Posts Tagged ‘underwater’

Tip to Avoid Ever Having Negative Equity

Sunday, July 31st, 2011

Twenty percent of all U.S. mortgages are underwater, and seventy percent of Nevada mortgages have no equity. The only way for underwater homeowners to sell their homes is if they have some serious cash reserves, or can get the bank to O.K. a short sale. These statistics are quite disturbing. The real estate market in Nevada during the boom was too drastic, and their recovery is most painful. The way real estate trends are headed, we will likely see real estate declines for Herriman UT Homes and SLC UT Real Estate . It’s also not likely that home values will see any significant appreciation any time in the next five years.

Is there way we can prevent any more decline in real estate values? Is there any way that we can prevent this from happening to us?

Not Really. There is very little we can do about the external factors associated with home prices , the federal government has tried to , but we do control how much we owe on our mortgage loans . The way 30 year amortized mortgages are set up, there is very little principle paid and equity gained during the first few years.

One way to drastically reduce the principle owed is to refinance to a fifteen year mortgage. Right now, the average interest rate for 15 year mortgage loans are the lowest they have ever been. Your monthly payment will likely rise with a 15 year fixed mortgage, but you will pay the loan down substantially more each month. In just the first year of a 15 year fixed mortgage loan, principle is decreased by nearly 5%. This would keep your equity percentage equal with a five percent market decline.

And, this was just the reduction in the first year. The amazing thing about amortization is that the amount, and rate, of principle payed off increases every year.  During year 5, the loan amount will be reduced 7.5%, year 10, a reduction of 15%, year 14, 50.6% and year 15, it will be reduced 100%. At this point, you will actually OWN the property. After fifteen years with a 30 year mortgage, the loan is only 30% paid off after fifteen years. 50% equity isn’t acheived until after the home owner has made payments for more than twenty years.

Over the last few years attitudes towards home purchases have clearly changed. Mortgage lenders used to recommend “no money down loans,” “option ARMS” and “interest only loans because real estate was an automatic investment. The smart thing to do is pay off a mortgage so you can own a home free and clear. Home owners with real equity are free to sell their house at any time, and don’t have to rely on bank appoval.

Short Sales Don’t Give You A Get Out of Debt Free Card

Monday, February 28th, 2011

There are currently millions of homes in the US listed as short sales. With nearly one in every four mortgage borrowers underwater, the amount of short sale homes is at an all time high. This is a real obstacle for potential home buyers and banks who are overwhelmed by the number of short sale files they need to deal with.

The CEO of Bank of America recently spoke to a group of Realtor’s in DC and suggested ways to make short sales go faster. Bank of America has recently hired thousands of new employees to work with their numerous short sale files. Even with the additional work force, it still takes weeks for BOA short sale specialists to return phone calls.

The number of short sale homes for sale would be drastically minimized if people would qualify themselves first. Essentially, there are two different approvals that much take place for each short sale transaction. Short sellers must show the bank that they have no savings and deficient income. They need to demonstrate that they have no real options other than short sale, and that they have experienced a legitimate hardship that caused the situation. These borrowers must have a real and imminent danger of foreclosure. Then once the person is approved, the property needs to be approved for short sales. There are so many homes listed as short sales out there where the person doesn’t qualify. It wastes the banks time, and resources trying to approve short sales where the person doesn’t actually qualify.

Sellers must realize that a short sale doesn’t neccessarily eliminate the debt they once had. They may not be the best decision for people who actually do have means to make payments, or pay to get out of their current mortgage. By avoiding a short sale, some property owners will actually be better off in the long term. In some cases, the banks can seek a deficiency judgement up to seven years after the short sale took place. Short sales are not a free ticket from a declining real estate market.

We need to lower the amount of Arvada Colorado Homes for Sale, Fairfield California Homes for Sale, and Real Estate in Arlington WA, listed as short sales. When this happens, we will ultimately see the turnover time for short sales go down.