With rates trending upward, here’s how to win!

January 19th, 2017

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How to get the best mortgage rate

Here are some ways that you can improve the rate you are quoted:

Shop around. Mortgage rates often vary from lender to lender, just like gas prices vary from station to station. Borrowers should put as much effort into finding the best mortgage for themselves as they do finding the best home. Compare rates, points, and fees.

Ask for discounts. Leverage potential rate discounts from financial companies that already provide you services. Your loyalty could be worth a better rate. You’ll never know until you ask. So ask.

Improve your credit score. If your credit is less than excellent, increasing your score by 25 basis points could result in a rate that’s lower by 10 basis points. Higher credit scores mean lower risk to lenders, and lower risk translates into lower rates.

Pay for a discounted rate. Lenders will often offer a lower rate for a fixed fee paid upfront called a discount point. You can do the math to see if the cost of the discount is worth the lower payment you would receive as a result.

Put more money down. The payment is a function of the loan amount, which is what is left over when you subtract the down payment from the purchase price. The more you put down, the less you’ll pay going forward.

Consider a different loan product that has a shorter duration for the fixed rate. These “hybrid loans” combine features of a fixed-rate loan with those of an adjustable-rate loan. A 5/1 hybrid will offer a fixed rate for the first five years of the loan but will then move to align with market rates each year after the loan’s fifth anniversary. The average 5/1 conforming loan rate today is over 110 basis points lower than the average 30-year conforming rate.

The reason the rate is so much lower is the borrower is taking on the longer-term rate risk. So there needs to be a trade-off. Is the future rate risk worth the lower upfront rate?  A 10/1 hybrid would maintain a fixed rate for 10 years, the normal tenure that many people live in their homes these days. In other words, for many borrowers, the 10/1 could result in the best deal in terms of interest.

Pay less. Let’s get real. Sellers are not going to be very receptive to taking a lower price just because your financing costs increased. But they might be more open to providing some funds for closing costs, maybe a discount point worth. To a buyer, $1,000 more on the price paid over a 30-year mortgage is worth a lot less than the same $1,000 provided at closing by the seller.

Yet to the seller, they net the same. Just be careful that the appraised value will support the higher price.

The other way to pay less, of course, is to simply find a lower-priced home. But you knew that already, right?

And here’s the good news

While all this might sound quite bleak, there is an upside to future borrowers as a result of higher rates: It’s getting easier to get a mortgage.

The Credit Availability Index reported monthly by the Mortgage Bankers Association is at its highest level since 2007, when 30-year mortgage rates were above 6%.

With higher rates, lenders are encouraged to take on more risk as they can make more money. Likewise, if they want to maintain their mortgage business, they have to more aggressively court the purchase market in order to replace the volumes they have been doing in the refinance market.

That means potential borrowers should be seeing more love from lenders even with low down payments, lower credit scores, and higher debt-to-income ratios.

However, rates will likely be volatile day to day until we see more certainty about future fiscal and monetary policy in the U.S. If you are planning to buy, monitor rates specific to your area daily.

Just keep this in mind: The long-term direction of rates is now decidedly higher, so you’ll want to act sooner rather than later to lock in a mortgage rate that will enable you to buy the home of your dreams.

Accepted an offer then got a better one? Here’s what to do!

January 5th, 2017

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Review your contract

When a seller accepts an offer, that doesn’t mean the deal is truly done. For one, did you sign a contract? Until you’ve got your John Hancock on that document, a home is still technically available, says Julia Towle of Avant Realty Group in Massachusetts.

This contract—often called a home purchase agreement—defines the responsibilities of each party, deadlines, and specific contingencies. Once it’s signed, anyone backing out could face Lady Justice.

“It’s important to fully understand the language in the sales contract to ensure each party is aware of their responsibilities and repercussions for breaching such obligations,” says Towle. That usually includes the nondefaulting party’s right to pursue “lawful remedy” against the defaulters.

Check your contract’s contingencies

Even if you have signed the contract, if it includes contingencies, then there’s still some wiggle room. Contingencies cover the obligations that must be met by both buyer and seller before a real estate transaction can close. For the seller, a buyer closing a mortgage within 30 days is a typical contingency. If the buyer fails to meet that deadline, a seller may be legally able to call the sale off.

For the buyer, one common contingency is that the home passes inspection. If it doesn’t because of major flaws with, say, the foundation or roofing, then the buyer may walk away without incurring penalties, or ask the seller to pay for repairs. An inspection contingency is typically put in place to protect a buyer, but it could work in a seller’s favor, too (see our next point).

Accept the higher offer as backup

Sellers don’t have tons of options when it comes to backing out. But one thing a seller can do—though it’s not guaranteed to work—is to accept the higher offer as a backup.

