I just read a great article by nationally recognized financial guru Dave Ramsey. In the article, appropriately titled, “Don’t Foreclose on Your Future,” Dave gives three sound reasons why walking away from your mortgage just isn’t a good idea. The three reasons are:

Reality #1 – Your home is an investment, and any investment—even real estate—will go up and down in value. Walking away from your mortgage now is the equivalent of selling your stock portfolio at the bottom of the market. You guarantee yourself a loss if you don’t stick with your investment until values come back up.

Reality #2 – Home values will recover. If our homeowner sticks it out and stays in his home, he’ll be back to even in five years, based on a conservative 5% rate of appreciation. In less than 20 years, his home will have doubled in value. That is wisdom!

Reality #3 – The bank is not letting you off that easily. Lenders are covered up with foreclosures, so while homeowners who walk may not hear from the bank right away, they are by no means off the hook. Some banks will pull credit reports to see who is current on their other payments to determine if a default is “strategic.” Banks will go to court to garnish wages or hijack tax refunds—whatever it takes to get what they’re owed.

You can view the whole article on Dave’s website. Dave Ramsey is a bestselling author and radio host. I have been a huge fan of his Financial Peace University program, and strongly recommend it to everyone.

There are alternatives to foreclosure. A loan modification or short sale could be possible options for you. Your local real estate professional can help you with these options. Don’t be afraid to contact your lender, either. By staying in touch with your lender, you’ll find many more options available to you.

Don’t just walk away, though. As Dave points out in Reality #3, banks can, and eventually will come after the money they lost.

Don't walk away and let your home go into foreclosure

New RESPA regulations now require additional “cooling off” periods when the HUD Settlement Statement is changed. While the intent of the changes is to protect the consumer, the changes are causing delays in the time it takes to move a home sale from the time the offer is accepted until the time the closing of escrow occurs.

The majority of the burden of these new changes falls into the laps of Mortgage Companies and banks. Starting at the time of loan application, the mortgagee (bank) provides the buyer with a Good Faith Estimate. From the time the buyer receives the GFE, the buyer has ten days to review the GFE and decide whether or not to move forward. OK, great idea, no problem.

If the costs in the settlement statement change, for any reason, the borrower must be informed in writing, and there will then be an additional “cooling off” period. If the written changes are presented face-to-face between the borrower and the buyer, then the waiting period is THREE days. If the presentation of changes is done by fax, email, mail, etc, then the wait is SEVEN days. This is for every time something changes on the HUD.

So how is this different? Lenders have always advised the borrower of when there were changes. The borrower would look at the changes, decide whether to accept them or not, and move forward. Now, because of these new RESPA changes, the borrower must wait the 3-7 day cooling off period.

To me, it’s as if the government is telling the buyer, “You’re not capable of making a mature decision about your finances, so we’re making you take a few days to think about it.” Imagine if you changed the HUD three times through the course of a transaction. The inspection costs came in higher, the seller agreed to pay more money in seller concessions,  and a second appraisal is required. You are now looking at postponing the closing by 9-21 days, plus the time it takes to do the appraisal, and/or inspection repairs.

Closings are already taking 45-60 days on average. It used to be 30 or less.

You can learn more about RESPA at the US Department of Housing and Urban Development website http://www.hud.gov

From the HUD website:

“RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD.”

“…designed to help homebuyers be better shoppers…”

Laws to help homebuyers be better shoppers. This is the part that just rubs me raw. Essentially the government is saying that the average consumer isn’t smart enough to make an educated decision, so they’re going to pass  laws to do it for you. Protecting the consumer is a noble idea, but I question if perhaps this time it’s gone a bit overboard.

Decide for yourself. Like it or not, it’s in effect, for better or for worse. Just be advised that it may take a bit longer to close your home purchase.

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After staying fairly consistent around 4.75% through late April and most of May, mortgage rates began a climb last week. Today they are a full percentage point higher than they were this time last month. This is not entirely unexpected, since noone believed we could maintain historic low interest rates forever.

So how does this affect the average home buyer?

Let’s assume you are borrowing $100,000, at a fixed rate, for 30 years.

If your rate were 4.75%, your monthly payment (principal & interest only) would be $521.65.

If your rate were 5.75%, your monthly payment (principal & interest only) would be $583.57.

With an interest rate difference of just 1%, you would pay an additional $61.92 per month.I don’t know about you, but I could use an extra 60 bucks a month. It might buy me a tank or two of gas at today’s prices.

But let’s look at the bigger picture: How much interest you will pay over the course of the 30 years.

At 4.75%, you will pay $87,794 in interest on your loan after 30 years. At 5.75%, you will pay $110,085 in interest. That’s a difference of $22,291!

I’m writing this with the hope of visually demonstrating to you how critical it is that you buy a home at the lowest interest rate possible. I know many people are holding out on buying a home, waiting for the best time to get the best deal. If interest rates continue to climb, you may have already missed the peak opportunity.

If you wait, and interest rates climb another percentage point to 6.75%, you stand to pay an additional $23,411 more in interest than if you bought today at 5.75%.

In addition to still being able to get a good interest rate, the first time home buyer tax credit is only available for 5 more months. Combine the $8000 from the tax credit with what you would save in interest, and you are looking at over $31,000 in savings. Do you have $31,000 to waste?

I’m not even going to start in on how low the home prices are today. I think you can see already that now is truly a great time to buy. If you would like more information on the benefits of buying a home today, please visit my website and contact me today for a personalize home buying plan that fits your individual needs.

MichiganThe Michigan State Housing Development Authority (MSHDA) is considering expanding a down-payment assistance program that, when combined with the 2009 $8000 Federal Tax Credit, would provide more than $15,000 in help for first-time home buyers.

The MSHDA program offers down payment assistance up to $7500. Currently, however, your household income must be below $55,000 to be eligible. I’ve sold many homes with this program in Grand Rapids, but was often unable to help families with incomes that exceeded the limit.

This may be about to change, however. If MSHDA’s new plan is approved, MSHDA would raise its limits on the household income for buyers eligible for the $7,500 loan from the current level of $55,000 to more than $100,000. This would open the door to a lot more potential homeowners.

MSHDA Loans are commonly referred to as a “piggy-back” type loan. “Piggy-back” loans are not stand alone mortgage products, but instead can be used in conjunction with other loans. When paired with another mortgage plan, like an FHA loan, for example, buyers can get enhanced benefits in their mortgage choices.

Combining the Federal First Time Homeowner’s Tax Credit of up to $8000 with MSHDA’s $7500 plan means that homeowners could get more than $15,000 in savings on a new home. The state loans can be used for homes worth up to $224,500.

The MSHDA Loan is different from the $8000 Federal Tax Credit in several ways. It is not a credit, but rather an interest free loan. The loans do not have to be paid back until the home is sold or the mortgage refinanced or paid in full. There are no monthly payments on the loan. Unlike the $8000 Federal Tax Credit, you can use the money at closing, rather than waiting until you file your tax return. The MSHDA loan can be used for closing costs, expenses such as setting up escrow accounts, or down payments.

HomeIf you’ve been thinking about buying a home, but don’t think you can afford the down payment, think again. There are loan programs out there, but you have to know about them. Contact your lender for more information about MSHDA/FHA, MSHDA/RD, and other MSHDA combo loans.

Prices are the lowest we’ve seen in years, and interest rates are at historic lows. 8 out of 10 economists predict that home prices will rise within the next five years. What more reason do you need to consider buying a home today? Contact me or your local real estate professional to find out how you can fulfill your dream of home ownership.

You can get more information about the $8000 Federal Tax Credit here.

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