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There are a few things to consider when you're calculating the affordability of a house. The first obviously is your income. How much money you make, or more accurately how much you bring home, will go the greatest distance toward explaining how much you can afford. The next piece of the affordability puzzle is how much of a down payment you can afford to contribute to your purchase. The question of how much down payment you can contribute is actually separate form the question of how much you should contribute. Obviously the greater the down payment, the lower your monthly payment will be.

There are two schools of thought when it comes to a down payment on your house. The first states that you should put as much down as possible, while leaving enough in your emergency fund to cover 3 – 6 months of living expenses. This strategy will reduce your monthly mortgage payment maximize your initial equity. This is the more fiscally conservative position.

The second school of thought on the size of your down payment says that you should be able to generate higher returns on your money by investing it than the interest you're paying on your mortgage, especially when the tax consequences of the mortgage interest deduction are calculated. As an example, if your mortgage interest rate is 5.9%, you would be better served by minimizing your down payment and investing the rest, presumably at a higher rate of return. This can be an extremely powerful strategy to generate wealth.

To illustrate the differences between the two different down payment strategies, consider the following example:

If you were to purchase a $250,000 house (I'm leaving out other costs for ease of calculation) and put 20% down, it would cost you a down payment of $50,000. Your monthly mortgage payments would be approximately $1,186. If you put only 5% down, your down payment would be just $12,500, and your monthly payment would be $1,409.

If you invested the $223 difference in the payments every month and received a 9% ROI, you would have a nest egg of $397,588 at the end of your 30 year mortgage. If you took the difference in the down payments of $37,500 and invested it at the same 9% rate of return, you'd have $497,538. This ignores the tax advantages you'd also receive by using the smaller down payment. Because of the mortgage interest deduction, you would be able to deduct the interest on your mortgage from your income. In the first 15 years of your mortgage that generates a substantial tax savings. However, it also ignores the fact that you'd be paying less interest due to the fact that you financed a smaller amount of money, and that with the small down payment strategy you'll be wasting money on PMI until the LTV ratio is at 80%.

With the larger down payment you would pay approximately $228,000 in interest over the 30 year life of the mortgage. With the smaller down payment, you would pay about $270,000. In purely monetary terms you would come out ahead with the lower down payment strategy, and that is before the tax benefits are included in the calculation, which would swing the calculation even more in favor of the lower down payment strategy. The one big caveat here is that you actually have to invest that lump sum, generate a consistent return, and not withdraw the investment for the 30 years in order for the calculations to be valid. Keep in mind too that there are fewer lenders willing to give you a mortgage with only 5% down these days, while many more are happy to do so with 20% down.

So, once you decide how much of a down payment you are going to use, you can calculate how much house you can afford. One problem faced by borrowers today is that lending guidelines have been changed to the point where you can actually get a house that costs too much for your budget. This condition wasn't as prevalent in the past, although now the pendulum is swinging back the other way. Most lenders allow a figure of 36% of your total gross income be allocated for debt payments, including your mortgage. I'm more comfortable with approximately a 33% debt allocation figure.

Many financial experts suggest that you can calculate how much house you can afford using 25% of 25% your monthly income. That is very fiscally conservative and likely to keep you well within your means. The only problem is that in many metro areas of the US, you just can't get much house at that figure, and in some areas you'd have to have what some would call a really good job in order to buy a house.

For example, according to the NAR's median sales prices for single family homes data (Q1, 2008) the media sales price of a home in Atlanta, GA is $154,000. That pencils out pretty well. If you put 5% down, you payments would be $868 per month. Add some property taxes and you'd be at about $1050 per month. You would need a monthly net income of $4,200 to afford that median Atlanta house. Cities such as Houston, Memphis, Pittsburgh, and St. Louis are even more affordable. The problem with the 25% calculation comes into play in some of the more expensive housing markets in the country. If you live in San Francisco or the surrounding areas, you'll pay about $775,000 for the median house, requiring a monthly income of $17,460 to stay at the 25% level.

This illustrates a point. As your income rises, you can actually afford to spend proportionately more on a house, because your other expenses will not rise to the same extent. For example, if you live in the Bay Area, in the median house, you will probably not need $13,000 a month to cover the BMW payments and your dining expenses. It also illustrates why so few people starting out can afford to buy a house in the more expensive metro areas. I dare say that not too many of you jumped into the job market with offers of $209,520 annual salaries! Other cities where you probably can't afford to buy a home unless you already own one include San Diego (median house $459,000), Los Angeles ($459,000), Honolulu ($620,000), Boston ($357,000), Bridgeport, CT ($439,000), New York City ($445,000), Newark, NJ ($409,000), and Seattle ($372,000).

So, the question of how much home you can afford can be easily answered, but in many areas of the country, the answer is just “NO!”

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Mortgage Terms - Good Faith Estimate
The good faith estimate in your mortgage paperwork was mandated by Congress in 1974 as part of the Real Estate Settlement Procedures Act (RESPA). This was done in part to limit the rampant process of many supposedly impartial third parties in the mortgage process getting kickbacks for such things as title insurance. The good faith estimate give the prospective borrower a complete list of all the fees and rates associated with the loan.

These mortgage fees and charges are categorized according to a number. The number corresponds to the same number on HUD forms and gives an indication as to the type of charge or fee. The classifications are in 100 number increments, and there are many different items you may find within each classification.
800's – payable in connection with the mortgage

900's – must be paid in advance

1,000's – paid into a reserve with the lender

1,100's – title charges

1,200's – government charges for recording and transfer

1,300's – anything else

Keep in mind that it is called an estimate for a reason. Good faith estimates can and do change, often in the 11^th hour. So keep in mind that although you have a good faith estimate in your hands, it may not be the actual mortgage you end up with.

Mortgage Terms – Appraisal
This is a professional opinion of a properties value. Appraisals are performed, appropriately enough, by a real estate appraiser, who takes into account things such as the properties location, the type of structure and the surrounding neighborhood. One of the key elements used to determine the value of your property or one that you are looking to buy, is the recent selling price of similar properties that are close by. These are known as “comps” in the real estate world. In most cases the buyer must pay for the appraisal. The results of the appraisal are typically reported on a Uniform Residential Appraisal Report form.

Mortgage Terms – Annual Percentage Rate (APR)
APR is one of the most misunderstood terms associated with a mortgage. It is actually a number intended to make comparing mortgage rates easier. When comparing a mortgage, an apples to apples comparison is often very difficult due to the plethora of fees and charges that are tacked on. When the effect of these additional moneys are taken into account, the effective interest rate changes because you're financing more than just the home's price.

As with the good faith estimate, the APR is required by law to be disclosed to the borrower. Although it is better than nothing, the APR still fails to give buyers the one, easy to compare number that it was intended to. This is mostly because there isn't a standard for which fees and charges must be included when calculating the APR. It is a good starting point for comparisons though, and better than nothing. Keep in mind that the APR calculations are dependent upon the term of the mortgage so different length mortgages cannot be compared using the APR. For example, the APR of a 15 year mortgage cannot be directly compared to the APR of a 30 year loan.

Mortgage Terms – Acceleration Clause
This is a clause in the mortgage that allows the lender to accelerate the repayment of the loan. In most cases it allows the lender to demand the entire outstanding loan balance. This provision is usually invoked if the applicant defaults on the mortgage or is found to have provided false information in order to get the loan.

Mortgage Terms - Earnest Money -
Earnest money is given by the buyer to the seller to prove they are serious about wanting to buy the property. It is basically a deposit. Earnest money will be delivered to the sellers along with a formal offer to purchase the property. It is usually 1% to 2% of the selling price. Earnest money deposits are helled a trust account and are used as part of the down payment if the trans action goes to fruition. In the event the deal falls through, any cancellation fees are taken out of the deposit before it is returned to the buyer.

Mortgage Terms – Points
Points are equal to 1% of the loans amount and are used to effectively “buy down” the interest rate in the case of discount points, and pad the lender's pockets in the case of origination points. You will often see the term in ads for mortgage rates. In this case they are referring to discount points. If you see an ad the offers a mortgage at 5.75% with 1 point it means that you would be paying an additional 1% of the loan's value in order to receive a lower interest rate. For example, if the mortgage amount was $250,000, 1 point would equal an additional $2,500.

Points are prepaying the lender interest, rather than making them collect it over the term of the loan. So, in exchange for paying the additional $2,500, you would get a lower interest rate, typically about 1/8 of a percentage per point. Points will lower the monthly mortgage payment at the expense of additional up front money. It will take some years to make up the additional money, so you'll have to determine weather or not it makes financial sense for you.

Stay tuned for more mortgage terms soon. Have a great, Debt Free week. Go Cougs, beat NC!!

Posted by debtblog at 02:10 PM | Permalink | Comments (0) | TrackBacks (0)

When I bought my home some years back for instance, my lender informed me that I could afford a home that cost $235,000. At the time, my wife and I thought the better of buying such an expensive house and settled for one that cost $152,000, although we looked at homes that cost up to $195,000. We actually made offers that were up to $189,000. In retrospect, it turned out to be a great decision to avoid a home in the $200,000 plus price range. After having kids the extra cash every month was definitely welcome. Some of the homes in the upper $180,000s would have been nice though, and we would have made up some of the difference in the lower maintenance costs associated with a newer home.

How do you answer the question of how expensive a home to buy? Many experts recommend buying a home that costs no more than 3 times your annual income if you’re putting 20% down. Needless to say (but I will anyway) a 20% down payment can be a stretch for a first time homebuyer, especially in some of the more expensive metro areas throughout the country. The 3 times the annual income isn’t a hard and fast home pricing rule, and can be altered by your expected annual income increase and your debt level.

If you are carrying very little debt or are in a career where you reasonably expect to receiver rapidly growing compensation, you may decide it is worth it to take on a higher priced home. I tend to break on the conservative side of this however, and many homeowners that find themselves in trouble today got that way due to buying a home that was too expensive. When the expected income gains failed to materialize, they couldn’t refinance, or they had an unexpected major expense, their mortgage payments were difficult or impossible to maintain. 

Be a bit conservative when deciding how much home you can afford. Take into account your current, and perhaps more important, your expected future level of debt. If your debt level is greater than 10% of your annual income, ratchet back your expectations a bit and buy a slightly less expensive house, in the range of 2.5 times your annual income.

Also consider the local real estate market, current mortgage interest rates, and your family plans. If you plan on having a large family, for example, it might be better to buy a smaller, lower priced home now. Later you can use your equity to get into a larger home, when you really need the space and your career is more advanced. If mortgage interest rates are quite low, as they are now (5.74% for a 30-year fixed, as I write this) you’ll be able to afford slightly more house, but you’ll also want to take more advantage of the relatively inexpensive money. This increases your ROI as the value of your home appreciates.

Your new home price should not be the total of the largest loan you can qualify for and every last penny worth of cash you have to your name. It’s a difficult decision, because the family home is the best investment for many families, and one of the only ways that many people generate any real wealth. However, if your employer offers a retirement plan with matching contribution, you may be better served to go a bit more conservative on the house and put the remainder into your retirement plan. This will allow you to take advantage of your employer’s matching and leave your less likely to run into problems down the road in the event of an unforeseen financial difficulty.

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According to a report released at the end of last month by RealtyTrac, the nation's leading information source on foreclosures, there were 215,749 foreclosure filings in the month of December. This represents an increase of 97 percent over December of 2006. RealtyTrac reports the total for Q4, 2007 was 642,150 filings. This is 86% above the foreclosure total for Q4, 2006. Nationwide total filings for the year 2007 was 2,203,295. Almost 22% of these, 481, 392, were in California alone, although due to the large number of properties in California, this only equates to 1.9% of households in the state.

The state with the dubious distinction of having the highest property foreclosure rate in number of properties in some stage of foreclosure per population falls to Nevada, at a rather stratospheric 3.4%. Because Nevada is a rather sparsely populated state that only equates to 66,000 foreclosure filings. Another state experiencing foreclosure woes is that peninsula of bluehairs in the Caribbean, Florida. Florida reported 279,325 foreclosure filings in 2007, a foreclosure rate of a little over 2%.

Why are these areas experiencing such high foreclosure rates? Part of the reason may be because they also had major price run ups over the previous 5 years, with some of the highest real estate appreciation rates in history. In some cases properties in areas of California, Nevada and Florida were climbing over 30% per year for a few years in a row. This all started in during the end of the 1990's or early in this decade. By a year or two ago, the trend had reversed itself.

Florida, California, and Nevada were 3 of the states experiencing the highest rates of property appreciation in 2001 and negative or very low appreciation from 2006 - 2007. The top 13 real estate markets ranked by average annual appreciation in 2001-2 were all in California, according to Realtor.com's house price index. They also had number 20, with San Francisco occupying that slot in the survey for 2001. California also grabbed numbers 24 and 35. Florida had 3 of the top slots, numbers 17-19. They also had numbers 26, 31, and 37. So between them Florida and California had over half the top 40 metro areas with the highest property appreciation rates early in this decade.

Looking at real estate appreciation rates between 2006 and 2007 we find that oh, how the mighty have fallen! In fact, many of the same areas that were flying highest in 2001 - 2002 have experienced drastic property depreciation in the last 2 years. Between Q4 2006 and Q4 2007 the state of California as a whole saw property values decline an average of 6.6% according to the U.S. Office of Housing Enterprise Oversight. Some areas in California fared even worse.

The LA Times reported 3 weeks ago that home sales in southern California fell to their lowest levels in over 20 years, with the number of homes sold down over 44% from this time last year. The median home price in the 6 county region has eroded 18% in the last year, and of the homes that did sell, 25% were in some stage of foreclosure. Riverside County experienced the largest decline in home pricing of the 6 at -20.1%, while San Diego homes only lost an average of 9.1% of their value for the 12 month period. In 2001, Riverside had the 35^th highest real estate appreciation rate in the country, at 10.9%, while Orange County was in 42^nd , with a 10.5% appreciation rate.

The National Association of Homebuilders Housing Opportunity Index, which ranks the affordability of housing in metropolitan areas, shows that in Q4, 2007 California cities occupied 24 of the bottom 25 slots in the affordability index. This means that the median home price is higher as a percentage of the region's median income. 23 of the 26 areas had a median income higher than the national MSA average of $59,000. Many of the least affordable areas of California were actually in the Bay area, where real estate values have yet to implode, although incomes there are relatively high. In Florida, the Miami area ranks highest, reaching number 12 nationally on the list of the least affordable housing, with Naples – Marco Island coming in at number 33. Remember, California didn't leave much room for anyone else at the top.

So is the level of foreclosure as bad as it's being reported? In some areas, yes, while in others not so bad. California is dragging the national average way down, with their large number of foreclosures. This is partially due to the continued unaffordability of residential real estate despite declining home values. The lack of relatively affordable housing has led many prospective homeowners to go the unconventional financing route. The dropping home values have left many people with the more aggressive ARMS unable to refinance, and so, here we sit.

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After the home has been transferred, it is sold at auction. You've seen those late night ads and websites that promise to show you how to get government homes at auction. Well, in many cases there's no reason to pay for a website or whatever the late night infomercial is selling. You simply go to HUD's website and choose the state where you want to find a HUD home. You'll get a look at HUD homes for sale in each area. Despite all the stories of getting homes at 10 cents on the dollar, discounts typically run 10% - 15% off normal home retail prices.

One other point of interest for those looking into this avenue of home ownership; you must use a real estate professional that's been through the HUD approval process, and is certified to deal with HUD properties. Ask your real estate agent if this applies to them if you are trying to bid on one of these properties at auction.

Now, about this whole HUD homes at 50% off business; HUD's name actually gives a clue into how you can get these homes at such a tremendous discount. It's in the Urban Development part of their name. Many FHA properties are at the lower to middle end of the scale in terms of price because FHA insured mortgages are usually used by a huge number people to buy a home, and are especially popular with first time home buyers. Their popularity stems from the fact that down payment requirements are very low, normally only 3%, and there are no income requirements. If you have an adequate credit score and have the down payment, you will probably qualify for an FHA mortgage.

