To follow up on her story about dealing with loan modification companies, we bring you this post by Stacey Doyle.

After paying our mortgage on time for eight years, we found ourselves three months behind. To try to save our home and finances, we are considering a home loan modification. Unfortunately for us, we are past due on other bills, so our credit rating has plummeted. We’ve therefore contemplated on doing a mortgage loan modification, but we worry about what the effect of such a move will be on our credit.

Can A Home Loan Modification Ruin Your Credit?

Homeowners who find themselves unable to catch up on their mortgage payments have several options to get rid of the obligations. But many debt management solutions available today may actually have a negative effect on a borrower’s credit score — and in particular, their FICO score. In those cases when homeowners decide to walk away from their problems, there may be grave financial consequences.

What do the FICO score people have to say about it? According to FICO PR Director, Craig Watts:

“The single worst thing any person can do to his or her FICO credit score is to have serious delinquency such as foreclosure or bankruptcy appear on their credit bureau report. The impact that serious delinquencies have on FICO scores can vary from person to person, based on what other information is on the person’s credit bureau report.”

So how is my credit going to be affected now that I’ve fallen behind on my mortgage payments? Clearly, it will fall by some points, and it will take time to repair my credit regardless of which solution works out best. In the worst case scenario, credit scores are typically lowered by up to 300 points after a foreclosure. Anyone who opts for a foreclosure will see it on their credit report for seven years, and it may take a minimum of two years before they notice any improvements to their credit score.

What Are My Options?

While it is clear that my credit will be negatively impacted by my past due mortgage payments, I still have options. Some possibilities to resolve the problem include a refinance, loan modification, foreclosure, deed-in-lieu of foreclosure, short sale or bankruptcy. Here was how I analyzed and reviewed each of these options:

• With my current poor credit, a refinance is not a viable option. It would raise my interest rate and monthly payment, which I cannot afford.
• Foreclosure might leave me with a hefty bill since currently my house is worth about what I owe.
• A short sale or deed in lieu of foreclosure would pay off my current mortgage and leave me free and clear but will make a big dent on my credit score and force me to move to a new home.
• If I were to file for bankruptcy, I may be able to keep my home, but my credit would get shot. My credit history would be seriously impacted for seven years.

After reviewing my options, I knew that I definitely wanted to avoid foreclosure: this led me to what I thought may work best for my situation, which is to negotiate a loan modification.

Dealing With Mortgage Lenders

And here’s where I am today: I’ve been negotiating with my mortgage lender since last November to no avail. My original lender was bought out by another, who claimed to have lost all my paperwork. I had the local bank branch manager handle my most recent submission, which they finally received and processed. Now I was not hopeful about this because the bank manager herself admitted that she was unsuccessful with negotiating a loan modification with her own employer. And as expected, I was turned down for the modification four weeks ago and became despondent.

After some thought and additional research, I eventually decided to enlist the help of the state Housing Authority. After two meetings, they agreed to represent my interests to try to get a loan modification and also directed me to a wealth of local resources including possible free legal services.

These days, I feel more hopeful that I am headed in the right direction after reading statements from Edward A. Mermelstein, a New York real estate attorney:

“Banks are not in the foreclosure business, so they may be more willing to renegotiate or modify their rates to help get the loans off their books and keep you in your home. Also, research the foreclosure laws and time frames in your state [every state is different] by contacting the State Government Housing Office.”

Can Troubled Homeowners Get Help For Free?

The short answer? YES.

Prior to contacting the Housing Authority for help (the assistance they offer is free!), I had spoken with some debt counselors (e.g. Home Foreclosure Fighter) whom I connected with through online searches and ads. But these folks all wanted a fee, something I can’t afford to pay right now. It didn’t make sense for me to pay for any more services when I could no longer afford my own mortgage.

According to Brian Mikelbank, a Cleveland State University professor, homeowners should try not to pay for assistance. He states: “There are other resources that are financing the (housing authority) counselors, enabling them to offer free services.” He suggests looking for help through HUD (Housing and Urban Development) counselors and community leaders: “If foreclosure can’t be avoided, these are the folks that can help you get out… with the least amount of damage to the rest of your financial situation.”

The Bottom Line

No matter which way my situation goes, I realize I am not completely doomed. Linda Ferrari, author of “The Big Score”, states:

“If the Fair Credit Reporting Act doesn’t require lenders to report negative information at all or in a specific manner, then this leaves the door wide open for negotiating deletions or non-reporting of these items.”

While a loan modification will lower my credit rating, it won’t make as much of an impact as foreclosure or bankruptcy. If the terms are negotiated well, I might even be able to have negative credit notes removed. On the other hand, if we are unable to reach a settlement, a short sale or deed in lieu of foreclosure might be the only remaining path for me to take. I will keep everyone posted about my progress and findings.

Can A Home Loan Modification Ruin Your Credit?

YNAB Pro Giveaway Code: fibonacci

Some considerations before you decide to buy a foreclosure.

Not All Cheap Houses Are True Bargain Homes

A bargain is synonymous to a “great deal” — something that has value and has an ROI. The truth is, not all cheap houses are great deals; in fact, some are considered liabilities. But let’s not forget that liabilities can be found anywhere as well: for instance, I once discussed how some friends made a bad investment and lost a million dollars on a vacation rental they owned.

