The $8,000 1^st time home buyer tax credit deadline is tomorrow. It may be frustrating if you did everything right to meet the requirements and now need to settle by June 30^th or if you missed the April 30^th deadline for signing your contract but is it possible that you will be better off? Have you seen the commercials or heard any of the advertisements on the radio? Real estate companies and home sellers are working together to give better incentives and/or lowering sales prices. This fact along with historically low interest rates will benefit home buyers better than an $8,000 tax credit. Once the tax credit has expired and there is no longer an effort to extend it, home prices should begin to drop. The tax credit may be keeping home prices artificially higher as home sellers are aware that the 1^st time buyer will get $8,000 and other buyers could get $6,500 and many buyers may be willing to pay those higher prices just to meet the deadline. When the deadline expires and interest slows, home sellers will have to adjust and lower prices or offer better incentives. Talk to your real estate agent for advice. They know the local market and can steer you in the right direction.

Monday June 28

Mortgage rates at lowest point since mid-1950s

WASHINGTON (AP) — Mortgages are cheaper today than they've been in a half-century. If only most people had the job security, the credit score and the cash to qualify.

Friday June 25

Fannie Mae to deny loans to strategic defaulters

The government-owned mortgage giant won't back a new loan for seven years if it determines a borrower had the means to pay but walked away from the home.

Fannie Mae is cracking down on borrowers who walk away from their underwater mortgages despite having the means to continue paying.

These "strategic defaulters" will be barred from receiving loans backed by the government-owned entity for seven years, and Fannie also plans to take legal action against these borrowers to recoup outstanding mortgage debt where such actions are permitted.

The Wall Street Journal writes that nearly one in four borrowers owes more on their mortgage than their property is worth, adding to the growing fear among lenders that as falling property values lead to more "underwater mortgages," it will becoming more socially acceptable for homeowners to simply walk away form their homes.

In just the past year the percentage of defaults believed to be strategic had grown to 33% in March from 22% in March 2009.

So in an effort to keep that percentage from rising further, Fannie Mae will be asking its loan servicers to monitor delinquent loans facing foreclosure, and it will offer recommendations on how to pursue borrowers they determine walked away despite having the means to pay.

However, Fannie Mae also says it will offer some leniency to borrowers who can prove their default was the result of extenuating circumstances or that they pursued a modification or other solution with their lender.

Borrowers facing hardship who make a good-faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.

Thursday June 24

Home appraisals come under more scrutiny

Homebuyers should be prepared for extra costs and delays as cautious mortgage lenders order stricter reviews.

Homebuyers and sellers who expect an appraisal to sail through to closing without a hitch may be surprised to discover that home appraisals today can be problematic. The reasons for the change are complex, but there's no question that mortgage lenders have started to demand more reviews and do-overs.

A mortgage lender might demand more scrutiny of an appraisal if the borrower has a marginal credit score or high debt level relative to income or if the property was a foreclosure that was fixed up and flipped by an investor.

Appraisals may lag home prices
Home prices are also a factor. When prices are on the rise, perhaps because buyers have bid more in a multiple-offer situation, appraised values might still be lower. The reverse is also the case.

Appraisals Hurting Home Sales?

Inadequate "comps" can present problems as well. "Comps" are recent sales of nearby homes that are similar, or comparable, to the home that's the subject of the appraisal. The mortgage lender may deem the comps inadequate if the homes were too far away or were sold in such nontraditional circumstances as a short sale or foreclosure or if the sales occurred too long ago. If the comps aren't sufficient, the lender may order a review or second home appraisal to verify that they were chosen correctly.

If the appraiser can't find three comps within that area and has to expand, that is where you start to get appraisal reviews or secondary appraisal requirements to make sure the appraisal was valid or that the lender was comfortable.

The term "second appraisal" generally refers to a new, start-from-scratch valuation. An appraisal review could be a "desk review," in which the appraisal gets a second look by an office-bound person, or a "field review," in which the appraisal is subject to another drive-by or in-person inspection of the property. A review is more common than a second appraisal.

Sellers can offer comps to appraiser
An appraisal review can cost several hundred dollars while a second appraisal generally involves a second full fee. These costs usually are paid by the buyer.

Home sellers can offer the appraiser information that might affect the appraiser's opinion of the home's value. This information is best handed over before the appraisal is prepared.

If you know of a sale that's similar to your house and it was a foreclosure, short sale, divorce or anything of that nature, make the appraiser aware of that.

Real-estate brokers can help buyers and sellers find comps to offer the appraiser. If the broker believes comps may present a problem, the buyer and seller can plan accordingly.

Neither the buyer nor seller can choose the appraiser, but buyers can insist on a minimum competency, which is having local market knowledge and being certified as well as licensed.

Buyers are entitled by federal law to a copy of any appraisal for which they've paid a fee. Buyers should look over the appraisal and notify the lender of any errors that could have affected the appraiser's opinion of the home's value.

Monday June 21

Do You Want Top Dollar For Your Home?

Listen to your Real Estate Agent!

1. Time is money when selling your home. After you've made the decision to sell your home, the longer it remains unsold on the market, the more it costs you. Many home sellers feel it's very important to receive close to their full asking price. But they overlook the additional months of carrying costs, such as mortgage interest, property taxes and maintenance.

2. Get your home into near-model home condition. Most home buyers today want to purchase a home which is in basically good condition and does not need major fix-up work. There are few buyers for fixer-upper houses--and they want bargain prices to compensate for the necessary work. The goal of home sellers who want to sell fast for top dollar must be to get the home into near-model home condition. However, spending major money is not required. Most homes just need basic, inexpensive work to get the residence into very good condition where all the buyer must do is turn the key in the door and move in.

3. The reason most homes don't sell--they are overpriced! Many home sellers want to set their asking prices above what their real estate agent recommends. Buyers quickly become experts on home values after they've inspected a dozen or more similar homes in the vicinity. They rarely overpay. Most homes have a "range of values". Many factors influence this range of values--such as local economic conditions, the home's location, supply of similar homes in the same price range listed for sale, number of buyers currently in the marketplace, the physical condition of the home, the skill of your realty agent to properly market the home to as many prospective buyers as possible, the financing available, quality of the local school district (the best schools create home buyer demand), and the desirability of your home compared to other nearby homes now available for sale.

4. Be flexible--don't get greedy. If you're just testing the market and will sell your home only if you get your inflated asking price, then you're not a serious motivated seller. However, if you are motivated to sell, the best attitude is to be flexible, don't get greedy and don't insist on receiving the last dollar of profit. Instead, consider all purchase offers which are presented. No matter how low and insulting the purchase offer might be, make a counter-offer! After several days or even weeks of counter-offer negotiation back and forth, home sales often result. But sellers who are inflexible and don't make counter-offers have only themselves to blame when their home doesn't sell because they are inflexible and greedy.

5. Get out of the house! Finally, if you listed your home for sale with a professional real estate agent, let that person (or a buyer's agent) do their job. Whenever you know an agent is bringing a prospective buyer to inspect your home, even on short notice, get out of the house! There's a very good reason you don't want to meet the prospective buyer. Experienced real estate agents will tell you that until a buyer criticizes a residence, he or she is not a serious buyer. If the seller is hovering nearby, the prospect usually will not criticize your home. Instead, he or she will look at it and leave without making a commitment to that possible future residence. Also, the buyer's agent won't comment about the pros and cons of the house if the seller is within hearing range. Also, get your pets out--there is nothing worse than an offensive pet (or pet smell) to chill prospective home buyers from quickly buying your home for top dollar.

Thursday June 17

2 Steps to Disputing info on you credit report

Step 1: Tell the consumer reporting company, in writing, what information you think is inaccurate. Include copies (NOT originals) of any documents that support your position. In addition to providing your complete name and address, your letter should identify each item in your report you dispute; state the facts and the reasons you dispute the information, and ask that it be removed or corrected. You may want to enclose a copy of your report, and circle the items in question. Send your letter by certified mail, “return receipt requested,” so you can document that the consumer reporting company received it. Keep copies of your dispute letter and enclosures.
Your letter may look something like the one below.

