Ten Mortgage Misconceptions

Mortgages are tricky and often hard to understand. Because most people only purchase a home every five to seven years, prospective homebuyers understandably don't spend a lot of time in the interim educating themselves about mortgages and the mortgage process.

With the real estate market picking up and mortgage rates prime for refinancing, Zillow has compiled a list of common mortgage misconceptions based off the results of the just released 2013 Mortgage IQ Survey.

Misconception No. 1: Your interest rate reflects the true cost of your mortgage. Your annual percentage rate is actually the figure that represents the true cost of your mortgage. It is inclusive of your interest rate, points, mortgage insurance (when applicable) and other fees, including origination and underwriting fees. It does not include the cost of your homeowners insurance policy. The APR is typically higher than your interest rate because it incorporates the rate and the fees. In fact, when shopping for a mortgage, it is best to compare loans based on APR instead of the interest rate because it gives a better sense of the total cost over the life of the loan.

Misconception No. 2: Mortgage rates are only released once per day. Mortgage rates for all types of mortgages can change frequently, sometimes dramatically, throughout the day. Because of the rapid changes in mortgage rates and a lender's ability to control what is offered, it is important to shop around for the best rates. Getting multiple loan quotes is highly recommended.

Misconception No. 3: All lenders are required by law to charge the same fees for appraisals and credit reports. There are no laws that require lenders to charge the same fees for services such as appraisals or credit reports. In fact, in order to make their loan quotes more competitive, some lenders may waive charges for such services. Conversely, some lenders may charge higher fees for these services, so it's important to shop around.

Misconception No. 4: I must get my mortgage through the same lender I was pre-approved with. A pre-approval is a conditional agreement that estimates the size of the home loan a lender would fund for you. It typically involves income verification and a credit check. However, you are under no obligation to proceed with the lender that gave you the pre-approval. Make sure you get at least three loan quotes before proceeding with a mortgage.

Misconception No. 5: You will almost always get the best mortgage interest rates at the bank where you have a checking account. While some banks do give their customers discounts, it's unlikely your bank will offer the best interest rate available simply because you bank there. To get a competitive mortgage rate and terms, get quotes from multiple lenders either in person or online - including your bank - and pick the one that works best for you.

Misconception No. 6: When taking out a mortgage with your spouse, lenders will look at each of your credit reports equally when determining the interest rate you qualify for. When applying jointly for a mortgage, lenders will pull your credit scores from each of the three major credit reporting agencies: Experian, Equifax and TransUnion. They'll then take the middle score of each set and use the lower of the two to help determine your mortgage interest rate. This means that the least creditworthy borrower will have the greatest effect on your monthly payment. It does not matter who the primary or secondary borrowers are.

Misconception No. 7: You cannot get a home loan with less than a 5 percent down payment. It is a common misconception that you need to put down 10 percent, 15 percent or even 20 percent on a home, especially in light of the recent housing crash. But with as little as 3.5 percent down, you can often obtain a mortgage through the Federal Housing Administration (FHA). FHA loans have become a popular loan option for those who may not have a large down payment or have blemishes in their credit history. FHA loans are available to everyone, not just first-time home buyers. (Find out more about the advantages and disadvantages of an FHA loan here.)

There are also alternative loan programs through other agencies, including the Department of Veterans Affairs (VA) and the United States Department of Agriculture (USDA). These loans also require little-to-no money down.

Misconception No. 8: If you go through a short sale or foreclosure, you must wait 7 years before getting another home loan. In most cases, to buy a home after a short sale, you'll typically only need to wait 2-4 years depending on your down payment and the loan type you select. The waiting period after a foreclosure is longer: Typically you'll need to wait 3-7 years before getting another home loan. Even if you can afford to get a mortgage right now, you'll need to have a good credit score, which can be difficult to rebuild in just a few years. Unique circumstances can lead to different outcomes, so make sure to check with a lender or two.

Misconception No. 9: If you are underwater on your home loan, you are unable to refinance. It is estimated that millions of homeowners who are underwater and current on their mortgage can refinance using one of two special government programs. The first, the Home Affordable Refinance Program (HARP), is available to homeowners who have a loan backed by Fannie Mae or Freddie Mac. The second program, FHA Streamline Refinance, has recently been modified to help homeowners with loans insured by the Federal Housing Administration (FHA). Both programs help homeowners refinance into lower interest rate loans and may help dramatically lower payments without very much cost to the borrower. Zillow Mortgage Marketplace is the only online mortgage marketplace where you can get loan quotes for HARP and FHA Streamline. As an added bonus, it is the largest mortgage marketplace where you can anonymously get loan quotes, meaning you don't enter any personally identifiable information and therefore cannot get spammed and hounded by lenders who were sold you contact information. See if you may qualify.

