What If The Energy Company Paid YOU Each Month?

November 30, 2007 by · Leave a Comment
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This 30-second video posted to YouTube and shows a home’s electric meter running backwards after installing solar panels.

The meter runs backwards because the home is putting more power into the electric grid than it is taking out for itself.

With energy costs expected to rise sharply this winter and the costs of “going green” coming down, it may make sense to evaluate whether solar panels are a good fit for your home.

There’s still that up-front cost, but then there’s the thrill of watching that meter run backwards. Each clockwise tick is lowering your monthly energy bill and could possibly even eliminate it.

It’s worth watching those 30 seconds again.


Buyers Pay More For Homes Than The Agreed-Upon Purchase Price

November 29, 2007 by · Leave a Comment
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Home buyers sometimes forget to add closing costs into the purchase price of a home

In real estate, the true cost of buying a home is always higher than the home’s purchase price itself.

This is because of service charges from governments, lenders, and title/escrow companies.

Because there is no such thing as “typical” closing costs because each home purchase is different, home buyers should remember that the actual cost to purchase a home is a mathematical formula:

(Home Purchase Price) + (Closing Costs) = (True Cost To Purchase Home)

So, if a home is purchased for $250,000 and the costs are $5,000, the true cost to purchase the home is $255,000.

If the buyer is using a mortgage to finance the home, the mortgage is not based on the true cost, however. It’s based on the home’s purchase price. This means that a person making a 20% downpayment is actually paying 20% plus whatever closing costs are listed on the final settlement statement.

Therefore, the home buyer’s required cash at closing would be 20% of $250,000 ($50,000), plus $5,000 in closing costs. That adds up to $55,000, or 22 percent of the purchase price.

That said, the monies required at closing are usually reduced by credits paid from the seller to the buyer. We’re going to ignore them for purposes of discussion because these types of offsets are inconsistent and can vary wildly from purchase to purchase.

They come in the form of “seller tax credits” and/or “seller concessions” and we’ll cover those two concepts another day.

For purposes of good planning, though, buyers should always be conscious of how closing costs can impact their bottom line on a purchase.

If making the expected downpayment based on the purchase price is a stretch, making the downpayment plus the closing costs may be an impossibility.


Why You Should Remain In “Ready Position” For Your Mortgage Rate

November 28, 2007 by · Leave a Comment
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Easy come, easy go.

There was a strong rally Monday afternoon in the mortgage bond market. It was sudden and furious, mostly coming on in the last 60 minutes of trading.

When markets closed, mortgage rates for conforming home loans were grazing their lowest levels in nearly two years.

It lasted overnight and into the early hours of the morning.

Then, several news pieces later, the financial markets turned.

By 8:30 A.M. ET Tuesday, the rally from Monday had been erased completely; mortgage rates were up by as much as 0.375% in some cases before the clocks struck noon on Wall Street.

The rally had been reversed.

Instances like this illustrate how financial market volatility can impact homeowners. A 0.250% change in rate, for example, equates to roughly $16.50 for every $100,000 financed on an amortizing loan. It’s $20.83 for an interest only loan.

Those kinds of savings add up over time.

Americans are not in the market for new homes or new home loans every day, but when we are, it can be profitable to pay attention to markets and be ready to act on a moment’s notice.

The markets won’t “put rates on hold” for you while you make up your mind so that moment — whenever it may come — could represent tremendous savings long-term on a home loan. Be ready to act.


If You Started A New Home Loan In 2007, You May Be Missing The Boat Today

November 27, 2007 by · Leave a Comment
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Don't miss the boat on falling mortgage rates today

There are a lot of conflicting reports about the current state of mortgage rates, so here’s the scoop: As of this morning, conforming mortgage rates are near their lowest points of the year.

What is a conforming mortgage? Well, if your home loan started in 2007, it is likely “conforming” if:

  1. Your current rate is between 5.000% and 7.000%
  2. Your mortgage product is not a monthly adjustable mortgage (i.e. Option ARM)
  3. Your loan size is $417,000 or less and your home is not a multi-unit
  4. You made a downpayment of at least 5 percent

This list doesn’t qualify everyone, nor does it disqualify everyone, but it’s a good start.

If you have a conforming mortgage, consider contacting your loan officer to lock in a lower mortgage rate while rates are in a trough.

If you don’t have a loan officer that you trust, please ask me for a referral — it would be my pleasure to help you.


