Category Archives: mortgage

The Importance of Getting Loan Pre-Approval

If you have already decided to buy a home, you are probably very excited, have been looking at homes online, and are geared up and raring to go tour. However, if you are getting a loan for your home, there is a very important step you should absolutely take first – getting pre-approved for your mortgage. This step is critical for a number of reasons:

You will know your budget – There have been many situations in which the buyer was looking for homes in a much higher price range than they were ultimately approved for. You can imagine their disappointment when they realized they could only buy about half the house they were looking for. Likewise, there have been buyers who were underestimating their budget.

You will have already done the hard work – When you get pre-approved, the bank has already approved you as a borrower. That means that if there are any issues with credit or late payments that you might have made in the past can get cleared up before you get caught up in an offer on a house. You don’t have to worry if that mistake you made will catch up with you.

The seller will take you seriously – If you make an offer on a house before getting pre-approved and you are competing with a buyer who has already taken that step, the seller likely won’t look at your offer favorably. In fact, it is standard to include a letter of pre-approval from the lender in the offer and in some cases, the listing agent may even call the lender to learn about potential risk factors.

You don’t want to miss an opportunity to get the home of your dreams – What if you find the home that is just right, but you don’t have your financial ducks in a row? You could miss out and be disappointed. Disappointed buyers have a hard time getting over the one that got away.

You may be able to close faster – Since with a pre-approval, you as the buyer have already been approved, it will just be a matter of making sure your chosen house is a good investment for the bank. Depending on your loan type, conventional or government-backed, there may be an inspection of the property and there will surely be an appraisal. Depending on how quickly these can happen which will depend on the lender, you may be able to close faster, which may be appealing for some sellers who need to take their next step.

Don’t underestimate the importance of getting pre-approved. The relief you will feel once a lender has indicated that you are indeed qualified to buy a home is huge. You can move forward with confidence with your pre-approval letter in hand, knowing the top end of your budget and that the seller will be ready to negotiate with you.

If you would like to learn more or be referred to lenders who would be a great match for your lending needs, please call, text, or email: (206) 790-0081 or email: jamie@jamieflaxman.com.

Are You Still Paying PMI? Do You Need To?

Private Mortgage Insurance (or PMI) is an extra charge that banks require when the amount of a loan someone takes out to purchase or refinance a home causes the loan to value ratio to exceed 80%. This means that the buyer or owner has less than 20% equity in the home. The bank requires PMI in the event the homeowner forecloses or the market shifts and the buyer has to do a short sale.

PMI can range anywhere from .3% to 1.5% of the original loan amount per year according to Bankrate.com. It is usually paid as a separate line item as part of the mortgage payment. The PMI rate can vary according to size of down payment, credit score, and insurer.

If you have been paying an extra charge for PMI each month, this is likely a charge you would like to be rid of. The great news is that home values in Seattle and King County have been on the rise. Since in a conventional loan, the PMI rate must be cancelled when the loan-to-value ratio (appraised value/loan amount) drops below 78%, the rise in home values should be helping your situation.

If you have been paying PMI, have been paying down your mortgage principal, and prices have increased to the point where you think you shouldn’t be paying PMI, it may be time to ask your lender to reassess the situation.

If you would like to know how prices have appreciated in your area so you are ready to reach out to the lender, I would be happy to help. Please give me a call, text, or email: 206-790-0081 or email jamie@jamieflaxman.com.   

Don’t Listen to the Media!

“Is the housing market ready for a crash?”

“Will I ever be able to afford a house?”

“Zillow says my house is worth $________.”

These are headlines that both the Seattle and national media are spreading. Here’s the reality:

Housing prices are appreciating at record rates. However, if we go back to 2007, when the market was at it’s peak before the crash, prices have increased 52% – that comes out to 5% a year appreciation over the 10 years.

Buying a home is within reach for many. The media often says it’s hard to get a mortgage, but that’s not the reality. The two most important factors for getting a mortgage are your credit score and the amount of debt you have. Only a lender can tell you if you qualify or not.

The “Zestimate” from Zillow is not an accurate representation of what your home will sell for. Zillow is an automated valuation, there are other companies who provide similar numbers. Because it’s automated, the algorithm has no idea of the special features of a home, the quality of the finishes or view, and any updates that have been done without permits. Even Zillow admits that their numbers are not accurate – the last time I looked Zillow said their Zestimates typically are off 10-20%.

So didn’t listen to the media! Talk to a real estate professional to get your questions answered. You can reach me at 206-790-0081 or mailto:jamie@jamieflaxman.com.

