Archive for the 'Mortgage Info' Category
The Cost of Waiting
April 7th, 2010 categories: Economic Recovery, FSBO's, For Buyers, For Homeowners, For Sellers, Housing Market, Mortgage Info, Taxes
This article was written by and provided courtesy of Michael Wallace, a Mortgage Banker from Chicago Bancorp.
First-time home buyers and move-up buyers must be under contract by April 30th in order to receive their respective $8000 and $6500 tax credits. A lot of people are taking advantage of this and it has stirred up a lot of activity, particularly in the first-time buyer category. Prices have dropped over the last few years, rates are at historic lows and the government wants to give buyers a big check. It’s a perfect scenario for buyers right? But there are still some people out there sitting on the fence and wondering if buying in the current economy and real estate market is a good idea. I’ve crunched the numbers on what I consider to be 6 likely scenarios.
The Cost of Waiting
Let’s look a pretty typical first-time buyer scenario. $250,000 condo purchase using the popular 3.5% down payment FHA 30 year fixed mortgage at 5.125%. The monthly mortgage payment would be $1314 per month, the down payment would be $8750 and Uncle Sam would be sending a check for $8000. Let’s also assume that the buyer remains in the home for 5 years.
What if #1 - 1 year from now real estate prices remain the same and mortgage rates remain the same
Cost of waiting = $8,000…no check from Uncle Sam.
What if #2 - 1 year from now real estate prices remain the same but mortgage rates are 1% higher
Cost of waiting = $17,120. The mortgage payment would be $1466 per month. Over 5 years this is an additional $9120 in payments and the $8000 check is missing.
What if #3 - 1 year from now real estate prices are 5% lower and mortgage rates are the same
Cost of waiting = $3603. The mortgage payment would be $1248. Over 5 years this saves $3960 in payments. The down payment is $438 less. But the missing $8000 still makes the cost of waiting an expensive decision.
What if #4 - 1 year from now real estate prices are 5% lower and mortgage rates are 1% higher
Cost of waiting = $12,302. Even with a smaller loan amount, the increase in rate would increase the monthly mortgage to $1393. Over 5 years this adds up to $4740 more in payments. The down payment would be reduced, but only by $438. Add in the loss of the $8000 and again the cost of waiting is not good.
What if #5 - 1 year from now real estate prices are 5% higher and mortgage rates are the same
Cost of waiting = $12,338. The loan amount would be larger resulting in a monthly payment of $1379. Over 5 years this adds to $3900 more in payments. The down payment is $438 higher and the $8000 is not in the picture.
What if #6 – 1 year from now real estate prices are 5% higher and mortgage rates are 1% higher
Cost of waiting = $21,938. The higher loan amount and higher interest rate result in a monthly payment of $1539. Over 5 years this adds up to $13,500 more in payments. Add the missing $8000 and the $438 more in down payment and this becomes quite costly.
Written by Michael Wallace 03/27/2010
Contact Michael Wallace
(312)738-6051
michaelw@chicagobancorp.com
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Home Equity Numbers Not As Sobering As Thought
February 16th, 2010 categories: Chicago Info/News, Economic Recovery, For Homeowners, Housing Market, Mortgage Info
Late last year, data company First American CoreLogic released a report saying that one in every four homeowners were underwater on their mortgage loans in the third quarter of 2009. These homeowners owed more on their mortgage loans than what their homes were worth.
It was a sobering statistic, especially considering how important home equity is to the wealth of most U.S. homeowners. You’d think from news like this that the total value of U.S. homeowners’ home equity would have plummeted during the recession and housing slump.
Surprisingly, though, you’d be wrong.
Syndicated real estate columnist Ken Harney recently reported on the fact that the net equity of U.S. homeowners actually grew from the first quarter of 2009 through the third quarter of that same year. It grew, in fact, by nearly $1 trillion during this period. Harney also reports that it grew by $418 billion from June 30 of 2009 through Sept. 30 of the same year.
These numbers pale in comparison to the way home equity grew during the boom years of the housing industry. But Harney points out that the most recent data suggest something positive: Prior to this report, the net equity of U.S. homeowners fell for three straight years. Perhaps the rising numbers, even if they aren’t rising as quickly as some would like, are more proof that the worst of the U.S. housing slump is over.
As far as I’m concerned, the numbers are positive. And these aren’t the only positive ones I’ve seen lately suggesting that the housing market, both locally and nationally, is finally on a rebound. Home sales continued to rise during the second half of 2009, both in Chicago and across the United States. At the same time, Crain’s Chicago Business recently wrote that even downtown Chicago condo sales rose in the fourth quarter of 2009, and that market had suffered greatly during the housing slump.
I’m not suggesting that the country’s housing market has recovered fully. But I do believe that numbers such as those showing that home equity has risen are a good sign that not only has the recovery begun, but that it’s picking up steam.
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Even Super Bowl QBs Struggling In Today’s Condo Market
February 4th, 2010 categories: Chicago Info/News, Chicago Real Estate News, Economic Recovery, For Homeowners, For Sellers, Housing Market, Mortgage Info, Real Estate News
I don’t think Rex Grossman will have too many fond memories of Chicago. True, the former Chicago Bears’ starting quarterback led Chicago to the Super Bowl following the 2006 season. But he lost that game. He eventually lost his starting job, too. He was eventually “kicked” out of Chicago – Bears fans had long since turned on the quarterback – and is now a backup quarterback for the Houston Texans.
Now comes the news that Grossman, like so many other Chicagoans, has had to sell his city condominium at a loss. And not just any loss: According to the Chicago Sun-Times, Grossman sold his condo in River North’s Trump International Hotel & Tower for a whopping $700,000 loss.
