Real Estate Speculation: Don't Fall Into This Trap

When we become overwhelmed by uncertainty there are often two extreme behaviors which ensue:

1. at one end of the spectrum we have complete inaction
2. at the other end, is rash action without really knowing what we are doing, which we often call "jumping in"; or in the investing world, speculation.

In my previous post about risk reduction techniques we looked at various ideas to help reduce the risks that might be preventing you from taking action and doing your first deal. Following on from that, I thought we should address the other extreme since we want to find a happy median that allows measured but confident action.

While taking a leap of faith in some ways is admirable and often gets the desired result of creating momentum it can also mean financial suicide. One of my favorite sayings is "you cannot steer a parked car" so I would probably prefer to see people taking action rather than doing nothing but let's take a look at the differences between smart investing and just plain speculating.

The following are things you should do to ensure you don't find yourself in the dangerous territory of real estate speculation when making an effort to get started.

1. Deal Analysis

First and foremost is deal analysis. If a deal stacks up on paper then that's just about all you need to know. You really aren't speculating if you have done a thorough and accurate analysis that shows you what profits to expect and when. As I've mentioned before, the key to successful real estate investing is knowing your profit BEFORE you do the deal. So, if you haven't already, go and check out my post on how to evaluate a real estate deal.

2. Don't get caught up in the hype and excitement

We saw the hype before the markets crashed and to some extent we are seeing it again. Now the hype itself is not a bad thing because it gives us information about what is likely to happen. The problem is when it results in pure speculation that ends badly.

It's worth noting that such speculation can and does work out very well for some people who get very lucky with their timing. There were those who bought and sold before the credit crisis and made a handsome profit and there are people who a speculating now by snapping up foreclosure bargains. Some will falter and some will do very well. The key is to realize when your greed gland has been activated, not get swept up in the excitement, and invest wisely rather than just following the crowd.

I believe now IS a fantastic time to be buying real estate in the US but you should not just go and leap in without doing an evaluation of each deal. Let the hype guide you but do not get swept up in it and speculate blindly.

3. Don't bank on appreciation

You can invest for appreciation but do not BANK on appreciation when starting out. In other words it can be factored in as a potential upside but you should never put something that requires a crystal ball into your deal analysis - how can you? So the deal should stand up on cash flow analysis and any appreciation that you forecast should purely be a nice upside.

I will not get into the cash flow versus appreciation debate here (maybe another time) but when getting started your investments should not be costing you money every month unless you have deep pockets and are prepared to lose money. ie. unless you are choosing to speculate.

4. Don't try to time the market perfectly

Some macro analysis will provide you with valuable information about whether you should be getting ready to buy or sell. Such information will certainly improve your odds of success but don't get too clever and imagine that you need to time it perfectly. Remember: anything requiring a crystal ball falls into the category of speculating rather than investing.

I hear very confused individuals wondering if now really is a good time invest because many people are saying that prices will continue to drop for some time. So? It's a time to buy, not a time to sell. Maybe they are confused because their notion of investing doesn't include anything other than flipping - I don't know. But that brings us to the next point.

5. Choose your strategy wisely

Real estate investing is not a one-size-fits-all affair. Unless you have a clear strategy in mind, you are speculating and not investing. And unless you choose a strategy that suits market conditions and suits your strengths and weaknesses you are also taking undue risks.

There are more options available to you than just flipping, so get an idea of what strategies you have available to you and then think about which ones suit you and suit the market you are operating in. Check out my 5 Step Plan for Getting Started for more information.

6. Don't treat the markets as one big market

Real estate markets have quite different dynamics from region to region and one problem with listening to the hype and the news is that they are often referred to as "the real estate market". For the sake of simplicity, averages are often used to report trends but a smart investor knows that investing based on averages is quite dangerous.

Realize how different real estate markets are from city to city and even within different areas of a city. And then choose a market accordingly. That is smart investing rather than speculative approach of basing your decisions on averages.

Summary

You don't need to get everything perfect so don't let any new information here paralyze you. But you MUST get the deal evaluation right. So if there's one thing to focus on here, it's that.

In terms of how to ensure you take action without undue risk I'd suggest the following. Put a bit of a plan together based on the points above, the getting started plan and the risk reduction methods, then start looking at appropriate properties in your market that suit your strategy. Most importantly, do a financial analysis of each property you are considering and when you find one that stacks up on paper go for it. When you've taken the preliminary steps mentioned you will have covered your bases sufficiently.

Yes, there will still be things ahead that you will need to figure out as you go along but with your contingency planning and other risk management in place you will be well equipped to handle it. So this leap of faith at the end is just a matter of overcoming that final hesitation.

This article has been republished from InvestingSecrets.Com. Written by Scott Roemermann.

Do Real Estate Gurus Really Want You to Succeed?

Do real estate gurus really want you to succeed may sound like a very peculiar question but let’s look at the logic behind this question. As a perspective real estate investor you are constantly bombarded with very different ideas from real estate gurus. Some have years of experience, but many more have just a couple of years experience and have only operated in a frenzied environment.

I remember a guru selling a program that was touted as going further than any other program in the industry. The difference was his specific strategy of having various vendors paying for the advertising and actually making money on the home sale even if the property wasn’t sold. I admit it sounds good and it may have worked in a white-hot seller’s market, but it had no chance of working in the flat markets we have had for the past few years.

The guru still kept pounding on the success of his program – which may have occurred five years ago. After the presentation, one person who bought the course because he was having a sale in a few weekends asked what I thought. I said that the idea was old and the new wrinkle on “selling vendors” to participate was a twist but I didn’t think it would work in this market.

Three weeks later the student called me after his open house event and explained that he could not get any vendors to participate and not a single vendor who would pay to advertise. So he paid for the advertising himself and it was a total bust with only three people coming for the full two days.

I suggested he try the round-robin auction method we have used for 15+ years. He did just that two weekends later and had 53 people visit and sold the property the following week. I can guarantee that if you simply put a sign in the yard (FSBO or Realtor’s), run the usual newspaper ads, put it on Craigslist, etc. you are hoping for a lightning strike called a qualified and motivated buyer. Using a systemized marketing program that also accumulates a hungry buyers list is much more effective.

The enormous value of this investor finally selling his property was not just getting rid of it after being on the market for 7 months, rather it was the buyers list he developed. Maybe 95+% were neighbors and investors, but the others were real perspective buyers and a few of them actually had loan approvals.

The investor called the guru marketing the course and complained about the result of what had happened using the instructions from his course, and the guru offered the explanation that, “It’s a bad market”. He did offer to personally do the sale for the investor for a nominal fee of $3,000 saying that it was a small price to pay to get his property sold and how many leads he would get!