Sample Dispute Letter

Date
Your Name
Your Address,
City, State, Zip Code

Complaint Department
Name of Company
Address
City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,
Your name

Enclosures: (List what you are enclosing.)

Consumer reporting companies must investigate the items you question within 30 days — unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. After the information provider receives notice of a dispute from the consumer reporting company, it is required to investigate, review the relevant information, and report the results back to the consumer reporting company. If this investigation reveals that the disputed information is inaccurate, the information provider has to notify the nationwide consumer reporting companies so they can correct it in your file.

When the investigation is complete, the consumer reporting company must give you the results in writing, too, and a free copy of your report if the dispute results in a change. If an item is changed or deleted, the consumer reporting company is not permitted to put the disputed information back in your file unless the information provider verifies that it is accurate and complete. The consumer reporting company also must send you written notice that includes the name, address, and phone number of the information provider. If you ask, the consumer reporting company must send notices of any correction to anyone who received your report in the past six months. You also can ask that a corrected copy of your report be sent to anyone who received a copy during the past two years for employment purposes.

If an investigation doesn’t resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay for this service.

Step 2: Tell the creditor or other information provider, in writing, that you dispute an item. Be sure to include copies (NOT originals) of documents that support your position. Many providers specify an address for disputes. If the provider reports the item to a consumer reporting company, it must include a notice of your dispute. And if you are correct — that is, if the information is found to be inaccurate — the information provider may not report it again.

Wednesday June 16th

Factors that make up your score

The sections that matter to your score include public records -- judgments, liens and bankruptcies -- third-party collections, hard inquiries and your account history. The account history is the meat of your score. It's where many aspects of your accounts will be considered.

Numerous scoring models exist, but the one used by most lenders is the FICO or FICO Classic score, created by Fair Isaac Corp. FICO scores range from 300 to 850, with higher numbers being better than lower scores. The median FICO score in the United States is a 723. For the purposes of this article, we will focus on the factors of your credit history that affect your FICO score.

Once you get your credit report, you'll notice that the information contained in it is organized in sections: your personal information, credit summary, account information, inquiries, collections and public records, along with summaries of your rights under state law and the Fair Credit Reporting Act, plus instructions on how to dispute information found in your report.

Sections of a credit report, explained

	Payment history on accounts Amounts owed Length of credit history New credit Types of credit in use
1. Payment history on account (35%)
Paying your bills on time is the most important thing you can do for your FICO score. Mind the due date, and make sure your payments have made it to the lender by then. Allow for seven to 10 business days for your payments to arrive, or if you're paying online, adequate processing time.
2. Amounts owed (30%)
The second biggest factor, amounts owed, translates to how close to the credit limits you are on your cards. If you're trying to max out your score, you want to charge less than 10 percent of the card's limit. Staying below 50 percent is advised.
3. Length of your credit history (15%)
The third factor is the length of your credit history. Only time can help you there, but one mistake people can avoid here involves closing old credit cards. Closing an old credit card shortens the length of your credit history and lowers the total credit you have available from all your accounts. With a lower total credit limit, you end up looking more maxed out than you really are. You actually benefit from the unused card because it helps your utilization ratio -- how much you owe compared to your available credit. But suppose you have an old, unused retail card that has a high interest rate. To keep the card open use it periodically to buy small items and then pay off the balance. The benefit of keeping unused cards comes when you do need to charge a large balance. Because your credit limits are so high, the large balance will affect your credit score less. There is a component for having too many credit cards but it's worth fewer points than charging too much on fewer cards.
4. New credit (10%)
The fourth category, new credit, refers to applications you've put in recently for new credit. It includes recent inquiries, how many recently opened accounts you have, how old each account is and how old each inquiry is. Every time you apply for in-store credit, for example, you're giving permission to pull your credit report and that counts against your score. Not every inquiry will count against your score, however. According to myFICO.com, the FICO scoring model ignores mortgage and auto inquiries generated in the 30 days before scoring and counts older mortgage and auto inquiries made within a short period of time –- a 14- or 45-day window, depending on the version of the FICO scoring model -- as one inquiry.
Types of credit in use (10%)
The fifth category looks at the different types of credit you have. You'll likely have a better score with a mix of revolving credit, and installment credit, such as mortgages and car loans. Don't take on more debt than you can handle simply to improve your score. Paying your bills on time earns you more points than having a pleasant potpourri of credit accounts.

When to buy your credit score

Check your credit score six months in advance of applying for a large loan, says Craig Watts, the public affairs manager for Fair Isaac Corp. That way, you have time to make changes that could improve your score, such as paying down large account balances.

Scores improve gradually

It's important to be patient with the process when it comes to increasing your credit score. Once you've fixed all errors, are paying your bills on time, reducing balances by paying more than the minimum payments and lowering interest rates as much as possible, be patient and let time work to your benefit. I know it can feel like you're watching grass grow, but if you're consistent with following these healthy habits, your credit score will definitely increase and you'll be well on your way to getting your credit straight.

Monday June 14

· A home buyer tax credit extension proposed

If you're furiously trying to close on a home by June 30 to qualify for a federal tax credit, you may be getting more time.

Senate Majority Leader Harry Reid, D-Nev., is proposing to extend the tax credit deadline to Sept. 30. But it would apply only to buyers who signed contracts by April 30.

So that means you can't qualify for the credit by rushing out now, buying a home and completing the deal by Sept. 30.

Friday June 11

Find a Realtor Who Knows How To Listen

How do you know you've chosen the right Realtor? Home buying is a stressful period. The process involves patience, knowledge, and the ability to adapt to change.

Just like every home won't be a perfect match for you, every Realtor won't be a perfect match either. Therefore, finding the right Realtor is in many ways a matter of preference. According to some real estate studies, your Realtor's level of expertise is not as important as how your Realtor interacts with you. Therefore, the Realtors who are in highest demand generally have the best listening skills and are willing to take the time to listen to you, to examine your needs and preferences, and investigate ways to make your dreams a reality. When you find a Realtor that matches your excitement and drive, you can lay the foundation for successful teamwork.

Many home buyers and sellers are extremely interested in the best customer service. A Realtor with a company that offers outstanding customer service is essential to many clients. These clients want to be sure that their Realtor has access to support that is excellent and that their Realtor will be around for a long time after closing to answer further questions.

You can start your search by getting references from friends who have recently bought or sold; stop in a local real estate office and talk with the realtors on duty.

Thursday June 10, 2010

Here is a good article I found concerning prepayment penalties. It will also work with grant money. The bank may reluctant to reduce or eliminate prepayment penalties or grant money because this is their profit. However, three years ago my sister got a CDA loan in Maryland that paid $8,000 toward her closing. The grant did not need to be repaid if she did not sell or refinance the loan in the first 5 years. The bank would recoup this money through offering a higher interest rate (7%). Now that rates are much lower, she wanted to refinance and after many phones calls to her mortgage company, she just got a letter from them waiving the down payment money.

6 steps to a lower prepayment penalty

Prepayment penalties are easily missed in the paperwork at closing.
Make sure you understand how your prepayment penalty is assessed.
With thousands of dollars at stake, ask the lender to lower the penalty.

As the economy has dragged, many people are seeking to reduce their monthly financial obligations by paying off pesky second mortgages or refinancing their home loans to a lower interest rate. Some, however, are discovering an unpleasant extra cost as they make these changes: prepayment penalties.

Over the past few years, as housing prices skyrocketed and borrowers needed to find the cheapest possible way to finance their needs, banks used prepayment penalties as a way to offer buyers low rates while still locking in their profits. The idea was that the banks would lower their rates by a small amount -- perhaps a quarter percent -- but add in a penalty if they paid off their mortgage in a set period of time, usually between three and five years.

These contracts were structured to guarantee the bank a certain amount of profit. The banks would do a risk calculation or a profit calculation, and the penalty itself was generally set between 2 percent and 4 percent of the loan.

For example, a penalty of 2 percent on a $200,000 mortgage would amount to $4,000.

There are some ways to help reduce the financial pain of these costly penalties. Here are six steps to follow:

1. Check your contract or call your mortgage company. Be sure you have a prepayment penalty by sifting through your stack of mortgage papers.

