Sweet Home Chicago

Lenders "Calling In" Home Equity Lines?

In the wake of falling home values, I guess this was bound to happen.  I'm sure some people have been thinking about the possibility - and now it is here.  A friend of mine called yesterday.  She was wondering if I could pull up some information about recent sales in the area of homes comparable to hers.  The reason - her bank wants to have her home re-appraised. The bank suspects that the line of credit they've given her (a home equity loan) exceeds the equity in her home.  I'm assuming that the bank will want to lower the size of my friends line of credit, depending on the appraisal (that they want my friend to pay for!)   The good news for my friend is that she hasn't used up the entire line of credit...though she was hoping to have it available for college expenses in the coming year, or just for possible emergency use.

I have a home equity line too, as I'm sure many people do,and I've been wondering if the banks were going to start taking a look at their level of risk in these loans and what they would do to manage the problem.

Obviously, I'm not in the banking business, so I don't know all of the legal issues involved here.  So, what I'd like to know is this:

What if my friend, or I, or anyone for that matter has actually used their full line of credit and they now owe more than their home is worth.  Even without home equity loans to consider there are many home owners facing a similar situation - they're upside down on their mortgage.  What are banks allowed to do in these situations?  If someone is upside down on their mortgage, can the banks require them to remedy the situation and pay the difference? As long as these people can continue to make their payments on their primary mortgage and any equity lines, is there really a reason for the bank to take action.  I understand that the banks need to have collateral to guarantee their loans...but where does the line get drawn?

I would love to hear from any one that knows more about this so that I can tell my readers what to expect in the coming months.  I'm sure that many people with conventional (30 year fixed) mortgages have been feeling somewhat smug as the news goes on and on about the sub-prime mortgage crises.  This issue is much closer to home for many people (excuse the pun).

Thanks for reading.

Buying a Home in Today's Market

I just read a good article that was posted on Bankaholic.com This is great read for anyone that is interested in buying a home in today's "down" market.  It tells you some simple things you can do to make sure that you are making a fiscally responsible decision to purchase.  Here is link to 5 Tips For Buying a Home in a Down Market.

Here on Chicago's North Shore, there are other things that you need to consider.  The buyers that I am working with are mostly concerned about over-paying for a home.  They don't want to buy something today and then find that the price for comparable properties in a couple of months is lower.  My advice is simple (not in any particular order):

1.  Do your homework (and work with a Realtor that will provide you with the necessary information).  Determine what comparable homes are selling for today, and try to buy for slightly less.

2.  You need to have a long-term perspective.  No one has a crystal ball - but if you are planning to live in your next home for 5 - 10 years, experts are saying that you should be able to see  some appreciation.  So if the prices do go down slightly after you make your purchase, you shouldn't be concerned that you've "blown it" or made a bad decision. Also, the tax benefits of home ownership can be significant if you are currently renting, depending on your income and other financial considerations - this may overshadow a slight savings that you might have realized by waiting several months to make your purchase (check with your tax adviser for details on this one).

3. When you find a home you like, be ready to "walk" if you can't get the seller to come down to your price. Before the negotiation starts, discuss your objectives with your Realtor (and your spouse - make sure you are in agreement on this before you make your offer!!).  In fact it is a good idea to have a second choice house in your back pocket. I have had a couple of transactions where my buyer's stopped negotiating when we hit their top price - and the sellers didn't want to budge.  But then if BOTH cases, before we wrote up the offer on their second choice houses, the sellers had a change of heart and called the next day to accept the last offer. 

4.  Negotiation isn't just about the price. There are other negotiation points do have VALUE for the buyer or seller.  So, you and your Realtor need to be creative to get you the best deal - maybe you can get the seller to pay your closing costs, or maybe they will agree to a lower price if you can be more flexible on a closing date.  Don't be afraid to offer the seller choices during the negotiation... one price and we close on this date, or another price and the seller pays closing costs, or we'll pay a little more if the seller includes the custom bar stools that you like, etc.

5.  Shop for a mortgage and get pre-approved before you start looking.  I have several lenders and mortgage brokers to recommend.

6.  If the house you are considering needs some work or updating, bring in a contractor BEFORE you make an offer so you have an idea of what it will cost to transform  this home the way you want it.  If the home appears to be need some major work, it may be prudent to have an inspection on the home BEFORE you make an offer -  this way you can confidently make an offer because you'll already know what major expenses, if any, may be required within the first few years of ownership.

What is really going on?

So, what is the market doing?  That's the question I get every day...

There are some new listings, and there are some homes coming back on the market that were off for a few months.  And the good news is that we finally have some homes going under contract.  January and February were VERY dry on the North Shore.  Not a lot of properties went under contract.  But we are starting to see some homes going under contract again.  I have some closings scheduled this month.

Prices are down from last year. One of the most difficult things that Realtors are facing right now is pricing.  Usually we look at recently sold properties to get a good idea of what a house will sell for - the problem now is that nothing sold in the past couple of months, so there aren't good comparable properties.  And prices from November and December aren't really good indicators of what homes will sell for now.

For my listings, I am constantly looking at what is currently on the market.  I want to price a home so that it is appropriately priced versus the other homes on the market.  But then I like to take the price down a bit from that.  I want my listings to be the obvious choice for buyers because they are a BETTER than the other homes out there.  I'm not asking my clients to "give" their homes away for nothing.  The reality is that buyers are looking for a good deal - so your home has to be priced as a "more for the money" than the competition. 

Even though I am pricing this way, some buyers are still reluctant to make a purchase in the current economic atmosphere.  They don't want to purchase today, and then find that the value goes down next week, or next month.  I understand their fears...on the other hand, the lack of market activity due to this "fear factor" could actually result in a self-fulfilling prophecy of more price declines.

Personally, I think that prices for the most part have come down to where they need to be (yes, there are plenty of homes still over priced).  The homes that are selling, seem to be closing at reasonable (not fire sale) prices.  What do you think???  Would love to hear from you.

Thanks for reading.

nsk

                                                                  Stop by my next open house, Sunday April 6th, 2 - 4pm

                                                                                               3915 Crestwood, Glenview