Successfully Navigating The Changing World of Mortgages

The world of mortgages is changing. To paraphrase the old Joni Mitchell song, most consumers will not know what they’ve got until it’s gone.

• They won’t realize that by the time a mortgage is paid off, borrowers have paid two or three times the original amount borrowed—the mortgage principal—to buy real estate they originally bargained hard for to cut costs.

• They won’t understand what they could have done to increase their real estate holdings and improve their profits until the legal and tax advantages that support investment and individual creativity disappear.

The real estate and banking sectors are set up to facilitate their deal making and profit taking with a measure of consumer protection added to keep things from becoming noticeably one sided. Too many buyers and sellers further stack the deck against themselves by not digging deeper than fads, marketing, and salesmanship. Most real estate buyers and sellers invest more time learning about their latest mobile device and its apps than exploring ownership and financial strategies for buying residential and recreational property.

Therefore, they may not miss what they did not understand, and would have appreciated, in the first place. Have you heard about a great government program or a tax advantage only when the media lament its end? How do you make sure you are taking advantage of all the options open to you to reduce the cost of the money you borrow to purchase real estate—your mortgage?

Real estate buyers and owners who want to achieve more for less should start this new year by learning what the latest round of mortgage resets mean to their specific real estate goals and opportunities. We always advocate going to the source, so dive into the detail announced by the Federal Ministry of Finance January 17, 2011: http://www.fin.gc.ca/n11/11-003-eng.asp

Here are a few perspectives to start you off.

Just remember, that what is relevant to you and your specific situation may not be on this list, hence the value of going to source:

Motives and motivation: The title, “The Harper Government Takes Prudent Action to Support the Long-Term Stability of Canada’s Housing Market,” has an election ring to it. Either the federal government is positive there won’t be more negatives ahead for housing, so it wants to appear to have created the soft landing, or it is bailing out before problems hit, so it can point fingers at others while patting itself on the back. What’s your opinion?

Reduce amortization: Cutting the maximum amortization period down 5 years to 30 years is not the across-the-board measure it has been presented as. This restriction applies only to new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. The 35-year amortization may be available for mortgages outside these restrictions for borrowers that lenders feel suit this repayment method. The amortization period is the number of years, at a specific payment amount, that it will take to pay the mortgage principal and interest to zero.

• Buyers’ advantage: The longer the amortization period the smaller the monthly payment of principal and interest, and the greater the mortgage principal a buyer will qualify to borrow. Buyers could opt for the longest amortization possible—which used to be 40 years, then 35 and now 30—and then, down the road, decrease the amortization period on renewal to cut total interest costs.

• Owners’ advantage: The shorter the amortization period, the lower the total amount of interest paid on a mortgage. The common 25-year period provides a hefty profit for lenders. Pop your original mortgage principal into a mortgage calculator, and see how much you have paid for this borrowed money in the first 10 years. Compare this with how much is left to pay on the mortgage. Shorten the amortization period as much as possible when you renew. Even one year can make a difference in the total interest paid.

• Equity building: The government reports the latest restrictions will “allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire”. Home equity management is an ongoing topic in this column, but if these changes represent the government’s best shot at facilitating equity building, they need input from consumers on what would really aid in accumulating value and repaying mortgage debt.

Taking taxpayers off the hook for lenders: The government backs mortgages arranged to buy real estate, so if the borrower defaults and can’t make payments, the government (that’s taxpayers) cover losses for lenders (that’s largely the big banks). Those same lenders promote refinancing for a range of home improvement and lifestyle uses, the government is letting it be known that this lender-promoted debt should not be as risk-free for lenders as arranging the original mortgage. Lender reactions to the government taking taxpayers off the hook for mortgage default or lack of repayment may not be pleasant for homeowners.

• Restricting access to equity: By lowering the maximum amount Canadians can borrow when refinancing their mortgages the government says it’s promoting savings. The drop from 90 per cent to 85 may not seem significant until you want that 5 per cent in your pocket. This change means the only way to access that 15 per cent is to sell. When so many want to stay in their own homes as they age, does this move seem in synch with consumers goals?

