::How to choose a mortgage broker::
You need to find someone who will work with you to find the right mortgage. We'll tell you how to tell whether you need one, where to look and how to tell whether the one you find is the right fit.
Among the many daunting aspects of buying a home — especially for the first time — and one of the most confusing is figuring out the mortgage process. How do you choose a mortgage broker? Where do you look for one? And what questions do you ask?
A mortgage broker is an independent contractor who pairs up borrowers (you) with lenders by scouring available loans to find the one that best fits your needs. A mortgage banker, by contrast, sells you the loans of one bank or lender. Some say the obvious usefulness of a mortgage broker has evaporated in the last two years, as the nationwide mortgage debacle has largely swept the market clean of the variety of mortgages once available and has left banks and mortgage brokers to sell essentially the same, fewer kinds of products.
But there’s still a place for mortgage brokers, say Eric Tyson and Ray Brown, authors of "Mortgages for Dummies." "If you're on the fence about using a mortgage broker, take this simple test: If you're the type of person who dreads shopping and waits until the last minute to buy a gift, a good mortgage broker can probably help you and save you money." Brokers might also have more options for people who have less well-established, or blemished, credit.
In the market? Browse listings and find your dream home
Of course, you still need to choose one wisely. "A good mortgage broker should be surveying the landscape of available mortgage loan programs so that they can match you with the mortgage loan for your situation. And just like in any profession, there are people who are good at it, and people who are terrible," Tyson says.
Where to find them
Where do you even look for a good mortgage broker? You could simply ask friends, but you don't know what you're getting.
"Ideally, get recommendations or referrals from other people you respect," such as a tax adviser or a real-estate professional who does a lot of business in your area and has a reputation to uphold, Tyson says. Even then, "Never blindly accept someone's lender recommendation as gospel," Tyson and Brown write in their book. The reason? People in the real-estate trade may simply refer you to people who "scratch their backs and may not offer the best mortgage loans." What to do? "Whenever somebody recommends a specific mortgage lender or mortgage broker, always ask why," the authors say.
Another place to look is the website of the National Association of Mortgage Brokers, which lets you search for members in your area who have agreed to the association's stringent ethics code. Find one that displays the Lending Integrity Seal of Approval. It's a designation issued by the NAMB that not every member has, says Jim Pair, president of the 8,000-member group.
Here's another rule of thumb: Don't respond to solicitations from mortgage brokers, says Jack Guttentag, a professor emeritus of finance at the University of Pennsylvania who runs the Mortgage Professor website. Why not? "Poor brokers must constantly solicit, whereas good brokers enjoy referrals from previous customers," Guttentag writes.
How to vet a broker
So now you think you've found a broker. But how can you be sure she is perfect for your needs?
First, see if the broker is registered with your local Better Business Bureau, Pair says. Ask the BBB if any complaints have been lodged against the broker.
Next, check with Pair's organization, the NAMB, to see if the broker has any advanced certifications that will prove useful. For those who do extra training and testing, the NAMB offers designations such as "certified residential mortgage specialist," Pair says.
Third, sit down and interview the broker. Here's what you should ask:
"The first question you should ask is 'How long have you been doing this?'" says David Reed, author of "Decoding the New Mortgage Market" and "Mortgage Confidential." Adds Tyson, "Were they selling cars two years ago?"
"I would also ask, 'What other real-estate agents do you work with?'" Reed says. That shows whether the broker is trusted by agents in your prospective neighborhood to get deals closed.
Ask how many lenders the broker works with, Tyson and Brown write. Some mortgage brokers represent only one or two inconsequential lenders — not the kind of broad representation you need in order to find the best mortgage.
"Ask the loan officer, 'Do you offer FHA (Federal Housing Administration) loans?' If you get the answer yes, you've got yourself a candidate," Reed says. If the broker says no, "I'd interview some more people." Those FHA loans are a first-time homebuyer's haven; they're how many people get into a house, he explains. But Reed says many mortgage brokers are not qualified to issue an FHA loan because there are certain requirements that many brokers can't meet.
The best brokers act like financial planners, Guttentag says, taking into account your total financial situation and goals when trying to match you to a mortgage. How do you know he is doing that? Listen to what the broker says, Guttentag writes. He should be reluctant to give blanket answers, but "indicates what the answer to your questions depends on, e.g., whether you should pay points depends heavily on how long you expect to have the mortgage." A good broker will also point to the specific tools — spreadsheets, calculators — that he will use to answer questions about your situation.
That said, "The reality is that very few mortgage brokers have personal finance training, and that's not to denigrate the profession, it's just reality," Tyson says. "People should be educated before they put themselves in the hands of any real-estate person."
Finally, ask yourself, "Does this person speak to me in plain English? Or are they using a lot of jargon? If you can't connect with a mortgage broker, then that's a red flag," Tyson says.
Get it in writing
There are points in the mortgage-hunting process when you can get promises put down in writing. It's always a good idea.
A good mortgage broker will guarantee the lender fees that are first presented to you in the (required) good-faith estimate, Guttentag explains. Ask if the broker guarantees that lender fees won't be higher at closing, and get that in writing.
A good broker also will seek out the best prices for third-party charges such as title insurance, though the broker will likely not guarantee such third-party fees.
Instead, you should ask the broker, "What are your fees?" Reed says – and get that in writing, too.
A frequent cause of complaints about mortgage brokers is that they don't keep would-be homeowners well-informed about the process.
Formalize the lines of communication. "Negotiate an agreement with the broker on both the type and frequency of communications," Guttentag advises. That way, the broker will stay in touch — even to tell you there's no news.
