Mortgage Rates Reach Low for Year

Many factors were favorable for mortgage rates this week. Weaker than expected economic data, strong results for the Treasury auctions, and renewed concerns about weaker European countries all helped mortgage rates end the week at the lowest levels of the year.


All of the major economic data released during the week was weaker than expected. First quarter Gross Domestic Product (GDP), the broadest measure of economic growth, was unchanged at 1.8%. Most investors expected the figures to be revised higher to at least 2.0%. April Durable Orders fell 4% from March, which was the largest monthly decline since October 2010. Weekly Jobless Claims unexpectedly increased. These measures suggest reduced inflationary pressure, which is good for mortgage rates. In addition, the Core PCE price index confirmed that inflation remains very low.

Uncertainty in Europe also helped US mortgage rates improve. There is no clear solution to the debt problems of Greece, and the parties involved in aiding Greece disagree on what approach to take. European Central Bank (ECB) officials stated that Greece must adopt tough austerity measures to remain a member of the Euro zone. Greece has already sharply reduced spending, though, and further cuts will be difficult politically, increasing the likelihood of a default on Greek government debt. Investors also grew more concerned about similar problems in Spain and Portugal. Spending cuts or debt defaults are expected to lead to slower global economic growth.

Foreclosures for sale: Big supply, low prices

There's a three-year inventory of homes in foreclosure for sale, and that's devastating home prices.

Las Vegas has so many foreclosures that 53% of all the homes sold in Nevada are in some stage of foreclosure, according to a report from RealtyTrac, the online marketer of foreclosed properties.

Foreclosures represent 45% of sales in California and Arizona, and 28% of all existing home sales during the first three months of 2011.

"This is very bad for the economy," said Rick Sharga, a spokesman for RealtyTrac.

What's more, the homes are selling at steep discounts, especially so-called REOs, bank-owned homes that have been taken in foreclosure procedures.

The average REO cost on average about 35% less than comparable properties, according to RealtyTrac.

But in some areas, the discounts were ever greater: In New York State, the discount for REOs was 53% during the first quarter. And it was nearly 50% in Illinois, Ohio, and Wisconsin.

Also weighing on market prices are "short sales," homes where the selling price is less than what is owed by the borrowers. These sales sold at an average 9% discount.

Including both REOs and short sales, Ohio had the biggest discount of any state, at 41%.

There were 158,000 deals involving distressed properties nationwide during the first quarter, less than half the nearly 350,000 during the same period two years earlier.

With the slowed sales pace, it will take three years to burn through the inventory of 1.9 million distressed properties, according to Sharga.

"Even if you look at REOs alone, it will take 24 months to clear them and that's without any new foreclosures at all coming into the system," said Sharga.

Mortgage Rates Clinging to Lowest Levels

This past week, mortgage rates have been clinging to their lowest levels of 2011 with little to no movement happening. Freerateupdate.com's daily survey of wholesale and direct lenders show that, with the exception of jumbo 30 year fixed mortgage rates which decreased by .125%, all other mortgage rates continue to remain steady. Conforming 30 year fixed mortgage rates are at 4.375%, 15 year fixed mortgage rates are at 3.750% and 5/1 adjustable mortgage rates are at 3.000%. Available with 0.7 to 1% origination fee, these are the lowest conforming mortgage rates that can be obtained by borrowers who have maintained good credit and can produce the required documentation to receive lender approval.



FHA mortgage loans continue to be popular with borrowers who have less than perfect credit and little available cash for a normal down payment. With an FHA mortgage down payment requirement as low as 3.5%, borrowers don't mind paying higher FHA closing costs (APR) due to the upfront mortgage insurance premium and other various FHA fees. Current FHA 30 year fixed mortgage rates are at 4.250%, FHA 15 year fixed mortgage rates are at 4.000% and FHA 5/1 adjustable mortgage rates are at 3.375%.

Jumbo 30 year fixed mortgage rates are at 5.000%, down .125% from last week. Jumbo 15 year fixed mortgage rates are at 4.500% and jumbo 5/1 adjustable mortgage rates are at 3.625%. Well qualified high end borrowers in need of mortgage financing above the conforming loan limit, which is $417,000 to $729,750 depending on location, can obtain these low jumbo mortgage rates with 0.7 to 1% origination point.

