A Simple Guide To The 4 Most Widely Used Mortgage Programs For Buying A Home - Part 2

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A Simple Guide To The 4 Most Widely Used Mortgage Programs For Buying A Home - Part 2

Just like conventional mortgages, government mortgages can be divided into many subcategories. But the basic difference is that rather than a private firm taking on the risk of default in the form of mortgage insurance (PMI), it’s the federal and/or state government that provides the lender with mortgage insurance against a borrower’s default. Additionally, certain governmental departments such as HUD, FHA, and VA play a heavy role in defining the rules and regulations as opposed to banks and investment firms.

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So When Are Interest Rates Going Up???

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So When Are Interest Rates Going Up???

Never invest in any idea you can’t illustrate with a crayon!
— Peter Lynch

I GET ASKED THE QUESTION ALL THE TIME "SO WHEN ARE INTEREST RATES GOING UP?"  AHHH, THE MILLION DOLLAR QUESTION RIGHT??  NEVERTHELESS IF YOU'RE IN THE MARKET TO ANY DEGREE WHETHER TO FINANCE REAL ESTATE OR OTHERWISE, IT'S AN IMPORTANT ONE OF COURSE.  TO BE CERTAIN, THIS ISSUE HAS BEEN tabled WITH THE ALL-POWERFUL FEDERAL RESERVE FOR YEARS NOW... LIKE 8 YEARS!!

And for nearly 8 years (with the exception of December 2015), they've kicked the can down the road when it comes to if, when, how, and why to raise rates.

Firstly, you should know that I'm speaking specifically in a context relating to real estate and it's financing only.  With that in mind, a 'Rate-Hike' as pitched by the news media and Federal Reserve doesn't necessarily mean mortgage rates.  For this article's purpose, it's only important to know that the particular interest rate that the Fed's are alluding to is defined as the FED Funds Rate.  The FED funds rate can simply be viewed as the base rate that determines the level of all other interest rates in the US economy.  In other words, it's the BIG gorilla.  And the bottom line is that the higher the FED Funds rate, the more expensive it is to borrow money... PERIOD.  So in sum, while the FED Funds rate doesn't necessarily equate to what interest rate you pay for your mortgage, they ARE indirectly related.

So practically speaking, what does this mean for you in terms of home prices and getting financing for buying real estate?  And furthermore, when will these rate hikes really take off?  Well, the short answer is, it's anyone's guess and it all depends on the perceived health of the economy in the eyes of the Federal Reserve at any given snapshot in time.  Let's face it... right or wrong, these guys are POW-ER-FUL.  Let's boil it all down into a few simple factual elements that I really hope will help you make some great decisions.

  1.   Interest rates are ridiculously low right now and nobody knows when they will go up.  All indicators are that it will be very soon.  I mean, they DID pull the trigger already in December 2015 and hiked upward .25%.  It didn't really affect the mortgage market because it was already priced into the equation, but we may not be so lucky in the future.  So why on earth wait?  Take advantage!
  2.   If you're sell-minded, it may be best to SELL NOW!  It's no secret that it's probably a given that when rates really do go up, it will cause your home values to go down or at a minimum taper significantly.  Do you really want to place that kind of a bet?  It also stands to reason that folks won't be able to qualify for as much when rates go up and that equates to a smaller pool of perspective lookers/buyers.
  3.   If you're buy-minded (and need financing), it may be best to BUY NOW!  Yes, prices may come down, but it's all about the interest when you need to get a mortgage.  Spending a bit more cash-wise up front is a far better alternative to a significantly higher interest rate.  The math wins out.  For some thoughts on that front see my blog titled 'Save A Nickel Spend A Dime?'

As always, if you have any thoughts, comment below.  We'd love to chat.  Our foremost concern is YOU!  Let a proven company help shed light on a sometimes dark path.

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Teach The Kiddos

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Teach The Kiddos

Teach your kids money habits NOW that will help them win in life later!
— Dave Ramsey
 

After 17 years in the real estate sales and finance business, it seems as though I've come across every imaginable financial scenario possible.  But there's one thing in particular that continues to plague my mind all too often.  And that is the lack of education for kids and young adults specifically as it relates to buying and financing one of the most basic of all needs.... housing!

I've surveyed parents for years asking several simple questions...

  • Do your kids get any basic educational benefits in school that specifically relate to buying and/or financing a home?
  • Do your kids get any training whatsoever on how to negotiate a simple contract?
  • Do your kids get any instruction outside of what they learn at home about credit management?

