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Monday, December 24, 2007
Tips for buying home in 2008
As we get ready to say goodbye to 2007, it's worth looking back at the year that was for home buyers.
Home sales are down around 20 percent from last year, according to the National Association of Realtors (NAR). Compared to 2006, when more than 8.5 million existing and new homes were sold, 2007 has seen soaring inventories of existing and new homes for sale, a record number of foreclosures, and the strongest buyers' market in a decade.
Although sellers aren't happy, those who did decide to buy found builders who were more than willing to deal on price and upgrades. Investors who tried to unload their properties often found no takers, leading to the largest number of vacant homes on the market since the number has been tracked.
Renters also seemed to be in short supply, dramatically boosting the number of foreclosures, bankruptcies, and, at the end of the year, prompting President Bush to announce a plan to help some borrowers with subprime mortgages avoid that fate.
Clearly, the wind came out of the real estate market, which some observers are calling the worst since World War II, and others claim is the worst since the Great Depression.
While the market is down, it's not out. It's just that compared to the last decade, the market moved much more slowly, giving buyers time to compare price and amenities and giving sellers heartburn.
The good news for buyers is that 2008 looks to get a bit worse in many markets. And that means deals are there to be made on favorable terms.
If you're planning to buy a house this coming year, here's my annual list of New Year's resolutions you should consider making:
As a buyer, I resolve to:
1. Get my credit and finances in order.
Plenty of would-be buyers are paying off their credit cards, car loans, school loans and other forms of personal debt. While having personal debt doesn't mean you can't qualify for a loan, it can lower the amount of the mortgage a lender might be willing to give you. And, given the current mortgage crisis, lenders are paying close attention to your credit history and credit score.
If you keep one resolution this year, choose to clean up your credit. One of the best things you can do to prepare for buying a home is to make your monthly debt payments on time. Even if you have a lousy credit history, lenders will be more forgiving if they see you've gotten your act together in the last six to 12 months.
Federal law now requires each of the three main credit reporting bureaus (Experian, Equifax and TransUnion) to give you a free copy of your credit history once a year.
To get yours, go to www.annualcreditreport.com. At the time, buy a copy of your credit score from Equifax. The cost is under $10, which is still less than buying it through MyFico.com.
2. Get my credit in shape.
Put a lid on your spending, perform "plastic surgery" on your credit cards, and don't max out any one card (in fact, never charge more than 30 percent of your maximum credit limit) or your credit score will suffer. If you're going to cancel an account, do it in writing, but you get bonus points on your credit score the longer you maintain a credit account. So a credit card account that you opened in 1984 is worth a lot more than one you opened last month.
Don't forget that good credit also means job stability. Most lenders require that you work for the same employer for at least a year, and maybe two, before they'll approve your home loan application. If you're self-employed, they'll want to see at least two years of tax returns before you'll qualify for a conventional loan. If you're offered a better job in your field, by all means take it. But if you want to buy a home, try not to jump from job to job within a relatively short period of time.
3. Know how much I can afford to spend before shopping for a home.
You have three options when it comes to figuring out how far your down payment and income will take you: You can guess; you can pay a visit to your local lender, who will prequalify or preapprove you for a loan; or you can go online.
Your lender will look at your income, debt, assets and liabilities, and come up with the maximum amount you can spend on a home. Once you know how much you can afford to spend, you'll avoid making a common, heartbreaking, home-buyer error: looking at homes you can't afford to buy.
Too busy to visit a lender? There are several Web sites that offer good mortgage information. Try Bankrate.com for a state-by-state look at current interest rates from lenders who work in your area, including online lenders. Every major mortgage lender has a Web site. And, don't forget to check the rates at your local credit union.
4. Know my neighborhood, and be comfortable with it, before I buy a home there.
Everyone wants to live on the best block in the best neighborhood. Unfortunately, that location may not be in your budget. You might be able to afford the smallest home on the best block, but that won't do you much good if you need four bedrooms and that home has only two. Balancing affordability with location means you may have to compromise. While you may be willing to compromise on the size of garden you have, you may not be willing to change your children's school districts.
Start looking at various neighborhoods and the amenities they offer. Is there a park? Shopping? Transportation? A house of worship? Do your friends and family live close by? Be careful not to limit your choice of neighborhoods too early on in the process. Explore new areas and the housing stock and amenities they offer.
Make sure you spend time during different parts of the day and night in the neighborhoods you like. Walk the streets and go into local shops. Visit the neighborhood police department and local schools. Stop by the local park district offices and see what programs and classes are available. Drive the commute from prospective neighborhoods to your job during rush hour. Get to know the neighborhood and its residents inside and out before you buy.
