A group of fantastic Realtors!Counter clockwise from the top left: Jamie, Diane, Maria, Rob, Sharon (Owner), Kim and Barb.
Learn more about each of these agents at MLSinCharleston.com
Wednesday, May 28, 2008
Carolina Real Estate Connection
A group of fantastic Realtors!Counter clockwise from the top left: Jamie, Diane, Maria, Rob, Sharon (Owner), Kim and Barb.
Learn more about each of these agents at MLSinCharleston.com
Sunday, April 27, 2008
Basic Qualifying & PITI
A question many potential buyers have is "what can I afford to buy?" In the real estate industry this is referred to as "pre-qualifying" a buyer. You might think this is a complex process but in reality it is actually quite simple, involves only a little math, and you can did it yourself quickily. If your Realtor does not know how to pre-qualify you, that may be and indication that they need a little more experience and you may need to find better representation.
Before we get to the math there are a few terms you should understand. The first is PITI which is nothing more than an abbreviation for "principal, interest, taxes and insurance". This figure represents the MONTHLY cost of the mortgage payment of principal and interest plus the monthly cost of property taxes and homeowners insurance. Beware that sometimes printed payments are quoted with just the P&I. The second term is "RATIO". The ratio is a number that most banks use as an indicator of how much of a buyers monthly GROSS income they could afford to spend on PITI. Most banks use a ratio of 28% without considering any other debts (credit cards, car payments etc.). This ratio is sometimes referred to as the "front end ratio". When you take into consideration other monthly debt, a ratio of 36-40% is considered acceptable. This is referred to as the "back end ratio".
Now for the formulas:
The front-end ratio is calculated simply by dividing PITI by the gross monthly income. Back end ratio is calculated by dividing PITI+DEBT by the gross monthly income. Let see the formula in action: You wants to buy your house. You earn $50,000.00 per year. We need to know your gross MONTHLY income so we divide $50,000.00 by 12 and we get $4,166.66. If we know that you can safely afford 28% of this figure we multiply $4,166.66 X .28 to get $1,166.66. That's it! Now we know how much you can afford to pay per month for PITI. At this point we have half of the information we need to determine whether or not you can buy our house. Next we need to know just how much the PITI payment is going to be for your house.
We need four pieces of information to determine PITI:
1) Sales Price (For simplicity purpose our example is $100,000)
From the sales price we subtract the down payment to determine how much you need to borrow. This result brings us to another term you might run across. Loan to Value Ratio or LTV. Eg: Sale price $100,000 and down payment of 5% = LTV ration of 95%. Said another way, the loan is 95% of the value of the property.
2) Mortgage amount (principal + interest).
The mortgage amount is generally the sales price less the down payment. There are three factors in determining how much the P&I (principal & interest) portion of the payment will be. You need to know 1) loan amount; 2) interest rate; 3) Term of the loan in years. With these three figures you can find a mortgage payment calculator just about anywhere on the internet (ours will work great for you at www.MLSinCharleston.com ) to calculate the mortgage payment, but remember you still need to add in the monthly portion of annual property taxes and the monthly portion of hazard insurance (property insurance). For our example, with 5% down Fred would need to borrow $95,000.00. We will use an interest rate of 6% and a term of 30 years.
3) Annual taxes (Our example is $1,200.00)/12=$100.00 per month
Divide the annual taxes by 12 to come up with the monthly portion of the property taxes.
4) Annual hazard insurance (Our example is $600.00)/12=$50.00 per month
Divide the annual hazard insurance by 12 to come up with the monthly portion of the property insurance.
Now, let's put it all together. A mortgage of $95,000 at 6% for 30 years would produce a monthly P&I payment of $569.57 per month. This figure was produced by our payment calculator. Add in taxes of $100.00 per month and add in insurance of $50.00 per month and the PITI necessary to purchase our house equals $719.57. In the Charleston real estate market this would probaly get you a neat little 2 Bd townhouse in West Ashley or maybe an older small home in the north area.
Putting it all together
From our calculations above we know that you can afford PITI up to $1,166.66 per month. We know that the PITI needed to purchase our house is $719.57. With this information we now know that you easily qualify to purchase the $100,000 property!
