The Ten Commandments Of Buying A Home

Are you jazzed about your upcoming home purchase? Good. But slow down, Turbo! There are a few things you need to know. More specifically, ten things. They’re called “The Ten Commandments of Buying a Home.”

Read them. Absorb them. Emblazon them to memory, because one tiny mis-step can make your dream of homeownership come crashing down like a sandcastle at high tide.

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Applying for a Mortgage When You’re Self-Employed

selfemployed

QuickenLoans.com| May 12, 2015| Kevin Graham| Link

Anyone who’s been self-employed knows you don’t just sit around eating cheese balls and watching soap operas every day. You work your tail off to put food on the table and make a living. You can even make a really good one.

Because you’re not employed by a traditional business, there’s some additional documentation required to qualify for a mortgage. It doesn’t have to be a hindrance; it just requires a little preparation.

Employment Verification

One of the great draws of self-employment is the ability to strike out on your own and be your own boss. Taking responsibility for your own success can be very freeing.

It does, however make the process of verifying your employment a little different. What would normally require a phone call to your employer instead requires you to furnish a little bit of paperwork. The good news is you can provide any of the following as documentation:

  • Current statement of bond insurance (policy must be at least two years old)
  • A letter from your licensed CPA, enrolled agent or tax preparer
  • Letters from clients indicating service has been performed
  • A membership letter from a professional organization that can verify through your membership at least two years of self-employment.
  • Any state license and business license that may be required in your profession
  • Evidence of workers’ compensation and employer’s liability insurance
  • A DBA (Doing Business As) issued at least two years ago

If you’re using a DBA for verification, you must prove current self-employment with two months of recent business account statements, creditor statements or company invoices.

Income Documentation

Quicken Loans Mortgage Banker Dennis Spensley said one of the most important things a client can do to move the process along is to have income documentation ready at the beginning.

He went over what documents are needed if you’re a sole proprietor.

“When I am helping a self-employed client, I try to set the right expectation upfront,” Spensley said. “We’ll need two years of tax returns, both business and personal. We also typically need to have the client’s accountant prepare a (year-to-date) profit and loss and a balance sheet. If they have extended (their tax filing time) for the previous year, we’ll need a copy of the extension form and a profit and loss prepared for the previous year as well.”

If you’ve been self-employed for less than two years, it may be necessary to show additional documentation regarding the likelihood of continued income.

While the specific forms necessary are dependent on how you incorporate your business, in general, we’ll need personal tax returns (and, if it’s a corporation, W-2s) as well as a statement showing your portion of the business’s profit or loss. Profit and loss forms might include a Schedule C, Form 1120S or K-1, depending on your business structure.

It’s important to note that you generally can’t qualify if you show an income decline of greater than 25%.

Get Organized

Spensley also noted it’s helpful if you can separate your business assets from your personal assets.

“Self-employed clients typically have their business and personal assets intermingled,” he said. “If they can keep the funds that they will use for down payment and settlement fees isolated from their business assets in a personal savings account, that would work best.”

Depending on the type of loan, a minimum contribution to the down payment is required from your personal funds. Separating it from your business accounts will just make things easier.

 

It’s Business As Usual for Interest Rates

Model of a house behind a fence from dollars

RISMedia| June 19, 2015| Suzanne De Vita| Link

Prospective homebuyers may see a few more weeks of near-zero mortgage rates following news that the Federal Reserve will maintain its current interest rate policy. Economists have long anticipated a rate change in September of this year.

“The (Federal Open Market) Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its two percent objective over the medium term,” the Fed statement read.

Though the Fed does not set mortgage rates, its actions tend to impact those that do. After the unexpected employment gain in May, 30-year-fixed mortgage rates rose to 4.04 percent, marking the first week since November of last year that rates topped four percent.

“The housing market can handle interest rates well above four percent as long as inventory improves to slow price growth and underwriting standards ease to normal levels so that qualified buyers–especially first-time buyers–are able to obtain a mortgage,” said Lawrence Yun, chief economist of the National Association of REALTORS®, in a recent market update.

“You may see a 4.5 percent conventional interest rate by the end of the year,” opines Joe Petrowsky of Right Trac Financial Group in Manchester, Conn. “If the true employment numbers improve, rates should move up, but based on our current economy, it would be a bad move on the part of the Fed to raise rates. My sense is the Fed will attempt to raise rates throughout this year.”

