Some of you may remember the American Western movies and dramas of early television. Customarily, the plots centered around a good vs. evil message. In some episodes, you could find the guy who was the “snake oil” salesman. Out of the back of his wagon, he’d be selling a tonic guaranteed to cure any ailment - from a toothache to indigestion.

People with health issues would flock to these smooth-talking, shameless liars and put their money down for what ended up being either alcohol or colored water. When sold out, he’d take his ill-gotten gains, head out of Dodge and high-tail it for the next town, leaving his clients fleeced out of their money and usually feeling worse rather than better.

Unfortunately, those schemers didn’t die out with the taming of the West.

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Being “upside down” or “underwater” in your home means you owe more on your mortgage than the home’s actual value. You have stopped accruing equity. A number of homeowners in this situation are asking themselves this question: “Should I keep paying my mortgage or should I just walk away?”

Aside from losing their home, what else might a homeowner forfeit by walking away? 

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What house upgrades are the most valuable in the eyes of an appraiser? I asked Sara Goodwin, a guest contributor for Connect2Agent’s Home Buyers and Sellers Blog, to provide a guest post and insight into this topic.

Goodwin specializes in residential appraisals in Northwest Oregon and Southwest Washington. Here is her third guest post, on the subject of upgrades and their affect on house values.

What are the conditions of your local market?

For the maximum return of an investment, one should consider the specific market of the property.

Some markets with warmer climates may put greater value on an in-ground swimming pool. In my market (Northwest Oregon and Southwest Washington), it is often considered a waste of space that gets little use; therefore, it would likely not be wise to invest in a pool for an upgrade in this area as it would likely show a negative return on investment.

In the markets where I work, finished basements have different values. Much of the time, this is due to the size of house rather than the specific area. Home buyers looking for larger houses with ample above-ground living space often do not consider finished basements as valuable as home buyers who are looking at smaller houses where the basement can add much-needed living space.

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In a press release circulated on the wires last week, Bank of America announced it is purchasing Countrywide Financial Corporation. This purchase should help strengthen Countrywide’s troubled situation in the mortgage market.

For homeowners who have a mortgage with Countrywide, the combined partnership of Bank of America and Countrywide have committed to continuing the relief efforts for subprime borrowers.  These efforts include:

• Participation in the New Hope Alliance–A letter campaign that assists delinquent borrowers by providing counseling.
• Participation in California Governor Arnold Schwarzenegger’s November 2007 subprime ARM Program–A program with three other loan servicers to help keep subprime borrowers in their houses at their initial interest rate if they are living in their houses and making their payments on time, but cannot afford the interest rate when their loans reset.
• Participation in the American Securitization Forum’s December 2007 reset freeze framework–This is for 2/28 and 3/27 adjustable rate mortgages (ARMs). Streamlines process for loan services in loan modifications.

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If you bought a house with less than a 20% downpayment, then chances are high that you are paying private mortgage insurance (PMI). This is a monthly premium added on to your payments to help protect mortgage lenders against a loss in case you stop making your mortgage payments.

You might be able to eliminate your PMI and save yourself a few hundred or more dollars a year. Financial website Bankrate’s article, 9 steps to cancel PMI, provides the following tips for homeowners who are looking to save money by getting rid of their private mortgage insurance:

• Check with your mortgage lender to see if you qualify. Most homeowners will be able to eliminate PMI once their equity has exceeded 20% of the loan amount. However, some FHA and VA loans will not waive private mortgage insurance.
• Know the amount of equity you have in the house. Your current mortgage needs to be 78% or less of the original loan amount.
• Find out the current value of your house. Contact your lender to see if a formal appraisal is required to have your PMI eliminated. If the appraisal shows that the house has appreciated, you may have enough equity in your house to eliminate your PMI.
• Make extra payments. If you can make extra mortgage payments, you will build up equity faster in your house and get closer to eliminating your PMI.
• Call or write your lender. Once you have determined that you’re within 78% or less of the original loan amount on your mortgage, contact your lender to request that your PMI is eliminated.

Have you been able to eliminate your PMI? Connect2Agent asks that you share your story by commenting below.

Posted by Rebecca D. Levinson

Are you retired and in need of additional income?  If you have lived in your home for awhile and have been able to build substantial equity in your home a Reverse Mortgage could be the solution you are looking for. 

The U.S. Department of Housing and Urban Development’s website article on Reverse Mortgages, “Top Ten Things To Know if You Are Interested in Reverse Mortgages” provides the clearest explanation on the subject that I have seen on the internet and is summarized as follows:

Reverse Mortgages and how you can qualify.

A Reverse Mortgage is a home loan that allows you to cash out on some of the equity from your home.  As long as you live in the home you do not need to make any payments on the reverse mortgage.  A reverse mortgage actually pays you for living in your home.

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If you are behind in your mortgage payment, I urge you to avoid the multiple scams that are soliciting you.  I viewed a short video this morning that lends advice to homeowners in a bad situation.

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You have been shopping for home listings:  Online, reading through home magazines, and touring homes with your real estate agent.  Then comes the magical day when you step outside your car and into the house that you just know can be the place you will call home. 

Let’s say that you have gone through negotiation with the Seller and they are willing to come down off the asking price by $15,000.

Before your real estate agent inks that final offer, you might want to consider applying this same $15,000 towards closing costs and pre-paid expenses and to buy down the interest rate on their home loan to 5.75%, saving you $42,361 over the life of your home loan.

This is the premise and sage advice I found in a blog post yesterday by Dave Porter, "Teaching your clients how to buy a home in a declining real estate market".  The article uses this example as paraphrased above, to educate professional mortgage planners on how they can teach their clients to make more lucrative financial decisions.  Porter’s example of the buyer who chooses to apply the $15,000 towards the cost of the loan, rather than the listing price of the home provides a buyer with a long term interest the opportunity to make that $15,000 work for him.

The example also saves the buyer in a significant number of ways as noted by Porter:

• A reduced interest rate of 5.75%
• A mortgage payment that is $79/month lower.
• A savings of $42,361 over the life of the loan.
• A $9600 tax deduction.

Now that’s money in the bank.

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