Archive for the 'Mortgages' Category

Torched House Trend: Arson Added to Mortgage Meltdown?

January 30th, 2008 categories: Home Ownership, Mortgages

Arson is nothing new in Detroit. It’s a time-honored weapon of the angry, vengeful, distressed and dispossessed in a city that gets hurt harder and sooner than others, making it a perfect place to spot early evidence of stress from the real-estate meltdown.

The Detroit Fire Department can’t draw a definitive link between its rising arson rate (151 arrest warrants in 2007), rising foreclosures (up more than 65% last year) and falling housing prices (the region’s median house price dropped 17.3% in the past four years, to $145,173).

But Capt. Steve Varnas of the department’s arson section says he sees a connection: In 2005, the city issued only 80 arrest warrants for arson — about half the number last year. “Things were going great,” Varnas says. “There were fewer desperate people in 2004 and 2005.”

Across the U.S., homeowners are searching for ways to escape from mortgages they can’t pay — or don’t want to. A few are turning to arson, but it’s too soon to turn anecdotes into meaningful statistics. Consumer pressure and state laws require speedy settlements, which means insurance companies are quick to pay up and slower to complete complex arson investigations. Definitive answers will come later.

But the signs of trouble are there if you’re looking for them:

• The FBI reportsthat arson grew 4% in suburbs and 2.2% in cities from 2005 to 2006. The 2007 numbers aren’t out yet.

• In California, a state hit particularly hard by foreclosures, insurance companies must tell the state within 60 days if they suspect a fire is “questionable.” Last year, more than 120 reports were filed, and in 14 foreclosure was named a possible factor. The previous year, just 70 reports were filed, with seven citing foreclosure, says the state insurance commissioner’s office. (Not all reports become arson cases.)

• Arrest warrants for arson in Detroit rose 89% between 2005 and 2007. “We are up to our eyeballs in arsons,” says Varnas, of the Detroit Fire Department. “We’re not only dealing with hardened criminals. We’re dealing with desperate people.” Full Story

Spoken by Don Edam | Discussion: 1 Comment »

Which is Right for You? Buying vs. Renting

January 28th, 2008 categories: Finances, Home Buying, Investments, Mortgages

No one knows what the future holds for you, your family, your job or your finances. But Bankrate.com can help you understand what you’re going to encounter when you embark on the sometimes-difficult journey toward the American Dream of owning a home.

When you get that urge to buy a house, the first thing to do is step back and ask whether it makes more sense to keep renting for a while. If you still want to buy, you need to figure out how much house you can afford. Here’s what they have to say…

Economic differences between renting and owning
If you’re looking for the best return on your money, historically you’re better off investing in the stock market than buying a house. Primary homes generally don’t earn the investment return of financial instruments such as mutual funds. While the stock market’s long-term average rate of return is in the range of 8 percent to 10 percent, housing historically has appreciated on average in the low- to mid-single digits. Don’t buy solely for investment gain.

On the other hand, Uncle Sam helps out by letting taxpayers deduct part of the mortgage interest and real estate taxes each year. Borrowers get the benefit only if they pay enough in one year to exceed the standard deduction. But that usually happens, especially during the first few years of a mortgage when most of each payment goes toward interest rather than principal.

Sunny side of homeownership
Owners enjoy other benefits, too. They build equity over time as home values rise and their mortgage balances shrink. They also don’t have to worry about their housing costs shooting through the roof because lenders can’t boost borrowers’ rates and payments, unless those borrowers have adjustable-rate mortgages.

Cloudy side of homeownership
When something breaks at an apartment, it’s the landlord’s problem. When it’s your name on the deed, the problem is yours. If you throw every penny into a down payment, you’re taking a big risk because you may not have enough money left to fix leaky pipes or buy a new air conditioner.

Potential buyers might want to hold off for other reasons. If there’s a good chance that you will be laid off soon, you might want to wait. The same goes for people who plan to leave a job soon. The monthly payment isn’t the only obstacle for this kind of customer. Closing costs and other home-buying fees, as well as the commission that most owners end up paying to real estate agents when they sell their homes, add up. People who have to sell after living in one place for only a short time can end up in the hole on their investments.

Explore all the options
Some middle-ground approaches to homeownership blend elements of buying and renting. Some of the more popular loan types are seller financing, “lease with an option to buy” and “contract for a deed” plans

Seller financing
With seller financing, the seller actually assists the buyer in purchasing the home, by “lending” the buyer either a portion of the amount to be financed or the entire amount.

