7 options for low-equity homeowners


Here are three ways to sell your home and four ways to refinance your mortgage if you have little equity.

Rising home values during the past year have pushed more homeowners above water, but CoreLogic, a data-analytics provider, says that 21.1 percent of all homeowners with a mortgage were what they call “under-equitied” during the second quarter of 2013: having less than 20 percent home equity.

Twenty-percent home equity is required to finance or refinance a home without paying private mortgage insurance, and if you’re selling, that equity position helps deflect the costs associated with selling your home.

If you don’t need to sell or refinance right away, “just sit tight” because rising home values in most markets will quickly add to your home equity, says Joseph Adkins, founder and CEO of Global Asset Management Group in Longwood, Fla.

3 ways to sell with low equity

Here are three things you can do if you’re selling an under-equitied home:

No. 1: Rent it

If you’re in a rush to move, Adkins recommends renting your property for a year or so until your current home value rises.

“Before you decide to rent your property you need to get an idea of your cash flow,” says Tammy Trenholm, a broker with Redfin in Atlanta. “You’ll need to estimate the rent and your other costs, such as homeowner-association dues and maintenance. You also have to pay your own rent or mortgage wherever you move.”

No. 2: Home improvements

If you choose to sell, an experienced real estate agent can help you get the most for your home with inexpensive home improvements and expert marketing techniques to offset your low equity.

No. 3: Negotiate the commission

Adkins estimates that the cost of selling a home is approximately 8 percent to 10 percent of the sales price depending on the commission you pay to a real estate agent and closing costs. While it’s common to pay 6 percent in real estate commissions, some agents will negotiate a lower fee.

“You can save the commission by selling it yourself, but you could end up mispricing it and losing out on money or getting into legal trouble if you don’t have professional advice,” Adkins says. “You have to pay the commission to your buyer’s agent even if you sell it yourself.”

If your equity’s too low, you may have to bring money to the settlement to pay off your loan in full along with the closing costs. Trenholm says some lenders may negotiate a short sale if you can prove you won’t have the money to pay off your mortgage and the closing costs.

4 ways to refinance with low equity

If you want to stay in your home, a refinance may be possible even with thin equity.

No. 1: Understand your options

You’ll need 10 percent home equity for a jumbo-loan refinance, 5 percent for conventional, 4 percent for Federal Housing Administration loans and zero for Veterans Affairs loans, says Russ Anderson, a centralized sales executive for Bank of America in Los Angeles.

Lenders’ guidelines vary, and some have stricter qualifications.

No. 2: Home Affordable Refinance Program

“I highly recommend going to your current mortgage servicer to see if you qualify for a HARP loan because that’s the best solution for homeowners who have low equity,” Anderson says.

No. 3: Cash-in refinance

Another option is “cash-in” refinancing, when you bring cash to the closing table to improve your equity position. But Anderson says a cash-in refinance makes sense if you want to pay down your balance or reduce your loan term to eliminate your mortgage faster, but it isn’t necessarily the best choice if your only goal is lower payments.

“That cash becomes a sunk cost if home values rise soon, too, because you might have just been able to wait for your equity to rise,” Anderson says.

No. 4: Prepay

Another option is to prepay your mortgage. Prepayment can be used as a substitute or accompaniment to refinancing. Adkins doesn’t recommend prepaying your mortgage without refinancing if your goal is simply lower payments.

“Your lender will keep that $1,000 [your prepayment] for the life of the loan and you can’t get it back in an emergency,” he says. “It’s much smarter to take that extra cash and invest it and earn interest on it. The impact of compound interest is huge, so after five years or so you’ll have a lot more to show for that $1,000 than if you paid down your mortgage. Once you’ve accumulated more cash you can pay off a lump sum.”


(Source : MSN)

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6 Things Real Estate Agents Wish You Knew


Real estate agents see it all.

From the unmade beds to the overstuffed garages to the “What were they thinking?” decor. Over the years, they learn a thing or two: Why some houses sell, while others linger on the market. Why some promising buyers never make it to the closing table. How to get a better deal on the mortgage. Even just how much the other agents stand to make on your home. And the good news is, we want to share. Whether you’re a buyer, seller or both, here are six things real estate agents wish you already knew.

1.Want to sell quickly? Price it just under the market

In today’s market, sellers are again optimistic on the value and price of their homes — “but buyers aren’t,” says Ron Phipps, principal with Warwick, R.I.-based Phipps Realty and past president of the National Association of Realtors. “Your challenge as a seller is to price the house so that it is compelling,” he says.

What that means in dollar signs: “Set a price slightly below market value,” he says. Just “a fraction.”

