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10 Tips To Lower your Summer Energy Bill

The U.S. Department of Energy estimates that summer air-conditioning accounts for more than 16% of annual energy spending in the average home. The low-cost tips that follow will help you keep your home comfortable while lowering your energy bills:

1. Have your air-conditioner checked by a qualified professional. Servicing typically includes a check on refrigerant levels, the compressor, hoses, ductwork, and the thermostat.

2. Set your thermostat at 78°F when you are at home and turn it up to 85°F when you are away. A programmable thermostat is an excellent way to save energy and maintain year-around comfort.

3. Make sure your thermostat is not located near lamps or electronic appliances. It can sense heat from these devices, causing your air-conditioner to run longer.

4. Replace air conditioner filters at least once per month; dirty filters restrict airflow, causing your system to run longer.

5. Weather-strip, seal, and caulk leaks around doors and windows, and install foam gaskets behind outlet covers.

6. On warm, sunny days, keep window coverings closed to prevent solar heat gain.

7. Use ceiling or room fans in occupied areas to keep air moving and help to reduce the temperature.

8. Install window tinting to prevent the sun’s rays from reflecting through the windows.

9. Install a whole house fan. These devices circulate cool air throughout your house and exhaust hot air out of the attic.

10. If your air conditioning unit is more than 15 years old, consider replacing it with a newer, more efficient model. Purchase a unit that is ENERGY STAR rated for high efficiency performance.

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Looking For More Ways to Save?

The additional tips that follow will help you save energy all year long:

Make sure that your home is properly insulated. This will reduce energy costs and keep you comfortable in summer and winter.

Plant deciduous trees around the south and west corners of your home; in summer they will provide shade, which will help to reduce cooling costs. In winter, when they lose their leaves, the sunlight will help to heat your home.

While summer presents a number of unique opportunities to make your home more energy efficient, it is important to remember that conservation is a year-round effort.

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10 Things A Buyer Should Know Before Purchasing

  1. With falling home prices and near-record low mortgage rates, now really is a good time to buy. First and foremost, buyers need to make sure that they have solid job security before deciding to buy a home. Job security is probably the number-one consideration that people should have when purchasing a home. Buyers that feel comfortable enough about their income are in a great position to take advantage of some very attractive real estate deals.
  2. Now more than ever it is important for potential buyers to use an experienced real estate professional. There is very little downside and a lot of upside to getting a professional working on your behalf to help you find the right house. Foreclosures and short sales, an increasing large portion of the current market can involve legal and other hassles often best handled by an experienced professional. Look for an exclusive buyer agent who will have your interests at heart and can help you with strategies during the bidding process. Remember, sales commissions are paid by the seller, so there is no cost to the buyer to have their own representation.
  3. Start by shoring up your credit. Since you most likely will need to get a mortgage to buy a house, make sure your credit history is as clean as possible. Get copies of your credit report. Make sure the facts are correct, and fix any problems you discover.
  4. Aim for a home you can afford. The rule of thumb is that you should buy a house that will cost about two-and-one-half times your annual salary. There are many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford. If you have a home to sell, wait to look for your next home until you have a contract on your current home. That way you will know exactly how much you have to spend on your new home.
  5. Before house hunting, get pre-approved. Getting pre-approved will put you in a better position to make a serious offer when you do find the right house. Pre-approval from a lender is based on your actual income, debt and credit history and is a fairly simple process.
  6. Use a knowledgeable reputable mortgage lender. Be sure to select a reputable lender that will work with you to get the best deal possible. Look for a lender who will put all costs in writing, carefully explain loan options, encourage you to ask questions, and not rush you into a quick decision.
  7. 6% is a good rate. With all the headlines about 30-year mortgage rates dipping below 5 percent, many consumers believe they’ll be able to lock in a rate in the high 4’s. But with today’s tighter lending standards, many borrowers won’t qualify for the most attractive rates. Keep in mind, trends of 30-year, fixed-mortgage rates over the past few decades, it’s clear that any rate that starts with a 6 is still very attractive. If you qualify, there are many lenders that offer low-interest mortgages that require a down payment as small as 3 percent of the purchase price.
  8. Choose carefully between points and rate. When selecting a mortgage, you typically have the option of paying additional points (a portion of the interest that you pay at closing) in exchange for a lower interest rate. If you plan to stay in the house for a long time, five or more year, it’s usually a better deal to pay the points if possible. The lower interest rate will save you more in the long run.
  9. Don’t buy if you plan to live in the home short term. Purchasing a home in today’s market only makes sense if the buyer plans to live in the home for at least three to five years. Those who plan on selling the property sooner might not provide the property enough time to recover the costs of buying and selling and any lost value that may have occurred in the short term. Even if a home declines in value over a short term, it can still be a good investment if you give the market enough time to recover.
  10. Before making an offer on a home examine the selling prices of similar, nearby properties. Make sure the sales information is fresh because the market is constantly changing. For an accurate gauge of home prices in a given market, buyers should look for comparable sales data that is as recent as possible. Your opening bid should be based on the sales trend of similar homes in the neighborhood.
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Homeowners Insurance Basics

