Tips to stretch your home-buying dollars

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Budgets: They reflect a reality that we either revel in or despise. If yours is reflecting the fact that, yes, you can afford to make a mortgage payment every month, but it will be tight, you have some tough decisions to make.

These include the obvious, such as putting off the purchase until you have more income or savings or buying the least expensive home you can find. Let’s take a look at some of the less-obvious ways to take the money you have right now and stretch it to make the purchase a bit more comfortable.

Pay more now to save later

Whether you know it as PMI (private mortgage insurance) or MIP (the FHA Mortgage Insurance Premium), it’s a monthly payment that you would be wise to try to avoid.

Required on all mortgages for which the borrower makes a down payment of less than 20 percent, PMI can add a big chunk to your house payment. We’ll use the median home price nationwide for the following scenario.

For example, if you use a 30-year, FHA-backed loan at 3.750 percent interest to purchase a home for $250,000, and offer a down payment of $8,750, your MIP will be about $170.00.

Take the time to save more money so that you can pay a 20 percent down payment, and you’ll skip that MIP or PMI fee every month. We don’t know about you, but we can put that $2,040 per year savings to much better use than handing it over to the lender.

But here’s the really exciting part: With a 20 percent down payment, you not only ditch the mortgage insurance requirement but, because the loan amount is smaller, your monthly payment will be significantly less as well. In our scenario, in fact, you’ll save nearly $500 per month on your house payment.

Now THAT’S using your ‘noggin!

Ok, we hear you – who wants to wait as long as it will take to save all that money? Is there someone that will gift you the funds for the down payment?

While FHA mandates that the borrower kick down at least 3.5 percent of the down payment, conventional loan guidelines permit gift funds for all or part of the down payment, as long as the loan-to-value will be 80 percent or less (meaning you’ll need a 20 percent down payment). Or, they can be used for closing costs and other items.

The donor has to be related to you, however, or a domestic partner, fiancée or fiancé.

Build sweat equity

Ok, so not all of us can come up with a $50,000 down payment for a $250,000 mortgage. For those on a limited budget with sparse savings, buying a fixer home may be the answer. Nationwide, fixers are priced an average of 8 percent less than market value, according to a Zillow analysis.

The drawback to buying a home that needs work is that, since you have a tight budget, the renovation work will be piecemeal, on an as-you-can-afford-to-make-repairs basis. Some buyers aren’t bothered by this prospect, especially if there isn’t a lot of work to be performed.

If you are among them, fixers are the ideal way to get into homeownership for a lot less money than you’d pay for a turnkey home. Eventually, you will have a home that’s customized to your lifestyle and tastes.

All those nickels and dimes add up

There are several “legs” to your monthly mortgage payment and a big chunk of it goes into an escrow fund to pay for your insurance and taxes and, sometimes, your homeowner association dues and fees.

Hoa fees

In fact, if you’re an “average” American, and you live in a managed community, your HOA fees, taxes and insurance add nearly $600 to your house payment each month. Thankfully there are ways to cut that number and stretch your home-buying dollars.

HOA fees are on the rise, nationwide. In a recent Trulia study, these fees outpaced home-price growth and now average $331 a month. If you don’t mind doing your own exterior home maintenance, seek out a home that isn’t in a managed community. Your mortgage payment will be a lot easier to swallow if it’s more than $300 a month lighter.

Insurance

Next, consider homeowner insurance. The average annual premium, nationwide, is $964, according to Value Penguin. The Insurance Information Institute offers several ideas on how to whittle down the cost of insurance.

In a nutshell, you can ask for a higher deductible, install security features and take advantage of discounts, such as those for seniors. Shop carefully and compare policies among several insurers.

Property taxes

Wallet Hub’s John S Kiernan claims that “The average American household spends $2,149 on property taxes.” That’s a smidge more than $179 per month.

Interestingly, few homebuyers research a home’s property taxes before deciding to purchase. It’s easy to do – many assessor’s offices have tax information online.

“Buyers also should find out whether a home may be subject to multiple property tax authorities. Not only states, but also counties, cities and special districts, such as local water, sewer or school authorities, may wield such powers,” according to bankrate.com’s Marcie Geffner.

While a tight budget doesn’t preclude one from buying a home, finding ways to stretch what little money you have may just allow you to purchase more home than you thought possible. At the very least, taking cost-saving measures will help lower your monthly payment.

 

 

3 questions you absolutely, positively must run by your real estate agent

Caution: Taking action on a whim, without consulting your real estate agent, may be hazardous to your real estate transaction and, thus, your pocketbook. All questions, no matter how difficult to ask, or how small they may seem, should be run by your agent.

Let’s take a look at three common scenarios and show you why you need your agent’s counsel.

  1. “We found a brand new house at Delusional Knolls!”

    “We don’t mean to hurt your feelings, but we’re pretty sure we’ll be using that nice real estate agent we met at the sales office – is this a good idea?”

