Small change. Big Problem!

I met with a client last week who had a dilemma that I’m afraid is more common than it should be.  She is very conservative with her finances and always pays her bills on time.  Her homeowner’s insurance coverage had changed last fall, thus her monthly payment amount had changed as well (her taxes and insurance are escrowed so the payment had gone up a little).  She failed to take that into consideration and did not notice the change on her monthly statement.  So she continued to send her payment in at the amount it had been in the past.  Because most lenders/servicers of loans only consider a payment to be made if the full amount is paid, her lender did not recognize the partial payment.  By the time she realized what was going on, two months had lapsed.  The servicer of the loan, a large bank that we all know, agreed to waive all late fees when the situation was explained.  So my customer thought all was well.  It wasn’t until we checked her credit that we realized that the payments had been reflected as late – a situation that has now created a difficult obstacle in her attempt to get this resolved (allowing her to get the preferred rate and meet the closing date).  We are working with her on that, but I thought this was a great example of something that you can advise clients as you do annual reviews and updates with them. 

Right now, Williamson County is in the re-assessment process of many residential homes.  This is another area where a monthly payment could increase for borrowers with an escrow account.  Just make sure that your clients are aware of this type of situation, where their monthly payment could change based on an escrow change, and tell them to make sure that they make a full payment.  I know this sounds simple, but as this example shows, it is something that is easily missed – and can cause tremendous headaches.

Have a great weekend!

Mike

You are never too young to start thinking about home ownership!

By Marcie Geffner

Granted, few young people spend much time day-dreaming about buying their first home. They're naturally preoccupied with academics, athletics, parties, dating and future career possibilities. Nonetheless, there are a number of good reasons to start learning early in life about the costs of buying a home and the responsibilities of homeownership. For example, a college student's misuse or abuse of credit cards can preclude his or her buying a home later on.

Here are five recommendations for young people who want to position themselves for homeownership:

1. Establish good credit habits and a favorable credit history. Get a credit card and use it responsibly. Apply for an automobile loan and make your payments on time every month. If you're renting an apartment, put your own name on the lease and the utility bills and make sure the rent and the bills are paid every month. If you're already struggling with credit card debt or have large student loans, take a free workshop from the non-profit Consumer Credit Counseling Service. Call (800) 388-2227 for information.

2. Start saving for a down payment and closing costs. It's possible to purchase a first home in many parts of the country without much in the way of savings. But in high-cost housing areas, starting to save early can be enormously beneficial because you'll get the advantage of compounding interest and have a longer period of time to grow your investments. Open a savings account or a stock brokerage investment account and make regular deposits.

3. Read some books. Your local library and bookstore probably have at least a few shelves of books about financial management and buying a home. Take notes. Make a financial plan for yourself. You can learn a lot about real estate, budgeting and credit on REALTOR.com® too.

4. Research where you'd like to live. Many young people assume they'll continue living in their own home town when they get older, but people are more mobile than ever and chances are good you'll one day live in another city or even another state. Again, the library, bookstore and Web can be excellent resources for information about housing costs and homeownership opportunities around the country.

5. Tap your real estate agent relatives for advice. Parents, grandparents, aunts, uncles or older cousins in the real estate business can give you good information about the cost of housing in the area where you want to live and what it takes to buy a home. Questions to ask: Is housing affordable in this area? How much money would I need to save in order to buy a home? What advice would you give me about planning my financial future? Would you recommend some books that I might like to read about buying a home? Don't be shy. If you have a question, ask someone in a position to know the answer.

Affordable Homes

Who Benefits From Affordable Homes?

For many young adults, I believe this will turn out to have been a good time to buy a house or condo.

