Is Now A Good Time To Buy?

You may be asking yourself, "Is now a good time to buy?" It's a very important question. As a buyer, you're concerned with getting the best deal possible. Will you be buying at the top of the market? Or will you purchase when the market is in favor of you, the buyer?

According to the National Association of Home Builders (NAHB) and their Home Builders/Wells Fargo Housing Opportunity Index (HOI), affordability is high for the 5th consecutive quarter.

How is affordability calculated? In general terms, if housing costs don't exceed 30 percent of the monthly household income, then it meets the standards. Anything more than 35 percent is too high.

"Today’s report is very encouraging because it indicates that homeownership continues its more than year-long trend of remaining within reach of more households than it has for almost two decades," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "With interest rates still hovering at low levels, companies starting to hire new employees and the economy beginning to rebound, this should encourage more home buyers to enter the market and help further stabilize housing and the economy."

The HOI indicates that 72.2 percent of all new and existing homes sold in the first quarter of this year were affordable to families earning the national median income of $63,800.

Some of the best markets for affordability is:

• Syracuse, New York
• Dayton, Ohio
• Grand Rapids-Wyoming, Michigan
• Indianapolis, Indiana
• Youngstown, Ohio, and
• Bay City, Michigan

Of course, affordability, like most aspects of the housing market, is a local issue. The local economy has a direct effect on home prices, market favor (buyers or sellers), and the like.

Take for example, New York-White Plains-Wayne, New York-New Jersey. The NAHB says this region continued to lead the nation in poor affordability. Less than 21 percent of all homes sold in the 1st quarter 2010 were affordable.

Other markets where affordability is low:

• San Francisco, California
• Honolulu, Hawaii
• Santa Ana-Anaheim-Irvine, California, and
• Los Angeles-Long Beach-Redwood City, California

Be sure to talk to your local real estate agent about where your local market fits into the affordability equation.

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Mortgage Rates at an All Time LOW

Wary of a volatile stock market and concerned about by European debt woes investors moved to bonds last week pushing bond prices up and mortgage rates down. Mortgage rates, which move the opposite direction of mortgage-backed securities prices, had wavered just below 5% for much of the year until last weeks big decline. Mortgage rates today are even lower than levels December of last year, what's now the previous all time low.

Today's official FreeRateUpdate.com conventional 30 year fixed mortgage rate, available to well-qualified borrowers paying about a point origination, is 4.5%. Today's conventional 15 year fixed rate is 4%, with some lenders reported "squeezing" out 3.875%.

Today's FHA 30 year fixed rate is 4.375%. APR (closing cost) on an FHA loan is typically much higher than that of a conventional mortgage because of MI and other FHA fees.

Today's jumbo 30 year fixed rate, for jumbo mortgages exceeding jumbo conforming loan limits, is 5.5%. It's reported 5.375% is available to borrowers with an extremely low loan to value ratio.

Wells Fargo, the nations largest volume mortgage originator, is currently offering a conventional 30 year fixed rate of 4.875%, with an APR of 5.065. Wells Fargo mortgage rates are available on their website.

FreeRateUpdate.com researches over 2 dozen wholesale lenders' rate sheets for brokers on a daily basis to determine the most accurate mortgage rates for well-qualified borrowers paying a standard origination fee of about 1 point.

Today's Mortgage Rates - currently available to well-qualified consumers at a standard .07 to 1 point origination.

• 30-yr fixed-rate - 4.500%
• 15-yr fixed-rate - 4.000%
• 5/1 ARM rate - 3.500%
• FHA 30-yr fixed-rate - 4.375%
• FHA 15-yr fixed-rate - 4.00%
• FHA 5/1 ARM rate - 3.500%
• VA 30-yr fixed-rate - 4.625%
• Jumbo 30-yr fixed-rate - 5.500%
• Jumbo Conforming 30-yr fixed-rate - 4.750%

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Real-Time Real Estate Market Data from Altos Research LLC

Real-Time Real Estate Market Data from Altos Research LLC: "

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McMillin Realty continues to spotlight South County in Dream Homes Magazine

BE THE FIRST!!! HOT ON THE NEWSSTANDS (or should I say "Blogstands") the latest and greatest has just been released!!! Dream Homes South County! See what's HOT in the South...

Open publication - Free publishing - More homes for sale

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How to Profit by Buying and Selling Homes

Some people choose to do it as a profession, others do it as a hobby, but one thing they all have in common is the desire to profit from it. `It` being the buying and selling of houses, or as some term it - house flipping. In other words - speculating.

So, with the current downturn in property prices, and the upturn in foreclosures, is it a good time to invest in property? What factors should you bear in mind if you are thinking about buying and selling houses?

Consideration of the following, though not an exhaustive list, should give you some guiding principles to help you before jumping in to real estate.

From what source will you find the funds to purchase the property? If it is going to be a bank loan, consider the rate of interest you will be paying the lender until the loan is repaid, usually at the point of the sale of the property. If it is your own money you are using, how much interest will you lose on it being in a bank? Might you need that money in an emergency?

How much are you prepared to buy the house for? The higher the value, potentially the greater the profit. Set yourself a ceiling, particularly when first starting out. Where will you look to locate the ideal property you wish to buy? From an auction, through a Realtor, or even privately, are some of the more obvious options.

Once you see a house you think you could do things with, check how much similar properties go for in that neighborhood. Pay too much and if you can`t make sufficient profit you are wasting your time, and you could even lose money on the deal.

Will you be carrying out repairs, or remodeling, yourself, or, will you have to bring in contractors to do the work for you? If you do the work yourself, do you have the necessary expertise to carry out the work safely, and do a proper job? What about family commitments, will you have the support of those closest to you? If you can do the work yourself, or at least the majority of it, you can save yourself a lot of expense. But, you need to consider whether you can afford to take the time off work with the possibility of losing wages. You need the commitment to see the job through, and set a realistic time scale for completion.