Oh, heck no! Sure, it seems convenient – the agent is right there in the new-home community in which you want to buy, so you won’t have to make an appointment to see her – you can just pop in whenever you like, right?

Consider this: that agent represents the builder or developer. How will she do her ethical duties to you and the builder, simultaneously? If you wouldn’t hire your soon-to-be-ex-spouse’s attorney to handle your divorce, why would you hire the builder’s agent and hope that he or she will have your best interests in mind? Dual agency is a fine line to walk for even the most ethical agents.

As a buyer, you pay nothing for the services of a real estate agent. Be selfish – get your own. That way you’ll know for sure that there is someone in your corner at all points during the process.

 

  1. Here’s my seller’s disclosure statement. I was so busy I just checked “no” on all the boxes. That’s ok, right?

Sure it is, if you like litigation.

The typical seller’s disclosure statement asks something to this effect: “Are you (seller) aware of any significant defects/malfunctions in any of the following?”

You checked “no” on all the boxes, which means that you aren’t aware that the basement floods every time we have a heavy downpour, despite you making that very clear to me, your agent.

Of course, the buyer, who suffered the loss of all his basement furnishings,  will need to prove to a judge that you were aware of and actually concealed the problem. But, since you shared your travails with your buddy across the street, the buyer won’t have to do much digging. Neighbors are frequently deposed in these cases.

Disclosure laws are different in many states and even in many counties within states. Depending on where you live, if you’re found guilty of concealing material facts about the home, you could be held liable for the buyer’s monetary losses (compensatory damages), be forced to pay punitive damages on top of that and, in rare cases, the buyer is allowed to cancel the purchase and give you back the house.

If the concealed defect results in substantial harm or death to the buyer, you could end up in prison, like the homeowner in Vermont who deliberately failed to disclose a faulty driveway heater to the family of four who purchased the home.

All but one member of that family (an infant) died of carbon monoxide poisoning, the former owner was convicted of involuntary manslaughter and was sentenced to four years in prison.

By the way, in some parts of the country, this duty to disclose may cover up to a 10-year period, post-sale.

We understand how hard it is to expose even the home’s tiniest flaws to the prospective buyer, but to not do so may turn out to be exorbitantly expensive. Take your time with the seller’s disclosure statement and answer each question honestly.

 

  1. I can’t believe we’re closing in just two weeks! Did I tell you we’re shopping for furniture and appliances this weekend? We got an awesome financing program for them!

This one is so common, and so sad. In the excitement in the run-up to closing, many buyers begin to imagine furnishing the new home. Many others actually take steps toward buying the furnishings. It’s a huge mistake.

Shortly before closing your lender will most likely pull your credit reports again, a process known as a “soft pull,” because it doesn’t affect your credit score. This is the lender’s final assurance that you truly can afford the monthly payment and that you will actually make that payment.

Applying for credit for those new appliances or furniture will show up on the soft pull and will catch the underwriter’s attention. The new credit changes your risk profile and the new monthly payment for the items you purchase with that credit may change your debt ratios so much that you will no longer qualify for the loan.

It does happen and it’s heartbreaking. Until you close on the house, don’t apply for new credit, don’t switch jobs or move money around to different accounts. Keep your financial situation exactly as it was when you applied for the mortgage.

Communicating with your real estate agent, even if you think what you are about to do is innocent or non-threatening to the process, is the wisest move you can make during the real estate transaction. You never know just how huge it may turn out to be.

 

It’s wildfire season – are you ready?

From the elderly couple who broke down in tears when they returned to find a pile of rubble where their home once stood, to the countless stories about brave and heroic neighbors, farmers, ranchers, veterans and complete strangers, wildfires make headlines.

“We didn’t have a chance to react. It was here, and we got out with the clothes on our back. All of our memories, everything is gone,” 70-year-old Martha Grimm tells the Associated Press’ Brian Skoloff and Kristin J. Bender.

The good news is that last year, the incidence of wildfires was lower than the year before. The bad news? From January through April of this year, 2017, there were nearly 3,000 more fires than in the same time period in 2016, according to the Insurance Information Institute.

What is wildfire?

Think back to that firefighter that visited your elementary school class. During his or her address, the talk most likely centered around the fire triangle – the three elements necessary for a fire to “live.” These include oxygen, fuel (flammable materials such as dry grassland, brush, trees and homes) and a source of heat (campfire, the sun, lightning and cigarettes, for example).

When all three elements converge, in a susceptible area, a wildfire breaks out. The more fuel there is, the more intense the flames will be and the hotter and faster the fire moves.

“Even before the flames of a wildfire arrive at a particular location, heat transfer from the wildfire front warms the air to 800 °C (1,470 °F),” according to Doug Knowling, author of “Ecological Restoration: Wildfire Ecology Reference Manual.” Can you imagine what 1,470 degrees feels like? This extreme temperature dries out flammable materials, causing them to ignite faster and the fire to spread more quickly.