Mortgage backed securities (MBS) prices have been moving very little in either direction which is keeping mortgage rates steady. Mortgage rates move in the opposite direction of MBS prices. Although unemployment claims decreased, reported existing home sales dropped in April leaving investors cautious. Current concerns over European debt has investors keeping a watchful eye for a weakening in any recovery.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard .07 to 1% point origination fee.

New-home sales up, but pace remains sluggish

WASHINGTON — More people bought new homes for a second straight month in April, a hopeful sign. Still, sales remain far below a pace that would signal a turnaround for the depressed housing market.

• 
  Gene J. Puskar, AP
  In this May 19, 2011 photo, roofers work on a new home in Bridgeville, Pa.

Enlarge

Gene J. Puskar, AP

In this May 19, 2011 photo, roofers work on a new home in Bridgeville, Pa.

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New-home sales rose 7.3% last month to a seasonally adjusted annual rate of 323,000, the Commerce Department said Tuesday. A healthy real estate market would produce a pace of about 700,000 new-home sales a month.

People have little incentive to buy new homes, in part because they're comparatively expensive. The median price of a new home rose more than 2% from March to $217,900. New-home prices are more than 30% higher the median price of re-sales — twice the normal markup.

The latest sales numbers come in the midst of a weak spring home-buying season. Analysts had been forecasting an uptick in sales for the past several months. It hasn't happened. April's new-home sales are 23% lower than in the same month last year.

• STORY: Mortgage-only defaulters may be safe credit risks

Many would-be buyers of new homes are instead favoring older, discounted re-sale homes, said Paul Bell, a Realtor with the Prudential Americana Group in Las Vegas.

"That's where the deals are," Bell said.

Shares of homebuilder companies rallied briefly after the report on new-home sales suggested that builders might step up construction. But stocks quickly fell on concerns over Europe's lingering debt crisis.

The housing sector remains the weakest part of the U.S. economy, noted Ian Shepherdson, chief U.S. economist at High Frequency Economics. Sales of new homes have declined 18% in the nearly two years since the recession ended.

Last year, Americans bought the fewest number of new homes on records going back 47 years. High unemployment, tight credit and a lingering fear that prices will fall further have discouraged many would-be buyers.

A further obstacle is gas prices. Elizabeth Duke, a Federal Reserve governor, said Tuesday that the jump in gas prices since February has contributed to a slowdown in big purchases by consumers.

At the same time, Brad Hunter, chief economist with Metrostudy, noted that the number of foreclosures has slowed in some areas because of backlogged state courts. A result is that builders in desirable locales are "raising prices, indicating some recovery in those submarkets."

New-home purchases rose in every region last month, after severe winter weather had hammered many areas during winter. Sales jumped more than 15% in the West, 7.7% in the Northeast, nearly 5% in the Midwest and more than 4% in the South.

Purchases for the past three months were also revised to show slightly more homes had been sold.

The number of new homes on the market — about 174,000 — is at its lowest point since record-keeping began in 1963. At the current pace of sales, it would take 6.5 months to clear them off the market. That's the lowest supply in a year.

Still, analysts say the supply of new homes for sale is being kept artificially low. Home construction is far below a healthy level.

"Builders remain reluctant to increase inventories, as they face tough competition from foreclosures," said Mark Vitner, senior economist at Wells Fargo.

Real estate affordability sets record in Q1

Housing affordability hit a new record high in the first quarter, surpassing the previous high set in fourth-quarter 2010, according to an index released by the National Association of Home Builders and Wells Fargo today.

The Housing Opportunity Index found that 74.6 percent of new and existing homes sold in the first quarter were affordable to families earning the national median income of $64,400. That's up from 73.9 percent in the fourth quarter of 2010, and it's the highest level recorded in the more than 20 years the index has been measured.

"With interest rates remaining at historically low levels, today's report indicates that homeownership is within reach of more households than it has been for more than two decades," said Bob Nielsen, chairman of the NAHB, in a statement.