5. Interview at least three brokers before hiring one.
There are traditional agents, buyer agents, exclusive buyer's agents (who never represent sellers) and discount agents. There are large brokerage firms and small neighborhood shops. You can even choose not to use a real estate agent, although as a buyer you won't be out of pocket for the cost, so there's no reason not to use one.
Many buyers today opt to use buyer agents, or buyer brokers, who represent the interests of the buyer rather than the seller. One older study showed that buyers using buyer agents or exclusive buyer's agents paid less for their home than those who used traditional agents.
Choosing which agent to use -- or choosing not to use an agent -- can be critical to your successful purchase. Look for an agent whose philosophy and mannerisms are compatible with yours. Look for someone you can trust, with whom you wouldn't mind spending a lot of time. Look for an agent who has ample experience, and who is knowledgeable about the neighborhoods you've selected for yourself.
6. Read and understand all documents before signing them.
So many folks don't even bother to read either their purchase contract or loan documents. That's unfortunate, given the enormous legal implications of a home purchase.
Take the time to read all documents thoroughly. Ask an attorney or broker to explain things that don't seem to make sense. It's important that you understand what promises have been made and what warranties have been granted, and what implications these documents have for your personal financial and emotional well-being.
If you don't understand the documents that you are being given and still don't understand them after the broker has explained them to you, seek help from someone you trust or hire an attorney to assist you in the process. If the broker explains something to you and seems to contradict the document, make sure the broker writes into the document what she told you.
source: mortgage101.com
Home sales are down around 20 percent from last year, according to the National Association of Realtors (NAR). Compared to 2006, when more than 8.5 million existing and new homes were sold, 2007 has seen soaring inventories of existing and new homes for sale, a record number of foreclosures, and the strongest buyers' market in a decade.
Although sellers aren't happy, those who did decide to buy found builders who were more than willing to deal on price and upgrades. Investors who tried to unload their properties often found no takers, leading to the largest number of vacant homes on the market since the number has been tracked.
Renters also seemed to be in short supply, dramatically boosting the number of foreclosures, bankruptcies, and, at the end of the year, prompting President Bush to announce a plan to help some borrowers with subprime mortgages avoid that fate.
Clearly, the wind came out of the real estate market, which some observers are calling the worst since World War II, and others claim is the worst since the Great Depression.
While the market is down, it's not out. It's just that compared to the last decade, the market moved much more slowly, giving buyers time to compare price and amenities and giving sellers heartburn.
The good news for buyers is that 2008 looks to get a bit worse in many markets. And that means deals are there to be made on favorable terms.
If you're planning to buy a house this coming year, here's my annual list of New Year's resolutions you should consider making:
As a buyer, I resolve to:
1. Get my credit and finances in order.
Plenty of would-be buyers are paying off their credit cards, car loans, school loans and other forms of personal debt. While having personal debt doesn't mean you can't qualify for a loan, it can lower the amount of the mortgage a lender might be willing to give you. And, given the current mortgage crisis, lenders are paying close attention to your credit history and credit score.
If you keep one resolution this year, choose to clean up your credit. One of the best things you can do to prepare for buying a home is to make your monthly debt payments on time. Even if you have a lousy credit history, lenders will be more forgiving if they see you've gotten your act together in the last six to 12 months.
Federal law now requires each of the three main credit reporting bureaus (Experian, Equifax and TransUnion) to give you a free copy of your credit history once a year.
To get yours, go to www.annualcreditreport.com. At the time, buy a copy of your credit score from Equifax. The cost is under $10, which is still less than buying it through MyFico.com.
2. Get my credit in shape.
Put a lid on your spending, perform "plastic surgery" on your credit cards, and don't max out any one card (in fact, never charge more than 30 percent of your maximum credit limit) or your credit score will suffer. If you're going to cancel an account, do it in writing, but you get bonus points on your credit score the longer you maintain a credit account. So a credit card account that you opened in 1984 is worth a lot more than one you opened last month.
Don't forget that good credit also means job stability. Most lenders require that you work for the same employer for at least a year, and maybe two, before they'll approve your home loan application. If you're self-employed, they'll want to see at least two years of tax returns before you'll qualify for a conventional loan. If you're offered a better job in your field, by all means take it. But if you want to buy a home, try not to jump from job to job within a relatively short period of time.
3. Know how much I can afford to spend before shopping for a home.
You have three options when it comes to figuring out how far your down payment and income will take you: You can guess; you can pay a visit to your local lender, who will prequalify or preapprove you for a loan; or you can go online.
Your lender will look at your income, debt, assets and liabilities, and come up with the maximum amount you can spend on a home. Once you know how much you can afford to spend, you'll avoid making a common, heartbreaking, home-buyer error: looking at homes you can't afford to buy.
Too busy to visit a lender? There are several Web sites that offer good mortgage information. Try Bankrate.com for a state-by-state look at current interest rates from lenders who work in your area, including online lenders. Every major mortgage lender has a Web site. And, don't forget to check the rates at your local credit union.