For example: If similar homes in your neighborhood are clustered around $210,000, you might price yours at $200,000 or $198,000, he says.

What the agent wishes you knew:”The longer a house is on the market, the less likely you are to get fair value,” Phipps says. “So you really want to position yourself to be the one that sells, not the one that languishes.”

And that old adage of not wanting to leave any money on the table? Still valid.

If you’re turning around and buying a home, and you already have cash in hand, thanks to a fast sale, “that puts you in a very powerful position,” Phipps says.

2. The preapproval letter is just the beginning

For many potential buyers, frugality ends the minute they get preapproved for a mortgage, Phipps says. That’s when they start running up the cards and opening new lines of credit to buy things for their home-to-be.

But that preapproval letter is just one of the first refreshment stations of the homebuying marathon, not the finish line.

Just before closing, a lender will re-examine a prospective buyer’s financial situation — complete with a recent copy of the credit history and other updated information.

If those numbers have changed for the worse (salary decrease, higher card balances, new lines of credit), then the applicant could get clocked with a higher interest rate or even lose the loan. “The number of buyers who get denied is significant,” Phipps says. What the agent wishes you knew: Never get new loans or start using credit cards more heavily until after you’ve actually closed on the home.

Even better, retain your frugality until you’ve been in the home for a few months and have a good sense of how homeownership affects your finances, Phipps says.

3. Selling a house probably takes longer than you think

If you’re selling a home, it’s important to understand the timeline, says Jeffry Wiren, principal broker with Re/Max Equity Group and past president of the Portland, Ore. Metropolitan Association of Realtors.

“And that’s something most people don’t understand,” he says.

Underestimating the time it takes — and building a schedule around those unrealistic expectations — adds stress, Wiren says. Instead, realize how long the process takes in the real world (not just your head) and plan accordingly. Another important factor: Different markets (and prices) move at different speeds, he says.

Wiren’s sales schedule breakdown:

• Getting your home in shape: two weeks

• Average time on the market (varies widely with location and price): 2 1/2 to three months

• Negotiating after an offer: one week

• Preparing to close (assuming a traditional transaction): 30 to 45 days

What the agent wishes you knew: A smart seller allows a minimum of four to six months to sell, Wiren says. And that’s if you have a home that’s priced right in a good market with one solid offer that makes it to the closing table.

4. Not all ‘buyers’ are able to buy

To prove their worthiness, sometimes prospective buyers will show a prequalification letter, Wiren says. “And that means nothing.” That’s because in a prequalification, lenders usually don’t verify buyers’ information. A preapproval, on the other hand, involves third-party verification.

“‘Prequalified,’ that means they’ve talked with a lender and said, ‘I have good credit and I make X number of dollars a year,'” Wiren says. Based on that, the lender responds that the buyer can reasonably expect to borrow a certain amount — if those self-supplied facts are accurate and there aren’t any negatives, he says. Most lenders don’t research those details until the buyer applies for a loan, he adds.

What the agent wishes you knew: Serious (and smart) buyers are “preapproved.” That means they’ve already applied for the loan, the bank has verified their financial information and (if the numbers remain the same until closing) it promises to loan a specific amount at a specific interest rate.

Still, after an offer, smart agents will call the lender and verify that the prospective buyer is preapproved for the necessary amount, Wiren says. At the same time, that agent will verify that the lender would have no problem closing in the expected time period — usually 30 to 45 days.

5.Yes, it really does have to smell good

Sellers sometimes drag their feet on little details that make a big difference, Wiren says. He can’t count the number of clients who asked, “Does it really matter if we have the carpets cleaned or take the family photos off the wall?”

“The answer is yes,” Wiren says. “A buyer needs to walk in and have it look good, feel good and smell good.”

Sellers should put themselves in the shoes of prospective buyers — and try to see the house for the first time, he says.

The home should be kept showroom-ready. “It’s a regular occurrence that I walk into a home with a buyer” and find “beds unmade and underwear on the floor,” Wiren says. In spite of an appointment, “I don’t see a home that’s ready.”

What the agent wishes you knew: A mess leaves an impression that’s “hard for a buyer to overcome,” Wiren says.

His checklist for a showing:

• Home: Clean. (And smelling good.) • Temperature: Heated (or cooled) for comfort. • Lights: Left on to welcome guests. • Snacks or soft drinks: A nice touch. The impression you want: “Warm, inviting and comfortable,” Wiren says.

6. We don’t make as much as you think

Chances are the agent you hire to sell your house — or find a new one — isn’t getting as big a cut of the deal as you might think, says Graham Stiles, senior vice president with Alexander Chandler Realty and HighRises.com. “Six percent isn’t anywhere near what we’re taking home,” he says. In fact, it’s more like “1 percent to 1 1/2 percent,” on average, he adds.