"While this is good news for consumers, homebuyers and builders continue to confront extremely tight credit conditions, and this remains a significant obstacle to many potential home sales."

3 Absolute Musts for Buying a Home - Without the Stress!

Major money transactions are stressful. Moving is stressful.  Big life commitments are stressful. Put 'em all together, and what do you have? The home buying process (and the potential for one of the most stressful life experiences you'll ever have)! 

But even in this volatile market where distressed properties - and people! - are commonplace, it ispossible to maintain your sanity in the midst of a real estate deal - I promise.

Here are 3 money, mindset and calendar management strategies for buying a home, without stressing entirely out.

1.  Work the Boy Scout program: be prepared.  Scrambling for money and documents that the lender, unexpectedly, “requires” to close has got to rank up there in the top couple of stressors that buyers experience. Once you get into contract and, especially, once you’ve removed contingencies and put your deposit money on the line, every request that your lender makes seems like a ransom demand for your home - and your life, as you’d planned it.

Avoid this scrambling by being prepared. If you are planning to buy a home down the road, consult a mortgage broker and real estate pro early on in your planning process, so you can know what kind of cash you'll realistically need to close the deal - before you start the buying process. You might keep hearing about 3.5% down FHA loans, but your local pros can reality check you that it might cost an addition 5 or 6% of the purchase price just to close such a loan, in your area and price range!

If they give you a range, err on the high side - penny-scraping buyers are generally the most stressed of them all, as they are the ones whose deals are most likely to be entirely derailed if there’s an uptick in interest rates, say, during the time they are house hunting or in escrow, or if the homeowners’ insurance costs a bit more than they planned.

And have all your documents ready, too - things like divorce decrees, tax returns, updated check stubs, documentation of bills that you’ve recently paid down or off , even driver’s licenses (you wouldn’t believe the number of people who can’t produce ID when the notary needs it at the closing table!), keep all these items at the ready in case your lender requires them. By the same universal law that renders my dogs smarter and faster the wetter they get, it seems like lenders require the most documentation of the folks who have no idea where their most important papers are.

Last, but not least, there’s also an education element of preparedness.  Educate yourself about the standard practices and timelines for a real estate transaction in your local market (your agent will surely be able to brief you on this, and you can also peruse Trulia Voices Community to sample the experiences of other folks buying right now in your area.)  If you’re buying a bank-owned property or a short-sale, educate yourself about what this will entail - spend some time reading up on the rollercoaster of Wild Westiness (a mixed metaphor, I know, but still appropriate) that some distressed property sales can be, from the buyer’s point of view.  

When it comes to buying a home, realistic expectations will set you free.  Stress-free, that is.

2.  Keep your timelines as flexible as possible, as long as possible.  Rarely does the sun set in America without some homebuyer (or 5) near you lying awake in bed wondering how long they’ll have to:
    a) keep bunking with their in-laws, 
    b) keep paying the nightly rate for the all-suite hotel down the street from the place         they’re buying,
    c) keep paying the daily fee for the moving truck which is parked outside,  
        containing everything they own, 
    d) keep begging their landlord to please, please, please give them another 24 hours
        - and they swearing they’ll be out after that (even though they said that
        yesterday!), 
    e) keep pushing back the vacation days they took off work for the move that seems         like it will never happen, or
    f) some combination or all of the above,

all because their escrow is not closing on the timeline they expected it to.

There are as many reasons for late escrow closings as there are insomniac homebuyers facing this issue: buyer’s loan underwriting is taking too long, seller’s short sale application is still being processed, appraisal is glitchy, bank-owned property asset manager is slow to produce the necessary signatures, and the list goes on.  

More important than knowing the causes, though, is having the awareness that escrow closing dates are not set in stone until the end is very, very near - and that the problem of delayed closing comes up with ever-increasing frequency these days. Buyers who are trying to time their closing so that they move out of their apartment on the exact day they plan to close are likely to be disappointed - and temporarily homeless - in the current market climate.

Best practice is to plan on some overlapping days, weeks or even a month between the time you should be able to move into your next home, and the time you must be out of your current home, if you can afford it. Keep your moving plans flexible as long as possible - I’ve know a number of buyers who didn’t realize their move would be delayed until they were signing their closing docs!  

