Does Paying Points On a Mortgage Make Sense?

You’ve found your dream home and are now ready to start shopping for a mortgage. Several lenders have talked about points. Points, also called discount points or origination fees, are each worth one percent of the loan amount. Paying points basically allows the borrower to buy down the interest rate. They are paid to the lender at closing.

You’ve heard that paying points is the only way to get a low interest rate. But is increasing your initial costs worth getting a lower rate?

For most people, paying points doesn’t make sense.

Points became popular in the early 1980s when mortgage rates were in excess of 15%. Most people could not afford the monthly payments that come with such high interest rates. Lenders began offering discounted rates at a certain fee. Sellers often paid the points in order to sell their properties. This gave buyers affordable mortgages and owners were able to sell their homes.

Times are different now. Interest rates are low. There isn’t a large need to pay a lot of money up front in order to get a lower rate.

Let’s look at the numbers. You have contracted to purchase a home for $450,000. You have the 20% down, which leaves you with a mortgage of $360,000.

You find a 30-year fixed rate mortgage at 3.50% with one point. For closing, you will need to pay an additional $3,600 ($360,000 x 1%) for the point.

The lender can also offer you a rate of 3.75% with no points.

What do you choose? The lower rate or the lower closing?

At 3.50% you will have a monthly principal and interest payment of $1,616. At 3.75% your payment increases to $1,667 each month. That’s a difference of $51 per month. If you are looking for a monthly payment reduction, that’s not really a significant one.

It will take you 70 months ($3,600 divided by $51) to recoup your one point payment at closing in the form of a lower monthly payment. This is your payback period. But if you had the $3,600 still, it could be earning interest elsewhere. If it gets 3% interest in another investment, it would earn about $9 per month. If you pay points, this is interest lost, so subtract $9 from your $51 per month savings. Now divide $42 into $3,600, and your payback period increases to 85 months — seven years.

So you have to live in your home for at least seven years in order to take advantage of the savings that paying points gives you. Most people don’t keep a mortgage for seven years.

Whether through sale to  move up or elsewhere or refinance for cash out or lower rates, the average American keeps their mortgage for six years. Unless you are absolutely sure you will live in the home for the time period necessary to recoup your points, you should probably invest your money instead of putting it towards points.

If you are looking at paying points in order to reduce your monthly housing payment, you may want to look at a less expensive property. Fifty one dollars worth of savings isn’t a lot if you are on a tight budget. Chances are that if you have a tight budget to start with, finding extra money for closing would be difficult. And don’t forget, taking out a side loan to get the money to pay points with is defeating the purpose.

My suggestion, don’t pay points unless you’re sure it makes sense for you.

Buying a Home, What Should Your Offering Price Be?

You may have found the home of your dreams, but you know that you now have to make an offer. You see what the asking price is, but that doesn’t necessarily mean that it’s a realistic number. In order to submit your offer, you need to come up with a number. How do you do that? Try the simple steps below!

In order to get a realistic idea of the price of the home, look at other homes for sale in the area. Make sure that the homes you are looking at are comparable to the one you’re making an offer on. This should help you narrow down your price range.

Comparable sales are how you determine the base number of your offer. These are recent sales of homes in your area that have sold. You want to be able to compare the home you are purchasing to ones that are close in size, number of bedrooms, lot size, bathroom numbers, construction style and garage numbers.

If you have employed the help of a real estate agent, he or she will have no trouble looking up this type of information, and they have the best experience in helping you formulate an offer.

Furthermore, it is important that number you come up with is realistic in relation to the condition of the home. Are there updates that are needed to be completed? Are there serious renovations that you have to do? If so, take these things into account, because they can quickly depreciate the asking price of the home. Calculate how much you have to spend on renovations and updates to see how much you have to deduct at least from the asking price.

Is the seller including anything with the home? If so, what is it really worth? In some cases, sellers will provide the option of purchasing the home fully furnished or with appliances. These are usually items that they charge extra for, but you could purchase yourself much cheaper.