If you have been to a national training or “boot camp” you will agree that you are often besieged by additional speakers with different specialties, all with the intent of selling you additional courses. It’s not impossible to spend $20,000 – $30,000 at a single event and in some cases $50,000+. With all this money trading hands, why would the gurus want to see you fail? Frankly, if you succeed in doing deals, you will take more of their time than if you do nothing. They already have your money – it is purely economics and good business in their minds.

Just buying courses over an over again only gets you closer to broke, not closer to doing deals. Doing deals takes the courage to get started and to not be afraid of what happens. Gurus know that having you rush to the back of the room now makes money for them but not just from this initial purchase. Once you are in the system, you will now need more and more information and finally a personal mentoring course to really get you started.

This article has been republished from Stock Markets Review.

Tips For Successful Real Estate Investing

When it comes to investing your money Real Estate investing is always a sound one, even in a tough market. There are two reasons for this, first of all, there is a limit to the amount of available Real Estate there is and secondly Real Estate will eventually appreciate in value, you just have to be patient.

With a cold housing market and hundreds of thousands of homes in foreclosure, you can make the most of your investments and get more bang for your buck in the Real Estate market. Before you go jumping in, however, here are some tips to get you started.

#1 – Don’t bite off more than you can chew. If you aren’t a do it yourselfer and you don’t have the money to invest in a fixer upper, then don’t buy one. Spend a little more on a house that is move in ready instead.

#2 – Do add upgrades. There is a reason that rental homes are advertised with carports, dishwashers and garbage disposals. It is because tenants find them valuable. If your investment properties don’t have them, add them, they will pay for themselves with the increased rental rate you can charge.

#3 – Don’t buy for yourself, buy for your tenant. Just because you love the color scheme orange and black doesn’t mean that you should buy it. Think about the people who are going to live there so that you can get the most money for the property.

#4 – Do charge the right price. If you want to grab a prospects attention, offer an introductory rent but don’t low ball the property. You can compare rental rates for comparable houses or properties in the area to make sure that you are charging enough.

#5 – Don’t hire a professional when you can do it yourself. This applies to upgrades, repairs or even selling the property if you don’t want to rent it. However, refer to rule #1 before jumping all in on a project.
#6 – Do educate yourself on real estate investing. Many people think that it is very easy to do, but the truth is that those who have had the most success in this type of investing took the time to learn every aspect of it so that they could maximize their profits, you should too.

Find out more about Real Estate Investing at http://citiscaperealestate.com/

This article has been republished from Stock Markets Review.

5 Tips For Dealing With Your Banker

Many people find interviews uncomfortable but unavoidable parts of life. This is as true for an interview with your banker as it is for a job interview. In both cases, the other party has something you want. We'll look at some tips that can help you go into the interview process with some bargaining power on your side.

1.) Prepare Your Papers
Before you even book an appointment or step into a branch, have a clear idea of what you need and what you have. Write a personal balance sheet listing your income, debts and assets. The bank will require this information anyhow, but it helps to tally it up in your free time when you can seriously look at what you own. (Buying rental property with personal, cash-collateralized loans is a smart move. Learn more in How To Tap Banks For Real Estate Loans.)

More often than not, the bank merely wants to hear yearly income and outstanding debts. By compiling the list in advance, you can add in the assets that make your case look stronger. As a general rule, if it is valuable enough to be covered under insurance, it's worth listing as an asset.

Once you have your assets and liabilities tallied up, you'll know what you need in the case of a consolidation loan, and what you can handle in the case of a business loan or other type of loan. Write up a short page explaining what you are looking for in clear language - e.g. "I want a $20,000 loan to consolidate my credit card balances at a low interest rate" - followed by the supporting documents. This could simply be your balance sheet with the interest rates on it and a letter of employment or it may be a complete business model with statistics on your market.

2.) Give Advanced Notice
Once you have your papers in order, make the appointment with your banker. Before the appointment, preferably two or three days in advance, drop off your papers at the branch so your banker will have time to look through them. This will save the time spent on preliminaries in the interview and allow you more time for negotiating. This also tells your banker that you are serious and organized. The personal opinion of your banker doesn't count for as much it used to due to the increased role of computer risk models in banking, but it is still worth getting; having a banker going to bat for you can still open doors.

3.) Practice Your Pitch
Your banker is likely going to be working off a script to some extent, and so should you. Don't volunteer information randomly. Instead, plan out what additional details to give and take the time to consider your answers to questions rather than rambling on at length.

For example "I changed careers in 2009, and I was dependent on the credit card for two months in between," is an explanation that contains all the relevant details. It's far better than, "I was unemployed for two months because my idiot of a boss fired me. You think he'd know not to park his car in a forklift lane." These unplanned slip-ups that come out when you're nervous can hurt your personal capital with the bank.

4.) Follow Up
If you get what you want on the first visit, congratulations! If not, don't just give up. Update your banker as your situation changes. If you buy a new car, add it to your balance sheet and send it to your banker again. If you've paid off and closed a credit card, let your banker know. If your company sees increased sales, add that to your loan pitch and try it again. (Now is the time to lock in your variable rate student loan to optimize your educational investment and save on your repayment. Learn more in Consolidate Your Student Loans Now And Save.)

All the risks in lending come from a lack of information. By following up with your banker and keeping your information as complete and up-to-date as possible, you are reducing the risks for the bank. This makes you look better and better as time goes on.

5.) Maintain Perspective
Finally, remember that your bank is not the only bank around. You can repeat this process at competing banks that may want new business enough that they will cut you the deal you want. Your banker knows this, and if he or she knows you are aware of it to, it may encourage the bank to make an exception to keep your business. Even if they are willing to compromise, it's always a good idea to shop around. (Many banks are now offering free perks to entice new customers. Don't miss The 8 Best Bank Perks.)

The Bottom Line
A loan is a deal, just like any other business deal. If you want the bank to give you what you want, you have to put in the effort to become the type of client they want - organized, reliable and motivated. This will go a long way towards convincing the bank that dealing with you is a good business decision. It may not work the first try, but over time you'll be able to win over your banker or easily find what you need elsewhere.

This article has been republished from SF Gate. Written by Andrew Beattie.

The Listing Agent - Preliminary Marketing of Your Home

The "For Sale" Sign

It seems fairly obvious that when you put your house up for sale that your agent will put a "for sale" sign in the front yard. The sign will identify the agent’s company, the agent, and have a phone number so prospective buyers can call and get information.

Signs are great at generating phone calls, even if very few actually purchase the home they call about. However, you might be one of the lucky ones. For that reason, you should determine what happens when someone calls the number on the sign. Does a live person answer the phone or does the call go to a voicemail or recorder?

You want someone to answer the phone while the caller is "hot." When buyers call the number on the sign, the call should go to a live person who can answer questions immediately. A potential buyer may be on the street outside your home, placing the call using a cell phone.