You should also feel as if every step of the process is being fully explained to you and that you aren't being rushed, Pair says. Is your broker not giving you the love? Talk to him, or drop him.
Tuesday, June 15, 2010
Thursday, June 10, 2010
::16 ideas to help you drum up money for a down payment::
16 ideas to help you drum up money for a down payment
Coming up with a big pile of cash to buy a home may seem daunting, especially if it’s your first. Here’s expert advice on the many ways you might be able to make it happen, along with 4 dead-end options to avoid.
Read: Help for first-time homebuyersIf you’re hoping to buy a home to take advantage of cheaper prices and low mortgage interest rates, your first question may be: "Where do I find money for a down
Below is a list of workable ideas and those to avoid. We gathered expert advice from Bill Banfield, director of capital markets forQuicken Loans; Jeffrey J. Belonger, manager with Infinity Home Mortgage Co.in Cherry Hill, N.J.; and EJ Hawkins, counselor withClearPoint, a national nonprofit credit counseling service.
Check with your bank or mortgage broker that the source of your down payment is approved in your loan’s rules.
- Ask real-estate
agents about state and local housing incentives, grants and loans and what local lenders offer. - Some down-payment ideas are safer than others; a few have toxic consequences to your taxes or retirement savings. Study your options carefully and review your plan with a certified public accountant or a nonprofit housing counselor approved by the Department of Housing and Urban
Development (find one here or call 1-800-569-4287). - Keep a paper trail of every move so you can document, for your lender or the tax man, each income source, asset sale and transaction.
- Be wary of mortgage fraud. The scam you’re most likely to encounter is when a mortgage
professional suggests inflating the price of a house in order to kick back cash to you for closing costs. It sounds tempting, but you’d be getting fleeced by overpaying for the house and you could face jail time if you participate. Report crooked players to your state attorney general’s office (find yours here).
Here is a list of ideas for scraping together your down payment.
Low-risk sources of cash
1. Pull from savings: The time-honored way to fund a home purchase is to set aside money each month. Use an automatic electronic transfer through your bank or credit union. Choose an account that that earns the most interest possible while letting you access the money. Review account types and learn how to "ladder" certificates of deposit by reading this article.
1. Pull from savings: The time-honored way to fund a home purchase is to set aside money each month. Use an automatic electronic transfer through your bank or credit union. Choose an account that that earns the most interest possible while letting you access the money. Review account types and learn how to "ladder" certificates of deposit by reading this article.
2. Liquidate miscellaneous assets: Sell your nice car, buy a beater and apply the difference to your down payment. Sell your boat, motorcycle, collectibles or other assets. Use your tax refund. Call in money that people owe you.
3. Sell stock options: If stock options are part of your compensation, selling them might earn you cash. Contact your human-resources department to learn the rules.
4. Sell taxable investments: Sell stocks, mutual funds, bonds and other taxable investments before touching money held in tax-deferred retirement accounts, such as 401(k)s and IRAs, which require you to pay significant penalties when you sell.
5. Cash in a life-insurance policy: So-called permanent life insurance policies (not "term" policies but "universal" or "variable universal life" or "whole life" policies) grow in value as you pay into them. When enough value has accumulated, you can take cash out or borrow against them. Talk with your insurance agent to learn your options.
Caution: If you no longer need the insurance, this could be a nice source of ready cash. But first-time homebuyers usually are young, have children and need the protection of insurance; withdrawing money from a policy could reduce or eliminate your death benefit, leaving your family in financial trouble if you die. You also can lose coverage if you borrow against the policy but don't pay it back. Ask your insurance agent to outline the pros and cons. Call your state's insurance commissioner's office if you have questions.
Friends, family and employers
6. Use a gift: Some mortgages – loans insured by the Federal Housing Administration, for example – let you apply gifts from immediate family members toward your down payment. You’ll need a "gift letter" from the person who gave you the money, verifying that it doesn’t have to be repaid. Be prepared for the lender to ask for copies of checks or wire transfers.
6. Use a gift: Some mortgages – loans insured by the Federal Housing Administration, for example – let you apply gifts from immediate family members toward your down payment. You’ll need a "gift letter" from the person who gave you the money, verifying that it doesn’t have to be repaid. Be prepared for the lender to ask for copies of checks or wire transfers.
7. Try your employer: Some corporations, universities and local and state governments have programs to provide employees with down-payment assistance. Check with your human-resources department. For example, in South Dakota, 19 employers participate in a state-sponsoredEmployer Mortgage Assistance Program that lets employees take out a 2% interest rate second mortgage for $600 to $6,000 to cover closing costs and down payment. Each year, the city of Baltimore and state of Maryland contribute as much as $6,000 to 100 city employees to help them buy homes within the city. These programs are meant to help keep valued employees in their jobs and closer to work.
8. Enlist a partner: A co-owner can help by sharing costs, including the down payment, and by signing on to be responsible for repaying the loan if you can’t quite qualify for a mortgage. A lender can explain the details.
Investigate government programs
9. State grants and loans are a potentially useful but constantly changing pool of down-payment money distributed through local and state agencies. Usually, these require a government-insured FHA mortgage. Funds are usually claimed quickly and programs expire or change frequently. Act early to be considered, or add your name to a waiting list. Find programs near you using HUD’s state listings: Click your state’s name, then click "assistance programs."
9. State grants and loans are a potentially useful but constantly changing pool of down-payment money distributed through local and state agencies. Usually, these require a government-insured FHA mortgage. Funds are usually claimed quickly and programs expire or change frequently. Act early to be considered, or add your name to a waiting list. Find programs near you using HUD’s state listings: Click your state’s name, then click "assistance programs."
