HARP can provide solution to high rate
Q: Is HARP, the government program, worth the time? I keep getting banks calling us saying how good a deal it is. We owe $124,000 and have a 30-year loan. We pay $100 extra a month, and the loan has 4 percent interest. — no signature
A: HARP, the federal Home Affordable Refinance Program, offers those with higher interest rates a way to refinance at a current lower rate, with minimal fuss and fees. It’s an excellent resource for many homeowners, but I don’t see that it would do anything for you. You already have a good rate, and you’re even — in effect — earning 4 percent on that extra money you send in to reduce the debt faster.
Q: Our house is getting too small for our family, and we’d like to build on another bedroom and bathroom. We have enough room there for a study or a family room as well. We’ve been here for years. We are very fond of the neighborhood and the schools. Our kids have good friends here, etc.
My in-laws seem to think it’s a bad idea to add on, and that we should plan on moving. Do you have an opinion? — A. F.
A: If I knew something about your neighborhood and your family situation, I could give you better advice. As it is, what your in-laws may be thinking about is that a given street will only support a given price range. After that, buyers with more to spend will look in more prestigious areas. People are just like that.
Even in the most favorable circumstances, the expansion or improvement of a house almost never raises the house’s value by the amount of money invested. In some parts of the country, for instance, installation of a swimming pool may reduce the number of potential buyers. Some will have nothing to do with a pool; others may find it pleasant but refuse to pay extra for it.
One danger in adding on to a house is the factor appraisers call functional obsolescence. They lower their value estimate for a house if its parts don’t match.
A new wing, for instance, might turn a three-bedroom house into a five-bedroom. If the original small kitchen remains, however, the house may not serve the needs of a five-bedroom family.
Looking at this simply from a financial point of view, it would help to know how your home presently compares with its neighbors.
If it’s relatively modest, spending additional money on it may be warranted.
But if your expansion will make yours the biggest house in the neighborhood — understand that you’d be making those improvements just for your family’s satisfaction. You shouldn’t expect to recoup your investment if you sell someday.
Q: We want to buy our first home and would like your opinion on what kind of mortgage to get. — G. and T. W.
A: Asking, “What is the best mortgage?” is like walking in to a pharmacy and asking, “What’s your best medicine?
Dozens of terms describe various kinds of mortgages: FHA, VA, assumable, purchasemoney, second, balloon, package, conventional, private — it goes on and on. Each type serves the needs of a borrower with particular requirements.
Finding the best mortgage plan for you involves considering the type and condition of the property, as well as your situation.
When you start looking at houses, real estate agents will ask some personal questions and recommend financing tailored to your needs. They’ll take into account your down payment available, income, source of income, credit rating and even more factors. There isn’t any “best” type — each one serves a particular borrower’s needs.
Contact Edith Lank at www.askedith.com, at edithlank@aol.com or at 240 Hemingway Drive, Rochester NY 14620.