Low Credit Score Means Additional Mortgage Fees for Home Buyers

Home Buying News - February 27, 2009 -- You're probably familiar with the primary benefits of a good credit, when it comes to home buying. Have a high score will help you qualify for a mortgage loan with a good interest rate. On the other hand, having a low credit score means the opposite. There's nothing new about this.

But recent changes in the mortgage industry have produced another benefit to having good credit -- it could help you save money in mortgage fees.

According to a recent story at Market Watch, a low credit score could mean you have to pay higher fees in order to close your mortgage loan. When you combine this with the higher interest rates people with low credit scores typically pay, you have a tough situation for home buying.

This change partly comes from new standards set by Fannie Mae and Freddie Mac, companies within the secondary mortgage market that buy loans from primary lenders. Fannie and Freddie have imposed additional lending fees for consumers with low credit scores under a certain mark, and this in turn gets passed on to the consumer through the primary lender.

If you'd like to learn more about the fees and how they are applied, do an Internet search for "Loan Level Price Adjustments." If you really want to get into the weeds on this subject, you can check out the pricing matrix on Fannie Mae's website.

How to Improve a Low Score

In theory, the solution to all of this is simple. Improve your low credit score, and you'll have an easier time getting a home loan with a decent interest rate. You'll also avoid the fees associated with bad credit. In practice, however, many consumers have no idea where to begin.

This is where we direct you to another section of the Home Buying Institute. The Consumer Credit Help blog has more than 150 lessons designed to help you improve a low credit score. You can also find some excellent advice through the links provided below.

Related articles:

• Credit Score Need to Buy a House in 2009
• How to Repair Credit Before Buying a Home

Average Credit Score in U.S. Does Not Qualify for Best Mortgage Rates

Home Buying News - February 26, 2009 -- Most people in the U.S. would not qualify for the best interest rates being offered by lenders today, mainly because of their credit scores. Here's how to improve your score and put yourself into the "favorable minority."

According to Experian's National Score Index website, the average credit score in the United States is currently around 690 points. This is their own proprietary data by the way, so you could probably find different estimates from other sources. I would estimate that the average score is even lower than that.

But this article is not about the law averages. It's about mortgage rates, and what it takes to qualify for the best rates a lender has to offer. And regardless of what data source you reference, one thing is for certain -- the average consumer in the United States will not qualify for a home loan with the best interest rates.

What It Takes to Get the Best Rates

Every mortgage lender has its own standards for qualification. So the credit score needed to get the best rates will vary from one lender to the next. The "rule of thumb" for mortgage qualification has gone up over the last couple of years, thanks to the now infamous subprime mortgage crisis.

These days, you'll probably need a credit score of 720 or higher if you want to qualify for the best interest rates on a home loan. That doesn't mean you need a score of 720 to get qualified for the loan, but if you want to get the best rates you'll need excellent credit.



Where do you stand in terms of a credit score? The only way to find out is to request your scores from all three of the credit reporting agencies (Experian, TransUnion and Equifax). Mortgage lenders may take the average of your three scores or the middle number when considering you for a loan. It's possible for the scores to be different, so you need to get all three of them to find out where you stand.

How to Improve Your Credit Score

If you find out that your credit score is below the 720 range needed to get the best interest rates, you should focus on improving your score. After all, mortgage rates in 2009 will be at their lowest point in decades. By taking advantage of this, you could save a lot of money on your monthly payments.

You can find hundreds of articles on this website to help you boost your score. If you want to do it as quickly as possible, you might want to start with this video tutorial: How to Raise Your Credit Score Fast in 2009

Make Them Produce the Note to Delay Foreclosure

Home Buying News - February 25, 2009 -- Homeowners who are trying to prevent foreclosure can ask their lenders to produce the original promissory note for the home loan. It's a delay tactic that can help homeowners get caught up on their mortgage payments, thereby avoiding foreclosure.

