $250,000 cash down payment and no appraisal contingency. This means that if the house appraises for less than the offer price, the buyer may not use this reason to back out of the contract without the risk of losing their good faith deposit monies. The lender should have no problem granting the buyer a mortgage for approximately 50 percent of the purchase price, even if the appraisal comes in low. The larger the cash down payment, the more likely the lender will approve the loan.

Offer 2:The highest-price offer might be from a buyer with a 5 percent cash down payment and an appraisal contingency. This means that if the property appraises for less than the purchase price, the buyer has the right to back out of the contract without forfeiture of their deposit to the seller. Even if the buyer doesn’t want out, the lender won’t be willing to grant a mortgage in the amount the buyer needs to complete the sale. With only 5 percent down, there’s a good chance the buyer won’t have enough extra cash to make up the difference between the appraisal value and the purchase price.

Offer 3:The third offer could be contingent upon the successful close of escrow of the buyer’s current home that is now under contract. If the transaction on the buyer’s home fails to close, the buyer can withdraw from your contract without penalty and forfeiture of their deposit to the seller. If this happens, you’ll be back on the market searching for a new buyer.

Counteroffers:In terms of a risk analysis, the lowest price offer appears to be the offer with the best terms. One negotiating option would be to counter the lowest offer with a higher price, based on the fact that you have two offers higher than offer #1. Before making a counter offer, consider that the buyer could reject your counter offer and disappear from the negotiations leaving you with two riskier offers to choose from. If you have already purchased another home, you might be better off leaving the price alone on the lowest offer and asking for a short close of escrow date. A quick close could save you the cost of interim financing, which would effectively put more money in your pocket with less risk. When analyzing offers, the fewer the contingencies, the better. Contingencies can complicate a contract by providing more opportunities for a transaction to fall apart. In general, you’re looking for the highest price, the quickest close and the least number of contingencies.

Call Pete Sabine (925) 407-0606 for a free consultation or visit www.GetRealEstateHelp.com.

RE/MAX C.C. Connection

San Francisco Real Estate: KTVU Interview With Real Estate Consultant, Pete Sabine, and Ross McGowan - #2 in a series

During this 4 minute interview, Ross McGowan poses questions of Bay Area Real Estate Consultant, Pete Sabine. Topics covered include: the Bay Area real estate market as compared to the national market, jumbo loans and their limitations in the San Francisco Bay Area, the recent interest rate cut by the Fed and it’s probable impact on the real estate market, and finally advice given by Pete Sabine to buyers and sellers of real estate in the Bay Area.

Click on the photo to view this interview on YouTube.

Investment Property: Is your investment property keeping you from doing the things you love?

Are you looking for an opportunity to defer capital gains tax and retire from managing your income property? Many income property owners are comfortable with real estate investments and have had good returns in the past, but they do not like the daily management headaches that accompany property management. If so, discover the benefits of a 1031 tax deferred exchange and the tenant-in-common exit strategy.



Internal Revenue code section 1031 provides an excellent strategy for the deferral of capital gain, which would ordinarily arise from the sale of income real estate. Exchanging defers the tax, leaving the property owner with substantially more proceeds with which to purchase a replacement property, gain greater leverage, diversification, improved net cash flow, geographic relocation or property consolidation.



A 1031 exchange is a three-way transaction in which an intermediary is used to facilitate the transaction. The exchange allows the investment property owner to exchange their management-intensive property for professionally managed real estate with the potential to generate steady income tax benefits and appreciation.

When the exchange is complete, you will own a tenant-in-common interest in one or more quality income properties. Your income from the replacement property will likely be higher than you were receiving from your relinquished property.



Some of the benefits from this solution include:

Increase your depreciation tax credits

Increase your net asset value and invest in high quality multi-unit apartment properties with possibly no cash out of pocket

Capture profits from highly appreciated real estate and take advantage of other markets with strong upside potential

Reduce or eliminate your property management duties

Consolidate or diversify your real estate portfolio

Simplify your estate planning while paying no tax

Maintain or increase your monthly net cash flow income

How does it work? The basic steps are:

Determine the current market value of your property
List and market your property for sale

Facilitate the sale through a qualified intermediary

Assure proper contract and escrow language

Meet the 45 day deadline to identify the replacement property

Transfer sale proceeds to the qualified intermediary

Open the acquisition property escrow

Complete the exchange within 180 days of close of escrow of your relinquished property


The end result is relief from your real estate management burden while you enjoy more free time as well as the income and capital appreciation from your investment.



