North Phoenix Agent Blog

I’m noticing an uptick in the number of roadside cardboard signs that have something to do with real estate lately. You know the kind - here in Phoenix they’re usually hand-inked, on cardboard or oak tag, stuck in the ground with a stake.

Surely it’s a function of the bad economy, the looming recession, the credit crisis and the housing ‘bubble’.  Whatever, I figured it would make a good blog post or two. Here’s today’s Real Estate Road Sign:

I didn’t call to find out exactly what scam they’re peddling, but rest assured it isn’t as good as it sounds. No one is going to pay off your mortgage out of the goodness of their heart and not expect something for it. Either they’ll refinance you under their own (probably dubious) terms, or they’ll pay off the mortgage and let you stay in it, as a tenant.

There are some instances where it might be beneficial to let someone buy your home from you and then arrange to stay in it as a tenant. But contact a trusted Realtor or mortgage lender to do it. Placing your single largest financial asset into the hands of someone who advertises on roadsides with hand lettered cardboard signs is not in your best interests.

If this is a refinancing “plan” it probably involves people who look and sound a lot like the Sopranos and there are a lot of other, better options for refinancing if you’re facing foreclosure.

If it’s a plan to buy your home and rent it back to you, be very careful. There are a lot of scams out there now that start out this way, and then whack you with huge penalties if your rent is even an hour late. Worse, some of those rent back to owner schemes allow the company you’re dealing with the evict you from your home without notice if you pay late.

If you’re having financial troubles large enough to even think about calling the number on this sign, you’re probably better off contacting someone about a refinance or a short sale.

Related Posts

1. Real Estate Road Signs - Buy A House with $500 Down
2. Hire a Professional Lender, Not Your Buddy Who Does Mortgages Part Time
3. How Your FICO Score Determines Your Mortgage Interest Rate by the XBroker (not light reading but highly worth your time)
4. The AZ Mortgage Guru updates the status of the federal housing assistance bill
5. Try the federal Hope Now campaign designed to help you stay in your home

US News and World Report offers a perspective I’ve been waiting to hear. The average Joe can’t predict whether a bank will fail. The experts can’t predict it! More importantly, the average Joe doesn’t need to predict that. Simply make sure your bank is on the list of FDIC insured institutions, then make sure you’ve got less than $100,000 in that bank (or $250,000 in a retirement account with that bank), and stop worrying.

Related Posts

• FDIC Shuts Down IndyMac Bank
• Bank Run at IndyMac
• IndyMac Goes Down (courtesy of the AZ Mortgage Guru)
• Did Senator Shumer Worsen IndyMac’s Woes? (courtesy of Realtor John Wake’s AZ Real Estate Notebook)

Today it was announced that the FDIC (Federal Deposit Insurance Co) shut down IndyMac Bank after an old-fashioned ‘run on the bank’. IndyMac customers withdrew $1.3B from IndyMac branches since a June 26 letter written by Senator Schumer (D-NY) that said the bank posed “significant risks to taxpayers and borrowers” was leaked to the public.

What Happened to the Money?
There’ll be a name change, and a management change. For insured depositors (most average folk), their money isn’t going anywhere. They’ll still have have access to their money through the new name - IndyMac Federal Bank - and the new managment, courtesy of the FDIC.

From an InmanNews story: Insured depositors and borrowers will automatically become customers of IndyMac Federal, FSB and will continue to have uninterrupted customer service and access to their funds by ATM, debit cards and writing checks.

Uninsured depositors will be contacted by the FDIC to meet with their claims people. The FDIC typically insures bank deposits up to $100,000.

The FDIC has established a toll-free number for customers of IndyMac Federal Bank, FSB. The toll-free number is 1-866-806-5919 and will operate today from 3 p.m. to 9 p.m. (PDT), and then daily from 8 a.m. to 8 p.m. thereafter, except Sunday, July 13, when the hours will be 8 a.m. to 6 p.m.

Or visit the FDIC website: http://www.fdic.gov/bank/individual/failed/IndyMac.html for further information.

This is the 4th in a series about buying metro Phoenix area short sales and lender owned homes.