Caution: Don’t get roped into paying for "help" to obtain government grants and loans. Scammers and middlemen offer to guide you or qualify you for a fee, but you’ll get safer, cheaper advice from a HUD-qualified housing counselor'
Negotiate – with everybody
If you can save or even eliminate closing costs – which run roughly $5,000 to $8,000, depending on where you live – you can free up precious cash for your downpayment
. Although a seller can’t fund your down payment, the law lets buyers accept help with closing costs. Using an FHA loan, you can accept up to 6% of your home's purchase price toward your closing costs, although the FHA plans to drop that to 3% later this summer. Conventional loans limit the help you can accept to 3% of the price if your down payment is 10% or less; it's 6% with a down payment of more than 10%. Your seller, lender or real-estate agent can help with closing costs. These parties occasionally will kick in to help a cash-poor buyer get a deal done. Here’s how:
If you can save or even eliminate closing costs – which run roughly $5,000 to $8,000, depending on where you live – you can free up precious cash for your down
10. Your lender: Buyers occasionally persuade lenders to forgo part of their "origination" fee and contribute it toward theclosing costs , Hawkins says. The lender gets a smaller fee but the deal still puts money in the lender’s pocket. Another option: The lender might be willing to sell you a higher interest rate in exchange for helping you. In this case, the lender rolls the closing costs into your interest rate and you pay them as part of your monthly mortgage payment instead of as an upfront chunk of cash.
Caution: Depending on how long you keep the home, paying a higher interest rate than necessary could, over a loan’s lifetime, cost more than the down-payment help is worth. Find a nonprofit housing counselor to help you calculate if this is worthwhile.
11. Your seller (including builders): Buyers have a lot of leverage with sellers today, at least in some parts of the country. ("The Mortgage Professor," Jack Guttentag, explains seller gifts here.)
- Ask your real-estate agent to help you search for sellers who are offering to cover closing costs.
- Propose that the seller help with closing costs when you’re negotiating price.
- Sellers sometimes will sweeten the deal by purchasing discount "points" that lower your interest rate, letting you use more of your cash for the down payment. Each point costs 1% of the loan amount and can be used to reduce your rate by 0.125 to 0.25 percentage points. (If your mortgage was for $150,000, the seller might buy one point, for $1,500, potentially lowering your interest rate from 5.25% to 5%.) This would lower your monthly payment from $828 to $805.
Caution: Pushing a seller too hard to lower the price and make other concessions could ruin the deal. Be prepared for the seller to ask for a higher purchase price in exchange. Then the question is: Will the appraiser find the home worth the higher price?
12. Seller financing: Infrequently, a seller may be willing to act as your banker. It might be possible to strike a no- or low-down-payment deal with a seller who owns the home free and clear. But if the seller has a mortgage, you’ll need to qualify for a loan just as you would with a bank, including a down payment.
14. Your new employer: Your leverage with an employer is never better than when you are first signing on. Depending on the company and how badly your skills are needed, you might be able to negotiate a contribution toward your down payment as part of your benefits package, as a signing bonus or in place of a relocation allowance.13. Your real-estate agent: Agents don’t like to admit it, but occasionally some will give up a portion of their several-thousand-dollar commission to keep a sale from falling through. Approach this conversation with tact and care.
Tap your retirement savings
Yes, you can cash out retirement accounts. But don’t do it. The ground lost in saving for retirement isn’t worth it. Also, the Internal Revenue Service penalties for removing cash from a tax-protected account before you retire are steep.
Yes, you can cash out retirement accounts. But don’t do it. The ground lost in saving for retirement isn’t worth it. Also, the Internal Revenue Service penalties for removing cash from a tax-protected account before you retire are steep.
15. Tap your IRA. There’s an exception to penalties on withdrawals from retirement accounts that lets first-time homebuyers withdraw up to $10,000 from an IRA to use as a down payment on a home purchase.However, here are two less expensive (but still ill-advised) ways to leverage your retirement savings:
Caution:
- Remember to declare the income on your taxes (you were excused from paying tax on it when you put it into the IRA, remember?)
- Be sure to chat with your accountant before doing this.
16. Borrow from your 401(k): Most companies let employees borrow from the balance of their401(k) accounts. Rules vary but, generally, you can extract as much as half of the vested amount in the account, up to $50,000. As you repay it, the money, including the interest, goes back into your 401(k). The plan administrator at your workplace can outline the specifics, including how long you’re given to repay the loan.
Caution:
- As long as you repay the loan, you won’t be taxed on the money until you withdraw it in retirement; unlike a mortgage loan, the interest you pay on this loan is not tax-deductible.
- As with the IRA withdrawal, this is considered a bad idea (financial writer Liz Pulliam Weston calls it one of "The 3 worst money moves you can make") because it sets back your retirement progress.
- If you leave the employer for any reason before repaying the loan, you’ll have to repay the entire thing at once. Don’t say we didn’t warn you.
Dead-end options to avoid
You may have heard from friends and family about other strategies. Chances are, changing rules or interest rates have made them less effective. Don’t waste much, if any, time pursuing these:
You may have heard from friends and family about other strategies. Chances are, changing rules or interest rates have made them less effective. Don’t waste much, if any, time pursuing these:
1. Peer-to-peer lending: Websites such as Prosper.com and Lending Club essentially create a marketplace for people to directly lend and borrow money. The idea is that the lenders reap interest, borrowers get cash and the site collects fees. But Prosper, for one, has not funded one down-payment loan in the last year. CEO Chris Larsen speculates that's because piling a down-payment loan on top of a mortgage is unwise and unlikely to attract Prosper lenders.
