The Diamond Blog

A record number of American homeowners are seeking - and getting - help to solve their mortgage woes.

Anyone who has multiple sources of debt could possibly benefit from debt consolidation, especially if some of that debt is from credit cards. There are a variety of debt consolidationoptions available, but the general idea is to replace multiple sources of debt with a single lower interest rate debt consolidation loan. At the very least this will simplify your life, and can also save you money by lowering the interest rate on your debts, and/or can make the monthly payments more manageable.

Six Steps to Debt Consolidation:

The six steps listed below will take you through the process of researching and obtaining a debt consolidation loan.

   1. Prioritize your debts. Start by listing all your outstanding balances, and note the interest rate of each debt. This will tell you not only how large a debt consolidation loan you will need to pay off your debts, but it will also identify which debts should be the highest priority to pay down--those with the highest interest rates.

   2. Decide what kind of help you need. Debt consolidation services can go beyond just providing debt consolidation loans. They can include counseling to help with your current situation and teach you to better manage debt in the future. Decide whether you are just interested in getting a debt consolidation loan, or if you need additional debt consolidation or counseling services as well.

   3. Identify your best source of credit. Figure out what source of credit would be best to use for your debt consolidation loan. For example, if you have equity in your home, this would allow you to get a cheaper type of loan than an unsecured loan. Better yet, you might be able to refinance your mortgage and get a lower interest rate by using a primary mortgage as your debt consolidation loan.

   4. Shop for a debt consolidation loan. Once you know what type of loan you are looking for, shop around for the best terms. Some debt consolidation services might help you identify a lender. Keep in mind that credit counselors are not allowed to sell debt consolidation financing or get a commission for referring you to a lender. Shopping yourself helps you make sure you are getting a fair deal.

   5. Make a budget you can live with. Once you know the approximate amount, terms, and interest rate of available debt consolidation loans, use a loan calculator to determine what your monthly payments could be. Before you borrow, make sure you've budgeted to meet these payments, especially if you are using your house as collateral for your debt consolidation loan.

   6. Apply for your debt consolidation loan. Based on what you learned by shopping around for rates, apply to the lender of your choice. Before you fill out the paperwork though, make sure you understand their qualification standards so you can realistically assess your chances of approval.

By getting a handle on your existing debt, you'll be in a better position for the future.

Q: I decided that this was a good time to buy, and found this really great house at a great price. It's an older home, and very charming, but there is about $10,000 worth of various electrical and termite repairs that the inspectors have found that need to be done. I know that's not that much compared to the $300,000 I'm paying for the place, but I'm going to be pretty house-poor after escrow closes. I'm afraid I'm going to lose my dream house over these issues. What should I do?

A: As always, "It depends." Did the original contract have an as-is clause? If so, it may be unethical to demand that the seller pitch in to fix these defects, though he might offer to if the other alternative is for you to back out of the deal. Are the repairs required by your lender or your city/state to be completed by the seller? Is the seller an individual or a bank? A bank is highly unlikely to contribute to these sorts of repairs, unless required to do so by law. How badly do you want the place? All of these things impact how you should proceed.

Mindset Management

If you love the house, feel that you're getting a good value, and the proposed financing will work for you on a long-term basis, look at ways to resolve or work around the problems, rather than instantly fearing that you're going to lose the house around this. In life, generally, what we fear we often create. If you approach this problem from the perspective of losing the place, you will. If you approach it committed to working this out, you almost certainly will.

If you are attracted to the charm of older homes, understand that this level of repair (or more) is liable to be required on any older home you consider buying (and in many of the newer ones, which have often been less well-cared-for). In fact, I know home inspectors who feel that older homes are often a better bet, conditionwise: The quality of materials and craftsmanship when they were built was often superior to those of newer homes, and any major functional or structural issues will have usually emerged by now, so the chances of a major surprise occurring are much smaller.

Home inspection reports can be worded very strongly, in the interest of protecting the inspector from liability. Don't let the verbiage freak you out -- there are lots of answers and clarifications you need to get before you can determine whether the repairs needed are potential deal-breakers.