Also, it’s sanity-making to try to keep some flexibility about your daily calendar while you are in escrow, lest you need to show up at the property and get some additional inspections, unexpectedly, which were recommended by your inspector.  If you only have a couple of days before you must remove your inspection contingency, you might have to drop everything and stop in at the place for an hour here or there.  You might also need to stop in at the bank - in person - to wire cash when it’s time to increase your deposit or pay your down payment or closing costs into escrow. This cannot usually be done over the phone or outside of banker’s hours, so if you can be a bit flexible for these outings, calendar-wise, you’ll be in good shape.

3.  Pre-approve the folks across the bargaining table from you.  There’s nothing worse than doing every thing you’re supposed to do, then having the deal fall apart at the last minute, through no fault of your own. I’ve known scores of buyers whose short sales failed to get approved by the seller’s bank and fell out of escrow as a result.  I’ve also seen and heard from buyers whose deals died when their intended properties failed to meet the buyer’s mortgage guidelines because of condition problems like incomplete kitchen remodel jobs, mold or electrical problems and high-cost pest report items that neither the buyer nor the seller can afford to repair.

These ailing transactions can be prevented by early diagnosis: vet the other party’s qualifications and ability to close the deal, before you get into contract.  For buyers, this can mean having your agent collect as much information as possible about the seller’s equity position, how underwater the home is, which banks are involved and how successful the listing agent is at closing short sale transactions - all of these things can give your agent and yourself a big old clue as to whether a short sale is likely to close.  Similarly, if you’re getting an FHA loan, before you make an offer, walk through the property with your agent and troubleshoot it for condition problems that might come up during the appraisal. 

With this information you can make an informed decision whether to move forward and try to buy the place; if you get into contract knowing it’s a crap shoot, at least you’ll have realistic expectations - the sort that are very difficult to disappoint.

Myrtle Beach area sales outpace state

Grand Strand real estate sales outpaced nearly every other part of the state in April, according to the S.C. Realtors Association.

Sales of condominiums and single-family homes along the Grand Strand fell 0.1 percent in April when compared to the same month last year, according to the group. Only the Hilton Head Island area - which was the only area in the state where sales increased, with a 7.1 percent increase in April sales when compared to the same month last year - sold at a better pace.

Statewide real estate sales fell 18.4 percent last month when compared to April 2010, according to the S.C. Realtors Association. Some parts of the state, mostly inland areas, had dramatic drops in home sales in April. The southern Midlands area had a 51 percent drop, and the Aiken area had a nearly 35 percent drop in sales, according to the association.

Median prices on  the Grand Strand continued to drop in April when compared to the same month last year. The median price for homes and condos on the Grand Strand was $145,000, down 3.3 percent from April 2010, according to the association.

Foreclosures and short sales, which typically sell at significant discounts, continue to drive prices down along the Grand Strand. The area's concentration of second homes and investment property makes the market more volatile than some other parts of the state, Tom Maeser, a real estate analyst for the Coastal Carolinas Association of Realtors, has said.

While the Grand Strand didn't have the biggest price drops, it fared worse than some parts of the state where property values gained significantly. The Hilton Head area had the biggest gains in median price - prices rose more than 20 percent from April 2010.

Statewide, median prices dropped 3 percent in April when compared to the same month last year, according to the S.C. Realtors Association.

5 Strategies for Navigating the Summer Clearance Sale - on Real Estate!

Home prices are low, interest rates are low - real estate is basically having a summer clearance sale! But unlike buying a clearance-priced car or computer, making the wrong move in this real estate 'sale' can have disastrous effects, from losing your dream home due to a bad bid to ending up with a money pit of a property. 


Here are a few money-saving, pitfall-avoiding tips and tricks for buyers who want to do some smart home shopping this summer.

1.  Have a vision in place, before you start your house hunt. Actually, have several visions in place.  Have a financial vision, complete with a clear picture of what your total income and expenses look like, in the  “after homebuying”  view, including what you pay out for your home and related expenses, like HOA dues and homeowners’ insurance.  Have a vision of your life in your new home, including what you want to do, with whom and where you want and need to go - in the work, family and recreation areas of your life. 

