Closing costs can increase the price of a home by as much as $10,000, sometimes more.  Borrowers who are “cash-poor” can ask for assistance, or talk to their lender about a lender credit toward closing costs.

• Some lenders advertise that if borrowers agree to accept a mortgage interest rate from a quarter to a full percentage point higher than they would ordinarily qualify for, they can receive credit toward their closing costs.
• These mortgages are sometimes called no-closing-cost loans, though the term is misleading.  The credit usually covers only fees charged by the mortgage broker or bank, like the loan origination fee, the underwriting expense, and the appraisal.  That generally leaves title insurance, mortgage-recording taxes, insurance, and escrowed taxes to cover.The amount of credit depends on total closing costs and other loan details.  Generally, for every one-eighth of a point increase in interest rate, borrowers receive a credit worth half a percentage point of the principal amount.
• While these mortgages can be helpful to some, borrowers should carefully review all the details.  There are pluses and minuses to these loan types.  A downside is the higher rate and monthly payment remain in place through the life of the loan.
• Doing a side-by-side comparison of loans with and without the credit can be helpful.

Since the real estate market took a downturn, some people have complained they couldn’t buy, sell, or refinance a home because an appraiser used bank-owned (REO) or short-sold homes as comparables in the valuation process, which dragged down the value of their home.  While using REO and short-sold properties can lower the value of a home, some homeowners are upset that their county assessor will not use these properties as comps for their property taxes.

Making sense of the story

• In California,  some assessors will consider distressed sales when looking at comps, but it varies widely by county, neighborhood, and house.  In general, assessors will always look at non-distressed sales first and if there are enough, disregard REO and short sales.  However, if there are not enough standard sales, or the home is in an area dominated by distressed sales, the assessor likely will take these properties into account.
• Under Proposition 13, property is assessed upon a change in ownership at its fair market value.  That is usually the same as the sale price.  However, with distressed property, the sale price may not equal fair market value.
• Between changes of ownership, assessors can raise values only by an inflation rate, not to exceed 2 percent per year, plus the value of major improvements or additions.
• Under Prop. 8, owners who think the market value of their property has fallen below its assessed value can ask for a temporary reduction to the fair market value.
• Homeowners who think their homes are worth less than the assessed value can usually ask their assessor for an informal review.  If they are still not satisfied, they can file a formal appeal with their county’s assessment appeals board by Sept. 15 or Nov. 30, depending on the county.   Full Story

Short sales – a real estate transaction in which the homeowner needs to sell the property, but owes more on the mortgage than the home currently is worth – continue to dominate the housing market, but these real estate transactions aren’t for everyone.

Making sense of the story

• Typically with a short sale, the homeowner is underwater and has experienced a financial hardship such as a job loss.  To limit the damage to his credit rating, a homeowner may attempt to work with his lender to negotiate a short sale.  Not only must the bank approve of the short sale itself, it also must agree to the price, since the bank will accept the difference as a loss.
• Unlike foreclosures, in which the owner has walked away and the bank is looking to unload a vacant – and sometimes vandalized – property, a short sale isn’t a distressed home that will sell at an extremely low price.  According to data from RealtyTrac, short sales typically sold for nearly 10 percent less than the market price in the first quarter of 2011, whereas foreclosures sold at an average discount of 35 percent.
• Home buyers wanting to purchase a short sale must have patience.  In most cases, when a buyer makes an offer on a house, he receives a response from the seller within a few days, or even hours.  With a short sale, the bank must approve of the sale and bank representatives are overloaded with cases.  It may take 30 days or longer for a buyer to receive a response from the bank.
• In a traditional real estate transaction, it is common for a home buyer who currently owns his home to make his offer contingent on selling his current home.  In short sales, most banks will not approve an offer that is contingent on the buyer selling his current home, as too many things can go wrong.
• Banks also typically won’t consider short-sale offers that have inspection contingencies in them, so buyers can either do an inspection prior to making an offer or forego an inspection altogether.

