Archive for the ‘Blog’ Category

30-Year Mortgage Rates Plumb New Depths

Monday, October 18th, 2010

Freddie Mac reports that the average interest on 30-year fixed mortgages slipped to an all-time low, for the third consecutive week, to 4.19 percent.

At the same time, 15-year fixed-rate loans and the five-year adjustable-mortgage rate both also hit record lows. Rates on the former were 3.62 percent, while the latter averaged just 3.47 percent.

Source: The Wall Street Journal, Nathan Becker (10/15/10)

Most Homebuyers Have No Regrets

Friday, October 1st, 2010

An overwhelming 90 percent of homeowners say they don’t regret buying their current home, according to a new study by Bankrate, Inc.That’s even in the face of stagnant – or sliding – home prices they’ve suffered and rock-bottom mortgage rates they may have missed out on.

Only 9 percent of respondents expressed second thoughts about taking the plunge. Why? Most often because they couldn’t sell their home and move on, or because they were unable to afford the monthly mortgage payment.

“It’s surprising and reassuring to hear 90 percent of homeowners say they don’t regret the purchase of their current homes,” says Greg McBride, CFA, senior financial analyst for Bankrate.com.

“And all the nasty headlines in the past two years have really moved the needle in terms of mortgage awareness, with a significant drop in the percentage of borrowers who don’t know what type of mortgage they have,” McBride said.

Only 8 percent of Americans don’t know what type of mortgage loan they have. That’s a lot lower than the 26 percent of respondents in a Bankrate study done two years ago who said they were in the dark about their mortgage type.

Being bullish on homeownership isn’t necessarily new. A recent Fannie Mae report revealed 70 percent of consumers see a home as one of the safest investments to make and 64 percent think now is a good time to buy.

“The key to any real estate survey conducted in today’s market would be to factor in the state where the survey’s respondents reside. In many parts of the country, particularly in the Central states, they did not experience a real estate boom like the West and East coasts and therefore are not faced with the fall out of a dramatic real estate bust today,” said Nancy Osborne, chief operating officer of Erate.com, a Santa Clara, CA-based financial information publisher and interest rate tracker.

She added, “Feelings about homeownership should have changed very little in those states where home prices and equity have remained relatively stable.”Other results in the Bankrate poll of 1,001 randomly selected adults, conducted last month by Princeton Survey Research Associates International, include:

  • Fixed-rate mortgages are gaining in popularity. Seventy-nine percent of respondents said they had this type of mortgage on their home.  
  • Wealthier Americans — those making more than $75,000 — overwhelmingly preferred fixed-rate mortgages. Almost 90 percent of those who were asked, said they used a fixed-rate mortgage.
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    By: Broderick Perkins

    NAR Urges Flood Insurance Reform

    Friday, September 24th, 2010

    Congress needs to act quickly to reauthorize and strengthen the National Flood Insurance Program for the long-term to prevent undermining the fragile real estate market, the NATIONAL ASSOCIATION OF REALTORS® testified Wednesday to the Senate Committee on Banking, Housing and Urban Affairs .

    The NFIP authority is set to expire on September 30 for the ninth time in the past two years; Congress has approved eight short-term extensions during this time.

    “We are pleased that last night the Senate passed S. 3814 to extend the NFIP for one year until Sept. 30, 2011. We urge the House to immediately do the same,” says REALTOR® Nick D’Ambrosia, who testified on NAR’s behalf.

    “However, this month-to-month approach has hindered recovering real estate markets and exacerbated the uncertainty for the more than 5.5 million taxpayers who depend on the NFIP to protect them against floods,” says D’Ambrosia, vice president of training and recruiting for Long and Foster Companies and vice chair of the Maryland Real Estate Commission.

    The House has already passed H.R. 5114, the Flood Insurance Reform Priorities Act, which would reauthorize the NFIP for a full five years. The Senate is holding this hearing to begin the process of developing the Senate response to the House reform bill.

    As part of long-term reauthorization reforms, NAR supports strengthening the NFIP’s solvency through outreach and education programs that would help raise participation beyond the current 50 percent of home owners in federally designated flood areas. The increase in participants would boost funding for the NFIP, help property owners recover from flood losses and decrease future federal assistance when uninsured properties flood and suffer loss, NAR said.

    Adding types of coverage for living expenses, business interruption and replacement cost of contents and updating coverage limits – which haven’t been adjusted since 1994 –would also help increase participation.