In the interim, borrowers may choose to lock in a lower rate by timing the lock period with the projected closing date of sale.

6 Low-Cost Steps to an Organized Kitchen

RISMedia| Andrea Davis| March 11, 2015| Link

Keeping your kitchen organized is essential to cooking and a good room aesthetic. If your kitchen is disorganized, you’re likely scrambling to find what you need when you cook. That’s never good, and it’s completely unnecessary, too. There are various quick, low-cost ways to organize your kitchen and make it suitable to your needs. Here are some ideas to consider:

#1 Affordable storage options

If you need to organize drawers, shelves, pantry space or under cabinet areas, there are various options available to you. Some of those options include:

  • Baskets or trays made of plastic
  • Wire baskets that hang over or mount to a door
  • Hooks
  • Drawer dividers

Square organizers waste space and should be used only when necessary. Shallow bins are particularly helpful in drawers because of their volume, and installing clear organizers makes it easier to see what you’re looking for.

#2 Cabinet solutions

Your cabinets store a lot of items — plates, bowls, cups, pots and pans — which means you need to optimize space. There are various options available that won’t require you to pull out your cabinets and spend a fortune starting over. Some of those include:

  • Helper shelves – These fit between shelves to increase usable space in your cabinets.
  • Stepped shelves – These help you view what’s potentially hidden in the back of deep cabinets.
  • Under shelf racks and baskets – These are good for storing small items and slide in and out easily.
  • Over the door organizers – These come in the form of trays, baskets, towel bars or bag holders, which may be hooked onto the door for quick organization.

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#3 Hang a pot rack

If you have a lot of pots and pans, you’re likely running out of space in your cabinets for them. Instead of trying to push everything to fit in a cramped space, you can hire a handyman to hang a handrail and some S-hooks for your cookware. Handrails support a lot of weight and S hooks are good for a wide variety of pot and pan handles. You can also buy a pot rack from a home improvement store and have it professionally installed in the ceiling. This is a really good idea if you have a breakfast bar or butcher block in the center of your kitchen. It cuts down the chances of you hitting your head on the pots and pans.

#4 Pantry organization ideas

Your pantry holds a lot of essential cooking items — spices, sugar, flour, liquids and so on — and this area tends to get cluttered. To smartly organize this space, you should utilize the door. You can use chalkboard paint to keep a shopping list, or you could hang hooks or pocket organizers for storing bigger items. There’s also the option of putting a spice rack in the pantry for organizing all of those cooking essentials. Some other organization options include:

  • Rolling kitchen carts
  • Slide-out shelves
  • Baskets and containers

#5 Organize the sink cabinet.

It would be great to utilize your under-sink storage space, but you don’t want it to get cluttered with cleaning items and linens. You can hang hooks inside the sink cabinet door to hang your gloves and some linens. You can also place a tray at the bottom of the cabinet to store cleaning supplies in an organized fashion. It’s quick and efficient — and it keeps your cabinet space clean.

#6 Plywood panel solution

Sometimes you have long cookie sheets, pizza pans and other flat cookware that doesn’t fit right in your cabinets. While you have some space underneath the oven for these items, it might not be enough. So, you need to utilize other space options, which is where plywood panels come in. By removing the lower shelf of your cabinet, you can use a plywood panel that you stand up vertically and brace with wood glue. Then you can slip in tall pans easily without them leaning against other items in the cabinet. You might need the help of a carpenter to properly size the plywood panels or drill the appropriate holes for the braces.

 

Midyear Report: The Housing Market Is on Track for Its Best Year Since 2006 (and It Ain’t a Bubble)

housing-rising

Realtor.com| Jonathan Smoke| June 10, 2015| Link

As we approach the midpoint of 2015, the residential real estate market is on track for its best year since 2006, the peak of the housing bubble. (This time, though, it’s no bubble.)

Job growth is powering the surge in demand for homes. More than 3 million jobs have been created in the past 12 months. And more than 1 million jobs have been created for 25- to 34-year-olds, the age range in which most Americans buy their first home.