While the two sides will split that commission, those agents, in turn, each split their share with their broker, Stiles says.

What the agent wishes you knew: Unless your agent is handling both sides of the transaction, figure he or she is getting roughly one-quarter of the commission, Stiles says.

And that 6 percent commission is by no means a given in this day and age, Phipps says. “There’s always a range of fees in the marketplace. Each broker sets his or her own fees independently.”

“I spend a lot of time on the topic of commissions,” Stiles says. And still, the idea that agents are getting all or even half the commission, he says, “is still one of the biggest misconceptions.”

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Fewer homeowners drowning in debt as prices rise


The percentage of Chicago-area residents whose homes are worth less than their mortgages continues to drop amid a recovering residential market.

In the third quarter, 32.3 percent of homes here were “underwater” or had “negative equity,” meaning their owners’ equity was completely wiped out, according to a report from Zillow Inc. That’s down from 36.6 percent a year earlier and a peak of 41.1 percent in first-quarter 2012.

Nationally, 21 percent of homes were underwater, down from 28.2 percent a year earlier and a peak of 31.4 percent in first-quarter 2012, according to Zillow, a Seattle-based online home marketplace.

“Rising home prices and a greater willingness among lenders to engage in short sales have both contributed substantially to the significant decline in negative equity this quarter. We should feel good that we’re moving in the right direction and at a fast clip,” Zillow Chief Economist Stan Humphries said in a statement. “But negative equity will remain a factor for years to come, and must be considered part of the new normal in the housing market. Short sales will remain a persistent feature of the market as many homeowners remain too far underwater for reasonable price appreciation alone to help.”

Single-family home prices have risen in the Chicago area for 10 months in a row, according to another report released last month.

 The Chicago area had the fourth-highest negative equity rate among major U.S. metropolitan areas, according to the Zillow report. Las Vegas had the highest, 39.6 percent, followed by Atlanta, 38.2 percent, and Orlando, Fla., 34.2 percent.


(Source: Crain’s Chicago Business)

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Buyers and renters find opportunities in tight market


Still sitting on the sidelines, waiting for the right time to buy or rent? Your patience might finally be rewarded. Despite the ups and downs in the Chicago real estate market, there are opportunities to find a home tailored for your needs and lifestyle.

Just ask Dana and Jim Metz, who recently moved into a new house after looking for three years. They were motivated by low mortgage rates, finding the right property in their price range and discovering that they had to make a fast decision.

“We both work in the Loop and love the city, so that’s where we wanted to buy,” Dana said. “It took a long time to find the right home. While renting, we worked the MLS (multiple listing service), looking mainly on the North Side. Finally, we stumbled on a new development by Lexington Homes in Bridgeport on the South Side.”

During their lengthy search, they found that there is a severe lack of inventory, and a buyer’s market had turned into a seller’s market. As a result, they had to make a quick decision because of competition from other buyers.

“Five days after we first saw Lexington Place, seven of the nine homes had been sold,” she said.

Under pressure, they immediately decided to buy a 3,600-square-foot plan with five bedrooms — one of them for their baby daughter.

Their decision to buy reflects the desire of many who have been waiting to make a move but have been stalled by the effects of the recession.

The rebound has been sparked by increased confidence in the real estate market. The future looked bright enough for Chip Cornelius to launch a real estate brokerage firm. He opened Chicagoland Realty Services in May in the West Loop.

“People have been waiting to buy for three to five years. We’re seeing multiple offers for properties, and sales in the first seven days after listing,” Cornelius said.

“Sales are on a solid return to normal. People want to buy a home; it’s in their DNA. The reality today is that it’s cheaper to own than rent. But inventory remains short, especially in entry-level housing,” he said.

Signs of a residential revival are most visible in downtown Chicago, where new apartment towers are sprouting almost as fast as the high-rise condos of the past.

“The recovery is underway and the numbers favor the rental market,” said Gail Lissner, vice president of Appraisal Research Counselors in Chicago. “This year there are 2,895 downtown apartment units that will be delivered or are under construction. In 2014, the projection is for 2,071 new apartments,” Lissner said.

“As for the future of large new condo buildings, developers are cautious, just testing the water, maybe with a baby toe,” she said.

A prime example of the switch from condos to apartments in downtown Chicago is the recent topping out of 60-story 111 West Wacker with 504 rental units on a prominent site overlooking the Chicago River.

Before the recession, it was planned as a mixed hotel and condo project. The bad economy stalled it at the 28th floor in 2008. Revived by Chicago-based Related Midwest, it is planned to open next year.

