Here’s a little math on a 30 year mortgage for a hypothetical home:
$100,000 = Your Mortgage
$536.82 = Your Monthly Payment at 5% interest

Or you bought it for $10,000 less but at a 1% higher interest rate:
$90,000 = Your Mortgage
$539.59 = Your Monthly Payment at 6% interest

SEE!!!  IT’S EXACTLY THE SAME, (actually it’s $3 more) except…

You pay $11,000 more in interest over the life of the smaller loan!

This is crazy. But buying a home for $10,000 less will cost you more if you wait until interest rates go up, which will probably happen in March — certainly by April!

FACTS
The government will stop buying mortgage backed securities in March, interest rates will rise rapidly.

Barry Habib CEO of Mortgage Market Guide, states “Rates will rise to 6.5% by year end.”

Morgan Stanley’s chief economist, David Greenlaw says, “The surge will push mortgage rates to 7.5% to 8%.”

Experts are all saying rates will rise to between 6% and 8% by the end of the year.

With the first time home buyer tax credit of $8,000 (or $6,500 for existing home owners) still in effect and the current historic low interest rates, let me ask you this:

Given the tax credit will expire soon…
If you wait, you’ll soon pay more each month for your mortgage…

“Why on earth wouldn’t you buy a home now?”

If you’d like to read more about this, click:
http://kcmblog.com/2010/01/14/how-interest-rates-affect-your-mortgage-payment/

Seriously, interest rates will go up, the tax credit will go away. The time to act is now.

The first question is what is it worth to you, as a home, a comfortable place to live, relax, have a family (or not), entertain, and take pride in. This is the value of your home to you. If you can afford the mortgage, and you love the house, then it doesn’t matter if the price goes up or down. It’s your home…it’s priceless.

The second question is what is the market price? Whether you’re looking to buy, or you own a home and are wondering what it’s worth now, here are several ways to determine the price.

1. My “super quick shoot from the hip” method.
Double the assessed value, then take off 30%. It used to be you’d double the assessed value (or SEV, same thing) and that was pretty close to the market value. If your assessed value was $50,000, your house was worth about $100,000. Today, take off 30% from that number and it’s worth about $70,000.

(In Kent County, go to www.accesskent.com, enter your address and you’ll find your assessed value).

Does this always hold true? Of course not. A house might well be worth more than twice the assessed value. Another house might be worth double the assessed value minus 60%. A house that should be worth $100,000 could now be worth about $40,000. But, exceptions often prove the rule.

On average, “double the assessed value minus 30% will get you pretty close, pretty often. For proof, here’s a comparison:
Average Sale Price for January:
2010    $102,224 (599 properties sold)
2007    $150,338 (749 properties sold)
I’ll do the math for you…it’s down 32% across the board.

So how do you know for sure what a home is worth?

It’s important to remember that the 2007 number, $150,338 was the peak and, for various reasons, it was artificially high. The 2010 average of $102,224 is artificially low due to the large number of foreclosures and short sales being sold, which accounted for 60% of all homes sold this January.

The sales of so many distressed properties is the direct result of chronic unemployment (and 36 other factors, that I’ll write about on this blog site someday). And it’s not just Michigan. Arizona, Nevada, Florida and California have had it worse than us! If there was ever a time to buy something in Florida…this is it!

So you’re thinking of buying or selling and you’re not so sure about my “super quick shoot from the hip” method.  (I admit, it isn’t very scientific, but it’s interesting how often it’s right).

These are other ways you can determine the market value of a home. They are, in my opinion, listed in ascending order of accuracy.

2. The Internet
You could go online to one of those national websites. I’ve tried them, sometimes they’re pretty close, often they’re way off. I trust my “super quick shoot from the hip” method more than these websites.

3. Appraisal
You can hire an appraiser who will do an extensive study of you home and give you a written appraisal based on a number of factors, including what other comparable homes near yours have sold for in the recent past. Most appraisers charge between $250 and $500 for their service.

4. A Competitive Market Market Analysis (CMA)
A competent real estate agent can perform a CMA which is similar to an appraisal, taking into account factors such as recent comparable sales, the size, age and features of the home, condition and more. Your agent will do this free of charge. (I’d be happy to do a CMA for you).

