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Auctions and Self-employed Financing

This week we were joined by Garth Johnson from Minnesota REO Experts and Mona Edick from WJ Bradley Mortgage. First we talked to Garth Johnson about bank-owned properties. Garth discussed the fluctuating inventory causing about 15-20% of the current inventory to be bank-owned. This has created a problem in the market as far as inventory is concerned because when there is a shortage of regular homes for sale, people begin to look for different avenues to find a home. There are sellers out there trying to sell at traditional prices but the buyers are looking to find deals that would come with a bank-owned home, so people have begun to low-ball the sellers. Sellers should be aware when they are being low-balled that there is not too much of a difference between the prices of traditional homes and bank-owned homes currently because the market is too good. Banks are businesses as well that are doing what they can to make money so you are not necessarily always going to save a ton going the bank-owned route.

There is a newer avenue that lenders are using in today’s marketplace, online and property auctions. Some lenders believe in putting their properties out for auction after so many days on the market, maybe 120 or150 days. Some lenders approach it and put them online right away. It’s an option for buyers to purchase a home through an auction where they can’t find it in the traditional market like MLS. Someone that is coming on as an online buyer need to know that most of the auction companies cooperate with a real estate agent, so the process isn’t going to change that much from buying a traditional home. The difference is you are either going to be on site making an offer through the auction, or doing it online through some bidding. It is probably more important to have an agent if you are thinking about doing an auction because there are a lot of different variations on a property that is up for auction. Some properties you may not even be able to look at because it is still owner or tenant-occupied. If you don’t get to look at the inside of a home before you close on it, you really have no idea exactly what you are getting into and that is where having an agent comes in.

Mona Edick from WJ Bradley filled us in on how to be self-employed but still eligible for financing. Jeff Zweifel brought up that in today’s market there is no longer any stated income products that used to be a product that self-employed people used to finance their homes. Mona talked about that fact that for some self-employed people, buying a home on their own is definitely not an option but there are ways around it. For self-employed people there is a lot of planning that needs to be in place. They need to get their tax returns together and meet with a mortgage loan officer to do a full income calculation. With the income calculation, it allows mortgage professionals to add back in some of the items they may have written off and get a true idea of where their income is and then there are options to do some planning and prepare for their next years tax returns, maybe amend their tax returns or bring in a co-signer. This is a longer-term process that you need to do some digging into the income and if their income is great and they have made enough money and showed enough money then they can start buying a home right away, but many people aren’t at that point and take as many write-offs as then can in order to speed up the home-buying process.

Q&A Section:

Jeff Zweifel: Can a self-employed person bring in a co-signer?

Mona Edick: You can bring in a co-signer as long as they are not interested in the property. If you are married and your spouse works, you can put the auto-loan in the self-employed borrowers name and gear the income earner up to prepare to buy the home. For the non-occupant co-borrower you are able to do conventional or FHA loans.

Jeff Zweifel: Is it possible to finance an auction property?

Mona Edick: Yes it is but you have to have a property that can pass an appraisal inspection. The person that is looking to buy an auction property needs to meet with a mortgage professional and be completely pre-approved with income and assets and everything before they start bidding because it is a little quicker process from winning the bid to closing.

Jim from Inver Grove Heights: If you are a co-signer of a mortgage and the co-signer dies, does it go to the state or does it continue on?

Jeff Zweifel: If the co-signer dies, that is a liability instrument so the other signer on the mortgage would still be responsible. There could be an estate issue where that is a debt of the estate, if the mortgage itself goes into default. Otherwise it’s what is called joint and several liability, so the remaining signer on the mortgage would be solely responsible.

Kay: I have a house in Newport that I am trying to sell and I have some buyers that want to buy it on contract for deed, how does that affect capital gains?

Jeff Zweifel: First, contact your personal tax advisor and follow their recommendations, but my understanding is that the capital gain would be paid as you receive installments on the contract and on each installment there would be a portion that would be subject to capital gains tax.

Text Question: What is the best way to show a rental that is for sale?

Andy Prasky: If you’re a tenant and you’re paying rent and you constantly having owners trying to show the property, it’s an inconvenience so often tenants get to a point where they don’t want to do it anymore. As the owner of a property, cooperate with your tenant or make up an incentive program where maybe they offer so much off of rent each showing to give the tenant a reason to make sure the place is clean and ready for showings.