July is certainly good news, it came with predictions from economists that foreclosures will likely return to the market. Economists believe the drop in foreclosures was a result of a 'market leveling effect', which happen when supply and demand for a product draw closer to each other. If they are correct we may be seeing the first signs of real estate market recovery. When real estate prices began falling last year, no one could predict how drastic the effects of foreclosure would be on the real estate market. Distressed homeowners foreclosed on their homes and property values along with consumer confidence plummeted in historic rates.
In one form or another either through free market impacts or direct subsidies from the government paid by tax dollars, these bailout plans all asked the cautious to support the reckless. Many of the early bailout plans called for changing the terms of the mortgage note. This might have been easy in the days when banks held mortgages in their own portfolios, but it was much more difficult once these mortgages were bundled together in collateralized debt obligations and sold to parties all over the world. Even if it would have been possible to easily change the terms, the resulting turmoil in the secondary mortgage market would have caused higher mortgage interest rates.
There are two reasons a bank may accept a short sale: 1) the costs of foreclosure can cost a lender up to 18% of the loan amount, and 2) lenders do not want to carry properties on their books. Not all homes qualify for a short sale, says our personal financial expert Nathan Threebes. 'There must be evidence that home values have dropped in your area, the loan must be in or near default status, and the seller must show that financial hardship and a lack of assets prevent her from making up the difference,' Threebes says. There are two major consequences to conducting a short sale.
Thursday, July 2, 2009
Mortgage Companies
I will give you some clues about what to do, but before is good to understand what really is going on here?Real State Developers are now in turn, asking for a bailout. When homeowners attempt to work with a mortgage company or servicer on their own to put together a plan to pay back the arrears on the loan, many find that they are offered a bad to impossible deal by the lender. Too often, though, borrowers take anything they can get, even when they know they will not be able to afford the payments for longer than a month or two. There is a far better way to negotiate, however, which can result in a more reasonable modification or payment plan. If you 're already in foreclosure the timeline is crucial, the modification will stop the foreclosure and allow the lender to modify the delinquent account, bringing your account current, which is your goal!The timeline for a short sale is undetermined, due to the lender. After finding a perspective buyer for your home, the lender makes the decision on whether the short sale is a gain or a loss to them. IF there is a gain, the lender may entertain the option of a short sale. If you decide to rent the property back fro the repossession service, they will normally give you a rental quote on the spot too, as well as ask you how long you would like to rent the property back for. Statistics show that only 5% of government auctioned tax liens are not paid off in full.? This means that the investor's cash, or equity is safe throughout the entire foreclosure process.
Tax lien Investors
A stock broker must be knowledgeable to ensure that the investor has a good chance of making profits. On the other hand, a tax lien investor can easily create the deal and manage the performance of his investment. The entry costs are also quite low, which means that an investor can start with a small amount of $100.5.? Investments in tax foreclosures and tax liens can be managed across state borders without any hassle or risk. The local government does not worry about where the investor resides, as long as they comply with the regulations surrounding liens.6.
Sometimes the losses are sufficiently large that the short sale approval process may involve the management chain as well as the investor. And finally some Bank Workout Options:These service providers have more options than just short sales. Below are a list of the more common options and their relative meanings:Reinstatement--Catch-up on late payments and bring the loan current--can also be called a 'Cure. What happened is the owner borrowed a certain amount of money to purchase the home and then was unable for any number of reasons to continue the payments and basically were either forced or walked from the home and their loan. We are seeing too much of this in today's market and unfortunately, homeowners think this is an answer to the fact that they may have paid more for the home than the guy next door paid. Threebes. 'There must be evidence that home values have dropped in your area, the loan must be in or near default status, and the seller must show that financial hardship and a lack of assets prevent her from making up the difference,' Threebes says. There are two major consequences to conducting a short sale. First, according to the Mortgage Forgiveness Debt Relief Act of 2007, the IRS allows lenders to issue a 1099 form for the forgiven amount, which you must report as income.
