Friday, August 31, 2007
Tips for Finding the Perfect Neighborhood
The neighborhood you choose can have a big impact on your lifestyle—safety, available amenities, and convenience all play their part.
1. Make a list of the activities—movies, health club, church—you engage in regularly and stores you visit frequently. See how far you would have to travel from each neighborhood you’re considering to engaging in your most common activities.
2. Check out the school district. The Department of Education in your town can probably provide information on test scores, class size, percentage of students who attend college, and special enrichment programs. If you have school-age children, also consider paying a visit to schools in the neighborhoods you’re considering. Even if you don’t have children, a house in a good school district will be easier to sell in the future.
3. Find out if the neighborhood is safe. Ask the police department for neighborhood crime statistics. Consider not only the number of crimes but also the type—burglaries, armed robberies—and the trend of increasing or decreasing crime. Also, is crime centered in only one part of the neighborhood, such as near a retail area?
4. Determine if the neighborhood is economically stable. Check with your local city economic development office to see if income and property values in the neighborhood are stable or rising. What is the percentage of homes to apartments? Apartments don’t necessarily diminish value, but they do mean a more transient population. Do you see vacant businesses or homes that have been for sale for months?
5. See if you’ll make money. Ask a local REALTOR or call the local REALTOR association to get information about price appreciation trends in the neighborhood. Although past performance is no guarantee of future results, this information may give you a sense of how good an investment your home will be. A REALTOR or the government planning agency also may be able to tell you about planned developments or other changes in the neighborhood—like a new school or highway—that might affect value.
6. See for yourself. Once you’ve narrowed your focus to two or three neighborhoods, go there, and walk around. Are homes tidy and well maintained? Are streets quiet? Pick a warm day if you can and chat with people working or playing outside. Are they friendly? Are their children to play with your family?
Friday, August 24, 2007
8 Steps to Getting Your Finances in Order
1. Develop a family budget. Instead of budgeting what you’d like to spend, use receipts to create a budget for what you actually spent over the last six months. One advantage of this approach is that it factors in unexpected expenses, such as car repairs, illnesses, etc., as well as predictable costs such as rent.
2. Reduce your debt. Generally speaking, lenders look for a total debt load of no more than 36 percent of income. Since this figure includes your mortgage, which typically ranges between 25 percent and 28 percent of income, you need to get the rest of installment debt—car loans, student loans, revolving balances on credit cards—down to between 8 percent and 10 percent of your total income.
3. Get a handle on expenses. You probably know how much you spend on rent and utilities, but little expenses add up. Try writing down everything you spend for one month. You’ll probably see some great ways to save.
4. Increase your income. It may be necessary to take on a second, part-time job to get your income at a high-enough level to qualify for the home you want.
5. Save for a downpayment. Although it’s possible to get a mortgage with only 5 percent down—or even less in some cases—you can usually get a better rate and a lower overall cost if you put down more. Shoot for saving a 20 percent downpayment.
6. Create a house fund. Don’t just plan on saving whatever’s left toward a downpayment. Instead decide on a certain amount a month you want to save, then put it away as you pay your monthly bills.
7. Keep your job. While you don’t need to be in the same job forever to qualify, having a job for less than two years may mean you have to pay a higher interest rate.
8. Establish a good credit history. Get a credit card and make payments by the due date. Do the same for all your other bills. Pay off the entire balance promptly.
Budget Basics Work Sheet
The first step in getting yourself in financial shape to buy a home is to know what you make and what you spend now. List your income and expenses below.
Income
Take-Home Pay/All Family Members
Child Support/Alimony
Pension/Social Security
Disability/Other Insurance
Interest/Dividends
Other
Total Income
Expenses
Rent/Mortgage
Life Insurance
Health/Disability Insurance
Vehicle Insurance
Homeowners or Other Insurance
Other Loan Payments
Savings/Pension Contribution
Utilities
Credit Card Payments
Car Upkeep
Clothing
Personal Care Products
Groceries
Food Prepared Outside the Home
Medical/Dental/Prescriptions
Household Goods
Recreation/Entertainment
Child Care
Education
Charitable Donations
Miscellaneous
Total Expenses=
Remaining Income After Expenses=
Tuesday, August 21, 2007
7 Reasons to Own Your Own Home
1. Tax breaks. The U.S. Tax Code lets you deduct the interest you pay on your mortgage, property taxes you pay, and some of the costs involved in buying your home.
2. Gains. Between 1998 and 2002, national home prices increased at an average of 5.4 percent annually. And while there’s no guarantee of appreciation, a 2001 study by the NATIONAL ASSOCIATION OF REALTORS found that a typical homeowner has approximately $50,000 of unrealized gain in a home.