Also, take a look at the sign and see if it seems more interested in generating calls from buyers, or if it seems more oriented toward advertising your agent’s listing services to your neighbors.


Flyers and a Brochure Box

Your agent should prepare a flyer that displays a photo and provides details about your house. There should also be a phone number so buyers can contact your agent to get additional information. The flyers should be displayed in a prominent location in your home and also in a brochure box attached to the "for sale" sign.

The brochure box is convenient for those buyers who drive by and just happen to see the "for sale" sign in front of your house. It provides enough information so they can determine if they want to follow up with a phone call or inform their own agent they are interested in your house.

This article has been republished from Real Estate ABC. Written by Terry Light.

Is Real Estate Really a Relationship Business?

We hear it all the time. Real estate is a relationship business. This means the more people who know you and like you, the more real estate you'll sell.

And it's true. The more people who know you and like you, the more real estate you'll sell.

But is real estate really a relationship business?

Inspired by the Bravo reality series, "Million Dollar Listing," just one of the dozens of real estate reality shows currently gracing the television airwaves, we are spurred to ask just this question.

The young male stars of this show seem to have an unending supply of "dear driends" with dollars to spend on real estate. "After all," says Chad, one of the agents, "Real estate is a relationship business."

If you've ever watched the show with a cynical eye, you might have noticed that these young men tend to give sometimes laughably self-serving advice. Suchas their advice to their "dear friends" to make full price offers in a declining market before the house even hits the market. They allow their sellers to dictate the price and terms of their listings, whining all the while that the seller is being unreasonable. They talk their buyers out of even asking for repairs at inspection because the seller has already come down on his price (again, in a recessionary market).

So, wha t does this have to do with real estate and relationships?

Selling real estate is about knowing how to sell real estate. Let's say that differently. It's about knowing how to manage and facilitate the exchange of real property so that the buyer or seller who hired you is satisfied with the outcome.

Sure, building a real estate business may have everything to do with your relationships, but, as agents, that's not what we do. Is tax preparation a relationship business? Is dentistry a relationship business? Is dog-training a relationship business?

No, we expect our tax preparers to know how to prepare taxes. We hope our dentists know how to fix cavities. We expect a dog-trainer to be a master in dog behavior. That's their business.

Our buyers and sellers have the right to expect that we know our business. This means how to manage and facilitate the exchange of real property, not how to persuade our "dear friends" to provide us with easy paychecks.

This article has been republished from Realty Times. Written by Jennifer Allan.

Falling Home Prices Stir Fears of New Bottom

The housing slump isn't over.

Tax credits and historically low mortgage rates have failed to lift home prices so far this year. Prices fell 0.5 percent in March from February, according to the Standard & Poor's/Case-Shiller 20-city index released Tuesday.

That marks six straight months of declines -- a sign that the housing market is going in reverse.

"It looks a little like a double-dip already," economist Robert Shiller said in an interview. "There is a very real possibility of some more decline."

The co-creator of the Case-Shiller index, who predicted in 2005 that the housing bubble would burst, says he worries that home prices rose last year only because of the federal tax credits. That fear is shared by other economists. They note that weak job growth, tight credit and millions more foreclosures ahead will weigh on the home market.

All that is discouraging for homeowners who have seen the value of their largest asset deteriorate sharply over the past three years. Falling home prices tend to curtail consumer spending. And they make it harder for struggling borrowers to refinance into an affordable home loan.

Prices in 13 of the 20 cities tracked by the index fell. Only six metro areas recorded price gains. One, Boston, came in flat.

In the first quarter of 2010, U.S. home prices fell 3.2 percent compared with the fourth quarter.

The numbers are especially disturbing because they show that improved sales due to the tax credits didn't translate into higher prices, said David M. Blitzer, Chairman of the S&P index committee.

Still, falling home prices haven't kept many consumers from maintaining their optimism about the economy.

A separate report Tuesday showed consumer confidence rose in May for the third straight month as hopes for job growth improved. The increase in the Conference Board's Consumer Confidence Index was boosted by consumers' brighter outlook for the next six months.

In a healthier economy, extraordinarily low mortgage rates would pump up demand for homes. But employers aren't creating new jobs fast enough and loans are harder to come by for small businesses and individuals.

On Monday, the National Association of Realtors said sales of previously occupied homes rose 7.6 percent in April. But the sales were aided by the government incentives that have now expired. Economists don't expect the improvements to last.

New buyers were offered a credit worth up to $8,000. Current owners who bought and moved into another home could get a credit for up to $6,500. To receive them, buyers had to have a signed offer by April 30 and must close by the end of June.

Shiller and other economists worry that prices could fall below the levels of April 2009. That was the lowest point since the peak in July 2006.

IHS Global Insight economist Patrick Newport forecasts prices will fall an additional 6 percent to 8 percent and bottom out in the third quarter of next year. Newport said the glut of homes on the market is the main reason. But he's also worried about the rate of foreclosures.

"When banks foreclose, they sell the properties at deep discounts," Newport said. "Foreclosures have either peaked in the first quarter or are going to peak soon, but they will remain very high for several years."

Mortgage delinquencies reached a record high in the first quarter. More than 10 percent of homeowners with a mortgage missed at least one payment from January through March, the Mortgage Bankers Association said last week.

Since 2006, nearly 5 million homes have been lost to foreclosures or other distressed sales, according to Mark Zandi, chief economist at Moody's Analytics. Zandi expects 3 million more to hit the market over the next two years.

Zandi noted that 15 million homeowners still owe more than their homes are worth. And 26 million Americans are either unemployed or underemployed. The underemployed include people who have given up looking for work and part-timers who would prefer to be working full time.

"It's a lethal mix," Zandi said.

This article has been republished from Yahoo! Finance. Written by J.W. Elphinstone.

Strategic Defaults Are Endangering The Real Estate Market

A growing number of homeowners who owe more on their mortgages than their property is worth are opting for "strategic default," which means walking away from their homes, even though they can afford to make their monthly payment.

If the trend accelerates, it could put more empty houses on a market that's already overburdened with vacancies and snuff out any recovery in the moribund housing market.

Right now, more than 10% of borrowers are 25% or more underwater on 4.9 million mortgages. The total valuation could saddle banks with as much as $656 billion of bad loans, according to the latest report from Corelogic.

Banks, with the help of the government, are offering some relief to homeowners who've lost jobs and are unable to make their payments. But those efforts have largely ignored homeowners choosing strategic default and that trend will continue to gain momentum.

After buying their Phoenix bungalow three years ago for $400,000, Jean Ellen Schulik and Danny Kuehn watched its value drop to just $85,000. Even though they can afford the mortgage payments, they felt they were trying to bail out an ocean with a bucket.

"No logical business person would do anything other than walk away," they told CBS News' "60 Minutes."

