Lately, a lot of press has talked about Adjustable Rate Mortgages (ARMs). Many in the finance industry have hailed these as as major reason for the collapse of the mortgage industry, and ultimately the economy. But is an ARM always a bad choice? Are there "good" ARMs and "bad" ARMS? Let's explore.
In a traditional mortgage, your interest rate is fixed at a certain percentage (right now probably in the 5s is a good estimate) for the life of the loan. That means for 30 years (perhaps 15) you are going to pay at a rate of 5% on the outstanding balance.
In an ARM, your rate is fixed for a period of time, and then after that period it is allowed to adjust. In the case of the "bad" ARMs they adjusted after a relatively short period, and had no caps. Additionally, lenders would qualify individuals based on the "teaser rate" (the low introductory rate), and have no thought as to the borrowers ability to pay should the rates rise. And rise they did...
Ok, that's the ARMs that were likely not good for many folks. However, there is an ARM out there that can be GREAT for a lot of folks. It is a Government Insured FHA 5/1 Loan. If rates on a fixed mortgage are at 5% right now, then let's say on the FHA ARM they are 3.75%. This means that for the first 5 years of your loan your interest rate is only 3.75%. Then after that the interest rate can only rise by 1%/year and only 5% over the life of the loan. So you'd be in year 7 before you'd even START paying at a higher rate than the fixed loan, not to mention the first 7 years were less expensive! AND THAT'S WORST CASE! There is a good chance it could stay well below that 5% for a long long time.
It's something to think about if you feel you'll be moving (as the average American does) in the next 4-8 years. If you plan on living in this house until it's paid off stick to the fixed rate. But if not, at least have a mortgage professional explain to you the benefits of such a loan. But, be sure to look at the worst case scenarios and make certain that should that happen you and your family are willing to handle the additional cost.
As always give me a shout with any questions or comments.
Sunday, April 25, 2010
Friday, April 23, 2010
Are Foreclosures A Smart Buy?
With all the talk these days about foreclosures, I think it's pertinent we delve into the ins and outs. First, I want to separate foreclosures from short-sales.
In a short sale, the person still owns their home, and is involved in the transaction--however, they have notified the bank (or other lien-holder) that they are no longer able to pay the mortgage. The reason it is called a short-sale is that the value of the home is "short" of what they owe. For example Mr. and Mrs. Smith own a home and are no longer able to pay their mortgage. The home in this market is worth 90k, but they paid 110 3 years ago, and owe 100k still. The bank is allowing them to sell the home for 90k and will 'write-off' the rest of the loan. This is often a quicker and much less expensive alternative for the bank and is why they entertain the idea. Short-sales typically sell for less than a traditional sale, but more than a foreclosure. Purchasing one can be a long and arduous process because the bank has to approve the transaction, as well as the owner. This can get even more fun if there is more than one lien-holder. Short-sales are very much worth looking at, and can be a great deal. However, the buyer must understand that their time-frame is not of importance to the bank. Things will happen as they happen and can be extended significantly from a traditional sale.
In a foreclosure, the bank has actually taken possession of the property. Without going into too much detail (and the process varies between KS and MO) the bank becomes involved with the courts--explaining their mortgagee isn't paying anymore. The bank then often becomes owner of the property. Foreclosures can be sold at well below market value, however, they can also need a lot of work. Often before leaving, former owners trash the place and cause extensive damage. Additionally, these properties can sit empty for an extended period of time. All offers and contracts go through the bank (or their agent) and can take some time to be approved or countered. Also, do not expect to receive a seller's disclosure in this case, as banks will NEVER issue one.
So....are these two types of properties worth looking into? YES! You can get a great deal on a great property, often in a great neighborhood. There are even special loans from FHA which help you fix many of the problems (ask about FHA 203(k)). The main thing to remember when looking at both foreclosures and short sales is that you must be willing to look past some blemishes and also be willing to close later than expected.
As always email me with any questions or comments about any of your real estate or finance concerns. I'll be happy to help where I can.
