More Affordable Than Ever

The Housing Affordability Index reached a record high of 192.3 for February, 2011. Two contributing factors to the Index are the price adjustments homes have experienced in recent years combined with the unusually low mortgage rates make this an outstanding opportunity for buyers who can qualify.

Before the housing bubble burst in 2006, the index average for the year was 108. The high prices and higher interest rates restricted many buyers from purchasing. As the market started to deteriorate, which resulted in declining values and lower interest rates, the index started to rise.

The opportunities are not being seized by buyers and some real estate professionals feel that it's because there is confusion in the marketplace. Buyers are uncertain whether they would qualify and whether now is a good time to be purchasing a home.

All markets are different and every situation is unique. The only certain way to determine would be to investigate your individual situation. You owe it to yourself and your family to visit with a real estate professional who can show you the real cost of housing and recommend a lender.

The National Association of Realtors releases the index at the end of each month with a two month lag time for compiling the information. When the index is at 100, a median income family can afford a median price home. As the index increases, housing affordability increases.

Rent or Buy...You Pay for the House You Occupy

Whether you rent or buy, you pay for the house you occupy. You must live somewhere and there's a price to pay for it. A simple analysis will show you whether it's cheaper to rent or buy.

Some people don't have any choice but to rent because they don't have the means to qualify for a loan. But for those who do have a down payment and good credit, they actually have a choice of whether to rent or buy. In some cases, owning will cost significantly less than renting.

Rentals are in high demand in many markets and rents are going up. People who have experienced foreclosures and short sales have increased demand. The first comparison a discerning buyer needs to make is whether the house payment is lower than what they'd have to pay in rent.

The next comparison needs to consider the other benefits that accrue to an owner such as principal reduction, appreciation and tax savings. These can dramatically weigh in favor of owning rather than renting.

Tenants have made the decision to buy a home. The decision currently facing them is whether to buy it for themselves or their landlord.

Lower Your FHA Mortgage Payment

Most FHA loans have monthly mortgage insurance required that must stay in force until the unpaid balance is reduced to 78% of the original sales price. It would take about 10.5 to 12.7 years of normal amortization for loans with rates of 5% to 7% to reach that level.

As an example, a $175,000 home with a 5% mortgage for 30 years would have monthly mortgage premium of $163.46. This is eliminated when the unpaid balance reaches $136,500 which is 78% of $175,000. It can do that with normal amortization which would take about 10.7 years.

A faster way to reach that target balance would be to pre-pay the mortgage by making regular additional principal contributions or single lump sums. In the example used above, if a person made an additional $100 principal contribution with each payment, the 78% level would be reached in 7 years 8 months compared to the 10.55 with normal amortization.

If a person would increase their principal contribution by a little less that $300 a month, the need for the MIP would be eliminated at the end of five years which is the minimum amount of time it must stay in place for most FHA loans.

The benefits of making additional principal contributions will be to build equity faster, lower overall interest that you'll pay and shorten the time that you'll be required to pay the costly mortgage insurance. It will be necessary for the borrower to notify FHA when the target date has been reached if accelerating the amortization.

Lower Assessment

Many homeowners are overlooking an opportunity to lower their property taxes by not challenging their tax assessment. Property values have decreased in the past two to three years and the assessment may not reflect the current market value.

Deadlines are critical and if the challenge isn't made in a timely fashion, the opportunity to lower the assessment can be lost for the year. You'll need tdo verify the deadlines for your area.

The process for the challenge is relatively simple and can be done by a homeowner or by professional representation. In some cases, if there is an obvious mistake, the state employee may be able to correct it without a hearing.

Check the property assessment record for common mistakes that can include the number of bedrooms, baths, lot size and square footage of the improvements. Documentation is required to verify the errors. If you have an appraisal, such as when you purchased the home, it can serve as proof of the discrepancy.

In other cases, a hearing is required before a panel of citizens who will listen to testimony from the taxpayer and a representative of the assessor's office. Based on the documentation presented, the panel will make a ruling to lower the value, make no change or in some cases, raise the valuation.

Recently closed comparables are the most common proof presented in a hearing. Comparables should be similar in size, condition and location. A knowledgeable real estate professional can filter the results generated in a MLS search to identify the most appropriate.

I’m prepared to supply the comparables, filing deadlines and other pertinent information you need to make a challenge. Lowering your assessment will result in lower property taxes and more money in your pocket.

Mortgage Loans and Lenders to Avoid

In many cases, the seller and the buyer are actually represented by their real estate agent. In those situations, there is a fiduciary relationship created that requires the agent put the client's interests above their own.
There is generally no such relationship between buyers and lenders. Some of the housing crisis issues may have been avoided had the lenders been more concerned for the buyer's best interests.

The following are a few warning signs that should cause a buyer to do much closer investigation:

1. Claims that bad credit is not an issue
2. Prepayment penalty
3. Larger than normal loan charges
4. Rate gouging by brokers - yield-spread premium
5. Loans without escrow accounts for taxes and insurance
6. ARM loans that only go up and not down
7. Initial loan to secure property with plan to replace it later

As a real estate professional, I can recommend a lender who is experienced in your market and has a history of providing good service. A real estate professional can be a good intermediary between you and the lender.