Rolling Your Closing Costs Into the Mortgage

Reader Question: How can I include closing costs in the price of the house?

In the current buyer's market, it is possible to ask the sellers to pay your portion of the closing costs. Given the current status of our economy, many homes are on the market for far longer than the seller anticipated, and many sellers are in no position to wait for a full-price offer with no conditions.

Talk to your real estate professional about including that in your purchase offer. He our she can advise you as to whether or not it makes sense in your particular situation. However, if you are not able to get the closing costs paid as part of your purchase offer, you can speak to your mortgage company about rolling the closing costs into the amount financed to purchase the home.

There are many variables in this scenario, such as how much your down payment is and the percentage of the sales price being financed. In the most recent real estate "boom," many buyers were not able to come up with any money down and did not have money to cover the closing costs. Lenders were willing to finance over 100% of the purchase price of the home, which allowed the buyer to finance the closing costs as part of their monthly mortgage.

But as we all know, times have changed and credit criteria have tightened. So your best bet in this scenario would be to discuss the matter with your mortgage lender.

Debt to Income Ratio for Mortgage Qualification

Reader Question: What is the highest debt to income ratio that most mortgage underwriters will consider?

Let me start with some basic definitions for those who aren't familiar with this subject. As you might have guessed, your debt-to-income ratio (or DTI) is a comparison between the amount of debt you have and your gross annual income. It is typically expressed as a percentage.

For example, if your gross income is $200,000 per year, and you pay $25,000 per year toward your debt, then your debt-to-income ratio is just over 12 percent. That's the percentage of your gross income that goes toward your debt each year ... more or less.

A mortgage underwriter is the person who reviews the applicant's financial situation to give an approval or disapproval for the loan. In other words, the underwriter determines the level of risk involved with making a loan to a person, based on that person's credit score, financial history, debt-to-income ratio and other factors.

With those definitions out of the way, let's address the question at hand. Traditionally (and in this context, "traditionally" means prior to the current economic crisis), mortgage lenders and underwriters preferred to see a debt-to-income ratio of 25 - 30 percent or lower. That was a general rule of thumb that applied in most cases.

And then came the subprime loan crisis, which soon devolved into the full-blown economic crisis we have now. As a result of this mess, mortgage lenders have basically shifted all of their lending criteria upward. Home buyers today need better credit scores to qualify for mortgages than they did a few years ago. And the debt-to-income ratio is scrutinized more closely as well, but it's only one piece of the larger puzzle.

With that being said, there is no "cut off" that I can offer you. I can only say what the rule of thumb was in the past, and that things are tougher all around these days. The preferred DTI will vary from one lender to the next.

On top of that, many lending institutions -- the ones who haven't collapsed already -- are scurrying around in "self preservation" mode at the moment. So their lending practices and their underwriting criteria are in a state of flux. The debt-to-income limits they had a year ago may be different today.

The only way to find out whether or not a lender will qualify you is to apply for the loan. You can start application the process through LendingTree by using the "Find a Mortgage Loan" link in the upper-right menu area. It's an easy way to get offers from up to four lenders.

Buying a Home With Credit Score Less Than 600

Reader Question: How could I buy a home with a credit score less than 600?

Somebody asked a very similar question about two weeks ago, but for a credit score in the 656 range. So for starters, I would recommend reading that Q&A session.

Of course, your score of 600 presents even more of a challenge when buying a home. There was a time when a score in the low 600s was right on the subprime "boundary." At or below a 620 most lenders would view the person as a subprime borrower.

But things have certainly changed over the last couple of years. In the current economy, most mortgage lenders -- if not all of them -- will view a person with a credit score below 600 as a subprime borrower. And as you can read from this article on the subject, bad credit loans have become virtually extinct.

My advice is to hunker down and focus on improving your credit score. The housing / financial market is going to get worse before it gets better. Turn on CNN right now, and you'll hear all about it.

I think you would have a hard time finding a mortgage loan with a credit score less than 600 points. And if you did find a willing lender, they would pile a ton of interest on top of your principal, which would inflate your mortgage payment by a ridiculous amount.

If you improved your score by 70 points or more -- which is not all that difficult, by the way -- you would have a much easier time getting a loan and buying a house. You would also qualify for a better interest rate on the loan, which means a smaller mortgage payment each month.

Good luck.

Mortgage Repayment Plan to Avoid Foreclosure

Reader Question: I have gotten behind on my mortgage but avoided foreclosure. To do this my mortgage company took the thousands of dollars in penalties and fees and thus increased my payment. Is this normal? Is there a name for this practice?

First of all, congratulations for hanging in there. It sounds like you realize the importance of avoiding foreclosure if at all possible. I hope it works out for you.

Mortgage companies have many programs designed to help borrowers get back on track with mortgage payments. Collectively, these are known as mortgage "workout" options, because they help you work your way out of a possible foreclosure situation.

Reinstatement, repayment, forbearance and loan modification are all examples of loan workout options for homeowners who fall behind on their payments.