“The seller can then play hardball with the first folks when it comes to any inspection items they want fixed,” says Golden.

The goal for the sellers would be to make the buyers with the initial offer back out on their own by not meeting their inspection contingency demands. Once the original buyers walk away, the seller could move on to the higher offer.

“The big danger, however, is that once you let one buyer go, the second folks could then ask for even more repairs or back out altogether,” Golden says. The bottom line when letting go of one strong offer in favor of a higher one: “It’s a big risk.”

Fill the original buyer in

If a seller decides to go with a higher offer, she must communicate that to the original buyer immediately—and return any deposit presented with the initial offer. But here’s another option: A seller could allow the original buyer to present a counteroffer. Granted, the buyer may not want to. Instead, he could just collect his deposit and take the seller to court.

Seek legal counsel

Realty laws vary from state to state, based on the contracts.

“Here in Georgia, if a seller just wants to back out of the contract, the buyer and the agents can sue,” says Golden. The suit can be used to force the seller to sell the original buyers the home or to pay a specified amount of damages—which could include the price of seeking alternate housing like a hotel and legal fees. Either way, it won’t be pretty.

“I would most definitely advise a seller to seek legal counsel before making any attempt to back out of a contract,” says Golden.

… or avoid such drama at the outset

One way to circumvent legal battles—and bad karma—is to ask yourself before you put your house on the market what you’d do in such a circumstance. If you’re the type of person who wants to take all comers, it’s advisable to list the property as “contingent, accepting backup offers.” This would “avoid any and all repercussions to the seller,” says Towle.

The reason: If a seller communicates upfront that all backup offers will be considered, the buyer cannot reasonably claim he relied on the offer acceptance as a sign he’s guaranteed the keys. The downside? Some buyers might be scared off, knowing that their dream home could disappear on a dime.

Take on these habits and buy a home in 2017!

December 29th, 2016

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Habit No. 1: Automate your down payment savings

If you’re trying to squirrel away the recommended 20% down payment, that works out to about $40,000 for a $200,000 home. That’s a huge chunk of cash, so unless you’ve been the recipient of an inheritance or have recently won the lottery, you can never save too early or too much.

“The down payment takes more money than 99% of people plan for,” warns Joshua Jarvis of Jarvis Team Realty with Keller Williams Realty Atlanta Partners in Duluth, GA.

Yet one practically painless way to get started is to automate your checking account to regularly set aside a small amount of your paycheck into a separate savings account dubbed your “house fund.”

“Amassing enough for a down payment takes discipline and perseverance, but setting up automatic savings can make it easier,” points out Realtor® Marcia Goodman with Re/Max Gateway in Gainesville, VA. “If you never see the cash, you won’t spend it.”

And you don’t have to put down the full 20%, either—there are other options. But it’s best to save as much as you can.

Habit No. 2: Build your credit history and keep it clean

To get a mortgage, lenders will want to see evidence that you’ve paid off past debts. As such, keeping on top of your credit cards ad car and college loans is a crucial mortgage must-do.

But don’t steer clear of credit altogether. If you’ve never had a credit card or a bank loan, you won’t have a credit history. Once you have credit established, keep it pristine. Pay all your bills on time—this cannot be overemphasized.

“I had a client who made $250,000 a year and was denied a mortgage because his credit card payments were always late,” says Alexandra Axsen, managing broker of Lake Okanagan Realty Ltd. in Kelowna, BC.

Dean Sioukas, founder of Magilla Loans in Sacramento, CA, also advises not using more than 30% of your available credit, as recommended by the credit bureaus.

Habit No. 3: Practice living on a budget

Think owning a home is pricier than renting? Not necessarily—it depends on your area, so make sure to compare the costs of renting vs. buying near you. But if you expect your mortgage to take a bigger bite than your rent, create a budget that factors in your new reality so you can get used to living on less disposable income, suggests Kevin Lawton of Coldwell Banker Schiavone & Associates in Yardville, NJ.

Downsizing your budget early also means you’ll be able to save more for your down payment, pay down debt, or save for furniture for your new home.

Habit No. 4: Get your handy on

One of the big perks of renting is that any problems around the home—leaky faucets, broken boiler—are your landlord’s responsibility to repair. But once you own, you should probably know how to roll up your sleeves and fix it yourself if you don’t want to shell out for a handyman every time something goes wrong.

“Consumers thinking about buying a home should learn the basics of property maintenance and general ‘handy habits,’ since maintenance is an ongoing effort for homeowners,” says Evan Harris, co-founder of SD Equity Partners in San Diego.

“Knowing how to fix basic home issues such as electrical shorts, repair drywall, and tackle basic plumbing problems will save thousands of dollars in the future,” he says, noting that it’s smart to learn how to fix these issues before you’re scrambling around a dark kitchen where you blew a fuse.