These days, cheap homes are everywhere, especially in certain residential communities that have fallen into foreclosure. I still can’t seem to wrap my head around how Detroit houses can be purchased for a third of the money you’d need to spend for a new car. That’s also because that same $7,000 house in Detroit would probably fetch several hundred thousand dollars if it were located here in San Francisco: I can’t find any homes here that will go for less than $100,000.

With these fire sale prices around the nation, people are flocking to buy foreclosures and hoping to pluck some distressed properties off the market. Before you indulge your dream of finally becoming an absentee landlord, check out these lessons on real estate investing that I picked up from CNN Money:

Lesson 1: Forget about flipping. The days of fast appreciation in home prices are now over. So if you’re going to invest in real estate, you’ll want to make money the way it’s traditionally done: through rental income and cash flow.

Lesson 2: Realize that the property’s purchase cost is just the start. With any piece of property bought, there’s always going to be ongoing upkeep, along with taxes (depending on where you live). But the crappier the house you buy, the more money you should expect to spend on fixing it up to be ready for use. So just keep in mind that even with a super cheap house, your costs can balloon after all is said and done.

Lesson 3: You’ll need cash. With the tough credit environment, it’s much harder to get the financing you’ll need from banks to bankroll your real estate investment plans. Those with cash will have an advantage in this market.

Lesson 4: Know the neighborhood. While it used to be just “buy, flip and profit” some years ago, these days it’s all about finding the diamond in the rough. With so many cheap houses vying for your attention now (who knew that a buyer’s market could be such a hassle!), you’ll need to do some due diligence. You can’t buy blindly like real estate investors of years past were wont to do — or you’d risk making an erroneous investment decision.

Lesson 5: Know and screen your tenants. With the economy in the tank, you can bet that it’s probably going to be more of a challenge to find good, reliable tenants. Aspiring landlords will be facing more work and spending more time screening for the right people to rent out to.

Thoughts On Real Estate Investing

I’ll admit that when the real estate market was soaring, I too, fell under the spell of wanting to be a landlady one day. I had this interest (”dream” is too strong a word) to try out rentals as an investment. Now that the market has crumbled, I’m no longer as interested in this endeavor, and have discovered that this is really not my “thing”. You see, if you are truly a landlord at heart, you’d stick to your calling through thick and thin. When you evaluate the things you’d like to spend your time doing, you’ll know that something is “in your blood” if you’re willing to do it even with much less money involved.

On that note, I’ve decided that real estate investing for me will be relegated to REIT investing. And for cash flow, I’ve instead decided to stick to investing in “virtual” real estate, or web properties, if you will. I think I’ve established that this is how far I’m willing to stretch beyond my comfort zone.

Personal Finance Articles

Special read for the week:

Econobusters is a new site I came across that’s all about frugal tips, tutorials, home management and recipes. Molly Green’s site is listed in my frugal hacks blogroll so I thought to give her a shout out. She covers the gamut of topics ranging from frugal shopping, decorating and cooking to thrifty finds, freebies and special deals. Here’s a taste of what she loves to write about:

• Tackle The Shopping List
  
• How To Set An Attractive Table
• How To Be Content

Oh and you can also sign up for a newsletter when you visit her site!

And here are more articles I enjoyed reading this week:

• Len Penzo: Price Comparison of 10 Sandwiches
• WeSeed: Learning About the Market in School
• Money Magazine: Economists do poor job of job forecasting
• Monevator: Think long term
• Lazy Man and Money: Adventures in Dallas (and how we saved money there)
• Mighty Bargain Hunter: Where Is The Extra French Hen?
• Almost Frugal: Have I Changed That Much?
• The Financial Blogger: Alternative Ways to Make an Extra Buck
• Money Smart Life: Open Enrollment Deadlines

Recent Carnivals

• Carnival of Debt Reduction
• Carnival of Personal Finance
• Carnival of Money Stories
• Festival of Frugality

Not All Cheap Houses Are True Bargain Homes

YNAB Pro Giveaway Code: fibonacci

Stacey is a guest contributor who’s had her share of struggles with debt — in particular, her mortgage. I invited her to share her story about how she’s working to prevent her house from going into foreclosure. Her goal? To lower her home loan rate with a loan modification.

Much like everyone else, I experience financial victories and losses based on the current economy. One of the financial challenges I’ve faced recently was to do with keeping up with my mortgage payments. Recently I fell a month and a half behind on my mortgage, so I began to think about what it is that I needed to do to ensure that I get back on track with my payments.

Exploring Options To Save My Home

We already know that when we don’t make our mortgage payments, the lender can foreclose on our home. The foreclosure process takes time and money: the average cost to the bank for foreclosing on a house runs about $50,000. The New York Times recently reported that 1 in 11 mortgage holders are now facing loan problems. With more people in recent years getting into trouble with their housing payments, banks are eager to resolve these financial issues on a positive note: it is in the bank’s and your best interest to settle the loan amicably rather than to deal with foreclosure. But do you really know all your options? Refinancing is one way to go about it, but I’d like to explore this other thing called a “loan modification”. I want to be proactive here and do what is needed to avoid foreclosure as much as possible.