Your situation sounds like a typical repayment plan. Through this process, the homeowner / borrower will make the regular mortgage payments plus a little extra to cover back payments and fees. From what you have described, it sounds like your lender has created a repayment plan to help you get caught up over time.

You are not alone in the fact that you haven't heard of this. Many of the folks who were foreclosed on in recent months had no idea that these workout options existed.

Credit Score Needed When Buying as a Couple

Reader Question: When both you and your spouse are purchasing a home what is a good credit score for you both to have?

In the past, this has been a situation where an excellent credit score could "make up for" a bad credit score. But given the current economic issues we are having, both people will need good scores to qualify for a loan and purchase a home.

Of course, the word "good" doesn't tell you very much. So let's talk numbers. In fact, let's forget that we are talking about a couple for a moment here ... because everything I'm about to say applies to individual home buyers and couples alike.

A few days ago, I was contacted by some folks on the NBC Nightly News team. They are doing a show about people who are having trouble getting a mortgage for a home purchase, despite the fact that they have decent credit. This is a sign of the times. Lenders are requiring borrowers to have higher credit (to qualify for a mortgage) than they did in the past.

Here's an article you should read that explains this subject in more detail. It talks about how buyers in 2006 needed a score of around 620 to qualify for the best rates on a mortgage loan. By comparison, buyers in 2008 needed a credit score of around 760 to qualify for the best rates. Mind you, this is not a cut-off point for getting a loan or being turned down. It's just the range needed to qualify for the best rates -- which means a smaller mortgage payment each month.

Of course, with all of this being said, there's only one way to find out if you qualify for a mortgage (and what rates you can get). You have to apply. If you click on the "find a mortgage loan" link in the upper-right menu of this blog, you can apply through LendingTree and get several offers at once.

Good luck.

How Long Does a Real Estate Closing Take?

Reader Question: After all paperwork is submitted how long does it take to close [on a house]?

If you're referring to the actual closing process (as opposed to the days leading up to it), you should be in and out in a couple of hours. Maybe less. Different closing / escrow agents handle the process in different ways. But in every real estate closing I've experienced, the sellers will be "released" first, just as soon as they get their proceeds / profit check (if there is one).

Don't be in such a hurry that you gloss over the paperwork thought. It may seem tedious and mind-numbing -- and I can guarantee you'll sign your name until you have writer's cramp -- but all of the paperwork is important. Take your time and ask as many questions as you need to.

Related article: Pre-closing checklist for home buyers

The Weekly Bad Credit Home Loan Question

Reader Question: Our credit sucks. Is there any way we can get a loan for a house?

Somebody asked a similar question a few days ago. Actually, their situation was worse. They wanted to buy a home with bad credit and no money down ... which is virtually impossible in this market / economy.

This is actually a very common question. Once a week, somebody will write in asking about ways to buy a house with a bad credit score. I wish I had some good news to offer in such cases, but I don't. It is extremely difficult to get a mortgage loan with bad credit these days.

Here's what you must realize. Our financial institutions are failing right now. People are using the word "crisis" to describe our current economy. And much of this mess can be traced back to the subprime loans of the 1990s and early 2000s. Many mortgage lenders are buried under non-performing loans (from borrowers who defaulted on their mortgages).

Depending on what you mean by a "bad" score, it will be very hard to find a willing lender in this market. In fact, many home buyers with decent credit scores are having trouble qualifying for mortgages these days. I just helped the folks from NBC Nightly News find people like this for a story they are running this week.

Wish I had better news for you, but I just don't. Buying a house with bad credit is hardly an option right now.

Buying a House After Foreclosure

Reader Question: How soon after going through a foreclosure can I buy another home?

This response assumes that you will need a mortgage loan to pay for the house. I'm sure that's the reason for your question, but I just wanted to clarify for other readers.

Buying a house after foreclosure has become a popular topic and a frequently asked question, due to the vast numbers of Americans who have been foreclosed on lately. Unfortunately, there is no specific answer for it. So I will do my best to answer it in a general sense.

Let's start with the obvious. Buying a house after a foreclosure could be a challenging process. Most lenders will view your financial history as an indicator of what you are likely to do in the future. For example, if you missed several months of mortgage payments leading up to your foreclosure, then a lender will see you as a likely candidate for a future default on a loan -- in other words, a big risk.

Of course, there are plenty of variables here that I'm not aware of. For instance, buying a house immediately after a foreclosure is a lot harder than buying two or three years down the road. I often use the prison / parole analogy of "time and good behavior" when explaining this concept to buyers. Here's what it means. Buying a home after foreclosure gets easier with time, as long as you have good behavior. In this context, "good behavior" means being financially responsible and rebuilding your credit.

When you go through a foreclosure process, your credit score takes a hit. This is one of the reasons so many people have trouble qualifying for a loan and buying another house after a foreclosure on a prior home. How badly the score is affected will depend on several things, such as a person's past financial history. So if you haven't done so already, you should request your credit score to see where you stand.

