You know Suze Orman - she delivers hardcore financial gut checks to everyday Americans on a regular basis. In her latest book, The Money Class, she also recently delivered a pretty striking declaration: that the American Dream - which, for many, includes home ownership and upward economic mobility - is as dead as a doornail. To back this up, she points to huge numbers of jobless and what she sees as the near impossibility of getting credit these days.
But you might also have heard of Warren Buffett. He just so happens to be the third richest human being on the planet. In Buffett's most recent letter to his company's shareholders, he, too, made a striking declaration of his feelings about owning a home: "[h]ome ownership makes sense for most Americans, particularly at today’s lower prices and bargain interest rates." And the Oracle of Omaha didn't stop there - he literally raved about home ownership, saying that "the third best investment I ever made was the purchase of my home."
Now, that's a big statement from a guy whose investment decisions have earned him a net worth over $50 billion!
Suze says the American financial dream is dead. But Buffett says buy, and buy now. Who's right? (And who's wrong?!)
Orman is right that one extreme version of the American Dream is dead. But not the traditional American Dream of owning an affordable home that appreciates over time. That basic premise of the value of homeownership is valid. But it may be valid for a smaller segment than ever before. Orman believes that renters should save, save, save up every penny and they may never be a candidate to own a home.
Buffett believes now is the time to purchase as affordability has never been better. Buffet wins here; he's right that a home is a very strong investment, with abundant yields, both financial and emotional. And according to our latest survey, the American Dream of homeownership lives on in the hearts of the 72 percent of Americans who say owning the place they live is a part of their personal American Dream. How can you make sure your exercise in owning a home is set up to be like Buffett's 3rd best investment (#s 1 and 2 were wedding rings, btw), rather than Orman's image of the American nightmare?
Here are 3 basic steps Buffett urges every American who owns a home - or wants to - to include in their approach to home ownership.
1. Ditch your "dream home" for a practical pad. When it comes to homes and mortgages, bigger is not always better. What is better is to buy a home that makes sense for your family's future and its finances. In Buffettt's own words, "a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender . . . facilitates his fantasy." Instead of buying dream homes, Buffett went on, the goal should be to buy a home you can afford.
2. When you buy, plan to hold. Warren Buffett is worth $50 billion, and he still lives in the home he bought 52 years ago - for $31,500. Many Americans got caught in the housing crash when they took on mortgages they could only sustain for a short period of time, then weren't able to refinance as expected. Buffett's stock investing advice has long been to avoid making investments you can't hold for at least 10 years. Likewise, buying a home should be done with a long-term plan to avoid catastrophe when home values fluctuate in the short term.
3. Mortgages should have fixed, affordable payments. In his shareholder letter, Buffett points out that a housing company he holds has done vastly better than other real estate and mortgage industry players and attributes their success to the fact that "our approach was simply to get a meaningful down-payment and gear fixed monthly payments to a sensible percentage of income." Buffett believes these two mortgage musts are the key to avoiding foreclosure, opining that "[i]f home buyers throughout the country had behaved like our buyers, America would not have had the crisis that it did. . .. This policy kept [the company] solvent and also kept buyers in their homes." Unless you are one of those rare buyers who know their income will increase by a predictable amount at a predictable point in time, like a lawyer prepping for partnership, a good rule of thumb is to stick with a fixed mortgage payment (including taxes and insurance) that's under 30 percent of your take home income.
Thursday, March 17, 2011
Tuesday, March 15, 2011
banker morons
My response to a Verde Valley homeowner who made the mistake of asking "How's the market? Can I sell my house yet? What's the percentage of foreclosures?"
Hi, Viktoria. The market is.......can I borrow your words and say "so-so?"
The foreclosures are rampant. The percentages don't really matter because foreclosures are at the bottom of any price range and that's naturally where the buyers go - to the cheapest. I would, too.
"Real" people and "normal" sales all have to wait until the foreclosures are gone, or else compete down there at the bottom. The banks don't care - they'll get bailed out. They just keep undercutting the prices and driving the comps and the market lower every day.
I realize that my sentiments are not what the media is portraying, but this is what I'm seeing.
If a bank-owned house has a fair market value of, say, $100,000 then the bank/owner says "List it at $75,000! Get rid of it!" Then the next bank/owner of an identical house now has a value of $75,000 because that's the comp. And so they say "List it for $50,000! Get rid of it!"