The Sun-Times reported that Grossman sold his condo for $2 million last week. The paper also reports that he purchased it for $2.68 million in September of 2008. Grossman originally put the unit up for sale at $2.89 million before reducing his asking price to $2.3 million and eventually selling for $2 million.
Grossman’s tale is a good lesson for the owners of Chicago condominiums: Although the market has picked up considerably since 1/1/2010, unless one has lots of equity or absolutely has to sell, now might not be the best time to put your unit on the market. According to a story in the Chicago Tribune, condo prices in Chicago are now at early 2004 levels.
The Tribune cites data from Standard & Poor’s/Case-Shiller that shows that prices fell 8.5 percent for Chicago condominiums in the 12 months that ended in October.
Many condo owners have no choice but to sell now. Their employers may be transferring them to a new city. Maybe they’ve found a better job on their own in a new location. Or maybe they’re going off to graduate school across the country. Whatever the reason, these folks can’t wait out the market.
Their best bet is to do everything they can to set their condo units apart from their competition. These owners should work closely with their REALTORS® to set up a marketing plan. This may include steps as simple as giving their condo’s interiors a fresh coat of paint or something as advanced as hiring a professional stager to show off their unit in its best possible light.
In today’s Chicago condominium market, sellers need every advantage they can get.
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Struggling to Refinance? Consider the Government
January 29th, 2010 categories: Economic Recovery, For Homeowners, Mortgage Info
Mortgage interest rates are still at historic lows. But many Chicago homeowners haven’t been able to refinance to take advantage of them because the values of their city condominiums or single-family homes have fallen.
Most mortgage lenders or banks require homeowners to have at least 20 percent equity in their homes to qualify for a refinance. But the city of Chicago’s median sales price dropped to $215,000 in November of last year, according to the Illinois Association of REALTORS®. That’s down 3.4 percent compared to the $222,500 median price in November of 2008.
Those homeowners who purchased city condos or single-family homes in 2005 or in the first half of 2006 have more than likely seen their residences’ values fall even more significantly. These buyers were purchasing while the real estate boom was raging, meaning that they were more likely to pay far more for their condos or single-family homes.
What can homeowners do if the value of their Ravenswood two-flat or Lakeview condo has fallen so much that they don’t have any equity in their residences? What if they are underwater on their mortgages, owing more on their homes than what they are worth? This is hardly an unusual situation today. The latest data from First American CoreLogic shows that one in every four homeowners across the nation is underwater.
These homeowners’ best bet might be to contact their mortgage lender or bank and ask if they are offering refinances as part of the federal government’s Home Affordable Modification Program. Under this program, designed to provide some financial relief to struggling homeowners, mortgage lenders can refinance the mortgage loans of homeowners who owe on their first mortgage loans as much as 125 percent of their home’s value. This means that the owners of a $200,000 home could owe as much as $250,000 on their first mortgage and still qualify for a refinance.
Of course, you’ll have to meet certain requirements to qualify for a Home Affordable Modification Program loan. Your home’s loan must be owned or guaranteed by Freddie Mac or Fannie Mae, and you must be current on your mortgage payments.
The vast majority of mortgage lenders are participating in the federal program. But even if your lender isn’t, you should still call. Lenders can opt to refinance your loan at their own discretion, even if you are underwater.
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Underwater? Is It Ethical To Walk Away From Your Mortgage?
January 4th, 2010 categories: Economic Recovery, For Homeowners, Foreclosures, Housing Market, Mortgage Info, Real Estate News
Sometimes I’m amazed at what I read in the newspapers. In late November, the Los Angeles Times reported on a white paper written by a law professor at the University of Arizona – Brent T. White. This professor actually argued that homeowners who owe more on their mortgage loans than what their homes are worth should walk away from their loans.
White wrote that not only is such a move in the financial best interest of these homeowners, but that owners who do this are not acting immorally.
White writes that mortgage lenders and banks deserve a large share of the blame for the high housing foreclosure numbers across the country. These lenders were lax, he said, approving borrowers for too much money and passing out mortgage loans to consumers who were not financially fit to take on any mortgage loan. This helped cause the housing crisis, White argues, and led to plummeting home values across the country.
Not surprisingly, the Los Angeles Times story also quotes mortgage-industry officials who argue that walking away from a mortgage is an immoral act.
Personally, I find White’s message to be disturbing. Homeowners have a responsibility to do everything they can to pay their mortgage bills, even if they owe more on their loans than what their homes are worth. And, yes, lenders did approve some questionable mortgage loans during the heights of the housing boom. But no one forced homeowners to take out any of these loans. Don’t homeowners bear responsibility for their own actions, too?
Here’s what happens when homeowners simply walk away from their mortgage loans and abandon a house: They help drag down housing values in the rest of their former neighborhood. Sellers struggle to sell their homes for a good price when foreclosed properties are often offered for so little just two or three doors down. Foreclosed properties can also become neighborhood eyesores.
Besides, just because a home is worth less than what its owners owe today, that doesn’t mean the situation won’t change in a year or two. Home prices have traditionally risen over the long haul. Owners who hang onto their properties for seven or 10 years or longer will typically see their housing values increase. The odds are good that they’ll still see a good price should they sell after keeping their property for a long enough time.
What White is suggesting is morally offensive, no matter how he couches his argument. Homeowners have a responsibility to pay off their mortgage loans. If they are struggling to make their payments because of a hardship – the loss of a job or a serious illness, for example – they should call their mortgage lenders. The lender might be able to work out a loan modification designed to help homeowners stay away from foreclosure.
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