Getting a Legitimate Lender and Getting Pre-Approved

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It used to be that buyers could go house shopping and when they have found their dream home, then they go to get pre-approved. However, in today’s market, that has proven to be one of the least effective methods in landing a dream home.

Most lenders can pre-qualify you for a mortgage over the phone. Based on general questions about your income, debt, assets, and credit history, lenders can estimate how much mortgage you qualify for. However, being pre-qualified and pre-approved are different things. Pre-approval means that you have applied for a mortgage; you have filled out the mortgage application, received your credit report, and verified your employment, assets, etc. When you are pre-approved, you know exactly what the maximum loan amount will be.

A pre-qualified letter is not verified and in essence, does not count for much if you are competing with other buyers who are pre-approved. When you are pre-approved, you and the seller know exactly how much house you can afford. It gives you credibility as an interested buyer and lets the seller know immediately that you will qualify for a loan to buy their property. Image result for pre approved

In addition to being pre-approved, it’s important to be pre-approved with a legitimate lender. Legitimate lenders include: banks, mortgage bankers, credit unions, savings and loan associations, mortgage brokers, and online lenders.

Some lenders to avoid: those who lose a form or misplace a file, those who gather information from you in an unorganized manner, those who are not informed about interest rates, points or costs, and those who cannot provide you with the right information.

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The Biweekly Mortgage – Who Needs It?

Have you received an advertisement offering to save you thousands of dollars on your thirty-year mortgage and cut years off your payments? With email spam becoming more pervasive as everyone tries to get rich quick on the Internet, these ads are popping up with troublesome regularity.

The ads promote a Biweekly Mortgage and for the most part, do not come from a mortgage lender. Exclamation points punctuate practically every claim:

  • No closing costs!
  • No refinancing!
  • No points!
  • No credit check!
  • No appraisal!
  • Save thousands!
  • Cut years off your mortgage!

To achieve these wonderful savings all you have to do is allow half of your mortgage payment to be deducted from your checking account every two weeks. It’s easy. Of course, there is a small set-up fee and usually a transaction fee with every automatic deduction.

Essentially, the ads are truthful in almost every respect.

They just want to charge you money for something you can do on your own for free.

The Basics:

Normally, you make twelve mortgage payments a year. Since there are fifty-two weeks in a year, a biweekly mortgage equals 26 half-payments a year. The equivalent would be making thirteen mortgage payments a year instead of twelve. By applying that extra payment directly to the loan balance as a principal reduction, your loan amortizes more quickly, requiring fewer payments.

You save money. The ads are true.

How it Actually Works:

You cannot simply mail in half a payment every two weeks to your mortgage lender. Since they do not accept partial payments for legal and accounting reasons, the mortgage company would just mail your half-payment back to you.

Instead, the biweekly mortgage company is an intermediary between you and your mortgage lender. They automatically debit your checking account every two weeks for half of your mortgage payment then place your funds into a trust account. Basically, this is just a holding account for your money. In another two weeks, there is another automatic deduction from your checking account, and so on. When your mortgage payment is due, your funds are withdrawn from the trust account and forwarded to your mortgage lender.

Since you are placing funds into the trust account faster than your mortgage payments are due, you eventually accumulate enough money to make an extra payment. The way the cycle works, this occurs once a year. he extra payment is applied directly to your principal balance, which causes your loan to amortize faster, pay off more quickly and save you thousands of dollars.

Potential Problems with the Trust Account

Because your funds are held in the trust account until your mortgage payment is due, there are potential dangers. Not only are your funds held in this account, but so are the funds of everyone else enrolled in the biweekly program. That is a lot of money.

Most likely, there will be no problems.

However, if there are accounting errors, mismanagement, or even fraud, your mortgage payment might not get made. The first hint of a problem will probably be a phone call or letter from your mortgage lender, but not until after your payment is already late. Since responsibility for making the payment rests with you and not the biweekly payment company, you may find yourself digging into your personal savings to make the payment directly — even though the biweekly payment company has already collected your funds.