2. The American Dream Downpayment Act was a federal program of grants up to $10,000 to first-time buyers, but no longer is offered.
3. Private nonprofit gift programs: Until late 2008, a special category of seller-funded nonprofit programs was able to channel up to 6% of the purchase price of a sale as a "gift." Federal law now prohibits seller-funded down-payment assistance, which means that programs run by AmeriDream, the Nehemiah Program, GAP, Homes for All and RealtyAmerica have all been closed4. Section 8 homeownership vouchers: Low-income buyers may be able to get help through this federal program, but you and the property must meet the qualifications. "The unfortunate part of the program is that there are too many variables involved," Hawkins says. "In all my (10) years in real-estate and financial counseling, I’ve only seen it used one time.
4. Section 8 homeownership vouchers: Low-income buyers may be able to get help through this federal program, but you and the property must meet the qualifications. "The unfortunate part of the program is that there are too many variables involved," Hawkins says. "In all my (10) years in real-estate and financial counseling, I’ve only seen it used one time."
Tuesday, June 8, 2010
:::Should you buy a home that's been vacant?:::
Should you buy a home that's been vacant?
It may seem like a great deal, but be aware of possible expensive repairs lurking inside.
By Marcie Geffner of Bankrate.com
A for-sale house that's been vacant may look like a bargain, but buyers should be cautious, because expensive problems often lurk inside homes that have been unoccupied for some time.
A home can become vacant due to a marriage, job relocation, death or other life event. But vacancies today are more often due to a bank foreclosure or short sale in which the lender accepts less than the mortgage balance. It's these bank-owned properties — sometimes called "real estate-owned," or REOs — that tend to be "problem homes," says David Tamny, owner of Professional Property Inspection in Columbus, Ohio, and 2010 president of the American Society of Home Inspectors in Des Plaines, Ill.
Vacant homes can suffer from a wide variety of ills due to neglect, deferred maintenance on the part of the previous cash-strapped homeowner, and vandalism, Tamny explains. Broken water pipes, stolen copper wiring, damaged appliances and mold are but a few examples of the potential problems that may await buyers of these homes.
The risks for buyers are front and center since the number and percentage of vacant for-sale homes has increased during the housing slump. More than 2.2 million for-sale houses in the U.S. were vacant in 2008, according to the U.S. Census Bureau. That figure was more than double the 1 million vacant for-sale homes in 2000. Vacant homes exist throughout the country, but the percentage of vacancies in 2008 was higher than the national average in the South, Midwest and West, and lower in the Northeast.
Turned-off utilities limit home inspection
Homebuyers typically hire a professional to conduct a visual inspection of the home and prepare a report on its condition. That's a wise precaution, but not even a well-qualified and thorough home inspector can see inside walls. Nor can an inspector assess the condition of a home's plumbing, electrical wiring, heating-and-cooling system or major appliances if the water, gas or electricity has been shut off.
Team 4: Vacant Houses A Burden For City, Residents
"Buyers often don't understand that if there is no electricity, they are going to get a very limited inspection," Tamny says. "You could end up with a lot of surprises if you don't have those systems turned on prior to the inspection."
Swimming pools, which naturally are more common in such states as California, Arizona, Nevada and Florida — where foreclosure rates have been high -- are also a special concern if a home has been vacant. Some inspectors won't include a pool as part of a basic inspection. Others will include the pool, but again, it may be impossible for the inspector to check out the equipment if the utilities have been shut off.
"You probably will have to accept the pool (as-is because) it's unlikely that you'll be able to get the whole thing up and running just for the purpose of an inspection and then shut it back down," Tamny says. "You could have thousands of dollars in repairs."
As-is home purchase can be risky:
Some banks have procedures in place that allow prospective buyers to turn on the utilities, but the buyer may be required to pay a deposit to the utility company and put his or her own name on the account, even though he or she doesn't own the vacant home. That inconvenience may prompt some buyers to forgo parts of the home inspection that can't be performed unless the utilities are on.
That can be risky, because unanticipated repairs can cost thousands or even tens of thousands of dollars, and the buyer typically will have no recourse with the bank. That means the buyer will be stuck with whatever problems the house has.
"Buyers are attracted to a house because it's discounted from what it sold for a number of years ago and they are hoping to get a bargain. They don't always understand that sometimes the problems make up the difference between the cost of the house and what they are getting for a discount," Tamny says.
Vacancy may affect homeowners insurance:
Homebuyers also should know that insurance companies may decline to issue a homeowners insurance policy until the agent looks at the vacant home, says Dick Luedke, a spokesman at State Farm in Bloomington, Ill. The agent's once-over isn't the same as a professional home inspection, but it can mean extra expense if the home is in poor condition.
"If the home is uninsurable, we wouldn't write the policy. If the problems just increase the risk of the potential of a future claim, then that might increase the premium," Luedke says.
A homeowners insurance policy also may require a vacancy endorsement, again at an extra charge, if the home will continue to be vacant for more than 30 days after the sale. If the vacancy is due to major repairs, a dwelling-under-construction rider may be necessary as well.
It may seem like a great deal, but be aware of possible expensive repairs lurking inside.
By Marcie Geffner of Bankrate.com
A for-sale house that's been vacant may look like a bargain, but buyers should be cautious, because expensive problems often lurk inside homes that have been unoccupied for some time.
A home can become vacant due to a marriage, job relocation, death or other life event. But vacancies today are more often due to a bank foreclosure or short sale in which the lender accepts less than the mortgage balance. It's these bank-owned properties — sometimes called "real estate-owned," or REOs — that tend to be "problem homes," says David Tamny, owner of Professional Property Inspection in Columbus, Ohio, and 2010 president of the American Society of Home Inspectors in Des Plaines, Ill.
