A recent report by the Deutsche Bank predicts that by early 2011 almost half of all home owners will be upside down on their home loan. This simply means that they have a mortgage that is for more than the current value of the home. This equates to approximately 25,000,000 million home owners who will have lost value in probably their most expensive asset. For many people, it’s too late to sell their home because they’re already upside down and the most troubled housing markets are already glutted with foreclosed homes. If you are fortunate enough to live in an area that hasn’t been plagued by foreclosures and want to know what the future holds for your homes value, there are a couple indicators to tell which way the housing market is heading.

These troubling signs indicate a falling housing market:

Foreclosures

If your neighborhood is plagued by foreclosures this is a very bad sign. When one house on a block goes into foreclosure, your homes value goes down 1% and each additional home that goes into foreclosure sends house values down even further, then it becomes a whirlpool of decline with each successive house in foreclosure causing house values to drop in a vicious circle. The housing market is still in serious trouble with more trouble predicted for the future as housing values continue to drop, more people become upside down in their mortgages, more mortgages are due to adjust and still thousands of people are unable to find work.  

Homes Aren’t Selling

Traditionally, homes should sell in three months or less. If you see homes going unsold for long periods of time, it means that sellers probably don’t want to lower their price. This may be because they’re losing all their equity or if house prices have dropped really low, then the sale price may not even cover what they paid for their mortgage. Homes not selling equals a declining market.

Increasing Unemployment

It’s no surprise that the cities and states being hit hard by unemployment are also experiencing some of the greatest declines in home values. Unemployment means more foreclosures and it also means people are forced to move in order to find work. There is almost a direct correlation between unemployment and declining home values, if you see unemployment on the rise in your area, bet that the housing market is on the way down.

Neighborhood Blight

If you are noticing more and more houses in your neighborhood are beginning to show wear and tear and not being properly maintained, then this will bring down the value of all houses in the surrounding area. Unfortunately this is a symptom of chronic unemployment  as  people can no longer afford to maintain their houses or it may be that they realize their house is no longer worth investing in because it has already lost too much in value. If you notice houses in your area where the grass isn’t mowed, the houses aren’t painted regularly, and the landscaping isn’t maintained then brace yourself for falling home prices.  The condition of your neighbor’s house directly affects the value of your own home.

Your overall FICO score will determine what kind of rates you will get from your lender. Your FICI score applies to all loans – personal, car, boat, and home. The higher your score, the more favorable your interest rates will be.

Your FICO score is determined by these 5 factors:

Payment History (35%) – If you always pay your debts on time and have no bankruptcies this is a positive.

Total Amount of Debt (30%) – This is the measure of all the accounts that you have open. FICO also measures the amount of credit you have available vs. the amount you are using and factors that in here. For example, if you have $20,000 available on a credit card, but only have an outstanding balance of $200 this is obviously much better than being maxed out at the full $20,000.

Credit History (15%) – A longer credit history is generally better, but if the rest of your credit report is good, you can still get a good FICO score.

New Credit (10%) – Showing a sudden increase in seeking new credit may lower your score. When a bank runs your credit history this may very well impact your score by up to 5 points. But FICO takes into consideration multiple applications for a specific loan. For example, if you are shopping around for a more competitive house loan rate and you have your credit checked by multiple lenders. However, it is advised to get these multiple checks done in a condensed time frame, like a 30 day period, so that FICO can clearly see your intensions and so your score doesn’t become adversely affected.

Other Consideration (10%) – With a longer credit history, it is considered good to have diversity in your debt. It would be a plus to have a mix of credit card debt, car loans, property loans and personal loans.

1. More mobility. This is especially true in depressed market conditions like where experiencing right now. If you are living in a depressed market like Detroit and  need to move to get a job, good luck selling or renting your house to recoup your losses. In a bad job market, flexibility is key.

2. Depreciation. With all the uncertainty in the housing market today it may be better to wait. It’s impossible to time the housing market so that you buy at the exact bottom and once the market does hit bottom, you’ll have plenty of time to buy so why rush in. It’s better to buy once things have stabilized and so far that doesn’t seem to have happened yet.

3. Owning a House is more Stressful. This may seem like a weird thing to consider but it’s simply true. Owning a home has a lot more responsibility tied to it than renting does, some people are up to the responsibility some people aren’t. If your house needs a new roof, you better come up with the cash. If your air conditioner breaks in the middle of summer, hope you have a couple extra grand sitting around. Who doesn’t love mowing the law? The responsibilities of home ownership are endless.

4. Liquidity. Right now as unemployment is rising, housing is falling and the economy is still in turmoil, cash is king. If you tie up your money in a house, this is money you may not have for an emergency job loss or forced move.

