Palos Verdes Home Buying Mortgage Tips

Palos Verdes Home Buying Mortgage Tips

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This well-written article will assist Palos Verdes home buyers in determining their mortgage options when purchasing their new home.  Home buyers strengthen their position when they submit a PreApproval letter and proof of funds along with their Purchase Offer.  Below is some information to gather before applying for a home mortgage/loan:

4 Tips to Determine How Much Mortgage You Can Afford
By: G. M. Filisko  Published: August 20, 2014
By knowing how much mortgage you can handle, you can ensure that homeownership will fit in your budget.
Homeownership should make you feel safe and secure, and that includes financially. Be sure you can afford your home by calculating how much of a mortgage you can safely fit into your budget.

Why not just take out the biggest mortgage a lender says you can have? Because your lender bases that number on a formula that doesn’t consider your current and future financial and personal goals.

Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree? Will a new child add day care to your monthly expenses? Does a relative plan to eventually live with you and contribute to the mortgage?

Consider those lifestyle issues as you check out these four methods for estimating the amount of mortgage you can afford.
1. Prepare a Detailed Budget

The oldest rule of thumb says you can typically afford a home priced two to three times your gross income. So, if you earn $100,000, you can typically afford a home between $200,000 and $300,000.

But that’s not the best method because it doesn’t take into account your monthly expenses and debts. Those costs greatly influence how much you can afford. Let’s say you earn $100,000 a year but have $1,000 in monthly payments for student debt, car loans, and credit card minimum payments. You don’t have as much money to pay your mortgage as someone earning the same income with no debts.

Better option: Prepare a family budget that tallies your ongoing monthly bills for everything — credit cards, car and student loans, lunch at work, day care, date night, vacations, and savings.

See what’s left over to spend on homeownership costs, like your mortgage, property taxes, insurance, maintenance, utilities, and community association fees, if applicable.

2. Factor in Your Downpayment

How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home’s cost, you may not have to get private mortgage insurance, which protects the lender if you default and costs hundreds each month. That leaves more money for your mortgage payment.

The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher your monthly mortgage payment.

But, if interest rates and/or home prices are rising and you wait to buy until you accumulate a bigger downpayment, you may end up paying more for your home.

3. Consider Your Overall Debt

Lenders generally follow the 43% rule. Your monthly mortgage payments covering your home loan principal, interest, taxes and insurance, plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 43% of your gross annual income.

Here’s an example of how the 43% calculation works for a homebuyer making $100,000 a year before taxes:

1. Your gross annual income is $100,000.

2. Multiply $100,000 by 43% to get $43,000 in annual income.

3. Divide $43,000 by 12 months to convert the annual 43% limit into a monthly upper limit of $3,583.

4. All your monthly bills including your potential mortgage can’t go above $3,583 per month.

You might find a lender willing to give you a mortgage with a payment that goes above the 43% line, but consider carefully before you take it. Evidence from studies of mortgage loans suggest that borrowers who go over the limit are more likely to run into trouble making monthly payments, the Consumer Financial Protection Bureau warns.

4. Use Your Rent as a Mortgage Guide

The tax benefits of homeownership generally allow you to afford a mortgage payment — including taxes and insurance — of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.

Here’s an example: If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.

However, if you’re struggling to keep up with your rent, buy a home that will give you the same payment rather than going up to a higher monthly payment. You’ll have additional costs for homeownership that your landlord now covers, like property taxes and repairs. If there’s no room in your budget for those extras, you could become financially stressed.

Also consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax situation more clearly.

G.M. Filisko is an attorney and award-winning writer who’s owned her own home for more than 20 years. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.

 

Palos Verdes Real Estate Appraisals

Academy Hill Neighbhorhood of Palos Verdes, CA 90274

I am happy to report that appraisals are coming in at sales price for Palos Verdes homes that I have sold this past year.  After the new Fannie Mae appraisal changes, we were all experiencing appraisers from out of the area being assigned to Palos Verdes real estate appraisals and they were coming in low as they did not know the area.   This was true for both Palos Verdes homes sales and refinances.

