Category Archives: Mortgages and Home Loans

Rent vs. Buy Analysis Now a 50-50 Proposition, Nationwide

IMG_3259Rent or buy, rent or buy? Good reasons always exist to do either. Renting offers flexibility, protection from getting in over your head financially and being foreclosed on, yet limited freedom within one’s space; buying offers a chance to build equity, get a dog, and paint the walls burgundy red.

As for the straight financials, however, there’s a ratio that can help you figure out what’s most advantageous. It’s called the “price-to-rent ratio,” calculated by taking the median sale price to buy a home in your area and dividing that by the average amount you’d pay per year to rent a similar abode. 

A ratio under 15 means that for what you’re paying in rent, you might just as well buy a home; a ratio over 20 means homes may be overpriced, and staying put as a renter might not be a bad idea.

Across the U.S., the current ratio is, at 14.8; perilously close to an even 15, as reported on in the article “Better to Buy or Rent,” by Patricia Mertz Esswein in the June, 2014 edition of Kiplingers (figures from real estate research firm Marcus & Millichap). 

The U.S. is, to state the obvious, a pretty big country. So what you really want to look into is the price-to-rent ratio in your own area. Trulia offers a nationwide map of the figures for major cities. And here’s Nolo’s Rent vs. Buy calculator, and additional discussion on whether to “Rent or Buy a House?“.

Luxury Homes Will Soon Be Less of a Bargain

House cornerOne of the fun things for buyers during the depressed real estate market was seeing almost unbelievably low prices on luxury homes.  (Who wanted to buy a castle with everyone in fear of a job loss or investment tumble next week?) Even if we couldn’t actually afford a mansion in the hills, we could peruse the listings without feeling like such a fantasy was completely and utterly crazy.

Unfortunately, buying a luxury home is swiftly returning to the realm of never-never land for the average buyer. According to the April, 2014 edition of Money magazine (“The sunny outlook for housing in upscale neighborhoods“), sales volume for expensive houses is on the upswing, the time it takes to sell is on the downswing in many parts of the U.S., and these factors will soon add up to price increases for high-end homes.

Sigh. You might console yourself by remembering that, even if you could afford the purchase price on a luxury home, other costs such as insurance, repairs, and of course home security might completely break your bank. See Nolo’s article, “How Much Does Owning a Home Really Cost?” for more on that.

Mortgage Crisis May Be Over, But Look How Many Consumers Still Have Complaints!

telephoneBig thanks to real estate journalist Ken Harney for digging into some of the numbers put out by the Consumer Financial Protection Bureau (CFPB) — that is, the federal agency tasked with enforcing financial laws concerning banks, credit unions, and other financial companies, and dealing with consumer complaints.

Harney found that the CFPB received 60,000 complaints from homeowners in 2013 alone. Major issues included “messed-up escrow accounts, botched transfers of accounts, payment amount disputes, short-sale foulups, loan modifications and foreclosures,” and more.

I’m no numbers maven, but the number of zeros in that analysis can’t help but remind us that plenty of homeowners are still living with rotten mortgages that they or their bank rushed into during the heady days of rocketing real estate prices.

As for whether complaining to the CFPB gets you anywhere, don’t miss Harney’s account of how at least one homeowner succeeded in avoiding foreclosure by providing evidence of unethical behavior by the broker of a reverse mortgage.

And if you’re a homeowner at risk of foreclosure, be sure to see the relevant section of Nolo’s online encyclopedia.

 

Now’s a Good Time for Some Homeowners to Refinance

castleMortgage rates (30-year fixed) are at around 4.25% today, according to Bankrate.com. And what with rising home values in many parts of the U.S., a whole new crop of homeowners may find that they have, at last, sufficient equity to consider refinancing.

But that doesn’t mean everyone with a mortgage rate higher than 4.25% should rush out and refinance. The upfront costs of arranging for a new mortgage can sometimes wipe out the savings to be gained.