2. Read the fine print. Some prepayment penalties are a single, fixed fee. Others are based on a sliding scale that decreases the longer you've held the loan. Try to get out at one year and you may pay 4 percent of the loan's cost. After four years, you may pay just 1 percent. This can be the first place to try to lower your rate. If you're close to hitting a reduced penalty threshold, consider waiting a month or two for a loan refinance or payoff.

3. Do the math. In some cases, the prepayment penalty is well worth the chance to move to a less risky, lower-interest loan. For example, if you pay $4,000 now but save $50,000 over 15 years by refinancing, it might be worth it. Similarly, the penalty might be justified just to get out of a balloon loan.

Still, in other cases, you may find that you need to lower the penalty before making your next move. Compare the options to determine your next move. A $4,000 prepayment penalty may be less palatable if you plan to move in a year or two, before you can reap savings from refinancing a loan. Or, you may simply not have the cash.

4. Get on the phone. To start negotiating, you'll need to get the right person on the phone, and that probably isn't the first person to pick up when you call the bank.

When you're on the phone, ask what they can do for you. Though it's unlikely that they'll dismiss the penalty outright, you may get it reduced. For example, if you've been paying the mortgage for 22 months and a lower prepayment penalty kicks in at two years, they may trim the penalty even though you haven't reached the two-year threshold.

5. Be polite. Keep in mind that no matter how awful your prepayment penalty is, you've signed a contract and the banks have the upper hand. Getting angry isn't going to help your cause.

6. Get it in writing. Make sure that you're documenting everything: the names and titles of the people you're talking to, the dates you called and any offer you've received. Ask to get the deal in writing. An offer over the phone is only as good as the paper it's written on.

With foreclosures high and banks eager to improve profits it's more difficult than ever to convince bankers to waive prepayment penalties. Still, a potential reduction by thousands of dollars makes your investment of time useful.

Wednesday June 9, 2010

1st Time Homebuyer's Top 15 Questions & Answers

Taken from the HUD website. This link will take you to 100 Q & A's!

http://www.hud.gov/offices/hsg/sfh/buying/buyhm.cfm

Why should I buy, instead of rent?
- Answer: A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home may go up over the years. Finally, you'll enjoy having something that's all yours - a home where your own personal style will tell the world who you are.
What are "HUD homes," and are they a good deal?
- Answer: HUD homes can be a very good deal. When someone with a HUD insured mortgage can't meet the payments, the lender forecloses on the home; HUD pays the lender what is owed; and HUD takes ownership of the home. Then we sell it at market value as quickly as possible. Read all about buying a HUD home. Check our listings of HUD homes and homes being sold by other federal agencies.
Can I become a homebuyer even if I have I've had bad credit, and don't have much for a down-payment?
- Answer: You may be a good candidate for one of the federal mortgage programs. Start by contacting one of the HUD-funded housing counseling agencies that can help you sort through your options. Also, contact your local government to see if there are any local homebuying programs that might work for you. Look in the blue pages of your phone directory for your local office of housing and community development or, if you can't find it, contact your mayor's office or your county executive's office.
Are there special homeownership grants or programs for single parents?
- Answer: There is help available. Start by becoming familiar with the homebuying process and pick a good real estate broker. Although as a single parent, you won't have the benefit of two incomes on which to qualify for a loan, consider getting pre-qualified, so that when you find a house you like in your price range you won't have the delay of trying to get qualified. Contact one of the HUD-funded housing counseling agencies in your area to talk through other options for help that might be available to you. Research buying a HUD home, as they can be very good deals. Also, contact your local government to see if there are any local homebuying programs that could help you. Look in the blue pages of your phone directory for your local office of housing and community development or, if you can't find it, contact your mayor's office or your county executive's office.
Should I use a real estate broker? How do I find one?
- Answer: Using a real estate broker is a very good idea. All the details involved in home buying, particularly the financial ones, can be mind-boggling. A good real estate professional can guide you through the entire process and make the experience much easier. A real estate broker will be well-acquainted with all the important things you'll want to know about a neighborhood you may be considering...the quality of schools, the number of children in the area, the safety of the neighborhood, traffic volume, and more. He or she will help you figure the price range you can afford and search the classified ads and multiple listing services for homes you'll want to see. With immediate access to homes as soon as they're put on the market, the broker can save you hours of wasted driving-around time. When it's time to make an offer on a home, the broker can point out ways to structure your deal to save you money. He or she will explain the advantages and disadvantages of different types of mortgages, guide you through the paperwork, and be there to hold your hand and answer last-minute questions when you sign the final papers at closing. And you don't have to pay the broker anything! The payment comes from the home seller - not from the buyer.

By the way, if you want to buy a HUD home, you will be required to use a real estate broker to submit your bid. To find a broker who sells HUD homes, check your local yellow pages or the classified section of your local newspaper.

How much money will I have to come up with to buy a home?
- Answer: Well, that depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover three costs: earnest money - the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house; the down payment, a percentage of the cost of the home that you must pay when you go to settlement; and closing costs, the costs associated with processing the paperwork to buy a house.

When you make an offer on a home, your real estate broker will put your earnest money into an escrow account. If the offer is accepted, your earnest money will be applied to the down payment or closing costs. If your offer is not accepted, your money will be returned to you. The amount of your earnest money varies. If you buy a HUD home, for example, your deposit generally will range from $500 - $2,000.

The more money you can put into your down payment, the lower your mortgage payments will be. Some types of loans require 10-20% of the purchase price. That's why many first-time homebuyers turn to HUD's FHA for help. FHA loans require only 3% down - and sometimes less.

Closing costs - which you will pay at settlement - average 3-4% of the price of your home. These costs cover various fees your lender charges and other processing expenses. When you apply for your loan, your lender will give you an estimate of the closing costs, so you won't be caught by surprise. If you buy a HUD home, HUD may pay many of your closing costs.