4. Know my neighborhood, and be comfortable with it, before I buy a home there.
Everyone wants to live on the best block in the best neighborhood. Unfortunately, that location may not be in your budget. You might be able to afford the smallest home on the best block, but that won't do you much good if you need four bedrooms and that home has only two. Balancing affordability with location means you may have to compromise. While you may be willing to compromise on the size of garden you have, you may not be willing to change your children's school districts.
Start looking at various neighborhoods and the amenities they offer. Is there a park? Shopping? Transportation? A house of worship? Do your friends and family live close by? Be careful not to limit your choice of neighborhoods too early on in the process. Explore new areas and the housing stock and amenities they offer.
Make sure you spend time during different parts of the day and night in the neighborhoods you like. Walk the streets and go into local shops. Visit the neighborhood police department and local schools. Stop by the local park district offices and see what programs and classes are available. Drive the commute from prospective neighborhoods to your job during rush hour. Get to know the neighborhood and its residents inside and out before you buy.
5. Interview at least three brokers before hiring one.
There are traditional agents, buyer agents, exclusive buyer's agents (who never represent sellers) and discount agents. There are large brokerage firms and small neighborhood shops. You can even choose not to use a real estate agent, although as a buyer you won't be out of pocket for the cost, so there's no reason not to use one.
Many buyers today opt to use buyer agents, or buyer brokers, who represent the interests of the buyer rather than the seller. One older study showed that buyers using buyer agents or exclusive buyer's agents paid less for their home than those who used traditional agents.
Choosing which agent to use -- or choosing not to use an agent -- can be critical to your successful purchase. Look for an agent whose philosophy and mannerisms are compatible with yours. Look for someone you can trust, with whom you wouldn't mind spending a lot of time. Look for an agent who has ample experience, and who is knowledgeable about the neighborhoods you've selected for yourself.
6. Read and understand all documents before signing them.
So many folks don't even bother to read either their purchase contract or loan documents. That's unfortunate, given the enormous legal implications of a home purchase.
Take the time to read all documents thoroughly. Ask an attorney or broker to explain things that don't seem to make sense. It's important that you understand what promises have been made and what warranties have been granted, and what implications these documents have for your personal financial and emotional well-being.
If you don't understand the documents that you are being given and still don't understand them after the broker has explained them to you, seek help from someone you trust or hire an attorney to assist you in the process. If the broker explains something to you and seems to contradict the document, make sure the broker writes into the document what she told you.
source: mortgage101.com
Picking the right sander for the job
From removing old peeling paint to putting a glass-smooth finish on a new cabinet, sanding is a part of life for any do-it-yourselfer. It can be a tedious and dusty proposition at times, but luckily over the years many manufacturers have introduced power sanders to make the task easier and less messy.
Here's a look at the four main types of power sanders, along with some shopping tips for finding the one that works best for your specific applications.
Belt Sander: A belt sander is the largest and the most heavy-duty of the different power sanders. A belt sander utilizes a continuous sanding belt that is stretched over two drums, one of which is rotated by a powerful electric motor. The belt lays flat against the bottom of the sander as it rotates, creating a long, wide sanding surface that sands quickly and lessens the chance of gouging into the wood. Belt sanders are best suited for fast stock removal and also leveling out imperfections, and are used with the direction of the belt rotation parallel with the grain.
Belt sanders are specified by the size of the belt -- which indicates the width and the overall length -- as well as the amperage of the motor, and when shopping you'll want to look for one that suits your job and your budget. Smaller sanders, such as Ryobi's 3-inch-by-18-inch (Model BE318-2, $49.95), is comfortable, light and easy to control, with a 5-amp motor that is well suited for light- to medium-duty use. Larger models, such as the massive 4-by-24-inch workhorse from Porter-Cable (Model 362VSK, $249), has a 12-amp motor and is designed for frequent, heavy-duty use.
Pad Sander: Also called a finishing sander, pad sanders have a flat square or rectangular pad located underneath the motor. The pad moves back and forth in a straight line, again for sanding with the direction of the grain, and the smaller sanding surface and lighter weight make these a good choice for finish sanding and paint removal on a wide variety of projects.
Pad sanders utilize standard sheets of sandpaper, which you'll need to cut to the proper size (precut sheets are also available for some sanders). The paper fits over a soft pad on the bottom of the sander that helps cushion the sanding motion, and is held in place by clips along two opposite sides of the pad.
Ridgid's 1/4-sheet sander (Model R2500, $44) is a good example of a versatile, well-designed pad sander for frequent use. It uses one-fourth of a standard sheet of sandpaper, and has a cushioned top and a conveniently located switch that makes the sander very comfortable for one-handed use, with minimal noise and vibration. Paper changing is easy -- something you definitely want to look for with a pad sander -- and the dust collection bag can be removed and the sander used with a shop vacuum hose instead.
