We're talking about home ownership this week. What does it mean? Is it right choice for you? Buying a house is a complicated process that brings up a lot of questions. So today, we've invited Louis Barajas, a personal finance expert in L.A., to answer some of those questions from our listeners.
A number of our friends on Facebook wrote to us with questions about short sales. Joe, a first-time homebuyer in Washington, D.C., asked about bidding on a short sale condo back in February. He's worried, not only because the sale has taken so long, but also because he's heard rumors that at the last second, the price can go up. So what is a short sale and is it a good way to get into the housing market?
"Technically, a short sale is when someone owns a home and they're underwater. Meaning that if they were to sell their house, they would get more debt than they would get from the proceeds of the home. So, now they're trying to get rid of their house -- they maybe have lost their job and they're handing it back to the bank. The wonderful thing is that in the year 2013, this is the last year that we'll be able to do this, is that any debt that you will have to incur from getting rid of the house or selling the house, you will not be liable for it. You won't have to pay the taxes on it. Because usually with this thing called debt forgiveness, if they forgive a certain amount of debt you have to report that difference on your tax return and pay taxes on that amount. Until the end of this year, you have that on a primary residence. So everybody's trying to hurry up and get their short sales done as quickly as possible right now," says Barajas.
As for Joe's worry that the price will go up at the last minute, Barajas says when you bid on a home that's a short sale, a few things need to happen first -- and that it's a lengthy process. The short sale has to get approved by the bank. Secondly, if there are other liens on the property, the lien holders have to approve it. If there's a condo or homeowner's association, they have to approve. At the same there, there also has to be an appraisal and then the broker who's putting a bid in on the property has to do an appraisal, too. All told, Barajas says the process takes 3-6 months and that Joe needs to hold tight.
Because interest rates are going up and property values are going up, Barajas says the bank may want to hold off on accepting Joe's offer, to see if someone comes in with a higher offer.
Barajas also answered these listener questions:
- Jen and her husband live in San Francisco and have been looking for a townhome. She wants to know how to use the VA mortgage benefit to help her find a home.
- Steve from Arizona is renting right now ,but is thinking about getting into the housing market. He wants to know whether this is the right time to get into the market.
- Leslie from Portland, Ore., wants to refinance her home, but is worreid about qualifying because of her income. What can she do?
Click play on the audio player above to hear the advice. Plus, whether you're buying for the first time or have been around the block, check out our infographic on 10 home buying mistakes you should avoid.