Misconception No. 10: You can only refinance your home loan once every 12 months. With conforming loans backed by Fannie Mae or Freddie Mac (the vast majority of loans today), you can refinance as frequently as you'd like so long as you do not take cash out when you refinance and are just refinancing to lower the interest rate and/or term of your mortgage. The rule of thumb is to wait until the difference between your current interest rate and the available interest rate would save you enough money each month to cover the costs of refinancing in two years. The amount of time that you plan on being in the home should be considered, as well. In general, refinancing will be more financially beneficial the longer you are in the home. Use the refinance calculator to determine how long it will take to break even on the costs of refinancing.


By Alison Paoli

Home Prices Post Best Yearly Increase Since 2006

U.S. single-family home prices rose in January, starting the year with the biggest annual increase in 6½ years in a fresh sign that the housing market recovery remains on track, a closely watched survey showed on Tuesday. The S&P/Case Shiller composite index of 20 metropolitan areas gained 1 percent month-on-month in January on a seasonally adjusted basis, topping expectations for 0.9 percent. Prices have been gaining since last February. On a non-seasonally adjusted basis, prices rose 0.1 percent.

Prices in the 20 cities climbed 8.1 percent year-over-year, also beating expectations for 7.9 percent. It was the biggest yearly increase since June 2006, when housing prices were on their way down as the market was starting to collapse. Average home prices were back to their autumn 2003 levels, though that still leaves them down about 30 percent from the 2006 peak.

All of the 20 cities showed gains on a yearly basis, with New York rising for the first time in over two years. Phoenix continued the strong rebound seen last year, rising 23.2 percent from the year before. Eight cities racked up double-digit gains, including San Francisco, up 17.5 percent, and Las Vegas, up 15.3 percent.

The dollar slightly pared losses against the euro shortly after the data, while Treasures prices held steady at lower levels. U.S. stock index futures saw little reaction and Wall Street was poised to open higher. The housing market got back on its feet last year as prices rose, inventories tightened and sales improved. Stimulus efforts from the Federal Reserve are also keeping mortgage rates at historically low levels, which has helped spur demand. That momentum carried into 2013 and data last week showed home resales hit a three-year high in February.

Six Reasons Housing Inventory Keeps Declining

Home sales in December dropped by 1% from November, the National Association of Realtors reported on Tuesday, but still stood nearly 13% above the levels of one year ago. That means home sales have risen from the year-ago month for 18 straight months.

For 2012 as a whole, sales were up 9% to 4.65 million units, the highest annual total since 2007.

Prices, meanwhile, are picking up because the number of homes for sale continues to drop despite the sales volume gains. The number of homes for sale fell to 1.82 million at the end of 2012, an 8.5% drop from November and a 21.6% decline from one year earlier, the Realtors’ group said on Tuesday.

Here’s a breakdown of why inventory has continued to drop this year:

Many homeowners are underwater: More than 10 million homeowners owe more on their mortgage than their homes are worth, according to CoreLogic Inc. CLGX -2.18% That pencils out to around 22% of homeowners with a mortgage, or 15% of all homeowners (since not every homeowner has a mortgage). Underwater owners aren’t likely to sell unless they need to move due to changing life (marriage, divorce) or financial circumstances, and they’ll take a hit on their credit for pursuing a short sale, where the bank allows the home to sell for less than the amount owed.Data from CoreLogic show that inventory has been the most constrained in housing markets where there’s the largest concentration of underwater borrowers.

Others don’t have enough equity to “trade up”: Another 10 million homeowners have less than 20% equity in their current residence, meaning they can’t easily “trade up” to their next house. Traditionally, homeowners have relied on home equity to make the down payment on their next home, and to pay their real-estate agent to sell their current home and buy their next one. These “under-equitied” homeowners—meaning they don’t have enough equity to make a move to a more expensive home—have added to the drag on inventory.

Everyone wants to buy at the bottom, but few want to sell: Even those people who do have plenty of home equity are likely reluctant to sell if they think prices will be higher tomorrow. Would you sell your largest asset today if you thought it might be worth 5% more next year? This helps explain why markets such as Denver and Dallas, which didn’t have huge housing bubbles and thus had smaller shares of underwater borrowers, have also seen double-digit inventory declines.