We’re seeing record traffic at realtor.com®Real estate websites across the board are experiencing 15% year-over-year growth in unique users, but our site has seen more than twice that (perhaps thanks to Elizabeth Banks?). The vast majority of our visitors report that they intend to purchase a home.

With rising demand, homes are selling more quickly, too. In May the median age of inventory (homes on the market) nationwide was 66 days—that’s 8 days faster than for last year. The hottest markets are seeing inventory move 18 to 45 days faster.

A rapidly declining age of inventory signals that demand is growing more rapidly than supply. Indeed, we’ve had 32 months in a row of existing-home inventory at less than a six months’ supply. That’s why we’re also seeing above-normal price appreciation.

Year-over-year median home price appreciation reached 9% in April, which has helped existing homeowners see strong gains in equity.

That level of price appreciation would be problematic if it continued, but we don’t think it will. Median list prices, which often predict the direction of actual price changes, moderated in each of the past two months as the number of listings grew.

Meanwhile, rents are increasing at a similar or even stronger pace than home prices. Record numbers of renting households have driven down apartment vacancies, and low vacancies led to higher rents. As a result, it is cheaper to buy rather than rent in 80% of the counties in the U.S.

And now the clock is ticking as mortgage rates are on the rise. With strong employment data in April and May, the average 30-year fixed conforming mortgage rate broke through the 4% level, and in the past week moved above 4.10%.

Is that slowing down demand? No, just the opposite. Consumers can clearly see that affordability is going down for real, so those who are ready and able to buy are searching for homes, looking at listings, visiting open houses, applying for mortgages, and signing contracts.

In April, new-home sales were up 26% over last year. Pending home sales, which are new contracts on existing homes, were up 14%.

At this level of growth, total home sales in 2015 could come close to 6 million, which is a level comparable to 2007 (if not quite at the level of peak 2006). But 2007 was a year of decline for the housing market, whereas in 2015, we’re expecting more good things to come.

The 20 Hottest U.S. Real Estate Markets in May 2015

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Realtor.com | Cicely Wedgeworth| June 1. 2015| Link

The housing market is chugging ahead, with even higher home prices and more buyer activity—and in May, we’re seeing more than the ordinary seasonal uptick.

“On the demand side, we are seeing traffic and searches on realtor.com® continue to set new highs,” said our chief economist, Jonathan Smoke, who did a preliminary analysis of our site’s data in May. Visits and searches are expected to be up more than 50% and 35%, respectively, year over year.

Helping create more opportunities for buyers, the listings inventory is now growing faster, at 4% over April—but it’s still down compared with last year, so buyers will need to keep on their toes. In part because of the limited inventory, the median list price increased nationally to $228,000, up 7% over the previous year and 1% over April. At the same time, homes are moving more quickly: Median days on market, now at 66, continued a sharp decline, down 11% year over year and 10% month over month.

Smoke’s team also ranked the nation’s 20 hottest real estate markets for buyers and sellers. Looking at the nation’s 300 largest markets, the team used the number of views per listing on realtor.com to gauge demand, and the median age of inventory to assess supply.

California dominated the list, with half of the country’s 20 hottest real estate markets, because of its tight supply of homes and economic-powered growth in demand. San Francisco and San Jose maintain the second and third spots from the April rankings, while the state capital, Sacramento, leaped from No. 21 in April to No. 12 in May.

“Sacramento typically follows strong growth in Silicon Valley and the San Francisco Bay Area, as it is a relatively more affordable alternative,” Smoke said. “But this market has had strong employment growth above the national average and is seeing strong household growth as a result.”

Three states pulled off a two-fer on the list: Texas, with No. 4 Dallas–Fort Worth and No. 16 Austin; Colorado, with No. 1 Denver and No. 13 Boulder; and Michigan, with No. 9 Ann Arbor and No. 10 Detroit. These markets’ success also reflects economic-powered gains, but the Texas and Colorado story is more of a continuing saga that shows the resilience and diversified nature of the states’ economies despite the declines in oil. Michigan’s performance is related to economic recovery and very strong affordability.

Denver resoundingly maintained the top ranking as inventory there shaved six days off the median age while listing views grew 7% over April. Like Dallas, Denver is experiencing substantial economic growth, and the tight supply of housing is resulting in the fastest-moving inventory in the country.