The more you can improve your credit score after a foreclosure process, the greater the chances of getting another mortgage loan down the road. Forgiveness exists in the lending industry ... it just comes slowly and gradually. Now you can understand the "time and good behavior" analogy.

After Foreclosure in the Current Economy

Now let's address the elephant in the room we haven't touched on yet. The current economy. Everything I just explained makes perfect sense in a stable economy. But our current economic situation is anything but stable. There are record numbers of foreclosures taking place. Financial institutions are falling down like dominoes. And as a result of all this, mortgage lenders are a lot stricter with their credit and lending policies.

In other words, buying a house after foreclosure is much more difficult today than it was in the past. Lenders are not just considering your financial health -- they are also considering their own financial health. If you've been watching the news lately, you'll know why.

My Best Advice for Buying

Every home buyer / mortgage applicant will have a different experience when trying to buy a house after a foreclosure process. Some people will have a history of financial problems, so the foreclosure will affect them more severely. For others, the problem was an isolated one, so they'll be in a better position after the fact. So there's no way to say how a foreclosure will affect people across the board -- except to say that it will certainly make things more challenging.

Remember the time and good behavior analogy from earlier. The best thing you can do when buying a home after foreclosure is to be patient and proactive. Be patient, because it's going to take some time to improve your situation. But be proactive about improving your credit score. You can also benefit by paying down some of your debt, starting with those high-interest credit card balances.

The biggest thing to avoid is getting into another situation where foreclosure could be likely. For example, if you don't wait long enough after foreclosure before trying to apply for a mortgage, or if you don't improve your credit score enough ... the lender will pile a ton of interest on top of your loan. If that makes your payments beyond reach, it could create another foreclosure situation.

Bad Credit and No Money Down - Don't Buy

Reader Question: With bad credit and no money down who should I contact first?

I'm not sure what you mean by "who should I contact first." But if you are asking how to move forward with getting a mortgage loan and buying a home, my advice is not to do it. That's probably not what you want to hear, but it could be the best advice you get all week.

If I were you, I would focus on doing two things simultaneously -- improving my credit score and saving money toward a down payment. Let's talk about each one in turn:

Improving Your Credit Score

If you've been watching the news lately, you'll know that our economy is in serious trouble right now ... in worse condition than it's been in for decades. Much of this is the direct or indirect result of the subprime mortgage collapse that in turn wreaked havoc on our housing market.

The federal government has (finally) stepped up its regulation of lending institutions in this country. Too little too late, in my opinion, but that's another article entirely. So mortgage lenders today require borrowers to have better credit scores in order to (A) qualify for a loan and (B) get a decent interest rate on the loan. In other words, subprime loans to borrowers with bad credit are practically extinct these days.

If you truly have a "bad" score by a lender's definition, you will have trouble qualifying for a mortgage loan. If you do qualify, I can practically guarantee that you'll be paying a ton of interest on the loan. This could lead to default and possibly foreclosure problems down the road, which is happening to thousands of Americans as we speak.

Saving Up for a Down Payment

This is secondary to the credit score issues covered above, but it's still an important point. If you can put money aside for a down payment of 20 percent, your monthly mortgage payment will be much smaller. You'll also have an easier time qualifying for a loan, because you won't have to borrow as much for the principal amount -- you'll be paying some of the home price up front, in the form of a down payment on the home.

Don't be discouraged by all of this. Just be patient. It's probably not the advice you wanted, but it's the advice you need. Bad advice dished out by greedy mortgage lenders is partly what led us to the economical mess we are in now!

Work on boosting your credit score and start saving money. If you can reduce your debt as well (starting with those high-interest credit card balances), that will also help your cause.

Good luck!

How Do Home Appraisals Work?

Reader Question: Do bank appraisers make an actual value appraisal, or do they appraise the home for slightly over the amount of your loan?

A good appraiser will always appraise a home for its true market value, which can be equal to, above or even below the asking and/or contract price. During the housing boom of just a few years ago, home appraisals were coming in all over the place due to the rapidly changing home values. Sellers were asking top dollar and many lenders were using appraisers who were willing to squeeze out just enough value to help the lender and its buyer finance the purchase.

Even so, many home appraisers were diligent about not inflating home values, which is in the best interest of the buyer. For example, when we purchased our home in the middle of the housing boom, our appraisal came in at $1,500 below the seller's asking price, which is what we offered in our purchase agreement. The lender would not finance any amount over the appraised value so we had three choices: 1) come up with the $1,500 out-of-pocket; 2) ask the sellers to lower their asking price; or 3) back out of the offer and move on.

We chose the second option and asked the sellers to lower the asking price, based on the home appraisal figure. Since we were already so far into the sales transaction, the seller happily obliged. Had we chosen option #1, we would have paid more for the home than it was worth, which -- as we have seen in current market conditions -- is not always a smart choice.