Many homeowners facing foreclosure will be uttering the phrase produce the note in the coming months. Why? Because it's a way to possibly delay the foreclosure process until you can get caught up with your mortgage payments, and you can learn all about it right here.

Chris Hoyer of the Consumer Warning Network is the man most responsible for this rising trend. The Florida lawyer has spearheaded the grassroots effort to educate homeowners on this tactic to delay foreclosure, and he even provides the necessary paperwork through his website (www.ConsumerWarningNetwork.com).

How It Works

Asking your mortgage lender or loan servicer to produce the note won't magically absolve you of your debts. But it could buy you some time and stall the foreclosure process, giving you a chance to get caught up on your mortgage payments.

Why It Works - The Life of a Promissory Note

When a primary lender makes a home loan, they will often turn around and sell the loans through the secondary mortgage market. Without going into the financial feeds, suffice it to say that the lenders package the loans and sell them off to secondary mortgage buyers such as Freddie Mac. These mortgage-backed securities can be bought and sold numerous times.

Because of this, the original promissory note (that you signed during the closing process) can be extremely hard to track down. So when you tell your lender or loan servicer to produce the note, you are giving them a time-consuming task they must perform.

Why must they perform this task? Because a lender cannot foreclose on a home until the process gets approved by a bankruptcy judge. If you file a request to have the lender produce the note for your mortgage loan, the legal proceeding will typically be delayed pending the search and presentation of that note -- and that could take weeks or months.

========================
Housing Market News - Main Page
========================

2009 Mortgage Rates - What the Experts are Saying

What kind of interest rates can we expect on home mortgage loans in 2009? This is a common question among home buyers, and rightfully so. With so much turbulence in the economy, it's hard to keep track of the ups and downs. So let's take a quick poll of what the experts are saying, with regard to 2009 mortgage rate predictions.

Current Mortgage Rates

Let's start with what we know right now. At the time this blog post was published, Freddie Mac's weekly summary of the primary mortgage market told us the following:

• Average rate for a 30-year fixed mortgage was 5.04% (down slightly from previous weeks)
• Average mortgage rate for a 15-year fixed loan was 4.68%
• Average rate for the 5/1 ARM loan (most common type of adjustable mortgage) was 5.04%

This data was for the week of February 19, 2009. But what about the rest of the year? What will happen to 2009 mortgage rates in the months to come? This is a popular question among consumers right now, and understandably so. Unfortunately, there are no crystal balls that can tell us what mortgage rates will do through 2009 or beyond. So the best we can do is make an educated guess based on current conditions. And for that, I turn to some folks who are much more educated on this subject than I am.

Predictions for the Rest of 2009

In December of 2008, U.S. News ran an article that cited the 2009 interest rate predictions of HSH Associates (a mortgage information service). They seemed to think that mortgage rates would swing between 5.5% and 6% for much of 2009, and then rise to just over 6% by the end of this year. Based on the weekly summaries provided by Freddie Mac, these predictions seem a little high to me. But it's too early to say if their year-end predictions will be more or less accurate.

More recently in January, the New York Times published an article that quotes Orawin Velz, the vice president of economic forecasting for the Mortgage Bankers Association. She estimated that 2009 mortgage rates would hover at, or slightly above, 5% for most of the year.

One week after the New York Times piece mentioned above, an article in Business Week cited projections from Freddie Mac that had mortgage rates wavering between 5% and 5.25% for the remainder of 2009.

========================
Housing Market News - Main Page
========================

Existing Home Sales Down for January 2009

Home Buying News - February 25, 2009 -- Sales of existing homes dropped in January. Many home buyers have a general fear of the economy right now, but in truth it's a great time to buy for people in certain situations.

From December 2008 to January 2009, existing home sales dropped to their lowest point in over a decade. There were approximately 4.49 million home sales in January, as compared to 4.74 million in December '08. This is not very surprising when you consider rising unemployment rates and the challenges of getting a mortgage in 2009.

