The Worst Mortgage Advice Home Buyers Actually Believe
Getting a mortgage is a daunting prospect, which explains why so many people seem eager to pat your hand and say, “Let me give you a little advice.” Sure, those pearls of wisdom may come from an ocean of good intentions, but the suggestions might not necessarily be right for you. In fact, they could be dead wrong.
So before you take some friendly outside counsel as gospel, be sure to check it against our list of the worst mortgage advice people often give.
‘Don’t bother getting pre-approved for a mortgage’
Why you might hear this: Hey, you’ve barely begun shopping for a home! There’s no need to get all serious about mortgages just yet. And besides, a mortgage pre-approval isn’t real anyway— your application isn’t reviewed by an underwriter,
Why it’s bad advice: While a pre-approval might not be “official,” it will help you avoid major problems down the road.
“Getting pre-approved by a bank is one way to avoid the heartbreak that comes from falling in love with a house you can never buy,” says Maryalene LaPonsie of MoneyTalks. “It may also give you an edge if there are multiple offers for the same property. A seller will feel more confident selecting a bid from someone with a mortgage pre-approval rather than a person who hasn’t even begun the process.”
‘Get your mortgage from the bank where you already have an account’
Why you might hear this: When it comes to convenience, you just can’t beat the bank you’re already using. Plus, since you have an existing relationship with it, it’ll give you the best rates, right?
Why it’s bad advice: You already know to shop around for a home. You need to do the same with your loan.
“Even though the big bank where I keep my checking and savings accounts claims they’ll give me better service and an easier application process, that may not always be true,” says Albert Tumpson, a banking and real estate attorney who owns several properties and refinances them every couple of years. “I’ve found more favorable terms with other venues. Always go with the most favorable terms.”
‘Don’t bother reading the fine print’
Why you might hear this: Because actually perusing all that mortgage paperwork will drive you insane! And besides, this is the standard contract that everyone gets. Just sign here, here, and here—and you’ll save yourself a ton of headaches.
Why it’s bad advice: Because that fine print contains some clauses that could cost you serious money!
“Take your time and go over every last word with a fine-toothed comb,” says Jamie, a homeowner who purchased her second home two years ago. She was astounded when her lender asked her to sign a mortgage contract involving hundreds of thousands of dollars without “bothering” to read the details. Jamie ended up taking several hours to go over the contract and found several items to dispute. So what if the process took a little longer? It was well worth the wait.
‘Always go with the lowest interest rate’
Why you might hear this: A lower interest rate means lower monthly payments. Duh.
Why it’s bad advice: Lower interest rates can have all sorts of strings attached—often in the form of an adjustable-rate mortgage.
ARMs are not always a bad thing, but just be on the alert when someone suggests an interest-only ARM, says Shant Khatchadourian, president of SKR Capital Group. “Interest-only ARMs can result in significant payment shock, especially if rates increase down the line and amortization kicks in.”
In the past, as interest rates were dropping and home values were rising rapidly, interest-only ARMs worked well for some people—especially those who didn’t plan to stay in the home beyond the length of the loan’s first term. But although interest rates are low, they’re likely to rise soon, so beware.
‘Borrow as much as you’re approved for, even if you don’t need it’
Why you might hear this: Who doesn’t want a bigger and better house? Besides, a bank wouldn’t approve you for all that money unless you could afford to pay it back, right? Right?
Why it’s bad advice: It’s always wise to live slightly below your means, since you never know when life might pitch you a financial curveball, such as a layoff or medical problem.
“You can qualify for monthly payments up to 50% of your income these days,” says Khatchadourian. “But half of your gross income seems like quite a bit for most people, especially when they factor in taxes and insurance.”
So be sure to make a budget, decide what monthly payment you’re comfortable with, and stick to it.
Article From realtor.com by Lisa Johnson Mandell
Energy-efficient upgrades not only shrink your utility bill, they can increase the value of your home.
Homebuyers are becoming increasingly aware of the benefits of energy-efficient homes. In fact, they’re often willing to pay more for homes with “green” upgrades, says Sandra Adomatis, a specialist in green valuation with Adomatis Appraisal Service in Punta Gorda, Florida.
Just how much your home will increase in value depends on a number of factors, Adomatis says, like where you live, which upgrades you’ve made and how your home is marketed at sale time. The length of time to recoup the costs of green upgrades also depends on the energy costs in your area.
