Listing Courtesy of RE/MAX REALTY GROUP REHOBOTH
Something new is stirring in the ordinarily hidebound world of residential mortgage offerings: a new way of approaching the financing of home purchases. If successful, it might well shift the way some Rehoboth Beach mortgage contracts are written.
The experiment is known as the "Wealth Building Home Loan," and it addresses a home-ownership problem that has been talked about for a long time, with little being done to solve it. The issue in question is how to unburden new homeowners from spending years in a situation that bears more resemblance, financially, to renting than to owning— especially during the first 3 to 5 years. For low- and moderate-income mortgagees, that’s the difference between sinking into more debt and actually building wealth. After all, every dollar that goes toward interest is lost, while dollars that pay down principal are investments.
According to Edward Pinto, one of the authors of the WBHL, often during the opening years of a 30-year loan, "68% goes to pay interest." In the new program, 77% of monthly payments go to pay off principal—with the result that in a short time, new homeowners have a much larger equity stake in their homes. And, it is hoped, a sizeable increase in pride of ownership: "a stake in the game."
It sounds good, but you might be wondering how this could be possible. Is this just a ‘pie in the sky,’ feel-good idea that will never see daylight in the real world? Apparently not. The pilot program is being put into action by some serious players: the American Enterprise Institute (if that sounds like a conservative outfit, it is) and administered by the Neighborhood Assistance Corporation of America (if that sounds like a liberal outfit, ditto). And it’s being funded by Bank of America and Citi Mortgage—neither of which would be likely to bankroll some fly-by-night scheme.
The mechanics of this kind of mortgage work out like this. First, it’s based on a 15-year term, which of course speeds the rate at which equity builds; and second, it’s a mortgage that carries a very low interest rate. Something for nothing? Not quite: the concept is to
· change the underwriting standards to tilt away from credit history and toward recent payment history and residual income, thought to lower lender risk
· eliminate the down payment altogether, instead allocating that initial cash toward "points": buy-downs of the mortgage’s interest rate to .5%, (or even 0%)!
It boils down to an approach that could be a win-win. Borrowers (even those who suffered credit black marks during the economic downturn) could be newly eligible for a home loan, and because lenders pocket the interest rate buy-down amount, a proposition they might find acceptable.
Should Rehoboth Beach mortgage applicants expect this deal to be available next week? Not likely: it’s in the pilot phase. But if it seems to work out, it could be a shot in the arm for homeowners who can manage a slightly higher monthly payment. If you would like to chat about today’s home loan availability (or any other current Rehoboth Beach real estate doings), I hope you’ll give me a call!
Buying a home as a place to live certainly has important financial implications, but they are only part of an equation that has major lifestyle implications. A given house may be a really terrific deal—but if it turns out that you aren’t comfortable living there, buying it will probably wind up being a mistake.
When the motivation for an investment in Delaware residential real estate is purely financial, it’s a less complicated decision. Taking all factors into account, when a property pencils out as a likely financial winner, it’s a matter of weighing it against the risks and rewards of available alternative investments. In one risk-minimizing longer-term strategy, for instance, the risk that a rental property might go vacant is minimized by setting its monthly rental at little more than the cost of maintenance and mortgage payments. The plan is to patiently await the blissful moment when the mortgage is paid off—at which point a substantial net income begins to flow.
In all cases, any real estate investment in Delaware should be part an overall strategy. It’s likely to represent diversification within a mix of other investment vehicles. Equities and bonds don’t have the “reality” that a deed conveys, but do have the advantage of being less complicated to buy and manage. To the extent that they can be sold more quickly, they are rightly thought of as being more liquid…which brings up the point, here.
Knowing when you can cash out to free equity for other purposes is a positive, for sure—but there are liquidity options for Delaware real estate investments, too:
As Investopedia’s Robert Stammers writes, “increasing concerns about the future long-term variability of stock and bond returns” explains why a tactical investment in real estate “is known for its ability to serve as a portfolio diversifier and inflation hedge.”
Knowing how an investment in Delaware real estate would figure into your own long-term plan requires knowing what all the options are—and the easily overlooked liquidity dimension of a real estate investment is one of those. Give me a call if you are interested in sharing an overview of some of the best opportunities now on the market! Call/Text me Russell Stucki at (302) 228-7871, email me at email@example.com, visit more listings at www.beachrealestatemarket.com.