What Is A Loan Modification?

Here’s what a loan modification entails: it lets a homeowner and lender change the terms of the loan so that the homeowner (in this case, the borrower) can stay in the home without having to face foreclosure. Loan modification is one avenue you can check out if you’d like to rework your mortgage situation: you won’t be refinancing or dealing with a new mortgage; instead, you’ll be renegotiating your current mortgage. In order to lower your monthly payments, the lender might:

• Decrease the interest rate charged on the mortgage loan;
• Change an adjustable rate to a fixed rate, especially if your adjustable rate is going sky high;
• Lengthen the time you have to pay back the loan;
• Decrease the principal due to the lender;
• Waive certain late fees;
• Possibly waive or wipe out a second mortgage.

I Hired A Loan Modification Service Provider

I’ve tried to extract myself from my financial bind by seeking assistance from the HUD’s HOPE For Homeowners program on getting a loan modification. It took endless hours to schedule conference calls with HUD’s HOPE for Homeowners. When I first started this process, we weren’t quite behind on our mortgage payments but warned them that it was possible that we’d fall behind under our current financial circumstances. But here’s the irony — I then found out that unless we were actually falling behind, we wouldn’t be eligible for the program’s help. So ultimately, HOPE For Homeowner’s didn’t work out for us. For those homeowners like me who are in limbo… are there any options?

I’ve decided that I’d look into hiring someone who could help me out with a loan modification. Why? Because I’ve got conflicting priorities in my life right now, so I simply don’t have enough time to deal directly with the bank. In my case, I’ve secured the help of Home Foreclosure Fighter as a professional liaison who’ll work in my behalf. I expect them to have the professional experience to streamline the process and cut through the jargon.

I am hoping that a service like Home Foreclosure Fighter can help me wade through the latest programs that will help me keep my home. Of course if you have any thoughts and ideas on this decision, please feel free to share them here. Do you agree with my decision? Does anyone out there have specific experience with loan modification services?

I just started the process with the loan modification agent so I’ll keep you apprised of my progress. On Friday afternoon, I filled out a secure online form at Home Foreclosure Fighter with my name, address, telephone number, email address, mortgage loan amount, loan interest rate and house value. Their website has a telephone verification system which works to connect me with loan professionals whom I’ll be speaking with about my situation. Let’s see how it works!

Seeking A Mortgage Loan Modification To Save My Home

YNAB Pro Giveaway Code: fibonacci

It’s a buyer’s market in real estate. As a follow up to our article on How To Buy A Foreclosure, we discuss how short sale real estate purchases work.

Buying A House In A Short Sale: Our Story

Last fall, my spouse and I, with the help of our real estate agent, stumbled across a little gem of a home in the village of my hometown. We weren’t looking for anything specific, but the agent told us that she had a place she thought we should see. Unsure of what to expect, we fell in love with the property upon walking through the front door. The next morning, we met the agent at her office and wrote the offer.

This wasn’t our first rodeo. We bought and sold three other homes prior to this one. This particular purchase, however, proved to have a new set of challenges. The seller was facing the possibility of foreclosure, and the house was classified as a “short sale,” meaning that the offer price was less than what the seller owed on his mortgage and would have to be approved by the bank (in these cases, the difference owed by the seller is usually forgiven). Since the bank wasn’t eager to be a homeowner, they were quick to approve the purchase and requested closing within 30 days. We ended up closing a little later than this but it was a relatively smooth process for us.

While our purchase of a short sale home wasn’t too challenging, a little bit of web research reveals that this is not often the case. In many areas of the country hard hit by the subprime mortgage crisis, lenders are overwhelmed with requests for “short sales” by desperate homeowners and buyers eager to snap up bargain homes. In these areas, it frequently takes as long as 90 days just to find out whether the bank will accept the purchase offer. However, despite these delays, a patient buyer can find a great new home in a short sale.

How To Buy A Short Sale Property

So, how does a buyer go about finding the perfect short sale? This lengthy article from Bankrate.com lists how to go about buying a short sale in 10 steps. Allow me to give you a summary of the points:

1. Identify your short sales list. There are many ways to do this, but I advocate using an experienced real estate agent to help absorb some of the headaches of the process (i.e. most of the following steps) that you will otherwise have to handle yourself. Even if you choose to approach a transaction without the assistance of an agent, be sure to have a good real estate attorney in your corner.
2. Check out the short sale properties. If the home is in need of work, try to get an idea of what it is going to cost to complete that work to help you determine whether the house is really a bargain.
3. Shop around, compare and do the research. Your real estate agent can easily compare the home you’re looking at to comparable homes that have sold in the area recently, in order to determine the property’s true market value.
4. Know what type of financing to get. Make sure you’re able to qualify for a mortgage loan. If your offer is accepted, you may be required by the seller’s lender to close quickly. Pre-approval for financing is recommended. Here are a few tips to get the best home loan rates.
5. Uncover the mortgages and liens on the property. It will be easier to put together a reasonable offer if you have a fairly accurate idea of what is owed on the property. Ask the seller or the seller’s agent for this information. It may seem rude to ask, but it is in their best interest to disclose the information. Also understand that most lenders will not entertain the idea of a short sale until the seller is at least 90 days delinquent on their mortgage.
6. Work with the lender. You or your agent should speak with someone in a position to make a decision about your offer. You will likely need a notarized letter from the seller giving the lender authorization to disclose information to you.
7. Complete the application for the short sale, if need be. Some lenders have developed a specific application for just this purpose. The one my spouse and I dealt with did not.
8. Assemble the proposal, to include:
   • The purchase and sale contract, signed by both the buyer and seller.
   • A hardship letter from the seller detailing their financial woes. Supporting documentation should be included, if applicable.
   • An appraisal or other statement of the property’s value.
   • A statement of costs and liabilities detailing damage and needed repairs to the property. Short sales are always completed on an “as is” basis, and the buyer will be responsible for any repairs after they have taken possession.
   • A settlement statement.
9. Negotiate. This is standard procedure in any real estate transaction .
10. Finalize the deal. Dot the i’s, cross the t’s, shake the hands, and grab the keys. Don’t forget to stop at Lowe’s and pick up a new welcome mat.

