Mortgage rates have escalated recently.
The 30-year fixed-rate average, the most popular mortgage product on the
market, is nearing 5 percent, according to the latest Freddie Mac data. The last time the 30-year
fixed was that high was 2011.
are that they will continue to move higher, leaving many homeowners and buyers
wondering what rising rates mean for them. I spoke to Craig Strent, CEO of Rockville-based Apex Home
Loans, to ask him for some practical advice for anyone considering buying a
home or refinancing a mortgage. Our conversation has been edited for clarity
Q: Mortgage rates are higher
than they’ve been in seven years. Did I miss my chance to get a low rate?
Strent: No. Rates are not
at historic lows anymore, but they’re still historically low in general. And if
you’ve been in your home for a while, you might still be overpaying. When
people talk about quote-unquote rates they’re referring to the 30-year fixed,
which is essentially the most expensive mortgage you can get. You may not need
a 30-year fixed.
Rates in general are up, but maybe your rates wouldn't be up. For example,
maybe you bought your first home five or six years ago and your family is now
expanding and you're thinking about moving in the next three to five years.
Well maybe it's time to come out of that 30-year fixed and go into something
like a 5/1 [adjustable rate mortgage].
talk about this word “rates.” But rates typically means the 30-year fixed.
Historically the 30-year fixed has been 7, 8, 9 percent depending on the year.
Just remember 6 percent was a gift in ’06, 7 percent was awesome in the ‘90s
and 9 percent was unimaginably good in the ‘80s. Don’t forget 5 [percent] is not
5 [percent]. The rate is not the rate because you’re deducting the interest. So
the actual cost is lower.
Q: Why are
mortgage rates rising?
Strent: I’m not an
economist but basically the recent jump in rates is because of low
unemployment, which is indicative of a strong job market, which is indicative
of a strong economy. A strong economy generally results in higher rates. What I
often say to people is mortgage rates like small doses of bad economic news.
When we get small doses of bad economic news, rates go down. When the economy
is roaring, money often comes out of bonds into stocks and rates move in the
opposite direction. Last week was a little messy because of the jobs report,
the lowest unemployment in 49 years, and rates really did bounce up. It doesn’t
always move in lockstep but generally speaking a strong economy means rates
will be rising.
Q: This is
an unfair question because I’m asking you to look into a crystal ball and tell
me how high the rates are going to go.
Strent: If I knew
that. .?.?. The last time we saw short-term rates rise over a few years,
long-term rates [mortgage rates] actually stayed stable. The truth is I’m not
going to even try to answer how they’re going to go other than to say macro
economically as the economy does better, rates tend to rise.
Q: All these
people have been sitting on the sidelines trying to time their refinance. Did
they miss their chance?
Strent: Ok, so .?.
Q: You may
have already answered this question in your first response.
Strent: I did. I
don’t think you missed your chance to refinance. If you’ve been in your home
for a while and you have not refinanced yet, you could probably still save
money by doing so, depending on what your plans for the house are.
Q: How can I
get the best interest rate for my mortgage?
Strent: The first
thing I would say to people is that we make our mortgage payments in dollars,
not in rates. The question you want to be asking yourself is how can I get the
lowest cost for the time in which I’m going to live in the house. A lot of
first-time buyers live in the house five to seven years and they take 30-year
fixed-rate mortgages. So by definition they’re overpaying because you’re taking
a 30-year fixed and that’s the most expensive mortgage. You’re paying a
premium. If you’re only using the money for five, seven, eight, nine years,
then you just overpaid. You paid for 20 years of fixed-rate protection that you
didn’t need, and nobody likes to overpay for anything, particularly a mortgage.
would reposition it to say the lowest cost versus the lowest rate, and then
align your mortgage not with the time in which you're going to live in the
house but with the time in which you're going to need the mortgage. If you're
paying [private mortgage insurance] or you're going to take two loans, you may
wind up refinancing when you have some appreciation. Match the mortgage type up
for the period in which you need the mortgage.
should tell your readers that right now there are a lot of options. There's
five, seven, 10 and 15 ARMs. The 15-year ARM is becoming more and more popular.
It is not the 15-year fixed. But [an adjustable rate] mortgage has a rate that
cannot change for five, seven, 10 or 15 years. Most 30-year fixed-rate
mortgages do not even make it to year 15. A 15/1 ARM, which is a 30-year
mortgage with a fixed rate for the first 15 years, with no balloon but it can
change after 15 years. Those are typically priced about a quarter-percent
better than a 30-year and they're worth looking at.