Need-to-Knows

In the world of home improvement and repairs, things are not always black and white. For example, opinions will vary on what specific repairs are necessary -- some electricians prefer to actually ground two-pronged outlets, while others prefer to install ground-fault circuit-interrupting outlets. I know that's gibberish, but these are basically two solutions to the same issue of ungrounded outlets -- the first solution costs thousands, while the other costs $50 per outlet.

Also, every item that the home inspector points out may not, strictly speaking, need to be done (or may not need to be done with any urgency). Inspectors' professional standards require them to call your attention to recommended upgrades and other items that, when you ask them, they would either never complete if they were buying the house themselves or they would complete over a number of years, rather than trying to get them all done up front. Pest reports, for instance, are actually inspections for all sorts of wood-destroying organisms and conditions, not just pests. So, if your pest report comes back indicating actual termite infestation, that is an item you need to ensure gets handled urgently. However, if it comes back indicating a fence with dry rot, that may be a much less urgent repair -- and may even be duplicative of a fence rebuild that you were wanting to do irrespective of the pest report.

As a homeowner-to-be, it's time for you to learn the art and science of obtaining multiple repair bids. If you have one bid for $10,000 and you go out and get two more, you're very likely to end up with three totally different amounts and even three totally different recommended courses of action. Whether you buy this particular house or not, take this lesson with you throughout your career as a homeowner: Always get multiple bids for repairs or home improvements. You may not always want to take the lowest bid, because professionalism and quality of work vary along with pricing, but that's another story. Until you have multiple bids, you don't truly know how much the repairs will cost.

Finally, your Realtor will help you obtain a home warranty policy before close of escrow; in many markets, the seller will even pay for this item. While home warranty plans don't cover everything that could ever go wrong with your home, they do dramatically limit your potential exposure for when things break. Ask your Realtor to help you review your home warranty policy coverage and exclusions right now. Generally speaking, if any of the items you're concerned about are, for example, systems or mechanisms that are currently working but may need repair or replacement soon, those items may be covered by your home warranty -- but only after escrow closes and only when they actually stop functioning.

Action Plan

If you are committed to trying to resolve these repair issues so that you can move forward with the purchase of your dream home, here's the plan of action I suggest:

1. Get multiple bids and opinions on the necessity, cost and urgency of the recommended repairs. Get contractor referrals from your Realtor and friends, and also ask them if they would recommend an alternative course of action.

2. Ask the seller for a closing-cost credit or repair-credit holdback. Most lenders won't let you get cash from a seller credit without the repairs being done before closing, so you have two options. You can either (a) ask the seller to pay for some of your closing costs, so you can reserve your closing-cost funds and use them to have repairs done after closing, or (b) you can ask the seller to give you a repair credit, and leave that money in escrow after closing until your licensed contractor submits an invoice to escrow. I prefer either of these to having the seller complete the repairs, as I think few sellers will have the work done the way that you, the new homeowner, would. Consult with your Realtor and mortgage broker about which of these options your lender will allow, and stay flexible -- if the seller agrees to pay for only half of the repairs, then you can evaluate whether that's enough to allow you to move forward.

3. Ask seller for repairs. If you can't get credits for whatever reason, like the seller already giving you the maximum credits your lender will allow, ask the seller to complete the repairs. Ask for an invoice from a licensed contractor, and ask if you can select any cosmetic or finish materials.

4. Ask seller for price reduction. If the seller can't do the repairs or offer you a credit, ask them to reduce the price for some or all of the costs you'll be incurring for repairs. A price reduction is not ideal, as it doesn't result in you having the cash to get the work done, and will often not reduce your down payment or monthly payment amounts enough to allow for the repairs, but it's certainly better than nothing!

Once you have completed this action plan and have the results of your negotiation with the seller, only then do you have the full information you need to make a decision about whether to move forward with this purchase. While it is true that sellers are more motivated now than in the last generation to help with repairs, if they have already given you a great price, they may or may not be able to afford to add credits on top of that. Look at the help the seller can (or cannot) offer in the holistic context of the price, property, etc., rather than as an isolated potential deal-breaker.