Call Pete Sabine at 925.407.0606 for a consultation or visit www.GetRealEstateHelp.com.

Real Estate Tip: Mastering Your Next Move

Spread moving day over several weeks to avoid the hassles of a last-minute scramble

5 Weeks Before The Move

Take an objective look at what you own, and decide what can be left behind. Extra weight on the moving van costs more.
Draw a floor plan of your new home, and consider where you’ll want to place the furniture. Mark and label specific pieces of furniture on your diagram. If a piece of furniture won’t fit, don’t take it with you.
Make any personal travel arrangements—flights, hotels, rental cars—for your trip.
Organize a garage sale if you have items worth selling.
The mover will do all he can to make your move as smooth as possible. Ask for estimates to include the option of having the company pack some or all of your belongings. While the mover is liable for breakage to any items it packs, you’re responsible for damage to items you have boxed.
Start a central file for all the details of your move. Collect all receipts for moving-related expenses. Depending on the reason for your move, you may be entitled to a tax deduction.
4 Weeks Before The Move

Select your mover and discuss dates and costs.
Decide now whether you want to pack your things or hire the mover to do it.
Start gathering boxes if you decide to pack. Your mover can provide boxes best suited for moving, including special containers for clothing on hangers, lampshades, and dishes.
3 Weeks Before The Move

Notify the post office, magazines, credit card companies, friends, and family of your change of address. The U.S. Postal Service offers a kit to make this process easier.
Call utilities to schedule disconnection on the day following your move.
Talk with your mover to schedule, a few days before your move, disconnection and service of the major appliances being moved.
Arrange for utilities and services needed at your new home.
Start your self-packing with seldom-used items: fancy dishes, specialty cookware, non-essential clothing, curios, decorative items.
2 Weeks Before The Move

Decide what you will discard.
Start your serious self-packing. Label contents of all boxes.
Arrange to clean your new home as close to before your move-in as possible.
Arrange for copies of school and medical records and make bank safe-deposit arrangements in your new town.
Hold a garage sale.
1 or 2 Days Before The Move

Expect movers to arrive to start the packing process.
Empty and defrost refrigerator and freezer; clean both with disinfectant and let them air out. Put baking soda inside to keep them fresh.
Empty your safe-deposit box. Plan to take important papers, jewelry, cherished family photos, irreplaceable mementos and vital computer files with you.
Arrange for payment to the moving company. Write directions to your new home for the van operator, provide the new phone number and include numbers where you can be reached in transit.
Leave your forwarding address and phone number for your new home’s occupants.
Moving Day

Remove blankets and pillows from beds and pack in an “open first” box.
Review all details and paperwork when movers arrive. Accompany van operator to take inventory. Verify delivery plans.
Leave electric garage door opener and all the spare keys for new residents.
While moving is one of life’s most stressful events, proper planning and preparation can ease the way. Call us to help you orchestrate a smooth move into your new home.

For a consultation, contact Pete Sabine (925) 407-0606 or visit http://www.getrealestatehelp.com/.

RE/MAX CC Connection

Real Estate Finance: One of the World’s Leading Experts on Credit Derivatives Explains The Secondary Market Credit Crunch

This article was forwarded to me from one of my clients who is retired from Moody’s and S & P…this is one of the most clear and concise explanations I have read on the current state of affairs in the secondary market as related to the credit crunch. Read on-

Satyajit Das, one of the world’s leading experts on credit derivatives, is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years, he seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch — and I expected him to defend and explain the practice. This is not a defense of the practice.

Das says “massive levels of debt underlying the world economy system are about to unwind in a profound and persistent way”. Das is not sure if it will play out like the 13-year decline of 90% in Japan from 1990 to 2003 that followed the bursting of a credit bubble there, or like the 15-year flat spot in the U.S. market from 1960 to 1975. But either way, he foresees hard times… as an optimistic era of too much liquidity, too much leverage and too much financial engineering… slowly and inevitably deflates.

