AOL Real Estate - Blog

Negative Equity: Options If You're Upside Down in Your Mortgage

Cindy Schwalb — 2010-11-05T16:00:00 00:00

More Americans find themselves in a position of negative equity -- owing more on a mortgage than the home is currently worth. By itself, negative equity isn't necessarily trouble. Those who can afford their monthly mortgage payments and have a safe loan structure can wait out the market until home values improve.

For homeowners with riskier loan structures, such as interest-only or short-term ARMs, negative equity is a bigger problem. It can hamper their ability to refinance to a more stable loan and can set the stage for possible foreclosure.To prevent those from happening, government entities have devised a loan programs that throw cash-strapped homeowners a lifeline.

See which may be right for your situation:

Refinancing Options for Homeowners Facing Negative Equity

These programs are for homeowners making timely mortgage payments but who need to move out of risky loan programs or into lower interest rates. Owners will still have negative equity after refinancing but will be in a better loan program.

The Most Affordable Cities to Buy a Home on Forbes.com

Freddie Mac Relief Refinance Mortgage: Qualifying owners can refinance into a fixed-rate mortgage with a loan-to-value ratio of 125 percent (they owe 25 percent more than their home is worth). This program is also filed under the Home Affordable Refinance Program (HARP).
Fannie Mae Refi Plus: It works like the above program, for refinances of existing Fannie Mae loans. This program is also filed under the Home Affordable Refinance Program (HARP).
FHA-Insured No Appraisal Streamline Refi: Homeowners in good standing can refinance their Federal Housing Administration-insured mortgage into a lower rate without an appraisal or employment verification. A loan-to-value ratio does not factor into this product, so someone could owe 35 percent more than the value of a home and still qualify.
HOPE for Homeowners: Homeowners can refinance into an FHA-insured loan with lower rates and better terms, however, they must agree to share future equity of the home with the FHA.

Modifying Loan Agreements to Wipe Out Negative Equity

These more radical options forgive (or reduce) money owed. These options also carry penalties against one's credit score, and willing lenders are harder to find.

FHA Refinance for Conventional Borrowers in Negative Equity Positions: Instead of a short sale of a home, this program is like a "short refinance." Negative-equity homeowners unable to pay their conventional (non-FHA) loans can refinance into an FHA-insured loan, but the current lender will have to write off the negative equity owed to bring the new FHA-insured mortgage down to 97 percent of value. Homeowners who already have an FHA-insured loan are ineligible.
Short sale: The lender agrees to permit homeowners to sell their property at current market value and absolves the owners from owing any negative balance. The bank writes off the difference. While the borrowers will suffer credit damage, it's far less than credit damage from a foreclosure.
Loan Modification: In a loan modification, the lender agrees to change the terms of the loan contract. The amount of the loan (or negative equity) can be reduced or terms can be changed. Borrowers remain with the same servicer and will have credit damage.

Getting Help With Negative Equity Solutions

Most homeowners will need assistance finding the right loan program and a lender willing to underwrite it. Banks servicing Fannie Mae and Freddie Mac loans are required to support a 125 percent loan-to-value refinance. All other programs are voluntary.

Reach out to your loan servicer: An easy place to start is with your own lender. Call before payment defaults and ask about the programs they support.
Contact a reputable mortgage broker: Borrowers with fair credit and good payment standing may benefit from working with a broker. "I would do the shopping for my clients to find out which lenders have the best programs for their situation," says D.C.-metro real estate veteran Andre Barnes. He tries to steer his clients away from credit-damaging programs, if possible. Ask seasoned Realtors for referrals to find a broker that you trust.
Take advantage of free counseling: Find a HUD-approved housing counselor in your area. Call 1-888-995-HOPE (4673). "We are trained in accordance with the Making Home Affordable programs to advocate on behalf of homeowners who are underwater," says a counselor with Affordable Housing Centers. Most of their calls are from borrowers who are already behind in their payments.

The FHA's HOPE program is a vote of confidence that home equity will return. Odds are they're right, if we all sit tight.

For more insights on foreclosure and related topics see these AOL Real Estate guides:

Permalink | Email this | Comments

Home Appraisals: 5 New Truths

Cindy Schwalb — 2010-10-20T10:15:00 00:00

Do you know how much your home is really worth today? Have foreclosures affected its value? Can you trust the appraisal?

"Homeowners don't know what's going on around them anymore," says Kim Bradley, of Marquee Properties, a full service realty company in Northern Virginia.

