Preparing to take out a Home Loan?

September 12, 2014

Key number 1: Assess your strengths and weaknesses

For the purpose of obtaining a mortgage, your financial position consists of three components:
  • Your income, which gives you the ability to make your monthly payments
  • Your savings, which allow you to make a down payment, cover closing costs, and keep some cash reserves to cover unexpected expenses
  • Your management of other credit, such as car loans and credit card balances
  • Your strengths and weaknesses can be gauged by looking at these components relative to one another.

A. Savings relative to income

The first relationship to look at as is your savings relative to your income. Add up all of the savings that you have available for a down payment, including savings accounts, mutual fund shares that you plan to redeem, and gifts from relatives that will go toward a down payment. Then take this as a percent of your annual income, as in the calculator below:

If your savings amount to less than 25 percent of your income, then your savings are relatively deficient. For the maximum purchasing power, you probably will require a loan with a down payment of less than 5 percent, such as those offered by the Veterans Administration (VA) or the Federal Housing Authority (FHA). Alternatively, if you believe that you have the capacity to add to your savings in the next year or two, then it may pay to wait before buying a home.

If your savings amount to more than 25 percent of your income but less than 75 percent of your income, then your savings are adequate. You probably can put down at least 5 percent of the purchase price of your home. However, for the maximum purchasing power, you probably will require a loan with Private Mortgage Insurance (PMI), which adds to the cost of a mortgage.

If your savings amount to more than 75 percent of your income, then you probably can make a down payment of 20 percent of the purchase price of your home. This will allow you to avoid paying the cost of PMI.

B. Debt relative to income

One way to assess your management of credit is to look at the ratio of debt payments to income. Debt payments consist of car payments, student loan payments, alimony, required payments on installment loans, required payments on credit cards where you are paying interest, and other obligations. They do not include rent, utility bills, the mortgage payment on a house that you are selling to buy a new home, or payments on credit card balances where you pay at the end of the month without owing interest.

You want to look at your monthly debt payments as a percent of monthly income, which means taking your annual income and dividing it by 12, as in the calculator below.

If your monthly debt payments are more than 10 percent of your income, then debt is an area of concern. If along with this high debt ratio you have a history of sometimes missing your monthly payments, then you may have difficulty qualifying for the best mortgage rates. Even if your payment history is clean, you might benefit by paying down some of your debts before you take on the additional burden of a mortgage.

If your monthly debt payments are between 5 and 10 percent of your income, then this should not prevent you from obtaining a standard mortgage. However, you probably could benefit from reducing your debt payments, and you might be able to reduce your interest costs by taking out a larger mortgage and paying off some of your other debt. If your monthly payments are less than 5 percent of your income, then your debts should not cause a problem with respect to obtaining a mortgage.

Key number 2: Choose a standard product to fit your time horizon

When you look for a mortgage, you might encounter a lender who offers a “unique” mortgage product. When this happens, you should be wary.

It is difficult, if not impossible, to invent a new mortgage product that is clearly better than the standard products that exist. Typically, there is a trade-off. For example, you may find that a mortgage with a prepayment penalty offers a lower interest rate. However, if interest rates tumble after you take out the mortgage, the prepayment penalty will make it more difficult for you to realize the potential savings from refinancing.

My concern with “unique” products is that they take away your bargaining power. If the product truly is unique to that lender, then you cannot obtain a comparable quote from another lender, which weakens your bargaining power. For that reason, I recommend that you stick with mortgage products where you can get competing quotes from different lenders. That is what I mean by a standard product.

It is important to realize that the 30-year fixed-rate mortgage is not the only standard mortgage product. You can obtain quotes from many different lenders on 5-year and 7-year balloons, 1-year, 3-year, and 5-year adjustable rate mortgages (ARMs) tied to the one-year Treasury index, and 6-month and one-year ARMs tied to the COFI index (these latter loans are more prevalent in California than elsewhere).