    NAR also strongly supports extending and fully funding the pilot program to mitigate properties that have repeatedly suffered insured flood losses.

    “NAR urges the Senate to consider H.R. 5114 and work to strike a proper balance between the NFIP’s fiscal stability and housing affordability,” D’Ambrosia said.

    NAR

    10 Reasons to Buy a Home

    Friday, September 17th, 2010

    Time magazine is being overly pessimistic in its recent cover piece that called into question the benefits of homeownership. In fact, now is a great time to buy. And, what’s more, tomorrow will be a great time to own, because the fundamental strength of homeownership hasn’t changed.

    Why is now a great time to buy? Here are 10 reasons:

    1. You can get a good deal. Prices are down 30 percent on average. They’re at a level that makes sense for people’s income.
    2. Mortgages are cheap. At 4.3 percent on average for a 30-year fixed-rate mortgage, your costs to own are down by a fifth from two years ago.
    3. You can save on taxes. When you add up the deductions for mortgage interest and others, the cost of owning can drop below renting for a comparable place.
    4. It’ll be yours. The one benefit to owning that never changes is that you can paint your walls orange if you want (generally speaking; there might be some community restrictions). How many landlords will let you do that?
    5. You can get a better home. In some markets, it’s simply the case that the nicest places are for-sale homes and condos.
    6. It offers some inflation protection. Historically, appreciation over time outpaces inflation.
    7. It’s risk capital. If the economy picks up, you stand to benefit from that, even if you’re goal is just to have a nice place to live.
    8. It’s forced savings. A part of your payment each month goes to equity.
    9. There is a lot to choose from. There are some 4 million homes available today, about a year’s supply. Now’s the time to find something you like and get it.
    10. Sooner or later the market will clear. The U.S. is expected to grow by another 100 million people in 40 years. They have to live somewhere. Demand will eventually outpace supply.

    Source: Wall Street Journal, Brett Arends (9/16/10)

    30 year Mortgage Rates Rise

    Friday, September 10th, 2010

    Average interest on 30-year fixed mortgages rose for the first time since June, lifting to 4.35 percent this week from 4.32 percent last week and 5.07 percent a year ago, reports Freddie Mac. Rates for 15-year fixed loans held at 3.83 percent, the record low set last week.

    Also, the five-year adjustable-rate mortgage averaged 3.56 percent, compared to 3.54 percent last week and 4.51 percent a year ago; and the one-year ARM fell to 3.46 percent from 3.5 percent last week and 4.64 percent a year ago.

    Source: The Wall Street Journal, Amy Hoak (09/10/10)

    7 Homeowner Tax Advantages

    Friday, August 13th, 2010

     

    By: G. M. Filisko

    When you’re evaluating how much home you can afford, make sure you factor in the tax advantages of homeownership.  You can claim some tax deductions if you work from home, but be sure you’re entitled to them before taking them.  Owning your home not only allows you to build wealth through appreciation, but it can also reduce the amount of income tax you pay every year.  Here are seven tax benefits for homeowners.

    1. Homebuyer tax credits

    If you purchase your first home before April 30, 2010, you’re entitled to a tax credit of up to $8,000. If you currently own a home, but sell it to purchase another home before April 30, 2010, you’re eligible for a federal tax credit of up to $6,500.

    2. Deductions for loan fees

    Typically, you can deduct the “prepaid interest” you paid when you got your mortgage loan. That includes points, loan origination fees, and loan discount fees listed on your settlement statement, even if the seller paid those fees for you. Each time you refinance your home, you can deduct prepaid interest fees.

    However, you must meet certain requirements to take the prepaid interest deductions when you purchase or refinance your home. Check with your accountant to be sure you’re following the rules.

    3. Property tax deductions

    In the year you purchase your home, you’re entitled to deduct the real estate taxes you paid at the closing table. You can continue to deduct the property taxes you pay each year.

    4. The mortgage interest deduction

    Every year, you can deduct the amount of interest and late charges you pay on your mortgage and home equity loans, though there are limitations. If you’re required to purchase private mortgage insurance (PMI) because you made a downpayment of less than 20% on your home, you can also deduct those premiums as mortgage interest expenses.

    5. Home office expenses

    If you have a home office you use only for business, you may be eligible to deduct the prorated costs of your mortgage, insurance, and other expenses related to that space. The government scrutinizes home-office deductions closely. Be sure you’re entitled to the deductions before claiming them.

