Securing the right home loan can save you thousands of dollars when buying a home. But getting pre-approved for that loan can give you a serious advantage over the competition. When looking for a loan, start by selecting a great lender. Remember to ask family and friends for references. And take the time to get pre-approved for your loan.
Most lenders approve or deny loans based on income, cash and credit. To pre-qualify you for a loan, your lender will ask for information and independently research your income, employment and credit history and available cash through employers, banks and credit bureaus. If approved for the loan, which is still subject to appraisal and other conditions, the lender will issue a pre-approval letter indicating that the loan is approved by the bank.
This pre-approval letter gives the buyer some serious advantages. One of the obvious benefits is that you know what kind of home you can afford to buy. But pre-approval also puts you in a strong position over a non-approved buyer, can ensure you secure a low interest rate on your mortgage and expedite your home purchase.
Homeloan123.com charge no fee for loan pre-approval.
And remember, whatever option is right for you, HomeLoan123.com is ready to help.
Keeping you informed.
Doctor Mortgage
To ask HomeLoan123.com’s Doctor Mortgage a question, e-mail: info@homeloan123.com
Monday, December 04, 2006
Friday, December 01, 2006
What’s the return for remodeling?
Uncle Sam doesn’t offer much in the way of tax breaks and incentives for homeowners, but experts say equity rich owners can use basic façade improvements to seek shelter from capital gains taxes at sale time. And with an April 15 tax deadline approaching, few tax deductions for homeowners and double-digit price appreciation reported in California in recent years, smart owners might consider remodeling improvements.
While regular home repairs and maintenance don’t count as capital expenses, capital improvements that prolong the life of the house, increase the value or adapt it for a new use do. Though regular repairs and maintenance (fixing a leak or replacing an air conditioner, for example) don’t count as capital expenses, improvements that prolong the life of the house, increase the value or adapt it for a new use do qualify. Still, you have to distinguish between maintenance and repair items and improvement items. If you plant a tree, that’s an improvement. If you add fence or a swimming pool or central air or a storage unit, that’s an improvement. But if you repair a fence, that doesn’t count. However, if you have to replace the central air unit twice, the expense can only be claimed once. So homeowners should keep careful records (receipts and canceled checks) to substantiate basis adjustments.
The tax code allows homeowners to add the cost of capital improvements to the basis of the house ‑‑ the starting point for the IRS to assess gains and loses and determines capital gains tax. Current capital gains tax exclusions allow married homeowners who have lived in a primary residence for two of the last five years to receive the first $500,000 in profit tax-free. The exclusion for single homeowners is $250,000. So a couple who bought a home for $450,000 in 1995 and sold it for $950,000 last year, for example, can take the $500,000 profit tax-free without needing to increase their basis. But if you bought something in 1945 for $20,000, and you’re selling it for $1 million, you want to add everything you’ve done for the last 59 years to your cost basis to reduce the capital gain. In addition to providing tax shelter, simple touches like adding exterior lighting and ornamental trees to major renovations and additions that change the entire look of a home, a façade makeover can dramatically impact curb appeal, increase resale value and make a home more comfortable.
Harvard’s Joint Center for Housing Studies says about 25 million owners undertake some type of home improvement project this year. Before making any big moves, select low-maintenance materials that work well together ‑ like plaster fascia instead of wood and lightweight artificial stone, for instance. Wood requires regular upkeep. And real stone could be heavy and a problem in earthquake territory. In addition, water features like ponds and fountains, though dramatic, can be difficult to maintain and are better suited to the back of a home.
The best thing you can do in most cases is to trim back the landscaping so you can see the house, add sod and new sprinklers and remove red-flag issues like broken concrete and old driveways. These are all good things to do and can make a huge difference. But what does all that beauty cost? Depending on the material and the labor, façade improvements can be expensive. Door and window trims ($8 to $15 per foot), columns ($20 to $40 per foot), driveway pavers ($5 to $7 per square foot), decorative wall caps ($12 to $20 per foot). Brick veneers ($8 to $10 per square foot) that can be applied up to about 30-inches along the base of a vertical wall and blended with the driveway or a mailbox ($500 to $800) are common façade design elements.
