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I have heard the nightmares you speak of my friend. All I can say is I am sorry you had to go through it. But look on the bright side, the learning experience was invaluable!............
look on the bright side, the learning experience was invaluable!............
Yep, that schooling was well paid for, I learned alot, won't be doing the same mistakes again.....maybe some new mistakes
As long as we're talking TN real estate, do you have anything to do with commercial? I'd like to open a storage unit site with RV storage to service all of these out of staters Even have a drive thru coffee stand!
"Silverbox is wanting to put the fear of God into people just to give them something to consider prior to putting down good money on real estate. I go back to my point, most people on here won't need to worry, buy if you find the right place for you, just be aware that the land you buy today may be worth less money in the future."
I'm not necessarily trying to scare the bejesus out of people, but I will admit I have rather strong feelings about exotic type loans. Perhaps I feel this way because out here in CA, things really got way out of hand. Something like 60% of all homes purchased here were using some form of exotic loan. I view these as potential ticking time bombs because they only way these loans pay off is if the house's value goes up a certain amount. I think it is safe to say that most people who use these cannot actually afford the house. So what happens when that appreciation they were counting on to refinance, and hence bring the payments to a level they could afford suddenly doesn't happen? They most likely lose the house. We're already seeing a lot of starting to happen.
I was surprised to find that these types of loans are available in TN. I find it hard to believe anyone really needed them given the fact that prices are 1/5th that of those here in CA. But perhaps there are more investors there than I realized.
As we speak, there are now motions in over 30 states to start applying regulations on lending practices. I wouldn't be surprised if IO and ARM loans are banned from being used in residential RE. That in my opinion would be a good thing because it would bring basic fundamentals back to the marketplace: If you cannot afford, then you cannot buy. Then prices will trend back towards a level that matches true economics and less speculation resting on borrowed time.
I wish I had you as a broker when I bought my houses, I got taken to the cleaners, you name it I got hammered by it, prepay penalties (1,2 and 3 year) extra fees, higher rates, 9.5, 10, 11% ouch. Instead of getting better terms for being a frequent buyer, I got worse. Plus got stuff thrown in at the closing table, etc All horrible stuff, learned the hard way.
Working with an excellent loan officer with a solid reputation is SO important when buying a home. You can have a great Realtor and find a great home but...without a great loan officer involved in the transaction it can become a horrible experience in the end. So many buyers don't realize how important their decision on which loan officer to go with really is! Good luck on your next home loan!
[i] As we speak, there are now motions in over 30 states to start applying regulations on lending practices. I wouldn't be surprised if IO and ARM loans are banned from being used in residential RE. That in my opinion would be a good thing because it would bring basic fundamentals back to the marketplace: If you cannot afford, then you cannot buy. Then prices will trend back towards a level that matches true economics and less speculation resting on borrowed time.
In the long run, yes it will be good to get back to the fundamentals, however, in order to get there from where we are, there will be alot of financial pain. The only way that equalibrium will be brought back between the fundamentals of housing cost and wages in the majority of the country is if housing goes down significantly (deflationary) or if wages go up significantly (inflationary).
We are seeing a general downturn in real estate, some minor improvements in wages, we'll see what shakes out....stagflation? As to the Govt finally taking action on some of the predatory lenders.....that's closing the door after the horse is out of the barn, married, had colts, and died of old age. The bad loans are written, by restricting subprime loans all they are doing is taking a pool of potential buyers out of the game......now how does that supply and demand thing work again....oh reduce the demand (buyers) and you wind up with lower prices. The most feared words are "I'm from the government and I'm here to help".
Anywho, the I/O, option ARM, 2/28, 3/27 loans were "the" hot thing, smart money was said to be doing it.....turns out about everyone, everywhere was doing some form of this. That is the reason that housing has to come way down from where it is now, even in places that did not shoot up. Colorado is leading the nation in foreclosures and it never fully recovered from their last real estate crash in the 80's.
My best advice is to get out of debt (Dave Ramsey fan) and if you have an ARM and plan on staying put for long term, refinance into a fixed rate. If you are planning on selling within the next few years and have an ARM, you may want to rethink what your near term game plan is (sell and rent?)
