DEAN GRAZIOSI: DEAN GRAZIOSI REVIEW – REAL ESTATE FEED BY DEAN GRAZIOSI

Whenever you purchase a piece of real estate, there are certain closing costs involved. Most people know this before they go into negotiation for a mortgage, though the vast majority of investors and potential homeowners do not fully understand what is involved with each of these fees. In addition to the costs discussed below, these can include survey fees, credit checks, home inspection, points and more.

Each lender is different, so consulting your loan officer is the first step to understanding your closing costs. Ask them what kind of origination fees they have, if there are points involved, and what kind of structure they have for property taxes. Many lenders will require a portion of your loan payment go to an Escrow account to pay for property taxes, homeowner’s insurance, and other such necessities to protect their investment. For the duration of the loan, Escrow fees are taken out of monthly payments; however, at the time the loan is approved there may be two or three months’ contribution to the Escrow account up front.

Origination fees are the fees exacted by every lender at the time the loan is approved to cover the paperwork, time with the lending officer, and other such fees. In many cases this is approximately 1% of the loan’s value, but this number can add up quickly so be sure you know what that cost will be before finalizing a loan.

Appraisals are almost always part of the closing cost. Lenders need to be certain that, in the case of a foreclosure, they will be getting a sound, valuable property. This requires that a licensed appraiser come to the prospective property and test its soundness on a range of aspects that may affect its overall value. Depending on the size of the home, this could add anywhere from a couple hundred to a couple thousand dollars to the cost.

The loan officer responsible for your prospective mortgage can cover all the closing costs with you before the loan is finalized. If the officer is unwilling to go over these in fine detail until you understand and are comfortable with all the costs involved, request another loan officer or go to a different lender. Lenders are in the business to help you purchase property and should always be willing to take the time to explain every facet of the process to you so that you can rest assured you’re getting what you’re paying for.

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Thousands of homeowners around the nation have recently become acquainted with the feeling of having a home go into foreclosure. This process generally begins when a homeowner is three or four months behind on their payments. Owners are generally given 120 days (depending on the state) to bring the loan current, plus pay any legal fees accrued through the foreclosure process up to that point.

Often, this means the owners must come up with as much as a couple thousand dollars in addition to the back payments on their property.  For many, especially those who are already financially distressed, this sum is far out of reach on short notice. These owners generally have the choice of either letting the home foreclose, or finding a buyer for the home before the foreclosure goes through. There is another option as well, one in which the owner may give their permission to their lender, or ask permission of the lender, to sell the home in a short sale – or for less than is still owed on the property.

The most obvious advantage to the owner in the case of a short sale is that they will not have a foreclosure on their credit if the home is sold while in pre-foreclosure. Credit scores are quite unforgiving in cases of any loan default, but arguably the worst of all of these as far as the credit is concerned is a mortgage default. These are generally loans with a high balance with a low percentage paid off, and are invariably reported to all the major credit bureaus.

Foreclosures can be costly, and the cost must be borne either by the financial institution initiating the foreclosure, or by the owner who wasn’t able to make their loan payment in the first place. The cost and risk can be significantly reduced for both parties by a short sale, and the lender may claim any difference as a loss on their taxes. In most cases, once a short sale is agreed upon, a deficiency judgment cannot be made against the owners for any difference between the owed amount and the sale price.

Finally, short sales are beneficial to the buyer because they often allow for great discounts off the market value of the property without the hassle and risk of foreclosure auctions. Many times, buyers looking to purchase at auction expend a lot of effort only to have their target property go for higher than their top bid, or not even make it to auction at all. There are a number of ways to buy distressed properties and short sales are but one option to explore when looking to make an investment.

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The terminology used in many real estate transactions, especially those that are meant to be financially beneficial investments, can be confusing to newcomers to the market.  Short sales are particularly confusing.  Most people starting out in real estate investments are primarily accustomed to more common house hunting methods or property buying procedures that involve an eager seller, considering true value, making bids and having them countered or accepted.  The idea of a short sale is somewhat foreign to most of those new investors.
A short sale is instigated when a seller is desperate to get out of a financially draining situation due to the economic market or loss of income.  In those cases, rather than go through an actual foreclosure, they will seek relief from their mortgage lender and request the ability to sell at a lower price than their actual mortgage reflects in order to move the property quickly.
It is important to note that not all lenders will agree to such an arrangement.  However, in some cases they may consider it advisable rather than lose the entire amount of the loan, or taking the property as an un-performing asset that may sit on the market for years doing nothing for their income.
A short sale can allow you to obtain real estate you would otherwise not be able to afford, or give you the ability to turn it over faster because of the lower cost to you and still make a decent profit if sold at a more realistic rate according to the market value.  Using short sales is an excellent strategy, but you should always seek the advice of a reputable real estate lawyer to be sure all of the documents are in order and the original lender is in complete agreement to avoid possible complications at a later date.

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