You see where this is going, I'm sure. They're shooting themselves in the foot, and in doing so they're shooting Americans in the head.
Sorry. I do go off on rants when this subject comes up, the banker morons.
Hi, Viktoria. The market is.......can I borrow your words and say "so-so?"
The foreclosures are rampant. The percentages don't really matter because foreclosures are at the bottom of any price range and that's naturally where the buyers go - to the cheapest. I would, too.
"Real" people and "normal" sales all have to wait until the foreclosures are gone, or else compete down there at the bottom. The banks don't care - they'll get bailed out. They just keep undercutting the prices and driving the comps and the market lower every day.
I realize that my sentiments are not what the media is portraying, but this is what I'm seeing.
If a bank-owned house has a fair market value of, say, $100,000 then the bank/owner says "List it at $75,000! Get rid of it!" Then the next bank/owner of an identical house now has a value of $75,000 because that's the comp. And so they say "List it for $50,000! Get rid of it!"
You see where this is going, I'm sure. They're shooting themselves in the foot, and in doing so they're shooting Americans in the head.
Sorry. I do go off on rants when this subject comes up, the banker morons.
Thursday, March 10, 2011
Lenten prayer
Fast from judgment, Feast on compassion
Fast from greed, Feast on sharing
Fast from scarcity, Feast on abundance
Fast from fear, Feast on peace
Fast from anxiety, Feast on patience
Fast from evil, Feast on kindness
Fast from apathy, Feast on engagement
Fast from discontent, Feast on gratitude
Fast from noise, Feast on silence
Fast from discouragement, Feast on hope
Fast from hatred, Feast on love
Fast from greed, Feast on sharing
Fast from scarcity, Feast on abundance
Fast from fear, Feast on peace
Fast from anxiety, Feast on patience
Fast from evil, Feast on kindness
Fast from apathy, Feast on engagement
Fast from discontent, Feast on gratitude
Fast from noise, Feast on silence
Fast from discouragement, Feast on hope
Fast from hatred, Feast on love
In a mortgage market that changes as quickly as this one, today’s fact is tomorrow’s fiction.
For buyers, misinformation can be the difference between qualifying for a home loan or not.
Sellers and owners, knowledge is foreclosure-preventing, smart decision-making power!
Without further ado, let’s correct some common mortgage misconceptions.
1. Myth: Buyers with bad credit can’t qualify for home loans.
Obviously, mortgage guidelines have tightened up, big time, since the housing bubble burst, and they seem likely to tighten even further over the long-term. But just this moment, they have relaxed a bit. In the last couple of weeks, two of the nation’s largest lenders of FHA loans announced that they’ve dropped the minimum FICO score guideline from 620 (which allows for some credit imperfections) to 580, which is actually a fairly low score.
At a FICO score of 620, buyers can qualify for FHA loans at many lenders with only 3.5 percent down. With a score of 580, the lenders are looking for more like 5 to 10 percent down – they want to see you put more of your own skin in the game, and the higher down payment lowers the risk that you’ll default. However, if your credit has taken a recessionary hit, like that of so many Americans, this might create a glimmer of hope that you’ll be able to take advantage of low prices and interest rates without needing years of credit repair.
2. Myth: The Mortgage Interest Deduction isn’t long for this world.
Homeowners saved over $85 billion in 2008 by deducting their mortgage interest on their income tax returns. A few months ago, the National Commission on Fiscal Responsibility and Reform caused a massive wave of fear to ripple throughout the world of real estate consumers and professionals when they recommended Mortgage Interest Deduction (MID) reform, which would dramatically reduce the size of the deduction.Fact is, the Commission made a sweeping set of deficit-busting recommendations to Congress, a few of which are likely to be adopted. Fortunately for buyers and sellers, MID reform is not one of them. Very powerful industry groups and economists have been working with Congress to plead the case that MID reform any time in the near future would only handicap the housing recovery. Congress-folk aren’t interested in stopping the stabilization of the real estate market. As such, the MID is nearly universally thought of as safe – even by those who disagree that it should be.
3. Myth: It’s just a matter of time before loan guidelines loosen up.
The US Treasury Department recently recommended the elimination of mortgage industry giants Fannie Mae and Freddie Mac. I won’t get into the eye-glazing details of it here, but the long and the short is that (a) this is highly likely to happen, and (b) it will make mortgage loans much harder and costlier to get, for both buyers and homeowners. It’s possible that loans are as easy to get as they’re going to get. So don’t expect that if you hold out, zero-down mortgages will continue.