Homeowners insurance exists because a home is a huge investment, often one of the largest purchases many people make in their lifetimes. Naturally, people want to protect the value of their precious property. Homeowners insurance is a contract between a homeowner and an insurance company. As long as the owner pays the required premiums and meets the other policy requirements, the insurance company guarantees to reimburse the owner for any losses incurred due to natural disasters or human-caused damage.

What Does It Cover?

A basic homeowner’s insurance policy protects the owner against any property damage that results from things like fire, lightning, wind or hail storms. It will also provide for motel and food costs if you are forced to leave your home while such damages are repaired.

A typical policy, however, does not cover flood or earthquake damage. Because these issues are usually specific to certain regions of the country and can cause extreme damage, these can be purchased as separate policies. If you live in a flood zone or near an earthquake fault line you may be required by your mortgage company to carry these protections.

A basic policy will also cover homeowners against loss from theft or vandalism as well as reimbursement for personal property destroyed in natural disasters. It will also provide for something that many people may not normally associate with home protection – liability coverage for lawsuits brought against the owner by people who were injured on the property. This includes the cost of legal defense up to the allowed policy limit. Additionally, most policies will have a provision that will cover the basic medical expenses for the parties.

Is It Required?

Homeowners insurance is almost universally required by mortgage companies with the purchase of a home. This is because the investment is almost as big for them as it is for you. They want to make sure the property is protected from major damages so that if you are ever unable to keep up with your payments, the lender can then reclaim ownership and be able to sell it fairly easily. And even if you own your home outright, a good insurance policy is still the best way to protect the value of your home in the face of the unexpected.

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New FHA Policies

Most people don’t spend their time tracking FHA policy changes, unless of course you’re in the real estate industry. I received this information regarding some changes in the Federal Housing Administration (FHA) and wanted to share it for the benefit of those in the Tulsa area.

The bottom line is this:  FHA is tightening up its policies and instituting stricter requirements for providing mortgages. Their rationale is simple.  FHA is no longer a cash-flushed organization, quickly handing out loans to all who ask.  After the mortgage crisis, it seemed like nearly everyone wanted an FHA loan. Understandable. But, like any financial institution, the Federal Housing Administration needs to find out how it can serve the underserved while at the same time managing risk, all the while trying to assist the nation’s economic recovery.

Here is a quick snapshot of some of the major changes.

  • Up-front mortgage insurance premiums will increase to 2.25% (formerly it was 1.75%). This will help increase the agency’s reserve fund, which is in dire need of replenishing.
  • Successful loan applicants will have a minimum credit score of 580 to be eligible for the 3.5% down payment. Borrowers who have lower credit scores will need to find a way to provide a heftier down payment (10%).
  • In addition, sellers get a shorter leash, too. Now, sellers are required to cap at 3% the amount they offer for closing costs. They used to be able to pay closing costs up to 6% of the home’s price. This requirement brings FHA loans in line with typical industry standards, while preventing the practice of inflating appraisals.
  • Any lenders offering FHA mortgages must assume liability for the loans.  FHA is serious about this new requirement, and will occasionally publish lender performance reports for the general public.