Like an ex-mobster turning state’s witness, Das has turned his back on his old pals in the derivatives biz to warn anyone who will listen (mostly banks and hedge funds that pay him consulting fees) that the jig is up. (read old pals as Moody’s, S&P, etc. of supermodels fame)

Rather than joining the crowd that blames the mess on American slobs who took on more mortgage debt than they could afford and have endangered the world by stiffing lenders, Das points a finger at three parties: regulators who stood by as U.S. banks developed ingenious but dangerous ways of shifting trillions of dollars of credit risk off their balance sheets and into the hands of unsophisticated foreign investors; hedge and pension fund managers who gorged on high-yield debt instruments they didn’t understand; and financial engineers who built towers of “securitized” debt pools with mathematical models that were fundamentally flawed.

Das’ view sounds cynical, but it makes sense if you stop thinking about mortgages as a way for people to finance houses and start thinking about them instead as a way for lenders to generate cash flow and create collateral during an era of a flat interest-rate curve. Although subprime U.S. loans seem like small change in the context of the multitrillion-dollar debt market, it turns out these high-yield instruments were an important part of the machine that Das calls the global “liquidity factory.” Just like a small amount of gasoline can power an entire truck given the right combination of spark plugs, pistons and transmission, subprime loans became the fuel that underlays derivative securities many, many times their size. Here is basically how it works…

Banks “originate” loans, “warehouse” them on their balance sheet for a brief time, then “distribute” them to investors by packaging (pooling) them into derivatives called Collateralized Debt Obligations, or CDOs, CLOs and similar instruments. In this scheme, banks don’t need to tie up as much capital, so they turn it around and simply put more money out on loan.

The more loans that were sold, the more they could use as collateral for more loans, so credit standards were lowered to get more paper out the door — a task that was accelerated in recent years via fly-by-night credit brokers now being accused of predatory lending practices. Buyers of these credit risks in CDO form were insurance companies, pension funds and hedge-fund managers from Bonn to Beijing. Because money was readily available at much lower interest rates in Japan and the United States, these managers leveraged up their bets by buying the CDOs with borrowed funds at the much lower rates.

So if you follow the bouncing ball, borrowed money bought borrowed money. And then because they had the blessing of credit-ratings agencies relying on mathematical models suggesting that they would rarely default, these CDOs were in turn used as collateral to do more borrowing. In this way, Das points out, credit risk moved from banks, where it was regulated and observable, to places where it was less regulated and difficult to find or identify let alone rerun or even recalibrate default probabilities with the same math models that built them.

Turning $1 into $20

This liquidity factory was self-perpetuating and seemingly unstoppable. As assets bought with borrowed money “rose in value”, players could borrow more money against the same assets, and it thus seemed logical to borrow even more to increase returns. Bankers figured out how to strip money out of existing assets to do so, much as a homeowner might strip equity from his house to buy another house. But the homeowner can only do it once.

These triple-borrowed assets were then in turn increasingly used as collateral for commercial paper — the short-term borrowings of banks and corporations — which was purchased by supposedly low-risk money market funds.

According to Das’ figures, up to 53% of the $2.2 trillion commercial paper in the U.S. market is now asset-backed, with about 50% of that in mortgages.

When you add it all up, according to Das’ research, a single dollar of “real” capital supports $20 to $30 of loans. This spiral of borrowing on an increasingly thin base of actual real assets, writ large and in nearly infinite variety, ultimately created a world in which derivatives outstanding earlier this year stood at $485 trillion — or eight times total global gross domestic product of $60 trillion.

Without a central governmental authority keeping tabs on these cross-border flows and ensuring a standard of record-keeping and quality, investors increasingly didn’t know what they were buying or what any given security was really worth. The math models had long been put away because the underlying assets were simply undetermined.

A painful unwinding

Now here is where the U.S. mortgage holder shows up again. As subprime loan default rates doubled, in contravention of what the mathematical models forecast, the CDOs those mortgages backed began to collapse. Because they were so hard to value, banks and funds started looking at all CDOs and other paper backed by mortgages with suspicion, and refused to accept them as collateral for the sort of short-term borrowing that underpins today’s money markets.