If you kick off your conversations with your mortgage broker and real estate agent with a clear understanding of the lifestyle you are looking to create, you’ll be much less likely to get derailed. With a clear vision in place and, ideally, on paper, you can clearly communicate your wants, needs, goals and financial boundaries to your professionals, telling them what you can afford, rather than trying to shoehorn your financial plans into one-size-fits-all mortgage guidelines. With a vision, the temptation of an uber-low-priced, but completely inappropriate, home will not lure you into buying the wrong place for your needs. (Nor will an amazing home that is simply out of your personal price range - no matter how great a value it is for the money!)

2.  Don’t let affordability get between you and reality. High affordability doesn’t necessarily mean you can get every single thing you want  - and name your price. The fact is, even people who are spending millions for their homes don’t get everything they want!  I’ve seen buyers insist that they need X number of bedrooms and Y number of bathrooms in move-in condition for a price that is just not going to happen, even in this clearance sale climate, and end up looking and looking, ad infinitum. 

If your agent has shown you home after home that is what you want, but has sold for more than you want to spend, and you’re confident that you can find or cut a better deal because the market is down and you just os happen to be a brilliant negotiator (!), you might be at risk of falling into this trap.  There are deals to be had, but if you don’t stay grounded in reality, you’ll end up chasing your tail and missing out on the tax and lifestyle advantages of homeownership.

If you’ve been house hunting for months and months on end, your agent keeps trying to tell you that you should search in a lower price bracket, you have repeatedly gotten overbid or you just can’t seem to find the precise home you seek in the location and price range you seek, at least consider the possibility that you might have an outsized wish list for your budget. Take a step back, revisit your vision, and remind yourself what’s really important.  It’s okay to save some “must-haves” and “deal-breakers” for your next home purchase!

3.   Get a local expert to brief you on the local market, then screen out the noise.  Now more than ever, it’s essential to have laser beam focus on the information and strategies that will get you what you want - whether it’s an amazing deal on the home you’ve always wanted or simply success at becoming the owner of your first home at a price you never thought would ever be possible. Otherwise, you’ll end up all over the place, spending your time, money and sanity attending auctions, getting worked up over distressed properties that aren’t yet for sale, trying to negotiate deals with sellers who are in no position to cut them and having your lowball offers on bank-owned properties rejected time after time.

Don’t let a news story about a guy in Minnesota who got a home for $3.27 be the basis for your entire home buying strategy. Instead, ask around and get referrals to a local broker or agent who has a track record of helping the people you know.  Read their answers on Trulia Voices and ask them your own questions to get a sense for whether they might be a good fit for you - if they are, and you trust them, then consult with them on the dynamics of your local market.  The market is down everywhere, relative to 2006.  But some markets - and some neighborhoods within markets - are still seeing multiple offers and home prices which are relatively recession-proof, compared to what you’d expect from the national news.  

Once you have a strategy in place, work it - don’t let your acupuncturist or shoe repair guy convince you that your strategy is wrong, that you could get the place for cheaper or that the bank should absolutely do every single repair, or you should walk away from the deal.  Many would-be buyers lose out on great homes because they take negotiating advice from their holistic veterinarian over that being offered by their broker or agent.

4.  Read everything. Good faith estimates. Contracts. Disclosures. Inspection reports.  There is a long, long list of multi-page documents that are very easy to “just sign” when you’re in the heat of the hunt and think you’re on the scent of an amazing deal. I’m not suggesting you ask for a week-long pause button to read every document, either - rather, read them when you get them, ask questions, and keep asking until you understand the documents.

Many buyers this summer will make offers on more than one home before they get into contract on “the one,” and many of those properties will be short sales or foreclosures.  With distressed properties, every contract is different, so it behooves you not to go on autopilot, just skimming the papers as you might otherwise. Also, inspection reports might reveal red flags and condition issues that you’d normally expect to see in the seller’s disclosures.  It’s especially critical, in these situations, to fully understand as much as you can about the property, your loan, and your obligations and due dates under the contracts.