I hope this answers your question about home appraisals and appraisers. Good luck!

Related articles:
Evaluating the Seller's Asking Price
Steps to Buying a Home

Calculating Your Mortgage Payment Amount

Reader question: If I buy a 15 thousand dollar home how much will the mortgage payment be every month?

Is it really a $15,000 home, or did you leave a zero off that number? Just curious.

I can't answer this question because there are some missing pieces. But I can tell you how to run the numbers for yourself. The missing variables I would need to know include: (A) the interest rate on the mortgage loan, (B) the length or "term" of the loan, (C) the amount of money you are putting down, (D) the amount of insurance and taxes you might be rolling into the payment.

The parts of a mortgage payment are referred to by the acronym PITI. This stands for principal (the main loan amount), interest, taxes and insurance. In most cases, all four of these things combined will determine the full amount of the mortgage -- and thus the size of monthly payments.

Interest is the biggest variable in this equation. A lender will use your credit score to determine the interest rate they give you. If you have a good credit score you'll qualify for better / lower rates. If you have a bad credit score, you'll pay more interest and will therefore have a larger mortgage payment each month.

You can use a mortgage calculator to get a ballpark range of what your payments might be. But this is only an approximate figure. You won't know the actual monthly amount until you apply for a mortgage loan and find out what interest rate you're getting.

If you don't know the interest rate yet, then simply enter the loan amount (minus any down payment you are making), and leave the interest rate set to whatever default setting the calculator has. Set the length of the loan -- 15 years, 30 years or whatever. And then hit the "calculate" number. There's your ballpark figure.

Related article: Using a Mortgage Payment Calculator

Making Purchase Offers on Multiple Homes

Reader question: Can you bid on more than one home at a time?

When you refer to "bidding" on a home, it brings to mind a real estate auction. But I'm not sure that's what you mean. If you are asking if it's possible to make offers on multiple homes at once, then here's our response:

Yes, you can make an offer on more than one home at a time. But it's not a strategy I would recommend to most home buyers. If you are in a highly competitive buyer's market, where homes are being sold within days of the listing, then it might be a strategy worth pursuing.

But there's an important factor to keep in mind here -- the earnest money part of the equation.

When you make a purchase offer on a home that's for sale, you will typically be required to put earnest money down with your offer. This is sometimes referred to as a deposit, and that's essentially what it is. You will put down a certain amount of money to show the seller that you're serious about buying their home.

In most cases, you will give the earnest money to the seller's agent, who will put it into an escrow account. If you proceed with the purchase, then the earnest money / deposit will be applied to the actual purchase price. But if you back out of the deal without a good reason, then the seller will keep the earnest money.

So if you are making purchase offers on more than one home at a time, and you are paying earnest money each time, there's a good chance you could lose the deposit amount. Let's say you put offers in on two homes and pay earnest money on both of them. If both of your offers get accepted by the sellers, then you'll have to back out of one of the deals (unless you actually intended to buy two homes). So you'll lose the earnest money deposit on the other home.

You can see why I don't recommend this strategy in most cases.

If you were in fact talking about real estate auctions (instead of a regular home purchase), then it's an easier question to answer. Bidding on more than one home at a real estate auction is possible, as long as you have the money to cover both properties. At a real estate auction, you have to pay for the home in cash or check at the actual auction. But I have a feeling you were referring to multiple purchase offers on a home through the regular buying process, as outlined above. So you can probably disregard this last paragraph.

Grant Money for Purchasing a Home

Reader question: How can I receive grant money for purchasing a home.

Unfortunately, given the current state of the economy, home buying grants are harder to come by these days. There are fewer grants to go around and just as many people -- if not more -- competing for them.

This doesn't mean you still can't find a home buying grant to help with your purchase. It just means you'll be doing more homework.

My advice is to start with your state. Many states in the U.S. offer home buying grants specifically for residents. On the HUD website, you can find a list of home buying programs (including grants and other buyer assistance programs) neatly organized by state. Here's the link: http://www.hud.gov/buying/localbuying.cfm

If I were you, I'd start making a list of grant programs offered in your state by using the website above and also using Google. You can do a keyword search for your state + the phrase "home buying grants" and find a lot of information that way. Make a list of all the programs you can find, and then start researching them to see what the qualification criteria are. Most home buyer programs have specific criteria -- they don't offer them to just anyone.

Here's another article on our website you may want to peruse:
Home Buying Grants 101

Hope that helps you out some. Good luck.

The Listed Price of a Short Sale Property

Reader Question: If a home with a short sale is listed at 3500 is that all I would have to pay?

With short sales, closing costs may still apply, as they do with any other home purchase. So there could be other costs beyond just the listing price. The thing to realize with a short sale is that the mortgage lender typically calls the shots. In a normal real estate transaction, you would be able to negotiate directly with the seller -- for example, to negotiate who is going to pay the closing costs.

