If this sounds like something you’d be interested in, you have to make sure you plan accordingly and do your research. Consider first that you may be able to refinance to better fit your payments to your current situation – with mortgage rates at extreme lows right now, this may be a very realistic option for many, but admittedly harder for those where home values have dropped significantly. If refinancing isn’t a viable option, and renting a room seems like the solution, here are some things to do before you start placing your ads to find a renter.

Is it Legal?
If you own your own single-family home then this probably doesn’t apply to you. But if you’re buying an apartment, condo, duplex or other kind of home that has multiple tenants then you should check with your homeowner’s association (HOA) to see if it’s ok to rent a room for extra income.  There may be stipulations in the rules and regulations of your condominium association that preclude you from renting, or preclude leases that are under a certain duration – increasing the number of residents in a building or unit could be considered by some to detract from the quality of life available in the building, one of the many reasons residents pay HOA fees to regulate such situations.

Insurance & Taxes
Parts of your home owners insurance policy may have rules about having extra tenants in the home. Before you rent out a room, make sure that you’re covered. If you go against the terms of your policy, even if done in innocent error, you could up with a canceled policy. In addition, you’ll have to inform the IRS about the extra income you receive from your tenant. Be sure to check with the IRS and understand what this will mean to you.

Functionality
Ideally, you want the room you’re renting to have its own bathroom and its own entrance. Even a kitchen or small kitchenette, separate from your own personal living space, would be nice. This isn’t a requirement, but you can charge more if it has these features and you don’t have to worry as much about privacy for either you or the tenant.

Credit & Rates
When you’re determining how much to charge, be sure to include the added cost of utilities. There are many calculators you can find online to estimate utility costs. Before you let anyone rent a room in your home, you should run a credit check and criminal check. CriminalSearches.com is a good starting point for the criminal check.

These simple steps will help you figure out if renting a room is right for you and if so, how to get started on doing so. It could very well be a way to stop foreclosure without having to bring in much outside help.

According to many experts, the drop in loan requests experienced in May is likely to be only temporary, as many of the increases in sales that typically take place during the spring simply took place a bit earlier as buyers attempted to take advantage of the tax credit. Furthermore, many experts agree that the low borrowing costs coupled with low home prices will likely put the United States housing market on a gradual path toward recovery during the second half of 2010. In fact, during the week that ended on June 3, fixed 30-year mortgage rates averaged a mere 4.79%. Although this is up by 0.01 percentage point when compared to the previous week, it is still a full ½ point lower when compared to the rates one year ago. Furthermore, this rate is still only slightly above the low of 4.71% that was reached last December (2009).

15 year home mortgage loan rates are also remaining quite low. In fact, a new record of 4.20% was set after the rate dropped an additional 0.01 percentage point. This rate is well below the 4.79% rate that was seen just one year ago.

“The economy grew at a slower rate than originally reported in the first three months of the year, according to the Bureau of Economic Analysis, which suggests inflation will remain tame in the near term,” said Frank Nothaft, who is the chief economist for Freddie Mac. “As a result, mortgage rates held at historic levels this week.”

These low rates are good news for buyers, real estate agents and the economy as a whole, as those who are interested in purchasing a home can potentially save thousands of dollars by taking advantage of these low interest rates. Real estate agents, on the other hand, are hopeful that these low rates will encourage people to continue to both sell and purchase homes despite the expiration of the homebuyer’s tax credit. This, in turn, will benefit the United States economy as it continues to work toward recovering from the recession.

Now comes the hard part, what type of mortgage would be a best fit for your particular circumstance? For the purpose of this article, let’s discuss fixed rate mortgages. Hopefully, you have already been approved for a loan by a lender. A preapproval letter from a lender should, in fact, have been in your possession before you even began house hunting.

By the way, forget about a prequalification letter from a lender. It’s meaningless. All that tells a seller’s agent is that the lender has verified that you are accepted based only on preliminary financial information, and NOT preapproved. Preapproval will only be granted if you pass a more detailed financial inspection.

