by jeffp | Nov 3, 2014 | Inside Real Estate
According to the National Association of Home Builders, first time homebuyers account for 27 percent of existing home sales and 16 percent of new home sales. While their market share has declined over the past few years, first timers are still contributing to the housing recovery. As the economy continues to improve, jobs become more plentiful, and wages go up, experts predict they’ll do so in even greater numbers. You—or if you’re already a homeowner, someone you know—can be among them. And, if so, you’ll likely purchase the home with one of the following loans.
A Fixed-Rate Mortgage
The simplest financing option, a fixed-rate mortgage involves a specific interest rate and monthly payment that will remain the same over the life of the loan or loan term. Fixed-rate mortgages are generally available in 15-, 20- and 30-year terms. The longer the term, the smaller the monthly payment will be. The shorter the term, the lower your interest rate (usually) will be. Fixed-rate mortgages are quite affordable in low interest rate environments such as the one we enjoy today.
An Adjustable-Rate Mortgage
More complex and less predictable than its fixed-rate counterpart, an adjustable-rate mortgage involves an interest rate and monthly payment that changes (usually many times) over the loan term. You’ll typically see adjustable-rate mortgages that begin to change—or adjust—two, three, five or seven years after closing. For example, a 5/1 ARM has a fixed interest rate for five years and then adjusts once every year after for the remaining term of the mortgage. Adjustable-rate loans generally carry lower interest rates than fixed-rate mortgages. In a high interest rate environment, they can be an attractive option.
An FHA or VA Mortgage
Fixed-rate and adjustable-rate mortgages are “conventional” if they require a down payment of 20 percent and you meet certain financial criteria (specific debt-to-income ratio, credit score, etc.) to qualify. For first time (or even repeat) homebuyers who do not have the cash to make such a sizable down payment, an FHA (Federal Housing Administration) or VA (Department of Veterans Affairs) loan may be an option. These loans require much smaller down payments and—in many cases—the financial criteria needed to qualify may be more lenient as well.
Whether you want to buy your first home with a conventional fixed-rate or adjustable-rate mortgage, or take advantage of the FHA or VA loan program, contact your real estate or mortgage professional today to learn more about your options and the financing process.
by jeffp | Oct 21, 2014 | Inside Real Estate, Uncategorized
According to a recent survey conducted by Trulia, an online real estate resource and community, 41 percent of Americans say they would prefer to buy a brand new home rather than a previously owned property. However, fewer are willing to pay the premium prices required; the median price of new homes in the U.S. is nearly 50 percent more than that of pre-existing properties. Whether you’re among the bargain seekers or just dream of spending your weekends on home improvement projects, consider these reasons a fixer-upper might be right for you.
You can lower your mortgage payment.
Previously owned homes cost less than new builds, and one that needs a little work is going to come with an even lower price tag. The lower the sale price, the lower your mortgage payment will be. And what you save on monthly premium and interest, you can put into repairs and improvements.
You can buy in a better neighborhood.
If you’ve had your eye on a particular neighborhood but the newer homes in the area are out of your price range, a fixer-upper can open the door. Sure, you might have to deal with an outdated kitchen or lackluster landscaping until you have the time and money for replacements, but that’s a small sacrifice to shorten your commute or get your kids into the best school in the district.
You can secure a bigger return on investment.
There’s a reason professional house flippers choose their profession—buying a rundown property, fixing it up, and selling it at its new and improved market value can yield a nice return on investment. The return can be even better for homeowners. IRS Code 121 allows you to enjoy up to $250,000 of your profits tax-free if you own a property for at least five years and occupy it for at least two before selling. If you’re married and file a joint tax return, that equates to up to $500,000 of profits tax free.
You can get exactly what you want.
Sure, you could by a more expensive, updated home with fresh paint, new carpets and a recently renovated kitchen. However, if you have a particular picture in mind of how you want your home to look, you might prefer a fixer-upper. For a lower selling price, you can buy an older property with the architectural features and character you desire, and then invest in the flooring, wall coverings, appliances, cabinets and other details you need to recreate your dream home as reality.
If you don’t have the budget for contractors and you’re not into doing it yourself, a fixer-upper could be more of a pain than a pleasure. However, if you know what you’re getting into—and embrace the repair and renovation process—you could find a previously owned home highly rewarding. Contact your real estate professional today to discuss the pros and cons of fixer-uppers further.
by jeffp | Oct 7, 2014 | Inside Real Estate
Life is full of guidelines, although some activities require more regulations than others do. For example, the official rulebook of the National Football League is over 100 pages long. The certified version of the Affordable Care Act has more than 900 pages. In contrast, buying real estate appears pretty simple; just avoid breaking these four essential home purchase rules.
1. Use a real estate agent.
Your residence may be the single biggest purchase you’ll ever make; don’t you want an experienced professional by your side? Sure, you can learn a lot about the process online, but according to the National Association of Realtors, 88 percent of homebuyers still choose to use a real estate agent or broker. There are many reasons to do so. For one, their services are generally free because the seller’s agent splits his or her commission with them. Also, a buyer’s agent can access historical price data for the area; without one, you’re definitely in danger of paying too much for the property.
2. Get a mortgage pre-approval before you make an offer.
Securing a mortgage pre-approval requires having a lender vet your credit and financials. If everything checks out, you receive a document from that states you currently qualify for a particular loan amount under the lender’s guidelines. Most pre-approvals are good for 60 to 90 days, and many real estate agents advise their clients to reject offers without one.
3. Make an earnest deposit with your offer.
It’s traditional for buyers to make a deposit—known as earnest money—when they put an offer on a home. While the amount may vary due to location or market conditions, 1 to 2 percent of the purchase price is fairly typical. Your buyer’s agent can help you determine the right amount for your particular situation. In combination with a pre-approval letter, an earnest deposit will show the seller that you’re serious about buying the home. This can be invaluable if you find yourself competing with other interested parties. Of course, you should include contingencies in your offer that will enable you to retrieve your deposit should the deal fail to go through.