How do I know if I can get a loan?
- Answer: Use our simple mortgage calculators to see how much mortgage you could pay - that's a good start. If the amount you can afford is significantly less than the cost of homes that interest you, then you might want to wait awhile longer. But before you give up, why don't you contact a real estate broker or a HUD-funded housing counseling agency? They will help you evaluate your loan potential. A broker will know what kinds of mortgages the lenders are offering and can help you choose a lender with a program that might be right for you. Another good idea is to get pre-qualified for a loan. That means you go to a lender and apply for a mortgage before you actually start looking for a home. Then you'll know exactly how much you can afford to spend, and it will speed the process once you do find the home of your dreams.
How do I find a lender?
- Answer: You can finance a home with a loan from a bank, a savings and loan, a credit union, a private mortgage company, or various state government lenders. Shopping for a loan is like shopping for any other large purchase: you can save money if you take some time to look around for the best prices. Different lenders can offer quite different interest rates and loan fees; and as you know, a lower interest rate can make a big difference in how much home you can afford. Talk with several lenders before you decide. Most lenders need 3-6 weeks for the whole loan approval process. Your real estate broker will be familiar with lenders in the area and what they're offering. Or you can look in your local newspaper's real estate section - most papers list interest rates being offered by local lenders. You can find FHA-approved lenders in the Yellow Pages of your phone book. HUD does not make loans directly - you must use a HUD-approved lender if you're interested in an FHA loan.
In addition to the mortgage payment, what other costs do I need to consider?
- Answer: Well, of course you'll have your monthly utilities. If your utilities have been covered in your rent, this may be new for you. Your real estate broker will be able to help you get information from the seller on how much utilities normally cost. In addition, you might have homeowner association or condo association dues. You'll definitely have property taxes, and you also may have city or county taxes. Taxes normally are rolled into your mortgage payment. Again, your broker will be able to help you anticipate these costs.
So what will my mortgage cover?
- Answer: Most loans have 4 parts: principal: the repayment of the amount you actually borrowed; interest: payment to the lender for the money you've borrowed; homeowners insurance: a monthly amount to insure the property against loss from fire, smoke, theft, and other hazards required by most lenders; and property taxes: the annual city/county taxes assessed on your property, divided by the number of mortgage payments you make in a year. Most loans are for 30 years, although 15 year loans are available, too. During the life of the loan, you'll pay far more in interest than you will in principal - sometimes two or three times more! Because of the way loans are structured, in the first years you'll be paying mostly interest in your monthly payments. In the final years, you'll be paying mostly principal.
What do I need to take with me when I apply for a mortgage?
- Answer: Good question! If you have everything with you when you visit your lender, you'll save a good deal of time. You should have: 1) social security numbers for both your and your spouse, if both of you are applying for the loan; 2) copies of your checking and savings account statements for the past 6 months; 3) evidence of any other assets like bonds or stocks; 4) a recent paycheck stub detailing your earnings; 5) a list of all credit card accounts and the approximate monthly amounts owed on each; 6) a list of account numbers and balances due on outstanding loans, such as car loans; 7) copies of your last 2 years' income tax statements; and 8) the name and address of someone who can verify your employment. Depending on your lender, you may be asked for other information.
I know there are lots of types of mortgages - how do I know which one is best for me?
- Answer: You're right - there are many types of mortgages, and the more you know about them before you start, the better. Most people use a fixed-rate mortgage. In a fixed rate mortgage, your interest rate stays the same for the term of the mortgage, which normally is 30 years. The advantage of a fixed-rate mortgage is that you always know exactly how much your mortgage payment will be, and you can plan for it. Another kind of mortgage is an Adjustable Rate Mortgage (ARM). With this kind of mortgage, your interest rate and monthly payments usually start lower than a fixed rate mortgage. But your rate and payment can change either up or down, as often as once or twice a year. The adjustment is tied to a financial index, such as the U.S. Treasury Securities index. The advantage of an ARM is that you may be able to afford a more expensive home because your initial interest rate will be lower. There are several government mortgage programs, including the Veteran's Administration's programs and the Department of Agriculture's programs. Most people have heard of FHA mortgages. FHA doesn't actually make loans. Instead, it insures loans so that if buyers default for some reason, the lenders will get their money. This encourages lenders to give mortgages to people who might not otherwise qualify for a loan. Talk to your real estate broker about the various kinds of loans, before you begin shopping for a mortgage.
When I find the home I want, how much should I offer?
- Answer: Again, your real estate broker can help you here. But there are several things you should consider: 1) is the asking price in line with prices of similar homes in the area? 2) Is the home in good condition or will you have to spend a substantial amount of money making it the way you want it? You probably want to get a professional home inspection before you make your offer. Your real estate broker can help you arrange one. 3) How long has the home been on the market? If it's been for sale for awhile, the seller may be more eager to accept a lower offer. 4) How much mortgage will be required? Make sure you really can afford whatever offer you make. 5) How much do you really want the home? The closer you are to the asking price, the more likely your offer will be accepted. In some cases, you may even want to offer more than the asking price, if you know you are competing with others for the house.
What if my offer is rejected?
- Answer: They often are! But don't let that stop you. Now you begin negotiating. Your broker will help you. You may have to offer more money, but you may ask the seller to cover some or all of your closing costs or to make repairs that wouldn't normally be expected. Often, negotiations on a price go back and forth several times before a deal is made. Just remember - don't get so caught up in negotiations that you lose sight of what you really want and can afford!
So what will happen at closing?
- Answer: Basically, you'll sit at a table with your broker, the broker for the seller, probably the seller, and a closing agent. The closing agent will have a stack of papers for you and the seller to sign. While he or she will give you a basic explanation of each paper, you may want to take the time to read each one and/or consult with your agent to make sure you know exactly what you're signing. After all, this is a large amount of money you're committing to pay for a lot of years! Before you go to closing, your lender is required to give you a booklet explaining the closing costs, a "good faith estimate" of how much cash you'll have to supply at closing, and a list of documents you'll need at closing. If you don't get those items, be sure to call your lender BEFORE you go to closing. Be sure to read our booklet on settlement costs. It will help you understand your rights in the process. Don't hesitate to ask questions.

Tuesday June 8, 2010

Ready to buy a home?

Get your house in order before you start shopping. Here's what you need to do, and when.

The following timeline starts one year before you hope to start seriously shopping for a home. This is an ideal; you can arrange your finances and buy a home in less time, if necessary, but you'd be smart to walk through all of the steps in order. The more time you give yourself for this process, the better.

A year out (or as soon as possible)

Get your credit reports. Errors on your reports can force you to pay a higher interest rate on your mortgage or even torpedo your chances of getting a loan. You can get free copies of your reports from the three major credit bureaus — Equifax, Experian and TransUnion — at AnnualCreditReport.com. Look for accounts that aren't yours, collection accounts for debts you don't owe and negative marks (other than bankruptcy) that are older than seven years.

Get — and improve — your FICO credit scores. Your credit scores, which are three-digit numbers used to gauge your creditworthiness, help determine the rates and terms you can get for a loan. There are hundreds of different credit-scoring formulas, but the one used by the vast majority of mortgage lenders is the FICO.

Consider a credit-monitoring service. Normally, I think these are a waste of money for folks who aren't at high risk of identity theft. But given how important your credit and credit score will be in buying a home, you might appreciate the early warning if a collector tries to post a bogus debt.

Deal with your debt. Most people needn't pay off their student loans, auto loans or other generally low-rate debt before getting a mortgage. What you want to eradicate is "toxic" debt: credit-card balances and payday loans. These are signs you're living beyond your means. If you don't get your overspending problem fixed before you buy a home, your problems likely will get worse because homeownership typically involves plenty of big costs (property taxes, insurance, maintenance, repairs, improvements, decorating). Get your act together before you house shop.

Save, save, save. Stop eating out. Drop your cable-TV subscription. Do everything you can think of to put as much money aside as possible, using your desire to be a homeowner as a motivator. In today's market, it's best to have at least a 5% down payment; boost that to 10% and you'll have even more financing options. Ideally, you'll also have enough left over after you get your mortgage to cover the payments for two or three months.

Put your bills on automatic. A single 30-day late payment can knock 100 points off your score, and it can take many, many months to recover. Make sure every bill gets paid on time. If you don't have a reliable bill-paying system, consider using automatic debits, so payments come directly from your checking account, or an online bill-payment system's recurring-payment feature.

6 months out

Sort through your mortgage options. A lot of people are losing their homes today because they didn't understand what kind of mortgage they had or they accepted bad advice. The low teaser payments that allowed them to buy a more expensive house have jumped skyward, leaving them unable to pay. It's up to you to understand the risks of the different types of mortgages and to select the right one for your family. Stick with traditional, fixed-rate mortgages. If you can't commit to a 30-year version, at least use a hybrid loan with a rate that's fixed for as long as you plan to own the home.

Research all the costs of owning a home. Your mortgage will be just the start. You'll have to pay property taxes and insurance on the home. There may be homeowners- or condo-association fees as well. You may face higher utility bills, and you'll take on maintenance and repair costs as well. Decorating your new house can cost a pile of money as well: Have you shopped for window coverings lately? Your home-owning friends and a friendly real-estate agent or two can help fill you in so you know what to expect.

Adjust your saving strategies. What you've learned so far may inspire you to boost your savings. A bigger down payment, for example, can result in a larger home or a lower mortgage payment. Or you may simply want to build up your emergency fund so unexpected home expenses don't knock your finances off the rails.

3 months out

*** Reduce your credit utilization. The FICO scoring formula is sensitive to how much of your available limits you're using on your credit cards and other revolving lines of credit. The less, the better. It doesn't matter if you pay your balances in full every month; the figure the scoring formula typically uses is the balance that shows on your most recent statement. Try to keep that balance below 30%, or even lower. If you can't — because you charge a lot for work-related travel, for example — make a payment before the statement's closing date to reduce the balance reported to the bureaus. Just be sure to make a second payment after the closing date, so you don't get reported as late.

Don't open or close any accounts. Until the mortgage process is completed and you've moved into your new home, continue to avoid actions that could potentially harm your credit, such as opening credit accounts or closing old ones.

2 months out

Get an idea of the mortgage rate you can expect. Order a fresh set of FICO credit scores — don't worry, checking your scores doesn't ding them — and call me about what rates you might qualify for. Don't apply yet or give permission for your credit to be pulled; you just want to get a feel for what you can expect.