It is absolutely essential to calculate how much profit you will receive after taking into account the initial cost of the property, interest on any loan needed to fund the purchase, selling costs (Realtor fees, legal costs etc.), your own wages for the time spent on the house, and costs of materials and possibly employing a contractor to do any work needed to add value to the property.

If you have ticked all the boxes and feel confident that buying and selling houses is for you, then you could be on the road to making money in the property market.

So let's begin...

1. Step 1

   Study real estate publications to determine where the housing market is low but rising. To make the most money, you want to buy at a low and sell at a high. If you want to make money quickly, you want to purchase houses in areas that the market is rising. If you are looking for a long-term investment, you can make money over time by buying in depressed areas with no signs of the market going up; it will most likely go up eventually.

2. Step 2

   Place an ad in the newspapers in the areas that look promising. In the ad, state that you are willing to pay cash for houses. Leave your phone number, and leave a message on your answering machine that confirms they have found the correct person, in case they call when you are not available.

3. Step 3

   Call a real estate agent in the area and ask for a list of their short sale properties. With a short sale, the seller's bank must approve the price that you are willing to pay, but it is usually much lower than what you could buy otherwise.

4. Step 4

   When you have found a home or homes to purchase, have a professional inspection done. Be sure that the money you will spend on repairs will be able to be made up for when you sell the house later. Make sure the house is structurally sound. You will spend far less money on repairs if they are not major.
   

5. Step 5

   Make an offer on the house. The offer should be below what they are asking, but enough so that they will accept the offer. Study comparative market analysis for the area to help you decide on a fair amount to offer.

6. Step 6

   Make necessary repairs and upgrades to the house. The house must be safe to live in and in good working condition. Some upgrades may be purely cosmetic, but don't spend too much money on surface work. Stage the house for sale. You don't want the ugly dog on the block either. Curb appeal is very important. Keep up on the yard work at this time.
   

7. Step 7

   After all work is done, place the house for sale. Price the house in accordance with other houses on the market. This will get you a better selling price.

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The 7 biggest mortgage mistakes

A home loan is the biggest debt, and most costly monthly bill, most of us ever have.

That's why the seven biggest mistakes borrowers make when shopping for a mortgage can cost so much money and aggravation. Avoid them, and you're a much happier and smarter home buyer.

Mistake 1. Not shopping around for the best deal.

Getting the right loan, with the lowest possible interest rate and reasonable fees, can save hundreds of dollars a month and tens of thousands of dollars over the life of the mortgage. But you'll never know whether you got a great rate if you only get one quote from the bank down the street or the mortgage broker that arranged your last loan.

Our extensive database of mortgage rates can give you a good sense of what loans cost right now. Follow our step-by-step advice on how to find the best interest rate and home loan.

Mistake 2. Applying for a loan without checking your credit history for mistakes.

Errors can drive down your credit score and make it more difficult to qualify for a loan and require you to pay a higher interest rate. To get a free credit report from the three major credit reporting bureaus, go to www.annualcreditreport.com

Each credit report shows how to correct mistakes or submit an explanation for legitimate black marks that appear on the report.

Mistake 3. Saddling yourself with payments you can't afford.

Avoid that by looking at all of your bills and deciding how much you can comfortably spend. Include a realistic estimate for taxes, insurance and condo or association fees. From that, calculate the amount that could be borrowed at prevailing mortgage interest rates. Add the size of the down payment and that should be your limit.

Don't let real estate agents repeatedly show you homes outside this price range. Don't work with mortgage brokers who push you to borrow more than you can afford. Here's more help on deciding how much to spend on a home.

Mistake 4. Failing to understand how costly home maintenance can be.

Just because you can keep up with the mortgage payments doesn't mean you can afford a house. You don't want to find out how expensive home repairs can be when your central air conditioning conks out, the dishwasher spews four inches of hot, soapy water on your kitchen floor or the roof starts to leak.

This is especially important if you're buying your first home. You can't call the landlord. You have to call repairmen, and they don't come cheap.

The Federal Housing Administration says you should plan on spending the equivalent of one mortgage payment a year on repairs. You'll also have to buy lawn mowers, snow blowers (if you live far enough north), ladders, tools and other stuff you don't need as a renter.

Mistake 5. Not getting preapproved for a loan. This is an important reality check -- and it's free. A lender will look at your credit history, income, savings and debts, and decide on a loan cap, though you don't have to borrow the entire amount. If you can't get preapproved, or can't get preapproved for as much as you want to borrow, that's a big red flag. Our report will help you learn all about getting preapproved.

Mistake 6. Signing a mortgage that you don't understand.

A recent study revealed that two out of every five homeowners didn't know whether their mortgage had a fixed or adjustable rate. And if it had an adjustable rate, they didn't know when it would adjust or what their payments would be after the adjustment.

The best place to find most of a loan's key terms is the "Good Faith Estimate" lenders must provide within three days of receiving your application. Knowing the answers to the 10 questions your GFE should answer will greatly reduce the odds for a nasty, costly surprise.

Mistake 7. Not considering a five-year, adjustable-rate mortgage.

Costly subprime mortgages have given all ARMs a bad name. Lenders have shied away from making them. Borrowers have been scared to even consider them. That's why more than nine out of every 10 mortgages written this year have been fixed-rate loans. But there's nothing wrong with the consumer-friendly ARMs usually given to borrowers with good credit. They're a particularly smart idea for borrowers who know they'll be moving before their loan adjusts in five, seven or even 10 years.

At today's rates, those ARMs cost about $30 to $40 a month less than a 30-year, fixed-rate mortgage for every $100,000 you borrow.

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What to Know About Your Mortgage to Avoid Foreclosure

Ask homeowners who have lost their homes to foreclosure and a surprisingly large number complain that they were unaware of important mortgage features when they signed on the dotted line. Whether you are buying, refinancing or already own your home, a clear understanding of your mortgage is key to avoiding the foreclosure process. Smart owners should determine the answers to the following questions for every mortgage or home equity line of credit (HELOC) they have.