Through late last month, according to Das, as much as $300 billion in leveraged finance loans had been “orphaned,” which means that they can’t be sold off or used as collateral. Remember the underlying assets were simply undetermined.

One of the wonders of leverage is that it amplifies losses on the way down just as it amplifies gains on the way up. The more an asset that is bought with borrowed money falls in value, the more you have to sell other stuff to fulfill the loan-to-value covenants. It’s a vicious cycle. In this context, banks’ objective was to prevent customers from selling their derivates at a discount because they would then have to mark down the value of all the other assets in the debt chain, an event that would lead to the need to make margin calls on customers already thin on cash.

Now it may seem hard to believe, but much of the past few years’ advance in the stock market was underwritten by CDO-type instruments which go under the heading of “structured finance.” I’m talking about private-equity takeovers, leveraged buyouts and corporate stock buybacks — the works.

So to the extent that the structured finance market is coming undone, not only will those pillars of strength for equities be knocked away, but many recent deals that were predicated on the easy availability of money will likely also go bust, Das says. That is why he considers the current market volatility much more profound than a simple “correction” in prices. He sees it as a gigantic liquidity bubble unwinding — a process that can take a long, long time. While you might think that the U.S. Federal Reserve can help prevent disaster by lowering interest rates dramatically, as they did last Wednesday, the evidence is not at all clear.

The problem, after all, is not the amount of money in the system but the fact that buyers are in the process of rejecting the entire new risk-transfer model and its associated leverage and counterparty risks. Lower rates will not help that. “At best,” Das says, “they help smooth the transition.” So, will we just muddle along through this or is something big coming?

Move Up Buyer: How to Buy Another Home Without Selling Your Current Home First

Avoid the inconvenience and added expense of moving into a rental home in between selling your current home and buying another suitable property. Now move-up buyers can find relief with an affordable and flexible financing strategy. By obtaining an equity line of credit secured by your current home, you can position yourself to find the right home without the worry of not having enough time to sell your home and find another. This financing strategy for your down payment offers many advantages such as a loan fee of no more than $1,000, borrow up to 90% of the value of your current home, pay no interest until you use the loan to finance the down payment of your new home, pay off the loan from the proceeds of the sale of your current home plus this loan is available to borrowers with a less-than-perfect credit history.

Follow these key steps to find out if this strategy will work for you:

Contact a local real estate professional to assist you with determining the current fair market value of your home. Your Realtor will provide a comparative market analysis (CMA) of recent sales of similar homes in your neighborhood.

Subtract the existing loan amount from the current value of your home to determine your equity. Most banks will allow an equity line of credit up to 90% of the appraised value behind your existing loan.

Apply for the equity line of credit

Apply for a new loan for the purchase of your next home.

Once the loans are approved for the equity line of credit and the new loan for the purchase of your next home, add the sum total of the two loans to determine your top purchase price range. Now you are ready to begin the home search and when you find the right home, your purchase offer will not need the contingency to sell your current home as a condition of completing the sale of the new home. Once your offer has been accepted by the seller and you are confident that you want to complete the sale, list your current home for sale to minimize the time period of owning one home too many. The equity line of credit secured against your current home is paid off at the close of escrow as well as the existing first loan. This strategy gives you the peace of mind to take your time to find the right home and the confidence that your financing is pre-approved when you need it.

Call Pete Sabine (925) 407-0606 for a consultation or visit www.GetRealEstateHelp.com.

List Your Home: Seven Questions You Must Ask a Realtor

Seven Questions You Must Ask a Realtor Before You List Your Home

Many home sellers make the critical mistake of thinking all Realtors are the same. Start by doing a few hours of research. Ask around… who’s the most active agent? Compile a list of agent names and use these questions to help you determine which agent is right for you.

1. Could you send me some information about yourself? - You can often get a good idea of which agents are the most professional by looking at their promotional materials. If their own materials aren’t professional, how well are they going to market your home?

2. How long have you been in business?- There is no substitute for experience. An agent with years of experience selling hundreds of homes can handle just about any unique challenge. An experienced agent knows when the market is changing and will provide you with effective options.

3. Do you have an assistant or support staff? - By employing someone to handle the details of their business the agent can spend more time servicing your needs. It may be fine if the assistant does most of the behind-the-scenes work as long as the agent is there at the most critical times of the transaction period.