Knowling says that wildfires in forests move about 6.7 miles-per-hour while those in grasslands spread at a rate of 14 miles-per-hour. Not understanding how quickly a fire moves is the reason so many victims are caught off-guard, and, unprepared.

Protect your family and your home from wildfires

Scientists believe that the first wildfire occurred about 420 million years ago. And, before chalking up recent blazes to climate change, understand that the most devastating fires in our country’s history occurred in the late 18th century (the Great Peshtigo Fire) in Wisconsin and the early 19th centuries (the “Great Fire of 1910”) in Idaho, Montana and Washington.

What has changed since then is that we have more information about wildfires and how to protect ourselves. Readyforwildfire.org suggests these three preliminary steps:

Prepare your home for wildfire by:

  • Ridding your landscape of combustible materials to within 5-feet of it. Use brick, gravel or concrete instead. Remove tree branches that overhang the deck and house. Ensure there is no dry or dead vegetation.
  • Consider replacing your siding with noncombustible siding. Otherwise, ensure that there is a 6-inch ground-to-siding clearance,” according to the Insurance Institute for Business and Safety.
  • Maintain your roof by consistently removing debris. Hot embers love the stuff.
  • Do the same with gutters – keep them clear of debris during fire season.
  • Replace wood fences with noncombustible materials.
  • Install 1/8-inch metal mesh over roof vents.
  • Close the windows when fire threatens.
  • Don’t forget the deck. Those boards are combustible. . .maintain that defensible space mentioned in the first step.

For a more detailed list of ways to protect your home, visit disastersafety.org.

The months of June through September of 2017 have been designated wildfire season, according to the U.S. government’s National Interagency Fire Center. Last year, wildfires simultaneously raged across seven states.

Take steps now to protect your family and your home.

What’s it worth? 3 questions about value-boosting home characteristics

Of the many questions we field from homeowners thinking of selling their homes, the most frequent starts with “What’s it worth?” Of course they’re referring to their home’s value, but even after that is determined, the “What’s it worth” questions continue. Following are three of the most common questions about items that may, or may not, add to a home’s value

What’s a view worth?

We typically get this question from a homeowner who just found out that his home with a gorgeous view is worth less than he thought. If two homes are identical and only one of them has a view, it’s a safe bet that the one with the view will be worth more.

How much more? It depends on who you ask. Some real estate professionals claim there is no value in a view, yet others claim that the view may increase the home’s value by up to 15 percent over similar homes that lack one.

Texas Christian University’s Mauricio Rodriguez, PhD and C.F. Sirmans of Florida State University studied the topic and found that, at least for the housing market they examined, “a good view adds about 8% to the value of a single-family house.” (Rodriques/Sirmans: Quantifying the Value of a View in Single-Family Housing Markets)

Since the final determination of a home’s market value is decided by the appraiser, we went on a hunt for an appraiser’s opinion. Michael Fox, a New York State Certified Residential Appraiser with MF Appraisals  in Westchester, conducted his own, informal study of the value of a golf course view.

He analyzed 4 years’ worth of sales in a townhome development and found that the golf course view was worth from nearly 6 percent to 6.85 percent, depending on the year the home sold. “Throughout the marketing of the project, regardless of changing market conditions, buyers paid more for units with a view of the golf course.”

Whether the view is of the city skyline, water, open space or a golf course, it is worth something. What’s lacking is a consensus on precisely how much it’s worth.

Will a pool add value to my home?

Oh, this one is popular. Thankfully, it’s easier to answer than questions about the worth of a view.

The National Association of Realtors’ National Center for Real Estate Research claims that “. . .an in-ground swimming pool adds about eight percent to value” and that “an above ground pool adds no value.”

The National Association of Homebuilders, however, finds that, of homebuyers who expressed a desire for a pool, most said they would be ok with a community pool.

Again, real estate value comes down to location. The value of a pool depends a great deal on where the home is located. Buyers in warm regions tend to put more value on them than those in our country’s cooler areas. So, yes, a pool adds value to a Phoenix or Las Vegas home but may not add a penny to a similar home in Minneapolis or Omaha.

In fact, the National Association of Realtors study we mentioned earlier finds that Southwest homeowners with a pool can realize an 11 percent bump in value (unlike the eight percent for homeowners elsewhere).

For any pool to be considered valuable it needs to be in good condition, otherwise, it may actually drag down the home’s value.

Which renovations will boost my home’s value the most?

Keep in mind that any renovations you make to the home will only pay you back, on average, “64.3 cents on the dollar in resale value,” according to Remodeling Magazine’s 2017 Cost vs. Value Report.

