4 Tips to Getting Your Home Purchase Offer Accepted

You’ve decided – you’re ready to find a home, make a home purchase offer, and become a homeowner.   The homework has been done, you’ve figured out where you want to live, and have been searching for a home.  But there’s one problem – there is a shortage of homes available in your price range and it is an extremely competitive seller’s market.

A seller’s market means that there are more buyers than there are homes available for sale.  This is the case for most of the DFW area, and especially for homes under $350,000.

A healthy housing market follows a strong job market.  Business is booming in the DFW metroplex.  Texas has done an amazing job of attracting corporations to the area.   And it’s not just Toyota.  Boeing, Kubota Tractor, Liberty Mutual, State Farm, Jacobs Engineering Group, JP Morgan Chase are all bringing jobs to the area.  This has led to a shortage of housing in DFW.

The current studies show the tight supply of homes in DFW is not going to improve…for possibly 5 years. Homebuilders are behind the curve in building new homes.  And they just aren’t building homes in the most demanded price points (below $400K). Prices are forecast to continue to climb and some economists say that the area is still undervalued!  Yikes!  The good news is this isn’t Los Angeles prices.

With a strong, dare we say “hot”, seller’s market, it is safe to say you could find yourself in a multiple offer situation that turns into a bidding war for your dream home.

Just this past week a client of mine was up against 41 offers on a property that was priced at $215,000.  They didn’t win the house, however they were chosen as a backup.  While second place is not where they wanted to be, they still came out ahead of 39 others.  They accomplished this by putting their highest and best offer forward and following the tips below.

Home Offer Accepted

So what can you do to get the “win” on the home purchase offer you’ve made? These tips might just push your offer to the front of the line.

A Home Purchase Offer that is as Good as Cash

Get fully approved for your financing.  Most homebuyers get pre-qualified or pre-approved.  Go one step further, provide your lender with  all your documentation and have your file submitted for an underwriter’s conditional approval.  By doing this you have accomplished several things that could very well be attractive to a seller:

  • Confidence of no bad surprises
  • Shorter option period
  • Shows the seller you are serious
  • Removes uncertainty …Gives a level of comfort to the seller and the seller’s agent

 

Don’t Ask

Another thing that works fairly successfully is homebuyers keeping it very clean and simple for the sellers by not asking for anything in their home purchase offer.  Nothing at all.

  • No title policy
  • No repairs
  • No contingencies
  • Certainly, no concessions

Give and you shall receive? Perhaps!

So, give the seller what they want.  Offer the seller a lease back.  Shorten the option period.  If you offer over asking price, make sure you are in the position to pay the difference if the property does not appraise.

Hip Pocket Listings

Work with well-connected agent.  With so few listings, getting the scoop on an upcoming listing before it hits the MLS could benefit you.  Real estate agents often share information with one another about homes that are “coming soon” to the market.  Working with an agent who networks regularly with other agents puts you in a position to possibly get the inside scoop on an upcoming listing.

Third Party Validation

One of the biggest fears sellers have is that the homebuyer will not complete the sales transaction due to a financing challenge.  While you should already have your pre-qualification or pre-approval letter in hand, a phone call can make a big difference.  Have your lender call the selling agent to attest to your ability to obtain financing and close on time.  Of course, your lender cannot and will not divulge any personal financial information, yet they can still give the seller peace of mind by sharing verbally they have reviewed your information, don’t see any challenges, and expect a smooth and on-time closing.  Often this phone call can make a difference and your lender should be willing to make the call on your behalf.

Bonus Tips:

Give the seller a temporary lease back – without charging for it.  This takes the pressure off of moving and may make your home offer more enticing.

Write a compelling (emotional)  letters of why the seller should chose you.

My suggestion for anyone home shopping is if you find a house that is somewhat close to what you want, you should jump on it and present an attractive home purchase offer…before it’s gone!

Getting a Mortgage After Divorce from a Self-Employed Spouse

Divorcing spouses face unique challenges when trying to buy a new home.  And while getting a mortgage after divorce may seem difficult, it is possible.  However, one obstacle that could easily be overlooked is self-employed income of your former spouse.

Many people may think their ex-spouse’s self-employment income does not affect their ability to qualify for a mortgage.  After all,  the ex is not part of the new transaction, right?  It’s a little more complicated than that.