When a borrower puts 10% (or less) as down payment towards a mortgage it makes it that much easier to "take a hike." Analysts estimate that one in five borrowers who default on their mortgages are able to pay. If that number rises, it could stop the economic recovery dead in its tracks.


Location, Location, Location

Despite some indications that the economy is on the rebound, the housing market is still a basket case.

Loose lending standards in the early part of the decade and back into the 1990s led to wide-scale overbuilding and created a bubble in the housing market.

Now, the country has too many houses and too many homeowners in trouble. Consider:
Foreclosures are expected to climb to 4.5 million this year from 2.8 million in 2009, according to RealtyTrac Inc., an Irvine, California-based research firm.
About 7 million homeowners are behind on their mortgages, and that number is on the rise.
There are now 2 million vacant homes for sale - double the historical level, according to the Census Bureau.

Housing market deterioration is especially concentrated in six states, a wasteland that stretches from Florida to California, each of which have more than 30% of mortgages near or completely underwater. Three states are over 50%, led by Nevada with a whopping 70% of upside-down mortgages.

Generally, these are not states with small populations, with the exception of Nevada, which ranks 35th in the nation with 2.6 million people. Arizona ranks 16th and the other four are all in the top ten.

An alarming total of 11.2 million homes are underwater. An additional 2.3 million mortgages have less than 5% equity. Considering that closing costs for the seller are often 6% or more (mainly realty commission and home inspection expenses), these 2.3 million "near" properties are actually on life support, as well.
If all the negative equity properties were sold it would add up to 13.5 million homes, or 28% of all mortgages.

Government's HAMP Program Ineffective

In response to the malaise in the housing market, the U.S. Treasury department on March 4, 2009 introduced the Home Affordable Modification Program (HAMP). The $75 billion program is majority funded by the Troubled Asset Relief Program (TARP), and charged banks with modifying 3-4 million mortgages to keep borrowers in their homes.

But the program has been entangled with a host of bureaucratic snafus and only about 1 million applications have been filed since its inception. Only 168,708 mortgages have actually been modified, about 40% of which are predicted to re-default.

In a report released on March 25, 2010 the Inspector General of TARP ripped the Treasury for failing to implement a number of moves that would make the program more accessible to a larger number of borrowers while failing to come up with a viable strategy to avoid re-defaults.

More importantly, the report zeroed in on the Treasury's failure to implement modification programs that reduce the principal balance of underwater mortgages, thereby failing to address strategic defaults.

"Owners who have negative equity are about 25% of all mortgages and account for up to 50% of all foreclosures...[this] could be a factor as owners decide to walk away and default in despair of ever being able to achieve positive equity" the report concluded.

Stigma of Foreclosure Fades

In response to the strategic default wave a number of entrepreneurs have sprung up to capitalize.

Among them is Youwalkaway.com, a website that focuses on "Empowering Homeowners Through Intelligent Strategic Default." The company claims to have helped over 4,000 people through the process and offers differing levels of assistance depending on the fee.

Co-founder Chad Ruyle says his greatest challenge is convincing people that they are not immoral.

"The biggest concern people have is the stigma of foreclosing, and what will the neighbors think," he told 60 Minutes. "But...people are realizing now that there isn't shame in defaulting. The banks don't feel shame by foreclosing on a person's home...I mean it's a business transaction."

Brent White, a law professor at the University of Arizona, told 60 Minutes the moral issue is beside the point and, in fact, more people should be walking.

After all, big businesses make such bottom-line decisions all the time, he said. He pointed out that real estate developer Tishman Speyer defaulted on the huge $5.4 billion Stuyvesant Town apartment complex in New York City earlier this year when its value fell by nearly half, making it one of the biggest walk-aways in real estate history.

Improving Economy Only Cure

The lack of moral stigma seems to ring true for a lot of homeowners, especially when the hole they're in leaves little room for hope.

Researchers have found that homeowners will consider default once their negative equity passes 10% of the home's value. They "walk away massively" after they're 15% underwater. And when the equity shortfall hits 50% of the house's value some 17% of households default, even if they can pay the mortgage, The Wall Street Journal's Real Time Economics reported.

Still, that doesn't mean the majority of homeowners who can afford to make the monthly payment will default.

If the economy strengthens and gross domestic product (GDP) can grow at a pace of 2-3% for a couple of years, employment stands a good chance of improving. The economy could add as many as 3-4 million people to payrolls in that time, as evidenced by the government's March unemployment report showing businesses added over 290,000 workers in April.

That should eventually increase personal incomes, improve the psychology of borrowers holding deeply underwater mortgages, and reduce the number of defaults.

And to look at the glass as half full, almost half of the 50 states have less than 20% of mortgages underwater or nearly underwater.

New-home sales also rose in March by 27%, the latest Census Bureau report showed. But most analysts attributed the jump to the pending expiration of yet another government incentive - a tax credit for first-time buyers - and said sales could quickly slump again.

Other analysts have calculated that it could take as long as a decade for inventories to return to their pre-crash levels and for demand to once again exceed supply.

That is a grim prospect for any owner who hopes to rebuild his household equity through rising prices and eventually return to positive territory. That means strategic defaults will continue to be an acceptable escape for many underwater borrowers.

This article has been republished from Nu Wire Investor. Written by Don Miller.

5 Most Affordable Cities to Buy a House 2010

Here are the 5 metro areas where the average American family can easily afford to purchase a median-priced home - and the 5 where they can't. Top 5 Most Affordable Cities

1. (tie): Indianapolis
Median home price: $96,000
Median income: $68,700
Affordability score: 94.9%

America's most affordable housing market is the 33rd largest metro area in the United States, with 1.7 million people. The median family income is fairly high -- $68,700 -- and median home prices are a very reasonable $96,000, according to the National Association of Homebuilders and Wells Fargo Housing Opportunity Index. Helping keep home prices depressed is a fairly virulent foreclosure plague: There were more than 18,400 properties with foreclosure filings during 2009. The turmoil in the auto industry, which Indianapolis had been closely associated with, has hurt the city. But increased diversification, which has made pharmaceutical companies, banks government agencies and insurers all important employers, has helped keep job losses in check. The unemployment rate was 9.5% in March, according to the Bureau of Labor Statistics, nearly matching the national rate of 9.7% that month.

2. (tie): Youngstown, Ohio
Median home price: $69,000
Median income: $53,500
Affordability score: 94.9%

Youngstown was a vibrant, wealthy steel city for many decades. Workers there were paid some of the highest factory wages anywhere. But the mill closings of the late 1970s devastated the area's economy, and about 40,000 manufacturing jobs have been lost. In March, 14% of workers in the area were idle. As jobs vanished, the area's population shrank, leaving lots of vacant homes for sale -- from very modest row houses to huge mansions. That helps keep the median home price in the metro area very low -- and boosts Youngstown's affordability score. Low interest rates also help. Financing 80% of a $69,000 home with a 30-year, fixed rate mortgage at 5% would result in a monthly payment of $296. At those kinds of prices, renters soon become homebuyers.