Before we get to the math there are a few terms you should understand. The first is PITI which is nothing more than an abbreviation for "principal, interest, taxes and insurance". This figure represents the MONTHLY cost of the mortgage payment of principal and interest plus the monthly cost of property taxes and homeowners insurance. Beware that sometimes printed payments are quoted with just the P&I. The second term is "RATIO". The ratio is a number that most banks use as an indicator of how much of a buyers monthly GROSS income they could afford to spend on PITI. Most banks use a ratio of 28% without considering any other debts (credit cards, car payments etc.). This ratio is sometimes referred to as the "front end ratio". When you take into consideration other monthly debt, a ratio of 36-40% is considered acceptable. This is referred to as the "back end ratio".
Now for the formulas:
The front-end ratio is calculated simply by dividing PITI by the gross monthly income. Back end ratio is calculated by dividing PITI+DEBT by the gross monthly income. Let see the formula in action: You wants to buy your house. You earn $50,000.00 per year. We need to know your gross MONTHLY income so we divide $50,000.00 by 12 and we get $4,166.66. If we know that you can safely afford 28% of this figure we multiply $4,166.66 X .28 to get $1,166.66. That's it! Now we know how much you can afford to pay per month for PITI. At this point we have half of the information we need to determine whether or not you can buy our house. Next we need to know just how much the PITI payment is going to be for your house.
We need four pieces of information to determine PITI:
1) Sales Price (For simplicity purpose our example is $100,000)
From the sales price we subtract the down payment to determine how much you need to borrow. This result brings us to another term you might run across. Loan to Value Ratio or LTV. Eg: Sale price $100,000 and down payment of 5% = LTV ration of 95%. Said another way, the loan is 95% of the value of the property.
2) Mortgage amount (principal + interest).
The mortgage amount is generally the sales price less the down payment. There are three factors in determining how much the P&I (principal & interest) portion of the payment will be. You need to know 1) loan amount; 2) interest rate; 3) Term of the loan in years. With these three figures you can find a mortgage payment calculator just about anywhere on the internet (ours will work great for you at www.MLSinCharleston.com ) to calculate the mortgage payment, but remember you still need to add in the monthly portion of annual property taxes and the monthly portion of hazard insurance (property insurance). For our example, with 5% down Fred would need to borrow $95,000.00. We will use an interest rate of 6% and a term of 30 years.
3) Annual taxes (Our example is $1,200.00)/12=$100.00 per month
Divide the annual taxes by 12 to come up with the monthly portion of the property taxes.
4) Annual hazard insurance (Our example is $600.00)/12=$50.00 per month
Divide the annual hazard insurance by 12 to come up with the monthly portion of the property insurance.
Now, let's put it all together. A mortgage of $95,000 at 6% for 30 years would produce a monthly P&I payment of $569.57 per month. This figure was produced by our payment calculator. Add in taxes of $100.00 per month and add in insurance of $50.00 per month and the PITI necessary to purchase our house equals $719.57. In the Charleston real estate market this would probaly get you a neat little 2 Bd townhouse in West Ashley or maybe an older small home in the north area.
Putting it all together
From our calculations above we know that you can afford PITI up to $1,166.66 per month. We know that the PITI needed to purchase our house is $719.57. With this information we now know that you easily qualify to purchase the $100,000 property!
Thursday, April 24, 2008
Do Ewe Know Her?
This sheep was wandering down the street in front of our office at Carolina Real Estate Connection, which is located in West Ashley, a very suburban part of Charleston. We wondered, where could this sheep have come from? We brought her in our fenced backyard at our office and we let her graze on our lawn and she keeps our grass trimmed, so we were able to let our lawn guy go.
Friday, April 18, 2008
Bank Owned Properties
There has been a lot of talk and misinformation about bank owned properties lately. The so called sub prime mortgage crisis has spawed much of this speculation in forclosure properties. Bank owned properties or REOs are homes that have been foreclosed on by the lenders. These are homes that have not sold at the foreclosure auction, and are now owned by the bank. When a house is auctioned during foreclosure, the minimum bid price for the house usually includes the total loan payoff plus any accrued interest or fees.
After an unsuccessful foreclosure, the bank owned home ( REO ) is usually transferred to an asset servicing company that services the homes for lenders by managing the eviction process, get the home cleaned up, transferring utilities under their name. These asset management companies order what’s called a BPO (broker price opinion) to assess the fair market value of the bank owned home. Unlike popular myth, most lenders look to get the highest possible price from the sale of bank owned homes, Once a home is actually owned by the bank, the bank will not want to sell the home for half of its actual value. Banks or servicing companies most often use realtors to sell bank owned homes. The sale price on the home maybe somewhere around the broker price opinion price. We at Carolina Real Estate Connection get called to perform BPOS.
