Wednesday, July 30, 2008
Think Outside the Lock Box!
Dear Sue,
My wife and I bought our home about four years ago. Since home values have dropped we now owe more than our home is worth.
I know this is strange but we would like to trade houses with our neighbor who lives just a couple of blocks away. He wants our home and we want his. We like his floor plan a lot better than ours. He has the extra garage we need and we have one too many bedrooms. Our neighbor bought his home around the same time we did and he put about the same amount down.
Neither of us has any equity so I guess we would be trading debt. Is there any way we can trade houses? If so, how would we go about doing it?
Thanks for your help!
Trading Tom
Dear Tom,
Wow! The concept of trading debt is a new one. I believe that it can be done.
My suggestion would be to start with your respective lenders. Each lender would require that each of you qualify for each other’s loan. You will be required to go through a formal loan assumption process. That means providing two years of tax returns, w2’s for income and proof of employment and current credit reports.
If each of you qualifies it should be a no brainer. Very creative of you!
With the current foreclosures, short sales and tight money, it is very important to be creative. Realtor’s need to think outside of the “lock box” in order to assist home buyers and sellers in this market. Utilizing available lending programs is not enough.
Trades are a great way to move up or on. If there is equity to work with, seller financing is a great option. This is when the home seller becomes the bank. The home buyer makes the down payment to the seller and the seller carries back the balance on a note at mutually agreed upon terms.
Home buyers looking for money, now have fewer options since down payment assistance programs are becoming virtually non-existent. Gifts from family members or early inheritance money should be a consideration. Some parents or grandparents would love to see their children or grandchildren enjoy their inheritance while they are still alive.
IRA’s are a good source for a down payment. Either through borrowing or the once in a life time penalty free $10,000.00 withdrawal that the IRS allows.
Self directed IRA’s are an often overlooked source for buying real estate. A qualified self directed plan will allow one to buy out right or finance the purchase with 30% down as long as the loan is a non recourse loan. A non-recourse loan is one where the lenders only recourse for non-payment is foreclosure.
Sell stuff. I have a client that is selling a horse trailer, horses and tractor to come up with a sizable down payment. Turn your stuff into an asset!
Equity share. Find a partner that will help with the down payment. Put them on title for an agreed upon percentage of the profits or losses after a specified period of time. The longer the time period the greater the chances of making a profit.
Credit unions are an affordable source for all kinds of loans including home loans. The credit union interest rates are often better than bank rates. It will pay to shop a local credit union.
Lease option or lease purchases are another possibility. This is where the home buyer leases the property for a set period of time. The time period is usually 1 to 2 years. A portion of the rent is often credited towards the purchase price. When it comes time to exercise the option to purchase the buyer/tenant gets a loan and buys the property.
I am sure there are other ways to finance a new home. I look forward to hearing from my readers about alternative forms of financing that they may have come up with.
In today’s tight money market thinking outside the “lock box” is a matter of good home dollars and sense.
My wife and I bought our home about four years ago. Since home values have dropped we now owe more than our home is worth.
I know this is strange but we would like to trade houses with our neighbor who lives just a couple of blocks away. He wants our home and we want his. We like his floor plan a lot better than ours. He has the extra garage we need and we have one too many bedrooms. Our neighbor bought his home around the same time we did and he put about the same amount down.
Neither of us has any equity so I guess we would be trading debt. Is there any way we can trade houses? If so, how would we go about doing it?
Thanks for your help!
Trading Tom
Dear Tom,
Wow! The concept of trading debt is a new one. I believe that it can be done.
My suggestion would be to start with your respective lenders. Each lender would require that each of you qualify for each other’s loan. You will be required to go through a formal loan assumption process. That means providing two years of tax returns, w2’s for income and proof of employment and current credit reports.
If each of you qualifies it should be a no brainer. Very creative of you!
With the current foreclosures, short sales and tight money, it is very important to be creative. Realtor’s need to think outside of the “lock box” in order to assist home buyers and sellers in this market. Utilizing available lending programs is not enough.
