You’ve made the decision to make one of the largest investments you’ll ever make in your life-buying your first home. You’re excited, but at the same time anxious. Some of the questions you may be asking are: Will I be able to afford the home of my dreams? Do I have enough money for a down payment? Can I get a home inspected before I make an offer?
Rest assured, you are not alone. According to the 2000 National Association of REALTORS® Profile of Home Buyers and Sellers, first-time homebuyers accounted for 40 percent of the homes purchased in 1999. The homebuying process can be overwhelming, but if you go into it prepared, your first purchase can be a good experience. Here are some things to consider before making the plunge.
Getting a mortgage - Fear of being rejected for a home loan is one of the main concerns for first-time homebuyers. To lessen the stress, you may want to get pre-approved for a loan before looking at prospective homes. This will not only help you feel more confident, it will also give you an advantage when there are multiple offers for a specific home. The fact that your loan has already been approved is of great value to the seller: because it shortens the purchase process and there is less of a chance that the buyer will back out of the sale.
Mortgage Payments - The costs involved in the purchase of a home can be overwhelming to first-time buyers. However, with the help of a real estate professional, you can calculate out how much they you be able to pay each month in mortgage payments, and from there, what prospective homes offer a feasible payment plan.
Down-Payment - The down-payment amount varies depending on the value of the home you choose and your mortgage lender. And in some cases, first-time home buyers can purchase a home with no money down. Although it varies from state to state, most offer government-funded programs for first-time buyers that help people buy a home with no down-payment. Your real estate professional will be able to explain the different options available to you.
Closing Costs - First-time buyers often forget to consider the closing costs when making an offer on a home. Paying closing fees of up to 10 percent of the home sale amount is not unusual. Add that to the down-payment and you’ll have quite a sum to raise before the final papers can be signed. However, a smart first-time buyer takes this into account before making an offer, and with some professional help, the costs can be estimated in advance.
Making offers - Don’t feel pressured into making an offer on the first home you see. This is a common mistake of many first-time homebuyers. Make sure you view different homes to get a feel for the marketplace. When you do decide on a home to make a bid on, work with your real estate professional to get all of your questions answered first before making an offer. But don’t wait too long to make an offer. The longer you wait, the greater the chance other prospective buyers may place offers, making it harder for you to negotiate a good deal.
Condition of the Home - Buying a “problem” home is another fear of first-timers. A home that needs major repairs can become a costly venture. And, unless the asking price is adjusted to reflect the hidden repairs needed, chances are the home is not worth as much as the seller is asking for it. To avoid unfortunate surprises, your real estate professional may advise you to hire a home inspector before making a serious offer. That way, you know what you are getting into.
Above all, remember that there are no silly questions. Make sure you understand and are comfortable with every aspect of the transaction. Your real estate professional can be an invaluable asset in helping you make educated decisions so that your first-home purchase is a rewarding experience.
http://www.totalrealestatesolutions.com/articles/disp.cfm?aid=70&typeid=1&winpop=0&nav=1
Tuesday, June 5, 2007
Buying Pre-Construction? Here’s Why A Real Estate Professional Should Represent You
It might not seem necessary to involve a real estate professional in a transaction where a buyer can deal directly with a builder. Think again! A real estate professional representing the buyer’s interests, can guide you along the right path, smooth the rough places and help ensure you make a decision you can live with (and in) for many years. Here’s how:
* Just as a real estate professional calls on experience and knowledge of an area to help buyers locate pre-owned homes in a community, he or she can also direct buyers interested in newly built homes to developments and communities that match client specifications.
* An agent can suggest builders based on their reputation for delivering a high-quality product, responding quickly to issues, and being financially sound.
* An agent may be familiar with how a builder prices his products and where there may be room to negotiate price or upgrades.
* Without agent representation, you are one buyer purchasing only one home. But an agent can significantly impact a builder’s bottom line by providing a steady supply of customers. The agent’s leverage may work in your favor at the negotiating table. [Note: The builder may require your agent to accompany you on your first visit to the site. Check with the builder.]
* When relocating to a new area, agents can be particularly valuable resources. In addition to providing local area information regarding schools, day care or elder care services, public transportation, proposed development, and so on, once construction is under way, an agent can periodically stop by the work site, supply you with progress reports, and photograph or videotape phases of the construction.