1. Who is your lender and is your mortgage a government loan?
   Sometimes the lender you get the loan from continues to be your lender until you refinance. Other times, your lender may "sell" your loan to another lender or loan servicer sometime after you buy your home. To find out who your mortgage holder is at any given time, look at your mortgage statements. They will list the name, address, Web address and contact telephone number for your lender. If you get in a bind where you can't make a payment on time, give them a call ASAP; many lenders are now offering temporary modifications to help keep responsible homeowners from falling too far behind. Know whether your loan is a governmentally insured loan. If you aren't sure if your loan is an FHA, Fannie Mae, Freddie Mac or VA loan, this should be evident from your original loan documents. If you start having problems with your loan and your loan is governmentally insured, your lender is required to offer you ways to help you avoid losing your home. Keep a copy of the loan documents on hand. If you can't find them, call your escrow holder or mortgage or real estate broker, and ask them to get you a copy ASAP.
2. What type of mortgage do you have?
   Is your mortgage a fixed-rate loan or adjustable? If you have a fixed-rate mortgage, is the term 15 or 30 years? If your loan is an adjustable rate mortgage (ARM), you'll need to know what the term is; do you have 30 years to pay it off, or do you have a balloon payment in 10 years?
3. Do you have a prepayment penalty?
   When does it expire and how is it calculated? Will you incur it if you refinance or only if you sell your home?
4. If your mortgage is adjustable, what type of adjustable rate mortgage (ARM) is it?
   Fully adjustable, hybrid ARM or Option ARM? Fully adjustable loans adjust every single month of the loan. Hybrid ARMs have fixed interest rates and payments for the first years of the loan, after which the rates and payments adjust.
5. If your mortgage is an Option ARM, how much interest do you defer when you make the minimum payment?
   Take the difference of the interest-only payment and the minimum payment listed on your mortgage statement to determine how much interest you are deferring or adding to your mortgage balance every month.
6. If your mortgage is adjustable, what are the adjustment details?
   When will it begin to adjust? How often will it adjust? When your mortgage adjusts, will it become amortized (meaning, you have to start paying the principal in addition to the interest)? What is the basis for your mortgage's adjustment? ARMs adjust in accordance with a particular financial index listed in your loan documents. Some common indexes for ARMs are Prime and the London Interbank Offered Rate (LIBOR). On any given day, these indexes each have a particular rate. Your mortgage documents will state that your interest rate will adjust based on your specific index plus a specific margin, like 1 percent or 2 percent, that you add to the index at any particular time to determine the "fully indexed" rate. So, if your index is LIBOR, and your margin is 2 percent, then you can calculate what your adjusted mortgage interest rate will be at any given time by looking up LIBOR on a site like Bankrate.com and doing the math. For example, if LIBOR is at 4.5 percent, and your margin is 2 percent, then your adjusted interest rate will be: 4.5 percent + 2 percent = 6.5 percent. Every ARM has at least two adjustment caps, limits on how much your payment and/or rate can go up. ARMs usually have a cap for how much your payment can go up per year and over the life of the entire loan. Smart owners with ARMs should know their adjustment caps.
7. What is your household's financial continuity plan for "the three D's"?
   You need to ask about how the mortgage payments will get made in the event of a "natural disaster" in your household. Divorce, disability and death are the three most common threats. Make a plan, including life and disability insurance, to cover your mortgage if any of these disasters strikes.

Tara's Action Tip: Right this moment, set aside an hour this week to go through your loan documents and find the answers to these questions. If you get stumped, ring up your mortgage broker, real estate agent or escrow officer/attorney for help.

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Advantages and Disadvantages of Buying a Foreclosure

Many buyers associate buying a foreclosure with getting a steal of a deal. This can be true, but there are also potential pitfalls. The pros and cons of buying a home involved in foreclosure vary with the phase of foreclosure the property is in when purchased. Use this handy guide to figure out what sort of property is best for you!

Missed Payments/Motivated Seller

Advantages:

• Seller will be motivated to achieve a fast sale, may create opportunity for below market purchase price.
• Seller may be more likely to do repairs.
• Seller might be amenable to providing major closing cost credits and other concessions.
• Buyer can use regular mortgage financing.
• Buyer can obtain desired inspections within standard due diligence/contingency period.
• Seller must legally provide complete history of property's condition, problems, repairs, etc.

Disadvantages:

• Seller may not be able to negotiate price below outstanding balance of seller's mortgage(s).
• Sellers still have to move out.

Pre-Foreclosure/Notice of Default (NOD) or Lis Pendens Filed by Lender/Short Sale

Advantages:

• Seller will be motivated for fast sale, increasing buyer's bargaining power.
• Buyer can do all standard inspections, including researching title during due diligence/contingency period.

Disadvantages:

• Unless purchase price will pay mortgage(s) and closing costs in full, lender's approval of price and terms of sale will be required (i.e. short sale).
• Lender may not approve price, seller concessions or closing cost credits.
• Short sale may take 45-90 days to close.
• Sellers still have to move out.

Foreclosure Auction

Advantages:

• Property will be sold for outstanding mortgage balance owed to foreclosing mortgage holder -- this can be a low price for the property.
• Cash payment requirements reduce competition.

Disadvantages:

• Auction purchase price must be paid in cash on the same day as the auction -- no mortgage is usually allowed.
• No inspections allowed; as-is sale.
• Buyer may take property and owe other liens, back taxes and mortgages. Buyer must research state of title prior to auction.
• Bank cannot provide disclosures as to property history/condition issues.
• If bank believes auction will not recover a good price, bank may buy the property at auction.
• Property condition might be suspect due to damage done by upset homeowners.
• No commissions or attorney's fees will be paid; buyer must pay for their own representation.

Post-Foreclosure Bank-Owned Property REO (Real Estate Owned by Lender)

Advantages:

• Bank is motivated to get property sold and will negotiate price, down payment, closing costs, escrow length, etc.
• Title will be clear; buyer will not take on any liens, mortgage or back taxes of prior owners.
• Inspections and mortgage financing are allowed within normal due diligence/contingency period.
• House will be vacant.
• Property will usually be listed on MLS; bank will pay real estate agent's commission.
• REO sales close within a normal escrow period of time.