That said, the projects from which you’ll get the most bang for your buck, according to the report, include:

  • Replacing attic insulation – A contractor air-seals the attic floor to stop air leakage and then adds fiberglass insulation to a thickness equal to R-30 insulation. This project pays for itself, according to the magazine’s report – returning 107.7 percent of the cost when the home sells.
  • Front door replacement – Ditch the old door and replace it with a steel one. It will cost you about $1,400 (national average) and you’ll recoup 90.7 percent upon the sale of the home.
  • Minor kitchen remodel – This project involves replacing the cabinet and drawer fronts and adding new hardware; replacing the appliances with energy-efficient models; installing new laminate countertops; installing a new sink and faucet; repainting trim, adding wall covering and replacing the flooring. Total cost: $20,830 and the homeowner will recoup 80.2 percent of that after the sale.

Since kitchens are so important to buyers, we dug deeper into this facet of home renovations. Consumer Reports finds that millennial homebuyers overwhelmingly want a “modern/updated kitchen” The group goes on to suggest that for a mere $5,000 you can add new appliances, countertops and flooring and splash some fresh paint on the walls and realize a 3 to 7 percent bump in home value.

Anything you do to the home that helps save on energy bills will be popular with buyers. This includes replacing old windows with high-efficiency versions, replacing utility-hogging appliances and the aforementioned beef-up of the home’s insulation. The Consumer Reports study claims that replacing old windows with “Energy Star certified windows can lower your home’s energy bills by 7 to 15 percent.”

Now THAT is a hot selling point!

What are you talking about? Real estate terms explained

Remember that first day on a new job when it sounded as if your colleagues were speaking a different language? Most industries have their own jargon and real estate is no exception. In fact, this industry seems to be the King of Jargon. What’s worse is that those who use it assume that the rest of us know what they’re talking about.

Today we’re going to help you master this language by defining some of the most common terms you’ll hear throughout the process of buying or selling a home. Soon you’ll be slinging this jargon as if you were a real estate pro!

Addendum – This is a document that is attached to and made a part of the original contract. It is typically used to provide clarity on certain parts of the contract. An example of an addendum is the Addendum for Seller’s Disclosure of Information on Lead-Based Paint Hazards as Required by Federal Law. Another example is the “As-Is” addendum, used to disclose to the buyer that the seller refuses to warrant the condition of the property and that the seller will not be responsible for the replacement, repair or modification of any defects in the home.

The addendum is submitted before the contract is ratified and ratification won’t occur unless all parties sign it.

Amendment – Suppose you make an offer on a home and the seller accepts it – you have a contract. Then, suppose that you discover that you need to extend the closing date. Your agent will submit an amendment to the contract (the purchase agreement) stating the new closing date. If accepted by the seller, the information, obligations or terms stated in the amendment supersede the previous terms and become part of the original contract.

Contingency – The dictionary defines a contingency as “a provision for an unforeseen event or circumstance.” In a real estate contract, anything that puts a condition on the buyer’s willingness to proceed with the purchase is a contingency. For instance, you, as the buyer, agree to consummate the purchase if the home appraises for X number of dollars. The appraisal becomes a contingency item. If you need to sell your current home before closing the purchase on this home, you will create a contingency to that effect. In essence, what contingencies do is tell the seller that you will consummate the purchase if x, y or z occurs by a certain date.

Counteroffer – This is a form used to counter the terms put forth by the other party. Suppose you submit an offer to purchase a home for $125,000. The seller wants $150,000. Now he or she can either ignore your offer and hope for a better one, or submit a counteroffer stating his desired price. Counteroffers are also used to propose different terms (such as closing date, possession date, etc).

Disclosures – You’ll encounter a number of disclosure forms during the buying and selling process. This form is used to let the parties know about something that either the seller or the broker is legally obligated to disclose. A common disclosure form is a Transfer Disclosure Statement. The seller fills out this form which details everything he or she knows about the home that may affect the buyer’s safety, comfort and enjoyment of the home.

Due Diligence – Due diligence is a legal term, and one that should be taken very seriously. It describes the buyer’s duty to undertake a thorough assessment of the property to determine its assets and liabilities. For instance, after closing on a home, a buyer discovers that the home doesn’t have air conditioning and he assumed when he bought it that it did. He attempted to extract the price of a new unit from both the seller and the real estate broker. The judge determined that, since the seller’s Transfer Disclosure Statement stated there was no air conditioning unit in the home, the buyer failed in his due diligence (either by signing the disclosure statement without reading it or by not inspecting the home thoroughly) and denied remedy.

Earnest Money Deposit – When a buyer submits an offer to purchase a home, or shortly thereafter, he or she will show good faith by submitting an earnest money deposit. This is often confused with the down payment. This deposit also satisfies one of the six elements required for a contract to be enforceable and is known in the legal world as “consideration.” The amount of the deposit varies, but plan on paying at least 1 percent of the purchase price of the home. The deposit is held in escrow, or the broker’s trust account, until the close of escrow when it will be applied toward the purchase price.

