WHAT YOU NEED TO KNOW ABOUT UPCOMING CHANGES TO FHA LOANS

WHAT YOU NEED TO KNOW ABOUT UPCOMING CHANGES TO FHA LOANS

As you may know, unless Congress extends the expiration deadline, Federal Housing Administration (FHA) loan limits set in 2008 will drop significantly beginning October 1. Congress raised the loan limit amount in response to the housing crisis to help spur the homebuying market. FHA loans offer borrowers very competitive rates and terms, and they only require a 3.5% down payment. Allowable debt ratios are higher than the typical debt-ratio limits imposed for conventional loans, and there are no income limit qualifications, so more people can qualify for them.

If the loan limit drops on October 1, many California homebuyers will face higher down payments, higher mortgage rates and stricter loan qualification requirements. Borrowers seeking larger mortgages will have to apply for conventional loans or jumbo loans, which may be subject to higher interest rates and down payments. Here are four things you should know to help your clients now.

1. LOWER LOAN LIMITS. The conforming loan limit determines the maximum mortgage amount that FHA, Fannie Mae and Freddie Mac can buy or guarantee. If your client wants to stay under the current loan limits, then encourage them to purchase now and close by September 30th.

2. DROPS BY COUNTY. Under the new FHA loan limits, some counties will see significant drops in their loan limits. San Diego County will experience a $151,250 drop, Sonoma County a $141,550 reduction, while Orange and Los Angeles Counties will drop by $104,250. To see a full, county-by-county list of changes, click here.

3. JUMBO LOANS. The current FHA loan limit is $729,750. After October 1, that limit may drop to $625,500. Mortgage loans higher than that amount will be considered non-conforming jumbo loans, which typically have rates that are 0.875% to 1.5% higher than conforming rates, depending on the loan product, and require higher down payments.

4. MORE STRINGENT REQUIREMENTS. FHA loan requirements may allow for lower credit scores. So an applicant with a lower FICO score can still qualify for an FHA loan, even if they can’t for a conventional loan. Your clients may be able to obtain an FHA loan three years after defaulting or having a loan foreclosed.

Got Questions? – The Caton Team is here to help.  Email us at:

Info@TheCatonTeam.com

Visit our website at:   http://thecatonteam.com/

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What does Bank Owned or REO property mean?

A REO stands for Real Estate Owned which really means the home is Bank Owned.  A Bank Owned home is a home post-foreclosure.  Meaning the bank has already foreclosed on the seller and now the bank owns the home.

The Pro’s

Buying a bank owned home is as close to a normal sale as a buyer can get when working with distressed properties.  The pro – quick response time.  When submitting an offer on a bank owned property the buyer can expect to get a response within a week – and once the offer is accepted the escrow period is like any normal transaction.  A buyer is granted their contingency periods that start the day after the offer is accepted.  It’s a breath of fresh air for a buyer since short sales are slow and painful.  Because bank owned homes are smooth transactions for the most part – we do see them move off the market much quicker than the dreaded short sale.

The Con’s

Buying a bank owned home means one thing – no real disclosures.  Sometimes it even means the home is in various forms of neglect.  The bank, having never lived in the home, does not provide the buyer with the disclosures a normal seller would provide.  The two most interesting reads not provided by the bank, aside from inspection reports, are the Transfer Disclosure Statement (TDS) and the Seller Supplemental Checklist (SSC).  These two standardized forms ask the seller a myriad of questions covering neighborhood nuisances and issues with the home.   The bank does however need to provide the buyer with the California State Mandatory Disclosures, one of which is the Natural Hazards Report which covers natural hazards around that particular property.

How This Affects the Buyer

Banks require an As-Is sale.  This is typical of many sales.  As-Is means as disclosed.  However, since the bank has no personal knowledge of the home – it is hard to disclose the potential issues.  Since the disclosures are weak, the burden is placed on the buyer to investigate.  As Realtors we cannot attest to the condition of the property or neighborhood – but we do encourage the buyer to seek professional opinions.  Some buyers visit the local police department and ask candid questions, I’ve even had buyers door knock the surrounding homes to speak to their potential neighbors.