Why is the seller selling the home? In some cases, the circumstances of the seller impact their decision whether or not to accept your offer. You want to get a good deal, which is understandable, but depending on the seller, it may not be realistic. For example, if the seller wants to sell the home quickly, you have a better chance of haggling the price.

Keep in mind, some sellers are willing to wait out the perfect offer that comes close to their number. If the property is highly desirable, you may even have to pay over the asking price to beat the competition. The actual price of the property is never set in stone, and you need to come up with a “fair” price to submit in your offer using the information available to you.

Making your first offer can be nerve wracking and it can really give you insomnia. However, once you get over the initial shock of your first largest investment, you will find that making the offer wasn’t as hard as you thought it would be. Use everything you have just learned for success, and lots of luck!

Some Money Saving Mortgage Tips

Buying a house is a great long term investment. If you’ve never had a mortgage payment, it simply means you’ll have to be more careful regarding the management of your finances.

The first step before venturing into a mortgage if you’re not already in one, is to consider your financial situation. Then decide to buy a home where the mortgage and down payments meet your financial situation, so that you can enjoy life and have a roof over your head at the same time. If you have no idea what your monthly budget can afford then you should take some advice from a finance professional first.

Regardless of your situation here are several ways to reduce your monthly mortgage payments:

As interest rates keep on changing you should keep track of changes and consider refinancing at the right time. This will reduce your expenditures. Do the calculations to know your savings after paying closing costs and other expenses. Closing costs can be added to your new mortgage to avoid out of pocket expenditures, while still saving you money.

Check your monthly mortgage statement properly and regularly to make sure that all adjustments are made correctly; even banks sometime they make mistakes.

Choose a mortgage that offers flexibility. You want a mortgage that allows you to pay in an easy way according to your earnings.

Consider biweekly payments or accelerated equity plans. This will give you an additional payment each year and begin to reduce your mortgage quickly right from the start.

Consolidate all your loans into a single one with lower monthly payments. Make a table and analyze all your loans; education, car, home and bank loans for example. Study your expenditures. Try to consult a mortgage specialist, ask him or her about debt consolidation, and how much it can reduce your monthly payments.

Go for a 30 mortgage. This will allow you to pay lower monthly payments, which will lower the amount of interest you pay. Make sure there is no prepayment penalty on your loan, because the best move you can make is to pay way more each payment than the minimum. Each time you do this you’ll be reducing the principle of your mortgage.

A mortgage or home loan is a long term debt but it doesn’t have to be a burden. You are advised to pay it off as soon as possible but arrange your budget tactfully by keeping an eye on insurance, loan disbursements and their interest rates. Enjoy your new home; hopefully with a few of these tips it will be all yours sooner than the banks desire. Remember, if it’s paid for it’s yours.

Top 10 Reasons to Use a Mortgage Broker vs. a Bank Lender

Back in 1987 when I first started in the mortgage business, mortgage brokers were a new phenomenon. Most people who needed a mortgage simply went to their local bank and acquired a “one size fits all” mortgage. Back then, clients would ask me what a mortgage broker does, if it costs more to use us, and what the benefits of using our services were.

Times have changed; approximately half of all mortgages are no longer being originated by bank lenders. Depending on the type of home loan you are seeking, you could save yourself thousands of dollars by shopping various lenders for your home mortgage needs. Therefore it is imperative that you know the difference between a mortgage broker and a bank lender.

Below are the Top 10 reasons why you should use a mortgage broker instead of a bank:

1. Mortgage brokers specialize in home loans and are commission based, so it is in their best interest to get you the best rate possible, or they don’t get paid.

2. Mortgage brokers have an exceptionally large network of lenders that they work with to get you the most favorable mortgage rates and terms. Put it this way, the more lenders you have competing for your home loan, the more you save.

3. Mortgage brokers are able to work one-on-one with each individual client, evaluate their specific needs and find a lender that suits them personally. Next, the broker submits the request to one or more lenders, and when the request is accepted the broker works closely with the lender until the home loan closes.