Although negotiating a mortgage that best suits your financial means can be complex, there are a few basics that should be kept in mind:

• You will have lower overall monthly payments on a 30-year fixed rate mortgage then on a 15-year fixed rate mortgage.
• A 15-year mortgage will have higher monthly payments, but your home will be all yours in a much shorter time, and you will have saved many thousands of dollars interest.
• You can pay off your 30-year mortgage earlier as well by doubling up on your monthly payments, which will also save many thousands of dollars in interest.
• You should carefully scrutinize the terms of your loan to be sure that the lender did not include a “prepayment penalty “clause – prepayment penalties are illegal in Massachusetts. This clause will exact a dollars and cents penalty for an early payoff. This is something you do not want, for sure! For example, if you decide to refinance for one reason or another, the penalty clause would be in affect and cost you money you wouldn’t ordinarily have spent. There should be no penalties whatsoever for paying off a fixed rate mortgage ahead of time.

While each lender’s program is unique, typical modifications result in the negotiation of a lower interest rate, a fixed rate mortgage, and/or lower monthly payments. The end goal of both the mortgagor and the bank is a payment that the mortgagor can afford, thus facilitating keeping them in the home.

There are countless entities who offer mortgage loan modifications, however, your attorney will be best suited to negotiate the modification and explain its benefits and risks to you given the fact that a mortgage loan modification will result in new legal rights and obligations with respect to your existing mortgage.

With respect to legal fees, foreclosure costs, and late charges, lenders are permitted to capitalize legal fees and related foreclosure costs into the modified principal balance. However, late charges should be waived at the time of the loan modification.

Before contacting your attorney regarding a mortgage loan modification, it’s best to gather some preliminary information:

• the name of your current lender
• your current lender’s contact information
• the loan number
• a brief summary of the current state of the loan
• any documentation that supports evidence of an economic hardship

Preparing this information in advance will provide your attorney with all of the information necessary to negotiate a modification with your lender, thereby expediting the process.

Scam artists may promise to save cash-strapped home owners from foreclosure but then, instead, steal their money or any remaining home equity. Such scams are becoming more prevalent, and some states are fighting back.

In Florida, one of the nation’s foreclosure capitals, State Attorney General Bill McCollum has filed suit against National Foreclosure Management, a mediation company, for allegedly defrauding troubled home owners. Fraudulent rescue companies in Illinois have been increasingly penalized, while in Massachusetts the for-profit practice of foreclosure rescue transactions has been banned.
Here are the most common ploys scammers use to prey on desperate home owners:

• Bait and switch. The home owner is presented with what appears to be an application for refinancing, but in reality it’s title transfer papers. Once the home owner signs, he loses his home.

• Upfront fees. Scammers ask for money to be used for locating rescue funding. Once the home owner pays, the scam artist disappears.

• Bankruptcy ploys. An attorney – or someone who pretends to be – persuades the home owner that filing for bankruptcy will save the house. The only one who wins is the person who pockets the fees he charges to file.

• Rent-to-buy. Fraudsters offer to buy the property with a provision that the home owner will pay rent while building equity. Once the title is transferred, the former home owner is locked out.

• Fraudulent refinance deals. A scammer offers to use his higher credit score to secure a refinance deal, but first the home owner has to hand over title to the house.

On a related note, if you are tired of receiving all of those credit card application sin the mail, stop into the Opt Out Prescreen website to get off the “list”.

Rather than wasting time pointing fingers at who is to blame for the current situation the entire country is in, or gaze in shock at the billions of dollars that large financial institutions are writing down from their balance sheets, the Fed is attempting to impart positive and sound change on the lending market. These potential rules would only apply to loans going forward, not the subprime adjustable-rate loans that became extremely popular during the recent housing boom.

