What is a HELOC?

A home equity line of credit (HELOC) is a type of second mortgage that gives the borrower a revolving credit line similar to that of a credit card. Instead of distributing the loan in one lump-sum, the lender allows the borrower to draw from the funds whenever he chooses. HELOC loans are known for offering high limits with low-interest rates. Since HELOCs are technically home loans, many state and federal laws make HELOC interest tax deductible. It is important to note that HELOCs are secured loans that use the borrower’s house as collateral. If the borrower defaults on the loan, the lender may force foreclosure proceedings to recoup its loss. If the foreclosure does not generate the full amount due, the lender may seek a deficiency judgment requiring the borrower to pay back the additional funds. Here’s how the typical HELOC process works:

Step 1 – The borrower applies for the HELOC. In order to qualify for a HELOC, the borrower must have accrued equity in his home (i.e. there must be a difference between the amount the borrower owes on the home and the current value of the property). The bank will also look at the borrower’s credit score, his debt-to-income ratio, and his employment.

Step 2 – The lender awards the loan and sets the HELOC limit. Because the HELOC uses a borrower’s home as collateral, the credit limit is determined by the value of the property. The limit will be set by subtracting the balance the borrower owes on their first mortgage by a percentage of the appraised value of the home (usually about 80%). For example: A borrower purchases a home for $300,000 and now owes $250,000. His home currently appraises at $400,000. If the lender uses a standard 80% guideline, the borrower will receive a credit line of $70,000.

Step 3 – The loan enters the draw period. The “draw period” is a span of 5-10 years during which the borrower can withdraw money whenever he chooses. The borrower will usually be given a checkbook or a special credit card to use for withdrawals. When money is taken out, the borrower will receive a monthly bill and must make a minimum payment (sometimes interest-only). When no money is withdrawn, the borrower will not be charged. Whenever the borrower has withdrawn money, interest accrues. Because most HELOCs have adjustable interest rates, the percentage the borrower is charged for interest will vary from month to month.

Step 4 – The loan enters the repayment period. During the 10-20 year “repayment period” the borrower cannot make any more withdrawals from the line. To determine the monthly bill, the total amount withdrawn is divided by months allotted for the repayment phase. For example: A borrower receives HELOC with a $100,000 credit limit and a 10-year repayment period. By the end of the draw period, he has withdrawn $80,000. That amount will be split between the 120-months in the 10-year repayment period. His monthly payment for the next ten years will be $666.66 plus interest. ($80,000 / 120 months). Although the general process is the same for most HELOCs, individual loan terms vary. Some HELOCS eliminate the repayment period and make a single balloon payment due at the end of the draw period. Some HELOCs use different methods of determining the borrower’s credit line. Before signing application papers, ask your lender for the specific terms of your HELOC.

Durham, NC One of the best places to live

Durham was voted by U.S. News as one of the best places to live in 2009.  Click on the link below to read the article!

http://www.usnews.com/articles/business/real-estate/2009/06/08/best-places-to-live-2009.html

Short Sales

A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold.

In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank’s loss mitigation or workout department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market and the borrower’s financial situation.

A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a short sale is predicated on the most economic way for the bank to recover the amount owed on the property. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing as there are carrying costs that are associated with a foreclosure. A bank will typically determine the amount of equity (or lack of), by determining the probable selling price. For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is typically faster and less expensive than a foreclosure. In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

Short sales are common in standard business transactions in recognition that creditors are not doing debtors a favor but, rather, engaging in a business transaction when extending credit. When it makes no business sense or is economically not feasible to retain an asset, businesses default on their loans (called bonds). It is not uncommon for business bonds to trade on the after-market for a small fraction of their face value in realization of the likelihood of these future defaults.

Jonathan Kane is our Buyer’s Agent and is an expert in Short Sales and Foreclosures.  If you would like more information on Short Sales and Forecloures, please give us a call at 919-883-4800.

$8,000 Tax Credit

The American Recovery and Reinvestment Act of 2009 went into effect on February 17th 2009. First-time homeowners will receive up to an $8,000 tax credit when they purchase a home between January 1 and November 30, 2009. The credit is equal to 10% of the purchase price, capping out at $8,000. Unlike the $7,500 credit that could be claimed in 2008, the new credit doesn’t have to be repaid. It’s important to note that for the purposes of this law, “first-time homebuyer” is defined as someone who hasn’t owned a home in the previous three years. There are also some income and residential restrictions that come with the credit. Married couples have to earn less than $150,000 and singles have to earn less than $75,000. Also, you must live in the residence for three years or you’ll have to pay back the credit. In addition to the $8,000 credit, there are other items that are tax deductible, including: Mortgage interest paid Real estate taxes paid Closing costs Moving expenses American Recovery and Reinvestment Act of 2009 went into effect on February 17th 2009. First-time homeowners will receive up to an $8,000 tax credit when they purchase a home between January 1 and November 30, 2009. The credit is equal to 10% of the purchase price, capping out at $8,000. Unlike the $7,500 credit that could be claimed in 2008, the new credit doesn’t have to be repaid. It’s important to note that for the purposes of this law, “first-time homebuyer” is defined as someone who hasn’t owned a home in the previous three years. There are also some income and residential restrictions that come with the credit. Married couples have to earn less than $150,000 and singles have to earn less than $75,000. Also, you must live in the residence for three years or you’ll have to pay back the credit. In addition to the $8,000 credit, there are other items that are tax deductible, including: Mortgage interest paid, Real estate taxes paid, Closing costs, & Moving expenses.  If you are a first time homebuyer, take advantage of this amazing opportunity.

Moving to North Carolina

The Wall Street Journal (www.wsj.com) had a very interesting article in late December, 2008 about migration between states and the affect that the current recession might be having on it. There has been, as most of us are aware, a long-standing movement of population in this country from the North to Southern and Western states. Using statistics gathered from the latest US Census Bureau for the 12 months ending 7/1/08, the article states that while these long-term migration patterns still exist, the early months of the recession seem to have slowed the movement from colder, more expensive Northeast and Midwest markets for the warmer Western and Southern states. The main reason sighted for this ‘lull’ in the rate of migration between states was that most folks move for jobs, and when the rate of job growth slows, so does movement. Also, many people were unable to sell their existing homes, forcing them to stay put for the time being.

In spite of this, the four states that had the greatest net rate of migration from other states were Utah, Arizona, Texas and North Carolina. South Carolina, Georgia and Tennessee were all in the top 10 in population growth from other states.