Your head is likely swimming in terminology if you've been reading news of the swooning markets the past few weeks. Credit crunch. Subprime mess. Discount rate. Eeesh. What does it mean for my cash flow? What does it mean for my house? A quick peek in my e-mail inbox turns up question after question from readers who are looking for answers and, understandably, a little reassurance. Is now a good time to buy a house? Are mortgages attainable? What happens if I can't afford my new monthly payment now that my ARM has adjusted? For help, I turned to Barbara Corcoran, the real estate contributor to CNBC, MSNBC and NBC's TODAY show. Here's the lowdown:
If you're in the market to buy:
Shop for a mortgage, then the houseDon't settle for being prequalified — take the extra step so you're preapproved by the bank for a certain amount of money. Knowing exactly how much you can spend will give you serious leverage when it comes time to negotiate with the seller. “Saying you have financing in hand is a golden card right now to get a great price on a house because sellers know it's a shaky card,” says Corcoran. One caveat: These days, it's not uncommon for mortgage commitments to stay good for only a week, as opposed to the previous standard of three months. Be sure to stay on top of yours. You can update it with a simple phone call to the lender. Do your researchGive yourself a crash course on home prices in your area by visiting the open houses of homes similar to the one you've got your eye on. Then, get three competitive brokers to give you a cost estimate of what the home is worth. Once you're armed with information, you can put in an educated offer. “A nice place to start is 15 percent below the asking price, if it's properly priced, or 15 percent below what you believe the value is if it's not,” Corcoran explains.
If you want to sell:
Price it like you mean it
Corcoran believes almost two-thirds of homes on the market are overpriced, even in today's market. Why? Sellers let their emotions get in the way. The fact that your daughter took her first steps on the living room carpet or that you ate dinner together on a nightly basis in the dining room adds value to you, but don't expect buyers to cough up extra cash for the home's sentimental value. When you're ready to sell it's no longer a home; it's a house. Even if you're willing to negotiate a deal, if you price it too high, you run the risk of closing the door on potential sales.
Get an expert opinion on your home's value, then check out other prices in the area. You can also use Web sites like Zillow.com to get a rough estimate. Take a chanceHost what Corcoran calls a “Four-Hour Sale.” It's not for the faint of heart, but if you can stomach it, follow her advice: Through surfing the Internet, asking local brokers or driving around the area, find the three lowest-priced homes in your neighborhood that have a similar bedroom and bathroom count. Then, price yours at 15 percent below that (I warned you — palpitations will follow) and spread the word that you're going to be offering the home up for four hours only. “You'll have a rush of buyers and you'll get paid more than you actually deserve,” says Corcoran. “Basically, in a vacuum of no buyers, you're creating a hype for buyers.” The key is to enlist the help of a broker so they can advertise the sale to their clients.
If you're facing foreclosure:
Make the bank your friendOne thing to remember: The bank doesn't want your house. It would much prefer to have your money, even if that means lowering your monthly payments, renegotiating your interest rate or waiving pre-payment penalties attached to your loser of a loan.
So pick up the phone, dial the lender and ask for the “work-out” department — so named because it's their job to work out your difficulties. “The key is to call early. If you can call within your first three late payments or no payments, the bank is going to be happy to hear from you,” says Corcoran. Surprisingly, the less money you have, the better your negotiating position. If the bank knows that there's nothing it can take from you other than your home — no savings or other major assets — it will be much more likely to cut you a deal.
History has shown us that when the sale market is down, the rental market is up. Makes sense — all of the would-be buyers turn into renters, and demand on the market can drive rents sky-high. But how does it benefit you? “It's very typical that the mortgage that you have and the taxes you have to pay are less than what you can get in rent,” says Corcoran. That means you can rent out your home to cover the mortgage you can't afford to pay, and then downsize your family into a less-expensive rental until you get back on your feet. The plus here is that you'll still own your home when the market goes back up or you find some extra income.
With reporting by Arielle McGowen.
Jean Chatzky is an editor-at-large at “Money” magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s “Today” show and is also a columnist for Life magazine. She is the author of four books, including “Pay It Down! From Debt to Wealth on $10 a Day” (Portfolio, 2004). To find out more, visit her Web site, .