• Withdrawing government insurance on lines of credit: Lenders who issue lines of credit secured by real estate, including home equity lines of credit, will no longer have government insurance to cover them against losses. The government believes its move will ensure that risks associated with consumer-debt products used to borrow funds unrelated to real estate purchases are managed by the financial institutions and not borne by taxpayers. Will lenders demand a premium for their additional risk?

  Note: The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.

Government intervention: The government’s paternalistic approach with this “for their own good” set of financial rewrites opens the door to many considerations. Do you want the government deciding what’s best for you and your real estate, or would you prefer to deal with lenders who set standards and criteria for lending on a case-by-case basis? What may not be prudent for one borrower may be calculated risk for another.

The Honourable Jim Flaherty, Minister of Finance, was said to make “prudent adjustments to the rules” to “support hard-working Canadian families saving through home ownership”. Does their definition of “saving” properly describe your intentions in owning real estate?

If you need help understanding finance and planning for your future, is the government your preferred source and resource? Maybe the wrong level of government and the wrong ministry are involved. Wouldn’t it be more practical to teach money management and real estate investment in public school, so we all become our own experts?


Written by PJ Wade
January 25, 2011

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How Much Home Can I Afford?

Home prices skyrocketed in the early 2000's, with things really heating up between 2005 and 2007. According to the New York Times, HUD conducted a survey in 2007, finding that home values had risen 16 percent in just those two years. The housing bubble burst in the Spring of 2007 and markets tanked.

Now house values are resetting, with some areas still experiencing declines. In high boom areas, such as Florida, Arizona, and California, homes are having to correct from staggering rises of 20, 30 and even 40 percent in home values. This means values rose, and millions of homeowners bought at the top of the market, now finding themselves upside down in their loans.

Despite the crisis, there are still buyers on the market. But many are wary to make a mistake of buying a home they can't pay for. How much home can you really afford? Home affordability, in general, is dependant on a range of factors. These include:

Employment status: Do you have a stable job and income? Lenders will want to know if they can rely on you to make monthly payments for many years to come. With an unemployment rate near 10 percent, it's no wonder a record number of homes are currently in foreclosure. Another way lenders assess your risk is by examining your credit score.

Credit Score: Over your adult life you have been building up a credit score. Every card and loan you have opened has figured into a 3 digit number from 300 - 850. The higher your number, the less "risk" you are perceived to be, and thus, the more likely you'll be extended higher sums of credit for a lower rate. Car loans, student loans, home loans, credit cards, and personal loans. How faithfully you've repaid them, and how many of them you have open, dictates your score.

Number of Dependants: Do you have children or aging parents for whom you are financially responsible? If so, consider medical bills, schools tuition, and daycare when calculating a reasonable budget.

Desired Location: A 2,000 square foot home in rural Nebraska costs dramatically less than the same 2,000 square foot home in the heart of New York City. Prices even range widely by suburb and neighborhood.

Savings: You will need money for a downpayment. Financial Expert Suze Orman recommends you put at least 20 percent down. That means on a $200,000 house, for example, you should have $40,000 in cash to put down. You will also need additional cash for closing costs, as well as repairs and maintenance that are inevitable with homeownership.

Emergency Fund: Do you have a separate savings account worth 8 months of bills? You must have an emergency fund. Just ask the 15 million unemployed. Things do and will happen. If you don't have this fund, you can't afford a house. You may be able to "borrow" money for a house ... but in reality you really can't afford one.

Interest Rates: Interest rates are at historical lows. At this writing, the 30-year fixed rate mortgage is 4.74 percent. To put this in perspective, rates in the 1980's were anywhere from 13 to 18 percent. This means big savings if you are in the position to buy.

Monthly Payments: If you have ever bought a car, one of the first things a salesman will ask you is, "Where do you want your monthly payment to be?" It's all about rates and downpayments with lenders. Yes, it is important that your monthly mortgage payment is no more than 1/3 of your monthly income, but don't be coaxed into buying a home you can't really afford just because the monthly payments are appealing (hello, subprime mortgage crisis).