The 20 Hottest Real Estate Markets in May 2015

Market May Rank April Rank
Denver-Aurora-Lakewood, CO 1
San Francisco-Oakland-Hayward, CA 2
San Jose-Sunnyvale-Santa Clara, CA 3
Dallas-Fort Worth-Arlington, TX 4
Vallejo-Fairfield, CA 5
Boston-Cambridge-Newton, MA-NH 6
Santa Cruz-Watsonville, CA 8
Santa Rosa, CA 7
Ann Arbor, MI 9
Detroit-Warren-Dearborn, MI 10  11
San Diego-Carlsbad, CA 11  10
Sacramento-Roseville-Arden-Arcade, CA 12  21
Boulder, CO 13  17
Fargo, ND-MN 14  12
Los Angeles-Long Beach-Anaheim, CA 15  15
Austin-Round Rock, TX 16  14
Oxnard-Thousand Oaks-Ventura, CA 17  13
Manchester-Nashua, NH 18 31
Columbus, OH 19 22
Stockton-Lodi, CA 20 38

A Home Buyer’s Guide to a Seller’s Market

Realtor.com| May 26, 2015| Annamaria Androitis|Link

In many parts of the country, this is a good time to sell a home. That could make it a risky time to buy one.

Houses are selling fast and prices are going up. Sales of existing homes nationwide are expected to reach the highest volume since 2006, according to the National Association of Realtors.

In the first quarter, median sales prices of single-family homes were at least 10% higher than a year prior in 51 metropolitan areas, according to the trade group. That included Charlotte, N.C., up 18%, and Denver, up 17%. Nationwide, median prices rose 7.4%, to $205,200.

A shortage of homes for sale is helping to drive the market higher, experts say, along with a gradually improving economy and a growing concern that a period of historically low interest rates may not last much longer.

wsj-graphic-snapped-up-homes

Competition among buyers can be fierce, and some are aggressively wooing sellers in an attempt to stand out.

Amanda Corona bid more than the asking price on a 2,100-square-foot townhouse in Atlanta, and she agreed to see the deal through even if the home was appraised for less than the purchase price.

“I guess I’m a risk taker,” says Ms. Corona, an insurance executive who is 38 years old. The appraisal came in above the purchase price of $365,000 and she closed on the house this month.

Buyers should consider what could go wrong in this kind of market. A bidding war could entice you to spend more than you can afford. An inflated price could leave you owing more than you can sell the house for down the road, if prices fall.

Some strategies could limit the danger. Study whether prices in your city are being driven by low inventory, which could be a warning sign, or a solid economy, which could sustain prices.

Set a budget and stick to it. And see if new homes may hit your local market soon, which could cool things down. On Tuesday, the Commerce Department said that in April construction on new homes rose to the highest level since before the recession.

Keep in mind that it could still be a good time to buy. Mortgage rates remain near historic lows and home prices could keep rising. Buyers should also factor in how long they plan to keep a home, because short-term volatility may not matter for a long-term owner.

Here is a buyer’s guide to navigating a seller’s market.

Supply and demand

House-hunting can be difficult when homes for sale are hard to find.

In a market balanced between buyers and sellers, there are enough existing homes available to satisfy demand for six to seven months, according to the Realtors association. But in the first quarter, the association says, there was only 4.6 months’ worth of inventory available nationwide on average, down from 4.9 months in the same period of 2014.

Listings have grown scarcer in many big cities. In Seattle, there were 8,465 homes listed for sale in April, down 23% from a year earlier, according to Redfin, a national brokerage based in Seattle. In Portland, Ore., there were 8,941 listings, down 27%. In Omaha, Neb., there were 4,158 listings, down 20%.

Some homeowners who bought at the top of the market are reluctant to sell because the value of their home plummeted in the financial crisis and still hasn’t fully recovered. Others are holding out for higher prices, experts say.

Whatever the cause, a shortage of listings can have a significant impact on prices even in an otherwise listless market.

In a March report, Fitch Ratings, a credit-rating firm, said that prices in many metropolitan areas are being driven up more by limited inventory than by a strong economy.

“With supply limited, small increases in demand can have outsized impacts on prices,” the report said.