3. Equity. Money paid for rent is money that you’ll never see again, but mortgage payments let you build equity ownership interest in your home.
4. Savings. Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.
5. Predictability. Unlike rent, your mortgage payments don’t go up over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will rise.
6. Freedom. The home is yours. You can decorate any way you want and be able to benefit from your investment for as long as you own the home.
7. Stability. Remaining in one neighborhood for several years gives you a chance to participate in community activities, lets you and your family establish lasting friendships, and offers your children the benefit of educational continuity.
To calculate whether renting or buying is the best financial option for you, use this calculator courtesy of Ginnie Mae:
http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp?Section=YPTH
Monday, August 20, 2007
High Home Values Mean High Consumer Debt
Owners of rapidly appreciating homes feel wealthier and therefore are more likely to take on debt, according to research to be released today by the Federal Reserve.
The research paper by Donald L. Kohn, the second-highest ranking Fed official after Ben Bernanke, with assistance by Fed economist Karen E. Kynan, blames the rapid rise in housing prices for soaring consumer debt.
But the authors predict that the increase in debt isn’t likely to be repeated, unless home prices rise as rapidly as they have in the recent past and mortgages continue to be easy to get.
The authors note that the average household owes more money than it makes in annual income. In the early 1980s, the debt-to-income ratio was below 60 percent.
Source: The Wall Street Journal, David Leonhardt (08/20/2007)
Buy Retirement Home Now, Move in Later
With prices in many areas at a low ebb, it might make good financial sense for Baby Boomers to buy their retirement homes now, even if they're still years away from actually moving. They can find renters who will pay the bills until they're ready to live there.
Here’s some advice for people who are considering this strategy:
* Shop carefully. It's best to buy a home that can be rented for a rate that, after tax considerations, will cover the mortgage, real estate taxes, and insurance.
* Study up on housing trends. Ask the local or state planning department for demographic and economic data. The information can reveal facts that will influence whether or not to buy. For example, big companies going out of business or military base closings can be bad news.
* Don’t forget maintenance. Consider who’ll take care of the house in the owner’s absence. Property managers charge 6 percent to 15 percent of the monthly rent. Family members may be willing to do the job for free, but they could be ill equipped to do the job if the don't have any experience.
* Consider financing. Boomers with sufficient equity in their current homes can tap it to either buy their retirement home outright or secure a much lower mortgage rate compared with a loan at the rate often offered to buyers of investment property.
Friday, August 10, 2007
Maintaining Your Home to Retain Value
You've got the kitchen of your dreams and a master bedroom suite that would look right at home in a 5-star hotel. And your gorgeous new exterior paint job is the envy of the neighborhood. Your place looks so great that real estate agents are dropping off their cards telling you how much they could sell your place for, if you felt like putting it on the market.
Sell it now! Good grief no! Not after all the remodeling work. But... who knows? In five or six years when the kids are off to college and you and your mate get tired of mowing that big lawn and knocking around in a house built for five but inhabited by two, a downtown condo may look pretty inviting. Face it. At some point in the future, whether it's next year or in 20 years, you're going to want to sell your house. And with all the improvements you've made over the years, you should get a nice return on the sale, assuming you don't let your house fall apart.
Remodeling can be frustrating but it's also fun -- filled with anticipation and visible rewards at the end of the project. Maintenance is dull and routine, but you have to do it if you want to retain the value you've added to your home. For example: Hardwood floors need to be refinished every 5-10 years depending on wear and tear. If they get too worn down you can do permanent damage to the wood. Exteriors need to be repainted every 5-10 years too, depending on such factors as the weather where you live, or you can damage the exterior wood. Your roof and gutters need annual inspections. A clogged or damaged gutter and drain spout can flood your basement and cause serious damage.
And the list goes on. Like taxes and dental checkups, regular home maintenance isn't fun. But you must do it if you want to take care of what is likely your biggest single asset -- your home.
Annual checklist home maintenance checklist:
Kitchen: Check for leaks under and around the sink. Plumbing leaks can damage cabinetry and floors. Check and repair grout and caulking on tile countertops and around the sink. Also check wear and tear on wood floors, which periodically need to be refinished.
Bathrooms: Check for plumbing leaks and check grout on tiles. If the grout gets worn away water will start getting into the walls behind the bathroom, causing damage.
Basement: Check for cracks in the foundation and leaks. Buildings settle over time and even after decades of having a dry basement leaks may suddenly occur.
Attic: Check for signs of water leakage from the roof. Also look for any sign of termites or rodents. Squirrels or rats that nest in your attic can chew electrical wiring, which can lead to fires.