Remodeling magazine’s 2006 Cost vs. Value Report, a joint venture with REALTOR® magazine, found that when comparing the cost of construction with added value at resale, Los Angeles homeowners who replace 10 windows (3-foot-by-5-foot), for example, recouped more than 102% of costs. The cost recouped on home improvement remodels like an attic conversion nationwide was about 80% nationwide and 98% in California. A major (cost: $38,000 to $58,000) kitchen remodel reportedly returns more than 98% of cost in California and about 76% nationally. And adding a bathroom might cost $28,000 to $34,000 but returned more than 90% of cost in California and about 75% nationally.
So don’t be afraid to reinvest in your home. And if refinancing will help you remodel, HomeLoan123.com is ready to help.
Keeping you informed.
Doctor Mortgage
To ask HomeLoan123.com’s Doctor Mortgage a question, e-mail: info@homeloan123.com
While regular home repairs and maintenance don’t count as capital expenses, capital improvements that prolong the life of the house, increase the value or adapt it for a new use do. Though regular repairs and maintenance (fixing a leak or replacing an air conditioner, for example) don’t count as capital expenses, improvements that prolong the life of the house, increase the value or adapt it for a new use do qualify. Still, you have to distinguish between maintenance and repair items and improvement items. If you plant a tree, that’s an improvement. If you add fence or a swimming pool or central air or a storage unit, that’s an improvement. But if you repair a fence, that doesn’t count. However, if you have to replace the central air unit twice, the expense can only be claimed once. So homeowners should keep careful records (receipts and canceled checks) to substantiate basis adjustments.
The tax code allows homeowners to add the cost of capital improvements to the basis of the house ‑‑ the starting point for the IRS to assess gains and loses and determines capital gains tax. Current capital gains tax exclusions allow married homeowners who have lived in a primary residence for two of the last five years to receive the first $500,000 in profit tax-free. The exclusion for single homeowners is $250,000. So a couple who bought a home for $450,000 in 1995 and sold it for $950,000 last year, for example, can take the $500,000 profit tax-free without needing to increase their basis. But if you bought something in 1945 for $20,000, and you’re selling it for $1 million, you want to add everything you’ve done for the last 59 years to your cost basis to reduce the capital gain. In addition to providing tax shelter, simple touches like adding exterior lighting and ornamental trees to major renovations and additions that change the entire look of a home, a façade makeover can dramatically impact curb appeal, increase resale value and make a home more comfortable.
Harvard’s Joint Center for Housing Studies says about 25 million owners undertake some type of home improvement project this year. Before making any big moves, select low-maintenance materials that work well together ‑ like plaster fascia instead of wood and lightweight artificial stone, for instance. Wood requires regular upkeep. And real stone could be heavy and a problem in earthquake territory. In addition, water features like ponds and fountains, though dramatic, can be difficult to maintain and are better suited to the back of a home.
The best thing you can do in most cases is to trim back the landscaping so you can see the house, add sod and new sprinklers and remove red-flag issues like broken concrete and old driveways. These are all good things to do and can make a huge difference. But what does all that beauty cost? Depending on the material and the labor, façade improvements can be expensive. Door and window trims ($8 to $15 per foot), columns ($20 to $40 per foot), driveway pavers ($5 to $7 per square foot), decorative wall caps ($12 to $20 per foot). Brick veneers ($8 to $10 per square foot) that can be applied up to about 30-inches along the base of a vertical wall and blended with the driveway or a mailbox ($500 to $800) are common façade design elements.
Remodeling magazine’s 2006 Cost vs. Value Report, a joint venture with REALTOR® magazine, found that when comparing the cost of construction with added value at resale, Los Angeles homeowners who replace 10 windows (3-foot-by-5-foot), for example, recouped more than 102% of costs. The cost recouped on home improvement remodels like an attic conversion nationwide was about 80% nationwide and 98% in California. A major (cost: $38,000 to $58,000) kitchen remodel reportedly returns more than 98% of cost in California and about 76% nationally. And adding a bathroom might cost $28,000 to $34,000 but returned more than 90% of cost in California and about 75% nationally.