Now, all that said, this next idea may seem a bit radical for some of you. There is a movement among some Americans to not only reduce their debt, but to get completely out from under it. This translates implicitly into the home buying process.

We have become a nation increasingly driven by the bigger and better. Need we say more than "McMansions." It is a culture of debt, where even the national government owes $14 trillion. And no, not every country has national debt. The United States, though, leads the way.

So, what if you could buy a much smaller house, or a house in a much less prominent neighborhood, and avoid a mortgage payment altogether?

The idea is nearly unheard of in this country. But it could be one that will begin to gain ground as many families struggle to makes ends meet, and even more families learn the hard lesson about home affordability. The truth of the matter is this. If you are paying a mortgage, you do not own your home. It doesn't matter if you've paid on a loan for 1 year or 29, if you default, the home is property of the bank.

"But what about Joe Smith, who works in the same office and makes $150,000 a year. He just bought that $500,000 house. I should have that same standard of living." This is what is partially responsible for the bubble we saw in the last decade. Keeping up with the Jones.

Consider for a moment what it is in your life that is really important. No doubt you will quickly pull to mind your family and closest friends. You may think about a full refrigerator, a safe city, and a clean bill of health. These are things found in small homes, the same as large.

Success is not measured by the size of house you own. So, if you are in the market to become a homeowner, be sure to consider what it could mean to buy truly within your means. Does it mean saving for a few more years and then buying a fixer upper? Does it mean the smaller house in the less prestigious neighborhood is in your budget?

In recent years, "What can I afford?" has turned into "How much monthly payment can I afford?" or "How much credit am I approved for?" These do not equate with affordability. Perhaps it is time to think long and hard about what kind of home is appropriate for you and your family. You may find that travertine and granite can be forgone for a nice kitchen table and family meals.


Written by Carla Hill
January 26, 2011

Thinking about Buying or Selling?
Call Alvin's Team Today! 877-651-7810
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Kitchens That Sizzle Heat Up Buyer Interest

Most people know that location is, of course, vital in influencing a buyer's decision to make an offer. Sellers also understand that kitchens and bathrooms are high on the list of areas to check out first. But what exactly makes a kitchen sizzle?

Designer, Susan Serra who specializes in kitchens, told Realtor Mag, that kitchens are being used for more purposes these days. They're no longer enclosed by walls. In fact, the more open the kitchen is to other parts of the house, the greater chances it's liked.

Kitchen walls started coming down a few decades ago. The lack of separation in the rooms in the home leads to great rooms and an easier ability to connect with family members in common spaces.

Growing trends in kitchen architecture include softer lighting, larger windows, and–here's a surprise–fewer cabinets. That doesn't mean that you can get away with very little storage space, instead it means you have to be creative.

If you're selling your home and these popular trends aren't part of your home's blueprint, not to worry... you can make your kitchen sizzle with a few simple changes.

Create a gathering space. If you have a large kitchen, consider installing or placing a portable island in it. These are very popular for a number of reasons. They're handy, useful for extra storage space, and they often become a central gathering spot at parties, especially when there's food on them. Add a few bar stools and you've got a comfy and welcoming place for guests to relax while dinner is being prepared.

Turn down the lights. Not literally, rather use lighting that's less harsh. Overhead lighting is excellent but, to create a mood, you can place accent lights in tucked-away areas that will still allow the light to shine in the kitchen. Maybe an adjoining hallway, for instance, could have a small lamp on a table or sconces on the walls.

Make room. Even though some architects are taking away the cabinets, buyers still are attracted to plenty of storage space. That means sellers who don't have it, must creatively devise it. By staging your home with stand-alone cabinet furniture and displaying some kitchen items in them, you give buyers an idea of how to use the space.

You'd be surprised at how many buyers enter a home and may not have any idea about how to use a particular area/space in a house. Taking the time to show them how you've used it can help them understand how it will suit their needs, or, at the very least, spark their own ideas about using the space.