• Even with the challenges associated with short sales, buyers should not avoid these transactions.  Being prepared ahead of the time and working with an experienced REALTOR® can help buyers avoid frustration and surprises down the line.

It’s Auto Week in Monterey. Every August our community is host to car shows, vintage races, auctions and lots of car memorabilia. The Concours on the Avenue is the one event that kicks off all the festivities. Last year this event was canceled and to the delight of many came back today.

Instead of driving through Carmel by the Sea, I strolled. Both down Ocean Avenue and several of the side streets. It truly was candy for the eyes. There were beautiful luxury cars, hot rods, micro cars and even historic racecars. One had to stop, not touch, and just drink in every detail. American, Italian and British cars were all well represented. Even if you aren’t a car buff, one can’t help appreciate the beautiful lines of the Porsches and Ferraris. And yes, they do come in other colors than just red.

Tighter lender standards and an unstable job market have made it tougher for some people, especially those just starting out, to qualify for a home mortgage on their own.  So, some home buyers are turning to family members or close friends with good credit to co-sign a home loan.

Making sense of the story

• While becoming a cosigner may seem like a good solution, money manager and lenders caution against those who are asked to be the cosigner.
• A cosigner, even if not living in the house, is really a coborrower, meaning he or she still is responsible for payments if the occupant is unable to meet his or her obligations.  In other words, if the principal party defaults on the loan, the cosigner is on the hook.
• One financial planner suggests potential cosigners take a less risky alternative, such as providing a cash gift for the down payment.  Under current tax laws, a person can give as much as $13,000 to a person, free of gift taxes, or $26,000 per person, if a married couple filing jointly is giving the money.
• Those considering cosigning a mortgage must conduct due diligence.  First, the cosigner must understand why the family member or friend is asking for help.  Potential cosigners shouldn’t be afraid to look into the requestor’s personal finances to help determine whether he or she will be able to repay the loan.  Perusing credit reports also will show the track record he or she has for paying off debts.
• A discussion about worst-case scenarios also should take place before signing on the dotted line.  Working out a written contract containing an agreement about what would happen in the event of a default, also is recommended.
• Cosigners also should keep in mind that the mortgage will show up on their credit report, and could affect their own ability to borrow money or buy a second home.  If the principal borrower makes a late payment, that also will show up on the cosigner’s report

Once again, the Community Hospital of the Monterey Peninsula held their 16^th annual cancer survival day. Volunteers (doctors were at the grill) served up a delicious barbecue of hamburgers (including veggie burgers) hot dogs, delicious salads and plenty of ice cream and cake. There was live music, face painting, art projects, inflatable slide, clowns and so much more. While we were having our usual August weather, the chill of the day did not chill the spirits. After all, we were celebrating the blessing of life.

I attended the event with family and friends, as I have for the past few years. There are usually about 1,000 people who attend the event and yesterday was no exception as you can see by the pictures. In my family, my Dad is a 14 year cancer survivor. It was both a joy and blessing to spend the day with my Dad and all those who have survived cancer. I give thanks and praise to my Lord for another year with my Dad.

Bank of America has joined the Keep Your Home California principal-reduction program, making it the largest loan servicer involved in lowering loan balances for those with economic hardships.

Making sense of the story

• Keep Your Home California is a program offered through the California Housing Finance Agency to help struggling homeowners avoid foreclosure.
• Bank of America, which services more than two million home loans in California, joins others servicers involved in the program, including: California Dept. of Veterans Affairs, the California Housing Finance Agency, Community Trust/Self Help, GMAC, Guild Mortgage Company, and Vericrest Financial.  Agency officials hope the list will continue to grow, and that the program will continue to gain momentum.
• Under the program, qualified homeowners may be eligible for up to $50,000 in assistance.  The program requires the mortgage investor to match dollar-for-dollar the amount provided by the program.
• Bank of America borrowers who do not qualify for the principal-reduction program will be evaluated by bank representatives to explore other options, including a loan modification.
• To be eligible for the program, applicants must: Own and occupy their homes as their primary residence; not exceed $729,750 in current unpaid principal balances on first mortgages; meet low- and moderate-income limits; complete and sign a hardship affidavit to document reasons for hardships; have mortgage loans that are delinquent or “in imminent default;” and have enough income to pay modified mortgage payments according to guidelines from servicers participating in the programs.