Is the Real Estate Market Really That Bad? New White Paper Goes beyond the Gloomy Headlines

Editor’s Note: The following information is compiled from a recently released White Paper. The White Paper is titled, “60% of the U.S. Can Stop Worrying about Housing Market” and can be accessed by clicking a link below.

When it comes to the national housing market, there is a lot of gloom and doom in the daily newspaper. Just look at a few recent headlines:

“Home Builder Sentiment, So. California Home Prices Crumble” - USA Today, 7/16/08

“Home Builders Post Steep Losses as Value of Unsold Land Slips” - New York Times, 7/27/2008

“Home Prices In May Took A Steep Fall” - The Wall Street Journal, 7/30/2008

 

“Thank God the economy is not as bad as you read in the newspaper everyday.” - Phil Gramm, top economic advisor to Sen. John McCain (R-AZ)

Lost amid the uproar caused by Gramm’s proclamation that the U.S. is a “nation of whiners” was a breath of economic fresh air to Realtors and Mortgage Professionals nationwide.

The economic recession that the United States is facing has been portrayed in the media as being brought about by the rising cost of oil and the “burst bubble” in the housing market. There is no denying that the cost of oil continues to stand at near record levels. But while the bubble has burst on the housing market, is it really still a nationwide problem?

While home values did fall as the bubble burst, the media continues to report constant drops across the nation in national home values.

The Office of Federal Housing Enterprise Oversight’s (OFHEO) House Price Index (HPI) tells a different story than the media is reporting. Citing data from home sales and appraisals for refinancing, OFHEO reported in May that 35 states saw a positive home value price change in the first quarter of 2008. In addition, 164 MSAs showed positive first quarter appreciation when compared to the same quarter of 2007.

“You’ve heard of mental depression; this is a mental recession,” said Gramm on July 9.

According to statistics from City-Data.com, 54 of the 101 cities with the largest population increase from 2000 - 2006 are located inside California, Nevada, Florida, and Arizona - the four states most affected by decreasing home values.

As the populations in these areas have settled, home starts continued…and speculation caused a rapid rise in home values. Now, there is an enormous real estate surplus, and those same four states are witnessing an economic period of leveling out.

Just because four states are still falling, and 11 other states continue to try and stabilize doesn’t mean the entire market will continue to take the plunge. According to PMI Mortgage Insurance Company’s “Economic & Real Estate Trends” report for Summer 2008, almost 68% of the nation’s 322 remaining MSAs experienced positive appreciation during the quarter when Metropolitan Statistical Areas (MSAs) located in California, Florida, Nevada, and Arizona are removed from PMI’s calculations.

For nearly 63% of Americans, the worst of the “housing crisis” seems to be over. As recently as late July, while economists were still not ready to call a bottom, positive signs began to show for home sales and home values.

To access the complete White Paper, “60% of the U.S. Can Stop Worrying about the Housing Market,” click here. 

‘The real estate market crash continues as home values plummet….’

‘Home sales continue to decline as the housing bubble bursts….’

‘Is the real estate market hitting a recession?  Find out tonight at 11!’

Sound familiar? Those are just a few of the headlines that have been thrown around by the media lately. In a time where people are very much influenced by what’s in the news, it seems a bit irresponsible for the media to be feeding the housing panic with such gloomy headlines.

Of course, the media isn’t the only channel to blame - consumers, speculators, politicians, real estate professionals, the economy and a ton of other factors all have a hand in the state of the market. And the majority of them are being pretty pessimistic about the whole thing.

What they don’t seem to get is that pessimistic speculation can hurt the market just as much as tangible factors such as mortgage rates, employment rates, etc. The fact is, the strength of the U.S. economy, while relying on many different factors, also relies heavily on the sales industry in general and sales people specifically.

