Purchasing a home is a stressful experience, both because it’s a huge monetary investment and because the buying process can be complicated and confusing. Buyers must be well-informed and have a good understanding of a property’s underlying value before making a decision to purchase. Once buyers select a residence that meets their personal and financial criteria, it is important to remain diligent until the property closes. Buyers should not let the home of their dreams escape over minor differences during the buying and negotiating processes. Here are some of the minor roadblocks you should recognize to keep them from ruining your dream-home purchase.

Aesthetics

Prospective buyers should not let minor aesthetic differences hinder their big-picture view of their dream house. If appliances or the decorative theme are not up to your expectations, keep in mind that most of these things can be easily modified. Instead of focusing on the way the home’s interior is decorated, check for overall structural soundness and try to focus on potential. How do you do this? A good strategy is to secure a licensed home inspector prior to closing on your deal. The inspector will provide a detailed analysis and cost breakdown on actual required repairs. Depending upon which state you reside in, the home inspection can be part of the actual contract. The home inspector will assess every aspect of the home’s interior and exterior. The inspection findings may be used as legal leverage in the homebuying process. If the cost of repairs exceeds a preset dollar amount, the contract can be revoked if that is explicitly stated in your contract. For example, if the home inspection requires $8,000 worth of repairs for “structural soundness,” but your contract states that you will not purchase the home unless repairs are below $1,000, you have legal recourse for getting out of the deal. Typically, you are responsible for the nonrefundable cost of the inspection, but most people are willing to incur that cost in order to save thousands of dollars down the road. The idea here is to focus more on the integrity of the home itself as a first step rather than your distaste for the current interior design or décor.

Sweat equity

Buyers should not get discouraged if a potential dream home requires some old-fashioned manual labor to get it up to their standards. Real-estate professionals refer to this as sweat equity: a time investment by the buyer to clean, redo and repair the property once the purchase is complete. Rarely are homes purchased that require no effort on your part. New construction is perhaps an exception, but a poor real-estate market can be littered with short sales and foreclosures, many of which are neglected, vacant properties. Also, many purchases are older properties with excellent construction characteristics that need some elbow grease. Similar to the aesthetic differences mentioned above, taking advantage of resources such as a licensed real-estate agent or family and friends is a good first step. Agents are likely to point out things that can be accomplished by the typical homebuyer versus those things that would be better served with professional assistance or advice.

Financial differences of $5,000

Although $5,000 is not a trivial amount of money, it’s an amount that should not interfere with purchasing your dream home. You and your real-estate agent have done your due diligence and research and put together a market analysis of the property you are interested in. You have done your part to minimize your price risk, but now that it’s time to make a deal, there is not an agreed-upon price. So, where can you find anywhere between $5,000 and $10,000 to make your transaction successful? Look into government incentives for homebuyers. Such incentives may be used for down-payment assistance, which could essentially cover your price difference. Check with your mortgage broker and get a quote on how much a buydown of one point would cost. It will likely not be enough to cover a $5,000 to $10,000 deficit immediately, but over a 30-year period will save thousands of dollars. Remember that purchasing a home is a long-term investment. Remain patient and diligent and don’t let minor repairs or a squabble over a small price difference ruin your experience.

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A new federal program, Home Affordable Foreclosure Alternatives, encourages banks to accept short sales by offering them financial incentives to do so. It offers sellers incentives, too.

Homeowners win because:

• They won’t get stuck with a deficiency judgment. Under the program, homeowners are released from all obligations.

• They can receive $3,000 in relocation expenses.

• They can’t be charged any fees to participate.

Creditors win, too, because they don’t inherit a vacant home to maintain. As big as the losses in short sales can be, the losses from foreclosure can be even bigger — by some estimates, as much as 60% of what’s owed on the mortgage.

Secondary lenders, who often stand to get nothing in foreclosures, can receive up to $6,000.

You may qualify for the foreclosure-alternatives program if:

• You have tried unsuccessfully to get a mortgage modification through the Home Affordable Modification Program.

• The property is your principal residence.

• You got your first mortgage loan before Jan.1, 2009.

• You are behind on your mortgage or will be in the foreseeable future.

• You owe no more than $729,750.

• Your total monthly mortgage payment is more than 31% of your income before taxes.

The foreclosure-alternatives program is set to expire Dec. 31, 2012. Some critics predict that it will be as disappointing as the loan-modification program, which was launched in March 2009. Out of millions of distressed homeowners, just 170,000 had received permanent modifications as of the end of February, according to the Department of the Treasury and HUD. (Many more modifications are being offered or are in the trial phases.) The median decline in monthly mortgage payment was about $500.

Will the new program be any better?

“It’s half right,” says Mary Tootikian, the author of “Stunned in America: Sub-Crime Mortgage Crisis.” “The intent of it is good.”

She worries, however, that the new program’s application process will allow lenders to find out borrowers’ incomes and assets. “After they go through this fact-finding mission and they find out you have assets to go after, they don’t have to let you do a short sale,” she says.

Arian-Pace, the Florida attorney, is more optimistic. “The frustration of short sales is the timing of it all, getting banks to approve it,” she says. “You often lose the buyer in the process. I’m hoping it’s a step in the right direction. Really, it’s going to come down to how the banks implement it.”

