November 12, 2013
Mortgages: the Closing Cost Minefield
When my new partner and I bought a condominium last month to accommodate our combined stuff, I remembered that borrowing so much money can be an emotional, even terrifying, ordeal.
It’s difficult to think clearly.
But attention should be paid to closing costs, which add to the cost of buying a house. So I decided to apply my skills as a veteran newspaper reporter and grilled my lender, attorney and real estate agent about these costs.
Despite my diligence, I was only modestly successful at reining them in. But I stepped on a few land mines that might help other homebuyers:
The HUD-1 matters:
Federal law requires prospective mortgage lenders to provide loan applicants with a “good faith estimate” of the closing costs within three days after they submit the application. This “GFE” is your lender’s best guess of the final fees they’ll charge for originating your loan.
My lender promptly sent the GFE. But the bank’s salesman promised to reduce the closing costs shown on the GFE, and I had to repeatedly nudge him to provide the more important document: the HUD-1 statement of my actual closing costs. …Learn More
October 29, 2013
Homes More Affordable – For How Long?
There was a silver lining in the recent housing market collapse: prices dropped to more affordable levels for American families who didn’t already own.
Buying still isn’t easy. It’s become more difficult to qualify for a mortgage from banks and other lenders that have tightened up their credit qualifications. But the following chart, which also appears on page 11 of a chartbook released by the Urban Institute’s new Housing Finance Policy Center, shows the dramatic improvement in home affordability in the wake of the market’s recent downturn.
The blue line shows actual house prices over time – that’s the median, or middle, price for every single home sold nationwide in a given year. The red line shows the maximum a typical family can afford, assuming they put down 20 percent and get a 30-year mortgage at the prevailing interest rate, which is currently about 4.1 percent.
During the credit bubble, the blue price line surged above the maximum, putting a new house out of reach for many more families. Post-crash, that relationship reversed, making homes more affordable again.
But affordability still varies greatly, depending on where you live. … Learn More
September 24, 2013
Nearly Retired, Lugging a Mortgage
Traditionally, the picture-perfect retirement included a paid-off house. But the Me Generation isn’t sticking to the script.
Snapshots of three generations of U.S. households on the cusp of retirement – people born in the Depression, at the beginning of World War II, and after the war – show that more of the most recent generation, the baby boomers, are still carrying mortgages as they head into their retirement years.
About 40 percent of households who were between the ages of 56 and 61 in 1992 – the Depression-era parents of baby boomers – held mortgages at that age. This share had increased to 48 percent by 2008, as the front wave of baby boomers were reaching their late 50s and early 60s
“The current generation has bought larger, more expensive homes, and they arrive at retirement with more mortgage debt,” concluded George Washington University business professor Annamaria Lusardi, who presented the findings of her study with Olivia Mitchell of the Wharton School during an August meeting of the Retirement Research Consortium. …Learn More
August 27, 2013
Reverse Mortgage Article Hits Nerve
Readers reacting to a recent blog post about reverse mortgages fiercely debated the financial product’s pros and cons, which they felt were missing from the article.
The July 25 article noted that fewer than 55,000 older Americans in 2012 used the federally insured loans. The advantage of a reverse mortgage is that Americans age 62 or older can borrow against some of the equity in their homes to generate much-needed income or create a financial cushion. The principal and interest are repaid when the retiree or his children sell the house.
Even though reverse mortgages are rare, the topic hit a nerve with readers, including lawyers, brokers, and people with elderly parents.
A mortgage broker named D. Gardner, for example, said that he’s often seen people use reverse mortgages to maintain a lifestyle they can’t afford, eliminating a financial option they may need later in life.
For some borrowers, he said, a reverse mortgage “was a means to paper over problems.” …Learn More
August 1, 2013
Student Debt May Slow Home Buying
First-time buyers are currently responsible for about 29 percent of all U.S. house sales, down from historical levels of 40 percent, according to the National Association of Realtors. The share of young adults who own a house has also declined sharply.
There’s debate about whether buying a house is a good financial move. But the waning of this coming-of-age ritual is a significant change in behavior for young adults in this country.
One culprit may be student debt, which is becoming more prevalent – 43 percent of young adults have some, compared with 25 percent a decade ago. The average borrower’s balance has also doubled in the past decade, to more than $20,000 in 2012.
Researchers at the Federal Reserve Bank of New York believe these unprecedented student debt levels may be dampening house purchases by first-time buyers. Student loans cause individuals to do poorly under two of the primary tests by Freddie Mac and Fannie Mae that lenders use to approve standard home loans. …Learn More
July 25, 2013
Reverse Mortgages Get No Respect
Fran and Bob Ciaccia
Bob and Fran Ciaccia could not be happier with their reverse mortgage, which unlocked some of the equity in the house they purchased in 1966 for $12,500.
Reverse mortgages are federally insured loans available to U.S. homeowners over age 62. The loan is made against the equity in the house, and the principle, plus interest and some federal insurance fees, are not repaid until the homeowners or their children sell the house.
“I cannot find a downside,” Fran Ciaccia, a retired high school cafeteria cook from Levittown, Pennsylvania, said in an interview. “We have told so many people about it.”
Although the Ciaccias may be big fans, reverse mortgages are unpopular, despite historically low interest rates that make them a good deal for retirees right now. AARP has estimated that only 1 percent of older Americans use them.
In 2012, the average loan size was $158,228, and 54,676 Americans got one. That is less than half the loans made in the peak year, 2009, according to the U.S. Department of Housing and Urban Development, which insures and sets standards for reverse mortgages. …Learn More
July 16, 2013
Underwater Homeowners Stuck in Place
Packing up and moving across state lines is a time-honored tradition in this country. Settlers headed to the Great Plains in the 1800s, retired snowbirds have flocked to the Sun Belt for decades, and roughnecks today are pouring into North Dakota for the shale-oil boom.
But moves like these became extremely difficult for an unprecedented number of Americans after U.S. house prices plunged, suddenly trapping millions of homeowners in houses that were worth less than what they owed on their mortgages.
The phenomenon, called “house lock,” was more pervasive during the recent housing market downturn, because the downturn was national in scope – prior housing declines had largely been isolated in regional markets.
Some 110,000 to 150,000 fewer Americans relocated each year from 2006 through 2009, reducing interstate migrations nationwide by 2 percent to 3 percent annually, according to the first study using data on individual house prices and mortgage balances to confirm that an increase in a state’s homeowners with “negative equity” affected migrations out of that state. …Learn More