Let’s say the buyer and seller agree on a price of $150,000 for the house. In many cases a lending institution would require a 20-percent down payment — $30,000 — and give the buyer a mortgage for $120,000. But if the buyer has only $15,000 cash, the seller could “take back” a second mortgage for the $15,000 the buyer is short. The buyer makes payments on the first loan to the bank and the second loan to the seller.

Another example of seller financing: If the sale price of the home is $150,000 and the buyer has only $15,000 for a down payment, the buyer gives the $15,000 down payment directly to the seller who agrees to carry the entire mortgage amount of $135,000. The buyer would make all payments directly to the seller.

Pro: Seller financing reduces the cash needed to get into a home and could dramatically reduce closing costs. Often the seller will be more flexible in accepting an underqualified buyer.
Con: The seller determines the interest rate for that portion of the mortgage being carried, and it usually comes with a higher rate and a shorter term. Perhaps most importantly, it very often comes with a balloon payment. This means that monthly payments would be computed as though the mortgage was to continue for, say, 30 years, but at the end of five or 10 years the entire remaining balance has to be paid in one lump sum. That normally requires refinancing at that point, when rates could either be lower, higher or about the same, or selling the house to meet that balloon payment. Story

Spoken by Don Edam | Discussion: No Comments »

Offbeat Options for First-Time Homebuying

January 25th, 2008 categories: Finances, Home Buying, Investments, Mortgages

So you want to buy a place of your own but can’t figure out how to pull together the necessary cash and financing? If you’re willing to think creatively, MSNMoney offers us seven offbeat options for buying your first home:

1. The Fixer Upgrade - When you can’t afford what you want, look for what you can afford and use it as a stepping stone.
2. The Shared Load - If buying your own property is prohibitive, consider buying into a dwelling with shared ownership. There are several options here, with varying levels of complexity and commitment. One of the most common uses a legal form of ownership called “tenants in common.”
3. The Friendly Option - If you don’t want the legal hassle of setting up a TIC, it’s possible to buy a property with a friend you trust, sharing the mortgage and the title. This form of ownership is called joint tenancy, and it’s the way most married couples hold property.
4. The Instant Neighborhood - Cohousing has its origins in Europe and is practically like buying a neighborhood along with your house. Residents own one of a group of small homes clustered together and share ownership of the land.
5. The Parental Plan - Saving enough for a down payment usually requires some kind of a sacrifice, so don’t rule out living with family.
6. The No-Money-Down Hail Mary - It can be tough to save enough cash for a down payment, but in certain circumstances you can finance your way around it.
7. The Susu Super-Saver - This simple saving strategy goes by different names in different communities, but the method is the same. Members of a “susu” contribute a fixed amount each week or month for a certain period (e.g. $200 a month for 10 months). At regular intervals, one member gets a specified payout in cash.

Read the full story for examples, pros, and cons of each of these offbeat options

Spoken by Don Edam | Discussion: No Comments »

More Mortgage Basics for Homebuyers

January 24th, 2008 categories: Finances, Home Buying, Home Ownership, Investments, Mortgages

Adjustable or floating rate, 15-year or 30? How much mortgage can you afford? These are just a few of the many questions home buyers will find information on in Yahoo! Real Estate’s How-to Guide of Mortgage Basics.

So before you start mining for the perfect mortgage, make sure you have an understanding of the options available to you and check out their report. Some highlights include the following:

• The first step in acquiring a home mortgage is to gather the information you’ll need to include in a mortgage application.
• Review your credit report by ordering a copy from the credit bureaus used by local mortgage lenders.
• Prequalifying for a mortgage lets you know how much you can afford and makes you a more attractive buyer.
• Conventional mortgages limit housing costs to 28 percent of gross income and total debt payments to 36 percent of gross income.
• Mortgage terms are usually 15 or 30 years. The longer the term, the lower your monthly payment, but the higher your overall interest costs.
• Thirty-year loans often permit additional principal payments. One additional monthly payment per year will reduce a 30-year loan to 22 years.
• Interest rates are fixed or variable over the term of the loan. Variable rates may be best for buyers who plan to sell within three years.
• Generally speaking, one point is worth 1/8 of 1 percent off the loan rate.
• A balloon payment is a lump sum payable at the end of a specified term.
• Points and interest on mortgages or home equity debt are usually tax deductible.

Spoken by Don Edam | Discussion: No Comments »

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