Rent Back Pitfalls

May 28, 2014
In today’s market with low inventory and high demand many sellers are requesting to rent back from the potential buyer in order to have time to look for their new home. Due to the competition buyers are facing, many buyers are willing to just that. In most cases for free!

What are the pros? For buyers: It can make your offer much more appealing.

For seller’s: You are living in your house for free and you have all of your equity in hand to put down on your next home. Plus, you have the advantage of being able to put in an offer that is not contingent upon the sale of your home.

What are the cons? For buyers: If they are paying you a rent back that is the equivalent to your PITI (principal, interest, taxes and insurance) then you are break even, but if you offered a free rent back, then you are paying a mortgage payment for the home that someone else is living in. Furthermore, if you own your current home or are renting, you are now making double payments.

Another issue can be damage that occurs while the seller remains in the home. Most sellers are conscientious about taking good care of the home they just sold you…but, what if the dishwasher breaks? Whose issue is this now?

What if you agree to a time frame (30 days for example)? You of course plan your move, repairs, give notice to your landlord…what if the seller can’t move out in time?

For sellers: If you are renting back because you are waiting for the home you already have in contract to close this is a great help to you, but if you are asking for a rent back to shop for your new home you may end up making a rash decision since the “clock is ticking”.

You ARE NOT insured! Many seller’s cancel their home owner’s policy when the home closes since the buyer now has coverage without talking with their agent about carrying a renter’s policy or personal property coverage.

My advice, use rent back situations only if absolutely necessary. Talk with your agent to make sure that both parties benefit and can meet the terms of the rent back agreement. Make sure the proper forms are being used so there is no question about who pays for what and for how long. Ask all of the questions you need answers to and make sure you have a plan incase something doesn’t go as planned!

Housing Market Cool Off??? Maybe not,

May 5, 2014
Americans are becoming more optimistic about buying a home, with 67% of people saying they plan on purchasing a home, and of that amount, 32% are looking to buy within the next two years.

The PulteGroup (PHM) Home Index surveyed 1,004 adults on their sentiment about the U.S. economy and how current housing conditions are impacting future home buyers.

According to the survey results, 74% of adults feel the economy has remained steady or improved in the last year.

As a result, 57% of adults think now is a good or excellent time to purchase items they want or need, especially when it comes to entering the housing market.

Millennials and move-up buyers are the most engaged consumer segments, with 85% and 71%, respectively, intending to purchase a home in the future.

There are two main drivers to purchasing a home: the need for more space and the view that owning a home is a smart financial investment.

Currently 70% of home shoppers plan to spend as much or more money on their next home, along with 64% of people saying they prefer to spend on a home that’s move-in ready rather than spend less and renovate.

Look What’s Framing up Nicely in Almaden Valley

May 1, 2014

Carla Frame 1
The framing team is braving the high heat and working away!

Stay tuned for more progress.

It Pays to Use a REALTOR(R)!

February 11, 2014
The stats are in and below are a few reasons why using a REALTOR could earn you some extra cash!

 Contact us today to see how we can help you today.


Home Improvements that can Pay You Back!

January 20, 2014
Always wonder what home improvements can actually pay you back.  Well the research is in! Contact us today to see how we can help you today. Screen Shot 2014-01-20 at 12.33.43 PM

Creative Ways To Recycle Everyday Household Items

December 20, 2013
Every week the trash truck comes to pick up our garbage and unwanted items, which are promptly taken to landfills. Instead of filling landfills and just buying new items to stuff our homes, we can help the earth and recycle everyday household items.

Below are a few fun and creative ideas for recycling things around your home that you might be ready to trash.

Coffee Table Into BenchCreative Ways To Recycle Everyday Household Items
If you just purchased a new coffee table, don’t give away the old one — repurpose it. Find a space in your home where you could use some additional seating, like at the end of your bed or in the entryway.

Push it up against the wall so that any drawers and shelves are facing out. Then add some cushions and pillow. Tada; a bench!

Copper Piping Into Bathroom Hardware
Whether you’re going for a modern industrial look or a French country theme, old copper piping can add an attractive and interesting conversation piece to your restroom.

