12 September 2007
Foreclosure doesn't just happen to people who don't make their mortgage payments. Your homeowner's association (HOA) can take your house or condo if you're not careful. In one case, a disabled California man lost his home in a foreclosure sale because he was $123 behind on his homeowner's dues. The house was worth $280,000. Unfair? Abusive? You bet!Read More »
More for Your Mortgage: Time for a Fresh Look at the Housing Market
By Richard BarringtonNFNS Columnist
Some potential home
buyers back away from the market if they don't like what they see in their preliminary
home search. They decide they can't afford what they want, and put off buying a
home until they are either earning more money and/or have accumulated more
savings. If you walked away from the housing market over the past few years
because you were not satisfied with what you could afford, now may be the right
time to take a fresh look at the housing market.
Even if your personal circumstances haven't changed -- that
is, even if you still have the same income and savings as when you last looked for
a home -- you may well find today that you can get a lot more for the same monthly
home loan payment. A combination of declining home prices and lower mortgage
rates has made this possible.
Home Price Declines
One of the challenges new home buyers face is that,
historically, housing prices have rarely declined. In the past, this has meant
that the longer you wait, the tougher it is to afford to buy a home.
Recently though, we've seen an exception to that historical
pattern. Housing prices have declined by some 8.5% nationally since mid-2006. In
some regions, this decline has been even more pronounced. For example, since
mid-2006 average home prices have declined by more than 14% in the Tampa and
Miami areas of Florida, and by more than 16% in San Diego, California.
Cheaper Mortgage Rates
Not only has the price of homes themselves declined in many
markets, but the cost of a home loan has also gotten cheaper. Mortgage rates
have declined by more than a full percentage point since June of last year.
The effect of lower mortgage rates is simple and powerful. It
means that for the same size home loan, monthly mortgage payments are lower. Or,
to think about it another way, the same monthly mortgage payment will now
finance a larger home loan than it would have last summer.
Adding It Up: How
Much More Home Can You Afford?
The combined effect of cheaper home prices and lower mortgage
rates simply means you can now get more for your mortgage. How much more? On
average over 20% more.
Suppose you last looked at buying a house in June of 2006. At
the time, with mortgage rates at 6.68%, if you had budgeted about $1,000 for a mortgage
payment, you could have afforded a home loan of $155,250. So perhaps at the
time you didn't find anything in that price range that appealed to you.
Now suppose you take a fresh look. With lower interest
rates, that same $1,000 monthly mortgage payment will finance a $172,500 home
loan. Using this larger loan in a housing market that is now 8.5% cheaper gets
you to a total of 21.4% more house value for the same loan payment. That's
certainly enough to warrant a fresh look.
Sources:
Freddie
Mac
Standard
and Poors
About the Author:
Richard Barrington is
a freelance writer and novelist who previously spent over twenty years as an
investment industry executive.
About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.