By Credit.com | posted Sep 11th 2013 12:41PM
By Scott Sheldon
Trying to secure a mortgage right now? From higher mortgage rates, to rising home prices to the contraction in buying power — securing financing, for some, can be no easy endeavor. As prices, and rates rise simultaneously, lenders will still place the weighted emphasis on "real income," or, the amount of monthly payment you can afford — as that's what the loan is truly made against. Unfortunately, the amount of debt you have effectively chips away at your "real income." So before you try to get a mortgage, you might want to pay down your debt. Just make sure you do it the right way.
Before I delve into the specifics, here are some quick terms you need to know:
• Debt to income ratio, or DTI: Represents the total amount of monthly debt payment (including the house payment) divided into monthly income. Whenever this number exceeds 45 percent of the gross monthly income, things get tricky.
• Real Income: Also known as "qualifiable income," the net income considered for the housing payment after present liabilities are factored in. If you have $5,000 in monthly income × 0.45, that gives you $2,250 as a total debt allowance. If your other debts total $250 per month, that means your real income is $2,000 per month. Real income is also equivalent to a proposed housing payment.
• Debt: Refers specifically to the minimum payment obligations the consumer is responsible for. This has nothing to do with the total amount of debt, but what the monthly payments are. Lenders are looking for cash flow, how much or how little of it there is. Tip: Debt erodes income (ability to borrow money) at a ratio of 2 to 1; it takes $2 of income to offset $1 of debt.
Now, the strategy for paying off debt to qualify differs when buying a house from refinancing. Let's look at the differences:
Paying Off Debt When Buying a Home: home you can afford
How to Pay Off the Debt and Still Meet the Lending Credit Standard:
Paying Off Debt When Refinancing: you're refinancing
How to Pay Off the Debt and Still Meet the Lending Credit Standard: after the creditor has reported it to the bureaus
If you have debt that otherwise could be eliminated and have the means to pay off the debt, strongly consider doing so, as higher credit risk mortgages tend to be more pricey overall — compared to those for borrowers with lower debt-to-income ratios and better credit scores.
As you get ready to buy a house or refinance your mortgage, it's important to pull your credit reports and credit scores to see where you stand. You can get your credit reports for free once a year from each of the three credit reporting agencies, and you can monitor your credit score using a free tool like Credit.com's Credit Report Card.
By BRENDON DESIMONE, Published August 26, 2013, Zillow on Fox Business.com
Before you take that step, though, you should fully check out the neighborhood. After all, this is where you’re going to live for years. Is there something you don’t know about that could negatively affect the resale value later? Is there a neighbor who comes roaring home late at night on a muffler-free motorcycle? Is the next-door neighbor operating a day care for pre-schoolers?
Given the high stakes of homeownership, it pays to do your homework before making an offer. For example, a potential buyer was ready to sign on the dotted line for a home in San Francisco, a city famous for its microclimates. The buyer had only been to the home during the day, when it was sunny and warm. On his real estate agent’s advice, the buyer returned at night — to find the house blanketed by cold, windy fog. He continued his home search elsewhere, relieved he hadn’t unknowingly bought into the city’s “fog and wind belt.”
Here are five ways to investigate a neighborhood before you buy.
1. Talk to the neighbors
Without being intrusive, look for an opportunity to chat with your potential neighbors. What’s their opinion of the block and the neighborhood? Do they know of any problem neighbors? Are they aware of any recent car or home break-ins? Is anyone planning a big remodel that could impact other homes or their values? Do they know of someone on the block who might be getting ready to sell? An even more desirable home could be coming on the market.
2. Visit day and night, weekday and weekend
As the San Francisco example shows, don’t just visit the house during the day. Check it out at night to get a sense of what’s going on in the neighborhood after hours. Is it noisy or calm? Visit on the weekend and early morning, too. The more times of day you go, the more chances you’ll have to get the feel for the neighborhood.