In the "be careful what you wish for" category, we can now add "affordable homeownership."
Over much of the past two decades, there was a lot of hand-wringing about people who were being locked out of homeownership by prices that were rising far faster than personal income. When the complaints were voiced by young adult renters desperate to buy their own homes, they seemed very real and poignant. But when I heard longtime homeowners voicing the same concerns, they often struck me as disingenuous -- or at least, clueless. It's as if the homeowners didn't recognize that their good luck -- many years of soaring property prices -- was the main reason that their children and grandchildren could not afford to buy a home.
I would sometimes ask a homeowner if he or she would accept a few years of flat home prices to improve the affordability of houses for the next generation. Or for a greater improvement in affordability, I suggested, how about a few years of falling prices? Needless to say, I didn't get any volunteers willing to make the sacrifice. I suspect that most homeowners were secretly overjoyed at surging home prices, even as they paid lip service to the "affordability crisis."
Then the bubble burst. In many areas of the U.S., four years of declining prices and foreclosures have taken back most of the price appreciation of the first decade of the 2000s. The only fortunate homeowners are those who bought much earlier -- in the '70s, '80s and '90s -- and still have sizable gains over their purchase price, if they didn't withdraw and spend all the appreciated equity.
Who can benefit? The trauma of the housing slump is undeniable, but we should at least acknowledge the flip side: a stunning improvement since 2007 in the affordability of homeownership for first-time buyers. As is often the case in drastic market adjustments, one party's pain is another's gain. Today, a median-price home in most communities represents a smaller multiple of household income than at any time in the past ten years.
But not all hopeful home buyers can benefit -- just those who have stable jobs, good credit histories and a slug of cash for a big down payment, sometimes as much as 20%. Yes, mortgage rates are still near historic lows, and there are great bargains in distress sales, but many wannabe home buyers are finding it hard to qualify for a loan from skittish lenders.
However, a lot of young adults who are financially well qualified for homeownership are afraid to jump in. They fear that prices will continue to fall until the bulging pipeline of foreclosures is finally empty. Better to wait, they think, until prices have bottomed and seem to be heading back up (not that anyone can tell them when that will be). Plus, there is concern that Congress, in a quest to find more revenue, will trim the mortgage interest tax deduction -- a recommendation of the President's budget deficit commission.
This fence-sitting by prospective buyers, coupled with former homeowners who are now renters, has raised rents and lopped three points off the U.S. homeownership rate, which is now down to 66% of all households.
Homeownership has never been the right choice for everyone in every circumstance and stage of life. And I suspect that in most parts of the country, future price increases will merely match the rate of inflation or exceed it by a percentage point or two over the span of many years -- the historical norm.
But for many young adults who intend to stay put for several years, have good prospects of employment security and can qualify for a plain-vanilla fixed- rate mortgage, I believe this will turn out to have been a good time to buy a house or condo. And if the young home buyers are handy with tools and can find a fixer-upper at a great price, so much the better.
Columnist Knight Kiplinger is editor in chief of this magazine and of The Kiplinger Letter and Kiplinger.com.

By Knight Kiplinger

June 2011

Another Good Article from International Business Times

Cheaper to Buy Than Rent? In Most Cities, 'Yes'

Americans in 39 of the country’s 50 largest cities are finding it’s cheaper to buy a home than rent one, according to Trulia’s second quarter Rent vs. Buy index. In its index, Trulia compared the cost of buying and renting a two-bedroom apartment, condo, or town home in the 50 largest cities in the country.
When compared to the previous quarter, buying a home has become even more affordable than renting. Trulia found last quarter that in 72 percent of the cities it was better to buy than rent, but this quarter the number has grown to 78 percent of the cities studied.
Rising rents, falling home prices, and low mortgage rates have made home ownership make more financial sense in most areas of the country, according to Trulia.
"With home prices nearing a double dip and more foreclosures expected to flood the housing market over the next two years, the decision between renting and buying a home across most of the country has clearly moved in favor of buying," said Ken Shuman, Trulia's spokesperson, in a statement.
The cities where renting was a less costly option than home ownership were in New York, Fort Worth, Texas, and Kansas City, Mo.
Where It’s Cheapest to Buy vs. Rent
The following is a list of the top 12 cities where it’s cheapest to buy a home than rent.
1. Las Vegas
2. Phoenix
3. Arlington, Texas
4. Fresno, Calif.
5. Miami
6. Mesa, Ariz.
7. Jacksonville, Fla.
8. Sacramento, Calif.
9. Detroit
10. Omaha, Neb.
11. San Antonio
12. El Paso, Texas
Source: “Trulia Reveals Trend Towards Homeownership Where Affordability to Buy Versus Rent Extends to Almost Four in Five Major U.S. Cities,” Trulia.com (April 28, 2011)