* An agent can assist you as you face hundreds of design choices and consider which upgrades could potentially add value to the home when it comes time to sell.
* An agent can accompany you at the site while you okay the plumbing and electrical locations prior to drywalling, as well as on the walk-through or builder orientation.
* By now, you should be convinced of a real estate professional’s value as you search for and purchase a newly built home. Still, here’s one more great reason to work with an agent-the builder pays the agent’s commission. You enjoy individual attention and support at no cost to you. What a great way to start life in a new home!
http://www.totalrealestatesolutions.com/articles/disp.cfm?aid=67&typeid=1&winpop=0&nav=1
* Just as a real estate professional calls on experience and knowledge of an area to help buyers locate pre-owned homes in a community, he or she can also direct buyers interested in newly built homes to developments and communities that match client specifications.
* An agent can suggest builders based on their reputation for delivering a high-quality product, responding quickly to issues, and being financially sound.
* An agent may be familiar with how a builder prices his products and where there may be room to negotiate price or upgrades.
* Without agent representation, you are one buyer purchasing only one home. But an agent can significantly impact a builder’s bottom line by providing a steady supply of customers. The agent’s leverage may work in your favor at the negotiating table. [Note: The builder may require your agent to accompany you on your first visit to the site. Check with the builder.]
* When relocating to a new area, agents can be particularly valuable resources. In addition to providing local area information regarding schools, day care or elder care services, public transportation, proposed development, and so on, once construction is under way, an agent can periodically stop by the work site, supply you with progress reports, and photograph or videotape phases of the construction.
* An agent can assist you as you face hundreds of design choices and consider which upgrades could potentially add value to the home when it comes time to sell.
* An agent can accompany you at the site while you okay the plumbing and electrical locations prior to drywalling, as well as on the walk-through or builder orientation.
* By now, you should be convinced of a real estate professional’s value as you search for and purchase a newly built home. Still, here’s one more great reason to work with an agent-the builder pays the agent’s commission. You enjoy individual attention and support at no cost to you. What a great way to start life in a new home!
http://www.totalrealestatesolutions.com/articles/disp.cfm?aid=67&typeid=1&winpop=0&nav=1
Monday, June 4, 2007
When is the best time to sell?
Many people think that spring is the best time to sell a home.
This is when gardens are in bloom, the sun is shining and most homes show well. Although weather considerations do come in to play, the best time to sell depends on various other factors.
Sellers usually do well when there is not a lot of competition from other listings. When there aren't a lot of homes for sale in your area or in your price range, buyers have less to choose from. In this case, buyers often compromise and buy a home that doesn't exactly fit their specifications. This usually works in the seller's favor. Buyers tend to be pickier when there is a lot of inventory to choose from.
Although a lot of competition isn't great for a seller, a little competition is not necessarily bad. This gives buyers an opportunity to compare one house against another that is similarly priced. It can be difficult for buyers to make a decision when they don't have the opportunity to make a comparison.
HOME SELLER TIP: A healthy inventory of homes for sale should not be a deterrent to selling as long as the inventory is being depleted on a regular basis. Ask you listing agent to provide you listing and sale data from your local Multiple Listing Service.
It's useful to know how many homes like yours came on the market in your area during the past week, the past month and during the past several months. Also find out how many homes similar to yours in the area were "pending sale" during those periods.
Pending sale is a designation used for listings that have sold but not yet closed. If there are 25 new listings for every 15 that are pending, your market is moving at a fairly rapid pace. On the other hand, if there are only 20 new pending sales for every 80 new listings, you should anticipate a lengthy marketing period.
The supply and demand forces working in your area are an important consideration, but other factors can tip the scales for or against you. For instance, interest rates play a vital role in real estate market activity. In 1981, when interest rats peaked at 18 percent, home sales were very low.
Record low interest rates have created a wonderful selling opportunity for sellers across the country this year. Low interest rates make housing more affordable. They help first-time buyers get into the housing market. Also, they help trade-up buyers make the move to bigger and better homes, which frees up more starter homes. Interest rates are expected to stay relatively low, at least until the economy shows signs of a lasting recovery.
Weather permitting, mid- to late-winter can be a good time to sell, particularly if interest rates are low. Normally the inventory of homes for sale dwindles in December as people focus on the holidays. Sellers who market their homes early in the year often find little competition from other sellers.
