We’ve been receiving lots of calls and emails from people in a panic about their finances.
“How do I manage my huge credit card debt?”
“The house next door sold for $200K less than I paid for mine!”
“Should I even bother saving? My bank will probably go under anyway!”
“What about my pension/Social Security?”
Sure, you’d have to be living under a rock not to be at least a little scared about our world right now. But as usual in life, there are things you should worry about (those you can do something about), and things you should ignore – why bother if you can’t change them?
So let’s cut through all the noise and doom-and-gloom to talk about what you should be worried about – or not - TODAY.
Worry #1 – Your Home Value
If your home has dropped in value, you’re not alone. There are very few places in the country that have not been impacted. We’ve watched our home’s value fall 35% since early 2006, so I’m there too. (If you are and have been renting the last couple years…congrats, you’ve got great timing. Maybe you should be writing this post instead!).
But stay with me a second. As much as that, well…sucks… if you don’t have to sell your house now, just put it out of your mind. Seriously.
If a job change or personal circumstances or whatever are not forcing you to sell, don’t worry about it! After all, who cares what your neighbor’s house just sold for?
I used to play “shoulda-woulda-coulda” all the time – if we sold when we were thinking about it at the top of the market, we could have put a big chunk of cash in the bank. Now we don’t have that option. Yep, pretty frustrating.
Don’t Walk Away
Oh, and you aren’t thinking about “walking away” from your house and mortgage because your house isn’t worth what you paid for it, are you?
As you probably know, the real estate market runs in cycles. Even if you are underwater now, when the market starts going up again, the “bottom” will be higher than it was before. So, your house will be worth more six or eight years from now than it was in 2006.
Also, this might tweak some people, but your house is not an asset.
You shouldn’t plan on it doubling in value in a couple years like during the crazy boom we just went through. It is a place to live, and it is an expense – again, not an asset. Sure, you might have equity you can borrow from someday, or make money when you sell it one day. The value will go back up eventually - always has, always will. But it isn’t an asset.
We’ll talk a bunch more about this some day, but I’ll get off my asset soapbox now. Until then, if you want to know more about assets and expenses/liabilities, pick up Robert Kiyosaki’s “Rich Dad, Poor Dad.” Great book that has made a difference for lots of people.
So, if you can afford the payments and still feed your family, don’t walk away and let the lender foreclose on your house. Ride it out, and do the right thing if there is any way.
Home Shopping A Few Years From Now . . . You’ll Thank Me
Keep in mind that a foreclosure is the single most damaging thing that can hit your credit report. The next time you want to buy a house, you can have all kinds of problems with your credit and the lender probably won’t care too much.
$39 collection from a doctor? $17 charge-off from a department store? Except for the very top tier programs, lenders don’t care as much about that stuff – everybody makes a mistake here and there. You know what they do care about when they are ready to lend hundreds of thousands of dollars on a home? Yep. “How did this borrower handle it the last time somebody lent them hundreds of thousands of dollars on a home?”
If you even had a late payment or two, you are already at a big disadvantage. If the lender foreclosed on your property, you’ll have a very difficult time getting another mortgage with any kind of decent rate, down payment, etc.
Anybody that can avoid adding to the mass of bank-owned homes out there will help this whole mess get cleaned up quicker. Hint, hint - which means if you do want to sell your house eventually, you’ll be able to do it sooner and more profitably.
Values/Schmalues – Who Cares? But I Actually DO Have To Sell My House Now!
Okay, let’s talk more about the dark side of this subject. If you do need to sell your home now for any one of a handful of reasons, it isn’t going to be fun – but you knew that already.
If you’ve been in your home since 2003 or 2004 and haven’t sucked all the equity out of it, then you are probably okay. You won’t make nearly what you could have during the boom days, and it will take much longer to sell, but most likely you aren’t upside-down.
If you bought in 2005-2006 or later, you could be in trouble.
Either way, if you have to sell…then really SELL! Don’t screw around pricing it high because it makes you feel better about what it used to be worth. The only people buying right now are bargain-hunters, and they aren’t in a rush (plus, do you think they might have just a few options to choose from?)