4. Myth: If you don’t have equity, you can’t refi.
Much ado is being made about how stuck so many people are in their bad loans, because they don’t have the equity to refinance their way out of them. If you’re severely upside down (meaning you own much, much more than your home is worth), stuck may be the situation.
But there are actually a couple of ways homeowners can refi their underwater home loans. If your loan is held by Fannie or Freddie (which you can find out, here), they will actually refinance it up to 125% of its current value, assuming you otherwise qualify for the loan. That means, if your home is worth $100,000, you could refinance a loan up to $125,000, despite the fact that your home can’t secure the full amount of the loan.If your loan is not owned by Fannie or Freddie, you might be a candidate for the FHA “Short Refi” program. While most mortgage workout plans are only available to people who are behind on their loans, the Short Refi program is only available to homeowners who are current on their mortgages and need to refinance up to 115 percent of their homes’ value.
So, if you owe $250,000 on your home, you can refinance via an FHA Short Refi even if your home’s value is as low as $217,000. If you think you’re a good candidate for a short refi, contact your mortgage broker, stat – there are some in Congress who think that this program is so underutilized (only 245 applications have been submitted since it rolled out in September – no typo!) that its funding should be diverted to other needy programs.
5. Myth: If you’ve lost your job and can’t make your mortgage payment, you might as well mail your keys in.
Until recently, this was essentially true – virtually every loan modification and refinancing opportunity required that your economic hardship be over before you could qualify. And documenting income has always been high on the requirements checklist. But there are some new funds available in the states with the hardest hit housing and job markets, which have been designated specifically for out-of-work homeowners.The US Treasury Department’s Hardest Hit Fund allocated $7.6 billion to the states listed below – all of which are now using some portion of these funds to offer up to $3,000 per month for up to 36 months in mortgage payment assistance to help unemployed homeowners avoid foreclosure. Contact the state agency listed below if you need this sort of help:
Alabama: http://www.hardesthitalabama.com/
Arizona: https://www.savemyhomeaz.gov/
California: https://www.keepyourhomecalifornia.org/
Florida: https://www.flhardesthithelp.org/
Georgia: http://www.dca.state.ga.us/housing/homeownership/programs/hardesthitfund.asp
Illinois:http://www.ihda.org/
Indiana: http://www.877gethope.org/
Kentucky: http://www.kyhousing.org/
Michigan: http://www.michigan.gov/mshda/buyers/save_the_dream/helping+hardest+hit+homeowners+-+contact+your+mortgage+servicer+for+assistance
Mississippi: http://www.mshomecorp.com/firstpage.htm
Nevada: http://www.nahac.org/
New Jersey: http://www.state.nj.us/dca/hmfa/home/foreclosure/homekeepers.html
North Carolina: http://www.ncforeclosureprevention.gov/
Ohio: http://www.savethedream.ohio.gov/
Oregon: http://www.oregonhomeownerhelp.org/
Rhode Island: http://www.hhfri.org/
South Carolina: http://www.scmortgagehelp.com/
Tennessee: http://www.thda.org/
Washington D.C.: http://www.dchfa.org/
For buyers, misinformation can be the difference between qualifying for a home loan or not.
Sellers and owners, knowledge is foreclosure-preventing, smart decision-making power!
Without further ado, let’s correct some common mortgage misconceptions.
1. Myth: Buyers with bad credit can’t qualify for home loans.
Obviously, mortgage guidelines have tightened up, big time, since the housing bubble burst, and they seem likely to tighten even further over the long-term. But just this moment, they have relaxed a bit. In the last couple of weeks, two of the nation’s largest lenders of FHA loans announced that they’ve dropped the minimum FICO score guideline from 620 (which allows for some credit imperfections) to 580, which is actually a fairly low score.
At a FICO score of 620, buyers can qualify for FHA loans at many lenders with only 3.5 percent down. With a score of 580, the lenders are looking for more like 5 to 10 percent down – they want to see you put more of your own skin in the game, and the higher down payment lowers the risk that you’ll default. However, if your credit has taken a recessionary hit, like that of so many Americans, this might create a glimmer of hope that you’ll be able to take advantage of low prices and interest rates without needing years of credit repair.