4. Make your offer personal.
Yes, buyers want to sell their homes for the asking price—or even more. However, many also want to know that their property is going to a good family. They lived in—and loved—the home for years, and they naturally have a personal attachment to it. You can use this to your advantage in a competitive real estate environment. In addition to a pre-approval document and earnest money deposit, submit a handwritten letter with your offer. Talk about your family, how much they love the property, and your dreams of living there. If you can evoke the seller’s emotions and forge a personal bond, you will enhance the chances they will select your offer.
Are you ready to buy your next home? Contact your mortgage professional and real estate agent today to initiate the pre-approval process and begin the search for your perfect property.
by jeffp | Sep 3, 2014 | Inside Real Estate
If you’ve been afraid that you won’t be able to qualify for a home loan or refinance because of the new rules that went into effect in January, your fears may be unfounded. While the Consumer Financial Protection Bureau’s (CFPB) controversial “qualified mortgage” rule has made the process more difficult for some borrowers, the effects have been less severe than those many analysts originally predicted.
What’s the Qualified Mortgage Rule?
You may also have heard this rule referred to as the ability to repay rule. Under it, the government will only consider a home loan to be a qualified mortgage if the lender has thoroughly verified the borrower’s ability to repay his or her obligation. A qualified mortgage should be less likely to go into default, and in exchange for extending credit responsibly, the lender receives legal protections from the government.
What’s the Actual Result?
Before the CFPB implemented it, many professionals in the industry predicted the qualified mortgage rule would make it impossible for a large percentage of eligible borrowers to buy or refinance. However, according to anecdotal evidence from loan originators, the impact has been less negative than expected. In fact, an MSN Real Estate article recently quoted one Connecticut loan officer stating, “We do thousands of loans and I would say in the last six months we’ve had only a handful that were impacted.”
High Debt-to-Income is Not a Problem
When qualifying a mortgage, lenders must consider the borrower’s debt-to-income (DTI) ratio. They calculate this by dividing how much you owe each month (in all debts, including the mortgage) by your monthly gross income. A DTI of 43 percent was widely publicized as the maximum DTI allowed for qualified mortgages under the new rule.
However, this is not entirely true. The rule allows small creditors to offer qualified mortgages with DTIs higher than 43 percent. A lender is a small creditor if it had under $2 billion in assets and made no more than 500 mortgages in the previous year. Additionally, the rule does not prohibit large lenders from extending home loans to consumers with DTI greater than 43 percent. While these loans are not qualified mortgages—and don’t come with legal protections for the lender—they are not illegal.
Most Don’t Have Trouble Getting Loans
If you have a stable job for which you receive W-2s, collect paychecks regularly, and need a home loan for an amount within the conforming loan limit (which varies between $417,000 and $625,500 depending on geographic location), the qualified mortgage rule is unlikely to affect your home buying or refinancing experience. If you are self-employed, work on commission or need a jumbo loan, the process may be a little more difficult than it was before implementation of the new rule.
Whether you’ve been dreaming of buying a home or reducing your monthly mortgage payments with a refinance, your real estate professional can help. With experience and dedication on your side, you may find you have nothing to fear from the qualified mortgage rule.
by jeffp | Aug 16, 2014 | Inside Real Estate
For many people, a home is their biggest investment—and the mortgage that accompanies it their largest financial commitment. However, it may not be one they should eliminate—at least according to the experts. When the gurus wax poetic about eliminating debts, they are generally speaking of high-interest obligations such as credit cards with APRs around 13 percent, not 30-year mortgages with interest closer to 4 percent.
That said, in an uncertain economy, mortgage debt becomes more of a worry—especially if you’re nearing retirement or work in a volatile industry. Monthly payments of any size are always harder to make after you stop receiving paychecks. While the current residential mortgage delinquency rate of 7.79 is much lower than the peak of 11.27 in first quarter 2010, it’s still significantly higher than the 1.95 delinquency rate in fourth quarter 2006 before the last recession began.
So what’s the smartest move? Should you use every spare penny you can rustle up to pay down your mortgage balance or sock it away in savings and investments for retirement? It really depends on your personal financial situation.
Credit card debt is a burden
If your balances have crept up, and you’re making hefty payments on high-interest debt every month, it makes better financial sense to pay off your credit cards before you start chipping away at a bigger piece of your mortgage each month. Interest on credit card debt isn’t tax deductible; your mortgage interest is.
You have an IRA or 401(k)
Depending on the type of tax-favored retirement account you have, your contributions will result in a deduction on your current taxes or tax-free accumulated gains. Either way, it makes financial sense to put extra money towards your maximum retirement contribution before you begin paying down your mortgage at a faster pace.
You’re ready to retire
While it would be nice to be free of your mortgage payment before you collect your final paycheck, putting all your spare dollars into early payoff may leave you house-rich and cash-poor. You don’t want to find yourself in a situation where you’ve depleted your savings to the point where it’s difficult to cover necessities like food and fuel.
Once you’ve reduced your credit card debt and have maximized your tax-favored retirement account, there’s one more alternative use of your money to consider before prepaying your mortgage: market investments. Historically, stock-owning mutual funds with reinvested dividends have returned much higher earnings than the 4 percent you may be paying on your mortgage. Sock extra cash away there and you very well may come out ahead.
If you’d like to discuss the merits of paying off your mortgage further, consult your financial professional. And if your current home loan has an interest rate higher than 4 percent, contact your mortgage advisor to discuss your current refinancing options. A lower rate and a shorter term could help you become mortgage-free faster.