Yesterday, a LA Times article regarding appraisal fee disclosure discussed the issue of who is actually getting paid for these new higher priced appraisals and where the appraisers are coming from.  Why would you care about that?  Because, the appraisers are sometimes getting paid only half the fee (and to find appraisers who will work for that lower fee, they were coming from out of the area)  “…while the balance flows to an enterprise you have never heard of — an appraisal management company — that assigns the job to the appraiser.  That management company, in turn, may be a wholly owned by or in a joint venture or affiliate relationship with your lender, which may be pocketing a significant portion of your appraisal dollars.”  Click here to read entire article.

Now the Consumer Financial Protection Bureau may require the appraisal fee be broken down to indicate how much is actually going to the appraiser and how much the appraisal management company is taking.  A decision should be made before summer.

What Percentage Of Palos Verdes Real Estate Is In Foreclosure?

Palos Verdes Real Estate Foreclosure Activity as Percentage

As part of selling Palos Verdes real estate, I keep updated on area statistics, Palos Verdes homes for sale, new software, etc.  Today, I attended a class which showed us new features of our Multiple Listing Service which included searching for specific data in several different categories.  I looked at distressed properties sales in Palos Verdes to see how it compared to Los Angeles County, the State of California and nationally as reported in a recent LA Times article (click here to view article).  As you can see from the chart above, only .5 – 1% of Palos Verdes homes are in foreclosure.

Number of Palos Verdes Homes in foreclosure

71 Palos Verdes homes (all categories, including condominiums and townhouses) are in Pre Foreclosure which means a Notice of Default has been filed.  11 of those homes are currently listed for sale and 3 more are in escrow with pending sales.  107 Palos Verdes homes (all categories) are scheduled for Auction which means a Notice of Trustee sale has been filed.  10 of those homes are currently listed for sale and 7 more are in escrow with pending sales.  44 Palos Verdes homes (all categories) are REO properties which means Real Estate Owned (the bank has already foreclosed).  7 of these homes are currently listed for sale and 4 more are in escrow with pending sales.  The middle chart indicates the number of Palos Verdes houses in foreclosure and shows there are 50-100 in zip code 90274 and 100-150 in zip code 90275.

We are very fortunate that the number of Palos Verdes real estate foreclosures is less than both Los Angeles County and the State of California.  That lower rate of foreclosures is one of the reasons our real estate market more stable.

Charts courtesy of CRMLS – Realist Tax

New Mortgage Dispute Resolution Hotline

Racoon at Palos Verdes homes

Palos Verdes homes owners and home owners across the country often have unresolved questions regarding their home mortgage, private mortgage insurance escrow account, promised interest rate reduction, loan modification request and an array of other home loan questions.  I just read about a new federal service that became available on December 1, 2011 – the Consumer Financial Protection Bureau’s home mortgage complaint and dispute resolution hotline courtesy of last year’s Dodd-Frank financial reform legislation.

According to an LA Times article by Kenneth R. Harney,  “The complaint hotline is accessible online at www.consumerfinance.gov and by toll-free phone between 8 a.m. and 8 p.m. Eastern at (855) 411-2372.”  It also is a hotline/website for credit card disputes – there is a separate portal once you enter the site.  This is great for consumers to have another avenue to assist them with these financial disputes.  Click here to read entire LA Times story.

Photo courtesy of Arvin Design

Will Higher FHA Loan Limits Help Sell Palos Verdes Real Estate?

Grotto Photo courtesy of Arvin Design, Redondo Beach, CA 90277

Last week Congress approved raising the loan limits on FHA loans to $729,750.  How will that effect Palos Verdes homes owners?  At first glance, one would guess that there is not too much Palos Verdes real estate selling in the lower ranges.  Currently, 25% or 51 single family Palos Verdes houses are for sale for less than $1,000,000.  However, 46 out of the 47 Palos Verdes condos/townhomes currently for sale are under $1,000,000.

