Advice to women: Shop more


It’s been a while since I wrote anything about the difference between men and women in regards to real estate.  But then I came across a very interesting article.  It turns out that there’s a reason that 32% of women were likely to get a subprime mortgage than men, according to a 2006 study.  They don’t shop enough.

I know, I know.  I am just as surprised as you are.  In fact, when I’m dealing with clients purchasing a new house, it’s often that the women take longer to find something because they want to make sure they’re getting the best deal and are in love with their new home.  So what’s going on here?  It actually makes sense.  Women tend to rely on the instincts of their emotions, trusting a recommendation on mortgage rates from friends, rather than shopping for the best deal.  Men, on the other hand, shop around for the best rate, and, therefore, they generally pay lower rates.  

This was all determined by a 2006 study in Journal of Real Estate Finance and Economics.  According to the article, “It makes sense to Daily Finance columnist Laura Rowley. ‘It’s not surprising, because mortgage shopping can be incredibly complex, so we look to people we can trust to help make the decision,’ says Rowley. ‘But this is one area where you don’t want to get by with a little help from your friends.'”

Rowley suggests that everyone should get at least three written estimates, generally from two mortgage brokers and one direct lender, like your bank.  You’ll want to explain that you’re planning to buy a house in your general price range that you’ve predetermined along with the percentage you’re willing to put down.  And remember that interest rates can change multiple times a day.  So if you find a low rate, you might consider talking to the lender about “locking in” that rate while you search for a house so it doesn’t go back up.  It’s worth everyone’s time to figure out the best rate and the best type of loan in order to save the most money.

If you need a recommendation for a great mortgage broker, please contact me via my Web site.

Refinance mistakes to avoid

Last week I blogged about the new HARP guidelines and how they can help homeowners refinance when they owe more on the home than it’s worth.  I talked about how the loan has to be owned by Freddie Mac or Fannie Mae and that you have to be current with your mortgage.  Since rates are very low, I do encourage you to try to refinance your home to a lower rate if it’s possible for you and to take advantage of the HARP program if you can.  That said, this week I want to talk about several mistakes people make when refinancing and how to avoid them.

1. Not getting the best rate.  It seems obvious.  One lender offers you 5% and another 4.75%.  You go with the lowest one.  You really have to look at the entire cost of a loan, not just the quoted interest rate.  The APR (annual percentage rate) is what matters most.  Your house can be worth less than you think, especially after an appraisal.  The benefit of the HARP program is that it often doesn’t require an appraisal, which can really affect your refinance.  So make sure you do your research.

2. Think of the objective you want with refinancing.  Is it a lower monthly payment?  Is it that you want your home paid off in 10 years?  Know this before you sign any papers.  A lot of borrowers don’t realize that if you refinance to another 30-year loan and you’ve been paying yours down for 10 years, you just went to 20 more years on your loan to another 30.  So if your plan was to have your home paid off in 20 years, that’s most likely not going to happen anymore.  And let’s say you know your job is going to relocate you in a few years.  A 5-year or 3-year adjustable rate mortgage could be most beneficial and offer you the lowest monthly payment.

3. Don’t refinance when you shouldn’t.  In Number 2 I just talked about the potential of your company relocating you.  So let’s say you decide you’re going to keep your home as a rental.  You have to be careful about refinancing now because your home would no longer be your principal residence.  This could shoot your monthly payments way up.  Discuss with your lender any potentials for not staying in the home long-term so they can help choose the best option for you.  Refinancing may not be it.

4. Be aware of your responsibilities.  Know in advance that lenders will often check your credit again right before closing.  So if you refinance, now is not the time to buy a new car on credit or make a major purchase.  Know when your interest rate lock expires so you get everything completed before that time so you don’t lose the rate you want.

More great advice can be found in this Bankrate article.   And I can be reached via my Web site.

Mortgage myths debunked

With mortgage rates still extremely low, I thought it was important to talk about some common myths people have about mortgages and the lending process.  I don’t want any potential buyers to become dissuaded buying a house because of what they think might be true.

1. 30-year fixed rate mortgages are always the best choice.  Well, they may be for some.  It truly depends on your situation.  If, for example, you know you’re going to move (because of work, etc.) within a few years, an adjustable rate will be even lower and a better choice for you.  If you don’t plan to move for a long time, the 30-year might be best.  And also know that while the mortgage rate adjusts in a certain time frame for an ARM (usually 3, 5, or 7 years) there is a limit to how much the rate can go up (or down) over time and that you can always refinance at any time.

2. You need to pay off your mortgage as soon as possible.  I had talked about this several weeks back when I was discussing which long-term debt should be paid down first.  It’s very likely in this day and age that your mortgage rate is not the highest interest rate you have.  Usually the highest-interest debt should be paid down first.  Plus, mortgage interest is tax deductible, which is a benefit that other types of debt (credit card, for instance) doesn’t have.  As always, if you have extra money to put toward it, by all means, do so.  Just make sure you apply the extra money to the principal only, not the interest.