Understand the effect of mortgage-shopping on your score. You want to get the best rate and terms possible, which means you'll need to shop around, but how does that affect your credit score? Here's the lowdown: Every time you give a lender permission to check your credit, a "hard inquiry" appears on your credit report, and that can ding your score a bit. Fortunately, the FICO scoring formula lumps all mortgage-related inquiries made within a specified period and counts them as one. (The period used to be 14 days, but the most recent versions stretch that to 45 days.) Furthermore, the scoring formula ignores any inquiries made in the previous 30 days. So you want to do your serious mortgage shopping in a fairly concentrated period of time, typically after your offer on the home you want is accepted.

Get approved for a mortgage ahead of time. Pre-approval, in which a lender gives a commitment to make you a loan, is different and more valuable to sellers than pre-qualification, which merely gives you an idea of the size of the mortgage you might afford without making any commitments. You don't have to get a loan from the lender that offers you a pre-approval letter. Getting a pre-approval does involve giving permission for a hard credit inquiry, but the small potential ding on your credit is worth it because you'll be in a stronger position with sellers.

Begin researching neighborhoods and look for an agent. Check Internet listings, attend open houses and find an experienced guide to help you refine what you're seeking.

Once you've found your home and your offer is accepted

Arrange for an appraisal, a home inspection and a walk-through. The appraisal is required for your loan to be approved. An inspection isn't necessarily required, but don't skip this essential step, which can alert you to serious problems before the deal closes. The walk-through is usually done within 24 hours of the deal closing, so you can make sure that the home sellers have performed any agreed-upon repairs and the place is in move-in condition.

Get homeowners insurance. Mortgage lenders require this coverage, and you'll need to prove you have it at closing.

Confirm how much money you'll need at closing. "Closing" is when you sign all the paperwork and pay agreed-upon amounts, which can include your down payment and your share of legal fees, paperwork costs, property taxes and title insurance.

Enjoy your new home!

Monday June 7, 2010

15 ideas to help get money for a down payment

Coming up with a down payment to buy a home may seem daunting, especially if it’s your first. Here’s some advice on the many ways you might be able to make it happen.

1. Pull from savings: The time-honored way to fund a home purchase is to set aside money each month. Use an automatic electronic transfer through your bank or credit union. Choose an account that that earns the most interest possible while letting you access the money.

2. Liquidate miscellaneous assets: Sell your nice car, buy a beater and apply the difference to your down payment. Sell your boat, motorcycle, collectibles or other assets. Use your tax refund. Call in money that people owe you.

3. Sell stock options: If stock options are part of your compensation, selling them might earn you cash. Contact your human-resources department to learn the rules.

4. Sell taxable investments: Sell stocks, mutual funds, bonds and other taxable investments before touching money held in tax-deferred retirement accounts, such as 401(k)s and IRAs, which require you to pay significant penalties when you sell.

5. Cash in a life-insurance policy: So-called permanent life insurance policies (not "term" policies but "universal" or "variable universal life" or "whole life" policies) grow in value as you pay into them. When enough value has accumulated, you can take cash out or borrow against them. Talk with your insurance agent to learn your options.

Caution: If you no longer need the insurance, this could be a nice source of ready cash. But first-time homebuyers usually are young, have children and need the protection of insurance; withdrawing money from a policy could reduce or eliminate your death benefit, leaving your family in financial trouble if you die. You also can lose coverage if you borrow against the policy but don't pay it back. Ask your insurance agent to outline the pros and cons. Call your state's insurance commissioner's office if you have questions.

6. Use a gift: Some mortgages – loans insured by the Federal Housing Administration, for example – let you apply gifts from immediate family members toward your down payment. You’ll need a "gift letter" from the person who gave you the money, verifying that it doesn’t have to be repaid. Be prepared for the lender to ask for copies of checks or wire transfers.

7. Try your employer: Some corporations, universities and local and state governments have programs to provide employees with down-payment assistance. Check with your human-resources department. For example, in South Dakota, 19 employers participate in a state-sponsored Employer Mortgage Assistance Program that lets employees take out a 2% interest rate second mortgage for $600 to $6,000 to cover closing costs and down payment. Each year, the city of Baltimore and state of Maryland contribute as much as $6,000 to 100 city employees to help them buy homes within the city. These programs are meant to help keep valued employees in their jobs and closer to work.

8. Enlist a partner: A co-owner can help by sharing costs, including the down payment, and by signing on to be responsible for repaying the loan if you can’t quite qualify for a mortgage. A lender can explain the details.

9. State grants and loans are a potentially useful but constantly changing pool of down-payment money distributed through local and state agencies. Usually, these require a government-insured FHA mortgage. Funds are usually claimed quickly and programs expire or change frequently. Act early to be considered, or add your name to a waiting list.

Negotiate – with everybody
If you can save or even eliminate closing costs – which run roughly $5,000 to $8,000, depending on where you live – you can free up precious cash for your down payment. Although a seller can’t fund your down payment, the law lets buyers accept help with closing costs. Using an FHA loan, you can accept up to 6% of your home's purchase price toward your closing costs, although the FHA plans to drop that to 3% later this summer. Conventional loans limit the help you can accept to 3% of the price if your down payment is 10% or less; it's 6% with a down payment of more than 10%. Your seller, lender or real-estate agent can help with closing costs. These parties occasionally will kick in to help a cash-poor buyer get a deal done. Here’s how:

10. Your lender: The lender might be willing to sell you a higher interest rate in exchange for helping you. In this case, the lender rolls the closing costs into your interest rate and you pay them as part of your monthly mortgage payment instead of as an upfront chunk of cash.

Caution: Depending on how long you keep the home, paying a higher interest rate than necessary could, over a loan’s lifetime, cost more than the down-payment help is worth.

11. Your seller (including builders): Buyers have a lot of leverage with sellers today, at least in some parts of the country. Ask your real-estate agent to help you search for sellers who are offering to cover closing costs.

Propose that the seller help with closing costs when you’re negotiating price.
Sellers sometimes will sweeten the deal by purchasing discount "points" that lower your interest rate, letting you use more of your cash for the down payment. Each point costs 1% of the loan amount and can be used to reduce your rate by 0.125 to 0.25 percentage points. (If your mortgage was for $150,000, the seller might buy one point, for $1,500, potentially lowering your interest rate from 5.25% to 5%.) This would lower your monthly payment from $828 to $805.

Caution: Pushing a seller too hard to lower the price and make other concessions could ruin the deal. Be prepared for the seller to ask for a higher purchase price in exchange. Then the question is: Will the appraiser find the home worth the higher price?

12. Seller financing: Infrequently, a seller may be willing to act as your banker. It might be possible to strike a no- or low-down-payment deal with a seller who owns the home free and clear. But if the seller has a mortgage, you’ll need to qualify for a loan just as you would with a bank, including a down payment.

13. Your new employer: Your leverage with an employer is never better than when you are first signing on. Depending on the company and how badly your skills are needed, you might be able to negotiate a contribution toward your down payment as part of your benefits package, as a signing bonus or in place of a relocation allowance.

Tap your retirement savings?
Yes, you can cash out retirement accounts. But don’t do it. The ground lost in saving for retirement isn’t worth it. Also, the Internal Revenue Service penalties for removing cash from a tax-protected account before you retire are steep.

However, here are two less expensive (but still ill-advised) ways to leverage your retirement savings:

14. Tap your IRA. There’s an exception to penalties on withdrawals from retirement accounts that lets first-time homebuyers withdraw up to $10,000 from an IRA to use as a down payment on a home purchase.

Caution:

Remember to declare the income on your taxes (you were excused from paying tax on it when you put it into the IRA, remember?)
Be sure to chat with your accountant before doing this.

15. Borrow from your 401(k): Most companies let employees borrow from the balance of their 401(k) accounts. Rules vary but, generally, you can extract as much as half of the vested amount in the account, up to $50,000. As you repay it, the money, including the interest, goes back into your 401(k). The plan administrator at your workplace can outline the specifics, including how long you’re given to repay the loan.

Caution:

As long as you repay the loan, you won’t be taxed on the money until you withdraw it in retirement; unlike a mortgage loan, the interest you pay on this loan is not tax-deductible.
As with the IRA withdrawal, this is considered a bad idea because it sets back your retirement progress.
If you leave the employer for any reason before repaying the loan, you’ll have to repay the entire thing at once.