Sometimes the losses are sufficiently large that the short sale approval process may involve the management chain as well as the investor. And finally some Bank Workout Options:These service providers have more options than just short sales. Below are a list of the more common options and their relative meanings:Reinstatement--Catch-up on late payments and bring the loan current--can also be called a 'Cure. What happened is the owner borrowed a certain amount of money to purchase the home and then was unable for any number of reasons to continue the payments and basically were either forced or walked from the home and their loan. We are seeing too much of this in today's market and unfortunately, homeowners think this is an answer to the fact that they may have paid more for the home than the guy next door paid. Threebes. 'There must be evidence that home values have dropped in your area, the loan must be in or near default status, and the seller must show that financial hardship and a lack of assets prevent her from making up the difference,' Threebes says. There are two major consequences to conducting a short sale. First, according to the Mortgage Forgiveness Debt Relief Act of 2007, the IRS allows lenders to issue a 1099 form for the forgiven amount, which you must report as income.
Tuesday, October 2, 2007
Foreclosures May be your Answer
Have you given thought to what high levels of foreclosures in your city this fall could mean to you personally? It’s a dream that many couples starting a family hold dear; raising that family in the traditional single family home with yard. There may be a way that dream can become reality far sooner than you imagined. There is a window of opportunity right now that has opened because others tried to join the ranks of homeowners and failed, some through imprudence, others through sheer bad luck and .bad timing. Here are a number of reasons why you can buy without fear of this happening to you and your family.
Inventories of unsold single family homes are at their highest level in 18 years according to the National Association of Realtors in late September. Home prices have fallen in many cities at the fastest rate in 16 years over this last 12 months, says another source. The level of unsold homes, going into the traditionally slower winter holiday season, together with the significant increase in foreclosure filings through out this year in many states, mean a would be buyer has a power of negotiation to buy really well not known for several years.
As foreclosures due to the double whammy of defaults on sub prime and ARM housing loans and declining prices have escalated, so we now have a credit crunch that means recent housing deals collapsed as previously approved financing fell through.
This is all a generality, based on national and state averages and medians, and as most realtors will tell you, the real estate market can be very local. Educate yourself now on the real estate market conditions in a range of communities that may suit your future plans. Most predictions are that the housing slump nationally is nearing the bottom of the cycle. Learn about housing cycles; learn about the trend of foreclosures in the particular city you are focussed on. You may soon be convinced that, since you plan to buy a “starter” home, just to see the early years of your family through, you will be staying put for at least 5 to 7 years. Long enough to see prices rise again. Then learn about the advantages of foreclosure homes and why now, and before next spring when there will be more buyer competition, could be the best time to buy a foreclosed home.
If you have the savings put aside for a minimum 10% deposit and more (remember that a foreclosure home likely needs some repairs before you move in), and a good to excellent credit record, then find out now what your preapproved loan value will be. Set your own purchase budget wisely and stick to it. Work with a local agent who knows the particular complexities of the foreclosures market. You will be astounded at what you can achieve.
Inventories of unsold single family homes are at their highest level in 18 years according to the National Association of Realtors in late September. Home prices have fallen in many cities at the fastest rate in 16 years over this last 12 months, says another source. The level of unsold homes, going into the traditionally slower winter holiday season, together with the significant increase in foreclosure filings through out this year in many states, mean a would be buyer has a power of negotiation to buy really well not known for several years.
As foreclosures due to the double whammy of defaults on sub prime and ARM housing loans and declining prices have escalated, so we now have a credit crunch that means recent housing deals collapsed as previously approved financing fell through.
This is all a generality, based on national and state averages and medians, and as most realtors will tell you, the real estate market can be very local. Educate yourself now on the real estate market conditions in a range of communities that may suit your future plans. Most predictions are that the housing slump nationally is nearing the bottom of the cycle. Learn about housing cycles; learn about the trend of foreclosures in the particular city you are focussed on. You may soon be convinced that, since you plan to buy a “starter” home, just to see the early years of your family through, you will be staying put for at least 5 to 7 years. Long enough to see prices rise again. Then learn about the advantages of foreclosure homes and why now, and before next spring when there will be more buyer competition, could be the best time to buy a foreclosed home.
If you have the savings put aside for a minimum 10% deposit and more (remember that a foreclosure home likely needs some repairs before you move in), and a good to excellent credit record, then find out now what your preapproved loan value will be. Set your own purchase budget wisely and stick to it. Work with a local agent who knows the particular complexities of the foreclosures market. You will be astounded at what you can achieve.