As for the condition of the home – that’s the easy part.  As in any buying transaction, the buyer will have contingency periods to do all their inspections at which point we’ll get the home, pest and roof inspector out to check out the home and provide the buyer with a written report.  The buyer can do any inspections they want, from lead to asbestos, to truly anything that is of concern to them and for their plans for the property – pretty much just like any other buying transaction.  The only downfall – if issues arise – often times the bank does no repairs.

How We Go About All This

Since these transaction are so cut and dry, before we sit down to write the offer with our buyers, all parties take a good hard look at the property to determine the buyers offer price.  A buyer does not perform their inspections prior to writing the offer because a home, pest and roof inspection costs upwards of $500.  After the offer is accepted, the buyer will pay for their inspections and we proceed from there.

Generally, the buyer knows what they are getting into.  Often times these homes are in states of neglect and may be missing key fixtures or appliances.  In the end, both the buyer and their Realtor take all of this into account and write their best offer.

For more tips on writing an offer on a bank owned home – stay tuned!

Got Questions?  Email us at Info@TheCatonTeam.com or visit our website at http://thecatonteam.com/

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Please enjoy my personal journey through homeownership at http://ajourneythroughhomeownership.wordpress.com/

A Cinderella Story…Nisi and Rip

UPDATE – Nisi and Rip just celebrated their 4th Anniversary at their home.  Keeps getting better.
In this blog series I have entitled “A Cinderella Story” – I plan on reminiscing on some tough transactions with some very happy endings.
Let’s go back a couple of years before CA Real Estate took the dive.  My very first friend from college Nisi (we met in math class our first day) and her boyfriend Rip were ready to buy their first home.  Armed with their pre-approval from Melanie Flynn, we headed out to the East Bay to find their future home.  Flash forward through all the junky homes we checked out to “the one”.  The one, I might add, they found at 2am the day it came on the market.  At a more reasonable time in the morning my friends called me with excitement ready to go.  With the help of the Listing Agents we got them in to see the home right away, since I’m pretty sure they were standing outside when they called me.  But I know why.  It was a beauty.  A pristine and loved Art Deco Bungalow all fixed up for sale.  It was their dream home!  The moment they saw it, the moment we saw it – we all knew – it was the one.  And The Caton Team was going to do everything we could to make this happen.
The rest has turned into a blur over the years so let’s jump ahead.  Their offer was accepted.  That night we all popped champagne even though it wasn’t theirs yet.  Don’t worry – we didn’t jinx it – it’s the power of positive thinking.  So, the next day the fun begins, the clock starts ticking for their loan and property condition contingencies.  Thank goodness Nisi’s uncle was a home inspector who came at a moments notice and did an awesome job checking out the house.  Rip even climbed under the house to check his own foundation.  I will never do that – I am scared of small spaces and spiders!
The home had its issues for an 80-year-old place, but our friends and clients knew they could handle it.  Next came the FHA appraisal.  Let’s just say the FHA appraisers did as thorough a job as the home and pest inspectors.  Everything was running smoothly, we had one day left on our contingencies and we waited on pins and needles for the banks ok.
Then the news story broke.  Front page news, I still have the copy of the paper.  Parts of the East Bay had depreciated enough in value that banks we no longer lending.  It’s called red-lining – and they’re not supposed to do it – but they did.  It was the beginning of what would be our Real Estate decline.  ‘Cept nobody knew it yet.  Suddenly their bank did not commit on the loan and our friends and clients were at stake.  As I recall, it was a $25,000 difference in value from one day to the next, all over one news headline.
So we got on the phone and had a heart to heart.  Weighed the pro’s and con’s and my friends and clients still wanted this house.  We wanted them to have this house – it was meant to be theirs.  So we came up with a plan.  We wrote a letter on behalf of our clients explaining to the seller and their agents what had occurred with their home loan, my friends wrote a letter about how much they loved this house and how much love they wanted to put in it.  We also asked to reduce our offer price by the difference, $25,000.  It was a bold move for 2 four-eyed Realtors.  (haha True Grit reference).  To this day, our lender Melanie is still impressed we negotiated the price down after the offer was accepted.  That doesn’t happen!
Turns out the sellers loved the buyers, the Listing Agents happen to be the next door neighbors and the $25,000 difference didn’t matter so much if they were going to truly love their home (a home the sellers had lived in for ages).  It helped that The Caton Team are strong negotiators and we even sent a copy of that newspaper too.  Either way, in the end my mother’s old adage still applies.  What’s meant to be is meant to be.  Doesn’t hurt if you put a little effort in it too.