So don’t be afraid to reinvest in your home. And if refinancing will help you remodel, HomeLoan123.com is ready to help.
Keeping you informed.
Doctor Mortgage
To ask HomeLoan123.com’s Doctor Mortgage a question, e-mail: info@homeloan123.com
Tuesday, November 21, 2006
What fees should you expect to pay when refinancing your home?
It seems like everyone you meet has just refinanced their home mortgage. And with the Mortgage Bankers Association reporting that the 30-year fixed mortgage rate decreased 9 basis points to 6.15% in November, the pace shows no real sign of slowing.
So what should you expect to pay a lender for refinancing your home? Whatever you pay, if you plan to stay put for a few years, those refinancing savings should cover initial costs within about two years. However, if it will take four years to recoup your costs and you plan to sell the home in three, refinancing might not be the right move.
To judge if refinancing is right for you, convert the total cost into a percentage point, and then use the point divided by the rate drop to determine the number of years it would take to profit from the refinance.
On a $500,000 loan, for instance, if your total refinance cost is $4,000 and your rate drop is 0.5%, divide the total cost by the loan total ($4,000/$500,000 = 0.8 point) and then divide that figure by the rate drop (0.8/0.5 = 1.6) to get the total number of years (18 months, in this case) you would have to stay in the home to make back the cost of refinancing.
One way to find out about your overall costs is to ask for a menu of estimated closing costs that outlines various refinance fees. And ask about cash costs due when the loan closes and which fees ‑‑ property taxes, for instance ‑‑ can be rolled into the life of the loan.
As a rule, refinancing costs can range from 3% to 6% of the amount of the loan.The application fee, usually about 1% of the total loan, ranges from $300 to $500 and covers expenses associated with processing the loan and checking credit reports ($20 to $50). Fees associated with appraisals (cost: $150 to $400).
By comparison, Homeloan123 offers free credit reports and charges a flat $350 for appraisals on single family residences. Moreover, our in-house escrow costs a flat $350 and includes the convenience of having a mobile notary sent to you.
Because a refinance is essentially a new loan, the lender will require a new title insurance policy, which protects the policyholder against losses caused by discrepancies in the property title in conjunction with a title search to examine public records, laws and court decisions to prove that the seller can transfer free and clear ownership. Usually paid in one lump sum at the time the policy is issued.
You don't need a new owner's policy when refinancing, but the lender will require you to purchase a new lender’s policy. Still, ask the company carrying your present policy if it can re-issue the policy at a special rate.
Before refinancing, check your credit report and clear any discrepancies. The cost is minimal and the better your credit, the better your chance of getting a lower rate.
For refinance, the most popular option is a no-point, no-fee loan, which features no extra fees or costs added on top of your loan. With the no-fee option, refinancing makes sense, even with a 0.125% rate drop, no matter how long you stay in the property.
With so many financing options, it is hard to know who to choose. So get referrals from friends, family, real estate agents and mortgage brokers. Ask them to walk you through the refinancing process. Ask what you should expect. Make sure you are dealing with a reputable firm. And make sure you feel comfortable with the lender you choose.
And remember, whatever option is right for you, HomeLoan123.com is ready to help.
Keeping you informed.
Doctor Mortgage
To ask HomeLoan123.com’s Doctor Mortgage a question, e-mail: info@homeloan123.com
Wednesday, November 08, 2006
Should I pay points or not?
Points are loan fees paid upfront to a lender that cover mortgage loan costs in exchange for a lowered interest rate. Lowered interest means those points can reduce your monthly housing costs and overall interest due over the length of a loan. Evaluating the cost of discount points is simple. One point equals 1 percent of the total loan amount. So on a $100,000 loan, for instance, 1 point would be $1,000. And 2 points on the same amount would be $2,000.
Borrowers looking to lower their monthly loan payment and increase their borrowing power can use points to their advantage. Moreover, when buying a house, those discount points are tax deductible for the year paid. However, when refinancing, points are deducted over the life of the mortgage and provide few tax benefits. In addition, a lower mortgage payment means a further reduction in tax benefits.