 Photo credit to I Can Has Cheezburger

Many, many potential buyers in the Phoenix market lately want to look at “short sales”, “foreclosures” or “bank owned homes”. Often they’re not quite sure what these terms mean exactly, but they know the 10 o’clock news (or their brother’s cousin’s baker’s tailor) says short sales are a spanking good deal. 

See here for the differences between REOs, bank owned, short sales, foreclosures and preforeclosures.  Regardless of type, the secret to buying one of these homes is organization combined with an open mind and a lot of patience. 

ORGANIZATION - Getting the Deal Closed
Now you’ve got an accepted offer on the short sale or lender owned home of your dreams, what about closing the deal? Banks usually want you to close within 30 days of their acceptance. Sometimes they take their sweet time sending you the acceptance, thereby eating up some of your 30 days and some of your inspection period.

Get cracking! Are you working with a full time, professional Realtor who’s ‘got people’ and can get a home inspection, roof inspection, A/C inspection and mold inspection done inside of 4 business days if necessary? You’ve got no worries. Working with your sister in law’s cousin who does real estate on the side? Or working without a Realtor? You’ve got a challenge on your hands. Whatever you do, don’t miss the deadline for the end of the inspection period.

Most banks will do no repairs. Even if the pool is green and the front porch is falling off, you’re buying it as is. Over Fourth of July weekend I spoke with a loan processor who told me she had personally done a loan for a Buyer purchasing a short sale from HSBC bank. They’d done a bunch of repairs before the closing, and even did some repairs the Buyer didn’t specifically request. This is exceptionally rare. Inspect it till you drop and expect it to be as-is on closing day.

Most banks also make you sign an addendum that removes most of the Buyer protections in the contract, institutes some additional Seller (bank) protections, and generally tilts the contract heavily in their favor.

If you’re paying cash, you should know that your purchase funds must be immediately available on the closing day. Cashier’s checks are acceptable. Wire transfers in US funds are acceptable. Canadian funds and checks drawn on Canadian banks are not acceptable. We don’t discriminate against Canadians per se, because generally no foreign funds are acceptable.

Be aware that due to the USA Patriot Act and other federal regulations since September 11th, wire transfers take a long time to transit the federal wire system. I’ve seen wires take 8+ hours. Plan on having your wired funds arrive at the title office the day before closing. Expect a wire fee of about $25 to $75. Expect a currency exchange fee of about $15, if you’re using foreign currency. I’ve been told by a very trusted and experienced title officer that she can’t get anyone to tell her who collects that $15 fee and she has never had success at making that fee disappear.

Almost every bank imposes daily late fees if the Buyer holds up the closing. These are usually in the area of $100 per day. Getting a loan to buy the home? Make sure your lender has the loan documents at the title office at least a week or two in advance of the closing date. No sense taking chances and accruing hefty late fees. if you’re out of town when the closing occurs, there will be FedEx shipping transit time to consider, so get loan docs to title early. Also, now is not the time to help your sister’s kid who’s just got in to home mortgages. Send your nephew a gift card and use a mortgage pro.

Buyer Lessons

1. Play by the bank’s rules.
2. Conduct multiple inspections
3. Make sure loan documents arrive early
4. Send wire transfers early

 Related Posts:

• How to Buy Short Sales/Lender Owned Homes, Part 1
• How to Buy Short Sales/Lender Owned Homes, Part 2
• How to Buy Short Sales/Lender Owned Homes, Part 3
• I Got a Notice of Trustee’s Sale. Now What?

Fannie Mae and Freddie Mac stock prices took a serious tumble today, as the market digested fears and rumors that the two mortgage giants are undercapitalized.

 photo credit, Duchessa at stock.xchng

Financial Times reports on Fannie & Freddie’s woes. Fed Chairman Ben Bernanke tried to calm everyone’s nerves by stating he feels that F & F are “well capitalized in a regulatory sense” but they should raise more capital. Which is it Bennie? Are F & F fine, or broke?

Ironically it was a politician who spoke most truthfully about the 2 F’s today. Republican Presidential candidate Senator John McCain spoke on the campaign trail, saying the two companies “are vital… they will not fail… we cannot allow them to fail.”