Now That The Holiday Season Has Started, It’s Best To Speed Up Your Home Closing

November 26, 2007 by · Leave a Comment
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Because of the holidays, get your home purchase closing lined up as soon as possible

Just because you will be working through the New Year doesn’t mean that the people involved in your home sale/purchase will be.

It’s officially the Holiday Season and productivity tends to drop because of vacation, office parties, and shopping.

Think about all the people required to make your closing go smoothly:

  • Real estate agents for both parties
  • Mortgage loan officers, processors and underwriters
  • Escrow/title agents
  • Real estate attorneys
  • Appraisers
  • Home inspectors

Now, consider that there are 26 business days left in the year.

The tme between Christmas and New Year’s Day is practically lost because of vacations and family time.

That’s 5 days.

Then, Christmas Eve falls on a Monday, so let’s exclude that day, too. And, while we’re being realistic, let’s treat the Friday prior as a travel day.

So, that leaves 19 business days between now and the New Year — not a lot of time.

If you’re buying a home and trying to close before the end of the year, pay close attention to the calendar. Because of seasonal vacations and a general work slowdown, make a point to “front-load” your calendar to avoid scheduling and timing snafus.

With so many people involved in a transaction and many of them planning time off, it’s best to get all of the work done as soon as possible.


Black Friday Trivia

November 23, 2007 by · Leave a Comment
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Today is “Black Friday”, a day that many Americans get started on their Holiday Season shopping.

Did you know? The earliest known reference to “Black Friday” is November 29, 1975. The term was mentioned in two separate articles, both with Philadelphia timelines. Therefore, the term Black Friday is believed to have originated in Philadelphia.

Did you know? “Black Friday” was originally named with deference to other stressful and chaotic days such as Black Tuesday (the day of the 1929 stock market crash.

Store aisles were jammed. Escalators were nonstop people. It was the first day of the Christmas shopping season and despite the economy, folks here went on a buying spree. . . . . “That’s why the bus drivers and cab drivers call today ‘Black Friday,'” a sales manager at Gimbels said as she watched a traffic cop trying to control a crowd of jaywalkers. “They think in terms of headaches it gives them.”

Did you know? The generally accepted meaning of “Black Friday” changed November 26, 1982. On that day, ABC News reported that Black Friday is the day that retailers’ ledgers go from red ink to black ink, signaling profit. If this were true, companies like Wal-Mart and Target would show losses in the first three quarters of the years. They don’t.

Did you know? Black Friday is not the busiest shopping day of the year. #1 is usually the Saturday prior to Christmas.

If you’re out shopping today on Black Friday, remember to set a budget and stay within it. Good luck!

Purdue University News Service
“Christmas Shopping Facts and Figures”
Press Release, Nov. 22, 2000

Black Friday (Shopping)


Who Are Fannie And Freddie And How Do They Help Homeowners?

November 21, 2007 by · Leave a Comment
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Fannie Mae and Freddie Mac are quasi-government agencies that provide liquidity to mortgage markets

Fannie Mae and Freddie Mae are quasi-government agencies in that they are publicly-owned, but overseen by the government.

The purpose of Fannie and Freddie is to make sure that money is available to homeowners that want home loans.

Neither lends to consumers directly, though; you’ll have to talk to your loan officer for that. Instead, Fannie and Freddie’s role is to buy loans from lending institutions that make loans to everyday people.

For example, all banks in America abide by laws limiting the amount of money they can lend as a percentage of their total asset base. If your home loan is on the books of Bank ABC, Bank ABC is, therefore, restricted in issuing additional loans because your loan counts against that ratio.

But, if Bank ABC sells the loan to Fannie Mae or Freddie Mac, your mortgage converts back into cash and Bank ABC can then lend again to somebody else.

Because of Fannie and Freddie, a bank can lend to multiple homeowners using the same asset base, thereby making sure that “the system” has plenty of money available for homeowners in need of loans.

In this sense, both Fannie and Freddie keep mortgage money flowing on the street level. But it only works to a point. Fannie and Freddie have very strict guidelines about what types of home loans they will purchase from banks and only accept loans that conform to their respective criteria.

Loans falling outside the criteria, by contrast, will not be purchased by the agencies.

This is why some mortgages are called “conforming” loans — they conform to Fannie or Freddie’s guidelines. The other loans fall into the categories of “Alt-A” or “sub-prime”.