Disadvantages:

• Bank will not agree to do any repairs; as-is sale.
• Bank will usually require additional paperwork.
• Bank cannot provide disclosures as to property history/condition issues.

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How Foreclosure Affects Your Future

Foreclosure is far from the worst thing that could ever happen to you. If your home ends up in foreclosure, chances are there are lots of things you should thank your lucky stars for: your family, your health and your good looks. Foreclosure doesn't mean you are irresponsible or not deserving of prosperity. It can be the result of an unwise decision, bad timing or unfortunate life events. Nevertheless, foreclosure and its first cousins, missed mortgage payments and short sales, do have credit, legal and tax consequences. Here are the consequences of each:

Missed Payments

• Other than your lender's late fee, there are no credit or other consequences of a mortgage payment being late until it is 30 days late.
• One 30-day late mortgage payment can drop your FICO credit score from 50 to 100 points.
• If you resume paying mortgage payments after missing one payment (without making a catch-up arrangement with your lender) that one late payment will become a "rolling late," reported as first 30 days late, then 60 days late, and so on.
• Most mortgage lenders will not make a mortgage or refinance to a borrower with more than one 30-day late mortgage payment on their credit report within the 12 months preceding the application for credit. All lenders will charge you a higher interest rate and impose tougher terms if you have any "mortgage lates" on your credit report.
• Late mortgage payments will be reflected on your credit report for seven years, but the negative impact on your FICO score will decrease as the late payment recedes into the past.

Short Sale

• When you sell your home for less than you owe on it, and your lender writes off the debt, your FICO score will drop between 80 to 100 points.
• It will take approximately 18 months of consistent, on-time credit payments to restore your credit score to a level where you will be able to get a new mortgage with good interest rates and terms.
• Legally, mortgage and lien-holders must agree to extinguish their debts for the short sale to proceed; they cannot sue the homeowner to recover the shortfall.
• Until December 2007, homeowners of properties sold through short sale were charged with taxable income for every dollar of debt forgiven through the short sale. Under the Mortgage Forgiveness Debt Relief Act of 2007, though, mortgage lenders will not charge owners of foreclosed homes with taxable debt relief/income through the end of 2009.
• If you bought your home less than two years ago or purchased your property using tax-deferred capital gains in the course of a 1031 exchange, there might be capital gains tax implications of your short sale. Consult with your CPA in either of these situations.

Foreclosure and Deed in Lieu of Foreclosure

• If your home is lost to foreclosure or you give it back to the lender via a deed in lieu of foreclosure, your credit score will go down by 250 to 280 points.
• It will take about three years of consistent, on-time credit payments to restore your credit score to a level where you will be able to get a new mortgage with good interest rates and terms.
• Even if your lender is entitled to come after you for the difference between the market value of your home at the time of foreclosure and what you owe on the home, they almost never do.
• Tax-wise, mortgage debt relieved through foreclosure used to be potentially taxable as income, depending on the mortgage. Under the Mortgage Forgiveness Debt Relief Act of 2007, mortgage lenders will not charge owners of foreclosed homes with taxable debt relief/income through the end of 2009.
• If you bought your home less than two years ago or purchased your property using tax-deferred capital gains in the course of a 1031 exchange, there might be capital gains tax implications of your short sale. Consult with a CPA if you are considering a short sale in either of these situations.

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The Skinny on the Short Sale

There are many flavors of compromise you can strike with your lender if you are facing foreclosure. One of the toughest to execute is the short sale.

What Is a "Short Sale"?

The title "short sale" is somewhat misleading; many assume that "short" means quick, implying a transaction that has a short escrow period. Au contraire. A short sale refers to a homeowner's sale of their home for a net sales price (after commissions, closing costs, etc.) that is less than what the homeowner owes their mortgage lender(s).

Why Is a Short Sale Desirable?

A short sale is an alternative to foreclosure. A short sale prevents you from having to go through the foreclosure and eviction. A short sale does make a smudge on your credit report but is much less traumatic to your credit than foreclosure.

What Makes a Short Sale Hard to Complete?

Because a short sale results in the lender losing (a) funds they are owed and (b) the property which secured the mortgage loan, these transactions must be done with the full participation and agreement of the homeowner's lender(s).

Lenders are institutions, not people. They often move at a snail's pace when evaluating a request for a short sale. Short sales are more frequent in a declining market -- many lenders are simply not equipped to handle the deluge of short sale requests they receive.

Realtors who work on short sale transactions all have stories of trying for weeks to get the short sale "package" to the correct person in the loss mitigation department! Once the package is in the hands of the right person, the bank may have some reason they disagree with the deal between the buyer and seller, and may insist on inserting the bank's price increase, reduction in closing cost credits, or other major alteration of the terms of the deal.

During a short sale, the buyer, seller and even the real estate agents are somewhat subject to the whims of the bank -- the deal cannot be done without the bank's agreement.

How to Get Your Lender to Agree to a Short Sale

With all that said, short sale transactions are completed every day! Because the lender is likely to take so much time processing your short sale request -- and because time is of the essence -- you must ensure that your short sale request itself is as articulate, thorough and persuasive as possible. Here are some concrete actions you can take to maximize your chances for success.