4. They can often times find a lender who accepts home loans that the bank foregoes. Mortgage brokers are also able to discuss a lower interest rate from lenders in trade for bringing in business.

5. Mortgage brokers save you the groundwork of finding the best mortgage rate and terms for your specific needs.

6. Banks on the other hand deal with all types of loans, and may not have the specialization in home loans that a mortgage broker has.

7. Bank loan officers process mortgage loans originated by only their employer.

8. Loan officers at a bank are often limited to certain home loan products, guiding principles and criteria that they must follow. This can limit the home loans available to you.

9. Regardless if you choose to have your home loan with that particular loan officer or not, they are still getting paid a salary. With this in mind they may not be looking out for your best interest.

10. In most cases, you not only will not pay more for your mortgage using a mortgage broker, but instead will pay less.

If you are ready to finally purchase your dream home or to refinance, give yourself an edge, and use a mortgage broker like us to to get you the best deal possible at the lowest possible rate and cost.

The 7 Worst Financing Mistakes First Time Home Buyers Make…And How to Avoid Them, A Free EBook

I am excited to release my new EBook for first time home buyers: The 7 Worst Financing Mistakes First Time Home Buyers Make… and How to Avoid Them.

Click here or on the picture on the right to download your free copy.

Having originated mortgages for close to three decades, I have found the topics covered in this EBook are the ones first time home buyers want to know about most. Hopefully, this EBook will help you avoid the mistakes others have made that have cost potential home owners thousands of dollars, and blown up many deals.

Here are some of the mistakes I cover in this easy read, that will help you avoid a similar fate:

  • Overextending yourself
  • Not counting the cost of bad credit
  • Not knowing your down payment options
  • Not budgeting for closing costs
  • Not getting pre-approved
  • Not choosing the right mortgage product
  • Not getting multiple lenders to compete for your business
  • and so much more…

The download is absolutely free as my gift to you for reading my blog; there is nothing to buy and no commitments to make. Enjoy it, and feel free to pass it on.

I wish you much success on your purchase.

Follow These 5 Steps to Make Your Home Buying Process Smooth and Easy

There are few purchases in life that carry the financial and psychological weight of buying a home. Whether you are buying your first home, moving up to your dream home, or downsizing your home and your life after the kids have gone, it is important to understand the ground rules for success in the world of buying a home.

Making the wrong decision in buying a home can have devastating and long lasting effects, while making a wise decision in home buying can greatly enhance the overall value of the investment. It is necessary to learn all you can about the world of home buying and mortgages before setting out to purchase the home of your dreams.

While there are plenty of web sites designed to help first time homeowners learn all they can, most financial experts say that there is no substitute for good old one-on-one learning; the kind you will get with am experienced real estate agent and mortgage broker.

When buying a home it is often best to use a systematic approach as this is often the best way to be sure that all decisions are based on information and reason, not on impulse or emotion. Buying a home can be an emotional process, nevertheless it is imperative to keep your emotions under control and not let them cloud your judgment.

There are five basic ground rules when it comes to buying a home and shopping smart:

#1 – Get Pre-Approved for Your Mortgage First

There are few things in life as disappointing as losing out on the home of your dreams due to not being able to secure funding. While the desire to get out there and search for that great home is understandable, it is vital to know if you can secure the financing you will need before you start shopping for a home.

Pre-Qualifying for a home ahead of time has a number of important advantages, including knowing how much you can buy and gaining more respect from the seller. By knowing how much home you can afford before you shop, you will avoid wasting your time looking at unaffordable properties.

It is also important to take a good look at the various types of mortgages on the market before getting started in the home buying process. The mortgage market has changed, so potential home buyers need to understand how each type of mortgage works, and to gauge which mortgage is the best choice for their needs.

