Admit it. You’ve seen them. You may have even groaned a bit watching those trite holiday auto sales pitches, especially those depicting a red bow on the hood big enough for your sanitation provider to insist on a special order for pickup because they think it’s a glorified mattress and may even suggest donating it to the Salvation Army. But while those commercials tout giving a car as the ultimate material gift for the holidays, only the tipsy-toppy models come near to the value of a home and none are so enduring. Better yet, a home appreciates in value and a car doesn’t begin to do that for at least 20 years. Believe it or not, the holidays are an excellent time of year for Southern California home Buyers to mobilize a real estate purchase.
That means the season itself may give you the edge you’ve been needing all year, but don’t break out that ridiculous oversized bow just yet. Here’s why:
MARKET ROLLER COASTERS THAT MAKE YOU SCREAM
No doubt you’ve heard of the economic principle of supply and demand. If Buyers flood a market with few willing to Sell, prices climb into the stratosphere as if powered by a scramjet. If the number of Buyers drop with the same number of Sellers, prices tend to moderate as if parachuting down to a recovery site. Real estate is a business like any other, with its own periods of expansion, recession, contraction, and recovery. What’s often not understood is that seasonal variations also appear.
The smart home Buyer can watch for times when these markets let up a bit. The fact is, real estate people and Lenders often pause in remembrance of the “Last Half of December Rule,” which simply states, “Why worry? It’s party time throughout the last half of December anyhow.”
It’s not really true, even if it may appear that way. Lenders tend to reduce their work force the last half of December, knowing that some want to travel to see Grandma and tank up on her snickerdoodles and pies. Real estate offices tend to furlough the little elves that work behind their front desks, retaining them enough to prepare end-of-the-year accounts for the CPA when tax season rolls around. But till the last half of January, a lot less activity goes on in the real estate business and most are gearing up for next year’s spring fling…which in Southern California actually begins in January.
In fact, the seasonal cooldown has already started… well, sort of. In mid-November the Los Angeles Times reported a cooldown in the Southern California real estate market that had been so hot in 2021 it could have been mistaken for an asteroid impact. They reported a 6.6% drop in home sales in October—the beginning of a pause, but only a pause, mind you; and the craziness of the 2021 real estate market year hasn’t entirely worn off. In fact, the demand for housing hasn’t dropped nearly as much as it has in previous years while many Sellers have held back
After all, despite the season, it’s still a Seller’s market in Southern California, with homes often selling above list price. For example, Orange County median home prices rose more than 16-1/2% in 2021 while actual sales fell about 13-1/2%.
You might say, however, that real estate sales compare to football: a game of inches, which in real estate terms might be likened to how much Buyers and Sellers as well as Borrowers and Lenders settle in the give-and-take of negotiations. Let’s say you’ve made offers all year long and felt frustrated when someone else keeps making a bigger offer than yours. You might have better luck in the winter months because, nationwide, holiday cheer comes with Buyers finding a crack in the metaphorical stone wall.
SOUTHERN CALIFORNIA IS WEIRD
Of course, that’s true nationwide. Southern California… well… that optimal time tends to come a little bit later: like early January, which is really the beginning of spring. Clearly, now and not later is the time to get financing lined up for those quieter moments of the real estate market. If you have cash enough to affect a home purchase, I bow to your smashing success as I do to a guru from the Himalayas.
Few Sellers tend to sell around the holidays—unless they must. This December may provide that imperative for some Southern California Homeowners who have been juggling forbearance on their mortgages throughout the COVID-19 pandemic. That’s particularly the case for those with government loans like HUD/FHA, VA, or USDA, for those forbearance provisions expired on December 1, 2021. That means that some of these Homeowners may be ready to refinance, try a loan modification, or sell their properties outright, even if it means going the short sale route.
That provides an unusual opportunity for Buyers in a bonkers year like 2021—that metaphoric crack in the wall.