1. Approach your lender as soon as you think you might need to request a short sale.
   If you are struggling to make your mortgage payments, list your home with a reputable real estate agent as soon as possible. If they advise you that your home is likely to sell for less than you owe on it, immediately contact your lender's "workout" department to request a short sale package. If you can get your lender to indicate how much of your mortgage they are willing to forgive up front, you boost your chances of working with a buyer to create a deal that is a bargain for them, but likely to be accepted by the bank, too.
2. Authorize your real estate agent -- in writing -- to work and to negotiate directly with the lender.
   But make sure to stay on top of the communications between your agent and your lender. Delegate; don't abdicate!
3. Make sure an offer is presented in its best light.
   Make sure your real estate agent includes a cover letter that explains the buyer's qualifications to buy your home, how much down payment money they propose to put in -- anything that might boost the lender's confidence. If the buyer is requesting any closing cost credits, be sure to tell the lender if the buyer is a first-time homebuyer; lenders are more likely to agree to concessions for first-time buyers than for investors.
4. Your lender will request a hardship letter from you.
   Make sure you handwrite it, and present your finances in the worst light. If you lost a job, had an illness or death in the family, are a senior citizen or have any other circumstances then let the lender know! Let them know that you are considering filing bankruptcy, and that this short sale would prevent you from doing that; because bankruptcy stops the foreclosure process cold, the lender would much rather approve your short sale than have you file bankruptcy. Also explain any facts that might make it harder for the bank to resell your house -- anything that makes the bank grateful that someone has made an offer!
5. Make sure your short sale package is impeccably thorough.
   At a minimum, the lender will want to see:

• The offer to purchase your home, including the buyer's preapproval letter;
• Your hardship letter;
• A balance sheet listing your monthly income and expenses;
• Statements from your checking, savings and other asset accounts;
• A net sheet from your real estate agent listing all of the closing costs that must be paid for your short sale to close;
• Supporting documentation, including two months' worth of paycheck stubs and all your bills;
• Your last two federal income tax returns.

Don't make them have to come back and ask you for any of these items. Make sure the package is complete the first time your real estate agent sends it!

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5 Ways to Stop the Foreclosure Process

If you have missed more than three mortgage payments, or your lender has filed a Notice of Default (NOD), you might think the loss of your home is inevitable. Even at this stage, there are five strategies you can use to stop the foreclosure process.

1. Foreclosure Workout. Up until the time your home is scheduled for auction, most lenders would rather work out a compromise that would allow you to get back on track with your mortgage than take your home in a foreclosure.
2. Short Sale. After your lender files an NOD but before they schedule an auction, if you get an offer from a buyer, you lender must consider it. If they foreclose on your home, the lender is going to simply turn around and try to resell it; if you present them with a reasonable short sale offer, they may see it as saving them the time, effort and trouble of finding a qualified buyer in a soft market. So, if your home is on the market, continue to aggressively seek a buyer for it, even after your lender initiates the foreclosure process. Read our guide on How to Sell Your Home Fast When Foreclosure Looms for action steps you can take to unload your home fast, then make your best pitch as to why your lender should agree to the short sale.
3. Bankruptcy. Bankruptcy stops foreclosure dead in its tracks. Once you file a bankruptcy petition, federal law prohibits any debt collectors, including your mortgage lender, from continuing collection activities. Foreclosure is considered a collection activity, and so the day your lender becomes aware that you have filed for bankruptcy, the foreclosure process will effectively be frozen. But here's the rub; once you get to court, the bankruptcy trustee's role is simply to play referee or mediator between you and your creditors. Bankruptcy really just buys you more time to replace your lost job or recover financially from a temporary disability; it doesn't let you off the hook for your debts. The law requires your mortgage company and other creditors to work in good faith with you to formulate a reasonable repayment plan so you can get back on track. Consult with a bankruptcy attorney regarding whether filing for bankruptcy is a good strategy for you.
4. Deed in Lieu. A deed in lieu of foreclosure is exactly what it sounds like. The homeowner facing foreclosure signs the deed to the home back over to the bank -- voluntarily. This sounds like it would be a great option, but actually has the same impact on a homeowner's credit that foreclosure does. Lenders are very reluctant to agree to take a home back through a deed in lieu of foreclosure for a number of reasons: They fear the homeowner will sue later alleging they didn't understand what was happening, the lender must pay any second or third mortgages or home equity lines of credit (HELOCs) off before executing a deed in lieu, and the lender wants to be certain that the borrower's financial distress is real. Allowing the foreclosure process to proceed is one way the lender can be sure the borrower is not faking poverty.

   As such, a deed in lieu of foreclosure is virtually never granted unless: foreclosure is imminent; the owner has had their home on the market for several months and been unable to sell it; there are few or no junior loans or liens the lender will have to pay off; the seller can document their financial hardship; and the seller initiates the process and documents the voluntary nature of their request for a deed in lieu. Even when all these factors are present, many lenders will not agree to a deed in lieu, but it is worth a try!

5. Assumption/Lease-Option. Most loans these days are no longer assumable. The average mortgage now contains a "due on sale" clause by which the borrower agrees to pay the loan off entirely if and when they transfer the property. However, if you are facing foreclosure, you might be able to persuade your lender to modify your loan, delete this clause and allow another buyer to assume your loan. The lender may want to assess the new buyer's qualifications, but it can be a win-win-win option for all. You might be able to negotiate a down payment from the buyer which you can use to pay off your outstanding past due mortgage balance.

   In a lease-option scenario, the buyer becomes your tenant, and you continue owning the property until the buyer has saved enough down payment money, improved their credit sufficiently or sold their other home. In some situations, the buyer will make a one-time, lump option payment upfront, paying you to obtain the option to purchase your home. You can apply the option payment to bringing your mortgage current. Then, the buyer will make lease payments monthly which you, the seller, then apply to your mortgage. To successfully use a lease-option to stop the foreclosure process, you must negotiate lease payments that cover most or all of your mortgage payment, property tax and insurance obligations -- enough that you can make up any difference and still pay to live somewhere else.

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How to Deal With Your Lender When Facing Foreclosure

Why would an impersonal institution -- a mortgage bank -- want to compromise with a homeowner who is behind on his payments? Well, some banks have more of a "compassionate personality" than others, but the bottom line is that it costs a bank up to $80,000 to foreclose on a home!

What Is a Workout?

A workout is a compromise between a lender and a homeowner who is in default on her loan or anticipates that she will soon default. A workout may involve temporarily or permanently modifying the terms of the loan to make the mortgage more affordable or the default more "fixable" to the borrower.

