Ask The Money Coach

Archive for the ‘Homeownership’ Category

Q: I have a question from a reader who wants to know about getting a lower rate on her mortgage.  She said, “I bought my house in 2007 and I now owe more than my house is worth.  But I want to get a lower interest rate than the one I have right now.  I can’t use the company that I’m paying my mortgage to because they’re just a mortgage broker.  They now own my mortgage.  I would like to get a lower interest rate though.  How can I do it?”

A: Well, I hate to tell you this but you probably won’t be able to take advantage of these historically low interest rates that we are getting right now, that we’re seeing right now.  Of course, recently, according to Freddie Mac and Fannie Mae, 30-year fixed rate mortgages have dropped to their lowest levels in decades.  We’re talking about 4.35% or so.  That’s amazing for anybody who wants to refinance their loan or do an initial home purchase.

The problem for you though, is that you said your house is under water.  That you owe more than the house is actually worth.  Think about the lender’s risk here.  If you’re saying that you owe $300,000 on your mortgage, and I’m just making up a number here.  But the house is only worth $250,000, why would a lender extend to you a new 30-year loan after you just got it three years ago, extend your payments again over time and give you fresh money for something that’s not worth that amount?  They simply won’t do it.  Your best bet is to look into one of the federal government programs that the Obama Administration has launched in order to help homeowners who are struggling with their payments, who are under water, who have recently lost their jobs, or who are otherwise finding their homes unaffordable. Check out the Making Home Affordable Program for more information.

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• Refinance with Cash out? (mytotalmoneymakeover.com)
• Drop in mortgage refinancing overwhelms rise in loans to buy (usatoday.com)
• Your First Home: The Smart Way to Get It and Keep It

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America’s foreclosure crisis got especially ugly last month.

According to RealtyTrac, lenders repossessed more homes in August 2010 than in any other month since the housing meltdown and recession began back in December 2007.

All told, banks took back 95,364 properties in August, a 3% rise over July figures, and a 25% increase over year-ago levels.

Unfortunately, we’re on track to see more than four million homeowners get a foreclosure notice in 2010. Of those, an estimated one million property owners will actually lose their homes.

All this stepped up foreclosure activity suggests that banks are accelerating their foreclosure proceedings and getting more aggressive about evicting past-due homeowners.

One possible reason for this is that no bank wants to look like a scrooge by putting individuals and families on the street during the November and December holiday season. So I expect that lenders will likely try to get a lot more foreclosures done this fall, especially in September and October.

Facing foreclosure? Read these tips to see if you can save your home.

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• us banks step up foreclosures

Even if your family isn’t having mortgage trouble, you probably know one that is: One in five homes on the market is a foreclosure, a record 200,000 foreclosures are occurring each month, and existing U.S. home sales have hit a 10-year low. Money coach Lynnette Khalfani-Cox helps three families solve their home-ownership dilemmas.  Click here to read more

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• Khalfani-Cox on Financial Overhaul And Consumer Protection : NPR Interview (askthemoneycoach.com)
• Help for people during the housing crisis. (askthemoneycoach.com)
• Obama Housing Program Slowing To A Crawl While Homeowners Suffer (huffingtonpost.com)

Question: We live in a home appraised years ago at $80,000 and owe $44,000. We have a home rented out which appraised at $65,000 years ago too and we owe $22,000. We have never taken a home equity loan on either house. I have been drawing unemployment and paying bills with this money for 16 months but my credit card bills are driving me crazy. I have 3 cards which total $10,000 and all are maxed out. Is there anything I can do to pay off these credit cards?

Answer: Sorry to hear about your job loss and your extended period of unemployment. It’s hard to rid yourself of credit card bills when you simply don’t have any earned income coming in because your unemployment benefits, naturally, have to just pay all your current bills. You said “we” several times in your message. So I assume that you have a spouse or a significant other. Hopefully, that person is earning W-2 wages or self-employment income. Your rental home may turn out to be your saving grace. You said that the appraisals on both homes were done “years ago.” Was that two years, five years ago or something else? Whatever the case, that’s an eternity in the real estate market. So do yourself a favor and get an up-to-date market analysis of your house. You don’t have to pay for a full appraisal at this point. Just get an experienced realtor or real estate agent to check out your rental (and your home too) to tell you what the current market value is for those properties. If you do have to sell one of them shortly, at least you’ll know how much money you can expect to net. Those funds may be sufficient to pay off the credit card debt. Meantime, read this post about tips for getting out of debt and managing your finances when you’re out of work or have reduced income. And this one too for advice about debt management plans and a referral to the National Foundation for Debt Management (http://www.nfdm.org). Good luck!

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• One more time: The best paths to help you wipe out credit card debt (askamoneyexpert.com)
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Q: I Bought a Condo in 2006 and My Mortgage is More than it Should Be. I Recently Married and Would Like to Move into a More Spacious House. However, it Would be Difficult to Sell my Condo or Even Rent it for What we Pay Each Month. My Mortgage Lender Doesn’t Do Refi’s. So How Can I Move Without Defaulting on my Mortgage?

A: It sounds like you have little or no equity in your house. I’m guessing that’s the case based on a number of things. You bought your house in 2006, during the “no money down” era, when most homebuyers put little to no down payment for homes. You stated that your mortgage is “more than it should be”.  And you indicated that your lender won’t do a refinance. Given all of this, you have a couple of options: One, try to refinance your home with a different lender so that your payments are more affordable. There’s no reason for you to be locked into your current lender – unless you have a loan with a hefty prepayment penalty or something like that. Getting a refi done will take equity in the home and good credit. If you can pull one off, then at least you’re not as cash-strapped.

Moving to a bigger home is another matter entirely. Not only do you need a down payment (that’ll be your equity) and good credit, you also need to come up with closing costs, and to figure out how to first unload your current property. I have no idea what your budget looks like, what you and your spouse’s combined income or expenses are, nor what the real estate market is like in your area. So it’s difficult for me to offer you options that would help you to out of a financial jam. But you haven’t expressed any other financial problems, outside the fact that your mortgage is too high and that you really want to move to a bigger place. Recognize that having a bigger house is a “want” at this point, and not a “need.” If selling or renting are not feasible, I don’t see many options left. You may have to wait until the market turns around and you can sell your existing house in order to come up with the cash necessary for another residence. It would not be wise to buy another house and simply default or “walk away” from your current condo solely because you want a bigger house. If the house was greatly under water – say 25% or more – and you and your husband just couldn’t afford it, maybe because you were unemployed or something, then I might suggest considering your options regarding walking away. But nothing you’ve said to me indicates this. So I think you should try to have a little patience, beautify the home you currently have, and try to ride out this housing downturn. I know it’s not a pretty picture right now. But in the long term you’ll be glad if you wait and buy your new home under the right conditions, with your finances and your credit in tact.

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• Mortgages: Stricter Lending Guidelines for Condos (nytimes.com)
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