For most people, the decision on whether or not to pay points is based on how long they plan to stay in the house. So ask your lender how long it will take to recoup the cost of paying those discount points or do a simple break-even analysis. If your new loan results in a monthly savings of $50, for example, and the points cost $2,000, divide the cost of the points by your monthly saving to factor how long it will take to break even. In this example, payment includes the principal on an interest only loan, so it would take 40 months to recover the cost of paying those points.
So if you plan to sell or refinance your home in the next two years, paying discount points probably doesn't make financial sense. But if you plan to stay in the home for more than 10 years, you’ll probably save money by paying points
Whatever option is right for you, HomeLoan123.com is ready to help. Keeping you informed.
Doctor Mortgage
To ask HomeLoan123.com’s Doctor Mortgage a question, e-mail: info@homeloan123.com
Borrowers looking to lower their monthly loan payment and increase their borrowing power can use points to their advantage. Moreover, when buying a house, those discount points are tax deductible for the year paid. However, when refinancing, points are deducted over the life of the mortgage and provide few tax benefits. In addition, a lower mortgage payment means a further reduction in tax benefits.
For most people, the decision on whether or not to pay points is based on how long they plan to stay in the house. So ask your lender how long it will take to recoup the cost of paying those discount points or do a simple break-even analysis. If your new loan results in a monthly savings of $50, for example, and the points cost $2,000, divide the cost of the points by your monthly saving to factor how long it will take to break even. In this example, payment includes the principal on an interest only loan, so it would take 40 months to recover the cost of paying those points.
So if you plan to sell or refinance your home in the next two years, paying discount points probably doesn't make financial sense. But if you plan to stay in the home for more than 10 years, you’ll probably save money by paying points
Whatever option is right for you, HomeLoan123.com is ready to help. Keeping you informed.
Doctor Mortgage
To ask HomeLoan123.com’s Doctor Mortgage a question, e-mail: info@homeloan123.com
Monday, October 30, 2006
Is now a good time to buy real estate?
Philip Swiger, 56, has lived in Kentucky, North Carolina and Texas. But none of those markets prepared him for the home prices he encountered when he moved Huntington Beach in August. “As much as you read and hear about it, it was still a total shock to see what prices were like and what you get for your money compared to other places,” he said. Swiger, who sold his Louisville home for $500,000 in August, rented a Huntington Beach town home for $3,000 a month, said he plans to buy near the beach during the winter months. “I’m going to roll the dice a bit,” he said, “and see if prices come down in the next six months.” Swiger, who designs and distributes furniture, isn’t rolling alone. Sobered up from frenzied exuberance over double-digit housing gains by declining sales, price reductions and increased Southland inventory, a growing segment of Southland buyers are waiting on the sidelines for a significant downshift in prices.
Bob Taylor, owner of Bob Taylor Properties Inc. in Highland Park, said he noticed the trend in May. “Unless they can get a good offer accepted, about 75% to 80% of my clients are saying they want to wait up to one year for 10% to 15% price adjustments,” Taylor said.
DataQuick Information Systems reported that while Southland prices slid slightly from $493,000 in June to $492,000 last month, sales volumes ‑‑ which dropped to 24,669 last month, down about 27% from 33,561 July 2005 ‑‑ didn’t fare as well. And with an estimated one-third of Southland properties currently “wildly overpriced,” according to John Karevoll, chief analyst at DataQuick, a La Jolla-based real estate research firm, patience could be a current buyer’s best virtue.
“If you’re a buyer, there’s no hurry at all,” Edward Leamer, director of the UCLA Anderson Forecast, which provides quarterly economic projections for California and the nation, said. “Prices are going to be a little weaker a year from now, and they’ll be more listings and more choices.” How much weaker? Leamer anticipates a annual 2% to 3% drop in home prices for three to five years. But and while market indicators might justify a wait-and-see attitude, experts and consumers say timing the market can be risky.