Friday, July 6, 2007
Understanding Loan Terms
When considering an investment property loan from an institutional lender, you need to consider many of the variables involved in the loan terms being offered.
Interest Rate
The cost of borrowing money, i.e., the interest rate, is one of the most important factors. Interest rates affect monthly payments, which in turn affects how much you can afford to pay for a property. It may also affect cash flow, which affects your decision to hold or sell property.
Loan Amortization
There are many different ways a loan can be structured as far as Simple interest and Amortized. A simple interest loan is calculated by multiplying the loan balance by the interest rate. So, for example, a $100,000 loan at 12% interest would be $1,000.00 per month. The payments here, of course, represent interest-only, so the principal amount of the loan does not change.
An amortized loan is slightly more involved. The actual mathematical formula is complex, so it requires a calculator (try mine, at www.legalwiz.com - click on “calculators” from the left navigation bar). The amortization method breaks down payments over a number of years, with the payment remaining constant each month. However, the interest is calculated on the remaining balance, so the amount of each monthly payment that accounts for principal and interest changes. For the most part, the more payments you make, the more you decrease the amount of principal (the amount of the loan still left to pay) owed.
Balloon Mortgage
A balloon is a premature end to a loan’s life. For example, a loan could call for interest-only payments for three years, then be due in full at the end of three years. Or, a loan could be amortized over 30 years, with the principal balance remaining due in five years. When the loan balloon payment becomes due, the borrower must pay the full amount or face foreclosure.
With interest rates uncertain in the future, many lenders are offering variable-rate financing. Known as an “ARM” loan (adjustable rate mortgage), there are dozens of variations to suit the lender’s profit motives and borrower’s needs. ARM loans have two limits (“caps”) on the rate increase. One cap regulates the limit on interest rate increases over the life of the loan; the other limits the amount the interest rate can be increased at a time. For example, if the initial rate is 6%, it may have a lifetime cap of 11% and a one-time cap of 2%. The adjustments are made monthly, every six months, once a year or every few years, depending upon the “index” the ARM loan is based. An index is an outside source that can be determined by formulas, such as:
“LIBOR” (London Interbank Offered Rate) – based on the interest rate at which international banks lend and borrow funds in the London Interbank market.
“COFI” (Cost of Funds Index) – based on the 11th District’s Federal Home Loan Bank of San Francisco. These loans often adjust on a monthly basis, which can make bookkeeping a real headache!
T-Bills Index – this is based on average rates the Federal government pays on U.S. treasury bills. Also known as the Treasury Constant Maturity or “TCM”, these are the rates banks are paying on six month CDs.
www.loganmooreteam.com
Interest Rate
The cost of borrowing money, i.e., the interest rate, is one of the most important factors. Interest rates affect monthly payments, which in turn affects how much you can afford to pay for a property. It may also affect cash flow, which affects your decision to hold or sell property.
Loan Amortization
There are many different ways a loan can be structured as far as Simple interest and Amortized. A simple interest loan is calculated by multiplying the loan balance by the interest rate. So, for example, a $100,000 loan at 12% interest would be $1,000.00 per month. The payments here, of course, represent interest-only, so the principal amount of the loan does not change.
An amortized loan is slightly more involved. The actual mathematical formula is complex, so it requires a calculator (try mine, at www.legalwiz.com - click on “calculators” from the left navigation bar). The amortization method breaks down payments over a number of years, with the payment remaining constant each month. However, the interest is calculated on the remaining balance, so the amount of each monthly payment that accounts for principal and interest changes. For the most part, the more payments you make, the more you decrease the amount of principal (the amount of the loan still left to pay) owed.
Balloon Mortgage
A balloon is a premature end to a loan’s life. For example, a loan could call for interest-only payments for three years, then be due in full at the end of three years. Or, a loan could be amortized over 30 years, with the principal balance remaining due in five years. When the loan balloon payment becomes due, the borrower must pay the full amount or face foreclosure.
With interest rates uncertain in the future, many lenders are offering variable-rate financing. Known as an “ARM” loan (adjustable rate mortgage), there are dozens of variations to suit the lender’s profit motives and borrower’s needs. ARM loans have two limits (“caps”) on the rate increase. One cap regulates the limit on interest rate increases over the life of the loan; the other limits the amount the interest rate can be increased at a time. For example, if the initial rate is 6%, it may have a lifetime cap of 11% and a one-time cap of 2%. The adjustments are made monthly, every six months, once a year or every few years, depending upon the “index” the ARM loan is based. An index is an outside source that can be determined by formulas, such as:
“LIBOR” (London Interbank Offered Rate) – based on the interest rate at which international banks lend and borrow funds in the London Interbank market.