What Workout Alternatives Are Available to a Homeowner?

Lenders are amenable to all sorts of workout arrangements that can help a homeowner get back on track. Mortgage lenders can agree to:

• "Fix" or keep constant an interest rate or payment that is about to start adjusting.
• Lengthen an introductory "teaser" interest rate or payment.
• Grant a temporary forbearance that allows the borrower to stop making payments for up to six months.
• Defer some payments to the end of the loan, adding several months to the loan term.
• Add a large lump sum of back mortgage payments owed by a buyer into the total loan balance, so it can be paid in small installments over the entire life of the loan.
• Modify the length or interest rate of the mortgage loan, reducing the monthly payment amount. Read more about loan modifications.
• Waive legal fees and penalties that a buyer has incurred.
• Allow the owner to sell the home for less than is owed on it, effectively forgiving part of the mortgage balance.
• Allow the owner to transfer the home to a buyer who assumes the mortgage, even if the mortgage was nonassumable.
• Agree to take a deed in lieu of foreclosure, which lets the owner voluntarily give the property back to the lender, rather than going through the entire foreclosure process.

How Can You Max Out Your Chances of Working It Out?

1. Explain your financial hardship and why it is/was temporary.
   If you lost a job, explain why and give details as to why you believe you will be re-employed soon. If your mortgage rate and payment are adjusting, explain that and show that you made your payments on time consistently before the adjustment.
2. Demonstrate that you have tried to improve your situation.
   Provide proof that you have been job hunting, have reduced your monthly expenses or have taken on a second job or a roommate to boost your monthly income.
3. Make a specific proposal or specific alternative proposals.
   Ask for what you want in verbal and written requests. Call your lender and speak to a representative in the workout or loss mitigation department. Have a discussion with him of what you are considering requesting, then get his name and fax number and issue your request(s) in writing. For example, if you currently have a 15-year fully adjustable mortgage with a current 7.25 percent interest rate for a monthly payment of $2,500, you might request that the lender extend the term of your loan to 30 years, change the interest rate from adjustable to fixed, and drop the rate to 6.75 percent for a monthly payment of $1,900. Consider providing several alternatives which would work for you if the lender cannot or will not agree to your first proposal.
4. Demonstrate that you are financially able to keep your end of the bargain.
   In the former example, show that you now have or soon will have the income required to make the payment you are requesting.
5. Make your request ASAP.
   As soon as you believe you might be in financial trouble and unable to make your payments, call your lender! While it's true that some lenders will want to see you deplete your savings before they buy your hardship story, many prefer to do workouts with people who haven't yet fallen behind; they believe responsible borrowers are more likely to live up to their end of the workout bargain.
6. Make a show of good faith.
   If you are significantly behind on your mortgage, you might need to beg, borrow or steal (well, don't really steal!) to come up with some lump sum as a show of your good faith and commitment to keeping your home. Try to negotiate some payment greater than a month's mortgage payment, but less than the total amount you are behind as your "down payment" on your workout arrangement. Then, pay it -- exactly when you say you will. If you are late making this payment, your lender will lose all confidence that you will comply with the terms of the workout.

While a mortgage workout is less physical than your gym workout, it can be equally advantageous to your lifestyle. So stack the decks in your favor before you make that call, and good luck!

Tara's Tip: When negotiating a workout with your lender and before you agree to any compromise, ask the representative: "How will this appear on my credit report?" Understand the credit implications of your compromise before you agree to it. If the compromise will be reported as a derogatory item, try to negotiate the manner in which your lender will report the arrangement to the credit bureaus. Your goal is to have it reported as "Pays as Agreed," but if you don't get the lender's agreement to do that before you agree to the compromise, you never will.

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7 Steps to Avoid Foreclosure

If you have missed fewer than three mortgage payments or are anticipating that you might have to miss them in a month or so because of life circumstances, put your smarts in action and implement this simple plan to avoid foreclosure. Don't confuse simple with easy; avoiding foreclosure can take time, patience, money and effort, but if you save your home, it could be worth it!

If you have missed more than three mortgage payments and/or your lender has instituted formal foreclosure proceedings, all is not lost.

Step One: Cultivate Clarity

Before you make the massive commitment of time, money and energy it might take to avoid foreclosure, make sure that saving your home is going to be worth it. If, for instance, you have extra mortgages and home equity lines of credit (HELOCs) on your home, it may not make sense for you to restructure that debt so that you still have a $500,000 mortgage on a home that is worth $300,000.

Step Two: Conquer the Fear

For many people, the prospect of being unable to make their mortgage payment paralyzes them with fear and anxiety. They stop opening the mail, start avoiding phone calls and procrastinate on paying the bills. The fastest way to feel relief if you are falling behind on your mortgage is to do something about it. Whether you gather your bill statements, apply for a new job or call your lender to explain your situation, moving into action will prevent you from waking up to find a Notice of Trustee Sale posted on your front door. By the time that happens, there is not much you can do to save your home.

Step Three: Increase Your Cash Flow

This may seem like a no-brainer, but it is sound advice. Consider doing some freelance work, getting a second job or taking in a roommate. Evaluate what you don't use and don't need; you wouldn't believe the numbers of people who have spare automobiles, computers and other valuables they can sell. Slash unnecessary expenses; cable TV, massages and dining out must go. Cutting expenses will show your lender you are willing to make sacrifices, boosting the chances they will work out a compromise with you.

Step Four: Call Your Lender to Try to Work It Out

If you make a thorough, persuasive and specific request for a temporary or permanent loan modification, your lender might agree to help you.

Step Five: Try to Refinance

If your mortgage balance is near or less than what your home is worth on today's market, you might be able to refinance your home, get a lower interest rate, lower your monthly payment, skip a payment or two, or even receive some cash at the time you close the refinance transaction. Work with a reputable mortgage broker and try contacting a mortgage representative at your current lender; some lenders will do more to get you into a new loan with them than they will to modify your current loan.

