Q: How is it calculated that a 1% increase in mortgage rate is equivalent to a 20% increase in the price of a home?
Question: I read that a 1% increase in mortgage rate is equivalent to a 20% increase in the price of a home. (It was in the context of encouraging people to buy now, with low rates). How is this calculated?
Answer: The cost of a home is for the most part, the interest paid on the loan. You can sell a home, and reclaim most of your equity, but the interest you pay is gone. So if current interest rates are 5%, a 20% increase in the rate is 6%. It is quite an eye opener to see the total amount of interest paid on a loan. However, it is also quite a large sum if you add up your rent for the next 30 years. I am a big fan of buying your own home now, but 6% interest isn’t so bad. So buy only when you have found a home you really like, even if it means missing the lowest rate. Also, pay $100 extra toward your principle each month when you own your house. You will love how much money that can save you.
Photo Credit: Christian Guthier.
Most people can’t pay cash for a home, even if it is a discounted foreclosure property. That means you need a loan. But, banks don’t want to lend on a home that is not livable. So does that mean you can’t buy distressed properties? Are the deals off limits?
The Federal Housing Administration (FHA) has a loan program just for this situation. It is called a 203(k) loan. These loans are designed to help improve homes and neighborhoods. However the process is quite involved. You need many expensive professionals to help you through the process. You will need plans approved. The money is released as the work progresses and you meet project milestones. It is a process designed for large projects.
For many the red tape is daunting. FHA later realized there was a need for a simpler process. They developed the Streamlined 203(k) program. It won’t work for all projects. There are loan limits, and the scope of the work is limited. It is the 203(k) but simpler. You are limited to $35,000 in repairs. But for many of the homes out there that is enough money to complete the project. The biggest issue is the repairs can’t be structural or involve termite damage and stay within the Streamlined program. For that you will need the full 203(k) loan and process.
Here is what FHA says about the Streamlined 203(k) loan program:
What improvements are eligible under the new Streamlined (k) program?
The Streamlined (k) program is intended to facilitate uncomplicated rehabilitation and/or improvements to a home for which plans, consultants, engineers and/or architects are not required. The Streamlined (k) program includes the discretionary improvements and/or repairs shown below:
- Repair/Replacement of roofs, gutters and downspouts
- Repair/Replacement/upgrade of existing HVAC systems
- Repair/Replacement/upgrade of plumbing and electrical systems
- Repair/Replacement of flooring
- Minor remodeling, such as kitchens, which does not involve structural repairs
- Painting, both exterior and interior
- Weatherization, including storm windows and doors, insulation, weather stripping, etc.
- Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens
- Accessibility improvements for persons with disabilities
- Lead-based paint stabilization or abatement of lead-based paint hazards
- Repair/replace/add exterior decks, patios, porches
- Basement finishing and remodeling, which does not involve structural repairs
- Basement waterproofing
- Window and door replacements and exterior wall re-siding
- Septic system and/or well repair or replacement
What are the minimum and maximum amounts for repair costs under this program?
Given the need for homeowners to make minor repairs without exhausting personal savings, and in consideration of the increasing cost of materials, the minimum repair cost of $5,000 is eliminated and the ceiling is now raised to $35,000. This revised maximum repair/rehabilitation amount recognizes the cost of making older homes more energy efficient. Note that as described below, when the repairs exceed $15,000, the mortgagee must perform or obtain an inspection to determine that all listed repairs were completed.
If you are interested in homes that will require repairs, then keep this program in mind.
The likely process for streamlined is
- Get loan pre-approval with a lender that does 203(k) loans
- Search for bank owned homes with our free and easy online search engine
- We go together to see in person the homes that interest you
- Once you have narrowed your search to a house you might pursue you need to figure out how many dollars of repairs it will take
- Make an offer with FHA disclosures and 203(k) indicated
- Offer accepted
- Contractor quote
- Loan process
- Home purchase closing
- Contractor begins work
- First payment to contractor made
- Repairs completed
- Final inspection
- Final payment to contractor made
Take the next step. Contact us for lenders that do 203(k) loans and get pre-approved.
Here is the full document from FHA that documents the program:
A great feature of this website is the automatic home search. You can set this up yourself, or ask us for help. Here is a sample of what I will ask you to get started. This is based on a real email I’ve sent, with the details changed to protect my visitors privacy.
I received your request today for help setting up the search robot. I
would be glad to help.
I will need some information to make this useful. We can start off
general, and make the search more specific as we learn more about what
you are looking for in a house.
The home you mention is in Reisterstown. Do you want to limit to
Reisterstown, or cover a larger area? We can center around a location,
like your place of work. We can center on Reisterstown, but zoom out
for a larger area. So first question: What area to search?