Make it comfy. Think about what makes you want to stay and visit at a friend's home. Good food and company, of course! But also, comfortable seating. Even though your furniture likely won't be sold with the house, the convenient chairs you have in your kitchen will influence the buyer's overall reaction to your kitchen and house. If the chairs are too large, don't match the design and decor, and are uncomfortable looking, they'll give the buyer a feeling of something being “just not quite right”.

Comfortable chairs–even a love seat, upholstered bench or wing chair–can be very inviting. They sort of beckon buyers to take a seat, stay for a while... and if there's a plate of cookies and a cup of fresh brewed coffee, well now, the buyer just might have time to really begin to feel at home. And that, after all, is precisely what every seller wants every buyer to feel in their listed home.


Written by Phoebe Chongchua
January 14, 2011

Thinking about Buying or Selling?
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Controlling Your Income

Being able to control the income is really where agents get into trouble. Too many agents’ pay comes irregularly. A Champion Agent’s income comes consistently. It enables them to control it better, save more, and invest more to create wealth. It is not what you make, it’s what you keep. I have met too many agents who make $300,000, $500,000, even a million dollars a year and are broke. Part of their problem is their expenses. The other part is in their personal and business system of controlling the income. I will share with you a simple plan to help you control your income and become wealthy.

Your business checking account is merely a holding tank. Don’t keep large amounts of money in there. When a commission check is received, put it all in the business checking account. Set up a business savings account and deposit 10% of your gross commission in there. That is your rainy day fund, dividend fund, and source for the future. You can build up a lot of funds through this method. At the same time, set up a tax savings account. Deposit 20% of every check to the tax savings account. This method guarantees you have the funds available when quarterlies are due.

Create one last account for your investments savings account and deposit 10% in that account. This account can be built up to fund your retirement accounts, 401K, simple IRA, whatever vehicle you use. I am a firm believer that as a business owner we need to take advantage of these tax free investment opportunities. You can save the money to buy property. The more you can segment or even hide money from yourself, the greater the chance you can avoid wants becoming needs. When the money comes in bunches, wants can easily become needs.

If you are unable to put 10% in each of these savings accounts, start with 5%, 2% or even 1%. It’s the habit that we are trying to establish. The habit will lead you to wealth.

Collect a significant monthly personal compensation out of the business in salary and dividend that you can segment or hide your money again. You want to pay yourself enough to cover your personal expenses while at the same time, saving and investing in your future as well. I have used the 70/10/10/10 way of managing my money for years. It’s a simple approach, I don’t have to budget extensively and it works. The seventy percent is what my family gets to live on. Joan and I can spend it any way we would like. There are usually long discussions about that in our home. We give 10% of our income to charity. For us, it’s our tithe to our church that equates to that 10%. The blessings have been awesome since we make that commitment to bring in the whole tithe years ago.

We save 10% in a general savings account for emergencies, property taxes, family fun, and large purchases like a new car. I am not a believer in debt, whether car or credit card. My view is the only debt I will accept is appreciating asset debt like real estate or possibly business debt. Because we have been doing that so many years, we rarely pull money out of savings for anything. It’s just another area to create wealth. We then save 10% for investment. This can be real estate investment or after tax investment of stocks bonds, CD’s or any other source we choose. I am not professing that I have created the perfect system, but it works for me and works for thousands of other people I have taught it to, both inside and outside of real estate.

When I started this system well over fifteen years ago, I was not able to do 70/10/10/10. I had too much month at the end of my money due to debt and lack of income. I wanted to do 70/10/10/10, but couldn’t, so I started with 95/1/2/2. That quickly became 90/3/3/4. Within twenty-four months, I was able to do 70/10/10/10, and my life has never been the same.

The real skill of a Champion is to control the resources and money they have to create the quality of life they desire. We all need to live within our own means to make sure our future is secure. I believe that you won’t be blessed with more unless you wisely use what you have now. People who acquire wealth learned to control small amounts well before they acquired large amounts. Control what you have now and more will be granted to you.


Written by Dirk Zeller
January 21, 2011

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Buying a Home for Your Child

It used to be big deal if Dad bought you a car when you were old enough to drive – but now some parents are buying homes for their kids. It's a great investment and saves them from paying rent, whether they are attending college or university or are striking out into the working world.