Smoke alarms: Batteries need to be changed annually.
Heating system: If yours has a filter, change it annually.
Air conditioning system: Change all filters monthly or as recommended by the filter manufacturer.
Roof: Note if any shingles have fallen off or if gutters or downspouts appear clogged or damaged. You can always hire a reliable roofing company to get on the roof and take a look. Reputable roofing companies won't try to sell you a new one unless you really need it. You can simply pay them for an inspection.
House exterior: If your house is wood, check that the paint hasn't worn away so much that the primer paint is showing. If the primer also wears down, you can do damage to the wood. Brick houses should be inspected for damaged bricks or masonry. Check stucco houses and repair any cracks large enough to slide a nickel into.
Asphalt and concrete driveways: Repair any cracks or buckling.
Sell it now! Good grief no! Not after all the remodeling work. But... who knows? In five or six years when the kids are off to college and you and your mate get tired of mowing that big lawn and knocking around in a house built for five but inhabited by two, a downtown condo may look pretty inviting. Face it. At some point in the future, whether it's next year or in 20 years, you're going to want to sell your house. And with all the improvements you've made over the years, you should get a nice return on the sale, assuming you don't let your house fall apart.
Remodeling can be frustrating but it's also fun -- filled with anticipation and visible rewards at the end of the project. Maintenance is dull and routine, but you have to do it if you want to retain the value you've added to your home. For example: Hardwood floors need to be refinished every 5-10 years depending on wear and tear. If they get too worn down you can do permanent damage to the wood. Exteriors need to be repainted every 5-10 years too, depending on such factors as the weather where you live, or you can damage the exterior wood. Your roof and gutters need annual inspections. A clogged or damaged gutter and drain spout can flood your basement and cause serious damage.
And the list goes on. Like taxes and dental checkups, regular home maintenance isn't fun. But you must do it if you want to take care of what is likely your biggest single asset -- your home.
Annual checklist home maintenance checklist:
Kitchen: Check for leaks under and around the sink. Plumbing leaks can damage cabinetry and floors. Check and repair grout and caulking on tile countertops and around the sink. Also check wear and tear on wood floors, which periodically need to be refinished.
Bathrooms: Check for plumbing leaks and check grout on tiles. If the grout gets worn away water will start getting into the walls behind the bathroom, causing damage.
Basement: Check for cracks in the foundation and leaks. Buildings settle over time and even after decades of having a dry basement leaks may suddenly occur.
Attic: Check for signs of water leakage from the roof. Also look for any sign of termites or rodents. Squirrels or rats that nest in your attic can chew electrical wiring, which can lead to fires.
Smoke alarms: Batteries need to be changed annually.
Heating system: If yours has a filter, change it annually.
Air conditioning system: Change all filters monthly or as recommended by the filter manufacturer.
Roof: Note if any shingles have fallen off or if gutters or downspouts appear clogged or damaged. You can always hire a reliable roofing company to get on the roof and take a look. Reputable roofing companies won't try to sell you a new one unless you really need it. You can simply pay them for an inspection.
House exterior: If your house is wood, check that the paint hasn't worn away so much that the primer paint is showing. If the primer also wears down, you can do damage to the wood. Brick houses should be inspected for damaged bricks or masonry. Check stucco houses and repair any cracks large enough to slide a nickel into.
Asphalt and concrete driveways: Repair any cracks or buckling.
Thursday, August 9, 2007
New-home sales shrink
Sales of new single-family homes slipped 6.6 percent in June to a seasonally adjusted annual rate of 834,000 units as homebuyer demand continued to weaken, according to figures released by the U.S. Commerce Department.
The June sales pace was 22.3 percent below a year earlier, and down 40 percent from the housing market peak in mid-2005.
“A significant increase in prime mortgage interest rates, along with the tightening of mortgage standards in subprime and other components of housing finance, clearly weighed on home buying in June,” said NAHB Chief Economist David Seiders. “Home builders continue to trim prices and offer large nonprice sales incentives, but many prospective home buyers obviously are reluctant to sign on the bottom line.
“We still expect to see signs of stabilization later this year, although downside risks appear to be mounting.”
The inventory of new homes for sale was 537,000 in June, equaling the May inventory figures, although the equivalent months’ supply at the June sales pace edged up to 7.8 months — up from 7.4 months in May.
Completed homes for sale were 33 percent of the inventory, while units still under construction represented almost 51 percent of the inventory and units for-sale that were permitted but not yet started represented 16 percent of the inventory level — no change from the month before. The median length of time that completed homes were on the market was 6.0 months in June, up from 5.7 months in May.