Why all the changes? As I mentioned above, FHA needs to protect its assets (and thus its mortgages) as best it can. Everyone is adapting to the new economic climate—individuals, big business, and government alike.  As an indicator of their tenuous status, nearly 15% of all FHA loans were delinquent at the time of last year’s third quarter reports.  Don’t worry, FHA will probably not lose its stature as the biggest lending agency.  Almost half of all first time homebuyers use FHA loans, and last year, 30% of all loans came through the FHA.

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When to Pay Points on a Mortgage

One common question a buyer will always ask us is “should I pay points on my home loan?”  The answer is “it depends on a few factors.”

The reason why you pay points on a loan is to get a lower interest rate. A point on a mortgage is equal to 1% of the loan amount. Therefore, if you are receiving a loan of $200,000 one point would cost $2000.

Paying points may seem like the obvious choice because everyone wants lower monthly mortgage payments, but it is not that simple from a cost analysis standpoint though. The main deciding factor whether to pay points or not is how long you plan on staying in the home.  Getting a lower interest rate from paying points is a trade off between paying money now versus paying money later.

Let’s look at an example using the a $200,000 loan.  We will assume that the interest rate on a loan with no points will equal 6% and a loan with 2 points will equal 5.5%.

  • Monthly Payment without Points $1,199.10
  • Monthly Payment with Points $1,135.58
  • Monthly Savings from Points $63.52
  • Cost of Points $4,000.00
  • Savings Rate of Return 2.000% (keeping the money in a bank account)
  • Monthly Income from Investment $6.67
  • Net Monthly Savings $56.85

By dividing the amount the buyer paid for the points ($4000) by the monthly savings ($56.85) we see that it would take the borrower five years and ten months before they would be at the break even point.

If a borrower is going to be in the home for more than five years and 10 months it would make sense for them to pay points. If they are going to be in the home for a shorter period of time the no points option would make more sense.  When refinancing, you can also opt to pay points.

Another important consideration is that points are fully deductible in the tax year of your closing. This however, only applies to purchases and not when you refinance a property. In the case of a refinance, the IRS requires you to spread out the loan deduction over the course of the loan. Using the $4000 for points in the above example you would be able to deduct 1/30 of $4000 over 30 years.  If you happen to pay off the loan early you can deduct the remaining balance in that tax year.

In any situation regarding taxes, I always recommend you speak with a tax professional.

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Mortgage Modifications – FAQ

It is understandable to have questions when coping with a new and challenging situation, especially when a home is at stake. The reality is that millions of homeowners across the country are finding out that they have more questions than answers. We hope that the following information will help you better understand the circumstances. If you have further questions not addressed below, or would like additional information resources, feel free to contact us.

Do I qualify for a short sale?

The qualifications for a short sale include any or all of the following:

  1. Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
  2. Monthly Income Shortfall – In other words: “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
  3. Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

What is a mortgage modification?

A mortgage modification is a process through which your mortgage lender changes any or all of the following:

  • Your interest rate
  • Your principal balance (through a reduction)
  • Your loan terms (example: from an adjustable to a fixed rate)

This process can allow borrowers to stay in their property when they can no longer afford their current mortgage payments.

Why would a lender modify my mortgage?

Lenders have realized that in some cases it is better for them to work with current borrowers to lower payments or possibly improve terms in order to keep homeowners in their properties. The average foreclosure can cost a lender from 35-50% of the value of a property, so keeping borrowers in their homes is a good option for everyone.

What do I need to qualify for a mortgage modification?

According to the Making Home Affordable Web site, you will need the following information for your lender to consider a modification:

  • Information about your first mortgage, such as your monthly mortgage statement
  • Information about any second mortgage or home equity line of credit on the house
  • Account balances and minimum monthly payments due on all of your credit cards
  • Account balances and monthly payments on all your other debts such as student loans and car loans
  • Your most recent income tax return
  • Information about your savings and other assets
  • Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources

If applicable, it may also be helpful to have a letter describing any circumstances that caused your income to reduce or expenses to increase (job loss, divorce, illness, etc.)

How do I qualify for a mortgage modification?

The first call you make should be to your lender, have the information above ready to discuss with them and call your customer service line to ask them what options you have available. If the person you speak with does not understand what you are asking, you can ask to be referred to one of the following departments (different lenders have different names for these departments):

  • Loss Mitigation
  • Mortgage Modification
  • H.O.P.E.