5. Neighborhood deterioration. This is generally related to both 1 and 2 above, if you have the misfortune to buy in an area where there are no longer any jobs, people move out and vacant/foreclosed houses abound. Even if you manage to keep your job and pay your mortgage, your house has lost value and so has your entire neighborhood. In some cases entire cities are losing value. No one wants to live where there is no opportunity and no perceived value even if housing is cheap.

This program is only for pre K-12 teachers, firefighters, law enforcement, EMTs. These are people that are considered a valuable asset to the revitalization of neighborhoods so they are given special consideration. If you agree to live in the home for 3 years as your main residence, then you can qualify for a discount of 50% off a homes price. This program is only available in areas that are considered revitalization areas which in most cases are run down older areas of town that most likely have a higher crime rate. Even so, this is a great deal.

The way this program works is that the FHA has you sign a second mortgage for the 50% off amount and if you meet the three year agreement contract obligation then this mortgage is voided and you are not liable for it in anyway. They do have some very minor safeguards in place such as mailing a yearly letter to the property which the homeowner then has to return, if the letter isn’t returned then someone visits the house in person to make sure it is being used as a primary home. If you fail to comply with the Good Neighbor Next Door agreement then you may be financially responsible for the full price of the house which may be the least of your problems since criminal charges may also be filed against you.

Program for Public Housing Resident

In some instances, HUD may sell public housing to people who are HUD renters, to qualify for this program you need to contact your local Public Housing Authority (PHA). In most cases you need to enroll in the Homeownership Voucher Program which is a program to help low income people with mortgage payments and homeownership expenses. In order to qualify for the Homeownership Voucher Program you much meet minimum income requirement, must not have owned a home in the last 3 years, be employed (unless disabled), and go through some financial counseling classes. This program offers financial help with mortgage payments, utilities, maintenance and repairs.

Indian Home Loan Guarantee Program (Section 184)

This program is only available to members of a federally recognized Indian tribe or other native peoples such as Alaska’s Inuit population. It allows qualified individuals to apply for HUD assistance in obtaining financing to build homes both on and outside of Indian Reservations.

The goal of this FHA program is to help Native Americans become homeowners since they traditionally have been under represented minority. If you qualify for a section 184 loan, you could qualify for a loan for over $50,000 with as little as 2.25% down or 1.25% down for a loan of less than $50,000. You would not have to pay any mortgage insurance and the expenses of a loan guarantee which totals 1% of the loan amount can be bundled into the mortgage and paid out over the duration of the home loan. These loans can be obtained for buying an existing home, building a home, rehabbing a home, or refinancing a current home.

Neighborhood Gold Program

This FHA program helps buyers purchase homes with no money down. If the seller agrees to certain terms, the buyer could get 3% – 10% of the selling price for the down payment and other closing expenses. The seller has to pay 1% of the loan amount (up to $1,000) to take part in the Neighborhood Gold Program but this can be paid by the seller and then deducted from the cash grant. It’s necessary for the seller to agree to participate in this program so that must be worked out with the seller before any purchase offer is made.

In addition to the no money down offer, another benefit of this plan is that you are automatically enrolled in the Involuntary Unemployment Mortgage Program which gives you up to $1500 a month to pay your mortgage if you should lose your job involuntarily.

Access 2000 Loan Program (only available in CA and NV)

In order to qualify for this program you must meet the income requirements for the area you are buying in but you do not have to be a first time home buyer. This program is designed to allow people to buy houses with no money down and doesn’t require the seller to be involved. The way it works is that the buyer is allowed to get a first mortgage with an FHA loan for 103% of the homes value then Access 2000 gives the buyer a second mortgage for 6% of the homes price. The 6% provided by Access 2000 is used as the down payment and the extra 3% in the loan for home pays for the closing costs. The amount of the overall loan is determined by the county you are buying in, but the loan limits only go up to $239,250.

Loans are a negotiable contract so it is up to you to shop around and try to obtain the best loan available. Obviously, if you have better credit you will be able to obtain a higher quality loan, but just because you have less than perfect credit, doesn’t mean you won’t be able to find a lender.

Things to Ask:

1. What is the interest rate on the loan?
2. What is the length of the loan?
3. Is the loan fixed rate or adjustable rate? (If the rate is adjustable be sure you have a full understanding of the process.)
4. Are there any prepayment penalties?
5. What are the total closing costs?
6. How much is the loan origination fee?
7. Are there any underwriting fees?
8. What are the brokerage fees?
9. Are the points for the loan? (Points are fees you pay to the lender to get a more favorable loan)