Read entire article at: http://articles.moneycentral.msn.com/Banking/HomeFinancing/short-sales-are-the-new-foreclosure.aspx?page=2

Many lenders negotiate prices for short-sales, in which the seller is offering the home for less than is owed on the mortgage. But traditionally the only way you could find out was to submit a below-list offer and wait—often for many months—for a response. If the bank made a counter-offer, you knew you were in the ballpark; if they didn’t respond at all, you were too low. By then, you may have lost all interest in buying the property. The good news is, on April 5, this frustrating system will change at least for some buyers and sellers. That’s when the federal government will begin to provide financial incentives to lenders to do more short sales. The rules also help standardize the process, so your chances of negotiating a distressed-property bargain will increase. Under the old practices, when a financially-distressed seller brought a potential buyer who was offering less than the amount owed on the loan, the bank would order an appraisal or broker’s price opinion (BPO) and then decide whether the offer was acceptable. Under the new federal rules, banks will order a BPO before the property is listed for sale, and will share information on the minimum net proceeds they’re willing to accept with the sellers. If they then bring in a buyer whose offer is equal to or greater than this pre-approved amount, the lender must accept it within 10 days.

Not all sellers are eligible for this program, called Home Affordable Foreclosure Alternatives (HAFA). But since the process is likely to go so much smoother for those who buy and sell under HAFA, I suggest you wait a bit until the program goes into effect and concentrate on finding these “pre-approved” deals. Of course, when you do find a property you like, you may not be the only person bidding on it. To improve your chances of winning, make sure your offer is “clean,” with as few contingencies as possible (though I would never forego a home inspection). Include tax and credit records, and a mortgage pre-approval letter. If you can afford to pay cash, that will put you in an even stronger bargaining position. Still, in your eagerness to win the property, don’t forget that distressed properties often come with added financial burdens. Although under HAFA, the seller is supposed to provide clear title, to protect yourself, your contract must make it clear that you will not be responsible for any of the seller’s unpaid property taxes, liens or second trusts. Also, cash-strapped homeowners often stop paying taxes and homeowners’ association fees during the time between when the house is listed and the deal is closed. To make sure that you’re not on the hook for these expenses, it is recommended that you ask that the bank escrow at least six months worth of taxes and HOA fees, to cover any potential shortfall.

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For all the homeowners who are upside down and can no longer make their mortgage payment (because of either a job loss, divorce, or an option ARM that’s resetting higher), up to now the only option was, well, letting the bank foreclose. That’s not a good option since a foreclosure sticks on your credit record for at least 10 years. But some experts are now advocating a “short sale.” This is a case of a distinction with a difference: If your bank agrees to a short sale, you then hire an agent to find a buyer for the house, you sell the house for a loss, and with the bank’s blessing, they agree to eat the loss.

That’s the really short version of how it works. The experts say you will need to find a real estate agent and you’ll also need to scale back your own spending. Putting expensive jewelry on your credit card will make a bank less inclined to do you any favors on the sale of your home.

Of course, the better option is to find some way to stay in the house—by first, seeing if the lender is willing to restructure the loan, or forgo a couple of monthly payments to help you get back on your feet. Apparently, more and more lenders are willing to make accommodations to avoid taking the property back. Banks hate to take over homes, especially in a declining market, so you shouldn’t underestimate the willingness of a bank to make concessions.

Read at: http://www.businessweek.com/the_thread/hotproperty/archives/2007/03/the_new_exit_st.html

Identify potential short sales: Locate pre-foreclosures in your area. You can use an online database, search courthouse listings and legal ads or use an experienced real-estate agent as a buyer’s agent. First, try to determine how much is owed on the house in relation to its approximate value. If it seems high, it’s a good candidate because it indicates the seller might have trouble selling it for enough to satisfy the loan. Pass on those in which the owner has a lot of equity in the home — the lender likely will prefer to foreclose and resell closer to the market price.

View the property: Gauge its condition and come up with a rough estimate of how much it’s going to take to repair or renovate. If it needs work, many “normal” buyers won’t consider it, which is good for you.

Do your research: What is the property worth? What’s the profit potential? If you’re an investor or even a homeowner planning to live in the home a short time, you’ll want to profit from the deal.

Find all liens and mortgages: Ask the seller or his agent what liens are on the property, and which lender is the primary lien holder.

Figure out the financing: This is critical. You have to know how you’re going to pay for the property. If you’re a good credit risk, the existing lender may be willing to give you a loan. Since it already has a lot of your information in the short-sale paperwork, it may be able to expedite the loan application process. It’s important to understand that in a short sale, you have to be able to move quickly. Once an agreement is worked out, it is common for the lender to require closing in as few as 45 days. This is too late to start shopping for a mortgage.

Negotiate: It’s not uncommon for the lender to reject your offer or to come back with a counteroffer. As with any real-estate transaction, you should figure out beforehand what your absolute highest limit is, and don’t be afraid to walk away if the lender won’t meet your figure.

Seal the deal: Once you’ve reached an agreement that all three parties — you, the seller and the lender — are OK with, get everything in writing and officially recorded. Make sure the seller understands all of the terms of the deal. Next comes the closing and the property is yours.

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