3. Syracuse, N.Y.
Median home price: $95,000
Median income: $64,300
Affordability score: 94.5%

A newcomer to the list, Syracuse is one of the many Upstate New York cities that grew up along the route of the Erie Canal, which made them wealthy. Syracuse's importance as a transportation hub continues to this day, with two major interstates crossing here. Much of the area's economic base depended on manufacturing, and many of those industries have declined. While the metro area's population has expanded modestly, the core city has shrunk to fewer than 140,000 from a post-war high of 220,000. That shrinkage means there's much housing stock, keeping home prices very low. The economy slowed during the recession and unemployment grew, but the rate -- 8.5% during March -- is still lower than the national average.

4. Dayton, Ohio
Median home price: $88,000
Median income: $61,700
Affordability score: 94.4%

The hometown of Wilbur and Orville Wright, Dayton still hosts a significant aerospace industry centered on the Wright-Paterson Air Force base But the decline of heavy industry -- including last year's loss of the headquarters for NCR Corp., the old National Cash Register Co., to Duluth, Ga. -- has pushed the city toward the service economy for job growth. That has not stemmed the unemployment tide; the rate stood at 12.3% in March. The core city's population has dropped from a peak of more than 260,000 in 1960 to about 150,000 today. The metro area population has also dropped slightly over the past 10 years, according to Census Bureau estimates. That has lessened demand for homes and helped keep prices low; the median has hovered around $100,000, more or less, the entire decade. At the same time, median income has grown from about $55,000 to more than $62,000. That increase, coupled with very low mortgage rates, made home buying extremely affordable.

5: Grand Rapids, Mich.
Median home price: $102,000
Median income: $62,500
Affordability score: 93.7%

This medium-sized, western Michigan city flourished during the 19th century by turning nearby hardwood forests into furniture. Golden oak cabinets, dining tables and chairs once crafted in the area can now be spotted in many an antique store around the nation. Today, it still is a leading manufacturer of office furniture. The metro area, like much of the industrial Midwest, has seen better days. Besides furniture, it also had a robust auto manufacturing base, which has declined along with the rest of the industry. Grand Rapids economy is now more diversified with health services an important employer. Still, many people are out of work; the metro area's 12.8% unemployment rate is more than three percentage points higher than the national average. The people who are employed make decent wages, over $62,000 for the median household, more than enough to afford a nice house. There are many hundreds of homes for sale in the metro area for less than $90,000.


*** Written by: Les Christie, Yahoo! Real Estate

Tax Tips for Homeowners of Foreclosed Real Estate

If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012 due to short sale or foreclosure, you may be able to claim special tax relief and exclude the debt forgiven from your income.

Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness due to short sale or foreclosure.

1. Normally, debt forgiveness due to short sale or foreclosure results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.

2. The limit is $1 million for a married person filing a separate return.

3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.


6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.

9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.

10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

Homeowners who participated in short sale or had their real estate property foreclosed, take full advantage of the tax benefits available to you and pay no taxes on forgiven debt. To learn more, check out all the rental property tax deductions that are available to you.

*** Written by: Niman Singh, Real Town

Housing Recovery Is All Hype (Shock!)

It seems like the news is a constant boxing match between housing-market boosters and housing-market bashers.

In this corner, Richard Lee, a Las Vegas homebuilder quoted in The New York Times. He thinks a new housing boom is coming. "We're going to come back like you've never seen us before," he says.

And in this corner, Mike "Mish" Shedlock, a commentator who says talk of a "second boom" housing recovery is just hype. Millions of empty, existing homes for sale will "keep a lid on resale prices for a long time to come, possibly a decade."

What's really going on?

The U.S. housing market is slowly recovering from its worst crash in many decades. Recovery takes time, but there are a growing number of signs that the housing market is becoming less chaotic as the months pass.

For example, housing developers are becoming less depressed as they see increases in home sales, in interest from potential homebuyers, and in their prospects for the future. That comes according to the latest National Association of Home Builders/Wells Fargo Housing Market Index, a poll of housing developers that charts their feelings about the housing markets.

The journalists at Reuters responded to that Index with the headline : "Homebuilder confidence at 2-1/2 year high in May." However, "confidence" seems like the wrong word to describe the latest index, considering it only rose three points to reach a score of 22. Anything less than 50 on the 100-point Index counts as "poor" or "not very confident."

Shedlock used the latest index to prove his conclusion that the bad times for housing are just beginning -- and might last for 10 years. That also seems like a stretch. The index's numbers might be low, but it still shows improvement.

Shedlock also points to The New York Times story on Las Vegas. Though a close reading of that story also reveals a more complicated picture.

Yes, the piece quotes home builders like Richard Lee saying ridiculous things. However, there is also evidence in the article that foreclosed homes are selling quickly in Las Vegas -- so quickly that potential home-buyers interviewed for the story gave up trying to buy a foreclosed home after they were outbid one too many times.

Las Vegas is a complicated market with serious problems. But with prices already down so deep, it's hard to argue with this evidence that the worst is yet to come -- for Vegas or for the rest of the country.

*** Written by: Bendix Anderson, HousingWatch.Com

Small Victories: Housing Starts, Home Builder Confidence Rise Again

At first glance, the recent U.S. housing sector data does provide a glimmer of hope for everyone counting on a real estate recovery in 2010: Home builder confidence rose in May and housing starts increased for the second straight month in April.

However, digging a little deeper reveals a more somber picture: Housing sector conditions have improved since the lows recorded during the depths of the recession, but neither builder confidence nor housing starts have reached levels considered healthy by historical standards.

The National Association of Home Builders housing market index unexpectedly jumped to 22 in May from 19 in April -- and reached its highest level since July 2007 -- but the increase doesn't tell the whole story regarding builder sentiment.

Index readings over 50 indicate that more builders view sales conditions as good than poor, so while home builder sentiment has risen, it's still largely negative.

By comparison, let's look at the later half of the "Roaring '90s." After moving into positive territory in early 1996, the index did not drop below 50 for the remainder of the decade, and rose above 70 during the late 1990s.

In the next decade, home builder sentiment did plunge to 46 in October 2001 from 55 in September 2001 -- which was understandable, given the shock and uncertainty that griped the nation in the wake of the 9/11 terrorist attacks. But sentiment quickly rebounded and the index didn't drop below 50 again until May 2006. The subsequent bursting of the housing bubble in 2007-2008 would lower the index to an abysmal 8 in January 2009.

With the above as context, one can get a more accurate read on today's more modest trend: Home builder confidence has risen during the past year and a half, but it's not healthy yet.