Some of the highlights of the Fed’s new proposal are:

• Mortgage Brokers or creditors would be banned from coercing or influencing home appraisers to misrepresent the value of a home and would prohibit certain practices from loan servicers, such as failing to promptly credit payments to customers’ accounts.
• The Fed staff proposal targets high-cost loans secured by a consumer’s principal dwelling. The proposal states these loans shouldn’t be made without regard to a borrower’s ability to repay, without verifying the income and assets of the borrowers, with a prepayment penalty in certain circumstances, and without establishing that borrowers pay insurance and taxes on the property.
• The Fed looks to “generally” ban lenders from “directly or indirectly paying mortgage brokers in connection with consumer credit transactions secured by a consumer’s principal dwelling, unless the mortgage broker enters into a written agreement with the consumer” and provides certain disclosures. Creditors wouldn’t be banned from paying brokers if the compensation isn’t determined by the borrower’s interest rate.
• Lenders would be banned from structuring traditionally “closed-end” mortgage products as “open-ended.” Fed staff believes this is necessary to prevent lenders from trying to evade the new protections.
• Prepayment penalties on high-cost loans would be changed so that they expire at least 60 days before an adjustable-rate loan resets from its starter rate into a higher rate. Many prepayment penalties on subprime adjustable-rate mortgages ran right up to or beyond the reset date.
• The plan would ban seven marketing practices, including marketing loans as having “fixed rates” when the fixed rate is for only a limited period of time. Lenders would also be banned from “advertising claims of debt elimination if the product would merely replace one debt obligation with another,” according to the proposal.

The Federal Reserve’s proposal is aimed at eliminating many of the lending practices that proliferated during the recent housing and credit boom.The Fed has never used this authority this broadly before, and it has been under constant criticism this year for not acting more aggressively as lending standards deteriorated in recent years.

Thank you to the Wall Street Journal for inspiring this blog post.

What is subprime lending? The practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history.

Is subprime lending risky? Subprime lending is risky for both lenders and borrowers due to the combination of high interest rates, poor credit history, and adverse financial situations usually associated with subprime applicants. Due to the increased risk, subprime loans are offered at higher rates than loans given to applicants with excellent credit history.

What is a subprime mortgage? The term “subprime” refers to the credit status of the borrower (being less than ideal), not the interest rate on the loan itself. Simply put, a subprime mortgage is a loan that is given to a borrower who has less than an ideal credit history.

Now that the basics of what subprime means at its core, lets look at the financial markets in more broad terms to shed light on what the “credit crunch” is all about.

What is a credit crunch/crisis? A credit crunch is a recessionary period in a debt-based monetary system where growth in debt money (or “credit”) has slowed and subsequently causes a drying up of liquidity in an economy. Simply put, given the risky behavior that lenders have engaged in, obtaining a mortgage is now more difficult than in the recent past.

What causes a credit crunch/crisis exactly? The current credit crisis began early in 2007 with rising delinquencies (and thus, foreclosures) in the subprime mortgage sector. This was an issue for various reasons, but related to the credit crisis, financial services companies had securitized these (mainly subprime) mortgages. Securitization is a fancy way of saying companies bought up a bunch of loans, packaged them together as an asset, and then sold them to investors. Thus, there was significant exposure to these investment pools (i.e. the subprime mortgages that began to see more and more foreclosures), and financial institutions and investors started to realize that they were in over their heads.

Perhaps a better grasp of these fundamentals will assist in understanding where we have been, and where we are heading. It can be said that because of the position that we are now in (regardless of who’s fault it is), future growth, at least in the short-term, will be organic. Organic and well thought through growth that is grounded in fundamentals is always a positive thing, as it gives a base of integrity to build on.

(Thank you to Wikipedia for assistance with some definitions)

Our Caution: We are highlighting, and commenting upon, a very well written piece of work by the Journal, however, we maintain that Boston city-center foreclosure rates are extremely low, and that the Boston downtown real estate market is strong, there are statistics to prove this. This piece is more a look at a pan-US situation (major downtown city-center areas excluded), and should not be looked at as speaking specifically to the Boston market itself.

Essentially, we’re dealing with two main threads that combine to be a potent force that is impacting renters in a housing and mortgage market that they chose (or rather attempted) to avoid.