5.  Stop your mental accounting and do the actual math - on paper.  In the field of behavioral economics, mental accounting refers to the tendency we humans have of doing math in our heads, separating things like easy money (e.g., the so-called “instant equity” from buying a home for less than it’s supposedly worth) from hard-earned wages and salary, and making spending decisions differently from these different mental accounts.

On the scent of a good deal, and in the heat of the hunt, even the most meticulous homebuyer can go up a few thousand in offer price to beat out other buyers.  No problem, right?  Well, but then when the inspector uncovers a few needed repairs, they make a mental guess as to what they’ll cost, and add that in - again, mentally. Then, when the lender requires a few extra thousand bucks than expected to close, that goes on top, but again, only mentally.  And mental money tends to stretch a bit longer than real money does! 

So, you can see how it’s  possible to break the bank when you thought you were in great shape because you scored such a great purchase price for the property itself.  

Even if you hate budgets with every iota of your being, buck up on this one project, pull out the calculator or open up a spreadsheet and keep track of every line item. Get actual repair bids during your inspection period, to the extent possible, and get your math mojo on. It’s fine to buy and incur these overages here and there, but keeping track of them is key.  You know what I like to say - surprises are for birthday parties, not for real estate transactions, and not for your bank account, either! 

Keeping a strict tab on the expenses you incur during the transaction - or will need to incur afterwards -- will save you so much drama later.

The 5 Most Common Complaints of Short Sale and REO Buyers (and How to Avoid Them)

Roughly forty percent of the homes for sale on today’s market are short sales and foreclosures! Distressed properties are well known for their value (a reputation which is sometimes accurate, and sometimes not), but they also have a reputation for causing buyers to become distressed, too!

Transactional snafus, last-minute surprises and long, drawn-out escrows that never close seem to be par for the course. Instead of avoiding these properties altogether, get educated about the most common dramas that go down in these deals, and how you can avoid falling victim.

1.  Run-on (and on, and on) escrows. When you’re buying a home (or selling one, for that matter), time is absolutely of the essence.  And buyers reasonably expect that the big time suck in real estate is in the house hunting process itself; seems like once you find a home you want to buy and the seller agrees to your price and terms, things should move pretty quickly, right?

Not so much, when it comes to some distressed property sales. I’ve heard tell of the occasional, swiftly-moving escrow on an REO (real estate owned – by the bank). But for the most part, these transactions take anywhere from a few days to a few weeks longer than “regular” sales, because of the extra signatures, supervisor-level approvals and even investor involvement required to seal the deal.  Banks don’t have the same sense of urgency individual home sellers do, and it’s not uncommon for the people who need to sign on the dotted line to be on vacation or scattered across the country, adding days’ or weeks’ worth of time to the escrow.

And short sales are also an entirely different animal when it comes to escrow timelines. While a standard sale from an individual seller to an individual buyer might take 45 days from contract to closing, a short sale can take anywhere from 45 days to 6 or 8 months (!) to get the deal closed, after the seller has accepted the contract.

Avoid the drama by: expecting your escrow to run long, and being pleasantly surprised if it doesn’t.  Expectation management is everything. Make sure you take these extended timelines into account when you’re working with your mortgage broker on the issue of when to lock your interest rate, and how long your rate locks will last. You might even need to plan on and/or set aside an allowance for the cost of extending your low interest rate, if rates are rising rapidly during the time you’re waiting for the deal to be done.

2.  Bank won’t take lowball offer.  If I had a dollar for every time I’ve received a question from an outraged reader to the effect that a buyer has had their short sale or REO offer rejected on grounds that it was too low,  even though the bank has no other offers, I could buy a foreclosure myself (admittedly, it’d be one of those $150 foreclosures in some blighted town with tax liens and no plumbing, but still).

Banks owe their shareholders and investors a duty to get as much as they can for these properties. Just because you see it’s on the market and listed as a short sale or a foreclosure doesn’t mean they’re going to give it to you for a fraction of its worth. The bank’s goal is to get a purchase price as close as possible to the home’s fair market value, as determined by the recent sales prices of similar, nearby homes, with some adjustments made for the property’s condition.  Fact is, many banks would rather see the listing agent reduce the price by a moderate amount, and wait to see what offers come in, than to accept an offer 30 percent below the asking price just because there are no other offers on the table.