New apartment buildings also are rising in the suburbs. Ground was broken in early October for E2, a 16-story, 368-unit project of Fifield Cos. and Carroll Properties in downtown Evanston.

The resale market is another housing sector on the upswing.

Re/Max reports that sales in the seven-county Chicago metropolitan area rose 31 percent in the third quarter compared with the same period last year. The median price gained 16 percent, to $210,000. The price increase reflects greater home values and a decline in the sales of distressed properties, according to Re/Max.

“The rebound was unleashed about a year ago. The economy stabilized, confidence in employment increased and mortgage rates still are low by historic standards,” said Jim Votanek, president of the North Shore Barrington Association of Realtors.

That region has posted a 28 percent increase in sold properties in the past year.

Votanek noted that prices are strong in the $100,000 to $500,000 range but taper off after that except in the luxury markets in the Gold Coast, Lake Forest and Hinsdale.

“The glut of bank-owned distressed properties has almost been worked through. Now, though, we have low inventory because of the lack of new construction,” he said.

Votanek added that the inventory also is low because some homeowners are still underwater and don’t want to sell until prices rise more.

New-home construction in the suburbs still lags. Large publicly held building firms are doing well, some with sales up 100 percent in the past two years, according to Erik Doersching, vice president of Tracy Cross & Associates in Schaumburg. “But the new-home market as a whole is up only marginally this year. That is because there is very little supply. Few small and medium-size builders are ready to put a shovel in the ground,” he said.

Doersching noted that there were 1,300 subdivisions under construction in the Chicago area in 2007, but only 350 now.

One of the survivors is Paul Bertsche, vice president of Chicago-based C.A. Development, which is building Edgebrook Glen on the Northwest Side.

He adjusted to the housing market collapse by redesigning and substantially downsizing the square footage and prices of his single-family homes.

“From 2008 to 2011, we sold only eight houses a year. But this year we’ve sold 24 so far. The market has come back substantially,” Bertsche said.


(Source: Chicago Tribune)

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New mortgage rules may mean less choice


New rules launching early next year designed to make mortgages safer may result in less choice for borrowers.

The problem: small banks may drop out of the business because of the cost of tougher regulations.

Beginning Jan. 10, banks have to ensure that monthly mortgage payments are affordable, a result of the Dodd Frank law passed in 2010. The failure to do so carries strict penalties.

“My concern is that we’re going to be in an environment where some lenders are too small to comply,” said David Stevens, CEO of the Mortgage Bankers Association

During the housing bubble, some banks issued loans without even checking applicants’ income or assets.

Under the new rules, lenders must carefully determine that borrowers have the ability to repay their loans. That means, for example, that the banks can’t lend to anyone whose total debt payments would exceed 43% of their income. Lenders must carefully examine and double check pay statements, bank records, tax returns and other paperwork provided by borrowers.

Banks will have to make three main changes, according to Anthony Hsieh, CEO of loanDepot, an online mortgage bank.

They will have to update their underwriting policies and procedures, change their technology and retrain staff.

Already, lending had become more complicated.

Five years ago, Total Mortgage, a mid-sized lender in Connecticut, had a single attorney on retainer to handle compliance issues, according to its president John Walsh.

Today, Total Mortgage has three full-time workers who work exclusively on compliance in addition to the outside counsel, even though his business has not grown.

“I expended a lot of effort to stay ahead of the new regulations,” Walsh said. “You just can’t make mistakes these days.”

Banks large and small are hiring outside companies to handle a share of their mortgage underwriting to ensure the quality, according to Jeff Taylor, co-founder of Digital Risk, a provider of risk, compliance and transaction management services.

Big banks can handle the cost, but small lenders may not be able to afford all the extra manpower.

The changes are coming at an already challenging time. Fewer homeowners have been refinancing their old, high interest mortgages. “Now that the refi boom is over, we’ll see a lot of small banks fading away,” said Taylor.

It’s possible that bankers, never receptive to regulation, may be overstating the impact of the new rules, according to Ellen Schloemer, spokeswoman for the Center for Responsible Lending, a consumer advocacy group.

She points to an October report from CoreLogic that asserted that lenders should be able to meet the requirements. The report was written by Margarita Brose, a consultant on lender risks, and Faith Schwartz, who ran Hope Now, a coalition of lenders, consumer groups and government organizations that fights foreclosure.

Lenders will “figure out a way to deliver . . . mortgages in a way that meets all the regulatory requirements, incorporates sound lending and consumer protections — and makes a profit,” according to the report’s authors.


(Source: CNN Money)

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