July 27, 2010

6 New Hurdles for Home Financing

Buying a home is never easy, but these current obstacles make it especially problematic.

If you've been in the market for a mortgage recently, you've no doubt noticed how difficult it can be to get approved. You're not imagining it, and it's not just you.

Underwriting standards have tightened, meaning that borrowers need higher credit scores, more income and higher down payments. And that's not all. There are many challenges to financing a home, but the following six are especially problematic in today's market.

1. Higher credit score requirements
Want a loan? You'd better have top-notch credit to get the best deal or, in some cases, to get approved at all. Although loans can be had in most cases for credit scores down to 620, they often come with a higher rate and/or fees. In 2006, a 680 FICO would get you into a house. Now it takes about a 720.

2. Greater scrutiny of income and assets

Homebuyers better get ready to prove that just about anything that looks hinky on their application is not an issue. Mortgage lenders today have to verify, reverify and reverify again. Qualified buyers are now put through the wringer and often turned down because of appraisal issues, property issues or anything that looks strange, even if the buyer can prove they can pay cash for the property.

3. Ever-changing borrower requirements
Many borrowers are finding that they can't pin down just what they need to do to get their mortgages approved. A couple of years ago, anybody with decent credit could get a loan for any size home. Now it is critical to have credit scores above 700, total debt ratios below 36%, a minimum of 20% down to avoid [private mortgage insurance] and good, stable employment. Unfortunately, a buyer can have all of these items fall into the current guidelines, only to have the guidelines change.

4. Home appraisals are coming in low
Because of slow sales, which lead to few comparables, and the large amount of short sales, sheriff's sales and bank-owned sales, which are priced at a fraction of a dollar, houses are not appraising for the contract price. Part of this problem can be blamed on the government enacting [the Home Valuation Code of Conduct], which regulates the appraisal industry, and was an attempt to curtail fraud, but has turned into an unexpected hindrance on the real-estate market recovery. The problem with the HVCC is that appraisals are now often completed by appraisers who are inexperienced and often unfamiliar with the markets they are working in, resulting in inaccurate appraisals and unnecessarily rejected loan applications.

5. Fewer opportunities for small business owners and independent contractors
Congress recently introduced legislation that would make low- or no-documentation loans illegal. Some borrowers have used these loans to deceive their way into a mortgage they didn't really qualify for. However, these loans are also a valuable tool for many honest workers who are not U.S. citizens or who are self-employed and therefore don't receive regular paycheck stubs or have a simple, straightforward way to prove their income to lenders. Typically, a business owner pays himself the minimum amount to avoid paying payroll taxes while reinvesting profits into his business. Banks will no longer make exceptions for circumstances like these and turn many loans down that previously would have been granted.

6. Condo purchases face additional tests
Condo loans are much tougher these days as we have to approve the condo building in addition to the buyer. We are documenting cash reserves, owner occupancy rates, low delinquency rates on monthly assessments and more. Additionally, the [Federal Housing Administration] recently changed the condo approval method, which has further inhibited many buyers who only qualify for FHA loans.

The quest for homeownership
For worthy borrowers seeking to take advantage of today's low interest rates and relatively low home prices, having to jump through hoops that homebuyers just a few years ago didn't have to can seem mighty unfair. If there's any upside to the tight credit market, it's that we should see fewer foreclosures in the years ahead.

July 23, 2010

7 Tips for Negotiating The Sales Contract

Negotiation is the process of communication back and forth in order to reach a joint agreement. There is no "one size fits all" strategy of negotiating a real estate contract.

1. What do we want to achieve in a negotiation?

The best negotiators bring an attitude of high expectations to the table. They are hard on the problem and soft on the people. Letting the seller know what you need, in a clear and reasoned way, is the first step toward getting it. We try to keep all of these goals in mind:

Enable you to move into your new home.

Obtain the lowest possible price for the property.

Close within an acceptable time frame. Solve any repair issues fairly.

Have no title, survey or loan problems, or solve any that do arise.

Develop a good working relationship with the seller.

Have no future problems after closing.

2. Is a cooperative or combative approach more effective?
Our experience shows that the cooperative style is the most effective and efficient way to complete a transaction. Professional negotiators usually try to preserve the relationship between the parties, and work together to resolve problems. The goal is not to reach an impasse in which neither the seller's nor the buyer's needs are met. Buyers sometimes submit a letter to the seller describing why their house is not worth what they are asking, pointing out deficiencies, etc. This almost always backfires, and starts the negotiation off with a defensive seller. It is best to anchor your price to the marketplace, while remaining very complimentary of their home.

How do you work with a combative strategy by a seller or agent?

The combative style is sometimes encountered. This strategy includes: negative comments, emotional statements, table pounding, threats to walk out, ego involvement, and stated positioning. Creative solutions and trade offs are not as likely to be found in this environment. Working with a combative style negotiator requires a considered approach:

Do not respond emotionally. An angry or defensive response will escalate the negotiation into a no-win battle.

Do not argue. Arguing usually positions them more strongly and drags the negotiation process off course.

Do not ignore their arguments or statements. Listen carefully, but do not accept or reject.

Firmly anchor pricing and other terms to outside data. Show that the price has not been chosen arbitrarily.

Reduce misunderstanding by following up with written summaries of discussions.

Do not allow hazy or unclear proposals to stand.

Offer some "wins" on some of the terms. Face saving is very important.

Look for ways to meet their underlying interests.

Remember that they may have a beautiful home that satisfies the buyer's goals.

3. Is every point in the contact negotiable?

Yes. However, one of the most effective means of coming to an agreement is to rely on consistent standards or norms when possible. For example, it is common practice for the seller to pay for the title policy and for the buyer to pay survey cost. Using accepted standards prevents buyer and seller from haggling over every point. Working within the accepted "norms" for our area helps to legitimize offers, and focus the negotiation on just a few points. On the other hand, all the points in an offer can be used to help structure the deal. They offer trade-off opportunities for both parties to get what they want from the negotiation.

4. The value of trust in a negotiation.

The value of trust in a negotiation cannot be overstated. Most people are fair minded and reasonable. They respond well to respectful treatment and to having their concerns heard. If the seller feels that the buyer and agent are acting with integrity, their attitude will be much more cooperative. Contract negotiation is a sensitive area, and anxiety can be high. The buyers may have had an unpleasant past experience with buying a home. The seller may be under pressure, with future plans at stake. Acting with integrity does not mean that all "cards have to be put on the table." It is not proper to discuss personal issues that affect the buyer, such as your financial ability or urgency to move in. It is valuable to develop rapport because trust increases your leverage. Here are ways:

Listen and understand what the seller has to say.

Express appreciation for the seller's home, gardens, decorating.

Respond within a reasonable time to counter offers.

Reassure the seller of your ability to close.

Reveal some personal information about yourselves.

Finding common ground with the seller can be a very powerful tool in the event of multiple offers. I can think of several instances in which sellers selected their contract for very personal reasons. (The family reminded them of themselves when they moved in with young children years before. Or, they were both of the same religion. Or, the new owners would care for their gardens.)

5. Understanding your leverage.

The more we can find out about the seller's needs, the better chance we have to find solutions to negotiation hurdles. We will be able to offer information or concessions that appeal to the seller's deepest concerns. Obviously, if the house has been on the market for 300 days, you have a lot more leverage than you would with a brand new listing. If their time frame is immediate, and you can meet it, you have some leverage. If they have multiple offers, you have very little leverage!

6. How much under list price should you offer?

Buyers usually offer less than list price, unless it is a strong sellers market. There is no standard percentage "under list price" that can be used. A market analysis will show recent sales for the neighborhood, which is the best way to establish the offer price.

It is usually counter-productive to offer so low that the seller will automatically reject the offer. This will set a negative tone, and may result in an emotional response from the seller.

7. What if we have a multiple offer situation?

Occasionally the seller receives more than one offer on their property. By simply disclosing that there are multiple offers, the seller is not "shopping" your contract. Shopping occurs when the seller discloses the terms of an offer to induce a buyer to submit a better offer. This can result in major distrust of the process by the parties, and the likelihood of loss of the buyers.