A lot of the confusion centers on appraisals--the process of estimating what a home is worth. Gyrations in the housing market have made appraisals more fraught than ever. For their part, banks have tightened up appraisal requirements, in some cases leading to delays that may cost sellers money. On top of that, new rules designed to protect the integrity of the appraisal process may be having the unintended result of pushing valuations lower, according to the National Association of Realtors and other industry critics.

So what's the truth about the current state of home appraisals? Here are four things you need to know, whether you're buying, selling, or refinancing.

1. Inflating home values is a thing of the past

During the boom years, appraisers often felt pressured to inflate home values. Today, the opposite is true. "Lenders are calling appraisers to make sure we're not pushing the value," says Bradley. Currently, half of the appraisals conducted by Bradley's company come in below the sale price, she says. "The banks' primary concern is that the mortgage note is secure -- that the house will be worth what someone is paying for it."

Essential How-To-Guides on AOL Real Estate: Home Buying, Selling, Renting, Moving and Home Improvement

2. A wall has gone up between lenders and appraisers

Previously, lenders could hire their own appraisers and provide an estimated home value when ordering up an appraisal. That number was often the contract offer or an amount needed for a cash-out refinance, and appraisers felt pressed to hit it, says Danny Wylie, a Nashville, Tenn. appraiser and consultant. New rules prohibit lenders from hiring appraisers directly. On the one, hand, that eliminates bank influence. On the other, it puts the process in the hands of an "appraisal management company," which may hire outside appraisers unfamiliar with the local market.

3. You need to price your home right the first time

Once upon a time, sellers could name their price, then sit back and let the bidding begin. No longer. "Sellers need to price their homes right the first time or risk losing more value, says Wylie. He offers the example of one Nashville couple who listed their home for almost double Wylie's $1 million appraisal. The house sat on the market for two years before the it finally sold -- for $850,000.

"If you let a house sit on the market for a long time, it gets a stigma, and people begin to wonder what is wrong with it," Wylie says. He also points out that overpricing your home today sends the wrong message. "People will have higher expectations than what the house offers. They will either walk away or counter for much less than the home is worth."

4. Comps don't have to include distressed properties

The presence of local foreclosures doesn't necessarily bring down your property value. "Appraisers can ignore bank-owned properties and short sales when evaluating home values, as long as there are ample non-distress sales to choose from in the market," says Bradley (and as long as the subject is not a foreclosure or a short sale itself). However, if your home is surrounded by distressed properties, she warns that your home value may be affected.

5. The new appraisal guidelines can be a good thing in the long run

These adjustments are intended to provide a more accurate valuation. "Every home appraisal must be backed by home sales within the past 90 days," says Bradley. Keeping the market window within a tight time frame prevents prices from jumping all over the map. Also, the comparative listings used to analyze an appraisal property need to be from the same neighborhood. "You're no longer just appraising a house as much as the neighborhood," says Wylie. " If prices in the neighborhood are dropping, an appraiser will adjust for that."

More changes to come?

Increasingly, there's a trend for sellers to request their own appraisals prior to listing their properties. With appraisers working on both the buying and selling side of the equation, home values are more likely to remain balanced into the future.

The good news is that overall home values are climbing again. "They are going up at a nice slow pace," says Bradley.

For more on the appraisal process see these AOL Real Estate guides:

More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
Get property tax help from our experts.

Permalink | Email this | Comments

Foreclosure Eviction: What It Means for Renters

Cindy Schwalb — 2010-09-27T18:45:00 00:00

Renters now have legal rights against eviction due to foreclosure, but not necessarily housing security.

New laws give renters a reasonable 90-day notice of foreclosure eviction and, in most cases, protect their lease agreement. However, both of these safeguards still can be circumvented.

While the foreclosure laws (which took effect May 2009 and expire Dec. 31, 2012) look good on paper, Columbia, S.C., real estate lawyer Fred Shipley warns renters, "Most landlords facing financial trouble will not send a foreclosure notice to their tenants but will continue to collect rent instead."

While banks are supposed to honor a legal lease on a foreclosed property, renters should be aware that:

There's no law that prevents the bank from re-selling the foreclosure.
A new owner would not have to honor the lease if he or she intended to live in the property.
A lease does not have to be honored if the rent is below fair-market value or the tenants are related to the owner in default.