Regionally, new-home sales in June were up 7.6 percent in the South. However, sales were down by 27.1 percent in the Northeast, 17.1 percent in the Midwest and 22.5 percent in the West.
The June sales pace was 22.3 percent below a year earlier, and down 40 percent from the housing market peak in mid-2005.
“A significant increase in prime mortgage interest rates, along with the tightening of mortgage standards in subprime and other components of housing finance, clearly weighed on home buying in June,” said NAHB Chief Economist David Seiders. “Home builders continue to trim prices and offer large nonprice sales incentives, but many prospective home buyers obviously are reluctant to sign on the bottom line.
“We still expect to see signs of stabilization later this year, although downside risks appear to be mounting.”
The inventory of new homes for sale was 537,000 in June, equaling the May inventory figures, although the equivalent months’ supply at the June sales pace edged up to 7.8 months — up from 7.4 months in May.
Completed homes for sale were 33 percent of the inventory, while units still under construction represented almost 51 percent of the inventory and units for-sale that were permitted but not yet started represented 16 percent of the inventory level — no change from the month before. The median length of time that completed homes were on the market was 6.0 months in June, up from 5.7 months in May.
Regionally, new-home sales in June were up 7.6 percent in the South. However, sales were down by 27.1 percent in the Northeast, 17.1 percent in the Midwest and 22.5 percent in the West.
Wednesday, August 8, 2007
What Buyers Want: Top Home Preferences
More home buyers want extra garage space with two or more spaces in their homes, according to the “2007 Profile of Buyers’ Home Feature Preferences,” which was released Tuesday by the NATIONAL ASSOCIATION OF REALTORS®.
The number of buyers expressing a desire for oversized garages grew 16 percentage points since NAR's last survey of buyer preferences in 2004. About 57 percent of home buyers surveyed now say they want an oversized garage. What's more, among buyers who purchased homes without big garages, 56 percent said they would have paid more for an oversized garage, compared to only 6 percent in the 2004 survey.
NAR's latest home buyer preference survey, which reports responses from buyers who purchased homes in 2006, asks buyers about the importance of 75 home features and room types.
What They're Shopping For
Other priorities for today’s home buyers include:
Air conditioning: three out of every four respondents surveyed ranked this as “very important.”
Master bedroom walk-in closet: 53 percent of buyers rated this as an important feature in a home.
Hardwood floors and granite countertops: each gained 7 percentage points in popularity since the 2004 survey; 28 percent and 23 percent, respectively, of buyers labeled these home features as very important.
Cable/satellite TV-ready: 46 percent, a growth of 6 percentage points from the 2004 survey, said this was important.
Energy efficiency: especially among new-home buyers — 65 percent of new-home buyers said energy efficiency home features are very important compared to 39 percent for buyers of existing homes.
Buyers also said they're willing to pay more for these extras. For example, 65 percent of buyers said they would be willing to pay a median $1,880 extra for a home with central air conditioning. One out of four buyers also was willing to pay a median of $4,760 more for waterfront property.
Regional Preferences
What home buyers want in the South, however, is not always what buyers in the West want. The survey identified some of the following regional preferences in home features:
Home buyers in the South and Midwest viewed central air conditioning as a priority, with 91 percent and 81 percent, respectively, saying this feature was very important.
Sixty-six percent of buyers in the South thought a walk-in closet in the master bedroom was very important, while 61 percent of Midwesterners valued an oversized garage.
In the Northeast, the highest percentage of buyers placed a premium on a backyard or play area (53 percent), followed by central air conditioning at 41 percent.
Two-thirds of buyers in the West want oversize garages (66 percent), followed by central air conditioning at 59 percent.
Fixing up the Nest
According to the survey, nearly six out of 10 recent home buyers took on remodeling or home improvement projects within three months of their purchase. Close to half of home buyers who remodeled or made improvements updated their kitchen, and nearly half remodeled or improved their bathroom.
New-home owners spent a median of $4,350 on home improvement or remodeling projects undertaken within three months of purchase.
“The fact that a majority of home buyers quickly remodel key areas of their homes ties into the fact that their home is a good, long-term investment,” says Paul Bishop, NAR manager of real estate research. “Regardless of market conditions in the short term, when purchased for the long term, housing is one of the safest investments consumers can make.”
Indeed, more than half of home buyers said they believe their home has high investment potential, and another four out of 10 say it has moderate investment potential. Only 3 percent felt their home’s investment potential was low.