Later you can work out the trust account problem with your biweekly payment company.

The Cost of the Biweekly Mortgage

There is usually a set-up fee that runs between $195 and $350, depending on how much sales commission is paid to the individual or company setting up the account for you. You also pay a transaction fee each time there is an automatic deduction from your checking account and sometimes also when the payment is made to your mortgage lender. There may also be a periodic maintenance fee.

Meanwhile, whoever controls the trust account is earning interest on your money.

Savings of the Biweekly Mortgage

By making principal reductions using the biweekly mortgage program, your mortgage will amortize more quickly, saving you money. How quickly your loan pays off depends on your interest rate and when you begin making the biweekly payments.

On a $100,000 loan at an interest rate of eight percent, your first principal reduction would probably be a year from now. Assuming the principal reduction is equal to one monthly payment ($733.76), you would save $43,852 over the life of the loan and pay it off almost seven years early.

However, you have to deduct from those savings any amounts you paid in set-up, transaction, and maintenance fees.

No-Cost Alternatives to the Biweekly Mortgage

Instead of hiring a company to manage your biweekly payment, you could accomplish essentially the same thing on your own for free. Just take your monthly payment, divide it by twelve, and add that amount to your monthly mortgage payment. Be sure to earmark it as a principal reduction.

The first way you save is that you do not have to pay any fees to anyone. It’s free.

In addition to not paying fees — using the same example as above — your total savings on the mortgage would be $45,904. Plus the loan would be paid off three months quicker than with the biweekly mortgage. The reason you save more is because you are making a principal reduction each month, instead of waiting for funds to accumulate so that you can make one principal reduction a year.

Self-Discipline?

The biweekly mortgage companies claim that homeowners are not disciplined enough to follow through with principal reduction plans on their own. They suggest the reason for setting up the biweekly mortgage enforces discipline upon you, and by doing so, they save you money.

However, in this technologically advanced age, banking online and automatic deductions are readily available. You can set up your own automatic deductions including the additional principal reduction and have it go directly to your mortgage lender. Since the deduction occurs automatically, just like with the biweekly mortgages, self-discipline is not a problem. Once again, you don’t have to pay anyone to do it for you and you save even more money.

Conclusion

The biweekly mortgage plans do not really do anything except move your money around and charge you for it. Plus, even though the danger is negligible, you must trust someone else to hold your money for you. If you can do the very same thing for free, plus save yourself even more money by doing it on your own, why pay someone else?

The biweekly mortgage plan – who needs it?

If your goal is principal reduction and saving money, then it is a good plan. If you do it on your own instead of paying someone else to do it for you, then it is a great plan.

Should I Sell My House? 6 Signs It’s Time to Move On

Ten years. That’s the average amount of time a homeowner stays in a house before a sale.

Think that sounds shockingly short? Or way too long? The fact is, people’s reasons for selling their homes are different, as are their time frames.

Still, there are some common reasons—financial and emotional—that lead us to sell our current home and move on to the next one. And you don’t always see the reasons coming.

Read on for some telltale signs it’s time to start looking for the next home and packing your bags (and when you should settle in for the long haul).

1. You know the seller’s market is booming and you want in

Let’s start with one of the most obvious reasons to sell: You’re eager to make a profit on your property.

You need to gauge the key indicators of a strong real estate market.

A few signals: The price per square foot for real estate in your area is increasing, the amount of time properties stay on the market is decreasing, and you’ve noticed an uptick in brokerage activity in your neighborhood. (If you’re situated in an especially hot neighborhood, you might even get a letter or a knock on the door from a listing agent who wants to help you get in on the action.)

If any of these are true in your area, think about selling up.

2. Because your neighbors just got what for their house?

Check online real estate listings in your neighborhood, and pay attention to the “recently sold” flyers in your mailbox to keep track of comparable home prices in your area.

If other houses on your street with the same bedroom/bathroom count [as yours] are selling for a price that you’d be more than satisfied with, it might be time to move on.