Congratulations Rip & Nisi – many more happy years in your beautiful home!

This is a picture of the day we handed them they keys!  It the favorite part of my job!  Champagne is chilling – let me know when you are ready.

Got Questions? – The Caton Team is here to help.  Email us at Info@TheCatonTeam.com or visit our website at http://thecatonteam.com/

Visit us on Facebook:   http://www.facebook.com/pages/Sabrina-Susan-The-Caton-Team-Realtors/294970377834

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Please enjoy my personal journey through homeownership at http://ajourneythroughhomeownership.wordpress.com/

How To Read Disclosures

Congratulations –  you’ve found a home you’d like to write an offer on.  This is very exciting!  The first step before writing an offer is to review the disclosures that have been provided by the seller in advance (if given the opportunity).  Here are the instructions on how to go about reviewing the disclosures package & preparing yourself to write an offer.

1. Grab a highlighter, pen, paper & post-it notes.

2. You will need to read & review the entire disclosure package before we get together.

3. We will review your questions & concerns before we write an offer & answer them as best we can & make notes to ask the seller, inspectors & the listing agent during your contingency period.

4. Please DO NOT WRITE on the disclosures – it is OK to use a highlighter.  Write you questions & concerns on a separate piece of paper & use post-it notes.

5. As you read each page, most forms will have a “Buyers Initials” or “Buyers Signature” at the bottom of each page.  PLEASE SIGN & INITIAL WHERE REQUESTED after you have read & reviewed the page.  Please note – regardless if you “like or dislike” what you are reading – you will need to initial & sign where necessary.  The purpose of the disclosures package is to inform you of any known defects upfront.  How we (your buyers agents & you) go about repairing/correcting said issues is part of the contract & negotiations.

6. You will need to sign ALL upfront disclosures before we write the offer – doing so in advance will shave 1 to 2 hours from our appointment.  Giving us more time to discuss your options.

7. Once we’ve discussed your questions & concerns you can make an educated decision on how much you want to offer & what issues you want clarified or corrected.

8. Please allow 2-4 hours for our offer appointment.

9. Bring the signed Disclosure Package to our appointment.

Please Bring With You the Following:

  • Copy of you Bank Statement showing Proof of Down Payment & Closing Costs
  • Loan Approval Letter
  • CHECK BOOK!!!!!  Please remember that your good faith deposit of up to 3% of the Purchase Price must be available funds

Got Questions – The Caton Team is here to help.  Email us @  Info@TheCatonTeam.com or visit our website at http://thecatonteam.com/

To read my personal journey through homeownership – visit http://ajourneythroughhomeownership.wordpress.com/  Enjoy!

Senate Bill 458 – Help for Short Sale Sellers

A new California law will further protect homeowners pursuing short sales by barring first and secondary lienholders from going after sellers for money owed after the short sales close.

Gov. Jerry Brown signed Senate Bill 458, authored by Senate Majority Leader Ellen Corbett (D-San Leandro,) into law on Friday.

A short sale is a transaction in which the homeowner owes more on the loan than the property is worth. To sell the home, the lien holder or lien holders must approve the sale because the amount owed to the lien holder will be “short” of what is currently owed by the borrower.

Real estate tracker DataQuick said short sales made up 17.7 percent of Southern California home resales in June.

The new law builds on the protections offered by a previous law, SB 931, which required the first lien holder in a short sale to accept an agreed-upon payment as the full payment for the outstanding loan balance. The previous law did not address junior lien holders.

The new law, which became effective immediately, now prohibits secondary lien holders from pursuing deficiencies after a short sale closes.

“As the economic recession continues to impact Californians, SB 458 will allow homeowners forced to sell at a loss to have closure at the end of the process,” said Corbett, in a statement to the Union-Tribune. “By extending anti-deficiency protection to all loans on a home when a short sale occurs, a homeowner can use a short sale as an alternative to foreclosure or bankruptcy.”

The California Association of Realtors call the bill’s signing a “victory for California homeowners.”

“SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lien holders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property,” said Beth L. Peerce, president of the Realtors group, in a statement.

