We are lucky that Washington state is one of the few in the nation to still be reporting that our homes are appreciating. BUT…please don’t let that allow you to have a false sense of security with the value and equity in your home. These reports are based on information that lag month(s) behind what’s actually going on.
Other reports show that we are at a 16 year high for unsold homes (listings). With this much inventory and few buyers due to a reduction in available mortgage programs (subprime, alt-a are reduced if not nil and jumbos have higher rates than before August), we may very well see a change in the appreciation stats we have been benefiting from. The Seattle/Bellevue area has a high rate of "jumbo" priced homes (jumbo mortgages are loan amounts higher than $417,000).
If you currently have an ARM or bought your home with 100% financing a few years ago, you need to check with your Mortgage Professional to see how your credit is and what actions you should take (if any) right now (even if your ARM is not adjusting for two years).
Consider how you would be impacted if:
- Your home value does not appreciate and instead, the value stays the same (stagnant) or depreciates?
- Your adjustable rate or balloon mortgage adjust and you cannot afford the new payment?
- Your interest only feature on your mortgage is over and you now have to make a fully amortized payment?
- Your home does not appraise high enough to have the loan to value required for a refinance (loan to value guidelines are more strict now. FHA has one of the best programs allowing a 95% LTV. However, loan limits apply).
I don’t want to sound like a "Chicken Little" or cause panic. I do want to make sure that you’re prepared for worse case scenario and hopefully it doesn’t happen. Maybe Seattle will get away with just getting bumped by the national housing bubble. Who knows?
Appraised values are based on what other homes like yours in your neighborhood recently have sold and closed for — not trends and not what other homes in your area are listed for. If homes are selling for less because there are fewer buyers, this will directly impact your loan to value should you need to refinance out of a non-fixed rate mortgage.
Many home owners with prime and subprime ARMs that will be adjusting over the next few years will see their payments increasing from 20-50%. It is your responsibility as a home owner to know your mortgage and to be fiscal and credit wise. Please do contact your Mortgage Professional today (I know I’m repeating myself…but it is that important) to develop your personal "Mortgage Exit Strategy". The more time you have to prepare, the better off you should be.