Category Archives: Mortgages and Home Loans

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.

 

Single Homebuyers Face “Headwinds,” Says National Association of Realtors

The annual Survey of Home Buyers and Sellers is just out from NAR (the National Association of Realtors). The biggest news is a drop in the number of unmarried home buyers. While they formed 32% of the market back in 2009, they’ve dropped to a mere 25% of the market today.

What’s up? (Or down?) It’s certainly not that everyone is getting hitched. At the end of 2011, a Pew Research Group study found that marriage rates in the U.S. had hit all-time lows, with scarcely half of U.S. adults married. (No wonder I haven’t been invited to any weddings lately!)

NAR’s vice president of research, Paul Bishop, explains the trend this way: “We’ve known for some time that stringent mortgage credit standards have been holding back home sales, but these findings show single buyers have been hurt the most over the past two years.  Total home sales would be 10 to 15 percent higher without these unnecessary headwinds.”

In other words, without two incomes, your chances of qualifying for a loan are reduced.

That doesn’t mean that single homebuyers should give up. But if you’re thinking of buying your first home, you might want see how closely you fit within NAR’s other statistics for first-timers, including:

  • a median age of 31
  • a median income 0f $61,800
  • average home size of 1,600 square-foot
  • average home cost of $154,100.

If you’re a 21-year old hoping to buy a $200,000 home on an income of $31,000, the odds aren’t looking so good — depending, of course, on where you live and what a mortgage broker or banker tell you about your qualifications. For tips on buying as a single female, see Nolo’s article, “Single-Woman Homebuyers: What to Consider.”

 

What These Crazy-Low Mortgage Interest Rates Mean for You

If you’re new to the housing market, take my word for it: Today’s interest rates are eye-poppingly low. A 3o-year fixed rate mortgage at 3.44%? A 15-year fixed rate mortgage at 2.83%? (Figures from Bankrate.com.) No, don’t take my word for it: The press is calling these “record lows.” As in, record for all of U.S. history. Even back when Grandpa was buying an ice cream cone for a quarter, his family was probably paying 7% on their mortgage.

If you’re in the market to buy a home, just sit back and enjoy. Or if you’d like to gloat, play with some online calculators and realize how much interest you’ll be saving over the life of the loan as compared with people who bought houses just a few years ago.

Using Bankrate’s “Mortgage Calculator,” for instance, I plugged in numbers for a 30-year fixed rate loan on a $250,000 house at 3.5% interest; and then the same loan at 6.5% interest. (Be sure to press the “Show/Recalculate Amortization Table” for a full rundown of interest payments and totals.) With the first loan at 3.5% you’d pay $154,140 over the life of the loan. (Gulp. Really, when you add it all up, even the lowest-interest mortgage results in a big pile of cash handed over to the lender.)

Now let’s look at the same loan at 6.5%. Total interest = $318,861. That’s a difference of $164,721. With figures like that, homebuyers today can afford a lot more house than they will be able to when interest rates rise again. (And there’s little doubt that they will, someday.)

If you already own a home, now’s a good time to think about refinancing — or perhaps even re-refinancing. But run some numbers on that first, too. You can do so using Nolo’s Refinance Calculator. The upfront costs of getting a new loan sometimes wipe out the savings. The key is to find your “breakeven point,” indicating how long it will take you to work off the initial closing costs by saving money on interest each month. If you expect to stay in your home for less time than it takes to reach your breakeven point, the refinance definitely isn’t worth it.

There’s a Reason You Can’t Find a House to Buy

Deciding that you’re really ready to buy a house and finding an actual house to buy are two different things — especially in the current market. If you’ve been scanning the home listings or visiting open houses and thinking, “Why don’t I see anything that looks good?” it’s probably not your imagination. It’s not even your innate fussiness.

A shortage of housing inventory is affecting many parts of the United States. This issue, and the multiple reasons for it, were major topics at the recent conference of the National Association of Real Estate Editors (NAREE) in Denver.

Curt Beardsley with Realtor.com observed, “Total for-sale inventory is 20% down. That means we’re down to about 1.8 million single family homes for sale, from 3.1 million in 2007.”

The most massive decreases in inventory, says Beardsley, are along the West Coast, in Seattle, Oakland, San Francisco, and San Jose. On the other side of the country, Tampa and Atlanta have the most limited offerings of homes for sale.

Here are some of the reasons the experts offered for the shortage:

  • Potential sellers feel trapped. According to Scott Ryles, CEO of Home Value Protection, Inc., “One quarter of homeowners are underwater today” (owe more on their mortgage than the home is worth, in cases where they have a mortgage) or they simply “can’t afford to move.” Even if these owners want to sell, the numbers just don’t add up for them — and won’t, until home prices rise.
  • Builders aren’t building. Before the crash, builders of new homes were adding to the nation’s inventory at three times the rate they are today, according to David Crowe, Chief Economist at the National Association of Home Builders (NAHB). Across the U.S., there are only about 50,000 newly built homes where the carpets are in and you can move in tomorrow, says Crowe. What’s more, it’s not easy for builders to reverse course and start building again. Crowe explains, “We’ve lost a lot of capacity; contractors, materials supply . . . No one has come back strong. Plants have been mothballed.”
  • Investors are turning single-family homes into rentals. As a potential buyer, you’ve got competition from investors savvy enough to realize that the rental market is stronger than ever. Margaret Kelly, CEO of RE/MAX notes, “Twenty five percent of home buyers now are investors. These are good investors, not flippers. They’re going to drive the recovery. Families who’ve been foreclosed on can’t qualify for a home. If you have kids, dogs, and so forth, you want a yard; you’re not going to move into an apartment.” Of course, if you want to buy a home, get ready to watch some of the bargains being snapped up.

This doesn’t mean that you should give up. Stan Humphries, chief economist with Zillow.com, believes that every time prices spike upward, it will “free some owners from negative equity, and you’ll see some surplus in supply for a while.” But hoping for low prices as well as lots of choices may be too much to hope for.