3. I’ve already chosen a lender and can’t choose a new one in the process of applying.  Until your loan is officially closed, that’s not true.  If you’re not happy with the lender or the rate or the process, you’re free to switch.  I’ve had clients switch lenders 30 days after signing a contract and 15 days before closing.  To make your life easier, provide your new lender with as much information as you can to ensure the process continues going smoothly.  And it’s best to shop around before signing a contract.

4. You don’t want to refinance because your 30-year loan starts all over.  It’s possible that 30 years will begin on the date of your refinance.  But you can work with your lender so that payments can be adjusted.  Since you’re refinancing for a lower rate, there’s still a good chance that your monthly payments will be lower by doing this, and, therefore, you can pay your mortgage off sooner.

5. I can find a better deal online.  I do know some clients who have closed on homes with online lenders that did a great job.  However, I also know some where it didn’t work out at all.  By finding a loan online, there’s no personal service and no one to guide you through the process or assist you if there’s a problem.  If you do go this route, make sure to verify and ask about all specific fees and read the fine print on everything before agreeing to it.

If you have more questions or need the name of a reputable lender, be sure to contact me online.

Be aware of this when applying for a mortgage

With all the extra housing inventory available, it’s a great time for someone looking to invest in real estate to buy a home.  We all know, though, that it’s becoming tougher to obtain a mortgage these days.  Mortgage brokers and banks want solid credit scores and higher down payments.  So if you are making an application for a mortgage, here’s a list of what you want to be aware of during this typical 45-day period to make sure the mortgage goes through.

1. Now is not the time to make any big purchases.  That includes high-ticket items such as cars, appliances, TVs, and furniture for your new home.  A lot of people don’t realize that when you make your purchase, you’re creating more debt for yourself (if you’re charging the item rather than paying cash) and becoming a bigger liability for the bank.  So it’s been known that the mortgage can be pulled in this instance.  Wait until after you sign the closing papers to make the next purchase.

2. It’s not a good time to switch jobs.  When applying for a loan, the lender looks to make sure you have job stability and knows what type of salary and/or bonuses and commissions you receive.  If you switch jobs in the midst of the application, they’re going to have a hard time verifying salary information, which could affect your loan.  Again, wait until after you sign the closing papers to make any career moves.

3. There could be multiple credit checks.  The lender obviously checks your credit at the loan application before they decide if they can pre-approve you.  However, now lenders are often going back to check credit scores again right before closing.  So know that you want to continue making all your payments.  Avoid applying for a new credit card or making a big purchase.  Any upset to your score could affect your mortgage.

4. Have money ready for closing costs.  Don’t take every last penny you have to use toward a down payment.  Closing costs could cost you an additional 3% out of pocket.  You’ll want to check in with your lender within a few days of closing to get a rough estimate of the amount you’ll need to bring to closing.  It’ll most likely have to be in the form of a cashier’s check made out to yourself.  Your lender can give you the exact information.

These tips will help keep the mortgage application going without any hiccups.  Of course, if you have questions or problems along the way, be sure to contact your lender.  They will be able to guide you through the process and give you other tips to make sure there are no problems prior to closing.

I can be reached via my Web site.

The mortgage rate puzzle

Mortgage rates are low.  Way low.  Compare this to what it was like in the ’80s and you might have never imagined this time period happening.  Even a few years ago when rates were hovering around 6%, it was low.  But rates at 4.25%?  4%  That’s LOW.

So the big question is if rates will continue to drop.  Are buyers waiting for rates to be 3%?  Are people willing to risk losing a lower rate by locking in a mortgage at 4.5%.  I had a colleague told me he has buyers waiting to make a move until rates drop below 4%.  I was shocked.  People who have rates at 6.5% are trying to refinance for under 4%.  If you have a good credit score and meet the criteria, it makes sense.

Federal Reserve President Ben Bernanke has pretty much made it clear that we’re going to see another period of quantitative easing, also known as QE2.  The Fed is meeting at the beginning of November to discuss this.  This easing is basically where the U.S. would buy billions of dollars worth of U.S. Treasuries in order to circulate more money into the economy and keep rates low.  So some lenders believe rates will drop in anticipation of this.  The last time the government did this was in August and rates started to go down.

And as rates stay low or drop even more, it definitely would boost the housing market with more buyers able to afford a home.  On the other hand, more people might choose to stay in their current home instead of upgrading or downgrading because they can get an excellent deal on a refinance.

So are we just not satisfied enough with where rates are now?  Are we hoping they drop even more?  Will this help or hurt the current housing situation?  I’d really like to hear your thoughts on this.  Please leave a comment or visit me online.