Q: A lot of home
buyers are scared of ARMs because of what happened during the housing crisis.
How are ARMs today different than the ones back then?
Strent: I love
this question. The people who got in trouble with ARMs, for the most part, had
interest-only ARMs. They weren’t paying any principal. They didn’t have equity.
They put zero to very little down and then their home value went the other way. That
option no longer exists. You can’t even get in trouble that way if you wanted
to. Now, can you get in trouble on an ARM? Sure, you could. But generally
speaking people who can get the best types of ARMs generally have some equity
in their home. Now the only thing that can be dangerous about an ARM is the
rate adjusting to payments you cannot afford. But that should be moot. Because
if you said I’m going to live in this house seven years and then I’m moving, I
would say let’s get you a 7/1 ARM or even a 10/1 ARM.
rate should be fixed for the entire period of time you live there and you
should be done with the mortgage before you even have the adjustment. If you’re
worried about ARMs, opt for an ARM where the rate is fixed for a period of time
that is longer than you believe you’ll live in the home.
Q: Do I need
a really good credit score to get a good rate?
Strent: This is
one of the biggest myths. You don’t need a great score to qualify for a
mortgage these days. But the better the score, the better the rate.
If can digress a little, one of the things I wanted to go into is what I think
is the biggest myth out there right now, that you need a big down payment.
Well, it’s just not true. D.C. Open Doors is a zero-down program. You’ve got
FHA at 3½ percent down, and Fannie Mae and Freddie Mac conventional are 3
percent down now. VA is zero down. There are so many programs out there that
require very little money down and a lot of these can be done with some damaged
Q: How many
first-time buyers put down 20 percent?
Strent: It’s rare.
It’s more like 3 to 10 [percent] down. And what people also need to know is
that PMI, private mortgage insurance, has become much more affordable in recent
years. [If you put] less than 20 percent down, you have to deal with [PMI] in
some way, meaning you either have to take two mortgages or pay a higher rate or
pay PMI. But what I would say to your readers is the monthly carrying cost of
PMI has decreased. If you’re buying with less than 20 percent down, from a
financing standpoint, it’s not as expensive as it used to be. There’s a lot of
creative ways to pay PMI these days. It used to be you just paid it monthly.
Now you can opt for a higher rate. You can finance it on top of the loan. You
could buy it out in a lump sum. You could split the premium. You could pay part
of it upfront and in a reduced monthly amount. They’ve gotten really creative
guidelines have loosened to allow people to get into homes for the first time
with smaller down payments, and a little more flexible credit guidelines are
currently in existence. Where there is not much change and where it is still
pretty tight — and it should be — is debt-to-income ratio, which I would
translate as your ability to repay. So, if you’re not putting a lot down and
your credit’s good but not excellent and if you can demonstrate your ability to
repay, you can get a loan.
Will higher mortgage rates help bring down housing prices?
Strent: So there
are two parts to this. In the short term, it might actually push them higher
because those people that have been waiting to buy or been shopping for a while
they may feel some pressure to get in before rates go up further. And then you
have sort of an influx of offers that could, short term, push values up
especially going into the fourth quarter where there’s less inventory that
could exacerbate it even more.
term, I don't think it's going to have that much pressure in terms of bringing
down home prices because we're already short on inventory in general in our
region. So I don't really think it's going to have that much of an impact.
are only one factor in the decision to buy. Buying because rates are here or
there is not the right [decision] if your plans are longer term, meaning you’re
going to live there at least five years or more. The proper way to make a
buying decision is to do a detailed rent-versus-own analysis and see what the
cost of renting for you is over time versus the cost of homeownership. Every
single one of your readers who is thinking about buying should have a
rent-versus-own analysis specific to them, their income, their tax bracket,
their plan, because there’s no broad answer for everybody.
To view the original article click here
Name: Jena and Mark Boomhower, both 36
City: Battle Ground, Wash.
Year of Home Purchase: 2018
Sale Price: $412,000
Home style: 2014 modern Craftsman
Profession: Jena is a medical
technician; Mark is a supervisor for TSA
Mark and Jena
Boomhower’s 1,400-square-foot starter home was just right when their daughters,
Tanahleigh and Adalyn, were tots. But as the girls got older, Mark and Jena
realized they needed a bigger house and yard. They wanted a two-story farther
from the city, but there were a few challenges.
had to figure out how to buy a house before selling their current house. Second
challenge: Buying a house with a VA loan. VA loans offer competitive interest
rates and don’t always require a down payment or private mortgage insurance.