    6. The costs of selling your home

    In the year you sell your home, you can deduct the costs of selling it, including real estate commissions, title insurance, legal fees, advertising, administrative costs, and inspection fees. You can also deduct decorating or repair costs you incur in the 90 days before you sell your home.

    7. The gain on your home

    If you lived in your home for at least two of the previous five years before you sell it, the government lets you to take up to $250,000 of profit on the sale of your home tax free. That amount is doubled for married couples. This deduction isn’t available on rental or second homes.

    The government also allows you to subtract from your home sale profit any amounts you spend on improvements, such as window replacement, siding, or a kitchen remodel. Those deductions are in addition to the tax credits you can receive in 2010 for making energy-saving upgrades. Money invested for routine maintenance and repairs doesn’t count.

    This article includes general information about tax laws and consequences, but is not intended to be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws vary by jurisdiction.

    Homeowners Insurance: Are You Over- or Underinsured?

    Friday, August 6th, 2010

    By: G. M. Filisko

    Paying for more homeowners insurance than you need is a waste of money, but it can prove even more costly to get caught without enough.  To get the full benefit of replacement coverage, you need to purchase enough insurance to cover the total cost to rebuild your home.

    Trying to get just the right amount of homeowners insurance for your house and possessions may leave you feeling a bit like Goldilocks searching for a chair, a bed, and porridge that are just right. If you underinsure your home and suffer a devastating loss—flood, fire, theft—then you risk not being able to return to the lifestyle you’ve worked hard to achieve. Yet if you overinsure, you’re throwing money away every year on unnecessarily high premiums.

    What you need is coverage that’s just right. Here’s how to get it, and it shouldn’t take more than 4 or 5 hours of your time spent reviewing your homeowners insurance policy, talking to your agent, and doing a little research.

    Look before you leap into a policy

    All homeowners insurance isn’t created equal. That’s why it pays to review your coverage every year to ensure your policy meets your evolving needs. Begin by understanding the types of coverage available.

    Actual cash value coverage reimburses you for the value of your home based on its current condition, explains Marjorie Young, senior vice president at E.G. Bowman Co., a New York City insurance brokerage. If your home was built 10 years ago, you’d receive only the depreciated value of decade-old windows, cabinets, appliances, and so on.

    Most insurers recommend the more comprehensive replacement cost coverage. With it, says Young, you’ll be reimbursed for the amount it will cost to rebuild your home like new with the same kind and quality of materials. Depreciation doesn’t factor into the settlement equation.

    To get the full benefit of replacement coverage, you need to purchase enough insurance to cover the total cost to rebuild your home, excluding the value of the land. Many people make the mistake of insuring at the market value, says June Walbert of USAA Financial Planning Services in San Antonio. But the amount you could sell your home for today isn’t necessarily the same as how much it would cost to rebuild.

    Construction costs play big role

    Look to current construction costs in your local area for guidance. If you’ve purchased a newly constructed home in the past year, you already have the answer. The same is true if you’ve refinanced within the past year. You almost certainly paid for an appraisal during that process that likely includes three valuations: replacement cost, market value, and actual cash value.

    If you’re determining replacement cost without those head-starts, Walbert recommends calling several local homebuilders and asking the average square-foot construction cost in your area. If the going rate is $175, and your home is 2,000 square feet, you’d purchase $350,000 in coverage. For just a few bucks you can also order a valuation report online at a website like AccuCoverage ($7.95) or Home Smart Reports ($6.95).

    Remember that any time you spend at least 5% of your home’s value on a remodeling project—or $5,000, whichever is less—you should contact your insurer to increase your coverage. Young recently did that after she revamped her own kitchen. An additional $40,000 in homeowners coverage raised her annual premium by about $40.

    Don’t neglect valuables, liability

    Be sure you’re also insured at the right value for your home’s contents and for personal liability. Most insurance polices provide only actual cash value on contents, says Lisa Lobo, vice president of underwriting operations at The Hartford in Southington, Conn. To get replacement cost coverage, you’ll need to purchase an endorsement. If you have valuables not covered by your policy—silverware, jewelry, furs—purchase endorsements for those, too.

    Many people pay no attention to the liability coverage limits in their policies, but Walbert says that’s a mistake. If you have a dinner party and a guest falls down your front steps, you don’t want to be underinsured. In recent years the average liability claim for bodily injury and property damage has been $15,854. Walbert recently increased a homeowner’s liability coverage by several hundred thousand dollars for just $6 more per year.