So how can renters protect themselves from foreclosure eviction, especially when 1 in 348 homes is in foreclosure?
Our industry experts explain smart, practical moves that renters can take to protect themselves from foreclosure before and after signing a lease. Here's their advice on how to either avoid a foreclosed property or negotiate to stay in one:

1. Search county records. "If you're looking for a rental, make sure the property is not in pre-foreclosure." says Lynn Madison, a short sale and foreclosure resource specialist for the National Association of Realtors. She advises renters to check property records at the County Clerk's office before signing a lease.

2. Request mortgage statements. Madison, who also specializes in risk management, suggests that renters evaluate a landlord's financial stability as well. "Ask to see recent mortgage statements or receipts for the rental property," says Madison. "You want proof that the owner is current on payments." Imagine searching for an apartment, moving, unpacking and then having to start that whole process over just six months later because the property went into foreclosure.

3. Record your lease. To make sure that legal notices are received in the event a rental property goes into pre-foreclosure, Shipley advises renters to record their lease with the county office. "It costs about $10 to do and guarantees that the county will mail legal notices to the address on the lease." By doing this, renters are no longer dependent on the landlord to disclose foreclosure notices.

4. Initiate contact. "If the home you're renting is in foreclosure," says Shipley, "don't just sit there if you want to stay in the place, be proactive." He advises tenants to reach out to the bank or lawyer involved in the foreclosure. "Let them know you have a good payment history and have taken care of the property and would like to stay." Instead of reselling the property immediately, which could terminate the lease with a live-in buyer, the bank may be persuaded to rent. "We are starting to see banks working with tenants," Morgan confirms. She, too, believes tenants must work with the banks to achieve their best outcome.

5. Become an asset. Banks can and will advertise good tenants to attract real estate investors. In these situations, renters are a valuable asset, offering stability and minimizing the investment risk. In a recent property transaction handled by Shipley's firm, the tenants were the reason the property sold so quickly. "The buyer felt so good about the way the tenants had taken care of the place; that was one of the main reasons the investor purchased that property over other options."

6. Investigate "cash for keys." If the bank intends to vacate the property and re-list it on the market, a representative or the bank's real estate agent may offer "cash for keys," a legal way to pay tenants to leave by a certain date. The offer also requires tenants to legally release all rights to the property and claims against the bank. A good deal for the renter would cover basic moving expenses and any lost security deposit. (Also see "Get Your Apartment Rental Deposit Back.")

7. Check state and local laws. The "Protecting Tenants at Foreclosure Act of 2009" states that local foreclosure-tenant laws take precedence over federal laws when the local laws provide better protection to tenants. Be sure to look up state and local laws for your area.

If renters find themselves in a hostile situation or unable to resolve a foreclosure eviction matter, they should contact the agent initially involved with the lease, a real estate lawyer or the National Law Center on Homelessness and Poverty.

Still trying to decide which is right for you? Here are some AOL Real Estate guides to help no matter whether you choose to buy or rent:

More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
Get property tax help from our experts.

Permalink | Email this | Comments

Are You Paying Too Much for Your Rental?

Cindy Schwalb — 2010-09-20T13:00:00 00:00

Paying too much for rent will only bring on debt. Yet some fail to make this connection. Such a hefty rent might get paid every month, but there will be nothing left to cover gas, food, utilities.

Before leasing a "financial burden," or just getting by every paycheck, consider the benefits of figuring out an affordable rent for your income level. Why? It comes with twice the rewards: A budgeted rent provides a roof overhead and leaves money for saving and spending.

"The less you spend on rent, the more money you have to put toward your other life's goals," says Beth Kobliner, author of The New York Times bestseller "Get a Financial Life." So perhaps the real question should be not how much should one spend on rent but how little can one spend on rent -- to have safety, comfort and the rest of the American dream.

Housing Budget for Renters: A Rule of Thumb

In the past few years, lower rent has been easier to find as unsold condos were converted to rental apartments, which created a surplus in the rental market. But how do you choose your budget range from among the many listings? Financial experts suggest setting a rent budget based on a percentage of annual income.

The general rule of thumb is to allocate 30 percent of your salary toward your rental. It comes from the U.S. government's subsidized housing policy, last adjusted in 1981. It predicted that by spending 30 percent of income on housing costs, families would still have money left to pay for necessities. Anything over that became a housing burden.

Now, the "30 percent rule" has become an industry-wide standard. Most property managers use this cap when evaluating tenant risk. Lenders use it to judge mortgage affordability.

"I think 30 percent is always a good target," says Kobliner, "but in some major cities, like New York or San Francisco, for example, that's going to be more difficult. That figure might be closer to 50 percent."