Buying a short sale home can be an enormous hassle with fantastic rewards. Just be sure to choose your home carefully, know what you’re getting into, and unless you’re a real estate expert, find an agent who is experienced in short sales to guide you through the process. That’s what we did!

How To Buy Short Sale Real Estate

YNAB Pro Giveaway Code: fibonacci

So this is what passes for prime real estate these days….

I thought we were in a real estate recession, but apparently, there are still places around the nation that command stratospheric prices. This is real estate irony at its best — a private, open air parking spot was snapped up for a cool $300,000 in Boston, while in Detroit, we get homes that average $11,500 at foreclosure prices.

Detroit House vs Parking Spot: A Real Estate Market Conundrum

What’s even crazier is that the Boston parking spot has broken pricing records despite the weak economy. It beat the price for last year’s most expensive parking space, which went for a reported $250,000 and which likely threw the pricing curve for other such lots that normally go for an average $137,000. Here’s how the nondescript spot looks like:

Insane? Probably just as much as how insane it is in hard-hit Detroit, where foreclosures have mercilessly befallen neighborhoods due to widespread job losses (you can blame some of it on GM). Well, if you’re in the market to buy a foreclosure, you know where to look!

Just to show you how far home values have declined in some parts of Detroit, here’s an incredible story I came across: I can’t believe this tale about a couple who purchased an abandoned home for $100 with the following unbelievable particulars:

Pricetag for the house: $100. The buyer called a real estate agent with the Department of Housing and Urban Development, who confirmed that bids on the foreclosed property started at $95 for the property, $5 for the house. There were no back taxes — no one seemed to be sure who once owned the house, it had been empty for so long.

“Inspection was fine and the foundation was good,” says the buyer. The inspector also adds: “If you didn’t mind scraping some peeling paint, doing some surface treatments, putting in new utilities, windows and repairing the roof … this could be pretty interesting.”

Our real estate market covers quite a wide spectrum here: from parking lots paved in gold to decrepit homes desperate for some TLC. What a contrast. I do find this to be more of a positive story than anything because of one thing — the fact that if you happen to be a handy do-it-yourself type, you can really snag some great deals at bargain basement prices. If you’re resourceful and don’t mind a fixer upper smack dab in a neighborhood that needs a bit of work and care, you won’t need $300,000 to buy a house in the United States these days. For that kind of money, you can now buy 3,000 houses in Michigan where you can build a whole community with your friends!

Detroit House vs Parking Spot: A Real Estate Market Conundrum

YNAB Pro Giveaway Code: fibonacci

The prospects for many retirees aren’t very optimistic these days, no thanks to the bearish stock market we’ve been experiencing. Many are close to retirement and wondering if what they have in their high interest savings accounts will be enough for them to retire on. They may be facing some unattractive options and possible lifestyle changes in the near future. To be in their shoes could mean contemplating about coming out of retirement and getting a job in this poor economy, or maybe executing a reverse mortgage if there’s enough equity in one’s home to draw from. But if this is your situation, why not do something even more radical, like moving to a place where the cost of living is much lower than where you are right now?

Costa Rica rocks.

In my case, relocating for retirement is definitely a great option (if I can convince my spouse to do it). I was born and raised in the tropics, and I have no qualms returning to my native land one day. Unfortunately, the spouse thinks it’s way too hot to live where I’d like to live, close to family. But I’m “working” on him. I’m hoping that gradual brainwashing will work. Okay, that was facetious, but the truth is, by moving from Silicon Valley (with very high cost of living) to my place of birth (potentially lower cost of living), I can imagine living well on so much less. Even with a halved nest egg, we’d still be comfortable.

With such thoughts, I’d like to share with you some suggestions from our contributing writer, Jacques Sprenger, about where to head, in case you’re open to living elsewhere cheaply, for the rest of your life (or at least, a good part of your future). Are you open to new cultural experiences? Willing to immerse yourself in a new environment? Then try this:

Best Places To Retire For Less

If you are retired and have a fixed income, things can get a little difficult in a slumping economy especially if you live in a neighborhood that still requires a lot of money for you to live comfortably. I’m not surprised that many older Americans are looking abroad to stretch their dollars.