Housing Starts: Similar Progress

The trend is similar regarding housing starts. Starts rose 5.8% to a seasonally-adjusted annual rate of 672,000 units in April, according to U.S. Commerce Department data, and are up a significant 27% so far in 2010. Clearly, more building activity is occurring.

Still, investors need to keep in mind how far building activity has fallen. Even excluding the statistics from the home building "mania" years of 2004-2006, when starts exceeded a 2 million-unit annualized rate, starts are still less than half the 1.3 million to 1.7 million unit annualized rate seen during the economic expansions of 1983-1988 and the 1990s.

The major unknown regarding housing demand is whether, in the years ahead, the market will return to levels similar to those historical norms. The U.S. economy is undergoing structural changes -- one factor behind the nation's high unemployment rate. Further, job creation -- a key to household formation -- has historically been a major factor correlating with rising home sales. True, the U.S. economy has added about 500,000 jobs in the past two months, but it will have to demonstrate that it can consistently add about 200,000 jobs per month in the quarters and years ahead, to both maintain the economic expansion and keep home starts and sales trending higher.

As one might sense, that won't be either an easy or a modest achievement, which is why it would be premature to declare an end to the U.S. housing sector's woes.

*** Written by: Joseph Lazzaro, Daily Finance

Top 10 Questions to Ask Yourself Before Becoming a Property Developer

Making the decision to become a professional property developer and invest in property is no easy step. Is it one that requires a lot of thought, consideration and time to ensure you are making the right decision.

If you too are struggling to decide if property development is the right route for you, then the following FAQ can help put all your concerns to rest:

1. What is property investment?

There are many misconceptions about property investment and what it exactly entails. The most common route you will encounter – and hear of – is renovation, where you buy a property with the purpose of doing it up and selling it.

However, whilst this niche was profitable during the property boom of 2007, this investment technique unfortunately is less effective during economic downturns. That is unless you have got the cash to turn the property around fast and quickly get it back on the market.

The other route however – and the one we recommend to you – is buy-to-let. With buy-to-let, you can invest in property based on the areas tenancy demand and ability to produce positive cash flows, and generate month on month incomes simply by leasing your property development to tenants. There is no need to sell…

2. What makes property investment different to stocks, bonds or shares?

The fact that it will never go into zero values! Although stocks, bonds and shares can help you to experience annual returns of up to 25%, they are also prone to dipping down to -8% leaving YOU out of pocket.

With property it is a much different story. Even in a recession, properties can still produce annual returns of up to 25% – if you invest correctly – making it a much safer, more stable investment route.

3. Do I need capital to invest?

No. Equip yourself with the right strategies, and it is possible to invest in property using little if any of your money and purchase properties without putting your own home at risk.

Investment strategies such as No Money Down or No Deposit Down are specifically designed to help you invest with minimal costs involved. All you will have to worry about is your legal fees and stamp duties; yet even then it is possible to negotiate such property discounts that your property will essentially pay for itself.

4. Do I need experience?

Despite what the media would like you to believe, you don’t have to have prior property investment experience to make a profit from property.

The key to achieving long term successful investments is to: equip your property portfolio with the right investment strategies; negotiate the right property price discounts, but more importantly ensure that you only invest in properties which can produce the positive cash flows and tenancy demand you need.

Attending a property development course can help to equip you with such investment strategies. Just make sure that you thoroughly research these property development courses first, check their history/case studies and only sign up to a course that can offer you at least 5 investment strategies.

REMEMBER: Not all investment strategies will work in all financial climates, which is why having plenty of choice can come in handy.

5. How do banks lend money for investment property?

Unlike applying for a mortgage where your lending amount is based on how much you earn, buy to let investment is assessed very differently.

Here, all lenders require is that your property is able to generate 125% of its mortgage repayments through buy to let. Meaning choose wisely and it is possible to invest in bigger and better properties, than you normally would be able to if it was based on your salary.

***Read the rest of the entry at StockMarketReview.Com

Were Bad Math Skills Behind the Housing Bubble?

The foreclosures that led to financial crisis began with homeowners falling behind on their mortgage payments. Yet, have all the factors behind the foreclosures been uncovered?

To date, much of the blame has been assigned to predatory lenders. However, a new and strikingly simple finding explains another significant factor. The Atlanta Federal Reserve has recently released a paper that shows that the numerical skill of homeowners has a meaningful impact on the rate at which they fell behind on mortgage payments.

According to The Economist:

“The economists tracked down a large number of subprime borrowers in New England on whom they already had detailed information, including the terms of their mortgages and their repayment histories. These borrowers were then subjected to a series of questions that required simple calculations about percentages and interest rates.

“Even accounting for a host of differences between people—including attitudes to risk, income levels and credit scores—those who fell behind on their mortgages were noticeably less numerate than those who kept up with their payments in the same overall circumstances. The least numerate fell behind about 25% of the time. For those who did best on the test, the number of payments they missed was almost 12%. A fifth of the least numerate group had been in foreclosure, but only 7% of those who were more numerically adept had.

“Surprisingly, the least numerate were not making loan choices that differed much from their peers. They were about as likely to have a fixed-rate mortgage as the more numerically able. They did not borrow a larger share of their income. And loans were about the same fraction of the house’s value.”

The Atlanta Fed has managed to show that homeowners that are better at these math skills tend to also be better at managing household finances. In and of itself, it’s a hardly surprising finding. However, it also goes to show that basic numeracy offers some ability to predict the outcome of subprime homeowners, much like other factors generally used to judge creditworthiness, such as income and credit scores. Maybe loan officers should start including a math test in their assessments.

*** Written by: Rocky Vega, The Christian Science Monitor

Is A Craigslist Scam Being Run On Your Home or Apartment For Sale?

Warning signs of a Craigslist Rental Scam:

• The price is below market rate. This is the lure that separates the clear thinkers and those that tend to be nervous or desperate.
• The owner is overseas, typically a missionary. The missionary angle is to gain credibility. Overseas, typically Africa and most Nigeria, is to get you to send money to these countries without thinking about it.
• They want you to wire money via Western Union. Enough said on this one.
• When you go by the home there is someone living there. These folks are audacious enough to try to rent homes that are occupied. They are preying on the fact you are too lazy to do your homework.

So what to do.

How To Check If A Craigslist Rental Is A Scam:

• Do a Google search for the property. Odds are the property is already for sale. If there is a listing, typically you will see this on Trulia or Zillow, call the agent. They will be able to give you an answer.
• The price is below market. Very rarely will someone discount rent to the general public. If they are a missionary they will go through a local charity before just going onto Facebook.
• Knock on the door of the unit for rent. Let them know that you have seen this ad on Craigslist and ask if the advertisement is legit.
• If no one is about, ask a neighbor or the super. They will know.
• If it is a scam, let Craigslist know. They will remove the listing.

