North Sound Property News

 With lending markets going through some difficult times, and the real estate market doing poorly seemingly everywhere BUT Seattle (I think we’re all holding our breath to see what the next few months have in store for us here), I think it is important to get some useful tips into the hands of homeowners who may be concerned about the value of their home, or their ability to keep their home if the local market joins the rest of the nation in a downward trend.

Often, your best chance to avoid losing your home comes before you actually purchase it–by buying what you can comfortably afford, getting a loan that makes sense in your financial situation, and doing some serious thinking before making your purchase.  But even after the fact, there are ways to help yourself if you’ve made choices that worry you now.

The first step is to make sure you have a good understanding of the terms of your loan.  If you are on a fixed rate loan with a manageable payment, a period of depreciation may be unfortunate, but you are probably in a good position to weather the storm as long as you do not need to sell.  If you do need to sell, if you have owned your home longer than a year or two you probably have enough equity to sell without much financial hardship. Keep in mind that real estate should be held over the long term if possible.  Sometimes things occur—moves, job losses, etc.–that are beyond our control, and that is always a risk.  But your plan should always be to hold real estate for a period of 3 to 5 years minimum, so that you can ride out fluctuations in the market such as are occuring now.

If you are on any type of adjustable rate loan that is set to adjust in the next 18 to 24 months, and the future payment will not be manageable for you, you may probably need to have an exit strategy out of that loan.  Don’t wait to receive notice from your lender—begin making your plans now.  Rhonda Porter covered this topic very well in her post on adjustable mortgage exit strategies.

If you can refinance your home into something with a fixed rate, now would be a good time to consider doing so.

Continue to guard and care for your credit as if your financial life depends on it.  If you are in an adjustable mortgage, it does depend on exactly that.

Some people who have little to no equity in their homes, or poor credit, could find themselves in a position of being unable to refinance out of their loans.  What should these people do? 

First, make SURE that refinancing really isn’t an option for you.  Don’t accept the answer you get from the first lender—make several inquiries.  If the answer really is no, ask yourself if you can swing the adjusted payments for two to three years by changing your spending habits, increasing your income, taking in a roommate, or some other type of solution.  Consider all your options.

Contact the lender that holds your loan and see if you can work out some kind of payment plan after the rate adjusts.  You will have a better chance of getting them to agree when your loan is still in good standing than you will after you become unable to make payments in full and the loan goes into default.

At this point, you should have an idea of whether or not you will be able to exit your mortgage or if you will be looking at having to sell.

If you are going to have to sell, begin making preparations now to get your home ready for sale, and plan to have it on the market well in advance of the date that your mortgage will adjust.  You don’t want to wait until the last minute and you are desperate to make the sale. 

You will also need to make sure that your home price reflects current market conditions at the time you list, and that it is in marketable condition.  The price of your home will be based on condition and market values at the time you go on the market, not based on your debt obligations.

And by marketable condition, I mean your home has to be the shiny penny.  Expect that there will be a lot of competition among sellers in the marketplace to get offers from a small number of buyers.  Your home needs to be the ONE that is picked, not just one of many on the market.  So clean it up, stage it, and make it look fabulous.  See my article on 5 ways to sell any house for more money.  Check out your competition as well, so that you know what you are up against.

If the market value of your home isn’t enough to cover your obligations, you will be in the position of doing a short sale.  If this is the case, be sure to find a Realtor that is experienced in doing short sales.  This person needs to be able to negotiate on your behalf to have your lenders release some or all of your obligations so that you will be able to sell your home.  Many Realtors avoid these kinds of transactions because they are extremely difficult, so start looking now for someone with the skill set to accomplish this for you.

You also need to be familiar with the tax implications involved in a short sale, so make sure to talk to an accountant to find out what those tax implications will be.

Another important point is that it is important to stay positive and solution-oriented during this time.  Although having to sell one’s home is one of the most stressful experiences a person can have, you can and will get through this.  You may find that there are solutions to your situation that don’t involve having to sell your home, and by carefully planning a strategy now, you are more likely to be able to find these solutions before it’s too late.

Lastly, remember that real estate markets are cyclical. We had a long up cycle, and it’s probably realistic to expect that we could now experience a weaker market, even including depreciating home values in some areas.  However, this too is just a cycle.  What goes up must come down, and vice versa.  Given the underlying strength of our local economy and the fact that we were a little late to the “home appreciation party,” I would expect our market to continue weather this storm better than most of the rest of the country. 

That’s not to say Seattle will be unaffected.   We’ll be affected, but I think we’ll find that cases of people losing their homes and forced sale situations will be fairly limited, and that in some sense this time presents an opportunity for many get themselves on more stable economic footing.
 

About the Author: Sandy Kaduce is Associate Broker of Gallery Homes Real Estate. She serves buyers and sellers in North King and South Snohomish counties. She is 2009 Board President of the Mukilteo Chamber of Commerce, as well as Vice President of Site Selection for Habitat for Humanity of Snohomish County. For more information, visit Sandy on the web at www.sandykaduce.com! Read more from this author