Yes, figuring out whether a refi is right for you is going to involve some math. How nice, then, that Consumer Reports‘ January, 2014 issue offers (in its Money section) a handy guideline for today’s mortgage market. Quoting Michael Garry, a financial planner in Newtown, PA, it says, “Refinancing might be worthwhile if you’re paying more than 5 percent.”

So if you’re paying less than 5 percent on your home loan, you can probably save yourself running some numbers. If you’re paying more, however, don’t worry that you’ll have to dig out your slide rule. Some simple online calculators can help you, as described in Nolo’s article, “Make Sure You Won’t Lose Money When Refinancing.”

Underwater No More, for Over Three Million Homeowners

floodJournalist Ken Harney calls the gains in homeowner equity the “biggest story in American real estate in 2013,” and I’m inclined to agree. For the past several years now, millions of Americans have felt trapped by owing more on their mortgage than the house was worth — thus making it nigh on financially impossible to sell, refinance, take out home equity loans, and so on.

But over the past year, more than three million have pulled themselves up above the water line, or watched as their homes’ values rose along with the economy. They have, according to Harney, added a total of $2.2 trillion to their net equity (from late 2012 to late 2013).

Let’s hope that news provides a glimmer of light to the 6.4 million homeowners who remain underwater on their homes . . .

Getting a Mortgage During the Shutdown? Expect Delays

This isn’t speculation anymore. I talked to an excited new homebuyer just yesterday, whose offer had been accepted from among multiple bids on a home in Berkeley, but whose mortgage broker had warned him that the closing could be delayed.

IRS wall_0Why? Because the lender will need to get his tax transcript from the IRS, and as part of the federal government shutdown, the IRS tax-transcript department has been furloughed. Even if the entire IRS were to reopen tomorrow, chances are their inboxes are already overflowing with backed-up requests.

So now, our new homebuyer waits. And he’s not even applying for a loan that specifically involves approval by the federal government, such as a FHA loan, USDA loan, or VA loan.

Fortunately, most every standard home purchase contract in California is written with a contract contingency stating that if the buyer can’t get a mortgage, he doesn’t have to go through with the sale. Unfortunately, the homebuyer is expected to take care of this and remove the financing contingency by a date even earlier than the closing, or face the possibility of the deal falling through.

In unusual circumstances such as these, however, it’s worth remembering that contracts are nothing more than an expression of the mutual interests of the parties involved. In this case, I would think both seller and buyer would be amenable to negotiating a delay of the contingency and closing dates so that the sale can go through as planned, and everyone can get back to watching CNN to find out when the folks in Washington, DC are going to end this nonsensensical shutdown.

Scary Stats on How Quickly People Buy a Home

IMG_4403According to the National Association of Realtors® Profile of HomeBuyers and Sellers 2012, typical U.S. home buyers spend a mere 12 weeks searching, and view only around ten homes, before settling on the one they ultimately buy.

Let’s think about that for a minute. Twelve weeks. About three months.

That’s a very short time, in which a whole lot has to happen. The front end of the transaction alone is plenty time-consuming — prospective buyers occupy themselves viewing houses online and on foot, meeting with realtors, researching comparable values, writing up offers, negotiating over a purchase contract and repairs, researching and applying for mortgages, arranging for home inspections, buying homeowners insurance, and so on, until the deal is closed. (The closing usually happens about six weeks after the buyers’ offer is accepted by the seller.)

Behind the scenes, of course, there’s plenty more going on: Clearing out closets, holding a garage sale, trying to figure out where the hell you tossed your last pay stub because the mortgage broker has to have it right this minute, researching moving companies, finding new schools and doctors, and oh yeah, trying to hold onto your job in the midst of all this, because you’re going to need it to pay the bills.

Intimidating enough picture for you? This should serve as a reminder to get as much done as possible BEFORE you get serious about househunting. At least the clearing out of closets can be done well in advance.

In fact, the item that should perhaps go at the top of your “Do it now!” list has to do with another scary statistic, this one from the Federal Trade Commission: Around 5% of consumers find errors on their credit reports — errors serious enough that they could end up paying more for loan products such as, oh, I don’t know, maybe a mortgage?