Because it's not in anyone's best interest to have blighted urban areas, your friendly Federal Government has come up with a program or two to help spruce things up a bit. Someone figured that one great way to help make ugly areas a bit more beautiful would be to have responsible homeowners live in some of these areas. Even better would be to have police officers, fire fighters and teachers, veritable pillars of the community all, take up residence in such centers of urban blight. After all, there's probably going to be a bit less crime in a area when it's populated by a higher than average percentage of the boys in blue.

So, here's how you can qualify for your 50% discount off HUD homes. First, spend a few months at your local police or fire academy. You can also get a teaching degree, if that's more your style. Here's how the program works. Certain areas with strong support from local and county governments have been designated as “revitalization areas” by HUD. These are areas where a bit of community and economic development would transform them from crime ridden neighborhoods that need help into areas of the city where responsible taxpayers call home and business owners set up shop.

To encourage police officers, EMTs, teachers and fire fighters to take up residence in revitalization areas, HUD has what they call their “Good Neighbor Next Door Program”. If you are one of the aforementioned groups, you are eligible to purchase a HUD home at auction for a 50% discount. If you consider that you're probably getting a 10 – 15% discount anyway, this is a really attractive proposition. On revitalization properties, HUD opens up the auction for a period of 5 days exclusively for those persons who meet the eligibility requirements.

What's the catch? Well, there really isn't one, except the requirement that the home be your only residence for at least 3 years. That's a pretty good deal, especially if you consider that your very presence will likely raise local property values. If you can talk a few of your friends at the department to buy homes close by it will help home values appreciate even more. So, not only can you help revitalize your community, but you can really help revitalize your finances by getting so much home equity in such a short period of time. Remember that you have to use only those real estate agents approved to handle such transactions.

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What are the causes of this dramatic increase in house foreclosures, and house foreclosures in general? Traditionally the top 3 causes of foreclosure for residential mortgage holders have been medical problems, divorce, and unemployment. Has this changed as foreclosure numbers continue to do their Sir Edmund Hillary impersonation? If the causes of foreclosure have changed, does this also change what the average troubled homeowner can do to prevent them? According to statistics released from Countrywide financial in the summer of 2007 the traditional top three causes of foreclosure are still at the top. Interestingly, the Countrywide statistics attribute adjustable rate mortgage payment adjustment as the cause of only 1.4% of foreclosures. Weather or not the increased mortgage payments were contributory in any of the other foreclosures was not revealed.

Countrywide did attribute 6.1% of foreclosures to investors who were unable to sell their properties in a softening real estate market. Presumably such investors would be more likely to let properties fall into foreclosure than would homeowners facing a similar situation with their primary residence. That could possibly account for part of the relatively high percentage of foreclosures experienced by these investors. As an aside, Countrywide indicates they have modified approximately 81,000 mortgages to help prevent mortgage holders from falling into foreclosure, while the Mortgage Bankers Association just reported that 54,000 such modifications took place industry wide in Q3, 2007. Do these numbers add up? Countrywide may be counting some of the 180,000+ mortgage holders who restructured their payment plans with lenders in the same Q3 of last year. The MBA indicated that the difference between a payment adjustment and a modification is that modifications include interest rate adjustments.

If you do need a mortgage however, times have never been better to get one, if you can pry the money from your lender’s clammy fingers, as mortgage interest rates have dropped to near record lows. As this is written, Bankrate.com is reporting the average interest rate on a 30 year, fixed rate mortgage is an attractive 5.31%, while a 15 year loan will reward you with an average 4.82%. This points to the importance of refinancing an ARM, if in fact you still have one. Most people who have an ARM have already been frightened into converting to a fixed rate mortgage by the voluminous press regarding foreclosures and other mortgage problems.

If you have not done so, and you’re not planning on selling your house soon, it would be prudent to take advantage of these low rates. Not to sound like one of those ads we all hate for mortgage lenders, but it really is a good idea. It amazes me that so many people bought well over their heads using one of the plethora of creative mortgage products that were introduced in the first 6 years of this decade. If you were one of these folks, take advantage of the silver lining that our current economic fears have spawned, historically low mortgage interest rates (that we thought would never be back).

If you are facing foreclosure, there are things you can do to help head off the proceedings at the pass, so to speak. I did a post on how to avoid foreclosure a few months ago which you can reference for more information on avoiding or stopping foreclosure proceedings.

Posted by debtblog at 05:24 PM | Permalink | Comments (0) | TrackBacks (0)

If you are looking to make the leap into home ownership, and are a bit savings challenged, here are a few down payment assistance solutions you can look into. It might be just what you need to finally get a house of your own.

For all you home sellers out there, just dying on the vine because your house hasn't sold, especially if you bought a new house before you sold your old one, these could be a tool you can use to help market your house. It might be the one thing that helps you get out from under that old house and all its expenses.

Get Downpayment Assistance From a Charity
No, I don't mean call up the Red Cross or the American Cancer Society and ask them for a handout. It works more like this; a 501(c)(3) non profit organization or charity gets a contribution for the amount of the down payment, which they then transfer to the seller. The contributor gets a tax deduction for the contribution and the charity pockets a service fee. You get your down payment. What a deal! No doubt.

As with anything that seems too good to be true, there are some problems with the arrangement, namely for the IRS, who hates to let some good tax dollars go to waste. In 2006 they published a notice with the intent of removing the tax exempt status of 501 (3)(c)s who's primary activity was to move money from sellers to buyers in order to facilitate real estate transactions. Shortly thereafter HUD followed suit, releasing a proposed rule that would forbid the use of this process for the purchase of FHA properties.

Ah, but not so fast! The HUD rule only states that if you use an FHA loan, you cannot use down payment assistance if seller financed organizations are the source of the money. You can still use this method if you are not using a FHA financing or if you use a non profit, or charity organization who's chief function does not entail financing down payments using money from sellers.

In addition, in October of last year, the DC U.S. District Court denied HUD from prohibiting the seller financed transactions until such time as they can further review HUD's rationale for their decision. The Court basically said they felt HUD didn't do their due diligence before issuing they made the ruling. One important note here. One of the reasons HUD made their ruling in the first place is that in their opinion, such financial sorcery artificially inflates the selling price of the home, costing the buyers money. This is due to the seller passing along the service fee charged by the charity for the transaction.

That may be true, but numerous organizations in the home buying process pass along fees to one or more of the parties involved. At least it allows people to actually buy a house when they could have otherwise not done so. The problems arise when people buy a house they can not afford, because they have no down payment requirement and they get a mortgage based upon shaky financials (probably not going to happen so much anymore).

The National Association of Realtors is pushing for a 0 down FHA program to be implemented. Their reasoning is that eliminating the down payment requirement will remove the incentive for these assistance organizations. That may be true for homes bought using FHA loans, but what about all the rest? As house prices rise, the problem of obtaining sufficient funds for a down payment is only going to be exacerbated. Thankfully for buyers, they are experiencing a temporary reprieve, as real estate values have declined in many markets. In the long term however, this pricing trend will inevitably reverse itself. Even so, the prospect of a recent college graduate, new to the workforce, plunking down the down payment for a new home can be a bit laughable, when you consider the price of homes in many major cities.

Even at 3%, this can add up, depending on where you land your first job. For example, the average home price (preliminary Q3, 2007) in Indianapolis, Houston, and Omaha was between $125K and $155K. The average college graduate or young family may be able to come up with the $6,000 they'd need to get into a home after all was figured in. However, if you find yourself in Seattle, Boston or Washington DC, you'll find the going a bit tougher, with homes fetching around $415K.

If you've come to the sun of SO Cal, forget it. To get the average priced home in Orange County you'll need $700K, one in L.A. will cost an average of $588K(that factors in the many really bad L.A. neighborhoods, so a nice house will cost more than you'd think), and San Diego brings $589K. Not only can you not even get an FHA loan that big, if you could, you'd need to have almost $20Gs stuffed in a bag, an amount few recent college graduates, or any other workers with young families have a prayer of getting.

Get Downpayment Assistance From the Government
Speaking of Southern California, the Golden State is one of the states that has an Austrian born Governor...wait, wrong post, I mean a state guaranteed, no down payment program for home buyers. California's is known appropriately enough, as the California Homebuyer's Downpayment Assistance Program (CHDAP). As with many such assistance programs, they work by combining an FHA loan and a “silent” second mortgage. Given the state's relative dearth of homes that could possibly qualify for FHA financing, especially in the major metro areas, one might ask about the relevance of such a program, but something is better than nothing. If you live in California, or may be relocating there soon, you can find out more about their program at the California Housing Financing Agency's website.

Washington State has a similar program fro down payment assistance if you are disabled or have a disabled person living with you. It is termed the HomeChoice Second Mortgage Program. One wonders how much money states might save if they stopped hiring marketing consultants to come up with catchy names for state programs. In any case, to learn more about Washington states program, visit the Washington State Housing Finance Commission's website.

Arkansas, a state who's had 2 of the current Presidential candidates reside in it's Governor's Mansion (triple-wide) has such a program too. Theirs is targeted at first time home buyers and is offered by the Arkansas State Development Finance Authority in cooperation with a Federal program, the American Dream Downpayment Initiative (In this case, the Feds hired the marketing consultants), which was originally signed into law by President Bush in 2003. Arkansas' down payment assistance program provides downpayment and closing cost assistance for low income families making 80% or less of the area's median income. See it at the Arkansas Development Finance Authority's web page.

To find out more about the Federal DPA program, check out the American Dream Initiative website.

There you'll find about each state's program that ties in with the ADI. However, many other states have other programs that are not affiliated with the federal program, so take the time to visit your state's housing, and/or finance authority or agency website to find out how to qualify.

Posted by debtblog at 02:44 PM | Permalink | Comments (0) | TrackBacks (0)

In many real estate markets these days selling a house is no easy task, never mind selling your own house. Be that as it may, there are times that you may have to do just that, either by choice or circumstance. If you find yourself in the position of having a house on the market, selling it sooner, rather than later is probably your overriding concern. I've seen a few friends watch their house languish on the market for months recently, and believe me, it's not a good position to find oneself in. Any house payments you make while your home is on the market basically come right out of your profit, because the lion's share of that payment goes straight to mortgage interest, not to reducing the principal balance.

If you are selling your own house, here are some tips that can make the task a bit easier.

Tips for Selling Your Own House 1 -
Price the thing realistically. I know it's your own house, and it's full of your memories, but you've got to put yourself in the position of a prospective buyer. They have no such memories of your abode and if you want them to get any, you can't overprice the thing. Remember, the longer your house sits unsold, the lower your profit. Over pricing will cause a property to sit, instead of sell, and in fact is the number 1 cause of a failure to sell, according to a survey of sellers done in 2006 by real estate firm HouseHunt Inc. It is far better to price it a few percentage points low and sell it right away, than to price it a few percentage points too high and have it fail to sell for 3 to 6 months (or longer). One last bit of pricing advice; price it on the low side of $25K increments and it will be seen by more online browsers. For example, you'll get many more views at $349,950 than you will at $354,950, because of the way most real estate websites search for homes (in $25K or $50K increments).

Tips for Selling Your Own House 2 -
Don't buy a new house before your house sells unless you have no choice. Many Realtors say it's much tougher to sell a vacant property than one that looks happy and full. If you must move out, go ahead, but you should be aware that NAR surveys have found that you're about 10% more likely to reduce the price of your home at some point in the selling process if it is vacant. So if you can, a hot tip is not to move out too fast. You can always rent a place to live while you're finding a new home. It is, after all, a target rich environment for buyers these days, not the seller's markets of years past. Finding a new home will be the least of your worries.

Tips for Selling Your Own House 3 -
Make sure it looks good from the street. Reeaal good. As in “I have to live here” good. Curb appeal is one of the largest factors in setting a positive impression in people's minds when they're house hunting. After a day of looking at 8 - 10 houses, you want yours to be the one they remember. Make sure it's clean, and there are no glaring flaws, especially flaws visible from the street. Look at the landscaping. That is one area that can cause the price to appreciate if it is very good, and actually reduce the price of your house if it is not.

A study published in the Journal of Environmental Horticulture in the 1990's found that for some houses, the landscaping can reduce the selling price of a house by a staggering 10%! Even if it's only 5%, or if it causes your house to stay on the market an extra 90 days, mow the freakin' yard, for Christ's sake! Actually make sure the hedges and bushes are well trimmed, the lawn is completely manicured (unless it's covered by snow now) and there a no dead spots. A new layer of beauty bark is very effective as well, especially the kind that's treated to stay looking new for a year.

Tips for Selling Your Own House 3 -
Make sure it's up to date. You could try to sell the house with the drab, old kitchen, but the price you pay to have the kitchen updated will likely be recovered when you sell, and could easily keep the home from sitting unsold for a long while. New homes now are replete with solid surface counters and stainless steel appliances in many neighborhoods. If your home isn't, and competing new homes are, it could be a tough sell.

Cough up the $8,000 - $12,000 to have the kitchen appliances replaced, and the counters resurfaced if that's what the competition has. Not only will you likely recover all, or most of the cost, but it will likely save you costly market time. Refinishing or refacing the cabinets may be a good idea as well, if yours are a bit worn or dated looking. Failing that, you can at least paint them. Recovering or refinishing the floor is another good use of your money.

Another relatively inexpensive area you can address to make your home look up to date is the lighting fixtures. Old lighting fixtures are one of the things you can replace for relatively little money that have a tremendous impact on the appearance of a space. Ditto the front door. It's the gateway to your palace and something that makes the first impression. For $400 - $600 you can replace it with a nice, new one.

Home Tech Information Systems and Remodeling Magazine publish their cost vs value report on the percentage of costs recouped by various remodeling projects. Here are some interesting bits from the 2006 report. The report actually breaks down improvements by region, as well as nationally. Because the house market in general is not as strong as the last few years, some of the percentages are lower. In addition, you should be sure to factor in the content of other homes in your area and price range. There's no sense in completely remodeling your hoe with a new Wolf gas range, Bosch Dishwasher, Sub Zero refrigerator and slab granite counter tops. If that's far above the standard for other homes in your area and price range. You may sell you home faster, but you won't recoup your investment on a dollar cost basis.

Here are some of the highlights of the report:
% returns on remodeling investments -

Vinyl Siding replacement 83.1% (unless you're in New England, where you'll get 94% back!)
Fiber backed siding replacement 88%
Minor Kitchen Remodel – 85%
Bathroom remodel – 85%
Bathroom addition – 75% (reflects the higher costs associated with the addition, but remember, to factor in your neighborhood norms. For example, if all the homes in your neighborhood have 2.5 baths, and yours only has 1.5, you are in a much better position to recoup you investment. You'll also sell your house faster)
Attic bedroom remodel – 80%

The number one tip to revitalize a space and make your house sell faster is repaint the interior. You'll cover a multitude of problems, make it look better and give it that new house smell people love. The best thing is that paint costs very little and even the most handily challenged can do it in a weekend or two.

Tips for Selling Your Own House 4 -
Clean everything like your life depends on it, including windows, screens, tile grout, and inside the cabinets and closets. Cleanliness is next to godliness, except when you're trying to sell your house, then it's sitting on top of it.

These tips can help to sell your own house, and can keep it from sitting on the market while you forlornly watch your bank balance wither away. For more powerful tips and strategies on making sure your house sells for top dollar, in any market, pick up a copy of the Home Staging Course. It's really targeted at those who'd like to start earning money with their own home staging business (would that be such a bad idea?), but it is full of powerful strategies to help you sell your house as well.

Posted by debtblog at 04:54 PM | Permalink | Comments (0) | TrackBacks (0)

How these rent to own, also called lease to own plans typically work is that you pay rent plus a small additional surcharge that goes toward your future down payment. You’ll usually pay an option fee for the privilege of participating in the whole shebang. In most cases you’re actually not renting to own, but renting with an option to buy. You will have to exercise the purchase option by the expiration of the option period.