Now for a prediction. I predict that home sales will increase slightly from January to February, in response to the new-and-improved tax credit for first-time buyers. Keep in mind that under this program, a "first-time" buyer is anyone who has not owned a home for the last three years. So if a person has owned a home in the past, but has lived in an apartment for the past three years, they could qualify for this $8,000 tax credit on their next filing.

What This Means to Buyers

Many buyers hear news like this and become fearful. In fact, any kind of economic change can be scary if you don't fully understand it. But on the other hand, there are many benefits to buying a home right now. If you can meet the current average requirements for getting a mortgage loan (such as 20% down payment and credit score of 720+), you could get a great deal on a home right now. Here's why:

• Current interest rates on home loans are the lowest they've been in decades. Sure, it's a bit tougher to get approved for a mortgage right now. But a well-qualified borrower can easily get qualified for a great rate.
• According to a recent MSNBC article, home prices dropped at a record pace in the last quarter of 2008. So your home-buying dollar goes further today than it has in a long while.
• When existing home sales drop, as they did last month, it makes even more of a buyer's market (more inventory and less demand). So you have tremendous bargaining power when you buy in such an environment.
• If you buy before November 30, and you haven't owned a home for the last three years, you could qualify for the $8,000 tax credit.
• Most economic experts, including Fed chairman Ben Bernanke, believe that 2010 will be the start of our economic recovery (if we play our cards right now). So if you buy in 2009, you may see your home's value stabilize or possibly even rise within a year or so.

How do you know if you can qualify for a home loan? You can apply online right now. A lender can take a quick look at your finances (pre-qualification) and tell you whether or not they will loan you money. You have nothing to lose by taking this simple first step.

========================
Home Buying News - Main Page
========================

First-Time Home Buyers Get $8,000 Tax Credit

Home Buying News - February 22, 2009 -- As part of President Obama's housing stimulus plan, first-time home buyers in 2009 who meet certain conditions could get an $8,000 tax credit after purchasing.

Back in November, we explained the $7,500 tax credit that was being offered to certain first-time home buyers. But this stimulus item was often criticized for one specific item. It had to be paid back. So instead of being a true credit, the $7,500 was more like a 15-year interest free loan.

Ever since then, various real estate organizations have been lobbying the federal government for a stronger tax credit plan (i.e., one that did not have to be paid back). These organizations recently got their wish. Under the new stimulus plan recently announced, first-time home buyers who meet certain conditions could qualify for an $8,000 tax credit. And unlike the previous credit, home buyers do not need to pay this one back.

$8,000 Tax Credit - Fact vs. Myth

But the new $8,000 tax credit has also created a lot of confusion and rumors. For example, I recently spoke to a friend on the phone who said that anyone buying a home in 2009 would "receive a check from President Obama for eight grand, with one week of buying." This is what happens when rumors run wild.

So, in the interest of spreading the facts and squelching the rumors, I've created list of frequently asked questions regarding the $8,000 tax credit for first-time buyers.

1. Who qualifies for the credit?

Within the context of this program, a first-time buyer is defined as anyone who has not owned a home (primary residence) for the last three years. So, if you've owner a home in the past, but you've been living in an apartment for more than three years, you are considered a first-time buyer under this program. To qualify for the tax credit, you must also purchase (or have purchased) a home between January 1 and November 30, 2009.

2. How much is the tax credit?

This credit is worth $8,000 or 10% of the current appraised value of the home, whichever is less. So if the home is worth $60,000, for example, you would get a tax credit of around $6,000 (10% of the home's value). If the home was worth more than $80,000, your tax credit would be capped at the $8,000 level. In other words, the vast majority of first-time buyers will qualify for the full $8,000 credit, since the majority of homes are worth more than 80K.

3. Do I have to pay it back?

If you stay in the home for at least three years, you do not have to pay it back. However, if you sell the home before three years, you'll be obligated to pay back the credited amount.

