1. Too many rentals in the building (>30%)
2. Inadequate reserves
3. Delinquent assessments
4. Foreclosures in the building
5. Building not approved for FHA financing

If you own a condo you should know the situation in your association and get active to change it if any of the problems exist.  If they are not addressed you may be trapped with a condo that you cannot sell.

“It appears that at least some parts of the lending environment are getting a bit better.  We are now able to do 95% Financing on conventional loans.  . . . The financing is available for owner occupied single family homes, condominiums, and townhomes.  It requires a 680 credit score and a maximum 41% Debt to Income ratio.”

I know many people (including me) that have refinanced recently and lowered their monthly payments. However, not the entire reduced payment amount is real savings. Some of the lowered payment comes from stretching out the term on the loan. Below are the details of my recent refinance this spring:

Chris’ Mortgage Refinance:

Old Mortgage

Interest Rate: 5.875%

Amount Owed: $267,000

Monthly Payment: $1845

Terms: 30yr Fixed

Payoff Date: 2035

New Mortgage

Interest Rate: 4.875%

Amount Borrowed: $267,000

Monthly Payment: $1413

Terms: 30yr Fixed

Payoff Date: 2039

Lowered Monthly Payment: $432

Savings: ???

By refinancing it appears that I “saved” $432 per month, but how much did I really save?

New Mortgage (Shortened Term)

Interest Rate: 4.875%

Amount Borrowed: $267,000

Monthly Payment: $1412 $1671 (Includes $258 of principle payments to keep the same loan payoff date)

Terms: 30yr Fixed

Payoff Date: 2039 2035

Monthly Savings: $432 $174 ($432-$258)

In reality I was already making extra principle payments on the original loan to pay it off by 2026, which is 30 years from the date I bought my house. I recommend that you follow the same strategy when you refinance so that you do not inadvertently spend extra money by extending the period of your loan.

So be careful when you refinance. Although you will save, don’t use the opportunity to borrow more by extending your loan term. Make extra principle payments or save/invest that amount for retirement.

Many of my clients have wanted to refinance but been stopped because they bought their homes recently and didn’t have enough equity. This would open that option to them.

FICO Score	% Fee	Cost Per $100,000 of Loan Value
<620	2%	$2000
620-639	1.75%	$1750
640-659	1.25%	$1250
660-679	.75%	$750

So what does that mean for you if you are planning to apply for a mortgage in 2008?

• Check your FICO scores. You can purchase your score from all three credit bureaus for about $48 at www.myfico.com
• Correct any errors in your credit reports by contacting the credit bureaus. Also don’t close old accounts where you have a zero balance. This will lower your credit score.
• Do not take out any new consumer loans (including new credit cards) if you are planning to apply for a mortgage in the next few months. If you are planning to buy a car with a loan wait until after your close on your mortgage.
• Check your credit score again before you apply for a mortgage. It may take a few months for your credit score to improve.
• Save more for a down payment. This may mean delaying your purchase or cutting back on your spending. Although not fun, you will be much less likely to buy a home you really can’t afford. In the last year I have spoken with many people who appear to well off but had bought more house than they could really afford. With the housing slowdown and readjustments in their ARMs they are in for some serious financial pain.

From what I observe the moderation in housing prices could have the following positive effects:

1. Lower increases in property taxes from higher assessments which have hit many communities and neighborhoods very hard over the past several years.
2. First time buyers taking more care in purchasing a home
   1. Not paying more than they can afford
   2. Making sure to do all of their due diligence inspections etc.
   3. Not having buyers remorse because they rushed their home purchases an bought before seeing enough houses
3. Fewer creative financing deals such as option ARMs means that fewer buyers will get in over their heads.

Â

The reporter also raised some potential benefits:

Should housing be viewed less as an investment and more as a living expense?  Will a moderation in home price appreciation help bring about this view?

1. I think your home should be viewed primarily as a place to live unless your plan to sell it in the near future.  Even if you saw it as an investment, it would be a speculative investment.  I think if people actually calculated their true return on housing it would be much lower than they think.  Maintenance, taxes, and buy/sell costs are often left out of the calculation.

Could a flattening of home prices spur consumers to diversify their portfolios which may be heavy with housing?

1. As much as I would like to see this I don’t think it will happen for two reasons:
   1. Housing is seen as a great investment by many
   2. Consumers may just spend vs. invest the money they would save.  Buying a house is the major form of savings for many people.

Will home buyers, particularly first-timers — find more affordable opportunities?

1. Yes, but since housing markets are very fragmented, an overall slowing in appreciation may not affect some hot neighborhoods.  It is my understanding that in most metro areas that saw a lot of appreciation this decade, houses at the low end of the market are still selling strongly, it’s the move-up housing that is suffering the most.