3. Check out the local newspaper and the neighborhood blog
Some neighborhoods still have their own newspapers. If there’s one published for the neighborhood you’re considering, check it out for local stories. Pay particular attention to the “police blotter,” which typically lists crimes reported in the area. Also, some neighborhoods have blogs where locals ask for tips and advice, or post issues or concerns affecting the neighborhood. A Google search should help you find out whether there’s a blog for the neighborhood you’re considering.
4. Get an app
Some smartphone apps, such as CrimeReports for iPhone, provide information about crime based on your location or address. Among the problems you may see displayed on a map are noise nuisances, sex offenders and vehicle break-ins. The CrimeReports app gives you some specifics, such as when and where each incident occurred.
Zillow’s real estate apps allow you to see estimates of properties on the block. They also allow you to search recent sales or see rentals, a good indication of whether your neighbors are renters or homeowners.
5. Google the street address
If you Google the home’s street address, you might be amazed at what you find. You might, for instance, discover a nearby home-based business with employees (which could reduce street parking spaces). Using Google’s Street View, where photos can be months if not years old, you might discover that the ground-floor bedroom window once had bars on it.
Be a sleuth before the sale
The Internet is an amazing resource of information. Too often, though, potential home buyers don’t fully use it to find out everything they can before entering into a contract on a home. As soon as you’ve identified a home you want to buy, get online and do your homework. You might be pleasantly — or unpleasantly — surprised by what you learn.
Are your mortgage payments stressing you out? Beat payments at their own game with these four tips.
Kelley Long, a personal finance expert in Chicago and spokesperson for the National CPA Financial Literacy Commission, says, "We have enough stress in our daily lives from things like work, family, and our go-go-go society. Opening your mail – and your mortgage bill – should not add to it. If you take the time to explore your options, you'll find a few really easy ways to reduce that burden for both the short and long-term."
Ready to learn about how you can take the stress out of paying your mortgage? Keep reading for four easy tips.
Tip #1: Refinance Through HARP
If you're stressing out because you can't refinance your underwater mortgage, stop panicking.
While you're in a difficult situation, you do have options: If your loan was originated before May 2009 and owned by Fannie Mae or Freddie Mac, you could be eligible to refinance through HARP – the Home Affordable Refinance Program.
Paula Pant, founder of AffordAnything.com, a money management website that serves over 15,000 readers a month, says HARP is a loan program designed by the Departments of the Treasury & Housing and Urban Development for people who are underwater on their mortgage and thus, unable to qualify for a traditional refinance.
"If you find out you're eligible, the purpose of HARP is to help you snag a lower interest rate, thus translating into a lower monthly payment – and less money paid in interest over the remaining life of the loan," says Pant. And a lower monthly payment equals less stress!
Tip #2: Negotiate Your Property Tax Rate
We know what you're thinking – how can you negotiate your property taxes? We'll explain in a minute, but before we jump right in, let's take a little detour to understand how mortgage payments are constructed. Pant says that your mortgage consists of four different portions: principal, interest, taxes, and insurance, collectively known as PITI.
"Taxes and insurance are 'escrowed' monthly," she says. "For example, if you owe $2,400 in property taxes each year, you'll pay $200 per month within your monthly mortgage payment towards taxes. Those taxes are based on your county's assessment of your home value."
But here's the problem. Many counties assessed home value when the housing market was at its peak just a few years ago, and haven't re-adjusted it to reflect current, lower home prices. So there's a chance you might be paying too much for your taxes.
Pant says you don't need an appraisal, just an assessment by the county. And you can get the process started by calling your local county line and voicing your intentions.
But how much can you expect to save? Pant gives an example:
"If you can get your annual tax rate to drop from $2,400 per year to $1,800 per year, you can get your monthly tax payment to drop from $200 per month to $150 per month. That's $50 less you'll need to worry about coming up with every month."