“COFI” (Cost of Funds Index) – based on the 11th District’s Federal Home Loan Bank of San Francisco. These loans often adjust on a monthly basis, which can make bookkeeping a real headache!
T-Bills Index – this is based on average rates the Federal government pays on U.S. treasury bills. Also known as the Treasury Constant Maturity or “TCM”, these are the rates banks are paying on six month CDs.
www.loganmooreteam.com
Tuesday, July 3, 2007
Real Estate Market Stages
The stages of a real estate market are most often recognized only after the fact. Even when all the historical data confirms that a downturn is in progress, most speculators won't stop gambling. Real estate speculators call themselves investors because they believe they are taking calculated and controllable risks when purchasing homes.
In the mid to late 1990's real estate investing was virgin territory because it was easy to use formulas of 60% to 70% of Fair Market Value minus repair costs to determine an offering price for a seller. The "chant" was "Get as many properties under contract because they can only go higher!" In the earlier years, buying properties cheaply enough allowed them to be rented and they supported themselves while the investor simply collected checks. In only three years, a groundswell of speculation led to frenzied buying. Families looking for a home to live in got caught up in the buying panic because of the scarcity of homes for sale. The market quickly and efficiently climbed with the help of lending institutions who were offering low interest rates, 100% financing, with no proof of the buyer's income. Almost no other speculative opportunity in history caught on as fast because of real estate investors needing little or no money down and ease of loan qualification for "retail buyers".
Even when many of the potential borrowers had credit issues and minimal down payments, the lenders created more lenient loan requirements. The number of single family homes that were owned by investors rose from 2.5% in 1995 to almost 29% by the end of 2006. Effectively, these investors took away at least 26.5% of available single family homes with the intent of selling them at higher prices to retail home buyers.
Here is a summary of the stages of a real estate cycle:
Stage #1 – This is where supply closely equals demand and home prices fluctuate between +/- 3% per year and prices are basically stable over a five year period.
Stage #2 – Here demand out-strips supply, or a "sellers' market" develops because of fewer homes on the market. This can be created by investor speculation.
Stage #3 - Here demand far out-strips supply with resulting large annual price increases. Homes now offer new speculators more attractive yields than stocks and money market instruments. More so called "investors" begin buying multiple properties with expectations of selling for huge profits because of the low down payments required for mortgages or using creative financing. The market begins to feed on itself as homeowners begin to rush to take profits.
Stage #4 – As home prices become unaffordable, interest rates increase making financing costs too expensive for homeowners to purchase, and investors have inventory that can't be sold. Seemingly everyone tries to sell and the market readjusts to former market conditions by pulling back as much as 30% to 60% of peak values as the market begins to stabilize for 3 – 8 years.
Summary - Based on the current market conditions and continuing available data, the real estate market is well into Stage #4. There is no way to determine how long this swing will last but historically they have lasted for 6 to 15 years. This stage offers huge opportunities for real estate investors and homeowners alike that want to purchase homes either for living in for 5 years+ for homeowners, or for "flipping" for investors. Both homeowners and investors looking to buy a property need to be very selective about how much they pay for a property, the amount of costs to rehab it, how they will be financing it, how long they intend to stay in it, the carrying costs, other properties currently listed on the MLS®, and neighborhood conditions. Unfortunately, retail buyers who wait to get the lowest possible price often wind up paying higher mortgage rates which offsets the cost savings by waiting, especially when you include their cost to rent, and the interest tax-deduction that they lose by not owning. Investors will have to buy low and sell low, while the retail buyer has become "king of the mountain" in picking the best possible home for the lowest price.
http://www.loganmooreteam.com/
In the mid to late 1990's real estate investing was virgin territory because it was easy to use formulas of 60% to 70% of Fair Market Value minus repair costs to determine an offering price for a seller. The "chant" was "Get as many properties under contract because they can only go higher!" In the earlier years, buying properties cheaply enough allowed them to be rented and they supported themselves while the investor simply collected checks. In only three years, a groundswell of speculation led to frenzied buying. Families looking for a home to live in got caught up in the buying panic because of the scarcity of homes for sale. The market quickly and efficiently climbed with the help of lending institutions who were offering low interest rates, 100% financing, with no proof of the buyer's income. Almost no other speculative opportunity in history caught on as fast because of real estate investors needing little or no money down and ease of loan qualification for "retail buyers".