When Aileen Jones, 49, sold her four-bedroom Tudor-style home, bought for $650,000 in 1991, for $865,000 in 2001, she rented a West Hills house and remained optimistic about finding another investment. In February 2003, she found a 6,600-square-foot, five-bedroom bankruptcy on a half-acre in Woodland Hills for under $1 million. Today, Jones, a housewife, who spent $400,000 renovating the property, said based on comparable prices ‑‑ and recent area sales ‑‑ the home is worth about $2.1 million.
“Had I not rented and gone into another house, I would never have gotten this one,” she said. “But because the market was so high, I was really persistent about looking at what was for sale.”
Victor Migenes, 45, owner of Los Angeles-based 2nd Street Cigars & Gallery, has bought and sold investment properties numerous times in the past 20 years. Still, he said, this market feels different. “I think the prices are overblown,” he said. “And as the market softens, some buyers are going to be unhappy with their purchases unless the home is the type of home that you want to hold on to.”Fearful of getting stuck on the high end of a softening market, Migenes, a Los Feliz renter ‑‑ sold the Mount Washington home he purchased for $260,000 in 1999 for $440,000 in 2002 ‑‑ started looking for another investment in Bel-Air, Beverly Hills, Brentwood, Encino, Redondo Beach, Santa Monica and other locations where properties traditionally hold value. In February last year, Migenes bought a Bel Air-area teardown for $525,000 and gutted the home. When finished next year, and based on surrounding home prices, Migenes said he believes the 3,000-square-foot, tri-level rebuild will appraise for about $2.2 million. “I got a decent deal. If I had held on to the Mount Washington home about six months longer, I would have gotten maybe another $100,000. But you can’t look back,” Migenes said. It’s a gamble.”
Not every gambler gets lucky. Believing a rapid decline in prices would diminish the equity accrued on her Tarzana home she bought for $166,000 in 1999, Inbar Cohen, 35, sold the property for just under $400,000 in August 2003, rented a house in Encino for $2,000 a month and started looking for her dream home. “At that time, $600,000 would buy you a mansion south of [Ventura] boulevard,” Cohen said. “And we thought we would be able to buy a $600,000 home and put all our equity into it.” Three years later, Cohen’s dream is still just that. “We were hoping that prices would drop,” she explained. “Now, $600,000 will buy you a fixer-upper in my neighborhood,” Cohen, a hearing officer for the Los Angeles City Attorney’s Office, said. “I have waited this long. I can wait another year.”
Glen and Holly Avendano planned to use equity from the sale of their one-bedroom Fullerton condominium in November 2002 for a down payment on another home. Feeling no immediate pressure to buy, Glen, 32, who works for the U.S. Federal Government, and Holly, 31, an insurance rater, rented a three-bedroom Anaheim home, banked their equity and watched the window of housing opportunity slam shut. “Holly and I got stuck,” Glen Avendano said. “We had sold our condo, and housing prices were too high for us to buy.”
The story is familiar to Taylor. In 2002, six of his 64 clients opted to sell and rent while trying to time the market. Today, all but one is still renting, he said. Southlanders waiting for the market to hit rock bottom, should ask themselves: “When is that going to happen?” Dixie Long, an agent with First Team Real Estate Inc. in Huntington Beach, said. “And as soon as it happens, don’t you think that everyone is going to start jumping on the band wagon? So if the timing is right, and you’ve seen a home you like that has gone down in price, why not get in the ballpark?” she added.
While some buyers wait in line to pinch pennies, Karevoll said many sellers are stuck in a get-rich-quick fantasy. “The market one or two years ago was abnormal. People were jumping into properties that they didn’t really want because they were afraid they wouldn’t get anything else. This market is starting to normalize,” Karevoll said. “But you’ve got all kinds of people trying to gain the peak of the market by putting properties on the market at fantasy prices.”
For many sellers ‑‑ like the Highland Park homeowner who listed their property at $584,000 and sold at $485,000 in August ‑‑Taylor said, leaving the fantasy is tough. Then there are renters like Poway resident Schahrzad Berkland and supporters of www.boycotthousing.com, a Bay Area site that has managed to get more than 2,000 visitors to voluntarily sign a petition agreeing to stop buying Bay Area homes for three months to one year last May.