But VA loans limit what buyers are allowed to pay in closing costs, and sellers
don’t necessarily have to pay them, either. Closing costs become a big part of
the negotiation. Here’s their story.
When did you realize you needed more square
Mark: When Tanahleigh started having her friends over. If they
all wanted to watch TV in the living room, we had to go to another room. I
would go hang out in the garage. Jena would hang out in the kitchen. We were
like, “OK, we’re stepping on each other in this little house.”
So what’s the first thing you did to escape
your exile in the garage?
Mark: I called our agent and told him our plan: that we wanted
to buy a new house but not until we sold our current house. And that we
wouldn’t sell our current house until we had one to move into because we didn’t
want to spend weeks or months in a hotel with two kids and a dog. And we wanted
to buy with a VA loan. Our agent said that our stipulations were tough but that
it could be done.
You faced a seller’s market. Houses were going
fast. What did you do first: shop for a new house or list your old one?
Mark: We started looking at houses. We looked at three or four. The
last one we looked at, I don’t think Jena stopped smiling after we walked
through the front door.
Jena: Yes. It was perfect.
How perfect was it?
Mark: So perfect that we put an offer on it, even though our old
house wasn’t even listed.
This all sounds so simple. Did they take the
Jena: They countered at a higher price. They were asking $409,000.
We offered $400,000 with $10,000 in closing costs. They came back
at $418,000 with $10,000 in closing costs. They raised the price to
cover closing costs.
Mark: We thought it was ridiculous.
Jena: We walked away.
Oh no, those VA loans and their non-allowable
fees! It was your perfect house!
Jena: We went through the whole weekend and couldn’t get the
house off our minds.
Mark: We talked to our agent, Dale Chumbley. We talked with our
lender. We realized we would have to pay a higher price for the house and less
of the closing costs, or a lower price for the house and more of the closing
Jena: We went with paying more for the house and less of the
closing costs. So we made another offer: $410,000 + $7,000 closing costs. We
wanted to walk away with the most bucks in our pocket, so we went with them
paying more of the closing costs.
Did this offer go better?
Jena: Yes. They countered with $412,000 plus $7,000 in closing
Mark: We weren’t going to lose the house over $2,000. Jena
crunched the numbers, and it would add less than $50 a month to our payment. So
we took the offer.
Great! You got the house! But you still had to
sell your house. With the same agent, right?
Jena: Right. Our offer was contingent on us selling our old
house in 30 days. And once the seller accepted our offer, we had 48 hours to
get our house on the market.
Mark: So we had two days to get our house ready to sell. We
picked up, cleaned up, threw things out. It was a tornado of excitement and
anxiety. But we got it done and were ready for showings.
The clock was ticking. You had 30 days to
sell. How did it go?
Mark: We weren’t getting many showings, even though it was a
seller’s market. We had just two people come by the first week. We were in
full-blown panic mode. We were worried because we could lose the new house
while we waited for our house to sell. [Under regional MLS rules], if someone
came by with a better offer for the new house during the 30 days, the seller
could accept it. So we were worried.
Jena: After about two and a half weeks, we finally got an offer
— a little under what we were asking, but they were buying with a VA loan, too,
so we took a lower price and they paid closing costs the VA wouldn’t cover.
On what day of the 30-day period did your old
Jena: Day 24.
You did that with a week to spare!
Mark: Everything had to be perfect for this to work. It seemed
like an ordeal to us. Our agent said it went really smooth. He said he’d never
seen a transaction line up like ours did. We wouldn’t have stayed sane
through it all without him telling us it would work out and telling us what we
What’s your advice to a home buyer facing a
Jena: Be patient.
Mark: Make sure you have a competent agent, one you can trust.
Jena: The agent we worked with, Dale, sold us our first house.
Mark: He became a family friend. He bought, I’m not kidding,
hundreds of boxes of Girl Scout cookies from my daughter.
Jena: We totally trusted him and everything he said.
To view the original article click here
First-time home-buyer advice: Ask a lot of
Names: Anthony Tucker, 32, and Sammy Kallay,
City: Richardson, Texas, a suburb of Dallas
Year of home purchase: 2018
Sale price: $252,000
Home style: 46-year old ranch
Professions: He’s an IT
business consultant; she’s a nurse.
