Common questions about buying or renting in today's housing market

Q. What's a good formula for calculating monthly payments? I believe you said to figure $700 per month for every $100,000 of the mortgage. Does this include taxes, HOA, etc.? What about during a bad economy--might this change at all?

A. $700 per 100,000 is a good rule of thumb for estimating your payment. Obviously the better the interest rate, the better the payment. The $700 covers the PI part of the PITI. On a 250,000 house, you're looking at $1750 (Principal / Interest) + Taxes ($2,250 per year or $185 / month) + Insurance ($30-$50 / month). Total payment not including HOA or utilities: $1,965 PITI.

Q. The idea of people's monthly payments increasing boggles my mind. I've heard so much about that recently--why do people's monthly payments change? Is this tied to a variable rate of interest, where a fixed rate would never change? What could we do to get "locked in," if such were possible?

A. The only reason why a monthly payment would increase is because of the previous ARM (adjustable rate mortgages) and teaser rates ie, 2% for the first year adjusting to prime+. So rather than have a PI pmt of $1750 on the same rate, at an adjustable teaser rate, the same amount was say $1200. That "allowed" people to get into payments they could make...which is why it has now become news. The rates have adjusted and now those people are paying an extra $550 they didn't have.

And a lot of those folks were in interest only loans rather than paying down their mortgages.

While the average person keeps their mortgage an average of 6-7 years (because they sell or refinance – or now foreclose) there is the right place for the ARM so long as it is entered into with the exit strategy in mind. Thirty year fixed mortgages are especially good if you contemplate holding onto a property and renting it out as an investment property (which if done right is a great way to grow your money).

The banks have severely tightened up their lending standards (good) and what was standard business back then is no more.

Jon J. Tripp
More Than Just a REALTOR®
www.jontripp.com

* I am not an attorney. Neither do I play one on television. I am not a CPA. I suggest you refer any tax or legal questions to the appropriate qualified professional. If you have a question or need help in dealing with the real estate market, hey, I'm your man.

Foreclosures Offer Opportunities for the Savvy

This is a good read for anyone interested in the investment side of real estate.

— By John N. Frank for REALTOR® magazine online

Daily Real Estate News | January 11, 2008 Foreclosures Offer Opportunities for the Savvy

The foreclosure arena presents opportunities for real estate professionals who know what lenders expect of them and can deliver first-rate performance, speakers agreed at Thursday's panel, “Working with Foreclosures,” during an Inman News-sponsored conference, Real Estate Connect, in New York.

Home foreclosures were averaging 200,000 a month nationally during the last six months of 2007 and show no signs of slowing this year, said Rick Sharga, vice president of marketing with RealtyTrac, which compiles national foreclosure statistics.

Roughly half of all foreclosures end up being taken back by their banks and lenders, meaning that of the roughly 2 million foreclosures expected this year, 1 million could be back in the for-sale market, he said. read more

Are Extra Monthly Payments OK?

Daily Real Estate News | December 26, 2007 Are Extra Monthly Mortgage Payments OK?

Getting a windfall and using it to pay off the mortgage sounds like it should reduce the monthly amount owed, but often it doesn’t.

Fixed-rate mortgage holders who pay off a big chunk of their mortgage are likely to shorten the payoff period, but the infusion of cash probably won’t reduce at all the amount they owe monthly.

Holders of adjustable-rate mortgages who are making fully amortizing payments will get a payment adjustment at the point where the payment is recalculated after a rate adjustment.

Mortgages with an interest-only option should see their payment decline – unless the servicer handles the reset differently than the industry norm. Many delay the payment adjustment for a year, sometimes more.

The most responsive type of mortgage to oversized payments is the home ownership accelerator, because it has no fixed payment requirement. The monthly amount owed fluctuates with the amount the mortgage holder has available to pay.

Source: The Washington Post, Jack Guttentag (12/22/07)

Interest Rates, Fed rate cuts & more

The recent cuts by the Federal Reserve has prompted a lot of questions about how their actions affect your interest rate or your ability to get a decent rate.

I am going to refer you to Diana Olick's blog on many of these issues. I respect Diana's opinions, don't agree with her all of the time, but believe she has a good grip on the many different issues.

Among some of the issues she covers:

• Anger at home builders

• What mortgages are affected by recent rate cuts

If you watch Diana on CNBC, she covers a lot of the real estate issues from the Washington DC area. Her reports are flavored with regional data not someplace in Timbuktu, Tennessee.

Til next time,

Jon J. Tripp
More Than Just a REALTOR®
www.jontripp.com

Timing the Market: When to Buy

FACT: The real estate market has slowed. For those wanting to move up, selling their home to step into their new digs is not that easy anymore.

So rather than go through complicated negotiations, failed contracts and the general headache of moving up, these folks are taking themselves out of the game.

RESULT: Two transactions halted per potential seller. Nothing contributed to market movement. No homes sold or bought.