In a short sale, the person still owns their home, and is involved in the transaction--however, they have notified the bank (or other lien-holder) that they are no longer able to pay the mortgage. The reason it is called a short-sale is that the value of the home is "short" of what they owe. For example Mr. and Mrs. Smith own a home and are no longer able to pay their mortgage. The home in this market is worth 90k, but they paid 110 3 years ago, and owe 100k still. The bank is allowing them to sell the home for 90k and will 'write-off' the rest of the loan. This is often a quicker and much less expensive alternative for the bank and is why they entertain the idea. Short-sales typically sell for less than a traditional sale, but more than a foreclosure. Purchasing one can be a long and arduous process because the bank has to approve the transaction, as well as the owner. This can get even more fun if there is more than one lien-holder. Short-sales are very much worth looking at, and can be a great deal. However, the buyer must understand that their time-frame is not of importance to the bank. Things will happen as they happen and can be extended significantly from a traditional sale.
In a foreclosure, the bank has actually taken possession of the property. Without going into too much detail (and the process varies between KS and MO) the bank becomes involved with the courts--explaining their mortgagee isn't paying anymore. The bank then often becomes owner of the property. Foreclosures can be sold at well below market value, however, they can also need a lot of work. Often before leaving, former owners trash the place and cause extensive damage. Additionally, these properties can sit empty for an extended period of time. All offers and contracts go through the bank (or their agent) and can take some time to be approved or countered. Also, do not expect to receive a seller's disclosure in this case, as banks will NEVER issue one.
So....are these two types of properties worth looking into? YES! You can get a great deal on a great property, often in a great neighborhood. There are even special loans from FHA which help you fix many of the problems (ask about FHA 203(k)). The main thing to remember when looking at both foreclosures and short sales is that you must be willing to look past some blemishes and also be willing to close later than expected.
As always email me with any questions or comments about any of your real estate or finance concerns. I'll be happy to help where I can.
Thursday, April 22, 2010
First Time Home Buyers - Time is Running Out
As we all have heard the first time home-buyer credit is going to be kaput soon. (No the rumors of it being extended again have no validity, sadly. The Nation Association of Realtors has told us this is all but out of the question). So what does this mean for you?
Buyers - NOW IS THE TIME TO GET OUT THERE! With just 8 short days left to write a contract, there is still time to find your perfect house and qualify for the credit. Contracts must be written by the end of the month, and we will need to close by the end of June. Check out bkeith.reeceandnichols.com to search for a great home! Think about it, 8,000 is equal to a years payments in many cases. With current rates and programs, it doesn't take much more than a job, a smaller down payment than you might expect (3.5% in some cases), and the will to own instead of rent. Think about it.....
Sellers - Don't worry! If your home hasn't sold yet, this isn't the end of the world. There is still a lot of activity which I believe will occur in the coming days. Additionally, the pace of the market is picking up, and Kansas City is no where near the bottom. Many are afraid the market is going to drop off after the credit expires, I believe this is hogwash! There are too many people out there who are looking for homes, and too much publicity about the advantages to home ownership.
As always feel free to email me with any questions or comments about your Real Estate needs.
Stay Classey Kansas City.....
Buyers - NOW IS THE TIME TO GET OUT THERE! With just 8 short days left to write a contract, there is still time to find your perfect house and qualify for the credit. Contracts must be written by the end of the month, and we will need to close by the end of June. Check out bkeith.reeceandnichols.com to search for a great home! Think about it, 8,000 is equal to a years payments in many cases. With current rates and programs, it doesn't take much more than a job, a smaller down payment than you might expect (3.5% in some cases), and the will to own instead of rent. Think about it.....
Sellers - Don't worry! If your home hasn't sold yet, this isn't the end of the world. There is still a lot of activity which I believe will occur in the coming days. Additionally, the pace of the market is picking up, and Kansas City is no where near the bottom. Many are afraid the market is going to drop off after the credit expires, I believe this is hogwash! There are too many people out there who are looking for homes, and too much publicity about the advantages to home ownership.
As always feel free to email me with any questions or comments about your Real Estate needs.
Stay Classey Kansas City.....
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