Detail Sander: A detail sander is a smaller, lighter version of the pad sander, and as the name implies it is intended for taking care of the final detail sanding in those hard-to-reach places. Detail sanders typically have a pointed pad that can sand into corners, and often feature different attachments in a variety of shapes that can sand into the cracks and crevices that other sanders can't get into, such as moldings, spindles and inside drawers.
Black & Decker's new Mouse Sander/Polisher (Model MS600B, $39.99) is a very handy little detail sander, and incorporates a "feedback" system of lights that tells you when you're applying the proper amount of pressure for the surface you're sanding -- something that's very useful when putting the finishing touches on your project. It has soft-grip sides for great comfort, and a selection of sanding attachments to suit different applications.
Random Orbit Sander: A random orbit sander is in a class of its own, and can be used for anything from fast stock removal to fine finishing. Random orbit sanders look somewhat like pad sanders, with the sandpaper placed flat below the motor. However, the sandpaper pad spins in a circle while moving around in an oval pattern at the same time. This results in a random pattern of sanding that allows the sander to move across the grain without scratching.
Due to the circular motion, random orbit sanders utilize precut round sandpaper that is either 5 or 6 inches in diameter. A hook and loop system holds the paper securely to the bottom of the sanding pad, and also allows for fast paper changes.
A random orbit sander could easily become your favorite all-around home improvement sander. When shopping for one, look for a model such as Ridgid's 6-inch sander (Model R2611, $129.99) that offers additional versatility to make it that much more useful. The Ridgid sander has two unique orbit settings -- 1/8 inch for fine sanding and 1/4 inch for fast stock removal -- as well as a soft-grip rear handle and a removable front handle for comfort. It also has electronic variable speed to make it suitable for a variety of materials and uses, a comfortably low-vibration 4-amp motor, and a handy, on-board fitting that adapts the sander to either 1 1/4- or 2 1/2-inch shop vacuum hoses.
source: mortgage101.com
Here's a look at the four main types of power sanders, along with some shopping tips for finding the one that works best for your specific applications.
Belt Sander: A belt sander is the largest and the most heavy-duty of the different power sanders. A belt sander utilizes a continuous sanding belt that is stretched over two drums, one of which is rotated by a powerful electric motor. The belt lays flat against the bottom of the sander as it rotates, creating a long, wide sanding surface that sands quickly and lessens the chance of gouging into the wood. Belt sanders are best suited for fast stock removal and also leveling out imperfections, and are used with the direction of the belt rotation parallel with the grain.
Belt sanders are specified by the size of the belt -- which indicates the width and the overall length -- as well as the amperage of the motor, and when shopping you'll want to look for one that suits your job and your budget. Smaller sanders, such as Ryobi's 3-inch-by-18-inch (Model BE318-2, $49.95), is comfortable, light and easy to control, with a 5-amp motor that is well suited for light- to medium-duty use. Larger models, such as the massive 4-by-24-inch workhorse from Porter-Cable (Model 362VSK, $249), has a 12-amp motor and is designed for frequent, heavy-duty use.
Pad Sander: Also called a finishing sander, pad sanders have a flat square or rectangular pad located underneath the motor. The pad moves back and forth in a straight line, again for sanding with the direction of the grain, and the smaller sanding surface and lighter weight make these a good choice for finish sanding and paint removal on a wide variety of projects.
Pad sanders utilize standard sheets of sandpaper, which you'll need to cut to the proper size (precut sheets are also available for some sanders). The paper fits over a soft pad on the bottom of the sander that helps cushion the sanding motion, and is held in place by clips along two opposite sides of the pad.
Ridgid's 1/4-sheet sander (Model R2500, $44) is a good example of a versatile, well-designed pad sander for frequent use. It uses one-fourth of a standard sheet of sandpaper, and has a cushioned top and a conveniently located switch that makes the sander very comfortable for one-handed use, with minimal noise and vibration. Paper changing is easy -- something you definitely want to look for with a pad sander -- and the dust collection bag can be removed and the sander used with a shop vacuum hose instead.
Detail Sander: A detail sander is a smaller, lighter version of the pad sander, and as the name implies it is intended for taking care of the final detail sanding in those hard-to-reach places. Detail sanders typically have a pointed pad that can sand into corners, and often feature different attachments in a variety of shapes that can sand into the cracks and crevices that other sanders can't get into, such as moldings, spindles and inside drawers.
Black & Decker's new Mouse Sander/Polisher (Model MS600B, $39.99) is a very handy little detail sander, and incorporates a "feedback" system of lights that tells you when you're applying the proper amount of pressure for the surface you're sanding -- something that's very useful when putting the finishing touches on your project. It has soft-grip sides for great comfort, and a selection of sanding attachments to suit different applications.