For more information please visit: http://www.car.org/newsstand/newsreleases/sb458/

 

Got Questions? – The Caton Team is here to help.  Email us at Info@TheCatonTeam.com or visit our website at http://thecatonteam.com/

 

 

Visit us on Facebook: http://www.facebook.com/pages/Sabrina-Susan-The-Caton-Team-Realtors/294970377834

Please enjoy my personal journey through homeownership at http://ajourneythroughhomeownership.wordpress.com/

A Quick Review on the Different Real Estate Markets…

Google buying a home and words like short sale, REO, bank owned, or regular sale pop up.  All these terms can be a bit confusing.

Right now, on the San Francisco Peninsula market we are experiencing three very different niche markets.

  • Regular / Normal Sale
  • Short Sale
  • Bank Owned Sale

Allow me a moment to explain what these three niche markets are and how they affect the buyer.

Regular / Normal Sale

These may feel like transactions of the past – but a normal sale is when the seller owns their property and the mortgage on the home is below the current home value.  In other words – the seller has equity in their home.  Equity is the profit for the seller.  The best part of a normal sale is working with living breathing humans who will respond to a buyers offer within a normal period of time and provides the buyer with disclosures upfront that sometimes include a recent home or pest inspection.  A quick glance at Redwood City last week (July 2011) showed 73% of the homes on the market are normal sales!  Wow – not what you expect if you listen to the news!

Short Sale

These transactions are trickier than the rest.  A short sale means, the seller owes MORE on their mortgage than the home is currently worth.  They have negative equity.  If circumstances change in the sellers life and they now need to sell their home – the home is placed on the market like a normal sale, however, when an offer comes in and the seller accepts it – it is their bank (where the mortgage is held) that needs to agree to take a shortage on their loan – thus the term Short Sale.  Doing a short sale hurts a seller’s credit less than allowing the bank to foreclose.  For a buyer it means patience since the response time for a bank to review their offer is anywhere between 3-6 months. Generally the seller still resides in the home and can provide disclosures upfront, though money is tight and the seller may opt to have the buyer pay for their own inspections.  In Redwood City last week 17% of the homes on the market were known short sales.

REO (Real Estate Owned) or Bank Owned Sale

The REO or Bank Owned property is a post foreclosure property.  That means the bank has foreclosed on the seller and now the bank owns the home and is selling it themselves.  The good news – a bank can respond to a buyer’s offer within a week – instead of the 3-6 months on a short sale.  The bad news, there are NO additional disclosures on the property aside from the CA mandatory disclosures.  The buyer holds the burden of conducting their own home and pest inspections (plus any other investigating they desire) during their contingencies.   Since the bank has never lived on the property they do not complete a Transfer Disclosure Statement that covers – along with many other items – neighborhood nuisances that a seller would have to disclose.  Have no fear – as the buyer you are protected and will have time to inspect the home to ensure it is in satisfactory condition.  Last week in Redwood City – 8% of homes for sale were bank owned.

(The remaining properties were 1% Auctions, 1% Court Confirmation /Probate Sales)

Got Questions? – The Caton Team is here to help.  Email us at Info@TheCatonTeam.com or visit our website at http://thecatonteam.com/

Please enjoy my personal journey through homeownership at http://ajourneythroughhomeownership.wordpress.com/

Ready to Get Pre-Approved? Here is your checklist…

The first step in becoming a home owner is getting pre-approved for a home loan.

These days, a  minimum of 3.5% is required  for FHA loans up to $417,000.

Otherwise you’ll needed between 10% and 20% for a down payment for purchases above $417,000.  Depending on your financial picture.   Note you will also need about 3% of your purchase price for closing costs.  We’ll review what closings costs are when we sit down together.

Before you contact a lender, gather the following items:

  • 3 months worth of pay stubs per person or other proof of income
  • 3 consecutive & most recent months of Bank Statements:  Checking, Savings, IRA’s, 401k, Retirement & Investment Accounts
  • Most recent Tax Return
  • Social Security numbers

To prepare for your appointment, take time to calculate your monthly/yearly household budget and determine you comfort level.  This will help you decide whether or not purchasing a home is right for you and your family.  Prepare a:

  • Household Budget
  • Bills & Expenses Budget
  • Future Budget factoring in your new home expenses.