Why do I rate competent real estate agents as being more accurate than appraisers? Because we sell homes, we go into homes that are for sale everyday, we know what specifics our buyers are looking for and what they’re willing to offer today. Not six months ago, not last month or last week.

Another benefit of working with a buyer’s agent is they’ll know whether a home is a foreclosure, a short sale, how long the home has been on the market and other subtleties to give you an advantage.

If you’re selling a home, a knowledgeable agent will help you with effective pricing strategy, or effective bidding strategy if you’re buying.

A competent listing agent will know how to present your home in the best light, make marketing suggestions and most important, they’ll recommend a compelling price that will bring the most buyers to your door.

5. The final verdict
The market price of a house is, in the end, what someone is willing to pay for it and, if you’re a seller, what you’re willing to take for it on any given day. There is no more accurate method of determining the market value of a home than a purchase agreement signed by a buyer and a seller.

In West Michigan, 37% of all home mortgages are “under water” meaning the owners owe more than the home is worth. Add to this the number of homes that have very little equity remaining and the number of foreclosures that have already taken place and we’re talking about nearly one of every two homes West Michigan. It’s quite a mess.

This impacts the value of most property, but it really affects two groups the hardest: owners who can no longer afford their homes and owners who want to move, but can’t sell there homes for what they owe.

One answer for both groups is a “short sale.” Put simply, it’s selling your home for less than is owed to the bank. Let’s say you bought a home for $150,000, you owe $130,000, but in today’s market it’s only worth $110,000…you’re $20,000 “short.”

If owners can no longer afford their home, because of a hardship like loss of a job, or illness, they can short sale the home, often with the balance forgiven by the lender.

If they can’t prove a hardship (“my dog ate my checkbook” doesn’t count) they may still be able to sell the home on short sale, if they agree to make up the balance over time and the lender agrees.

Today, 14% of all homes listed for sale in the Grand Rapids metro area are short sales, (foreclosures and short sale combined are 23% of the total listings). That combined number may be nearly 40% by the end of the year.

It used to be very difficult to get lenders to agree to short sales, but things have changed. After learning how expensive it is to foreclose on you, they would rather you just sell it and take a smaller loss up front than go through the lengthy, expensive legal process of foreclosure. Lenders have learned from dealing with the tsunami of foreclosures they’ve faced (and in many cases, caused themselves) over the past three years, with even more on the horizon.

On average, a foreclosure drops a credit score about 200 points. A short sale impacts a credit score about 100 points, or less. Perhaps not at all if you agree to a work out loan or get the bank to agree to report the loan as “paid as agreed,” as part of the negotiation.

A foreclosure pretty much guarantees a home owner won’t be able to buy again for at least five years and likely seven years. With a short sale, the home owner will usually be able to buy again in 12 months to two years, not to mention they avoid the embarrassments that go with foreclosure.

It’s nearly impossible to do a short sale yourself. There are a lot of documents and steps that need to be taken in the right order…it gets complicated. You need to work with a competent Realtor who is familiar with the short sale process.

I work with a very successful short sale specialist team. They focus on making sure the documents are prepared and submitted properly and negotiating with the lenders. It’s tough work, but they do a great job.

A short sale is a good solution to many bad situations, but it is only solution. There are actually ten different options to dealing with an unaffordable or underwater mortgage. To learn about these options, read my post: http://fastteam.wordpress.com/2009/04/23/alternatives-to-foreclosure-in-grand-rapids/

Authorizing the credit for long-time homeowners buying a replacement principal residence. For the first time, long-time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filing separately). They must have lived in the same principal residence for any five-consecutive-year period during the eight-year period that ended on the date the replacement home is purchased. One key point is that the replacement home must be a principal residence—vacation homes aren’t eligible.
Raising the income limitations for homeowners claiming the credit. People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. The pre-2009 Assistance Act MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before November 6, 2009.

Providing additional homebuyer liberalizations for service members.

The 2009 Assistance Act ensures that recapture of the credit will not apply to service members (including members of the U.S. uniformed services, Foreign Service, and intelligence community) who dispose of a principal residence or cease using a home as a principal residence after December 1, 2008, in connection with Government orders received by the individual or the individual’s spouse for qualified official extended duty service. Additionally, in the case of service members serving outside the United States for at least 90 days during the period beginning after December 31, 2008, and ending before May 1, 2010, the credit is extended for one year. This means that the purchase must occur before May 1, 2011 (or July 1, 2011, for taxpayers with binding contracts). This change will allow service members stationed overseas to take advantage of the credit when they return.