The next problem with the housing market

I read another fascinating article in the Chicago Tribune again this weekend.  Fascinating.  I was telling family, neighbors, and friends about it.  Fascinating.  As if the housing market isn’t in enough trouble as it is.

So the article discusses the ethics of being a homeowner in this time, during the recession, in this housing market.  Foreclosures are all over.  Short sales are overwhelming the banks.  So what’s the problem now?  Homeowners who have no trouble paying their mortgage, those who can afford to, are walking away from their homes.  They call it “strategic default.”  This is what it’s come down to.  With home values at an all-time low and days on the market going up with increasing numbers, people are sadly walking away from their homes.  They can’t sell.  They can’t rent.  What they’d get for their home if they sell is half, or a quarter, or three-quarters of what their home is actually worth and what they still owe on their mortgage.  So what do they do?

The article talks about a man who lives in Florida who has two properties, both with Bank of America.  He told them he’s going to stop making payments because he can’t sell or rent at a price that would cover his payments and he wants to move out of state.  Since the bank refuses to work with him on a modification or a refinance or adjust the terms of his loan, he’s walking away.  Again, what’s a guy to do?  He said he felt guilty at the beginning.  He’s quoted as saying, “It [the guilt] all stopped when I saw them take $90 million in executive bonuses.  They take bailout money and do nothing for the little guy. They wouldn’t do anything for me.”

I can’t agree more with this homeowner.  I’ve talked about clients who couldn’t refinance or those whose modification wouldn’t go through.  And here the banks are accepting bailout money left and right, upping their salaries, and they won’t work with clients to help them stay in their homes?

So this is going to be a huge disaster.  We already have lenders taking months to respond to buyers interested in a short sale.  They’re just going to have a whopping increase in their inventory now.  Response time will be on the rise, inventory will too, and people who do this won’t get back into the market to buy something new because their credit will be ruined from walking away.  So it’s going to be harder for people to sell or for values to get back to where they should be.

As I said, I feel for these people.  They’re in a tight spot.  But at the same time, it’s going to make the housing crisis an even bigger crisis.  How do we get out of it?  The only remedy I see is more lenders willing to work with their clients and modify existing loans.  It will keep more people in their homes and help the entire market.  Readers, what do you think?  I’d love to hear your thoughts.  Please leave me a comment or visit me online.

Keeping closing costs low

With mortgage rates ridiculously low these days, what better time than to refinance or purchase a new home?  This past week, the 30-year fixed rate was at 4.44%, the lowest it’s been since Freddie Mac tracked the rates starting in 1971.  Even last week’s rate, 4.49%, is extremely low.  For the 15-year fixed rate, it was 3.92%, the lowest since Freddie Mac started tracking it in 1991.  So first things first – pick up the phone and call your mortgage lender now to talk about a possible refinance or purchase.

So if you are planning to refinance or purchase, you still have to worry about closing costs.  Here’s some tips on saving money during this process.

1. If you’re planning to refinance, contact your current mortgage lender/broker.  They already have your information so they won’t need to charge you again for an application fee or an appraisal fee (if it’s relatively recent.)  If you’ve refinanced recently, you also might be able to save on the fees for a title search.  Ask your lender about a reissue rate, which they can request for you.

2. Everything’s negotiable.  If you’re purchasing from a homeowner or builder, consider asking for money towards your closing costs in the price of the house.  You might be able to add $1,000 or $2,000 towards the purchase price and have them pay up to $5,000 of closing costs on your behalf. 

Fee-ed Up?
Here are just some of the costs of closing on a mortgage.

Fee  Average cost* 
Application  $272 
Appraisal  $310 
Credit report  $28 
Document preparation  $206 
Processing  $288 
Recording  $86 
Underwriting  $236 

 *Based on a $100,000 loan. Not every lender surveyed charges all of these fees.
 Source:  HSH Associates December 2003 survey of lenders

3. See if you can save money by providing your own reports.  For example, many lenders might charge you $30 for a credit report and $25 to FedEx documents.  While those numbers seem small, they add up quickly.  See if they’ll accept a credit report you provide that you’ve gotten free or allow the lender to pick up the documents to save on the cost of shipping.

4. Ask to review the HUD at least 24 hours prior to closing.  Your attorney can also do this for you.  Compare it to what you were quoted initially in your good faith estimate, and point out any differences to your lender.  Make sure everything is added up correctly (a mistake a little too common) and that you’re not charged twice for the same thing.  I’ve also had mistakes made where taxes were calculated wrong in the seller’s favor, rather than the buyer’s. 

5. Make sure you purchase homeowner’s insurance ahead of time.  Closing agents will need to see proof of insurance at the closing table.  If not, you might be forced to purchase the lender’s policy at a rate way over the typical charge.  Ask your lender and your Realtor for a list of essential items to take care of before closing so you don’t get stuck paying extra for something or for anything you don’t need.

If you have any more questions, please visit me online.