But with a short sale, the seller's lending institution will make many of those decisions. If a lender refuses to pay for some of the normal closing costs like transfer taxes, then you might have to pay for that out of pocket.

Short sale properties are typically sold "as-is" too. So you may incur some fix-up costs after the sale.

Aside from these (mostly obvious) add-ons, you typically won't encounter any hidden fees on a short sale property. The lender wants to sell the property as quickly as possible, they won't play any games like that -- they should be pretty straightforward.

Home Design Software Reviews

Article summary: If you want to design your own home (the drawings, plans, etc.), but you're not sure where to start, then this review of home design software is right up your alley!

Are we a nation of do-it-yourselfers? I like to think so. The rise of home improvement superstores, and the ongoing evolution of helpful "how to" websites, have empowered people to handle more home-related projects by themselves. Home design software is one of those tools that allow people to do more with less.

If you're not familiar with these programs, but you've often dreamed of designing your own home, then they are worth a look. You've probably heard the term CAD before, or computer aided design. This software is a form of CAD. It lets you use your home or office computer to design a home to your liking.

This type of software has come a long way in the last few years. It used to be created specifically for architects and other home design professionals. But modern versions are much easier to use, which means more people can use them -- including the average Joe or Jane with no home design experience.

For example, the award-winning product below by Punch Software has "drag and drop" capabilities. This allows you click a home design component (such as a door, window or HVAC unit) and drag it anywhere on your design. Anywhere that makes sense, that is.



Over at the Software Learning Center, you can learn more about these helpful programs. If this topic interests you, check out this informative review of home design programs.

Buying a Home After Bankruptcy

Reader Question: After a failed business, my husband and I declared bankruptcy in 2005. We have about 30,000 in equity on hour house. Would buying something smaller and less expensive be wise or even possible with this on our credit history?

It seems there may be a few more questions to ask of yourself before making a decision. First of all, can you afford your current mortgage? If the answer to this is "no," then you may want to explore purchasing a smaller, less expensive home. But in doing so, you may want to consider the following questions:

What is your current mortgage rate -vs- the current rates? Would refinancing your current mortgage and perhaps consolidating debt help your financial situation? Also, what type of real estate market are you in? Do you realistically have $30,000 worth of equity? And, how long are homes on the market before being sold?

If the answers point you toward selling your home or even refinancing, the best place to start is knowing what your credit report looks like and what kind of credit score you have. Lenders base their rates on credit scores. The minimum score for the best rates has changed drastically over the past several months. You may be able to qualify for a new mortgage or refinance, but may not get the best rate -- the ones you see advertised in the paper and in commercials.

The next step would be to contact a lender or lenders to discuss if a new mortgage or refinance is even possible with your past bankruptcy. Lending Tree gives you the ability to submit your information to up to 4 lenders at once. Check out the mortgage quotes section of our website for more on this.

Based on your credit, income and debt ratio, a good lender will be able to tell you how much you qualify for and at what rate. It is at that point you should be able to make an educated and informed decision about how this new housing picture will benefit you and if it makes sense to sell or refinance.

Buying a House With a Credit Score of 656

Reader Question: Can I buy a house with a credit score of 656?

In short, yes. Buying a house with a credit score in that range is certainly possible. If you have no other issues with your finances, then a score of 656 should not stop you from getting a mortgage loan for your purchase.

But, as always, there are some things to keep in mind here. I'll shape them into bullet points for easy digestion, with some helpful links to related info...

• Mortgage lenders will use your credit score and other criteria to decide whether or not to give you a loan. That much is obvious. But they'll also use your score to determine what kind of interest rate they'll offer you.
• You can probably qualify for a mortgage and buy a house with a credit score of 656 without much trouble. But you certainly won't get the best interest rates with a score in that range. These days, home buyers need a higher score to qualify for the best rates.
• Depending on who you ask, the average credit score in this country is somewhere between 670 and 700. So by that definition, you are slightly below the national average.
• The credit score needed to buy a house will vary from one lender to another. There is no universal "cut off" above which you can get a loan, and below which you cannot. Most lenders have increased their standards in this department, as the result of tougher lending restrictions imposed by the federal government.
• In the past, a person with a credit score of 620 or below was considered to be a subprime borrower. Scores in the 620 - 650 range were considered good. A 720 or above was considered excellent. But all of this has changed in the wake of the subprime mortgage mess. Basically, all of the categories have been shifted upward.
• By current standards, some lenders will consider a score of 656 to be in the subprime range. If they lump you into this category, they may not approve you for a loan. And if they do approve your application, they'll stick you with a much higher interest rate (than somebody with a good or excellent score).
• By increasing your credit score even by a few points, you could qualify for a better interest rate and therefore save yourself money in the long run. Here are some tips for boosting your score.

Conclusion and Going Forward

Hopefully I haven't overwhelmed you with all of this information. Let me sum it all up...

You can probably find a willing lender without too much trouble. But you won't get the best rates with a score of 656. Lenders will tack on more interest for a score in that range than they did several years ago.