See photos of apartments and homes for rent in your area on RentedSpaces

One Rental Budget Does Not Fit All

Apart from urban living, other factors such as financial obligations, individual money goals and family size could affect a household's ideal rental budget.

"Everyone needs to find their own magic number," says Stacey Osborne, a D.C.-area financial planner who challenges clients to set a 25 percent housing budget if possible.

To find your ideal rental allowance, Osborne advises taking look at the whole picture: "When you're in between moves, consider all fixed expenses before setting a rent allowance."

Taking a page from the extreme budgeting book, "All Your Worth: The Ultimate Lifetime Money Plan" (by Elizabeth Warren and Amelia Warren Tyagi), Osborne likes the idea of keeping all mandatory expenses -- including housing -- at 50 percent of income.

With only half of income going to mandatory bills, a two-income household is automatically protected if one spouse loses a job. It makes paying bills more manageable in any out-of-work catastrophe -- natural disaster, illness, accident. And it leaves much more for saving -- and enjoying life's activities.

Just be sure your ideal rental budget includes the cost of renter's insurance, a policy that Kobliner strongly recommends.

"If you only have a few valuables," she says, "you may think 'why bother?' But having this will actually protect all your possessions -- TV, computer, clothes, furniture, etc." And she adds, "This policy could also offer you some liability protection inside and outside your home. For example, if someone slips and falls in your apartment, your policy could cover them."

Lastly, don't think your rental money is being thrown away because you're not building equity. Renting can be the smart thing to do, as long as you find your affordable number.

Want more rental advice? Here are some guides on AOL Real Estate that might help:

More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
Get property tax help from our experts.

Permalink | Email this | Comments

Home Staging on a Dime

Cindy Schwalb — 2010-09-09T13:48:00 00:00

You don't need granite countertops and state-of-the-art appliances to sell your house. A few home-staging concepts put into practice can help your home sale get off the ground.

Instead of lowering the price on a townhome that wouldn't sell, Northern Virginia realtor Pat Hupp turned to basic home-staging concepts to deal with two shedding cats, a stinky litter box, wire kitchen shelves stuffed with appliances that didn't fit in the cabinets, oversized living room furniture, an empty sunroom, clutter and toys everywhere.

"In one evening, we moved every piece of furniture in that house and cleared the clutter," says Hupp of the staging intervention. "It sold the next day."

While home staging won't always sell a house overnight, the same inexpensive home-staging concepts that worked for Hupp and her clients will work for you, too.

Follow theses tips from the home staging pros to get started on your own transformation:

Before Staging Your Home

If you're not working with a professional home stager, you'll want to do some groundwork first. Hupp advises visiting professionally staged model homes to see it done right. And to also visit comparable homes that are listed in your area. It's important to see what you're up against. Plus, you'll find ideas, motivation and direction to give you a competitive edge.

Find a local expert contractor who has been pre-screened by ServiceMagic

Let the Home Staging Begin

With ideas in hand, it's time to get to work. When getting started, Hupp always tells her clients not to spend money staging their homes unless it's really necessary. Instead, she recommends using what you already own or borrowing items from friends and family. Keep this in mind as you work through the four steps below.

1. Declutter

"Clutter eats equity," says Barb Schwarz, who has seen too many homeowners fail at this simple concept. Schwarz, a designer turned realtor and the founder of stagedhomes.com, has staged more than 5,000 homes. To get decluttering right, she suggests removing all items that are smaller than a breadbasket (and of course, personal photos, too). Be aware that clutter may also come from crowding larger items, too. Look for clutter on floors, walls and even in closets. You want to make homebuyers envious of your organized home -- and you can't do that if it's filled with clutter.

2. Arrange for space and flow

Once all the rooms are cleared out, focus on arranging what's left. "Remember, you're selling space, not furniture," says Schwarz. To make rooms feel bigger, Schwarz relies on the "Rule of Three." "You only need three pieces of furniture to stage a room and three decorative items (of varying size) to stage a surface, such as a mantel or dresser," she says. Apply the rule of three with flexibility. For example, in the living room, the rule of three applies separately to soft and hard furniture.

When you're done staging furniture and décor, there should be ample space to move into, out of and around furniture in each room. Also, the pieces you've selected should illustrate a purpose for each room (i.e. don't blend office furniture into your living room).