Utilize a U-shaped piece of piping as a toilet paper holder and long pieces of pipe as towel racks. Polish the copper and then seal it with spray lacquer so that it keeps its sheen.

Light Bulbs Into Decorations
Recycle filament light bulbs with a fun little craft project for your children. Grab paint, twine, glitter and glue. You can make flower pots and hang them in the yard as a simple green accent. Use the twine to create loops for hanging.

Pillowcase Into Shopping Bag
Take an old or vintage pillowcase, lay it flat and cut the top corners off of the open end. You’ll want to cut the corners off in a half-C shape so that that there is only about a two-inch strip left in the middle at the top.

Sew that two-inch strip together and you’ve got your handle. This reusable shopping bag rolls up tight and is easy to wash.

Drawer Into Dog Bed
The size of your animal will dictate the size of drawer you should repurpose. A cat might like a kitchen drawer while a bigger dog would use a large dresser drawer. Strip the wood off the drawer and repaint. Remove the hardware.

Maybe stencil your pet’s name on the front of the drawer. Then create a mattress using foam, batting and a soft and durable material.

Before getting rid of that broken side table or trashing those carry-out chopsticks, take a second look and tap into your creative side to see if you might be able to recycle and give them a second life.

5 Home Improvements Projects to Avoid if you plan on moving!

December 17, 2013
This is a great explanation of  why some home improvement projects are not worth investing money if you plan on moving in 2 – 3 years.  If you are looking to sell your house, don’t hesitate to contact us for a free market analysis today! 5Projectstoavoid

Home For the Holiday’s! Open House – 2071 Marques Avenue

December 6, 2013
Brand New Construction in Willow Glen – Open this Sunday, December 8 from 2-5 PM. Come see us at 2071 Marques Avenue, San Jose to preview this lovely 5 Bedroom 3.5 Bath Custom Home!  Contact Us for more details. Marques Rendering 2

5 Great Questions To Ask At An Open House

December 5, 2013
An open house gives you a great opportunity to look more closely at real estate you might be interested in buying. It also affords you the chance to chat with the owner or real estate agent so you can bring up any issues or hesitations you have with the home.

Knowing what to ask can be difficult, so below are examples of questions to ask at the next open house you attend. Couple shakes hands with realator in fron of new home

Why Has The Seller Decided To Sell Now? If you ask why the seller is moving, you could learn valuable information to help determine your offer or possibly whether or not you want to buy the home.

Knowing whether the owners are about to go into foreclosure, have experienced trouble in the neighborhood, or if they’ve retired and completely paid off the home can help you understand how urgently they need to sell their property.

Has The Seller Had Any Other Offers? Don’t forget that you are not only negotiating with the seller for a price, you are also competing with other potential buyers. It really helps to know what you are up against.

It is important to understand that you might not get a 100% straight answer to this question as most sellers know that competition or perceived competition can cause a potential buyer to move forward more quickly and at a higher price.

If you’re comfortable in this discussion, you might want to try and see if you can find out the details of any other offers.

Does The Property Have Special Ownership Costs? Ask the agent or owner about the other costs associated with owning the property, such as Home Owners Association fees within a condo complex or a gated community. It’s important to know about these extra expenses in advance so you can make an informed offer.

You may also want to ask about any pending litigation concerning the property. Litigation is not always a deal killer, but it’s better to know the details before you sign closing documents.

What Furniture And Appliances Are Being Sold With The House? Most of the time, a seller will include their major appliances such as the refrigerator, stove and dishwasher with the home, but this isn’t always the case. If you don’t already have these items, it’s important to know whether they are included in the purchase price.

Is There Anything Else That You Want To Leave With The Home? This is an important question to ask, especially if there are specific things in the home that you have a strong interest in. Perhaps there is custom art work or a pool table that fits perfectly in the game room.

The seller may be eager to part with those items and include them in the sale of the home or sell them at a large discount. The open house is a great opportunity to learn more about a home before making the decision to buy it, so be sure you ask the right questions.