Under construction

That puts a premium on taking the pulse of your local market.

Try to determine if the local economy is strong. If jobs are growing, incomes are rising and people are moving into town, that could be a sign that price increases are sustainable or that more houses will soon come onto the market.

Look for signs of new construction in the neighborhood. The number of lots that have been prepared for home building increased more than 21% over the 12 months through March, says Brad Hunter, chief economist at Metrostudy, a research and consulting firm that tracks the home-building industry.

The Commerce Department says the seasonally adjusted annual rate of housing starts increased 9.2% nationwide in April from a year earlier, and the rate of housing units authorized by building permits rose 6.4%.

Growth varies by region. In the Northeast, for example, housing starts increased 52% from a year ago and building permits increased 57%. In the South, the increases were 3.5% and 1.3%, respectively. In the Midwest, starts declined 10.5% and building permits declined 7.5%. In the West, starts rose 15% and permits rose 3.4%.

The Commerce Department provides data on building permits for many metropolitan areas. Other sources track local data on housing starts. According to Metrostudy. housing starts of single-family detached homes were up about 15% in Denver and Atlanta in the first quarter, compared with the same period last year, for example. In Las Vegas, they are up more than 36%, says Metrostudy.

Ask experts in your market what they are seeing. If construction activity is strong, you should be able to find evidence without too much trouble.

If new homes are going up, patience could pay off. Chris Langan and his partner put their five-month house search in Atlanta on hold in April after the couple grew tired of looking at houses that cost more than they wanted to spend and more than they thought the homes were worth, he says.

“When I see a lot of people going toward one thing—this mass frenzy—I like to step back and evaluate it,” says Mr. Langan, 31, a sales consultant for a food distributor. He says they plan to rent for two years, by which point he expects the market to be calmer.

Winning and losing

Buyers who push ahead could get lured into bidding wars, where winning in the short term can later feel like losing if you pay too much.

Bidding wars were more common in the first quarter than they were a year earlier in several markets, including Denver; Fort Lauderdale, Fla.; Oakland, Calif.; Philadelphia, Pa.; Portland, Ore.; and Seattle, Wash., according to Redfin, which bases its figures on the number of bids submitted by its agents that face at least one competing offer.

Other markets saw fewer bidding wars over the same period, including Atlanta; Baltimore; Chicago; Orange County, Calif.; and Washington, D.C., according to Redfin.

Buyers often need to move quickly, which can add to the frenzy. In Denver, Houston, Oakland and Seattle, more than 40% of the homes for sale in the first quarter were in contract within two weeks, according to Redfin.

As a result, buyers should figure out how much they can afford to spend ahead of time. Consider getting a preapproval from the mortgage lender you select.

That doesn’t mean you should borrow the full amount for which you are preapproved. Be sure the monthly mortgage payments will leave enough left over for living expenses and emergency funds. Think about how you would cover the cost if you were temporarily unemployed.

Once you set a budget, stick to it. Be prepared to walk away if prices get too high.

Consider looking at houses that aren’t selling as quickly. The owners may be more willing to lower the asking price. But get a thorough inspection to make sure you aren’t buying a house with serious flaws.

In Denver these days, a house that hasn’t been snapped up within two to four weeks is likely either to be overpriced or to need fixing up, says Tim Davis, owner and managing broker at Weichert Realtors Professionals in Denver.

Self-defense

Buyers who are eager to purchase a home are also waiving rights that are standard in sales contracts, experts say.

In addition to promising to plow ahead even if an appraisal values the house below the purchase price, buyers are agreeing to forgo the option of dropping out if an inspection shows the need for costly repairs or if they are unable to get a mortgage.

“We’re seeing strategies and situations that have never been experienced here, and I’ve been in the real-estate business since 1987,” says Mr. Davis, the Denver broker.

These kinds of contingency clauses, as they are known, are meant to protect buyers. If you agree to drop them, you could end up forfeiting your deposit if you back out anyway. The seller could also sue the buyer, though that is uncommon in a seller’s market, says Bob Lattas, a real-estate attorney in Chicago.

There are other risks, too. If an appraisal comes in low, buyers could have to put up fresh cash in a hurry in order to go through with the deal. That’s because lenders typically reduce the loan amount if a house is appraised at less than the purchase price.