Habit No. 5: Prepare to pounce

The more pieces you can put in place, the better, says Lawton, who advises buyers to spend time getting to know the real estate market before they’re ready to buy.

“It’s a good habit to start browsing homes online to get a sense of what is available in your price range and the neighborhoods and amenities you’ll realistically be able to afford,” he says. “This can help avoid disappointment when it comes time to really look.”

Now that you know the good habits to start now to buy a home this year, come back tomorrow to learn the bad home-buying habits to ditch before it’s too late!

The “what and when to buy” of December Holiday shopping!

December 8th, 2016

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Toys

Despite all of the insane Black Friday sales, you won’t see a lot of great toy deals in November, according to Benjamin Glaser of DealNews.

“The best time to buy is the second week of December, when discounts are at their peak, but selection is still good too,” Glaser said. “And if you see a deal on a really in-demand toy, like PAW Patrol or Star Wars merchandise, snap it up immediately.”

So, if you’re looking for a troll doll or a specific LEGO set to make someone’s year, wait until the weeks closer to Christmas, if possible, to get the best deal — good luck finding a Hatchimal though.

Gift Cards

If you’re looking for some easy stocking stuffers that are sure to please even the fussiest of family members this holiday season, December is a great time to buy gift cards — especially for your favorite restaurants.

“Many stores offer gift cards with purchase during December, or offer additional gift cards if you buy a certain amount,” said Glaser. “This is especially popular at national chain restaurants..”

Many restaurants will give you a $10 gift card for every $50 you spend in some instances — which can essentially be free money if it’s a restaurant you eat at regularly. Most gift cards never expire either, so there’s no deadline for when you have to use it by.

This is also the best month to find discounts on iTunes cards, according to DealNews. Some stores like Best Buy, OfficeMax and eBay will offer discounts of up to 20 percent off. So, be on the lookout for some great gift card steals this December — like a $50 iTunes card for $40.

Blu-Ray DVDs

Whether you’re looking for some simple stocking stuffers, or a gift to entertain you this holiday season, DVDs and Blu-ray Discs are a good idea. Both tend to go on sale for Black Friday, but lower prices extend well into December and retailers often add on additional discounts through the end of the year.

Look for the best sales at online retailers like Amazon and eBay, but also look for great DVD sales and price drops this month from Walmart and Target.

And even if you don’t have any interest in building out your own home theater, a few movies are a nice cost-effective holiday gift for just about anyone on your list.

Seasonal Decorations

Now that Thanksgiving is over, and Christmas will be here before you know it, many seasonal decorations will be deeply discounted.

“At this point, it’s common knowledge that holiday decorations see their greatest discounts after the holiday in question has passed, and this is no different for Christmas,” said Glaser. “If you wait until Dec. 26, you’ll see discounts of 40 to 75 percent off seasonal goods.”

“However, if you absolutely must buy a fake Christmas tree before the 25th, look to Target, Sears, and Home Depot for inexpensive options,” he added. “[A]ny seller with fresh-cut trees is likely going to start discounting them around Dec. 20.”

Worst Things to Buy in December

Despite being lured in by holiday shopping madness — and wanting to buy plenty of gifts for everyone nice on your list — there are some things you should avoid buying this December.

If you’re looking to buy a high-end TV, computer or even some jewelry, you might want to wait for these to go on sale after the new year before spending a pretty penny.

High-End Electronics

For the techie on your list, you might need to get them their most coveted gift a little late if you want to score a good deal — especially if they want a new high-end laptop or cutting edge TV.

“If you want a new 4K TV or gaming laptop, wait until the new year,” Glaser said. “Not only do prices drop again after the holidays, but older models will be discounted when new ones debut at the Consumer Electronics Show in January.”

CES is a major trade expo that takes place in January each year. This year, it’s Jan. 5 through Jan. 8. Many new electronics will be showcased during the convention, so the best thing to do would be to wait on purchasing most high-end electronics until mid to late January.

Gym Memberships and Exercise Equipment

If you plan to prepare for the new year a bit early — you should rethink your strategy if it involves spending money on a gym membership or new exercise equipment. It’s smart to get a jump start on your health in December — to beat the crowds — but items like treadmills and gym memberships are not very cheap right now.

Instead, wait until the New Year’s deals start rolling in this January. Gyms and fitness equipment suppliers will discount memberships and machines in early 2017 to take advantage of those just starting their New Year’s resolution of staying fit.

Calendars and Planners

If you’re itching to start the new year off organized and prepared — hold off, over achievers. Although it might be tempting to buy a 2017 calendar this December, in most cases, that’s the most expensive time to buy one.

Instead, it’s best to wait until after the new year to get your 2017 planner or calendar.

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December 1st, 2016

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