Some nonprofit, alternative and governmental lenders now offer to refinance mortgages of homeowners in distress. For example, the Neighborhood Assistance Corporation of America offers a Home Save refinance mortgage with interest rates far below market averages. The Federal Housing Administration (FHA) has also set aside billions for the purpose of refinancing the loans of borrowers who have fallen behind on their mortgages.

Step Six: Put Your Home on the Market Immediately

If it looks like you will not be able to work out a solution with your lender or refinance your home, you should put it up for sale -- immediately. Find a real estate agent who has successfully represented other homeowners you know and who has a track record of getting homes sold quickly. The faster you get your home sold, the less damage will be done to your credit and your psyche!

Step Seven: Bonus Step for Seniors

If you are over 62, you might have additional options. Consider reverse mortgages and advances on your future appreciation, which unlock the equity in your home. These programs all have serious implications, so consult your children, your financial adviser, your CPA and your estate planner before you agree to anything.

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The Stages and Phases of the Foreclosure Process

Foreclosure is the sequence of legal proceedings by which a lender sells or repossesses a home when the homeowner has stopped making payments on the mortgage. As a homeowner, understanding the individual steps of the sequence is critical to understanding your rights and responsibilities along the way.

These days, very few states require the lender to take the homeowner to court to foreclose on the home. The process in most states is known as nonjudicial foreclosure.

Stage One: Missed Payments

In most states, a homeowner must fall 90 days behind on their mortgage before the mortgage lender can legally initiate the foreclosure process. So if you have missed fewer than three payments, you're not actually in foreclosure. However, this phase is very important, because (a) you have to go through it before the foreclosure process can start, and (b) this is the phase in which you as a homeowner have the most options at your disposal.

If you are in the missed payment stage, this is the best time to rework your finances, to call your lender to work out a compromise, and to put your home on the market for a fast sale.

Stage Two: Pre-Foreclosure

Once a homeowner's mortgage payments have not been made for at least 90 days, the lender records a public notice that the owner has defaulted on their mortgage, and then mails the notice to the homeowner. In some states this notice is called a Notice of Default (NOD); in others, it is a Lis Pendens. Depending on the law in your state, the lender might be required to post the notice on your front door.

This pre-foreclosure stage is really a grace period; it gives a homeowner three calendar months to "cure" your default. What's the cure? You can either work out an arrangement with the lender, sell the place or come up with the cash you owe.

Stage Three: Auction

If the default is not cured within three months after the Notice of Default is issued, the lender or their representative (the foreclosure trustee) sets a date for the home to be sold at an auction called a Trustee Sale. The Notice of Trustee Sale is recorded with the County Recorder's Office, delivered to the homeowner, posted on the door of the property and published in a local newspaper -- to make sure everyone knows when and where the auction will be.

This auction is either held on the steps of the county courthouse or in the trustee's office. In many states, the homeowner has the "right to redemption" (he can come up with the outstanding cash and stop the foreclosure process) up to the moment the home is sold at the auction.

At the auction, the home is sold to the highest bidder. The big catch is that these auctions require cash payment in most states; few third-party buyers can afford to bring enough cash to the courthouse to pay in full. As a result, many lenders either simply ink an agreement with the homeowner to take the property back (called a deed-in-lieu of foreclosure) or buy it back themselves at the auction.

Stage Four: Post-Foreclosure

If a third party has not purchased the property at the foreclosure auction, the lender takes ownership of it. Then, the property becomes what is called a bank-owned property, also known as REO, short for Real Estate Owned (by lender).

REOs are sold in one of two ways. Most often, they are listed with a local real estate agent for sale on the open market; they are usually put on the multiple listing service (MLS) so that local buyers' agents can show and sell the property to a qualified buyer for a commission. Some lenders prefer to sell their REO properties at an REO liquidation auction, often held in auction houses, at convention centers or at the property.

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Top 10 Things You Need to Know About Foreclosure

No one wants to hear the F word, but in today's market, everyone is talking about it. What exactly is foreclosure and how does it affect you? We break down what you need to know about the process.

1. Foreclosure is a process, not a thing.
   People often misuse the term "foreclosure." Foreclosure is a series of events, not a state of being. Lenders don't foreclose on homeowners; they foreclosure on property.
   Foreclosure defined
   
   
2. The foreclosure process has four phases. The terms and length of each phase vary by state.
   Homeowners: Your rights and options vary depending on the stage your home is in and the state you live in. Know what laws apply to you. Buyers: The stage and state will determine the strategy you use.
   Stages of foreclosure process
   
   
3. A difficult financial situation doesn't have to lead to foreclosure.
   There are several steps you can take to avoid foreclosure if your loan is about to adjust, you lose your job, or otherwise anticipate that you might miss mortgage payments.
   7 Steps to avoid foreclosure
   
   
4. The mortgage lender is not eager to take your house away.
   Lenders are not in the business of managing real estate, so they would rather work with homeowners to keep them in the house. And with the growing number of defaults across the country, your lender may be more open to cutting a deal.
   How to deal with your lender when facing foreclosure
   
   
5. You can sell your home immediately when foreclosure is looming.
   Even if you live in a tough market, being aggressive and keeping your home in good condition can help you get a speedy sale.
   Selling your house fast when foreclosure looms
   
   
6. All is not lost once you get a notice of default.
   If you've missed more than three mortgage payments, you still have some alternatives for stopping the foreclosure process.
   5 Ways to stop foreclosure process
   
   
7. A short sale is better than going through foreclosure.
   Lenders don't typically forgive mortgages, but in a market with lots of inventory, they would rather see the house sold for less than the mortgage, than deal with trying to sell it themselves.
   Understanding short sales
   
   
8. Foreclosure has major legal, tax and credit consequences.
   Foreclosure will heavily impact your ability to borrow money in the future, so make sure you've exhausted all other options first.
   How foreclosure affects your future
   
   
9. Buying a foreclosure property doesn't always mean you'll get a bargain.
   Finding a turnkey property in the foreclosure market is rare. Oftentimes, the home will need some renovation. Crunch the numbers first to make sure you really are getting a deal.
   Advantages and disadvantages of buying a foreclosure
   
   
10. Understanding your mortgage can help you avoid foreclosure.
    Many homeowners who end up in foreclosure say they were unaware of some crucial pieces of information about their mortgage. Read all the loan documents, ask questions, and consult with an attorney if you can.
    What to know about your mortgage to avoid foreclosure
    

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Foreclosure Defined

Foreclosure is not the most cheerful thing to think about, but it is an element of reality every homeowner should be aware of and comprehend fully.