Other Hurdles to Home Buying Remain

This tax credit is certainly a step in the right direction. But the two biggest obstacles for home buyers still remain. Most mortgage lenders today are requiring a 20% down payment in order to qualify for a home loan. Likewise, credit score requirements are higher today than two years ago. These two factors have led to a reduction in the number of qualified home buyers in the market right now.

But before you complain about these obstacles, consider the following. The days of "easy lending" (during which nearly everyone qualified for a home loan in some way) had a lot to do with the mess we are in right now. You remember the subprime mortgage boom, right? That was when you saw advertisements that said things like "No money down, bad credit okay!" This type of lending practice is dangerous, and more than any other single factor it is responsible for the economic mess we are in right now. Certain hurdles to home buying are a good thing.

So while the $8,000 tax credit for first-time home buyers will motivate many people, you still need to be a well qualified borrower in order to get a loan. You need to have a good credit score, a favorable debt-to-income ratio, and a sufficient down payment. If you plan to buy a home in 2009 or 2010, focus on these three things above all else.

Obama Team Announces Mortgage Relief Plan for Struggling Homeowners

Home Buying News - February 18, 2009 -- President Obama's economic team is introducing an extensive mortgage relief plan today. It will cost somewhere in the neighborhood of $75 billion and is intended to help millions of homeowners at risk of foreclosure.

Critics of President Obama have frequently complained that his economic stimulus plan did not focus on the housing and mortgage crisis as much as it should. But there was a reason for that. Obama and his economic team realize that the housing crisis is big enough to warrant a program of its own. That's why they are introducing their $75 billion mortgage relief plan today.

Here's a summary of the new mortgage relief program and what it aims to do:

• For the most part, this relief plan is designed to help two overlapping groups of homeowners -- those who are facing foreclosure, and those who owe more on their homes than the home is currently worth.
  
• The relief plan will help many homeowner who are upside down in their mortgage loans refinance into more affordable loans. It will also give mortgage lenders more incentive to modify home loans for people at risk of foreclosure, people who fit a certain at-risk "profile." In other words, it will make mortgages more affordable for struggling homeowners, either by refinancing or restructuring the loans.
• Incentives for home loan servicers would include $1,000 for each modification, plus an additional $1,000 a year for three years if the homeowner stays current on the mortgage.
  
• The mortgage relief plan is more ambitious, and expensive, than expected. It was initially said to be a $50 billion plan but could now exceed $75 billion.
• Why is it such a big plan? Because nearly 3 million Americans could face foreclosure throughout the rest of 2009, a higher foreclosure rate than ever before in history.
• Previous plans have focused only on homeowners who were already behind on their payments. This program broadens the coverage to include homeowners who are current on payment but may still face foreclosure.
  

Do I Qualify for Assistance?

This is the number-one question we've been getting from readers. Unfortunately, it's the hardest one to answer. Write down March 4th on your calendar, because that's when many of the finer details are set to be announced. In the meantime, here is what we could find about eligibility.

• On the refinancing side, the program will focus on homeowners who owe more than 80% of their home's current appraised value.
• On the loan modification side, the program will help people with mortgage payments exceeding 31% of their gross monthly income.

President Obama first announced the mortgage relief plan earlier this morning, at a high school in Mesa, Arizona (one of the states hardest hit by home foreclosures). He will be giving a more formal press conference at noon today, and we will update this story at that time.

Real estate investors and speculators need not apply. President Obama has stressed, time and time again, that this program is designed to help homeowners who "played by the rules" but still fell victim to the housing crisis.

Additionally, at his Mesa, Arizona press conference, the president emphasized that the relief plan is not intended to help:

• "Speculators who took risky bets on a rising market for homes not to live in but to sell."
• "Folks who bought homes they knew, in the beginning, they could not afford."