FHA mortgages require lower FICO scores than a conventional loan – 620 for FHA and 660 for conventional.  FHA mortgages require less down payment – a minimum of 3.5% versus 20% for a conventional loan.  This is attractive for some buyers and therefore helpful for some sellers of Palos Verdes real estate.  The downside for buyers is that FHA requires PMI (private mortgage insurance) which is an additional payment on top of the mortgage payment – 1.15% of the loan amount.

Kenneth R. Harney wrote a recent article in the LA Times with some wise advice, “Bottom line for house shoppers: Take a hard, close look at FHA with a local loan officer, in light of the rule changes.  Pencil out the costs, down-payment requirements and more generous standards on credit.”  Click here to read his article.

Fun wintery photo courtesy of Arvin Design

5 Reasons for a Mortgage Refinance Other Than Lowering Your Payment

San Francisco Pier

Interest rates are at historic lows and many homeowners are refinancing to take advantage of them.  When I saw the title of this article, I tried to guess the 5 reasons one would refinance other than lowering your interest rate (I did not guess them all).  This article is courtesy of HouseLogic.com:

By: Barbara Eisner Bayer

Published: October 22, 2010

There’s more to a mortgage refinance than lowering your monthly payments.

1. Change your mortgage term

If you decrease the term of your mortgage in a refinance by going from a 30-year to a 15-year, you’ll pay a lower interest rate and shorten your total interest costs. You’ll build home equity more quickly, and pay off your loan sooner, even though your monthly payments go up.

2. Move from an adjustable rate to a fixed rate

ARMs offer low introductory rates, but they also offer long periods of uncertainty that make it hard to budget. It makes sense in a mortgage refinance to go from an ARM to a fixed-rate loan during a low-interest rate environment. You’ll get emotional security and your rate won’t fluctuate with changing economic conditions.

3. Take out cash

With a cash-out mortgage refinance, you can turn an intangible asset—accumulated home equity—into a tangible one—cash. It makes sense for a project that will generate long-term benefits, like a home improvement or funding a child’s college education. However, don’t do it for frivolous reasons. Unless you’re extremely disciplined, you could find yourself in even deeper debt.

4. Consolidate two mortgages

When interest rates are low, a mortgage refinance lets you consolidate your main mortgage and an outstanding home equity loan to realize a lower overall monthly payment. Plus, you’ll have only one mortgage payment to make each month.

5. Recover from divorce

If your home is jointly owned with your soon-to-be ex-spouse, a mortgage refinance will turn a joint obligation into the responsibility of the person keeping the home. Nothing is more frustrating than tracking down a former spouse who doesn’t keep up with his or her end of the mortgage payment.

Lay the groundwork

If one of these reasons resonates with you, contact your current lender to see if it’ll offer you preferred rates or reduced closing costs on a mortgage refinance. But don’t assume the current lender is best: Leave no stone unturned by searching for lenders online and calling community banks and local credit unions.

No matter which lender you choose, a mortgage refinance for the right reasons can save you lots of money—and that’s the best reason of all.

Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®

Photo courtesy of Arvin Design

Where Does The Appraiser Come From?

View from Rancho Palos Verdes, CA 90275

When a seller of Palos Verdes real estate and the buyer who submits an offer on a Palos Verdes home are waiting for the appraisal to come in, they generally presume that an appraisal expert from the area will be doing that appraisal.  That is not always true.  I have written several articles regarding the frustration resulting from the appraisal process (the most recent can be accessed by clicking here) created by the Dodd-Frank financial reform law last year.