Generational Differences
Age was the biggest differentiation in what buyers were looking for in a home. Buyers 75 years old and older wanted a single-level home (74 percent) that was less than 10 years old (43 percent) with a walk-in closet in the master bedroom (74 percent).
On the other hand, most buyers between the ages of 25-34 wanted a backyard or play area (60 percent).
More than half of buyers over 65 wanted a separate shower enclosure in the master bathroom, compared to only one-fourth of buyers ages 25-34.
Also, older buyers placed a higher priority on energy efficiency home features than did younger buyers — 63 percent of buyers 75 and older said it was very important, but only 32 percent of buyers who were 18-24 agreed.
Home Growth
Overall, the survey also revealed that while homes are getting bigger, the number of bedrooms is shrinking. From 2004 to 2006, the size of the typical home purchased increased by about 100 square feet to 1,840 square feet, while the median number of bedrooms dropped from four to three during that same period.
The median age of the home reported in the current survey is 12 years, down from 15 years in 2004.
Real estate practitioners see hundreds, if not thousands, of houses with their buyer clients every year and know exactly what buyers are looking for in a home, says NAR President Pat V. Combs. “This insight is one more way REALTORS® add value to the real estate transaction,” Combs says.
The number of buyers expressing a desire for oversized garages grew 16 percentage points since NAR's last survey of buyer preferences in 2004. About 57 percent of home buyers surveyed now say they want an oversized garage. What's more, among buyers who purchased homes without big garages, 56 percent said they would have paid more for an oversized garage, compared to only 6 percent in the 2004 survey.
NAR's latest home buyer preference survey, which reports responses from buyers who purchased homes in 2006, asks buyers about the importance of 75 home features and room types.
What They're Shopping For
Other priorities for today’s home buyers include:
Air conditioning: three out of every four respondents surveyed ranked this as “very important.”
Master bedroom walk-in closet: 53 percent of buyers rated this as an important feature in a home.
Hardwood floors and granite countertops: each gained 7 percentage points in popularity since the 2004 survey; 28 percent and 23 percent, respectively, of buyers labeled these home features as very important.
Cable/satellite TV-ready: 46 percent, a growth of 6 percentage points from the 2004 survey, said this was important.
Energy efficiency: especially among new-home buyers — 65 percent of new-home buyers said energy efficiency home features are very important compared to 39 percent for buyers of existing homes.
Buyers also said they're willing to pay more for these extras. For example, 65 percent of buyers said they would be willing to pay a median $1,880 extra for a home with central air conditioning. One out of four buyers also was willing to pay a median of $4,760 more for waterfront property.
Regional Preferences
What home buyers want in the South, however, is not always what buyers in the West want. The survey identified some of the following regional preferences in home features:
Home buyers in the South and Midwest viewed central air conditioning as a priority, with 91 percent and 81 percent, respectively, saying this feature was very important.
Sixty-six percent of buyers in the South thought a walk-in closet in the master bedroom was very important, while 61 percent of Midwesterners valued an oversized garage.
In the Northeast, the highest percentage of buyers placed a premium on a backyard or play area (53 percent), followed by central air conditioning at 41 percent.
Two-thirds of buyers in the West want oversize garages (66 percent), followed by central air conditioning at 59 percent.
Fixing up the Nest
According to the survey, nearly six out of 10 recent home buyers took on remodeling or home improvement projects within three months of their purchase. Close to half of home buyers who remodeled or made improvements updated their kitchen, and nearly half remodeled or improved their bathroom.
New-home owners spent a median of $4,350 on home improvement or remodeling projects undertaken within three months of purchase.
“The fact that a majority of home buyers quickly remodel key areas of their homes ties into the fact that their home is a good, long-term investment,” says Paul Bishop, NAR manager of real estate research. “Regardless of market conditions in the short term, when purchased for the long term, housing is one of the safest investments consumers can make.”
Indeed, more than half of home buyers said they believe their home has high investment potential, and another four out of 10 say it has moderate investment potential. Only 3 percent felt their home’s investment potential was low.
Generational Differences
Age was the biggest differentiation in what buyers were looking for in a home. Buyers 75 years old and older wanted a single-level home (74 percent) that was less than 10 years old (43 percent) with a walk-in closet in the master bedroom (74 percent).
On the other hand, most buyers between the ages of 25-34 wanted a backyard or play area (60 percent).
More than half of buyers over 65 wanted a separate shower enclosure in the master bathroom, compared to only one-fourth of buyers ages 25-34.
Also, older buyers placed a higher priority on energy efficiency home features than did younger buyers — 63 percent of buyers 75 and older said it was very important, but only 32 percent of buyers who were 18-24 agreed.