Random Orbit Sander: A random orbit sander is in a class of its own, and can be used for anything from fast stock removal to fine finishing. Random orbit sanders look somewhat like pad sanders, with the sandpaper placed flat below the motor. However, the sandpaper pad spins in a circle while moving around in an oval pattern at the same time. This results in a random pattern of sanding that allows the sander to move across the grain without scratching.
Due to the circular motion, random orbit sanders utilize precut round sandpaper that is either 5 or 6 inches in diameter. A hook and loop system holds the paper securely to the bottom of the sanding pad, and also allows for fast paper changes.
A random orbit sander could easily become your favorite all-around home improvement sander. When shopping for one, look for a model such as Ridgid's 6-inch sander (Model R2611, $129.99) that offers additional versatility to make it that much more useful. The Ridgid sander has two unique orbit settings -- 1/8 inch for fine sanding and 1/4 inch for fast stock removal -- as well as a soft-grip rear handle and a removable front handle for comfort. It also has electronic variable speed to make it suitable for a variety of materials and uses, a comfortably low-vibration 4-amp motor, and a handy, on-board fitting that adapts the sander to either 1 1/4- or 2 1/2-inch shop vacuum hoses.
source: mortgage101.com
Buying cheaper fridge, floors makes financial sense
Last time, we talked about the worst places to save money when you're remodeling. Windows, roofs and exterior finishes prevailed as lousy places to cut corners. Today we'll look at some ways you can save money without sabotaging your project for the long term.
The strategy is simple: Economize on items that can be easily removed and upgraded later on, not on items that have to last the life of the house. This may mean putting off some things on your wish list until later -- but at least you'll have made sure it's still possible to get them. Here are some places to cut costs that will still allow for easy upgrades later:
* Built-in appliances. Buying less costly kitchen appliances is one of the simplest yet least exercised ways to save money -- probably because we've been conditioned to demand kitchens with huge built-in refrigerators, restaurant-style stoves, and all the other bells and whistles so beloved of appliance marketers. When you're building on a tight budget, though, mid-grade appliances will serve perfectly well -- in fact, they're often just the same high-priced units with the extraneous gimmicks deleted. What's more, since the dimensions of built-in appliances are standardized, the old units can be easily removed and replaced with fancier stuff when money becomes available.
* Kitchen and bath cabinets and countertops. Cabinets may seem very permanent, but they're actually fairly simple to remove and replace. This makes using budget cabinetry for the short term a fairly open-ended way to save money. When it's finally time to go for that fancier kitchen, the old cabinets needn't go to waste -- they can live out a second life in the garage.
As for countertops, pricey materials such as granite and its artificial knockoffs have insinuated themselves into even modest kitchens and baths of late, but there are some perfectly serviceable alternatives for the budget conscious. Ceramic tile and -- dare I say it -- plastic laminates are two time-honored standbys that can cost you thousands less than slabs. When it comes time to upgrade a kitchen or bath, the countertops and cabinets can be replaced together.
* Plumbing fixtures (except showers and tubs, which are more or less permanent) are also a good place to save a few bucks in the short term. While the price of items such as kitchen sinks, lavatories and toilets can vary by a factor of 10, for the most part they all do the job adequately. Later on, when you find that you absolutely must have that designer toilet with the hand-painted flowers on it, it'll be no problem to swap out the old one.
* Floor finishes such as carpeting and sheet vinyl, and hardware such as interior door locksets and cabinet latches are all easily replaced, allowing you to buy less expensive products in the interim while still being able to upgrade when money becomes available.
As hard as it is to put off those goodies you've had your heart set on, it helps to know that, when the time is right, you can still get exactly what you want.
source: mortgage101.com
The strategy is simple: Economize on items that can be easily removed and upgraded later on, not on items that have to last the life of the house. This may mean putting off some things on your wish list until later -- but at least you'll have made sure it's still possible to get them. Here are some places to cut costs that will still allow for easy upgrades later:
* Built-in appliances. Buying less costly kitchen appliances is one of the simplest yet least exercised ways to save money -- probably because we've been conditioned to demand kitchens with huge built-in refrigerators, restaurant-style stoves, and all the other bells and whistles so beloved of appliance marketers. When you're building on a tight budget, though, mid-grade appliances will serve perfectly well -- in fact, they're often just the same high-priced units with the extraneous gimmicks deleted. What's more, since the dimensions of built-in appliances are standardized, the old units can be easily removed and replaced with fancier stuff when money becomes available.
* Kitchen and bath cabinets and countertops. Cabinets may seem very permanent, but they're actually fairly simple to remove and replace. This makes using budget cabinetry for the short term a fairly open-ended way to save money. When it's finally time to go for that fancier kitchen, the old cabinets needn't go to waste -- they can live out a second life in the garage.