Escrow – We’ve found this to be one of the most confusing terms for our first-time buyer clients. Escrow is, simply, a third party with no ties to the transaction who holds all of the pertinent documents (the purchase agreement, deed, etc.) and money until it’s disbursed, according to the terms of the contract, at closing.

Escrow Impounds – This is where the confusion comes in for folks new to the real estate purchase process. Escrow impounds describes an account set up by the lender to hold your prepaid taxes and insurance. Not all lenders require an escrow impound, but most do and it’s wise for the homeowner to have one.

Title Insurance – Title insurance protects the new homeowner and the lender against any future claims to the property, liens and encumbrances. There are two types of policies, one for the lender (which is required) and one for the homeowner. Before issuing either policy, the title insurance company will do a thorough examination of the home’s title to ensure that the owner really does own it, that there is no additional owner who hasn’t been listed as a party to the transaction, as well as other issues.

Naturally, this list is far from comprehensive, but we hope it answers your questions. Should we ever use a term that you don’t fully understand, please speak up. We’re happy to clarify it for you.

4 tips to make small rooms look larger

Sure, “tiny homes” are now a fact of life in the real estate world. No, they aren’t the rage some would have you think, but a minimalist lifestyle is on many American’s bucket lists.

One doesn’t necessarily have to live in a dollhouse, however, to know the challenges of trying to furnish and live in and with tiny rooms. Homeowners in older homes are keenly aware of “small-room syndrome.”

One of the most important aspects of staging a home for sale is to declutter in an effort to make rooms, closets and cupboards appear roomier. Believe it or not, with strategic staging, even the tiniest spaces can look larger.

1. Lighten and brighten

Dark rooms have a cave-like quality – small and cramped. Obviously, adding more light will help, so opt for smaller lamps spread around the room. These will draw the eyes around the room, making the space seem larger. If the room is so small that it lacks the furniture to hold lamps, consider using wall sconces and floor lamps to lighten up dark corners.

One trick designers use is track lighting. It makes the room less cluttered and adds light across the room. Use small lights in the track lighting; large lights may overwhelm the small space.

2. Paint

Paint is the miracle cure for many things that ail a home. Not only does it freshen up a room but, choose your color strategically, and it will help the room appear much larger than it is.

Surf the Internet to find which colors make a room look larger and you’ll see that most folks swear that white is the best. As a matter of fact, nothing could be further from the truth, according to professional designers. Since they’re taught that “light colors advance and dark colors recede,” and visual perception tests back this up, dark colors will actually make the room seem larger.

“Now, if I’m in a room and all the walls seem to be closer to me, I would say that makes the room ‘feel’ smaller. Accordingly, the gray walls would seem to be farther away, giving the impression of more space between myself and the walls – to wit: a bigger room,” argues the experts at Sherwin Williams.

Now, that’s for the walls.

You’ll also want the ceiling to appear higher to add to the this-room-isn’t-as-small-as-it-appears illusion. The ceiling should be darker than the walls, according to Laurel Bern with Laurel Bern Interiors.

3. Choose accessories carefully

Too many accessories make a small space appear cluttered. Like an overstuffed closet, clutter makes a room appear small. You’ll need to be ruthless when ridding the room of the excess accessories. In fact, remove everything and then, “add back only the things that you love,” suggests Lori May, owner of Lori May Interiors.

When it comes to art work, hang the most interesting on the wall furthest from the door. “By drawing the eye to a distant spot that has a striking visual element, you expand the perceived depth of field,” Jeffrey Blum of SixZero6 Design in New York City tells Forbes’ Bethany Lyttle. “It gives the space a way-over-there feeling,” he concludes.

Another trick with photographs and artwork is to hang them lower than you normally would. “It gives the impression of a taller ceiling,” according to the experts at Amara, a luxury home fashion retailer.

4. Furniture placement

Yes, too much furniture and overly large and heavy furniture will make a small room feel cramped, but even smaller furniture won’t work if it’s not placed strategically. Pull the sofa out so that it’s 3 to 4 inches from the wall. “Leaving space creates the illusion a wall is further away than it actually is,” suggests the Amara designers.

Tall bookcases or shelves hung all the way to the ceiling also create an illusion of more room by emphasizing the vertical space. “Higher placement of design features helps create the feeling of volume in the room,” according to Houzz contributor Neila Deen.

 

What every homebuyer needs to know about mortgage rates

Will they go up again? It’s the top-of-mind question for lenders, real estate professionals and real estate consumers. When interest rates take a hike, the complexion of the housing market completely changes.

If you’re a first-time homebuyer, you are no doubt following interest rates and the doings of the Fed. It’s confusing, isn’t it? Real estate industry jargon is bad enough but with mortgage lingo thrown in, it’s no wonder homebuyers don’t know where to start.