So your home must be your primary residence in order to be eligible for this program. Refinancing assistance for upside-down homeowners will start with those whose mortgages are owned or backed by Fannie Mae and Freddie Mac. You can ask your current lender if your loan is backed by Fannie or Freddie.

Until the further details come out on March 4, I recommend doing the following. First, watch the Obama speech. You'll be able to find it on YouTube very soon, and it may be on the White House website as well. Listen to what he says about eligibility for the program.

If, after listening to his announcement, you feel you might be qualified, you should start gathering your loan documents and other financial records such as pay stubs and W2's. We don't know the exact steps for seeking assistance at this point, but it's a safe bet you'll need the aforementioned documents.

Related articles at the Home Buying Institute:

• Will the Government Subsidize Your Mortgage Payments?
  
• Mortgage Modification Programs Explained

Will the Government Subsidize Your Mortgage Payments?

Home Buying News - February 16, 2009 -- Mortgage modifications subsidized by the federal government may help thousands of homeowners avoid foreclosure in 2009 and beyond.

President Obama and his economic team are considering a plan to subsidize the mortgage payments of certain at-risk homeowners who may default on their loans. In plain English, they are thinking about using tax dollars to pay people's mortgages as a foreclosure prevention strategy.

This, of course, opens up a whole can of ethical worms. Is it right to reward people for being financially irresponsible? This is the question being asked by many critics of the idea. But the folks who support the subsidy idea simply have to have to cite precedence to justify it. After all, the banks were certainly rewarded for financial irresponsibility, to the tune of trillions.

But this is not a moral argument. This is a real estate news blog. So we shall limit ourselves to the facts at hand.

Last Tuesday, Treasury Secretary Tim Geithner mentioned the idea of subsidizing home mortgage payments for certain at-risk homeowners. He added that a more detailed plan would be released in a couple of weeks, explaining the nuts and bolts of how it would all work.

Borrowers must undergo a means test -- sort of like a financial health check -- to be eligible for the program, and they must also have their homes re-appraised to determine the current value. In theory, a person's mortgage lender would modify the home loan to make the payments more affordable, and the government would subsidize the difference in order to minimize the lender's losses.

According to RealtyTrac and other sources that track home foreclosure rates, the number of foreclosures in 2009 could pass the two-million mark. So regardless of where you stand on the idea of government-subsidized mortgage modifications, we can probably all agree on one thing -- something must be done.

Related articles at the Home Buying Institute:

• How do Home Loan Modifications Work?
• Mortgage Modification Programs Explained

What the Stimulus Package and Bailouts Mean to Home Buyers

Home Buying News - February 13, 2009 -- If you've turned on the news in the last 12 hours, you've probably heard that the Senate just passed the $838 billion economic stimulus plan that President Obama has been pushing. Here's what the new stimulus package means to home buyers and mortgage shoppers.

The details of the stimulus plan have not been fully worked out, because there are currently two versions of it. There's a version that just passed in the Senate, and a second version of the bill that was passed by the House. The next step for the president and congressional leaders is to merge the two into a single economic stimulus package that will go into effect.

If you plan to get a mortgage loan and buy a home in the near future, there are some relevant parts of the stimulus plan you should know about. We did some digging into those particular parts of the plan, and here is what we have found.

Part 1 - Stimulus for the Economy

Let me begin by saying that this is a selective list of items included in this legislation. It's a massive economic plan with hundreds of components, most of which are designed to create jobs, provide tax cuts for individuals and families, and bolster our country's infrastructure. These are merely the parts of the stimulus package we thought were most relevant to future home buyers and mortgage shoppers.

Tax Relief -- A large of the funding from this bill (more than a third, according to Senator Harry Reid) will go toward tax cuts for middle-class families. This is a scaled-back version of Obama's original tax cut proposal, and the result of a compromise between the parties. As is usually the case with tax cuts, this could help spur activity within the real estate markets by putting more money into consumers' pockets.