A recent poll by TD Canada Trust says that 10 per cent of Canadians would consider buying a condo for their adult children. For the parents it offers some peace of mind, since the investment may help their children into better housing than they could afford if paying rent. For the kids, it's a way to learn about the pros and cons of looking after their own homes, and perhaps even get some experience at becoming a landlord.

The trend is growing in cities across the country. In Montreal, developers have offered incentives specifically geared to families who are buying a condo for a young adult. In Toronto and Vancouver, where Asian investors are buying up many of the new condos, it's not uncommon for a family to buy a unit for their child to live in while attending school. Sometimes they have long-range plans to move to Canada themselves, so they buy now and have their child live in the unit, or rent it out.

For students heading to a new city to attend college or university, buying a house or condo eliminates the need to search for sometimes pricey student accommodation. Some of these students live in the homes and rent out a basement apartment or have roommates to help offset costs.

As with any real estate investment, there are a number of financial, tax planning and social aspects to consider before buying a home for your child. The usual rules of real estate apply: location, location, location. Buyers must ensure that the property will be in demand for renters, because the child may not want to live there for long. If the unit is sold in a couple of years, will the buyer be able to recoup his investment?

Buyers must ensure that a property being purchased with a rental suite complies with local zoning bylaws, fire codes and electrical safety standards, and that the proper insurance is in place. Some municipalities have tried to clamp down on student housing in new developments because of complaints from the neighbours.

If the adult child is going to rent out part of the house or have roommates, even if they are moving in with friends, it's important that the living arrangements are spelled out in advance in a businesslike manner. Each renter should sign a written tenancy agreement that covers how much rent will be paid, what additional costs (such as utilities) will be paid by the renter, what facilities will be shared, and house rules such as whether pets are allowed, smoking policies and provisions for parking and laundry facilities if applicable.

In some provinces, if the kitchen and bathrooms are being shared, the provincial tenancies act may not apply. That gives the landlord the ability to evict a renter without going through a formal eviction process if they find out they can't get along with the roommate.

Kathy Monro and Caryn Watt of PricewatershouseCoopers recently wrote a paper (Wealth and Tax Matters, Winter 2011) about the tax implications of buying a home for your adult child, setting out four options.

The first is purchasing a condo in your own name. The downside to this is that when the condo is sold, it will be subject to capital gains tax because it isn't your principal residence. Under Canada's tax law, you and your spouse (including common-law partners) and any unmarried children under the age of 18 are entitled to designate just one property as your principal residence for each year.

The advantage is that it may protect your investment if your adult child is married or gets married and then gets a divorce. In provinces like Ontario, the matrimonial home is included in calculating "equalization payments" even if the home was a gift or inheritance and even if it was owned by one of the spouses before the marriage. So, the other spouse is entitled to an equal share of the value of the condo. If the condo is in your name, it would not be subject to this rule.

Munro and Watt say the second option is giving a cash gift to your child to cover the cost of the condo. The child holds the condo in their own name, and as a principal residence it does not incur capital gains taxes when sold. It does not protect the condo from equalization in the event of a divorce.

Option three is lending the money to the child by way of a mortgage. The mortgage should be interest-free to avoid taxable income. "Because the child owns the condo subject to a mortgage, we understand that this plan could provide better protection to you and your child under family law legislation should the child divorce while owning the condo," say Munro and Watt.

The fourth option is setting up a family trust, which would then own the condo. "Family trusts are popular vehicles for sharing wealth with family members because they offer the trustees the flexibility to accommodate the changing and competing needs of the beneficiaries," say the authors.


Written by Jim Adair
January 18, 2011

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First-Time Buyers Do's

If you are ready to buy your first house, congratulations! This is an exciting time that can bring you sweet rewards. It's also a time, however, full of questions. Here are a few do's and don'ts to get you started.

Before you shop, you must decide what type of home is best. Are you looking for a condo, with a strong sense of community, extra amenities, easy maintenance, and willing to pay a monthly HOA fee? Would you prefer a larger house in the suburbs, even if it means a longer commute? Are you looking for older charm or newer construction?