Most lenders prefer to sell bank owned homes in as-is condition. Therefore, it’s important that you have done all your due dilligance on the property before signing the dotted line.
An emerging trend in todays market is the portfolio sale. Due to the high number of unsuccessful foreclosures and bank owned homes, the lenders may offer a portfolio of several homes at a discount. The portfolio sells for millions of dollars, however investors may be able to buy at .50 to 60 cents to the dollar. When negotiating the price on a bank owned home, keep the following in mind; the better qualified you are to buy the house, the more negotiating power you have. I recommend using a realtor to negotiate on your behalf. The realtor may be able to look up comps in the market, and the procuring cost to the bank. This will allow you to offer an appropriate price to for the bank owned home.
Do get pre-approved for the loan before you make an offer the bank. If you are an all cash buyer, play the fast closing card. Offer to close in a week or 2. This may help you get a better discount on the bank owned home. Since most of the bank owned homes for sale are as-is sales, please ensure that you have read all the reports, and done your due dilligence. Beware: there are a lot of websites that will sell you the “how to books” to buy bank owned homes for pennies on the dollar. They may offer to sell you lists of REO companies or promise you the moon. My personal opinion: STAY AWAY FROM THEM. You can find these properties with your Realtor.
The quickest, surest and safest way to search for and buy bank owned homes, is by using the services of an experienced Realtor. Most of the Realtors will have access to bank owned homes that are currently listed for sale.
After an unsuccessful foreclosure, the bank owned home ( REO ) is usually transferred to an asset servicing company that services the homes for lenders by managing the eviction process, get the home cleaned up, transferring utilities under their name. These asset management companies order what’s called a BPO (broker price opinion) to assess the fair market value of the bank owned home. Unlike popular myth, most lenders look to get the highest possible price from the sale of bank owned homes, Once a home is actually owned by the bank, the bank will not want to sell the home for half of its actual value. Banks or servicing companies most often use realtors to sell bank owned homes. The sale price on the home maybe somewhere around the broker price opinion price. We at Carolina Real Estate Connection get called to perform BPOS.
Most lenders prefer to sell bank owned homes in as-is condition. Therefore, it’s important that you have done all your due dilligance on the property before signing the dotted line.
An emerging trend in todays market is the portfolio sale. Due to the high number of unsuccessful foreclosures and bank owned homes, the lenders may offer a portfolio of several homes at a discount. The portfolio sells for millions of dollars, however investors may be able to buy at .50 to 60 cents to the dollar. When negotiating the price on a bank owned home, keep the following in mind; the better qualified you are to buy the house, the more negotiating power you have. I recommend using a realtor to negotiate on your behalf. The realtor may be able to look up comps in the market, and the procuring cost to the bank. This will allow you to offer an appropriate price to for the bank owned home.
Do get pre-approved for the loan before you make an offer the bank. If you are an all cash buyer, play the fast closing card. Offer to close in a week or 2. This may help you get a better discount on the bank owned home. Since most of the bank owned homes for sale are as-is sales, please ensure that you have read all the reports, and done your due dilligence. Beware: there are a lot of websites that will sell you the “how to books” to buy bank owned homes for pennies on the dollar. They may offer to sell you lists of REO companies or promise you the moon. My personal opinion: STAY AWAY FROM THEM. You can find these properties with your Realtor.
The quickest, surest and safest way to search for and buy bank owned homes, is by using the services of an experienced Realtor. Most of the Realtors will have access to bank owned homes that are currently listed for sale.
Wednesday, April 16, 2008
New Tech...Listing...
Carolina Real Estate Connection has unveiling a state of the art home search engine at www.mlsincharleston.com website. This search has some fantastic features and the map search is a whole lot of fun if your into maps. You can click and drag your map anywhere in the region and the program will auto populate the view with all the active listings that meet the specifications that you have put in. You can choose to click between map, satalite, or hybrid views. If you choose to register, you can save searches and have updates and new listings sent to your email as they come available.