    If you’re concerned about increasing your premiums by adding endorsement after endorsement, ask whether you can save money by splitting your deductible, paying a higher amount for certain claims and a lower amount for others. Bundled endorsements can save you a few bucks, but only if you require them all. Take a pass on unneeded riders. Why spend $8 to $12 a year for $500 worth of refrigerated property coverage when you eat takeout every night?

    G.M. Filisko is an attorney and award-winning writer who has been involved in insurance litigation. A frequent contributor to many national publications including Bankrate.com, REALTOR(R) Magazine, and the American Bar Association Journal, she specializes in real estate, personal finance, and legal topics.

    7 Tips for Improving Your Credit

    Friday, July 30th, 2010

    Here’s how to clean up your credit so you get the least-expensive home loan possible.

    Getting the loan that suits your situation at the best possible price and terms makes home buying easier and more affordable. Here are seven ways to boost your credit score so you can do just that.

    1. Know your credit score

    Credit scores range from 300 to 850, and the higher, the better. They’re based on whether you’ve paid personal loans, car loans, credit cards, and other debt in full and on time in the past. You’ll need a score of at least 620 to qualify for a home loan and 740 to get the best interest rates and terms. 

    You’re entitled to a free copy of your credit report annually from each of the major credit-reporting bureaus, Equifax, Experian, and TransUnion. Access all three versions of your credit report at www.annualcreditreport.com. Review them to ensure the information is accurate.

    2. Correct errors on your credit report

    If you find mistakes on your credit report, write a letter to the credit-reporting agency explaining why you believe there’s an error. Send documents that support your case, and ask that the error be corrected or removed. Also write to the company, or debt collector, that reported the incorrect information to dispute the information, and ask to be copied on any materials sent to credit-reporting agencies.

    3. Pay every bill on time

    You may be surprised at the damage even a few late payments will have on your credit score. The easiest way to make a big difference in your credit score without altering your spending habits is to diligently pay all your bills on time. You’ll also save money because you’ll keep the money you’ve been spending on late fees. Credit card or mortgage companies probably won’t report minor late payments, those less than 30 days overdue, but you’ll still have to pay late fees.

    4. Use credit carefully

    Another good way to boost your credit score is to pay your credit card bills in full every month. If you can’t do that, pay as much over your required minimum payment as possible to begin whittling away the debt. Stop using your credit cards to keep your balances from increasing, and transfer balances from high-interest credit cards to lower-interest cards.

    5. Take care with the length of your credit

    Credit rating agencies also consider the length of your credit history. If you’ve had a credit card for a long time and managed it responsibly, that works in your favor. However, opening several new credit cards at once can lower the average age of your accounts, which pushes down your score. Likewise, closing credit card accounts lowers your available credit, so keep credit cards open even if you’re not using them.

    6. Don’t use all the credit you’re offered

    Credit scores are also based on how much credit you use compared with how much you’re offered. Using $1,000 of available credit will give you a lower score than having $1,000 of available credit and using $100 of it. Occasionally opening new lines of credit can boost your available credit, which also affects your score positively.

    7. Be patient

    It can take time for your credit score to climb once you’ve begun working to improve it. Keep at it because the more distance you put between your spotty payment history and your current good payment record, the less damage you’ll do to your credit score.

    By: G. M. Filisko

    Published 2010-02-25 13:35:12

    Make Your House FHA-Loan Friendly

    Friday, July 23rd, 2010

    Know the basics of FHA loan rules and you stand a better chance of selling your house or condo.

    Make your house FHA-friendly, and it will appeal to more homebuyers. Why? Because the Federal Housing Administration is insuring the mortgage loans used by about 30% of today’s homebuyers.

    If your house passes the FHA rules, it will appeal to buyers who plan to use an FHA-insured mortgage. If your house doesn’t qualify for an FHA loan, you’re cutting out 30% of potential buyers.

    FHA is especially important to first-time homebuyers and those with small downpayments because it allows borrowers with good credit to make a downpayment as low as 3.5% of the purchase price.

    Here’s how to make your home appealing to FHA borrowers:

    Know the FHA loan limits in your area

    Start by checking to see if your home’s listed price falls within FHA lending limits for your area. FHA mortgage limits vary a lot. In San Francisco, FHA will insure a mortgage of up to $729,750 on a single-family home. In the White Mountains of New Hampshire, the loan limit is $271,050.