4. How do you use technology to sell my home? -Most of the top agents have a web site to develop a pipeline of prospective buyers for their listings. E-mail marketing has evolved into one of the most effective and efficient advertising tools available. Ask the agent to send you an email with samples of their e-marketing plan. Visit the agent’s web site to find out how they attract potential buyers for your home.

5. What listing price do you recommend ? - Take great care in choosing an agent with the knowledge to price your home effectively. Keep in mind the selling price should attract prospective buyers to your home, get you top dollar in the current market and reflect the condition of your home. Do not base your decision to list with the agent who quotes the highest price. Some agents will “buy” your listing only to harass you to lower the price after the agent has secured the listing..

6. What disclosure laws apply to me? - Make sure your agent helps you with locating professional inspectors for the various mandatory home inspections required in your area. Create a file including a property transfer disclosure statement, pest control report, applicable C.C.& R’s , applicable hazard zones report, plans for alterations or additions and building permits.

7. What types of things separate you from your competition and will you give me some feedback? - How effectively will they advertise? Do they have 24-hour advertising capability? How will you follow up on the leads for my home and how often will I hear from you? Agents who are innovative and offer new methods of attracting homebuyers will measurably outperform agents who rely on methods of the past. Make sure the agent offers a listing cancellation agreement that allows you to cancel the listing prior to the expiration date if your are not satisfied with the agent’s performance.

For a consultation, call Pete Sabine at 925-407-0606.

RE/MAX CC Connection

Move Up Buyer: Six Insider Secrets to Avoid Trade-Up Mistakes

Making a local move usually means selling one home and buying another. The secret to making it all come together is coordination. Take a moment to review the six insider secrets to a successful move.

Get all the facts early: Determine a realistic fair market value for your current home. Find out how much equity you have to add to the new loan required to buy your next home. Get pre-approved by a reputable lender and choose the best financing program to meet your needs. By doing so, you can determine an affordable price range in which to shop for your next home.
Make a game plan: Make a list of repairs and cosmetic improvements for your current home that will maximize your potential sales price and eliminate delays and surprises during escrow. Complete these improvements before putting your home on the market. Meet with a Realtor to form an aggressive marketing plan to sell your home for the best possible price in a reasonable amount of time.
Sell first: This is the most conventional way to make a trade up to your new home. You are not pressured to accept a below-market value offer just to meet a purchase deadline. In many cases, the Buyer will accommodate the Seller’s need for adequate time to find another home to buy with an option to rent the Seller’s current home from the Buyer past the close of escrow date.
Keep a lookout: Learn the real estate market and stay on top of the inventory of available homes for sale while you are preparing your home to sell and waiting for an acceptable purchase offer. Visit open houses to discover neighborhoods and become familiar with current real estate values. Use time saving technology such as the internet (visit www.ContraCostaLiving.com) to search the Multiple Listing Service in real time. Sign up for a free automatic e-mail listing notification service to have new listings sent directly to your e-mail address that meet your search criteria.
Be flexible: If you buy before you sell you may need to arrange “bridge financing” secured against the equity in your current home. Set up an equity line of credit for the down payment and closing cost on your next home. The advantages of buying first and selling second include the peace of mind knowing that you found the right home without letting go of your current home first, eliminate the anxiety of moving into temporary housing because you ran out of time to find a suitable new home plus the competitive advantage of making your purchase offer “non-contingent” on the sale of your current home.
Coordinate closings: Our experience shows our clients enjoy the smoothest local moves when we work on both the sale and the purchase. There may be 15 to 30 entities involved in the transactions-appraisers, lenders, inspectors, escrow officers, etc. Direct communication is critical to synchronize your next move. The fewer people involved, the more efficient the process.

Call Pete Sabine (925) 407-0606 for a free consultation.

RE/MAX C.C. Connection.

Sell Your Home: How to Avoid the 7 Mistakes That Could Cost You Thousands of Dollars in the Sale of Your Home

When you sell your home, the difference between a smooth and profitable transaction and a break even, miserable experience is often a fine line. By utilizing the trade secrets of a qualified real estate professional, you’ll ensure the quick, profitable sale of your home. If you are not completely prepared you could end up losing valuable time and thousands of dollars in profits.

