RICK DYER'S BLOG

Buying a home is a thrilling experience. But it can also be a complex one. The good news is that if you can avoid a few common mistakes, you should be able to prevent some headaches and find yourself enjoying your new home a lot sooner.

Here are some common pitfalls and some expert advice on how to steer clear of them, whether you’re a first-time home buyer or someone more experienced at the real estate game.

1. Not Having a Contract on Your Existing House Before Buying a New One. A big mistake homeowners make is not having a signed sales contract on their existing property before they agree to buy a new house. The only way you can truly know how much house you can afford is if you know what your existing home fetches.
More important, in today’s market you never know how long it will take to sell your property.

The days of receiving multiple bids at your first open house are over. So don’t be surprised if the process takes several months or even a year. Wait to list your house until after you’ve agreed to buy a new one, and you could get stuck carrying two mortgages.

One way to cover yourself would be to have a contingency, or legal “out”, in the contract for the home you’re buying that lets you out of the contract if the sale of your existing home somehow falls through. This would spare you from carrying two mortgages, but not from the disappointment of a lot of time and effort spent on a fruitless house hunt. More on contingencies later.

2. Not Pulling Your Credit Reports Before Applying for a Mortgage
Here’s a fact: credit reports often contain errors. And those mistakes could drag down your credit score and cost you more in interest and fees on a loan. So you’ll want to get a free copy of your credit reports so you can fix any problems before you contact a lender.

You should also consider checking your credit score. A higher score increases a lender’s confidence in the likelihood you will make payments on time, so this number can make a big difference in whether you qualify for a mortgage, and if so, the type of mortgage you can obtain. A higher credit score may help you qualify for lower interest rates.

Some lenders
may lower their down payment requirement if you have a high credit score. On the other hand, a credit score under 620 could make it harder to obtain a mortgage. Lenders differ, but a good score is usually considered to be 700 or above.
If yours is lower, work on raising it by paying off your revolving debt, including credit cards,
and sending in your bills on time.

3. Failing to Secure Financing Before Making an Offer
It’s true that lending standards have tightened – but loans are being approved. Just make sure you have that loan in place before you make an offer on a new home.

Without financing lined up, you could start the negotiating process only to find that your deal falls through if you can’t secure a loan in a timely fashion.

Mortgage Applications Post 3rd Straight Rise

U.S. mortgage applications nudged higher last week, marking a third straight weekly rise, driven by a slight uptick in demand for home refinancing loans, an industry group reported on Wednesday.

Attractive mortgage rates and high affordability have been positives for the U.S. housing market, which has been showing signs of stabilization after a three-year slump, though the sector remains vulnerable to setbacks.

NEW HOME BUYERS’ TAX CREDIT MAY RETURN . . . BRIEFLY

The $10,000 state tax credit for new-home purchases could be revived soon for a limited-run engagement.

Last week, the California Senate passed a bill 35-1 that would provide $30 million in tax credits to about 4,000 additional new-home purchases. The bill now moves to the Assembly floor, which could take it up as early as Monday.
A spokesman for Gov. Arnold Schwarzenegger says he “supports the idea of this bill.”

In an earlier bill, the Legislature made $100 million in state tax credits available to anyone who bought a new, previously unoccupied home in California on or after March 1, 2009, and before March 1, 2010. The $10,000 credit must be spread over three years and can offset only up to $3,333 a year in state income tax.

The money was allocated on a first-come, first-served basis, and it went fast. Less than four months after the effective date, the Franchise Tax Board had received 11,925 applications representing more than $100 million in credits. It shut the door on new applications at midnight July 2.

Although it doled out $100 million in credits, the tax board estimated that about $30 million would go unused because many buyers could not claim the full $10,000.

To get the entire benefit, the buyer must owe at least $3,333 in state income taxes in 2009, 2010 and 2011. A buyer who owes only $1,000 in one of those years loses the remaining $2,333 for that year – it can’t be paid out in cash or carried into future years.

The original bill didn’t allow the tax board to reallocate unused credits to other new-home buyers, but the new bill – SBX3-37 – essentially would.

Pushed by the home builders, it would provide $30 million in tax credits to two groups of new-home buyers.

The first is about 300 people who bought a new house and got their paperwork in to the Franchise Tax Board by July 2 but missed out on the credit because the money was gone.

The other group includes people who buy a new house after the bill is signed and before March 1 – but only until the $30 million runs out, which could be long before March.

People who buy a new home after July 2 and before the bill is signed are out of luck.

Given that only 70 percent of the home credit is typically used, about 4,285 new-home buyers would qualify for the additional $30 million.

Sponsors say the bill is necessary to “facilitate California’s economic recovery, a large part of which is the maintenance of the new-home tax credit.” It was written as an “emergency statute necessary for the immediate preservation of the public peace, health, or safety.”

Democrat Loni Hancock of Berkeley was the only senator to vote against the bill. She couldn’t see “offering subsidies to potentially well-off people buying expensive homes while we are cutting the heart out of education,” says Larry Levin, Hancock’s spokesman.

She also questioned the fairness of offering a subsidy only to new-home purchases when there are so many foreclosed homes on the market.

When the bill was first introduced as AB765 by Assembly members Anna Caballero, D-Salinas, and Jose Solorio, D-Anaheim, it would have provided $200 million in additional tax credits on top of the original $100 million. But as the state’s finances worsened, the increase was whittled down to $30 million.

The process for bidding on an affordable foreclosure for a first-time buyer has become very difficult this summer, mainly because banks & lenders have collectively been letting the listed REO inventory dry up to very low levels. This has bolstered low-end pricing and caused all these “bidding wars” on properties, which has turned off a lot of non-investor buyers who aren’t willing to put in a contract on a house sight unseen. Also, a lot of the listed REO property that hasn’t been snapped up yet is just in terrible shape, and is far from “move in ready”.

On the other hand The S&P/Case-Shiller composite indexes of 10 and 20 metropolitan areas both rose 1.4 percent in June from May, almost three times the 0.5 percent increases of the month before. May’s increases were the first in nearly three years.  Optimism over a housing recovery blossomed last week after reports showed rising confidence among homebuilder and sales of existing homes rose in July for the fourth consecutive month.

Economists expect the sector’s recovery could help the nation emerge from recession and further stabilize financial markets that have suffered their worst crisis since the 1930s.

Despite Increases, Lenders Voluntarily Delaying 73 Percent of Scheduled Foreclosures

Foreclosures sales jumped 31.9 percent in May, following a 35 percent increase the prior month.  Notices of Default, which are the first step in the foreclosure process, fell 4.2 percent from April to 40,870 filings. Year-over-year filings were down 3.1 percent from May of 2008.

“While many complain that lenders are foreclosing too aggressively, and others claim a wave of foreclosures sales is imminent, the data actually shows that lenders are doing everything possible to delay foreclosure,” says Sean O’Toole, founder and CEO of ForeclosureRadar. “The reality is that we have very few homeowners being foreclosed on when viewed as a percentage of those scheduled to be foreclosed on, in default, delinquent, or upside down in their mortgage.”

Of those foreclosures currently scheduled, 40 percent are being postponed to a future date at the lenders request, and another 33 percent are being postponed based on the mutual agreement of lender and borrower, clearly demonstrating that lenders are indeed delaying foreclosure in the majority of cases on their own accord. Specifically note that lenders were under no obligation in May to offer a loan modification program, short sale, or other resolution, and that these efforts would have resulted in a cancellation of the sale rather than a postponement.