3. Add warmth and comfort

With the clutter gone and the space opened up, the next phase of staging turns the house into a home. Hupp advises sellers to focus on making it warm, bright and clean. Most of the warmth in a room comes from painted walls and lighting, as well as fabrics such as window treatments. Hupp says that buyers go for walls that are neutral or painted in soft palettes. If you need to repaint cheaply, Home Depot and Lowe's sell mistake paints for about $5 a gallon.

Portable lighting such as floor or table lamps enhance both warmth and brightness. "Lighting is so important," says Hupp, "just putting a table lamp in a room immediately makes it feel cozier." Also, colored bulbs are an inexpensive tool to perk up dull, dark or small rooms. Use blue daylight bulbs to brighten and pink bulbs to warm and flatter.

4. Clean and freshen

The last major home staging element is cleaning. When you are showing your house, it can never be clean enough. Schwarz even tells her clients to get their homes "Q-tip clean," meaning every corner and crack should shine.

Once the house is clean, Hupp recommends keeping that fresh, clean smell by "putting the kitchen out-of-service" and, ideally, sending pets to friends or family. Smells wield a strong influence over our opinions, so homeowners should not assume that all buyers are warmed by the smell of cookies, your favorite spices or beloved pets.

Home staging might feel like a lot of work, but as Hupp's townhome owners learned, the effort pays. You might be signing that contract in no time.

Did home staging help you sell your house? Got tips and advice to share? We want to hear from you! Add your comments in the box below.

Want more home staging tips and techniques? These AOL Real Estate guides can help:

More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
Get property tax help from our experts.

Permalink | Email this | Comments

5 Easy Landscaping Tips for Quick Curb Appeal

Cindy Schwalb — 2010-09-08T10:27:00 00:00

When you're selling your home, good curb appeal invites buyers inside. But landscaping expenses don't pay homeowners back as much as interior upgrades can. Knowing this, many homeowners are confused over how much effort to put into landscaping when selling their home.

"You don't want to spend a lot of money on your yard when you're moving," says Brad Mclean of Mclean Landscapes in Northern Virginia. "But there are some basic ways to quickly create an appealing and cared for yard."

Here are some quick and simple landscaping fixes that enhance curb appeal and deliver a low-maintenance but high-class look.

1. Remove debris every day. "You don't want your yard to look like a lot of work to keep up," says Annette Weese, manager of Cold Creek Nursery in Aiken, S.C. She advises homeowners to be mindful of keeping the grass raked and free of pine needles, pine cones and leaves. A yard full of leaves only shows the amount work awaiting new homeowners. And for some that's a deal breaker.

2. Trim everything back for a just-planted look. Weese advises keeping bushes neatly trimmed below the windows. In addition to a groomed appearance, trimmed shrubs look easy to care for and suggest slow growth -- another important element in a low-maintenance look. Also, windows and natural light are big assets; so letting shrubs grow to block these detracts from exterior curb appeal as well as the interior of the home.

3. Make a splash with annual color. "Its amazing what a little color can do to change the look of a house," says McLean. He recommends adding 15 to 20 pots of an inexpensive, easy growing seasonal bloom. Keep it simple and choose one type such as impatiens or pansies, and depending on the season, even mums. You can break out a little and try alternating colors. Be sure to select a long-blooming variety, so your landscaping efforts will carry you through the entire season.

Find a local expert contractor who has been pre-screened by ServiceMagic

4. Top off the flower beds. Refresh flower bed mulch and re-edge for a clean look that pops. It's a classic approach to enhance curb appeal and will slow down weed growth, so there's one less thing to worry about. If you are doing this yourself and live in a termite area, remember to keep wood-based mulch pushed away from the side of the house. Other mulch choices include, pine needles, pea gravel, bark, and shredded hardwood mulch.

5. Get the golf course green. It isn't easy to green your yard in a pinch, if your grass is dry, dull or has brown patches, but who wants to inherit a sickly yard. In this case, McLean suggests a little-publicized, quick fix: turf paint. The result is instantaneous, lasting and affordable. It's commonly used on golf courses to maintain year-round greens, and can add luster to any dull yard, without damaging the grass.

This minimalist curb-appeal landscaping plan should revitalize any yard that's not in serious trouble. By the time you're done, you'll have bright color, lush greens and a well-manicured yard that says 'I'm easy and neat.' Best of all, sellers don't need landscaping skills or a fat wallet to win on curb appeal.

For more landscaping and home-staging help see these AOL Real Estate guides:

More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
Get property tax help from our experts.

Permalink | Email this | Comments