 

Great Reasons to Invest in Real Estate Right Now

stock photo genericRegardless of whether you are a renter thinking about purchasing your first home or are a homeowner considering purchasing a second property to rent or a vacation property to enjoy, there are several great reasons to invest in real estate right now. Here is a quick summary:

Interest rates – We are just counting the days until the Federal Reserve increases interest rates which will likely cause mortgage interest rates to begin to march upwards. As of this writing, the 30 year fixed rate mortgage rate average is at 3.76% – around historic lows which means this is a fantastic opportunity. For a $200,000 mortgage, the principal and interest payment would be $927.37 and the total amount paid would be $333,852. Compare that with the same mortgage at 6%; the payment would be $1,199 and the total cost of the loan would be $431,676. The cost of borrowing someone else’s money to fund the dream of homeownership has rarely been cheaper.

Tax Benefits – Most U.S. homeowners can deduct the cost of their annual mortgage interest and real estate property taxes from their annual taxable income, thus reducing their tax liability. This deduction is also available for certain qualifying second properties. Loans are usually amortized  in such a way where the most interest is paid up front when the principle balance is highest, meaning tax benefits are greater up front – another reason to act soon!

Leverage – When a person buys a stock, they have to use their own money in order to gain equity. However, when a person invests in real estate and takes out a loan, they leverage their down payment and instead use the bank’s money in order to gain that appreciation. When interest rates are low the cost of using that leverage is low and with prices on the rise, the gain may be great!

Prices – Prices are not likely to decrease anytime soon due to the steady and growing economy. Therefore, between low interest rates and today’s prices, buying real estate a few months from now will likely not be as affordable as it is right now.

Demand – Unless the world population – or even the U.S. population – begins to decrease, housing is a commodity that will always be in demand. The United States needs approximately 1.2 – 1.5 million new homes each year to accommodate growing population and the demolition of decayed properties.  The drastic decline in new construction from 2006 through 2012 had created a dramatic shortage in new construction product and we have not recovered from this yet, which means demand will continue to be high for several more years.

Forced Savings – When you invest in a home, a portion of that monthly payment goes towards your principal, meaning with each payment your net worth increases. Between appreciation and paying down the debt, your equity rises year after year.

Interested? Ready to hear more? Please contact me to learn more about your options and opportunities. Please contact me (206) 790-0081 or jamie@jamieflaxman.com.

New Changes Coming to Buying and Selling Process – What You Need to Know

The Consumer Financial Protection Bureau (CFPB) is a Congress-established agency with regulatory control over federal consumer protection laws. Their goal is to make rules in our various financial markets more effective and consistent to protect consumers. Recently the CFPB created some new rules aimed at helping buyers and sellers have a better understanding of the borrowing process. Below are some of the changes you can expect to see beginning August 1, 2015.

Buyers buying their home with a mortgage will receive a standardized Loan Estimate document from the lender which outlines variables such as the type of loan, payment schedule, interest rate for the mortgage, information about prepayment penalties and other terms of the transaction (such as balloon payments or mortgage insurance), costs to close the loan, and State Law provisions. This document is provided to the loan applicant no more than three days after the buyer submits a loan application.

In addition, Buyers will receive a Closing Disclosure no less than three days before the loan is scheduled to close which reiterates the above variables.

The mandatory three day review period for both of these documents was put in place to allow borrowers the time they need to read through them and have a thorough understanding of exactly what they are committing to. Furthermore, these documents include instructions to the borrower to compare the Loan Estimate to the Closing Disclosure verifying the two documents have the consistent information.

The biggest impact of these changes is that the lender will need more time to process your loan and turn documents over to escrow. At a minimum, it is likely buyers will need 3 more days, but more likely it will be 5-10 days.

The forms themselves have been streamlined and are easier to understand. The interest rate, monthly payments, and the total closing costs are clearly indicated on the first page of the documents for easy reference and to make it easier to compare loan products with different lenders.

Both the Loan Estimate and Closing Disclosure are used for closed-end mortgages, meaning they are not used for home equity lines of credit, reverse mortgages, or for any loan not attached to land. Furthermore, these rules do not apply to creditors who produce fewer than five loans per year.

These new policies will make the process easier and more transparent to borrowers. If you are buying or selling a home this summer and expect the contract for purchase and sale to come in around the end of July, remember that these policies may impact your transaction as lenders and closers navigate through the new documents and timelines. I have attended several workshops on the changes and would be happy to answer any questions you may have. Please give me a call: (206) 790-0081 or send an email to :jamie@jamieflaxman.com.