Another sign of a hot home sales market is the relationship of asking prices to sale prices. If home buyers are making offers fast—for as much or more than sellers are asking—it’s a seller’s market. A buyer may offer you a sales price you can’t refuse, too.

3. You’re sick of feeling financially stressed

Not everyone sells their real estate in order to pad their bank account. Some homeowners underestimated their ongoing housing costs and simply sell to ease their mortgage burden, or to cash in their equity and use it for other purposes.

If your property taxes or mortgage payments have become unmanageable, the best recourse may be to sell and find another home that’s more affordable. Selling your home is better than struggling with a big mortgage loan, and possibly risking foreclosure.

To breathe easy, your monthly housing costs, including your mortgage interest, principal, property taxes, homeowners insurance, and HOA or condo fees if applicable, shouldn’t exceed 28% of your gross monthly income.

Before you sell your home to reduce your monthly living expenses, make sure you can find another home to rent or buy in your price range, and that you can qualify for a loan at current interest rates when you do.

4. You’ve grown—but your home hasn’t

The starter home you moved into when you were expecting your first child isn’t necessarily the house you need now that you have three preteens and a capybara. It’s bittersweet to give up the memories you’ve made in your home, but if your living quarters are causing you stress rather than comfort, take the leap and sell up.

Death, serious illness, divorce—these are all emotionally wrought experiences that may warrant a need for change. Relocation is another factor. But let’s not overthink things.

Maybe you’re just tired of the same old, same old, and it’s time for a change of scenery.

5. You’re over ‘high maintenance’

The average homeowner shells out $2,000 a year for maintenance services, according to a recent report. Not repairs, mind you, but scheduled services such as landscaping, snow removal, septic service, private trash and recycling, and housecleaning.

Sick of watching these payments steadily drip out of your bank account? You could sell, and buy some lower-maintenance real estate such as a condo or a new-build property. You might even want to try renting, and let a landlord worry about leaky pipes and other property hassles.

6. You’ve put at least 5 years into the relationship

If you sell too soon—assuming you have a mortgage—you haven’t really built up any equity in the home beyond the down payment. In the beginning, your mortgage payments are almost completely interest payments.

In fact, unless the housing market is seriously booming (see above), you might lose money when you sell. You might even owe more than you can get from your house after closing costs.

Remember: Selling isn’t free: You’ll have to shell out to cover all of the costs associated with hiring a real estate agent, closing, and, of course, purchasing another home.

That’s why we recommend staying put for at least five years, unless you have an urgent need to move. In addition to everything else, moving too quickly sends potential buyers a bad message.

Buyers don’t feel good when it appears you are selling too soon. What was wrong with the house? Why are you leaving so fast? Are the basement walls about to collapse? Are the neighbors selling drugs and shooting fireworks at your house? Buyers can dream up all kinds of negative scenarios when a seller hasn’t owned the home for very long.

Another reason you may not want to sell is if you don’t meet the qualifications to avoid paying capital gains tax on your profit from a home sale. Generally, you can exclude the gain from the sale of your home if you owned and lived in the home for two of the past five years. A sale before the two-year mark, if you don’t meet any of the exceptions, could be a costly mistake. By the time you pay capital gains tax, you won’t have as much equity left as you’d planned.

But beware of snap decisions

Of course, there are no promises that selling will be better for you in the long run. Take your time deciding if you should sell, and then study the local home sales market, with the help of your real estate agent, before you price your home. If you underprice your home, a buyer may snatch it up too cheaply. If you overprice it, the right buyer may pass it by.

Selling your home is, above all, a personal decision. Do what will help you live—if not happily ever after—happily for now.

What Does ‘Days on Market’ Mean? How Buyers Can Take Advantage

In the real estate game, many buyers understand that knowing a home’s days on market (DOM) is absolutely critical intel. Why? Because the number of days a home spends on the market directly affects the price of a home. Plus, this information can be used to the buyer’s benefit to negotiate a lower price. Here’s how!