Some lenders may even consider you a subprime borrower by today's standards, where they would not have done so a few years ago. The definitions of "subprime" ... "good" ... and "excellent" have been shifted upward over the last two or three years.

If you can afford to wait a few months before buying, you can use that time to improve your credit score and thus qualify for a better rate. This could save you a lot of money over the life a loan, so it's my personal recommendation. It really doesn't take that long to improve a credit score. If you start pay all of your bills on time, pay down your high-interest debts (such as credit card balances), those two things alone will boost your score over time.

Hope that helps. Good luck!

Negotiating the Price of Short Sale Properties

Reader Question: If a property is advertised for short sale can a home buyer get the house for less than advertised amount?

[For those of you not familiar with this topic, you may want to start with this overview of the real estate short sale process.]

Yes, it's possible to purchase short sale properties for less than the advertised amount. However, you may not have as much negotiating room as you would when purchasing a regular listing. Here's why.

A short sale is a preemptive alternative to full foreclosure. When a homeowner is unable to make the payments on a mortgage, they will face a foreclosure. To avoid this, some homeowners use the short sale strategy, in which they list and sell the property for a very good price, typically less than the true market value.

In most cases, however, the homeowner must get approval from their lender before selling the home in this fashion. After all, the lender is going to accept a payment for slightly less than the loan balance (in many cases), so they have to give the green light for a short sale process.

That's the first reason you may have trouble renegotiating the price lower -- the homeowner and listing agent typically cannot make such decisions on their own.

There's another reason why you may not be able to negotiate the price of a short sale property. It's already favorably priced, relative to the local real estate market. So the listing agent and homeowner will be fairly confident that the home will sell quickly. That's the whole point behind the strategy of short sale properties.

Of course, all of this depends on how active your local real estate scene is. If you're in a slow market, where listed properties tend to "linger" a while before being sold, then you will have more bargaining leverage. Remember, the mortgage lender wants to get the non-performing / defaulting loan off their books as quickly as possible. If they feel the market is slow and offers are few and far between, they'll be much more likely to entertain a lesser offer.

So while it's possible to negotiate a short sale price even lower, it all depends on the market and the lender. In a market where short sale properties are selling like hot cakes, the lender will be less likely to lower the price anymore than it already is. In a slower market, the lender will entertain such offers.

It also helps to have some documentation as to why you are offering a lower amount. "Because I want to save money" is not a proper justification. For example, if you can cite some damage or disrepair (or anything that else that negatively affects the value), then you'll be taken more seriously.

Hope that helps!

Related articles:
What is a real estate short sale anyway?
The foreclosure buying toolkit

House Hunting Checklist - Things to Look For

Question from a reader: "I plan to begin the house hunting process soon. What things should I look for when looking at houses? Is there a checklist for house hunting that I can use?"

We have a variety of articles here on the website that will help you prepare for the house hunting process. I'll offer some key points in this blog post, and link to other articles where it helps to do so.

House hunting is one of the most exciting stages in the home buying process. For those not familiar with it, this is when you visit houses for sale to see how they stack up against your list of needs and wants.

But it's also a part of the process where many first-time buyers make mistakes. Some people get swept up in the excitement to the point of overlooking flaws about a particular property. This is where a house hunting checklist comes into the picture. If you create a checklist of the things you need in a home -- as well as other things worth looking at along the way -- you'll have a much easier time with the house hunting process.

Your Checklist - Needs vs. Wants

The first thing you should do is create a checklist of the things you truly need in your home, and a separate list of things you would like to have. An easy way to do this is to draw a line down a piece of paper, dividing it into two columns lengthwise. Label the left side "Need" and the right side "Want."

Start with the things you need -- the number of bedrooms, the location, the size, etc. These items will help you narrow your search, allowing you to weed out houses that don't meet your needs. If you use a real estate agent to help with the house hunting process, this checklist will be useful for them as well.

Other Things to Look For

So what else should you look for during the house hunting process, aside from the basic criteria of size and location? Well, you should keep an eye out for anything and everything, really. In particular, look out for signs of disrepair, mold, damage, standing water, view obstructions ... anything that raises a "red flag" in your mind. Take a notepad with you when house hunting and jot these things down as you come across them.

Just keep in mind that you can have a proper home inspection after you make an offer on a particular house. On top of that, you should make your offer contingent upon a successful home inspection. That way, you can back out of the deal if the home inspector finds something that's unacceptable to you.

More House Hunting Advice

Here are some house hunting tips that are worth reading. These articles expand on some of the things I've discussed here in this blog post:

• How to create a home buying wish list
• 5 tips for smarter house hunting
• Questions to ask when looking at homes
• A variety of checklists you can use

Buying a Home With Very Bad Credit - A Bad Idea

Question from a reader: "Can you buy a house with a very bad credit score, and if so how would you go about it?"

Let me start with the short answer:
Yes, buying a home with very bad credit is possible. If you pay for the house out of pocket (without a mortgage loan, then nobody will care what your credit score is.