Another thing to think about, if you have tons of paper equity in your house, you don't get it until you sell or refi, with the capital gains tax favoring sellers (capital gains waived on profit of up to $500K). This capital gains rule is a recent change and may not be in effect in the future, I'd sell and get the free money myself, unless of course you have no plans on ever moving.
Good luck to all, no matter selling, buying, renting or investing. I just want a few acres and a modest house to call home that I can afford to live in. Everything else is pure gravy
I'm not necessarily trying to scare the bejesus out of people, but I will admit I have rather strong feelings about exotic type loans. Perhaps I feel this way because out here in CA, things really got way out of hand. Something like 60% of all homes purchased here were using some form of exotic loan.I agree....to a point. Yes, using these loans, to qualify for 100% financing in a regional market of historically very high housing costs verses not so high regional wages, is a BAD thing. I never did understand why CA allows a lot of things as far as financing goes. But that is a whole other topic.
I view these as potential ticking time bombs because they only way these loans pay off is if the house's value goes up a certain amount. I think it is safe to say that most people who use these cannot actually afford the house. Only if they had a bad loan officer that didn't tell them how these loans work. So what happens when that appreciation they were counting on to refinance, and hence bring the payments to a level they could afford suddenly doesn't happen? They most likely lose the house. We're already seeing a lot of starting to happen. If they used the mortgage properly, they would have the money available in liquid funds to compensate
I was surprised to find that these types of loans are available in TN. I find it hard to believe anyone really needed them given the fact that prices are 1/5th that of those here in CA. But perhaps there are more investors there than I realized. They are not JUST for investors and they can be very effective here because we have had no housing bubble here, we have maintained a steady equity growth, no up and down, the only way a house looses value here is if it is not maintained.
As we speak, there are now motions in over 30 states to start applying regulations on lending practices.In the Sub-Prime market only, this has not effected the conforming market nor interest rates. I wouldn't be surprised if IO and ARM loans are banned from being used in residential RE. That in my opinion would be a good thing because it would bring basic fundamentals back to the marketplace: If you cannot afford, then you cannot buy. Then prices will trend back towards a level that matches true economics and less speculation resting on borrowed time.
I totally understand where you are coming from and why you have that perception of these mortgages. I believe that is beauces you have never had the emplaination of how they were MEANT to be used. Here is something I want you and everyone else reading to think about. Here is an example.(A very simplified version, please see a professional banker/broker/LO/finacial advisor before putting this into practice)
You apply for a $202,500.00 mortgage for the purchase of a $225,000.00 home (putting down 10% of your own funds) at a fully amortized (30 year fixed) rate of 6.5%. Your payments would be $1,279.94 (P&I only) And you qualified to pay for this. For budgeting purposes, you round that monthly payment figure up to $1,300 per month.
Now, still using that $1,300 a month budgeted monthly mortgage payment, instead of paying all of that to your mortgage company, you pay them interest only which would be $1,096.98 but the difference of $203.02 you put into a high yield savings account GAINING 5% interest. Your $203.02 a month after the ten year (that is the max interest only period on a 30 year fixed loan) savings point, you will have over $31k in a totally liquid savings account. You will have also gained 5% equity growth a year on your home. So at the end of 10 years, you will have a house valued at approximately $325K AND a savings account of over 30k. You refinance that mortgage, before it re-amortizes, leaving the same 10% equity in the house and that gives you another 65K or so to add to that savings account. So now you have a 325k house and a savings account of almost a 100k. Now, if you got a loan with even less of an interest rate, using an "exotic" loan, and double you monthly savings................OR, you can pay $1,300 a month to your mortgage company and after ten years have no savings and all your equity locked in the walls of your house. (and don't forget how A.P.R.'s work. If you actually pay off that original $202,500 mortgage over the 30 year fixed rate, you will have paid almost $470k for that house you wrote a contract for 225k for. Do you think that in 30 years, you will be able to sell a 30 year old house for almost 500k to break even??? THAT is the reasoning behind refinancing.)
