Real Estate

Piggyback loans are the new-wave method of dealing with a down payment of less than 20 percent. When you use a piggyback, you get two home loans: a primary loan for 80 percent of the house’s value and a second mortgage for the rest of the money you need. With a 5 percent down payment, you would get what’s called an 80-15-5 mortgage: an 80 percent loan, a 15 percent piggyback and the 5 percent down payment. Getting a piggyback eliminates the need for mortgage insurance.

You can look up housing prices, cost of living, income, racial breakdown, commute times, crime rates, and political affiliation. For example, the median price of a home in Brooklyn is $493,000 (twice the national average) and the average household has 2.8 people with an income of $64,000.

Yesterday, I received an email from a friend who is moving into a new home that he’s financing with a fifty year mortgage. He was bragging about how low his payments were and he’s putting equity into his house. For regular readers of this site, it shouldn’t be a surprise that I quickly loaded up my spreadsheet of choice and got down to business looking at the numbers. If you’d like to play along at home, here’s my favorite online mortgage calculator.

Jeff Corbett is one of the rising stars in Real Estate 2.0 . I interviewed Jeff last month in Laguna Beach, CA. Jeff is a remarkably shy person who bears little resemblance to the hard-hitting, on-line, pit bull who advocates transparency inxbroker mortgage brokerage and banking. He is unfailingly polite with a great sense of humor.

The survey measures median incomes for each market and compares them against housing prices to arrive at “median multiple.” The survey considers a home “affordable” if it costs less than three times a household’s gross income.

News last week that confidence in the housing sector among young people has dipped recently is not surprising. Housing affordability for first home buyers is at its lowest level on record, lower even than in the late 1980’s when mortgage rates were at 16 and 17%.

Here I am thinking the local economy and housing market is healthy, and now I’m seeing ads paid for by Realtors telling me that home prices have gone up too much and that’s not good. I’m confused here, aren’t housing prices supposed to go up? Microsoft, Boeing, and a cast of a hundred start ups are hiring and growing, so by all appearances the local economy doing well enough. Why don’t I see these kinds of ads when I visit California (which would seem to be a more logical place for a housing bubble that might occur)? What’s the real purpose of the ads?

I recommend the use of a suitable mortgage calculator such as this one.

The endless chatter about “low mortgage rates” is pure granfalloonery.

I received a fax from my friend Jackie, a loan originator in New Jersey. It outlines why The Advisory Committee on Professional Ethics in the State of New Jersey has decided a seller concession is unethical and should be disapproved.

But, in general, putting down 20% or more of the house's purchase price as a down payment will give the lender a good impression. They will start you off with their lower mortgage rates and eliminate many unnecessary fees. But if you're disciplined financially, your lender will find a way to allow you to make a smaller down payment, either through a "piggy-back" loan or PMI, which can give you more financial flexibility.

Recently, I had an email exchange with a reader about whether or not they should overpay on their home mortgage or take that overpayment and invest it. I spent some time with Excel and Bankrate.com’s mortgage calculator and I made a few interesting discoveries. I don’t want to bury you in numbers, so I’m going to minimize them in this discussion; you can verify the information here pretty easily with Google Spreadsheet and Bankrate.com.

Why are these loans sold? They do have a perfectly legitimate purpose - mostly, for investors who use the extra cash to fix up homes, then “flip” them, selling the house for more money. However, these people generally know how to read loan programs and are often mortgage experts themseves. You do not fall into that category. All too often, these loans are sold by disreputable mortgage brokers to people who are either simply ignorant about loans or do not have much money and believe that they “need” a loan of a certain size.