• Inman News’ take on the story
• Bloomberg Explains How F & F Affect Credit Default Swaps (for financiers only!)
• Senate Majority Leader Harry Reid, “Final Vote Today” on Stalled Housing Rescue Legislation

Related Posts at the NorthPhoenixAgent

Housing Bill Not Yet Signed

I’m noticing an uptick in the number of roadside cardboard signs that have something to do with real estate lately. You know the kind - here in Phoenix they’re usually hand-inked, on cardboard or oak tag, stuck in the ground with a stake.

Surely it’s a function of the bad economy, the looming recession, the credit crisis and the housing ‘bubble’.  Whatever, I figured it would make a good blog post. Here’s today’s Real Estate Road Sign:

Here’s the thing. A ton of people would qualify to buy a home - any home - with $500 down. The amount of the down payment is a function of 2 things - 1) the contract you negotiate with the seller, and 2) what sort of loan program you qualify for.

You don’t need to call somebody who advertises on the roadside to get a $500 down house. In fact, I submit that it’s probably not a good idea to get a home mortgage from somebody who advertises on the roadside with a cardboard sign. To buy a home with $500 down, you just need to speak with a reputable lender, and see if you qualify for a loan program that allows a low down payment.

Veteran? Done. You can buy a house with $500 down - use the VA loan program. eHow tells you how to figure out if you qualify, but I take no responsibility for their sponsored lender links.

First time homebuyer?  Done and done, and then some. You can buy a house with only $500 down - use a standard FHA loan. Or use an AmeriDream loan. Or use Nehemiah Corporation to buy your slice of the American Dream. Go through Maricopa County’s Home In Five program and get your downpaymnet as a gift. Try the Down Payment Guy website, which advertises homes for sale on the regular MLS that are owned by seller who agree up-front to partcipate in a program like these. But note that the DownPaymentGuy steers buyers to their approved stable of lenders, and you can use any lender you choose.

Not a first timer, but still cash-strapped? There are FHA programs you qualify for too. My favorite blogging lender Shailesh Ghimire explains FHA loans.

When you see a road sign like this one, remember 2 things: 1) You can work with any lender you want and still potentially qualify for a $500 Down home purchase.  2) Doing business with a “lender” who advertises on the roadside is probably not a great idea. Buying a “new in plastic, pillow top” mattress off a road sign might be OK. But selecting the single most expensive financial asset you’ll ever own in your life off a road sign is potentially a recipe for disaster.

Related Posts at NorthPhoenixAgent

• How Much Do I Need for a Downpayment
• Earnest Money Defined
• Buyer Beware - Backing Out Can Be Expensive
• Why Your Lender Shouldn’t Be Your Friend
• No Money For a Down Payment?

Related Posts By Other Excellent Bloggers

• FHA Mortgage Insurance Rates Now Higher If Your Credit is Bad (AZ Mortgage Guru)
• How Your FICO Score Determines Your Mortgage Rate (by the XBroker ; not light reading but well worth your time)

You can read and hear the story of the latest Congressional foul up over the housing bill here, on National Public Radio’s show Marketplace or over at Reuters.

• See Bloomberg’s take on the story
• And see the New York Times article yesterday for background on the bill, which has a 3-pronged plan to:

1. Help homeowners facing foreclosure by assisting them with a refinance, or getting banks to write down some loan balances,
2. Offer incentives to first time home buyers who want to buy currently vacant homes (many foreclosure properties sit vacant and risk becoming blight in the community), and
3. Implement some new regulatons on Fannie Mae and Freddie Mac, the government regulated lending behemoths

Apparently, our US Senators have not signed this bill today as originally thought and intended. Instead, they spent the day haggling over whether to add energy tax breaks to the bill. Democratic Senate Majority Leader Harry Reid wanted the bill passed today (and most sources say it would have), but Republican Senator John Ensign wouldn’t let the bill go to a vote without the addition of his pet project, $7 billion in renewable energy tax cuts.

