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Buying Your First Home: Memories and Money Await You

September 26th, 2009 1:04 PM

Buying Your First Home Memories and Money Await You

First-time homebuyers (FTHB) are taking advantage of one of the best real estate environments we have ever seen. Home affordability this year has been at an all time high with low interest rates and declining home prices. However, buyers on the fence should not be complacent.

Home prices in many markets have not only stabilized but are rising. Interest rates, while still incredibly attractive, could be poised to rise in coming months as stimulus from Washington is scheduled to end in December. Finally, the tax credit of $8,000 for qualifying FTHBs is currently scheduled to end November 30, 2009.

Why Buy a Home?
One of the first questions someone naturally asks themselves as a renter is, "Why should I become a homeowner?" There are many reasons, but probably the first one is the pride in knowing that you have established a foundation for building personal wealth as well as a basis for future memories.

Thinking back to your childhood, many of your fondest memories may be from events in your childhood home. Holidays, birthdays, and family events all typically took place in your home growing up. Anything you and your parents wanted to do to your home, within reason of course, were options of your choosing.

Knowing that you have taken a major step in financial independence also creates a sense of pride that few things can replicate. However, it's one thing to say owning a home makes sense, it's another to actually look at how owning a home can help you financially.

Financial Reasons to Buy
Aside from the emotional implications, any decision involving money has to make sense. There are few things anyone can do that have a greater impact on their finances than owning a home.

The reasons to buy your first home are numerous, not only today, but anytime. In a comparison of renters versus homeowners, the U.S. Federal Reserve Board of Consumer Finance found that the average net worth of renters was $4,000 compared to homeowners at $184,400.

Building personal wealth can be accomplished a number of ways but owning a home provides a path that takes advantage of several ways at once, compounding their net impact on your bottom line. Increasing equity leveraged from the reduction of mortgage debt and home price appreciation are one path. Income tax deductions both from the sale and ownership of the property are another.

Move in and Watch it Grow
What do a tree and the impact of owning a home on personal wealth have in common? Neither grow quickly but both grow larger and become stronger over time. A home purchased today at a price of $150,000 will grow in value to $364,000 over 30 years at an appreciation rate of just 3%.

While the impact of home values over the last three years can not be ignored, during the period from 1950-2002, U.S. home prices appreciated at an annual growth rate of 4.8%, or significantly greater than the example just given.

The Impact on Your Wallet - Today
Owning a home creates a number of items that can result in both an immediate and long lasting boost to your wallet. The first is time sensitive and needs to be acted on quickly to benefit.

Income Tax Credit. The income tax credit available from the IRS for up to $8,000 for qualifying FTHBs is scheduled to end November 30, 2009.

Points Pay Twice. Many buyers today are opting to pay points to lower their interest rate. In some cases, this can be a negotiated expense that the seller may pay to incentivize you to purchase their home. Points paid to lower an interest rate are considered pre-paid interest by the IRS and would result in an income tax deduction for the buyer, regardless of who pays it.

Mortgage Interest. One of the largest tax deductions most people report each year is the amount of interest they pay on their mortgage. While not exact, on a $150,000 mortgage with an interest rate of 5.50%, the amount of the first year's interest would be approximately $8,000. For a family earning $70,000 in a federal tax bracket of 25%, this amounts to a significant savings, effectively reducing the amount of a homeowner's monthly mortgage payment. For those that pay state income taxes, the impact is even greater.

Private Mortgage Insurance (PMI). PMI is insurance that is mandated by a lender when the amount of a down payment is less than 20% of the purchase price. The purpose of PMI is to protect the lender in the event a borrower later falls into default and the home falls into foreclosure. PMI under most circumstances is a tax deductible expense. Consult your tax advisor for more details.

Real Estate Taxes. Property taxes, which can be normally included in the monthly mortgage payment to your lender are a deductible expense. This deduction also effectively reduces the monthly mortgage payment for the borrower at tax time.

Possibly More Dough. These are not the only expenses that can be deducted from your income at tax time. Other items can include moving expenses associated with a job relocation and home improvements that are deemed energy efficient as determined by the Recovery Act. As always, consult with your tax advisor for specific details about how each type of deduction mentioned in this article could apply to your situation.