We fear what we don't understand. The concept of "foreclosure" is frequently misunderstood and frequently feared. Understanding the concept of foreclosure with precision maximizes your ability to take action to improve your situation!

What Is Foreclosure?

• A legal proceeding which culminates in a mortgage lender selling or repossessing the home of a borrower who stopped making mortgage payments.
  
  
• A series of events that begins when a homeowner defaults -- or stops making mortgage payments -- usually because of a life crisis which impacted their income (examples: death, disability, divorce, etc.) or because their loan payments increased beyond their ability to pay them (example: when an adjustable rate mortgage begins to adjust). The series of events ends when the mortgage holder sells the home at auction, or takes the home back from the owner.
  
  
• HOMEOWNERS: Foreclosure starts when you are at least 90 days behind on your mortgage payment. Then, the foreclosure process is represented by a series of notices you get in the mail and even posted on your front door over a 4-6 month period of time telling you that you have two options: (1) either bring your past due mortgage current or come to some compromise with the lender, or (2) your home will be sold and you will have to move out. At the end of these notices is usually an auction, where the lender sells your home on the steps of the county courthouse or simply takes ownership of it, and you move out.

  Your options, rights and responsibilities change depending on what phase or stage of the foreclosure proceeding your home is in at any given moment.

• HOMEBUYERS: Foreclosure is a series of phases of "distressed" property ownership. During your house hunt, you might run into properties whose current ownership status is all over this continuum. Each place on the spectrum presents a different set of considerations -- legally, logistically and from a bargaining perspective -- impacting how desirable (or not) a property might be to you, as a buyer.

Bottom Line: When you buy a home using mortgage money, your promise to repay the mortgage loan is secured by the home itself. If you stop paying your mortgage for more than a 90-day period of time, the mortgage lender will set the legal wheels in motion to take the home back. Those legal wheels are, collectively, called "foreclosure."

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How to Sell Your House Fast When Foreclosure Looms

When foreclosure looms, many homeowners try to sell their homes. For them, the goal is not just to get the home sold, but to do it quickly. Foreclosure rates are the highest in buyer's markets, when homes take a longer than average time to sell. What's a homeowner to do? Get aggressive, and get your home sold fast!As a seller, you control the only three factors that influence whether your home sells quickly: pricing, marketing and condition. Here are some easy steps and insider secrets to make your home fly off the market in record time!

Pricing Your House

1. Don't try to salvage equity that does not exist. The fact that you bought your home for thousands more than homes are currently selling for in your neighborhood is irrelevant to the current fair market value of your home. You have to get clear on your goal: Are you trying to eke dollars out of your home by holding out for the highest price, or are you trying to avoid the seven-year black mark that a foreclosure will leave on your credit report?
2. Don't overprice your home. Get clear about what you want. If you'd like to get your home sold, make sure you price it aggressively and that means low. If your home is overpriced, some buyers won't even see it because it will appear to be out of their price range. Other buyers will focus on seeing properties whose sellers seem more realistic about pricing. Your house will sit on the market longer than it should and then the lowballers will crawl out of the woodwork.
3. Get real about what your home is worth. Have your real estate agent prepare a Comparative Market Analysis (CMA) that shows recently sold, similar homes in your neighborhood. If you're serious about getting it sold fast, take the sales prices (not the list prices) from the most recently sold homes in your area, and then go down 10 percent or so from there to get your list price. When a home is slightly underpriced, it seems like a bargain. More buyers will come out to see it, and chances of getting a qualified offer skyrocket.
4. Make sure you have an accurate understanding of how low you can go. A buyer is not going to pay a premium price for your home just because that's what you owe. If you owe more than your home is worth, give your lender a ring, complete a short sale application and ask your lender to give you some indication of how low a sale price they will accept. Conform your list price to that (don't forget to take closing costs into account); a short sale blemishes your credit but not as badly as a foreclosure does!

Marketing Your House

1. Make sure your home is well-marketed on the Internet. This is your real estate agent's responsibility, but you should make sure that it gets done. More than 80 percent of house hunters start their home search on the Web. So your listing should be on all of the top real estate listing sites like FrontDoor.com, Yahoo, Craigslist and Realtor.com. Internet marketing is virtually free; if your real estate agent posts your home on five sites, it costs you nothing but time to post it on 10 more. Some sites will actually syndicate your virtual flier to dozens of other sites.
2. There is no such thing as too many pictures. Property listings that have no pictures are skipped over by the majority of buyers. The more photos of your home are associated with the listing, the longer time buyers will spend looking, and they will be more likely to come see your home.
3. Condition, condition, condition. Clean it up, spruce it up, fix it up, but don't spend too much. If you are facing foreclosure you probably can't afford the time or the money it would take to do major work. Focus on the things that are inexpensive, but make a major cosmetic difference, like paint and carpet. Have your real estate agent refer you to a handyman who can caulk cracks in the tile, fix minor leaks, and patch scrapes and holes in the walls. These things are cheap to fix and make a negative impression if you don't fix them. Make sure your place is immaculate every time a buyer steps inside. Piles, messes and odors are extremely distracting to buyers and can even cost you a sale.
4. Offer creative concessions and/or financing perks. Some house hunters who want to buy your house might have a hard time doing so. Help them out! Offer such concessions as assuming your mortgage (with the lender's consent), a lease with option to buy, or closing cost credits that will help the buyer defray closing costs or buy down the interest rate.

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