Tucker, and his wife, Sammy Kallay, had their first child, they knew it was
time to buy their first house. Like so many new parents, they wanted the works
for their son, Okiyan — safe neighborhood, good schools, nice yard. But their
budget wasn’t limitless, and their knowledge of real estate was zilch.
about to buy their first home without advice. So
the Dallas-area couple started by finding the resources they needed for a crash course in home buying.
What’s the first thing you did once you
decided it was time to be a homeowner?
Anthony: We didn’t know how much we needed to save. We didn’t
understand the market. We didn’t understand the [real estate] terms. We needed
some guidance. We talked to a friend, and they told us we should call the
REALTOR®, Eloise Martin, who had helped them buy their first house.
What did your agent do to help you get on the
Anthony: She sent us to a lender who told us how much we needed to
save and how much we would need to put down. He ran our credit scores and told
me I needed to pay the balance on my Discover card to make my credit rating better.
He explained escrow, points, and PMI.
How long did it take you to save enough for a
down payment, and how did you do it?
Anthony: Three or four months. We had some money in the bank, but
we needed more. It took a couple of months to get enough. We didn’t eat out. We
didn’t buy so many things. I got a new job that paid more, so that helped.
OK, the money’s in the bank. You’re ready to
shop. What was that like?
Anthony: I told [our agent] our budget and the neighborhoods we
wanted to be in. She got us into a search that sent us notifications every time
there was a house that had what we wanted. She would go with us to see the
house and point out things to look for.
tell us if we needed contractors to check out plumbing or electrical things,
and she had a network of contractors who could come to the house. That paid off
when we were making the final decision.
Anthony: The house we ended up buying, [the sellers] had made an
extension that made a problem with the foundation. We paid a structural
engineer to look at it first, before we made an offer. He said in the long run,
we might need to put up a supporting wall. What that did was give us leverage
to come back to the seller and ask, “Can you lower the price?”
Did they lower the price?
Anthony: Yes. The price was $267,000. We negotiated with them. We
paid $252,000. It was a worthy reduction because, according to the engineer, it
will only cost us $3,000 to build that foundation wall.
How many houses did you look at before buying?
Sammy: Three. We bought the third house we looked at.
Good grief! That’s lightning fast. How long
did you look?
Sammy: One weekend.
A weekend? Wow. Was it stressful to buy in a
super-fast market like Dallas?
Sammy: I know! I was expecting it to be really stressful. But it went
really great. [Our agent] sent us houses that fit what we wanted, so we didn’t
look at houses that were not what we were looking for.
Anthony: We wanted to put in a bid on another house, but because there
were so many bids on that house, we thought it better not to. We only made an
offer on the one where we had a reason to ask for a lower price.
How did you know that third house was The One?
Sammy: As soon as I saw the picture, I said, “Oooh, this is a really
nice house.” As soon as we came in and saw it, that was it. We knew that was
the house. It would work with a family. It had a really nice flow.
What’s your favorite thing about your house?
Sammy: For me, it’s about my son. It’s open and has enough space for
him to crawl around. I can see him wherever he is.
Anthony: It’s secure. I like being able to drive into the garage
and close the door and go straight into the house. I like the fence around the
yard. It’s a safe place for our son.
What’s your advice for first-time home buyers?
Anthony: Find a good agent. [Ours] was critical. Don’t be shy about
Sammy: If you don’t know anything about the home-buying process,
you need somebody who knows what they’re doing. [Our agent] made the process
really, really easy. I don’t think we would have been able to do it ourselves.
cash-poor" sounds like the title of a country song. After all, how can
someone be rich and poor at the same time, unless they're fighting some poetic
struggle in a twangy ballad? Well, it all comes down to how much you have tied
up in your home, compared with how much you have in your pocket.
explained in real numbers
house-rich and cash-poor means you have more equity locked into the value of
your home than you have in liquid assets.