Tanya and her husband Gary had been married for ten years.  They had the “white-picket-fence” sort of life: great careers, 3 handsome athletic boys, the cars, the boat, an incredible group of friends and a love of travel – and the money to do it.  They were the poster family for “living the dream”.

Just a couple of years ago they relocated to Texas due to an advancement in Gary’s career.  Not long after settling in, Gary decided to follow his passion for horses and opened a side business raising and training horses.

As with many start-ups, there were income losses the first two years.  Gary reported these losses on the couple’s joint income tax returns.  Near the end of the second year, Tanya and Gary split. The following spring, they divorced.  Gary moved out and Tanya put the home and horse property up for sale.

Upon selling the home, Tanya found a new home which was well suited for her now-single life with her boys.  It was less square footage to maintain and had a small yard that would be easy to manage.  She was excited, to the say the least.

Divorce-MortgageTruth:  Your ex-spouse’s self-employment income could hurt you when qualifying for a mortgage.  While your income will be documented with pay stubs, W2’s, and employment verifications, any losses on your joint tax returns must be included as well.  Even if those losses belong to a business owned and operated by your former spouse.

Tanya and I met to begin her paperwork for her home purchase.  As I began to review her income taxes and the various schedules, the income losses from the horse business were severe.  Although this was Gary’s business, Tanya’s qualifying income would have to take the hit for the loss when qualifying her for a mortgage.

As you might imagine, Tanya was shocked.  She challenged, she debated, she pounded her fists, none of which changed the fact that the underwriter would have to count the loss.  She never wanted Gary to start that business and now she was paying the price for it!

The good news?  Tanya had a nice base income that could overcome the loss we had to count against her.  She still qualified for the mortgage and she could still buy the home.

When qualifying for a mortgage, in most cases, two years tax returns are required.  Your income is calculated based on wages, pensions, unemployment, business income or losses (schedule C), rental incomes pr losses (schedule E), income from farming (schedule F), and so on.

If you or your spouse file ‘married filing joint’ on your tax return, any losses that are incurred, even if in your former spouse’s name, will be included in your income calculation.  On the other hand, if there is a business profit and the business was solely in your former spouse’s name…that income is not included.  Yes, it feels a bit unfair.

Divorce happens.  It’s hard to plan in advance.  However if your spouse has a business it may be smart to file your taxes ‘married filing separate’ to keep the business separate from the marriage.  It is worth a conversation with your accountant and mortgage professional.

In the event you are newly divorced, filed joint returns the last two years, and your ex reported business losses…speak with a divorce lending professional.  Find out your options in advance of making any decisions about buying another home.  You don’t want any last minute surprises.

 

 

Using Child Support Income to Buy a Home

Most people believe that child support income can be used to qualify for a mortgage to buy a home…no matter what.  This misunderstanding can lead you astray and be dangerous in a divorce.  You should consulting with a divorce lending professional prior to and during your divorce process.  Knowing the rules and advance preparation can help you avoid some costly mistakes.

Myth:  I can use all my child support income to qualify for a mortgage to buy a home.

No doubt, believing this myth can lead to disappointment.  Of course, the last thing you want to do is fall in love with a home, picture living there to discover you can’t qualify.

You must satisfy two rules in order to use any type of child support or alimony as income in a home finance transaction.  The rule is called the 6/36 rule.  It stands for six months proof of receipt and thirty-six months proof of continuance of child support.

Six Months Child Support History

Let’s break this down.  First, you must be able to show a history receiving your child support to illustrate stability.  You will need proof of receiving the support payment for six consecutive months.  On time!  And exactly as stated in the divorce decree.

The proof can be provided with a copy of the cancelled check and your bank statements showing the full deposit amount.  In the event of support payments being collected through the courts, the bank statement will suffice if it shows the payor (court/entity) information in the credits section of your bank statement.

Plus Three-Year Continuance

You must have a three-year continuance of the child support payments in addition to having received it for the past six months.  If your support income represents 30% or more of the total household income, then the guidelines get a bit tougher.  You may be required to show proof of receipt of the income for as much as 12 consecutive months.