What to Watch Out For in a Rent to Own House 1 – Contract stipulations - As with any other legal arrangement or real estate purchase, look over the contract very carefully. It should stipulate the price of the house, the length of the option period, the option fee, the rent payments, and the rent premium the potential buyer has to pay. In addition as a buyer you should be very aware of any other stipulations and clauses that could have you out in the street. In most rent to own housing arrangements, you will forfeit the fees and premiums if you are evicted, fail to make payments or decide not to exercise your rent-to-own option. Make sure the former isn’t too easy.

What to Watch Out For in a Rent to Own House 2 – Fairness - Make sure that the renal contract isn’t too one sided. In a few instances, sellers know they have a buyer with few options due to poor credit and/or few available funds. They can use the buyer’s desire to own a home, coupled with their relative lack of ability to do so, to put them into a one side contract. Don’t let that happen to you.

What to Watch Out For in a Rent to Own House 3 – Home Price. Make sure that the premium you pay isn’t too high. One of the goals is to be able to exercise your purchase option. You’ll have a much better chance of doing so if the house appreciated by the end of the option period. Similar purchase options on stocks, purchase options on homes state that you can purchase the house for an agreed upon price at some point in the future. You are gaining equity in the house as it appreciates above your option price. The goal is to accumulate sufficient equity such that securing financing is relatively easy, even with bad credit. Obviously the lower the home’s price, the greater you’ll benefit from appreciation.

What to Watch Out For in a Rent to Own House 4– The Real Estate market - In many areas home values are down. The question is how long they will stay depressed. If values stay low throughout your option period, you may not have enough equity in the home to purchase it. Evaluate the market in your area thoroughly before committing to such an agreement.

What to Watch Out For in a Rent to Own House 5 – Problems and repairs. Another section of the contract should determine who is responsible for any needed repairs to the property. It should state which party pays for different types of repairs. You don’t want to get stuck paying for a new roof, for instance, only to either decide not to exercise your option or be forced to leave.

The bottom line is that rent to own can be a great strategy to purchase a home, if you have few other options. It beats losing money on rent and can also be a great way to try out a neighborhood or home before you buy it. Just watch out for those details that can make your life a bit rough.

Posted by debtblog at 01:37 AM | Permalink | Comments (0) | TrackBacks (0)

Thing to Check Before You Buy a House 1 -
This first thing to check before you sign the papers are the papers themselves. Have your mortgage contract looked over by a real estate attorney. In addition to that, you should peruse them yourself, even if you think it's all a bunch of legal mumbo-jumbo. Every day there are sob stories in the media about someone who claims to have been sold a bad loan by this or that lender or mortgage broker. Guess what? In many cases they got the loan due to their own greed and / or ignorance. Outright fraud or misrepresentation is one thing, but many times this never occured.

It's true that you should be able to trust your lender or broker, but far too many people were so eager to get their house or loan that they failed to even perform some basic due diligence. Come on, people! You are about to sign what is, for the majority of people, the largest contract of their lives. Before you do so, you owe it to yourself to have at least a basic knowledge about mortgages. If you don't know what an ARM is, at least find out before you agree to one! You should not only find out what it is, but you should be aware the financial implications of it.

Thing to Check Before You Buy a House 2 -
Take a look at the neighborhood schools. Even if you will never avail yourself of their services, it is important to know about them for a couple reasons before you purchase your house. First of all, even if they are not important to you, they are to many people, and thus the quality of the schools in your neighborhood can have a major impact on the resale value of your house. Secondly, look at how they are financed. With many schools today, it seems to be all about the money. Where do think all that money comes from? That's right, the property taxes on your house. Some of the school's budget will come from federal and state grants, but much of it will come from your property taxes. You need to check on how they are paying for the schools, along with their levy and tax history.

Thing to Check Before You Buy a House 3 -
Does your house have a propensity for flooding? Look at the FEMA flood hazard index and check the local news archives. This is vital if you think there's a chance of flooding. All houses are in a FEMA flood zone, it's just a question of the severity. If your house is in an area that has a flood history, you may get the short end of the stick when it comes to rebuilding after a flood. You can look up FEMA's flood zone info on your prospective house here:
https://hazards.fema.gov/femaportal/wps/portal

After every flood there are plenty of people who lose everything who should have known better. If you build or buy a house in an area with a known flood history, you have no one to blame but yourself when the inevitable happens, and it floods again. Sadly many of these people look to the government (our tax dollars at work) for a bailout in this situation. I have absolutely no problem spending tax dollars to help rebuild a community in the event of a rare, serious flood. I do, on the other hand, object strenuously to spending our tax dollars to help someone rebuild their house, again, because they built on a lot only 5 feet above the level of river that floods every 5 – 10 years, like clockwork.

One note on FEMA flood zone data, it is being revised in some areas. Find out if your area is affected by the revision before using the data. In most cases flooding will not be covered by your homeowners insurance, so if you do sustain flood damage, the repair and property replacement will come out of your pocket. In addition, you don't want to buy a lot for your dream home, only to find out later that a home is un-insurable due to flood hazard. If this is the case, you'll probably have difficulty getting a construction loan to get the house built as well.

Thing to Check Before You Buy a House 4 -
Look carefully at the CC&Rs. Many communities have CC&Rs (Covenants, Conditions, and Restrictions) dictating many things about how you can use, and what you can (and must) do with your house and property. This is legal contract you enter in to with your neighborhood's home owner's association. CC&Rs are just what some people want, because it mandates things such as lawn condition, and house color for example. They can keep you from parking your boat in the street, or limit how long vehicles are parked in front of your house.

You want to be aware of all the provisions contained therein however, because you do not want to buy a house with the intention of using it a certain way, only to discover that you desires are prohibited by the CC&Rs. This is serious stuff, so don't underestimate the importance of it. People have actually lost their homes fighting the home owner's association over CC&R provisions. It pays to be informed before you buy your prospective house.

These are just 4 of the myriad things you should be aware of before you buy a house, there are countless others, but many people never consider these 4 items.

Posted by debtblog at 02:09 PM | Permalink | Comments (0) | TrackBacks (0)

You can try to console yourself with all the money you saved by not hiring a lawyer to draw up or examine your contract while you’re grieving aver how you got taken to the cleaners. You may think you can just take this stuff lightly, and far too many people do, despite the advice of experts. However, failure to take this simple precaution can be fraught with peril. I have a neighbor who is selling their home and an adjoining vacant lot. They had listed their home and the lot as a package deal, with the lot at a $20,000 discount over its price if purchased separately.

A prospective buyer made an offer on both, but subsequently had their financing on the home denied. The financing on the lot however, was approved. The way the two properties were listed, and the way the contract was written, the purchaser was able to purchase the property for the discounted price, although they didn’t buy the home along with the lot. Needless to say (although I will anyway) my neighbor is a bit miffed over the whole situation, being out $20,000.

Paying a lawyer a few hundred or a thousand dollars to draw up the contract could have avoided this unfortunate situation, and my neighbor would have an extra $19,000 in the bank today because of it. Think about it the next time you’re tempted to bypass the important step of having your real estate lawyer examine a contract when you’re a buyer, or draw up a contract if you’re the seller. The money you save will be your own.

There’s nothing wrong with using a stock form for some things, or having one of those discount, on-line legal form services create your documents for you. They work well, and can save you substantial money for certain things. Real estate transactions are not one of them however. For that, you need the real thing. There’s nothing like witnessing something like that up close to drive the point home. If you do need a lawyer, here's a free service that is much better than just guessing your way through the yellow pages. Attorney Referrals

Posted by debtblog at 01:35 PM | Permalink | Comments (0) | TrackBacks (0)

I just had the house down the street from me go on the market for about 5-7% higher than many predicted it would list for. It's a 40yr old, 3 bed / 1.75 bath rambler at about 1,300 sq feet. It has a nice large yard with entertainment deck and kid's play set, some quality improvements inside, such as tile kitchen counters, nice baseboards and freshly refinished hardwood floors. The asking price is $344,777. If they sell for anything close to that figure it would sure help the property values for the rest of us on our little street. They did many of the things that experts advise when trying to sell for top dollar. These are all the standard things you should try. After that we'll get to some of the more unconventional items.

Curb appeal -
Good first impressions are vital when you're trying to sell your house. I've posted on the importance of this before, and it bears mentioning again. You want to ensure that prospective buyers at least get out of their real estate agent's RX350 and take a look inside. Remember, in many cases their agent has never seen your house before either. You want to clean everything until it's spotless, make the front yard look great (even if it means spending a few dollars on landscaping) and make sure the porch area is inviting. The front door, the door hardware and all sidelights and windows around the front door should be in great shape, with no cracks or peeling paint. Ditto the porch and sidewalk. Unless you're going after the investor or the sweat equity buyer (not a very large chunk of the market), those areas can be a major turn off for buyers if they are in a state of disrepair.

Inside the house -
There's a reason so many new homes have soaring entries and dramatic staircases, even if the size of the home doesn't seem to warrant it. Home builders know how to market their homes, and they've found that the impression it creates on prospective buyers helps the home sell. You may not be able to create such a space if your house doesn't already have it (trust me, that's an expensive remodel and you won't get the money back), but you can use the same principle on your house. As with the front exterior, you want to be sure the interior first impression is favorable. Refinish the entry hardwoods, install new tile, and/or paint. If you've got a ratty, old light fixture in the entry, replace it. The $50 you spend at Home Depot will be well spent.

Clear out as much of your furniture as possible, especially if it doesn't match ( I know you prefer to term it an “eclectic collection”, but everybody else will see it as a junky mess), get the pictures off the walls and paint them (the walls, not the pictures) to hide the fade marks where those images of Uncle Harry, Aunt Jean and the kids were hanging for the last 10 years. You want people to take mental ownership of your home as soon as they walk inside and pictures of someone else's family don't help them to make that leap. If you have any colors that are too far removed from the norm, cover them with a fresh coat of Benjamin Moore in a more subdued hue . You're trying to appeal to the widest number of buyers there, Ace. Mazda's marketing plan of making products that a few people really like, as opposed to the broad market liking a little bit, doesn't translate well to the real estate industry.

Your real (estate) selling plan -
Now that you've handled the basics, you may have to get a bit more creative. Hopefully your home will sell quickly. If not, you may have to resort to some more creative selling tactics. One thing many people want to do if their home doesn't sell quickly is lower the price. While that may do the trick, it may just create the perception that the house was too expensive, and may not be worth what you're asking, even now. You need to find and overcome the buyer's objections. In many cases, it's not so much the price itself, especially if you priced it fairly from the start.

More often the problem either the monthly payment or the amount of cash they buyer must come up with in order to make the purchase. Here's where you can help. You can drop the price, but that doesn't really help the buyer with either the monthly payment or the down payment unless you give away the farm, something you'll not be well served doing. To help the buyer and avoid giving a steep discount that takes much of the profit out of your pocket you can try various strategies.

One would be to pay for all or part of the buyer's closing costs. That will set you back a few thousand dollars, but it helps the buyer avoid coming up with so much cash out of pocket. With the evaporation of no down payment financing and other creative mortgage products, this is a strategy that can pay nice dividends for you.

Something else that can help the buyer in their hour of need is to take a page out of the builder's marketing handbook by offering a buyer bonus. Rather than dropping the price $15,000, try using the cash as an incentive to help the buyer into your home. Give them a $10,000 buyer bonus instead. You'll spend less and they'll gain more. Remember, dropping the price on your home doesn't really give a commensurate drop in the buyer's monthly mortgage payment. For example, the monthly principle and interest payment on a $300,000 mortgage at 6% is $1,798. If you drop the price on your house $20,000, it lowers the payment by about $120 a month. That's not an inconsequential amount of money, but it probably won't make a huge difference in the monthly budget of most home buyers. Most people would rather have $15,000 cash in their pockets.

If you want to help the buyer lower their monthly mortgage payment, you could use what's called a buy down to lower the interest rate. That will be a more effective way to lower the monthly payment, and cost you less money at the same time. You'll pay points to lower the interest rate of their loan. You can either make a buy down for the entire term of their mortgage, or for only the first few years. A buy down for the first few years is usually termed a 3-2-1, 2-1 or some variation of that. With a 3-2-1 buy down, the buyer's interest rate is 3% lower the first year, 2% lower the second, and 1% lower the third. After that, it reverts to a standard, fixed rate mortgage, at the standard 30-year rate, for the remaining 27 years.

It is also more cost effective for you than simply lowering the price of your house by $15,000 - $25,000. For example, in the $300,000 / 6% scenario above, you would give the buyer a 3% loan for the first year, a 4% for the second and a 5% for the final year of the buy down. In year one, rather than a monthly P&I payment of $1,798, the new home owner would pay only $1,265, a monthly savings of over $500. You'll pay a hair over $13,000 for the buy down. It's obviously cheaper for you to pursue this strategy than to chop $15,000 - $20,000 off the price.

Lastly, don't forget to use all the Internet resources available to you when it comes time to sell your house. Social networking sites myspace, digg, redditt, stumbbleupon and the like can all be used to help spread the word about your abode. Don't neglect YouTube, either. In many cases, you'll be better positioned than your realtor to market in these unconventional ways. Happy selling!

Posted by debtblog at 02:28 PM | Permalink | Comments (0) | TrackBacks (0)

If you guessed vacation homes, you’re right on the money. Second homes in the U.S. have never been more popular. In fact, according to a NAR survey in 2005, they now represent an amazing 35% of all home purchases. Some are purchased purely for fun and peace of mind, while others do double duty as a weekend destination and a family investment. Nothing like an investment you can spend the weekend in with some friends. Just try to ski from a mutual fund. As with any other investment, you'd better do your homework first, or you could end up deep in the hole.

If you’d like to get a second home for vacation purposes that’ll work as an investment too, how should you go about it? After all, the country is replete with locations that have, as noted, experienced some pretty severe real estate depreciation. If you’re looking for an investment however, there are plenty of areas in this country where that hasn’t happened, and most likely won’t, even with the sub-prime mortgage mess we seem to be sinking deeper into by the day. Some of these are well under the radar of most investors, but may not remain so forever.

How to find these hidden real estate gems? If you’re looking for affordable recreation in addition to a good investment, you’ll want to look at the amenities offered by the region in question. Is it close to ski areas, boating, golf, fishing, hunting, beaches, horseback riding, or other outdoor recreation opportunities? Another amenity that’ll help is great weather. Finding property with a view will cost you more now, but any appreciation will be commensurately higher as well, not to mention the enjoyment you’ll derive from it while you own the property.

How about existing resort towns? Often, communities that are in close proximity to established resorts are far more affordable, yet are an easy drive when you want to do some recreating of your own. In addition, they are often the next areas to show a nice gain in home prices, as locals and not-so-rich vacationers get priced out of the main resort market. If you can stand a short drive to the primary draws of the main resort, you’ll often receive great value, and nice future appreciation in return.

Another fantastic place to discover hidden real estate gems is to look at small communities within an hour or two of major metro areas, especially those metro locations with expanding economies. Examples would be Phoenix AZ, Seattle / Tacoma WA, and Portland OR. Most people looking for second homes tend to look for something they can easily get to for weekend getaways. A few hours travel by car or train is about the limit for this type of use. Some of these locations sit for years with relatively little gains in value, then get tapped for growth by developers or discovered by vacationers. If your main concern is recreation it really doesn’t matter if growth ever happens, in fact you may prefer if it never does. If you’re looking for some appreciation along with your recreation however, you’ll need to swallow some growth along with your recreation.

For real bargains, you’ll have to really do some research. Look to planned developments or those in the permit stage. This is a bit more risky, as some planned projects never come to fruition, but if they do, they can generate some spectacular returns, in addition to fantastic recreational opportunities for you. Many popular vacation destinations were once almost abandoned mining, logging or fishing towns. Find the one where big money investment dollars are about to be flowing, and make sure yours are going there too. A little publicity in national publications never hurts either. Many areas have experienced nice gains in real estate value following a few positive articles extolling their virtues.