• An under-utilized program that has been in existence since 1995 can help home buyers save on their utility bills by letting them fold the cost of energy improvements into their mortgage.
• The program, Energy Efficient Mortgage, can be used by homeowners with both Federal Housing Administration (FHA) and Veterans Administration (VA) loans.
• In California, homes built before 1978 stand to benefit the most from such improvements, because 1978 is the year when builders were required to start incorporating energy-efficient building techniques.
• To be eligible for an Energy Efficient Mortgage, the projected energy savings have to be greater than the cost of the work.  The savings are calculated using the Home Energy Rating System (HERS) index, which calculates what the average energy usage would be in the home once the improvements are made compared to a similar home that did not have the work done.
• For more information about the HERS index, and how it can be used to measure a home’s energy efficiency, visit the California Energy Commission’s website.

On Friday, Gov. Jerry Brown signed Senate Bill 458 (Corbett) into law.  The new law, which contained an urgency clause and became effective upon signing, protects homeowners pursuing short sales by barring first and secondary lien holders from going after sellers for money owed after the short sales close.

Making sense of the story

• A short sale – a transaction in which the homeowner sells the property for less than is owed on the mortgage – must be approved by the lien holder or lien holders, if there is more than one.

• Under previous law (SB 931 of 2010), a first mortgage holder could accept an agreed-upon short-sale payment as full payment for the outstanding balance of the loan, but the rule did not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens.
• The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) sponsored the bill and urged lawmakers to pass this much-needed legislation.
• “The signing of this bill is a victory for California homeowners who have been forced to short sell their home, only to find that the lender will pursue them after the short sale closes and demand an additional payment to subsidize the difference,” said C.A.R. President Beth L. Peerce.  “SB 458 brings closure and certainty to the short-sale process and ensures that once a lender has agreed to accept a short-sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full, and the homeowner will not be held responsible for any additional payments on the property.”

You can read the complete article at The San Diego Union-Tribune

Interest rates are near historic lows and home prices are affordable; however, many borrowers are finding they must have nearly pristine credit records and hefty down payments to get the best rates.

Making sense of the story

• Since 2009, credit standards have become much tighter.  For borrowers, this emphasizes the importance of paying close attention to credit scores.
• New rules unveiled last week, the result of last year’s Dodd-Frank financial-services legislation, require banks and other lenders to disclose to consumers the scores used to determine interest rates charged borrowers, or to deny credit, making it easier for borrowers to see how their credit scores affect the interest rates they pay.
• The FICO credit scores on loans that banks are giving out and that are backed by government agencies Fannie Mae and Freddie Mac show the new reality.  Currently, the two agencies essentially finance 75 percent of all mortgages by purchasing the loans from banks, thus shaping how much it costs to borrow.
• FICO scores range from 300 to 850.  Prior to the decline in home prices, a score of 700 to 725 was considered solid and, a borrower could expect to be approved for a “conventional” mortgage at the lowest rates.
• From 2003 to 2006, 82 percent of Fannie Mae mortgages were for borrowers with a score between 700 and 750, but so far in 2011, only 13 percent of Fannie Mae mortgages carry that score, and just 1.7 percent have a score of 700 to 725.  This year, 75 percent of Fannie Mae mortgages are for FICO scores of 750 to 755, up from less than 5 percent before 2005.
• These trends demonstrate the importance of understanding credit scores and ensuring credit reports are accurate.  Consumers can check their credit report at AnnualCreditReport.com.

The Wall Street Journal has the full story about Mortgage rates.