Vacant homes can suffer from a wide variety of ills due to neglect, deferred maintenance on the part of the previous cash-strapped homeowner, and vandalism, Tamny explains. Broken water pipes, stolen copper wiring, damaged appliances and mold are but a few examples of the potential problems that may await buyers of these homes.
The risks for buyers are front and center since the number and percentage of vacant for-sale homes has increased during the housing slump. More than 2.2 million for-sale houses in the U.S. were vacant in 2008, according to the U.S. Census Bureau. That figure was more than double the 1 million vacant for-sale homes in 2000. Vacant homes exist throughout the country, but the percentage of vacancies in 2008 was higher than the national average in the South, Midwest and West, and lower in the Northeast.
Turned-off utilities limit home inspection
Homebuyers typically hire a professional to conduct a visual inspection of the home and prepare a report on its condition. That's a wise precaution, but not even a well-qualified and thorough home inspector can see inside walls. Nor can an inspector assess the condition of a home's plumbing, electrical wiring, heating-and-cooling system or major appliances if the water, gas or electricity has been shut off.
Team 4: Vacant Houses A Burden For City, Residents
"Buyers often don't understand that if there is no electricity, they are going to get a very limited inspection," Tamny says. "You could end up with a lot of surprises if you don't have those systems turned on prior to the inspection."
Swimming pools, which naturally are more common in such states as California, Arizona, Nevada and Florida — where foreclosure rates have been high -- are also a special concern if a home has been vacant. Some inspectors won't include a pool as part of a basic inspection. Others will include the pool, but again, it may be impossible for the inspector to check out the equipment if the utilities have been shut off.
"You probably will have to accept the pool (as-is because) it's unlikely that you'll be able to get the whole thing up and running just for the purpose of an inspection and then shut it back down," Tamny says. "You could have thousands of dollars in repairs."
As-is home purchase can be risky:
Some banks have procedures in place that allow prospective buyers to turn on the utilities, but the buyer may be required to pay a deposit to the utility company and put his or her own name on the account, even though he or she doesn't own the vacant home. That inconvenience may prompt some buyers to forgo parts of the home inspection that can't be performed unless the utilities are on.
That can be risky, because unanticipated repairs can cost thousands or even tens of thousands of dollars, and the buyer typically will have no recourse with the bank. That means the buyer will be stuck with whatever problems the house has.
"Buyers are attracted to a house because it's discounted from what it sold for a number of years ago and they are hoping to get a bargain. They don't always understand that sometimes the problems make up the difference between the cost of the house and what they are getting for a discount," Tamny says.
Vacancy may affect homeowners insurance:
Homebuyers also should know that insurance companies may decline to issue a homeowners insurance policy until the agent looks at the vacant home, says Dick Luedke, a spokesman at State Farm in Bloomington, Ill. The agent's once-over isn't the same as a professional home inspection, but it can mean extra expense if the home is in poor condition.
"If the home is uninsurable, we wouldn't write the policy. If the problems just increase the risk of the potential of a future claim, then that might increase the premium," Luedke says.
A homeowners insurance policy also may require a vacancy endorsement, again at an extra charge, if the home will continue to be vacant for more than 30 days after the sale. If the vacancy is due to major repairs, a dwelling-under-construction rider may be necessary as well.
Thursday, June 3, 2010
::Managing Debt and Credit::
::Managing Debt and Credit::
Think about your ability to stop using credit on a regular basis and what changes you might be willing to make to improve your financial outlook.
1)Managing Debt and CreditCredit was once defined as "Man's Confidence in Man." But in fact, the definition of credit today is more like "Man's Confidence in Himself." Using credit today means you have confidence in your future ability to pay that debt. Forty years ago, your parents may have paid cash for their homes and their cars, a largely unheard-of event today. If they borrowed money at all, chances are it was from a relative or friend, and not a financial institution.
Today debt and instant credit are part of our everyday lives. The convenience of instant credit, however, has taken its toll. Many individuals use credit cards to spend more than they earn, and a few of these people actually build themselves a debt prison from which some never emerge. On the other hand, those who never use credit can be denied a loan or credit when they have a justifiable need or use for it. Using credit establishes a history of financial responsibility: Until you establish a credit history, your chances of qualifying for an important loan, such as a mortgage, are greatly reduced.
What is the balance between using credit wisely and staying out of overwhelming debt? Let's look at the facts and some pros and cons.
2)Installment DebtDebt comes in many forms, and most types help us in our daily lives -- when used responsibly. Most people cannot buy a home without some financial help, and many cannot buy a car (especially a new one) without some sort of financing. The money borrowed to purchase large-ticket items is called installment debt: The debtor pays a portion of the total at regular intervals over a specified period of time. At the end of that time period, the loan with interest is paid off.
Installment debt allows you to purchase items at a competitive interest rate: for example, 5% to 7% for a 30-year home mortgage and 8% or 9% for a car loan. The loan is paid back on an amortizing schedule, monthly payments of a fixed amount that remain constant over the life of the loan. At first, most of the monthly payment consists of interest. In later years, principal begins to be paid down.
Installment debt is easily budgeted and the debt is eliminated on a predetermined date. Even for those who may actually have the cash to purchase the desired item, installment debt can make financial sense if you can earn a higher return (after taxes) on your investment of cash than you must pay on your installment debt.
3)Revolving CreditA revolving line of credit, also called "open-ended credit," is made available to you for use at any time. Examples of revolving credit are credit cards such as Visa, Mastercard, and department store cards. When you apply for one of these cards, you receive a credit limit based on your credit payment history and income. When you use the credit line, you must make monthly minimum payments based on the total balance outstanding that month. Some lines of credit will also have an annual account fee.