Sources:

http://www.consumerfinance.gov/

http://files.consumerfinance.gov/f/201503_cfpb_tila-respa-integrated-disclosure-guide-to-the-loan-estimate-and-closing.pdf

http://files.consumerfinance.gov/f/201506_cfpb_factsheet_will-the-new-mortgage-disclosures-delay-my-closing.pdf

 

Market Update

I have been so busy over the past week that I barely have time to write this post. Any question about how hot the market is? Here’s a story for you. Yesterday I submitted an offer on behalf of a client for a wonderful Phinney/Greenwood home. There were 9 offers including ours, and I believe all but one conducted pre-inspections. As one of the other brokers submitting an offer said, it was going to be a “blood bath.” Many of the offers had escalation clauses – and boy did it escalate. I can’t disclose how high it went until after the transaction closes, but my buyer did not have the highest – we came in 3rd. The offer that had the highest dollar amount had weak financing and wasn’t willing to do anything to change the financing situation; the next offer was only a few thousand more than ours but also had weak financing. MY CLIENT GOT THE HOUSE because she had strong financing (30% down and the lender talked with the listing agent) and my buyer was willing to come up a few thousand dollars more.

The bottom line. Financing is as important as price. And who the lender is may make a difference. My client’s lender was willing to go above and beyond to advocate for the client. On-line lenders and big banks often won’t do this. With them, you’re just one of hundreds of mortgages – personal relationships make a difference.

The bottom line. The market is still hot. A colleague had 11 offers on another listing. Inventory is low demand is still high.

Contact me at jamie@jamieflaxman.com or 206-790-0081 to discuss putting your home on the market or buying a home.

 

FICO Credit Score Changes and Mortgages

If you are considering a move and will be applying for a mortgage, you may be biting your nails wondering what your FICO (Fair Isaac Corp.) score means for your ability to borrow. Your credit score determines if you are given preferred interest rates, will have to pay more due to missed payments or a high debt to income ratio, or are able to qualify for a loan at all. The FICO credit score ranges between 300-850 and weighs payment history, amounts owed, length of credit history, new credit, and types of credit used according to myFICO.com.

Shockingly, one-third of Americans struggle to pay their medical bills each month and medical is the number one leading cause of bankruptcy in this country according to Forbes. Medical bills have affected the credit scores of millions. In fact, Forbes indicates 64 million Experian credit bureau consumers have medical collection on their credit report which impacts their credit score and their ability to get a loan. According to Anthony Sprauve, FICO’s director of public relations, 50% of all unpaid collection debt is medical debt.

Under the new FICO 9 credit scoring formula which is set to be implemented this fall, the impact of medical debt will be reduced and the average credit score will increase a median 25 points per person with medical debt but who are otherwise financially responsible with their bills. Additionally, medical debt that has been paid in full will not affect the credit score negatively at all.

The rationale for this change is that having one-time medical debt is much different than chronic credit card debt. However, more than 11 million Americans use credit cards to take care of medical debt each year. Under the new FICO rules, doing that would hurt their credit more than if they made a payment plan directly with the medical facility or medical collection agency.

Another change in the FICO scoring model is that past, closed debt associated with collection companies will also have a lesser-impact.

Steve Brown, President of the National Association of REALTORS®, welcomed the change, indicating it will “make a real difference in the lives of millions of Americans, who have been shut out of the housing market or forced to pay higher mortgage interest rates…since the housing crash, overly restrictive lending has been the greatest obstacle to homeownership.”

FICO 9 will change the credit scores of many.  While these changes seem like a step in the right direction, Fannie Mae, Freddie Mac, and a host of other lenders are still using older FICO scoring methods and have been slow to adopt changes in credit-scoring conventions. Therefore, although you may benefit from a better credit score under the new FICO 9 formula, your lender may or may not take the new formula into consideration when you apply for a loan. Additionally, some lenders already discount medical debt when determining someone’s creditworthiness.

If you have questions or concerns about your credit score, the time to talk with a financial professional who can get you on the right track to homeownership is now. I have lenders I can refer you to. Please give me a call: (206) 790-0081 or send an email to jamie@jamieflaxman.com.

Sources:

http://www.realtor.org/news-releases/2014/08/new-credit-scoring-calculation-will-improve-access-to-homeownership-say-realtors

http://www.forbes.com/sites/christinalamontagne/2014/08/26/medical-debts-will-soon-weigh-less-on-your-credit-score-but-theyre-still-a-problem/

http://www.housingwire.com/blogs/1-rewired/post/31236-adopting-fico-9-could-increase-first-time-homeownership

http://www.foxbusiness.com/personal-finance/2014/09/10/what-fico-new-credit-score-formula-means-for-home-buyers/

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

 

 

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New Website, Same Great Content

I haven’t written a post in a few weeks, as I’ve been in transition to a new website and blog host. The new site is up; if you’re reading this, you’re on www.jamieflaxman.com. I made the switch to a WordPress site as I feel it’s cleaner, easier to read and navigate, integrates my blog better, and it has a simpler search tool.

Some things you can now do on my website:

If there’s something you’d like to see me include on the site, let me know. Future plans  include a page of downloadable resources, such as referrals to mortgage brokers and sample purchase and sale contracts. I’d also love to have your feedback on the new site.