It’s not unusual for the continuance rule to throw a monkey wrench into qualifying for a mortgage.  Most divorce decrees state the child support will be paid until the child reaches age 18 or completes high school, whichever is later.

Let’s apply that to the continuance rule.  Assume you have a child who has already reached the age of 15.  You will not be able to use the support for this child unless you can prove the child will still be in high school three years from your home purchase.

Julie’s Story

For instance, Julie, a client of mine, just recently got a divorce and has three children.  She wanted to buy a home and needed to use her child support income in qualifying.  Julie’s oldest child is John, a high school senior. Samantha, her middle child, had recently made the freshman cheer team and had just turned 15.  Colby who is cute as pie is the baby of the family.  He is eight years old.

Child SupportJulie works in a management position and earns a good income.  However, she is saddled with a good portion of pre-marital debt, mostly student loans.  She needs her child support income to qualify for the purchase of her new home.

Julie’s child support documents clearly illustrated the dollar adjustments to the child support once each child turned 18 or graduated from high school.  Not all divorce decrees spell it out in such plain language.

Julies child support:

  • 3 children = x$
  • 2 children = x$
  • 1 child = x$

Since John is a junior, we could not use the full support amount.  It did not meet the three years continuance rule.  Samantha will finish high school after her 18th birthday.  In order to include the child support for Samantha, we needed to prove this.  Remember, Samantha is a freshman in high school.

Proving Samantha would still be in high school for three more years turned out to be a little frustrating for Julie.  First, for convenience sake, Julie pulled up the report card on her mobile app for the school.  The mobile version did not show Samantha’s grade level.  The mobile report card showed her classes and grades, but did not indicate she was a freshman.

Julie was scrambling to find something to prove Samantha’s grade level.  She was about to drive to the school when she thought to look at Samantha’s school ID.  Samantha’s school ID had her  name, picture, school name and grade level.  Bingo!  Julie took a picture of the ID and sent it over.  Challenge conquered.

As a result we could use the child support income for two children in Julie’s home purchase qualification.  This made it possible for Julie to purchase the home she wanted.

The Answer

Truth:   In order to use any type of child support or alimony as income in a home mortgage transaction, two rules must be satisfied.  This is called the 6/36 rule which mean six months proof of receipt and thirty-six months proof of continuance. If you can’t meet these requirements, the support income cannot be used in your income qualification.

Working with a divorce lending consultant prior to and during your divorce process can help you avoid some costly mistakes.  A divorce lending consultant can assist your divorce attorney with financial insight on structuring child support so you can use it to get a mortgage to buy a home for you and your kids.

 

How to Separate Your Marital Debt in a Divorce

When going through a divorce, marital debt is split up.  The way you go about it could cause you trouble down the road.

Most often when couples are going through divorce, money is involved – both assets and debt.  The main money focus is on the assets such as the bank accounts and retirement accounts. Don’t overlook your marital debt.  But just like the marital assets are split up in a divorce, so is the marital debt.

Perhaps the biggest myth when dividing up the marital estate revolves around the debts.  It is important knowing how to separate your marital debt effectively to protect your credit.

Marital DebtMyth: A divorce decree can remove a spouse’s liability from a joint liability – such as a mortgage, car payment, or credit card account.

Not true, sorry.

Unfortunately, most people believe that by dividing up the marital debt and spelling it out in the divorce decree, one party is off the hook.  This is simply not true.  You have not been set free from your obligations to your creditor just because your divorce decree separates the marital debts as to each spouse.  In other words, if your name is on a car loan and your ex-spouse is taking the car and ordered to pay the note on it, you are still responsible for the payments.  It is still your obligation.

Truth:  Your financial obligations to creditors does not change as a result of the divorce decree..  You are still obligated, as well as your ex-spouse, for any account in your name.  The terms of the credit contract are between you and the creditor.  If both of you signed this legally binding contract with the creditor then both of you are responsible for the debt.  The divorce decree does not override this contract.

Your divorce decree is binding on you and your spouse, but not the creditor.  Creditors are not part of the divorce process in any way.  They are not required to follow the terms laid out in your agreement.  Any amendment of a contract requires agreement by all parties.  This includes the creditor who loaned you the money.  Unless the contract is amended or paid off entirely, you are still liable for that debt.  You are responsible until it is either satisfied or refinanced.