While revolving credit is a convenient way to borrow, it can also become an endless pit of minimum payments that barely cover the interest due. Many cards charge annual rates of interest of 18% or higher. As you pay off your debt, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay. Paying just the minimum due on a $2,000 credit card loan could mean making monthly interest payments for 10 or more years!
Revolving credit, in addition to being convenient, eliminates the need to carry a lot of cash and can help establish you as a creditworthy risk for future loans. The itemized monthly statements also can help you track your expenses. But some people can easily yield to the temptation that the convenience of credit cards offers. Impulse buying, failing to compare costs, and purchasing large items you can't afford are all downfalls brought on by always available purchasing power. Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide.
4)Using Credit WiselyTo use credit intelligently, start by examining the terms of the card(s) you are currently using. Keeping track of your cards, their rates, and your current balances will help you to be aware of how you use credit cards. Increased competition in recent years has led some credit card companies to offer enticing features to attract new cardholders, including no annual fees and low interest rates for an introductory period. (And credit card companies sometimes will give their introductory rates to existing cardholders so that they won't transfer their balances to another credit card company.)
5) Eliminating Credit Card DebtIf you think you may have too much credit card debt, begin to address it by honestly evaluating your spending habits. Examine your existing expenses to analyze how your money is spent. You will most likely be able to identify the problem areas where you are more likely to spend too much or too readily with credit cards. Then, based on your current spending practices, create a realistic budget to pay off your credit card debt in the shortest time possible while not adding any more debt to it. For assistance, you may want to turn to your financial advisor, who can help you to allocate your resources wisely to address your credit card debt.
6) The Role of DebtToday, carrying installment debt is almost a fact of life. Mortgages, car loans, or small-business loans (to name a few) are part of almost everyone's life. On the other hand, carrying credit card debt is usually not a good idea. At interest rates of 16% and up, it's hard to justify keeping savings that could pay off that 18% department-store credit card in the bank at 2%.
Debt and credit play increasingly important roles in our lives. As the aging Baby Boomers get closer to their peak earning years, many are realizing the need to reduce debt and increase savings. Even though analyzing your spending habits and creating a budget to address your debt may seem a little overwhelming, the simplicity of the philosophy of the Depression era still stands: Never spend more than you earn. Once you have come to grips with this basic fact, managing your debt will become far easier and more rewarding.
Summary
*Installment debt means the loan is paid off in a specified period of time by making predetermined payments periodically.
*Revolving credit is a line of credit that is instantly available through use of a credit card (and sometimes a check).
*As you pay down your debt in a revolving line of credit, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay.
*Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide.
Checklist
*Remove high-interest-rate credit cards from your wallet or purse to reduce the temptation to use them unnecessarily.
*Read the fine print on all account statements to understand how your fees and payment amounts are calculated.
*Prepare to transfer balances from accounts with temporary low interest rates that are scheduled to rise soon.
*Use the savings from your debt reduction initiatives to set more money aside for important short- and long-term financial goals.
Think about your ability to stop using credit on a regular basis and what changes you might be willing to make to improve your financial outlook.
1)Managing Debt and CreditCredit was once defined as "Man's Confidence in Man." But in fact, the definition of credit today is more like "Man's Confidence in Himself." Using credit today means you have confidence in your future ability to pay that debt. Forty years ago, your parents may have paid cash for their homes and their cars, a largely unheard-of event today. If they borrowed money at all, chances are it was from a relative or friend, and not a financial institution.
Today debt and instant credit are part of our everyday lives. The convenience of instant credit, however, has taken its toll. Many individuals use credit cards to spend more than they earn, and a few of these people actually build themselves a debt prison from which some never emerge. On the other hand, those who never use credit can be denied a loan or credit when they have a justifiable need or use for it. Using credit establishes a history of financial responsibility: Until you establish a credit history, your chances of qualifying for an important loan, such as a mortgage, are greatly reduced.
What is the balance between using credit wisely and staying out of overwhelming debt? Let's look at the facts and some pros and cons.
2)Installment DebtDebt comes in many forms, and most types help us in our daily lives -- when used responsibly. Most people cannot buy a home without some financial help, and many cannot buy a car (especially a new one) without some sort of financing. The money borrowed to purchase large-ticket items is called installment debt: The debtor pays a portion of the total at regular intervals over a specified period of time. At the end of that time period, the loan with interest is paid off.
Installment debt allows you to purchase items at a competitive interest rate: for example, 5% to 7% for a 30-year home mortgage and 8% or 9% for a car loan. The loan is paid back on an amortizing schedule, monthly payments of a fixed amount that remain constant over the life of the loan. At first, most of the monthly payment consists of interest. In later years, principal begins to be paid down.
Installment debt is easily budgeted and the debt is eliminated on a predetermined date. Even for those who may actually have the cash to purchase the desired item, installment debt can make financial sense if you can earn a higher return (after taxes) on your investment of cash than you must pay on your installment debt.
3)Revolving CreditA revolving line of credit, also called "open-ended credit," is made available to you for use at any time. Examples of revolving credit are credit cards such as Visa, Mastercard, and department store cards. When you apply for one of these cards, you receive a credit limit based on your credit payment history and income. When you use the credit line, you must make monthly minimum payments based on the total balance outstanding that month. Some lines of credit will also have an annual account fee.
While revolving credit is a convenient way to borrow, it can also become an endless pit of minimum payments that barely cover the interest due. Many cards charge annual rates of interest of 18% or higher. As you pay off your debt, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay. Paying just the minimum due on a $2,000 credit card loan could mean making monthly interest payments for 10 or more years!