In order to separate the potentially biased lender from the appraiser, a new layer was created – Appraisal Management Companies.  The LA Times printed a recent article by Kenneth R. Harney entitled, “Who’s getting appraisal fees?” which gets to the root of the issue.  The issue is that the appraisal management companies (some of which are owned by or affiliated with the lenders themselves) are  keeping as much as half the appraisal fee and offering the appraiser the other half.  According to Harney, “Most experienced independent appraisers refuse to work for $200 to $250 because they can’t pay their overhead at these rates.  Less-experienced appraisers, who sometimes have to travel long distances from their home markets, tend to be more willing to work for the lower amounts.”

This does not only affect buyers and sellers but current owners of Palos Verdes houses who are refinancing.  What can be done?  Some appraisal groups are lobbying to get this changed.  Harney has a great suggestion, “But in the meantime, consumers should demand transparency:  Of my $500 appraisal fee, who got what? And why?”

Red Flags For New Home Loans

My clients purchasing Palos Verdes real estate are told by their lender not to apply for additional credit or open new accounts when they purchase a Palos Verdes home  and have a loan (or even a refi) being processed.  I can’t tell you how many times the borower forgets.  They are planning to redecorate their new home, one client needed a new car as her car died, etc.  It can be any number of reasons.  However the new lender now runs a credit check just before the loan (and house) closes.  If there is additional outstanding loans or credit, that may negatively affect the borrower’s ratios and put a hold on the new loan.

Kenneth R. Harney has written an excellent article in the LA Times warning about this very issue.  “If inquiries pop up on your files during this time, lenders must check them out to determine whether any new debt might require a re-underwriting of the originally quoted terms.”  That is just what you want to avoid.  Harney goes on to explain that lenders are even looking back 120 days before you applied for the loan looking for credit inquiries to make sure that there are not any new loans that have not been picked up by the 3 major credit reporting services. 

Harney’s cautionary advice should be heeded, “Be aware that your credit files –  not just your FICO scores – are probably being checked, rechecked and evaluated for the third of a year preceding a mortgage application and two to three months prior to the closing.  The cleaner and simpler you keep the files, the easier your path to an on-time closing should be.”  To read his entire article, click here.

Adjustable vs Fixed Rate Mortgages

Interest rates have been at historic lows since last year and all my clients have opted for fixed rate mortgages for their Palos Verdes homes.  According to a recent Los Angeles Times article by Kenneth R. Harney, adjustable rate mortgages are becoming more popular.  “Adjustables accounted for just 3% of new home loans in early 2009 but are projected to be picked by nearly 1 out of 10 borrowers in 2011.”

I thought that was a surprising statistic so I called a local lender for his input.  He had not read the article but confirmed that last year he had done more adjustable rate mortgages and the trend was continuing this year.  When I asked why, he told me that certain buyers who are tight with their loan qualification ratios are opting for adjustable rates to get loan approval as the lower adjustable rates net lower monthly mortgage payments for the first five years.  However, the majority of his loans continue to be fixed rate.

To read the LA Times article, click here.

Mortgage Interest Deduction

  

Owners of Palos Verdes real estate take advantage of the mortgage interest deduction to help offset their higher mortgage payments which is a result of the higher home prices in Palos Verdes.  More than one client has been watching the federal governments discussions about the possibility of eliminating/reducing this deduction.

“Deduction’s deficit effect lowered – Homeowners are likely to write off less mortgage interest on taxes than anticipated” was the headline in a recent LA Times article by Kenneth R. Harney.  The article goes on to state that according to a new report by the non-partisan Joint Committee on Taxation, the mortgage interest deduction will not be decreasing revenue by as much as originally estimated:  “$88 billion less in revenue losses are now projected over the next three fiscal years – than the committee estimated early in 2010.”

There are several reasons for this reduction.  Interest rates are at record lows and many existing homeowners have refinanced their mortgages to take advantage of the lower rates.  Home prices are down resulting in lower purchase prices and smaller mortgages.  There is also some repayment of the first-time home buyer credit programs.  Let’s hope that this new report will make the mortgage interest deduction “less vulnerable to attack”.  Click here to read the entire LA Times article.