    Home inspections

    Most buyers will ask for a home inspection, whether or not they’re using an FHA loan to buy the home. You must give FHA buyers a form explaining what home inspections can reveal, and how inspections differ from appraisals.

    How much do you have to repair?

    If the home inspection reveals problems, FHA will not give the okay to buy the home until you repair serious defects like roof leaks, mold, structural damage, and pre-1978 interior or exterior paint that could contain lead.

    Dealing with FHA appraisers

    Help the lender’s appraiser by providing easy access to attics and crawl spaces, which usually must be photographed, says appraiser Frank Gregoire in St. Petersburg, Fla.

    Your buyer can hire his own appraiser to evaluate your home. But FHA only relies on reports by its approved appraisers. If the two appraisals conflict, the FHA appraisal preempts the buyer’s appraisal.

    Help with FHA closing costs

    Most FHA buyers need help with closing costs, says mortgage banker Susan Herman of First Equity Mortgage Bankers in Miami. So a prime way to make your house FHA-friendly is to help with those costs.

    FHA currently allows sellers to pay up to 6% of the sales price to help cover closing costs, but is considering lowering that limit to 3% in the fall of 2010. 

    If you’re selling a condo

    FHA also has to approve your condo before a buyer uses an FHA loan to purchase your unit. Be sure your condo is FHA-approved for mortgages. The list has been updated, so if your association was approved a year ago, check again to make sure it’s still on the approved list.

    FHA generally won’t insure loans in condo associations if more than 15% percent of the unit owners are late on association fees. Ask your property manager or board of directors for your association’s delinquency rate.

    Other rules cover insurances, cash reserves and how many units are owner-occupied and the types of condos that can be purchased with an FHA mortgage.

    FHA sometimes issues waivers for healthy condominiums that don’t meet the regular rules. If your condo isn’t FHA-approved, it doesn’t necessarily have to meet every single rule to gain approval. Ask your REALTOR® to consult with local lenders about getting an FHA waiver for your condo if it doesn’t meet all the requirements.

    FHA also limits its mortgage exposure in homeowners associations. With some limited exceptions, no more than 50% of the units in an association can be FHA-insured.

    By: Terry Sheridan

    Published 2010-06-02 08:37:43

    4 Tips to Determine How Much Mortgage You Can Afford

    Friday, July 16th, 2010
    By: G. M. Filisko 
    Published 2010-03-11 16:55:18

               By knowing how much mortgage you can handle, you can ensure that home ownership will fit in your budget.

              Instead of just taking out the biggest mortgage a lender qualifies you to borrow, consider how much you want to pay each month for housing based on your financial and personal goals.

              Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree? Will a new child add day care to your monthly expenses? Does a relative plan to eventually live with you and contribute to the mortgage?

              Still not sure how much you can afford? You can use the same formulas that most lenders use, or try another of these traditional methods for estimating the amount of mortgage you can afford.

     

    1. The general rule of mortgage affordability

             As a rule of thumb, you can typically afford a home priced two to three times your gross income. If you earn $100,000, you can typically afford a home between $200,000 and $300,000.

             To understand how that rule applies to your particular financial situation, prepare a family budget and list all the costs of homeownership, like property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care costs. 

    2. Factor in your downpayment

              How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home’s cost, you may not have to get private mortgage insurance, which costs hundreds each month. That leaves more money for your mortgage payment.          The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher your monthly mortgage payment.

    3. Consider your overall debt

              Lenders generally follow the 28/41 rule. Your monthly mortgage payments covering your home loan principal, interest, taxes, and insurance shouldn’t total more than 28% of your gross annual income. Your overall monthly payments for your mortgage plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 41% of your gross annual income.

             Here’s how that works. If your gross annual income is $100,000, multiply by 28% and then divide by 12 months to arrive at a monthly mortgage payment of $2,333 or less. Next, check the total of all your monthly bills including your potential mortgage and make sure they don’t top 41%, or $3,416 in our example. 

    4. Use your rent as a mortgage guide

              The tax benefits of homeownership generally allow you to afford a mortgage payment—including taxes and insurance—of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.

              Here’s an example. If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.

             However, if you’re struggling to keep up with your rent, consider what amount would be comfortable and use that for the calcuation instead.

              Also consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax situation more clearly.