Think of what that means. Consider the Orange County Housing Report from November 15, 2021, distributed by Le Rêve Realty Group. How fast did home sales close recently? For units under $1.25 million, deals closed in 18 or 19 days on the average—less than 3 weeks! That’s so fast that NASCAR has nothing on Orange County.
So, especially if you’re a cash Buyer, and find a standard sale from one of these distressed Sellers, you could find yourself sitting pretty in a new home in Orange County by New Year’s Day, setting out dips and champagne for friends while watching the ball drop in Times Square and exchanging kisses with loved ones in your COVID-19 bubble.
Even if, like most of us, you need financing, not all is lost, and if you have your proverbial “ducks in a row” with your documentation, you may still make it into a new home by New Year’s from a standard sale. After all, I’ve seen some loans go through in 2-3 weeks, though some may take a month.
DON’T SKIMP ON THOSE DOCUMENTS
Lenders examine an applicant’s “4-C’s”: capacity to repay a loan, capital that can be converted to funding if necessary, collateral backing the loan, and credit attesting to your good faith and character in borrowing money. If you go the mortgage route, nothing expedites a loan better than gathering these documents as completely as applicable to you:
1. Your income tax returns for 2019 and 2020 with W2 and/or 1099 forms. If mobilizing for next year, get those 2021 taxes prepared as soon as possible.
2. At least 2 pay periods-worth of pay stubs. For most workers, that means pay stubs over a 2-week period. But some are paid on a semiweekly or monthly basis too. Figure according to pay periods and Lenders will recognize your conscientiousness. Don’t throw those pay stubs away. You will also need to present a final pay stub prior to loan funding to show continuity of employment after approval from the Underwriter.
3. 2 months of bank statements to show your cash assets.
4. Statements attesting to control of other assets such as stocks, bonds, IRA/401k, etc.
5. Any gift letter showing aid for a down payment.
6. A schedule of homes owned over the past 2 years. Some of us have multiple properties.
7. A schedule of all current debts with recent evidence of payment.
8. A copy of any existing mortgage on properties you plan to retain with evidence of purchase by a loan service company (Lenders often sell mortgages within a month of closing). It helps also to show the last mortgage statement with evidence that your monthly payment has been faithfully executed.
If self-employed with a corporation, you’ll need additional documents:
1. A copy of the Articles of Incorporation & Business License establishing the fact that your business exists.
2. 2 years of the Corporate Tax Returns. These need to include schedules such as K-1, 1120, and 1120S.
3. A Corporation Year-to-Date Profit and Loss Statement and corresponding Balance Sheet.
4. A letter from your CPA attesting that your business is still operating.
Your Broker will draw up other documents which you may need to sign or initial, based upon what you supply including:
1. Form 1003: Uniform Residential Loan Application
2. The Residential Purchase Agreement and Escrow Instructions with Agency Disclosure Statement and any other applicable forms.
3. Mortgage Loan Disclosure Statements
4. Credit Report
5. Arrangement for Appraisal. By law a Broker cannot do this directly but must affect this through a 3rd party liaison.
6. Any other required forms related to Form 1003.
7. Natural Hazards Report and related Disclosures.
8. Any possible requests for documents from a Homeowners Association
Yes, it’s a lot of documentation. Yes, a typical loan file compares in size to a volume of Encyclopedia Britannica. But there’s an important reason why complete documentation is so vital at the very beginning: TIME.
Here’s what happens on the Lender end: after a Broker overnights documents to the Lender. The Lender’s Processor organizes these documents for an Underwriter who must examine them for compliance with a requested loan program with a checklist applicable to that program. If complete, the Underwriter gives full approval within days. If, however, something is missing from the Underwriter’s checklist, the Broker’s fax machine prints out an Approval Letter conditioned upon receipt of the documents pertaining to the cited deficiency. The Underwriter’s checklist sets the rules regardless of how generous an Underwriter might feel if he/she/they want to score points with Santa.
