How to Make the Most of the Housing Market

ANTHONY BROOKS, host:

This is DAY TO DAY from NPR News. I'm Anthony Brooks.

MADELEINE BRAND, host:

I'm Madeleine Brand. With the troubles in the housing market, a lot of our listeners are trying to figure out what to do with their property, and several of them have written to us asking for advice. And here to help is our personal finance contributor, Michelle Singletary. Welcome back, Michelle.

MICHELLE SINGLETARY: Thank you.

BRAND: The first question comes from Sandra Rojas(ph) in San Diego. She's 29 years old. She earns $2,300 a month after taxes. Her mortgage payment, though, is $2,850 a month. Sandra says: Since I'm having a really hard time paying my mortgage and can't refinance, I was wondering what would be the consequences of having a foreclosure versus a short-sell. My property is worth $40,000 less than what I paid originally.

SINGLETARY: Well, you know, I really feel for her because she's in trouble in a lot of fronts. I would try to avoid a foreclosure, meaning they've taken the property back. A short-sell basically means that the lender will allow you to sell the house for less than the mortgage you have on it.

Say, for example you've got a $200,000 home, but you can only sell it for $180,000. It's not going to cover the mortgage, but the lender says that's okay. You can do that. And then sometimes, they come after you for the difference, and sometimes they forgive it. So in her case, I would definitely try to go for a short sale.

BRAND: Okay, next up is Michelle Klein(ph). She lives in Portland, Oregon. She owns a duplex. She has two mortgages, one at 6.7 percent, the other at a little more than 9 percent. If she pays off that second mortgage, the 9 percent mortgage, before October, she'll have to pay a $2,000 penalty. And she writes: I want to refinance and possibly use some of the equity to buy a second house this summer. I have stellar credit, have never made a late payment on either loan, but I'm wondering if I should wait until October or refinance now.

SINGLETARY: If I were her, I would wait to refinance so that I wouldn't lose the $2,000. And most importantly, I would not pull out money out of this particular home to buy a second home. I would use money that I've saved up.

BRAND: Okay, finally, here's one from Thomas Heibel(ph) in College Park, Maryland. He and his girlfriend are thinking of buying a house or a condo in the next six months. She's in grad school for the next three or four years. They have $6,000 in savings, plus another $10,000 in retirement accounts, and they have a wedding to pay for sometime in the next couple years, and one more thing: They do have a family member willing to put up $20,000 for the down payment.

So Thomas Heibel writes: With housing prices and interest rates as low as they are, should we buy now or save or invest and wait until after grad school?

SINGLETARY: Whew, that's a lot, isn't it?

BRAND: Yeah.

(Soundbite of laughter)

SINGLETARY: There's a lot going on in this couple's life. Frankly, with three or four years left in grad school, I would wait to buy a house. You don't know where this person might get a job once they finish. And then, of course, the average wedding is anywhere from $20,000 to $28,000. And is that family member going to give them that $20,000 or loan it to them? Because the loan officer is going to want to know. If it's a loan, they've got to count that as debt, and that may not be a good thing for them. So you know what? Wait, save, and invest.

BRAND: Wait, save and invest. Words to live by. Thank you, Michelle.

SINGLETARY: You're welcome.

BRAND: Michelle Singletary, our regular expert on personal finance. She writes the nationally syndicated column "The Color of Money." And to hear more from Michelle, check out her NPR podcast. It's at npr.org/colorofmoney. And if you have a financial question for Michelle, you can write to us. Again, go to our Web site. Click on the Contact Us link. That's at the top of every page, and put Michelle in the subject line. Transcript provided by NPR, Copyright National Public Radio.