"we're in no hurry to move but are purchasing land now before the prices skyrocket. "
Please don't let this be the reason you buy land now. If you read the results of monthly housing reports, you'll see that TN right along with most other states are actually having a decline in sales. In fact, TN is 11th in the country for having the most foreclosures. That should say something right there. In fact, did you know that in Memphis, there were 19,738 homes sold in 2006, and there were 18,155 residential foreclosures last year? That is A LOT.
I think what many people here are totally forgetting is that the US has just gotten through the biggest housing bubble in it's history. The prices everywhere are totally out of whack with economics. It is only natural that people are shell shocked and having a knee-jerk reaction from more expensive states to buy up land like crazy in cheaper ones. But the bottom line is that the housing bubble has now burst from an unnaturally freakish level. Heck- Florida is already having some areas with 100k cuts on the prices.
In my opinion, anyone buying right now will more than likely be paying more than the land will be worth in a few years, even if the land is seemingly cheap. Just keep an eye on the prices and buy when you really need to, not because you think it will go up. Remember- TN is not FL or CA. Don't expect a massive rush from buyers like happened in FL. The speculative element is now gone.
Sorry to sound nasty. Just trying to throw in a word off caution.
You apply for a $202,500.00 mortgage for the purchase of a $225,000.00 home (putting down 10% of your own funds) at a fully amortized (30 year fixed) rate of 6.5%. Your payments would be $1,279.94 (P&I only) And you qualified to pay for this. For budgeting purposes, you round that monthly payment figure up to $1,300 per month.
Now, still using that $1,300 a month budgeted monthly mortgage payment, instead of paying all of that to your mortgage company, you pay them interest only which would be $1,096.98 but the difference of $203.02 you put into a high yield savings account GAINING 5% interest. Your $203.02 a month after the ten year (that is the max interest only period on a 30 year fixed loan) savings point, you will have over $31k in a totally liquid savings account. You will have also gained 5% equity growth a year on your home. So at the end of 10 years, you will have a house valued at approximately $325K AND a savings account of over 30k. You refinance that mortgage, before it re-amortizes, leaving the same 10% equity in the house and that gives you another 65K or so to add to that savings account. So now you have a 325k house and a savings account of almost a 100k. Now, if you got a loan with even less of an interest rate, using an "exotic" loan, and double you monthly savings................OR, you can pay $1,300 a month to your mortgage company and after ten years have no savings and all your equity locked in the walls of your house. (and don't forget how A.P.R.'s work. If you actually pay off that original $202,500 mortgage over the 30 year fixed rate, you will have paid almost $470k for that house you wrote a contract for 225k for. Do you think that in 30 years, you will be able to sell a 30 year old house for almost 500k to break even??? THAT is the reasoning behind refinancing.)
Mbmouse, I don't get all your math. Now I am not an expert on no interest loans so some of these are questions.
After 10 years, with the interest only loan, you don't have a $325k house, you have no house at all, your bank owns the house, right? And the savings account would generally be less than the equity you have built up in your house, assuming savings rates at like 2% (national avg) and appreciation rates of 5% (your example).
Now, as your equity grows, under a traditional loan, you would be paying less interest but under the "interest only" loan you would be paying the same interest, your monthly payments may actually be greater (I think, not sure) as you get closer to the loan payoff.
Finally. What happens if you sell before 30 years and the home depreciates? You lose big because potentially you actually OWE money when you sell the house. You can loose big, "bancruptcy"-type big.
Finally, you haven't fully captured the time value of money, or present value vs. future value. After 30 years you have paid $470k for that house that you contracted for $202.5k. But in 30 years $4 will only be worth $2 or less anyways due to normal rates of inflation. A $500k house would more than likely be a bargain, even with home depreciation and a 30 year house. Still, I think the point you are making is you pay less in total for the no interest loan.
The gamble is this, as I understand it - Assuming the home buyer can discipline himself to invest the difference, assuming that his investment rate will be higher than the home appreciation, assuming that something does not happen in his life and he has to sell early and the home depreciates (potentially a life altering error).
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