Tip #3: Switch to a Higher-Deductible Homeowner's Insurance Policy
Your homeowner's insurance costs are often lumped in with your mortgage payment, so if you can lower your homeowner's insurance premium, you'll lower your overall mortgage payment.
One way to do this is to switch your homeowner's insurance to one with a higher deductible – but a lower monthly payment. And this may be smart way to reduce mortgage costs since only about 3 percent of people file an insurance claim over the course of their homeownership, says home insurance agent, Vicki Tu'ua. That means there's a 97 percent chance you won't have to pay the high deductible.
The savings from the higher-deductible route was a path that intrigued Pant.
"We had homeowner's insurance with a $1,000 deductible," Pant explains. "We called our agent and got a quote on insurance with a $5,000 deductible. Our agent told us we'd save about $600 a year ($50 per month!) on this new plan, so we switched to insurance with the higher deductible and instantly lowered our monthly mortgage payment," she says.
If you're thinking about taking this route to decrease your monthly payments, Pant also advises creating a "home emergency fund" that could cover the higher deductible – just in case you do need to use it.
Tip #4: Reduce Your Interest Rate by Setting Up Automatic Payments
Out of sight, out of mind…that's the theme of this last tip.
Here's what we're talking about: Long suggests setting up a separate bank account for your mortgage, in which funds are transferred via direct deposits from your paycheck. Then you can arrange for your mortgage company to automatically withdraw your payment from that account. And depending on your bank, you could get a nice interest rate reduction by partaking in this service.
"Some banks will give you a small interest rate discount if you set your payment up for auto-pay through them, which saves you more money as well," says Long.
But how will this help relieve your stress?
"You'll never even have to worry about making your payment, taking all the stress away," says Long. "The reason I suggest a separate account is so that you're never tempted to spend the money designated to pay your mortgage, so you never have to stress about the money being there in the first place."
Above is a graph of the movement of the 30 year fixed mortgage rate since the beginning of 2012.
Some buyers are waiting to see if interest rates will come back down before making a decision about buying a home. Though no one can guarantee where rates will be in a few months, we don’t believe waiting is a good strategy.
Most experts believe rates may actually move higher. The Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors are in unison projecting that rates will continue to climb.
With home prices increasing and interest rates projected to also increase, the cost of buying a house could quickly increase rather dramatically.
There is no doubt that the housing market is coming back nicely. What, if anything, could slow down the current momentum? We believe it may be sellers’ over exuberance when it comes to pricing. There is little doubt that house prices have appreciated over the last twelve months in most regions of the country. However, with both the inventory of homes for sale and interest rates increasing, we have to be careful to not over judge what the market can bear.
Trulia just reported that asking priceshave jumped dramatically and the increase is accelerating:
- Year-Over-Year prices jumped 10.7%
- Quarter-Over-Quarter prices jumped 4.1% (16.4% annualized)
- Month-Over-Month prices jumped 1.5% (18% annualized)
No expert is expecting home prices to shoot up 18% in the next twelve months. If anything, price appreciation may slow as rates and inventories increase. Investors will begin to slow their purchases and the first-time buyers expected to take their place will be working within a pre-set budget in many cases.
Buyers’ Purchasing Power
Let’s look at an example: A young couple is looking for a home and have predetermined that their budget will only allow them to spend $1,000 a month on a mortgage. At today’s mortgage rate of 4.5%, they could afford a $200,000 mortgage ($1,013 principal & interest). However, if rates jump to 5%, they would have to lower their mortgage amount to $190,000 in order to keep their monthly payment where they need it ($1,020). At 5.5%, the mortgage would need to be no more than $180,000 ($1,022).
The Impact on Prices
This decrease in buyers’ purchasing power will have an impact on home values going forward. We do not believe it will cause a decrease in prices. However, we do believe it will likely cause current rates of appreciation to slow.