Refusing to Make Profit Inducing Repairs and Cosmetic Changes

It can cost you more money to sell “as-is” than to make repairs that will increase the value of your home. Even minor cosmetic improvements will often yield as much as two to three times the improvement or repair cost at the time of sale. The homebuyer’s first impression is critical to net the highest return on the sale of your home.

Provide Easy Access for Showings

The more accessible your home is, the better the odds of finding a buyer willing to pay your asking price. Appointment-only showings are the most restrictive, while lock box access is the least. Accessibility is the key to profitability.

Priced Too Low/Priced Too High

If the property is priced too low it could cost you considerable profits. If it’s priced too high it will sit and develop the identity of a problem property. The real estate market is constantly changing. Your pricing strategy should be re-evaluated by your Realtor every 14 to 21 days to help you maximize your return.

Relying Solely on Traditional Methods To Sell Your Home

Around the clock advertising exposure, innovative lead generation methods and lead accountability services exist and should be included in the marketing and sale of your home. The Realtor who is innovative and willing to offer new strategies of attracting homebuyers will always outperform agents who rely on traditional methods.

Market Timing/Seasonal Selling

Pricing your home effectively is in direct co-relation to market conditions and supply/demand dynamics. A professional real estate agent continually follows the trends of your local real estate market to know when the market cycle is poised to net you the most money in the sale of your home.



Wasting Time With An Unqualified Prospect

Be sure to align yourself with a professional and experienced Realtor to eliminate negotiating with unqualified prospects. An experienced Realtor knows how to screen a prospect’s qualifications before valuable marketing time is lost.

Believing All Realtors are the Same

Your home sale is a time consuming, effort related and often complex task. Rely on an experienced top producing Realtor instead of a friend or family member to handle the intricate details and critical decisions to be made concerning your home sale. Many friends and family have been estranged as a result of failing to meet expectations.



To discover more profitable real estate trade secrets, call Pete Sabine (925) 407-0606 or log onto www.GetRealEstateHelp.com

Credit Scores: The Five Factors of Credit Scoring

A good credit score can mean the difference between a low mortgage rate with conventional financing and a restrictive, higher-rate loan. There are five factors that impact consumer credit scores. They are listed here in order of importance:

1. Paying debt on time and in full has a positive impact, and late payments, judgments and charge-offs have a negative impact.
2. Outstanding credit balances have a 30% impact.
Debt ratio of outstanding balance to available credit is important. Keeping that below 50% is wise and below 30% even wiser. It is never a good idea to close an account: the debt ratio will go up and the number of seasoned lines will decrease. Pay outstanding debt down as close to zero as possible and evenly redistribute the remaining balance among the open lines. The increased interest incurred by moving balance from a 0% card to a 23% card will be minimal relative to what the increased mortgage might be with a low credit score. Hitting the maximums of available credit can be very negative. It may be worth calling and asking the credit company to increase your available credit to lower the debt ratio provided they can do so without a hard credit inquiry.
3. Credit history has a 15% impact.
The length of time a particular credit line has been opened is important. A seasoned borrower is stronger.
4. Type of credit has a 10% impact.
A mix of auto loans, credit cards and mortgages is positive, rather than a concentration in credit cards only.
5. Inquires have a 10% impact.
Hard inquires for credit will negatively impact the score. Auto and mortgage inquires receive special treatment and 20 inquires made in a 14-day period for auto or mortgage will be treated as only 1 inquiry. The maximum number of inquires that will reduce the score is 10. Any inquires beyond that (11+) in a six month period will have no further impact on the borrower. Each hard inquiry can cost 2-50 points on a credit score.

Trade secret tip:
Request that creditors and credit bureaus delete any outstanding debt that is incorrectly charged to you or has yet to be cleared. They have an obligation to react within 30 days. If you choose to pay off an outstanding debt (less than two years old) mark the back of the check “accepting this check is evidence that the transaction is complete and this charge will be deleted from my credit”. You may able to use the cancelled check if the outstanding debt in not removed.

Call Pete Sabine (925) 407-0606 for a free consultation.

RE/MAX C.C. Connection.