Help for Frozen HELOCs.

One of the most devastating consequences of the current mortgage crisis is the freezing of Home Equity Lines of Credit by their lenders.

Lately, a lot of homeowners – who usually use their HELOCs as ATMs – have discovered that their lenders have shutdown their lines of credit. Just at the time that these homeowners need money. And a lot of these borrowers don’t know what to do.

Well, according to a great article by Amy Hoak on MarketWatch.com, there are a few things that homeowners can do to help in these situations.

1. Call your lender
Find out why your available credit has been cut back and tell them why you think it shouldn’t have been reduced. Prepare yourself by knowing your credit score, loan-to-value ratio and debt-to-income value before you make the call.

2. Have your home reappraised
If you think that your home hasn’t dropped in value as much as others in your area, have it reappraised. It’ll cost a few hundred bucks, but it could be worth it.

3. Find another lender
If you have good credit and some equity built up in your home, you’ll probably be able to find another lender. Read more

How to Determine if You Can Afford Your Mortgage

Remember back in the good ol’ days of just a few years ago when anybody with a pulse could qualify for a mortgage? Well, welcome back to reality.

With the current housing debacle going on all around us, a lot of us are finding it much much tougher to get a mortgage. That is, if we’re even thinking about buying a house.

But, let’s say that you want to buy a place in this buyer’s market. The big question then becomes “Can you afford the mortgage you want?”

Well, Peter McDougall posed that same question today in a great article on TheStreet.com.

He gets into the 2 guidelines that lenders use to decide if you can qualify for a loan:
1. the housing-expense ratio
2. the total-obligation-to-income ratio

According to the article, your housing costs shouldn’t exceed 28% of your monthly income (he doesn’t clarify is that’s GROSS income or NET income. And your total obligations (housing plus other liabilities like credit card debt, loans, alimony, etc) shouldn’t be higher than 36% of your monthly income.

In addition to this info, Peter also links to a great Mortgage Required Income Calculator from BankingMyWay.com. This calculator will show you how much you need to make in order to afford the mortgage you want. It’s very cool. You gotta try it out.

So, if you’re thinking of buying a house either now or in the future, you have to check out this article. And when you do, let us know what you think.

Is it Better to Rent or Buy? That is The Question.

Rent or Buy? Buy or Rent? What’s the smart thing for me to do?

I started thinking about this today because I just read a great article by David Leonhardt on NYTimes.com about this topic. And I’m sure that a lot of you are thinking about it too, considering that there are a lot of pros and cons on both sides. Especially now, in this crazy Real Estate market.

Now, I know that owning real estate is a cornerstone of building wealth. But, does that mean that whatever Real Estate I purchase will help me build wealth? I’ll need to do a lot more research to find the answer to this.

But back to the Rent or Buy question. Let me tell you about why I started thinking about it. I live in New York City where an average 1-bedroom apartment in a good neighborhood costs around $500,000. Yes, that’s 500 Grand! For a 1-bedroom! That’s crazy. But then, this is the greatest city in the world.

Let’s say I buy a condo for $500K. That means that I would have to put down at least 10% or $50,000. If I buy a co-op, I would have to put down 25%. For this calculation, we’ll stick with buying a condo.

So, now I’m left with a $450,000 mortgage. At 7% Annual Interest Rate over 15 Years, I’ll have a monthly mortgage payment of $4,044.73. This doesn’t include the Monthly Maintenance on the apartment (which varies greatly based on the condition of the building.) It also doesn’t include closing costs, mortgage points, insurance, attorney fees, etc. On the plus side, I would be building equity and would get tax benefits for owning a home.

Currently, I rent a 1-bedroom apartment for a lot less than half of the above monthly mortgage payment. Sure, I’m not building equity and I’m not getting any tax benefits, but I also have more than $25K extra at the end of the year than I would have if I had bought an apartment.

That’s my dilemma: Should I continue renting or should I buy a place? Read more

Don’t Bet the House. Especially Your House.

At times like these, when the stock market is low, there are tons of opportunities to buy stocks at a discount. Right?

And when mortgage rates are low, it’s a great time to borrow against your home equity. Right?

Now, what if you borrow against your home equity to buy discount stocks. That would be smart, wouldn’t it?

Well, according to a great article today on TheStreet.com by Peter McDougall, the answer to the last 2 questions is NO. NO. NO. NO. NO.

I’ve never heard of homeowners borrowing against their houses to invest in the stock market. But according to Peter, some do. And the risks are tremendous.

What happens if the return on your investment doesn’t cover your mortgage? What if your investment goes down? Then what? You’ll lose money. And you could lose your house!

It doesn’t make sense to me. But that’s just me.

If you’ve ever thought about doing this, you might want to read Peter’s article first. Then give us your take.