For many of us, our house is our biggest cash reserve, and raiding that piggy bank made financial sense for years because interest rates were low and rising home prices kept replenishing the bank. Now, with rates up and prices soft, is there any reason to tap your home equity?

Opening a home-equity line of credit is no longer a slam dunk for three reasons. It’s not cheap money Even though rates may drop in 2007, in recent years they’ve been going up, up, up. At today’s average rate of 8.7%, the interest-only monthly payment on a $100,000 HELOC is $725 vs. $387 when rates hit their lows nearly three years ago. You could owe more than you own Lenders have made it possible to borrow 100% of your home’s value. During the housing boom, for instance, many buyers who were stretching to afford a home financed the down payment with a HELOC. Do that today and if prices fall, your home loans could add up to more than your house is worth. If you have to sell (and pay a realtor 6% or so), the difference will come from your wallet. (more…)

search for : interest rates, home-equity line of credit, HELOC

In the next couple of years, a combination of rising mortgage interest rates and falling home values could sink thousands of homeowners. Being over your head means owing more than the house is worth. It’s an especially risky situation for people with interest-only mortgages and pay-option adjustable-rate mortgages because they don’t build equity unless they choose to. Some might be able to refinance or get through hard times by living frugally. Others will have to sell their houses, possibly at a loss. Still others will lose their houses to foreclosure.

If you have an interest-only or pay-option ARM, assess your situation and, if you conclude that you are in jeopardy, act quickly. “I don’t think burying your head in the sand is a viable option,” says Neil Garfinkel, an attorney with Abrams Garfinkel Margolis Bergson in New York City. Two groups of borrowers should look ahead. The first group consists of homeowners who are making the minimum payments on interest-only mortgages. Not all of these folks are at risk. The ones who should especially watch out are those who bought homes in the past year or two in markets where house values are falling, and who made no down payment or a minuscule one. (more…)

search for : mortgage interest rates, homeowners, adjustable-rate mortgage

Picture this scenario: You’ve lived in this country for the past 15 years, earned a decent wage, raised a family, always paid your rent, utilities, cell phone bills and other expenses on time, month after month. But you made little or no use of the conventional banking and credit systems — avoiding bank loans, credit cards and debts in general. Now you go to apply for a mortgage to buy your first home and get smacked with this sobering news: Sorry, but there is not enough information in your national credit bureau files to score your credit. We’ve got to either charge you an interest rate well above prevailing rates — 9 percent or 10 percent in a 6 1/2 percent market — or simply reject you altogether.

Growing numbers of lenders and mortgage brokers have begun offering alternatives to traditional credit scores. At the convention of the National Association of Hispanic Real Estate Professionals this month, a new guide was released listing hundreds of brokers and lenders who use the Anthem system of non-traditional credit reports and scores as supplements to FICOs. Anthem, developed by First American CREDCO, the credit data subsidiary of Santa Ana-based First American, evaluates whatever information on an applicant may exist in the files of the national bureaus — Equifax, Experian and TransUnion. Then it mixes in information collected by CREDCO from other sources. These include regular child-care payments, telephone, electricity and other utilities payments, current and former rent payments, plus personal credit data from businesses that do not report to the bureaus — small local retailers that extend credit, payday lenders, rent-to-own companies and the like. (more…)

search for : mortgage, national credit bureau, interest rate

Now that the mid-term elections are done it’s time to get on with the realities of life and some of those realities concern real estate. Writing in the Manchester Union Leader, commentator Deroy Murdock says that “since Bush’s May 2003 tax-rate reductions, total non-farm employment has expanded by 6.6 million new jobs, Americans for Tax Reform estimates. Unemployment has plummeted from 6.1 percent that month to 4.6 percent in September 2006. Average real GDP has accelerated 3.7 percent since 2003’s tax cuts.

It doesn’t matter which political party is in office, the recent heritage of debt must be addressed. While some debt is surely acceptable, we cannot continue with massive annual deficits and not harm the economy. Moreover, the additional debt created during the past five years is not without cost. At 5 percent, the interest on our new-found additional debt is $75 billion a year. That’s money not being spent on college scholarships, higher salaries for the military, universal health care, infrastructure repair or a number of other important programs. (more…)

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For the past several months, interest rates for home mortgages have steadily risen. This factor has caused a ripple effect on the housing market. 1. People who once were able to afford to purchase a home are pushed out of the equation because they simply cannot afford mortgage payments at the current rate. 2. Those who got in on the housing boom with a variable rate mortgage when interest rates were low are now seeing their mortgage payments climb with every increase. They could now be facing foreclosure due to an inability to pay

Foreclosures are a viable option for those looking to save a bit of money on a home purchase. However, they’re not for the weak of heart. Typically, purchasing a foreclosure property requires a good deal of perseverance, research and legwork. First, you must determine how you want to proceed with a foreclosure. Pre-foreclosure properties are homes where the owners have fallen behind on payments. The litigation process may have begun (dependent upon the legalities of each state) and the homeowner typically has been notified that they are in default of their loan. Pre-foreclosure properties may earn you the greatest purchase discount if you contact the current owner and negotiate a price, since many homeowners do not want a foreclosure on their credit history. However, this option is not without risk. (more…)

search for : home mortgages, mortgage payment, variable rate mortgage, foreclosure

There’s a popular notion that baby boomers are making a habit of living like Laginess—buying second homes either on oceanfronts, lakeshores, mountains or lively urban downtowns. Some people are snapping these homes up now in part as investments, perhaps to be sold at significant profit to a retiring boomers. But Gary Engelhardt, a Syracuse University economics professor, says the notion of these waves of buyers is largely a myth. And he warns people to beware of investing based on hype that seems questionable.

In research done in conjunction with the Mortgage Bankers Association and the Radian Group credit risk management company, Engelhardt found that only a small proportion of older Americans have second residences, and there is no greater tendency by baby boomers than the previous generation to indulge in second homes. And there is actually more movement between suburbs by empty-nesters than into urban playgrounds. Only a tiny fraction of suburban empty-nesters are moving to the city, Engelhardt said. ‘’Suburbanites like the suburbs,'’ he said. Engelhardt scoured government data from the 2004 Health and Retirement Study, the 2005 Current Population Survey and 2000 Census to measure mobility by early baby boomers — people born between 1946 and 1955. The surveys do not yet capture activities by younger boomers, so Engelhardt can’t be sure what they will do. (more…)

search for : baby boomer, buying second home, Mortgage Bankers Association