In 2014, upgraded homes in Los Angeles County saw a 6 percent increase in value, according to a study from Build It Green, a nonprofit based in Oakland, California, that works with home professionals. Upgraded homes in Washington, D.C., saw a 2 percent to 5 percent increase in 2015, according to a study Adomatis authored.
Consumer Reports suggests that upgrades like a gleaming new kitchen or a finished basement may give you more bang for your buck than energy-saving features. But if going green appeals more than adding quartz countertops, here’s where you can begin.
Find out how much energy your home uses
Getting a quick energy assessment or a more thorough energy audit can determine how much energy your home uses, as well as which upgrades would make the most sense for your home and finances. An audit may include an energy rating, a number that indicates how energy-efficient your home is and how much it will increase if you make recommended upgrades.
The Department of Energy (DOE) website lists ways to find assessors in your area. The Environmental Protection Agency’s Energy Star program offers assessor and advisory services to help you determine what to upgrade. Your utility provider may also offer energy audits.
The cost varies depending on location and who’s providing the service. Your utility company may offer an assessment for free or at a discount. A full audit may run $300 to $500 depending on the complexity, according to Don Knapp, senior marketing manager with Build It Green. You may not want to foot the bill for a full audit unless you’re planning to take advantage of it with major upgrades.
Once you know where you can improve your energy use, begin by making the changes that are most affordable and have a quicker payoff, Adomatis advises. Then consider whether the costlier ones are worth the investment. Keep in mind that a variety of tax credits and financing options are available for energy-efficient improvements.
Common energy upgrades, from least expensive to most
1. Insulation. A 2016 Cost vs. Value report from Remodeling magazine found that the average attic air-seal and fiberglass insulation job costs $1,268, with an added value to the home at resale within a year of completion of $1,482. That amounts to a 116 percent return on investment. And according to Energy Star, homeowners can save $200 a year in heating and cooling costs by making air sealing and insulation improvements.
2. Appliances. Your appliances account for about 15 percent of your home’s energy consumption, the DOE says. Certified clothes dryers can save you $245 over the life of the machine, according to Energy Star. A certified dryer from General Electric can run from $649 to $1,399.
When upgrading, look at the kilowatt-hour usage of a new appliance and compare it to your current one — a good Energy Star rating doesn’t necessarily mean it will use less energy than your existing appliance, Adomatis says.
3. Heating and cooling systems. These systems account for about 43 percent of your energy bill, according to the DOE. Replacement costs for an entire HVAC system — heating, ventilation and air conditioning — vary widely depending on equipment brands and sizing, but may run several thousand dollars. Energy Star estimates that you can save 30 percent on cooling costs by replacing your central air conditioning unit if it’s more than 12 years old.
According to Energy Star, a certified heat pump water heater has a payback time of two years and can save a four-person home $3,400 over its lifetime. A 50-gallon Geospring hybrid electric water heater from General Electric costs $1,399, plus installation.
While addressing your home’s heating and cooling systems, bear in the mind that leaky duct systems can be the biggest wasters of energy in your home, according to Charley Cormany, executive director of Efficiency First California, a nonprofit trade organization that represents energy-efficient contractors. The cost of a professional duct test typically runs $325 to $350 in California, he says.
4. Windows. Replacing the windows in your home may cost $8,000 to $24,000, and it could take decades to pay off, according to Consumer Reports. You can recoup some of that in resale value and energy savings. Remodeling’s Cost vs. Value report found that installing 10 vinyl replacement windows, at a cost of $14,725, can add $10,794 in resale value. Energy Star estimates that certified windows, doors and skylights can reduce your energy bill by up to 15 percent. If you’ve already tightened the shell of your home, installing a set of new windows may not be worth the cost. But the upgrade may be worth considering if you live in a colder climate.
5. Solar panels. EnergySage, a company offering an online marketplace for purchasing and installing solar panels, says the average cost of a solar panel system is $12,500. The payoff time and the amount you’ll save will vary depending on where you live. Estimated savings over a 20-year period in Philadelphia, for example, amount to $17,985, while it’s more than twice that amount in Seattle: $39,452, according to EnergySage.
Last: Let buyers know
When it comes time to sell, your real estate agent can help you market your home as energy efficient. Provide your agent with utility bills or your energy rating, if you received one with your audit, to include when describing the house on a multiple listing service, or MLS. There’s a growing trend in the real estate industry to make energy upgrades visible, Knapp says; energy disclosures are now a common practice in cities like Berkeley, California, and Chicago.
“If it’s reflected on the MLS, “it’s more likely to be reflected in the resale value,” Knapp said.