1. Stretch the Not So Mighty Dollar in Panama

Mario Vilar says: Many people who are planning to move to Panama, they are ready to do it but they cannot do it or are just waiting to sell their houses. That is the biggest delay, selling their houses. Mario Vilar knows a thing or two about retiring in Panama, which, by the way also uses American dollars as a currency, but offers much cheaper accommodations and excellent benefits. Here I am. I love it too. Wow. Oh man. This place is wonderful. The people, the people make the country, says Carl Haskins, a retired parole officer. Who wouldn’t like to pay $300 a month rent for a fully furnished two-bedroom apartment, as Carl is doing?

2. Why Not Move To Nicaragua?

For the record, Nicaragua is not in the midst of a civil war, and it’s not a communist state. There’s this notion that Nicaragua and its checkered past may not be what we’d consider as an ideal haven for American retirees and yet, if your money comes from the States, you don’t pay any income tax to the local government. A household helper will cost you less than $130 a month; you can bring your own car and sell it after 5 years tax-free. Up to $10,000 of household goods can be brought in without paying tariffs and a doctor trained in the U.S. will charge only $35.00 per consultation. For the more adventurous among you, it may be the place to stay, given that it’s considered one of the safer countries in Central America.

3. There Is Another Switzerland: Costa Rica

Costa Rica, the Switzerland of America, as it is known, is probably the most expensive Latin American country; but it is still far cheaper than the U.S. It offers pristine jungles and enticing beaches. Baby Boomers have found that Costa Rica’s high standard of living offers a lower cost of living, and we can add what is widely known: that Costa Rica loves democracy, doesn’t have an Army and its crime rate is very low compared to neighboring countries. One important caveat: if you like snow, blizzards and freezing cold, Latin America is not for you.

4. There Is Also Mexico

OK, now we come to my favorite country to retire in: Mexico (swine flu notwithstanding). Why? Maybe because I lived there for more than 20 years where I met a few American retirees who lived happily in perfect climate and in very affordable and comfortable homes. Cheap housing takes on a whole new meaning here. Again, if you decide to live here, your lifestyle will determine how much you’ll want to disburse monthly. An annual physical check up by a well-qualified, bilingual, often U.S. educated physician is about US $50 plus tests. Helpers and gardeners work for US $2 per hour or a little more depending upon their length of service with you. I checked out an American colony near Lake Chapala, about half an hour south of Guadalajara where I found the weather to be mild all year round (a few ceiling fans will suffice most days).

If you are convinced you want to stay permanently, a house will not set you back more than $100,000 for a 2,000 square foot residence, or a lot less in this depressed economy if you buy a used home. As buildings are made of masonry, fire insurance is not necessary. And with the peso around 14/1, your dollars will stretch quite nicely.

Want To Learn Spanish?

Habla Ud. Español? Don’t worry about the language. English is used more than you think in foreign countries, and many people abroad do speak and understand English, such as those in the medical, business, law and tourism industries. But what isn’t fun about learning a new language? One thing though — you’ll have to adapt to the eternal mañana. Things are done at a different pace than in the U.S., so arm yourself with a ton of patience and you’ll do fine. And don’t forget to immediately register with the American consulate, just in case.

I’m certainly open to making such a move in my golden years. Are you?

Best Places To Retire For Cheap

YNAB Pro Giveaway Code: fibonacci

With housing at the epicenter of the financial earthquake that has rocked our nation, more and more beleaguered homeowners are growing progressively concerned about their homes. There are long-time homeowners who are now facing foreclosure and who now believe that declaring bankruptcy will save them from losing their homes. If I were in their shoes, I wouldn’t be going down without a fight.

When bankruptcy laws were reviewed in 2005 at the prodding of credit cards companies, it was determined that people who opt for Chapter 13 (in most cases) would be able to restructure all of their debts — except for the house that they live in. As things stand now, judges do not have the power to modify existing mortgage terms. However, there is hope that President Obama will convince Congress (dominated by Democrats) to enact laws to change what many consider an injustice.

How Can I Avoid Foreclosure? Where To Get Help

If you’re having problems keeping up with your home payments, you may be asking the painful question: should I consider foreclosure? Some thoughts I had on this matter:

“RealtyTrac, an online marketplace for foreclosure properties, found that a total of 3.2 million foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 2.3 million American properties during 2008,” according to a piece in the NY Times. That of course doesn’t include the millions of homeowners who are struggling to make their mortgage payment and who just might default this year. Why some banks and financial institutions refuse to negotiate with mortgage holders is beyond me, considering that a lower payment will always be better than having to sell a property at a huge loss.

Given the possibility of help from the Feds (thanks to Obama’s foreclosure bailout plan) it’s imperative for families who have trouble making mortgage payments to try to delay foreclosure as much as possible. Hang on as long as you can and you might eventually squeak by with eventual government assistance. So how can you stave off the threat of foreclosure? One important place to start is by managing one’s debt. It’s best to work out your own debt reduction plan, but if you need any kind of help in this area, here are a few resources to consider (some services here are free and some are not):

Always make a careful assessment before joining any community or subscribing to any service.