This also explains why Alt-A and sub-prime loans are harder to come by lately — there’s no government agency that guarantees to purchase these types of loans. Without that guarantee, banks are largely unwilling to tie up space on their balance sheets.


On Random Rate Rallies And Thin Trading

November 20, 2007 by · Leave a Comment
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Mortgage rates will yo-yo through the New Year on light trading volume

Mortgage bonds staged a late-day rally yesterday, exaggerated by the holiday-shortened week and because trader participation is light.

(We’ll revisit this theme several times between now and the New Year so don’t get tired of it.)

When mortgage bonds rally, it means that demand for them is strong and that pushes mortgage rates down.

Unfortunately for people shopping for loans right now, the rally happened so quickly that lenders did not have time to adjust their mortgage rate sheets before the market’s closing.

This morning, rates are slightly higher.

The rally yesterday happened for a number of reasons including the November Homebuilders Index remaining at an all-time low. This illustrates the difficulty most developers are having in moving their inventory.

Another factor in the rally is that markets believe that the Fed is backed into a economic corner and will be forced to lower the Fed Funds Rate at its December meeting. This is happening despite (non-voting) Fed member Randall Kroszner implying in a public speech that the Fed may be entering a “Wait-and-See” mode and the further rate cuts would be imprudent.

There will be a lot of speculation about the Fed between today and December 11, the date of the next Fed meeting. Expect thin trading volume to make rates yo-yo until then.

If you see a rate and payment combination that makes financial sense today, better to lock it in then to wait for tomorrow. Rates may be on the upswing.


One Totally Different Reason To Consider Buying A Home This Winter

November 19, 2007 by · Leave a Comment
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Banks are approving fewer mortgage applications because of mortgage-related losses.

Since November 1, the following banks have written-down at least $1 billion in their respective loan portfolios:

  • Bank of America
  • Barclays
  • Bear Stearns
  • Citigroup
  • HSBC
  • Morgan Stanley
  • Wachovia
  • Wells Fargo

This is a big deal to home buyers and home sellers because when banks repeatedly take mortgage-related losses, it can lead to major risk aversion — even for “good” borrowers.

It’s one reason why mortgages are more difficult for which to qualify than in months past. Banks would rather pass on an “avergage” mortgage application rather than be stuck with a potentially “bad” loan.

If banks continue down this path throughout 2008, it means that buyers eligible for home loan financing today may be ineligible tomorrow. It could also mean that a seller’s home under contract may never close because the buyer’s approval could be disqualified before the closing date is reached.

If you’re a home buyer and your profile is not “ideal” to a bank, now may be a good time to write a contract because your mortgage options may get thinner very, very soon.

If you’re a home seller and your typical buyer is not “ideal”, consider a 30-day closing because with each passing week, your pool of ready-to-be-approved buyers is dwindling.


The Cost Of Living Includes The Cost Of Gas And Food (And May Get More Expensive Through The Winter)

November 16, 2007 by · Leave a Comment
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October’s Consumer Price Index was released Thursday and showed a 3.5 percent increase in the cost of living since October 2006.

The report also showed a core inflation rate of 2.2 percent. The “core CPI” is a smaller part of the overall CPI.

The math is the same, but it specifically excludes cost changes in energy products and food products because these two elements can be highly volatile.

When tracking inflation, therefore, economists tend to focus on core CPI instead of “regular” CPI.

Both are important — Core for long-terms trends, and total for short-term consumer sentiment.

Inflation makes life more expensive and with more money spent to live, there’s less money for savings and/or discretionary spending, and that slows down the economy.

USA Today ran a terrific quote from a accountant in San Diego on this topic:

“Have I been hit by rising energy prices? Hello! I live in the San Diego area, and I’m paying $3.41 a gallon,” says Tage Woehl, an accountant. “On a 15-gallon tank, I’m spending over $50 per week. I find coupons when I can to eat, and seriously look at sales, because I’m spending a chunk more dough for gas than before.”

And so, as we forge approach Black Friday, the rate of inflation becomes very important to the U.S. economy. If consumers are feeling pinched, it’s expected that they’ll spend less, thereby slowing down the economy faster than was expected.

For home buyers and home sellers alike, this is bad news.

For buyers, mortgage rates may increase because the dollar should weaken; and, for sellers, homes may sit on the market longer because fewer buyers will qualify for mortgage loans at higher rates.

TIPS, I-Bonds can help defang the inflation dragon
John Wagonner
USA Today, November 16, 2007


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