Encouraging the use of renewable energy sources is a laudable, noble goal. But what has it to do with the foreclosure crisis? Nothing. Senator Ensign is trying to tack his tax credit bill onto the foreclosure assistance bill simply because he knows foreclosure assistance will pass, and his tax credits plan likely wouldn’t, unless it is attached to a popular, will-pass measure.

American homeowners are hurting, and badly in many places. I don’t often like to sound like I’m commenting on politics here. It isn’t the place. But this is just truly depressing news. It seems our elected officials still don’t get it. Some of them would still rather wrangle and scrap over pet projects with little chance of success than get behind a much-needed bill that was sure to pass anyway and will help tens of thousands of truly hurting Americans. 

By the time the Senate returns from the Independence Day holiday to deal with this bill again, tens of thousands more Americans will have received a foreclosure notice on their home. The bill will almost certainly pass, even with Ensign’s tack-on tax credits. For shame, Senators. I wonder which of Ensign’s ‘close friends’ and business associates stand to benefit from the $7 billion he’s going to hand out for renewable energy sources?

Related Posts on The North Phoenix Agent Blog

1. Definitions of REO, Foreclosure, Short Sale and Bank Owned
2. Mosquito Eating Fish for Green Pools?
3. Countrywide Offers Assistance to Struggling Homeowners
4. I Got a Notice of Trustee’s Sale. What Now?

My mortgage lender friend Shailesh Ghimire posted a great little article recently that includes a chart showing how much extra you’ll pay for a home mortgage at varying credit scores. Having a FICO score below 620 will cost you about $5,500 extra in lender fees. Yikes! The same is true for car loans, credit cards and other consumer debt.

View the entire article on his website the AZ Mortgage Guru.

Updated - As of July 14, 2008, FHA loans have risk-based pricing on their mortgage insurance. Again, it’s more expensive to get a loan if your credit isn’t so good. Click to read the AZ Mortgage Guru’s explanation of risk-based PMI on FHA loans.

Related Posts from Other Bloggers

• The XBroker Explains (once and for all) How Your Credit Score is Calculated, and How it Impacts How Much Your Loans Cost You

Here’s a brief breakdown that should simplify some of the language being tossed around the real estate world these days.

Pre-Foreclosure - In Arizona, this term doesn’t really have a legal meaning. What it usually means in day-to-day practice is that the home owners are trying to sell because they know they have either stopped (or will soon stop) making the mortgage payment. Often, the home owners also know or suspect that they can’t sell for what they owe on the home, and any resulting sale will be a Short Sale.

Short Sale - In this case, the homeowner has usually stopped paying the mortgage. In addition, the home is worth less than what they owe the lender. If they’re able to (1) find a buyer and (2) get the lender’s blessing on the deal, the lender will accept a portion of the total loan payoff amount. The lender is left short, hence the name. My colleague Chris Butterworth has a great series of blog posts about the Short Sale buying process.

Short Sales are sometimes great bargains for buyers, but know that buying a short sale property can take months. The home comes without any disclosures about condition, and is sold As Is. Buyers can inspect the house but Sellers/Lenders won’t do any repairs. Sellers/Lenders will almost certainly not contribute to the Buyers’ costs. Finally, you have to play a waiting game. Lenders are overwhelmed, they were never set up to operate a real estate brokerage in the first place, and will probably take a month or more to even acknowledge receipt of a Buyer offer. To add insult to injury, if you don’t submit a complete package of documents, you’ll be waiting even longer while the lender requests docs one at a time.

Foreclosure - In Arizona, this has a legal meaning. Here, we don’t sign mortgages; we sign Deeds of Trust. It’s the same idea as a Mortgage, just with an extra party inserted into the process. There’s a borrower (homeowner), a lender and a Trustee. The Deed of Trust works just like a mortgage except in the cases of foreclosure. Get 3 or more months behind on your mortgage payments and the lender will issue a Notice of Trustee’s Sale.  The Notice states that the homeowner has 90 days in which to bring the mortgage payments current or the Trustee will auction the home, often on the court house steps. Trustees are often attorneys and sometimes the auction takes place in their offices. A homeowner facing foreclosure may try to sell the house to pay off their lender. If the sale proceeds won’t entirely pay off the mortgage amount, then it’s going to become a Short Sale.