Overall economic conditions in your area influence local real estate activity. If unemployment is high, and more layoffs are anticipated, this can create a negative sentiment. Consumers don't make large purchases when they're worried about losing their jobs.
Selling a home requires an emotional commitment. This needs to be considered when deciding if it's a good time for you to sell. Some sellers are only interested in selling if they get a certain price. If this price has no basis in reality, your marketing exercise will be a waste of time.
THE CLOSING: Buyers pay what they perceive is market value. A successful sale requires accurate pricing for the market.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=71
This is when gardens are in bloom, the sun is shining and most homes show well. Although weather considerations do come in to play, the best time to sell depends on various other factors.
Sellers usually do well when there is not a lot of competition from other listings. When there aren't a lot of homes for sale in your area or in your price range, buyers have less to choose from. In this case, buyers often compromise and buy a home that doesn't exactly fit their specifications. This usually works in the seller's favor. Buyers tend to be pickier when there is a lot of inventory to choose from.
Although a lot of competition isn't great for a seller, a little competition is not necessarily bad. This gives buyers an opportunity to compare one house against another that is similarly priced. It can be difficult for buyers to make a decision when they don't have the opportunity to make a comparison.
HOME SELLER TIP: A healthy inventory of homes for sale should not be a deterrent to selling as long as the inventory is being depleted on a regular basis. Ask you listing agent to provide you listing and sale data from your local Multiple Listing Service.
It's useful to know how many homes like yours came on the market in your area during the past week, the past month and during the past several months. Also find out how many homes similar to yours in the area were "pending sale" during those periods.
Pending sale is a designation used for listings that have sold but not yet closed. If there are 25 new listings for every 15 that are pending, your market is moving at a fairly rapid pace. On the other hand, if there are only 20 new pending sales for every 80 new listings, you should anticipate a lengthy marketing period.
The supply and demand forces working in your area are an important consideration, but other factors can tip the scales for or against you. For instance, interest rates play a vital role in real estate market activity. In 1981, when interest rats peaked at 18 percent, home sales were very low.
Record low interest rates have created a wonderful selling opportunity for sellers across the country this year. Low interest rates make housing more affordable. They help first-time buyers get into the housing market. Also, they help trade-up buyers make the move to bigger and better homes, which frees up more starter homes. Interest rates are expected to stay relatively low, at least until the economy shows signs of a lasting recovery.
Weather permitting, mid- to late-winter can be a good time to sell, particularly if interest rates are low. Normally the inventory of homes for sale dwindles in December as people focus on the holidays. Sellers who market their homes early in the year often find little competition from other sellers.
Overall economic conditions in your area influence local real estate activity. If unemployment is high, and more layoffs are anticipated, this can create a negative sentiment. Consumers don't make large purchases when they're worried about losing their jobs.
Selling a home requires an emotional commitment. This needs to be considered when deciding if it's a good time for you to sell. Some sellers are only interested in selling if they get a certain price. If this price has no basis in reality, your marketing exercise will be a waste of time.
THE CLOSING: Buyers pay what they perceive is market value. A successful sale requires accurate pricing for the market.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=71
Saturday, June 2, 2007
Should I take my home off the market for the holidays?
As we head into the last month of the year, sellers usually wonder if they should take their home off the market for the holidays. While no one has a crystal ball, there are many good reasons to consider leaving your home on the market until it sells.
Granted, there will be fewer buyers looking for homes in December than there are during the spring and summer months. However, those buyers who are looking to buy a home during the winter months are often serious buyers and not casual lookers. And, it only takes one good buyer to achieve a sale.
There will also be less competition from other home sellers. By the end of the year, many sellers who have been unable to sell simply give up and take their homes off the market. Less competition increases the odds of a sale for sellers whose homes are on the market.
Interest rates are another factor that could work in your favor. Interest rates were tame during the September and October, which was the opposite of what was expected.
Most economic forecasters thought earlier this year that fixed rate mortgages would increase to 7.5 percent by the fourth quarter of 2004, but this has not come to pass. In fact, as short terms rates increased during September and October, long terms rates actually decreased. In mid-October, the interest rate on 30-year fixed-rate conforming mortgages was well under 6 percent.
When interest rates are low, and there seems to be no threat that rates will rise quickly, buyers tend to become complacent. They don't feel pressure to buy now. But, if rates start an upward climb again as they did earlier this year, we could see a spurt in home sales. When this happens, homes that are listed for sale, particularly in a market that's low on inventory, tend to benefit. It's difficult to time the market, so the way to take advantage of a surge of activity is to have your home on the market.