Berkland, 44, who made about $300,000 on the sale of her San Diego home in January and admits to being somewhat obsessed with timing the market — regularly tracking sales and inventory in her area — said she believes the fallout from exotic home loans and income leveraged real estate speculators and buyers will mirror the dot-com crash that followed the tech stock mania of the late 1990s and left many investors dazed in 2001. “Then, just like now, a lot of people just got caught in the frenzy. I didn’t buy tech stocks either,” Berkland, a business consultant, said. “But I believe we are headed for a crash and prices will drop between 35% and 50% over the next five years.”
Karevoll said housing is not as mobile as tech stocks. “Everybody thought that when the dot-com crash happened that prices in the Bay Area and Silicon Valley would go down. But they didn’t’. We had a lower level of sales activity and prices flat-lined for [about 18 months], but then the market started to go back up again,” he added. “People who are rolling the dice, and not getting into real estate for the right reasons, are putting themselves at risk. But get out there and do some homework. That’s critical right now,” Karevoll said. “If you’re planning on living in the property for three to five years or more, you can make a good investment today,” he added. “It won’t be as good as if you bought three years ago, but it will be better than if you wait until interest rates go up.”
Bob Taylor, owner of Bob Taylor Properties Inc. in Highland Park, said he noticed the trend in May. “Unless they can get a good offer accepted, about 75% to 80% of my clients are saying they want to wait up to one year for 10% to 15% price adjustments,” Taylor said.
DataQuick Information Systems reported that while Southland prices slid slightly from $493,000 in June to $492,000 last month, sales volumes ‑‑ which dropped to 24,669 last month, down about 27% from 33,561 July 2005 ‑‑ didn’t fare as well. And with an estimated one-third of Southland properties currently “wildly overpriced,” according to John Karevoll, chief analyst at DataQuick, a La Jolla-based real estate research firm, patience could be a current buyer’s best virtue.
“If you’re a buyer, there’s no hurry at all,” Edward Leamer, director of the UCLA Anderson Forecast, which provides quarterly economic projections for California and the nation, said. “Prices are going to be a little weaker a year from now, and they’ll be more listings and more choices.” How much weaker? Leamer anticipates a annual 2% to 3% drop in home prices for three to five years. But and while market indicators might justify a wait-and-see attitude, experts and consumers say timing the market can be risky.
When Aileen Jones, 49, sold her four-bedroom Tudor-style home, bought for $650,000 in 1991, for $865,000 in 2001, she rented a West Hills house and remained optimistic about finding another investment. In February 2003, she found a 6,600-square-foot, five-bedroom bankruptcy on a half-acre in Woodland Hills for under $1 million. Today, Jones, a housewife, who spent $400,000 renovating the property, said based on comparable prices ‑‑ and recent area sales ‑‑ the home is worth about $2.1 million.
“Had I not rented and gone into another house, I would never have gotten this one,” she said. “But because the market was so high, I was really persistent about looking at what was for sale.”
Victor Migenes, 45, owner of Los Angeles-based 2nd Street Cigars & Gallery, has bought and sold investment properties numerous times in the past 20 years. Still, he said, this market feels different. “I think the prices are overblown,” he said. “And as the market softens, some buyers are going to be unhappy with their purchases unless the home is the type of home that you want to hold on to.”Fearful of getting stuck on the high end of a softening market, Migenes, a Los Feliz renter ‑‑ sold the Mount Washington home he purchased for $260,000 in 1999 for $440,000 in 2002 ‑‑ started looking for another investment in Bel-Air, Beverly Hills, Brentwood, Encino, Redondo Beach, Santa Monica and other locations where properties traditionally hold value. In February last year, Migenes bought a Bel Air-area teardown for $525,000 and gutted the home. When finished next year, and based on surrounding home prices, Migenes said he believes the 3,000-square-foot, tri-level rebuild will appraise for about $2.2 million. “I got a decent deal. If I had held on to the Mount Washington home about six months longer, I would have gotten maybe another $100,000. But you can’t look back,” Migenes said. It’s a gamble.”