Here are a couple of Craigslist Search Tools that can help you to see if you house is getting scammed.

• SearchTempest – http://www.searchtempest.com/
• Craiglook – http://craiglook.com/

*** Article Source: The Real Estate Bloggers

Five Hot Marketing Tips to Get Wealthy Clients

The majority of financial advisers are out of sync with modern day affluent simply because they’re either wasting a great deal of time and cash engaged in the wrong advertising actions, engaged in the proper marketing activities but executing them poorly, or still on the sidelines getting ready.

As a result, amid the greatest affluent-marketing environment, financial advisers are most likely to encounter in a lifetime — with eight of 10 clients expressing sufficient statistical dissatisfaction to consider changing advisers and nine out of 10 willing to entertain a second opinion — only 1.9% of advisers are reaping the advantages by bringing in 10 or more $1 million-plus customers a year.

There is essentially little competition for any financial adviser who’s willing to engage in the proper activities, the proper way, towards the proper target market. Based on our recent survey of 4,000 financial advisers, the following are the top five affluent-marketing activities that a select group of financial advisers, who we classify as “rainmakers,” are utilizing to successfully provide in wealthy clients in modern day surroundings. The tips are in order of how nicely they worked for rainmakers in snapping up clients with at least $1 million in assets.

5. Host intimate events

Little social occasions are the ideal venue to show your appreciation for your best customers and simultaneously penetrate their centers of impact. This venue ranks No. 1 for occasions affluent customers will attend and for events where they will provide a guest. Rainmakers understand this, which is why it is one from the top marketing tactics.

4. Do some strategic networking

Modern day elite advisers are very skilled at getting in front of opportunities. To use a Wayne Gretzky analogy, they skate towards the cash. By joining the proper organizations, belonging towards the right clubs, volunteering for the correct causes, attending the proper social occasions, playing host to targeted social occasions, these advisers combine business with civic duty and pleasure. The key is to have a working know-how of where individuals with cash spend their time, and make it component of the affluent marketing campaign to join them.

3. Rack up referral alliances

There is a reason every financial adviser seems to be looking to produce a referral alliance with accountants and attorneys — they could be exceptional referral sources. However, most advisers come across as salespeople attempting to get access to their customers. Rainmakers enjoy successful referral alliances because they’ve very first taken the time to produce individual relationships. Remember, these professionals are at least as skeptical as today’s affluent investor, and they’ve heard it all from financial advisers pitching referral alliances.

2. Generate referrals

This is a first cousin of our top-ranked marketing activity. Nevertheless, there are a number of distinctions financial advisers must realize. First of all, there is a distinction among direct and indirect referrals. Most good advisers get the occasional, “I gave your name to a colleague, anticipate Bob Smith to be calling.” This is referred to as “indirect,” and is how most of the referrals are generated. Directly asking affluent customers is really a dicey proposition: 83% of customers reported feeling awkward becoming asked, but 79% nevertheless stated they would gladly introduce the adviser to some friend or colleague.

1. Orchestrate personal introductions

With skepticism of something involving financial providers at record levels, all communication using the affluent should be upfront and individual. Rainmakers of today have become really skilled at sourcing names of individuals who are connected to affluent clients, referral alliances, or centers of influence, after which really strategically producing certain they’re personally introduced. Modern day affluent do not like salespeople, particularly from financial providers, so the execution requirements to become organic.

*** Written by: Brindils, 4ingrid.com

For Mortgage Shoppers, Less Can Be More

THE Internet can help simplify many financial transactions, though not always when it comes to home mortgages. Those who sign up for information at mortgage Web sites have found themselves receiving a flood of calls and e-mail messages from brokers and lenders soliciting business.

But that trend seems to be changing. Refinance.com, which made its debut early this year, promises to simplify the process for those refinancing their mortgages, by connecting each borrower with just one lender, and says it plans eventually to extend the service to all mortgage borrowers.


Now Google is offering a similar service. The company’s new mortgage search feature, which has been in limited testing since 2009, expanded last month to serve New York andNew Jersey borrowers (though people may have trouble accessing the site during the testing period). It now serves Web users in 38 states, though not yet Connecticut.

For now, by bookmarking https://www.google.com/comparisonads/mortgages, borrowers will see a list of various lenders and mortgage products with current rates and costs. The page lists loan offers — including closing costs — from several lenders, along with their fees and the monthly payment that would be required. Borrowers can quickly tailor that page to their own qualifications — like down payment, credit rating and loan type — and the loan offers change almost instantly.

The chief difference between Google’s mortgage search service and many others is that, at this point, borrowers can choose to receive an offer from a single lender, which does not have the borrower’s direct contact information.

The loan offer is semibinding for the lender. As long as the borrower’s information does not change all that much from that shown on the original screen, Google will hold the lender accountable for the terms shown, said Paul Todd, a director of product management for Google.

*** Article by: Bob Tedeschi, NY Times

10 Frequently Asked Short Sale Questions

Here are 10 frequently asked short sale questions that are very helpful especially if you are just getting started or considering short sales as a means to acquiring pre-foreclosures.

1. What happens to the seller's credit rating when they allow an investor to short sell their property?

What typically happens is the loan will show up as "paid" on their credit report; however there will be a notation that says "settled for less than originally owed" or something along these lines. It is more favorable for a homeowner to short sell than to have a foreclosure on their credit report.

2. Where do you find investors for short sales?

Depending on where you live, you may see investors who advertise with bandit signs or in your local newspaper. Call the investors directly and ask them if they are experienced in doing short sales and if they would be interested in working with you. Another good place is your local real estate investors club meeting.

3. Define a short sale?

A short sale is really a form of pre-foreclosure sale and occurs when the mortgagee agrees to accept less than the loan amount to avoid foreclosure. A negotiated short sale results in a discounted purchase price for the buyer. The buyer would finance the acquisition much the same as in any conventional realty acquisition... but without the luxury of time.

4. Can an owner profit from a short sale?

The seller cannot profit (monetarily) from a pre-foreclosure short sale.. But there are always exceptions to the rule.

5. How do bankruptcies affect the possibility of doing a short sale?

Most mortgagees won't consider a short sale if the homeowner is in bankruptcy...why? Because negotiating a short sale payoff is considered a collection activity. Collection activities are prohibited in bankruptcy.

6. Can somebody tell me what documents do I have to include in a short sale package?

Documents depend on the lender. Each lender has different requirements. It is typical to require hardship letter, purchase and sales contract, ECOR, settlement statement (HUD 1), net sheet, pay stubs, bank statements, personal financial sheet (monthly budget), amongst other things.

7. What percentage of mortgage companies send someone out for an appraisal on a possible short sale?

All lenders order a BPO or full appraisal of the property before making their decision to accept or reject the short sale offer. This is there only way of assessing the value of the property.