More purchases from investors of all stripes: From the big institutional investors that have been grabbing all the headlines, to the mom-and-pop landlords that have traditionally played a much larger role renting out homes, investors have increasingly bought homes that can be rented out rather than flipped and resold for quick profits. This is further keeping inventory off the market in two ways: homes that are bought at courthouse foreclosure auctions never show up on multiple-listing services when they’re initially sold. They’re also held out of the for-sale pool because they’re being rented out.

Banks have been slower at foreclosing: Banks and other companies that process delinquent mortgages have had trouble proving that they’ve followed state law in taking title to homes ever since the “robo-signing” scandal surfaced in late 2010, and they’ve also had to meet a host of new state and federal rules governing loan modifications and foreclosures from settlements spawned by the robo-scandal. Banks have also become better about approving short sales and loan modifications, which has curbed the flow of foreclosed properties onto the market.

Builders have been putting up fewer homes: Housing starts were severely depressed from 2009 through 2011 and have only recently rebounded off of those low levels. Consequently, there’s been much less new home inventory being added to the market at a time when demand (boosted by increases in household formation) is picking up. If more homes are held off the market—for any of the five reasons above—you can bet that builders will move in to fill the void.

Many of these factors that have been dragging down inventory aren’t signs of “normal” or “healthy” housing markets—but then, we probably haven’t had a normal market for around a decade now. If anything, declining inventory shows that normal supply-and-demand dynamics are returning, which is an important step towards putting a floor under home prices and giving markets time to get back to health.

Written By: Nick Timiraos

3 Tips for Insuring Your First Home

Buying your first home can be both an exciting and a scary experience. Many homeowners are appreciative of any bit of information that would help make the process less stressful and as painless as possible. Home insurance is usually a major contributor to the anxieties new homeowners’ experience. They are often confused about how much insurance they need. This post will give easy tips for choosing the best insurance for new home buyers.

Your House Should Be Fully Covered

The coverage on the insurance policy should reflect an amount that can adequately take care of the cost of rebuilding and refurbishing your entire house in the event that you lose it completely. Insurance companies may use a cost estimator to ascertain the cost replacement estimate, but you can have a home builder assess your home and furnish you with an estimate of the rebuilding cost. This should include the unique and/or expensive details of your home (if there are any). You do not want to end up being underinsured. Once you have the estimate for rebuilding, you will need to figure out which coverage to take. The choices are:

• Guaranteed Replacement Cost Coverage – The insurer bears the cost for the rebuilding your home in spite of that cost. Very few insurers are offering these policies now.
• Extended Replacement Coverage – This coverage involves the capping of the payout you would receive to approximately 125% of the insured value of your home.
• Inflation Guarantee (or Guard) – This is a feature that ensures the insured value of your home stays on par with that of the marketplace.

Strive to get a reliable appraisal and extended replacement coverage along with an inflation guarantee. These will place you in a good position.

Liability Insurance

Home owners are sometimes caught off guard by third party claims for an injury someone incurred at their house or damages they caused to their neighbor’s property. These things happen, so protect yourself by ensuring your home insurance includes a liability insurance policy. Liability insurance gives the homeowner protection against any third party claims of damages and personal injury that occur on their property or are caused by them. Someone may fall and hurt themselves while on your property, or in the case of neighbors living in close proximity, your child could be playing and accidentally cause damage to their property. Liability insurance takes the burden of paying for medical bills or damages from your pocket, as the insurance company will take care of it.

Get Additional Coverage for Your Valuables

The standard insurance policy covers you home and possessions against eventualities such as natural disasters, fires, theft and accidents, but only does so indirectly for certain assets. Homeowners are sometimes caught off guard when they suffer from a disaster and realize they will not receive full compensation for certain valuables inside the house. The standard HO-3 policy takes care of the structural aspect of the house along with its contents, but there is limits the compensation for expensive possessions such as artwork and fine jewelry. You can obtain full coverage for them by paying a little extra on your policy each year.

Home insurance keeps your home safe even while you are away on vacation. This gives homeowners a sense of protection. Make an inventory of your property, as this will save you the time and expense if the need to file a claim arises.

Written By: Adam Vaught

Real Estate Forecast 2013: The Housing Market

The housing market will improve moderately in 2013, but nobody will mistake this for a boom. The gains in activity and prices will be a welcome relief, but will leave many homeowners still underwater.

