Steven Kruschke

By Dian Hymer

Several years ago, a home listed for sale developed a stigma if it didn't sell within a month or two. Today, many sellers have homes listed that have been on the market for six months or longer. In fact, it's so commonplace for it to take a significant time to sell a house that it is no longer a disgrace if a listing doesn't sell right away.

It's an irony of the current market that with all the homes offered for sale, many serious buyers can't find a home to buy. There are often certain types of homes, in certain areas, that just aren't on the market. These are usually prime properties in excellent condition that have broad-based appeal. When these listings come on the market, they are usually snapped up quickly, despite the otherwise slow housing market.

Many buyers are sitting on the fence at this point, watching the market and waiting for a better time to buy. It's impossible to time the housing market, so you won't know precisely when the market will next correct until that correction has already occurred. A market correction can be verified only through hindsight.

Although most buyers feel more comfortable buying in a hot market -- even though it may mean paying more -- there are some buyers who see a slow market as a good buying opportunity. If you are one of these buyers and you're having difficulty finding a home to buy, consider the following options.

HOUSE HUNTING TIP: Get to know the inventory of homes available in your target area. Some of these listings will never work for you, either because they aren't large enough or because they have defects you might not be able to live with, like a lot of stairs to the front door. You can drop these listings from your radar.

Find an agent who specializes locally and who will keep you well informed on local market conditions. Ask your agent to sign you up for a listing alert program that will send you information directly from the multiple listing service when new listings come on the market or when the status of a listing changes.

Of particular interest are listings that are back on the market, and ones that have had a price reduction. If a house that's back on the market is one you were interested in, find out why the deal fell apart. In the past, it was commonly assumed that if a transaction failed it was due to inspection-related issues, not financing. Today, we're seeing more transactions fall apart because the buyers were unable to secure financing. A seller who just lost a deal because the buyer couldn't perform could be receptive to a reasonable offer from a better-qualified buyer.

Don't assume there's something wrong with the house if it's back on the market, or if it has been unsold and on the market for a long time. In a changing market, it's often difficult to select a list price that will bring about a speedy sale. Keep an open mind about listings that have had price reductions. These could have been mispriced to begin with. If the sellers are motivated, they will reduce the price until it is in line with the market.

Some unsold listings haven't moved because they need too much work. In today's market, the most salable listings are those that are in move-in condition. Properties that need work should be priced to account for the work that will need to be done.

THE CLOSING: Fixer homes may be more difficult to sell in the current market. But, at the right price, a buyer with vision will step up to the plate.

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By Jack Guttentag

Many borrowers would like a mortgage on which the monthly payment would drop following a large payment to principal. They may have highly irregular income, or they may anticipate coming into a large sum of money from a bonus, bequest or insurance settlement.

Mortgages fall into four categories with regard to how responsive they are to this need. Standard fixed-rate mortgages (FRMs) are the least responsive. Next come standard adjustable rate mortgages (ARMs), then any FRM or ARM with an interest-only option, and finally the Home Ownership Accelerator (HOA), which is the most responsive.

Fixed-rate mortgages: Extra payments on an FRM shorten the payoff period but do not affect the monthly payment. For example, if you borrow $100,000 for 30 years at 6 percent, your fully-amortizing payment is $599.56.

Pay this amount every month, and you pay off the loan in 30 years. If you make an extra payment of $10,000 in month two, your payment in month three and all subsequent months remains $599.56. Your loan will pay off in month 280, but until then, you receive no payment relief.

Of course, the lender can always agree to modify the contract, and some will do it for a fee. In the previous example, the payment could be dropped to $539.48, which is the fully amortizing payment that will pay off the loan over the original 30 years.

Adjustable-rate mortgages: With an ARM on which the borrower is making the fully amortizing payment, extra payments do change the monthly payment, but not until the next rate adjustment. At that point, the payment is recalculated using the reduced balance and the original term.

Assume the $100,000 6 percent loan is a three-year ARM, and that an extra payment of $10,000 is made in month two. The payment would remain at $599.56 through month 36. In month 37, assuming the rate stayed at 6 percent, the payment would drop to $525.62. That is the new fully amortizing payment over the original term.

On ARMs with longer initial rate periods, the drop in payment following an extra payment would be further delayed. On the popular 5-year ARM, for example, the payment wouldn't drop until month 61.

ARMs become more responsive after the initial rate period ends because rate and payment adjustments then occur more frequently - in most cases, every year or very 6 months.

Mortgages with an interest-only option: If a loan is interest-only, the payment should decline in the month following an extra payment, whether the loan is fixed-rate or adjustable-rate. The interest only payment on the $100,000 loan at 6 percent is $500. Following the payment of $10,000 in month two, the interest-only payment should drop to $450 in month three.

There are several caveats to this sensitivity, however. One is that it doesn't always work the way it should because not all servicing systems can handle it properly. In some cases, the required new payment is properly calculated but the new amount has not been communicated to the borrower. In other cases, the payment adjustment is delayed, sometimes for a year, sometimes for longer.

Of course, if it is an ARM, the payment will adjust when the rate adjusts. If it is fixed-rate, however, the payment may not change until the end of the interest-only period, which would be five or 10 years.

Whether the mortgage is FRM or ARM, after the end of the interest-only period, payment responsiveness disappears. After that, they are like any other FRM or ARM.

If you are contemplating an interest-only loan and find immediate payment adjustments in response to extra payments a highly desirable feature, ask about it. Don't expect the subject to be volunteered by the loan officer or mortgage broker. They are not involved in loan servicing and the chances are that they don't know the answer and will have to ask. Make sure they do.

Home Ownership Accelerator (HOA): The most responsive type of mortgage is the HOA, because it has no required payment, only a maximum balance. So long as the actual balance is lower than the maximum, the borrower need make no payment at all.

HOA borrowers who make lump sum payments to reduce the balance and want to reduce payments to the fully amortizing level, can just go ahead and do it. While the HOA servicer will not tell them what that new payment is (I am told that this will be remedied at some point), it is very easy to find that number using my "Monthly Payment Calculator: Fixed-rate mortgages" numbered 7a on my Mortgage Calculator page. Because HOA is an ARM that adjusts monthly, the fully amortizing payment will change a little every month, so borrowers who want to stay on track ought to repeat the exercise periodically.

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Consultation with an accountant and/or attorney is recommended before entering into any financial transaction. All rights reserved. Agents and company personnel may copy; others may not reproduce materials herein without written permission of RE/MAX ACCORD.