However, the 2009 Assistance Act also adds new restrictions on the first-time home-buyer tax credit by:
Imposing an $800,000 purchase-price limitation. For purchases after November 6, 2009, the credit cannot be claimed for buying a residence for more than $800,000. There is no phaseout mechanism. A purchase price that exceeds the $800,000 threshold by even a single dollar will cause the loss of the entire credit.
Requiring a minimum age of 18 to claim the credit.
Prohibiting dependents from claiming the credit.
Denying the credit for purchases from parties related to the taxpayer’s spouse.
Requiring taxpayers to attach a signed copy of their settlement statement to their return.
Giving IRS the authority to automatically assess tax and begin collection proceedings in cases where they suspect fraud (thus shortening the time it takes for IRS to collect additional tax through the normal deficiency procedures). This IRS authority (called “math error authority”) is retroactive to April 9, 2008, thus giving IRS the ability to quickly address any erroneous refund claims that have been previously filed.
Exclusion from Gross Income of Qualified Military Base Realignment and Closure Fringe
The Homeowner’s Assistance Program (HAP) has long provided payments to certain Defense Department employees and members of the Armed Forces to offset the adverse effects on housing values that result from a military base realignment or closure. These payments are excluded from the recipient’s gross income and are not considered wages for FICA tax purposes (including Medicare). The stimulus legislation enacted earlier this year (i.e., the American Recovery and Reinvestment Act of 2009 (ARRA)) expanded HAP to cover, among other things, individuals whose property values were affected by the current real estate slowdown, including wounded Armed Forces members and civilian Department of Defense and Coast Guard employees, and Armed Forces members permanently reassigned from an area at or near a military installation. The new law expands the exclusion from income to cover HAP payments authorized under ARRA, effective for payments made after Feb. 17, 2009 (ARRA’s enactment date).

How much credit do I get if I buy a home?
First-time buyers get 10% of the purchase price, so if you buy a $70,000 home you get $7,000. If your purchase price is $80,000 or higher you get $8,000.

What about existing home owners?
You’ll get $6,500 from the U.S. Government. You must have lived at your current home for the past five years. The credit gradually phases out if for singles making over $125,000 and couples making over $225,000.

When does this tax credit end?
You have to purchase a home by April 30th and close on the home by June 30th.

How do I actually get the Tax Credit?
You can either amend last year’s tax return (for 2008) or file it with your 2009 tax return. Your tax preparer will help you with this. For do-it-yourself types, the forms are available on www.irs.gov.

Do I get the credit all at once or a little each year?
You get a check mailed to you directly from the IRS for the entire amount this year!

Do I have to pay it back?
No. It’s yours to keep!

What’s the catch?
The only caveat is, you have to live in the home you buy for three years.

Are there any limitations?
The home must become your principle residence. The credit doesn’t apply to vacation or income property.

Any other questions? Give me a call, send me an email or leave a comment.

Thanks,

Douglas Fast

616 293-9101

Actually, you get 10% of the purchase price of the home, up to $8,000 anywhere in the Grand Rapids area . So, if you buy a home for $70,000, you’d receive 10%, or $7,000.

The tax credit is for either first-time home buyers, or buyers who have not owned a home within the past three years. The offer is good until December 1st of this year.

This is truly amazing. The government is giving you, your down payment! Talk about your rich Uncle Sam! Read the full story from the National Association of Realtors® by clicking here. 

— Douglas Fast

Here’s proof the real estate market in Grand Rapids is definitely undervalued.

Last week, I put in an offer for a client on a foreclosed, Kentwood house that was listed at $54,000. We offered $57,000.

IT WENT FOR $65,000! The winning offer was over 20 percent higher than the asking price!

As a matter of fact, of the last 12 offers I’ve put in on foreclosures, we’ve gotten out-bid on 10. That’s just two offers accepted, we lost the other ten to buyers who wanted the houses more. 