Some sellers think that their chances of a good sale will be better in the spring. But there's no guarantee that next year's market will be better than this year's. We're winding up one of the best years for home sales on record.
Forecasters are mixed on how next year will compare. The range of opinions varies from a somewhat slower market next year to a flat market. A lot will depend on the overall economic condition and on the direction of interest rates. If rates spike, home sale activity will wane. If you wait until next spring to bring your home back on the market, you'll surely face more competition and possibly a softer market.
Another argument against keeping your house on the market during the holidays is that it's darn inconvenient. You may have houseguests, parties and sundry other commitments. Keeping your house ready for showing, and abiding the interruptions could add to an already hectic schedule.
HOME SELLER TIP: One way to minimize the disruption of having your home shown during the holidays is to set up a modified showing procedure. Rather than have a lockbox attached to your front door knob, ask your real estate agent to remove the lockbox and leave it with you. After an agent has made an appointment to show your home, you can leave the lockbox in a suitable place, like on the front porch. This gives you more control over the showing process.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=200
Granted, there will be fewer buyers looking for homes in December than there are during the spring and summer months. However, those buyers who are looking to buy a home during the winter months are often serious buyers and not casual lookers. And, it only takes one good buyer to achieve a sale.
There will also be less competition from other home sellers. By the end of the year, many sellers who have been unable to sell simply give up and take their homes off the market. Less competition increases the odds of a sale for sellers whose homes are on the market.
Interest rates are another factor that could work in your favor. Interest rates were tame during the September and October, which was the opposite of what was expected.
Most economic forecasters thought earlier this year that fixed rate mortgages would increase to 7.5 percent by the fourth quarter of 2004, but this has not come to pass. In fact, as short terms rates increased during September and October, long terms rates actually decreased. In mid-October, the interest rate on 30-year fixed-rate conforming mortgages was well under 6 percent.
When interest rates are low, and there seems to be no threat that rates will rise quickly, buyers tend to become complacent. They don't feel pressure to buy now. But, if rates start an upward climb again as they did earlier this year, we could see a spurt in home sales. When this happens, homes that are listed for sale, particularly in a market that's low on inventory, tend to benefit. It's difficult to time the market, so the way to take advantage of a surge of activity is to have your home on the market.
Some sellers think that their chances of a good sale will be better in the spring. But there's no guarantee that next year's market will be better than this year's. We're winding up one of the best years for home sales on record.
Forecasters are mixed on how next year will compare. The range of opinions varies from a somewhat slower market next year to a flat market. A lot will depend on the overall economic condition and on the direction of interest rates. If rates spike, home sale activity will wane. If you wait until next spring to bring your home back on the market, you'll surely face more competition and possibly a softer market.
Another argument against keeping your house on the market during the holidays is that it's darn inconvenient. You may have houseguests, parties and sundry other commitments. Keeping your house ready for showing, and abiding the interruptions could add to an already hectic schedule.
HOME SELLER TIP: One way to minimize the disruption of having your home shown during the holidays is to set up a modified showing procedure. Rather than have a lockbox attached to your front door knob, ask your real estate agent to remove the lockbox and leave it with you. After an agent has made an appointment to show your home, you can leave the lockbox in a suitable place, like on the front porch. This gives you more control over the showing process.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=200
Mortgage disclosure amendments do more harm than good
The grapevine says that the Department of Housing and Urban Development (HUD) is seriously considering a proposal by the National Association of Mortgage Brokers (NAMB) for amending mortgage disclosure requirements. Is their proposal good for borrowers?"
Yes and no. It improves disclosure from lenders in a way that makes sense, but it reduces disclosure from brokers in a way that would make them even less accountable to borrowers than they are now. It would eliminate Upfront Mortgage Brokers (UMBs), who charge borrowers a set fee negotiated in advance, because it would no longer be possible for borrowers to determine from closing documents how much the broker made on the transaction.
A serious problem for borrowers in dealing with brokers is the difficulty in discovering how much the broker is charging. The fee paid out of the borrower's pocket is disclosed on the Good Faith Estimate, a required disclosure, but today this is the smallest part of broker income. The larger part is the fee received from the lender, which typically is not revealed until late in the transaction when the borrower is already committed, and then is often shown in an obscure way that many borrowers miss.