If you are thinking about selling your home, don’t get carried away with current headlines about home price increases that have taken place over the last twelve months. Instead, call a local real estate professional. They will be best prepared to explain where prices are headed over the next six months.
There are a number of things that can trigger the decision to remodel or move to a new home. Perhaps you have outgrown your current space, you might be tired of struggling with ancient plumbing or wiring systems, or maybe your home just feels out of date. The question is: Should you stay or should you go? Choosing whether to remodel or move involves looking at a number of factors. Here are some things to consider when making your decision.
Five reasons to move:
1. Your current location just isn’t working.
Unruly neighbors, a miserable commute, or a less-than-desirable school district—these are factors you cannot change. If your current location is detracting from your overall quality of life, it’s time to consider moving. If you’re just ready for a change, that’s a good reason, too. Some people are simply tired of their old homes and want to move on.
2. Your home is already one of the nicest in the neighborhood.
Regardless of the improvements you might make, location largely limits the amount of money you can get for your home when you sell. A general rule of thumb for remodeling is to make sure that you don’t over-improve your home for the neighborhood. If your property is already the most valuable house on the block, additional upgrades usually won’t pay off in return on investment at selling time.
3. There is a good chance you will move soon anyway.
If your likelihood of moving in the next two years is high, remodeling probably isn’t your best choice. There’s no reason to go through the hassle and expense of remodeling and not be able to enjoy it. It may be better to move now to get the house you want.
4. You need to make too many improvements to meet your needs.
This is particularly an issue with growing families. What was cozy for a young couple may be totally inadequate when you add small children. Increasing the space to make your home workable may cost more than moving to another house. In addition, lot size, building codes, and neighborhood covenants may restrict what you can do. Once you’ve outlined the remodeling upgrades that you’d like, a real estate agent can help you determine what kind of home you could buy for the same investment.
5. You don’t like remodeling.
Remodeling is disruptive. It may be the inconvenience of loosing the use of a bathroom for a week, or it can mean moving out altogether for a couple of months. Remodeling also requires making a lot of decisions. You have to be able to visualize new walls and floor plans, decide how large you want windows to be, and where to situate doors. Then there is choosing from hundreds of flooring, countertop, and fixture options. Some people love this. If you’re not one of them, it is probably easier to buy a house that has the features you want already in place.
Five reasons to remodel:
1. You love your neighborhood.
You can walk to the park, you have lots of close friends nearby, and the guy at the espresso stand knows you by name. There are features of a neighborhood, whether it’s tree-lined streets or annual community celebrations, that you just can’t re-create somewhere else. If you love where you live, that’s a good reason to stay.
2. You like your current home’s floor plan.
The general layout of your home either works for you or it doesn’t. If you enjoy the configuration and overall feeling of your current home, there’s a good chance it can be turned into a dream home. The combination of special features you really value, such as morning sun or a special view, may be hard to replicate in a new home.
3. You’ve got a great yard.
Yards in older neighborhoods often have features you cannot find in newer developments, including large lots, mature trees, and established landscaping. Even if you find a new home with a large lot, it takes considerable time and expense to create a fully landscaped yard.
4. You can get exactly the home you want.
Remodeling allows you to create a home tailored exactly to your lifestyle. You have control over the look and feel of everything, from the color of the walls to the finish on the cabinets. Consider also that most people who buy a new home spend up to 30 percent of the value of their new house fixing it up the way they want.
5. It may make better financial sense.
In some cases, remodeling might be cheaper than selling. A contractor can give you an estimate of what it would cost to make the improvements you’re considering. A real estate agent can give you prices of comparable homes with those same features. But remember that while remodeling projects add to the value of your home, most don’t fully recover their costs when you sell.
Remodel or move checklist:
Here are some questions to ask when deciding whether to move or remodel.