Unfortunately, almost without exception, the answer is a resounding no!  Why??

Given that in Southern California the average debt incurred on a mortgage is a quarter of a million dollars and upward, isn't it of paramount importance that our kids and the younger generations understand at least the most essential components of a mortgage instrument and purchase contract?

So what's the answer?  If the educational machine won't step up to the plate, who will?  Perhaps as parents we have no other alternative than to dig in ourselves and find solutions and intuitive ways to bring answers to our precious little ones.  How satisfying it would be to be able to look back one day and say that part of the legacy left to our children was to instill within them a firm grasp of the wonderful opportunities that the wide world of real estate can provide.  And on the other hand, how negligent to ignore the responsibility placed upon our shoulders to do so!

To that end, we'd like to pose the question to you, our clients and readers.  What are the solutions?  Why is there such a void in the education system when it comes to teaching specific real estate and mortgage principles?  We'd love for you to comment!

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YOU DON'T HAVE TO PAY MORTGAGE INSURANCE (A.K.A. PMI)

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YOU DON'T HAVE TO PAY MORTGAGE INSURANCE (A.K.A. PMI)

By failing to prepare, you are preparing to fail
— Benjamin Franklin

The mantra over the years has been that if you put less than 20% down on your home purchase, or if you want to refinance and have less than 20% equity, you must pay for private/monthly mortgage insurance (PMI).

But be encouraged!  There are a number of positive changes that have been introduced into today's housing market that have aided homeowners nationwide in avoiding the liability of having to pay PMI; or at least in significantly minimizing it's impact on your finances.

Here are a few options:

1)  UP-FRONT BUYOUT - Buying out PMI right out of the gate is an outstanding way to eliminate the hefty monthly premiums that so easily hamper a family's ability to afford the necessities of life from a cash-flow perspective.  And it's cheaper than one might think.  This is especially helpful if the home-owner/buyer plans on staying in the home for an extended period of time (as little as 2 years in many cases).  The net savings of this choice can be dramatic over the long haul and can free up monthly reserves in case the little ones need shoes or you'd just like a night out once in a while.

2)  MIX IT UP - Hybrid mortgage insurance options allow a buyer or refinance client to pay a smaller portion than a full buyout up front in exchange for a lower monthly premium.  Many view this as the win-win avenue in that they don't have to part with a considerable lump sum of money and yet can manage the cheaper premium on a monthly basis.

3)  BUMP AND RUN - Another option for the savings-minded individual is really quite clever.  This choice allows the home-owner/buyer to bump the interest rate slightly in exchange for eliminating PMI altogether.  The thought process is that since mortgage interest is tax deductible, a small bump in rate cancels out any negative effects via the tax break vs. paying PMI.  Theoretically, PMI is not deductible so it may make all the sense in the world to take advantage of this option.  This is a tricky one and we generally don't recommend it for anyone planning to stay in their home for more than 5-7 years.  Since we're not tax experts, it's best to check with your tax preparer to weigh the cost benefit from a tax vantage point.

One final note... With the exception of it's more lenient stance on credit issues (i.e. Bankruptcy, Foreclosure, etc...) FHA is no longer the best deal when it comes to purchasing a home with very little money down.  Unless you opt for a 15 year mortgage with FHA, you will pay mortgage insurance for THE LIFE OF THE MORTGAGE....ugh!!!  The conventional loan options presented above far and away give you the best bang for you buck with a down payment obligation even less than that of FHA!!  We're in this with you for the long haul and want to help you make the right choices when considering the future of your real estate endeavors for you and your family.  Let's talk about it.  Connect with us!

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We're Back!

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We're Back!

Well it's definitely been a while since we've been active with our blog.  But we're back and dedicated to posting relevant, interesting information regarding real estate and mortgages (...and maybe some other stuff from time to time).  So check back every once in a while, or if you'd like, subscribe to the blog below so that you get it in your email inbox whenever a new article is posted.  We promise to respect your privacy.  We won't sell or share your email address with anyone.

Cheers!

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There Is Only ONE WAY To Get A Truly Free Credit Report!

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There Is Only ONE WAY To Get A Truly Free Credit Report!

