FHA loans will cost buyers more after April 18 (video)

The Federal Housing Administration currently provides funds for one-third of all mortgages in the U.S. It's a very popular optionfor qualified homeowners who don't have large amounts of savings for a down payment.

If you're a qualified buyer (credit rating, work history, income all count), you can still get an FHA loan with a 3.5% down payment.

But in an effort to protect itself from risk (buyer default), FHA is raising the monthly cost of mortgage insurance (paid by the buyer). Depending on the loan, the monthly payments will increase, which means you will pay more for your home

If you are thinking of buying, you will save on your monthly payments if you can make a commitment before April 18.  Here's a brief video outlining the policy.

Related articles

• FHA Powers What's Left of Home Market (online.wsj.com)
• Looking for an FHA loan? You best hurry...FHA-insured loans to cost more (miamirealestateking.wordpress.com)

Home ownership is not for everyone! (long)

Sure I want to sell homes. That's my chosen profession. But I don't want to "sell a home" to everybody--or even for that matter to just anybody.  Despite the fact that we've been sold the concept of home ownership as The American Dream, there will never be enough homes for people who want them. And for many of us, home ownership really makes no sense. 

Let's look at the truth: very, very few people can "own" a home. We can control where we live and control what we pay each month and even build "equity" so when we sell our home we can recover part (rarely all) of our investment.

Please take the time to read Eric Belsky's thoughtful piece. I have to agree with Mr. Belsky. What about you?



Rethink the cult of homeownership

Eric S. Belsky, SPECIAL TO LOS ANGELES TIMES
Monday, November 16, 2009

Here's a radical notion: Let's rethink the cult of homeownership in America.

Why, a sensible person might ask, do we need to do this when millions of homeowners faced foreclosure in the last year alone, and an estimated 15 million more own homes worth less than their mortgages?

Clearly, one might conclude, the bloom is already off the homeownership rose.

The answer is simple. Even in the middle of the collapse, when people were asked about their expectations for house price appreciation over the next year, the answers shock.

Zillow.com reports that at the end of 2008, with prices falling, 70 percent of those surveyed said they did not think their house price would decline over the next six months, and more than a quarter expected it to actually increase.

Many people still rely on outdated measures in deciding whether to buy or rent. For example, they often base the decision to own on how long they will be in a home. But people predictably understate the chance that they will be forced to move because of a job loss, divorce, death of a spouse or disability. Furthermore, the focus of efforts under the federal national stabilization program to deal with foreclosures is to recycle them back into the hands of homeowners or, in the case of small, multi-unit apartment buildings, resident landlord/owners.

The U.S. is a country that is still in the thrall of homeownership.

Nearly a decade ago, a colleague and I edited a book about the promotion of low-income homeownership, with the subtitle "Examining the Unexamined Goal." Study after study pointed out the risks of homeownership. One used repeat sales data to look at what properties bought from 1982 through 1999 sold for in Boston, Denver, Philadelphia and Chicago. In Chicago — which never had much price fluctuation, even in 1995, its worst year — only 9 percent of houses on the market sold at a loss. But in Boston, which had a larger price correction, 45 percent of houses sold in 1993 and 1994 sold at a loss. Worse still, 69 percent of houses in Denver sold in 1988 and 1989 sold at a loss.

In places such as Los Angeles, which was not part of the study but where house prices cycle a great deal, high percentages of owners during periods of decline have had to hand the keys back to their lenders to get out of underwater mortgages, or fork over a lot of cash at the closing table when they sold.

Ironically, to some people, owning may make more sense today than when housing markets were booming. After all, chances are greater that people will buy at or near the bottom.

But should Americans assume that homeownership is always the right choice?

We should spend as much time thinking about how public policy can encourage intelligent housing choices as we have thinking about how it can encourage intelligent mortgage choices. The choice to own or rent comes first.

Let's assume that the way to get out from underneath the weight of foreclosures is to not let speculators and homeowners at risk of falling behind again roll the dice.

Let's instead consider programs that aggregate ownership of properties, especially two- to four-unit ones, in the hands of nonprofits that can rent them out. These small complexes are estimated to account for up to two in five foreclosures. It might make more sense to get these properties into the hands of nonprofits that own many properties, so that a single rental vacancy constitutes the loss of only a small fraction of rental income. By contrast, one vacancy could constitute up to 100 percent of the rental income needed to make the mortgage payment for a resident/owner of a single small property, making that a less stable investment.

It's time we make homeownership just one alternative in a more innovative, affordable and broader housing market.

Belsky is executive director of the Joint Center forHousing Studies at Harvard University.

Get home schooled!

Thanks to Mother Prudential for passing on this very helpful advice!

Educated Homeowners Surviving Housing Crisis

November 20, 2008 -- Realty Times Feature Article by Broderick Perkins

If the experts have said it once, they've said it a thousand times, but they can't say it enough.

Homeownership doesn't come with a manual.

It's up to you to learn what you are getting into before you embark on what's likely the most valuable acquisition you'll ever complete.

It's no surprise new mortgage modification programs, foreclosure assistance and bankruptcy laws come with mandated homeownership counseling.

When you get schooled on the issues of homeownership, you have much greater chance to continue as a homeowner -- even when the economy crashes down around you.

The foreclosure rate for low-income homeowners who attended homeownership education programs had a foreclosure rate that was 20 times less severe than that for subprime borrowers and three times better than that found in the prime mortgage market during the second quarter of 2008, according to data from NeighborWorks America, a staunch non-profit advocate for healthy communities.