2. Myth: The Mortgage Interest Deduction isn’t long for this world.
Homeowners saved over $85 billion in 2008 by deducting their mortgage interest on their income tax returns. A few months ago, the National Commission on Fiscal Responsibility and Reform caused a massive wave of fear to ripple throughout the world of real estate consumers and professionals when they recommended Mortgage Interest Deduction (MID) reform, which would dramatically reduce the size of the deduction.Fact is, the Commission made a sweeping set of deficit-busting recommendations to Congress, a few of which are likely to be adopted. Fortunately for buyers and sellers, MID reform is not one of them. Very powerful industry groups and economists have been working with Congress to plead the case that MID reform any time in the near future would only handicap the housing recovery. Congress-folk aren’t interested in stopping the stabilization of the real estate market. As such, the MID is nearly universally thought of as safe – even by those who disagree that it should be.
3. Myth: It’s just a matter of time before loan guidelines loosen up.
The US Treasury Department recently recommended the elimination of mortgage industry giants Fannie Mae and Freddie Mac. I won’t get into the eye-glazing details of it here, but the long and the short is that (a) this is highly likely to happen, and (b) it will make mortgage loans much harder and costlier to get, for both buyers and homeowners. It’s possible that loans are as easy to get as they’re going to get. So don’t expect that if you hold out, zero-down mortgages will continue.
4. Myth: If you don’t have equity, you can’t refi.
Much ado is being made about how stuck so many people are in their bad loans, because they don’t have the equity to refinance their way out of them. If you’re severely upside down (meaning you own much, much more than your home is worth), stuck may be the situation.
But there are actually a couple of ways homeowners can refi their underwater home loans. If your loan is held by Fannie or Freddie (which you can find out, here), they will actually refinance it up to 125% of its current value, assuming you otherwise qualify for the loan. That means, if your home is worth $100,000, you could refinance a loan up to $125,000, despite the fact that your home can’t secure the full amount of the loan.If your loan is not owned by Fannie or Freddie, you might be a candidate for the FHA “Short Refi” program. While most mortgage workout plans are only available to people who are behind on their loans, the Short Refi program is only available to homeowners who are current on their mortgages and need to refinance up to 115 percent of their homes’ value.
So, if you owe $250,000 on your home, you can refinance via an FHA Short Refi even if your home’s value is as low as $217,000. If you think you’re a good candidate for a short refi, contact your mortgage broker, stat – there are some in Congress who think that this program is so underutilized (only 245 applications have been submitted since it rolled out in September – no typo!) that its funding should be diverted to other needy programs.
5. Myth: If you’ve lost your job and can’t make your mortgage payment, you might as well mail your keys in.
Until recently, this was essentially true – virtually every loan modification and refinancing opportunity required that your economic hardship be over before you could qualify. And documenting income has always been high on the requirements checklist. But there are some new funds available in the states with the hardest hit housing and job markets, which have been designated specifically for out-of-work homeowners.The US Treasury Department’s Hardest Hit Fund allocated $7.6 billion to the states listed below – all of which are now using some portion of these funds to offer up to $3,000 per month for up to 36 months in mortgage payment assistance to help unemployed homeowners avoid foreclosure. Contact the state agency listed below if you need this sort of help:
Alabama: http://www.hardesthitalabama.com/
Arizona: https://www.savemyhomeaz.gov/
California: https://www.keepyourhomecalifornia.org/
Florida: https://www.flhardesthithelp.org/
Georgia: http://www.dca.state.ga.us/housing/homeownership/programs/hardesthitfund.asp
Illinois:http://www.ihda.org/
Indiana: http://www.877gethope.org/
Kentucky: http://www.kyhousing.org/
Michigan: http://www.michigan.gov/mshda/buyers/save_the_dream/helping+hardest+hit+homeowners+-+contact+your+mortgage+servicer+for+assistance
Mississippi: http://www.mshomecorp.com/firstpage.htm
Nevada: http://www.nahac.org/
New Jersey: http://www.state.nj.us/dca/hmfa/home/foreclosure/homekeepers.html
North Carolina: http://www.ncforeclosureprevention.gov/
Ohio: http://www.savethedream.ohio.gov/
Oregon: http://www.oregonhomeownerhelp.org/
Rhode Island: http://www.hhfri.org/
South Carolina: http://www.scmortgagehelp.com/
Tennessee: http://www.thda.org/
Washington D.C.: http://www.dchfa.org/
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