Archives: May 2012

Risk Determines Rate – Home Buying & Selling Tips…

Regardless of what a lender quotes on mortgage rates, the actual rate paid by a borrower is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.

Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved.

  • Loan amounts – conventional loans for more than the conforming limits set by Fannie Mae are considered jumbo loans and generally have a higher interest rate.
  • FICO score – the lowest interest rate is reserved for the highest credit scores; the lower the score, the higher the rate borrower will pay.
  • Occupancy – borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.
  • Loan purpose – purchase transactions generally have the lowest interest rate while refinancing a home is generally higher.
  • Debt-to-Income ratio – a borrower’s monthly liabilities divided by their gross monthly income develops a ratio that helps lenders to assess the borrower’s ability to repay the mortgage.
  • Loan-to-Value ratio – the lower the percentage of the loan to the appraised value of the property will generally lower the interest rate.
Any combination of these factors could limit a borrower’s ability to secure a mortgage at the rate initially quoted. Being pre-approved by a trusted mortgage professional is the best way to know what rate you can expect to pay. Please call for a recommendation.

Attn: Home Owners – The Search of an Honest Man…

     Similar to Diogenes’ search for an honest man, homeowners want someone to do quality repairs at a fair price.  The task appears reasonably easy but if you’ve ever tried to locate someone to fix something, you know just how difficult it is.

Finding a list of companies from a phone book doesn’t mean they’ll be reasonable and reliable, it just means they have a phone and are willing to pay for an ad.  Searching on the Internet may direct you to a website that appears to be a local company but really is a marketing company who will sell the lead to a repairman or company who will pay a referral fee.

There are consumer organizations like Angie’s list who rate repairmen and contractors but they usually require an annual membership fee to be able to access the information.  There are also services like Renovation Experts or Service Magic that are registries for contractors but they may not be the most competitively priced.  

Your best recommendations are going to come from friends, family and neighbors you trust who have actually used the repairmen before and would use them again.  The problem here is that you might have to make multiple calls before you can find a friend who can recommend the type contractor you need.

Repairs are a normal part of selling homes and we certainly come in contact with lots of contractors.  This experience leads us to understand who is reputable and reasonable as well as who to avoid.  As part of our commitment to helping you be a better homeowner from the time you buy your home until you sell it, we’re more than happy to make a recommendation of good repairmen or other professionals you might need.  Give us a call…we want to help.

Forced Savings…Really?

Part of the American Dream is to own a home. A home is a place to call your own; a place to raise your family and share with your friends. A home is a place to feel safe and secure. A home is a good investment?

In a recent report* by Beracha and Johnson, it is suggested that buying a home is the right thing to do but not necessarily for the reason that people expect. A home is, in many instances, the largest investment that homeowners have and it accounts for the majority of their net worth.

The report suggests that the self-imposed savings due to amortization has a significant contribution to a person’s net worth. The premise was determined by comparing the net worth of buyers to renters over a 31 year period of time.
When the savings in rent and down payment were reinvested, renters had a greater net worth than buyers after each 8-year cycle by a margin of 91% to 9%. On the other hand, when the requirement to reinvest the savings was dropped and renters were allowed to spend the savings on consumption, the Buyers had a greater net worth 84% compared to 16% for renters.
 

Appreciation, tax savings and amortization contribute to lowering the cost of housing and help homeowners build equity. The forced savings due to amortization benefits the individuals who may not be disciplined enough to invest the savings otherwise. Regardless of which benefits apply in different situations, owning a home can be a satisfying investment both emotionally and financially.
*Factor Sensitivities in the Making of Buy vs. Rent Decisions: Do Homeowners Make the Right Decision for the Wrong Reason by Eli Berach and Ken J. Johnson of Florida International University writing for the Journal of Housing Research.