A major section of HUD's recent proposals for reforming the market was directed toward this problem. The proposals were shelved earlier this year because of intense opposition from NAMB and other industry groups. NAMB's current "remedy" for incomplete disclosure is no disclosure! But it has cleverly bundled its proposal to eliminate broker disclosure altogether with one that improves disclosure of lender fees.
NAMB would collapse the multiplicity of itemized lender fees into one total of "origination costs" that would be guaranteed (within some margin of error) by the broker or lender. Any fee that the borrower pays the broker would be included in the total but not separately identified. Fees paid by the lender to the broker would not be shown either.
The logic of this proposal is that so long as borrowers receive accurate information on total origination costs, the breakdown of these costs is irrelevant. What should matter to the borrower is the total price, period. The retail lenders with whom brokers compete don't reveal their markups, and there is no reason for brokers to either.
This would be a valid argument if most borrowers were willing and able to shop prices effectively. The reality is, however, that most borrowers depend entirely on a single loan provider, whether broker or lender, in the hope and expectation that they will be fairly treated. Sometimes they are, but often, much too often, they are not.
Because shopping is complicated and demanding, borrowers should be able to purchase the services of a specialist to shop for them. Upfront Mortgage Brokers are brokers who agree to work as the borrower's agent, negotiating a fee in advance for their services. This fee includes payment to the broker from the borrower, the lender or both. If the fee is $3,000, for example, and if the lender pays the broker $2,000, the borrower would pay $1,000. Currently, there are 80 UMBs listed on my Web site.
If the NAMB proposal were adopted, the UMB option would be eliminated. Since broker compensation would no longer be disclosed in closing documents, borrowers could no longer verify that the broker complied with the compensation agreement. Any broker could claim to be a UMB, and could offer services at any price, without fear of being exposed.
n my view, the proposal should be amended to recognize that borrowers can follow two legitimate paths toward obtaining a mortgage. In one path, they shop for the best deal, whether the loan provider is a lender or broker doesn't matter, and the components of the origination costs do not matter. NAMB's proposal to collapse all origination costs into one total would help such shoppers significantly.
But borrowers who don't want to shop, preferring to retain an expert mortgage broker as their agent to shop for them, should have the option of selecting that path. The disclosure form should indicate the choices clearly, and if the borrower elects the agency path, the form should break out the total compensation to be received by the broker.
The two-paths toward obtaining a mortgage should also be recognized by those proposing mandatory counseling of first-time home buyers, or other mortgage borrowers. Counseling someone on how to select a broker as his/her agent is very different from, and much simpler than, counseling that person on how to shop for a mortgage.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=193
Yes and no. It improves disclosure from lenders in a way that makes sense, but it reduces disclosure from brokers in a way that would make them even less accountable to borrowers than they are now. It would eliminate Upfront Mortgage Brokers (UMBs), who charge borrowers a set fee negotiated in advance, because it would no longer be possible for borrowers to determine from closing documents how much the broker made on the transaction.
A serious problem for borrowers in dealing with brokers is the difficulty in discovering how much the broker is charging. The fee paid out of the borrower's pocket is disclosed on the Good Faith Estimate, a required disclosure, but today this is the smallest part of broker income. The larger part is the fee received from the lender, which typically is not revealed until late in the transaction when the borrower is already committed, and then is often shown in an obscure way that many borrowers miss.
A major section of HUD's recent proposals for reforming the market was directed toward this problem. The proposals were shelved earlier this year because of intense opposition from NAMB and other industry groups. NAMB's current "remedy" for incomplete disclosure is no disclosure! But it has cleverly bundled its proposal to eliminate broker disclosure altogether with one that improves disclosure of lender fees.
NAMB would collapse the multiplicity of itemized lender fees into one total of "origination costs" that would be guaranteed (within some margin of error) by the broker or lender. Any fee that the borrower pays the broker would be included in the total but not separately identified. Fees paid by the lender to the broker would not be shown either.
The logic of this proposal is that so long as borrowers receive accurate information on total origination costs, the breakdown of these costs is irrelevant. What should matter to the borrower is the total price, period. The retail lenders with whom brokers compete don't reveal their markups, and there is no reason for brokers to either.