We took a pleasant drive into the country and listed a great piece of land out in Givahns. It is six acres with two perk and homesites. The sellers have the plans for the subdivide of the lot and they have preliminary approval. It is mostly cleared and is just off the pavement on Hillbranch Rd. The Edisto River boat ramp is just one mile away. It was a bluebird Sunday and we walked the property line of the site. Lots of big trees rim this piece of land and the back corner borders a farm. We were charged by a big happy sheep who followed us for awhile. I'm told he loves apples.
We took a pleasant drive into the country and listed a great piece of land out in Givahns. It is six acres with two perk and homesites. The sellers have the plans for the subdivide of the lot and they have preliminary approval. It is mostly cleared and is just off the pavement on Hillbranch Rd. The Edisto River boat ramp is just one mile away. It was a bluebird Sunday and we walked the property line of the site. Lots of big trees rim this piece of land and the back corner borders a farm. We were charged by a big happy sheep who followed us for awhile. I'm told he loves apples.
Saturday, April 5, 2008
Short Sales
With all the talk of a mortgage crissis has come talk of short sales. You may be wondering, what exactly is a short sale? Over the last several years a lot of buyers have bought homes, intending to live in them for many years, then something happened - maybe good, maybe bad, but regardless - they don't have a choice. Some owners have to move. When most homeowners move, they sell their house. Usually, that's not a problem. For some people nowadays, it is a problem.
Because of the easy financing, rampant speculation, flipping, and sometimes fraud, home values skyrocketed most everywhere. That came to an end recently and values plummeted in some areas. Even when values are stable, sometimes there just isn't enough money in the property to pay off the mortgage, then pay all the selling costs and moving costs. What happens then. Default, sometimes bankruptcy, and maybe even foreclosure. Or a short sale.
A short sale is when the lender agrees to accept a mortgage payoff that doesn't cover the outstanding loan. Why do lenders accept short sales? Lenders almost always lose money when they foreclose on property. In many cases, they will lose less money through a short sale than they would by foreclosing on the home and selling it as a bank-owned property.
However, there are rules. The borrower must experience a genuine financial hardship. If this fits, call the lender. Talk to customer service or the collection department and let them know what is going on. That way, knowledge of your hardship is communicated to the lender and becomes a part of their files. Keep your own communication log. Eventually, you will have to document the hardship and your inability to deal with it financially by disclosing all your assets. Bank statements, stocks, bonds, tax returns, pay stubs -- the lender will want to see everything that may document that you are not hiding assets or income. The lender will not make a commitment based solely on your hardship. You're also going to have to put your home on the market and sell it.
Once you sell the property, you have to supply additional documentation. When the property is listed, your real estate agent prepares a comparative market analysis. You're going to need that and you will need to supply a copy to the lender, along with your hardship letter, the documents mentioned above, a copy of the purchase agreement, and a "net sheet" showing how much you will net (or lose) from the sale of the home. It may be that you actually want your real estate agent or some other professional to negotiate with your lender. If so, you need to prepare an authorization letter. That letter includes your name, property address, loan number, your representative's name, the date and your notarized signature. Your agent will know almost all of this and have the proper format. Then your agent submits it all to your lender and...you wait. Normally, your lender can't make the decision to accept a short sale on their own. If there is mortgage insurance, they get a say-so. Your mortgage has an investor. The investor gets a say-so.
If the deal "makes sense", they believe your hardship is genuine, and you do not own any other property -- you may get a "yes" decision. Your chances go up markedly if you have someone experienced negotiating for you. Oh yes. If your lender does forgive part of your debt, there is something you should also know. Debt forgiveness is taxable income. The IRS will require you to pay taxes on that income.
Because of the easy financing, rampant speculation, flipping, and sometimes fraud, home values skyrocketed most everywhere. That came to an end recently and values plummeted in some areas. Even when values are stable, sometimes there just isn't enough money in the property to pay off the mortgage, then pay all the selling costs and moving costs. What happens then. Default, sometimes bankruptcy, and maybe even foreclosure. Or a short sale.
A short sale is when the lender agrees to accept a mortgage payoff that doesn't cover the outstanding loan. Why do lenders accept short sales? Lenders almost always lose money when they foreclose on property. In many cases, they will lose less money through a short sale than they would by foreclosing on the home and selling it as a bank-owned property.
