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Mortgage News Matters

What is the Difference Between a Short Sale & a Foreclosure

Short sale vs. Foreclosure: What’s the Difference?

Though both short sales and foreclosures provide financial relief to homeowners who are unable to make their mortgage payments, they are two entirely different processes that result in significantly different consequences for the homeowner.

Initiated by the lender, rather than the borrower, a foreclosure is the lender’s last option, in the case that a borrower can no longer make their mortgage payments. In a foreclosure, the lender seizes the borrower’s home to try and make back the money they’ve invested. Most often, foreclosures take place after the homeowner has already abandoned the home, but if the homeowners have not left, they are evicted.

When a foreclosure takes place, it is typically a much quicker process than going through a short sale as the lender will try and liquidate it as quickly as possible.

Foreclosures are kept on a borrower’s credit report for seven years and can prevent the borrower from purchasing a home for 2-7 years after the home is seized by the lender.

A short sale, which is typically a much longer process, is less damaging to a borrower’s credit. And, in some cases, allows the borrower to purchase another home immediately.

To learn more about the difference between a short sale and a foreclosure, contact me today!

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Mortgage News Matters

What is a Short Sale?

A short sale is when a financially distressed homeowner sells their home for less than the amount that they owe on the mortgage. In this case, all the proceeds from the sale go directly to the lender, and they either (1) forgive the remaining balance or (2) get a deficiency judgment, which requires the homeowner to pay the lender all or part of the difference between the sale price and mortgage amount. In certain states, the difference must legally be forgiven in the case of a short sale.

Key points of a Short Sale

  • A lender must approve a short sale before it takes place.
  • The lender, or bank, requires documentation explaining reasons for the short sale.
  • Short sales typically take up to one full year to process due to a laborious paperwork process.
  • Are not as detrimental to a homeowner’s credit rating, as a foreclosure.

When does a home go into a short sale?

A property will go into a short sale (pending the lender’s approval) when the homeowner can no longer afford to make the mortgage payments. Rather than go into foreclosure, which is more damaging to one’s credit, the homeowner can initiate a short sale process by submitting an application to the lender.

When determining whether to approve a short sale, the lender will look at the following factors:

  1. The home must be worth less than the amount that the homeowner currently owes on it. The lender will often review sales of comparable properties, to make sure that the decision is sound.

  2. The seller must be able to prove they are financially distressed. This requires the seller to show the lender proof of insufficient income or assets to pay the outstanding loan amount.

    It is important to note that the source of the homeowner’s financial trouble must be new and not something they were previously withholding.

To learn more about short sales, contact a VanDyk Loan Originator today!

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Mortgage News Matters

Pros and Cons of Holding an Open House

What is an Open House?

An open house is a scheduled time set for potential buyers to walk through a property that is for sale. Typically hosted by a broker, the owners or renters of the property are absent from the viewing and many potential buyers are welcome to tour the space.

How Does it Work?

Typically scheduled during weekends, brokers welcome potential buyers to leisurely view the property and ask questions, they would otherwise not have the opportunity to do so without a broker present. It is customary for brokers to provide drinks and small plates for those who attend, and many provide collateral that buyers can take with them and refer to with information on the home, such as square footage, number of rooms, and information on the surrounding neighborhood.

The goal of an open house is to secure interest from buyers by providing a rare opportunity to take their time looking at a property closely, before placing an offer.

Advantages of Holding an Open House:

  1. Provides an opportunity to attract potential buyers. When an open house is planned correctly and properly marketed, it can provide a great opportunity to attract potential buyers, and possibly even lead to an offer. Many realtors suggest sellers hold an open house the first weekend that the property goes on the market – to generate the most buzz.

    Open houses can also bring in potential clients who may not have even planned for such an event but happened to be driving by. It’s a great way to appeal to potential buyers in a more casual way and low-pressure scenario.

  2. Provides feedback to realtors from visitors. Another benefit of holding an open house is for the potential for realtors to gain real feedback from visitors – both positive and negative.

    Many realtors find that potential buyers often share their feedback out loud as they walk through the home. This can give realtors crucial insight into buyers’ perceptions and any issues that could keep the owners from making the sale.

  3. Can lead to an immediate offer. If done properly, and by generating enough buzz, an open house can sometimes lead to an immediate offer. When potential buyers are browsing a home with many others also looking to buy, they can get a good sense of their competition. If competition is high, this may encourage them to make an offer much quicker than they ordinarily would otherwise.

    This is beneficial to sellers and buyers alike, as it gives the buyers a realistic idea of how many others like them are also looking to buy in their desired neighborhood.

  4. Allows sellers to cast a wide net. Showing a home to multiple buyers, rather than one at a time only widens the reach of potential buyers for the seller. It is also much more efficient to spend the same amount of time showing a home to a group of people, rather than an individual.

    This, in addition to potential feedback from viewers and an understanding of competition in the market, are huge benefits to holding an open house.

So now that we’ve covered its advantages, what are some of the disadvantages to holding an open house?