Job Creation -- Many aspects of the economic stimulus plan are intended to create jobs. This too could have an indirect influence over home-buying activity, simply by increasing the number of qualified (employed) home buyers in the country.

We are still digging through this bill and will update this page as new information is released. Now, on to the bailout.

Part 2 - Another Bank Bailout

The word "TARP" has become something of an embarrassment for government officials. The Troubled Assets Relief Program, as it is known, was a financial debacle through which the government pumped billions of taxpayer dollars into the financial industry. The idea was that this money would get the flow of credit moving again. But as we all know by now, this was not the case. Most of the banking giants used the money to shore up their own infrastructures. So much for a trickle-down theory.

So the new bank bailout plan, introduced recently by Treasury Secretary Tim Geithner, has a new name as well. It is called the Financial Stability Plan (FSP). Unfortunately, as much as we want to believe they'll get it right this time around, the new plan seems to be equally shrouded by mystery and confusion. A few days ago, Tim Geithner kicked things off with a cursory press conference that left most people scratching their heads.

Slowly but surely, however, the details are beginning to emerge. Here are some of the key parts of the Financial Stability Plan:

The new plan will include efforts to buy up more of the "deteriorating assets" currently held by banks. This will paid for jointly by the government (taxpayers) and investors. A deteriorating asset, by the way, is a loan that's going bad through default.

The new bailout plan will also put more money into existing TARP programs that are intended to increase the flow of credit. If this sounds a bit vague, that's because we are having trouble finding details about it.

Thirdly, the new bailout plan will continue the time-honored tradition of simply giving money to the banks, ideally so they can loan more money to businesses and consumers. This did not work well the first time, but maybe the second time is the the charm. Before lending more money to troubled financial institutions, government officials will conduct a "stress test" to see if the banks can survive further economic downturns (i.e., so we won't be pumping money into a sinking ship).

There's one thing we feel the Treasury Department has done well this time around. They've launched a new website, FinancialStability.gov, to increase transparency and public awareness of where this money is going. If you recall, the original TARP plan under George W. Bush had a cloak of mystery built into it that essentially said "Don't ask where the money is going." This new bailout plan has a new website to share information on the program. It still had a "coming soon" message on it, at the time of this article, but we are hopeful. What else can we be at this point?

How Does It Apply to Home Buying and Mortgages?

The tax cuts built into the stimulus package will have a slight but positive effect on the real estate markets, simply by boosting the spending power of consumers. But jobless rates are still soaring, so there's that to consider as well. If the Financial Stability Plan achieves the desired goal, banks might be more willing to give mortgage loans (some have clamped down on their lending, even to well-qualified borrowers).

But despite the new legislation coming out of Washington, the two biggest motivators for home buyers are the following:

• Low interest rates -- As of right now, a well-qualified borrower could get a 30-year fixed rate mortgage with a rate in the low 5% range. That's lower than the rates have been in decades. Most mortgage predictions expect this trend to continue throughout 2009.
• Low home prices -- We haven't found the bottom of the housing market yet, but we are close. As a result prices in some areas are as low as they've been for many years. They might not be this low again in our lifetimes.

So regardless of what the stimulus plan and the new bank bailout do, it's still a good time to buy a home for qualified borrowers. When you combine the low interest rates with the relatively low home prices, you end up with a lot of buying power. So why not use it? When the market begins to turn upward again, we won't see buying conditions like these for a long time -- if ever.

Low Rates Will Lessen the Blow of ARM Loan Resets

Home Buying News - February 9, 2009 -- Adjustable-rate mortgage loans bear a large part of the blame for the current economic crisis in the United States. But record-low interest rates could ease the blow of ARM loans that will reset in 2009.

Adjustable-rate mortgages are not inherently evil, the way many people seem to think. If you know how to use an ARM loan, you can save money on your monthly mortgage payments and avoid the unpredictability of the reset period.