Act Now and Plan Accordingly
If you or someone you know plans on purchasing a home in time to take advantage of the tax credit, there are some things to keep in mind. The last day to close to take advantage of the tax credit is Monday, November 30, 2009. Keep in mind, this follows Thanksgiving week. With the holiday offering a shortened work week for many, this will make closing at the end of the month more challenging.

Another item to take into consideration is recent legislation impacting a lender. If the Annual Percentage Rate, or APR, changes by more than .125% from the time of initial application, the lender is required to re-disclose the Truth in Lending statement. When this document must be re-disclosed, time must be allowed for a home buyer to receive the document in the mail and review it for approval.

One way to minimize any need to re-disclose your loan documents is to either lock early in the application process at the interest rate on the loan application or submit an initial loan application with a higher-than-current-market interest rate. So, if current rates are 5.50%, your mortgage professional may suggest your application reflect an interest rate of 5.75% for underwriting and initial loan disclosures.

A prudent buyer may plan for closing to occur no later than November 20, 2009 to allow for any possible delay and still take advantage of the tax credit before it expires on November 30. Another prudent decision would be to allow a minimum of 45 days to get your loan approved and closed. Just be sure that when you lock your interest rate, you allow for a cushion in your lock expiration date in the event your closing is delayed.

This would mean that, for your protection, you should work to get your home under contract not later than October 6, 2009. While we may still be able to accommodate a later purchase contract signing, submitting your application earlier is advisable due to the volume of applications lenders may receive during this time.

Best Path to Take Now
Buying a home today could be the best financial decision a renter can make. Not only does this decision help turn a residence into a home, it establishes a foundation for future personal wealth, both immediately and over time.

To decide what works best for you or someone you know, get pre-approved today so you know exactly what you may qualify for both in purchase price and monthly payment. This one action can remove a lot of stress and simplify the home search process since you will know what you can afford.

Quick Tips For Getting Started on Your Home Purchase

Karl Peidl
Lincoln Mortgage Company
251 Bellevue Avenue, Suite 102
Hammonton, NJ 08037

609-878-7013

kpeidl@linc-mort.com

www.karlpeidl.com

Pennsylvania: Licensed by the PA Department of Banking as a First Mortgage Banker and licensed pursuant to the PA Secondary Mortgage Loan Act. New Jersey: Licensed by the N. J. Department of Banking and Insurance Maryland: Authorized Mortgage Lender by the State of Maryland Commissioner of Financial Regulation. Florida: Licensed Mortgage Lender by the Florida Office of Financial Regulation. Delaware: Licensed Lender by the Delaware Office of the State Bank Commissioner.

Posted by Karl Peidl on September 26th, 2009 1:04 PMPost a Comment (0)

Mortgage Rate Update

September 24th, 2009 3:36 PM

Mortgage Rate Update

15-Year Fixed Rate Loans

A 15-Year Fixed Rate loan works well for borrowers who are nearing retirement and want to be debt-free when they get there. Because payments in a 15-year scenario are amortized over half the length of a 30-Year Fixed Rate loan, the monthly payments will be significantly higher in comparison. This is an important factor to consider before committing to a 15-year loan. However, the interest rate on a 15-Year Fixed Rate loan will be lower for the same reason - financing for 15 years costs much less than financing for 30 years.

If a borrower is 50 years old and would like to be debt-free when retiring at age 65, then a 15-Year Fixed Rate loan will allow the borrower to meet that goal as far as their mortgage is concerned. However, if there is any question as to whether the borrower will be able to commit to the higher monthly payment, the alternative is to take a 30-Year Fixed Rate mortgage and make pre-payments with some consistency. If the borrower has the discipline to make those extra payments whenever possible, he or she can still attempt to meet the same goal.

I prefer to educate my borrowers so they can compare the benefits of each program and have the opportunity to review loan options with their financial advisors.