REO - Also known as Lender Owned. One way or another, the lender now owns the home. Maybe the homeowner just mailed in their keys and disappeared. Maybe the lender was stoopid and didn’t approve a short sale Purchase Contract when presented with one. Maybe the home wasn’t bought at auction. In any case, the lender owns it. They’ve already taken a loss against the original loan balance on the property. REO properties carry all the downsides of Short Sales except that you’re more likely to get an answer within days or weeks on REO properties. However, the bank is unlikely to take much below list price. They’re already taken a big loss and usually these properties are usually listed pretty close to the rock bottom of current market value.

Want More Info? See my friend Chris Butterworth’s site for 2 blog posts about the difference between Short Sales and REO properties. Try Steve Belt for advice about why listing your home for sale if you’re facing foreclosure is a good idea.  Or see my friend Dru Bloomfield’s blog post on Tips for Buying a Short Sale.

Related Posts at NorthPhoenixAgent

1. How to Buy REOs, Foreclosures, and Short Sales

The UK Bank released a statement today that says the worldwide credit crisis is being overstated, and the financial market will gain strength in coming months as investors realize the impact of the subprime mortgage crisis wasn’t as bad as we all thought it was.

I’m no expert on the worldwide financial markets, but being in sales does give you the chance to hone your people watching skills. The UK Bank’s statement seems logical. Pendulums swing, and then swing back, before settling into the new normal.

Overreaction in the residential mortgage market was bound to happen, given the easy lending standards that prevailed over the past couple five or six years. For a while there you could get a mortgage as long as you could fog a mirror. Lenders are waaaay more restrictive these days. That’s not to say you can’t get a mortgage. You can. Just be prepared to provide documentation in the form of tax returns, pay stubs, bank account statements and the like. If your income comes from anything other than W-2 wages, you could have a difficult time getting a home loan right now.

But I think the UK Bank is right, if only because they’re describing a typical human reaction: overreaction, followed by settling down.

From Inman News, I got a eblast news update that gave me a little more insight into why lenders maybe aren’t so eager to modify loan terms for homeowners facing the possibility of foreclosure.

“On mortgages carrying mortgage insurance that go to foreclosure, investors are protected up to the maximum coverage of the policy, which is usually enough to cover all or most of the loss. This discourages modifications. Why do a modification for $15,000 if the $40,000 foreclosure cost is going to be paid by the mortgage insurer?”  So says Jack Guttentag, professor emeritus of finance at The Wharton School at the University of Pennsylvania. (I found Jack’s comments at Inman.com and I think the site requires a free registration to view the article)

Unlike my last post proposing a “fix” for the foreclosure mess, I’ve got no advice or ideas on this one. I assume it’s the investors who bought the loans from the original lender who are getting payouts from the insurance funds. The bulk of today’s foreclosures are loans carrying private mortgage insurance, since many of them were exotic 80/20 and 80/15/5 loans which left homeowners with little or no equity in the property. Since the news is filled with stories of big banks announcing big losses due to their involvement in the mortgage meltdown, I guess it’s just the banks and the homeowners who are paying the price. Investors (apparently) have their losses covered by insurance.

Being a political junkie, I’m fascinated by the various “fixes” offered by The Big 3 to help American homeowners out of the foreclosure mess. Hillary proposed a moratorium on foreclosures. Congress was debating allowing judges to renegotiate loan terms. Obama …. well, I like him lots but I forget what he proposed. And McCain just yesterday offered a plan whereby homeowners could “go to any post office” and fill out a simple form to apply for a new home loan.

Being in the trenches myself, so to speak, I’m not thrilled by any of these plans. Barack, I don’t remember what you proposed to help homeowners but I still like your inspirational change message. Most economists say Presidents don’t impact the national economy one whit, so I’d rather have someone inspiring sitting idle in the Oval. Billary: a moratorium is helpful only if the homeowner can resume making the payments at the end of the term.