#2 – Look at the community, not just the home

It is a good idea to look at the entire community, instead of focusing on a single home. This can be a particularly important thing to consider for those moving to a new metropolitan area, as these buyers will be unfamiliar with the local climate and lifestyle. It is crucial to determine the areas of town that are most desirable, and to consider things like distance from work and local shopping opportunities.

We have all heard that location is the key consideration when it comes to real estate, and that is certainly the case. Buying a house in the wrong area can be a big mistake, and it is important to choose the location as well as the home. Potential buyers can learn a great deal about the nature of various neighborhoods simply by driving around town, as well as by talking to other residents.

#3 – Be fair with your first offer

Trying to low-ball a seller on the first offer can backfire, as can paying too much. It is important to carefully evaluate the local market, and to compare the asking price of the home with what similar houses in the neighborhood have sold for.

Comparing the sales of comparable homes, what are known as “comps” in the industry, is one of the best ways to determine what is fair, and to make sure that you neither overpay or underbid on the property.

#4 – Always get a home inspection

Always investigate the home for any possible defects before making an offer. Compared to the cost of the average home, the price of a quality home inspection is virtually negligible. Make sure to get a good home inspection done before you buy.

To find the best home inspector, it is a good idea to seek out word of mouth referrals as many of the best home inspectors rely on word of mouth advertising.

#5 – Do not alienate the sellers of the home

Many real estate deals have fallen apart due to the personal animosity of the buyer and the seller. It is important to avoid alienating the seller of the home during the process, and to avoid nitpicking every little detail during the sale. Having a good real estate agent on your side will create the proper buffer between yourself and seller, and make for a much smoother process.

Check out my new EBook: “The 7 Worst Financing Mistakes First Time Home Buyers Make and How to Avoid Them.” Just click on the link on the right for your free EBook.

Selling or Buying, This Idea Will Close Your Deal Fast

For most people, the prospect of selling their home can be positively daunting. Besides the traditional clean-up, paint-up and fix-up that invariably wind up costing more than you planned, there are always the overriding concerns about how much the market will bear and how much you will eventually wind up selling it for.

For the buyer, any edge that will help the buying and financing process is always more than welcome. This idea may just do the trick!

This Seller Technique Will Sell Your Home Faster

Will you get your asking price, or will you have to drop your price to make the deal? After all, your home is a major investment, no doubt a rather large one, so when it comes to selling it you want to get your highest possible return. Yet in spite of everyone’s desire to get the top dollar for their property, most people are extremely unsure as to how to go about getting it.

Get the Most for Your Home and Sell it Faster

Some savvy sellers have long known a little financial technique that has helped them to get top dollar for their property. In fact, on some rare occasions, they have even sold their properties for more than they were worth using this powerful financing tool. Although that might be the exception rather than the rule, you can certainly use this technique to get the most money possible when selling your property.

A Win-Win for Both Buyer and Seller

Seller carry-back, or take-back financing, has proven to be a surefire technique for closing deals. Even though most people do not think about when it comes to selling a property, they really should consider using it. According to the Federal Reserve, there are currently over 100 Billion dollars of seller carry-back (seller take-back) loans in existence. By any standard, that is a lot of money. But most importantly, it is also a very clear indication that more people are starting to use seller take-back financing techniques because it offers many financial benefits to both sellers and buyers.

Seller Financing and How it Works

Basically, seller take-back financing is a relatively simple concept. A seller-take back loan is created when a property is sold and the seller performs like a lender by assisting in financing all or part of the total transaction. In effect, the seller is actually lending the buyer a portion of money toward the purchase price, while a traditional mortgage company usually funds most of the balance of the funds. A seller take-back loan is secured with the property, just like a regular mortgage.

Advantages For the Buyer

If you will be going for a regular mortgage from an institutional lender, the carry back loan  becomes the secondary mortgage behind the first mortgage loan, and both are fully secured by the property. Keep in mind that most lenders require that subordinate liens must be recorded and clearly subordinate to the traditional first mortgage loans. You should ask your mortgage lender or broker about the guidelines for seller carry back mortgages, to make sure the terms are acceptable to the first mortgage lender.