The usual way of discussing housing problems is misleading. Foreclosures, short sales, shadow inventory, upside-down mortgages are all symptoms. The fundamental problem that we have is an excess supply of housing units.

The normal housing vacancy rate for owned property (single family houses and condos not in the rental market) is around 1.5 percent nationally. Our high was three percent, but we are now down to 2.1 percent.  Rental properties are normally about seven to eight percent vacant. (Local norms may be higher or lower.) We reached a peak of 11 percent rental vacancy a few years ago, but have improved to 8.6 percent in the latest observation.  Despite recent gains, we still have too many houses for the current level of demand.

(Data note: these data are a little soft. They do not exactly match vacancy information from other sources, such as the decennial census. They should be taken as a general magnitude, not high fidelity information.)

The improvement we've seen recently results from a simple phenomenon: construction of new fewer housing units has been less than the growth of demand. Last year total units (single family houses plus the number of apartment units) ran just over 600,000. This year we’ll probably build about 750,000 units. At the peak of construction in 2005 there were 2.5 million units built. We need about 1.5 million new units per year to accommodate population growth, the desire for vacation homes as well as demolition of old units. That, too, is a soft number. The true annual need may be 1.4 million or 1.6 million, but it was never 2.5 million nor 0.6 million.

Our recent underbuilding has been the greatest aid to housing recovery. It did not act as fast as we might have expected (as fast as I actually had expected), because the recession slowed population growth, from both a smaller birth rate as well as less net migration from abroad. In addition, the population we did have used fewer housing units per person, as adult children moved back in with their parents. Slow improvement in the job market means slow movement of kids away from their family homes, but even though slow, the movement is in the right direction.

It’s too early for housing starts to get back to normal—and we certainly will not see above-normal construction anytime soon. But 2013 will probably see over one million total housing starts. This will be a substantial percentage gain over 2012, but remember that a 30 percent gain from diddly squat is still not too far away from diddly squat.

Home prices will rise in 2013, but only modestly. The most recent data suggest that national average housing prices are rising by roughly five percent annual rate. That’s too optimistic a projection for the next few years, however, because there are many owners of multiple underwater properties who will sell as soon as they don’t have to lay out cash. That increased number of houses on the market will limit price hikes.

Business cycles aside, there is not much reason for housing price to appreciate by more than three percent plus inflation, or about five percent in this current environment. Periodic booms and busts will push price gains above or below trend, and a change in tax laws that favors or disfavors real estate will cause one-time price changes. Ten-percent appreciation expectations are fanciful on a long-run basis.

Businesses in the home construction supply-chain should prepare for a nice increase in sales volume in 2013, which will bring the usual boom-time challenges: finding good workers, ensuring an adequate supply of product from vendors, securing the working capital needed to grow production. (See my article on vendor performance and my video about working capital for growing businesses.)

Apartment investors (and landlords of single family homes and condos) will find that their little boom does not strengthen much further. Rents have risen so much that owning is becoming cheaper than renting in many cities. Add in the expectation of price appreciation and we’ll soon see renters itching to buy their own homes. Times will not be hard for landlords, but they should not project further gains beyond what they secured in 2012.

Written by: Bill Conerly

Six Money Saving New Year's Resolutions

“I will pay less tax” may sound like a good New Year’s resolution, but it may not be possible in 2013... Besides, resolutions should be manageable and concrete. Here are six that will save you money in 2013 and beyond.

1. I Will Consider Taxes Before Signing Agreements: Most agreements you sign in business have a tax angle. Many in your personal life do too. Settlement agreements resolving litigation, a sale agreement for a company or real estate, a lease for office space, an option to buy property, or a license agreement to use property can all have a tax impact. Consider taxes before signing and negotiate what you can.

2. I Will Pay Attention to Every Form 1099:  Each one of these slips of paper bears your Social Security Number and will be matched to your tax return. Their importance is increasing. It’s almost January when the ubiquitous forms show up in the mail so get ready. Pay attention to these forms–the IRS does. 

3. I Will Keep Good Records:  Good records make any tax matter vastly easier. Keep proof you timely mailed returns, protests, correspondence, etc. So you can prove when you sent it, send it certified, FedEx or other approved provider that proves timely mailing and receipt. 