Revolving credit, in addition to being convenient, eliminates the need to carry a lot of cash and can help establish you as a creditworthy risk for future loans. The itemized monthly statements also can help you track your expenses. But some people can easily yield to the temptation that the convenience of credit cards offers. Impulse buying, failing to compare costs, and purchasing large items you can't afford are all downfalls brought on by always available purchasing power. Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide.
4)Using Credit WiselyTo use credit intelligently, start by examining the terms of the card(s) you are currently using. Keeping track of your cards, their rates, and your current balances will help you to be aware of how you use credit cards. Increased competition in recent years has led some credit card companies to offer enticing features to attract new cardholders, including no annual fees and low interest rates for an introductory period. (And credit card companies sometimes will give their introductory rates to existing cardholders so that they won't transfer their balances to another credit card company.)
5) Eliminating Credit Card DebtIf you think you may have too much credit card debt, begin to address it by honestly evaluating your spending habits. Examine your existing expenses to analyze how your money is spent. You will most likely be able to identify the problem areas where you are more likely to spend too much or too readily with credit cards. Then, based on your current spending practices, create a realistic budget to pay off your credit card debt in the shortest time possible while not adding any more debt to it. For assistance, you may want to turn to your financial advisor, who can help you to allocate your resources wisely to address your credit card debt.
6) The Role of DebtToday, carrying installment debt is almost a fact of life. Mortgages, car loans, or small-business loans (to name a few) are part of almost everyone's life. On the other hand, carrying credit card debt is usually not a good idea. At interest rates of 16% and up, it's hard to justify keeping savings that could pay off that 18% department-store credit card in the bank at 2%.
Debt and credit play increasingly important roles in our lives. As the aging Baby Boomers get closer to their peak earning years, many are realizing the need to reduce debt and increase savings. Even though analyzing your spending habits and creating a budget to address your debt may seem a little overwhelming, the simplicity of the philosophy of the Depression era still stands: Never spend more than you earn. Once you have come to grips with this basic fact, managing your debt will become far easier and more rewarding.
Summary
*Installment debt means the loan is paid off in a specified period of time by making predetermined payments periodically.
*Revolving credit is a line of credit that is instantly available through use of a credit card (and sometimes a check).
*As you pay down your debt in a revolving line of credit, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay.
*Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide.
Checklist
*Remove high-interest-rate credit cards from your wallet or purse to reduce the temptation to use them unnecessarily.
*Read the fine print on all account statements to understand how your fees and payment amounts are calculated.
*Prepare to transfer balances from accounts with temporary low interest rates that are scheduled to rise soon.
*Use the savings from your debt reduction initiatives to set more money aside for important short- and long-term financial goals.
Tuesday, June 1, 2010
::::How to Avoid a Bad Co-op or Condo::::
How to Avoid a Bad Co-op or Condo
by Steve Viuker
Co-ops and condos can be a good option for first-time homebuyers. They are also attractive alternatives for people who own a house but want to downsize because they don't need the space anymore. But while co-ops and condos generally cost less than free-standing houses and require less upkeep, there are still some potential pitfalls.
First, some definitions: When you buy a condominium, you get a deed and title to an apartment and contribute funds for the upkeep of common property such as the grounds, building exterior, lobby and elevators. Condo owners pay real estate taxes and in general can rent or sell as they wish.
With a co-op, you are buying stock in the company that owns a building. You don't actually own any real property, but the stock entitles you to a lease for a unit in the building. As with a condo, you contribute funds for the upkeep of common grounds, but your monthly fees also cover the real estate taxes and insurance for the building, among other things. Co-op boards also can restrict your ability to sublet your unit.
In either case, you are living at close quarters with other people in the building and may be subject to rules and policies you don't like, such as no pets or mandatory carpeting. Just as important, you will be co-mingling your finances with everyone else in the building, since co-op and condo owners may have to foot the bill if their neighbors fail to pay their monthly fees. It can also be harder for you to sell your unit if others in the building default on their mortgages.
For this reason, lenders take a close look at the ownership structures and finances of co-ops and condos -- and you should, too.
Ed Fusco, an attorney based in the Park Slope section of Brooklyn, N.Y., says, "Banks ... want evidence that the sponsor doesn't have a controlling interest and also that the building is owner-occupied. Often, in a new conversion, the units aren't completely sold and banks will put restrictions of loans."
For example, he says, a bank would be reluctant to finance the purchase of an apartment in a 25-unit building if only two units are sold and the rest are in the hands of the sponsor, since these remaining units might eventually be rented, rather than sold.
Fusco says this dates back to the last real estate downturn in the 1980s. Back then, sponsors who owned too many units and got into financial trouble often stopped paying the maintenance, causing the building to default on the underlying mortgage. When the underlying mortgage gets foreclosed, then everyone in the building stands to lose his or her apartment, including the banks that have those apartments as collateral.
These days, in many new conversions, the sponsor will approach banks and make deals upfront. Many times applicants can get a mortgage anywhere they want but must at least apply for one with the lender specified in the building's offering plan.
If you're buying a co-op, getting a mortgage is just the first step; you may also need to be approved by the co-op board. Even in today's market, when many banks are tightening their lending criteria, getting past the co-op board can be much tougher.
Barbara Fox, a Manhattan-based real estate broker, cautions, "Buying an apartment, and in particular a co-op in New York, is a cumbersome and personally invasive process. Your net worth and investments are stripped down to almost the penny."