How To Keep Your House In Troubled Times

Also, the Department of Housing and Urban Development (HUD) advises the following:

• Weigh your options and don’t ignore the problem. Some owners believe that abandoning the house is the best solution because they have no equity. Depending on your situation, “walking away” may or may not be the way to go.
  
  If you bought a $300,000 house with $1,000 monthly payments and you are now paying $3,000 per month because you signed an ARM (Adjustable Rate Mortgage) contract, and your property is now worth less than $200,000, there is a strong temptation to cut your losses. Unfortunately, going into foreclosure may make sense in this case, since this kind of situation isn’t something the banks are typically sympathetic to. No way the bank will let you go back to paying the original amount.
  
  However, if you signed a fixed interest contract and are facing the possibility of foreclosure due to other factors, then hang on as long as possible. Congress has approved the release of the other $350 billion of the mortgage bailout package, of which $100 billion will be used to help millions of homeowners avoid foreclosure. Cut your costs to the bone, get a second job, get a loan from friends and relatives, do whatever you can and more to continue paying your mortgage. Relief from the federal government should be available before summer so hang in there!
• Contact your lender. There are some banks which will lend a favorable ear to your distress. After all, they’re not exactly in the real estate business; I’d therefore expect the smarter financial institutions to prefer to make deals with responsible homeowners. Keep the communication lines open and make sure you know who your primary lender is, as mortgages have been sold, resold and repackaged to whoever was willing to buy them.
• Evaluate your resources on foreclosure prevention. You may be able to find information about foreclosure prevention (also called loss mitigation) online at the Federal Housing Administration web site. For instance, it shows the program called Hope Now, an alliance among mortgage market participants that offers solutions to struggling homeowners.
• Contact a HUD-approved housing counselor. They will help you organize your finances (free or very low cost), and help you talk to your lender. If your mortgage contract seems written in a foreign language, he or she will help you decipher the conditions so you may negotiate with a better understanding of your rights.
• Set expectations. Not all homeowners may find solace in a housing assistance program. Unfortunately, there may be some situations that may not qualify for assistance, so this is something you’d need to investigate if you’ve decided to go down this path. While I would do whatever it takes to try to escape foreclosure, I’d look at possible solutions with a healthy dose of realism: hope for the best but prepare for the worst!
• Avoid bankruptcy if you can. It may be a tough hill to climb, but people have escaped the clutches of bankruptcy and foreclosure through strategy and sheer will. Check out this piece we published on how to avoid bankruptcy and stay solvent.

Above all, do not despair, no matter how bad the situation looks. Remember that you are living in one of the most prosperous countries in the world, with a government that does its best to help its citizens (some of you may disagree, but it’s really all relative). It could be a lot worse; imagine living in a third world nation where millions of citizens receive no help whatsoever, or in some other areas of the world where millions continue to regret the Communist era. If you live in this country, what you do have is hope — that there will be better times ahead and that things will turn up eventually.

 
Thanks to Jacques Sprenger for his contributions to this post.

How To Avoid Foreclosure: Keep Your House In Troubled Times

YNAB Pro Giveaway Code: fibonacci

The agony and the ecstasy is what CNN has called it. I call it the ultimate zero sum game. Someone wins while another, unfortunately loses. What else is it but this thing called the foreclosure market.

We’ve discussed the pain and aftermath of foreclosure here in the past. But what we hadn’t yet touched upon is the other side of this situation, the case in which families who just a few years ago thought they could never become homeowners in their lifetime, suddenly finding themselves lucking out with keys in hand and a new roof over their heads. It’s unbelievable to see how homes in some parts of the nation (e.g. California) — that were once selling for $500,000 to $600,000 a pop — have now returned to earth, finally selling for a third of their peak prices. Each foreclosed home is a dreadful loss for anyone who bought at the peak but who now has to give up their property, but each is also a heaven-sent bargain for anyone who could only fantasize at one point, of owning their own place.

For those interested in exploring the possibility of buying such homes, here are a few ideas:

How To Buy A Foreclosure: Find Foreclosed Homes Online

1. Understand the types of foreclosures that are available.
There are many kinds of foreclosed property to choose from. Before you enter the market, it’s good to have some understanding of what it is that you are looking for. According to Smart Money, there are different kinds of foreclosures to choose from:

• Preforeclosed properties: you can attempt to buy from the owners before they default to their lenders.
• Auctions: you can try the county courthouse or other auction venues.
• Bank-owned properties, aka Real Estate Owned (REO): these are available through real estate brokers and various sites.
• Government Homes: only HUD-approved brokers can bid on these.

Know what your goals for the foreclosure are: are you looking at this as a new home or as an investment (for rental or resale)?

2. Study the foreclosure market using free and familiar real estate sites.
You can check the listings by perusing the more popular sites that are familiar and free, such as Yahoo! Real Estate and AOL Real Estate. These listings can be arranged by list or photo view. From the detailed descriptions, you can find out how much the owner wants, the number of bedrooms and bathrooms, and details like the square footage of the properties. I like the map feature, which lets me see the neighborhoods.

Starting off at one of these sites will give you some idea of what’s available, along with price ranges. You should also compare the foreclosure prices to other nearby homes to see how much of a deal you might find.

Thanks to the ability to customize your searches by date listed, price range, city, and more, you can quickly figure out what appeals to you!