Some examples of once stagnant or declining areas include Kellogg ID, and Sandpoint ID. Both are now home to nice ski areas. Kellogg was also home to a huge silver mine until 1981, when it was closed down. The mine closure and the loss of the region’s primary employment source caused property values to plummet. Soon, development plans for a new ski resort, technically a modernization and expansion of the existing Silverhorn area (18,000 skier visits in 1983) are announced. In the late 1980’s a gondola is planned from the town to the ski area. In 1990 the improved resort is renamed Silver Mountain, the gondola is finished and skiers begin to come from around the region.

Needless to say, if you’d bought a vacation home in Kellogg in the late 1980’s or early 1990’s, you’d have dome rather well. A new condo project at the base area that was begun in 2004 has had a phase opened in each of the last 3 years withy around 100 units in each. The last two phases have sold out in 1 day, to give you an idea of the demand that now exists in the area.

Sandpoint had a decent sized and well regarded regional ski area, Schweitzer Basin, that had served the region since 1963. It had an existing base area with a few small condo developments and single family homes. At the end of 1998, the resort was purchased by real estate development firm and resort operator Harbor Properties. Harbor immediately poured in capital to expand the base lodge, covert some existing lodging into condos, and improve on-mountain facilities. A year later they announced a 10-year improvement plan for the ski area. The new capital invested in the ski area and the region’s other recreational opportunities, including large Lake Pend Oreille, has caused Sandpoint’s real estate values to trend nicely upward. This is coupled with it’s relative proximity to an interstate highway and Spokane, WA with it’s population base and full service airport.

How should you make sure your prospective property has the maximum investment potential? There are a few things to look for. The first is in the area itself. Does it have the amenities and investment necessary to ensure long term popularity? What about other industries and projected regional employment growth? These are important keys to ensuring long term appreciation of your property.

If you can find a second home in an area with other industries besides recreation to support it, you’ll have the principle of diversification working to protect your investment. Areas that are experiencing an expansion of industry or new industries moving to the area are even more desirable from an investment perspective. Have the local governments invested in infrastructure and favorable tax and development policies in order to attract new businesses? So much the better. The only caveat here is that too much growth, with too little structure, at some point can destroy that “back to nature” atmosphere you purchased your home for.

Get an extra bedroom if you plan on subsidizing your expenses with some rental income. Vacation homes with more bedrooms will rent for more, and usually be easier to rent due to increased demand. If you do plan on renting out your home, check with you accountant and/or tax advisor for the tax implications of the extra income and deductions you’ll be eligible for. Another bonus of the extra bedroom is that it will help the home sell for proportionately more when you decide to divest yourself of the place, as will the additional rental income.

Look for a home that has relatively low maintenance. Every dime you spend on upkeep is one less dollar you have to spend for other investments, you kid’s college fund, or that fine dining experience to maintain your sanity. If you’re part of a condo complex, you’ll have dues and assessments to contend with as well. Old appliances and construction, can lead to notoriously high heating bills in the winter, so be aware of such things.

Now obviously a vacation, or second home isn’t always a great investment, and isn’t the best investment choice for everyone (when you find that, be sure and let me know), but it definitely beats most other choices for sheer investment enjoyment. The keys to success, as with most investments, are research and timing. The difference is the amount of enjoyment that can be had in the interim.

Some more information on vacation home investing can be found in the following places:

http://www.forbes.com/2007/08/08/places-vacation-property-forbeslife-cx_mw_0809realestate.html

 
http://www.realestatejournal.com/secondhomes/

Posted by debtblog at 03:55 PM | Permalink | Comments (0) | TrackBacks (0)

Your house - Unless you’ve got a really sweet Ferrari, your house is probably your largest investment and expense. How can you save money when buying your next house? Here are a few strategies you can use to either get more home on your budget or lower your house budget and still get the same size and quality home.

Home Money Saving Strategy #1
Buy a home in foreclosure or pre-foreclosure. When the bank owns a property they want to unload it ASAP. Real estate isn’t their business and holding the property costs them money. You can find a realtor that works with foreclosures or search for pre-foreclosures on your own.

Another great place to find foreclosures is through HUD. The Department of Housing and Urban Development sells foreclosed FHA homes at auction. Don’t get all excited about buying your dream 5 bedroom home on the lake for $150,000.

It doesn’t work that way. Homes are auctioned at market value. There are times however, where you can save money by purchasing your home that way. HUD home auctions are sealed bid affairs. Your real estate agent can submit a bid for you if you find a property that fits your needs. You can also check RealtyTrac. They're the nation's largest foreclosure service. They are the providers for the foreclosure data you see on the Wall Stree Journal Online, Yahoo Finance and MSN Money. They have a free trial, so you can sign up and check for foreclosures in your area.

Home Money Saving Strategy #2
Build it yourself. You can save money this way, but be aware that building a house isn’t like building those Revel model cars you built when you were 12. Even if you use one of the services that walk you through the process, there are never ending decisions that must be made. On a larger home design and project meetings are almost a full time job you need to be prepared for.

In addition, you may not save as much money as you think. Established contractors, especially the very good ones, will use their expertise and relationships to save you money. You will pay a premium for their services, but that may be offset in a large part by the money savings they can get you from their preferred vendors and the great speed with which they complete your project. Watch out for how they do their billing, however. Some builders bill you a fairly small fee for their services, but nail you with high markups for any upgrades or additions. Be aware of any of this going in.

Home Money Saving Strategy #3
Negotiate! – Don’t forget to ask. In many cases you can get the lender or broker to waive or reduce some of your closing costs. You should also try to find out as much as you can about why the home is being sold. In most cases this won’t be easy, but it can pay big dividends. In any negotiation information is vital. The more you have, the better position you’ll be in to make yourself a great deal. You may be able to make (and get accepted) a better offer than you could have hoped.

Home Money Saving Strategy #4
Buy as is.  This means that you’ll get stuck with any fixes or repairs the property may need. In some cases you can get a greater discount than just the value of the repairs. This is the case when the seller can’t or won’t take care of the repairs themselves. You’ll also benefit due to the increased risk you’re undertaking.

Posted by debtblog at 09:48 PM | Permalink | Comments (0) | TrackBacks (0)

One way would be to take on partners. They could supply any cash needed for the down payment or closing costs. For many people, that’s just not an available option. Those rich uncles with cash dripping out of their pockets seem awfully hard to find these days. Even if it’s an attractive investment for both parties, you may not know where to turn for this sort for real estate transaction.

Another option that was used extensively in the past for this type of transaction is the assumable mortgage. An assumable mortgage is one that’s transferable between different parties. You can’t use this with just any mortgage. They’re not all assumable. Generally you can choose from FHA mortgages or some ARMs when it comes to selecting an assumable mortgage.

Look carefully before you assume a mortgage. Once you do so you’re by and liable for all the terms contained therein. Look at the interest rate, and all the clauses. Make sure, for example, that you’ll not get dinged by prepayment penalties in the event you want to refinance or pay off your loan early. You’ll need a down payment if there’s a difference between what the house is worth and how much is outstanding on the mortgage. If your main purpose is to get into a property with no money down, that’s not the property you’re looking for.

The bottom line is that you can get a spectacular home, and actually pay no money down if you can find one with an assumable mortgage, your credit is acceptable and it doesn’t have so much equity that you have to chip in any cash. Be prepared to do quite a bit of searching before you find one of these gems, however. You can’t just run down to your local assumable mortgage store and select the daily special.

Posted by debtblog at 03:20 AM | Permalink | Comments (0) | TrackBacks (0)

You can make a very nice income flipping, and it is a better way than most for the average Joe to retire rich. Just like every other kind of investment however, you can get snookered if you don’t know what you’re doing, or make some bad decisions. With the amount of money in play, it doesn’t take many bad decisions for you to lose your shirt. Here are some of the worst mistakes.

House Flipping Mistake #1
Choosing the wrong house – This is the big daddy mistake, the one that’ll really get you soured on the whole house flipping thing. You want a house you can turn fast, so do your due diligence. You want a property with no major (or preferably even minor) structural problems. Look at the neighborhood. Is it desirable? Is the net flow in or out? How about the schools? Is it easy access to freeways, shopping and major employment centers? That old real estate saying “location, location, location” exists for a reason.

You want a property that will appeal to the maximum number of people. The more assets it possesses, the better. Stay away from weirdness, unless it’s very easily fixed. I’ve seen some gems, like the house with the bathroom in the middle of the garage. Run like the wind from these places. You want a house that will appeal to the maximum number of people to avoid house flipping mistake #2.

House Flipping Mistake #2
Holding the property too long. The best case scenario is that you flip it before you make the first mortgage payment. Remember all the payments at the beginning of the mortgage are almost all interest. Every payment you make will affect the principal very little so it will come directly out of your profit.

For example, if you got a house for $250,000 and end up selling it for $279,000, you will gross $39,000. If that takes 27 days, you’ll make no payments and you’ll net $49,000 minus renovation and transaction costs. If you get a 3/1, interest only ARM at 6.2%, your payments will run about $1,350, depending upon your loan costs. Every one of those $1,350 mortgage payments you make comes directly out of your profit, so the best situation is not to make any. The exception to this rule is if you are able to make improvements to the property that will take longer than the time window to make the first payment, but will generate substantial appreciation, well beyond the cost of the payment. For most people, the better strategy is turn and burn, however.

House Flipping Mistake #3
A big mistake made by flipping rookies is, when making renovations, making the house you like, instead of one with the broadest appeal. This flipping faux pas will directly impact you also making mistake #2. Remember you want to appeal to the broadest possible market. The more potential buyers in the pool, the more likely one of the will purchase your property. With that in mind, remember, when you repaint, all colors should be on the conservative end of the color chart. No wacky oranges, bright yellows, or cobalt blue hues should appear on the walls. Keep with subdued, neutral colors such as off white, beige, light tan, light gray and so on.

Same with tile colors and patterns, cabinets, or any other detail that you may really, really like, but may not be appreciated by the average buyer. You’re trying to make money, not a statement. Unless you are trying to generate marketing buzz by landing on the pages of Architectural Digest, stick to the basics.

House Flipping Mistake #4
Spending too much money on renovations is a common error when flipping houses. This can be precipitated by first making mistake number 1, and selecting a home that needs major repairs. You should have found a property that needs painting, carpet, tile and cleanup. Look at everything in terms of R.O.I. Those renovation items typically have high R.O.I. If you have contractors that you can trust, and are both fast and reasonable, you may be able to make other alterations, but only if they’ll appreciably increase the selling price of the home. New light fixtures are another high R.O.I. improvement. In homes from the 50’s, 60’s and 70’s.

Great, inexpensive cosmetic upgrades are the best. These include anything that will entice the buyer out of the car and give them a favorable first impression. Examples of this include a new front door and hardware, painting the garage door, new walkways, refinishing the front porch, and interior entry treatments such as hardwood, slate and tile. Landscaping is great for this as well. Remember that cleanliness is really next to godliness in this case. The place should be clean as never before, and that should begin at the curb.

House Flipping Mistake #5
Not knowing your market. You need to know what sells. That’s the only way to know what properties to buy and what alterations will help you maximize profit. If slab granite countertops will make the home sell faster in the property’s neighborhood, you can get them installed for $2,000, and raise the price of the home by $5,000, then do it. If homes in the neighborhood all have 2 full baths or more, and you can easily turn a 1-3/4 bath house into a 2 bath house; that would probably be worth doing as well. What people look for in a property is essential knowledge.

House flipping mistake #6
Not doing what you do best and most profitably. This rule applies to all entrepreneurs, not just real estate investors. It’s very common, because people think they are saving money by doing things themselves. You need to look at the big picture however. How do you get paid? If you get paid by flipping houses, you need to spend your time doing that, not cleaning the yard, painting or replacing the carpet. These things can all be done by someone who makes far less money per hour than you do finding opportunities to flip. You should concentrate on finding your next home flipping opportunity, not saving $9.00 an hour by cleaning up the property. That’s what day laborers are for. You should spend your time finding, evaluating and closing real estate deals.

House Flipping Mistake #7
Not having a plan. Before you can do your ROI calculation you need to have a plan. What does the house absolutely need, what other improvements will you make, how long will they take, who will do the work and how much will it cost? Your flipping plan should have the answers to these questions. Remember to include items such as construction permits when calculating costs. In many cases you’ll need them even for relatively minor electrical and plumbing work. Like in many other businesses started by entrepreneurs planning is an often overlooked step in the process, but one that can help ensure success and maximize profit.

Hopefully this list of 7 home flipping mistakes can help keep you on the right real estate investing track. I hope everyone had a great Independence Day holiday. If you need a good guide to help you make a nice profit from this type of investing, check out How to Build a Fortune With Real Estate Foreclosures and Short Sales. This eBook has some very good information (especially with the growing number of foreclosure properties on the market) and is packaged with some bonuses that deal specifically with finding good investment properties, evaluate a property as a short term investment, and flipping properties correctly so you can make money. It actually covers much more than that. Check it out if you are, or want to be, involved in flipping houses.

Posted by debtblog at 04:12 PM | Permalink | Comments (0) | TrackBacks (0)

You can rent it out and take advantage of the rental income, appreciation and tax benefits you receive by renting the property out. Many people however, just don't want to be landlords, no matter the financial incentives. You can mitigate some of the problems faced by being a landlord by hiring a property management company, but most investors would like to cover that expense in the rental cost. That depends on what the rental market is in your area.

You can sell the unwanted property, and hopefully make a profit after you selling expenses and taxes are paid. Part of the equation rests upon the current ownership structure of the property. Do you own it alone, or are you part of a partnership or investment group? What are the feelings of the other parties involved? If you want to sell, could they be the buyers?

How should you decide weather you should sell the property or rent it out? Part of that depends upon what your personal and investment goals are. Another part depends upon the way the property is financed. Do you have an ARM or interest only mortgage on the property? If an ARM, is it going to adjust soon? Is there a balloon payment in your future? If it's going to adjust, what will the post adjustment payments be?

You need to sit down (or hell, maybe you think better standing up) and do a financial analysis. Try and take the emotion out of the equation entirely. Will it be profitable to keep the property and rent it if you want to become, or remain a landlord? Can you sell it for a profit? Is the real estate market appreciating in your area, or has it hit a bit of a snag? In this situation, much depends upon the conditions of the local real estate market. In many areas right now, they are pretty abysmal, but some areas are still going strong.

Look at it this way. At least you are fortunate to have an extra property that requires you make such a decision. Many people would love to be in that position.

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The C.L.U.E. report is the Comprehensive Loss Underwriting Exchange report. It lists insurance claims made against a property and can provide valuable information about recent problems in the home's history. A C.L.U.E. Report will list all the data associated with any claim made in support of the property, including the insurance company, type of loss, weather the loss was related directly to the property itself, dollars paid on the claim and the cause.

Needless to say, this kind of information can be extremely valuable to you when looking at a prospective home to buy. It will show such things as serious mold damage, damage from fire, flooding, accidents, and so forth. There are a few caveats to the report though. One is that it is standard industry practice to only have data for the previous 5 years. After that time period, claims are deleted from the report.

The other major caveat is that a C.L.U.E. Report is only available to the property owner or insurance company. To obtain such a report you or your agent must make a request to the property owner, and they must purchase the report for you. It'll set them back $19.95. One would think this is a small price for them to pay if it will facilitate the sale of their property.

If you're selling a house, and your house has a sparkling record for the last 5 years, you can use the C.L.U.E. Report as a marketing tool. It's just another method you can use to instill confidence in the prospective buyer. For you, as the seller, it just takes a simple visit to www.choicetrust.com to order your report. In many locations throughout the country right now, it's a buyer's market. Competition for home sales is getting tighter. The number of new home sales in April showed a decline of 2.6% over the previous month, ending at 5.99 million homes sold throughout the nation. Interestingly, that is also paired with a drop in prices of about 11% over this time last year, the largest drop in this indicator in more than 30 years. Nationwide, April was the 9^th consecutive month of declining home prices. This trend is not happening everywhere, but where it is occurring it is severe enough to offset the locations in which home prices continue to rise.