That’s right, when it comes right down to it, sales people are a driving force of our economy. An analogy may help in this case: say suddenly, all over the country, sales forces in radio advertising just stop working. No more prospecting, no more aggressive sales calls, nothing. What would happen?  The radio advertising industry would plummet, crash, grind to a halt - mostly.

So, what do you think happens when real estate agents start to believe that the market is crap and there is no way they can get contracts? They’re going to stop working, they’re going to stop actively persuading people to buy or sell, and surprise, surprise, the market is going to slow even further!

The bottom line is, there are many factors contributing to the appearance of a housing market crash, when in reality, the majority of the market is just leveling out and still making positive gains in value. You cannot generalize the real estate market of the entire country and expect to be accurate with your findings.

It’s time for the media to quit all the doom and gloom reporting, even if it gets more ratings than fluff stories; for the lazy agent to quit whining that there’s no work to go after; and for everyone to realize that what we’re REALLY seeing across most of the country is simply the leveling out of a major housing boom.

Don’t believe it? Check out these 26 facts you AREN’T hearing or reading through mainstream news media.

Our first 7 facts come from a government study done by the Office of Federal Housing Enterprise Oversight:

1.  Coincidentally, the 3 states that have had the sharpest decline in home sales & prices are also 3 of the states that experienced the biggest booms (sharpest appreciation) during the early 2000s - California, Florida and Nevada.

2.  Over half of all metropolitan statistical areas (MSAs) are showing price appreciation each quarter.

3.  Of the 20 ranked cities with the greatest price declines over the latest four quarters, all but one (Las Vegas-Paradise, NV) are in California or Florida.

4.  Only 15 out of 50 states have shown any actual price decline in the past year. The rest still show modest appreciation in home values.

5. Only 3 states have shown significant price declines from the first quarter of 2007 to the first quarter of 2008.

6.  There are still many areas showing 5% or more appreciation over the past year, including but not limited to Bayou Cane LA with 11.22%, Wenatchee WA with 8% and Idaho Falls ID with 5.06%.

7.  The type of annual appreciation we’ve seen since 2005 (ranging from 1.8% to 3.7%) is similar to the type of appreciation the U.S. experienced in the mid to late 90s, right before the real estate boom.

Let’s look at some other facts:

8.  A “boom” in economic terms means a period of unsustainable growth - with the term unsustainable being the keyword. In the real estate world, a boom market is considered one in which prices have risen over 30% in 3 years, while a bust market is one in which home prices have dropped by at least 15% over a 5-year span. By that definition, very few markets are experiencing a bust. It is more likely that prices are simply bottoming out from the big boom. (According to the Federal Deposit Insurance Corporation.)

9.  Rural land is much more valuable due to rising food costs, demand for corn-based ethanol, and city-folk desiring to get away to the country.

10.  Demand for big boat docks is so high that having one in your backyard can double your property’s value. A dock that sold for $700,000 in 2004 sold for $2 million last year. (Facts 9 & 10 are courtesy of June Fletcher over at the Wall Street Journal.)

11.  Areas that did not experience skyrocketing home values during the big boom (like Houston TX) still have hot real estate markets. Agents in Houston give the market a 3.5 on a scale where 1 means prices are falling hard and 5 indicates prices skyrocketing.

Our next 7 facts come from the National Association of Realtors (NAR) and from their Chief Economist, Lawrence Yun:

12.  A recent online study shows that nearly a quarter of potential homebuyers are waiting for the right time to buy - if something can spur the group on as a whole to start buying, it could be just the push the market needs to take off again.

13.  The national median existing-home value for all house types is down 6.1% this June from June 2007, however, there have been way more short sales and foreclosures this year than last, which skews the numbers and makes it impossible to do an apples to apples comparison.

14.  The average 30 year, fixed-rate mortgage is still lower than it was in June 2007 (meaning it’s still a smart time to buy).

15.  Many markets are seeing home sales double from last year - like Colorado Springs CO, Sacramento CA and Spartanburg SC.

16.  It’s still a very attractive market for buyers, with large inventory, attractive interest rates and sellers willing to negotiate.

