1 Out of Every 6 Homeowners Owe More Than Their Home is Worth

Tips for First Time Home Buyers
Buying a home can be a long, complicated and frightening process, and it is important to be prepared. Knowledge is power when it comes to negotiating the difficult world of home prices, interest rates and mortgage loans. For a first time home buyer, there are many factors to consider before you buy. The more information you can gather before you start shopping, the better off you will be.
Look Beyond the Price

When it comes to securing a quality mortgage loan, it is important to look beyond the interest rate to the true cost of the loan, both now and in the future. Read the paperwork, including the fine print, carefully, especially if the interest rate is below market rates. Upon closer inspection you may find that the interest rate is guaranteed for only a short period of time, or that it is subject to rise sharply in the future. Your mortgage loan may be the most important contract you will ever sign, and it is essential that you understand your rights and your responsibilities before signing on the dotted line.
In many cases it will make sense to hire a lawyer to review the mortgage paperwork for you. Many communities provide some sort of first time homebuyer program designed to help renters become homeowners, and these organizations may be able to provide the legal advice you need at a price you can afford.
Every Situation is Unique
Every homebuyer will have a different set of circumstances, and it is important for the lender to consider those factors. Some homeowners may plan to move in a year or two, and they may be able to benefit from a variable rate mortgage. Others will plan to remain in their home for decades, and those home buyers may benefit from the stability of a fixed rate mortgage and its predictable and stable monthly payment.
It is also important for those buying a first home to factor in the additional costs of the mortgage when deciding how much they can afford to pay. Things like closing costs and the high price of private mortgage insurance can drive up costs and eat into funds that would otherwise be available for home improvements, furnishings and other essentials. In some cases sellers may be willing to pay some of the closing costs, and some lenders will be able to negotiate those closing costs downward. The key is to ask those questions before the closing date arrives, and to be prepared to search for a better deal if necessary.
First time buyers should also be on the lookout for any hidden fees. These small nuisance fees can add up to hundreds of dollars on closing day, so be sure to scour your paperwork for any such fees. If you are unsure about the legitimacy of any charge be sure to ask for a valid explanation. Again, an experienced real estate attorney can provide valuable insight into which fees are reasonable and which are out of bounds.
And of course first time home buyers should not lose sight of the home itself in the quest for the perfect mortgage. Any defects should be pointed out to the seller well before the closing is to take place. The costs of every needed repair should be carefully negotiated prior to the purchase, and buyers should always follow up to make sure that all requested repairs have been made. A home is a major purchase, and it is important to make sure that everything has been taken care of before moving in.

SHORT SALES
Typically, short sales occur when the value of the real estate is less that the amount of debt secured by the mortgages or deeds of trust on the property. While short sales occur during the sale of property, they are arranged in advance of the sale. In agreeing to a short sale, the bank holding a mortgage or deed of trust on the property accepts less than the full amount of the debt owned to the bank.

The reason that a bank accepts less than the full amount of what is owned to them is that you are able to convince the bank (through accurate documentation – which they will ask you to provide) that you are financially unable to pay the full amount.

It is important that you do not handle short sales yourself, unless you are particularly experienced with these types of transactions. Ask a real estate broker or an attorney for assistance. I say this because there are a number of logistical things that require special handling.

Before considering a short sale, many banks would like to see an offer in hand by a potential buyer, as well as evidence that the property has been listed for some time. (Make sure that you do not enter into a binding agreement with a buyer to sell your property unless that agreement clearly states that it is contingent upon the approval of the bank. An experienced realtor will know the exact language that needs to be included in the agreement with the buyer of the property so that this contingency is in place.)

You also need to inquire about whether the bank or banks – and there may be more than one, if you have multiple mortgages or deeds of trust – will release you from liability for the unpaid balance of the debt if a short sale occurs. Banks are more likely to agree to this release if your property is owned as your residence, because in many states (including Oregon and California) a bank knows that if they had to foreclose on the property, they might not be able to sue you later for the difference in the market value of the property and the debt that is owned. There are many, many exceptions to this rule, so it is important that you consult with an experienced attorney to evaluate your risk of being sued later for the debt, and whether your bank will agree to release you from that liability. If you have more than one mortgage or deed of trust, an experienced attorney will be able to tell you which of the banks might agree to this type of release.

Finally, there may be tax consequences to agreeing to a short sale. So you should also seek the advice of a qualified tax professional.

If all of this sounds confusing, it is because there are many things to consider before you decide whether a short sale is the right thing to do. However, do not be discouraged. Ask your realtor or your attorney whether it is feasible, based upon your financial situation, the type of property that you own (commercial vs. residential), and the number of banks that are involved.

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