Even when many of the potential borrowers had credit issues and minimal down payments, the lenders created more lenient loan requirements. The number of single family homes that were owned by investors rose from 2.5% in 1995 to almost 29% by the end of 2006. Effectively, these investors took away at least 26.5% of available single family homes with the intent of selling them at higher prices to retail home buyers.
Here is a summary of the stages of a real estate cycle:
Stage #1 – This is where supply closely equals demand and home prices fluctuate between +/- 3% per year and prices are basically stable over a five year period.
Stage #2 – Here demand out-strips supply, or a "sellers' market" develops because of fewer homes on the market. This can be created by investor speculation.
Stage #3 - Here demand far out-strips supply with resulting large annual price increases. Homes now offer new speculators more attractive yields than stocks and money market instruments. More so called "investors" begin buying multiple properties with expectations of selling for huge profits because of the low down payments required for mortgages or using creative financing. The market begins to feed on itself as homeowners begin to rush to take profits.
Stage #4 – As home prices become unaffordable, interest rates increase making financing costs too expensive for homeowners to purchase, and investors have inventory that can't be sold. Seemingly everyone tries to sell and the market readjusts to former market conditions by pulling back as much as 30% to 60% of peak values as the market begins to stabilize for 3 – 8 years.
Summary - Based on the current market conditions and continuing available data, the real estate market is well into Stage #4. There is no way to determine how long this swing will last but historically they have lasted for 6 to 15 years. This stage offers huge opportunities for real estate investors and homeowners alike that want to purchase homes either for living in for 5 years+ for homeowners, or for "flipping" for investors. Both homeowners and investors looking to buy a property need to be very selective about how much they pay for a property, the amount of costs to rehab it, how they will be financing it, how long they intend to stay in it, the carrying costs, other properties currently listed on the MLS®, and neighborhood conditions. Unfortunately, retail buyers who wait to get the lowest possible price often wind up paying higher mortgage rates which offsets the cost savings by waiting, especially when you include their cost to rent, and the interest tax-deduction that they lose by not owning. Investors will have to buy low and sell low, while the retail buyer has become "king of the mountain" in picking the best possible home for the lowest price.
http://www.loganmooreteam.com/
Thursday, June 28, 2007
Buying a Home With Resale Value
Location – Local Community, Town or City
Before you can actually pick out a house, you need to choose what cities or communities you would like to live in. There are many factors you should pay attention to, not only for yourself, but because you intend to eventually sell the home to someone else. Carefully choosing your community is the first step in "location, location, location" and can help maximize your future potential resale value.
Economic Stability
When choosing a community for your purchase, it makes the most sense to buy in a city with a viable and stable economy. Five, ten, or even fifteen years from now – when you want to sell your home – you can have a reasonable expectation that your community will still be a desirable place to live.
In addition to residential neighborhoods, there should be a healthy mixture of commercial and business districts. These not only provide jobs to the local residents, but also add an income source that the city can use to upgrade and maintain roads and city services.
In fact, you should take a drive and see how well the community is maintained. You have probably heard of "pride of ownership" when referring to an individual home or an automobile. Look to live in a city that demonstrates community pride, as well.
Local Government Services
In addition to community pride, check on the services provided by local government. One
example would be the local library system. Are there several library branches? Do they stock a good selection of books, including recent best sellers?
You should also look into local crime statistics and see how the city compares to the national average and other local communities. Is the police force effective and responsive to community needs? Are fire stations located strategically around the community so that they also can respond quickly in an emergency?
Another area of inquiry is community services. Does the city sponsor youth sports and have well maintained athletic facilities and parks? Do they sponsor community events, such as an annual parade? Are there activities available for children, teenagers and senior citizens?
Your local agent, if they are a good one, will have amassed a wealth of information on these subjects of inquiry. It is also another reason to always use a local agent.
