For sharing by owner

So I was driving to an appointment this week and noticed a big sign in front of a house.  I was expecting it to read “For Sale” or “For Rent.”  As I got closer, I noticed it read “House to Share.”  I have never seen that before.  I mean, I’ve seen ads on Craigslist and other sites for people renting out rooms or tenants looking to rent one house with a few different people.  But I’ve never seen someone advertise it out front of their home.  While I haven’t seen the signs before, it seems as if house sharing is becoming a lot more popular.  Given the current economy, it’s a great way to save money.

I actually had a neighbor who invited their current neighbors to move into their home after they sold their home, which they were having trouble keeping up with the mortgage payments.  With all the foreclosures these days, people unable to keep up with payments and unable to refinance, this is a potential to save a lot of money.

In fact, there’s even national organizations that help with this.  One is the National Shared Housing Resource Center. They are the place to visit find or to help start something in your community to match people looking to share housing.  One of their board members is quoted as saying, “Whenever I talk to somebody either back east or in the midwest, I mean, we pretty much have the same kinds of issues throughout the country, where people can’t afford their housing, whether it is someone who is seeking housing or if they have a home, you know, they really are looking for somebody who can help share those costs and share those utility costs as well.”

So for those looking to save money, it’s a great way to do it.  You can split housing payments and utilities.  For those with pets and kids, it’s even a way to have someone else available to help out while the other one shares with the chores, for example.  There are some risks, of course.  If you don’t know a possible tenant (or even if you do), it’s important to do a full background check including credit report, possibly criminal background check, get references.  You want to make sure they’re going to pay you each month.  You’ll also want to have an executable contract in place, like a lease.  That way if they don’t live up to their end of the bargain, you can follow the proper procedures for eviction.  While it’s hard to do that for family or friends, it’s just as important.

I’m curious to know if you know someone sharing a home or are thinking about doing it yourself.  I can imagine that it’s becoming a lot more common, especially among family members.  Those taking in an aging relative or combining households with a sibling.  But what about you readers who have done it with complete strangers or even just acquaintances?  Please leave me a comment or contact me online to share your stories.

I can imagine that the MLS might open up a new category for just rooms available in the near future, given what the economy is doing to people’s bank accounts and the housing situation.

The mortgage rate puzzle

Mortgage rates are low.  Way low.  Compare this to what it was like in the ’80s and you might have never imagined this time period happening.  Even a few years ago when rates were hovering around 6%, it was low.  But rates at 4.25%?  4%  That’s LOW.

So the big question is if rates will continue to drop.  Are buyers waiting for rates to be 3%?  Are people willing to risk losing a lower rate by locking in a mortgage at 4.5%.  I had a colleague told me he has buyers waiting to make a move until rates drop below 4%.  I was shocked.  People who have rates at 6.5% are trying to refinance for under 4%.  If you have a good credit score and meet the criteria, it makes sense.

Federal Reserve President Ben Bernanke has pretty much made it clear that we’re going to see another period of quantitative easing, also known as QE2.  The Fed is meeting at the beginning of November to discuss this.  This easing is basically where the U.S. would buy billions of dollars worth of U.S. Treasuries in order to circulate more money into the economy and keep rates low.  So some lenders believe rates will drop in anticipation of this.  The last time the government did this was in August and rates started to go down.

And as rates stay low or drop even more, it definitely would boost the housing market with more buyers able to afford a home.  On the other hand, more people might choose to stay in their current home instead of upgrading or downgrading because they can get an excellent deal on a refinance.

So are we just not satisfied enough with where rates are now?  Are we hoping they drop even more?  Will this help or hurt the current housing situation?  I’d really like to hear your thoughts on this.  Please leave a comment or visit me online.

The next problem with the housing market

I read another fascinating article in the Chicago Tribune again this weekend.  Fascinating.  I was telling family, neighbors, and friends about it.  Fascinating.  As if the housing market isn’t in enough trouble as it is.

So the article discusses the ethics of being a homeowner in this time, during the recession, in this housing market.  Foreclosures are all over.  Short sales are overwhelming the banks.  So what’s the problem now?  Homeowners who have no trouble paying their mortgage, those who can afford to, are walking away from their homes.  They call it “strategic default.”  This is what it’s come down to.  With home values at an all-time low and days on the market going up with increasing numbers, people are sadly walking away from their homes.  They can’t sell.  They can’t rent.  What they’d get for their home if they sell is half, or a quarter, or three-quarters of what their home is actually worth and what they still owe on their mortgage.  So what do they do?

