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Think Twice Before Walking Away on an Underwater Home

Foreclosure Auction
Creative Commons License photo credit: The-Lane-Team

REALTOR® magazine reports that Fannie Mae is going after homeowners who choose “strategic defaults”.  A strategic default is one in which the homeowner is able to pay but decides not to.  Usually this is due to them being “underwater” (the value of the home dropped below the amount of the mortgage).  In some cases the owner decides to just walk away and let the bank have it back.

Homeowners who choose such a move will be ineligible for a Fannie Mae backed loan for the following 7 years.  The fact that Fannie Mae backs about 75% of the loans originated means that you could be blocked from buying if you walk away from your home just because its value dropped.

Furthermore, in states they are allowed, Fannie Mae is going to seek deficiency judgments against homeowners who walk away.  I read a recent blog about a REALTOR’s® client who did a strategic default and ended up having to rent a house in the same neighborhood for more than their house payment was in the beginning.

If you are one of the thousands of people underwater in your home, think twice before you decide to walk away.  It may not be as simple a decision as you believe.

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Loans for Fixer-Upper Homes – 203(k)

Fixer-Upper house As you know, there are a lot of foreclosed homes on the market right now.  You may be like me and want to get in on this buyer’s market.  But you face the problem of how can you get a loan AND have money to fix the place up.

Banks will only lend money on the value of the house “as-is” .  But if you are like me, you wouldn’t live in the “as-is” version of most of these bank-owned houses on the market.  And if you have to get FHA backing on your loan they will do an inspection and give a list of repairs that will have to be made before you can buy the house.  But the bank that owns the house won’t make any repairs.   By now you may be wondering how you can still get a good deal and still be able to make it our dream home.

There is an FHA loan program that could be your solution.  It’s called the 203(k).  This loan will give you the money to both buy the home and fix it up–all in one package.

The 203(k) loan is based on the value of the home after repairs are completed.  So part of the process is to line up a contractor who will submit a detailed proposal of the work to be completed and the cost of the project.  An appraiser then  looks at the house and the contractor’s proposal and determines whether the work will bring up the value to meet the program’s guidelines.

There are a select few real estate agents and lenders willing to work with these loans.  Many agents and lenders shy away from working with 203(k) loans because they require a lot of work.  But for those agents and lenders willing to work hard for their clients it is a great benefit for everyone.

If you want to consider looking for a good deal on a fixer-upper house, consider working with an agent experienced in rehab properties and the 203(k) loan process.

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Is Now the Time to Buy?

sold sign
Creative Commons License photo credit: TheTruthAbout…

I believe that buying a house is a good plan for almost everyone.  I’m a REALTOR®.  If I didn’t believe in my product I’d be a hypocrite.  But you need to ask yourself, “Is now the time for me to buy?”  Here are some things to consider.

Does buying a house fit into my financial and life plans?

If one of your life goals is to travel overseas or get more education then consider whether the cost and responsibilities of home ownership fit into those plans.  Will you be able to keep your budget in balance while maintaining a home?  Will you be able to sell your home quickly if you encounter an opportunity you want to grab?

What can I comfortably afford?

This question is the one you should ask yourself.  Many people ask, “How much can I borrow?”.  Whenever I’ve applied for a loan they usually were willing to loan me more than I could comfortably afford.  It’s better to have less house and extra money for emergencies.

What kind of down payment will I need?

FHA is presently lending 96.5% of the value of a home if you have a credit score of over 620.  For conventional loans banks are looking for a down payment of 20%.  In general, the more you have to put down the stronger position you have in purchasing.  And the ability of a buyer to close the deal is something sellers are starting to consider when accepting an offer.  Often a seller will take a lower price from a buyer with solid financing in place.

If you decide that your time is now, find a REALTOR® who will listen to you and help you find the best value in a home.  As the saying goes, “It’s always a good time to buy real estate.”

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The Story of the Hot Dog Vendor

Hot Dog Heaven in Henderson, Nevada photo credit: Pocheco

This story has been around since the recession of the 1980s.  If you were old enough back then you will remember that people thought they were lucky to get a mortgage rate of 17%.  This story is a good reminder that we can choose not to participate in this recession.

The Hot Dog Vendor

“On the side of a road lived a man who sold hot dogs. He was an uncommon man. This man was hard of hearing and so he could not to listen to his radio. He also had difficulty with his vision so he could not read the newspaper or for that matter watch TV. But he did know how to sell….hot dogs….great hot dogs.

He set up signs about his great hot dogs and pitched them by the highway. He also stood by the side of the road and announced and asked people, ‘Hey Mister…Ms., do you want to buy great hot dogs?’

The beauty is that crowds formed just to buy from this man. So, he had to increase the meat and bun order to take care of the loads of people. Imagine he had to buy a bigger hot dog stand. Business was certainly booming.

His son even came home from college to help him out with his business. It was at this point that his son said, ‘Dad, haven’t you heard we’re in a bad economic recession. The job market is horrid, and our country is in really dire straits.’ The father was surprised but thought….’Geez, my son has been to university, and he listens to the radio, reads newspaper, and watches TV. The kid should know. ‘

So, the father then decides to cut down his meat and bun order. He traded his big hot dog stand for a smaller one, and proceeded to reduce his advertisement on the highway. Instantly sales dropped like lead. Reflecting on this situation, he turns to his son and says, ‘You’re right son. We’re definitely in the middle of a big recession.’”

In the last few months I’ve become much more careful about what I put in my head.  “You become like what you focus your eyes upon.”– Bill Johnson, pastor.  Another great quote:

If you think you can or if you think you can’t, you are right.

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