Now for the long answer:
But let's assume that you cannot buy a house with cash down. If, like most people, you need a mortgage loan to cover the cost of the home, then your credit score will most certainly come into the picture. In fact, it's one of the first things a lender will look at when you apply for the loan.

So now we have a different question:
Can I get a mortgage loan with a very bad credit score? While it may be possible to buy a house under these circumstances, it's also (A) highly unlikely and (B) a bad idea. When a lender reviews your finances and finds that very bad credit score, that will likely be the end of the road.

Lenders refer to this as a subprime borrower. This probably rings a bell, because subprime loans have been in the news a lot lately -- and for bad reasons. Subprime mortgages are those given to people with low credit scores. The interest rate on such a loan is typically much higher than the rate a person with good credit might pay.

But here's the thing ... even subprime loans are becoming extinct. The federal government has imposed tougher lending restrictions on the mortgage industry (as a result of the so-called subprime crisis). So the days of "easy lending" to people with very bad credit scores are a thing of the past. This could all change at some point in the future, but it's the state of the housing market today.

So what does this mean to you, as a potential home buyer? It means several things. While you might have had options in the past for buying a house with very bad credit (namely, through a subprime loan program), most of those options are gone today. It also means you need to work on improving your credit if you someday want to qualify for a mortgage loan -- and get a decent interest rate in the process.

This probably isn't the answer you wanted to hear, but it's the answer you need to hear. If you attempt to buy a house with very bad credit you'll likely end up at a dead end. In the event that you do get qualified for a loan, the lender will tack on a ridiculously high interest rate. This means a bigger mortgage payment each month, and a greater chance that you'll have trouble making those payments.

This kind of scenario happens all the time in this country. It's a common pattern. A person attempts to buy a house with very poor credit and ends up paying extremely high interest on the loan. The next thing they know, they are no longer able to make their payments. So the lender forecloses on them. This is happening in record numbers right now, all across the United States.

So for anyone who is considering buying a home (and applying for a mortgage loan) with a bad credit score, my advice is this. Don't do it! Fix your credit score first. Start reducing your debt. Start saving money. Pay all of your bills on time. Do these things, and your credit will improve. And when that happens, you'll have a much easier time getting a loan ... and getting into a new home!

First Time Home Buyer Loans - A Myth?

So, you're a first time home buyer and you are looking for mortgage loan programs designed specifically with first time buyers in mind. If that's the case, my advice is too keep an open mind and don't get frustrated by your search.

Due to the current state of the economy, the so-called first time home buyer loans are becoming a thing of the past. Sure, there are still home buying grant programs offered by most states. But lenders today don't offer many loan programs designed for first time buyers specifically.

But don't be discouraged. While it may be hard to find a specific program that offers loans for first time home buyers like yourself, you can certainly qualify for a regular mortgage loan. Just don't expect special treatment from lenders -- not in the current economy, at least.

In fact, it's actually harder to quality for a loan today than in the recent past. This comes from increased restrictions placed on mortgage lenders in the wake of the subprime mortgage crisis. You need a better credit score to qualify for a home loan these days, whether you're a first time buyer or not.

I'm not writing this blog post to rain on your parade with gratuitous negativity. On the contrary, I'm trying to save you some time and energy. If you start scouring the Internet looking for information on home loan programs for first time buyers, you will quickly become frustrated.

When I do such a search, I find plenty of people talking about these programs, but nobody seems to know where to find them. There are plenty of "fluff" articles about first time home buyer loans -- there just aren't many programs listed within these articles. That's because the authors can't find these programs either. It's like writing an article about Bigfoot or some other mythical creature, and not providing a shred of evidence as to its existence.

My Advice for First Time Buyers

If this is your first time buying a home, and you need a loan to help cover the cost of the home, here is my advice to you.

• Don't expect special treatment from a lender just because you are buying your first house. You just won't find it, not in this economy.
• Instead, focus on boosting your credit score as much as possible. If you already have a good score, do everything you can to maintain it. Learn more here
• Start putting extra cash away each month. Your first time home buying experience will likely cost more than you think, so start preparing for it now by saving money. Those extra cash reserves will also help you get qualified for your home loan in the first place. Lenders like to see that you have sufficient cash reserves.
• Research the different types of home loans and choose the best one for your situation. This is an area where many first time buyers make mistakes. Pay particular attention to the pros and cons of fixed-rate versus adjustable-rate mortgages. Learn more here
  

Don't be discouraged by what I'm telling you here. While there may not be as many programs designed specifically for first time home buyer loans, you can still qualify for a mortgage (and get a good interest rate on it) if you are otherwise qualified.

In other words, you won't get preferential treatment for being a first-time buyer ... you certainly won't be penalized for it either. Lenders will qualify you based on your credit score, your income, your debt and other factors. If you measure up well in those departments, you should have no trouble getting a loan.