Mortgage Interest Rates*

Rates as of Thursday, 24th September, 2009:

	Conforming	APR	Payment per $1,000	Jumbo	APR	Payment per $1,000
30-Yr. fixed	5.000%	5.218%	$5.37	5.375%	5.598%	$5.60
15-Yr. fixed	4.375%	4.745%	$7.59	4.875%	5.250%	$7.84
7-Yr. fixed ARM	4.250%	4.459%	$4.92	6.375%	6.612%	$6.24
5-Yr. fixed ARM	4.125%	4.332%	$4.85	6.000%	6.232%	$6.00
3-Yr. fixed ARM	4.000%	4.206%	$4.77	6.000%	6.232%	$6.00
5-Yr. Interest Only	4.125%	4.332%	$3.44	5.125%	5.345%	$4.27
FHA 30-year fixed	5.000%	5.218%	$5.37	5.250%	5.472%	$5.52

*Rates are subject to change due to market fluctuations and borrower's eligibility.

Karl Peidl
Lincoln Mortgage Company
251 Bellevue Avenue, Suite 102
Hammonton, NJ 08037

Accredited Loan Consultant

609-878-7013

kpeidl@linc-mort.com

www.karlpeidl.com

Posted by Karl Peidl on September 24th, 2009 3:36 PMPost a Comment (0)

Contingencies in Real Estate Contracts

September 22nd, 2009 11:04 AM

Contingencies in Real Estate Contracts

In real estate contracts the contingency is a common element. Contingencies are clauses in a contract that give either the buyer or seller a way to get out of the contract if certain conditions or timelines aren't met. A commonly used example is that of a buyer making an offer on a new home before selling his existing home. The buyer needs to sell his present home before being able to get financing on the new one. So he makes his offer contingent upon the sale of his existing home. There will always be a time period associated with such a contingency. If the buyer is able to get his present home sold within that time period, the deal can go forward. But if he fails to sell within the specified time period, the seller has the option of getting out of the deal. In most cases, sellers won't accept this kind of contingency, because they will most likely feel that they can find another buyer capable of closing the deal without needing to sell another home first. But new home builders are often willing to accept an offer contingent upon the sale of an existing home.

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Every contract can be unique. The possibilities for contingencies are virtually endless. Some of the more commonly used contingencies would include:

Financing. Contingencies that depend on the buyer being able to obtain financing are very common.

Home Inspections. Probably the most common type of contingency is the "contingent upon satisfactory completion of inspection". There are any number of specific types of inspection for which a contingency might be included in a contract. Some of the more common would include inspection by a qualified home inspector for hidden defects, pest inspections, water and sewage system inspections, inspections dealing with the presence of radon or mold, etc.

Appraisal. It's not unusual for a buyer to have a contingency that allows for a formal appraised value at or above purchase price. Since lenders will nearly always want an appraisal performed too, sellers usually don't have a problem with this.

Remember, just like everything else in real estate contracts, contingencies are negotiable. Always take care before signing that you are comfortable with all contingencies included in your contract. Likewise, take time to think about what contingencies you might like to have added.

Quick Tips for Getting Started on Your Home Purchase

Karl Peidl
Lincoln Mortgage Company
251 Bellevue Avenue, Suite 102
Hammonton, NJ 08037

Accredited Loan Consultant

609-878-7013

kpeidl@linc-mort.com

www.karlpeidl.com

Posted by Karl Peidl on September 22nd, 2009 11:04 AMPost a Comment (0)

First-Time Homebuyers - 12 Things You Must Do

September 19th, 2009 11:03 AM

First-Time Homebuyers - 12 Things You Must Do

First-Time Homebuyers

Your decision to buy a home is both a sound financial decision and a commendable achievement. Below we have listed 12 things you must do to prepare.

1. Check the selling prices of comparable homes in your area. Web sites like Zillow and Homegain can give you a general idea of what you should expect to pay. You can also do a quick search of actual MLS listings in your area on a number of Web sites, including the National Association of Realtors. Also consider:

Where will you be in 5-10 years?
Do you have kids or plan to have them?
Does your job require you to move around a lot?
Do you have time to maintain a home and yard?
Do you want to live near work?
Do you want to live near shops, restaurants and nightlife?
How much living space do you need?