In most seller take-back financing transactions, the buyer repays the seller with interest in accordance to mutually agreed terms over a period of time. Usually, the terms call for the buyer to send the payments, consisting of principal and interest, on a monthly basis.

This is advantageous to the seller, because it creates a steady monthly cash flow for the note holder. And if the note holder decides to cash out, he or she can always sell the note for a lump sum cash payment. It also may help the borrower avoid costly mortgage insurance if they plan on putting down less than twenty percent of the purchase price.

Regardless of market conditions, seller take-back financing makes sound financial sense;  it provides both buyer and seller with flexible financing options, makes the property easier to sell at a higher price and shortens the sales cycle. It also has the added advantage of being an excellent investment for the seller that generates a steady cash flow and high return. If they ever need immediate cash, they can always sell the note.

Advantage Seller, Advantage Buyer

If you are planning to sell a property, then consider the many benefits of seller take-back financing. Knowing that this financing is available will attract more buyers. If you are looking to buy a home, consider suggesting this option to any prospective seller. If you have any questions about take back financing, feel free to contact me.

The APR When Shopping For a Mortgage, Not Always the Best Way to Shop

There are two different rates we’ve always been told to look for when shopping for a mortgage. The first is the Mortgage Interest Rate, which is the rate of interest that will determine your monthly payment. The second is the Annual Percentage Rate, more commonly referred to as the APR.

Many people have come to believe that a loan’s APR, is the single most important factor in comparing mortgage loans. However, this is rarely the case, especially in today’s marketplace,” explains Bob Peckenpaugh, Manager of CFIC Home Mortgage. Analyzing the APR during mortgage refinancing or second mortgage loan shopping can be a very tricky proposition.

The Annual Percentage Rate is defined as “the cost of consumer credit as a percentage spread out over the term of the loan.” Most consumers have no idea what makes up this elusive number. The APR is a valuable tool in comparing various mortgage loan programs, but it should never be relied upon as the sole determining factor in choosing a loan, for the following reasons:

1) Not all closing costs are calculated within the APR uniformly. According to Peckenpaugh, “There is a huge variance among lenders, mortgage loan officers, and even states on which fees they include in their APR when calculating the loan. There is no standard among the mortgage industry, let alone among competing mortgage companies.”

2) The costs themselves can be manipulated within the loan. For example, prepaid interest (the amount of pro-rated interest a consumer pays at closing for interest which will be earned from that date until the end of the month) can be represented as anywhere from 1 to 30 days, a potentially huge difference, especially on larger mortgage refinancing loans.

3) Manipulation of the title fees. Ordinarily, the title company’s settlement or closing fee is an APR fee, while their title insurance cost is not. Peckenpaugh explains, “recently, in order to minimize the effect to the APR, title companies began simply decreasing their closing fee, while subsequently increasing their title insurance fee by the same amount, thereby reducing the APR.”

4) Lack of industry awareness of what is accurate. Most mortgage loan or refinancing officers do not intentionally try to mislead, but inaccurate information could result in the consumer making a poor decision.

As opposed to APR, consumers would be better served by asking the following simple questions.

1) What is the mortgage interest rate?
2) What is the total mortgage loan amount?
3) What is the monthly mortgage payment (principal and interest)?
4) How much are the closing costs?

Under new guidelines issued in 2015, within three days of applying for a mortgage, the borrower will receive a Loan Estimate Form that discloses all of the estimated costs of the loan, including taxes and insurance.

If you have any questions about anything written here, feel free to contavt me, I will be happy to clarify things for you.

Buy Now or Buy Later? A Mortgage Rate Dilemma

Have you ever heard the story of the guy who always held out until tomorrow because he was certain mortgage rates were going to go lower? He waited his entire life and ended up dying with plenty of money, but living in an apartment. Sort of defeats the purpose of saving money to buy a home, doesn’t it?