FACT: Prices on new homes have dropped significantly. For example, my neighborhood Port Potomac prices have plummeted. On homes that would go upwards of $800k are now in the $500s. A broker told me he heard this community was one of the hardest hit communities in the Northern Virginia region.

Love the community; Scorn the builders.

And of course, due to the drop in prices and the whole subprime / overextended borrower, MANY homes in this community are slipping into foreclosure.

RESULT: Pile on top of the market woes. Homes are lost. These homes increase the expanding inventory.

Now you have the envy of the screwed homeowner: the Qualified Renter. The renter, from their view, has avoided foreclosure issues, doesn't have a house to sell in order to get that "dream" home and can pick up and buy all the deals created by the foreclosure and declining market mess.

And what deals are out there for the prepared renter.

But the qualified renter is nervous because everyone above, magnified by the media, is screaming their bloody woes and wringing their hands.

And they are not unjustified to do so.

However, this is a process and either you get in the game or you'll be left behind.

Tip: These new homes that are now in the builder's inventory are excellent purchase opportunities for the qualified buyer...if you know how to manage the deal. And trust me, it can be done.

So a few questions I pose to those in a position to buy: Do you feel you are undergoing paralysis and analysis? What is the trigger to make signing on the dotted line occur? When is the right time to buy?

Look forward to your feedback.

Jon J. Tripp
More Than Just a REALTOR®
www.jontripp.com

Phantom Tax: Time to Disappear

READ THE NEXT PARAGRAPH

S.1394 - Mortgage Cancellation Relief Act of 2007 A bill to amend the Internal Revenue Code of 1986, to exclude from gross income of individual taxpayers discharges of indebtedness attributable to certain forgiven residential mortgage obligations.

For some of you, this is a must read. Let me tell those of you who must read this: Anyone who will be selling via short sale or anyone who knows someone who will be selling via short sale.

As I've alluded to in the past, in a short sale where Johhny sells his house for $345k and he owes $375, he has what is called a taxable event. The IRS looks at the difference of $30k as regular income and is taxed accordingly.

And this is really a bad situation when the market has tumbled in new homes (where prices have spiraled downward) and Johnny bought at the top.

OK, we have Johnny who is being responsible and doing the right thing to get his finances in order (let's forget the mistakes he made in getting into the house). So, he's facing foreclosure and possible bankruptcy down the road if something doesn't change, which is why he is selling. Now the government is taxing Johnny on something it considers income (Phantom).

So Johnny has to sell his home to save his finances...and the man comes along and taxes him on something he didn't really make: income.

Screwed up, I know.

Which is why you (if you are one of the persons I am writing to) should call your Senator and ask he/she to push for a vote on S. 1394, the Mortgage Cancellation Relief Act of 2007.

The House of Representatives has passed a bill. I fully expect the President will sign a compromise bill that comes out of both bodies, but not unless the Senate acts.

If you don't know your Senator's number, find them on www.senate.gov or call the switchboard at 202-225-3141.

Read the Northern Virginia Association of Realtor's statement on the issue.

Jon J. Tripp
More Than Just a Realtor®
www.jontripp.com

Sell your home TIP #1

Homes are on the market undoubtedly longer than in two years ago. There are tons of houses to choose from, prices to negotiate (lower) and more houses to look at.

So Mr/Ms Seller. What are you doing to make Mr/Ms Buyer even take a first look (much less a second look) at your home? If your house is listed, is the listing like 95% of all the other listings?

I wrote a post a few days ago about the beef I have with Realtors who promise the moon to get your listing and then do the minimal amount of work to sell it.

So without giving you advice (since that would violate my Realtor Code of Ethics if you are working with an agent) tell your agent to paint a picture of your home that will cause that buyer to look once, no twice at your home.

If you get a second look, you are more likely to get a visit and your chances of selling your property have greatly increased.

So what do I mean about painting a picture?

If you're like most people, you need to see something to believe it. There is no room for faith in the real estate industry.

People need to see what it is that attracted you to the home when you bought it.

To my earlier comment about 95% of the listings looking alike, my point is they have only...drums please...ONE PICTURE.

OK, so you're trying to sell a home and convince a buyer to sink an unbelievable amount of money into something you / your agent can't even give them a decent image of? For what reason would you not take 100 pictures of your home from scores of angles and post to the listing on the MLS?

For crying out loud, REALTORS CAN POST 30 PICTURES TO EACH LISTING - FREE!

So why is there only one picture of your home?

Do you really believe that one picture will invite folks into your home and cause them to buy?

I think not.

Tell your Realtor TODAY to post pictures. If you're going to be like the 95%, you're going to blend. Plan on months of waiting.

And if you're only getting one photo of your house (which is usually what is used for tax records and can simply be imported by the person inputing your listing in the MLS) what else are you missing out on?

Realtors: Get off your butt and post pictures. This is as basic as putting up a sign in the yard to alert people the home is for sale. Don't sell your clients short (no pun intended).

Jon J. Tripp
More Than Just a Realtor®

www.jontripp.com