Odds Are…

Americans are scrambling to purchase tickets for tonights Powerball drawing as the jackpot surpasses a record breaking $500,000,000.  Chuck Strutt, executive director of Multi-State Lottery Association, predicts there’s a 60 percent chance there will be at least one winner drawn tonight, as the jackpot has rolled over a staggering 16 times without anyone striking it really rich. People are buzzing about what they would do with their winnings. The first step most would take is to pay off their mortgages and their immediate family’s mortgages. But before you go and spend all that money in your head on Madonna’s Upper West Side pad, consider the following: The odds of winning the big prize tonight is 1 in 175,000,000.

You’re more likely to have one, or in some cases more than one, of the following happen to you:

  • Death by vending machine – 1 in 112,000,000
  • Be declared a saint – 1 in 20,000,000
  • Pick a perfect NCAA Bracket – 1 in 13,460,000
  • Birth identical quadruplets – 1 in 13,000,000
  • Become an astronaut – 1 in 12,100,100
  • Be elected president – 1 in 10,000,000
  • Die from a bee sting – 1 in 6,100,000
  • Getting struck by lightning – 1 in 1,000,000
  • Being dealt a royal flush in the first hand – 1 in 649,740
  • Finding a four leaf clover – 1 in 10,000
  • Losing an arm or leg to a chainsaw – 1 in 4,464

In short, odds are that someone will win the lottery, but the odds are it won’t be you. On the bright side, you’re far more likely to wake-up a multi-millionaire than you are to have a meteor land on your house, at 1 in 182,138,880,000,000…roughly.

Three Mortgage Options For Different Stages In Life

buying a home is the quintessential American dream and there are many financing options to consider when doing so.  Your mortgage needs will change as you enter different phases in life and there are many products suited to these stages.

Your First Home

With historically low interest rates, young professionals are well-positioned to purchase their first home.  Borrowing guidelines have tightened up so there are some hurdles to overcome.  Generally speaking, younger borrowers will have a good credit score, but have what is considered “thin credit”, meaning they may not have enough accounts and the successful payment history that underwriters require.  Having at least one (two is better) open credit cards and an auto loan will bolster a first time borrower’s credit worthiness.

Another hurdle young professionals may face is the down payment.  If a buyer is unable to come up with a 20% down payment, then the loan must include private mortgage insurance (PMI) before closing.  If this is a burden, the solution to the problem could be a “gift” from parents or grandparents.  Underwriters will require documentation and explanation of any large deposits and gifts over a certain amount may trigger an IRS “gift tax”, so it’s best to consult current tax code first.

A conventional mortgage with a 5% down payment or a mortgage insured by a government agency are appropriate and popular choices with borrowers at this stage in life.

Middle Age Homeowners

At this stage, there are quite a few more mortgage products available to established home owners.  Those middle age homeowners who are underwater may consider refinancing under a program like HARP 2.0, which has no cap on loan-to-value ratio.  The HARP refinancing program has been successful in lowering payments for borrowers who bought in 2006, 2007 and 2008.  If a borrower has equity in the home they may consider a two-loan package with a home-equity line of credit that can be used for renovations or other purchases like automobiles.  Another option some middle-age borrowers find attractive is the adjustable rate mortgage.  ARMs can be risky, but borrower’s at this age usually have the experience to decide if an ARM is a smart option for them.  If you plan on selling your home before the rate resets then an ARM could be the way to go.

Retirement Age

Interest rates are historically low and no one knows this better than borrowers at or nearing retirement.  For these homeowners, refinancing the remainder of their balance into a very low interest rate 15-year mortgage and placing the savings realized into a retirement is a popular strategy.  Using retirement income, be it social security or a pension, to downsize into a home with less maintenance is also a priority for seniors planning for the future.  Some retirement age borrowers who own their homes outright or have substantial equity may opt for a mortgage or refinance that generates cash they can gift to a child or grandchild to use as a down payment for their first home.

How To Buy A Short Sale Home

Low interest rates have home sales really picking up steam lately, but a depressed economy and underwater mortgages have left many struggling homeowners with little option other than a short sale.  A short sale is the sale of a property in which the proceeds from the sale fall short of the balance owed to the lienholder of the property.  Both banks and property owners may prefer a short sale over a foreclosure because it mitigates additional costs incurred as a result of foreclosure proceedings.

Short sale homes are typically maintained better than a foreclosure because they may not be vacant or have had appliances and fixtures removed from the home. However, there are some costs related to this process, such as insurance that must be pair or repairs due to a lack of regular maintenance that wasn’t kept up by the previous owner.

If you’re pursuing a short sale to get a good deal, be aware that a closing in 30-45 days will be very unlikely. Sometimes this process can take 3-4 months, or even longer.  Do your research. Have your agent check public records to find out whether a foreclosure notice has been filed, this can help you determine how much to offer.  Finding out whether there are one or two loans on the property.  If the first mortgage is for $160,000 and the second is for $40,000, offering $160,000 leaves no room for the two lenders to come to an agreement on who gets what.

Sit down with your agent and write an offer to the seller that is contingent upon the lender’s acceptance. If the seller agrees to your offer, it is then submitted to the original lender.  Give the lender an appropriate timeframe in which to respond (2-3 months), after which, the offer is automatically cancelled.  Reserve the right to conduct a home inspection, but be aware that the lender will not offer to pay for anything that a seller typically pays for.  You are purchasing a property “as is”.

Making a short sale purchase work for you boils down to your bottom line.  You’re buying a property at substantial savings, but it will take longer than a traditional purchase, and that’s only IF the lender is willing to negotiate a short sale.  Happy Home Hunting!