Goldfeld, co-founder of the New York–based real estate brokerage startup
Yoreevo, breaks down how the house-rich, cash-poor scenario can play out:
As a real
estate professional in St. Petersburg, FL, Patricia Vosburgh advises
her clients not to become house-rich and cash-poor due to her first-hand
experience in the 1980s.
tell you it's not a great place to be," she says. "The slightest
financial hiccup in your life can become an issue."
instance, if you run into large medical bills or a costly home repair, you may
not have the money to pay for it. Beyond that, being house-rich and cash-poor
can lead to a downturn in your quality of life.
working constantly to hold onto the asset and not really enjoying the benefits
of homeownership," says Vosburgh.
it's a bit of a mixed bag: Thanks to a healthy economy, low unemployment, and
stricter lending requirements put in place after 2008, many homeowners are
house-rich, meaning they have good equity in their home. Yet many of these same
homeowners are also cash-poor, lacking the reserves
necessary to see them through life's ups and downs.
buyers are saving up lots of money for the down payment—usually between 5% to
20%," says Cedric Stewart, a
residential and commercial sales consultant at Keller Williams in the
Washington, DC, area. "But they often don't leave any money for the 'what
if' fund, such as emergency home maintenance."
vulnerable to becoming house-rich and cash-poor are buyers looking to trade up
their current home.
buyers take the money from the sale of their current home and plunk it all down
on the next one," explains Stewart. That's a risky move, he says, since it
leaves you no financial wiggle room for whatever financial curveballs may come
line: A buyer should never leave themselves cash-poor, says Ralph
DiBugnara, vice president at Residential Home Funding.
going to cost you every bit of savings just to acquire the house, you may not
be ready for that specific home," he says.
understand your finances before you buy a home, recommends Goldfeld. For
starters, try entering your income and debts into a mortgage calculator to
figure out what price you can afford on a home. Speak to a lender to find out
how large a home loan you qualify for, too.
will help you figure out what your monthly expenses would be if you had to pay
for that mortgage. Take note: Even if you qualify for a large mortgage, you
don’t want to get yourself into a position where every little expense is
difficult to pay for.
So make sure
you have at least a year of whatever your recurring monthly payments would be
in reserve and shoot for a debt-to-income ratio under 30%. Then set a
reasonable budget for the purchase price of a home. Look for a healthy balance
between investing in a new home and creating your ideal quality of life after
the home is bought. (It's plain common sense to hold enough cash back to have a
financial cushion in
case of an emergency.)
option is to get a home warranty to
cover any unexpected home expenses.
all my buyers to ask for one from the seller or pay for it themselves,"
The tightening of mortgage-lending standards since the financial
crisis has made the goal of home ownership tougher
for the average borrower. And despite their modest cost, it can be even
harder to qualify for a mortgage for a manufactured home. Fewer banks are in
the business of providing loans for manufactured homes – otherwise known as
mobile homes – which are built off-site and affixed to a permanent chassis. As
a result, would-be homeowners simply don’t have as many financing options.
those interested in a manufactured home have some options if they don’t meet
the standard for a conventional
mortgage. One alternative is a Federal Housing Administration loan, which can be used to cover the home itself,
a suitable lot on which to build it or both.
With an FHA
mortgage, the government insures a loan made to you by a private lender. So if
you default on
your payments, the lender has the assurance that Uncle Sam will
reimburse it for all or part of its losses.
The good news is that FHA-approved mortgage providers are willing
to take on borrowers who have a slightly higher risk profile.
But there is a catch. Homeowners fund the insurance benefit by paying both an upfront premium and an
annual premium on top of their normal loan amount, making these
loans a bit more expensive than other loans. But if a government-insured loan
is your only way of moving into a new home, the extra cost may be worth
mobile home will meet the standards for an FHA loan. The home has to be
built after June 15, 1976. So even if you modify an older structure to meet
current regulations, you won’t be able to get a loan through the program.
residence must adhere to Model Manufactured Home
Installation (MMHI) standards and comply with local and state
guidelines. A red label on the exterior of each transportable section indicates
that it meets MMHI requirements. The manufactured home floor
space must be at least 400 square feet and be classified as real estate,
meaning it has a permanent foundation.
maintains certain standards relating to borrower eligibility as well. You must
have sufficient money to make the down payment and
prove that you have enough funds left over after other expenses to handle
the monthly mortgage. Also, you must use the mobile home as your primary
homes are sold through local retailers and dealers, which are typically good
sources of referrals for both conventional and FHA mortgage providers.
As with other
FHA mortgages, there are caps on the loan amount for manufactured homes.
Currently, the most you can borrow is 93,000 for the home and lot
combination. However, in some high-cost areas, you can borrow up
to 85% of the cost the home and land. If you’re not sure whether your
area falls into this category, call the U.S. Department of Housing and
Urban Development Manufactured Housing Headquarters at (800) 927-2891.
loan duration is 20 years for a mobile home or a single-section home
and lot combination and 15 years when financing just a lot. Mortgages
that cover a multi-section manufactured home together with the lot can last up
to 25 years.