Usually the procedure is to notify each party that multiple offers have been received. Each party is then given the opportunity to raise or adjust his offer by a certain time. After that time, the seller is free to review all offers and choose one to work with. They are not obligated to choose the "first" offer that came in. The selected offer may be countered, or accepted as is.

July 21, 2010

Artwork Tips When Selling a Home

Oil painting is one of my hobbies so when I found this article, I could not resist sharing it.

When selling a home, the number of works displayed and how they’re showcased may differ from when they’re just hung for personal enjoyment. To avoid distracting buyers, art needs to play a secondary role to the lead: the home’s architecture and significant features, such as a fireplace.

Less is more. Don’t fill every wall with artwork. Instead, put one great piece in an entry, over a sideboard, or above a fireplace.

No leaning. Even though it’s considered quite chic, avoid leaning artwork against a wall, since there’s a risk of it being knocked over.

Use art as a solution. Spaced along a long hallway, art can break it up so it doesn’t resemble a bowling alley, or can cover ugly electrical panels.

Draw inspiration. Encourage clients to look in magazines and books for more solutions.

Artwork can add a personalized, finishing touch to any room, but too much can distract buyers from a home's architectural pluses.

Properly displayed and tasteful artwork can instantly bring life to an otherwise dull room. Whether home owners have painted or papered their walls, most want to hang some artwork on them, perhaps by displaying fine paintings, prints, or photographs, or more casual, affordable pieces from nature, travels, or favorite magazines.

Any artwork display should involve careful selection in choosing the right mat, frame, backing, or container, as well as determining the best location to hang the art, including how high or low it should be on a wall and whether it stands alone or as part of a group, designers say.

July 19, 2010

FHA is seeking YOUR Opinion - not that it really matters

The U.S. Department of Housing and Urban Development published a Notice, seeking public comment on three specific measures to reduce financial risk and preserve affordable mortgage financing for responsible consumers.

For the next 30 days, HUD is seeking public comment on the following policy changes, each of which are designed to mitigate risk to the Mutual Mortgage Insurance Fund while promoting sustainable homeownership for FHA borrowers:

Update the combination of credit and down payment requirements for new borrowers. New borrowers seeking FHA-insured financing will be required to have a minimum FICO score of 580 to qualify for FHA’s flagship 3.5 percent down payment program. New borrowers with credit scores of less than a 580 will be required to make a cash investment of at least 10 percent. Borrowers with credit scores of less than 500 will no longer qualify for an FHA-insured mortgage.

* This one is a joke. No one will fund a FHA loan with a 580 credit score much less a 500! They should have added 20% down for credit scores below 400 and 30% below 300; it would have made just as much sense.

Reduce allowable seller concessions from six to three percent. Allowing sellers to contribute up to six percent of the home’s sales price to offset a buyer’s costs exposes the FHA to excess risk by potentially driving up the cost of the home beyond its appraised value. Reducing seller concessions to three percent will bring FHA into conformity with industry standards.

If FHA wants to conform to industry standards than why have FHA? IF they don’t want to offer something different than just do away with the Federal Housing Administration and everything will be a Conventional loan.

Tighten underwriting standards for manually underwritten loans. When using compensating factors in the underwriting process, lenders will be required to consider those factors which are the best predictive indicators of loan performance, such as the borrower’s credit history, loan-to-value (LTV) percentage, debt-to income ratio, and cash reserves.

* How much tighter can they get? Underwriters already use compensating factors. We may have to wait and see how this one affects loan approvals.

July 15, 2010

Annual Percentage Rate

The APR is not the actual rate or note rate advertised by the lender. It is the effective rate which represents the cost of borrowing a mortgage loan. Lenders calculate APR taking into account the closing costs and the interest rate on a mortgage. The Annual Percentage Rate is often used to compare mortgage lenders and the programs they offer

The Truth-In-Lending Disclosure

The Truth-In-Lending Disclosure Statement (TIL) should be given to the consumer at the time of application. If it is not, the lender has three business days from the date of application to mail the disclosure to the borrower.

“Annual percentage rate” sounds a lot like “interest rate” to most borrowers. The APR is not an interest rate, but a theoretical measure of the cost of credit expressed as a percentage rate.

The purpose of the APR is to provide consumers with a uniform measure of the cost of a loan. The APR equation includes the contract interest rate and adds the costs of the loan, including any prepaid costs (points, fees, etc.) that are part of the cost of borrowing. Ideally, borrowers can compare costs from company to company by comparing the APR.

The APR Formula

ANNUAL PERCENTAGE RATE	FINANCE CHARGE	Amount Financed	Total of Payments

The cost of your	The dollar amount	The amount of	The amount you will have
Credit as a yearly	the credit will cost	credit provided to	paid after you have
rate.	you.	you or on your	made all payments
		behalf.	as scheduled.
4 %	$ 3	$ 2	$ 1

Compute total of payment by multiplying payment schedule, including PMI by amount of payments.
Amount Financed is the loan amount, less points, prepaid interest, PMI, and lender fees
Finance Charge is the Total of Payments less the Amount Financed
Compute the APR by dividing the Total of Payments by the number of payments and apply that against the Amount Financed, as if it were the loan amount

The first step in determining an APR is to subtract the prepaid finance charges from the loan amount. The result is the “amount financed.” Next, the full principal and interest payment (including Private Mortgage Insurance or PMI ) is applied against the “amount financed” as if it were the loan amount. The resulting interest rate is the APR.

Determining the Amount Financed-What are Finance Charges?

A prepaid finance charge is any charge one must pay in exchange for obtaining a loan (charges you would not incur if you were paying cash for the property). Like the APR, it can be used by consumers as appoint of comparison between lenders. Finance charges include loan fees (discount points, origination few, PMI) and miscellaneous fees (tax service, underwriting, document preparation, or lender review few).

In addition, some prepaid items such as per diem interest and escrows for PMI or prepaid PMI, FHA upfront MIP (Mortgage Insurance Premium), and the VA (Veteran’s Administration) funding fee are considered finance charges. Other prepaid items, such as association dues, are not included.

Appraisal and credit report fees are not included when they are collected as part of an application fee. Any inspections (termite, well, septic, etc.) that are required by lenders are not considered finance charges. Fees for recording a deed of trust are not included either. The only exception is a construction loan draw inspection.

Third Party Fees

Regulation Z (12 CFR 226.4(b).) lists the following charges from third parties as examples of fees that the creditor must include when calculating the finance charge:

 Interest, time-price differential, and any amount payable under an add-on or discount system of additional charge

 Service, transaction, activity, and carrying charges

 Points, loan fees, assumption fees, finder’s fees, and similar charges

 Investigation and credit report fees

 Premiums on insurance protecting the creditor against the consumer’s default

 Charges imposed on a creditor by another person for purchasing or accepting a consumer’s obligation

 Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction

 Premiums for homeowner and liability insurance written in connection with a credit transaction

 Discounts to induce payment by a means other than the use of credit

 Debt cancellation fees

Fees Excluded from the Finance charge

Application fees charged to all applicants for credit
Charges for unanticipated late payments, exceeding a credit limit, or delinquency
Charges imposed by a financial institution for paying items that overdraw an account
Fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis
Seller’s points
Interest forfeited as a result of an interest reduction required by law on a time deposit used as security for an extension of credit
Real-estate related fees such as fees for title examination, charges for the preparation of loan documents, credit report fee, notary fees, appraisal fees, and amounts paid into escrow, if these fees are bona fide and reasonable
Discounts offered to induce payment by cash, check, or other means

Insurance and debt cancellation coverage can also be excluded if the coverage is not required by the creditor, the premium for the initial term of insurance is disclosed, and the consumer signs or initials a written request for the insurance. If itemized and disclosed, certain taxes and fees prescribed by law are also excluded from the finance charge.

Explaining the amount financed would be much simpler if each loan came with an “itemization of amount financed.” The itemization would include a detailed list of the loan amount, the payment schedule, and each finance charge.