A lot of potential home owners are like this fellow, constantly waiting around for the best deal to come along. They are certain they can wait out the market – little do they realize the market can long outlive all of us!

The Mortgage Rate dilemma.

Mortgage rates, with all the dire predictions over the last few years that they will soon be increasing, are still at one of the lowest rate thresholds ever despite weakening economic conditions around the world. There are many reasons for that, and maybe we can address them in a future article. But the fact remains that 30 year fixed rates are about as low as they have ever been.

Of course, as with any financial tool, mortgage rates will always be in flux. The good news for many homeowners currently holding mortgages, is that when rates drop substantially, the opportunity is there to refinance into into an even lower rate. It’s almost like being able to have your cake and eat it too!

Buy now or buy later?

There is no better investment you can ever make than buying a home for your family. Homes are an investment that, over time, will gain in value. Real estate is one of the safest investments you can make.

With all the news over the last number of years about the real estate fallout with sub-prime mortgages etc., most consumers who manage their credit and finances correctly can avoid having to deal with any of that. Knowing how much house you can afford, and what payments you can comfortably make will ensure that you don’t become another statistic. A good mortgage broker can help you figure that out.

One thing to remember, is that the future value of a dollar is always less. If I gave you the choice of giving you $100 today or $100 next year, the $100 I give you today is going to be worth more and will have more buying power. The same goes with a house – waiting to buy a house because you think the market is too volatile right now could be a big mistake. If your finances are in order and you are on solid ground with your credit, this make the perfect time to take advantage of today’s low mortgage rates and get a great deal in the real estate market.

There is no mortgage dilemma.

Taking advantage of the rates available today can help you secure your family’s financial future for years to come. Despite all the negative news you might hear about the real estate market, the fact of the matter remains that people who have kept up with their finances are going to benefit greatly from the housing market as it stands today. So why shouldn’t you as well?

Avoiding Mortgage Mistakes That Can Cost You Money

If you are planning to obtain a mortgage, then you should make sure that you avoid a number of common mistakes that will leave you paying too much money or getting into financial difficulties. If you are aware of potential mortgage mistakes that can cost you money, you will be better equipped to get the best deal for your needs.

Here are the most common mortgage mistakes that can cost you money, and how to avoid them:

Not sorting out your finances

If you try to obtain a mortgage before you have sorted your finances out, you could find yourself getting a rough deal or even being rejected. Before looking at mortgages, get all of your finances in order and have all your paperwork ready to submit to mortgage lenders. Also, obtain a free copy of your credit report and make sure that all the information on it is correct. If there are mistakes on your credit report, it could harm your chances of getting a good mortgage.

Looking for a house without being pre-qualified

Many people make the mistake of looking at property without having any idea whether they can secure a mortgage to pay for it. Pre-qualification is an initial estimation of how much you can borrow based on your income, assets, credit and debt. It relies on the undocumented information you give to your mortgage broker or lender, along with a copy of your credit report. It is very helpful when shopping for a home. A full application would include the documentation needed to back up the information.

Borrowing too much

Perhaps the biggest mistake people make is to borrow too much money. This can come about through a combination of not being honest with yourself and pressure from lenders. If you are not honest with yourself about how much you can afford then you will end up in financial difficulty. You shouldn’t be tempted by lenders who offer you overly generous mortgages because it is you who will pay the price if you cannot keep up with the payments. Work out how much you can comfortably afford to pay each month and stick to this budget.

Not shopping around

If you want a good deal you have to shop around. If you find a good deal, you shouldn’t automatically think it is the best deal you can get. Many companies offer amazing deals that turn out to be a lot more expensive than initially advertised. Do your research and find out what someone with your credit rating should be paying on average for a mortgage. If you do this then you will end up with a much better price.

Paying for things you don’t need

There are many unnecessary closing costs and junk fees that some brokers and lenders add. Don’t be ripped off by hundreds or even thousands of dollars in extra fees. Check out our Mortgage Saver Program, and don’t pay these unnecessary fees.