It is incumbent upon every generation to pay its own debt as it goes. A principle which if acted on would save one-half the wars of the world.
— Thomas Jefferson

There is an endless stream of “free” credit report offers that hit us from day to day online, on TV, and really everywhere you go for that matter.  The problem is, according to extensive research, every single one of them contains some sort of catch in order for you to obtain your report.  It’s not always money.  There is only one exception that I am aware of.  Well… actually two ;o)

 

First, let me tell you about some of those little hooks that are inevitably hidden among the hype.

• The infamous Credit Score bait

Revealing the coveted credit score is hands down the most popular hook for reeling you in. Right off the bat, know that the free credit report solicitation will probably require a credit card as soon as you make it known that you also want your score along withyour credit history. You should also know that there are numerous ‘models’ or algorithms that different credit agencies and industries use to come up with your score depending on the end use.  For example the popular website 'CreditKarma' will provide a score, but it is generally accepted that those scores are not used by lenders. So even if you do get a score, it may not reflect the one you’re inquiring about. How exactly these guys calculate your score is automated and incredibly complex. Your credit score reflects a snapshot in time and changes day to day, and perhaps even minute to minute. It remains an enigma to the world for the most part. Sure, we know generally how the game is played, but don’t count on ever patently figuring it out unless you’re a mad scientist. Even then, it’ll change as soon as you become enlightened.

• Credit Monitoring

Identity theft is huge and will always be a problem to some extent. There will always be thieves who are perpetually one step ahead. Credit reporting agencies of course know this and realize that everything today revolves around electronic purchases and info gathering in one way or another. Therefore, they have the means to intimately trackevery single one of your purchases and credit inquiries. Enter the credit monitoring fee. I’m in no way saying this is a bad thing and may be well worth the money. What I am saying is that this is one of the tradeoff ploys used in exchange for getting your free credit report. Rather than buying into a credit monitoring service, I recommend employing a reputable, dedicated identity protection company. They will not only monitor your credit, they will typically guarantee your protection by offering to pay for damages incurred should your identity be compromised. Way more bang for your buck! I do have a recommendation for identity theft protection so if you’d like to know, just hit me up (I have no affiliations with them).

• The ‘No Credit Card’ hook

This one’s probably the most tantalizing hook. But, in my opinion it’s downright sneaky. Kind of like one of those magic tricks where you can’t help but say “That’s simply impossible”!! Remember in my introduction when I said that it’s not always money they want. Yeah you guessed it! They want your name… and your social security number… and your phone number… and your address… and, and, and. Buried somewhere within the terms of service, you’ll eventually give your permission for them to sell your information to advertising agencies. What better scheme to allow them to craft an incredibly targeted advertising campaign for you and you alone?!?! They’ve got everything…. Where you buy, when you buy, what you buy, how much you pay… just think, maybe even what color and type of underwear you prefer! Companies pay TALL CASH to these guys to divulge your personal information and purchasing habits. And you willingly agreed via the fine print!

The One & Only Solution**

In 2003 congress passed FACTA (Fair and Accurate Credit Transactions Act), an amendment to the Fair Credit Reporting Act. This provision federally mandated that ‘The Big Three’, TransUnion, Equifax, and Experian offer ALL consumers access to their credit report truly for FREE, no strings attached, PERIOD.

AnnualCreditReport.com is the official and ONLY federally mandated and authorized source to obtain a free credit report. Once there, you will have the option of ordering from all three of the bureaus once per year just as the URL suggests. While you do have the option, I don’t recommend pulling all three at once. Rather, I would suggest that you order one report from each bureau every four months thereby covering yourself for the year. In essence you become your own credit monitor, FOR FREE. You won’t have to worry about the credit pull event dinging your score as it’s a ‘soft inquiry’ by law. It will not affect your score in any way. The only down side to this method is that you won’t get your scores with this service without paying for them. And again, even if you do pay they may not reflect the pertinent score for which you’re inquiring. However, if you’re intent upon getting your scores, you’ll be given an option to enter a credit card and this is the one place where I think it’s safe to pay for them.

**The One Other Exception

So I told you earlier there was one other exception. Of course, it involves you bringing your mortgage business our way. If you mention this post and close your loan with us, the credit report is free and you get a copy along with the scores used for home lending purposes. So there’s that… LOL!

Question:  Do you have a question regarding your credit?  If so, comment below and we'll do our best to answer your inquiry as best we can!

Disclosure:  The links provided herein are for informational purposes only.  I do not guarantee the validity of the link nor do I warranty their services, expressly or implied.

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