This article will cover the following points that are affecting you right now or will affect you in the near future.
1. The credit market effects on your future
2. Real estate ownership under the affects of a mortgage
3. The affects of your ARM mortgage.
4. The types of homes being built for today's markets
5. The prices of modern homes
6. The affect of foreclosures on the surrounding homes in their vicinity
7. Job layoffs and their affects on the real estate markets
8. The home value market corrections
9. The affects upon your future when you have a foreclosure on your record
10. Real estate market corrections and their affect upon your home's value
11. How you can recover from a foreclosure and own your dream house again.
12. The solution to these problems, should you chose to take the path we give to you.
In these days of the recession we are all faced with a reduction in our ability to acquire the cash we need for our daily functions. Layoffs are threatening everyone.
The credit cards we have been using for some of our purchases have their limits reduced. The way to get short term loans at reasonable credit terms is a thing of the past. Most of these loans are being handled by the check advance loans where you borrow $500.00 and pay back as much as $600.00. This is an extreme but expect this to happen if it hasn't already. Another modern gap is filled by auto title loans which cost a lot to pay off.
None the less the economy is taking a turn for the worse. The largest effects are being felt in the real estate area. Many home owners are under foreclosure with no way out. The government has attempted to set up a program that will solve this problem which will let those under foreclosure refinance under special conditions.
However that will not help those that have already been under foreclosure and are out of their homes.
There is an existing problem with the idea of setting it up so that those home owners can refinance their mortgages. That problem is a very large amount of those individuals that own a home bought them on a mortgage instrument known as an ARM. This is an acronym for Adjustable Rate Mortgage.
The problem with ARM's is that they provide an interest rate for that mortgage holder that is anywhere from 1.5 percent to 3 percent for a set period of from 3 to up to 10 years. Usually they are from 3 to 5 years before the fixed interest rate is changed to the variable rate that it was designed for. When this was done many of the applicants were found to be eligible based upon their income. They could buy a larger, more elaborate home based upon their income. This is true for the rate they received for initially getting that mortgage. But the problem is that they could not qualify, based upon their income, for buying a home of that value because the payment is about 25 to 30 percent higher than their ARM payment is. It is true that these homes increased in value but all financial institutions had guidelines for the income required to qualify for a home mortgage. So the refinancing was usually denied unless the family income could be increased.
Here is a summary of the way the market in my state, the state of Utah, was developed:
1. A large amount of homes were sold on ARM's
2. Because of the type of homes appearing to be in demand, most of the developers were building higher priced homes.
3. Most of these homes were originally built to cover the average income for the population of the area. The markets seemed to be flooded with these type homes.
4. The incomes were not increasing with the cost of the housing market.
5. Most homes were built with the income level of the upper middle class and the higher income levels. Most nearly within the higher income level.
6. The medium priced homes were not being built because the developers figured the area was full of these type homes already.
7. The price range was from about $220,000.00 to 2.5 million dollar houses
8. The average incomes were well below that level when the qualifications were based upon a fixed rate mortgage. A majority of the area income could not qualify for this price in new homes.
9. The ARM could be used to sell these homes to the middle income markets.
10. Often if the family had both parents producing income they could qualify for the ARM's being offered.
11. If one or the other lost their job they could probably still make the mortgage payment on the ARM mortgage.
12. The ARM's were the answer to the sales of these homes and the buyers were excited because they could get the homes of their dreams.
13. Few, if any, standard fixed rate mortgages were being written compared to the amount of ARM's being written.
14. Many were hoping for an increase in income or a refinance when their ARM would lose its fixed term protection. Fixed term protection is that period where the ARM could not be adjusted based upon the interest rates offered by banks plus an additional couple of interest points above that. When the interest was 6.5 percent, the ARM interest after the locked rate time would be about 8 or 9 percent or more depending on the terms of the ARM.
This seems to be the way it is all across the nation. ARM's were handed out like candy to a hungry child. Everybody wanted the best and they went after the ARM like there was no tomorrow.
So what is to become of those ARM mortgage holders when they all suddenly lose their interest rate protection? They try to keep up with the extended mortgage payment but it is costing them everything else they own. But eventually the ARM wins out and they miss the first 2 or 3 payment. The foreclosure is started.
The worst part of this is it isn't over yet. There are a multitude lf ARM's out there just getting ready to approaching maturity of their hold interest rate period. When they hit that point the fun will really begin.
In addition the value of that home has dropped drastically because of the start of the foreclosures. The rule of thumb says that for every foreclosure, every home in that neighborhood or sub division will lose 1 percent of their value. Now when 10 homes is that area are foreclosed on then the remaining home will lose 10 percent of their value. As an example; your homes last highest market value was $220,000.00. You recently paid that for it. It now has a value on the market of about $198,000.00. You just lost $22,000.00 equity in that home. And the process isn't through yet. Not until the last foreclosure hits your neighborhood will it be over. My predicted losses in home value could exceed 30% before it ends. Now that home we just talked about is only worth $154,000.00. that's a loss of $66,000.00 in equity.
Now if you could pay that home off this won't matter much. A paid off home can decrease in value and eventually stabilize. Then when it is all over the values will increase, starting at a very quick rate and stabilizing eventually. Then all that equity you lost for that period of time won't hurt your value any longer. Real estate usually recovers quickly and stabilizes at the value it was originally and then it increases again from that. Typically, in a good real estate market, the value of homes increases about 2 to 3 percent per year. When a market low ends the short term increase could be at the rate of 8 to 9 percent for the first 2 or 3 years. All markets that go down quickly often tend to increase fairly quickly.
Now we add to this the amount of job losses that will occur during this period. It is expected to be very extensive nationwide. You, personally, are in danger of losing you job.
The only way you can recover from this is to abandon that dream home or find a way to pay it off quickly. If you have already been foreclosed on you will now be out of the home market for the next 10 years or more. Your credit rating is shot. You're a renter for that period of time. Renting only cost you your money but you don't have a choice in the matter. If you could remain a home owner your cost of housing will eventually put you in a position to have the final payment made and you are now a secured homeowner.
Even owning a home free and clear in a depressed market is more financially safer than paying rent for the next 10 years of your life. No more mortgages and no more chance of foreclosure. It really doesn't matter now what the value of your home is, it will eventually go back up in value. All real estate investments correct for the markets. Usually at 20 year intervals but when certain condition exists, like high gas prices, the markets adjust at that time to correct the affects that such an event causes.
I recently ran across a program that would solve this problem. In the beginning of this program you could make enough money to keep that high mortgage payment up and you could show enough income to qualify for a fixed rate conventional, non ARM, mortgage. If you continue to work with the program you could eventually make enough to pay that mortgage off and have your home free and clear except for taxes.
This all depends upon how you work this program. It is a program designed to make you money even while you sleep. It is internet related. The amount of time you need to spend with it is about 1 to 3 hours a day. It will take some time to get it set up and to get what needs to be done finished so that it can work like it should. But when it gets going you can relax and enjoy your new found income source. It can save you from all that we have talked about here. And the education you get for your money is well worth the small cost of the program.
If you suffered a foreclosure, the 10 years you will spend as a renter will allow you to accumulate enough money to purchase that next house for hard cash money with some left over. Having a foreclosure doesn't keep you from home ownership, but it does keep you from obtaining a mortgage to buy one.