Because interest rates fluctuate daily, it’s important to shop for a loan quickly, yet effectively. Comparing lenders’ offers is a critical step if you hope to keep your monthly mortgage rates as low as possible.

While interest rates are but one aspect of a mortgage quote to compare against others, it is probably the most important, so let’s take a look at why rates change and what you can do to get the lowest rate.

What impacts mortgage rates?

The Federal Reserve System, also known as “The Fed,” is the U.S. central banking system, controlling the way money moves in and out of our country’s financial system.

The Fed is governed by a seven-member Board of Governors and includes 12 regional Federal Reserve Banks. Within this group are committees; the most significant of which to a discussion of mortgage interest rates is the Federal Open Market Committee or FOMC.

The members of the FOMC are tasked with figuring out the Fed Funds Rate – the interest rate charged to banks when they borrow money. Banks that lend to other banks also use this rate. In turn, this is the base rate banks use when they determine how much to loan to their mortgage customers.

The secondary market’s impact on mortgage rates

Mortgage rates also fluctuate according to what is happening on the secondary market. Without getting too technical, the secondary market is the place mortgage banks turn to sell their loans. Without these sales, the mortgage banks couldn’t remain in business as they lack long-term funding. So, this is the only method they use to create more money to lend. Mortgage bankers also make a commission on each loan sold.

So, who buys these loans on the secondary market? Investors include pension funds, securities dealers, other banks, Freddie Mac and Fannie Mae (with certain restrictions).

How your interest rate is determined

While the Fed and the markets set the starting point for a bank’s determination of interest rates for their customers, the rate offered to you is determined on a much more personal level.

Your Credit

Your credit score, determined by the Fair Isaac Corporation (FICO), has the most significant impact on the rate you’ll be offered.

FICO considers many things when determining your credit score. The two items that most impact your score, however, are your payment history and the amount owed.

The FICO score is a three-digit number – between 300 and 850 – and it signifies, to lenders, your reliability in repaying your debts. A low score may mean that you won’t get the loan or you’ll receive a high interest rate. A higher score means you’ll have more options available. Fortunately, FICO scores, like interest rates, fluctuate so it’s possible to raise your score.

While FICO only considers information in credit reports, your lender will look at far more.

Income and assets

Your job, and your time on the job, also impacts the amount of interest you’ll pay on your mortgage loan. A two-year history in the same line of work, whether as an employee or self-employed – shows the lender income stability.

Lenders also look at earned investment interest, royalties and commissions. It may also consider income from Social Security, child support and alimony.

The lender will use your income and debt numbers to calculate your debt-to-income ratio, which should not exceed 36 percent of your gross (pre-tax) income. The ratio is further broken down, looking to ensure that you spend no more than 28 percent on housing and 8 percent to pay off debt, such as installment loans and credit card balances.

Learn how to calculate your debt-to-income ratio at bankrate.com.

Down payment

Consumers who make large down payments on their homes are typically more likely to continue paying for the home since they have so much invested in it. Lenders often offer a lower interest rate when the customer is willing to make a large down payment.

Federal guarantee

Because the government guarantees repayment, a government-backed loan, such as FHA, VA or USDA, will have a lower interest rate than a traditional mortgage loan. Even customers with what may be described as a “risky” credit history may be offered a loan because the lender isn’t on the hook for the entire balance should the borrower default on the loan.

Length of the loan

Lenders know that the likelihood of default rises the longer a borrower holds a loan. For this reason, a 30-year fixed loan bears a higher interest rate than a 15-year fixed. Not only does a 15-year mortgage allay lender fears, it offers the borrower a wealth of savings.

Type of loan program

While there are many loan programs available, the two most commonly offered to homebuyers are fixed rate and adjustable rate loans.

With a fixed rate, your mortgage interest rate remains the same for the life of the loan. Borrowers like this program because their mortgage payments remain predictable until the loan is paid off.

The adjustable rate mortgage (ARM), on the other hand, has fluctuating interest rates at pre-determined intervals. For example, a 5/1 ARM has a fixed rate for five years and then adjusts, either up or down depending on current rates, every year.

The annual percentage rate

When comparing interest rates of various lenders, pay attention to the annual percentage rate (APR) quoted in each offering. This number represents the annual cost of the mortgage with interest, points and mortgage insurance factored in.

While mortgage interest rates are an important consideration when comparing offerings from various lenders, they are only one factor to consider. You should compare all loan features, such as points and closing costs, before settling on a lender and a loan product.

 

3 factors that may impact the sales price of your home

You can make all the necessary repairs to your home, clean it, stage it, maybe even remodel it. But there are some factors that may impact the eventual sales price of your home that are out of your control. So, regardless of how impeccably you’ve maintained the home and despite its ideal location, one or more of these circumstance may rear its head and dash those dreams of riches at the closing table.

Let’s take a look at three of the factors that may impact your home’s value.