As for countertops, pricey materials such as granite and its artificial knockoffs have insinuated themselves into even modest kitchens and baths of late, but there are some perfectly serviceable alternatives for the budget conscious. Ceramic tile and -- dare I say it -- plastic laminates are two time-honored standbys that can cost you thousands less than slabs. When it comes time to upgrade a kitchen or bath, the countertops and cabinets can be replaced together.
* Plumbing fixtures (except showers and tubs, which are more or less permanent) are also a good place to save a few bucks in the short term. While the price of items such as kitchen sinks, lavatories and toilets can vary by a factor of 10, for the most part they all do the job adequately. Later on, when you find that you absolutely must have that designer toilet with the hand-painted flowers on it, it'll be no problem to swap out the old one.
* Floor finishes such as carpeting and sheet vinyl, and hardware such as interior door locksets and cabinet latches are all easily replaced, allowing you to buy less expensive products in the interim while still being able to upgrade when money becomes available.
As hard as it is to put off those goodies you've had your heart set on, it helps to know that, when the time is right, you can still get exactly what you want.
source: mortgage101.com
Two years on market, no offers: Time to take action
Q: We purchased a single-family residence for investment with another couple in California in early 2005. Our intent was to hold the property short term, then sell it. We took out a standard adjustable-rate mortgage (ARM) to purchase the property, and we are all co-borrowers on the loan.
Unfortunately, we purchased this home at the peak of the market and now we can't sell it. It's been two years since we've started to sell it and we've lowered the price of the home below what we paid for it. Meanwhile, it's costing us each about $1,000 a month.
Our loan will convert to a variable-rate loan at the end of 2009.
Both couples are hurting for money, but our partners are in worse condition than we are. If they became unable to make their portion of the mortgage payments, would we have any recourse with the lender? We can handle our portion of the payments for now, but we couldn't cover theirs too for any length of time.
In a situation such as this, are lenders ever willing to work with the borrowers? We have excellent credit and I'd hate to see us lose so much because of this one mistake. Your counsel in this matter is greatly appreciated.
A: Unfortunately, your situation isn't unique. Many people became real estate investors the last several years until the market forces changed. It didn't occur to them, as it didn't occur to you, that the good times wouldn't last forever. Without planning for a worst-case scenario (which you're experiencing now), many of these people should never have become real estate investors.
You have genuine pain but it's unlikely that anybody can really help you without a change in market forces. In some parts of the country there are far too many homes for sale and too few buyers.
You and the other couple are in the same boat, and while they may have worse financial issues, if they stop paying their share of the loan and you don't pay their share for them, both of your credit histories will be hurt.
Let's go over your options. You can rent the home, which will at least give you some income coming in to cover some of the costs and limit your losses. When the market changes again, you can sell at that time.
Your second choice is to sell the home at any price. You'll lose whatever you put into the house and, if the sales price and commission are below the amount of the mortgage, you'll have to either dig in out of your own pockets to pay the missing amount or negotiate a "short sale" with your lender.
In a short sale, the lender agrees to take the proceeds from the sale of the home to pay off the mortgage even if the funds aren't enough to pay off the loan if full, and the lender accepts the partial payment.
But if you have other assets (such as a primary residence with a lot of equity), your lender will want to see what else you can offer to settle the debt. If you and your partners have other assets, the lender may not be willing to accept the short sale.
Why would a lender be willing to lose money if it can get you to pay up?
If the lender accepts a short sale, the amount on the debt that you would not have to pay would be considered income to you and you would pay federal income taxes for that amount.
Let's say you sold the home for $100,000 and the loan amount was $110,000. For federal income tax purposes, when you file your tax return you and your friends would have income of $10,000 due to the forgiveness of $10,000 of the loan. There is some talk in Congress about changing this rule, but it may wind up just helping those who are short-selling a primary residence.
Your last choice is to continue to market the home as you have been doing with the hope that someone comes around and decides to buy your house. You may lose some of your investment, but not all of it. But at $2,000 a month in expenses, that monthly loss may eat away at the money you put down on the home when you purchased it.
Finally, and it's not a great topic for discussion, but if you or your friends are overwhelmed by debts, your last option may be bankruptcy. While you don't seem to be at that breaking point, it could get there, particularly if your partners stop paying their share of the mortgage. The person to speak with is a bankruptcy attorney.
It would be great if there were other options, but with the robust real estate market we've had over the last decade or so now slowing dramatically, everyone is wondering what it will take for the markets to reach a balance again.
source: mortgage101.com
Unfortunately, we purchased this home at the peak of the market and now we can't sell it. It's been two years since we've started to sell it and we've lowered the price of the home below what we paid for it. Meanwhile, it's costing us each about $1,000 a month.