I spoke with real estate broker, Jason VanAssen in Grandville, who said I was the fourth agent he’d heard of this happening to in one week. He said out of 33 offers, they’d had just three accepted. This is not so good for agents, but it’s GREAT for the real estate market.

What’s happening is buyers that have been out-bid aren’t waiting to offer or putting in low offers. They’re going for it. The bottom of the market has been reached.

There was a piece in Sunday’s (May 3rd) Grand Rapids Press that featured investors buying up as many properties as they can. One company is trying for 30 to 40 houses per month in Grand Rapids. Another company is buying as many homes in the Fulton Heights area as they can.

I spoke with Cathy Hoppough, a leading foreclosure listing broker who carries an average of 325 listings. She says right now the average accepted offer is coming in at “five to ten percent” over the asking price. If you’re interested in a foreclosed home listed in Wyoming for $80,000, you’d better be ready to offer $88,000 for it. Don’t worry though, this same home sold three years ago in the $130,000 to $140,000 range. 

Investors are buying homes in West Michigan for as low as $10,000, renovating them and either renting or selling them. The up side is families are moving into fully-rehabed homes that were formerly blighted, abandoned or distressed houses.

Private home buyers are getting great deals too. I just sold a home that is less than 10 years old in Kentwood for $98,000. It only needs some carpet and paint. The home sold three years ago for $138,000. Do you think these buyers are happy campers? 

Not all agents are well trained in foreclosures and short sales. If you’re looking for a home, be sure to find an experienced Realtor that’s a “Buyer Agent.” There’s a lot of extra stuff to do when buying a foreclosure or short sale in Grand Rapids. Plus, a good agent can show you what a home is actually worth once it’s renovated.

I need to stop writing now because I have eight new offers to write. Hopefully, I’ll get one or two accepted today.

—Douglas Fast (616) 293-9101

We sell homes, mutli-families, lots, acreage and commercial property in the Greater Grand Rapids area including the counties of Kent, Ottawa, Allegan, Muskegon, Barry, Ionia and Montcalm. We sell homes in Ada, Alaska, Allendale, Belding, Belmont, Byron Center, Caledonia, Cannonsburg, Cascade, Cedar Springs, Cutlerville, Dutton, East Grand Rapids, Foroest Hills, Grandville, Hastings, Ionia, Jenison, Kentwood, Lowell, Middleville, Rockford, Standale, Walker, Wayland, Wyoming and all of West Michigan.

Member in good standing with: Grand Rapids Association of Realtors®, Michigan Association of Realtors®, National Association of Realtors®

I originally wanted to call this post, “Why this is the Best Time in the History of the Known Universe and All That Surrounds It to Buy Real Estate,” but I thought it was a little too long…

There were more millionaires created during the Great Depression than at any other time in history. The vast majority of these millionaires did so by buying real estate when prices were at historic lows. Right here in West Michigan, fortunes were made in real estate. The opulent architecture of homes on Heritage Hill in Grand Rapids is testimony to the riches acquired through purchasing real estate in the early days of Western Michigan development.

Two men, Lucious Lyon and Louis Campau, (who didn’t like each other at all) both purchased 40 acres of land adjacent to one another, along the Grand River in the 1830′s. Together, those 80 acres became the heart of downtown Grand Rapids. John Ball, of John Ball Park fame, was sent to West Michigan by his employers for the sole purpose of buying up real estate. Among his purchases was property that later became the Grandville and Jenison areas.

Okay, I’ve bored you enough with history, so here’s why this is the “Best Time in the History of the Known Universe and All That Surrounds It to Buy Real Estate,” especially in West Michigan.

1. The prices of homes are at all-time, historic lows.

2. Interest rates are at all-time historic lows.

3. The Federal Government will pay you up to $8,000 to buy a home by December 1st, of 2009.

Here’s a look at what this means to you. Let’s say there was a home in Ada that sold in 2006 for $160,000. The owners lost their jobs and the house was foreclosed on at the end of 2008. Depending on how badly the bank wants that home off the books, it could be purchased today for $120,000 to as low as $80,000. Let’s take the $80,000 figure.

Now, in 2004 the owners may have gotten a loan for 7.5%. Their monthly mortgage payment would have been $1,118.74. But today, you could get a loan for about 4.5%. Assuming you made a down payment of $2,500, your monthly mortgage payment would be just $392.68.

