Your house is a bank?

House - bank

Mortgage interest rates have gone up a little from what has been an all time low. Some are even up over 4%. GASP! I can not help but remember all the years when they were over 8% and even over 15%.

However when rates go up fewer people refinance and that means that fewer loan officers have loans to work on which means their income goes down. Get ready for the post cards and mailers about how much you can borrow.

Last night I even saw an advertisement about how your home is your bank. Using home equity as a source of cash isn’t a bad thing. Especially when the money is used for a new roof or for that boiler you have always wanted. The interest rates are usually more favorable than they are on other types of loans and for some there is a mortgage interest tax deduction.

However there is some danger in treating a home like a bank, because it isn’t just a bank it is where you live and probably your most valuable asset. It wasn’t all that long ago that home values went down and millions of home owners ended up owing more on their homes than the homes could be sold for. Getting into a negative equity situation can lead to foreclosure.

There are numerous advantages in not borrowing money that should also be explored before withdrawing money from the bank of home equity.

Maybe I just have the post housing crash jitters. . . but please borrow responsibly. It doesn’t seem like the banks suffered because they lent money to people who could not pay it back but many former home owners did and still are.


The inexpensive house that is very expensive

fixr upper
house being rehabbed in St. Paul

There are homes on the market that are listed for less than 50K. s. Considering the median home sale price in St. Paul is around 182,000 this year and the average is over 200K. To home buyers 50K -100K really seems like a bargain. The bargin priced houses being sold at auctions are not always a bargin.

Unfortunately there really isn’s such a thing as a 50K home that doesn’t need a lot of work. I am sure there are some exceptions but not many. It is possible to spend more money than a home is worth getting it up to code and livable. The city has rules and will not allow houses to be lived in until they meet certain standards.

It can be difficult to borrow money for the repairs and at least here in St. Paul the city will require permits and licensed contractors for many common repairs.

Inexpensive houses that need a lot of work are an opportunity for people who have experience rehabbing houses and have the necessary funds to do so.

The professional house flippers do not purchase a property until they have a pretty good idea how much it will cost to fix it up and how much it will be worth when it is finished. Even the pros end up over budget and they sometimes over estimate the value of the home once the work is done. Like all types of investments investing in real estate is not without risk.

First time home buyers can find some bargains if they look for homes that need cosmetic work like painting and carpet removal and maybe some hardwood floor sanding. These homes are going to cost more than 50K. They may need to remove wall paper and dropped ceilings and lighting from the 1970’s. Often the home owner can do most of the work themselves with or without help from family, friends or YouTube how to videos.

It is possible to improve the value of most any home by making smaller repairs and upgrades like new exterior doors or a back splash in the kitchen or some new lighting.


Distressed property

Porch Porch

I am not sure why we call property distressed. It is usually the owner who is distressed and unable to make mortgage payments. Right now over 11% of the homes on the market are foreclosures or are being list as potential short sales. These properties on average have been on the market twice as long as properties that are not distressed.

The greatest number of distressed properties for sale are on the greater east side. In some neighborhoods there are no distressed properties for sale. During the peak of the great recession and crash of the housing market, at times 40% of the properties on the market were in a foreclosure or pre-foreclosure status.

For more information about how to prevent foreclosure please go to the Minnesota Homeownership Center website.

2011 the good old days

Home prices hit a low in St. Paul in 2009 and then after the tax federal tax credits expired in 2010 there was a new low that hit in 2011. During that time more than 30% of the homes on the market were in some stage of foreclosure and I swear at the time it seemed like we could not give the foreclosures away. It was a buyers market.

There were some smart investors who bought up foreclosures when no one else wanted them. They fixed the houses up all pretty and put them on the market and sat back and watched the bidding wars last year and this year too.

These days there are not many bank owned properties on the market, in fact I think there are 6 in St. Paul right now and maybe about 150 properties that we call distressed in that they are likely to become foreclosures.

Now that the economy is a bit better and unemployment rates are lower and home values have been going up there is a whole new interest in buying distressed property. There are some deals and some opportunities out there but the people who had the money and were willing to take the risk who bought when the market hit bottom are the people who came out ahead by buying foreclosures.

2011 were the good old days for buying foreclosures and now is a great time to re-sell them.


Infosparks 2

The numbers used to build these graphs are from the NorhstarMLS. The data is deemed reliable but not gauranteed.

Discuss this with your home inspector

During the last eight years there have been many homes that  sat vacant and then were rehabbed. When the banks obtained the homes they did not get a sellers disclosure and when they sold the homes they could not provide a sellers disclosure for the buyer. In some cases the buyers rehabbed the homes and sold them and those homes are now occupied.

Some of buyers of these rehabbed homes are running into old problems that would normally appear on sellers disclosures. There are roots growing in sewer lines and mold in the walls from water leaks that were fixed long ago, but where never disclosed because there was no disclosure.

There are some things buyers can do to protect themselves:

1.  Have a complete home inspection.

2.  Pay close attention to the City Truth in Housing inspection report and share it with the home inspector.

3.  Look up the home on the city of St. Paul property look-up and look for permits for repairs. There is a lot we can learn by looking at permits or when we find work done without permits.

I am running into properties in St. Paul that have changed hands so many times in the last decade that no one knows much about them. Some were vacant for a few years before they were purchased and rehabbed.

Also see: Things to check in a house that has been rehabbed