Happy Holidays and New Year!

I want to wish you all the joys that this holiday brings, filled with the warmth of family and friends and enriched with the blessings of peace and prosperity. Have a Happy New Year.

If You Don't Buy a House Now, You're Stupid or Broke by Marc Roth

Here is an interesting article from Business Week written by Marc Roth.

Well, you may not be stupid or broke. Maybe you already have a house and you don't want to move. Or maybe you're a Trappist monk and have forsworn all earthly possessions. Or whatever. But if you want to buy a house, now is the time, and if you don't act soon, you will regret it. Here's why: historically low interest rates.

As of today, the average 30-year fixed-rate loan with no points or fees is around 5%. That, as the graph above—which you can find on Mortgage-X.com—shows, is the lowest the rate has been in nearly 40 years.

In fact, rates are so well below historic averages that it should make all current and prospective homeowners take notice of this once-in-a-lifetime opportunity.

And it is exactly that, based on what the graph shows us. Let's look at the point on the far left.

In 1970 the rate was approximately 7.25%. After hovering there for a couple of years, it began a trend upward, landing near 10% in late 1973. It settled at 8.5% to 9% from 1974 to the end of 1976. After the rise to 10%, that probably seemed O.K. to most home buyers.

But they weren't happy soon thereafter. From 1977 to 1981, a period of only 60 months, the 30-year fixed rate climbed to 18%. As I mentioned in one of my previous articles, my dad was one of those unluckily stuck needing a loan at that time.

Interest Rate Lessons

And when rates started to decline after that, they took a long time to recede to previous levels. They hit 9% for a brief time in 1986 and bounced around 10% to 11% until 1990. For the next 11 years through 2001, the rates slowly ebbed and flowed downward, ranging from 7% to 9%. We've since spent the last nine years, until very recently, at 6% to 7%. So you can see why 5% is so remarkable.

So, what can we learn from the historical trends and numbers?

First, rates have far further to move upward than downward; for more than 30 years, 7% was the low and 18% the high. The norm was 9% in the 1970s, 10% in the mid-1980s through the early 1990s, 7% to 8% for much of the 1990s, and 6% only over the last handful of years.

Second, the last time the long-term trends reversed from low to high, it took more than 20 years (1970 to 1992) for the rate to get back to where it was, and 30 years to actually start trending below the 1970 low.

Finally, the most important lesson is to understand the actual financial impact the rate has on the cost of purchasing and paying off a home.

Every quarter-point change in interest rates is equivalent to approximately $6,000 for every $100,000 borrowed over the course of a 30-year fixed. While different in each region, for the sake of simplicity, let's assume that the average person is putting $40,000 down and borrowing $200,000 to pay the price of a typical home nationwide. Thus, over the course of the life of the loan, each quarter-point move up in interest rates will cost that buyer $12,000.

Loan Costs

Stay with me now. We are at 5%. As you can see by the graph above, as the economy stabilizes, it is reasonable for us to see 30-year fixed rates climb to 6% within the foreseeable future and probably to a range of 7% to 8% when the economy is humming again. If every quarter of a point is worth $12,000 per $200,000 borrowed, then each point is worth almost $50,000.

Let's put that into perspective. You have a good stable job (yes, unemployment is at 10%, but another way of looking at that figure is that most of us have good stable jobs). You would like to own a $240,000 home. However, even though home prices have steadied, you may be thinking you can get another $5,000 or $10,000 discount if you wait (never mind the $8,500 or $6,500 tax credit due to run out next spring). Or you may be waiting for the news to tell you the economy is "more stable" and it's safe to get back in the pool. In exchange for what you may think is prudence, you will risk paying $50,000 more per point in interest rate changes between now and the time you decide you are ready to buy. And you are ignoring the fact that according to the Case-Shiller index, home prices in most regions have been trending back up for the last several months.

If you are someone who is looking to buy or upgrade in the $350,000-to-$800,000 home price range, and many people out there are, then you're borrowing $300,000 to $600,000. At 7%, the $300,000 loan will cost just under $150,000 more over the lifetime, and the $600,000 loan an additional $300,000, if rates move up just 2% before you pull the trigger.

What I'm trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.

Marc Roth is the founder and president of Home Warranty of America, which touches just about every part of the real estate industry since it sells through builders, real estate agents, title companies, mortgage companies, and directly to consumers.

Foreclosed homes aren’t always the best deal in town

Here are 10 reasons why foreclosures aren't always the best deal in town, offered by Vince Mastronardi, president of On-Site Specialty Cleaning & Restoration in suburban Detroit.

No heat in the winter. When a home has been left unheated, buyers run a risk of damaged pipes.

Not removed but ripped. Thieves and even angry former owners can do a lot of damage when they depart with fixtures and key systems like heaters and air conditioners.

Peeling, bubbling, and discoloration. Water incursion isn’t always obvious, but these are signs.