If, for example, a buyer agrees to pay $400,000 for a house, but the appraised value is $380,000, the buyer could have to pay the seller an additional $20,000 out of pocket.

In such situations, buyers essentially acknowledge that they’re overpaying. They believe “the house will increase in value so much that even if something is wrong with it [they] will still be fine,” says Doug Miller, a real-estate attorney and executive director of Consumer Advocates in American Real Estate, a nonprofit based in Navarre, Minn.

The risk is that prices don’t continue to go up—or, even worse, drop.

Unless buyers are certain they can assume the risks, they may be better off avoiding situations where they have to drop contingency clauses in order to strike a deal, says Richard Vetstein, a real-estate attorney in Framingham, Mass.

If you do decide to waive contingency clauses, try to determine how nasty the financial surprise might be.

Keep in mind that price and value aren’t the same thing. Carole Short, a real-estate agent with Coldwell Banker Residential Brokerage in Atlanta, says some agents are agreeing to list homes at high prices in order to win the business.

She says, “We are starting to see some greedy-seller overpriced listings at numbers where you go, ‘Oh my God, are you kidding? That house isn’t worth that.’ ”

A 15-Year Mortgage Can Save You $190K … but Can You Get One?

15vs30

April 8, 2015| Credit.com| Scott Sheldon|

One of the best ways to eliminate your mortgage debt is moving into a 15-year fixed-rate loan. With the average spread a full 1% compared to its 30-year counterpart, a 15-year mortgage can provide an increased rate of acceleration in paying off the biggest obligation of your life.

Can you pull it off?

In most cases, you’re going to need strong income for an approval. How much income? The old 2:1 rule applies. Switching from a 30-year mortgage to a 15-year fixed-rate loan means you’ll pay down the loan in half the amount of time, but it effectively doubles up your payment for each month of the 180-month term. Your income must support all the carrying costs associated with your home including the principal and interest payment, taxes, insurance, (private mortgage insurance, only if applicable) and any other associated carrying cost. In addition, your income will also need to support all the other consumer obligations you might have as well including cars, boats, installment loans, personal loans and any other credit obligations that contain a monthly payment.

The attractiveness of a 15-year mortgage in today’s interest rate environment has mass appeal. The 1% spread in interest rate between the 30-year mortgage and a 15-year mortgage is absolutely real and for many, the thought of being mortgage-free can be very tempting. Consider today’s average 30-year mortgage rate of around 4% on a loan of $400,000—that’s $287,487 in interest paid over 360 months. Comparing that to a 15-year mortgage over 180 months, you’ll pay a mere $97,218 in interest. That’s a shattering savings of $190,268 in interest, but there’s a catch—your monthly mortgage payment is going to be significantly higher.

Here’s how it breaks down. The 30-year mortgage in our case study pencils out to a $1,909 monthly payment covering principal and interest. Weigh that against the 15-year version of that loan, which comes to $2,762 a month in principal and interest, totaling $853 more per month, but going to principal. This is why the income piece makes or breaks the 15-year deal. Independent of your other carrying costs and other credit obligations, you’ll need to be able to show an income of $4,242 a month to offset just a principled interest payment on the 30-year fixed-rate mortgage. Alternatively, to offset the principled interest payment on the 15-year mortgage, you would need an income of $6,137 per month, essentially $1,895 per month more in income, just to be able to pay off your debt faster. As you can see, income is a large driver of debt reduction potential.

What to do if your income isn’t high enough

When your lender looks at your monthly income to qualify you for a 15-year fixed-rate loan, part of the equation is your debt load.

Lenders are going to consider the minimum payments you have on all other credit obligations in the following way. Take your total proposed new 15-year mortgage payment and add that number to the minimum payments on all of your consumer obligations and then take that number and divide it by 0.45. This is the income that you’ll need at minimum to offset a 15-year mortgage. Paying off debt can very easily reduce the amount of income you might need and/or the size of the loan you might need as there would be fewer consumer obligations handcuffing your income that could otherwise be used toward supporting a stable mortgage plan.

Can you borrow less?