What does ‘days on market’ mean?

‘Days on market’ is the number of days that a property has been listed on the local multiple listing services (MLS) until a seller has accepted an offer and signed a contract. It can also be referred to as “time on market” or “market time.”

When browsing home listings, buyers should always take a look at the number of days on market to determine how other buyers are reacting to the property.

Size Matters: Tracking the Economy Through New-Home Square Footage

The U.S. housing market may not be synonymous with the business cycle, as a famous 2007 paper proclaimed, but the ups and downs in housing, which represents a big part of the economy, usually do offer hints about what’s going on more broadly.

That’s why economists closely watch housing market indicators like sales volumes and home prices — as well as how Americans are accessing the market and managing their obligations to mortgages, rental costs, taxes, and so on.

But small details about the housing market can say just as much about how well Americans, and the broader economy, are doing.

Typical new home size falls prior to and during a recession as home buyers tighten budgets, and then sizes rise as high-end homebuyers, who face fewer credit constraints, return to the housing market in relatively greater proportions.

The bigger question, as always, is about the specifics of what we’re seeing right now. The median size perked up at the beginning of this year, as the housing market shook off a difficult 2018.

But overall, sizes have been on a downward path since mid-2015.

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Current declines in size indicate that this part of the cycle has ended, and size will trend lower as builders add more entry-level homes into inventory and the custom market levels off.

Existing-home sales, which have only eked out a gain in two of the last 12 months, would say we’re past cycle peak but new construction should continue to trend up, which would suggest it still has legs left.

In the post-recession economy, entry-level buyers were unable to break in to the market. But now their pent-up demand could help elongate the housing cycle.

It may even help cushion the overall economy from a near-term downturn. We have no recession in our forecast for the foreseeable future.

4 Reasons Why Applying for a Mortgage Online Might Not Be The Smartest Decision!

Applying for a mortgage these days can be accomplished entirely online—no need to schlep to a bank and suffer hand cramps filling out paperwork.

Instead, you can punch some basic info into an online mortgage site, and up pops a bunch of loan choices. An industry renowned for being slow and cumbersome is now wooing customers with the promise of ease, speed, and transparency. Rocket Mortgage, Quicken Loan’s online platform, for example, promises qualified customers approval in as little as eight minutes.

But taking out a six-figure loan is one of the most complicated and substantial financial transactions most people will ever make. Does it really make sense to handle it by pushing a few buttons on your smartphone?

Maybe for those with a typical 9-to-5 job and good credit.

If you are a salaried employee with no overtime, no bonus—no funky income, if you will—just a plain-vanilla borrower, then sometimes the online mortgage does work. You know: You have a five-year work history, you’re putting 20% down, and have an 800 FICO score.

But then there’s everybody else.

Here are some of the many reasons why those borrowers might consider taking more time with the process, including consulting with an experienced loan officer or mortgage broker.

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1. You want to shop around for the best loan

First and foremost, it’s always in a borrower’s best interest to comparison shop on rates and fees on a mortgage information website. Speed and convenience alone do not always translate into a better price for borrowers.

You should invest some time in it, do your research. Also, do your diligence on your credit. And think about how long you’re going to be in your home. The reason? The length of time you estimate you are likely to be staying in the home can be a factor in whether you apply for a fixed or adjustable rate loan.

Gaining an understanding of different loan programs is a smarter approach than just going online and filling out things. A lot of people really don’t know if they’re getting the right loan program, the right interest rate, the right down payment.

The research process may ultimately lead you straight to the speedy online mortgage site as the best option anyway. But you won’t know that unless you go out and take a look around.

2. You’re a first-time home buyer

Researching all your options is especially important if you’ve never purchased a home before. First-time buyers should always talk through important details like rates, points, and closing costs with an expert. After you’ve been through the process once, you have a better idea of what to expect and what information you’ll need to provide to make the process go smoothly.