Not every gambler gets lucky. Believing a rapid decline in prices would diminish the equity accrued on her Tarzana home she bought for $166,000 in 1999, Inbar Cohen, 35, sold the property for just under $400,000 in August 2003, rented a house in Encino for $2,000 a month and started looking for her dream home. “At that time, $600,000 would buy you a mansion south of [Ventura] boulevard,” Cohen said. “And we thought we would be able to buy a $600,000 home and put all our equity into it.” Three years later, Cohen’s dream is still just that. “We were hoping that prices would drop,” she explained. “Now, $600,000 will buy you a fixer-upper in my neighborhood,” Cohen, a hearing officer for the Los Angeles City Attorney’s Office, said. “I have waited this long. I can wait another year.”
Glen and Holly Avendano planned to use equity from the sale of their one-bedroom Fullerton condominium in November 2002 for a down payment on another home. Feeling no immediate pressure to buy, Glen, 32, who works for the U.S. Federal Government, and Holly, 31, an insurance rater, rented a three-bedroom Anaheim home, banked their equity and watched the window of housing opportunity slam shut. “Holly and I got stuck,” Glen Avendano said. “We had sold our condo, and housing prices were too high for us to buy.”
The story is familiar to Taylor. In 2002, six of his 64 clients opted to sell and rent while trying to time the market. Today, all but one is still renting, he said. Southlanders waiting for the market to hit rock bottom, should ask themselves: “When is that going to happen?” Dixie Long, an agent with First Team Real Estate Inc. in Huntington Beach, said. “And as soon as it happens, don’t you think that everyone is going to start jumping on the band wagon? So if the timing is right, and you’ve seen a home you like that has gone down in price, why not get in the ballpark?” she added.
While some buyers wait in line to pinch pennies, Karevoll said many sellers are stuck in a get-rich-quick fantasy. “The market one or two years ago was abnormal. People were jumping into properties that they didn’t really want because they were afraid they wouldn’t get anything else. This market is starting to normalize,” Karevoll said. “But you’ve got all kinds of people trying to gain the peak of the market by putting properties on the market at fantasy prices.”
For many sellers ‑‑ like the Highland Park homeowner who listed their property at $584,000 and sold at $485,000 in August ‑‑Taylor said, leaving the fantasy is tough. Then there are renters like Poway resident Schahrzad Berkland and supporters of www.boycotthousing.com, a Bay Area site that has managed to get more than 2,000 visitors to voluntarily sign a petition agreeing to stop buying Bay Area homes for three months to one year last May.
Berkland, 44, who made about $300,000 on the sale of her San Diego home in January and admits to being somewhat obsessed with timing the market — regularly tracking sales and inventory in her area — said she believes the fallout from exotic home loans and income leveraged real estate speculators and buyers will mirror the dot-com crash that followed the tech stock mania of the late 1990s and left many investors dazed in 2001. “Then, just like now, a lot of people just got caught in the frenzy. I didn’t buy tech stocks either,” Berkland, a business consultant, said. “But I believe we are headed for a crash and prices will drop between 35% and 50% over the next five years.”
Karevoll said housing is not as mobile as tech stocks. “Everybody thought that when the dot-com crash happened that prices in the Bay Area and Silicon Valley would go down. But they didn’t’. We had a lower level of sales activity and prices flat-lined for [about 18 months], but then the market started to go back up again,” he added. “People who are rolling the dice, and not getting into real estate for the right reasons, are putting themselves at risk. But get out there and do some homework. That’s critical right now,” Karevoll said. “If you’re planning on living in the property for three to five years or more, you can make a good investment today,” he added. “It won’t be as good as if you bought three years ago, but it will be better than if you wait until interest rates go up.”
Friday, October 06, 2006
Pay option ARM
Homeowners and investors planning on owning a home for a short time and borrowers looking for a more flexible monthly payment schedule might consider the option adjustable rate mortgage (ARM). The combination of reduced start and qualifying rates and low initial mortgage payments allows owners to borrow more money ‑‑ or qualify for a larger home, in some cases ‑‑ and is making pay option ARMs increasingly popular with shoppers.