If you're a buyer, you may have less inventory to choose from, but as sellers clamor for buyers, you should use everything at your disposal to negotiate your best purchase, and ensure you're buying a quality house. If you're a seller, you need to differentiate your house from the others on the market. In both cases a C.L.U.E. Report may help you achieve your real estate goals.

Posted by debtblog at 01:14 PM | Permalink | Comments (0) | TrackBacks (0)

What does this this mean for you? Well, for one thing, it's becoming less affordable for the first time home buyer, and not just because of inflation induced price increases. There is simply not as much housing inventory in the class of typically desired by these buyers. How many first time buyers really need 4 bedrooms and three baths with a den and bonus room? Probably not too many. As the trend toward what the greenies term unsustainability (sustainability is a subject for a whole other debate) shows no sign of letting up, it means that getting into your first home is more important now than ever, lest you be either priced out of the market, or forced into an, ah, questionable mortgage. In some metro areas it's probably already too late, unless you actually studied hard in school, and availed yourself of that investment banking opportunity at Uncle Harold's office.

If you are already into a home, be aware what new home buyers are now looking for when you evaluate remodel projects with an eye toward future value enhancement. When it finally comes time time to part with your abode, you'll be competing in the marketplace with these newer homes, large and loaded (the home, not you after watching a football game).

Posted by debtblog at 01:59 PM | Permalink | Comments (0) | TrackBacks (0)

What can you do to ensure your home sells fast? Aside from reasonable pricing, it’s all about the presentation. Just like in retail sales or in a restaurant, attractive presentation will make all the difference. Just as your dinner at Spago looks a whole lot better than the chow you picked up in the army chow line, how your home looks to prospective buyers will make a major difference in the time your home is on the market. Due to this phenomenon, companies that specialize in home staging have thrived in the past few years. Many of the things they do you can accomplish yourself, if you’ve got a $1,000 and a few weekends of spare time.

One of the keys is the overall condition of your home. If your home has holes in the walls and is in pretty miserable state of disrepair, you may have your work cut your for you. On the other hand, if your home is in basically good shape, you’re ready to go. Just like in the restaurant analogy, how your home looks the first time the prospective buyer lays eyes on it goes a long way to making sure it will move into the “sold” column relatively quickly. There are a few things that affect this right off the bat. Realtors call this “curb appeal”. Be prepared to put in few weekends of really hard work; the kind that will make you feel like you’ve been through a Marine Corps boot camp.

Home sales success rule #1 – Make sure the prospect sees a nice front yard – The first thing a buyer sees when they pull up should be a neat, tidy yard. Get rid of all debris, mow the yard for Christ’s sake, and do a bang up job of weeding and edging. A few yards of new beauty bark goes a long way here. If your porch is looking rather long in the tooth, spend a day repairing, repainting and refinishing it. I guarantee the first buyer that puts their foot through a rotten board in your front porch will not offer your top dollar any time soon.

The front door is vital in the overall appearance of your home. You want it to be inviting. Repaint it and maybe even put in shiny, new door hardware. In some cases you can even make a case for replacing it with a new one. If you’re handy, you can replace it in a couple of hours. Pre-hung doors are available at the local mega home improvement warehouse for a few hundred dollars, maybe less during a sale.

If the sidewalk leading up to that front door is missing chunks and cracked, you may be able to replace it for minimal dollars too. Concrete is pretty inexpensive, and if you can build a form out of 2x4s and round up some rebar, you can make a beautiful new sidewalk. Paving stones are another option here. They are pretty reasonable if you look around. . (See yesterday’s post about how to get building materials for free for some insight) It will probably cost you more to haul the old sidewalk away than to put in your new one. Remember, the operative word is “inviting”. You want people to come into your house with a warm feeling that says “I’m home.” If you’re lucky, they soon will be.

Home sales success rule #2 – Clean everything like you’ve never cleaned before. - All the tricks and hard work on the curb appeal won’t mean squat if a shambles greets the unsuspecting buyer when they walk through the front door. Clean the inside of your house from top to bottom. As important as cleaning dirt from the surfaces is a complete de-cluttering of every room. There should be nothing to detract from the appearance of any of the rooms.

In addition, stacks of crap, even neat stacks, raise the hackles of buyers and make the room seem smaller. When you’re trying to sell your house, small rooms don’t help. To assess the success of your cleaning efforts, have an outside observer, such as a neighbor, friend or relative come over and take a look see. Often they’ll spot problems you might miss due to your familiarity with the house.

If you have rooms with too much furniture, or an eclectic collection of furniture that matches neither itself nor your home, haul it away, have a yard sale, or store it before the first potential buyer opens the door. Some homeowners simply have too much furniture and could stand, for the purposes of selling their house faster, to get rid of some of it. As with clutter, less furniture can also make a room seem larger.

Home sales success rule #3 – Paint all rooms – unless you recently painted, paint every room, including trim. Paint can be your best friend in a home sales situation. It can make all manner of sins disappear. Make sure you clean the walls thoroughly first, lest any dirt or grease show through the paint when you’re finished. In addition to the fresh, new, look, paint will give your house a fresh, new smell. That freshness makes buyers subconsciously feel welcome and at home.

One note regarding painting: nothing too outrageous. You want to appeal to the maximum number of potential buyers. Great colors are lighter shades such as off-white, light tan, light taupe. You can try to create nice touches such as painting one wall a different color as an accent wall, but make sure you consult someone who knows color first.

Home sales success rule #4 – Depersonalize it. – That trophy your kid won for their karate tournament a few years ago may still make you proud, but displaying it won’t help you sell your home. You want to make the buyer feel as if it’s their home, not yours. Pack away most of your family photos, and definitely don’t have them lining the halls. Another bonus you’ll receive when you remove the photos and posters from the walls is that you’ll see where the walls have faded and how badly you really need that repaint after all.

You may want to consider hiring a home staging firm. They can sometimes make a huge difference. These companies are well versed in such subtleties as furniture arranging and paint colors. The better home stagers are experts in buyer psychology. If your home is more than a few hundred thousand dollars, the money you pay a home staging company is a comparative drop in the bucket. Just watch one of those shows on TV where the buyers laugh behind the seller’s backs for a reason to hire a home staging company. They may not be right for everyone, but home staging has dramatically increased in popularity for a reason. As you would when shopping for anything else, be thorough. Look around, and get recommendations.

The bottom line is that for a month's worth of weekends and few thousand dollars, if your house needs a bit of work, or a weekend and couple of nights after work if it doesn't, can make all the difference when you are trying to sell your house. Good luck! 

Posted by debtblog at 01:48 PM | Permalink | Comments (0) | TrackBacks (0)

Get a Better Mortgage Step #1 –
Get a copy of your credit report. Open it up and go through it with a fine toothed comb. Not only look for any inaccuracies, but look for any accounts that may be problematic in other ways. For example, sometimes accounts will be reported as unpaid even though you only owe about $5 on them.

Although technically not a credit report inaccuracy, an account showing as unpaid in this manner will have a derogatory effect on your credit and cost you money on your mortgage. This sort of thing happens when you pay the amount you think will close an account, but other last minute fees or interest is added to the account balance, and you are short. This points to the necessity of always checking weather an account is actually closed before moving on.

The good news is that banks are giving better rates to borrowers with great credit, even as they cut the legs out from other borrowers. Another reason to increase your credit score before you try for your mortgage.

Get a Better Mortgage Step #2 –
Now is a great time to try and get that raise you’ve been wanting. Do it before you apply for the mortgage. The added income will help in your debt to income ratio. Do not use the added income to try and get a larger, nicer home. Just use it to get a better mortgage. Do you really need slab granite countertops and Viking appliances? Well, maybe so, but that’s a subject for another day.

Get a Better Mortgage Step #3
Learn a bit about the home buying and mortgage lending process before you apply. If it’s your first home buying experience, find out what you can expect. Some knowledge will help you when you shop for your mortgage. Know what you should expect in the way of fees, interest rates, closing costs and so on. Find out who is a reputable mortgage broker in your area, check the interest rate at your bank, and look at what you’ll get at a comparison shopping service such as LendingTree.com.

Get a Better Mortgage Step #4
Negotiate with them. I know, it seems like they have all the power, but you’d be amazed how often you can get a better mortgage by negotiating. Ask for fees to be dropped or .05% lower interest rates. The worst they can say is no. They’re not going to be insulted or rescind their mortgage offer because you had the audacity to ask for a better rate or a lower fee. Even a small fee reduction or a few tenths lower interest will add up big time over the term of the loan. Remember, all those fees that are added in to the loan you will pay for over the entire term of the loan, meaning they will accrue interest you’ll have to pay for.

These four things will help you get a better mortgage. Remember, do your homework. The money you save will be your own.

Posted by debtblog at 02:06 PM | Permalink | Comments (0) | TrackBacks (0)

As most of you know, house prices throughout the country vary widely depending upon your location. In my post a few weeks ago we looked at prices in 6 areas of the country, and the variance in the type of home you are able to purchase for the money was pretty astounding. In Seattle, Boston and SanDiego you get a salt box for $300,000, while in Houston you get a veritable mansion on the golf course, with sweeping staircases and slab granite countertops, for the same money. That post proved to be very popular, so here is what you can expect for house prices in 5 other areas of the country.

House Prices in City #1 - Denver, CO

House #1

$289,900 - 3 Bed, 3 Bath, 2,038 Sq. Ft., 0.23 Acres, built in 2003, stainless appliances, landscaped yard, 5-piece master bath, CAT-5 network wiring, sq footage does not include 1,000+ sq ft unfinished basement.

House #2

$299,900 - 3 Bed, 2 Bath, 1,907 Sq. Ft., 0.12 Acres, built in 1931, central A/C, 1 car garage, 2 fireplaces

House Prices in City #2 – Nashville, TN

House #1

$297,000 - 3 Bed, 2.5 Bath, 2,450 Sq. Ft., 0.18 Acres, built in 2003, coved ceilings in dining and living rooms, central A/C, hardwood floors

House #2

$280,000 - 3 Bed, 2.5 Bath, 3,700 Sq. Ft., 0.9 Acres, new construction, hardwood & tile floors, hot tub, central A/C

House Prices in City #3 – Tampa, FL

House #1

$289,900 - 3 Bed, 2 Bath, 1,879 Sq. Ft., 0.16 Acres, house built in 2000, on golf course, community pool and tennis, central A/C

House #2

$295,900 - 3 Bed, 2 Bath, 1,942 Sq. Ft., 0.19 Acres, built in 1991, 5-piece master bath w/ sunken tub, cathedral ceilings, swimming pool w/screen lanai, crown molding, ceramic tile floors, stainless refer & Bosch  dishwasher, central A/C

House Prices in City #4 – Albany, NY

House #1

$292,000 - 3 Bed, 2 Bath, 2,134 Sq. Ft., 0.4 Acres, home built in 1961, tile and hardwood floors, central A/C, 2-car garage

House #2

$279,900 - 3 Bed, 2 Bath, 1,629 Sq. Ft., .35 acres, built in 1984, tile floors, 2-car garage

House Values in City #5 – Rapid City, SD

House #1

$284,900 - 4 Bed, 3 Bath, 3,014 Sq. Ft., 0.86 Acres, built in 2003, RV parking, central A/C, breakfast bar

House #2

$297,900 - 5 Bed, 3 Bath, 3,241 Sq. Ft., 1 Acres, home built in 2004, fireplace, central A/C, tile and hardwood floors, large corner soaking tub in master, built-in oak cabinets in family room.

There you have it! Another demonstration of the difference in house prices throughout the country.

Posted by debtblog at 12:01 AM | Permalink | Comments (0) | TrackBacks (0)

First of all, one amazing statistic is that about 30% of the mortgage fraud cases investigated by the FBI last year originated in only three states; Michigan, Illinois and Ohio! That says to me there were some pretty large operators running mortgage schemes in those areas. Couldn’t they leave some room for the rest of the country?

Here are some of the main types of mortgage frauds that can affect you, your lender or both:

Mortgage Fraud 1 – The “straw buyer” –

This bit of financial underhandedness actually involves several different individuals, like several of the mortgage fraud types investigated by law enforcement officials. In the straw buyer fraud, a second buyer is used with better credit, or the buyer uses a fake or stolen identity and forged financial records to get a mortgage loan for a property. A crooked appraiser and title company employee are involved in the scheme to inflate the value of the property and allow a larger loan to be secured than is necessary to purchase the property. The seller is then paid the full price for the home. The extra money is split between the fraud perpetrators, and they go on to their next victim. What they do not do, however, is pay the mortgage. The lender is left holding the bag on this one.

Mortgage Fraud #2 – Property flipping fraud -

Flipping fraud entails using a team of crooks to, as the name suggests, buy a property and then “flip” or quickly resell it for a profit. Nothing is wrong with that, thousands of successful, legitimate real estate investors do it every day (although not as many as last year!). The fraud comes in when those perpetrating the fraud do a little ambitious appraising (seeing a common thread here?), and then fudge the loan docs and buyer financial records to allow the whole thing to proceed smoothly.

The FBI has investigated such frauds and found that almost all parties involved in the transaction can be in on the scheme; the real estate agent, the appraiser, title company employees and the buyer. The one who gets stung is the last buyer, who ends up with a home that’s not worth nearly what was claimed. Use your own appraiser to check the value of a property you’re thinking of purchasing.

Mortgage Fraud #3 - Troubled homeowner pre-foreclosure scam –

Here’s one where the seller, who’s in financial hot water already, gets scammed. In this scheme, people in financial trouble whose homes are in pre-foreclosure are targeted. The crooks swoop in with promises of saving the homeowner’s credit and some of their home equity, if they have any. The problem arises when the homeowners are asked to either quitclaim or transfer their property’s deed to the fraudsters. When that happens they fraudster’s don’t of course fulfill their part of the deal, they just abscond with the equity in the property.

Mortgage Fraud  #4 – Can’t get no satisfaction –

In this scheme, the fraud perpetrators file forged loan satisfaction docs with the appropriate government agency, usually the county, claiming the property is free and clear. In fact the mortgage is still outstanding. One variation of this scam involves renting a property, then forging the legitimate homeowner’s signature and other requisite financial documentation to get loans from unwitting lenders. The scary part comes when the lenders show up on the real homeowner’s doorstep claiming their right to the property because the payments on the fraudulent loan were never made.

Mortgage Fraud #5 – Fake wife fraud –

This is my favorite. Some people just have no shame at all. In this fraud, the husband actually uses his girlfriend to impersonate his wife! The girlfiend gets fake ID with the wife’s information, which obviously the husband has complete access to. She shows up at the mortgage signing claiming to be the wife, so the husband and “wife” team can get a second mortgage or a HELOC against the equity in their home. Then the two vanish to Mexico, leaving the unsuspecting wife holding the bag, the kids, and a home she now owes far more than she should on.

These are just some of the rising tide of mortgage frauds that are swamping the mortgage industry and contributing to its problems of late. Most of the frauds affect the mortgage lender, but some directly affect the homeowner, you, so be careful. If you're trying to get debt free, make sure the debt is legit, not paying for someone's new, red Lambo or Mexican vacation. Have a great weekend.

Posted by debtblog at 01:26 PM | Permalink | Comments (0) | TrackBacks (0)

Obviously, the affordability of a home in your area has a huge impact on your standard of living. It varies widely throughout different areas of the united states. So widely in fact, that it sometimes appears to have no correlation with reality (not realty). Here is a sampling of what you can be faced with if you are transfered by your employer or just want to explore opportunity in different parts of the country. Although sagging real estate markets made the news, in many cases these were only much needed corrections to keep raging markets in check. In 45 of the top 148 metro U.S. markets, real estate prices fell. The hardest hit were homeowners in Detroit, who faced average double digit declines. In 102 markets, prices actually kept on rising, adding value to home owner's properties, while frustrating those still trying to enter the market.