The home you were looking at started at $425,000 and has dropped to
$395,000. So question number two: What price range are you looking in?
This home is a detached home. Condos and townhomes are other choices.
So third question: Limit to detached homes?
This home is 3 bedrooms with 2 and a half baths. Is this the minimum
to search for? Fourth question: How many bedrooms and baths?
This home is on a quarter acre of ground. We don’t have to limit this,
but if you like we can find only homes with a certain amount of
ground. Do you want a lawn, or less grounds to care for?
That is good for a start. I will take your answers and setup an
automatic search. Every time a home that meets your criteria comes on
the market, you will get an email. It is a great way to keep a low key
home search on simmer. When something catches your eye, or if you are
ready to look in earnest, we can show you the homes. We arrange
private tours of the homes you choose. Some homes look much better
than their pictures. Seeing the homes in person is one of the exciting
parts of home shopping.
Thanks for stopping by my site at www.HelpShop.com. I hope my
questions put you on the right track for your home search.
In the meantime, I realize you are currently in the information
gathering stage, and may not be ready to “open up” about who you are,
or what your needs are at this time. Be assured this is perfectly
okay, and that Maggie and I will completely respect your online
Also, keep in mind that my ability to help you is dependent upon
understanding your particular needs and wants with respect to finding
a home. So when you are ready to explore your real estate needs
further, I will be happy to assist you.
Have a great day, and I look forward to hearing from you.
Peter Baumbach, Realtor
Long & Foster Real Estate Inc.
Graduate Realtor Institute
410-795-9600 (General Office Line)
Take the next step and send me an email.
Photo credit, Jelene Morris.
Every Wednesday, the Baltimore Humane Society hosts a hike. The animal shelter is fortunate to have a beautiful property with many acres in Baltimore County off of Nicodemus Road. The hike is longer during the summer months, but you do get a nice tour of the grounds. The clever part, is on the hike you are provided with a dog for a walk. If you have your own dog, you can bring him instead. Maggie and I went today. We were given dogs that know each other, so we could walk together. Otherwise, you are asked to keep five feet or so away from other dogs. I ended up practicing my calm assertive energy that I learned about on the Dog Whisperer TV show, and walked Suzanne. Suzanne is a cute adult Jack Russell Terrier. I think she enjoyed the walk.
Before you start, there is a registration form for first timers. While waiting for everyone to sign up, and the event to begin, Maggie and I visited the cat shelter. The cats aren’t taken on walks, and miss out on this great advertising. Many dogs end up getting adopted from these walks. The event itself is not that large. I make it sound huge, but there was about 20 people. Our former vet is now the Humane Society vet, and she was telling us that the dogs are quickly adopted. The cats however are at capacity. Maggie and I can tell you that we saw many cute kitties we would like to take home. We do however already have six of our own. Giles is our alpha cat, and we would have to get his permission first.
Whether you prefer dogs, cats, or both, there is something great about sharing a home with pets. Unfortunately renters are faced with the extra difficulty of finding a home that accepts pets. Many pets end up in the shelters because someone wasn’t allowed to keep them in their home. As Realtors, a common request is to help someone find a suitable rental that will accept a dog. Certain breeds make it extra difficult to get approved. We will gladly try and find you a place. However, when you own your own home, you get to decide who is family. It is one of the great empowering parts of the American Dream. Your own home with your loving family that includes pets. We will gladly help you with that too.
Find out about the hike at https://www.baltimorehumane.org/hike-rsvp.
Find out the story of the stray cats and dogs, with pictures, at https://www.baltimorehumane.org/adopt-a-cat/available-cats and https://www.baltimorehumane.org/adopt-a-dog/available-dogs.
“Isla Bermeja” appears on maps from the 1700’s near the Yucatan peninsula in Mexico. But nobody knows where it really is, if exists at all. The Mexican government want’s to use it to establish the border to Mexico, and take ownership of some oil rich deposits, that otherwise lie in international waters. Title to these deposits is in dispute, and oil puts a lot of money at stake.
A house is typically the largest purchase a person will make in a life time. It would be distressing to find out that someone else claims ownership of your house. Maybe the sellers thought they owned it, but some technicallity proves otherwise. More typically, a shed or a corner of the garage might cross into someone else’s land. In either case, your quiet enjoyment of your home is in jeopardy. When you buy a home with a mortgage, the bank has you pay for a title insurance policy that protects them from such title worries. But, this does not protect your equity, only the portion still owed to the bank. Your title company will have offered you an owners policy. Not everyone gets one, since it is not required. It is that policy which will come to your defense when your neighbor says your home is on their property. Maybe you will be fine, but that lost island is a reminder why you might want your own title insurance policy.
Photo credit, Wonderlane.