However, when shopping for an option ARM, make sure you understand the facts. For instance, the initial interest or start rate is only a “teaser” that applies to a specific timeframe ‑‑ one month, for example. So discuss this with your lender. And carefully review the margin and the fully indexed rate (FIR) in combination. The margin is the number of permanent percentage points or “markup” added to the index rate by the lender to calculate the interest rate of an ARM for the length of the loan. The FIR is based upon the margin and index of the loan, a reference point based on various financial indexes use by lenders to estimate their cost to loan money.
Understanding which index the lender is using and look at historical data about how that index has been impacted by market conditions in recent years to gain insight into how the lender’s ARM will perform. An index that adjusts quickly each month, for example, would be good if rates are decreasing. But a borrower would want a slower index if rates were rising. Either way, the index will change throughout the life of the loan, so understand how the margin and the FIR will look together. If the current index rate is 5 percent with a 2.5 percent margin, for instance, the FIR would be 7.5 percent. In addition, ask about rate caps, which limit the percentage a rate can increase over the life of the loan, and get loan fees on paper.
Borrowers should do their homework and compare loans. But if flexible pay option ARM seems right for your loan needs, great. It has some wonderful benefits.
Unlike fixed rates mortgages that remain static for the life of a loan, the pay option ARM provides the borrower with complete flexibility by allowing owners to select a variety of payment options each month.
The first is the minimum payment option. This can reduce your overall monthly expenses. However, if this option doesn’t cover the monthly interest due on the loan, be aware. The shorted amount is added to the loan, and the loan balance will rise.
Still, a borrower could defer interest by selecting an interest-only payment that would be less than the regular minimum due each month. Keep in mind, however, that an interest-only payment does not reduce the loan’s principle. A traditional monthly payment option allows borrowers to make equal payments based on a fully amortized schedule, which gradually eliminates both principal and interest, based on a 30-year loan. Or a borrower could build equity quickly and cut more than 50 percent of their interest costs by paying the loan over an accelerated 15-year period.
Another option allows the borrower to reduce the life of the loan and decrease future mortgage bills by making additional principle payments.
Whatever option is right for you, just think carefully.
However, when shopping for an option ARM, make sure you understand the facts. For instance, the initial interest or start rate is only a “teaser” that applies to a specific timeframe ‑‑ one month, for example. So discuss this with your lender. And carefully review the margin and the fully indexed rate (FIR) in combination. The margin is the number of permanent percentage points or “markup” added to the index rate by the lender to calculate the interest rate of an ARM for the length of the loan. The FIR is based upon the margin and index of the loan, a reference point based on various financial indexes use by lenders to estimate their cost to loan money.
Understanding which index the lender is using and look at historical data about how that index has been impacted by market conditions in recent years to gain insight into how the lender’s ARM will perform. An index that adjusts quickly each month, for example, would be good if rates are decreasing. But a borrower would want a slower index if rates were rising. Either way, the index will change throughout the life of the loan, so understand how the margin and the FIR will look together. If the current index rate is 5 percent with a 2.5 percent margin, for instance, the FIR would be 7.5 percent. In addition, ask about rate caps, which limit the percentage a rate can increase over the life of the loan, and get loan fees on paper.
Borrowers should do their homework and compare loans. But if flexible pay option ARM seems right for your loan needs, great. It has some wonderful benefits.
Unlike fixed rates mortgages that remain static for the life of a loan, the pay option ARM provides the borrower with complete flexibility by allowing owners to select a variety of payment options each month.
The first is the minimum payment option. This can reduce your overall monthly expenses. However, if this option doesn’t cover the monthly interest due on the loan, be aware. The shorted amount is added to the loan, and the loan balance will rise.
Still, a borrower could defer interest by selecting an interest-only payment that would be less than the regular minimum due each month. Keep in mind, however, that an interest-only payment does not reduce the loan’s principle. A traditional monthly payment option allows borrowers to make equal payments based on a fully amortized schedule, which gradually eliminates both principal and interest, based on a 30-year loan. Or a borrower could build equity quickly and cut more than 50 percent of their interest costs by paying the loan over an accelerated 15-year period.
Another option allows the borrower to reduce the life of the loan and decrease future mortgage bills by making additional principle payments.
Whatever option is right for you, just think carefully.
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