Indecision is Not a Decision

There could be some legitimate reasons for not buying a home but indecision is not one of them. Indecision is rooted in not having enough information to move forward to own a home or continue renting.
If you keep renting, at the end of the year, you have had a place to live and a pile of receipts that helped the landlord pay for his house. Deciding to buy a home will give you a place to live that is yours and all the things that come with that.
When you consider principal reduction, appreciation and tax savings, your monthly cost of housing could be much less than the rent you’re paying. The principal reduction included in each payment is like a forced savings account that increases as your mortgage balance decreases. Your equity in the property will also grow due to appreciation as the home goes up in value. The equity is part of your net worth and an investment in your family’s future.
The income tax savings can be an additional financial consideration if the combined interest and property taxes are greater than the allowable standard deduction.
Trends are showing that both tenants and homeowners are staying in their homes longer. It’s been said that whether you rent or own, you’re paying for the home. Do you really want to buy the home for your landlord? Check out your numbers on a Rent vs. Own and then, call us to help make it happen.

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Risk Rate Relationship

Regardless of what a lender quotes on mortgage rates, the actual rate a borrower pays is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.

Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved.

• Loan amounts – conventional mortgages above conforming limits as set by Fannie Mae and Freddie Mac are considered jumbo loans and generally have a higher interest rate.
• FICO score – the lowest interest rate is reserved for the highest score; the lower the score, the higher the rate the borrower will pay.
• Occupancy – borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.
• Loan purpose – purchase transactions generally have the lowest interest rate with refinancing for better rates and terms being priced slightly higher. An even higher rate might be charged for refinancing and taking cash out of the property.
• Debt-to-Income Ratio – a borrower’s monthly liabilities divided by their gross monthly income develops a ratio that helps lenders to assess the borrower’s ability to repay the mortgage.
• Property Type – some types of property are considered higher risk than others which could adversely affect the rate.
• Loan-to-value – the lower the percentage of the loan to the appraised value of the property will generally lower the interest rate.

Any combination of these factors could limit a borrower’s ability to secure a mortgage at the rate initially quoted. Pre-approval by a trusted mortgage professional can be the best way to know what rate you can expect to pay. Please call for a recommendation of a trusted mortgage professional.

Pre-approval is Good for Everyone

Buyer’s mortgage pre-approval is good for everyone in the transaction. It saves time, money and removes the uncertainty of knowing whether the buyer will be qualified after negotiating a contract. The direct benefits include:

• Looking at “Right” homes - price, size, amenities, location
• Find the best loan - rate, term, type
• Uncover credit issues early - time to cure possible problems
• Negotiating power - price, terms, & timing
• Close quicker - verifications have been made

There is a significant difference in having a trusted mortgage professional take a loan application and run all the necessary verifications compared to going through calculators on a lender’s website. Beside the peace of mind, the cost of being pre-approved is a bargain and generally, limited to the cost of the credit report.
Even if a person has been pre-approved, a second opinion from a different lender may be a good option. It can verify there is a good deal or you’ll discover that you can improve it. Either way, it works to your advantage. Contact me if you’d like a recommendation of a trusted mortgage officer.

Investing on Your Side of the Fence

The grass tends to look greener on the other side of the fence. Maybe that’s why some people invest in things they don’t understand. It has been said that the grass is just as hard to mow on the other side of the fence so stay with what your most familiar.

Single-family homes used for rental property give a person a chance to invest in something they understand: a home. They also have distinct advantages over other types of investments.
An investor can borrow up to 80% of the value at fixed interest rates 30 years. The financing creates leverage so that the investor can benefit from the increase in value of the home not just the down payment.
It is reasonable to expect that the home will appreciate while providing tax advantages and practical control that are not available with many other investments. Low housing inventory in many markets has caused rents to increase and low new home growth will make it difficult to keep up with demand.
Consider a $150,000 home purchased for cash that would rent for $1,500 per month. With $18,000 income and allowing for property taxes, insurance and maintenance, it is still reasonable to expect $10,000 net income. There would be an 8% return on investment without considering tax savings or future appreciation compared with 5-year CDs paying less than 2.35% and a 10-year Treasury yield at 2.13%.
An added bonus is the amortization that occurs on the loan as the principal is reduced with each payment. It becomes a forced savings account that increases the equity and isn’t taxable until the property is sold.
The reasonable control has a lot of appeal to many investors who find the volatility of the stock market unacceptable and don’t want the risk associated with alternative investments. Please contact me if you’d like to know more about available opportunities.

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Deductible Dilemma

The purpose of insurance is to shift the risk of loss to a company in exchange for a premium. Most policies have a deductible which reduces the amount of the claim that is paid by having the insured share in the first part of the loss.

In the process of managing insurance premiums, policy holders often consider higher deductibles to lower the premium. Lower deductibles mean less money out of pocket if a loss occurs but also results in higher premiums. Higher deductibles result in lower premiums but require that the insured bear a larger part of the loss.

A small fire in a $300,000 home that resulted in $2,500 of damage might not be covered if the policy holder has a 1% deductible. If the homeowner can afford to handle the cost of repairs in exchange for cheaper premiums, it might be worth it. On the other hand, if that loss would be difficult for the homeowner, a change in the deductible could be considered.

Homes in high-risk flood areas with mortgages from federally regulated or insured lenders require additional flood insurance. However, each homeowner needs to assess the risk of being able to financially sustain a flood loss on their home when flood insurance is not required. The recent events in south Texas and Louisiana are evidence that the unexpected can happen.

It is important to review your deductible and discuss risks with your property insurance agent so that you’re familiar with the amount and make any changes that would be appropriate before a claim is made.  The FEMA website has information and frequently asked questions about flood insurance.

Shorter Term - More Savings

Whether you’re refinancing your current home or buying a new one, something worth considering is a 15-year loan rather than a 30-year term. The payments will be a little higher but you’ll get a lower interest rate and you’ll build equity much faster.

Let’s look at an example of a $300,000 mortgage with the choice of a 30-year term with a 3.92% rate compared to a 15-year term with a 3.2% rate. The payments would be $682.28 higher on the shorter term but the equity would be considerably higher even after you adjust for the higher payments.

Another benefit is that the shorter-term loan creates a forced savings situation where the savings on longer term loan might end up being spent rather than being saved and invested.  A conscious decision to pay more in payments could pay big dividends in the future.

Home Safe Home

Home is a place you should feel safe and secure. Sometimes, we take it for granted and unfortunately, we do need to remain vigilant about things we do that could compromise our safety. Here are a few tips to consider:

• Everyone loves an inviting home including burglars. Make sure it looks occupied and is difficult to break in.
  • Always lock outside doors and windows even if you’re only gone for a brief time.
  • Lock gates and fences.
  • Leave lights on when you leave; consider timers to automatically control the lights.
  • Keep your garage door closed even when you’re home; don’t tempt thieves with what you have in your garage.
  • Suspend your mail and newspaper delivery when you’re out of town or get a neighbor to pick it up for you.
• Posting that you’re out of town or away from home on social networks is like advertising your home is unprotected.
• Equally dangerous could be allowing certain social network sites to track your location.
• Don’t leave keys under doormats, in flowerpots or the plastic rocks; thieves know about those hiding places and even more than you can think.
• Trim the shrubs from around your home; don’t give criminals a place to hide.
• Use exterior motion detectors and yard lighting.
• Have an alarm system and use it when you leave home and go to bed.
• Put 3 ½” deck screws in door plates and door hinges.
• Have good deadbolts on all exterior doors.
• Exterior doors should be solid core.

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