Trades are a great way to move up or on. If there is equity to work with, seller financing is a great option. This is when the home seller becomes the bank. The home buyer makes the down payment to the seller and the seller carries back the balance on a note at mutually agreed upon terms.
Home buyers looking for money, now have fewer options since down payment assistance programs are becoming virtually non-existent. Gifts from family members or early inheritance money should be a consideration. Some parents or grandparents would love to see their children or grandchildren enjoy their inheritance while they are still alive.
IRA’s are a good source for a down payment. Either through borrowing or the once in a life time penalty free $10,000.00 withdrawal that the IRS allows.
Self directed IRA’s are an often overlooked source for buying real estate. A qualified self directed plan will allow one to buy out right or finance the purchase with 30% down as long as the loan is a non recourse loan. A non-recourse loan is one where the lenders only recourse for non-payment is foreclosure.
Sell stuff. I have a client that is selling a horse trailer, horses and tractor to come up with a sizable down payment. Turn your stuff into an asset!
Equity share. Find a partner that will help with the down payment. Put them on title for an agreed upon percentage of the profits or losses after a specified period of time. The longer the time period the greater the chances of making a profit.
Credit unions are an affordable source for all kinds of loans including home loans. The credit union interest rates are often better than bank rates. It will pay to shop a local credit union.
Lease option or lease purchases are another possibility. This is where the home buyer leases the property for a set period of time. The time period is usually 1 to 2 years. A portion of the rent is often credited towards the purchase price. When it comes time to exercise the option to purchase the buyer/tenant gets a loan and buys the property.
I am sure there are other ways to finance a new home. I look forward to hearing from my readers about alternative forms of financing that they may have come up with.
In today’s tight money market thinking outside the “lock box” is a matter of good home dollars and sense.
Wednesday, July 23, 2008
Should I Wait?
Dear Sue
I want to buy a house. I have been waiting until the anticipated wave of foreclosures in July and August bring the real estate prices down even more.
It seems like the foreclosure news has been replaced by news of bank failures. The so-called “credit crisis.”
I know that foreclosures bring the prices down but how does the credit crisis affect my buying decision? Should I wait until the banks are more stable?
Anxious and confused
As we all know supply and demand controls price. Higher supply with little demand equals low price. High demand with low supply equals high price.
When one thinks about real estate in terms of supply and demand, the supply is the available housing inventory and the demand is the number of buyers in the market. Up to this point, few have considered that financing is the fuel for the market. Today’s credit crisis is simply a reduction in the money supply. The harder money is to obtain, the more expensive it is going to become.
Just as the high gasoline prices are causing consumers to turn to alternative fuel sources such as electric, hydrogen and bio fuels, homebuyers are going to need to look at alternative and creative sources of financing.
Recently, money suppliers Wachovia and Washington Mutual, have reported multibillion-dollar losses and have discontinued mortgage lending. To put it in perspective, they are in the “big five” in terms of size.
There is also a bill that threatens down payment assistance programs. According to FHA estimates, forty percent of FHA loan volume involves down payment assistance of some kind. The forty percent estimate means that 300,000 working class families will be locked out of home ownership. Communities across America will take the brunt of an estimated $50 billion in lost real estate sales.
I believe that anyone considering a home purchase should do it now before money becomes too expensive. If credit continues to be in short supply the cost to borrow will go up!
Buying while affordable money is available is a matter of good Home $$s and Sense.
I want to buy a house. I have been waiting until the anticipated wave of foreclosures in July and August bring the real estate prices down even more.
It seems like the foreclosure news has been replaced by news of bank failures. The so-called “credit crisis.”
I know that foreclosures bring the prices down but how does the credit crisis affect my buying decision? Should I wait until the banks are more stable?
Anxious and confused
As we all know supply and demand controls price. Higher supply with little demand equals low price. High demand with low supply equals high price.
When one thinks about real estate in terms of supply and demand, the supply is the available housing inventory and the demand is the number of buyers in the market. Up to this point, few have considered that financing is the fuel for the market. Today’s credit crisis is simply a reduction in the money supply. The harder money is to obtain, the more expensive it is going to become.