John, I respectfully submit that most American facing foreclosure aren’t having trouble applying for a new loan; they’re having trouble getting one. Why? Because they can’t afford the current payments, they frequently owe more on the house than it’s currently worth, and to rub salt in the wound, they’ve dinged up their credit score badly by missing a few mortgage payments they can’t afford.

My Plan To Fix The Foreclosure Problem (and maybe enter the presidential race)

• A moratorium on foreclosures for 6 months
• Sellers must attend counseling and sign an agreement to save their usual mortgage payment for the 6 months of the moratorium
• Congress directs lenders to do the following: (1) write down principal, (2) lower interest rates and use fixed (not adjustable) rates, (3) lengthen loan terms, and (4) use the homeowners’ credit score from before they missed their first mortgage payment to calculate the refinance terms

If done properly, both homeowners and lenders can win. It won’t be easy but it’s going to be awfully difficult to ride this out without doing anything. Under this plan, homeowners will build a little savings account to guard against future emergencies, and come out of it with a future mortgage payment they can afford.  Lenders get to charge & collect more interest over the life of the new, longer loan and write down a heckuva lot less in losses through principal write downs than through out and out foreclosure. (Some of the out of work mortgage lenders could get a new, temporary job as mortgage & credit counselers too, although they make a easy scapegoat in this crisis so that might be a hard sell on Capitol Hill.)

Handy Example - Homeowner owes $250,000 on a home currently worth $215,000 and struggles to make the monthly payment on their post-adjustment-period ARM loan, which began with a teaser rate of 5.125% but is now at 7.25%.

• $250,000 loan at 7.250% for 30 years = $1705 a month, principal & interest
• $225,000 loan at 6.000% for 45 years = $1206 a month, pricinpal & interest

While the homeowners are probably rejoicing at their $500 a month savings, notice that the lender wasn’t forced to write down the entire pricinpal loss. The home is worth only $215,000 but the homeowner refinances $225,000. This should prevent the talking heads from ranting that we rewarded folks who knowingly got in over their heads. Importantly, this should help more Americans facing foreclosure actually stay in their house and keep making mortgage payments they can afford long into the future. Finally, fewer foreclosures equals less downward pressure on home values.

Sure, some homeowners won’t save the money they’d normally spend on mortgage payments. Sure, some lenders won’t write down the principal and/or interest enough to make a difference to the homeowner. Sure, some homeowners will still be so angry and (dare I use the word?) bitter that they’ll still choose to walk away from their abode, stripping it bare on the way out the door. But I think it’s better to try than to do nothing.

I’m sure there are other problems with my plan, holes I didn’t see and issues I didn’t think of. I’d like to know what readers think. I’m a relative guppie in the blogging world compared to some of the big fish who (graciously) read me. Want to leave your 2 cents? Please do! 

 This post inspired by my Dad, the Original Political Junkie. He’s got a steel trap mind for everything that happened in the political arena since about 1954, and he should have been making millions in Washington as a policy wonk or a Senior Advisor on anything. He chose instead to quietly step in to help a formerly single Mom raise her 2 kids. I’d be lost without him.

If you have a HELOC (Home Equity Line of Credit), you should think twice and call your lender before planning to use it. Most major banks have been freezing HELOCs lately, due to the price declines so many local market are experiencing.

From InmanNews.com, this is a partial list of the banks already known to be freezing customers’ HELOCs:

Bank of America - HELOC Freeze
Countrywide - HELOC Freeze
Chase - HELOC Freeze
CitiGroup - HELOC Freeze under review
National City - HELOC Freeze
Suntrust - HELOC Freeze
USAA Federal Savings - HELOC Feeeze
Washington Mutual - HELOC Freeze

Don’t use your HELOC again without seriously looking at the SOLD prices in your neighborhood, and considering whether you have any money left to spend. If you’re really concerned about the current market value of your home, call me (or any qualified Realtor you trust) for a comparative market analysis of your area.

An important point to remember is that most of us do NOT need to be worried about declining prices at all! If you like your home, plan to stay in it for 5 years or more, and can afford the payments, then you can ignore this headline and every other gloomy real estate media story. Love your home and rest assured that home prices will rebound by the time you want to sell.