However, there are rules. The borrower must experience a genuine financial hardship. If this fits, call the lender. Talk to customer service or the collection department and let them know what is going on. That way, knowledge of your hardship is communicated to the lender and becomes a part of their files. Keep your own communication log. Eventually, you will have to document the hardship and your inability to deal with it financially by disclosing all your assets. Bank statements, stocks, bonds, tax returns, pay stubs -- the lender will want to see everything that may document that you are not hiding assets or income. The lender will not make a commitment based solely on your hardship. You're also going to have to put your home on the market and sell it.
Once you sell the property, you have to supply additional documentation. When the property is listed, your real estate agent prepares a comparative market analysis. You're going to need that and you will need to supply a copy to the lender, along with your hardship letter, the documents mentioned above, a copy of the purchase agreement, and a "net sheet" showing how much you will net (or lose) from the sale of the home. It may be that you actually want your real estate agent or some other professional to negotiate with your lender. If so, you need to prepare an authorization letter. That letter includes your name, property address, loan number, your representative's name, the date and your notarized signature. Your agent will know almost all of this and have the proper format. Then your agent submits it all to your lender and...you wait. Normally, your lender can't make the decision to accept a short sale on their own. If there is mortgage insurance, they get a say-so. Your mortgage has an investor. The investor gets a say-so.
If the deal "makes sense", they believe your hardship is genuine, and you do not own any other property -- you may get a "yes" decision. Your chances go up markedly if you have someone experienced negotiating for you. Oh yes. If your lender does forgive part of your debt, there is something you should also know. Debt forgiveness is taxable income. The IRS will require you to pay taxes on that income.
Monday, March 24, 2008
The Art of the Deal
Negotiation is one of the oldest tools of business. Since cavemen first traded meat for fire or some other necessity of life, negotiation has been the basis of trade. Of course, the art of negotiation has evolved dramatically over the years but the basis is still the same; trying to get the best deal. This subtle art has declined somewhat in recent years as society becomes more and more commercialized, but the practice is still healthy in large money deals where there is some room for an artist to work.
Home sales is one area where the spirit of negotiation is alive and well and today's Realtors have to be experts in the field in order to satisfy their clients who are expecting more and more from their homes than ever before. In buying a home, the home buyer and seller are locked into an intense negotiation and the onus falls to the Realtors involved to make this negotiation happen in a manner that is agreeable to both parties. This is not something that can be learned in a school, it is a skill that develops over time with much practice. Being a good negotiator is something that is of huge importance to a Realtor, it is their bread and butter. So do yourself a favor and find yourself a Realtor who knows their negotiation.
I find it funny when I hear people referring to realtors as "sharks" or some other similar moniker. The reality of the situation is that what they are referring to is the negotiating skills that that particular realtor has and the fact that they have needed to develop that skill to meet the rising demands of their clientele. Would you rather a Realtor with the heart of a "minnow" negotiate your deal? Call me a "Shark", I'll wear that badge proudly! In fact usually the people that are making the reference are the same people that will want the best deal possible when buying or selling a home themselves. The skill of negotiation is something that not every Realtor possesses, but when you find one that does; you can be assured that you will get the best possible deal when involved in a real estate transaction. After all, getting YOU the best deal possible is their job, isn't it?
Home sales is one area where the spirit of negotiation is alive and well and today's Realtors have to be experts in the field in order to satisfy their clients who are expecting more and more from their homes than ever before. In buying a home, the home buyer and seller are locked into an intense negotiation and the onus falls to the Realtors involved to make this negotiation happen in a manner that is agreeable to both parties. This is not something that can be learned in a school, it is a skill that develops over time with much practice. Being a good negotiator is something that is of huge importance to a Realtor, it is their bread and butter. So do yourself a favor and find yourself a Realtor who knows their negotiation.
I find it funny when I hear people referring to realtors as "sharks" or some other similar moniker. The reality of the situation is that what they are referring to is the negotiating skills that that particular realtor has and the fact that they have needed to develop that skill to meet the rising demands of their clientele. Would you rather a Realtor with the heart of a "minnow" negotiate your deal? Call me a "Shark", I'll wear that badge proudly! In fact usually the people that are making the reference are the same people that will want the best deal possible when buying or selling a home themselves. The skill of negotiation is something that not every Realtor possesses, but when you find one that does; you can be assured that you will get the best possible deal when involved in a real estate transaction. After all, getting YOU the best deal possible is their job, isn't it?
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