Add to this, the U.S. Government will pay you $8,000 (10% of the purchase price). That means you actually only paid a net of $72,000 (especially if you pay that $8,000 right to the mortgage principle and shorten the length of your mortgage by about seven years).

And the interest savings? Had the former owners held onto the home for 30 years, they’d have paid a total of$242,746 in interest. Your 30-year mortgage interest would be just $63,865. That’s $178,881 less in interest payments over the life of the loan. Their average interest would have been $674 per month and yours is just $177 per month, unless you put the $8,000 toward the loan, which would make your average interest payment just $159.

So let’s add up the numbers for this hypothetical, Ada home.

Former Owners

$160,000 Purchase Price

$242,746 Interest over 30 years

$402,746 Total principle and interest.

You, the New Owner

$80,000 Purchase Price

$57,240 Interest over 30 years

($8,000) Federal Gov. Credit

$129,240 Total principle and interest.

The difference: $273,506…WOW!

Put another way, you could buy this same house three times over for the same cost as the former owners. And friends, that’s about 33% of the cost of that same house three years ago. ONE-THIRD THE COST! That didn’t even happen during the Great Depression!

Does it make sense now that this is the “Best Time in the History of the Known Universe and All That Surrounds It to Buy Real Estate?”

“But wait,” you say, “You can’t really expect to buy a house that far below the market value.”

Oh, really? Let me give you a few examples.

• I sold a house in Kentwood for $20,833. The neighborhood comparables sold for $130,000. Yes, it needed quite a lot of work but “so what?”

• I sold a house in Grand Rapids for $10,000 and there was nothing wrong with it. The last time it sold, it went for $69,000.

• I sold a $1.5 million house in northern Michigan for $800,000.

• I even sold a home in stately, East Grand Rapids for $600,000 that was appraised for over $900,000 by two different appraisers. (Actually, I sold this house three times in a month, but that’s a different story).

The point is, these deals are happening all the time. Investors are snapping up houses as fast as they can, (and they don’t even get the $8,000 tax credit). 

If I haven’t convinced you that this is the “Best Time in the History of the Known Universe and All That Surrounds It to Buy Real Estate,” then I don’t know what else to say other than “What on Earth are you waiting for?”

Okay, the only reason I can think of is you’re not sure prices have hit bottom. For more information on this see my post, “Have we hit bottom yet?”

Feel free to contact me directly anytime with questions, or if you’re interested in buying or selling real estate.

 —Douglas Fast (616) 293-9101

We sell homes, mutli-families, lots, acreage and commercial property in the Greater Grand Rapids area including the counties of Kent, Ottawa, Allegan, Muskegon, Barry, Ionia and Montcalm. We sell homes in Ada, Alaska, Allendale, Belding, Belmont, Byron Center, Caledonia, Cannonsburg, Cascade, Cedar Springs, Cutlerville, Dutton, East Grand Rapids, Foroest Hills, Grandville, Hastings, Ionia, Jenison, Kentwood, Lowell, Middleville, Rockford, Standale, Walker, Wayland, Wyoming and all of West Michigan.

Member in good standing with: Grand Rapids Association of Realtors®, Michigan Association of Realtors®, National Association of Realtors®

The following information is not legal advice. It is, however, some common sense advice from a real estate agent who has dealt with a lot foreclosures and short sales. 

So you’re late on you mortgage payments, or you know you’re going to be soon. Perhaps you already received notice that you’re behind and the bank will foreclose on you and throw you out of your house if you don’t pay up. Fortunately, there are several alternatives to foreclosure in West Michigan. Here is a brief description of all the current options.

1. Do Nothing: This will ensure that you will lose your home to foreclosure and ruin your credit for several years. However, if you’ve decided to go work in a T-shirt shop in Key West and live on the beach under a palm tree, this might work for you. But if you’d like to keep your credit intact, (or not too damaged), or if you’d like to keep your home or someday buy another home, doing nothing is a very, very bad course of action.

2. Retire The Loan: This means you’ll have to pay off the entire debt. You probably can’t do this alone. However, if you have a relative or friend willing to buy the home and sell it back to you, that could work. Don’t count this idea out too quickly. It has worked for many people. There are investors who will, in some cases, buy your home and give you an option to buy it back.