Avoid the drama by:  working with your agent to make a realistic offer, based on recent comparable sales in the neighborhood, not just on what you think you can get away with.  You can waste a lot of time, spin a lot of wheels and lose out on a lot of properties making lowball offer after lowball offer on distressed homes. Sit down with your broker or agent, review the ‘comps’ and make a smart offer that reflects a good value for you, is within your budget and is not bizarrely out of the realm of the fair market value of the property.

3.  Last minute postponements/cancellations. These transactions have an uncanny way of being delayed at the last minute – or never going through at all, through no fault of the wanna-be buyer. You signed docs yesterday, put your dog in the crate this morning and just hopped in the moving truck, only to get a text from your broker that the deal didn’t close because the escrow company which was selected by the bank flubbed the checkboxes on a single sheet of paper (it happens). Or, you’ve been in contract (with the seller) on a short sale for four months, and the bank refuses the sale entirely because the seller refuses to kick even $1 of their own cash into the deal, despite having a flush savings account.

Avoid the drama by:  staying as flexible as possible with your moving plans as long as possible.  Best practice is to plan on some overlap between the time you can be in your last place and your scheduled move-in date.  Also, if you’re in contract on a short sale, you should take the point of view that you don’t have a firm deal until you get the bank’s approval of the transaction. So don’t even think about starting to make moving plans or paying for home inspections and appraisals until you know the bank has greenlit the deal and that the purchase price and terms they’ve approved work for both you and the seller.

4.  The bank’s black box. Make an offer on a normal home and you’re likely to know what the outcome will be within a few hours or a few days, at the outside. If things take longer because the seller is out of town or some such, the listing agent tells you that, and you at least know what’s going on.

Make an offer on a bank-owned property or a short sale?  It’s a crap shoot – could be days, but could also, easily, be weeks or months before you know what’s going on.  And no amount of calling, pleading, prodding or nudging is likely to get you much information on how your offer or the seller’s short sale application is being handled or what (if any) progress is being made.  And that “black box” into which your offer disappears at the benk level is very frustrating.

Avoid the drama by:  continuing your house hunt until you have an answer back.  Maniacally pestering the listing agent for answers or harrassing your buyer’s broker into spending hours on hold with the bank is highly unlikely to get you any insight. (With that said, it does make sense for your agent to check in regularly – sometimes even daily –  with a short sale or REO listing agent to stay updated on any developments with the property and to make sure your offer/transaction stays in the front of their mind.)

Most of the angst in these situations arises when a buyer feels they passed on properties that would have really worked for them when they pinned their hopes on a distressed home.  You can only control your efforts and activities, not the bank’s.  So, consult with your own broker or agent about staying proactive in viewing and even pursuing other properties until you have a firm “yes” from the bank on your short sale or REO offer.  Until that time, and usually for a short time after you get the bank’s approval, you have the right to back out of the transaction if you need to (make sure your broker briefs you on precisely when your right to rescind your offer or exercise contingencies – i.e., bail – will expire).

5.  Double standards. In a “regular” equity sale with no bank involvement, both buyer and seller are obligated to meet various timelines.  Seller has to provide disclosures by X date, open the property to inspections – with utilities on – by Y, and close and move out by Z.  REO and short sale buyers, on the other hand, are often dismayed to find that  even though the bank might take weeks or months to sign or handle its deliverables, the bank will insist that the buyer show up, sign or send a check quick-like.

Avoid the drama by: chalking it up to the (admittedly irritating) way things are – the price you pay to buy from the bank.  Realize that working with the bank on the bank’s terms is unavoidable when you buy a distressed property. Then, go into the deal with realistic expectations – including the expectation that the bank will drag its feet, despite expecting you to keep every deadline – and you’ll be less frustrated, and less likely to make poor decisions out of frustration.

Also, make sure you do respond in a timely manner to the bank’s requests and your obligations under the contract.  I’ve seen banks capitalize on buyer delays in returning signatures and removing contingencies to accept higher offers they received in the interim.  Don’t lose your home on a technicality because you assume that the bank’s lackadaisacal timelines apply to you as well.