Bottom line: If you weigh the costs and savings carefully, going green can be worth the investment.
Copyright 2016 The Associated Press, Michael Burge. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. This article was provided to The Associated Press by the personal finance website NerdWallet. Email staff writer Michael Burge: email@example.com.
Article from Housing Wire – Kelsey Ramírez is a Reporter at HousingWire. Ramírez is a recent journalism graduate of University of Texas at Arlington. Ramírez previously covered hard issues such as homelessness and domestic violence and began at HousingWire as an Editorial Assistant.
Buying a house in the spring? Here’s how to save your credit score through the holidays.
There’s not much time left before the malls are flooded with busy holiday shoppers. And for the yearlong planners, the shopping probably started a long time ago. A recent blog from VantageScore emphasizes the importance of making sure shoppers don’t destroy their credit score right before the busiest home-buying season.
The holidays may still seem far off, but when the possibility of securing a home in the spring is on the line, the time to plan is now.
So what is the main area where consumers hurt their credit during the holidays? Credit cards.
Here’s what VantageScore suggests to consumers:
First and foremost, if you apply for a new credit card or higher spending limits on existing cards for the holiday season, the card issuers will probably request your credit score from one or more of the national credit reporting companies (CRCs), Equifax, Experian and TransUnion. The same is true if a new car is on your shopping list or if you choose to open a store credit card account. Just as they would at any other time of year, those score inquiries from lenders can cause a dip in your credit score.
The shopping-season strategy here is twofold: You want to maximize your score before applying for this holiday-related credit, and you want to avoid having these holiday loans lower your score in advance of any major borrowing you may be planning in the early months of the new year.
Article from Housing Wire : Brena Swanson is the Digital Reporter for HousingWire.com, providing expert coverage on Millennials, lending and housing. Brena joined the HousingWire news team in February 2013, also serving in the roles of Reporter and Content Specialist. Brena graduated from Evangel University in Springfield, Missouri. Follow Brena on twitter at @BrenaSwanson.
By knowing how much mortgage you can handle, you can ensure that home ownership will fit in your budget.
Home ownership should make you feel safe and secure, and that includes financially. Be sure you can afford your home by calculating how much of a mortgage you can safely fit into your budget.
Why not just take out the biggest mortgage a lender says you can have? Because your lender bases that number on a formula that doesn’t consider your current and future financial and personal goals.
Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree? Will a new child add day care to your monthly expenses? Does a relative plan to eventually live with you and contribute to the mortgage?
Consider those lifestyle issues as you check out these four methods for estimating the amount of mortgage you can afford.
1. Prepare a detailed budget.
The oldest rule of thumb says you can typically afford a home priced two to three times your gross income. So, if you earn $100,000, you can typically afford a home between $200,000 and $300,000.
But that’s not the best method because it doesn’t take into account your monthly expenses and debts. Those costs greatly influence how much you can afford. Let’s say you earn $100,000 a year but have $1,000 in monthly payments for student debt, car loans, and credit card minimum payments. You don’t have as much money to pay your mortgage as someone earning the same income with no debts.
Better option: Prepare a family budget that tallies your ongoing monthly bills for everything — credit cards, car and student loans, lunch at work, day care, date night, vacations, and savings.
See what’s left over to spend on homeownership costs, like your mortgage, property taxes, insurance, maintenance, utilities, and community association fees, if applicable.
2. Factor in your downpayment.
How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home’s cost, you may not have to get private mortgage insurance, which protects the lender if you default and costs hundreds each month. That leaves more money for your mortgage payment.
The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher your monthly mortgage payment.
But, if interest rates and/or home prices are rising and you wait to buy until you accumulate a bigger downpayment, you may end up paying more for your home.
3. Consider your overall debt.
Lenders generally follow the 43% rule. Your monthly mortgage payments covering your home loan principal, interest, taxes and insurance, plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 43% of your gross annual income.
Here’s an example of how the 43% calculation works for a homebuyer making $100,000 a year before taxes:
1. Your gross annual income is $100,000.
2. Multiply $100,000 by 43% to get $43,000 in annual income.
3. Divide $43,000 by 12 months to convert the annual 43% limit into a monthly upper limit of $3,583.
4. All your monthly bills including your potential mortgage can’t go above $3,583 per month.
You might find a lender willing to give you a mortgage with a payment that goes above the 43% line, but consider carefully before you take it. Evidence from studies of mortgage loans suggest that borrowers who go over the limit are more likely to run into trouble making monthly payments, the Consumer Financial Protection Bureau warns.