If you have
questions about the FHA program, the Department of Housing and Urban Development
operates a voice-assisted hotline that can refer you to local counseling
organizations. These housing agencies can help you better understand your
options. The 24-hour HUD clearinghouse can be reached at (800) 569-4287 or you
can search online for a HUD housing counseling agency
Keep in mind
that the FHA isn’t your only option for government-insured loans. The Veterans
Administration and the Department of Agriculture’s Rural
Housing Service also provide mortgages to eligible borrowers.
In some cases, these may represent a better path for those looking to buy a
manufactured home, so it’s worth doing your research.
With low down
payments and less stringent credit standards than other loan programs, an FHA
mortgage can be an attractive choice for mobile home buyers. Just be ready to
pay a little extra each month to enjoy those benefits.
Source: To view the original
article click here
Do you dream of buying your own home, but stop
short when faced with getting together the down payment? It's time to shift
your mindset: You can do this.
First, it's important to know that 20% down is not required. In fact, the
average down payment for first–time homebuyers in 2017 was 5%, and 10% for
repeat buyers, according to the National Association of REALTORS®.
look to build your nest egg and reach your homebuying goal with these tips.
Reach out to a housing counselor or lender to ask them
about state and local down payment assistance programs.
Visit the U.S. Department of Housing and Urban Development's
directory of state, county, local, and municipal programs to find out what kind
of help is available in your area.
Find out if you may be eligible for down payment assistance
programs through the Down Payment Resource® tool
Save in Key Areas:
Consider downsizing to a less expensive apartment or
renegotiating your current rental lease for a two– to three–year term at a
fixed rate so you aren't seeing annual increases while you save. You are an
asset to your landlord if you pay your bills on time and maintain the property.
It's worth it to him or her to keep you in place.
Pay your loans on time and in full. Zero interest and zero
late fees mean more savings for you nest egg. Try to renegotiate any credit
card, car loan, school loan balances to a lower interest rates that could help
you pay off balances faster. Both will help improve your credit score.
Shop around to reduce major monthly expenses. Can you lower your
cell phone package? Can you take public transit instead of buying that new car?
Identify key areas where you tend to shop big and shop medium
instead. This isn't about becoming a monk, it's about controlling spending.
Instead of paying for a gym membership, ride your bike, run or swim at the
YMCA. Learn to love drip coffee instead of buying espresso.
When you receive infusions of money like your tax refund or cash
gifts — sock it away in a CD or money market account to earn a bit more. Every
little bit helps!
Keep Your Eyes on the Prize:
Review all accounts and finances regularly and squirrel away
whatever you can to reach your goal. Also, track your savings progress —
whether it's a hand–drawn temperature gauge on the refrigerator, or an app on
your cell phone.
Learn more about buying a home at My Home by Freddie Mac®.
are some questions to ask a home inspector after he's finished
the inspection? Because, let's face it, just staring at that hefty report
highlighting every flaw in your future dream home can send many buyers into a
right questions to ask a home inspector afterward, though, and this can help
put that report into perspective. Here are the big ones to hit.
'I don't understand [such and such], what does it mean?'
so you know what to expect, here's how it will go down: A day or two after
the inspection, you should receive the inspector's report. It will be a
detailed list of every flaw in the house, often along with pictures of
some of the problem areas and more elaboration.
you also attended the actual inspection and could ask
questions then; if so, the report should contain no surprises. It should
contain what you talked about at the inspection, with pictures and perhaps a
bit more detail. If there's anything major you don't remember from the
inspection in the report, don't be afraid to ask about it.
'Is this a major or a minor problem?'
in mind, most problems in the house will likely be minor and not outright
deal breakers. Still, you'll want your home inspector to help you separate the
wheat from the chaff and point out any doozies. So ask him if there are any
problems serious enough to keep you from moving forward with the house.
in mind that ultimately it's up to you and your real estate
agent to determine how to address any issues.
inspector can't tell you, 'Make sure the seller pays for this,' so be sure you
understand what needs to be done," says Frank Lesh, executive
director of the American Society of Home Inspectors.
have to call in other experts at this point to look over major issues and
assign a dollar figure to fixing them. If your inspector flags your
electrical box as looking iffy, for example, you may need to have an
electrician come take a look and tell you what exactly is wrong and what the
cost would be to fix it. The same goes for any apparent problems with the heating
or air conditioning, roof, or foundation. An HVAC repair person, roofer, or
engineer will need to examine your house and provide a bid to repair the
Why is this
so important? This bid is what your real estate agent will take to the seller
if you decide to ask for a concession instead of having the seller do the fix
for you. Your inspector can't give you these figures, but he can probably give
you a sense of whether it's necessary to call somebody in.
still not done! It's easy to forget the inspector's report in the whirlwind of
closing and moving, but there are almost always suggestions for things that
need doing in the first two to three months of occupancy.