Prior to contacting your mortgage lender you can quickly complete an eligibility test at MakingHomeAffordable.gov. This test will let you know if you are eligible for a modification through the government-sponsored Home Affordability and Stability Program (HASP). For a list of mortgage lenders and servicers, visit HopeNow.com.

What if I don’t qualify for a mortgage modification, can’t afford my home, and owe more than it’s worth?

You are not alone and foreclosure is not the only option. If your mortgage lender or servicer will not work with you to reduce your payment, you may want to consider a short sale. Agents like me, with the Certified Distressed Property Expert® Designation, have undergone extensive training in how to process and negotiate short sales. A short sale allows you to sell your home for less than what you owe and avoid foreclosure. Speak to your market expert to see if you may qualify.

What is a Home Affordable Refinance?

If Fannie Mae or Freddie Mac owns your mortgage, you may be eligible for a Home Affordable Refinance. This will allow you to refinance your home and often lower your payments.

What are the qualifications for a Home Affordable Refinance?

According to the resources released by the government, following are a list of qualifications:

  • You are the owner occupant of a one- to four-unit home
  • The loan on your property is owned or securitized by Fannie Mae or Freddie Mac
  • At the time you apply, you are current on your mortgage payments (you haven’t been more than 30 days late on your mortgage payment in the last 12 months, or if you have had the loan for less than 12 months, you have never missed a payment)
  • You believe that the amount you owe on your first mortgage is about the same or slightly less than the current value of your house
  • You have income sufficient to support the new mortgage payments, and the refinance improves the long-term affordability or stability of your loan
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Types Of Mortgage Lenders

Mortgage Bankers
Mortgage Bankers are lenders that are large enough to originate loans and create pools of loans which they sell directly to Fannie Mae, Freddie Mac, Ginnie Mae, jumbo loan investors, and others. Any company that does this is considered to be a mortgage banker.  Some companies don’t sell directly to those major investors, but sell their loans to the mortgage bankers. They often refer to themselves as mortgage bankers as well. Since they are actually engaging in the selling of loans, there is some justification for using this label. The point is that you cannot reliably determine the size or strength of a particular lender based on whether or not they identify themselves as a mortgage banker.

Portfolio Lenders
An institution which is lending their own money and originating loans for itself is called a “portfolio lender.” This is because they are lending for their own portfolio of loans and not worried about being able to immediately sell them on the secondary market. Because of this, they don’t have to obey Fannie/Freddie guidelines and can create their own rules for determining credit worthiness. Usually these institutions are larger banks and savings & loans.  Quite often only a portion of their loan programs are “portfolio” product. If they are offering fixed rate loans or government loans, they are certainly engaging in mortgage banking as well as portfolio lending.
Once a borrower has made the payments on a portfolio loan for over a year without any late payments, the loan is considered to be “seasoned.” Once a loan has a track history of timely payments it becomes marketable, even if it does not meet Freddie/Fannie guidelines.  Selling these “seasoned” loans frees up more money for the “portfolio” lender to make more loans. If they are sold, they are packaged into pools and sold on the secondary market. You will probably not even realize your loan is sold because, quite likely, you will still make your loan payments to the same lender, which has now become your “servicer.”

Direct Lenders
Lenders are considered to be direct lenders if they fund their own loans. A “direct lender” can range anywhere from the biggest lender to a very tiny one. Banks and savings & loans obviously have deposits they can use to fund loans with, but they usually use “warehouse lines of credit” from which they draw the money to fund the loans. Smaller institutions also have warehouse lines of credit from which they draw money to fund loans.
Direct lenders usually fit into the category of mortgage bankers or portfolio lenders, but not always.
One way you used to be able to distinguish a direct lender was from the fact that the loan documents were drawn up in their name, but this is no longer the case. Even the tiniest mortgage broker can make arrangements to fund loans in their own name nowadays.

Correspondents
Correspondent is usually a term that refers to a company which originates and closes home loans in their own name, then sells them individually to a larger lender, called a sponsor. The sponsor acts as the mortgage banker, re-selling the loan to Ginnie Mae, Fannie Mae, or Freddie Mac as part of a pool. The correspondent may fund the loans themselves or funding may take place from the larger company. Either way, the loan is usually underwritten by the sponsor.  It is almost like being a mortgage broker, except that there is usually a very strong relationship between the correspondent and their sponsor.