Just as the high gasoline prices are causing consumers to turn to alternative fuel sources such as electric, hydrogen and bio fuels, homebuyers are going to need to look at alternative and creative sources of financing.
Recently, money suppliers Wachovia and Washington Mutual, have reported multibillion-dollar losses and have discontinued mortgage lending. To put it in perspective, they are in the “big five” in terms of size.
There is also a bill that threatens down payment assistance programs. According to FHA estimates, forty percent of FHA loan volume involves down payment assistance of some kind. The forty percent estimate means that 300,000 working class families will be locked out of home ownership. Communities across America will take the brunt of an estimated $50 billion in lost real estate sales.
I believe that anyone considering a home purchase should do it now before money becomes too expensive. If credit continues to be in short supply the cost to borrow will go up!
Buying while affordable money is available is a matter of good Home $$s and Sense.
Now I Need a Short Sale!
Dear Sue
I read your article last week about the poor lady’s “bad upside down loan.” I am in a similar situation. I think I had better consider a short sale. I would like to know how to get started.
I admit that I am in this mess because I signed a bogus loan application reporting more income than I really had. Because I was able to get a loan that I didn’t qualify for, I thought my loan officer was an angel. I should have known better! Today with payments more than I can afford, I think my loan officer was the devil incarnate!
How could the country have gotten in this mess and what can I do about getting a short sale now?
Sad Sam
Dear Sam
A little over ten years ago the mortgage industry came out with “designer loans.” One of those loans was a 125% loan to value. Yes, the lender would make a 100% loan and pay the borrower an additional 25% of the property’s value as an incentive. As far-fetched as my thoughts seemed at the time, I thought it was a plot to have the government own a good part of our nation’s real estate.
Today that doesn’t seem so far out. The current government involvement with the mortgage giants, Fanny Mae and Freddie Mac, along with a measure, if passed, will get taxpayers involved in the mortgage business whether we like it or not. The extent of the government’s involvement is yet to be seen.
You ask what caused all this? I believe that lack of regulation and supervision in the mortgage industry, non-disclosure, greed and fraud are the culprits in this debacle.
This won't make me popular, but it is also my opinion that allowing the same person who sells the property to lend on the property is bad news. The realtor and the lender should never be one and the same. Unless there is owner financing I believe it is a conflict of interest.
I also want people to know that everything happening right now is the “lagging edge” not the “leading edge” of the mortgage fallout. The banks are experiencing the late consequences of all the bad loans.
I also believe that our situation is compounded by fear. If we don’t panic we will soon come to another equilibrium. At this moment it is more of a confidence crisis than a financial one.
If you want to start the short sale process, it is important to know that the requirements differ from lender to lender. New rules are being written as we speak. The first step is to engage a real estate agent experienced in short sales. Next, contact the loss mitigation department of your bank. That would be the person or entity that sends you your mortgage statements. You will be required to complete a “work out” or short sale package.
The package includes a request for a hardship letter, financial statements and a list of all of your expenses. They will also want W-2’s, two paycheck stubs and your previous month’s bank statement. You will also be required to give written authorization to the lender to speak with your agent.
The bank will then request a “BPO” (broker price opinion) that estimates the value of the property. The BPO’s are done by impartial Realtors or appraisers who are an “arm’s length” away from the transaction.
The package, after being assembled, is taken to a review committee where it is approved or disapproved.
Your agent and lender will guide you through the process once you have made contact. It sounds like in your case that a short sale is a matter of good Home $$s and Sense.
I read your article last week about the poor lady’s “bad upside down loan.” I am in a similar situation. I think I had better consider a short sale. I would like to know how to get started.
I admit that I am in this mess because I signed a bogus loan application reporting more income than I really had. Because I was able to get a loan that I didn’t qualify for, I thought my loan officer was an angel. I should have known better! Today with payments more than I can afford, I think my loan officer was the devil incarnate!
