Why housing is cyclical

By Marcie Geffner - Bankrate.com

It's no secret that the U.S. housing market is cyclical and in the midst of yet another painful correction. The causes and characteristics of these cycles vary, at least in some respects, but the implications for homebuyers, home sellers and homeowners remain remarkably reliable as the cycles roll by.

Housing cycles aren't all alike, yet over long periods of time a basic pattern can be discerned, says Mark Dotzour, chief economist of the Real Estate Center at Texas A&M University.

A cycle doesn't really have a start or a stop, but to pick a point at random, we might say that a housing cycle "starts" when economic activity heats up and interest rates rise. Higher interest rates make housing less affordable, so demand decreases and home prices fall.

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Making sense of house prices

By Marcie Geffner – LendingTree.com

It’s no secret that home prices have declined in many U.S. towns and cities. Indeed, the downward trend has been the subject of numerous newspaper headlines, not to mention plenty of cocktail party small talk, water-cooler chitchat and neighborhood gossip.

Yet home prices aren’t just a subject of idle conversation. If you want to buy a home, prices determine which homes you can afford. Or if you already own a home, your home’s value affects whether you can refinance your mortgage, take out a home equity loan or line of credit, or stop paying for mortgage insurance.

Equity is king
Your home’s value is a component of your equity, which is the difference between the value and the amount you owe, often expressed as a percentage. For example, if you borrowed $270,000 to buy a $300,000 home, your equity at the time of purchase would be $30,000, or 10 percent. If the value of your home dropped, your equity would shrink as well. The more equity you have, the easier it should be for you to qualify for a loan, refinance an existing loan or sell your home, if need be.

Unfortunately, much of the readily available information about home prices can be confusing or misleading, which makes it harder to get a true picture of home values in your area. For example, national and local median home prices are widely reported, but don’t necessarily reflect the value of an individual house.

Online information can be confusing
Many people check Web sites that estimate home values to make sense of prices. Online price estimates can be interesting; however, keep in mind that they may not be based on enough accurate data to give a true picture of how much a specific home is worth. For those reasons, national trends and online estimates may be better used as a point of reference than relied on to make major financial decisions.

A REALTOR® can help
If you’re looking for good information about home prices in your area, ask a local REALTOR to prepare a comparative market analysis, or "CMA." A CMA should be based on recent sales prices of homes that are similar in size, location and condition to your home or the home you want to buy. Now that’s data you can count on.

© 2008 LendingTree, LLC. All rights reserved. This story, "Making sense of house prices," is reprinted by the author with permission of LendingTree.

Foreclosure crisis hits rental housing

By Marcie Geffner - Bankrate.com

It's no secret that the nation's subprime mortgage meltdown, spike in foreclosures and fall in home prices have affected legions of homebuyers, home sellers and homeowners. But what may be surprising is that the turmoil in today's U.S. housing markets has important implications for renters as well.

"There is some pickup in demand, but there is also a pickup in supply -- both new apartments that are being built and also units shifting from owner to renter," says Mark Obrinsky, chief economist of the National Multi Housing Council, or NMHC, an apartment industry trade group.

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Downpayment Assistance Should Be Ended, Not Mended

Marcie Geffner - Inman News

When all else fails, why not sue the federal government?

That's the card Nehemiah Corp. and AmeriDream have played, perhaps to defend their very existence as two of the largest downpayment assistance organizations in the United States. Yet while these organizations and their 180-plus brethren have helped many people buy a home, their business model has been suspect since the start and today's weakened housing markets would be better off without their inflationary intervention.

Downpayment assistance programs funnel "donations" from builders and home sellers to buyers, who use the "gifts" as all or part of their downpayment. The amount of money at stake isn't nominal: AmeriDream alone has given more than $726 million, in chunks of $3,600 on average, to more than 200,000 home buyers since 1999, according to the lawsuit.

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Documents are new reality for borrowers

By Marcie Geffner - LendingTree.com

If you recently applied for a new home loan, you might be surprised at the large number of documents your lender will expect you to hand over before your loan is approved.

In 2005, 2006 and 2007, many mortgages required only limited documentation. But today, lenders have begun to reinstate traditional "full doc" requirements. The fact is that lenders have become pickier about who can qualify for a loan, and more documentation is part of that trend. Even if you submitted very few documents when you obtained your current mortgage, you’ll likely be asked for a stack of documents if you want to refinance now.

Documentation isn’t just paperwork. Lenders actually use your documents to verify the information on your loan application and make an assessment of your financial situation. Some of the documents you’ll be asked for include W-2 forms and paycheck stubs. These show that you earn enough income to make the payments on your new mortgage.

If you’re self-employed, you might be asked for financial statements to support your earnings or net worth. You may also be asked to produce bank account statements to demonstrate that you have enough cash for your down payment, if you’re buying a home, and closing costs.

Be sure to keep copies of all of your documents for your own records. Lenders also rely on documentation to spot possible cases of loan fraud. That’s another reason why your lender may become suspicious and set aside your file if you refuse to provide the required documents.

Some borrowers think the loan process is annoying or intrusive. But documentation serves a reasonable purpose and typically can’t be avoided unless you’re willing to accept a much higher interest rate. The payback for your cooperation should be a speedier and more definitive thumbs up or thumbs down on your new loan.

© 2008 LendingTree, LLC. All rights reserved. This story, "Documents Are New Reality for Borrowers," is reprinted by the author with permission of LendingTree.

Borrowers flock to FHA loans

By Marcie Geffner - LendingTree.com

FHA loans, which are backed by the Federal Housing Administration (FHA), are enjoying a resurgence in today’s tighter lending climate.

FHA loans have been out of favor in recent years, but are especially popular today because they typically have easier qualification requirements than non-governmental loans and require only a small down payment or very little equity. An FHA loan also may have a lower interest rate than would be offered on a comparable loan that wasn’t backed by the U.S. government.

What is the FHA?
The FHA doesn’t actually make loans. Instead, this agency offers a guarantee that reimburses your lender if you don’t pay back your loan. You’ll have to pay small upfront and monthly fees for that protection, but a lower interest rate might offset the extra expense.

An FHA loan can be used to buy a home or refinance an existing mortgage. Traditionally, the agency has been seen as an alternative for lower-income borrowers or borrowers with shaky credit histories. But now even well-to-do borrowers in affluent housing markets are opting for FHA loans.

The maximum loan amounts, called "limits," that applied to FHA loans used to be relatively low compared with home prices, but recently were raised to significantly higher levels. The new limits range from $271,050 in inexpensive housing markets to $729,750 in high-cost markets. The uppermost limit used to be just $362,790 even in the nation’s most costly cities.

You can find out the new limit for your county on the FHA’s web site, www.fhaoutreach.com. The web site has two search functions: One uses an interactive map, and the other is a form with pull-down menus. If you’re planning to relocate, you can download a county-by-county chart of all the FHA loan limits across the country.

The new FHA loan limits will expire at the end of this year, unless Congress extends them. That means you’ll need to act soon if you want to lock in the benefits of a bigger-than-usual FHA mortgage.

© 2008 LendingTree, LLC. All rights reserved. This story, "Borrowers Flock to FHA Loans," is reprinted by the author with permission of LendingTree.