Related Posts
The Temptation of Your Neighbor’s List Price

Things That Do Not Influence Your Asking Price

Zillow Says Homeowners In Denial

This week’s rate report brought to you, as usual, by Kristi Collins of Coldwell Banker Home Loans. You can reach Kristi at 602-750-8594.

This isn’t to say I don’t use and love other lenders. Shailesh Ghimire, Larry Cappalletti, Joey Fenwick of Indymac Bank (602-863-0067) and Jeannie Bolger of Wells Fargo (602-550-8674)are all lenders I recommend highly.

6.30% - Conforming 30 year fixed
5.40% - Conforming 5/1 ARM
6.75% - Jumbo 30 year fixed
5.80% - Jumbo 5/1 ARM

“CUTS LIKE A KNIFE, BUT IT FEELS SO RIGHT” - Bryan Adams and financial pros will tell you it’s wise to never try and catch a falling knife. Seems like decent advice in general - but in the financial world, it means that when the price of a Stock or Bond is in the midst of a severe decline, be very cautious about stepping in to buy…even if it feels so right because the price starts to look cheap.

That’s because when prices declines sharply, it often gets even worse, making it hard to call the bottom. That’s why many investors, who attempt to buy on the way down, say the feeling cuts like a knife. And over the past week - Bonds have been dropping much like a knife, and home loan rates have risen by about .25% across the board.

Don’t try to time the market or catch the knife of falling home prices. Nobody rings a bell when we get to the bottom! If you’re emotionally ready to be a homeowner, have good credit, and plan to stay 5 years or more, buy now.

Are you a first time home buyer shopping in Arizona? If so, you’d better double time your shopping trip. Starting next month it’s going to get more expensive to buy a home in Arizona.  Why?  The rules for PMI are changing.

PMI is Private Mortgage Insurance. It’s required on any home loan made without at least 20% down payment. It protects the lender against the risk that you, the less-than-20%-down buyer, will default on your loan.  Your monthly mortgage payment is higher, but that increase is way less painful than saving 20% which could take years and years for most of us.

Starting in March 2008, the nation’s 2 biggest PMI issuers are restricting who gets a PMI policy. Industry leader MGIC Investment Corp’s limit is a minimum of 5% cash down; it’s 3% for competitor PMI Group. The change applies in areas the companies consider “restricted markets”.  These markets include the entire states of Arizona, Florida, and Nevada, as well as the metropolitan areas of Washington, D.C., Detroit, Chicago, Boston and Atlanta.

This change will hit first timer buyers hard, since they’re rarely rolling around in spare cash.  Less than 3% to 5% cash down = no PMI policy = no home loan = no new home smell in your future.  What’s a cash-strapped buyer to do?

1. Hurry. If you’re buying to live in it and plan to stay 5+ years, don’t worry about whether home prices will fall a little bit more in the rest of 2008 and 2009. There are 55,000 Valley homes to choose from, Sellers are being exceptionally accommodating, and interest rates remain relatively low. It’s a buyer’s market like we haven’t seen in decades. Bold buyers can make a killing, long-term.
2. Hope that your lender can get you a PMI policy from somebody other than the 2 big boys in the game, MGIC & PMI Group.
3. Use a Down Payment Assistance program like AmeriDream and Nehemiah Corp. But note that these have time limits too. They won’t be around forever.
4. Calculate how long it would take you to save 20% on your expected home purchase. Then evaluate whether buying now and risking a little price deflation in 2008/09 is better or worse than waiting X years till you have 20% down saved. For most buyers, buying sooner makes more sense than waiting & saving.
5. As long as you’re calculating your savings rate in #4 above, be realistic. On paper I can save tens of thousands per year. In reality, my savings account needs a few human growth hormone injections to beef it up. There’s always a movie to see, a new gadget to buy, or a round of drinks to spring for. Most of us don’t save as much as we think.
6. Don’t forget that regular mortgage interest is tax deductible, and so are PMI payments. You’ll have a fat deduction on your federal income tax statement that might offset some of the temporary pain of budgeting to pay a mortgage every month.

 New PMI policies are just another brick in the wall of reasons to buy an Arizona home now if you’ve been fence sitting for a while.