After you've decided this, write down a list of your wants and needs. This is a time to be honest with yourself. Rarely does a homebuyer get everything they "want" in a home. You will need to compromise. For example, you may need 3 bedrooms, but want a fenced back yard. If push comes to shove, you may have to forgo the fenced yard to get the bedrooms.

When you begin to shop, have a budget in mind. While prices are always negotiable, you don't want to waste your or a seller's time. Be realistic about a home's price. Let your real estate agent compile a list of homes to visit that fit your criteria, as well as your budget. As you make your way to and through the homes, be sure you don't judge a home until you've been through the entire place. There are homes that seriously lack curb appeal, but with a few cosmetic enhancements can be real showstoppers.

Pay close attention to what repairs the home may need. Don't get swept up by fantastic staging. Keep your list of criteria in mind the entire shopping process.

Once you have decided on a home, it is time to begin negotiations. Do not hesitate. Desirable homes don't sit on the market for long. Hesitation may translate into missing out on a property that you really love. That said, you must be confident with your decision. This is not a time to buy a house simply because you feel pressured.

Your agent will help you put in an offer. By researching area comparables (that's other homes that have sold or are selling in the area), they can come up with a reasonable amount to pay. How much are you willing to pay for this home? Set a top number in your mind and don't let emotion push you to buy past your budget. And leave room in your coffers for closing costs, a down payment, initial repairs, as well as a home inspection.

Home buying can be a stressful process, but keep the end goal in sight and you'll do great!


Written by Carla Hill
October 27, 2010

Thinking about Buying or Selling?
Call Alvin's Team Today! 877-651-7810
Or visit our website: www.LivingLakeTahoe.com

Mortgage Rates Down for Second Week

McLean, VA – Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®). The survey results showed lower mortgage rates for both long- and short-term rates, with the 30-year reaching a four-week low.

30-year fixed-rate mortgage (FRM) averaged 4.71 percent with an average 0.8 point for the week ending January 13, 2011, down from last week when it averaged 4.77 percent. Last year at this time, the 30-year FRM averaged 5.06 percent.

15-year FRM this week averaged 4.08 percent with an average 0.7 point, down from last week when it averaged 4.13 percent. A year ago at this time, the 15-year FRM averaged 4.45 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.72 percent this week, with an average 0.7 point, down from last week when it averaged 3.75 percent. A year ago, the 5-year ARM averaged 4.32 percent.

1-year Treasury-indexed ARM averaged 3.23 percent this week with an average 0.6 point, down from last week when it averaged 3.24 percent. At this time last year, the 1-year ARM averaged 4.39 percent.

Frank Nothaft, vice president and chief economist of Freddie Mac, reports, "Bond yields drifted lower following the release of the December employment report , which was weaker than the market consensus forecast and implied that the labor market is still in a sluggish recovery. Fixed mortgage rates followed bond yields lower for a second consecutive week, bringing them to a four-week low."

"In its January 12th regional economic review, the Federal Reserve noted that activity in residential real estate and new home construction remained slow across all Districts over the last two months of 2010 due to concerns about the pace of economic recovery, especially in employment. In addition, the outlooks for residential real estate were mixed, with contacts in most Districts described as expecting continued weak conditions."

January 14, 2011, Published on Realty Times

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Baby Boomer Survey

Baby boomers are entering retirement and recent findings indicate that they are bucking the trend of what it means to be a retiree.

Triology by Shea Homes recently released its Trilogy's interactive retirement survey. It found that boomers are active and social retirees.

This could mean big changes in the housing industry in the years to come, including what new retirement communities will look like.

"Today's boomers are still very active, adventurous and connected, as our survey suggests. They want to travel and enjoy family and friends and are a vibrant part of the community,” said Hal Looney, area president of Shea Homes Active Lifestyle Communities. "Understanding and addressing the needs and desires of boomers has been integral to our offerings since Shea Active Lifestyle Communities began 11 years ago, with a vision of creating a new active lifestyle environment for a generation of people looking to redefine this stage in life. This survey confirms that boomers are still making a big impact today.”

