Archive for March, 2007
Reverse Mortgages… Not As Evil As You Think
March 22nd, 2007 Columbus Buyer Info, Columbus Seller Info, The Good No Comments
There’s a growing trend of within the 62 year-and-up community of getting a reverse mortgage on their homes, allowing for various cash needs.
At one point in time, these were pretty shady loans, and nightmare stories of seniors being bled dry of equity and being evicted from their homes still circulate. Add to that the long-held belief of ‘30–year fixed loan, pay it in full and leave the house for the kids,’ and this idea was quite unpopular in the past. In the late 1980’s HUD (the Department of Housing and Urban Development) got involved and set up guidelines and policies. In 1991 there were 389 reverse mortgage loans; in 2006 76,351 loans were completed.
Here’s the short and skinny on this type of loan:
Borrowers must be 62 years old, and the home must be the primary residence.
This loan can be used to refinance an existing home, or to buy a new home.
The money you get can be a lump sum, fixed monthly payments, or a line of credit that can be used for future borrowing (this amount will increase over time when its not used). You can change the method of receiving the money as you go along.
The amount of money you can receive is based on your age, the interest rate, the appraised value of the home, and the loan limit in your county for FHA loans. What is NOT used to determine the loan amount is: your credit score, your assets, or your debts.
Closing costs are a bit higher, and the interest rate is a bit higher than the ‘best’ rate in town.
There is an insurance program built in where the eventual payoff will NEVER be more than the appraised or sale value of the home.
The loan is repaid when you sell or no longer occupy your home. The payoff amount is the amount borrowed, plus the interest that has accrued. Once the sale is complete any leftover equity goes to the homeowner (or heirs, if there has been a death).
Here’s an example: In Central Ohio with a $125,000.00 home, if you were 62 years old you could get a $65,400 lump sum or $365.00 a month. For the same home if you were 70 years old, it’s a $73,000.00 lump sum or $443.00 a month. And if you were 80 years old, you could get an $85,000.00 lump sum or $612.00 a month.
This is with no ‘new’ mortgage payment. There is no timeline involved…live there as long as you need, with no banker coming to knock on your door. (Actually, the limit is 150 years old, and I’m waiting to see someone make it.)
Theoretically, in the above example, if you were 62 years old and took the $365.00 a month option, and lived 40 years to be 102, the amount without interest you’d be paid would come to $175,200.00- on a $125,000.00 home.
Let’s also assume that 40 years later, the neighborhood has just been so-so, so property values haven’t gone up very much…. and the appraised value in 40 years is $150,000.00. The amount owed is obviously higher than the value of the property.
This is where the insurance program kicks in. Your heirs simply have to pay back the appraised or sale value.
On the other hand, let’s say your property has increased to a value of $300,000.00. Your heirs would pay off the amount loaned to you plus interest, and would then receive the difference.
Reasons people would consider this type of loan:
Increased monthly cash flow
Make improvements to home to live there longer
Health and medical bills
Home health care to continue independent living
Cashing out equity to help adult children with down payment on a home
Move into a new home without a mortgage payment
Cash out equity to buy a second home
For more information, consult with a loan office experienced in reverse mortgages. In the Columbus area, contact Sondra for the name of a Reverse Mortgage Consultant.
Watching the Sub-Prime Loan Avalanche Slide Down The Hill….
March 20th, 2007 Bank-Owned/Short Sale Homes, Columbus Buyer Info, The Ugly 3 Comments
It’s not much of a surprise, really…. except for the media, who’s ‘discovered’ a juicy new topic to obsess on. And for the politicians, who definitely knew about it but can now create succinct sound-bites to further their campaign.
Hot News Flash for those who were asleep at the switch- there’s been too many loans made to people who can’t repay them. Mortgage defaults are on the rise. Banks are losing money- as is Wall Street, who gladly invested in these banks when the money was flowing. And Mother of all Mothers- there’s actually been crooks and thieves taking advantage of the system.
The avalanche is currently only about mid-way and gathering steam. There’s been over 24 mortgage companies that have gone bankrupt since the start of 2006. New Century Financial Corporation, the 2nd largest US lender to subprime applicants, has stopped making new loans. Countrywide Mortgage shares have fallen and they have cut 108 subprime jobs in their wholesale lending department. Increasing interest rates on Adjustable Rate mortgages are going to tip some borrowers over the edge. Predatory lending tactics on credit risky uninformed buyers has increased. Last of all, the problem of buyers’ extremely suspect transactions are causing state and federal eyebrows to raise.
Expect much more to come…. public and political outcry, legislative investigations, ‘in-depth’ news reports, etc. etc. etc.
Is this the ‘end of the world as we know it?’ Not exactly. When the snow has settled and the final damage assessed, there will be a few good (and not so good) changes:
1. Those with golden credit are going to be even more golden. Bankers and investors love a safe bet, and those buyers with a good credit history are going to be in hot demand. Use common sense, keep your bills paid and up to date, and the offers to lend you money are going to pour in… with a good chance of enticing incentives to tempt your wallet.
2. Those with bad credit are going to find it harder to get a home loan. Interest rates will be higher, qualifications tougher, and the 100% financing with no money down will be a lot harder to come by… if it exists at all.