How could the country have gotten in this mess and what can I do about getting a short sale now?
Sad Sam
Dear Sam
A little over ten years ago the mortgage industry came out with “designer loans.” One of those loans was a 125% loan to value. Yes, the lender would make a 100% loan and pay the borrower an additional 25% of the property’s value as an incentive. As far-fetched as my thoughts seemed at the time, I thought it was a plot to have the government own a good part of our nation’s real estate.
Today that doesn’t seem so far out. The current government involvement with the mortgage giants, Fanny Mae and Freddie Mac, along with a measure, if passed, will get taxpayers involved in the mortgage business whether we like it or not. The extent of the government’s involvement is yet to be seen.
You ask what caused all this? I believe that lack of regulation and supervision in the mortgage industry, non-disclosure, greed and fraud are the culprits in this debacle.
This won't make me popular, but it is also my opinion that allowing the same person who sells the property to lend on the property is bad news. The realtor and the lender should never be one and the same. Unless there is owner financing I believe it is a conflict of interest.
I also want people to know that everything happening right now is the “lagging edge” not the “leading edge” of the mortgage fallout. The banks are experiencing the late consequences of all the bad loans.
I also believe that our situation is compounded by fear. If we don’t panic we will soon come to another equilibrium. At this moment it is more of a confidence crisis than a financial one.
If you want to start the short sale process, it is important to know that the requirements differ from lender to lender. New rules are being written as we speak. The first step is to engage a real estate agent experienced in short sales. Next, contact the loss mitigation department of your bank. That would be the person or entity that sends you your mortgage statements. You will be required to complete a “work out” or short sale package.
The package includes a request for a hardship letter, financial statements and a list of all of your expenses. They will also want W-2’s, two paycheck stubs and your previous month’s bank statement. You will also be required to give written authorization to the lender to speak with your agent.
The bank will then request a “BPO” (broker price opinion) that estimates the value of the property. The BPO’s are done by impartial Realtors or appraisers who are an “arm’s length” away from the transaction.
The package, after being assembled, is taken to a review committee where it is approved or disapproved.
Your agent and lender will guide you through the process once you have made contact. It sounds like in your case that a short sale is a matter of good Home $$s and Sense.
Thursday, July 10, 2008
Bad Loan!
Dear Sue
I bought a little fixer over three years ago. I didn’t have much of a job but I had a great down payment from an inheritance.
I paid just over $400,000 for my house. I didn’t want to borrow more money than I needed to, so I planned to use my inheritance for the remodel.
I signed loan papers that I thought I understood. I didn’t ask enough questions. I just put myself in my loan broker’s hands.
A long story made short: I put all my inheritance into remodeling. My broker has refinanced my house three times since I purchased it. After the negative amortization and loan fees, I now owe almost twice as much as what I paid for the house in the first place. Loan fees of over $60,000.00 were added to my loan. I never knew what negative amortization was before but I sure do now! Since I don’t pay enough each month to cover the full principal and interest, the amount is added to the loan balance. My loan grows bigger every month!
I feel like I need to do something before my loan comes due again in three years. I called a real estate agent and asked her to do a market analysis. She said that I was upside down and should consider a short sale. She said that I could also consider staying in my house for the next three years and see what the market is doing at then.
Given fact that I am almost 65 years old and single and have been taking the money out of my retirement to make the house payments, I don’t know if waiting would be a good idea.
I am heartsick over all of it. I just want to do the right thing. I love my home and would love to keep it. Do you have any advice for me?
Heartsick
Dear Heartsick
I am heartsick for you!
Whatever you do, don’t get a new loan. The definition of insanity is doing the same thing over and over and expecting a different result.
Begin by expecting miracles. Don’t call your loan broker. Call your lender’s (the company that funded the loan) loss mitigation department and ask the following questions:
Can the loan be restructured?
Are there any assistance programs available to help eliminate some of the debt?