Lesh says he
sometimes gets panicked calls from homeowners whose houses he inspected
three months after they've moved in. Although he'd noted certain issues in his
report, the buyers neglected the report entirely—and paid for it later.
"I had a
couple call and tell me they had seepage in the basement," Lesh says.
"I pulled up their report and asked if they'd reconnected the downspout
extension like I recommended. Nope. Well, there's your problem!"
you didn't ask the seller to fix? That's your to-do list. Isn't owning a home
So, you've locked in your mortgage rate at
the perfect time and you're planning on putting 15% down on your dream home.
You may even have a little money left over for updates.
you get your Loan Estimate; it shows your expected monthly principal and
interest payments, but just like they say on late night infomercials: "But
wait, there's more!"
In addition to principal and interest, your monthly mortgage
payment may also include an escrow payment and private mortgage insurance (PMI) payment.
So, what are these extra payments?
Escrow Payments: If your
lender set up an escrow account for your mortgage, each month you'll make an
escrow payment to cover your property taxes and homeowners insurance. Your
lender will deposit this amount into your escrow account and will pay for both
items on your behalf when they are due.
Private Mortgage Insurance: If you
made a down payment of less than 20%, PMI will be part of your monthly mortgage
payment. While the cost of PMI varies, you can expect to pay between $30 and
$70 per month for every $100,000 borrowed. You'll have to pay PMI until you've
built up more than 20% equity in your home.
paying into an escrow account and PMI may initially cause sticker shock for
first time borrowers, they are important components of the homebuying process
for many owners. Escrow accounts give borrowers peace of mind that their taxes
and insurance will be paid in full and on time. Regularly scheduled monthly
escrow payments are also a good option for many homeowners because they
eliminate the surprise of large annual or semi–annual payments when property
taxes or insurance premiums are due.
enables potential homeowners who may be unable to afford a 20% down payment to
buy a home and begin building equity versus waiting 5 to 10 years to build
enough savings for a 20% down payment.
don't necessarily have to pay escrow or PMI for the life of your loan. You may
have the option to cancel your escrow payments to your lender once you have
built up at least 20% equity in your home and are current on your payments. If
you decide to go this route, just remember that you'll be responsible for
paying your taxes and insurance in full and on time. And if you are current on
your mortgage payments, PMI will automatically terminate on the date when your
principal balance is scheduled to reach 78% of the original value of your home.
You can also request that your lender cancel your PMI if you have made
additional payments or if rising home values have increased your home equity to
more than 20%.
bottom line: Study your Loan Estimate carefully to make sure you
understand all the costs involved in taking out a mortgage.
are some questions to ask a home inspector? If you're buying a house, you
know that your home inspector will check it out and make sure it's
in decent shape. So if you want to get to know your home beyond its pretty
facade, you should pepper your inspector with questions—a whole lot of them, in
But when you
ask those questions is as important as what you ask. Namely,
you should attend your home inspection and ask him right then and
there. The reason: Rather than trying to decipher your inspector's (very
technical) report, it's much easier for this pro to actually show you
what's going on with the house.
To help you get this essential show-and-tell session
rolling, here are a few questions to ask a home inspector that will help you
size up a house yourself, and keep it in good condition for as long as you hang
your hat there.
inspection, your inspector will go slowly through the entire house, checking everything to
ensure there are no signs of a problem, says Frank Lesh, executive
Director of the American Society of Home Inspectors. He'll point out
things to you that aren't as they should be.
afraid to ask any questions about what he's telling you, and make sure you
understand the issue and why it matters.
example: If the inspector says something like, "Looks like you've got some
rotten boards here," it's smart to ask him to explain what that means for
the overall house—how difficult it is to repair, and how much it will cost.
keep in mind that your inspector can't tell you whether or not to buy the house,
or how much you should ask the seller to fix (though your real estate agent
should be able to help with that).