Go to an experienced real estate professional that you can trust, and listen to what they say! The listing price will hurt the first time you hear it, but more than likely, it is the right price at which to list your home. (If you really don’t believe it, pay the extra $300 for an appraisal by a second company – it is worth it in piece of mind).
Again, if you need to sell, you need to SELL! If you price too high and make a few more mortgage payments during the time when nobody is coming to look at your home, then you are out even more money. Price it right and get it sold.
Oh, and in this market, you don’t want to sell your home yourself. Trust me – it really is something you’ll regret. Pay the commission and figure that it is covered by the higher price that they got you and the time and mortgage payments they saved you.
Make sure that your real estate professional is taking advantage of technology to get you maximum exposure. Make sure they know the little secrets about the different websites – to allow you to price it right to have it seen by two price-group searchers instead of just one. They should know what that means and some other tricks. Every bit helps, right?
One other thing to keep in mind…nobody cares as much about selling your house as you do. So, be involved, and pay attention. Do a little extra work and sometimes that can make all the difference.
For example, there is a real estate expert named Bruce Norris who says you should price your house so you are the “next logical sale in your neighborhood” (or something close to that). You need to monitor the sales in your neighborhood weekly (yes – sales, not listings), and drop your price if you need to so that your home remains the best-priced one in the neighborhood…and the next logical sale.
If you are able to sell high enough to pay off your mortgage, great. Take it and run, and be thankful – next time you’ll probably time it right, get a great deal and build lots of equity.
What Exactly Is A Short Sale?
If you can’t pay off your mortgage with what your home is worth, you are not alone. It is a terrible situation which can make you feel pretty helpless. My advice to you is to communicate openly and honestly with your lender. If you can get them to agree to a short sale (where they’ll accept less than you owe on your mortgage), that is often the best solution. There are some ramifications (tax and otherwise), but all in all they would rather lose some money on the transaction than take your home back.
Your lender does not want to take your home back – trust me, I’ve seen it many times during my years in the mortgage industry. Lenders make money by loaning money on homes, not foreclosing and owning and selling them.
They don’t have time to deal with properties in foreclosure – they just want to get rid of them ASAP. When they do that, they almost always get less money than the home is truly worth. They also spend a bunch of time and expenses during the legal process to take the home back from you, in addition to substantial fees in getting it ready to sell.
Let me say it again – they do not want to take your home back. So, call them early and call them often. Tell them exactly what is going on. Swallow your pride and do it.
You’ll shoot yourself in the foot if you try to take advantage of them, however. I’ll say it again - they don’t want your house back. But, they want every last cent they can possibly get from you to minimize their losses. C’mon, you’d be the same way if you were them – if you were already losing on the transaction, you’d want as much as you could collect. This is to save your house – give as much as you can in the negotiation, and plead with them to meet you there.
Remember that there are many other people out there in the same situation, many of them further along this unfortunate path than you are. So be patient and understanding, but be persistent.
You’ll want to present your position as somebody that truly wants to take care of the problem. After all, you are taking care of this early, rather than after they’ve spent lots of time and thousands of dollars in fees going through their legal foreclosure process.
But BE NICE! Don’t confuse the positioning I mentioned above as being aggressive, or they’ll squash you. Or at least not return your calls and cause you to lose valuable time. Think about the fact that they are on the phone all day, every day dealing with a pretty depressing subject, one after another.
If you aren’t getting anywhere, think outside the box if you need to and do something to make an impression. Sure, spending any money when you are in that position is tough, but what about a cheap bouquet of flowers or having the local pizza shop deliver them a $10 pizza? You might melt enough of the ice to really get them on your side and fight for you.
What Are The Other 6 Things to Worry About?
I intended to make this a fairly detailed post, but to discuss all of the 7 items that have come up most often recently. But once I started digging in to my call logs and emails, there were lots of things to be covered about people’s homes…a pretty complex subject.
In my next post, I’ll discuss some options if you can’t afford to keep making your mortgage payment but selling your home isn’t possible. After that, I’ll make the rest of the posts shorter, since they aren’t so complicated.
I look forward to your feedback, whether on the post, or just to tell me that yes…I babbled way too much!
Stay Tuned.
Scott