 

1. The condition of the current market

You’ve no doubt heard real estate markets referred to as buyers’ sellers’ or balanced markets. A buyers’ market occurs when there are lots of homes for sale and few buyers competing for them. Since the buyer is in the driver’s seat, prices tend to stagnate or fall in this type of market. When the inventory of available homes is tight and there are many buyers seeking homes, we are in a sellers’ market and home prices rise.

So, what creates these micro-markets? Many factors affect both national and local housing markets, chief among them is the strength of the economy. When times are good, consumers have money to buy homes and home prices typically increase. In tough times, when unemployment is high and incomes stagnant, the real estate market will feel the pinch.

Then, there are interest rates. When they rise, many are priced out of the housing market and when they fall, folks clamor to buy homes. Therefore, the overall strength of the economy may help dictate the eventual sale price of your home.

2. Neighborhood changes

Your neighborhood, and the surrounding area, may look nothing like it did when you bought the home. Even the most careful research performed before committing to buy a home can’t foresee future zoning changes, the neighbor that builds an extra story on his home and blocks your view, or the sex offender that relocates to your neighborhood. All of these events can negatively impact your home’s value and, subsequently, how much you’ll receive when you sell it.

Suppose a change in zoning allowed a dump or landfill to be placed near your neighborhood. Nearby home values will drop by as much as 7.3 percent according to Business Insider’s Mandi Woodruff.

A power plant will ding your value from 4 to 7 percent, a sex offender as a neighbor will drag down your home’s value by up to 12 percent and, woe to you if a neighbor forecloses because, according to Woodruff, the national average loss of value of nearby homes is $7,200.

Now, some neighborhood changes should be applauded, at least by nearby homeowners. There’s even a name for the phenomenon: The Walmart Effect. The name typically describes the economic impact on local businesses when a big-box store, such as Walmart, moves into the area, but it’s been found to apply to home values as well.

So, if a Walmart comes to your neighborhood, rejoice – you may just get a 3 percent increase in home value, according to a study by the University of Chicago and Brigham Young University.

And cheer loudly when you learn that a Starbucks is coming to town and hope that it’s within walking distance of your home. Real estate portal Zillow found that between 1997 and 2014, the average increase in home value nationwide was 65 percent. Homes within walking distance of a Starbucks, however, saw a hefty 96 percent increase. Add Trader Joe’s and Whole Foods to the list of please-come-to-my-neighborhood” businesses. If they do, your home may see a 17.5 percent increase in value.

3. Your real estate agent

While pricing a home for the market isn’t rocket science, it’s also not something that the inexperienced can do and meet with success. It takes years to learn how to properly research a real estate market, to learn how to find truly comparable homes and all of the various other factors that go into determining a home’s current market value. If your listing agent comes up with the wrong price, your bottom line is impacted.

Overpriced homes are notorious for eventually selling for far less than expected. Buyers’ agents know how much homes in a particular area are worth and won’t show their clients overpriced homes. So, they sit on the market. The listing becomes stale and agents and buyers think there must be something wrong with the home.

Underpricing is also a gamble. Sure, your agent may tell you that it will create a bidding war, but what if it doesn’t? Are you really willing to take rock-bottom dollars for your home?

After pricing a home, the number one job of a listing agent is to market the home to find the buyer that will pay the most amount of money the market will bear. Marketing not only requires know-how, but money as well. How well-positioned financially is your agent? Ensure that the agent you hire has a robust marketing budget and isn’t afraid to spend what it takes to get your home sold.

You’ll pay the same amount of money for the services of an agent who gives you bare bones service as you will for the professional – so choose wisely.

Smart home features: Are they worth the splurge?

In only three years, the number of Americans who claim to understand what a smart home is has jumped 53 percent, according to a Finn Futures survey. This doesn’t mean we’re all adopting connected home technology, however. In fact, the survey finds that 59 percent of Americans don’t plan on doing so soon and cite cost as the main barrier.

Yes, it’s pricey, but some features may just be worth the money, while others may not.

Smart locks

The Finn survey finds that 55 percent of respondents want automated, or “smart” door locks. Interestingly, these locks don’t make your home any more secure than your deadbolt does because they work with the deadbolt, not instead of it. “You’re paying for convenience (not necessarily security), according to cnet.com’s Ry Crist.
Depending on the type you choose, from key fob, password entry and fingerprint recognition to Bluetooth or Wi-Fi enabled, smart locks can be quite pricey so consider why you want one before purchasing. If it’s for the convenience factor, go for it. If you’re concerned about home security, forego the lock and invest in a smart home camera, an alarm system or motion-sensing doorbell instead.

Smart thermostat

One of the top smart home gadgets that the Finn survey respondents want is the smart thermostat (44 percent want one). What can a smart thermostat do that the trusty old programmable one can’t?
Make life more convenient is the obvious answer if you’ve ever tried to program a standard thermostat. Not only is it time consuming but they are limited in how many different programs you can use.