This would be a valid argument if most borrowers were willing and able to shop prices effectively. The reality is, however, that most borrowers depend entirely on a single loan provider, whether broker or lender, in the hope and expectation that they will be fairly treated. Sometimes they are, but often, much too often, they are not.
Because shopping is complicated and demanding, borrowers should be able to purchase the services of a specialist to shop for them. Upfront Mortgage Brokers are brokers who agree to work as the borrower's agent, negotiating a fee in advance for their services. This fee includes payment to the broker from the borrower, the lender or both. If the fee is $3,000, for example, and if the lender pays the broker $2,000, the borrower would pay $1,000. Currently, there are 80 UMBs listed on my Web site.
If the NAMB proposal were adopted, the UMB option would be eliminated. Since broker compensation would no longer be disclosed in closing documents, borrowers could no longer verify that the broker complied with the compensation agreement. Any broker could claim to be a UMB, and could offer services at any price, without fear of being exposed.
n my view, the proposal should be amended to recognize that borrowers can follow two legitimate paths toward obtaining a mortgage. In one path, they shop for the best deal, whether the loan provider is a lender or broker doesn't matter, and the components of the origination costs do not matter. NAMB's proposal to collapse all origination costs into one total would help such shoppers significantly.
But borrowers who don't want to shop, preferring to retain an expert mortgage broker as their agent to shop for them, should have the option of selecting that path. The disclosure form should indicate the choices clearly, and if the borrower elects the agency path, the form should break out the total compensation to be received by the broker.
The two-paths toward obtaining a mortgage should also be recognized by those proposing mandatory counseling of first-time home buyers, or other mortgage borrowers. Counseling someone on how to select a broker as his/her agent is very different from, and much simpler than, counseling that person on how to shop for a mortgage.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=193
How would a truly flexible mortgage work?
Lat week I had little good to say about Fannie Mae's new Payment Power Program (PPP), which allows a borrower to skip up to two mortgage payments in any 12-month period, and up to 10 over the life of a loan. A skipped payment results in an additional loan, equal to the payment plus a healthy access fee, tacked on to the balance. As an emergency source of funds, it is much more costly than accessing a home-equity line of credit (HELOC).
My view is that borrowers don't need a high-cost way to borrow for emergencies. What they need is a no-cost way to accumulate a reserve within their existing mortgage that would allow them to skip or reduce payments when necessary. A truly flexible mortgage would provide this. Here is how it would work.
The flexible mortgage would base the borrower's payment obligation on the loan balance. A schedule of required balances, declining month by month over the life of the loan, would be part of the contract. If the borrower made all the scheduled payments, his balances month by month would correspond exactly to the required balances. But if he paid more in some months, his actual balance would fall below the required balance, the difference constituting a "reserve account," which he could draw on by paying less later on.
For example, the loan is for $160,000 at 5.5 percent for 15 years, with a monthly payment of $1,307. The borrower receives a bonus every Christmas from which he pays an extra $1,000 on his mortgage. With each extra payment, the gap between his actual balance and the required balance widens. If he does this five years running and then loses his job, he can skip his payment entirely in months 72, 73, 74, and 75, and in month 76 he can pay only $575. At that point, the actual balance and required balance are equal, so his "reserve" is exhausted.
Or suppose the borrower inherits $10,000, which he decides to use as an extra payment in month 12. If he falls sick in month 37, he can skip eight payments and most of a ninth before his reserve is exhausted.
In many cases, a borrower wants only to reduce the payment, as opposed to skipping it entirely. If the borrower who prepaid $10,000 in month 12 needed to cut his payment from $1,307 to $1,000 starting in year 4, he could do it for 39 months before exhausting his reserve.
The beauty of the flexible mortgage from a borrower's perspective is that once he/she gets ahead of the game, his/her payment can be anything he/she wishes. The only limitation is that the actual balance must stay below the maximum balance each month.
This flexible mortgage is not rocket science. The numbers cited above were drawn from an Excel spreadsheet that required only a minor add-on to an existing amortization spreadsheet. The payment option adjustable-rate mortgage (ARM) that many lenders offer today is far more complicated.
Servicing a flexible mortgage presents only modest challenges. At a minimum, the lender would have to inform the borrower of the minimum payment required each month, something they do now on option ARMs. It would not be difficult to provide a wider range of possibilities, or to allow borrowers to test their own preferences by accessing their account over the Internet.