Related articles:

• Low-income home buying programs
• A tutorial for first-time buyers

Buying a House After Foreclosure

Interested in buying a house after foreclosure as a way to save money? If so, there are a few things you need to know. Actually, there are many things to know before buying a foreclosure property, but we will start with three...



Foreclosure fever continues to sweep across the United States. Despite government efforts to help (such as the new FHA refinance program), we are still seeing record numbers of home foreclosures across the country.

While these trends represent hardship for the homeowners, they also represent opportunity for home buyers and investors. And let's face it ... it doesn't do the economy any good for these houses to linger unsold after the foreclosure process. When investors buy these properties, it helps to stimulate the economy and move the housing market forward.

This is why we frequently offer tips for buying a house after foreclosure here on this blog. It's also the reason we created Foreclosure City for real estate investors. In that section of our website, you'll find a variety of tools and advice to help you through the process of buying a foreclosed home.

Buying a Property After Foreclosure - What You Should Know

But before you venture forth into this world of real estate investment, there are certain things you need to know. I recommend purchasing a book that explains the details of buying a house after the foreclosure process. It's a popular topic these days, so there are many books on the market. Stop by Amazon.com and see what you can find.

In particular, there are three things I feel a would-be investor should know about buying a house that has been foreclosed upon. Without further ado, here they are...

1. You Will Probably Buy at an Auction

If a house does not sell during the pre-foreclosure stage (like through a short sale process), then it will almost always go to the auction state. So if you are truly interested in buying a home after foreclosure then you'll need to learn as much as possible about real estate auctions and how they work in your state.

2. You Will Probably Be Paying Cash

If you buy a house at an auction, you will have to pay for it on the spot. It costs the lender money to maintain a house after foreclosure -- and to promote it, sell it, etc. The last thing they want to do is waste time with buyers who lack financing. In fact, your finances will probably be verified in some way before you are allowed to bid at the auction.

3. You Will Have Limited Inspection Opportunity

Many houses that are sold after a foreclosure process are sold as-is with no warranties. On top of that, many homeowners who know they will be foreclosed upon will neglect the home. Some will even damage the house intentionally out of anger or frustration. So for these reasons, it's best to view the property before bidding on it.

You probably won't be able to schedule a full inspection, as you would with a regular purchase process. But anything is better than nothing -- even if it means visiting for a quick walk-through. The point here is that there's more uncertainty involved when buying a house after foreclosure than with the traditional purchase process.

=========================
Learn more about foreclosure buying
=========================

The Mortgage Approval Process Explained

If you plan to buy a home soon and need a mortgage loan to cover the cost, you probably have questions about the mortgage approval process that awaits you. Most home buyers do. The good news is that the approval process is usually straightforward and easy to understand. Here are the basic steps.

Mortgage Approval by the Numbers

In most cases, the approval process includes the following steps: Pre-qualification, application, documentation review, property appraisal, mortgage approval (if all goes well).

1. Prequalification Process

This is a quick and informal review of your financial situation. The lender will prequalify you for a certain size mortgage loan. Basically, this is a way for the lender to decide whether or not to move forward. If this preliminary review goes well, you move one step closer to mortgage approval.

Among other things, the lender will want to know the approximate cost of the home you plan to buy (even if its hypothetical at this stage), how much money you need to borrow, the type of loan you want -- plus some other basic questions about your financial background, credit history, employment, etc.

2. Mortgage Application

Based on the prequalification process, the lender will have a general idea whether or not you're a good candidate for a mortgage loan. If they feel you are a candidate, you will likely move on to the mortgage application itself. While the prequal document was probably short and simple to complete, the actual application will be longer and more in-depth.

This is where you will have to make a final decision on the type of mortgage loan you want, and also lock in an interest rate for the loan. In nearly all cases, you'll have to pay an application fee as well. At this point, some lenders will give you access to their website where you can check on the approval status of your package.

3. Documentation Review

When completing all of the paperwork for the mortgage approval process -- including, but not limited to, the application -- be as factual as possible. The lender will closely review all of your documentation, pull your credit, verify employment, etc. If they find anything wrong, it could slow down the process or, at the worst, derail it altogether.

4. Property Appraisal

One of the next major steps in the mortgage approval process is the property appraisal. This is where the lender sends a professional home appraiser out to evaluate the property. The lender wants to make sure the home is worth the amount you have agreed to pay for it. Because in the even that you default on the loan and can no longer make payments, the lender will have to take on the property and sell it off through an auction or other means.

5. Mortgage Approval

If everything goes well up to this point, there is very little between you and your new home. You will attend the closing process at some point, where you will have to pay all remaining fees and costs. This is also where you get the keys to your new home!

Obviously, this is a somewhat simplified version of the mortgage approval process you may encounter. Depending on your unique financial circumstances, your process could be more complex than what I've outlined above. But this article will give you a good overview of what to expect during the qualification, as well as the general process that takes place from start to finish.

Good luck, and happy home buying.