The Sky Falling Is To BUYERS Advantage!

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2011

   Wow-the economy is crazy! The Dow Jones has tanked, the U.S. credit rating got downgraded for the first time in our history and many people think that this may indicate the sky is falling.  I find it an interesting parallel that many home owners out there need a loan modification ( so does the U.S. government with all the countries that have loaned us money) and have seen their credit ratings drop (like the U.S. rating dropping for the first time in history form three stars to two stars). 

     What does this do for the home buyers?  IT MAKES INTEREST RATES on mortages GO DOWN!  You’re hearing radio and TV ads that ‘now is a better time than ever’ to buy a home or refinance one. If you have a stable job and need the tax deduction of annual mortgage interest, then yes, it is a GREAT time to buy a home because it will be cheaper than rent and save you money on your income taxes. 

      If you got a mortgage for $200,000 you’d have a payment at 4.5% interest of @$1300 per month (principal loan payment including interest, property taxes, homeowners insurance and mortgage insurance).  If rates go down to 4% your payment would go down to @$1200 per month-a savings of $100 per month.

     Seriously, have you tried to find a decent rental lately?  A landlord that will allow both your dogs and cats?  A home in a safe feeling neighborhood with a yard and decent parking?  Rent’s are moving UP as more people can’t qualify to get a loan, and landlords are raising rents. I just had a friend desperately search for a three bedroom place to rent, and she was finding that landlords wanted $1500 a month on the average for a nice house in the neighborhood where she wanted to live, plus first and last month’s rent and a huge non-refundable animal deposit.  The amount it would have cost her just to get into a rental would have been the almost the same amount as a down payment for a home. The average loan is 3.5% down and there are legitimate loans out there for 0% down as well (slightly higher interest rate).

     Sit down and look at your living situation and your finances, and even take the time to talk to a good lender to help give you ideas and numbers on how to buy a home or condo. With values at all time lows, and interest rates at all time lows, the planets are aligning that you should stop renting and start the buying process.  Whether you have money invested in the stock and bond markets, it’s not only important to watch those investments but to pay attention to whether the Dow Jones is dropping. The more the Dow drops, the more likely you will see interest rates on home loans drop.

      I always tell potential buyers/renters to make a Xerox of their previous tax return and pencil in an example of a $12,000 mortgage interest deduction and see how that changes what they could have gotten back from Uncle Sam if they had had owned a home that tax year. Do it-look at your taxes and see how owning a home could make your life better in more ways than one!

Great Home But Needs A New Kitchen, Damn!

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2011

   How many times have you heard someone shopping for a home to say, “We saw the perfect house, perfect neighborhood, but needed (insert) a) a new kitchen b) another bathroom c) central air d) all new carpets e) all of the above?!

   If you’re getting a bank loan to buy a home for say $200,000 with a 3.5% down FHA insured loan, the bank isn’t going to give immediately give you another loan for $50-100,000 with of upgrades for you to do yourself with or without a contractor. Yes, there is the argument that you can get a second mortgage later, but why not do it all at once?

   There is a loan out there called an FHA 203K which is perfect when you find an almost perfect house. It works basically like this:  You get a contractor(s) to bid out the work you’d like to have done on the property once you get it under contract.  The bank has an appraiser go to the house and determine so see if the $50,000 in improvements will make the house worth $250,000. If it looks like a good plan, then the bank gets you a $250,000 loan at closing (still with the 3.5% down payment) and you close on the home. You have six months to complete the work via the contractor(s) the bank has approved.  The contractor completes each step of the work and the bank sets up a ‘draw’ in order to get him paid each step of the way. 

   This loan is particularly attractive if the home is great but needs say, just a new roof in order to pass FHA standards for a home loan, and where the seller has no equity in the property to make any repairs on behalf of the seller.

    What I’ve found is that this loan takes a few weeks longer to close than a normal transaction because of the work bids that must be reviewed. Also, you must use contractors who have gone through a short process to get approved by FHA and the bank. You can still use your favorite contractor but they must be approved by the bank. It’s very difficult to use an out of town ‘on line’ lender for one of these loans as the ‘draw’ process must be local to get contractors paid quickly during the work. 

     This is a terrific loan to get work done on a home that needs minor or major work done on it. I’ve found it’s a great help when I find a buyer a foreclosure where the AC has been ripped out, the carpets are crappy, and the bathroom needs updating. The bank who took the property back from the seller doesn’t want to do a thing but get rid of the property from its inventory.  The interest rate on an FHA 203K loan is slightly higher than a regular FHA loan, but worth it if you don’t have extra money to do rehabilitation to a property once you’ve put out the 3.5% down payment for the loan.