Localism: Whatcom County, WA

Blog Pointers

Tue, 02 Dec 2008 18:39:18 -0600

I would love to hear from anyone who has great blog pointers. Since I am new to the blogging world, I would love any help from those diehard bloggers. I look forward to becoming a committed blogger soon.

Local Real Estate agent in Bellingham, Washington

Tue, 02 Dec 2008 17:32:28 -0600

Hi there,

My name is Crystal O'Neill and I'm a Real Estate Agent in Washington State. I currently live in Whatcom County (Bellingham, Ferndale, Lynden, Sudden Valley, Blaine, Birchbay). I would love to represent any buyers or sellers that need help with the sale or buying of a new home/properties. Please contact me with any questions and remember that I'm never too busy for any or your referrals!

www.buysellbellingham.com

When is the ARM Loan a Good Idea for Home Buyers?

Tue, 02 Dec 2008 13:55:05 -0600

When is the ARM Loan a Good Idea for Home Buyers?

by Brandon Cornett

This is one of the most frequently asked questions we receive at the Home Buying Institute. But despite the frequency, I'm always happy to answer. A failure to understand the inner workings of the adjustable-rate mortgage loan is what got many homeowners into foreclosure trouble over the last few years.

Let's start with a quick definition. The adjustable-rate mortgage (commonly known as the ARM loan) has an interest rate that will adjust or "reset" at a predetermined frequency -- every three years, every five years, etc. This is very different from the fixed-rate mortgage loan, which holds the same interest rate over the entire life of the loan.

The interest rate is one of the factors that determines the size of your monthly mortgage payment, so when the rate increases or decreases the size of your monthly payment changes up or down with it.

Many of the adjustable-rate mortgages given out these days are actually "hybrid" in nature. They start with a fixed interest rate for a certain period of time. After that initial period, the rate will reset or adjust -- and it will continue to adjust with regular frequency. This is where the uncertainty comes into the picture, because you never know exactly how the rate will adjust. It typically means an increase, but you don't know how much of an increase.

ARM Loans, Bad Credit and Payment Shock -- A Common Pattern

These types of loans were favored by the subprime lenders you've heard so much about lately. When a person has bad credit, they have trouble qualifying for a mortgage loan. And if they do get approved for a loan, they will usually end up paying a higher interest rate than somebody with good credit. This can make the mortgage payments unaffordable for the home buyer, unless ... the lender can find a way to reduce the interest rate for the first few years.

And that's where the ARM loan came in. Subprime lenders would often use some version of the adjustable-rate mortgage to minimize the interest rates for the first few years of the loan. This would make the loan payments seem more affordable to the borrower -- at least initially. When you hear the phrase "teaser rate" used to describe mortgage loans, it usually refers to this type of lending practice.

So, John and Jane (both of whom have bad credit) purchase a home through an ARM loan. The rate is relatively low for the first three years, so everything seems fine. While the mortgage payment is a significant chunk of change for John and Jane, they can afford it for now.

After three years, the interest rate resets to a higher rate. And in the case of a subprime mortgage loan given to borrowers with bad credit, the rate usually increases significantly. The next thing John and Jane know, they are suddenly unable to afford their new payment. So they have three options -- (1) refinance the loan, (2) sell the home, or (3) suck it up and try to manage the new / larger mortgage payment.

Many people in this situation over the last few years were unable to pursue option #1 (refinancing) because their property values dropped since the date of purchase. So their options were reduced to just two -- sell the house or try to handle the new payment. We know from history that a lot of people took the latter route, whether it was by choice or not. We also know that this type of scenario contributed to the record-breaking numbers of home foreclosures we've seen over the last two years.

How to Safely Use an ARM Loan

The scenario described above is an example of how not to use an adjustable-rate mortgage / ARM loan. If you plan to keep the home for many years, the fixed-rate mortgage is usually your best bet. As we have seen, you cannot count on being able to refinance the loan before the interest rate adjusts. Nor can you predict how much larger the payment is going to be after the adjustment period.

But there is a smart way to use the ARM loan. I have used one myself in the past, and it worked out perfectly for my wife and I. It worked out well [and here's the key to all of this] because we knew we would only be in the home for three years, at the most. This was my last tour in the military, so we bought the house knowing we would be moving again in a few years. The ARM loan was ideal for this scenario. We saved money while we owned the home (because of the introductory period of low interest), and then we sold the home and moved before the rate adjusted.