Mortgage Brokers
Mortgage Brokers are companies that originate loans with the intention of brokering them to lending institutions. A broker has established relationships with these companies. Underwriting and funding takes place at the larger institutions. Many mortgage brokers are also correspondents.  Mortgage brokers deal with lending institutions that have a wholesale loan department.

Wholesale Lenders
Most mortgage bankers and portfolio lenders also act as wholesale lenders, catering to mortgage brokers for loan origination. Some wholesale lenders do not even have their own retail branches, relying solely on mortgage brokers for their loans. These wholesale divisions offer loans to mortgage brokers at a lower cost than their retail branches offer them to the general public. The mortgage broker then adds on his fee. The result for the borrower is that the loan costs about the same as if he obtained a loan directly from a retail branch of the wholesale lender.

Banks and Savings & Loans – Banks and savings & loans usually operate as portfolio lenders, mortgage bankers, or some combination of both.

Credit Unions – Credit Unions usually seem to operate as correspondents, although a large one could act as a portfolio lender or a mortgage banker.

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Getting The Highest Price For Your Home

In order to get the highest price in the shortest time, you need to know how to market your home. The better you market your home, the more offers you will get. And the more offers you get, the more choices you have to get the price and terms you want.

The most important factor of marketing your home is pricing it right. Your price should be adjusted to reflect the market, and the property’s worth. The key is to get many people checking out your property at a fair price instead of having no buyers because your price is set too high.

Another important factor is the condition of your home. Make sure that your home looks ready to be sold. Fix any defects (peeling or faded paint, cracks, stains, etc.) Condition alone can sometimes prompt fast buying decisions. Not only should you fix any defects, but consider upgrading your home by making major repairs and cosmetic improvements before selling. A nice looking home triggers the emotional response that can lead to a financial response.

Learn how to negotiate the best terms for all parties involved. Terms are another factor which may be adjusted to attract buyers. If you insist on getting your asking price, think of what you can offer to the buyers, for example, improvements you’ve made, or even offering seller financing at a lower than market interest rate on a portion of the sale price. Convince them why they should be paying the price you have set.

Lastly, get the buzz out about your home. List your house with a hot agent that ensures your house is listed on the MLS and on the Internet. On your own, get the word out. It should be visible to passerby’s that your house if for sale, whether it be signs, local advertisements or you telling friends, family, and acquaintances.

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FICO Score – A Brief Explanation

When you apply for a mortgage loan, you expect your lender to pull a credit report and look at whether you’ve made your payments on time. What you may not expect is that they seem to be more interested in your “FICO” score.

“What’s a FICO score?” is a common reaction.

Each time your credit report is pulled, it is run through a computer program with a built-in scorecard. Points are awarded or deducted based on certain items such as how long you have had credit cards, whether you make your payments on time, if your credit balances are near maximum, and assorted other variables. When the credit report prints in your lender’s office, the total score is displayed. Your score can be anywhere between the high 300’s and the low 800’s.

Lenders wanted to determine if there was any relationship between these credit scores and whether borrowers made their payments on time, so they did a study. The study showed that borrowers with scores above 680 almost always made their payments on time. Borrowers with scores below 600 seemed fairly certain to develop problems.

As a result, credit scoring became a more important factor in approving mortgage loans. Credit scores also made it easier to develop artificial intelligence computer programs that could make a “yes” decision for loans that should obviously be approved. Nowadays, a computer and not a person may have actually approved your mortgage.

In short, lower credit scores require a more thorough review than higher scores. Often, mortgage lenders will not even consider a score below 600.

Some of the things that affect your FICO score are:

  • Delinquencies
  • Too many accounts opened within the last twelve months
  • Short credit history
  • Balances on revolving credit are near the maximum limits
  • Public records, such as tax liens, judgments, or bankruptcies
  • No recent credit card balances
  • Too many recent credit inquiries
  • Too few revolving accounts
  • Too many revolving accounts

FICO actually stands for Fair Isaac and Company, which is the company used by the Experian (formerly TRW) credit bureau to calculate credit scores. Trans-Union and Equifax are two other credit bureaus who also provide credit scores.