The following is excerpted from Virginia Halter’s blog at ActiveRain and discussed the issues surrounding Foreclosures and Buyers… and reflects the thoughts of all the agents and brokers, lawyers and loan officers here at Focus Real Estate Group, Inc. The particulars are for her market area, and are detailing issues and facts particular to that area, but the general concepts are true in all places. Real Estate is local, but the concept is global.

There is nothing more important as a home buyer than to make sure that you can afford the home you are buying… NOTHING… a qualified, honest, loan originator is key to helping you understand the costs… Be straightforward with your Realtor and loan officer, and make sure you find an honest one who will guide you in concepts, practices, and capabilities… do not be pushed into a purchase you cannot afford, and make sure that what you do in fact buy is a good buy, and that all aspects have been accounted for… this issue is a real problem, especially these days.

We do realize that many people have dreams of owning multi family houses, when as first time buyers, they would be much better off buying a condominium… if you have a trustworthy Realtor and loan officer, rely on their advice… what are you paying them for if you don’t listen to them.

Here is the excerpt:

Front Page of the Charlotte Observer…Foreclosures!

This is the headline on this morning’s newspaper. It is a series of six articles on how and why the foreclosure rates are sooooo high in some neighborhoods. It is also a comment on how it affects us all, not just the individual home owners.

Let’s start with the embarrassing information. Charlotte has the highest foreclosure rates in the state. Yikes!! These are our clients. Why aren’t we protecting them?

Oh wait, maybe they aren’t…there isn’t mention of one single REALTOR anywhere in any of the articles. In fact, there is only mention of people driving by a big sign “$1 down gets you in.” The article tracked four families. The overwhelming trend in thought seemed to be, “A dollar? Dang, let’s do this!”

The builder, which, in this case, was Beazer Homes, (I want to interject something here. These articles happen to be on a Beazer neighborhood but we all know this isn’t a problem that is centralized on one particular builder. This is a problem with the system which is currently in place) would take care of your down payment, take care of your closing costs, and assist you in the first two years of payments, by which time, you should be able to go it alone. You should have moved on up into a higher income in order to be able to afford your own financing.

Long story, short: 406 homes sold, 84% arranged financing through Beazer Mortgage, and, so far, 77 foreclosures. 29 of those foreclosures happened during the year the majority of folks in the neighborhood were assuming full responsibility for the loan payment.

Of the four families who were interviewed, all four families provided correct income information on the W-2s provided and discussed their debts with the loan officers. There ended up being discrepancies with each of the loan applications. Several had inflated income on the application, which was correct on the W-2s. Several say they were instructed to leave off various payments, such as a car payment, in order to qualify for the FHA loans.

Please, please, if you are a consumer looking to buy a home and you are unsure of what you can and can’t afford, please take the following advice:

  1. Talk to your own lender FIRST. In fact, talk to several lenders. Get information in writing. This is called a GFE or Good Faith Estimate. It is an estimate but they are required by law to be honest and very close to correct. Work with a lender you trust. Work with a person. Have a name, not just an 800 number and a file number. Talk to them on a personal level to get to know how they operate in life and run their business.
  2. BE honest!!! Don’t let your lender discount anything you feel is important. I had a lender tell me, during the purchase of my first home, “You monthly payment for daycare doesn’t count.” Shoot, have you priced daycare for a month. We were putting out $760 a month 10 years ago for daycare. IT COUNTS!! If you have a question whether something counts or not, ask yourself, “Will this affect my ability to pay a monthly payment?” If it will then count it!
  3. Don’t get in over what you are comfortable with!! Chances are real good that you will qualify for much more money than you care to spend. Don’t spend it. Decide what is a comfortable monthly payment for you and stick with it. You can tell a lender what the home costs, how much money you have in hand for closing, and what you want your monthly payment to be (including tax and insurance), and your lender can tell you what price range will keep you there.
  4. Remember the neighbors. How do I put this delicately? If it costs $1 to get in the neighborhood then all of your neighbors have, likely, done the same. This doesn’t bode well for the outcome of your neighborhood. Take the time and have the discipline to save up for your down payment. You have to have this discipline to own a home. It doesn’t stop with the monthly payment. If the water heater goes out then you must call a plumber , not the front office of the complex. Even if you can’t afford a more expensive neighborhood, you can afford to buy the best neighborhood for your money. This is an investment, not a trap.
  5. Have a REALTOR!! Ask your REALTOR for a CMA of the neighborhood before you buy. Ask for a foreclosure history of the neighborhood before you buy. 35 starter neighborhoods were identified in the Charlotte Observer study as having a foreclosure rate of at least 20%. Protect your money. Protect your investment by making yourself aware of these statistics before you buy.
  6. EVEN NEW CONSTRUCTION…HAVE A REALTOR - Builders are typically good people. Their on-site agents are good people generally. The on-site rep (we do not call them agents unless they really are a real estate agent. MANY ARE NOT REAL ESTATE AGENTS) has a job to sell the homes in the neighborhood. They are to be honest with you and sell, sell, sell! The on-site rep works for the builder. Get your own representation. The builder pays the commission and is 99% of the time already included in the price of the home whether you bring an agent or not. have someone being more than honest with you. Taking your best interest to heart.
  7. Read the paperwork. Understand what you are signing before you sign it. Ask questions.

Many of the home owners identified in the articles written are now “upside down in their homes.” What that means is they took out 100% or more financing on the home. they can’t afford the monthly payments because the builder incentives have stopped. They can’t afford to move because the home has decreased in value instead of increasing in value so they owe more on the home than they can sell it for. Be smart. Look after your money and your investment. Don’t let this happen to you.