Home Growth
Overall, the survey also revealed that while homes are getting bigger, the number of bedrooms is shrinking. From 2004 to 2006, the size of the typical home purchased increased by about 100 square feet to 1,840 square feet, while the median number of bedrooms dropped from four to three during that same period.
The median age of the home reported in the current survey is 12 years, down from 15 years in 2004.
Real estate practitioners see hundreds, if not thousands, of houses with their buyer clients every year and know exactly what buyers are looking for in a home, says NAR President Pat V. Combs. “This insight is one more way REALTORS® add value to the real estate transaction,” Combs says.
Tuesday, August 7, 2007
Smart home equity move
When tapping equity makes good sense
Paying for home improvements, credit card debt, emergencies ... if you have equity in your home, you're probably eligible to borrow against it by taking out either a home equity loan or a home equity line of credit (HELOC).
Here's when the move can be smart:
When rates are low, and you want make equity-boosting improvements to your home, borrowing against your equity can be a smart move since you'll be adding value to your home and will able to deduct the interest on the money you borrow to do so.
It also can pay if rates are low, and you have a lot of high-rate credit card debt that you want to pay off, assuming you're only using a small amount of home equity and don't plan to run-up your plastic again.
A HELOC can also augment your emergency fund -- especially if you've paid off most of your first mortgage and are about to retire. With a HELOC, you don't owe any money on it unless you draw against it.
Dopey home equity move
When tapping equity makes little sense
Paying for home improvements, credit card debt, emergencies ... if you have equity in your home, you're probably eligible to borrow against it by taking out either a home equity loan or a home equity line of credit (HELOC).
But doing so can sometimes mean you're shooting yourself in the foot.
Here's when the move can be dopey:
Borrowing against your equity means you put your house at risk of foreclosure if you can't pay back what you owe with interest. So don't do it if:
• You habitually run a high credit card balance or have a hard time meeting your monthly payments. If you're so stretched that you need home equity to pay for your daily life or vacations, you should downsize your lifestyle.
• There's not much difference between the interest rate you can get on your home loan and the rate on your credit card.
• You want to pay off low-rate debt like a federal student loan. Federal student loan rates are typically lower than those on home equity loans and HELOCs.
Paying for home improvements, credit card debt, emergencies ... if you have equity in your home, you're probably eligible to borrow against it by taking out either a home equity loan or a home equity line of credit (HELOC).
Here's when the move can be smart:
When rates are low, and you want make equity-boosting improvements to your home, borrowing against your equity can be a smart move since you'll be adding value to your home and will able to deduct the interest on the money you borrow to do so.
It also can pay if rates are low, and you have a lot of high-rate credit card debt that you want to pay off, assuming you're only using a small amount of home equity and don't plan to run-up your plastic again.
A HELOC can also augment your emergency fund -- especially if you've paid off most of your first mortgage and are about to retire. With a HELOC, you don't owe any money on it unless you draw against it.
Dopey home equity move
When tapping equity makes little sense
Paying for home improvements, credit card debt, emergencies ... if you have equity in your home, you're probably eligible to borrow against it by taking out either a home equity loan or a home equity line of credit (HELOC).
But doing so can sometimes mean you're shooting yourself in the foot.
Here's when the move can be dopey:
Borrowing against your equity means you put your house at risk of foreclosure if you can't pay back what you owe with interest. So don't do it if:
• You habitually run a high credit card balance or have a hard time meeting your monthly payments. If you're so stretched that you need home equity to pay for your daily life or vacations, you should downsize your lifestyle.
• There's not much difference between the interest rate you can get on your home loan and the rate on your credit card.
• You want to pay off low-rate debt like a federal student loan. Federal student loan rates are typically lower than those on home equity loans and HELOCs.
Sunday, August 5, 2007
Foreclosure filings skyrocket
Filings jump 58% in first half of the year and could surpass 2 million this year as the housing market weakens, according to a report.
July 31 2007: 10:38 AM EDT
NEW YORK (Reuters) -- U.S. home foreclosure filings rose 58 percent in the first six months of the year and could surpass 2 million this year as the housing market continues to deteriorate, a report said.
Foreclosure filings in the first half spiked from the same period last year to 925,986 as many overstretched borrowers have been caught between rising interest rates and falling home prices. The Federal Reserve has cited the faltering housing market as the biggest risk to economic growth.
The foreclosure filings were also up more than 30 percent from the previous six-month period, at a rate of one filing for every 134 U.S. households, said RealtyTrac, an online marketplace for foreclosure properties.
Most ruthless foreclosure states
Foreclosure filings include default notices, auction sales notices and bank repossessions and they were reported on a total of 573,397 properties.
