Thursday, March 15, 2007
Avoiding Foreclosure
2007 will be an active year for foreclosures. With all the "creative financing" that occured in recent years, many folks are in a tough place. If you find yourself in a situation where you are faced with a pending foreclosure, read over your mortgage contract carefully and contact your lender to see whethar a loan workout option is available. Often financial institutions do not want to go through the process either.
Repayment plan- As a borrower, you might be able to resume making regular payments, in addition to paying a portion of the past due amounts until the loan is current.
Mortgage modification- It may be possible to permanetly change the terms or loan balance. Adding the past due amounts to the loan balance and continuing to pay a new monthly amount may be a great fix to the problem.
Sale- You might be able to have the lender delay the filing of the papers in the court house if you put the property up for sale. However, in today's market, the home may not sell for what you owe on the loan. This is what is called short sale or upside down condition.
You may be approached by an investor offering to purchase your property during the pre-foreclosure stage. Give this careful consideration. The investor is looking to acquire the property under market value, however, you may actually benefit as well by receiving more for the property than the auction at the court house would bring while actually receiving some of the equity gain.
Repayment plan- As a borrower, you might be able to resume making regular payments, in addition to paying a portion of the past due amounts until the loan is current.
Mortgage modification- It may be possible to permanetly change the terms or loan balance. Adding the past due amounts to the loan balance and continuing to pay a new monthly amount may be a great fix to the problem.
Sale- You might be able to have the lender delay the filing of the papers in the court house if you put the property up for sale. However, in today's market, the home may not sell for what you owe on the loan. This is what is called short sale or upside down condition.
You may be approached by an investor offering to purchase your property during the pre-foreclosure stage. Give this careful consideration. The investor is looking to acquire the property under market value, however, you may actually benefit as well by receiving more for the property than the auction at the court house would bring while actually receiving some of the equity gain.
Wednesday, March 14, 2007
Investing Terms
Terms you need to know before buying investment property:
Vacancy rate-The percentage of the total number of units or space vacant of the total available.
Net operation income (NOI) The potential rental income plus other income, less vacancy and operating expenses.
Net present value (NPV) The sum of all future cash flows discounted to present value and netted against the initial investment. There are present value tables that can be useful in this calculation.
Capitalization rate- A percentage that relates the value of an income-producing property to it's future income divided by the purchase price.
Exchange- Be familar with the Section 1031 exchange of the internal revenue code where you can trade like kind property and defer capital gains taxes.
Sale/leaseback- A strategy in which a property owner sells the property to an investor and leases it back thereby freeing up some capital.
Vacancy rate-The percentage of the total number of units or space vacant of the total available.
Net operation income (NOI) The potential rental income plus other income, less vacancy and operating expenses.
Net present value (NPV) The sum of all future cash flows discounted to present value and netted against the initial investment. There are present value tables that can be useful in this calculation.
Capitalization rate- A percentage that relates the value of an income-producing property to it's future income divided by the purchase price.
Exchange- Be familar with the Section 1031 exchange of the internal revenue code where you can trade like kind property and defer capital gains taxes.
Sale/leaseback- A strategy in which a property owner sells the property to an investor and leases it back thereby freeing up some capital.
Monday, March 05, 2007
ARM'S (Adjustable Rate Mortgage)
Today roughly a third of America's 48 million mortgages are ARM'S and 2 million of them are due to reset to higher interest rates in 2007! A ARM makes sense when interest rates are high and likely to drop, however, many mortgages were sold as ARM'S in the last 4 years when interest rates were at historic lows, now there is nowhere for them to go but up.
For example: If you bought you home in 2003 and landed a interest rate of 3.7% on a 30 year ARM that adjust annully, by 2006 the rate could have jumped to 7.8%. If you mortgage was $300,000, your monthly payments would have climed from $1,380 to $2,160!
What to do? Read your mortgage contract. Most ARM'S have a cap on how much the rate can climb each year. If you find yourself with an "exotic" mortgage such as a interest only or payment plan mortgage and are able to refinance, do so now to a 30 year fixed rate mortgage. Many lendors require you to wait 2 years before being able to refinance. Even if you payment go up in the short term, a fixed rate is protection against an unaffordable monthly payment that can lead to foreclosure.
For example: If you bought you home in 2003 and landed a interest rate of 3.7% on a 30 year ARM that adjust annully, by 2006 the rate could have jumped to 7.8%. If you mortgage was $300,000, your monthly payments would have climed from $1,380 to $2,160!
What to do? Read your mortgage contract. Most ARM'S have a cap on how much the rate can climb each year. If you find yourself with an "exotic" mortgage such as a interest only or payment plan mortgage and are able to refinance, do so now to a 30 year fixed rate mortgage. Many lendors require you to wait 2 years before being able to refinance. Even if you payment go up in the short term, a fixed rate is protection against an unaffordable monthly payment that can lead to foreclosure.