Let’s bring in another important number: It can take up to 45 days to get credit report errors corrected, as described in Nolo’s article, “How Fast Can Home Buyers Improve Their Credit Score?” Yup, some advance work could really pay off.

Or, You Could Buy a U.S. Post Office!

residential-subdivisionTired of touring through homes that are only faux-historic? Not finding enough real marble flooring or Roman columns to suit your liking? The U.S. Postal Service has entered some unusual options onto the real estate market: Post offices. That’s right, they’re closing some of them down — around 200, at last count, in order to raise money and shift into lower-cost alternatives for office space.

Of course, an old post office doesn’t come with many home-like amenities. And their historic significance, in many instances, means that anyone who buys one should be prepared to comply with historic preservation rules — not to mention answer to a public that’s none too pleased about the way the Postal Service has been handling this process. (After one of the historic buildings it sold was torn down to make room for a Walgreens, it’s no wonder.)

But if you rent back some space to the Post Office itself — which it’s hoping to arrange, in some cases — you might never have to stand in long lines for stamps again!

For more information, see Save the Post Office, a website edited and administered by Steve Hutkins, a literature professor who teaches “place studies” at the Gallatin School of New York University.

Will This Be Your Year for Home Improvements?

No points for originality will be awarded to anyone currently thinking, “Gee, we can’t afford to move, so let’s remodel or add on to this place.” The amount of spending on such projects is set to double in 2013, according to a report from Harvard University’s Joint Center for Housing Studies. Homeowners are doing everything from retrofitting with the idea of aging in place to improving their homes’ energy efficiency. And some recent homebuyers or investors are finding that the distressed properties they now own will require some improvements, like it or not.

So, apart from their lack of originality, might home renovations be a good idea for you? Here are some issues to consider:

  • How will you pay for repairs? If you’ve got cash on hand, great. If you’ll be looking for a loan, and are underwater on your current mortgage, don’t bother. You will need equity to borrow against — 25-35% equity in your home, according to what Mark Yecies, an owner of SunQuest Funding in New Jersey, told The New York Times reporter Lisa Prevost.
  • Will the changes increase your home’s  market value? In the abstract, any home improvement should make your house more saleable, unless it’s truly weird, wacky, or suited to unique tastes and interests. But even sensible repairs with broad appeal don’t always cover their own costs when the homeowner sells, as described in Nolo’s article, “Do Home Improvements Add Value?
  • Will the costs reduce your capital gains tax bill when you sell? If your profits on an eventual home sale will take you over the $250,000 ($500,000 per couple) capital gains tax exclusion, it’s worth figuring out which of your renovations costs are considered “improvements” rather than mere “repairs,” and therefore which ones will raise your cost basis in the property (in effect, raise your purchase price and thereby reduce your profit). For more information, see IRS Publication 551, Basis of Assets, and look for the section on real property.

If all looks good, it’s time to start looking for a contractor. But get ready for some competition and possibly long waits. See “Hiring a Contractor for Home Improvements” for additional tips.

 

Past Foreclosure Overcome by New Wave of Homebuyers

They’re being called “boomerang buyers” — those who only a few years ago lost their home to foreclosure or a short sale, but are now reentering the real estate market. No, it’s not necessarily easy, but it’s possible, and sooner than you might have thought. Phones are reportedly “ringing off the hook” at some loan offices.

This trend is a reminder that every tough situation creates some winners. Even as sellers wish their property values would rise faster, the once-big losers in the housing market crash have now had some time to rebuild their credit and stash away a down payment.

For a rundown on the qualification rules and required waiting period, Shashank Shekhar has provided a handy article called “Buying a Home After Short Sale, Foreclosure or Bankruptcy.” And for broader information on recovering from tough financial situations, see Nolo’s articles on “Improving Credit After Bankruptcy.”

The rules remain strict — you are likely to have to wait at least two years after the foreclosure, and to come up with a 20% down payment. But there’s a positive side to that, too. Lenders today are far less likely to allow buyers to sign up for high-risk loans that might ultimately lead to another foreclosure.