Borrowing less money is a guaranteed way to keep a lid on your monthly outflow maintaining a healthy alignment with your income, housing and living expenses. Extra cash in the bank? If you have extra cash in the bank beyond your savings reserves that you don’t need for any immediate purpose, using these funds to reduce your mortgage amount could pencil very nicely in reducing the 15-year mortgage payment and interest expense paid over the life of the loan. The concept of the 15-year mortgage is “I’m going to have to hammer, bite, chew and claw my way through a higher mortgage payment in the short term in order for a brighter future.”

Can you generate cash?

If you can’t borrow less, generating cash to do so may open another door. Can you sell an asset such as stocks, or trade out of a money-market fund in order to generate the cash to rid yourself of debt faster? If yes, this is another avenue to explore.

You may also want to explore getting additional funds via selling another property. If you have another property that you’ve been planning to sell such as a previous home, any additional cash proceeds generated by selling that property (depending upon any indebtedness associated with that property) could allow you to borrow less when moving into a 15-year mortgage.

Are you an ideal match for a 15-year mortgage?

Consumers who are in a financial position to handle a higher loan payment while continuing to save money and grow their savings would be well-suited for a 15-year mortgage. The other school of thought is to refinance into a 30-year mortgage and then simply make a larger payment like you would on a 25-year, 20-year or 15-year mortgage every month. This is another fantastic way to save substantial interest over the term of the loan, since the larger-than-anticipated monthly payment you make to your lender will go to principal and you’ll owe less money in interest over the full life of the loan. As cash flow changes, so could the payments made to the loan servicer, as prepayment penalties are virtually nonexistent on bank loans.

There is an important “catch” to taking out a 15-year mortgage—you also decrease your mortgage interest tax deduction benefit. However, if you don’t need the deduction in 15 years anyway, the additional deduction removal may not be beneficial (depending on your tax situation and future income potential).

If your income is poised to rise in the future and/or your debt is planned to decrease and you want to have comfort in knowing by the time your small kids are teenagers that you’ll be mortgage-free, then a 15-year loan could be a smart move. And when your mortgage is paid off, you’ll have control of all of your income again as well.

Proximity to retirement is another factor borrowers should consider when carrying a mortgage into retirement isn’t ideal. These consumers might opt to move into a faster mortgage payoff plan than someone buying a house for the first time.

Keep in mind that to qualify for the best interest rates on a mortgage (which will have a big impact on your monthly payment), you need a great credit score as well. You can check your credit scores for free on Credit.com every month, and you can get your free annual credit reports at AnnualCreditReport.com, too.

How to Get the Best Deal (and the Fewest Headaches) on Homeowners Insurance

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Realtor.com| March 17, 2015| Angela Coley|

Homeowners insurance is a necessity. If you have a mortgage, your lender will require coverage—and if your home is mortgage-free, then you should have coverage anyway.

But not all insurance coverage is alike. Policies and protections differ, and so do costs. Your goal is to find the right amount of protection for the least amount of money.

3 types of homeowners insurance

Homeowners insurance generally comes in three standardized packages:

  1. HO-1: Basic package offers protection against such perils as fire, theft, and certain types of liability.
  2. HO-2: More comprehensive package protects against damage from broken pipes, the weight of ice and snow, and broken water heaters.
  3. HO-3: The highest level of coverage, it generally includes just about everything and excludes only earth-shaking events such as earthquakes and floods.

Determine which policy will work best for you

To determine which policy is best for you, make a list of valued possessions and the types of coverage you’d generally like to have. Then, sit down with an insurance broker to review what’s included (and excluded) from each policy form and the other forms of coverage that may be available. You may find all the coverage you want in a general form, or you may determine you need special coverage at extra cost.

Ask the right questions

To get the most from your policy, it helps to create a list of questions to ask your insurance broker beforehand. Some examples:

  1. What works best in your situation?
  2. What is included—and excluded—for each option?
  3. What coverage will you need for antiques, jewelry, and other high-ticket items?
  4. How much personal liability protection will the policy provide? What is the cost of additional coverage? What about an “umbrella” policy?
  5. If you have a loss, will coverage be for actual cash value or replacement cost? Ask your insurance broker to explain the difference.
  6. What is the policy deductible? (Generally lower deductibles mean higher premiums, higher deductibles result in lower premiums.)
  7. How can you reduce policy costs? For instance, if you buy auto and home insurance from the same source, will your combined expenses decline?
  8. What home improvements can you make that would result in lower premiums?
  9. How are claims handled if you have a loss?

