Home Equity


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With reports that foreclosures are up 51% from 2006 and that home ownership took a record plunge in 2007, RISMedia says it’s clear that 2008 will be a year of economic uncertainty, and at worst, a year of continuing downturn. As consumers continue to feel the squeeze, the American Society of Home Inspectors (ASHI) reminds homeowners and those eager to sell to look to ASHI Certified Inspectors when considering options for buying, selling or maintaining their home in a down market.

“ASHI has taken steps to arm its members with the resources and support to provide a diverse range of services for homeowners,” said Brion Grant, 2008 ASHI president. “We know that one-size doesn’t fit all in this market. From energy audits to maintenance inspections, phased-inspections and more, we’re arming members with tools to diversify their services so that they can meet the needs of the public.”

New Services for Homeowners

Energy audits are among the core services that ASHI is encouraging its members to fine-tune so consumers have the benefit of potential cost savings. In December, members of ASHI’s Blue Ridge Chapter (Virginia) participated in group training with a nationally certified energy auditing company to secure certification to perform energy audits in their region. “With the cost of fuel skyrocketing, energy audits can uncover inefficiencies and point to savings,” added Grant. “ASHI is working in conjunction with a certifying organization to provide opportunities for training and certification so that its members can offer this ancillary service nationally.”

Another service homeowners may not think about is maintenance inspections.

“Maintenance should be at the top of every seller’s list this year, said Grant. “In this market, home buyers have more properties to choose from, and will look closely at how well a home has been kept up.”

Homeowners who are serious about selling their home in 2008 should consider hiring an inspector to conduct a maintenance inspection, which includes checking everything from the foundation, roof and gutters, to a home’s exterior and interior walls, electrical wiring and plumbing. ASHI also offers a maintenance checklist, a list of items in the home that should be maintained annually or by season. Those interested in obtaining a copy of ASHI’s home maintenance checklist should contact a local ASHI Certified Inspector via ASHI’s Website http://www.ASHI.org.

Services for Buying or Building a Home

With a record 2.18 million homes sitting vacant and sellers chomping at the bit to unload their home, buyers are at risk too. Before purchasing a home, ASHI encourages buyers to hire an inspector to conduct a pre-sale inspection to determine its quality, efficiency and safety. “There are a lot of people who are willing to do whatever it takes to sell their homes,” said Grant. “In a market like this, people are quick to jump in because of the rock-bottom price rather than the quality and safety of the home.” And, with many bank-owned properties being sold “as is,” meaning the seller will not be performing any repairs, pre-sale inspections can provide vital information about costly defects.

Phased inspections are also a good way to protect the interests of people who are building a home from scratch. By engaging a home inspector early on, even in the site selection, homeowners can benefit from having an inspector assess the quality of construction at every step. From pouring the foundation, to closing the walls, home inspectors can provide an unbiased assessment of a home that will save homeowners time and money.

“I wish forecasting the future was as easy as picking up a Magic 8-Ball,” said Grant. “‘Outlook good’ would be a welcomed relief from what we’ve seen over the last year. But Americans are resilient, and ASHI is committed to helping homeowners weather this storm.” Full Story

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Despite repeated highly publicized reports of a home sales slump and pricing slides, there’s a surprising amount of positive consumer sentiment, says RISMedia — and perhaps a good measure of homeowner denial as well: Even in a negative home pricing environment, 77% of homeowners from around the country believe the value of their home has increased or remained the same in 2007, according to a recent Zillow.com survey conducted by Harris Interactive(R).What’s more, sizable fractions of all homeowners — not just those who believe their homes appreciated in 2007 — say they are planning to do things in 2008 — even before the Fed’s latest interest rate cuts – that you might not expect during the housing, construction and credit slumps:

– 82% will spend the same or more on minor home improvements (install new garbage disposal, repaint or wallpaper a room).
– 67% say they will spend the same or more on major home improvements (replace the roof, remodel the kitchen) this year.

– About a third say they are more likely or equally as likely to:
– Take out a home equity loan (35%)
– Refinance their mortgage or take out a second mortgage (36%)
– Sell their homes (34%)

How Bad It Is in the Reality-based World

The Zillow(R) Q3 Home Value Report says U.S. home values dropped 5.7% nationwide year over year (2007 to 2006). Zillow plans to release its Q4 report Feb. 12 and preliminary results indicate home values in most U.S. markets have continued their descent. In a recent report, Merrill Lynch predicted “housing prices will remain in free fall,” declining 15% in 2008 and 10% in 2009, “with more depreciation likely beyond the forecast period,” even if the Federal Reserve continues to cut interest rates.

How Homeowners Perceive the Situation

About a third of homeowners (36%) in the Zillow.com Home Value Survey said their homes had actually increased in value during 2007. Zillow’s Zindex(R) data proves the contrary, showing median value declines across regions as of October 2007.

What’s Driving Homeowner Perception?

“This survey reveals that despite the data to the contrary, people either aren’t paying attention to their housing market or are in denial about their own home’s value,” said Dr. Stan Humphries, Zillow.com vice president of data & analytics. “This likely reflects the fact that most Americans have not realized home-related losses because they’re staying in their homes. Even in declining markets where a greater percentage of new homeowners are underwater on their mortgage, it’s important to remember most people are not really affected by declining values unless they absolutely must sell or need to immediately refinance or withdraw equity. This has contributed to the healthy investment intent, particularly in home upgrades, despite the downward trending markets.”

How to Stay on Top of a Home’s Value?

Zillow recently increased its database of homes with Zestimate valuations to 67 million, which equates to about three out of four U.S. homes. People can easily check a home’s value by visiting Zillow.com and typing in an address. Full Story

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If you think you’re ready to tap some of the equity in your home, do your homework first. The time you spend now could save you heartache (and plenty of dough) in the future. Bankrate.com’s experts advise us of four steps to take before signing on the dotted line:

1. Consult your financial advisers.
Financial advisers know which questions to ask to understand your complete financial picture, including events on the horizon. Starting here can save both time and money while making the borrowing process less threatening. Any major financial decision should be weighed with consideration to its tax impact. Speaking with a tax professional can guide you to your smartest borrowing decision.

2. Comparison shop.
Shopping is an incredibly important but often overlooked step. At the very least, start with your primary lender. One easy way to find the best deal is to use the Bankrate home equity loan rate tables to find rates specific to your area. One bankruptcy researcher draws a parallel between consumer willingness to “run around to Kmart or Target to save 50 cents,” while the stakes of taking out a home equity loan are much higher. With these numbers, rates even 0.1 percent to 0.6 percent higher than the prime rate add up to thousands of dollars worth of additional interest payments. Be sure to shop.

This audio clip explains what lenders look for.

3. Understand the terms.
Home equity loan terms may be unfamiliar to you. What you don’t know could cost you your home. Most home equity lines of credit, known as HELOCs, are variable rate loans. Generally, a HELOC starts with a low teaser rate, then increases after a set introductory period. Find out the floor and ceiling rates. The initial rate is almost always at floor, or the lowest allowable rate, and the only way to go is up. Make sure you do the math and determine whether you will be able to afford the rate increases.

Use the glossary of the most commonly used home equity terms to help you understand all the details of the deals offered.

4. Know your rights.
The Federal Reserve says you should receive information in writing about each mortgage or home equity loan program you are interested in before you pay any fees. Be sure to read all the loan details and ask the lender or broker to clarify index rates; margins; caps; other ARM features, such as negative amortization; or anything else you don’t understand. After applying for a loan, you will receive detailed loan information from the lender, including the APR, a payment schedule and whether the loan has a prepayment penalty. A provision of the Truth in Lending Act gives you the right to cancel certain real estate loans within three business days without penalty. It is called the right of rescission. In home equity loans, you can rescind only when using your principal residence — not a vacation or second home — as collateral. Story