3. Refinance The Loan: The Federal Government is now encouraging lenders to restructure or refinance loans. We’ll see how this all pans out. Even if you’ve been told in the past you didn’t qualify to restructure or refinance, the rules have changed enough to where you can keep asking the lender for this consideration. They may, they may not, but it doesn’t hurt to keep asking.

4. Reinstate The Loan: The lender may agree to reinstate your loan if you make up all your late payments, pay fines, taxes and fees. Again, the rules have changed so it doesn’t hurt to keep asking. But remember, if you can catch up and the bank agrees, you’ll have to keep paying. If you can’t, there’s not much point to this.

5. Get A Loan Forbearance: This is a temporary reduction or suspension of monthly payments. Once you’ve gotten on your feet, the loan will be reinstated back to its original terms. You’ll have to prove you can resume your regular payments. If you know things are going to go better in awhile, this could work. Again, you’ll need to keep asking the lender for this.

6. Modify Your Loan: This is what the Federal Government is pushing for now. The lender may change the monthly payments, interest, and/or length of the loan, to make the payment affordable for you. If you want to keep your house and you know you’ll be able to handle the new loan, this may be what you want to shoot for.

7. FHA Partial Claim: Under certain circumstances, the FHA will pay up to a year of delinquent payments. You’ll have to be four months behind on your FHA loan before you can ask for this. It is not used often, but it does exist. However, being four months behind puts you dangerously close to losing the home to foreclosure.

8. Deed-In-Lieu of Foreclosure: Simply put, this is where you give the house back to the bank “in lieu of” foreclosure. Many banks don’t want the property back because they don’t want to “own” your house. And, a Deed-In-Lieu can be just about as bad for your credit as a foreclosure…if a bank reports it that way. On the other hand, if you can negotiate with the bank to report it as a short sale, promise to leave the home in good repair and move out quickly,  some banks will see the value of speeding up the process, especially if they have investors ready to buy the property.

I’ve done this with several homes in the Grand Rapids area. Think of it as a super-quick short sale.

9. File Bankruptcy: In some cases this is a home-owner’s only reasonable option. It should be considered as a last resort, sometimes you’re allowed to keep your home, but it isn’t easy and the impact on your credit is devastating for several years. Of course, if you’re planning on living under the palm trees…

You absolutely need to speak with an attorney before considering this.

10. Sell Your Home: You have the right to sell your home at any time before foreclosure, after foreclosure and during the six-month redemption period. Of course, you’ll need to get started quickly on this. If you can’t sell it for the amount owed, it’s called a “short sale” and you’ll need your bank’s approval to sell it for less than the balance of your mortgage. This is the most often used method of avoiding foreclosure in today’s chaotic housing market. To learn more on short sales, read my posts, “Short Sales in Grand Rapids” and “How to do a Short Sale.”

Obviously there is a lot to consider when facing a possible foreclosure. Please feel free to contact me directly anytime with questions, or if you’re interested in buying or selling real estate.

—Douglas Fast (616) 293-9101

We sell homes, mutli-families, lots, acreage and commercial property in the Greater Grand Rapids area including the counties of Kent, Ottawa, Allegan, Muskegon, Barry, Ionia and Montcalm. We sell homes in Ada, Alaska, Allendale, Belding, Belmont, Byron Center, Caledonia, Cannonsburg, Cascade, Cedar Springs, Cutlerville, Dutton, East Grand Rapids, Foroest Hills, Grandville, Hastings, Ionia, Jenison, Kentwood, Lowell, Middleville, Rockford, Standale, Walker, Wayland, Wyoming and all of West Michigan.

Member in good standing with: Grand Rapids Association of Realtors®, Michigan Association of Realtors®, National Association of Realtors®

There are several reasons for the record numbers of foreclosures and short sales in Kent County, in Michigan and around the country. 

1. Loss of income: Record unemployment is hammering Michigan including all the counties of West Michigan. The official unemployment rate is just over 10 percent. However, this number doesn’t include those who have exhausted their unemployment benefits, were self-employed, lost family-owned businesses, or those who settle for jobs (“under-employment”) paying far less than their previous job. When you add in all these people, the jobless/under-employment rate hovers around 20 percent. That’s a lot of people who, through no fault of their own, can’t pay their bills.