Here is an example of the difference you can expect depending on where you will be purchasing a new home. It's pretty dramatic. I looked at homes priced from $275,000 - $300,000 in 6 major U.S. markets, courtesy of Realtor.com.

Seattle – Here's what 275,000 of your housing dollars will let you settle up in in the Emerald City. Not much, is it?

#1 - $275,500 – An 880 square foot, 3 bed / 1 bath on a 3,495 sq ft lot. Cozy, huh?

#2 - $284,450 – A 970 sq foot, 3 bed / 1 bath, 20 miles south of downtown, on a much larger lot @ 13,939 sq feet. Home built in 1955.

Houston – Movin' on up and spending the same dough.

#1 – $297,950 - 4 Bed, 3.5 Bath, 3,389 Sq. Ft., 0.22 Acres, stainless appliances, slab granite counter tops, island kitchen, on future golf course fairway, Home built in 2005.

#2 - $275,000, 4 Bed, 3.5 Bath, 2,930 Sq. Ft., 0.19 Acres, island kitchen with granite counter tops, in a gated community with a manned gate, built in 1995

Boston, MA – Up to the land of the Big Dig. Only 25 homes were even listed in this price range. Pretty slim pickens, huh?

#1 - $277,900 - 3 Bed, 1 Bath, 1,115 Sq. Ft., 0.15 Acres, renovated in 2003, built in 1900, near community golf course.

#2 - $280,000 - 2 Bed, 1 Bath, 704 Sq. Ft., 0.1 Acres in Hyde Park area, built in 1955, near community golf and tennis.

Kansas City, MO – If you're relocating to the mid-west, things are lookin' good -

#1 - $284,900 - 4 Bed, 3.5 Bath, 2,668 Sq. Ft., hardwood floors, island kitchen, built 2006.

#2 - $299,900 - 4 Bed, 3.5 Bath, 2,539 Sq. Ft., .22 Acre lot, Corian counter tops, island kitchen, built in 2005, 10 min to airport

San Diego, CA – Out on the Pacific, these dollars won't get you nearly as much. I hope the sun's worth it.

#1 - $299,000 – 1 bed, 1 bath, view bungalow, built in 1922.

#2 - $275,000 - 1 Bed, 1 Bath, 540 Sq. Ft., 0.08 Acres, built in 1925.

Columbia, SC -
#1 - $299,900 - 4 Bed, 4 Bath, 3,170 Sq. Ft., 0.46 Acres, laminate counter tops, heat pump, built in the early 1980's

#2 - $279,900 - 3 Bed, 3 Bath, 2,305 Sq. Ft, 8,900 Sq. Ft. lot, laminate counter tops, backs to state park

So, what you'll live in varies widely throughout the nation, to say the least. Keep that in mind when that plum job offer comes through.

Posted by debtblog at 01:45 PM | Permalink | Comments (0) | TrackBacks (0)

Here are some examples of which mortgage products would fit some common financial and lifestyle scenarios.

1 – Traditional 15 or 30 year fixed mortgage – You plan on living in the home a long time, and have a stable income. You'll get a better interest rate by going with a 15 year mortgage, which will cost you more each month, but save you money in total interest over the life of the mortgage. You'll save money not only because of the lower interest rate, but because you'll only be paying interest for half the time. You can also select the longer term, which will give you the ability to have a lower monthly payment, but pay extra on the mortgage when your finances allow.

Be careful that you have a mortgage with no prepayment penalty. A prepayment penalty will severely penalize you for paying the loan off early. Some mortgages with a prepayment will offer a lower interest rate, but you should be extremely wary of a mortgage with such a clause. Your flexibility will be compromised, and it could ultimately end up costing you much more than you'll ever save in interest payments. You have other options when you select the 30 year mortgage. Some experts recommend using the extra cash for investments, because typically a mortgage is some of the cheapest money you'll ever be able to obtain.

2 – Adjustable rate mortgage – As the name suggests, an adjustable rate mortgage will have a variable rate, normally with a lower rate early in the loan. These have gotten more than a few people into financial trouble as the rate, and subsequently the payment, adjusts upward. An ARM can actually be a good fit for some, however.

Here are some situations where an ARM may be the best choice: You're only staying in the home for a short period of time. Say you take a 4 year job assignment. In that case, a 5/1 ARM would be a good fit. You'll benefit from a lower interest rate, and you'll be selling the home before the mortgage adjusts upward.

Another scenario where an ARM may be the way to go would be a situation where your income will be increasing in a relatively short time. Again, you can take advantage of the lower interest rate offered by the ARM when your income is low. Before the mortgage adjusts, you can either refinance to a conventional fixed mortgage product, refinance to another ARM if the rates are favorable, or just accept the higher, adjusted rate. You higher income will allow you the luxury of doing so without feeling too much of a pinch.

Where people tend to get into trouble with ARMs is when they can only get into a home by using the lower interest payment offered by the ARM. They think “Oh well, I've got to buy a house, and I can't afford it any other way. I'll figure out how to deal with the higher payment when the time comes, or I'll refinance.” The problem is that many people's income does not increase as they'd planned, they have additional expenses, such as children, or they underestimate how much the additional payment amount will impact their finances. That's how so many get into a bit of financial difficulty with ARMs. If the real estate market has done well in your area, you can sell the home and realize a substantial profit. In fact many people do just that. They can use the profit as a down payment on their next home. If, however, the market has stayed relatively flat or declined, you may be sitting in a property you can't sell for what you owe. You are, as they say, upside down.

3 – Interest only mortgage – Much of the same applies to interest only mortgages as does to ARMs. The biggest downside to interest only mortgages is negative amortization. In the beginning, you're not paying any of the principal, so you pay your mortgage for years and owe just as much as when you started. At the end of the interest only period, the mortgage will switch to a conventional, fixed mortgage and amortize the loan balance over the remaining term. Obviously, the mortgage payment will increase when this happens.

The rationale for choosing this type of mortgage is that with a conventional, fixed mortgage you really don't pay very much of the principal for the first 5 or 10 years anyway. Why not save some money, use it for other things, such as investment or financing a business, and refinance when the property values have shown a substantial increase. You can then use the equity in the property to secure a different mortgage. As with an ARM, an interest only mortgage is also a great fit for someone who'll be keeping the home for a relatively short period.

In many markets, the property values are so high that many buyers can only afford a home by using interest only mortgage products. In effect, they're renting their home from the bank, but are actually accruing equity at the same time (You'd better hope). Some buyers, in markets such as south Florida, Nevada and California, where home prices have reached the stupid level can find themselves in trouble. If property values experience a correction, you may be unable to refinance. You could find yourself owing hundreds of thousands more than your home is now worth. Those are, however the markets where these types of mortgages are the most popular, due to the extremely high home prices.

What home buyers should not do, in most cases, is use variable rate and interest only mortgages to buy a nicer, larger home than they can otherwise afford. Many use this technique so they can live in that nice, gated community, get slab granite counter tops, crown molding, 3-car garage, and a slick home theater system. Evaluate the pros and cons of your decision very carefully before you potentially put yourself in a position of house poverty. It can be hard to have to put your beloved home on the market because you can't afford to keep it, especially when you can't afford to sell it either.

Posted by debtblog at 01:45 PM | Permalink | Comments (0) | TrackBacks (0)

Here are 5 of the most common mistakes buyers make when purchasing a home and how you can avoid them.

1 – Buyers often aren’t aware who’s responsible for what. The mortgage companies, their agents, seller’s agents and appraisers work for themselves or the seller. They aren’t there to represent the buyer. You need to know this, and be aware of it when negotiating. Have a clear idea of who works for whom in the transaction process. Be advised, statements you make to any of the above individuals may contain juicy information that may be actually used against you in the negotiation process. Know who works for you, and don’t volunteer information to anyone else.

2 - Buyers often fail to personally inspect the property. Sure, you walk through it with your real estate agent, but too many people then rely on the home inspector to catch anything that may be wrong with the property. Fine, they’re professionals, and that’s what they’re paid for. However, you should go back through the property and really look at everything after you have done the Sunday open house tour that got you so worked up in the first place. In some cases you may benefit from taking along a friend or objective third party to help you see everything a bit more clearly.

3 – Buyers don’t have their own agent. Remember the seller’s, or listing, agent works for the seller to help them negotiate the most advantageous deal for them, not you. You should be represented as well. This is especially important for the first few real estate transactions. These are not like buying a loaf of bread at 7-11. Real estate transactions are very complicated and one small mistake could either cost you thousands or fail to generate the maximum benefit for you. Real Estate for Dummies may be interesting, informative reading, but do you want to trust a little, yellow book with your hard earned dollars? Remember, there are a myriad of state and local laws and statutes that any guide book may inadequately cover.

4 – Using the bank or mortgage company’s estimate of what they can afford. All too often they substantially overstate the amount of home you can actually afford. There are legions of homeowners out there who are house poor due to following this advice. Remember, you’ve got to have money put away for any of the little things that may crop up for maintenance and improvements, and you’re going to have to make the mortgage payments every month for quite some time. You should look in homes that will require you to finance only about 3 times your annual income. In some areas, you may be hard pressed to find a livable property for such a figure, but otherwise you may have to resort to dome pretty creative financing to swing the deal. If you’re trading up, you can obviously use the equity in your existing home to contribute to your new home. This will allow you to afford more house.

5 – Failing to take other factors besides the home itself into account. Remember, there are plenty of other things that contribute to your homes long term value and the quality of life you’ll enjoy when you’re living there. Look at the rest of the neighborhood too. Proximity to freeways are important for resale and your convenience if you’ll be commuting to work everyday. Many times you’ll be shown the home on a weekend, when there’s no traffic. Sure it’s only 15 minutes to work, ON SATURDAY! You should come back on Tuesday morning about 7:30am for a more representative picture of the commute. You may be surprised to find out that 15 minutes grows to an hour during morning rush hour.

Drive through the neighborhood and talk to potential new neighbors. Check up on the schools. They are a huge impact not only on your children, but also on resale values. Go online and check your city or county’s planned projects that may impact the area. In many cases, you’ll be able to find about projects many years in advance by looking at appropriations for environmental and traffic studies. Remember that a new road, an expansion of an existing road, or a rezoning amy substantially affect your lifestyle and future property values.

Posted by debtblog at 01:15 PM | Permalink | Comments (0) | TrackBacks (0)

That was two weeks ago. Now it‘s getting to be closing time and lenders are balking at the 5% figures quoted earlier. The reasons given for their trepidation are the mortgage market problems leading the business news of late. They may require him to pony up another $30,000 for the down payment. It all points to the importance of keeping on top of your credit score and history. Imagine the problems if he’d fallen into the subprime category!

Millions are in the subprime category, unfortunately. The result will be up to a million potential buyers, by some estimates, that will be unable to secure home financing. Even more optimistic analysis points to the evaporation of 250,000 – 350,000 buyers from the market. You know what that means, even if you flunked Econ 101. Lower quantity demanded will equal lower prices and longer time on market for sellers. If the mortgage defaults feared by the lenders actually come to pass, that will put foreclosed properties on the market in record quantities. Foreclosed properties, and those in pre-foreclosure, tend to fetch less than top dollar in the market.

If the market does become rife with foreclosed properties at low prices that will only increase the downward pressure on home prices. Some experts predict a 6-8% drop in certain areas, such as California and Florida. Others are seeing something on the order of 1-3%, if any at all. It depends upon weather the foreclosures actually materialize, and if so, how many. It could add up to investment opportunities for those of a mind to try foreclosure investing. It could also spell trouble for those who’ve got to sell their homes for some reason. This could take much longer than we’ve become accustomed to, and likely won’t bring the money that would’ve been seen in the last few years.

Posted by debtblog at 11:48 PM | Permalink | Comments (0) | TrackBacks (0)

For most of you your mortgage will be your largest personal debt. It can be a bit scary the first time, even if large financial transactions really get you going. These days it seems like there are about ten thousand mortgage products out there all vying for your attention. Obviously they all can't be the best, no matter what the guy on the radio says. How do you wade through the crap you're bombarded with and actually choose the mortgage product that's the best for for you and your situation?

In the good old days, there were two basic types of mortgages, fixed and adjustable. Fixed, as the name implies, has a fixed interest rate for the entire term of the loan. Usually fixed mortgages are for either a 15 or 30 year term. These days some 40, and even 50 year mortgages are starting to leak out of that land of the wacky, California, due to the proliferation of 40 year old, 3 bedroom ranch houses with $750,000 price tags. The problem with these super long term mortgages is that you'll pay a huge amount of total interest on your property due to the extremely long term. After all, you'll be paying interest for 40 or 50 years.

Adjustable mortgages, also known as ARMs, have an interest rate that changes during the term of the loan and is typically lower at the beginning, then adjusts up after a set number of years. The advantage of an adjustable mortgage is that it will let you have a lower house payment early in the mortgage. Later, the payment will adjust upward. In theory, two or three things will have occurred by then. Either your income will have gone up, or the value of your home will have increased, possibly both. There is also the possibility you'll have sold the home and moved on. Adjustable rate mortgages account for around 22% of mortgages these days.

The mortgages will be described using a numerical figure such as 5/1 or 3/1. That's not a fraction, but describes the number of years before the mortgage adjusts initially, and how often it will adjust thereafter. A 5/1 ARM would adjust after 5 years, then every year after that. The rate is tied to an index, such as the London Interbank Offered Rate (LIBOR), or the Fed Prime rate. You'll usually pay the index plus a set percentage, such as 2%. Usually the consumer is protected from radical rate increases with caps that limit the amount the rate can increase in any given period. There is also a lifetime cap that limits how much the bank can ultimately adjust your mortgage. Typically, if you're still living in the home, the mortgage is refinanced before it actually adjusts upward, and the higher payments are avoided. This is possible because the property has appreciated, so the mortgage holder has equity in the home.

A type of ARM that's become popular lately is the option ARM, also called a “payment option loan”. The option ARM, as the name suggests, gives the homeowner an option on the payments every month. These are a favorite of the radio advertising set because they sound so attractive. “Hey, pay what ever you want, we don't care. We're so easy.” They're so easy because these types of products make them so much money. Normally, option ARMs will allow the homeowner to pay either the payment for a 15 or 30 year fixed, the ARM the customer originally signed up for, or an interest only payment. The problem with these mortgages is negative amortization. That's right, you're going backwards.

Keep this up and eventually you'll reach what's called the “Recast Cap”. At this point, you're out of options, too bad. The recast cap is typically set at 110% to 125% of the original loan balance. When your mortgage reaches the point where you owe that much of the original loan, the payment adjust automatically to the point where it needs to be to pay the fully amortized loan balance. Talk about sticker shock! Too many people get themselves into trouble when they aren't able to make these new, larger payments. You could be headed for foreclosure if you can't make the payment or your home's value hasn't reached the point where you can sell it and pay off the loan.

Interest only mortgages have increased in popularity to keep payments to reasonable levels. If you can't afford a payment where you're reducing the principal, it stands to reason the payment will be lower. As with the payment option loan, you'll have a problem at some point, because the lender will want their money back. Really. Depending upon the structure of the mortgage, you'll have from 5 to 10 years to pay interest only, thereafter you'll have to actually pay the principal. These work if your planning to live in the home for a few years and then sell it. Wait, that works if the real estate values in your area are rising. If they're rising you can pay only the interest portion of your mortgage to keep your payment low, and still have equity in the home when it comes time to sell.

Where this all can go astray is if the real estate values actually stay stagnant, or heaven forbid, fall. Then you'll be sitting on a home that you can't sell unless you pony up some dough, possibly a hefty chunk of it. Anyone can find themselves in this predicament if their homes value falls far enough, because you only chip away at a little of the loan's principal for the first 10 years of a 30 year mortgage anyway.