What that means is that you, the Borrower, must provide those documents before you can get full approval. Funding can’t happen without full approval from the Underwriter. That translates into days of waiting for a subsequent response from an Underwriter that doesn’t have to happen if documents are complete upon initial submission. It doesn’t matter how frustrated the Borrower may feel. Actually, those Underwriters issue approvals with deficiencies more often than not. Roll with it.
A SHORT SALE AND A BIG FAT LOCK
One very unfortunate circumstance happens when a Homeowner falls “upside-down” on a mortgage. What that means is that the Homeowner/Borrower owes more on a mortgage than the home is worth. If there’s no remaining hope to fulfill the obligations of the mortgage and the Borrower is proactive enough to prevent foreclosure, the Borrower may seek a short sale, which a Lender/Servicer may accept in order to cut losses that could become greater in the case of foreclosure.
Short sales are tricky and can take weeks or months to negotiate. Here’s where a savvy real estate Broker is as good as gold to the distressed Homeowner. Short sales demand diligent follow-up and recording of facts behind each conversation with the Representative of the Lender/Servicer in a Conversation Log with date and time. Seriously, these negotiations could transpire each business day if necessary.
It also calls for communication between Listing and Selling Brokers if they’re different people. Because the process of a short sale can become protracted, a full Approval Letter (not a Pre-Approval Letter or conditional Approval) from the Underwriter helps the Lender/Servicer negotiating the short sale to recognize a sure bet upon acceptance. That means less time for that Lender/Servicer to make a decision.
What also becomes tricky for the Broker representing the Buyer who’s approved for a new loan is when to lock the loan. A Rate Lock is contracted between Lender and Borrower and affected by the Broker. It grants that the interest rate on the loan remains the same, usually for a period of 30 days, but in some cases can go as long as 90 days. The lock applies regardless of whether the interest rate goes up or down. A Broker wants to lock the loan at the lowest possible interest rate for the client’s best advantage in a time consistent with closing of the sale of property.
A Broker doesn’t fly by the seat of his/her/their pants. Brokers watch market trends from day to day, and certain patterns indicate which way these rates are likely to go: such as the 10-year bond for example. When the value of the 10-year bond drops, mortgage interest rates soon jump and vice versa. The amount interest rates change may consist of a small fraction of a percentage point. But that fraction can translate into hundreds of dollars per month that a Borrower must pay on the mortgage.
THE BEST TIME IS NOW
You need that savvy real estate Broker who also handles these issues of financing, something only experience properly teaches. You need a Broker with experience dealing with Lenders’ tactics. You need Mariella Agrusa of iRealty Shop. She’s not only licensed as a real estate Broker with the California Department of Real Estate and the Pacific West Association of REALTORS®, she’s also registered with the Nationwide Multistate Licensing System & Registry (NMLS) and ready to help with financing.
I’ve seen Mariella successfully negotiate what had to be the wildest short sale I ever saw, precisely because it was connected with parties engaged in a brutally nasty divorce with attorneys on both sides throwing every trick they could muster. It presented a situation so daunting that most Brokers might fear to represent either side as if the choices were to die by gallows or by guillotine. But by gum, Mariella made it work.
Nor is she a presence that Lenders want to ignore. She served at the federal level with the Office of the Comptroller of the Currency as a Quality Assurance Analyst to assure Lender compliance during the Great Recession of 2008 when nasty short sales ran across the country like the muddy Mississippi River. When it comes to any Lender shenanigans, Mariella has probably already seen and responded to it at least once.
With this kind of representation, why wait? Call Mariella at iRealty Shop and set up your real estate war room. It’s a wild market out there, even for the holidays. Even if you can’t close by Christmas, you should be on course, advancing enough that you can present a card to a loved one saying, “Your new home is on its way.” You don’t even need that ridiculously humongous red bow in the meantime, for the inevitable smile says everything.