Since the borrower's obligation on a flexible mortgage is defined in terms of the balance rather than the payment, delinquency and default would also be defined in this way. Delinquency would be a single occurrence where the actual balance exceeded the required balance, and default would be a succession of months (perhaps three) in which this happened.
The flexible mortgage encourages borrowers to save nuts for the winter. Hence, I would expect that both delinquencies and defaults would be lower than on our current mortgages.
Some lenders in the United Kingdom, Australia and South Africa provide mortgages with much greater payment flexibility than anything available in the United States. At least one large lender in South Africa allows complete payment flexibility so long as the balance does not exceed the original balance, which is much more radical than using a declining required balance.
On some automobile loans in the United States, a borrower who makes a double payment one month can skip paying the next month. If the borrower makes a triple payment, he can skip two months, and so on. This is not nearly as flexible as the declining balance proposal, but it is very simple and would be a step forward.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=187
My view is that borrowers don't need a high-cost way to borrow for emergencies. What they need is a no-cost way to accumulate a reserve within their existing mortgage that would allow them to skip or reduce payments when necessary. A truly flexible mortgage would provide this. Here is how it would work.
The flexible mortgage would base the borrower's payment obligation on the loan balance. A schedule of required balances, declining month by month over the life of the loan, would be part of the contract. If the borrower made all the scheduled payments, his balances month by month would correspond exactly to the required balances. But if he paid more in some months, his actual balance would fall below the required balance, the difference constituting a "reserve account," which he could draw on by paying less later on.
For example, the loan is for $160,000 at 5.5 percent for 15 years, with a monthly payment of $1,307. The borrower receives a bonus every Christmas from which he pays an extra $1,000 on his mortgage. With each extra payment, the gap between his actual balance and the required balance widens. If he does this five years running and then loses his job, he can skip his payment entirely in months 72, 73, 74, and 75, and in month 76 he can pay only $575. At that point, the actual balance and required balance are equal, so his "reserve" is exhausted.
Or suppose the borrower inherits $10,000, which he decides to use as an extra payment in month 12. If he falls sick in month 37, he can skip eight payments and most of a ninth before his reserve is exhausted.
In many cases, a borrower wants only to reduce the payment, as opposed to skipping it entirely. If the borrower who prepaid $10,000 in month 12 needed to cut his payment from $1,307 to $1,000 starting in year 4, he could do it for 39 months before exhausting his reserve.
The beauty of the flexible mortgage from a borrower's perspective is that once he/she gets ahead of the game, his/her payment can be anything he/she wishes. The only limitation is that the actual balance must stay below the maximum balance each month.
This flexible mortgage is not rocket science. The numbers cited above were drawn from an Excel spreadsheet that required only a minor add-on to an existing amortization spreadsheet. The payment option adjustable-rate mortgage (ARM) that many lenders offer today is far more complicated.
Servicing a flexible mortgage presents only modest challenges. At a minimum, the lender would have to inform the borrower of the minimum payment required each month, something they do now on option ARMs. It would not be difficult to provide a wider range of possibilities, or to allow borrowers to test their own preferences by accessing their account over the Internet.
Since the borrower's obligation on a flexible mortgage is defined in terms of the balance rather than the payment, delinquency and default would also be defined in this way. Delinquency would be a single occurrence where the actual balance exceeded the required balance, and default would be a succession of months (perhaps three) in which this happened.
The flexible mortgage encourages borrowers to save nuts for the winter. Hence, I would expect that both delinquencies and defaults would be lower than on our current mortgages.
Some lenders in the United Kingdom, Australia and South Africa provide mortgages with much greater payment flexibility than anything available in the United States. At least one large lender in South Africa allows complete payment flexibility so long as the balance does not exceed the original balance, which is much more radical than using a declining required balance.
On some automobile loans in the United States, a borrower who makes a double payment one month can skip paying the next month. If the borrower makes a triple payment, he can skip two months, and so on. This is not nearly as flexible as the declining balance proposal, but it is very simple and would be a step forward.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=187
Friday, June 1, 2007
How to protect yourself in a real estate transaction
It's no wonder that buying or selling a home ranks high on the list of the most stress-provoking events one can experience, up there with the death of a loved one and divorce. There's a lot at stake financially when you buy or sell a home. A good or bad outcome can affect your net worth, as well as your sense well being.