The survey has found that social media isn't just for the younger set. Boomers say "they prefer collecting friends on social networks just as much as they do recipes – and even rank it slightly higher (37.28%) than collecting pictures of the grandkids (33.64%)."

But boomers rank being within driving distance of family and friends as the most important factor of retaining a balanced lifestyle.

Also part of that balanced lifestyle is making a difference in their communities. According to the survey, 23.93% say their church, synagogue or place of worship is their favorite cause, followed closely by environmental and animal causes with 23.59%.

Retirement is now focused on a new chapter of life, full of re-invention, instead of simply an "end phase." Traveling, new hobbies, and being active rank high on the list of what retirees look forward to.

Overall, boomers are interested in healthy relationships and strong mind-body balance.


Written by Carla Hill
January 11, 2011

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Consequences of Defaults and Foreclosures

The economy has put a strain on thousands of households across the nation. In these tough times, many homeowners are struggling in the face of foreclosure. What are the consequences of defaulting on your loan? And what can you do to prevent this loss?

One of the most startling impacts of a foreclosure appears on one's credit report. Your credit score may plummet by 200 to 300 points. In this economic climate, where credit lending standards are already tightened, you may then find it difficult to do everything from buying a car to renting an apartment. What's worse is that the notation of foreclosure stays on your report for up to seven years.

Next, you may owe the lender money. They backed a loan on a home worth X amount. If they sell your home at foreclosure for less than that amount, you may be responsible for the difference. Many states have laws protecting you against this action, but speak with an attorney to find out for what you may be liable.

Lately, after the sudden drop in property values in certain markets, investors have been guilty of strategic defaults. This is when an investor purposely defaults on a property, because the time it will take for them to recoup their money is perceived as too great. A word to the wise: courts are now ordering deficiency judgements in some cases, where the investor must pay the lender back their losses.

There really is no winner in a foreclosure. With homeownership comes increased family stability. The loss of a home can be a trying time on all members of the family. Beyond your own family, a foreclosure can mean lowered property values for your entire neighborhood.

Avoiding default and foreclosure is not always possible. If you are not able to make your payments, be sure to be honest with your lender. They may be able to present you with an alternative. In addition, here are a few tips to get you thinking.

1. Short Sale. A short sale occurs when a borrower is unable to pay their mortgage loan. Both the homeowner and lender consent to a short sale, which means selling the home at a moderate loss, avoiding foreclosure and its associated frees and havoc on credit reports.

2. Talk to your lender. They may be able to offer you programs, refinancing, or counseling that can help you avoid losing your home. Most banks don't want you to foreclose, as it would mean they take a loss.

3. Selling if not underwater. If you are not underwater on your home loan, meaning you don't owe more than you can sell for and owe, then now is the time to employ a real estate agent and get your home sold. Downsizing or even renting is a better option than ruining your credit for the next seven years.

4. Budgeting. There are non-necessities that can be cut out of your expenses. Cut down and live as simply as possibly. You may have more money than you realized!

5. Financial counseling. Defaulting is serious business. You would be wise to meet with a financial counselor to see if they can help you avoid losing your home.

6. Refinancing or loan modification. Your bank or lender may be willing to allow you to refinance. This can translate into lower monthly payments.

The bottom line is this. Defaulting on your mortgage has severe consequences. Try your best to balance finances before your mortgage becomes an issue. And be honest and upfront with your lender in the event that a default is likely.


Written by Carla Hill
January 6, 2011

Thinking about Buying or Selling?
Call Alvin's Team Today! 877-651-7810
Or visit our website: www.LivingLakeTahoe.com

Deciding to Sell

Deciding whether or not to sell your house can be a trying time. Many questions pervade your mind. "Is now the best time to make a move?" "Will I make money from this sale?" Will a move disrupt my family's routine?" There are numerous factors that come into play when making this decision. Let's look at just a few to consider.

First and foremost, can you afford to make a move? In many areas of the country, home values fell dramatically during the recession. Homeowners across the nation now find themselves owing more than their home is worth. If you find yourself in this predicament, it is probably not the best time for you to move. If you are able to afford your payments and have no fear of defaulting, then it will be best to stick it out for a while longer, waiting for your home to regain some of its lost value.