Texas is a community property state.  In a community property state, property that is acquired during the marriage is considered joint property.  It’s a bit different when it comes to marital debt.  In Texas, the fact you were married and acquired debt in your name only does not, by itself, automatically mean it is “community property.”  And it doesn’t necessarily mean your spouse is liable on that debt.  If one spouse incurs a debt on behalf of the other spouse, or if the debt is for basic living necessities, then both spouses may be held jointly liable.   Even in the debt is only in one spouses name.  But if debt is incurred solely for the management of separate property (property owned prior to the marriage), that debt belongs solely to the named spouse on the account.  Joint debts obviously belong to both parties.

So, what happens if your ex-spouse doesn’t pay the debt?

If your ex-spouse does not keep up the payments of joint credit obligations that were assigned in the divorce decree, you may be in for an ugly surprise.

When your ex-spouse is responsible for paying a marital debt obligation, and does not make the payments, You can be negatively affected.   Your credit as well as your ex’s is affected…just as if you were still married. Expect the late payments to be reported on your credit bureau as well as your former spouse.

You may not be aware your former spouse is not paying the debt, in fact, you probably won’t be.  This means you would not have an opportunity to make a payment to keep your credit in good standing.  And if that’s not tough enough, the delinquency could go on for a time and result in a collection or charge off.  That too would wind up on your credit report.  Negative items on your credit impact your ability to finance a home, possibly rent, your insurance rates, and more.

How do you escape the marital debt trap?

The only way to remove a name on an account is to refinance or pay it off.  This includes your mortgage, auto loans, other installment loans, and credit cards.  In the case of a credit card, a new account would need to be opened.  You would also need to transfer the balance and close the old card.  Read that sentence again…the old card must be closed.

A well thought out settlement agreement will have language dealing with marital debt.  Should a spouse default on a debt, then the divorce decree should have language that will allow you to seek remedies from your ex-spouse in family court.  Keep in mind, this remedy does not sever the responsibility you have to the creditor.  It just requires your ex-spouse to pay you so you can pay the creditor.

Your best option and easiest way to escape the possible nightmare your debts can cause post-divorce is  to pay off the debts.  Allocate community property assets to pay the community debts of each spouse at the time of divorce.  Naturally, this will leave you both with less cash and assets to walk away with (but no debts, hallelujah).  But it allows you to leave with a clean slate and protects you from future risk.

 

Unfortunately, most mortgage professionals and many divorce professionals including attorneys, financial planners, mediators, etc. don’t understand the major positive impact a divorce lending professional can have on the divorcing client’s future need for mortgage financing. As a Certified Divorce Lending Professional, CDLP, my goal is to set up divorcing clients for success. Let your attorney contacts know that there are multiple ways to structure mortgage loans for divorcing couples as well as avoiding the common hurdles and pitfalls. 

 

Dividing Your Home in Divorce: How to Access the Equity

When going through a divorce, dividing your family home is often a big decision.  It is typically stressful and even emotional.  Often, one spouse will want to keep the family home.   If so, then the spouse must be able to buy-out the other spouse’s home equity based on the divorce agreement.

To divide home equity in a divorce, the first step is to obtain an appraisal by a residential real estate appraiser.  Then, you will need to reduce this by the balance of the outstanding mortgage along with any other property liens, property taxes, dues, etc.  Then both of you will need to decide how the remaining equity is to be split.

Contact me to learn more about the type of appraisal you need to request.

Access Your Equity

As you go through your divorce, let’s assume that you will keep the house and give your ex-spouse his/her share of the home equity.  Your house has been valued and the equity has been calculated.  Everything is agreed upon and straight forward.

There’s just one challenge.  You need more money than a Texas Cash Out (Texas 50 (a) 6) will allow.  The Texas Cash Out loan is limited to 80% of the value of your home.  You might be trying to figure out your options if you need more than 80% in order to cover the loan payoff plus the equity interest you must pay your ex.

You may be thinking Texas mortgage rules cap the loan amount and therefore might prevent you from being able to buy-out your soon-to-be-ex’s equity in your home.

While the Texas Cash Out does limit the loan amount to 80% of the market value of the home, there is another way to accomplish the division of home equity. Bust that myth.