We are here to help you each step of the way.

Got Questions – we’re here to help.  Email us at Info@TheCatonTeam.com or visit our website at http://thecatonteam.com/

 

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To read my personal journey through homeownership – visit http://ajourneythroughhomeownership.wordpress.com/  Enjoy!

All That Real Estate Jargon

When considering the purchase of a home many factors come into play. Budget, Goals, Needs and Wants are all key players when deciding your next step.

Here are a few things to remember and consider:

Determine your Budget. Lenders will allow up to 30% of your monthly income to go to all debt. That includes your car loan, student loans, credit card debt and the mortgage.

When talking about your monthly mortgage payment – we uses the term PITI:

PRINCIPLE: How much of your monthly payment that goes towards your loan principle

INTEREST: How much of your monthly payment goes towards your interest rate

TAXES: Property Tax is 1.25% of your purchase price (and rises yearly), we divided it by 12 and add it to the monthly cost of homeownership. (It is actually paid in two installments, Feb & Nov)

INSURANCE: A home or condo needs homeowners insurance, we estimate the yearly premium and add the monthly cost to the total.
This gives the borrower and accurate picture of the monthly cost of the home, even though many of the payments are annual or semi-annual.

DOWN PAYMENT: These days a borrower needs a minimum of 3.5% for their down payment to qualify for an FHA loan. FHA loans do have strings attached and Private Mortgage Insurance is an expensive cost of putting less than 20% down. It’s best to sit down with a lender to discuss your loan options. We have several trusted lenders you can work with.

CLOSING COSTS: Many borrowers expect the need for a down payment but do not understand what “closing costs” are. Closing Costs are the fees associated with purchasing a home. Closing costs run about 3-4% of your purchase price and must be liquid and available. Closing Cost Fee’s included:

Lender Fees: Costs for your loan, including but not limited to, appraisal fees, credit report fee, points (1% of loan amount to pay down your interest rate up front), doc prep, underwriting, administration fees, and wire transfers to name a few.

Title & Escrow Fees: When purchasing property you will also purchase two Title Insurance Policies to ensure the property is yours and no one can stake a claim to your property. The Title & Escrow companies also charges Escrow Fees for handing the monies, loan docs, and recording the property with the county.

Inspections Fees: There are also fees that are paid outside of escrow, such as Inspections on the property that are often given a discount if paid at time of the inspection.

Gift Funds: When a borrower is receiving monies for the home as a gift, the lender will require a paper trail, including a Gift Letter signed by the person giving the gift expressing the money is not a loan and will not expect the money to be paid back. Also, it is best to get that Gift Money upfront to “season” the money in the borrowers bank account. Banks like to see 3-6 months of “seasoning”.

Got Questions – we’re here to help.  Email us @  Info@TheCatonTeam.com or visit our website at http://thecatonteam.com/

Visit us on Facebook: http://www.facebook.com/pages/Sabrina-Susan-The-Caton-Team-Realtors/294970377834

To read my personal journey through homeownership – visit http://ajourneythroughhomeownership.wordpress.com/  Enjoy!

A Candid Moment with Short Sales

Who knew – two 5-letter words could be so dirty?

SHORT SALES

Those two words can send buyers, sellers, Realtors and Escrow Officers into a tissy.

Why you ask?  The dreaded long process and seemingly endless wait.

Allow me a moment to break down how these two words work.

To a seller, the words Short Sale mean one thing – their home is no longer worth as much as they owe.  Then – say they should need to sell it – now they need to ask the bank to agree and take less than the loan is worth.  Banks don’t like doing this.  They know real estate is cyclical, they can’t go back and redo everyone’s loan just because the value went down.  I digress.  The sad truth, the seller has to jump through many, many, many hoops – in the form of paperwork and documentation etc etc to successfully sell their home.  And that’s if the buyer doesn’t tire of waiting and walk!!!  And should a buyer walk – because sometimes they need to move on – the seller has to start at square one again – and oh what a fun square that is.