1. How much money can you afford to spend?
2. How long do you plan to live in your current home?
3. How do you feel about your current location?
4. Do you like the general floor plan of your current house?
5. Will the remodeling you’re considering offer a good return on investment?
6. Can you get more house for the money in another location that you like?
7. Are you willing to live in your house during a remodeling project?
8. If not, do you have the resources to live elsewhere while you’re remodeling?
We often talk about the potential cost of waiting to buy a home. Today, we want to look at the actual cost for someone who waited over the last year. We used a 10% increase in house values as prices have gone up by double digits in the country on average. We looked at approximate mortgage rates last year compared to this year. Here is the impact on a monthly mortgage payment (principal and interest):
Today’s $20,000 question is…Where are mortgage rates headed in the near future? Most believe the rapid rise in rates experienced over the last month will not be sustained and that they will level off into a range between 4% and 5%.
When recently asked, Zillow’s director of Mortgage Marketplace, Erin Lantz suggested:
“It is impossible to predict. However, we expect there to be a lot of volatility, probably between 4.5% to 5%.”
In Bankrate.com’s Mortgage Rate Trend Index last week, 20% of the experts said rates would go up this week, 30% said rates would go down and 50% said they would remain unchanged.
What about going forward?
Doug Duncan, chief economist for Fannie Mae recently addressed where mortgage rates may eventually end up:
“I don’t think the Fed ultimately would be troubled with a 6.5% mortgage rate.”
Why wouldn’t the Fed be troubled? They have artificially kept rates low in order to stimilate the economy. As economic indicators begin to show signs of a recovery, the stimulus will be pulled back and rates will rise.
Frank Nothaft, Freddie Mac’s VP and chief economist confirms this:
“As the economy continues to improve, we expect to see continued upward movement in long-term interest rates.”
Buckle in!! The rollercoaster ride will probably continue.
Originally published Friday, June 14, 2013 at 8:01 PM
In an older home, the attic may have little insulation. Over time, what is there may have been disrupted, providing leak points where warm air escapes in the winter and hot air gets in during the summer.
Q: Why is my older home so hot?
A: This question comes up a lot, especially with older homes. In most cases, older homes are poorly insulated.
Energy codes have gone through many changes over the years, making homes more energy efficient. A well-insulated home holds in warmth during cold weather and keeps out the heat on hot days.
Current codes require the entire exterior wall cavity to be filled with insulation, including insulated headers over doors and windows, but this has not always been the case.
In an older home, the attic may have little insulation. Over time, what is there may have been disrupted, providing leak points where warm air escapes in the winter and hot air gets in during the summer.
Also, your attic may not have attic venting. Substandard venting leaves the hot air that collects on warm days to take the path of least resistance out, which may be down into the house.
Windows are often another weak point. It is possible your home might still have single-pane windows as opposed to the double and even triple-pane windows on today’s market.
There are several remedies, depending on the design of your home and the budget you have. A good first step would be to consider an energy audit to help you identify problem areas. Some utility companies provide the audits for no or very low cost so it would be worth checking with your local company.
Seattle City Light customers can find information about its audit program at
Puget Sound Energy customers can find information on its website, pse.com/savingsandenergycenter/ForHomes/Pages/HomePrint.aspx.
Some of the steps that can help keep your older home cool:
• Plant shade trees or vegetation to keep the strongest sun rays from heating your home.
• Provide awnings, trellises or other built structures outside to keep the sun from beating down on your windows.
• Consider replacing single-pane windows with double or triple pane with argon/insulated windows to minimize heat transmission. Windows can also be tinted to reduce solar-heat gain. If you choose to replace your windows, an added benefit is you can seal any gaps where leakage might be occurring during installation.
• It is difficult to add insulation to walls, but many times attic space can be easily accessed to blow in additional insulation. Also, attic vents can be installed to help the heat escape, since heat rises and will collect in your attic. Another often effective measure is to install an attic fan that is connected to a thermostat. It will help push hot air out of the attic.
• If exterior doors are the source of your leak, new caulking to seal or weather stripping could help you keep your home cooler in the summer and warmer in the winter.