Smart thermostats, on the other hand, are connected to the Internet and controlled by other devices, such as smartphones. The number of programs you can use is unlimited and programming them is simple. In fact, if you purchase a learning thermostat, such as Nest, you won’t need to program it at all. It promises that after only one week, it will have “learned” your routine and automatically adapted to it.

We think it’s worth the splurge (about $249) because it helps save money on utility bills. In fact, three studies of the Nest Learning Thermostat, based on a comparison of utility bills from before installation of Nest and after the installation, showed that users saved an average 10 to 12 percent on their heating bills and 15 percent on cooling. Impressive enough for the Nest thermostat to become ENERGY STAR certified by the EPA.

Smart lighting

Coming in third as the most desirable smart home feature is smart lighting. This feature allows you to program the lights in your home to turn on, off and even dim via a remote device (such as your smartphone).

You may want to program the gadget to turn on the porch light at dusk, or as you ‘round the corner in your neighborhood on your way home from work, turn on random lights around the house when you’ll be out of town or, if you have a teenager that leaves a trail of lit rooms in his or her wake, turn off lights when someone leaves a room. In the latter case, smart lighting may save you money on your electric bills.

Smart smoke alarms

If a smoke alarm in a home is activated and no one is around to hear it, does it make a sound? It does if it’s smart and connected. Smart alarms send a warning to your phone, a handy feature if a fire breaks out while you’re at work.

We think they’re worth it mainly for the sense of security they provide but also because you may receive homeowner insurance discounts. Check with your insurance representative before purchasing a smart smoke alarm because some insurers have a list of those they consider “qualified.”

Homeowners aren’t yet jumping on the smart home bandwagon, but homebuilders are and don’t be surprised within the next few years to find newly constructed homes offering a full package of connected-home options.

What you need to know about the FHA home appraisal

It’s safe to say anyone who was in the market to buy a home last year knows that 2016 was a hot and heavy sellers’ market across the country. We saw far more buyers than homes on the market to satiate the demand. And, while the conventional loan still remained the most popular among these homebuyers, the FHA-backed loan accounted for 17.5 percent of all purchase and refinance loans at this time last year.

As a testament to the program’s popularity, Q1 home loan originations last year decreased 8 percent over 2015’s level yet FHA’s loan share increased 7 percent — the fifth consecutive quarter with an increase.

Since so many homebuyers are using the FHA-backed loan, and there are many aspects of the program that differ from a conventional loan, today we’d like to clear up the confusion surrounding the FHA appraisal.

What is an appraisal?

Quite simply, an appraisal is an evaluation of a home’s current market value. Yes, real estate agents determine this value for their listing clients and use many of the same methods that a professional appraiser uses, but the home appraisal demanded by the lender uses an appraiser of its choosing and this person has the final say (usually) on how much a home is worth.

Lenders naturally want to ensure that the home they are lending money on is worth at least what the buyer is paying for it. To determine its worth, the appraiser will visit the home, taking a look at the structure, roofing, foundation, lot size, location within the neighborhood and more.

He or she will consider the home’s interior as well, verifying the square footage (which is actually determined by the exterior measurements of the home), making note of any improvements. Back at the office, the appraiser will research recent real estate activity in the neighborhood, comparing the home to those which have sold, to come up with the value of the home.

About FHA appraisals

Just as the lender wants to ensure the home is worth the money its lending, FHA wants to make sure the house is worth the amount it’s insuring. But, the FHA appraisal goes a step further – ensuring that the home meets HUD’s minimum health and safety standards.

Therefore, all homes purchased with an FHA-backed loan must be appraised by a HUD-approved home appraiser and certain property requirements must be met for the FHA to finally ok the purchase.

As mentioned above, most of these have to do with the “safety and well-being of the occupants,” according to FHA. These requirements include:

  • All stairways must have handrails
  • All bedrooms must have at least one closet
  • There must be “access/egress” from each bedroom to the outside of the home
  • The FHA inspector must find no structural problems, such as damage to the foundation or roof
  • The appraiser will check the lot’s grading to ensure that it slopes away from the home to prevent water intrusion into the foundation or basement
  • If the home was built before 1978 and the appraiser suspects it contains lead-based paint, he or she will look for chipped and peeling paint.
  • The heating system must be in good working condition

 

Now, if any of these requirements aren’t met, the appraiser will mark them as “subject to repair,” which means that the seller will need to repair the problems before FHA will insure the loan.

If the FHA appraiser determines that the home isn’t worth what the buyer has agreed to pay for it, negotiations on price re-open and there are a number of ways to approach them. If the seller doesn’t agree to fix the problems, on the other hand, the sale will not go through. Thankfully, unless the required repairs are prohibitively costly (such as adding doors or windows to provide egress to the home’s exterior), most sellers understand their obligation to make them so the deal can go through.