"Despite a slight drop in June, foreclosure activity shows no sign of slowing down," James Saccacio, RealtyTrac chief executive officer, said in a statement Monday.
"If the current pace were to continue, foreclosure filings would surpass 2 million by the end of the year, which would represent a year-over-year increase of more than 65 percent," Saccacio said.
Mortgage brokers: The salesman factor
California had the highest number of foreclosure filings in the first half of 2007. Florida was second. Nevada posted the country's highest foreclosure rate, with one filing for every 40 households.
The foreclosure spikes in prosperous states with solid economies and job growth is a continuing departure from past delinquency patterns, that have followed mass job losses and plant closings in industrial states.
The problems in California and Nevada, as well as Florida, Arizona and other hot markets stem in large part from a speculative frenzy that sent home prices through the roof.
Homeowners bet they could buy a house and "flip" it quickly to make a profit. But when prices fell, they were stuck with properties they couldn't move.
When the housing market was hot, rising home prices also enabled strapped home owners to tap into their increased equity to keep pace with their debt obligations.
They could opt for a home equity loan or a home equity line of credit for quick cash, or refinance their home for a higher amount and receive cash back.
Many buyers didn't qualify for conventional fixed-rate loans and opted for mortgages with very low "teaser rates" that lasted only for the first two or three years of their loan. Interest rates reset, often to unaffordable levels, especially for credit-damaged consumers, the subprime borrowers.
When home prices fell, owners who had already taken out all the equity in their homes no longer had a ready source of extra money. Many fell behind on their mortgage payments and their lenders moved to collect.
Foreclosures started to spike and subprime lenders, in particular, began to experience many more delinquencies.
July 31 2007: 10:38 AM EDT
NEW YORK (Reuters) -- U.S. home foreclosure filings rose 58 percent in the first six months of the year and could surpass 2 million this year as the housing market continues to deteriorate, a report said.
Foreclosure filings in the first half spiked from the same period last year to 925,986 as many overstretched borrowers have been caught between rising interest rates and falling home prices. The Federal Reserve has cited the faltering housing market as the biggest risk to economic growth.
The foreclosure filings were also up more than 30 percent from the previous six-month period, at a rate of one filing for every 134 U.S. households, said RealtyTrac, an online marketplace for foreclosure properties.
Most ruthless foreclosure states
Foreclosure filings include default notices, auction sales notices and bank repossessions and they were reported on a total of 573,397 properties.
"Despite a slight drop in June, foreclosure activity shows no sign of slowing down," James Saccacio, RealtyTrac chief executive officer, said in a statement Monday.
"If the current pace were to continue, foreclosure filings would surpass 2 million by the end of the year, which would represent a year-over-year increase of more than 65 percent," Saccacio said.
Mortgage brokers: The salesman factor
California had the highest number of foreclosure filings in the first half of 2007. Florida was second. Nevada posted the country's highest foreclosure rate, with one filing for every 40 households.
The foreclosure spikes in prosperous states with solid economies and job growth is a continuing departure from past delinquency patterns, that have followed mass job losses and plant closings in industrial states.
The problems in California and Nevada, as well as Florida, Arizona and other hot markets stem in large part from a speculative frenzy that sent home prices through the roof.
Homeowners bet they could buy a house and "flip" it quickly to make a profit. But when prices fell, they were stuck with properties they couldn't move.
When the housing market was hot, rising home prices also enabled strapped home owners to tap into their increased equity to keep pace with their debt obligations.
They could opt for a home equity loan or a home equity line of credit for quick cash, or refinance their home for a higher amount and receive cash back.
Many buyers didn't qualify for conventional fixed-rate loans and opted for mortgages with very low "teaser rates" that lasted only for the first two or three years of their loan. Interest rates reset, often to unaffordable levels, especially for credit-damaged consumers, the subprime borrowers.
When home prices fell, owners who had already taken out all the equity in their homes no longer had a ready source of extra money. Many fell behind on their mortgage payments and their lenders moved to collect.
Foreclosures started to spike and subprime lenders, in particular, began to experience many more delinquencies.
Let there be light
Adding light
A wall of windows and skylights can open up a dark and gloomy living space. Here's a list of "dos" and "don'ts" for adding light.
Skylights
DO pick skylights that open. They're better at venting than windows are. Extra cost: $200 each, or $700 for mechanized ones.
DON'T scatter skylights randomly. To prevent leaks, keep them away from where two parts of the roof meet.
Big windows
DO install big fixed windows on the walls that face your best views.
DON'T neglect to add small windows that open above or below fixed glass.