If you can’t get an answer, ask to speak to their immediate supervisor. If you can’t get any help in this way, you are a prime candidate for a short sale. I would suggest asking for a short sale package, give your lender permission to deal with your Realtor, and get going.
Choose a reputable real estate agent experienced in short sales.
Thanks to recent legislation you may not have to pay tax on your debt relief. You will have lost every penny that you put into your house.
Giving up your home may be difficult for you but it may be the best thing you can do for yourself financially. It could be a matter of Good Home $$s and Sense.
I bought a little fixer over three years ago. I didn’t have much of a job but I had a great down payment from an inheritance.
I paid just over $400,000 for my house. I didn’t want to borrow more money than I needed to, so I planned to use my inheritance for the remodel.
I signed loan papers that I thought I understood. I didn’t ask enough questions. I just put myself in my loan broker’s hands.
A long story made short: I put all my inheritance into remodeling. My broker has refinanced my house three times since I purchased it. After the negative amortization and loan fees, I now owe almost twice as much as what I paid for the house in the first place. Loan fees of over $60,000.00 were added to my loan. I never knew what negative amortization was before but I sure do now! Since I don’t pay enough each month to cover the full principal and interest, the amount is added to the loan balance. My loan grows bigger every month!
I feel like I need to do something before my loan comes due again in three years. I called a real estate agent and asked her to do a market analysis. She said that I was upside down and should consider a short sale. She said that I could also consider staying in my house for the next three years and see what the market is doing at then.
Given fact that I am almost 65 years old and single and have been taking the money out of my retirement to make the house payments, I don’t know if waiting would be a good idea.
I am heartsick over all of it. I just want to do the right thing. I love my home and would love to keep it. Do you have any advice for me?
Heartsick
Dear Heartsick
I am heartsick for you!
Whatever you do, don’t get a new loan. The definition of insanity is doing the same thing over and over and expecting a different result.
Begin by expecting miracles. Don’t call your loan broker. Call your lender’s (the company that funded the loan) loss mitigation department and ask the following questions:
Can the loan be restructured?
Are there any assistance programs available to help eliminate some of the debt?
If you can’t get an answer, ask to speak to their immediate supervisor. If you can’t get any help in this way, you are a prime candidate for a short sale. I would suggest asking for a short sale package, give your lender permission to deal with your Realtor, and get going.
Choose a reputable real estate agent experienced in short sales.
Thanks to recent legislation you may not have to pay tax on your debt relief. You will have lost every penny that you put into your house.
Giving up your home may be difficult for you but it may be the best thing you can do for yourself financially. It could be a matter of Good Home $$s and Sense.
Don’t let Your Home go Up in Smoke!
Most of the seasons make the Foothills a wonderful place to live. Unfortunately right now we are experiencing fire season.
Since fire requires fuel to burn, it is important that you take precautions by reducing that fuel supply around your home and out buildings.
Not all fires move along the ground. Forest fires, like the recent one in Foresthill, travel from treetop to treetop.
Trees near your home may be beautiful and provide shade but if they are too close they can act as a matchstick and burn your house down.
The following tips can help prevent your home from burning down.
Use as much non-combustible or fire retardant building material as possible in new construction. Incorporate sprinkler systems even when they are not required by building code.
Replace wood shake roofs with composition, tile, slate, concrete or other materials that do not burn.
Clear all dry vegetation and low limbs within 100 feet of all structures. Do not use a mower once the vegetation has dried out! If the mower blade strikes a rock and creates a spark it can cause a wildfire. Instead use a weed eater with a nylon string. Even then it is important to keep a hose, shovel and other fire fighting equipment nearby.
Avoid outdoor fires of any kind. Fireworks and sparklers can start a fire. In my opinion it isn’t worth the risk. If you are barbequing, don’t do it under the eaves, awnings, and trees or against wood rails on decks. Clear the entire area surrounding your barbeque before you ignite.
Avoid stacking firewood near any structures. Keep the woodpile as far away from your home as possible.
Keep electrical systems in good repair. Don’t use undersized or damaged extension
cords.