4. Use your rent as a mortgage guide.
The tax benefits of homeownership generally allow you to afford a mortgage payment — including taxes and insurance — of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.
Here’s an example: If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.
However, if you’re struggling to keep up with your rent, buy a home that will give you the same payment rather than going up to a higher monthly payment. You’ll have additional costs for homeownership that your landlord now covers, like property taxes and repairs. If there’s no room in your budget for those extras, you could become financially stressed.
Also consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax situation more clearly.
Hey, we know: Moving into a new home is exciting. Like, obsess over decor blogs and catalogs, binge-watch HGTV for eight-hour stretches, find ways to interject phrases like “open kitchen shelving” into everyday conversations .exciting. So it’s understandable that you’re dying to start filling every corner with stuff as soon as you’ve unpacked your last box. Beware: Time and again, interior designers see overeager new homeowners make the same mistakes when furnishing their home. Big mistakes! Read all about these Decorating Mistakes and tread carefully into your new space.
Mistake No. 1: Buying everything at once
Of course, you want to make those empty rooms look like home, sweet home, pronto. So you whip out your laptop and go on a mad room-by-room shopping spree for every stick of furniture from coffee tables to your canopy bed.
But Mark Clement of MyFixItUpLife.com urges a completely different strategy: “Stop, sit down, get out a piece of paper, and plan.” Great decorating, he says, is about taking your time to think through the rooms. Make a list of what you need to furnish the whole house; then focus first on the two to three most important rooms—generally the more exposed parts of the house such as living room, kitchen, and family room. From there, proceed at a pace where you’re certain you love (or at least deeply like) each purchase you make.
It really is OK to take up to a year to decorate a new home. You’re going to be living there for a while, remember?
Mistake No. 2: Decorating around a legacy piece
It might be your mother’s armoire or that overstuffed chair your husband bought when he was still single, or maybe it’s a bookshelf you paid a ton of money for and wouldn’t consider tossing. Regardless, trying to decorate around some of these pieces will only cause you grief. Odds are they’ll push you into a certain layout or color scheme—even one that might be completely wrong for you or your new home.
I’ve personally been saddled with two wide, black Barcelona chairs for the past decade, creating a living room motif that is simply too dark and cluttered for the space. (Welcome to my pain.) What I should have done, according to experts, is place them in a different context (a bedroom, perhaps), sold them, or put them out on the street. Hello, Goodwill?
Mistake No. 3: Trusting your ‘eye’ rather than a tape measure
Professionals know that measuring accurately is a critical step in design. “Measuring a space is imperative before you purchase anything,” says Homepolish designer Will Saks. It’s not just a question of whether a piece of furniture will fit, but how it will look sitting there. “You need to understand the dimensions of a space so the scale will feel balanced,” Saks adds.
Everything needs to be proportionate to the architecture of the room. “While a large, overstuffed Chesterfield might look great in the store, in a tiny apartment it might end up looking like a fat guy in a little coat,” says Saks.
And always remember to measure doorways and hallways before purchasing large pieces. There are few things more soul-crushing (or, for the delivery guys, more backbreaking) than lugging a sofa up six flights of stairs only to discover it doesn’t fit through the doorway. Most companies will give you the minimum clearance you need for delivery, but it’s up to you to ensure that it will truly fit. In most cases, it’s the height of a sofa that is the key measurement, not the width or depth.
Mistake No. 4: Cramming rooms like a clown car
Take a deep breath: It’s OK to have some empty spaces and walls. You want to be able to move around freely without having to hurdle a cocktail ottoman. Granted, while Saks maintains that “how much furniture you decide to put in a space is completely dependent on the aesthetic you want to achieve,” if you’re going for a more sleek look, stick to a few key pieces in a room to create the feeling of openness. The same goes for artwork—one large frame can create an art gallery feeling.
Mistake No. 5: Looking like a page from a catalog or decor mag
Ah, it all looks so great in print, but in your home, it’s a different story.
“I know it’s tempting to want to buy everything all at once and from the same place—those catalogs and stores are styled so well,” says Saks. “But refrain from doing so. To me, the most interesting designs are the ones that are aesthetically mixed.”
His tips: Incorporate vintage or one-of-a-kind pieces into your space to make it feel personal and curated. Pair that spanking new sofa with a beautiful, vintage credenza. Shop for accessories and artwork on Etsy and at flea markets so that your home feels unique. Because as nice as catalogs look, ask yourself this: Do they look like a home? Like your home?