In many cases, either to afford a home at all in many metro areas (Boston, NY, Seattle, San Francisco, LA, etc.) or to afford a home they think they should have, people are getting themselves into trouble by getting into mortgage products that don't address the principal. If you're in a stable employment situation and your home's value appreciates, you can come out okay. If you have a little bump in the road, however, it can all come tumbling down. That can happen with any mortgage, but the risks are greater with the creative options. Weigh your options carefully, and don't let your love of a home make you do something that could cause you to lose it, when maybe you should have gotten something a step down the ladder.

Posted by debtblog at 02:10 PM | Permalink | Comments (0) | TrackBacks (0)

Over 6 million homes will be sold in the U.S. this year. If you're a real estate investor, how the hell are you supposed to sift through that monumental number to select those that are worth your time to pursue as investment properties? After all, time is precious. You don't want to waste your time looking at properties that may not be suited to your needs. While you're doing so, your next great deal may get scooped up by another investor. So, how do you select those great investment properties anyway?

Real estate investing can be a fantastic vehicle to build long term wealth, but you've got to select the right properties first. There are a large number of factors that can be used to describe every property. Age, location, condition, architecture, lot size, time for sale, seller flexibility, listed or private sale, square feet, number of bedrooms, number of bathrooms, amenities, etc. You need to be able to select those that are the most pertinent to obtaining properties as a real estate investment rather than one for some other purpose, such as as a personal residence.

What are those property descriptors are most effective when looking at properties as an investment? Take a look at these:

1 – Location – There's a good reason the old real estate adage exists; Location, Location, Location. It's because it's so very important. Location says a lot about the current and future worth of every property. Very often, the dirt is worth much more than the structure that sits on it, and yes, the location of that dirt is the deciding factor on it's ultimate value. Take two identical pieces of property; 1,100 square foot, 3 bedroom, 2 bath homes on 7,000 square foot lots. Such a home in San Francisco, 50 years old, not the best condition, with virtually zero amenities, goes for around $700,000. An identical home in East Memphis, TN, on a much larger lot, and in better condition, goes for less than $150,000.

Going at it from another angle, for half what you get the little shack in San Francisco for, you can live in a very nice 2 year old, 3,000 square foot home on a 10,000 square foot lot in Thomson's Station TN. You'll also get slab granite counter tops, an island kitchen, vaulted ceilings, crown molding, wainscoting, stainless steel appliances, and a three car garage. Oh, and you get 4 bedrooms and 4 bathrooms as well. See what a difference location makes. You can get fairly large value variations within the same area as well, but not those extremes.

2 – Seller Flexibility – One of the keys to getting a great deal on anything is seller flexibility. Real estate is no different. If the seller is motivated and needs to get rid of the property in a hurry, you'll typically be in a much better position to secure more advantageous terms, a better price, or both. If the seller doesn't have all that much motivation to sell, it will be that much harder to secure that deal you're looking for. The seller can be flexibility for a variety of reasons; they may be in a financial bind, have to relocate in a hurry, or not have the time or ability to manage a rental property. It's your job as an investor to determine why the seller is flexible, and incorporate this knowledge into your negotiation strategy. The better you get and use this knowledge, the greater your chances of making a great deal on the property. Factors such as time on the market and the seller's reason for selling can help you gage the motivation of the seller.

3 – Price – Ultimately, what you pay for the property will determine how great a value the purchase it is. It can be the best combination of factors, but if the price isn't right, you'll take a long time to turn a profit on your investment and your R.O.I. will suffer. One way you can cut through the crap is to come right out and ask what the seller's lowest cash price for the property is. Listen to what they tell you, and how they say it. You'll get even more clues to the real price they'll take for the property. Always listen. It's old knowledge that a good salesman or negotiator often gets more by listening than by talking. Seller flexibility, as noted in number 3 above, can be a large factor in setting the final price on the property.

4 – Condition - If the property is a total dump, you'll have to pour a ton of cash into it to make it useful. If the condition is factored into the price, fine. If not, walk away or use it as a bargaining tool. You may, in fact, be looking for properties that are in a poor state of repair. These are ripe for “sweat equity”, where you can increase the value of the property by investing some hard work. In addition, if you have the ability to get the work done for less than market value, it's a great way to increase the value of the property. Another point; the condition of the property is another indication of the seller's motivation. A property needing basic repairs, such as a leaking roof or bad water heater, can be a great indication of a seller that's in a financial bind.

These are four of the most important factors you can use when deciding which rental or investment  property to add to your portfolio. If you're just starting out, they'll give you a starting point from which to begin your investment property search.

Posted by debtblog at 02:33 PM | Permalink | Comments (0) | TrackBacks (1)

As you may be aware, home prices are stabilizing, or even declining in many areas. This is just a correction after the frenetic run up in real estate values seen in many areas of the country over the last three years. From Q3 2005 to Q3 2006 all areas of the U.S. experienced price erosion, but not all metro areas or municipalities followed suit. The south experienced the smallest decline in home values, at only .1%, followed by the west at .9%, the mid-west at 2.5% and the northeast at a sickening (if you already own a home there) 4.8%. Within these general geographic areas there was considerable variation. If your home was in Portland OR, for example you could expect a 12.3% value increase, while down I-5 just a bit, in Salem OR, you managed a spectacular 24.7%!

Contrast that with homeowners in Boston, MA, who saw about 4.8% of their home's value evaporate, while homeowners in another NE metro area, White Plains NY, saw their's increase by an almost identical 4.7%. All you condo flippers in the south Florida area were especially hard hit, as home values in the <Miami area took a precipitous 5.6% hit. Run up the road to the north west a bit, in Tampa/St. Pete, and you got a whopping 9.6% gain! So, as the old real estate adage proclaims, it's location, location, location.

First up, a quick summary of some housing characteristics on your home's value. This data was obtained from homes in the northeastern U.S., but is fairly consistent with other areas of the country. If you're shopping for a home, these are some things to keep in mind as well.

• An additional bathroom has one of the greatest net positive effects on your home's value. Each additional bathroom will add a robust 24% to the value of the home. The effect of an additional bathroom is less in the western U.S. than in other areas of the country. They just don't mind waiting as much out there.

• Your car will love you if it gets to stay inside every night. Your bank balance will love you too, because homes with a garage sell for, on average 13% more than those without. If you live in the south, you see a bigger jump in value than for homes with garages in other areas.

• Central AC adds 12% to the home's selling price. This feature has some geographical correlation. As you would expect, homes in the south and mid-west tend to reflect higher values from this than homes in the north.

• You get a pretty nice, 6% increase if your home has good headroom. 9 foot or higher ceilings, that is.

• Each fireplace will net you roughly a 12% selling price increase, so hit the bricks. Seems like a huge return for a relatively small investment. It sure would be much easier to add a fireplace than to raise your ceilings a foot. Interestingly, there is virtually no geographic correlation for a fireplace. That's to say that you'll get this boost in selling price no matter where your home is located. This lack of geographic correlation is not exhibited for the other variables listed. Even the value associated by additional square footage changes to some degree with your home's location.

• A basement gives a significant value boost, at 9%, but don't do your laundry down there. Having a basement laundry room will lower your homes selling price by about 2%.

• Each additional bedroom will add approximately 4% to the selling price of the home. Interesting, but how does this average change with the number of bedrooms? For example, is the value increase going from 2 bedrooms to 3 bedrooms the same 4% as an increase from 4 to 5 bedrooms. Logically, it would seem that the value gain from 2 to 3 would be much greater.

• Not only is it pretty to live on the back nine, you'll get an average 8% price increase by living near the links.
  

In the mid-west the lot size of your home had a larger impact on price than in the other geographic areas. In the other areas, lot size had about an equal impact on the home's selling price. In addition, the larger the home, the less the lot size impacts the selling price.

These are increases in selling prices determined by features. They do not directly correlate to the return one can expect by adding one or more of the features listed. In that case, the cost of the added features would have to be used in the calculations to determine if the additions created additional net value. In 2005, according to the HomeTech Information Systems data published in the Cost vs. Value Report by the NAR, those remodeling projects that had the greatest net effect on your home's price were the following:

1 – Bathroom remodel 102.2%

2 – Siding replacement – 95.5%

3 – major kitchen remodel - 91% (up a tremendous amount since 2002, when it only generated a 67% return on your remodeling dollar)

4 – Window replacement – 89.6%

Now get to work! If you are taking on a remodel project, or looking at what features should bring a higher selling price, remember that sometimes it's not all about the money, but how much enjoyment or utility you and your family may receive from the project or home feature. In addition, some projects or features, such as windows or tankless water heaters can bring substantial, long term money savings.

Good luck, and here's to getting debt free!

Posted by debtblog at 03:49 PM | Permalink | Comments (0) | TrackBacks (0)

Being one who spent half my day on the computer, I decided to take a look around the net to see what I could find out. First stop, the federal government’s HUD website. There it was, right on the site’s home page; a link entitled “FHA refunds”. It couldn’t have been easier. Furthermore, about halfway down the page was this gem: “You do not need to pay another person or firm to assist you in collecting your premium refund or distributive share payment.”  All you need to do is enter your SSN or your FHA loan number and they’ll do the rest. You’ll know right away if you’re owed an FHA or HUD refund for insurance you paid, but never used.

To collect your money, you just wait a few weeks after you’ve filled out the online form. An actual paper form will arrive in your mailbox. Fill it out and your check will show up in about 6 – 12 weeks. To make it even better, you saved the finder’s fee you’d have paid someone to do that for you. If you’ve had an FHA mortgage loan, and got it after September 1, 1983, the insurance you payed will be refunded to you as long as you never defaulted on the mortgage. It can be thousands of dollars, but is usually in the hundreds, well worth your time to fill out a simple web form. If you don’t have access to the Internet (how are you reading this?), you can call 1-(800) 697-6967 to speak to a HUD representative.

Posted by debtblog at 04:55 PM | Permalink | Comments (0) | TrackBacks (0)

There a several real estate strategies one can use to be driving, rather than walking, during their retirement years. There are, as with any form of investing, pros and cons to all of them. Weather you're driving the same car you've had for years, or can afford to be hitting the country club in that new E350 turbo diesel, is up to how well you execute one, or all of these strategies. Here are some of those investing strategies and how they stack up.

1- Buy and hold – As with equities, you can simply buy property and hold it as it appreciates. If you've chosen wisely you can be very successful using this strategy. One of the key determinants of your success here is, as they're fond of saying in the real estate industry, location, location, location. Choose a property in an area that ends up experiencing rapid growth and development, and you'll do quite well. Pick some properties in an area that's stagnant for years, and chances are your investment will be also.

You can hedge against this, and substantially boost your chances of success, by buying revenue producing property and using the monies generated to offset any expenses. If you've done well, you can generate enough revenue to have positive cash flow. If you've achieved that, you can continue to amass additional properties and repeat the process.

The pros to the buy and hold strategy are:

1. Large potential upside – There is real potential for properties to experience substantial appreciation.

2. Fairly low risk – If you hold on to the property long enough, there is almost no chance you'll not make money in the long term, if you did your due diligence when you were selecting your property/ies.

The cons to the buy and hold approach are:

1. Low liquidity – With most real estate you can't just sell it overnight. If you need money, it's not just like logging on to your brokerage account and selling some stock.

2. Potential for unforeseen problems - There is a chance that future legislation, building code issues, or other events will have a negative impact on the value of the property.

3. Management issues – If you choose tenant occupied properties, you have to incur management expenses, either by hiring a property management firm or managing the property yourself. It's not fun to deal with problem tenants or get out of bed at 2:00am to respond to a tenant emergency.
   

2- Flipping properties – As an alternative to the buy and hold strategy, you can do what's termed 'flipping' properties. This is a strategy of buying a property below market value, or at market value in a quickly appreciating market, and quickly reselling the property for a profit. Some investors purchase properties that are in need of some improvement and gain what's termed 'sweat equity' by making the necessary improvements to increase the value of the property. If you can make the improvements yourself, or you own a contracting company, you can make a profit on the improvements when you sell.

The pros to the property flipping strategy are:

1. No property management issues – Since you aren't renting out the property, you'll have no management problems to worry about. Some people really don't find the whole climbing out of bed at 2:00am thing very attractive, and choose to avoid it altogether.

2. Potential for quick profit -. You can get a fairly good return on your investment if you've chosen your property, and your market well.

The cons to the property flipping approach to investing are:

1. Higher risk – Since you're not intending on holding on to the property for a length of time, you can be badly stung if the market takes a temporary turn for the worse. Just ask those South Beach condo flippers what that feels like.

2. Potential necessity for property improvements - You may have to do substantial work on the property to make it pay. Unless you're comfortable doing this yourself or contracting it out, it may be the wrong choice for you. Keep in mind that many remodel projects can turn sour when unforeseen problems develop. Even the best contractors can't predict everything that will arise during a remodel project.

3 - Real Estate Investment Trusts – Similar to a mutual fund, these are publicly traded corporations that invest in real estate. At least 75% of the holdings must, by law, be in real estate. These are fairly new, and are available in several countries in addition to the U.S. You simply buy shares in the company on an exchange as with any other stock. In the U.S., according to federal law, REITs must distribute 90% of their income back to shareholders every year in the form of dividends. There are substantial regulatory hurdles a REIT must go through in order to enjoy the tax exempt (REITs pay no federal corporate income taxes) status which REITs are afforded. For those of you in the UK, you'll be able to jump in to the whole REIT thing beginning January 1, 2007.

The pros to investing in a REIT:

1. High liquidity – You can just call your broker, or log into your online brokerage account to buy or sell.

2. No management issues – You're not on the hook for any property management problems, you're simply a shareholder.

3. Substantial dividend income – Because REITs are required by law to distribut income in the form of dividends, you're assured that, if the company is profitable, you'll get a dividend check.

4. Low Volatility. REITS are generally not as volatile as stocks.
   

The cons to REIT investing are:

1. Performance - They can easily under perform the stock market in general. REITs have a history of not performing as well as the stock market. Most REITs have a Moody's grade of 'Low Investment'.

2. Higher dividend tax rate - The tax rate on most REIT dividends does not qualify for the new, low 15% federal tax rate on dividends, as do other dividends. This is due to the other tax advantages enjoyed by REITs.
   

With most forms of real estate investing, as with other investments, you must really do your homework in order to achieve the best results. The main things to watch out for, no matter what type of real estate you're buying are overpaying for the property, legislative and legal issues, and jumping in too fast if you're a beginner. Good Luck.

Posted by debtblog at 03:33 PM | Permalink | Comments (0) | TrackBacks (0)

Weather you're an investor, searching to check out the neighborhood, or actively shopping for a new home on the Internet, you may have to do a bit more searching to find the property that really blows your skirt up. A new rule approved by the National Association of Realtors last week allows members to leave out listings from other brokers, especially discount brokers, from their company web sites. This practice has occurred for a while, but the policy revision allows brokers to continue the practice as long as they use objective criteria in the screening. Now, when a new listing comes across the MLS data feed, the brokers can set some standards to have it excluded from customer searches performed from their sites.

The practice of excluding listings from appearing on real estate websites such as Realtor.com have been challenged recently by the FTC. The agency has recently come to terms with agencies in the states of Colorado, New Hampshire, New Jersey, Virginia, and Wisconsin that allow them to avoid additional FTC action if they cease the exclusionary practices. The rule revision by the NAR is different in that it deals with Realtors keeping listings off their own web sites.

So, the next time you're shopping for a new home, or searching for an investment property, you should know that just because the property is for sale, it may not appear on your search site of choice. You may have to check multiple broker's web sites to find that choice property.

If you're looking to do a little home improvement before you list your home, here are some quick home remodeling tips:

According to Remodeling Magazine, the 3 best remodeling projects in terms of investment were:

1- midrange kitchen remodeling

2- siding replacement

3- midrange bath remodeling

4- deck addition

It may seem surprising that you actually recoup more of your investment by fixing up an existing bathroom than by adding an additional bath, but that reflects the much higher cost of adding a bath versus remodeling an existing one. One other point noted in the magazine is that, if your home lags behind others in the neighborhood in certain features, bringing it up to the standards of the rest of the neighborhood may actually provide a much better investment return than the 4 improvements listed above. So, if yours is the only 3 bedroom home in a neighborhood of 4 and 5 bedroom homes, you may be wise to plan on adding an additional bedroom.

Keep in mind that if you put so much into your home that it is nicer than the other homes in your neighborhood, you may have actually done yourself a disservice when it comes time to sell. If your home is substantially nicer than other homes in the neighborhood, you may have a hard time getting your remodeling dollars back.

Proposed EPA Regs Could Cost You Remodeling Dollars

New regulations proposed by the Environmental Protection Agency could help keep you safe, but add to the price of your remodel. If your home was built before 1978, the proposed rules would make contractors use special procedures to deal with the lead toxicity hazard. Remodeling contractors would be required to have EPA certifications or have a subcontractor on site who is. Special lead abatement rules would have to be followed during construction.

The rule is aimed at reducing lead poising, especially in children. According to the CDC, approximately 300,000 children in the U.S. have what is termed “elevated” levels of lead in their blood, or greater than 10 micrograms of lead per deciliter of blood. Although the rule changes could increase the average consumer's remodel cost by around 25%, according to the National Association of Homebuilders, that seems a small price to pay to prevent children from experiencing the problems associated with lead toxicity. And no, I'm not one of those “It's all about the children” liberals, either. Sometimes you need to look at what's important, though. You can check your home for lead now by getting a home test kit at just about any hardware or home improvement store. It's fast, easy, and inexpensive.

Posted by debtblog at 02:41 PM | Permalink | Comments (0) | TrackBacks (0)

• Research current interest rates. Most Sunday newspapers, in either the real estate or business sections will have a listing of area mortgage companies and other financial institutions that offer mortgages. All the pertinent information will be listed such as terms, points, and APR. There is also a wealth of information available online, or you can call your bank and local mortgage companies directly.
• Check the rates for 30-year, 20-year and 15-year mortgages. You may be able to save thousands of dollars in interest charges by getting the shortest-term mortgage you can afford. Another option is to get a longer term loan, with its lower payments, and then pay additional money toward the loan principal. This gives you the flexibility of having a lower payment, but paying off the loan more quickly. Typically you’ll pay a higher interest rate on the longer term mortgage, reflecting the lender's additional risk. The aforementioned approach is only for those with the requisite financial discipline to make it work, however. It is vital to check with your mortgage holder to ensure your mortgage doesn’t have any prepayment penalties, however(see below).
• Ask for details on the same loan amount, loan term, and type of loan from multiple lenders so that you can compare the information. Be sure to get the Annual Percentage Rate (APR) which takes into account not only the interest rate but also points, broker fees, and other credit charges expressed as a yearly rate.

How does APR differ from the interest rate of the mortgage? The APR includes the principal, plus the fees associated with the loan, when cmaking the calculations. It’s designed to make it easier for consumers to compare different loans or mortgages, but it is not so straightforward. Because there is no standard on what fees must be included when calculating the APR, you can’t always directly compare different mortgage’s APRs. In addition, mortgages of different lengths cannot be compared, because the fees are amortized over different time periods. This makes the APR on a shorter mortgage with the same interest rate and fees be higher.

• Ask whether the rate is fixed or adjustable. The interest rate on adjustable rate mortgage loans (ARMs) can vary a great deal over the lifetime of the mortgage. An increase of several percentage points might raise payments by hundreds of dollars per month. These can be a great way to get into a home at an affordable monthly payment, but be extremely careful when using ARMs. By definition they’ll adjust, and you could get yourself in trouble when your mortgage payments rise.

If you plan on staying in your home only a few years, an ARM may be a good choice. If you plan on staying longer, however, you may want to consider a fixed mortgage. When looking at adjustable rate mortgages, you’ll often see figures such as 3-1 or 5-1. These refer to the initial period, where interest rate you’ll be paying is the same as the day you inked the contract. The second number is how often, after the initial period expires, the mortgage interest rate can be adjusted. A 5.4%, 3-1 ARM for example, would have a 5.4% rate for the first 3 years, and then be subject to an annual rate adjustment. In a time of rising interest rates, many people can become trapped with a much larger house payment than they were anticipating.

• If a loan has an adjustable rate, ask when and how the rate and loan payment could change.
• Find out how much down payment is required. Some lenders require 20 percent of the home's purchase price as a down payment. But many lenders now offer loans that require less. In these cases, you may be required to purchase private mortgage insurance (PMI) to protect the lender if you fall behind on payments. This is one of the instruments used to make mortgages, and thus homeownership, available to more people. Before PMI, many people would have a much more difficult time qualifying for a mortgage. The good news is that, when your home equity increases by a sufficient amount, you can dispense with your PMI and it’s payment.
• If PMI is required, ask what the total cost of the insurance will be. How much will the monthly mortgage payment be when the PMI premium is added and how long you will be required to carry PMI?
• Ask if you can pay off the loan early and if there is a penalty for doing so.

NOTE:

The Real Estate Settlement Procedures Act (RESPA) requires lenders to give you information on all closing costs and escrow account practices. Any business relationships between the lender and closing service providers or other parties to the transaction must also be disclosed. Many of the fees are negotiable.

Posted by debtblog at 02:08 PM | Permalink | Comments (0) | TrackBacks (0)

Your home; for most people it's the largest asset they have. It's also the largest single contributor to their net worth and their largest single debt, especially early in their mortgage. The majority of people use the equity in their existing home as the down payment for their next. You want the ability to extract the maximum amount of that equity when you sell your home. These three mistakes can prevent you from achieving your goal.

1- Not maximizing the tax basis in your existing home when you sell. It's not just how much profit you make when you sell your home, It's how much of that profit you keep. Failing to maximize your tax basis can cause you to owe federal, and in some cases, state and local taxes when you sell your property. If you will owe taxes, it can inflate the amount you owe. No one likes to be in a position to owe The Man more money, do they. What is meant by maximizing the tax basis of your home?

When you sell your home, if you've lived in it full time for two of the past five years (five years: date of purchase to date of sale) , it's known as your “principal residence”. As such, you can exclude $250,000 of the profit from your federal capital gains taxes if you file singly, or $500,000 if you file jointly. This applies on homes sold after May 7^th, 1997.

To minimize the tax you owe, or make sure you'll owe none, you want to increase the tax basis, that is, the amount that Uncle Sam uses to calculate that profit. Profit is the difference between the amount you purchased the property for and the amount you sell it for, minus any capital improvement costs. It is defined as your total investment in the property. The tax basis is basically the amount you can subtract from the selling price to calculate your profit. Note that regular maintenance cannot be used as an expense in these calculations. If you remodeled the bathroom or added an addition, you should use the cost of those in the calculations. If you replaced the water heater or fixed the window when Johnny threw a baseball through it, no dice.

There are two things many people forget to include when calculating their tax basis. The first is any fees they paid when they purchased the property. Obviously the greater the expenses at the time of the sale, the greater the actual cost of the property, and the lower the realized profit. The second is the aforementioned costs associated with any improvements to the property. To maximize your tax basis, and thus lower the profit used to calculate your taxes, you must maximize the expense side of the equation.

2- Mistake number two is related to mistake number one. If you use a competent tax accountant, you'll probably not have to worry about this one. This tax increasing mistake is incorrect calculation of your taxes if you only lived in your home for a portion of the 2 years. You can claim a deduction proportional to the time you actually lived in the home in the five year period. If, for example, you file singly, and only lived in your home for 18 months in that five years, and sold your home for a $100,000 profit, you might think your deduction would be 75% of the $100,000. If you thought that way, you'd have cost yourself a chunk of money. You actually may deduct 75% of the maximum allowed amount of $250,000, or $187,500. So, your entire $100,000 gain would be exempt from taxes, not just $75,000. See IRS tax topic 701 for more information.

3- This mistake is common, and so avoidable. It is the failure to make your home look like one someone would want to buy. All too often people fail to do what's known as staging their homes. Staging involves cleaning up everything around your home and ridding the property of anything that might be detrimental to the selling price. You want to maximize curb appeal, and make the interior of your home have the maximum amount of appeal to the greatest number of people. The cleaning you give your property should include far more than the average little scrub down. First get rid of anything that might be defined as garbage; not by you, but by the prospective buyer. Many people have tons of crap lying around their home they fail to recognize as such. Sorry, it really is, and you should get rid of it. If you can't bear to throw it away, at least get it away from your home while you're trying to sell it.

You're trying to de-clutter your home. Get rid pictures and family photos covering the walls, and shelves full of nick-nacks. If you've got storage tubs visible, except in the garage or store room, hide them. Many rooms tend to have too much furniture. Get rid of some of it, especially if it's worn or shabby.

After taking out the trash, really clean your home. Not just spring clean, but much deeper. If you can't get stains off the walls, repaint them. While you're repainting, be sure you use a color that will make your home sell. Stay away from colors with limited appeal, even if you think they look just great. If you have what the majority of people would consider strange colors, like purple and gold, walls, repaint them into something neutral, even if they're spotless.

It may be a good investment to hire a staging firm. As the value this type of pre-sale preparation becomes more apparent, an industry has sprung up to provide these services. They are experts in maximizing your home's value for a minimum of expenditure. As an added bonus, staged homes usually sell faster too.

One last tip from those that sell multi-million dollar homes. Have some soft jazz or classical music playing throughout your home. Don't use the radio, use commercial free music from your cable company, satellite radio, or put your CD player on random. Having this type background music playing when showing your home is a technique used in model homes and higher end properties that you can incorporate for nothing, even if your home is far less expensive.

Avoiding these mistakes should help you make, and keep, more money when you sell your home. 

Posted by debtblog at 01:35 PM | Permalink | Comments (1) | TrackBacks (0)

#1) “No out of pocket expenses” Be aware of this possible scam. You may indeed pay no out of pocket expenses, but substantial extra fees can still be added to your mortgage. Some of these fees can be perfectly legitimate, but some are unnecessary, and these extras can cost you plenty over the life of the loan. For example, a $1,000.00 fee added to your mortgage principle on a 6.25%, 30 year, fixed mortgage will cost you an additional $1,216.00 in interest payments in addition to the $1,000. Those kind of extras can add up in a hurry. Make sure you look over all the documentation supplied with your prospective new mortgage. Have it looked over by a qualified real estate attorney. The few hundred dollars you'll spend is a good investment, compared to the amount you could spend over the life of the loan.

#2) Affiliated title companies and extra large title insurance fees. These are not always a problem, but you can pay substantially more for title insurance from some companies than others and often, the “some companies” are affiliated with the realty or mortgage company. Shop around for title insurance with reputable title insurance companies and you could save 20% - 40% on your title insurance. The problem lies in the tangled web of prohibited referral fees collected by mortgage companies for directing clients to the title insurance firms.

To effectively skirt laws designed to prevent these type of back room referral deals, many companies are actually affiliated with mortgage companies. Since referral payments to affiliated companies fall neatly through a loophole in the law prohibiting such payments, they're perfectly legal. In any case, almost all of the major cases closed by the U.S. Department of Housing and Urban Development in 2005 involved some sort of shady referral payment deals. Be on the lookout.

#3) Outright mortgage fraud. Use common sense. If it seems too good to be true, it probably is. According to a recent FBI study, 80% of mortgage frauds involved real estate or mortgage industry insiders. As is typical in many fraud or con games, the victim's greed or feeling of hopelessness is used against them. Make sure you don't fall into the trap. Get an appraisal from a qualified, underwriter approved appraiser. Some scams involve getting you into a mortgage that far exceeds the value of your property.

A common fraud is known as “equity stripping”or bailout. In this game, people with financial problems are targeted. In most cases, they are about ½ step away from foreclosure. They're approached with an offer to save their property. The rescue company buys the property for a substantial discount, leases it back to the original homeowner, then sells it back to them at the end of their financial setbacks. This can be legitimate, and a win-win for all involved. There are also legitimate firms that purchase pre-foreclosure properties for small (10 – 15%) discounts off market value, but these are usually outright purchases, with no leaseback.

In the equity stripping fraud, the home is sold at a huge discount to the scammer, then is leased back to the original homeowner for a time. As noted above, this will allow the homeowner to get their head above water. When they are in a financially stronger position, they'll buy the property back, but unlike a similar deal with a legitimate company, in the fraud, the original homeowner doesn't stand much of a chance of ever getting their property back.

What happens is this: The new owner gets a mortgage to cover all the liens on the home and give the original homeowner a bit of cash as a “feel good” measure. After the deal is done, the original, desperate homeowners realize they've actually signed a lease purchase agreement that is much worse than their original mortgage. The perpetrators of the fraud can accomplish this with careful timing. They wait until foreclosure is imminent and the homeowners are exceedingly pressured. At the last second, the homeowners find out the new payments are higher than originally promised. The plan from the beginning is to have the homeowners default on the lease purchase so the scam artists can repossess the home. It is then sold on the open market, and the fraudsters realize a hefty profit.

Make sure your real estate and mortgage company have a proven track record. Most companies are good and honest, but as is the case in most industries, a few bad apples can give an industry a bad name. Use a qualified real estate attorney to examine all mortgage documents. Look at the APR on the disclosure document to see what interest rate you are actually paying, inclusive of all fees.

For some really great information on mortgages from an insider, go to http://www.searchlightcrusade.net/

There are other tricks to be aware of as well. The fewer options you have when getting a mortgage, common when you've got bad credit, the more likely you are to see sleight of hand from the lender or broker. A mortgage is a huge financial step. Make sure you don't step off the path into a pile of steaming fees.

Posted by debtblog at 01:22 PM | Permalink | Comments (0) | TrackBacks (0)

If you're one of the thousands of American homeowners that maximized your home buying power in the last few years by going with an adjustable rate mortgage, you may be able to breathe a little easier. With the Fed's last intrest rate nudge, it indicated the trend may finally be ending. Good thing for all you ARM equiped homeowners out there. As the rates moved skyward from the historic lows the market has experienced for the last 4 years, thousands of homeowners saw their house payments do likewise. Many of you follwed the trend of getting the most house you could afford. You were hoping the red hot real estate market would lift your home's value far enough to protect you as your mortgage payment soared like a ballon with the burner full on.

In most cases you lucked out. For years, home values continued to climb like Sir Edmund Hillary on meth. Even if you had financial problems, you could sell your home and, in most cases, realize a hefty profit no matter how long you had owned the property. Those days may be at an end in most places. While real estate prices are still rising in many markets, they have also leveled off in many places, but thankfully for many, so have the Fed's interest rate hikes.

The rising interest rates point out the dangers of ARM financing. While ARMs are fantastic for getting you into that McMansion you maybe shouldn't be living in, they can also turn and bite you like that stray dog you fed at the park. Most of you did ok, because property values more than kept pace with the rate hikes, enabling you to use your house like a giant money generating machine. Nationwide, home prices have doubled in tha last 5 years. Some markets, such as Miami, Las Vegas Boston, parts of  California and Seattle have bettered that considerably. In most areas, the increases in real estate values have cooled considerably and won't protect you as well they have in the past.

If you are going to get an ARM, be careful. Calculate what happens if interest rates do continue to rise, even though indications are they may have stopped doing so. Look at the real estate market trends and economic factors in your area. Maybe your area has entered one of the periodic flat periods in real estate appreciation. Your home is most likely your most important financial asset. Protect it. You don't want to be one of the thousands who are now finding it almost impossible to make their mortgage payments. In the first quarter of 2006, a study by RealtyTrak Inc. indicated a whopping 72% increase in foreclosures. Don't be one of those statistics.

Posted by debtblog at 01:33 PM | Permalink | Comments (0) | TrackBacks (0)