Even those who have borrowed before may want to consult with someone if there is anything about their circumstances that might make qualifying more difficult. For example, a real person could be a helpful advocate for borrowers who are buying a second home or rental property, have spotty credit, or have inconsistent income.

3. You’re self-employed

About 15 million Americans are classified as self-employed, according to the Pew Research Center. While salaried workers generally only have to show the lender their W-2 tax forms to prove their income, self-employed workers should expect that they will have to provide the lender with more income documentation, such as tax returns from the last few years.

The fact is, some online lenders are more strict about documentation requirements than federal guidelines require, because they want to reduce their risk. That can make qualifying even tougher for a borrower who is already perceived as a higher risk—for example, applicants who have only been in their current job for a few months, or those who want to include overtime pay as evidence of their buying power. The lender will want to see proof that the overtime pay is consistent. Certain guidelines say you have to show you have it for 12 months or 24 months—it depends on the loan.

4. You want some extra handholding

Working with someone one on one may also help prevent last-minute problems when it comes time to buy that house. We can’t tell you how many clients who have come to me after they’d gone online and gotten a pre-approval from a lender. Then they go to purchase a house, and halfway through the transaction, the online lender says all of a sudden, ‘You can’t get approved.’ The client freaks out. And that’s when they get a hold of someone like myself.

Finally, there is the matter of personal preference. Not everyone likes the impersonal approach. Before applying for a loan, borrowers might consider whether they are the kind of person who appreciates a lot of help and attention in other shopping experiences. If you like a hands-on environment, like a Macy’s, you’re a different kind of shopper than someone who enjoys going to a warehouse club. Your expectations going in will influence how satisfied you are with the process.

Title Insurance When Refinancing Your Loan

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Lower interest rates have motivated you to refinance your home loan. The lower rate may save you a tremendous amount of money over the life of the loan, but you should also expect to pay the lender the typical closing costs associated with any new loan, including service fees, points, title insurance protection and other expenses.

Why do I need to purchase a new title insurance policy on a refinanced loan?

To the lender, a refinance loan is no different than any other home loan. So, your lender will want to insure that their new loan is protected by title insurance, just as the original lender required. Therefore, when you refinance you are buying a title policy to protect your lender.

Why does a Lender need title insurance?

Most lenders generate loans and then immediately sell those loans to secondary market investors, such as FannieMae.

FannieMae, in order to protect its security interest in the loan, requires title insurance coverage. Even those lenders who keep original loans in their portfolio are wise to get a lenders policy to protect their investment against title related defects.

When I purchased my home, didn’t I also buy a lender’s policy?

Perhaps. Who pays for the lender’s policy on a purchase loan varies regionally and by the terms of individual contracts.

However, even if you did buy a lender’s policy when you purchased your home, the lender’s policy remains in force only during the life of the loan that was insured. If you refinance, the old loan is paid off (the “life” of the loan expires) and a new loan is issued for which the lender will require a new title insurance policy.

What about my original title insurance policy?

When you bought your home, you purchased a Homeowners title policy. The Homeowners’ policy stays in force as long as you or your heirs own the home. When you refinance, your lender will often require that you purchase a new lender’s policy to protect their new security interest in the property. Thus, you are buying a policy to protect your lender, not a new Homeowner’s policy.

What could possibly have happened since I purchased my home which warrants a new lender’s policy?

Since the time that the original loan was made, you may have taken out a second trust deed on the house or had mechanic’s liens, child support liens or legal judgments recorded against you – events that could result in serious financial losses to an unprotected lender. Regardless if it has been only 6 months or less since you purchased or refinanced your home, a myriad of title defects could have occurred. While you may not have any title defects, many Homeowners do. The only way for a lender to adequately protect itself is to get a new lender’s policy each time you purchase or refinance your home.

Are there any discounts available for title insurance on a refinance transaction?

Yes. Title companies offer a refinance transaction discount or a short-term rate. Discounts may also be available if you use the same lender for your refinance loan and your original loan. Be sure to ask your title company how they can save you money.