But in the past, many people used ARM loans in the wrong way. They used them in situations where they planned to stay in the home beyond the reset point. In addition, a lot of home buyers relied on ARM loans to defer the high interest rates they were assigned (due to bad credit and other qualification problems). In other words, the ARM was their only option for getting into a home.

The rest is history. When these hybrid ARM loans began resetting after their introductory fixed-rate period, homeowners saw their mortgage payments "explode" in size. More than any other single factor, this is what fueled the subprime mortgage crisis in the United States.

Another Wave of ARM Loans Resetting

In 2009, another wave or hybrid ARM loans (initially fixed rate) will be resetting. According to the Treasury Department, more than 400,000 of these ARM loans will reset in 2009. This means the initial fixed-rate period will expire, and the loan will take on a new interest rate driven by current economic factors.

But there's some good news for these homeowners with adjustable mortgages. Current interest rates are lower than they've been in decades, so the ARM loans of many Americans may actually reset to lower rates -- a rarity for adjustable mortgages. And those that do take on a higher interest rate will still be much lower than they would have been two years ago (when the rates were higher).

The rates assigned to an ARM loan after a reset period are determined by a variety of factors, but these factors are driven by current rates and indexes at the time of adjustment. So when the federal fund rate goes down, so too do the interest rates assigned to mortgage loans. The Federal Reserve cut this rate to nearly zero recently, which has driven key mortgage rates down to the 5% range.

Related Stories

• Fixed-Mortgage Rates Fall to 5% Mark
• Interest Rate Predictions for 2009

Buying a Short Sale Home Requires Patience

If you are planning to buy a short sale home in order to get a good deal, you need to have two things in abundance -- patience and understanding.

You need to understand how the buying process works with short sale homes, because it's different than buying through a regular transaction. And you need to pack your patience, because the process of buying a short sale can be a long one. The process also varies from one state to another, and even from one home to another. So you don't always know what to expect.

What Is a Short Sale?

In simple terms, a short sale is a technique used to avoid home foreclosure. The homeowner's lender agrees to accept less than the full amount owed to them, in order to price the home competitively and get it sold fast. A quick sale is the ultimate goal of this process. You can get a more complete definition in this Short Sale 101 article.

How Long Does It Take?

This varies from state to state, because the short sale process varies among states as well. In fact, the process can even vary from one home to another, depending on the lender that's involved. We have spoken to a real estate agent who specialized in short sales, and she referred to it as a "box of chocolates" (a tribute to the movie Forest Gump), meaning that you never know what you're going to get when you try to buy a short sale.

Some real estate agents pride themselves on their ability to facilitate short sales quickly, and they market themselves as experts in the process. While it's true that some agents understand the process better than others, the final completion of a short sale depends on many factors beyond the agent's control.

The key reason for this complexity (and the lag time that often results from it) has to do with the number of parties involved with the process. When you buy a home through a traditional real estate transaction, your offer simply has to be approved by the seller.

But when buying a short sale home, you will need to get offer approval from several parties -- the company servicing the loan, anyone who has invested in the loan, and perhaps even the mortgage insurance company. In some short sale transactions, there are even more people involved with the approval. Basically, anyone with a corporate responsibility or financial interest in the loan has input into the process.

You must also consider that, in a short sale, the lender is generally accepting less than the full amount owed to them. So they will exhaust their other options first before that comes to pass.

Knowing What to Expect is Key

If you are serious about buying a short sale home, you should find out exactly how the process works in your state, and perhaps even seek the help of a real estate agent who specializes in the process. Most of the common delays of this process will be outside your control. But by knowing what to expect before you get into the process, you can avoid a lot of frustration.

In my experience, the buyers who don't understand the process end up getting frustrated and disenchanted with it. We have receive many emails from angry buyers who wanted to know why the short sale was taking so long. These emails usually begin with: "We submitted our application weeks ago, but we still haven't been approved. Why does it take so long?"