2. Use our mortgage calculators to get an idea of what your monthly mortgage payments would be if you bought today. You can also use my "Rent vs Buying" calculator to compare the costs of buying and renting. Just because a lender will give you the money doesn't mean you should take it. You know best what you can manage. Don't over-extend yourself. Also consider additional expenses that come with homeownership:

Insurance
Property Tax
Private Mortgage Insurance
Homeowner's association fees
Utilities (increase with square footage)
Maintenance

3. Find out what your total monthly housing cost would be, including taxes and homeowners insurance. In some areas, what you'll pay for your taxes and insurance escrow can almost double your mortgage payment. According to the Insurance Information Institute, the average yearly premium can range from $477 a year in Utah to $1,372 a year for Texans.

4. Find out how much you'll likely pay in closing costs. The upfront cost of settling on your home shouldn't be overlooked. Closing costs include origination fees charged by the lender, title and settlement fees, taxes and prepaid items like homeowners insurance or homeowners' association fees. We can not only help you determine likely closing costs, but also ensure you are getting fair terms for your profile, qualifications, and program.

5. Look at your budget and determine how a house fits into it. Fannie Mae recommends that buyers spend no more than 28% percent of their income on housing costs.

6. Talk to a reputable Realtor in your area about the real estate climate. Do they believe prices will continue falling or do they think your area has hit bottom or will rise soon? I can also assist you with some analysis to get a better feel of this in your specific market as well as recommend a Realtor.

7. Remember to look at the big picture. While buying a house is a great way to build wealth, maintaining your investment can be labor-intensive and expensive. When unexpected costs for new appliances, roof repairs and plumbing problems crop up, there's no landlord to turn to, and these costs and can quickly drain your bank account. So consider whether you're ready for the expense and effort of homeownership before pulling the trigger.

Prepare for the hunt
If the numbers in 1 through 7 make sense for you, taking a few steps at the beginning of the homebuying process can save you time, money and aggravation.

8. Examine your credit. Right now, blemished credit or the inability to make substantial down payment can put the kibosh on your homeownership plans. That's why it pays to look at your creditworthiness early in the home-buying process. Get your free annual credit report at annualcreditreport.com and comb through it for errors and unresolved issues. If you find mistakes, contact the credit reporting bureau to make sure they are corrected. It's also a good idea to get your FICO score, which will cost you a small fee.

9. Get your documents in a row. Collect pay stubs, bank account statements, W-2s, tax returns for the last two years, statements from current loans and credit lines, and names and addresses of your landlords for the past two years. Have them ready to show to the lender. This may seem like a lot, but in this age of tight credit, don't be surprised if your lender needs a lot in the way of documentation.

10. Find a lender and get preapproved. Getting preapproved for a mortgage helps you bargain from a position of strength when you are house hunting. Start by filling out a loan application so we can review your qualifications.

11. If at first you don't succeed, try, try ... the government? If you can't find a bank willing to lend to you -- and in the current tight credit market, it's possible you won't -- consider getting an FHA loan. The Federal Housing Administration has a program that insures the mortgages of many first-time homebuyers. As a result of this guarantee, lenders who might otherwise feel queasy about your qualifications will be more inclined to lend to you. As a bonus, the FHA only requires a 3.5 percent down payment from first-time homebuyers.

12. Finally, don't forget about the first-time homebuyer tax credit. Get your hands on Form 5405 ahead of time and send it in with your tax return immediately after your home purchase to ensure you receive the $8,000 credit as soon as possible. Also, many states are now piggy-backing on top of the federal tax incentive with their own incentives and grants.

Please contact me with any questions.

Karl Peidl

Accredited Mortgage Advocate

Lincoln Mortgage Company

251 Bellevue Avenue, Suite 102

Hammonton, NJ 08037

609-878-7013

kpeidl@linc-mort.com

www.karlpeidl.com

Posted by Karl Peidl on September 19th, 2009 11:03 AMPost a Comment (0)

Quick Tips for Getting Started on Your Home Purchase

September 14th, 2009 11:17 AM

Quick Tips for Getting Started on Your Home Purchase

Buying a home can be a complex process, but it doesn't have to be. With a little preparation, you can save a lot of time and hassle by having all of your documents ready when your mortgage professional needs them.