Fox says that while other cities have co-ops, New York instituted a system that is "similar to joining a private club. Early on, when the co-op concept came into focus, the people who were living in these very expensive apartments wanted to be able to know that they could control who was living next door to them."
But another reason for the scrutiny is that "the board needs to know that a buyer will be a constructive entity; most important to the board is the status of your finances."
Jonathan Raboy, real estate agent at Citi-Habitats, tell the story of a client who was unable to buy an apartment on Manhattan's West Side because the co-op board -- not the bank -- felt his finances didn't pass muster. "The board there required an extremely low debt-to-income ratio, and although my client was a professional and had a good ratio, it at the time was more than this board would have liked to see," he says. Before his client could satisfy the board, another prospective buyer came along and outbid him.
Although board approval is waived for an apartment owned by the building's sponsor, the downside is that, in New York at least, the buyer has to pay the seller's transfer tax and certain other fees.
Ideally, you should know as much about a buildings finances as the board knows about yours. "You need to be comfortable with the financials of the co-op," says Steven B. Schnall, the president of New York Mortgage Co. "And you need your realtor and attorney to help you assess that. If the building is only 20% owner-occupied, it still could be a sound building financially."
In an older building, one thing to look for is the reserve fund. "An older building will need repairs sooner than a new building will," Schnall says. "You need to be sure the building is reserving for future capital improvements."
Some other things to be aware of: An older co-op that has paid down its underlying mortgage significantly might have lower maintenance. On the other hand, Schnall says many new condos have tax abatements, which can keep your real estate taxes down for a certain number of years.
by Steve Viuker
Co-ops and condos can be a good option for first-time homebuyers. They are also attractive alternatives for people who own a house but want to downsize because they don't need the space anymore. But while co-ops and condos generally cost less than free-standing houses and require less upkeep, there are still some potential pitfalls.
First, some definitions: When you buy a condominium, you get a deed and title to an apartment and contribute funds for the upkeep of common property such as the grounds, building exterior, lobby and elevators. Condo owners pay real estate taxes and in general can rent or sell as they wish.
With a co-op, you are buying stock in the company that owns a building. You don't actually own any real property, but the stock entitles you to a lease for a unit in the building. As with a condo, you contribute funds for the upkeep of common grounds, but your monthly fees also cover the real estate taxes and insurance for the building, among other things. Co-op boards also can restrict your ability to sublet your unit.
In either case, you are living at close quarters with other people in the building and may be subject to rules and policies you don't like, such as no pets or mandatory carpeting. Just as important, you will be co-mingling your finances with everyone else in the building, since co-op and condo owners may have to foot the bill if their neighbors fail to pay their monthly fees. It can also be harder for you to sell your unit if others in the building default on their mortgages.
For this reason, lenders take a close look at the ownership structures and finances of co-ops and condos -- and you should, too.
Ed Fusco, an attorney based in the Park Slope section of Brooklyn, N.Y., says, "Banks ... want evidence that the sponsor doesn't have a controlling interest and also that the building is owner-occupied. Often, in a new conversion, the units aren't completely sold and banks will put restrictions of loans."
For example, he says, a bank would be reluctant to finance the purchase of an apartment in a 25-unit building if only two units are sold and the rest are in the hands of the sponsor, since these remaining units might eventually be rented, rather than sold.
Fusco says this dates back to the last real estate downturn in the 1980s. Back then, sponsors who owned too many units and got into financial trouble often stopped paying the maintenance, causing the building to default on the underlying mortgage. When the underlying mortgage gets foreclosed, then everyone in the building stands to lose his or her apartment, including the banks that have those apartments as collateral.
These days, in many new conversions, the sponsor will approach banks and make deals upfront. Many times applicants can get a mortgage anywhere they want but must at least apply for one with the lender specified in the building's offering plan.
If you're buying a co-op, getting a mortgage is just the first step; you may also need to be approved by the co-op board. Even in today's market, when many banks are tightening their lending criteria, getting past the co-op board can be much tougher.
Barbara Fox, a Manhattan-based real estate broker, cautions, "Buying an apartment, and in particular a co-op in New York, is a cumbersome and personally invasive process. Your net worth and investments are stripped down to almost the penny."
Fox says that while other cities have co-ops, New York instituted a system that is "similar to joining a private club. Early on, when the co-op concept came into focus, the people who were living in these very expensive apartments wanted to be able to know that they could control who was living next door to them."
But another reason for the scrutiny is that "the board needs to know that a buyer will be a constructive entity; most important to the board is the status of your finances."
Jonathan Raboy, real estate agent at Citi-Habitats, tell the story of a client who was unable to buy an apartment on Manhattan's West Side because the co-op board -- not the bank -- felt his finances didn't pass muster. "The board there required an extremely low debt-to-income ratio, and although my client was a professional and had a good ratio, it at the time was more than this board would have liked to see," he says. Before his client could satisfy the board, another prospective buyer came along and outbid him.
Although board approval is waived for an apartment owned by the building's sponsor, the downside is that, in New York at least, the buyer has to pay the seller's transfer tax and certain other fees.
Ideally, you should know as much about a buildings finances as the board knows about yours. "You need to be comfortable with the financials of the co-op," says Steven B. Schnall, the president of New York Mortgage Co. "And you need your realtor and attorney to help you assess that. If the building is only 20% owner-occupied, it still could be a sound building financially."
In an older building, one thing to look for is the reserve fund. "An older building will need repairs sooner than a new building will," Schnall says. "You need to be sure the building is reserving for future capital improvements."
Some other things to be aware of: An older co-op that has paid down its underlying mortgage significantly might have lower maintenance. On the other hand, Schnall says many new condos have tax abatements, which can keep your real estate taxes down for a certain number of years.
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