1. Many single- and multi-family homes held by investors that were rented out are being foreclosed,
2. Homeowners falling behind on their mortgage payments are returning to the rental market, increasing competition for units.

What we end up with is a situation where renters are being evicted because the apartment or homes that they are renting are foreclosed because owner investors cannot keep up with the mortgage payments.

Often, the tenants’ first inkling of trouble occurs when they get a letter from the bank directing them to leave the premises.

“They just don’t know what to do — they leave town, move in with their mothers, end up in shelters,” says Janet Merrill, an attorney with the Massachusetts Justice Project, a Worcester legal-services agency that runs a hotline for low-income people.

Ms. Merrill’s group gets four to five calls a day from renters facing eviction resulting from foreclosure. One caller recently received a letter from a bank saying her six-unit apartment building had gone into foreclosure and ordering her to vacate her unit by October 31st.

In many cases, the homes and apartments entering foreclosure are owned by investors who got low-rate teaser mortgages and intended to hold the buildings for a few years and then sell them at a profit — before their mortgage rates rose. Now, with the housing market badly depressed in many markets, the owners can’t sell the homes or afford the higher mortgage payments. Many are defaulting.

In an ideal world, you’d like to see the market correct the situation on its own, but what we have here is a situation where rents that are needed to sustain a mortgage (one with terms that an owner investor cannot support) cannot economically be absorbed by the renter market. Pure economic supply and demand cannot properly adjust, at least in the short term, for such mistakes caused by the lack of foresight on the owner investor’s part, and the carelessness of a lender to finance such a situation where too much is dependent on the future, which is by nature, uncertain (i.e. the lender, nor the owner investor, could have accurately predicted that markets would soften, days on market would increase, and it would be difficult to sell a home with no loss.).

Much of the recoiling and tightening of mortgage standards, essentially the hoops that you have to jump through in order to get home financing at present, will continue to be adjusted as lenders recognize their carelessness and implement systems and mechanisms that should have been in place from the beginning.

The Wall Street Journal recently reported that lenders are the latest group to jump on the environmental-marketing bandwagon by pitching mortgage products that offer homebuyers bigger loans or discounts if they are making energy-efficient improvements — or if their new home meets certain efficiency standards. Last month, Citigroup Inc.’s mortgage division launched a program that offers $1,000 off closing costs with its energy-efficient mortgage through the end of the year. Also last month, Bank of America Corp. launched an Energy Credit mortgage, which offers a $1,000 credit toward closing fees for mortgages on new homes that meet efficiency requirements set by the government’s Energy Star program. J.P. Morgan Chase & Co.’s mortgage division recently began offering Expanded Energy Conservation Mortgages in some markets that give borrowers more credit, as well as $500 off closing costs, if they find a builder who will use a specific type of spray-foam insulation.

While energy-efficient mortgages have been available from many lenders for some time, they are receiving renewed attention. They allow borrowers to qualify for bigger loans because lenders permit the estimated savings on utility bills to be added to the borrower’s qualifying income. For example, energy-efficient improvements could save a homeowner $50 a month. The $600 extra a year could allow a person to borrow about $10,000 more on a 30-year mortgage, depending on the interest rate.

The new products and incentives are aimed at a market worried about increasingly high energy prices. And amid the turmoil in subprime lending, analysts say, energy-efficient mortgages can be a more secure way to qualify marginal borrowers, since these homeowners are saving money on utility bills.

Based on our recent conversations with Pappas Properties, the developer behind much of the green building trends in Boston real estate, there are almost 30 units still for sale at the 140-unit green Macallen Building. Some of these units are teed up and ready for purchase by Buyers who are awaiting the sale of their existing homes. Important to note, as we’ve stated before, the absorption rate for a green building (let alone the first of its kind in Boston) is going to be somewhat slower than normal as Buyers hold an environmentally conscious debate in their heads on green versus non-green living, and pony up for slightly higher prices per square foot that accompany LEED certified condo developments.