Window height
DO put windows high on the wall for the best venting and light throughout the room.
DON'T forget that trickier installation hikes the cost of putting windows tight to the ceiling (by $400 each).
Window grouping
DO group several windows together; you'll save on construction costs and have a less obstructed view.
DON'T separate windows with fat supports that ruin your view and run you another $200 per opening.
Window shades
DO keep interior fabrics from fading by installing shades in windows facing east, west or south; built-ins are $100 and up.
DON'T use UV-inhibiting coating, especially near noncoated windows; it gives your glass a tinted or reflective look.
A wall of windows and skylights can open up a dark and gloomy living space. Here's a list of "dos" and "don'ts" for adding light.
Skylights
DO pick skylights that open. They're better at venting than windows are. Extra cost: $200 each, or $700 for mechanized ones.
DON'T scatter skylights randomly. To prevent leaks, keep them away from where two parts of the roof meet.
Big windows
DO install big fixed windows on the walls that face your best views.
DON'T neglect to add small windows that open above or below fixed glass.
Window height
DO put windows high on the wall for the best venting and light throughout the room.
DON'T forget that trickier installation hikes the cost of putting windows tight to the ceiling (by $400 each).
Window grouping
DO group several windows together; you'll save on construction costs and have a less obstructed view.
DON'T separate windows with fat supports that ruin your view and run you another $200 per opening.
Window shades
DO keep interior fabrics from fading by installing shades in windows facing east, west or south; built-ins are $100 and up.
DON'T use UV-inhibiting coating, especially near noncoated windows; it gives your glass a tinted or reflective look.
In an effort to entice buyers to pull the trigger and purchase new homes, builders in some parts of the country are offering “trade in” value for buyer’s old homes.
I’d call that innovative marketing. As with a used car trade in on a new car purchase, the vendor makes money in 3 ways:
1. On the buy of the used asset, usually far below market value, that they can then resell at a premium.
2. On the loan. Ever have a salesperson ask you, “what would you like your payment to be?”. Great. You’ll be paying for that car for the next 17 years.
3. On the sell of the new asset, at or below market value.
The wise buyer adds up these 3 parts of the overall transaction, and figures what is the net cost of the new car (or home) really going to be… and many buyers give up the opportunity to get a truly good deal by spending 90% of their energy haggling on the items price, when the vendor is making far more profit on the purchase of the used asset and the financing offered.
Nevertheless, avoiding the potential of having to carry 2 mortgages is too daunting for most buyers to bear. And much like a car, a home is something most of us can’t do without in an “interim” period that may happen between a sale and the purchase of the right home.
Although this may be just a better deal in the long run for the builder, it’s a very viable option for many buyers and I have a feeling it’ll provide a great opportunity for many buyers to make a move without the very real fear that they could risk a good credit rating by holding onto a home that just won’t sell. For builders, these homes still act as collateral for any financing they may have obtained, or need to obtain for future development, while they sit out the market slumps in some parts of the country.
My final verdict? The best buy of all might be taking these “used” homes off the builder’s hands… keep your eyes open for a brand new segment of resale Real Estate. Are you a builder? Please contact me to develop a marketing plan for your trade-ins…
I’d call that innovative marketing. As with a used car trade in on a new car purchase, the vendor makes money in 3 ways:
1. On the buy of the used asset, usually far below market value, that they can then resell at a premium.
2. On the loan. Ever have a salesperson ask you, “what would you like your payment to be?”. Great. You’ll be paying for that car for the next 17 years.
3. On the sell of the new asset, at or below market value.
The wise buyer adds up these 3 parts of the overall transaction, and figures what is the net cost of the new car (or home) really going to be… and many buyers give up the opportunity to get a truly good deal by spending 90% of their energy haggling on the items price, when the vendor is making far more profit on the purchase of the used asset and the financing offered.
Nevertheless, avoiding the potential of having to carry 2 mortgages is too daunting for most buyers to bear. And much like a car, a home is something most of us can’t do without in an “interim” period that may happen between a sale and the purchase of the right home.
Although this may be just a better deal in the long run for the builder, it’s a very viable option for many buyers and I have a feeling it’ll provide a great opportunity for many buyers to make a move without the very real fear that they could risk a good credit rating by holding onto a home that just won’t sell. For builders, these homes still act as collateral for any financing they may have obtained, or need to obtain for future development, while they sit out the market slumps in some parts of the country.
My final verdict? The best buy of all might be taking these “used” homes off the builder’s hands… keep your eyes open for a brand new segment of resale Real Estate. Are you a builder? Please contact me to develop a marketing plan for your trade-ins…
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