Payment Schedule

The payment schedule is another factor in calculating your APR. To determine the payment amount to apply against the amount financed, divide the total of payments by the number of payments and use this average amount. On a fixed-rate loan, the payment schedule is quite simple-the monthly payment is the same through the life of the loan. Variable payments (as in an ARM, Buydown, GEM, or GPM) may be more complicated on a payment schedule. The APR or ARMs can change based upon future interest rate changes. Buydowns, GPMs, and GEMs have fixed payment schedules, so the APR on these loans will not change.

Total Finance Charge

The APR, amount financed, and total of payments have all been calculated—what is the total finance charge? The difference between the total of payments and the amount financed represents the cumulative total of all interest and prepaid finance charges accrued on the loan, or the total finance charge. Subtracting the amount financed from the total of payments reveals this number.

July 14, 2010

100% Financing - the VA Loan

The VA home loan guaranty program was originally conceived in 1944 as a part of an attack on the harsh aftermath associated with wars. The overall objectives of this attack were to diminish to the greatest possible extent the economic and sociological problems of post war readjustments of millions of men and women then serving in the Armed Forces.

NO MONEY DOWN! There is a financed VA funding fee of 2.15%, and no monthly mortgage insurance. The seller can pay all of the closing costs & pre-paid items. Even veterans earning entitlement from the Reserves can participate. Disabled veterans don't pay the VA funding fee.

July 12, 2010

Mortgage Rate Locks: How They Work

When considering a mortgage rate lock-in, you can negotiate the terms and time period you need.

A mortgage rate lock (also called a lock-in) is a lender's promise to hold for you a certain interest rate at a certain number of points for a specified period of time while your loan application is processed. Depending upon the lender, you may be able to lock in the interest rate and number of points that you will be charged when you file your application, during processing of the loan, when the loan is approved, or later.

Why Get a Mortgage Rate Lock?

Most locks are designed to protect homebuyers from rates that rise while their loan application is processed. But people refinancing can also benefit from rate locks. If you don't use a rate lock, you are at the mercy of mortgage market while it ebbs and flows as your loan is processed. That means that a 5.5 percent rate when you begin the loan application process may rise to 6 percent by the time the loan closes.

Higher interest rates can also increase other loan costs. For example, it might mean:

· you must pay more points, or

· you have to put more cash down. (This might occur because higher interest rates mean higher monthly payments. The lender may want more cash down in order to keep your monthly payments in line with what you can afford or what the lender will allow.)

What If Interest Rates Fall?

If interest rates fall during the lock period you can't take advantage of the lower rate unless you:

· have included a "float down" provision in the original lock, or

· rewrite the rate lock at additional cost.

When you include a float down option in your rate lock, the lender must give you the locked-in rate if interest rates go up before closing but, if rates go down, you have the right to lock again at a lower rate. Because this increases the lender's risk, the price of a float down is higher than the price of a lock without a float down.

The Mortgage Rate Lock Contract

Because there are many variations on rate lock provisions, be sure the lock contract gives you the options and time period that work best for you. Then get the agreement in writing with a ‘Financing Agreement’. The agreement should include all of the details, such as:

· the terms you've locked in, such as interest rate, points, and other costs

· the lock's effective date

· the lock cost

· the lock's expiration date and time, and

· any post-lock options.

When negotiating terms, here are some things to consider:

When to lock. Lock the rate in as soon as you see the rate you want or when you first apply for the mortgage so that your rate is locked as you spend time getting the application approved. That's particularly important if you barely qualify at today's rates and an increase would push buying right out of your reach.

You can also choose to set the lock upon approval of the loan. This might make sense in markets where the processing of loan applications is prolonged due to heavy demand for housing, but interest rates are trending down.

How long should the lock last? Before choosing a lock-in period, determine the average time for loan processing in your market. Ask your lender to estimate the time necessary to process your loan and verify the information with your realtor. Locks average 30 days, but can range from 15 to 60 days. Longer is usually better. If the loan doesn't close on time, lenders can extend your lock for a fee. If the market has not changed you may get a small extension at no cost.

Shopping for a Mortgage Rate Lock

While we at Primary Residential Mortgage don’t charge you to lock a rate, some mortgage companies do. Shop around for both the terms of the lock contract and its cost, which varies from lender to lender. Some lenders want up-front lock fees. Others take them at settlement. There are nonrefundable fees, flat fees, and fees based on a percentage of the mortgage, among other variations.

***While shopping, verify that the rate lock is from the bank, mortgage lender, credit union, or other entity actually writing the loan and not from a broker, loan officer, or go-between. A broker can obtain a rate lock from the lender, but he or she can't actually write the lock.

Final Considerations

Once you lock in a rate, if you haven't already, quickly submit the application and other required documents. You should have previously checked your credit report and prepared evidence of your income, employment, debts, assets, and other relevant financial information. Stay in close contact with the lender (or broker) to be sure that the application is progressing quickly enough. There are many other factors that can cause delay such as appraisers, title companies, and underwriters.

* Pay attention to the deadlines. The benefits of the lock are only good for as long as the term of the rate lock. If you fail to complete your home purchase or don't refinance before the clock runs out, and interest rates rise, you'll have to pay the increased rate, along with any other increased costs.

July 9, 2010

Dealing With a Low Home Appraisal

Whether you're buying or selling a home, you may have cause for concern that the deal will fall apart for reasons that weren't on the real estate radar a few years ago; that the appraiser, usually sent by the buyer's lender, will assign the house a value that's significantly lower than the agreed-upon sale price, and as a result, the lender will refuse to loan more than the house is worth, and the deal may end right there.

What's Changed With Appraisals?

This trend toward problem appraisals is relatively new. Part of the issue is the federal Home Valuation Code of Conduct (passed by Congress in 2008), which requires that appraisals be done by someone chosen by an independent third party. Instead of the lender being able to choose an appraiser that it knows and trusts, this third-party intermediary sends in someone from its list. And, according to reports, the third party's choice of appraisers isn't always appropriate.

How bad is the appraisal problem? According to reports by the National Association of Realtors, in 2009:

· 37% of NAR members reported losing at least one sale because of the Home Valuation Code of Conduct

· 70% of NAR members saw an increase in non-local appraisers, and

· 85% of NAR members reported that appraisal quality had gone downhill.

Put into plain English, the agents for many disappointed homebuyers and sellers feel that their appraisal was badly done, by someone who didn't know the local area and perhaps didn't even know how to handle the appraisal job in a professional manner.

Get an Appraisal You Can Live With

A faulty appraisal shouldn't and needn't derail your sale. Appraisers operate under a set of national rules known as the Uniform Standards of Professional Appraisal Practice.

Of particular note is the section of the standards called "COMPETENCY." Take a look, for example, at where it says "the appraiser must understand the nuances of the local market." If your appraiser doesn't, you have grounds to demand that another appraiser be sent to evaluate the house you're planning to buy or sell. With everyone in the transaction probably demanding the same thing, the third party is likely to listen.

The homebuyer may alternately try to come up with the extra cash to match the appraisal amount, or look elsewhere for a loan, hoping to encounter a more generous appraiser.

If none of these options work, the seller is going to have to decide whether to accept a lower price likely, the appraised value, which is the maximum the lender will allow the buyer to pay.

July 7, 2010

Get Back Your 5.0 with a 4.5

Yes, many homes are under-appraising and some are going into foreclosure but the good news for everyone else is borrowing money is cheap! Interest rates are in the 4's! Below 5%! The rates have not been this low in 40 years. If you think you already have a good rate you should check again. Wouldn't it sound great to say "Four point...something"? I remember when 5.0 was cool like my brothers 5.0 GT convertible mustang that he traded for a minivan (not cool). If you can save $100, $200, $300 each month would you do it? What would you do with all the extra cash? Would you pay off an auto loan, put it in savings, start a college fund, or buy back the 5.0 GT? Lets see how much I can help you save.

July 6, 2010

Russian Real Estate Agent Spy

Are you old enough to remember the ‘good ole’ days’ when the U.S.S.R. was the enemy, the Cold War, and Russian Spies? Well, they’re back and it is notable that two happen to have chosen (or been assigned?) the real estate profession and none of them are loan officers! Take a good look; this is what a Russian Real Estate Agent Spy looks like. According to Russia, this is a face that will blend into the real estate industry. So is it possible all agents are ‘Agents’? ;)

NMLS #171848

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