• Whenever possible, take advantage of cross-ventilation by opening windows on opposite ends of the house to increase airflow. This is especially effective if you keep the house closed during the hottest parts of the day and open windows as the temperatures drop.
• Ceiling fans are effective for circulating the air, but even fans you get at the drugstore can help and they get quieter and more energy efficient every year.
• If you are thinking about getting a window unit or free-standing air-conditioners, try to shop for them offseason before demand and prices spike.
Jamie Hsu, Lakeville Homes, is a member of the Master Builders Association of King and Snohomish Counties’ Remodelers Council and provided the information contained in this article. If you would like more information or have questions about home improvement send them to firstname.lastname@example.org. Sorry, no personal replies. Always consult local codes and contractors.
EVERETT — It’s 2007 all over again for the local real estate market as antsy buyers rush to buy what’s left in a dwindling supply of homes for sale.
Northwest Multiple Listing Service members notched their highest volume of new listings since June 2011, but the additions did little to ease inventory shortages. Brokers also reported the highest volume of pending sales since May 2007, along with anecdotes of bidding wars.
“Multiple offers have become the new normal,” MLS director Diedre Haines, the Snohomish County regional managing broker at Coldwell Banker Bain, said in a news release issued May 6. “We have literally gone off the charts in absorption.”
The 4.46 percent dip in pending sales in Snohomish County “is all due to lack of inventory,” she said.
Active listings were down 38.46 percent compared to April 2012, extending a trend that started in January 2012.
Haines also reported low appraisals remain a problem as appraisers struggle to keep up with the fast-paced activity and increasing values.
Northwest MLS figures support Haines’ observations. Brokers added 1,349 new listings for single-family homes and condos to Snohomish County inventory during April, up from 1,263 units in April 2012, but that activity was outpaced by sales. MLS members reported 1,500 pending sales, trailing the 1,570 pending sales of one year ago.
Median prices on sales of homes and condos that closed in April surged from $236,817 in April 2012 to $275,000, an increase of 16.12 percent. Half of homes were sold for more than $275,000, half sold for less.
Southwest Snohomish County saw the biggest median sales price increase, jumping from $238,500 in April 2012 to $305,600, an increase of 28.13 percent.
The story was the same in the other 21 counties the MLS covers: New listings, pending sales, closed sales and prices rose compared to 12 months ago, but inventory continued to shrink.
Through four months, closed sales are outperforming year-ago totals for same period by nearly 3,000 transactions. Haines believes the increase is an indicator “that lending restraints are beginning to ease and there are fewer and fewer short-sale transactions being processed.”
Several factors are contributing to a “recipe for a frenzied May real estate market,” said John Deely, another member of the Northwest MLS board of directors and the principal managing broker at Coldwell Banker Bain in Seattle.
“The market pace has not subsided from previous months with low inventory and low interest rates being the primary drivers,” he said.
Also fueling the frenzy is the already fast pace of the market, news reports touting healthy price increases locally and nationally, positive job growth and record highs for the stock market, Deely said.
Prices will continue to rise as current market conditions of historically low interest rates, pent-up buyer demand and a shortage of available inventory are sustained, predicts J. Lennox Scott, chairman and CEO of John L. Scott Real Estate.
Whether the market becomes more balanced may depend on listings. Northwest MLS figures show every county in its service area had year-over-year gains in new listings during April.
“Let’s hope this is the start of a positive trend for inventory,” said Mike Grady, the president and chief operating officer of Coldwell Banker Bain. “But considering the overall market landscape, it’s likely there won’t be enough sellers to fill buyer demand, at least for the short term.”
To accommodate demand, builders around the state appear to be ramping up their activity. Figures from the Building Industry Association of Washington show a surge in permit activity for January, its most current reporting period, when the number of permits more than doubled from a year ago, from 969 to 2,213.
Kurt Batdorf: 425-339-3102; email@example.com.