3. FHA loans will become more popular. With a minimum 3% down payment, and the (still available) possibility of having the seller assist you with this money, there will be a resurgence of this type of financing.
4. The increase in bank-owned homes will be here for a while. If you live in a neighborhood with many bank-owned homes on the market, your property’s value is definitely going to suffer. Eventually, this trend will shake itself out…
5. People will cry, banks will fold, government will wring their hands (and ask for your vote), crooks will go to jail….. and Life will go on. The majority of folks will not have this impact their lives at all.
To prevent being an avalanche casualty, save your money wisely, pay your bills on time….. and do all those common-sense things your Mother told you to do all along.
I’m Proud To Be A Simpleton Realtor….
March 18th, 2007 Columbus Buyer Info, Columbus Seller Info, It's My Opinion, The Good 2 Comments
Of course, the definition of ’simpleton’ is all important.
A frequent society definition is ‘brainless, not knowing, dim-witted.’
I choose a ’simpler’ definition- To be simple, uncomplicated, clear, full of clarity. To be able to take a complicated situation and make it easily understood by all.
That should be the goal. To direct, guide and clarify the twists and turns of the real estate maze so buyers and sellers understand the process, the challenges, and the option that lead to the right choices.
In all the busyness of everyday Life, there’s a strong need to Simplify. Ask anyone- we ALL have enough stress in our lives….and very few are craving for more. Buying and selling a home are near the top of the ‘List of Most Stressful Life Events.’ One of the ways I can be a great asset to a buyer/seller is to get rid of the real estate stress.
This is something a simpleton can excel at. It’s ’simple,’ really-
1. Communicate- About everything, no matter how mundane or trivial. It’s the little things that needle and eat at clients and add to their stress.
2. Ask if their needs/questions/concerns can be taken care of… often people are hesitant to bring up worries.
3. Respond promptly- especially with phone calls and requests for information. There’s nothing worse than feeling neglected or forgotten.
4. Be there when you say you’ll be there. Better yet, be there a few minutes early.
5. Apologize if you make a mistake, and make up for it.
6. Take those messy, complicated subjects and distill them down into a 2-3 sentence summary. The shorter and simpler, the better.
I practice my simpleton skills everyday, and I’m a better Realtor (and person) for it.
The Bitter Battle of Buying A Bank-Owned Home
March 14th, 2007 Bank-Owned/Short Sale Homes, Columbus Buyer Info, Investment Property, The Ugly 3 Comments
Tops on the list of getting a property that is a real ‘bargain’ is to buy a bank-owned home that’s below market value, fix it up and earn instant equity.
The actual process of doing this is not for the faint-hearted….. here’s a very recent experience of a couple I’m working with and what they discovered.
“Bank-owned” means exactly that- the bank (who gave the original mortgage) now has ownership of the home because the original homeowners defaulted on the loan…. as in they did not make payments, so the bank had to take the home back. This is a long and tedious process… often a property has been sitting empty for a year or so. The previous homeowners have either left or been evicted, the bank has sludged through their process (sometimes trying to sell it at a sheriff’s sale, etc.), has listed it with a realtor (often specializing in listing this type of property), and is waiting for an offer.
Logic would say that the bank is anxious to get this property off their books, but logic is definitely not part of this process. Banks are slow and difficult to work with. I often tell my clients to think of a guy (or woman), sitting at a desk far away (usually in another state), with a HUGE stack of paperwork for this and other homes and no personal knowledge of the property. This person has to justify their job- and the way to do that is keep moving the paperwork.
There is usually no regard for contract timelines- even if you give them several days to respond.
They are going to counter and quibble over the most inane details… things that would normally be a given.
And most importantly, there is no accountability or motivation to get that property SOLD.
My clients found a property in pretty good condition (many of these homes are in nasty condition…. I’ve seen homes with holes in the walls, feces on the floor, missing the furnace, toilets… it can be shocking) and made an offer. It took THREE weeks negotiating back and forth- most of that time waiting for the bank to respond back to us.
By the time we got in contract (and had to wait 5 more days for the bank to get us their signature), my clients had signed 5 times that the sale of the property was AS-IS (it was stated 3 times on 1 counteroffer- talk about overkill!), we had 5 days to do inspections, and my clients had to pay $250.00 up front out of their pocket to have the property de-winterized so the water could be turned on. (”What?!” you say. It was one of those ‘it-is-what-it-is’ situations…. if you want the house, that was one of the terms. The bank ALSO wanted my client to put the utilities in her name and be responsible to get the water turned on… this we refused- which was a good thing in the end….).
The day of the inspection, our first challenge was an inch of water on the basement floor. The sump pump motor had quit working properly. The inspector got it operating and the water quickly drained. The basement was unfinished, and the water had not risen high enough to affect the furnace, so things seemed OK. The inspection went well…. until the inspector turned on the water main.
Within minutes water was pouring through the kitchen ceiling. After a few minutes of panic, it was determined that the plumbing within the walls from the shower had a serious problem. Water also poured down the exterior wall into the basement.
My clients decided to terminate the contract, and gave notice. It’s now 1 1/2 weeks later, and we’re still waiting for the Release from the bank to return the earnest money deposit to my buyers. After spending $250.00 for the de-winterization, and $370.00 for inspections, we are back to square one in the home search…..
(Note: for MORE battles to buy a bank-owned home, click on this later post….)
