We have all been waiting for the government to step in and help the housing market. This week we finally got an inside look into how the federal government plans to help many homeowners who are struggling to make their mortgage payments and whose homes have depreciated below their loan amounts. The Obama's administration plan is broken into 3 categories:
1. Assistance for homeowners who are struggling to make payments and are at risk for default.
Homeowners who have a Fannie Mae or Freddie Mac loan would be eligible to refinance their mortgages as long as their mortgage does not exceed 105% of the home's current market value. Owners would need to have at least 20% equity. This would allow some homeowners to refinance even if their property's value has declined as long as it does not exceed 105% of the market value. What is a Fannie Mae or Freddie Mac loan? Fannie Mae and Freddie Mac create a secondary market for mortgages and buy conforming mortgages from lenders who originate your loans. Some of these loans are held as assets by Fannie Mae and Freddie Mac and others are "securitized" and sold as mortgage-backed securities to investors that Fannie Mae and Freddie Mac guarantee. To find out if your mortgage qualifies, please go to www.fanniemae.com or www.freddiemac.com.
2. Assistance for homeowners who have stopped making payments and in need of loan restructuring.
For lenders that voluntarily agree to lower a borrower's payment so that it makes up no more than 38% of the borrower's income, the government would share the cost of lowering the mortgage burden to 31% of income. Incentives are provided to lenders to participate. This would allow people who are in default on their loans to restructure the loan and provide the homeowner with a lower payment.
In addition, borrowers can receive up to $1,000 incentive to stay current on their new mortgage.
3. Additional resources to Fannie Mae and Freddie Mac.
To encourage investors to buy mortgage-backed securities, the government backstops them up to twice the current amount which was $200 million. Now the government backstops them to $400 million.
The plan does not help homeowners or investors with second homes or homeowners whose mortgages have not been purchased by Fannie Mae or Freddie Mac. This new plan is expected to help 7-9 million households. Do you think it will help you?
Source: REALTOR® Magazine Online
Is it a good time to purchase your first home or upgrade to a larger home? Yes, there has never been a better time to purchase real estate. If you believe in the adage "buy low and sell high", then now is the time to buy. Property values have declined to the lowest point in years and interest rates are still extremely low. Many buyers are still on the fence and waiting for prices to drop even further, but they run the risk of higher interest rates and larger down payment requirements. This should be reason enough to start buying up as much real estate as possible. Many people do not realize that even a slight increase in mortgage interest rates can offset a large drop in home prices. For example, in parts of Cherokee County, Georgia, the average home sales price was $216,985 in December 2008. See the chart below to see how a decrease in Cherokee County home prices and an increase in interest rates would affect your monthly payment:
|
Buy Now or Wait? |
Scenario 1: Home prices decrease 5% Interest rates increase 0.5% |
Scenario 2: Home prices decrease 10% Interest rates increase by 1% |
|
Home Price $216,985 |
Home Price $206,137 |
Home Price $195,289 |
|
Interest Rate 5.0% |
Interest Rate 5.5% |
Interest Rate 6.0% |
|
Monthly Payment $1,164.82 |
Monthly Payment $1,170.42 |
Monthly Payment $1,170.86 |
The time to buy a home is now! No one knows when home prices will begin to increase or when mortgage interest rates will rise. It could be tomorrow or next year, but do you really want to miss this unbelievable opportunity?
Specializing in Woodstock, Canton, Towne Lake, Marietta, and Roswell. Experienced with first time home buyers and foreclosures.
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