This is not the only scenario where an adjustable-rate mortgage can be used wisely. But it is the most common scenario. The key here is that you (A) understand how this type of mortgage works and (B) choose the best loan type for your particular home-buying situation.

Do plenty of research before picking a type of home loan. This article is only the beginning of your research. Don't let a mortgage lender tell you what's best for you -- take their advice, sure, but make your own decisions based on thorough research. It's your financial future, after all.

Citation Note: This article was created by Brandon Cornett, publisher of the Home Buying Institute network of real estate websites. You can learn more or contact the author by visiting his mortgage refinance blog at http://www.mortgage-refinance-advice.com/blog/

Chris Farkas is a Realtor with EXIT Realty Associates

www.YourWhatcomRealtor.com
www.RealBellingham.com
www.WhatcomShortSale.com

After the Inspection -- Anobiid Beetles on the Run

Tue, 02 Dec 2008 09:32:32 -0600

Over the past couple years I have written a number of posts about the silent house killer -- the anobiid beetle. This pest is common in Bellingham, Whatcom County and the Pacific Northwest. These wood-boring beetles can cause major structural damage. One article I have written, going into more detail, is here.

I decided to take a little different angle this time. I am now going to show you what happens to the home after the home inspection. Despite anobiid damage in the major structural members of this home -- posts, joists, beams, sub-flooring, this deal closed. Obviously the real estate agents, both sides, earned their chops making this happen in a way that worked for buyer and seller.

I am, this time, in the unique position of viewing, documenting and taking photos of the work as it progresses. I have included some of the photos below. This first one is an example of the damage caused by the beetles. This is still present because that corner of the home had been inaccessible. This damage was found after the contractors dug out the crawl space -- which took several days.

Below is a view of the place after it was dug out, which had to be done merely to achieve access. This is a work in progress and you can see some new structural materials are in place.

The photo below is Mike Pizzuto, Northhill Construction in Mt Vernon. He is down under, working with his crew. His company is one of the few local firms that willingly does this kind of work. Mike has been a structural pest inspector, so he understands the biology of the pest which is rarely the case with contractors. These photos give you an idea of just what the contractor has to go through to replace so much structural material. This job, needless to say, is costing thousands of dollars in materials and labor. Anytime there is major damage from wood destroying organisms, this kind of equally major repair work should be expected. That is one reason any good inspector in this state must be, in my view, a licensed structral pest inspector. Here in the northwest, the single most costly defects I have found involve wood destroying organisms, not electrical, plumbing, HVAC or even roofs. The big expensive problems are usually rot and insects.

Steven L. Smith

Bellingham WA Home Inspections

The Home Needs A Lot of Work? GOOD! What an Opportunity!

Mon, 01 Dec 2008 19:50:39 -0600

If there ever was one thing that dissuades people from purchasing a home it would be the necessity to perform a multitude of repairs. After all, who wants to purchase a home and then invest tons of money into repairing the property as well as making the requisite time commitment that such repair work would entail? Now, while this situation may sound dreadful on the surface it is actually a great opportunity for an industrious person.

If you think this is an idealized description of the situation, then look at it this way: say the average market value of a similar home in the area is $250,000. The home you are considering purchasing is valued at $190,000 due to extensive repair work that is required. So, before making a decision as to whether or not this home is a viable investment purchase it may be wise to examine what the cost of the repairs will be. If the repair work will cost $30,000 then this is not a negative…it is a huge positive! If you do not believe so then simply do the math: $190k plus $30k equals $220K. Remember, the value of the home after repairs will be in the neighborhood of $250K. So, even with $30k in repair work you will end up with acquiring the home at a $30k discount! This is to say nothing of the equity appreciation the home will eventually accrue.

Of course, no one wants to purchase a home that is falling apart, but if the required repairs can be overcome by the equity one can acquire then this is far from a bad real estate investment venture.

Chris Farkas is a Realtor with EXIT Realty Associates

www.YourWhatcomRealtor.com
www.RealBellingham.com
www.WhatcomShortSale.com