We are currently averaging over 3,000 mortgages going into default each month in Kent County alone.

2. Bad loans: A lot of terrible, adjustable-rate loans were written over the past several years by unscrupulous lenders. These loans started out with low rates and then jumped up unbelievably. I had one home seller in Grand Rapids who’s payment had gone from $650 a month to $1,200. I had another in Lowell who’s rate jumped from $800 to $1,300. CRAZY! Worst of all, these loans were legal at the time.

I sold a multi-family home on Heritage Hill in Grand Rapids for $325,000. The Buyers had a $270,000 mortgage. Less than two years later they fell on hard times and I found a new Buyer willing to pay $250,000. The bank (based in Florida) refused. The reason: with late fees, “accelerated interest” and early pay-off fees the bank said the Sellers owed $385,000! Of course my clients let it go to foreclosure. The bank wouldn’t accept a good offer and no one was going to pay $385,000 for the home.

The last I saw this place it was vacant, a total wreck, and listed for $140,000. In the shape it was in, I wouldn’t have given more than $40,000 for it. 

3. Uninformed buyers: I’ve heard this group blamed quite often. Certainly they have their part in this mess. However, it’s my experience that when most people encounter “authorities” or “experts” or “professionals,” they tend to listen to them. If a “mortgage specialist” said you qualified for a $250,000 mortgage for your Cascade home, you be likely to believe him. You might also feel quite flattered. I had this happen personally. Some years ago we were told we qualified for a $300,000 mortgage. Thank God we went with half that amount. 

No, it’s not just poor, uneducated people this has happened to. I know professionals including doctors, accountants, teachers and even lawyers who were sucked into this craziness. I’ve seen foreclosures and short sales on million-dollar homes. I sold one home appraised at $1.5 million for just $800,000. Yes, that is still a lot of money, but it was $700,000 less than it should have sold for.

4. Decreasing home values: This is the true icing on the cake. Let’s say you bought a beautiful new home in Jenison five years ago for $250,000. And let’s assume you didn’t listen to the mortgage guy tell you to go “zero down” but instead you put down 10 percent; $25,000. You had a mortgage for $225,000 and everything was good.

But now, because of less money coming in, unforeseen expenses, an adjustable rate mortgage going up, or some other reason, you have to refinance. Here’s the rub. Your house isn’t worth $250,000 anymore. Instead of going up, the value has dropped and it’s now worth $190,000 (this is very realistic), and you still owe about $220,000. So, unless you bring in a check for the difference of $30,000, the bank won’t refinance your loan. Nor will any other bank, because you’re “upside down.”

So, you don’t have the extra $30,000 laying around, you can’t get refinanced, you can only get $190,000 if you sell the house. What do you do? This is the situation that thousands of home-owners in West Michigan find themselves in. It’s not hopeless, but it certainly is stressful for the thousands of folks in West Michigan that are going through this experience.

These are the four main factors, loss of income, bad loans (and lenders), uninformed buyers and decreasing home values that have created a perfect storm of financial misery for thousands in the West Michigan housing market. There are solutions and indeed, many opportunities to be found in the chaos. To find out more, see my posts, “Alternatives to Foreclosure” and “Why this is the Best Time in History to Buy Real Estate.”

Please, feel free to contact me directly anytime with questions, or if you’re interested in buying or selling real estate.

—Douglas Fast (616) 293-9101

We sell homes, mutli-families, lots, acreage and commercial property in the Greater Grand Rapids area including the counties of Kent, Ottawa, Allegan, Muskegon, Barry, Ionia and Montcalm. We sell homes in Ada, Alaska, Allendale, Belding, Belmont, Byron Center, Caledonia, Cannonsburg, Cascade, Cedar Springs, Cutlerville, Dutton, East Grand Rapids, Foroest Hills, Grandville, Hastings, Ionia, Jenison, Kentwood, Lowell, Middleville, Rockford, Standale, Walker, Wayland, Wyoming and all of West Michigan.

Member in good standing with: Grand Rapids Association of Realtors®, Michigan Association of Realtors®, National Association of Realtors®