Schools
Even if you do not have school-age children and do not intend to have children, you must pay attention to the local school system. That is because when you sell the property, many of your potential buyers will have concerns of this nature.
You will want to know if the local schools are overcrowded. Take a drive around and see if there are auxiliary trailers outside the local schools. Call up the local school district and see if elementary aged children always attend the school closest to their home. If not, ask why. Are there enough schools to support the local population? If not, are there plans to build new schools? How will building new schools affect local property taxes?
You should also check to see how local students score on the standardized tests. You can ask your agent about these things, but you should also get the local phone numbers so you can ask yourself.
There are also school reports available for free on the Internet.
Property Taxes
Property taxes may be higher in one town than another nearby city. This can sometimes affect whether potential homebuyers view a community as a desirable place to live. Often, they will choose not to purchase in a community with higher taxes, though this decision is not always justified. Higher property taxes often mean newer and more modern schools, well-maintained roads, and bountiful community services.
In addition, you will often find that the "cost per square foot" of homes is lower in cities that have higher property taxes. This means you can buy a bigger house for less money. Since the mortgage payment may be lower, but the property taxes a bit higher, the monthly housing costs may be approximately the same in each city.
However, many agents and prospective buyers have a bias against a community with higher property taxes. If resale value is important to you, make property taxes a consideration when choosing the location of your new home.
www.loganmooreteam.com
Before you can actually pick out a house, you need to choose what cities or communities you would like to live in. There are many factors you should pay attention to, not only for yourself, but because you intend to eventually sell the home to someone else. Carefully choosing your community is the first step in "location, location, location" and can help maximize your future potential resale value.
Economic Stability
When choosing a community for your purchase, it makes the most sense to buy in a city with a viable and stable economy. Five, ten, or even fifteen years from now – when you want to sell your home – you can have a reasonable expectation that your community will still be a desirable place to live.
In addition to residential neighborhoods, there should be a healthy mixture of commercial and business districts. These not only provide jobs to the local residents, but also add an income source that the city can use to upgrade and maintain roads and city services.
In fact, you should take a drive and see how well the community is maintained. You have probably heard of "pride of ownership" when referring to an individual home or an automobile. Look to live in a city that demonstrates community pride, as well.
Local Government Services
In addition to community pride, check on the services provided by local government. One
example would be the local library system. Are there several library branches? Do they stock a good selection of books, including recent best sellers?
You should also look into local crime statistics and see how the city compares to the national average and other local communities. Is the police force effective and responsive to community needs? Are fire stations located strategically around the community so that they also can respond quickly in an emergency?
Another area of inquiry is community services. Does the city sponsor youth sports and have well maintained athletic facilities and parks? Do they sponsor community events, such as an annual parade? Are there activities available for children, teenagers and senior citizens?
Your local agent, if they are a good one, will have amassed a wealth of information on these subjects of inquiry. It is also another reason to always use a local agent.
Schools
Even if you do not have school-age children and do not intend to have children, you must pay attention to the local school system. That is because when you sell the property, many of your potential buyers will have concerns of this nature.
You will want to know if the local schools are overcrowded. Take a drive around and see if there are auxiliary trailers outside the local schools. Call up the local school district and see if elementary aged children always attend the school closest to their home. If not, ask why. Are there enough schools to support the local population? If not, are there plans to build new schools? How will building new schools affect local property taxes?
You should also check to see how local students score on the standardized tests. You can ask your agent about these things, but you should also get the local phone numbers so you can ask yourself.
There are also school reports available for free on the Internet.
Property Taxes
Property taxes may be higher in one town than another nearby city. This can sometimes affect whether potential homebuyers view a community as a desirable place to live. Often, they will choose not to purchase in a community with higher taxes, though this decision is not always justified. Higher property taxes often mean newer and more modern schools, well-maintained roads, and bountiful community services.
In addition, you will often find that the "cost per square foot" of homes is lower in cities that have higher property taxes. This means you can buy a bigger house for less money. Since the mortgage payment may be lower, but the property taxes a bit higher, the monthly housing costs may be approximately the same in each city.
However, many agents and prospective buyers have a bias against a community with higher property taxes. If resale value is important to you, make property taxes a consideration when choosing the location of your new home.
www.loganmooreteam.com
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