3. Check real estate services that offer a free trial.
If you need more than what the free sites are offering, you may want to consider looking into other foreclosure sites that offer subscriptions. These offer 7 day trial memberships, but please be aware that they could charge an ongoing subscription fee after the free period is over. Some suggestions:

RealtyTrac: This site is partnered with Yahoo! Real Estate to offer you more listings. For more details about a foreclosure on Yahoo! Real Estate, you’ll be directed to register with RealtyTrac for a free trial. Benefits of membership include tax assessment information, access to online auctions, and more.

Bargain Network: For more details about the listings on AOL Real Estate, you’ll be steered towards a 7-day trial offered at Bargain Network. They can assist you with foreclosure law, provide you information on neighborhood demographics, and assist with financing, among other things.

Foreclosure.com: With this site, you can search for listings by state or zip code, or decide to sign up for email alerts for the types of listings you want. The article center features interesting write ups on topics that steer you through the buying process. In the event you need a real estate broker, you can search for one here. Like RealtyTrac and Bargain Network, it offers a free 7-day trial.

HomeGain: This is another site offering foreclosure listings. Like with the other sites, you can find a realtor, start looking for listings, or check on home values. I noted though, that some of the listings simply led me to their partner site, RealtyTrac.

4. Check the periodicals and home magazines.
Your local papers can be a great source of foreclosure information. In my neck of the woods, we’ve got magazines and supplements on foreclosures that are available at paper stands located at local businesses. You can go online shopping on Craigslist as well: enter “foreclosure” in their search box and see what the site yields you.

5. Pay a visit to your local realtor, bank or credit union.
For local foreclosures, you can always turn to a trusted real estate agent in your neighborhood. If they can’t supply you with direct listings, they may still be able to point you in the right direction and provide you with the resources you need. The same goes for financial institutions in your area. For instance, one credit union I know of sometimes auctions off vehicles, so it might be fruitful to ask if they also handle foreclosed properties.

Along these lines, you could also try your luck with the law. For example, our local County Sheriff’s Office updates its property list on Thursdays and holds open auctions on Tuesdays. For these events, a buyer needs to bring a cashier’s check for 10% of the bid price the next day; the rest is due on completion of the sale, which takes about three weeks.

6. Know how much work you’re willing to do.
As with any property purchase, you’ll need to ask if the bargain is worth the work it might bring. It’s one thing to buy a new house for a song, but if you have to sink ten times its cost into renovations, then it might not be worth it. You’ll need to set aside some money for fees and any unexpected expenses, too.

7. Consider buying from a bank.
I’ve heard a lot about foreclosure auctions, but going this route may be risky. If you buy a foreclosure this way, before the bank has taken it over, they you’re required to buy it without the benefit of inspections. Plus, homes on auction may have liens on them. It’s preferable to buy foreclosed homes through a bank since it’s less of a risk: bank-owned properties have had their inspections plus you may be able to get financing more easily this way.

8. Have a contractor check the property.
A suggestion from the experts: always have a contractor inspect a property before you make the purchase. Let the contractor tell you how much it’ll take to restore a house and turn it into something livable.

9. Be prepared to haggle.
Sharpen your haggling skills! Many foreclosed homes are valued at market so if you’re looking for a better deal, be prepared to negotiate for a better price. Some tips? Check your bank’s foreclosure inventory — you’ll get more leverage on properties that have been sitting around for a while. Also, for areas inundated with foreclosures, start off with at least 20% below market when you make your first offer.

10. Be patient.
While shopping for foreclosures, it’s best to get your ducks in a row so that your buying experience goes smoothly. This is especially the case because despite the apparent supply of foreclosures, there will be many buyers ready and waiting to compete with you to snatch away these deals. So be prepared with your financing, get pre-approval, have your eye on multiple real estate options and be diligent about following up with your bank, agent or lender.

Finding a foreclosed home can take a bit of dogged research, but it’s worked out very well for many homeowners who have been able to find their dream homes.

 
Thanks to Millie Kay G. for her contributions to this piece!

How To Buy A Foreclosure: Find Foreclosed Homes Online

YNAB Pro Giveaway Code: fibonacci

My in-laws just sold their mobile home within 2 days after relocating to live with a daughter. Admittedly it was a small unit, with 2 bedrooms and enough space for an elderly couple. But the point is that in spite of a depressed market, there are customers willing to fork over $20,000 to live in that location in South Texas. The common misconception that only poor people live in trailers does not hold up. I have seen all the comforts of home in gated areas such as the one my in-laws just vacated.

Image by NY Times

Buying A Mobile Home As A Cheap Housing Option

If you’re considering ways to live cheaply, have you thought about buying or living in a mobile home? Here are some thoughts on the subject:

1. It can be cheaper than renting.
Buying a mobile home is an excellent alternative for those unlucky enough to have lost their original homes to foreclosure, or for retired folks who don’t want to splurge a large amount on a regular home. Granted, they’ll have to pay rent for the lot they occupy; my in-laws used to pay around $300 a month including utilities. A small mobile home of recent construction can easily be cooled or heated with portable units. If you can afford to invest between $10,000 and $15,000 in a used mobile home, you will spend much less this way than if you rent an apartment, and you’ll have additional privacy.