Our loan will convert to a variable-rate loan at the end of 2009.
Both couples are hurting for money, but our partners are in worse condition than we are. If they became unable to make their portion of the mortgage payments, would we have any recourse with the lender? We can handle our portion of the payments for now, but we couldn't cover theirs too for any length of time.
In a situation such as this, are lenders ever willing to work with the borrowers? We have excellent credit and I'd hate to see us lose so much because of this one mistake. Your counsel in this matter is greatly appreciated.
A: Unfortunately, your situation isn't unique. Many people became real estate investors the last several years until the market forces changed. It didn't occur to them, as it didn't occur to you, that the good times wouldn't last forever. Without planning for a worst-case scenario (which you're experiencing now), many of these people should never have become real estate investors.
You have genuine pain but it's unlikely that anybody can really help you without a change in market forces. In some parts of the country there are far too many homes for sale and too few buyers.
You and the other couple are in the same boat, and while they may have worse financial issues, if they stop paying their share of the loan and you don't pay their share for them, both of your credit histories will be hurt.
Let's go over your options. You can rent the home, which will at least give you some income coming in to cover some of the costs and limit your losses. When the market changes again, you can sell at that time.
Your second choice is to sell the home at any price. You'll lose whatever you put into the house and, if the sales price and commission are below the amount of the mortgage, you'll have to either dig in out of your own pockets to pay the missing amount or negotiate a "short sale" with your lender.
In a short sale, the lender agrees to take the proceeds from the sale of the home to pay off the mortgage even if the funds aren't enough to pay off the loan if full, and the lender accepts the partial payment.
But if you have other assets (such as a primary residence with a lot of equity), your lender will want to see what else you can offer to settle the debt. If you and your partners have other assets, the lender may not be willing to accept the short sale.
Why would a lender be willing to lose money if it can get you to pay up?
If the lender accepts a short sale, the amount on the debt that you would not have to pay would be considered income to you and you would pay federal income taxes for that amount.
Let's say you sold the home for $100,000 and the loan amount was $110,000. For federal income tax purposes, when you file your tax return you and your friends would have income of $10,000 due to the forgiveness of $10,000 of the loan. There is some talk in Congress about changing this rule, but it may wind up just helping those who are short-selling a primary residence.
Your last choice is to continue to market the home as you have been doing with the hope that someone comes around and decides to buy your house. You may lose some of your investment, but not all of it. But at $2,000 a month in expenses, that monthly loss may eat away at the money you put down on the home when you purchased it.
Finally, and it's not a great topic for discussion, but if you or your friends are overwhelmed by debts, your last option may be bankruptcy. While you don't seem to be at that breaking point, it could get there, particularly if your partners stop paying their share of the mortgage. The person to speak with is a bankruptcy attorney.
It would be great if there were other options, but with the robust real estate market we've had over the last decade or so now slowing dramatically, everyone is wondering what it will take for the markets to reach a balance again.
source: mortgage101.com
'Happy Holiday fix for The Crunch'
In thin holiday markets, The Crunch hasn't stolen Christmas, just given a mixed blessing: Mortgages fell from 6.25 percent to 6 percent in one week as fear of credit default returned and money raced to quality for safety.
Expectation of economic slowdown has spread during December, now nearly unanimous, modified by disagreement about extent and duration, and total chaos at the subject of what to do about it. Inflation worriers say the Fed should stay put, just ride it out, joined by believers in Mr. Market. The interveners are mostly backward-looking: in the lead, how to prevent foreclosures. Too late for that.
The worst idea came from my rapidly aging hero, former Fed Chairman Alan Greenspan: just give money to the foreclosed households. Pardon? How would you separate the unlucky and imprudent from the deserving -- and from the proud souls still making payments they cannot afford? Other ideas that won't work: a tax cut, or further cuts in the Fed's rate. They will soften the landing, but not stop the fall.
I promised last week a Happy Holiday fix for The Crunch. It begins by stating the problem. We do not have a traditional problem with aggregate demand, as in a recession following a Fed-whacking of an overheated economy. We also do not have one of the intractable problems of Christmases Past: the horrifying, 20-year ramp up in inflation that took another 20 years of suppressed growth and two recessions to fix.
Instead we have a wreck in the belly of the financial system: Credit losses are so large that if recognized -- written off -- would bankrupt the whole show. That is very good news because we have been in this pickle before, large- and small-scale; have all the knowledge and tools developed in prior pickles; and the tools can work overnight.