2. 'Is this a big deal or a minor issue?'
most people, buying a house is the biggest purchase they'll ever make. It's
normal to start feeling panicky when your inspector is telling you the house
has a foundation problem, a roof in need of repair, or electrical that isn't up
to code. Don't freak out—just ask the inspector whether he thinks the issue is
a big deal. You'll be surprised to hear that most houses have similar issues
and that they're not deal breakers, even if they sound major.
if it is major? Well, that's why you're having the inspection
done. You can address it with the seller or just walk away.
3. 'What's that water spot on the ceiling, and is it a problem?'
be shy about pointing out things that look off to you and asking if they're OK.
Odds are, if there's something weird, your inspector has noted it and is going
to check it out thoroughly. For example, if there's a water spot on the
ceiling, maybe he needs to check it from the floor above to know if it's an
issue. If something is bothering you about the house, make sure to address it.
your inspector will ask you if there's anything you're specifically concerned
about before he starts. Make sure to tell him if this is your first home, or if
you're worried about the house's age, or anything at all that strikes you as a
4. 'I've never owned a house with an HVAC/boiler/basement.
How do I maintain this thing?'
aside, this is your golden opportunity to have an expert show you how to take
care of your house.
are used to explaining basic things to people. If you have a question, ask
it," says Lesh. "Don't expect your inspector to teach you how to
build a clock, but we are happy to explain how things work."
5. 'What are your biggest concerns about the property?'
the end of the inspection, the inspector should give you a broad-strokes
summary of what he found. You'll get a written report later, but this is a
great moment to get clarity on what the inspector thinks are the house's
biggest issues, and whether or not they require further investigation.
you'll need to call in another expert—a plumber, electrician, roofer, or HVAC
professional—to take a look at anything the inspector flagged. You should walk
away from inspection day with a mental punch list of things that need to be
addressed by either the seller or another expert.
some states, there's a limited amount of time for these negotiations to
happen, so you and your agent may want to hit the ground running. Your official
report will have more detail, but you should know what's on it by the time you
leave the home that day.
is a recast mortgage? While it sounds more like a fishing trip than a financing tool, it's
actually where you pay off a lump sum of your principal (that's the money you
owe), then have your lender "recast" or reamortize the rest so you
can lower your monthly payments.
mortgages are rare, at least compared with the more typical way homeowners
reduce their mortgage payments by refinancing. Nonetheless, it's well worth considering in
everything you need to know to decide whether a recast or refinance is right
To make the
idea of a recast simpler, imagine your Aunt Susan has died and left you
$10,000, or you get a bonus at work. Sure, you could put that money in a CD or
other investment, or spring for a kitchen remodel. However, if lowering your
monthly mortgage payments sounds far sweeter, then a recast is the way to go.
your mortgage is a great option if you want to lower your monthly payments and
have the funds to make a lump sum payment to your lender," says Randall
Yates, founder and CEO of The
process of recasting is fairly simple: You head to your bank, fork over your
money, and pay a small fee to recast your mortgage.
your lender will use that money you've offered up to pay off your principal.
It's as if you've made a bigger down payment on your loan. If, say, you'd
originally put down $50,000 and borrowed $200,000 to pay for a $250,000 house,
after a recast, you've now put down $60,000 and owe only $190,000 (actually a
bit less, if you've been paying your mortgage for a while already).
So now that
you owe less, your lender will recalculate monthly payments over the life
of your loan. For instance, if you owe $200,000 on a 30-year fixed loan with 5%
interest, your monthly payment is $1,397. Recast so you owe only $190,000,
your monthly payment will dip to $1,343, giving you an extra $54 a month
(crunch your own numbers and see how much you'll save with an online mortgage calculator).
refinance a mortgage, your loan is actually closed, then reopened as a new loan
with new terms (length of loan and/or interest rate).
Refinancing also comes with a bunch of steps, including a home appraisal and
related fees. As a result, a refinance also takes time to finish (typically 30
to 45 days).
A recast, in
contrast, is much simpler: Your loan life, terms, and interest rate remain as
is; the only thing that changes is you get to make lower monthly payments.
recasting is a much simpler process than refinancing," says Yates.
"There is no income verification or credit check needed. The entire
recasting process can be completed in less than 30 days."
A recast is
also different from merely sending in a lump sum to prepay your mortgage early. In those cases, your monthly
payments remain the same. You will just finish off paying your mortgage
recasting is not available to all. Here are a few requirements for a recast:
If you are
eligible for a recast, there are still some questions you should ask to
determine whether a recast or refinance is right for you: