Is a Short Sale or a Foreclosure My Best Option? Posted: 04 May 2011 04:00 AM PDT  We get asked this question quite often. In a rapidly changing market, it is difficult to give absolute answers. Much depends on your family’s personal situation. However, if you realize that you can no longer make the payments, you may have to decide between doing a short sale or letting the home go to foreclosure. Here are three things you may wish to consider:
1.) Impact on Your Future Ability to Get a MortgageThere are many different lending institutions, each with their own requirements when it comes to your ability to obtain a mortgage in the future. However, a common trend is to be much more lenient with someone working through a short sale rather than letting the house go to foreclosure. As an example, the Fannie Mae site, Know Your Options explains you: May be able to get a Fannie Mae mortgage to purchase a home sooner (in as little as 2 years) than if you went through foreclosure (at least 7 years)
You can get further information here. However, in a rapidly changing environment, make sure you get the latest information available from the actual lending institutions mentioned. 2.) Impact on Your Credit Score There has been much dialogue on this issue. The question is whether or not a foreclosure will have a more severe impact on your credit score than a short sale. A recent FICO study sheds needed light on this question. Here is a chart from that report.
The first chart shows the impact on the score for each stage of delinquency, and the second shows how long it takes the score to fully “recover” after the fact. We can see that there is very little difference in impact on your credit score whether you choose a short sale or a foreclosure. 3.) Impact on Your Family during the MoveUsually a family asking this question is already experiencing major financial difficulties. This may be putting immense pressure on both parents and the children. If you allow your home to go to foreclosure, you move and leave it vacant or you stay waiting for an official to knock on your door demanding you move. That added burden can cause even more stress for a family. In the short sale process, you work with the bank and pre-determine the day you will move. The new purchasers usually move in the same day. Your family moves with a plan and you don’t leave the neighborhood with a vacant house to deal with. There is a level of dignity in this type of move that does not always take place in a foreclosure situation. Bottom LineFor several reasons, a short sale may be the better option for your family. It is best to get professional advice if faced with this decision. |
5 Reasons To Hurry Up And Get Your FHA Mortgage Posted: 21 Apr 2011 04:00 AM PDT  With the likely installation of QRM looming, it is clear that FHA mortgages will clearly become more popular merely because of the lesser down payment requirements. And as we have all learned, when the demand for something goes up, and the supply remains constant, prices go UP…that is, it becomes more expensive.
Talking Point OneThe FHA is permitted each year to insure a specific dollar amount of loans by Congress. I find it unlikely that anyone has factored the increased demand for FHA that QRM will create. Further, getting Congress to allocate more money to HUD in these days of deficits is not a sure thing. I could see a fourth quarter of 2011 with little financing available (or much more expensive financing) to people with less than 20% down. Talking Point TwoWe hear, almost daily, that FHA is only semi-solvent…that they don’t have sufficient reserves. Foolishly, the MIP schedule was altered to give them less cash today (lowering the Up Front MIP) and increasing the longer term collection of monies (the Monthly MIP). To me, that almost insures another MIP change this year…one in which the UFMIP is hiked to get more money in the reserves now, making mortgages more expensive. Talking Point ThreeThe FHA is floating rumors about tightening guidelines. Maybe it will be an increase in minimum down payment from 3.5% to 5%. Maybe a cut in seller paid closing costs from 6% to 3%. Maybe both. Regardless, it is going to get harder to qualify. Understand with increased demand and steady supply, lenders will be choosier. Talking Point FourRates are creeping up anyway. With inflation making a strong comeback (fueled by high gas prices), the Fed will look to hike rates to control inflation. Talking Point FiveThe current loan limits are going to be slashed. Presently, FHA will insure loans up to $729,250 in high cost areas. That number is huge when compared to historic loan limits and was instituted when desperate times called for desperate measures. And while we still might be semi-desperate, look for those loan limits to be lowered by at least $100,000 come the end of the year (when Congress sets them for the next year). For buyers, waiting can be expensive, or worse. You might not even get a loan. For sellers, more expensive loans and less buyers who qualify, will force you to lower your prices even further. ACT NOW! 
 | Will the Cost of Buying Increase Even If Prices Fall? Posted: 20 Apr 2011 04:00 AM PDT  We have discussed the proposed modifications to the mortgage process several times in this blog already. We want to make sure our readers understand the potential impact to the cost of financing a home these changes will have. The cost of buying a home may increase even if prices continue to soften. The total cost of a home is determined by two factors:
- the price of the property
- the expense of financing the purchase (assuming you are not paying all cash)
Check with a local real estate professional to determine where prices are headed in your region for the type of home you are considering. However, even if prices are predicted to soften further in your area, the COST of the home may rise because of increased expenses in financing. These expenses could increase rather dramatically. Interest RatesInterest rates have remained at historic lows for over a year. As the economy improves, there will be less need for the government to keep rates low. Many are predicting interest rates will increase from 1/2 point to 3/4 of a point before the end of the year. We may also see an additional increase in rate for loans deemed ‘less qualified’. New Mortgage StandardsThe government has proposed a new definition for a ‘qualified residential mortgage’. The new standard would set a bar much higher than we have today. Anyone not meeting these requirements would not be eligible for the ‘best’ rates available. What could be the difference in interest rate? In a white paper released last week by a group that included the Center for Responsible Lending and the National Association of Realtors: Some private estimates have concluded that 5 percent risk retention could result in a three-percentage point rise in interest rates for loans funded through securitization. In other words, today’s 5 percent market would become an 8 percent interest-rate market.