The only impediment: embarrassment. And some frustrated anger. Fix as follows:
1. The best way to reduce the foreclosures ahead is to secure an adequate supply of mortgage credit. The Treasury Secretary should stride to a microphone to say: "The Treasury stands behind Fannie Mae and Freddie Mac in any amounts necessary, as the economy needs their services for the original purpose at Fannie's founding in the Depression. They will not grow their portfolios, will act as guarantors for fee, and will apply traditionally tough underwriting standards. They may guarantee regionally appropriate loan balances not to exceed one million."
2. The bailout: a Chrysler/S&L Resolution Trust hybrid. This is the hard part, but only politically. "We (nouveau RTC) will take bad assets (crippled, opaque and illiquid; CDOs, SIVs, ABCP...) and in exchange will take equity positions in those institutions commensurate with bad-asset relief. We will manage these assets for a period of years to prevent fire sale and to maximize return to the institutions and the taxpayer. Given time and recovered markets, as we recover value we will gradually return equity to the institutions involved. If recovery is insufficient to retire all equity, we will sell the equity assets in the open market in the best interests of the taxpayer."
We need these institutions to start making new loans right now, and bailout beats selling them to China, Abu Dhabi and Singapore.
What are the chances for effective intervention? Yesterday, President Bush was asked about financial problems, and said (White House transcript): "My attitude is, is that Wall Street needs to put all their -- put it all out there for everybody to see. They need to have the -- off-balance sheet this and put out there for investors to take a look at. And if there's some write-downs to be done, they need to do it now."
I have some hope that Bush has a better handle on accounting than on geography and non-Texas cultures. However, if he says that write-downs should proceed, he either has not been briefed, has not been briefed honestly, or didn't quite get the briefing.
From here, it's up to the briefers and the briefee. If we're lucky, some financial accident will cattle-prod 'em into action before the recession.
source: mortgage101.com
Expectation of economic slowdown has spread during December, now nearly unanimous, modified by disagreement about extent and duration, and total chaos at the subject of what to do about it. Inflation worriers say the Fed should stay put, just ride it out, joined by believers in Mr. Market. The interveners are mostly backward-looking: in the lead, how to prevent foreclosures. Too late for that.
The worst idea came from my rapidly aging hero, former Fed Chairman Alan Greenspan: just give money to the foreclosed households. Pardon? How would you separate the unlucky and imprudent from the deserving -- and from the proud souls still making payments they cannot afford? Other ideas that won't work: a tax cut, or further cuts in the Fed's rate. They will soften the landing, but not stop the fall.
I promised last week a Happy Holiday fix for The Crunch. It begins by stating the problem. We do not have a traditional problem with aggregate demand, as in a recession following a Fed-whacking of an overheated economy. We also do not have one of the intractable problems of Christmases Past: the horrifying, 20-year ramp up in inflation that took another 20 years of suppressed growth and two recessions to fix.
Instead we have a wreck in the belly of the financial system: Credit losses are so large that if recognized -- written off -- would bankrupt the whole show. That is very good news because we have been in this pickle before, large- and small-scale; have all the knowledge and tools developed in prior pickles; and the tools can work overnight.
The only impediment: embarrassment. And some frustrated anger. Fix as follows:
1. The best way to reduce the foreclosures ahead is to secure an adequate supply of mortgage credit. The Treasury Secretary should stride to a microphone to say: "The Treasury stands behind Fannie Mae and Freddie Mac in any amounts necessary, as the economy needs their services for the original purpose at Fannie's founding in the Depression. They will not grow their portfolios, will act as guarantors for fee, and will apply traditionally tough underwriting standards. They may guarantee regionally appropriate loan balances not to exceed one million."
2. The bailout: a Chrysler/S&L Resolution Trust hybrid. This is the hard part, but only politically. "We (nouveau RTC) will take bad assets (crippled, opaque and illiquid; CDOs, SIVs, ABCP...) and in exchange will take equity positions in those institutions commensurate with bad-asset relief. We will manage these assets for a period of years to prevent fire sale and to maximize return to the institutions and the taxpayer. Given time and recovered markets, as we recover value we will gradually return equity to the institutions involved. If recovery is insufficient to retire all equity, we will sell the equity assets in the open market in the best interests of the taxpayer."
We need these institutions to start making new loans right now, and bailout beats selling them to China, Abu Dhabi and Singapore.
What are the chances for effective intervention? Yesterday, President Bush was asked about financial problems, and said (White House transcript): "My attitude is, is that Wall Street needs to put all their -- put it all out there for everybody to see. They need to have the -- off-balance sheet this and put out there for investors to take a look at. And if there's some write-downs to be done, they need to do it now."
I have some hope that Bush has a better handle on accounting than on geography and non-Texas cultures. However, if he says that write-downs should proceed, he either has not been briefed, has not been briefed honestly, or didn't quite get the briefing.
From here, it's up to the briefers and the briefee. If we're lucky, some financial accident will cattle-prod 'em into action before the recession.
source: mortgage101.com
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