Disadvantages of Holding an Open House:

  1. Requires much effort – sometimes more than it’s worth. Planning and executing an open house is not an easy task. In addition to coordinating a time that works best for the owners to be out of the house for an extended period, making accommodations for pets or children, and removing all personal items throughout the home, putting on an open house requires money and time spent on marketing to bring viewers in. And if no offer is made – it can feel like a huge waste.

    That’s why it is important to take the time to properly plan, market, and organize for your open house, if you decide to hold one.

  2. Compared to online listings, an open house requires more time to reach potential buyers. Nowadays, most homes for sale are listed online before they even schedule an open house. And most buyers go online and browse properties from the comfort of their own home.

    Buyers can find almost all the same information online as they would at an open house, like the condition of the home, its details, and even view photos of the property from every angle. This alone, can make open houses seem unnecessary and even antiquated.

  3. Owners are typically required to leave their home for a designated amount of time. Typically, when holding an open house, the homeowners are asked to leave their home and take with them any personalized photos or memorable that can be found throughout the home.

    This can be tedious and difficult to plan for with the daily bustle of normal life. Some would rather avoid having to deal with this added stress and simply list their home online.

  4. Can open the home up to potential theft. Though there are benefits to opening your home for sale to many individuals – with hopes that with increased awareness, comes increased offers – doing so can open you up to potential theft. Open houses can give opportunities for criminals to explore a property and plan a break-in.

    If you are considering hosting an open house, make sure to hide any valuables, or take with you anything that you would not want to get stolen or damaged.
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Mortgage News Matters

What are the Pros and Cons of HOA?

What is an HOA?

A HOA, or Homeowner Association, is an organization that oversees or manages a private community or subdivision. Run by a board of directors, made up of its community members, a HOA enforces rules and guidelines to be followed within the community, as well as provides upkeep and maintenance of facilities.

Where can you find a HOA?

A Homeowner Association is typically found within communities of single-family homes or multiple unit buildings, like condominiums.

Run by an elected group of individuals within the community, membership is usually mandatory for anyone who chooses to buy a home with an established HOA.

What are the Pros of HOA?

  1. Structure through a set of community rules and regulations. A HOA provides a set of rules and regulations that all community members must follow. This offers a sense of structure and stability for all members and protects and enhances the community’s property values.

    Many of the guidelines are aimed at preserving the home’s exterior, and are focused on the cleanliness of the property, the property’s condition, and any repairs or upkeep that need to be done. Typically, HOA guidelines are aimed at maintaining a uniform appearance for all properties within the community.

  2. Provides access to exclusive services, amenities, and facilities. Like many communities made up of single-family homes or multiple unit buildings, HOA communities offer access to exclusive services, amenities, and facilities.

    These amenities often include landscaping, parking lots, swimming pools, common areas, workout facilities, tennis courts, and party spaces. Some HOA will also cover the cost for snow removal and trash collection for its residents. In addition to offering such services, the fees that community members pay to their HOA covers the costs to maintain each area.

  3. Mediates problems between neighbors. If there is a disagreement or problem between neighbors living in communities with HOA, they can often look to the board to help resolve such issues. This can be anything from a neighbor who is violating a specific rule or regulation, or an issue with a service or amenity on the property.

    Acting as a mediator between community members, a HOA can ease tension and provide a more peaceful, regulated environment.

  4. Opportunity for self-governance of community. Many individuals who live in a community governed by a HOA enjoy the freedom of being a part of a democracy, made up of individuals who live within the community.

    By following rules and regulations set by fellow community members, rather than an outside landlord who may not live on the premises, offers a sense of self-governance and equality.

What are the Cons of HOA?

  1. Often include fees, dues, and assessments. With access to exclusive services and amenities, like workout spaces, swimming pools, and common areas, comes HOA fees that pay for maintenance of each. These monthly fees also go towards upkeep to the exterior of the homes within the community and can be as little at $100 per month and as much as several hundred dollars.

    Because these fees are a requirment for living within said community, they can deter many from moving in. It is important to also keep in mind that these fees can fluctuate and often increase year-over-year. If the fees do not cover the cost to make such needed repairs, they will need to be raised.

  2. Imposes rules and regulations. Though community rules and regulations may provide structure and stability for its members, they can often feel restrictive and unnecessary. Many HOA rules have to do with the outside appearance of the home and often dictate things like the color one can paint their home, as well as which type of windows and doors they can buy.

    HOA even have the authority to decide what type of decorations or landscaping one can maintain and how many vehicles they can have on their property. If these rules are violated, they often result in a fine.

  3. Repercussions for those who default on payments. In addition to fines for violating rules and regulations set by the HOA board, individuals will be faced with addition repercussions if they fail to pay their fees. Dues will be accrued until the individual pays and in some states, not paying these fees can put individuals at risk for foreclosure.

    Keep in mind that these fees go towards the maintenance of shared amenities and property values. Which means that if sufficient funds are not collected, the community will risk losing vital services that keep the community running properly.

  4. May be run ineptly. Because members of a HOA board are volunteers or elected individuals within the community, the association can, at times, be run ineptly.

    These members may not be experienced enough to run a community and often do not receive proper real estate training. This can often lead to more problems for community members and between those on the board itself.