In a divorce situation, co-owners may be able to access up to 95% of the market value of the home with an owelty lien for the purpose of a buy out the other spouse.

Home-Divorce-Owelty-LienSteve and Marianne are a great example.  They are going through a fairly amicable divorce and own a home in a beautiful neighborhood near the lake.  They bought the home many years ago at a great price of $350,000.  Steve and Marianne would like for Marianne to stay in the home and keep life as normal as possible for their daughters.

Today, their home is worth $450,000 and they have paid down the mortgage to $300,000.  Thankfully, Marianne has a good job and income and believes she can qualify for a mortgage on her own.  They have come to an agreement they will split the equity 50/50.

Doing the math, there is $150,000 in equity.  Each of them will walk away with $75,000.  Marianne asks around and hears about the Texas Cash Out.  Now she is concerned that she can’t get a big enough loan to buy out Steve.  She needs a loan for $375,000 (the balance of the current loan plus the equity interest of Steve) and the Texas Cash Out will only allow for 80% which is just $360,000.  Marianne is short on funds.

When Marianne calls me, she is feeling overwhelmed and starting to think she will have to sell their home after all.  I ask Marianne if a decree has been written and filed yet.  She says, “no” and that is good news.  After asking other pertinent questions, I determine that Marianne is positioned to use the owelty lien.  She is immediately relieved.

We set about getting her pre-approved for the loan amount.  Marianne provides me the information for her divorce attorney so we can connect.  I provide the attorney the information to ensure the decree is written properly for owelty partition so the owelty lien can be used.

Owelty of Partition

The court decrees an owelty of partition which is used to allow one co-owner of a property to buy the interest of the other co-owner of the property.

Owelty Lien

The lender can finance up to 95%  of the market value of your home when an owelty lien is utilitized.  This way you can buy-out your ex-spouse’s interest in your home.

The owelty lien will allow you to go over and above the Texas Cash Out giving you access to 15% more equity in your home.  This is incredibly helpful to so many people.

Be Specific

When using an owelty lien, your home equity division must be spelled out in the decree in a very specific way.  For instance, when referencing your home, the attorney must include the legal description not just the street address.  The legal description is a lot / block or a metes / bounds description.

Terminology in the divorce decree is equally as important.  The use of the word “equity” could pose challenges for financing with an owelty lien.  Conversely the use of “interest” provides a clear path.

“Award” and “divest” are also important terms that should be included in your divorce decree when splitting the home.

In addition, the tile must be carefully reviewed.  If your present home loan is a Texas Cash Out, then you are stuck.  You will need to refinance with a Texas Cash Out  and cannot use the owelty lien.  Sorry.

You want to be sure this is done correctly so you can take full advantage of the owelty lien benefits.  There are very specific steps that must be taken when dividing the equity of your family home.   For this reason, it is critical to have guidance from a divorce lending professional to work with your attorney. 

Make sure you call me!

The owelty partition is an effective way to use an owelty lien to buy out your spouse.  But if not executed properly, you could be restricted to the Texas Cash Out, limiting you to just 80% of your home’s value.

 

Protect Yourself and Your Tax Refund

We are nearing the end of tax season and many people have already received their tax refund. And some are not so lucky. Instead, they have learned someone else got there first and has their money.

Tax fraud occurs when an individual or business willfully and intentionally falsifies information on a tax return in order to limit the amount of tax liability, or to boost a tax refund. But it doesn’t stop there.

Did you know identity theft can lead to tax fraud? This occurs when someone steals your social security number to file a tax return claiming a refund…a fraudulent refund.

In a mortgage transaction, lenders pull transcripts from the IRS to confirm the tax returns you supplied with your documentation.

Just a couple of years ago during a typical mortgage transaction, my team was able to expose identity theft tax fraud committed against one of my clients. Luckily the theft had occurred just a couple of months prior to his transaction. He was able address it before more damage occurred.

MGIC, an industry resource and provider of mortgage insurance created this info graphic to help illustrate some of the common ways tax fraud occurs, how to protect yourself from tax fraud, and where you can go for help.

Identity theft tax fraud is no fun. Be armed, protect yourself, your identity and your tax refund.

Tax-Fraud-Facts

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