The article talks about a man who lives in Florida who has two properties, both with Bank of America.  He told them he’s going to stop making payments because he can’t sell or rent at a price that would cover his payments and he wants to move out of state.  Since the bank refuses to work with him on a modification or a refinance or adjust the terms of his loan, he’s walking away.  Again, what’s a guy to do?  He said he felt guilty at the beginning.  He’s quoted as saying, “It [the guilt] all stopped when I saw them take $90 million in executive bonuses.  They take bailout money and do nothing for the little guy. They wouldn’t do anything for me.”

I can’t agree more with this homeowner.  I’ve talked about clients who couldn’t refinance or those whose modification wouldn’t go through.  And here the banks are accepting bailout money left and right, upping their salaries, and they won’t work with clients to help them stay in their homes?

So this is going to be a huge disaster.  We already have lenders taking months to respond to buyers interested in a short sale.  They’re just going to have a whopping increase in their inventory now.  Response time will be on the rise, inventory will too, and people who do this won’t get back into the market to buy something new because their credit will be ruined from walking away.  So it’s going to be harder for people to sell or for values to get back to where they should be.

As I said, I feel for these people.  They’re in a tight spot.  But at the same time, it’s going to make the housing crisis an even bigger crisis.  How do we get out of it?  The only remedy I see is more lenders willing to work with their clients and modify existing loans.  It will keep more people in their homes and help the entire market.  Readers, what do you think?  I’d love to hear your thoughts.  Please leave me a comment or visit me online.

Refinancing is not as easy as it looks

At least there’s some good news coming out of this recession.  Interest rates for home purchases are at a record low.  You can save a lot of money in your monthly payment by having a rate at 4.5% as opposed to what it was a few years ago, 5.5 or 6 or 7%.  So many homeowners are trying to take advantage of these low rates and save some money each month by refinancing their current mortgage.  Some have adjustable rates that can get a fixed rate and others just want to drop their monthly payments.  However, it’s a lot more troubling these days than you would think.

Case in point.  I had a past client tell me her story about trying to refinance her home.  Both her and her husband had really good credit scores.  Hers was about 750 and his was just under 700.  They wanted to refinance their current 5.75% rate to something around 4.5%.  Unfortunately, the program they qualified for required a credit score of at least 700.  So in order to make it work, they had to drop her husband from the loan and do it just in her name.  This is only one of many problems arising from these bad bank loans that got us into this mess in the first place.

The Chicago Tribune just put out a great article about the troubles people are having with refinancing.  Aside from needing an excellent credit score these days to get anywhere with a loan (including a home purchase), one other huge problem includes low appraisals.  Obviously, multitudes of foreclosures and short sales have really contributed to decreased home values.  Appraisers aren’t always comparing apples to apples anymore.  They’re using ALL sales when coming up with their value, especially in neighborhoods where it seems like there’s only foreclosures and short sales.  Homeowners are now bringing significant chunks of change to the closing to pay down the rate if the appraisal comes up short.  That can be a lot of money out of pocket.  There’s always closing costs associated with a refinance, but it’s typically not tens of thousands of dollars.

Individuals who are self-employed (like Realtors) are also having a tough time.  The lender will want to see previous tax returns.  If an individual has a decline in income or a ton of write-offs that will show a lot less than they typically make, they might not qualify.  In the case of my past client, her husband was self-employed, too, and it did make sense for them to drop him off the loan.  But if you’re one single person, that can be a big drawback.

So how can you avoid these pitfalls?  For one, make sure you’re home when the appraiser comes through.  Walk them through the house and show them significant improvements you’ve made or ask your Realtor to print up some comparable sales data to present.  And a lot of lenders will charge you the appraisal fee even if your refinance isn’t approved.  Ask if that’s how your lender does it.  Better to know beforehand than to find out later.

If your bank or lender turns you down, it’s worth consulting another one.  You might want to talk to a mortgage broker that deals with a lot of different lenders.  Depending on your situation, he or she might be able to find a program that will work best for you.

For more information, please visit me online or e-mail me at noah.seidenberg@cbexchange.com.