To start with, the lender will need personal information to verify employment for you and your co-borrower (if there is one). They will also need information regarding all of your debts and assets.

In order to expedite the paperwork process, start gathering the following items:

Most recent paystubs for one month.
W2s from the last two years.
Signed copies of your last two years' tax returns, including all schedules that were filed.
If you are self-employed, a year-to-date profit and loss statement.
Homeowner's insurance company name and number.
Most recent bank statements for two months.
Most recent statements from any retirement and investment accounts for two months.

What costs are involved?
Within 3 days of your application, your Loan Officer must provide you with a good faith estimate of closing costs. Along with any down payment, you will have to pay closing costs as well. This is a brief rundown of some of the fees that could be associated with your new mortgage:

Application/Processing Fee – Charged by the loan officer to process your loan application.
Appraisal Fee – Charged by the appraiser to determine the current value of the property.
Closing Fee – Charged by the closing agency (escrow, attorney, title) to ensure the close of your transaction.
Credit Report Fee – Charged by the credit reporting agency to provide your credit report to your loan officer and/or lender.
Title Search/Title Insurance Fees – Charged by the title company to ensure the property is free from liens or title defects.
Origination Fee – Paid to the originator to obtain a lower interest rate. This is usually expressed in the form of points. One point equals 1% of the loan amount.
Discount Points – Paid to the lender to secure a lower interest rate.
Miscellaneous Fees – VA and FHA loans may have other fees associated with them. Private Mortgage Insurance (PMI), document preparation, notary, recording and tax service are other fees which may fall under this category.

Let us help you evaluate your personal situation and assist you in finding the loan program that works best to meet your individual goals and needs.

Call me directly for a free consultation.

Posted by Karl Peidl on September 14th, 2009 11:17 AMPost a Comment (0)

The Federal Reserve and Mortgage Rates: Understanding What Causes Interest Rate Movement

September 12th, 2009 12:07 PM

The Federal Reserve and Mortgage Rates
Understanding What Causes Interest Rate Movement

The Federal Reserve constantly evaluates the US economy and, when necessary, takes steps to address inflationary concerns and avoid economic recession or depression. The mass media, in turn, reacts by providing a wide range of opinions and interpretations of the Fed's monetary policy. This can make it very difficult for consumers to decipher how such actions will influence interest rates in general and mortgages in particular.

And although actions of the Federal Reserve can have a direct impact on the Prime rate, mortgage interest rates are dictated by the trading of mortgage-backed securities, which are similar to bonds and trade on a daily basis. This means that the real dynamic at the heart of interest rate movement is the competitive relationship between stocks and bonds.

Stocks, bonds, and mortgage-backed securities compete for the same investment dollars on a daily basis. There is literally only so much money to be invested. When the Federal Reserve feels that interest rates need to be decreased in an effort to stimulate the economy, this reduction in rates can often cause a stock market rally. When the market becomes bullish, the money to invest in stocks comes from the selling off of other investments, including mortgage-backed securities.

Unfortunately, when mortgage-backed securities are sold off to fuel stock market rallies, this causes interest rates to go up, not down.

Historically, there have been many instances where the Federal Reserve has increased interest rates, arousing fears that corporate profit margins would be affected. This resulted in stocks being sold off, leading money managers to search for a place to invest their newly liquidated assets until the next market rally. One such safe haven has been mortgage-backed securities, which cause mortgage rates to drop.

The daily ebb and flow of money is what matters most when it comes to the movement of mortgage interest rates. I make it a point to continuously monitor interest rates for my clients and advise them of opportunities to manage their mortgage debt at a better rate. This is the foundation of my business model as a trusted advisor.

If media reports have led you to second guess whether it's a good time to purchase a new home, give me a call. We'll analyze your financial situation together and create a plan that's right for you.

Quick Tips for Getting Started on Your Home Purchase

Karl Peidl

Accredited Loan Consultant

Lincoln Mortgage Company

251 Bellevue Avenue, Suite 102

Hammonton, NJ 08037

609-878-7013

kpeidl@linc-mort.com

www.karlpeidl.com

Posted by Karl Peidl on September 12th, 2009 12:07 PMPost a Comment (0)