Don’t store oily rags, solvents, paints and other flammables in or near structures. Intense heat may cause spontaneous combustion. A friend of mine’s entire material world went up in smoke. After refinishing her out door furniture she left the bucket of rags and paint thinner she was using at the edge of her deck. The only thing left standing was the chimney.
Keep fire extinguishers handy in the home, barbeque and shop areas. Be sure that the extinguishers are rated for their intended use.
Electrical service is usually lost during fires. If you have a well it would be wise to have an alternate back up power system such as a generator in place.
Water sources, such as swimming pools, ponds and streams are great for firefighting. A gas powered high-pressure water pump can save your property. Practice using the pump before you need it. You don’t want to be reading the manual as your house burns down.
Be informed! Get fire prevention information from your local fire department or online. Be aware of the fire dangers!
Have a plan. Discuss the fire safe plan with your family. Go over your plan on a regular basis. Have periodic fire drills that include alternate escape routes. Some plans include putting together a small bag with everything that’s needed in the event of an evacuation. Have a list of the personal items that you want to save but don’t risk your life trying to gather up things in an emergency. Don’t forget to plan for your pets.
I recently read that when disasters occur such as fire, most people freeze. The ones that make it through are usually the ones who had a plan. They practiced so their responses were automatic. That is why there are fire drills.
Taking precautions and having a plan is a Matter of Good Home $$s and Sense.
Since fire requires fuel to burn, it is important that you take precautions by reducing that fuel supply around your home and out buildings.
Not all fires move along the ground. Forest fires, like the recent one in Foresthill, travel from treetop to treetop.
Trees near your home may be beautiful and provide shade but if they are too close they can act as a matchstick and burn your house down.
The following tips can help prevent your home from burning down.
Use as much non-combustible or fire retardant building material as possible in new construction. Incorporate sprinkler systems even when they are not required by building code.
Replace wood shake roofs with composition, tile, slate, concrete or other materials that do not burn.
Clear all dry vegetation and low limbs within 100 feet of all structures. Do not use a mower once the vegetation has dried out! If the mower blade strikes a rock and creates a spark it can cause a wildfire. Instead use a weed eater with a nylon string. Even then it is important to keep a hose, shovel and other fire fighting equipment nearby.
Avoid outdoor fires of any kind. Fireworks and sparklers can start a fire. In my opinion it isn’t worth the risk. If you are barbequing, don’t do it under the eaves, awnings, and trees or against wood rails on decks. Clear the entire area surrounding your barbeque before you ignite.
Avoid stacking firewood near any structures. Keep the woodpile as far away from your home as possible.
Keep electrical systems in good repair. Don’t use undersized or damaged extension
cords.
Don’t store oily rags, solvents, paints and other flammables in or near structures. Intense heat may cause spontaneous combustion. A friend of mine’s entire material world went up in smoke. After refinishing her out door furniture she left the bucket of rags and paint thinner she was using at the edge of her deck. The only thing left standing was the chimney.
Keep fire extinguishers handy in the home, barbeque and shop areas. Be sure that the extinguishers are rated for their intended use.
Electrical service is usually lost during fires. If you have a well it would be wise to have an alternate back up power system such as a generator in place.
Water sources, such as swimming pools, ponds and streams are great for firefighting. A gas powered high-pressure water pump can save your property. Practice using the pump before you need it. You don’t want to be reading the manual as your house burns down.
Be informed! Get fire prevention information from your local fire department or online. Be aware of the fire dangers!
Have a plan. Discuss the fire safe plan with your family. Go over your plan on a regular basis. Have periodic fire drills that include alternate escape routes. Some plans include putting together a small bag with everything that’s needed in the event of an evacuation. Have a list of the personal items that you want to save but don’t risk your life trying to gather up things in an emergency. Don’t forget to plan for your pets.
I recently read that when disasters occur such as fire, most people freeze. The ones that make it through are usually the ones who had a plan. They practiced so their responses were automatic. That is why there are fire drills.
Taking precautions and having a plan is a Matter of Good Home $$s and Sense.
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