Even if the rates for these loans are only one percentage point higher than the best rate, the additional cost to a buyer could be dramatic. Impact of Interest Rates on Mortgage PaymentThe interest rate you receive obviously plays a big role in determining your monthly mortgage payment. How big a role? Here is a chart showing how your payment is impacted even if home prices fall: 
Bottom LineYou may have delayed your home purchase decision because of concern over where PRICES may be headed. To make the best financial decision for you and your family, also take into consideration where the overall COST of the purchase may be headed.
| What Do Homeowners Say About Homeownership? Posted: 19 Apr 2011 04:00 AM PDT  There is no shortage of experts that want to let us know how Americans feel about owning a home after the collapse of the residential market in the last five years. They MUST be devastated. They MUST feel trapped like prisoners in their own homes. They MUST be sorry they ever bought the house. These assumptions seem logical at times and can occasionally be supported by anecdotal evidence.
However, we want to go to the only people who truly understand how homeowners feel - the homeowners themselves. There have been three major surveys done this year that can shed light on the issue: This survey conducted by Fannie Mae showed: - 96% of all homeowners said homeownership has been a positive experience.
- 64% consider buying a home as a safe investment. Buying a home was considered safer than buying stocks by over three times the number of people (64% vs 17%).
The top four reasons to buy: - It means having a good place to raise children and provide a good education
- You have a physical structure where you and your family feel safe
- It allows you to have more space for your family
- It gives you control over what you do with your living space (renovations & updates)
According to this survey conducted by Harris Interactive for the National Association of Realtors, home owners believe that home ownership benefits individuals and families and strengthens our communities. The vast majority of home owners say that owning a home is a smart decision over the long term. Even in today’s challenging economy, 95% of owners believe that over a period of several years, it makes more sense to own a home.
Home owners are much more likely to be satisfied with the quality of their family and community life than renters. While more than half of owners (56%) are “very” or “extremely” satisfied with the overall quality of their family life, only about one-third (36%) of renters report the same levels of satisfaction. Also, 43% of home owners are “very” or “extremely” satisfied with their community life, compared with 30% of renters.
An overwhelming majority of home owners are happy with their decision to own a home. A full 93% of owners surveyed would buy again.
This recent survey titled “Home Sweet Home. Still” delves into homeowners’ current belief in homeownership as a long term investment: Homeowners whose home value has fallen only a little are equally enthusiastic about housing as a long-term investment: 85% say buying a home is the best long-term investment a person can make. Among those who say their home has maintained it value or increased in value, 88% agree…
Even those who have seen their home values plummet are still committed to the idea that buying a home is a solid, long-term investment. Among those who say their home has lost a lot of its value, 80% agree that buying a home is the best long-term investment (36% strongly agree, 44% agree somewhat).
Bottom Line There have been families that have been devastated by the current economy. However, through it all, homeowners have not wavered in their belief in homeownership as the best long-term investment. |
OK...WE GIVE, DON'T LISTEN TO YOUR REAL ESTATE AGENT! Each day we attempt to give truthful insight on the current housing market. If we report what is perceived as negative news, some in the real estate community come down on us hard. However, when we explain that we think now is a great time to buy, we get an avalanche of feedback from the general public attacking us for being nothing more than puppets for real estate agents across the country. Today, we don’t want you to listen to what we think about the opportunities that exist for buyers in this market. Instead, we want to report on what some members of the investment community are saying. The Wall Street JournalJim Woods wrote an article earlier this year for Market Watch, part of the Wall Street Journal’s digital network. Its title: Why your best investment is a house. Mr. Woods compared the investment potential of real estate against other asset classes such as stocks and precious metals. Here was his conclusion. One reason your best investment right now could be a home has to do with the relative upside of getting in on an asset class while it’s at the bottom versus buying into other asset classes that could be near a top. Consider for a moment the tremendous upside we’ve seen in stocks, precious metals and agricultural commodities over the past 12 months… If you’re a long-term investor looking to put money to work, now is not really the best time to get into any of these three asset classes. However, with home sales starting to improve, and with prices now possibly forming a bottom, real estate could well be the asset class that represents the best low-risk buying opportunity out there today…
Mr. Woods went on to talk about the financing portion of the purchase: Yes, mortgage rates still are near historical lows, but if we see these rates rise, then the cost of a new home could climb significantly. So, now could really be the best time to pull the trigger on that home purchase — and it could also be your best investment right now.
Fortune MagazineShawn Tully, senior editor at large for Fortune penned an article last week which was titled: Real estate: It’s time to buy again. In the article, Mr. Tully explained: Forget stocks. Don’t bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing. Let’s state it simply and forcibly: Housing is back. Two basic factors are laying the foundation for dramatic recovery in residential real estate. The first is the historic drop in new construction … The second is a steep decline in prices, on the order of 30% nationwide since 2006, and as much as 55% in the hardest-hit markets. The story of this downturn has been an astonishing flight from the traditional American approach of buying new houses to an embrace of renting. But the new affordability will gradually lure Americans back to buying homes. And the return of the homeowner will start raising prices in many markets this year.
Bottom LineNeither of the two media sources mentioned above has ever been accused of cuddling up to the National Association of Realtors. However, both have come to the same conclusion. It’s time to buy real estate. Perhaps we should listen to them. COURTESY OF  |