Along those same lines is the topic of job stability. Do you have money saved for downpayments and closing costs, as well as an 8 month emergency fund should you get laid off?

Next, consider the impact the move will have on your family. Do you have children? Moving during the middle of a semester can be difficult for children. Will you be able to move and stay in the same school district? If not, they will be coming into a new school in the middle of activities, after bonds and friendships have been established. Timing is everything when it comes to moving with children.

Additionally, research has shown that having strong social relationships can lengthen your lifespan. Consider this strongly before you move away from family and friends. Or consider it as motivation for moving closer if you live far away!

What if you need to move for your health. Warmer climates, less humidity, and even a change of settings can be a boost to some people's health. Some seniors find cold winters too hard on their older bodies. A move for health is always a good decision, since without our health we have nothing.

The bottom line is this. Moving means changing routines, hobbies, and even friends. Be sure to evaluate your decision carefully, weighing all of your options, before jumping into a life changing decision.


Written by Carla Hill
December 22, 2010

Thinking about Buying or Selling?
Call Alvin's Team Today! 877-651-7810
Or visit our website: www.LivingLakeTahoe.com

Selling And Buying All At Once?

For many people this can be a true nightmare but it doesn’t have to be. And that’s a good thing because a lot of people find themselves in the position of needing to sell and buy all at once.

If you’re in this situation then you know that timing and money are two critical issues. What you do or don’t do, can affect whether you have a successful sale and purchase of your next home.

Here are some important tips to expediting and effectively navigating the sell and buy process.

Collaboration. The real estate process is about collaboration and teamwork. When you begin the process, experts advise that you use a notebook to record your timeline of important dates such as when you absolutely must be relocated. For instance, if you’re moving to another city for a job, when are you starting? When do you have to have the kids in school, etc? In this notebook, jot down details of conversations with experts and any transactions. Also, use the notebook to write down your questions that you have for your team of experts so that you’re certain to get the answers you need.

Meet with your team which likely includes a real estate agent, lawyer, lender, inspector, appraiser, and advise them of your needs and time frame.

First things first–must sell that home. Many homeowners need the money from their homes in order to purchase their next one. With that in mind, be proactive. Get a home inspection so that you can find out any potential issues that will slow the sale process. Then repair or adjust your asking price before you list your home for sale.

Get your home on the market as soon as possible. Delaying listing your home will result in a shorter time-frame to get it sold.

When it comes time to sell, if you’re not ready to move in to your next home, work with your agent to arrange a long close or a rent-back option. This will help to avoid the hassle of an interim move.

It’s not always all about the price. When you’re in a situation that has some very particular time constraints, you might find that it’s not always all about the price. Prepare for the best possible offer by screening your potential buyers, make sure they’re pre-approved “within five to 10 days of accepting their offer,” writes Lendingtree.com.

Sometimes a slightly lower offer may be the one that offers greater flexibility and just what you need when it comes to the closing schedule.

Get your buyer of your old home and the seller of your new one on the same page. Put in writing the specific window of dates. Lendingtree.com suggests, “negotiate financial penalties to encourage both stick to those dates.”

Know your price point. This is really important regardless of whether you’re selling a home in order to buy another one. However, when you’re in a time crunch, it’s even more critical to know and shop for the home that’s in your price range. And, of course, just like you’re asking for with your buyers–get pre-approved.

Get an inspection and make sure the new home can be insured.

Having a buyers notebook where you can record all of your notes on your home search and jot down questions is an excellent tool to have handy when choosing which home you want to make an offer on.

Ultimately, selling and buying a home is a lot to handle but it can be a smooth transition. Be clear about your time frame, new home purchase price, and any other details that are specific to your needs. Then before you move, I recommend reading my column: Go Bananas Over Moving!


Written by Phoebe Chongchua
December 31, 2010

Thinking about Buying or Selling?
Call Alvin's Team Today! 877-651-7810
Or visit our website: www.LivingLakeTahoe.com