Find the best price

Finding the best price on homeowners insurance can be tricky. You don’t want to simply sign up for whatever policy is the cheapest and end up underinsured, but you also don’t want to pay more than you have to.

To make sure you’re getting the best deal, ask your insurance broker for a list of comparable plans from about three other providers. The price for similar coverage can vary from provider to provider. Finally, don’t forget to factor in your own circumstances. The location of your home, the size of your home, and even your credit score can affect your insurance costs.

 

 

2015: Buy Now, Before the Fed’s Patience Ends

buyinghome

Realtor.com|January 30, 2015| Jonathan Smoke

By now you’ve probably heard that 2015 is expected to be a pretty good year for real estate. It’s a prediction that we chief economists are all fairly aligned on.

But what I can’t emphasize enough is why I’m so confident this is a defining year for the housing industry.

It comes down to three simple factors:

  1. Home sales will increase.
  2. Prices will increase.
  3. Mortgage rates will increase.

When combined, those three indicators point to an extremely strong real estate market. And potential home buyers should move fast if they want to spend less.

Buy before it’s too late

Buyers should act now––delayed purchases will only result in higher monthly mortgage payments as prices and rates rise. In fact, our forecast data show affordability may decline as much as 10% over the course of the year.

Plus, we won’t get another head fake on mortgage rates like we did in 2014. The economy is much stronger now, and the Federal Reserve continues to communicate loudly to the financial markets that it will raise the target for the federal funds rate this year.

Right now, the Fed is using the word “patient” to describe its approach to picking the time to raise the target rate.

However, when the Fed “loses patience,” rates will go up at least 20 to 40 basis points in anticipation of the target rate officially going up.

The last time the word “patient” disappeared from the Fed’s language, it raised the target two months later. And when “patient” disappeared from the Fed’s language, mortgage rates went up in anticipation of the official move.

So, buyers beware: The clock on these low mortgage rates may be ticking.

Job growth, global economy will boost housing

From a macro level, the economy and the housing market are in far better shape now than a year ago. We are creating jobs at a pace now that we haven’t seen in 15 years.

Friday’s initial report on fourth-quarter GDP came in at 2.6% growth. Underneath the number was mounting evidence that consumer spending is indeed strong and wage growth is finally accelerating.

Low prices at U.S. gas pumps have turbocharged consumer confidence and are enabling households to spend more and save more for big purchases—say, buying a home.

Besides global factors that bode well for buyers, the U.S. housing market is also in much healthier shape. Foreclosure inventories have fallen to nearly normal levels everywhere except for a few slow markets. As a result, distressed sales are no longer weighing on the market.

We’re back to a normal and upward trajectory for housing prices, and there’s little risk of prices declining because inventories are very low. I’m actually more worried about listings and new home construction not keeping up with the demand.

Market is primed for first-time buyers, sellers

I’ve said it before and I’ll say it again: 2015 is the year of the millennial when it comes to real estate. Millennials are at a critical demographic tipping point where their sheer numbers will naturally drive demand for more home sales. Most first-time buyers move into their first home when they’re between the ages of 25 to 34.

Sellers should also be encouraged—especially if they’re sitting in affordable homes waiting for a long-overdue upgrade. With recent clarification of mortgage standards, new low-down-payment programs, and lower FHA insurance premiums, access to credit should improve. That means those folks who’ve been sitting on equity in entry-level homes can finally upgrade to bigger homes and retirement homes.

What are the downsides?

There are some risks to keep in mind.

Supply must keep pace with demand, otherwise affordability declines more rapidly and would-be buyers can’t find the home of their dreams.

The U.S. economy could hiccup from global weakness.

Consumers could take the money they’re saving on gas and buy lottery tickets instead.

The probability of those risks completely reversing the recovery is slight, but it is strong enough to limit the potential. On the flip side, if the economy ends up growing more than expected and first-time buyers come roaring back, we could end up in an even stronger market. Here’s to a robust and strong 2015!

Jonathan Smoke is chief economist at realtor.com®.