"The facts tell the real story," says Kenneth D. Wade, CEO of NeighborWorks.

"The vast majority of mortgages facilitated by NeighborWorks organizations are to buyers with low and moderate incomes and less than perfect credit scores, yet by obtaining quality mortgage advice these homeowners have been able to sustain homeownership during the most severe housing crisis since the Great Depression," Wade added.

Long before homeownership counseling was de rigueur, South County Housing, a chartered NeighborWorks member in Gilroy, CA, was doling out a heavy curriculum of homeownership studies along with sweat-equity programs and loans that look a lot like subprime mortgages.

However, thanks to smarts the group gave its largely Latino buyers, South County's portfolio foreclosure rates today hover around zero, belying rates in the rest of foreclosure-hammered California.

There's more.

When NeighborWorks compared its total loan portfolio's foreclosure start rate of 0.21 percent in the second quarter of 2008, it found the overall nationwide homeowner market had a foreclosure rate more than five times as much, 1.08 percent.

Nationwide, the foreclosure start rate for only conventional conforming loans was 0.61 percent, compared to NeighborWorks' portfolio rate of 0.21 percent.

Buying a home today without learning what it takes to keep it, is like a trip to a Vegas -- for insights on both the money-losing potential in the casinos and the kind of widespread homeownership devastation that comes with ignorance.

Learned homeowners consistently out perform those without the lessons.

Says Wade, "The idea that some observers now are pointing to low-income people as the cause of the financial crisis we're facing today is just wrong. NeighborWorks organizations have a track record of providing one-on-one mortgage advice, encouraging homebuyers to avoid loans that they can not afford for the long term."

The message is brutally simple. Seek accredited homeownership counseling now and prepare in advance for your own home. Even if you already own your home, enroll in a counseling session.

There's plenty of counseling available. In October, the U.S. Department of Housing and Urban Development (HUD) doled out, to more than 2,300 local housing counseling agencies, $50 million in housing counseling training and housing counseling grants for first-time home buyers.

It's your tax money. Use it. Get home schooled.

Real estate myth 2

This is the continuation of a feature inspired by a conversation with an acquaintance who revealed a good deal of ignorance about the real estate profession. I think an educated market benefits everyone, so I intend to debunk as many myths as possible, one myth at a time. I hope you find this information useful. Please feel free to comment!

You'll hear many of these myths at the neighborhood barbecue.

Myth #2 'We made a ton of money on the place'

Has your house been a good investment? To get an answer, many folks simply look at how much they put down on their house, think about how much they might net after paying off the mortgage and then figure out the difference.

But this calculation leaves out all kinds of complicating issues, such as the intervening monthly payments that whittled down your mortgage debt and the home improvements that bolstered your home's value.

The calculation also ignores the continuing costs of home ownership, including property taxes, home insurance and maintenance expenses, as well as the costs of buying and selling the property. Maintenance costs might run to 2% of a home's value each year, while selling usually means forking over a brokerage commission equal to 6% of your home's value.

The calculation's real downfall, however, is that it looks at the wrong thing. As with many other investments, your home's total return includes both income and capital gains.

Over the past 25 years, homes have appreciated at one percentage point a year above inflation.

Thus, if inflation runs at 3% a year, your home might appreciate at 4% annually. Disappointed? Don't be. You don't just benefit from your home's appreciation. You also get to live in the place. How much is this worth? Think about how much you could collect each year if you rented out your house.

Suppose this annual rent is equal to 8% of your home's value. Add that to the 4% appreciation and your home's total return might be 12% a year, before costs. After expenses, your home's long-run performance probably won't rival stocks, but you should outpace the bond market.

Thanks to Jonathan Clements of The Wall Street Journal

Real estate myths

I believe that an educated market benefits everyone. I had a conversation this week with an acquaintance who was clueless about the real estate profession. I have him in mind as I start this new feature. You might have heard (or even believe) these myths--they're often perpetuated at the neighborhood summer get-togethers.

I hope you find this information useful. Please feel free to comment!

Myth #1 'The bank owns most of my house'

"I hear that statement a lot, and it makes no sense," says Chris Mayer, a real-estate professor at the University of Pennsylvania's Wharton School. "Suppose you buy a house for $250,000 and you put $50,000 down. You might think that you own 20% and the bank owns 80%. But if the house's value goes down $50,000, you lose $50,000 and the bank loses nothing."

Fortunately, the leverage that comes with a big mortgage usually works to enrich homeowners. Consider that $250,000 house bought with $50,000 down. If the home's value climbs just 20%, to $300,000, the value of your equity would double to $100,000.

Still, because of the debt involved, purchasing a house is a risky proposition. To get a better handle on the investment bets you are making, it can be helpful to consider your house separately from your mortgage. If your home's current value is $250,000, that is your real-estate exposure.

Meanwhile, think of your mortgage as a bond, suggests William Reichenstein, an investments professor at Baylor University in Waco, Texas. But in this case, instead of buying bonds and receiving interest, you are effectively selling a bond and paying interest.

What are the implications? Suppose you are retired with, say, $300,000 in bonds and $200,000 in stocks. You might think your portfolio is conservatively positioned.

But if you still have $125,000 outstanding on your mortgage, you would need interest from roughly $125,000 of your bonds to pay your mortgage interest. The bottom line: Your net bond position is really just $175,000, and thus your portfolio has more in stocks than bonds.

Thanks to Jonathan Clements of The Wall Street Journal