8. How late in the pre-foreclosure process can you start a short sale?

Try to allow a window of at least 90 days to effectuate a mortgagee approved, pre-foreclosure Short Sale.

9. What is a Due on Sale clause?

"Due on Sale" Clause (DOS) Provision in a mortgage or deed of trust calling for the total payoff of the loan balance in the event of a sale or transfer of title to the secured real property. A contract provision which authorizes the lender, at its option, to declare immediately due and payable sums secured by the lender's security instrument upon a sale of all or any part of the real property securing the loan without the lender's prior written consent.

For purposes of this definition, a sale or transfer means the conveyance of real property of any right, title or interest therein, whether legal or equitable, whether voluntary or involuntary, by for deed, leasehold interest with a term greater than three years, lease-option contract or any other method of conveyance of real property interests. Standard language which states that the loan must be paid when a house is sold.

10. Will banks allow a short sale when the owner has some or a good amount of equity?

If a property has what the lender would consider a substantial amount of equity, chances are they would consider allowing the property to foreclose and then reselling it closer to the retail value. Focus on homes that do not have much equity. Your job will be to create the equity in the home by negotiating a successful short sale.

***Article by: D. C. Fowler, REI Club

Why Americans Get Ripped Off on Mortgage Loans

You might think that Americans would have learned over the past few years that home mortgages can be dangerous products, to be approached warily, only after careful study and consideration. You would be wrong.

Americans spend twice as much time shopping for cars than they do for home loans, Zillow.com reported Thursday. An online survey of 2,729 adults commissioned by Zillow found that on average they spent five hours choosing a mortgage, compared with 10 hours for a car and four hours for a computer. Nearly a third of the respondents devoted two hours or less to choosing a mortgage.

“Mortgages continue to be something that most people don’t want to spend time thinking about,” said Stan Humphries, chief economist for Zillow, a real estate information firm.

Of course, only an economist could find that even faintly surprising. Most people find it fun to look at shiny new cars and take them for test drives. Vroom, vroom! Reading through the fine print of loan contracts and trying to figure out what would be a fair price for title insurance and an appraisal–well, slightly less diverting.

Even if you do want to shop wisely for a mortgage, that isn’t easy to do. You can’t just pick the lowest rate because the lender offering the lowest rate might have the highest fees. And one lender’s loan doesn’t necessarily have the same terms as the similar-sounding loan from the bank or broker next door. You need to look at a bunch of factors, and at the end of it you won’t necessarily know which combination is best.

Moreover, you might be told on Monday morning that your rate will be 5%. When you come back to lock in the next morning, however, the lender may tell you that the market has moved (as it does constantly) and now your rate is 5.25%. Do you have time to go back to all the other lenders and check what they’re charging today? Or are you so eager to refinance or seal your home purchase that you’ll just sign on the dotted line?

In fact, many lazybones simply go to one lender–the one recommended by a friend, Realtor or home builder–rather than doing their own research.

At the beginning of this year, new federal rules mandated a standard three-page “good faith estimate” of mortgage fees and terms that is supposed to make it easier for consumers to compare offerings of different lenders. Opinions are mixed on whether this new form is helpful or confusing.

Lenders, for their part, always say they are eager to improve “financial literacy” so consumers can make better choices. But do they really want to make it easy for consumers to shop for mortgages? I’m skeptical. If consumers could easily compare one lender’s terms with another’s, profit margins on home mortgages would go down.


***Article Source: Wall Street Journal Blogs

How to Buy a Foreclosure

You want to buy a foreclosure? Remember, there are both great opportunities and great pressures and pitfalls in this market.

First, you have to decide at what stage of foreclosure you want to buy. There are three options: 1. pre-foreclosure; 2. sheriff's auction; 3. repossession, called REO (for real estate owned by the bank).

"The safest and best way to buy is when it's a bank-owned property," said Rick Sharga, a spokesman for RealtyTrac, the online marketer of foreclosure properties.


Pre-foreclosure: These homes are in the foreclosure process, but they have yet to be sent to auction. Owners are typically trying to unload them because they are "underwater," owing more on the homes than they are worth.

As a result, potential buyers must negotiate a deal with the lender as well as the owner. That makes buying at this stage of foreclosure complicated and slow. But, you have the advantage of being able to inspect the home before purchase -- which isn't the case in other types of foreclosure sales. Sharga warned, however, that prices are usually higher than at other stages of foreclosure.

Sheriff's auction: These sales yield the lowest prices, but they are fraught with difficulties. Often the house is unavailable for inspection, leaving buyers with a long list of expensive repairs -- and much larger bill than they intended.

Repossession: This occurs after the home has gone through a sheriff's auction but does not sell and the bank gains possession of the property. Homebuyers may not get the best bargains during this stage, but they can nearly always perform a thorough inspection before closing, minimizing costly surprises. Plus, the property comes with a clear title.

Once you've decided which type of home to buy, there are several common mistakes foreclosure buyers should take care to avoid. These include:


Getting caught up in a bidding frenzy: The banks often under-price repossessions, hoping to generate excitement, attract multiple bids and sell them quickly. The problem is, as in any auction-type sale, bidders get excited and pay too much.

"Remember," said Sharga, "there are 800,000 REOs in the banks' inventories. There'll be another home to bid on tomorrow."

Underestimating repair costs: Take full advantage of the home inspection and don't delude yourself about much the repairs will cost.

Not knowing what comparable properties cost: This is important in any market but especially in this endeavor. In high foreclosure areas, prices can be eroding very quickly. You want to have the latest homes sale prices on repossessed properties and try to keep your bid comparable or lower.

Buying in a neighborhood flooded with foreclosures: This is most important for people buying for the short-term. Any neighborhood saturated with REOs and foreclosures may be headed for further price falls. If you're planning to relocate within a few years or buying a bigger house, that could mean selling at a loss. A better bet, if you can find it, is to buy the only foreclosed home in an otherwise stable community. That's more likely to hold its value.

Not knowing what comparable properties cost: This is important in any market but especially in this endeavor. In high foreclosure areas, prices can be eroding very quickly. You want to have the latest homes sale prices on repossessed properties and try to keep your bid comparable or lower.

Buying in a neighborhood flooded with foreclosures: This is most important for people buying for the short-term. Any neighborhood saturated with REOs and foreclosures may be headed for further price falls. If you're planning to relocate within a few years or buying a bigger house, that could mean selling at a loss. A better bet, if you can find it, is to buy the only foreclosed home in an otherwise stable community. That's more likely to hold its value.

Remember that pre-approved financing is different from pre-qualified financing; it means the loan is ready to go. Pre-qualified is more like an opinion of a loan officer and there's still work to be done before final approval.


***Article Source: CNN Money