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

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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.

If you’re like me, you’re sick of hearing the phrase, “Think outside the box.” I’ve been outside the box for so long now, I can’t even see the dang box anymore!

I have had some success this year by utilizing some unorthodox means to get my real estate deals in Oceana County closed, however. The most prominent, by far, is not even original, just a resurgence of an old practice from the ’80’s. That’s right, the infamous LAND CONTRACT.

I have two pending sales right now that I wouldn’t have had I not been able to educate both buyer and seller as to the benefits of a land contract (or a purchase money mortgage, but that’s a whole ‘nother blog in and of itself).

In one of these deals, I represented the buyer, and the seller was not offering LC as one of the terms. My buyer had a three year old foreclosure, was working on repairing some credit divots, and financing wasn’t looking likely. My home buyer needed a home, though, so I got flexible. I took the time to prepare a package that would excite the seller, and convince him to entertain a land contract. This is the step that I think a lot of people are missing.

The package contained a credit report, a letter of explanation regarding the failings of the credit report, income verification (including length of employment), proof of funds for the down payment, our offer, and our earnest money deposit. Working with the seller’s agent, we presented the package, and the seller accepted our offer.

Now, I have had many calls from agents who will call on one of my listings and just ask, “Will the seller take a land contract?” In most cases, the answer would simply be, “No.” (Unless, of course, the seller and I had already agreed to that in the original listing contract.)

I have taken to getting in the practice of asking the agent to prepare a package like I described above. I then present the whole package to the seller, and have been pleasantly surprised when a few of them changed their stance and accepted a land contract offer.

I’m not suggesting that land contracts are the answer to everything. Obviously there are issues that come into play that must be addressed, such as “due-on-sale” clauses which are in most every mortgage agreement. The seller may also need the funds to move onto their next home. So no, LC’s are not for every situation.

I do firmly believe, however, that if you’re not educating your buyers and sellers on the possibilities of a land contracts and purchase money mortgages, you’re missing out on business, and I don’t know anyone in Michigan that can afford to do that these days.

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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.

Bank OwnedFirst time home buyer activity is on the rise in Oceana County. A significant reason for this is the number of bank owned properties currently for sale in the Hart, Shelby, New Era, and Pentwater areas. Bank owned properties, often referred to as foreclosures, are often sold well below market value, and create unique opportunities for first time home buyers.

I recently had the pleasure of writing an accepted offer for a young engaged couple from Hart, MI. They are getting married this summer, and wanted to start looking for a home now. They have decent credit, but relatively low income, and the majority of what they could afford consisted of manufactured housing, which they hoped to avoid if at all possible.

I sent them to one of my preferred lenders, and had them prequalified. Prequalification is vital when attempting to purchase a bank owned home. Once the lender had them preapproved and through underwriting, and we had established a monthly payment that was affordable and comfortable for them, I began my search in earnest.

I was looking for a home that would meet their needs, and their budget of about $60,000. I ran searches daily, as I knew that when the right one came up, it wouldn’t last wrong. I searched for about three weeks, in which time we looked at a handful of bank owned properties. The majority of these properties were going to require too much work to make them livable, so I continued to search.

Last week, I found a listing that was just unbelievable. It was a bank owned property in New Era, listed for $60,000. I was familiar with the home, and the location was perfect for what my buyers were looking for. I made a phone call, and told my clients that we needed to act fast, and see the home that night.

My buyers rearranged their schedules, and we went to see the home. The curb appeal was great. The home was less than ten years old, and was in great shape. The yard was just over an acre, and even had privacy fence built along the neighbor’s property line. This was a three bedroom home with a two car attached garage, and 1300 square feet of clean, well kept living space.

Coldwell Banker Sold SignMy buyers were instantly excited, and quite frankly, so was I. This was exactly what we had been praying to find, and we immediately submitted a full price offer. Since I already had them preapproved and through underwriting, our offer was solid and attractive. As it turned out, there was another offer made the same day, so we submitted an addendum offering to bump our price by $1100.

Earlier this week, I found out that that little bump sealed the deal. Our offer was accepted, and this previously bank owned home will soon be owned by two wonderful people. When they return from their honeymoon, they’ll be coming home to a home that they own. They also qualify for $6110 in federal tax credit from the 2009 Federal First Time Home Buyer Tax Credit Program. I couldn’t be happier for them.

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“March Housing Construction Drops 10.8 Percent”

By now you’ve probably seen headlines like this one. It’s dramatic, it sounds like the world is ending for real estate, and it is just the kind of dramatic overstatement that makes me gag when I read the news. But have you actually READ the article? I’ve linked it to the headline.

Believe it or not, there’s actually a lot of good news in there. The article explains that the percentage is based largely on the fact that multi-family home starts (apartments) are down, but in fact, single family home starts have stabilized. Here are two excerpts from the article which belie the headline:

“The much larger single-family sector actually stabilized in March at an annual rate of 358,000 units, the same level as February when single-family starts managed a small 0.6 percent rise.”

“The bad news is that home construction is still in the tank. The good news is that single-family activity may finally be stabilizing,” – Joel Naroff, an economist at Naroff Economic Advisers

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So why the mixed message? No, wait, scratch that. Why the completely misleading, borderline outright lie of a headline? The answer is simple: bad news sells.

The media has adopted an attitude that no one wants good news. I am a fan of Fox News, which is where this article comes from. However, they are often just as prone to adopting this attitude as anyone else.

As a Realtor, I find it encouraging that apartment starts are down. This means that people are buying homes, and are less interested in renting. With low interest rates and low prices, the consumer is realizing that renting is not their only option.

Now, more than ever, it is extremely important that we perform as real estate educators, and not just salespersons. We have to counter this type of negativity, and make people aware that the sky is truly not falling.

Somebody get on the phone and tell Chicken Little he can come out, we’re going to be OK. All we need is a healthy dose of reality. We’ve seen an increase in home sales in West Michigan real estate, and I’m doing my part to make sure the word gets out. You can help by reblogging and linking this blog to everyone you know.

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