Financial Houses of Straw, Sticks or Bricks:

What Are YOU Building?

(As seen in "Charlottesville House and Home" April 2007)

By Andrew Zemon, CMPS

With all the stories in the news about a slowing real estate market, foreclosures, and tightening credit guidelines, you may wonder: Will desperate sellers crash prices and home values in Central Virginia?

Such fears are exaggerated, to say the least. In fact, while some individuals may be in dire situations, many more are in a position to benefit from the corrections taking place in the market. 

The whole situation reminds me of the tale of the Three Little Pigs.  Some people have built financial circumstances and mortgage plans that are akin to living in houses of straw or sticks. You can imagine what happens when the wolf comes knocking. But those who build for themselves financial houses of bricks will do just fine.

Houses of Straw

Those who have built houses of straw, financially speaking, include:

• People who used unrealistically aggressive adjustable rate mortgages to get into their homes but now, facing a slowing real estate market, can’t afford the rising monthly payment – nor can they qualify to refinance.
• People who have taken all the equity out of their home and now need to sell, but find their home’s appreciation hasn’t caught up to the selling price that they need to break even.
• People who no longer qualify for a mortgage at all, due to stricter lending guidelines.

Even folks in these tough circumstances can rebuild. Market situations and personal circumstances change. Outcomes can be altered for the better with the help of an expert mortgage planner.

For instance, as the mortgage market cools, the rental market heats up. If you need to move but can’t sell, this may be the time to turn your primary residence into a rental property. Or, if you need to improve your creditworthiness, there are many things you can do in as little as six months to enable you to qualify for a mortgage before long.

Houses of Sticks

Those who may be unwittingly building financial houses of sticks include: 

• Current buyers who may be putting themselves at future risk with an unwise or inappropriate mortgage.
• Current buyers who don’t have a back-up mortgage plan in case of unanticipated changes (or even bankruptcy!) on the lender’s side.
• Current sellers who are at risk for their buyers losing their financing at the last minute. 

This group can avoid problems by exercising extra caution. For example, it’s a great idea for home buyers to get back-up approval from a second lender in case anything goes wrong. And it’s always wise to get a second opinion on your mortgage plan to make sure it isn’t going to overstretch you financially in the future.

Home sellers can talk to their agent about requiring a deadline for the buyers to have “final approval” (above and beyond a “pre-approval”).  Requiring buyers to obtain back-up approval also helps ensure the transaction will close on time.

Houses of Bricks

Those who are building financial houses of bricks include:

• People with good credit. They have options for purchase and refinance loans. 
• People who bought homes within their means. Values may have stagnated or dropped, but history supports ultimate appreciation and equity gain over time.
• People able to invest in rental properties.

The real estate market is teeming with deals these days, and the rental pool is getting deeper.  As many as 20 percent of potential home buyers now are unable to buy. You may be able to turn your current primary residence into a rental, and still be able to buy a new home. This could actually put you in better financial circumstances in the future.

I don’t believe there is a “Big Bad Wolf” knocking at the door.  But there can be Big, Bad Advice dispensed in the best interest of the advisor rather than you, the client.  There can be Big Bad Decisions made without the help of qualified professionals committed to putting your interests first – professionals who are willing to limit their own profit on your transaction now, if necessary, in order to do what’s best for you and to keep you as a satisfied client over the long-term.

One way you can be sure you are working with a qualified mortgage advisor is to look for the Certified Mortgage Planning Specialist designation. Since there is no licensure requirement for mortgage advisors or brokers in Virginia, you can have increased peace of mind knowing you are working with a CMPS professional who has been trained, tested and certified to provide you with mortgage, cash flow and real estate equity management strategies in accordance with high professional standards and ethics.

Make sure you get qualified help to build your house of financial brick, and you’ll benefit not only in today’s market but potentially for a lifetime.

For more information on “Financial Planning Strategies for Home Owners,” visit www.ZeMoneyMan.com or contact Andrew Zemon, CMPS, at 434-975-4600 or azemon@greenwoodlending.com.