Mold. Where there is water there is mold. Look inside cabinets, behind drawers, and around built-ins.

Blocked drains and pipes. Sewer backups can be expensive to fix.

Black cobwebs. This is the result of a malfunctioning furnace, common in properties where there hasn’t been maintenance for a long time.

Homemade and handy. Where renovations don’t look professional, check with the municipal authority. They may have been completed without permits and that could mean they have to be redone.

Fresh paint everywhere. What is the seller covering up?

Check the basement. Look for discolored subflooring, which can point to mold. And search for asbestos, common in older homes that haven’t been brought up to code.

Air quality. Include air and surface testing in a home inspection. It’s a few hundred dollars well spent.

Source: On-Site Specialty Cleaning & Restoration (12/16/2009)

Raffle house winner sells house

A Colorado woman who won a $1.2 million home in Edgewater in a $50-a-ticket raffle in January has sold the property to a Severna Park church at a bargain-basement price.

"Hooray, finally!" said Karen McHale, 47, who lives in a home she built with her husband in the mountains west of Denver and never intended to move to the mid-Atlantic. "I tell you, that was a giant rock around my neck."

McHale said she bought two raffle tickets last year as a contribution to an Annapolis-based charity that was co-sponsoring the contest. The raffle venture came about when a mortgage broker teamed up with We Care and Friends, which helps at-risk youths, to sell his home.

A week after one of those tickets was chosen as the winner, McHale lost her job as a chemical engineer. Eager to sell the home before Dec. 31 to avoid paying about $300,000 in 2009 income taxes, she put it on the market in March for $799,000.

When no one bit, McHale dropped the price to $749,000 in May. A dozen prospective buyers asked after the property; no one submitted an offer.

McHale's husband, who works in construction, spent a week at the house in June, painting its 40 interior doors, hooking up a dishwasher and doing other last touches.

Two buyers made offers in September; both deals fell through.

Meanwhile, the six-bedroom, 4 1/2 -bath windfall, despite sitting empty, was accompanied by a hefty monthly bill: $600 to $800 in utilities and homeowner's insurance.

McHale finally sealed a $650,000 deal last month with Unity By the Bay, a church that has outgrown its quarters in a Severna Park strip mall. The church paid $450,000 in cash, McHale said, and she made a tax-deductible contribution of the additional $200,000 to stem the flow of her winnings to the IRS.

"We are all just so grateful to Karen McHale for her donation. The congregation is ecstatic," said board member Carol Kerr. "We have wanted to have our own building, but everything seemed so out of reach, pricewise, that we just haven't been able to make it happen."

All in all, McHale said, she will pocket about $200,000 after paying state and federal tax bills.

"It's amazing how fast you can spend it," McHale said, "but we're done now. We're back to normal."

A chunk of the profit went toward the mortgage on the McHale family's Colorado home. They also spent some of the money on a greenhouse to grow vegetables in a part of the country where winter lasts much of the year and a new Dodge truck to replace one that was falling apart.

One son, a budding chef, got a set of knives; another got help with his August wedding and honeymoon to Italy. At a recent lunch to celebrate the sale of the 6,000-square-foot Maryland home, McHale passed out $50 bills to a couple of dozen family members and friends.

Her original windfall was accompanied by enough stress and tax-code headaches that McHale said she's done gambling on faraway real estate.

"The Elks [Lodge] was raffling off a pig recently, and I bought tickets for that because I wanted the meat," she said, laughing. "But I'm not buying raffle tickets for any more homes in strange states.

Source: Washington Post written by Emma Brown on Tuesday, December 8, 2009

IRS Sets New Rules for Tax Credit

The IRS has spelled out guidelines for eligibility for the home buyer credit when co-borrowers purchase a property.

When a home-owning parent of an adult child co-signs for a mortgage and both names appear on the note, the IRS says that under some circumstances, the first-time home buyer can qualify for the whole amount.

The IRS says the parent doesn’t qualify for any portion of the credit, but if the child hasn’t owned a home during the three years preceding the current purchase and can qualify based on income, he or she can be allocated the entire $8,000 credit.

When unmarried individuals co-purchase a home and only one of them is eligible for the credit, then the full $8,000 can be allocated to the eligible buyer.

Source: Washington Post Writers Group, Kenneth R. Harney (12/04/2009)

Fannie Mae Announces "Deed for Lease" Program

WASHINGTON, DC -- Fannie Mae (FNM/NYSE) is implementing the Deed for Lease™ Program under which qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.

"The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications," said Jay Ryan, Vice President of Fannie Mae. "This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities."

The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under Deed for Lease, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.

To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers in this circumstance may also be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31% of their gross income.

Leases under the new program may be up to 12 months, with the possibility of term renewal or month-to-month extensions after that period. A Deed for Lease property that is subsequently sold includes an assignment of the lease to the buyer.

For additional information about the Deed for Lease Program, including full details on program eligibility, please review the Guide Announcement on www.efanniemae.com.