To a buyer, the words Short Sale means “sit down and wait”.  Why?  The seller generally can’t start their short sale request until AFTER they accept an offer.  And once the bank receives the offer, it can take months just to get that paperwork in front of a real decision maker, negotiator to be exact.  Since this wait time is long and sometimes a better opportunity presents itself – buyers sometimes tire of the wait and rescind, cancel, their offer.  It happens.  However, because Short Sales can be difficult, their are opportunities for buyers to purchase a property under market value.  Which creates instant equity!  In our experience, the offer you write in November is low compared to the values of comparbale properties by the time you close escrow and own that home in May.  (For more specific market info please email us info@TheCatonTeam.com)

For those in the real estate industry – the words Short Sale mean being on top of your game, having a team of professionals behind you and being diligent.  Which, in essence is what Realtors should do in the first place.

If you have any questions, comments or concerns – we’d love to hear from you – email us at Info@TheCatonTeam.com or visit our website at http://thecatonteam.com/

To read my personal journey through homeownership – visit http://ajourneythroughhomeownership.wordpress.com/  Enjoy!

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Next Stop – Bank Owned Properties – aka: The REO

A Quick Review on Short Sales

SHORT SALES

What is a “Short Sale”?

A short sale is a property that will go into foreclosure if not sold before the three month “non-payment mark” and “notice of default” is filed. When an owner is in distress and they know they can no longer afford their mortgage    payment – they should contact their Realtor and their bank immediately to discuss the possibility of the bank receiving less than what is owed. The term “short sale” refers to the agreement that the bank will accept less than the amount of the loan they have on the property. This course of action is the last chance an owner has to get out of the loan and keep their head above water. A bank will not agree to a short sale if the owner has other assets they can   liquidate to bring the loan current.

Why Would a Bank Accept a Short Sale?

Banks would much rather not hold foreclosed property. And in a short sale they will probably receive more money than at a foreclosure sale. However, not all owners will qualify for a short sale agreement. The circumstances around a short sale vary. For example, perhaps through a job loss or other reason they have been unable to make regular     mortgage payments and that balance due plus late fees are added to the total loan amount. Suddenly the owner may owe more on their loan than the home can sell for. If the owner forecasts that they can no longer manage their monthly payments they will need to contact their bank in advance to    begin negotiations. However, the owner cannot have any other assets available. If so, those resources will have to be exhausted first before the bank will agree to a short sale. In this case, before the 3-month mark of    foreclosure – the owner can place the home on the market and see how much they get. The home will be listed by a Realtor and advertised as a short sale – where time is very much of the essence. Interested buyers will need to act quickly in order to purchase before foreclosure proceedings begin.

Another reason a short sale can become an option is when, due to market changes, a seller owes more on the property than it is currently worth. For example – Let’s say the owner purchased the home 2 years ago and paid top dollar for it. Since buying a home is a long-term investment; 2 years generally doesn’t give the owner time for the property to appreciate. Suddenly, for whatever reason, they are unable to make their monthly mortgage payment and cannot sell their property for what they purchased it for. They find themselves “upside down”. Meaning the market has changed and the value of the property has dropped from where it was when they purchased it. As professional Realtors – we advise our clients when purchasing a property that they will need to hold their investment for a minimum of 5 years to see appreciation. In this particular case, no matter what, the loan on the property is greater than what the home can be sold for. If the bank agrees, the home will be listed by a Realtor and advertised as a short sale where interested parities will need to act quickly before foreclosure proceedings begin.

Why Should a Buyer Consider Purchasing a Short Sale?

Because the clock is ticking on short sales – it can be very advantageous for the new buyer to purchase under these   circumstances. Short sales are no fault of the property. Your Realtor will do a comparative market analysis to inform you of current home values to help you better decide your purchase price. Although disclosures and inspections may not be available for the property – the opportunity to perform inspections is allowed by the bank. Time is of the  essence, so a buyer will have to act quickly. The bank has agreed for a limited time to take the highest offer received – there is the opportunity for the buyer to purchase the property at below market value – thus having instant equity.

Before you get involved with a short sale purchase or sale – consult a Real Estate Attorney and a professional Realtor.

For all your real estate questions please contact The Caton Team  Email:  Info@TheCatonTeam.com  Website:  http://thecatonteam.com/

 

Visit us on Facebook: http://www.facebook.com/pages/Sabrina-Susan-The-Caton-Team-Realtors/294970377834

To read my personal journey through homeownership – visit http://ajourneythroughhomeownership.wordpress.com/  Enjoy!