17.  Housing affordability is likely to improve by 15 percentage points to 127 for all of 2008, according to NAR’s housing affordability index.

18.  Our economy is not headed into recession - not yet anyway. The gross domestic product (GDP) growth is forecast at 1.6% for 2008 and 1.4% for 2009 - not spectacular growth, but still positive gains.

To be fair, some media outlets ARE posting positive news about the market, with CNNMoney.com being one of the biggest contributors. According to several stories on their site:

19.  June’s home sales may be down a bit (a little over .5%) but it still came in well above economists’ predictions - meaning things aren’t as bad as people think and the market is much stronger than many professionals believe.

20.  The housing inventory is lowering slowly but surely - June came in at a 10-month supply, while May’s numbers showed a 10.4-month supply.

21.  Most of the decline is seen around 2 main types of markets: weak, industrial economies that are under pressure from the struggles of the Big Three automakers; and the areas that were previously part of the biggest boom markets.

22.  A third of the market still shows significant gains in pricing (such as Binghamton NY) and in general the Northeast is still seeing home value increases.

23.  Surprisingly the Condo market is booming - just not in the area you might expect. Condo values in Bismarck ND rose a whopping 36.4% compared to last year.

24.  A housing rescue bill is being passed around the Senate (having already been passed in the House) that will allow thousands of at-risk borrowers to refinance their old, unmanageable mortgages into low-cost fixed-rate loans insured by the Federal Housing Administration (FHA).

And our last 2 significant facts:

25.  Many real estate agents are helping to fuel the supposed ‘market bust’ by giving in to fear and worry. They believe what the media and politicians are saying and are simply giving up, using the excuse that ‘the market’s no good.’ If agents’ were out there working hard, cultivating prospects and persuading people to buy or sell, the market would show definite improvement.

26.  Somehow, even though the residential real estate market is apparently ‘in shambles,’ there are still agents doing nearly $750 million in real estate transactions (congratulations to Dolly Lenz) while in 2005, with the market still in boom mode, the highest sales volume only hit close to $250 million (by Mr. Harald Grant). If the market was really as bad as they say, Dolly wouldn’t have been able to hit those kind of numbers. (courtesy of The Wall Street Journal’s 2007 Real Estate Top Professionals).

There you have it - 26 little known facts the media’s not hot to spread around. While the state of the market isn’t the media’s fault (at least, not ALL their fault) it’s important for the news media to be aware of how their reporting can affect the U.S. Just as it’s an agent’s responsibility to be aware that if they give up on aggressive prospecting, they’re also adding to the problems of the real estate market.

The bottom line is that the market isn’t nearly as bad as everyone says. It appears that Americans took the boom for granted, and just can’t cope with leveling prices. It’s just about time for the media, the agents, and the government to step up and shine a little ray of hope onto the real estate world.

The turmoil in the housing and the credit markets has led lenders to tighten their mortgage standards. While it is more difficult to qualify for a new mortgage, it is not impossible.

Check your credit reports. Examine reports from the three main reporting agencies. Equifax, Experian, and TransUnion. to make sure all information is correct. If you find incorrect information, report the discrepancy to all three agencies. Anything negative on your credit report can hurt you, even if it's incorrect.

Boost your Credit Score. Almost all mortgage lenders use the credit scoring to determine a borrower's default risk. To improve your score, pay down debt, but don't close your accounts. How long you have had open accounts is a factor in credit scoring so you want an amount of longer established accounts even if the balance is zero. Pay all credit accounts on time and keep open accounts with a zero balance.

Put money aside for a down payment. Save at least 5 percent to 10 percent for a down payment. Most lenders are more comfortable granting a mortgage with a larger down payment. No-down-payment mortgages have virtually disappeared. To qualify for a Federal Housing Administration (FHA)loan you'll need 3 percent down.

Get realistic about your budget. A mortgage payment should be no more than 35 percent of your gross monthly household income. This will ensure that you have adequate reserves for other lifestyle expenses and to make your mortgage payments.