2. You may want to consider relocating to a place with a lower cost of living.
Many retirees prefer to relocate to a new neighborhood if they live in the northern part of the U.S.; we call them winter Texans for obvious reasons, but quite a few decide that they like their new location sufficiently enough to make it permanent. They enjoy another bonus available to those who live on the border with Mexico (swine flu notwithstanding!); set aside all talk of a pandemic, which is a temporary matter, and you’ll find that cheap dental and medical care, including medications, are a few minutes away. Check out the big picture: the cost of living in what we call the Rio Grande Valley is much lower than in large cities, so a modest income can go a lot further.

3. Be watchful of the safety standards for mobile homes.
I was surprised to learn that one in every three homes in Florida is a mobile or manufactured home. These homes must be built in accordance with Manufactured Housing Construction and Safety Standards established by the federal government (HUD) in 1976; do not buy a mobile home made before that date as it can be unsafe. The Florida website on Motor Vehicles Safety recommends the following: All single family mobile/manufactured homes must bear a certification label, which is displayed on the rear of the home. A label is required for each section of the home.

4. Determine how your home’s value may appreciate.
While a manufactured home is not for everybody (e.g. a family with 3 children), it can be a recourse in difficult times, whether you decide to rent vs buy a house. Many mobile homes are set on other people’s land, but you could also buy both the lot and the manufactured home. Now you may wonder about your property’s value over a certain period of time. If the mobile home is well maintained, and if the area of the country where you live sees enough traffic, growth and jobs, your property’s value may hold up pretty well. It is nevertheless a bargain to buy a used manufactured home compared to a regular house. So study the options before deciding to buy.

For those looking for some serious bargains in housing, check out this really cheap real estate. Here are some deals on $1,000 homes here and here. No matter how bad the market, location or territory, I just can’t believe that there are actual homes selling for this much!

Cheap Housing Option: Buy A Mobile Home!

YNAB Pro Giveaway Code: fibonacci

This house for trade!

Image from Best House Swap

A while back, we talked about what you can do if your house won’t sell. Well, if you’re running out of ideas, maybe you can try this one: I saw this story on my local news site, and I thought it was pretty cool. Now that the real estate market has slowed down from its once frenzied pace, selling a house has been harder to do. But fear not, there’s another way to relocate these days.

I read that there are now a few services that will help you unload your home in a more unconventional fashion. No, I’m not talking about online auctions (although that’s one way to do it). If you’re thinking of selling your house, and planning to buy a new place to live, well, why don’t you just take care of this whole situation in one fell swoop? I didn’t realize this before, but there are a lot of websites out there that are helping people perform house swaps, allowing homeowners to do direct real estate trades.

And if there are any discrepancies in the prices of homes, homeowners can just work out the differences on their own. I guess this is something people are now more open to trying out, given the longer wait involved in the whole buy and sell process. Plus, it can be one way to take the pain out of “mortgage juggling”.

For websites that help out with home swaps, try out Best House Swap, Go Swap and Online House Trading.

Would you be willing to try out this trading scheme?

Announcements

On that note, I found myself trading tips, this time with Andrea Chalupa of Wallet Pop. Today, I had a grand time participating in Wallet Pop’s online radio show. I was honored that Andrea invited me to a tete-a-tete where we got to discuss the economy and Silicon Valley; we also got to exchange some money saving ideas as well as tips on how to network. It was great fun! I’ve been trying to get used to participating in interviews since I’m a little new to this, but I think I’m slowly getting the hang of it! Here’s where you can hear us.

For this week’s financial tips, check out the news around the financial blogosphere:

Personal Financial Articles

• Loose Change: Beware Sites That Charge You Money Just to Connect A Call
• Lazy Man and Money: My Tenant: “I’ve Lost My Job and I Can’t Pay You…”
• Generation X Finance: Poll: Generation X Feels Unprepared for Long-Term Care Costs. Are You Prepared?
• The Sun’s Financial Diary: IPOs on Deck: Rosetta Stone (RST) and Bridgepoint Education (BPI)
• Brip Blap: How To Have No Debt
• My Dollar Plan: Free GPS from KeyBank
• Money Smart Life: Taxes Are A Necessary Evil In Life
• Million Dollar Journey: Is It Time To Switch To A Fixed Rate Mortgage?
• Frugal Dad: Advantages Of Renting and Borrowing Over Buying
• Consumer Boomer: How You Can Tap Your 401k With No Penalty
• Good Financial Cents: Interview With My CPA
• MoneyNing: A Real Look At Home Equity Abuse In The Nation
• Rich Credit Debt Loan: What You Should Remove From Your Credit Report

Recent Carnivals

• Festival of Frugality: Thanks to the Stretchy Dollar for the great hosting job and for featuring us as an Editor’s pick for our article on mortgage loan rates and tips!
• Carnival of Pecuniary Delights: Thanks to Will Chen of WiseBread for graciously hosting this new carnival first launched by Pecuniarities (awesome name). I’m grateful to have our article on car insurance rates selected as another Editor’s pick this week!
• Carnival of Personal Finance
• Personal Finance Blog Carnival

Trade Your Home Through A Home Swapping Service

YNAB Pro Giveaway Code: fibonacci