4. I Will Consider Taxes Before Hiring “Independent Contractors”: Few consumers consider whether the plumber doing a one-time task is an employee or independent contractor. But if you’re in business and have continuing relationships with workers, consider whether an independent contractor relationship will stand up. 2013 could be a big year for reform.

5. I Will Handle Tax Notices Promptly: Many tax lawyers and accountants find that many clients do not deal with problems promptly. Often, tax professionals could achieve a better result if they were brought in earlier. Whenever possible, be prompt. When you need an extension, get it in writing.

6. I Will Run Numbers: Often, there’s no way to know if you’re getting a tax benefit from a deduction without running numbers. Whether you prepare your own return or have a preparer, running numbers will help you make better and more informed decisions. Multiple scenarios are especially helpful with AMT.

Whatever your New Year’s resolution, 2013 promises to be a year with major tax developments.

A YEAR OF CHANGE AHEAD – BOTH GOOD AND BAD

A YEAR OF CHANGE AHEAD – BOTH GOOD AND BAD

by Jan Bellamy at www.CentralFloridaExperts.com

Welcome to another year of adventure in the Real Estate business! There will be lots of changes and lots of opportunities, both good and bad changes and opportunities.

I have been selling Real Estate since 1984, that’s 25 years of experience with many changes in laws, technology and business practices, but 2008 to 2010 will easily bring two decades worth of changes in a couple of years.

Good News First! We live in Central Florida! We will survive and flourish again. Get ready to tighten your belt, trim the waste and cut the fat. Decreased spending and lower property values mean lower taxes and fewer services. The media will tell us how terrible it is, how deprived we are, and that it’s somebody else’s fault. THE DAYS OF ENTITLEMENT ARE OVER! We need to redefine basic necessities.

A house is a place to raise your family. If you need to sell your current home and get back to basics, call me. There are plenty of affordable houses to buy or rent in Polk County in very desirable areas. This is the silver lining of the current crisis. You can get yourself out of debt!

My family won’t suffer if mail was only delivered to my house two times a week instead of six, and the garbage picked up once a week. If I need daily mail, I’ll rent a P.O. Box and pick it up myself. If I accumulate too much garbage I’ll drop it off at a designated dumpster in my area. The school system could implement a program to compensate seniors who need to work but don’t need benefits, in order to fill non-instructional positions. Since more people will need to work from 65 – 75 years of age, let’s make it a win-win for children and seniors. The seniors could ride the school buses to and from work, saving them travel expenses, and perform many functions at a savings to the School Board, and ultimately, the taxpayers.

Bad News! Like the Great Depression, this didn’t just happen. It’s the result of more than two decades of economic abuse during which time Americans speculated in the markets. Government borrowed to expand; businesses borrowed to expand; and consumers borrowed to expand. Now all three: government, businesses and citizens will have to change quickly, sacrifice together and hold each other accountable while coordinating their efforts to contain this disaster.

As Americans, we forgot that you don’t really “own” anything that has debt, whether it’s a house, a car, a business or a country.

Let’s not assume our leaders know how to deal with this situation. In fact, at least one local bank received the TARP funds, and has no intention of making loans, but is keeping the money in case their bank needs it to get through this. You went to work. You and the business you work for gave money to the government with no strings attached, and they gave your money to banks all over the country with no strings attached.

OOPS! Well, they had to react fast to this financial crisis that’s been coming for 20 years! Not to worry, we voted for them, we trusted them and now we the American taxpayers will be asked to pick up the tab. The average Polk County family understands the basic economic principles and discipline of spending better than our elected officials and government employees.

In a meeting with Adam Putnam in October, I asked him to appoint a task force/think tank, including government officials, business owners and concerned citizens, to educate each other and the public on the issues, and propose solutions that will benefit us all, especially at our local level. There will be cuts in programs and services, at the national, state and local levels. With our input, they can be the least destructive to our community and its citizens.

As we learn to live on less, wouldn’t you like to “choose your less” rather than be told you’ll pay for something you don’t want or need, and you’ll lose something else you do really need? After all, it’s your money, taken on every purchase, taken out of your paycheck, paid in property taxes, sales taxes, income taxes and all with no strings attached. If you have input, contact your city, county, district and state officials. Get involved or be a willing victim, your choice. If you put your input on our blog at: realinput.blogspot.com we’ll send your message to the right people.

Jan Bellamy is broker/owner of RE/MAX Experts

www.CentralFloridaExperts.com

Coming soon - Short Sale FAQ's (frequently asked questions)