There are a lot of factors involved in buying or selling a home that are beyond your control. For example, interest rates could jump unexpectedly, or an inspector might uncover a defect that you were unaware of. However, there are steps you can take to maximize your chances for a successful real estate endeavor.
The first step is to hire the right professionals to help you accomplish your goal. If you don't already have a real estate agent, mortgage broker and closing agent that you've worked with successfully before, ask friends and associates for recommendations. Take the time to interview each referral carefully to make sure that there's a good fit. Make sure to check references. If you have any doubts about a candidate, continue the search until you find qualified professionals with whom you have good rapport.
A common mistake home buyers and sellers make is to underestimate the time it takes to get the job done. Resist the urge to pile additional work on yourself while you're in the midst of a home purchase or sale. By doing so, you'll be better able to manage stress.
HOUSE HUNTING TIP: One of the keys to ensuring that your real estate venture will have a happy ending is to make a commitment to stay involved in the process every step of the way. Even though you hire professionals to assist you, they aren't the decision-makers. You are. Problems can arise if you relinquish control and let your real estate agent or mortgage person make decisions for you.
Let your agent know that you want to be kept informed of developments as they arise. The sooner you know about a problem, or potential problem, the sooner you can work on resolving it.
Don't be shy about asking for an explanation of a facet of the business, or your transaction, that you don't understand. If you don't buy and sell real estate on a regular basis, you shouldn't expect yourself to know the ins and outs of the business.
As tedious as it might be, it's important to read and understand every document before you sign it. Make sure you receive copies of everything you sign. It's a good idea to retain these documents, even after the transaction closes. If there's a problem during or after the transaction, this documentation could prove invaluable in proving your case.
It's also wise to keep a transaction log. This can be something as simple as a notepad on which you record important transaction-related conversations. Keep the log with your other transaction documentation in case you need to substantiate who said what later and when.
Be nice, but let your real estate team know what you expect from them. This should include periodic written or verbal updates. If you're not receiving the service you need, let this be known. Don't expect the people working for you to be mind readers.
You should expect that problems of some sort will arise during the course of your home purchase or sale. How you work through the problems has everything to do with the parties involved and how well you communicate with one another.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=205
There are a lot of factors involved in buying or selling a home that are beyond your control. For example, interest rates could jump unexpectedly, or an inspector might uncover a defect that you were unaware of. However, there are steps you can take to maximize your chances for a successful real estate endeavor.
The first step is to hire the right professionals to help you accomplish your goal. If you don't already have a real estate agent, mortgage broker and closing agent that you've worked with successfully before, ask friends and associates for recommendations. Take the time to interview each referral carefully to make sure that there's a good fit. Make sure to check references. If you have any doubts about a candidate, continue the search until you find qualified professionals with whom you have good rapport.
A common mistake home buyers and sellers make is to underestimate the time it takes to get the job done. Resist the urge to pile additional work on yourself while you're in the midst of a home purchase or sale. By doing so, you'll be better able to manage stress.
HOUSE HUNTING TIP: One of the keys to ensuring that your real estate venture will have a happy ending is to make a commitment to stay involved in the process every step of the way. Even though you hire professionals to assist you, they aren't the decision-makers. You are. Problems can arise if you relinquish control and let your real estate agent or mortgage person make decisions for you.
Let your agent know that you want to be kept informed of developments as they arise. The sooner you know about a problem, or potential problem, the sooner you can work on resolving it.
Don't be shy about asking for an explanation of a facet of the business, or your transaction, that you don't understand. If you don't buy and sell real estate on a regular basis, you shouldn't expect yourself to know the ins and outs of the business.
As tedious as it might be, it's important to read and understand every document before you sign it. Make sure you receive copies of everything you sign. It's a good idea to retain these documents, even after the transaction closes. If there's a problem during or after the transaction, this documentation could prove invaluable in proving your case.
It's also wise to keep a transaction log. This can be something as simple as a notepad on which you record important transaction-related conversations. Keep the log with your other transaction documentation in case you need to substantiate who said what later and when.
Be nice, but let your real estate team know what you expect from them. This should include periodic written or verbal updates. If you're not receiving the service you need, let this be known. Don't expect the people working for you to be mind readers.
You should expect that problems of some sort will arise during the course of your home purchase or sale. How you work through the problems has everything to do with the parties involved and how well you communicate with one another.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=205
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