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Build Home Equity Faster

2006-12-15T12:40:00.000-08:00

Equity is the part of your property that you actually own. It's the current value of a property less the amount of the liens secured against it. If you own property that's worth $250,000, and you have a mortgage with a remaining loan balance of $100,000, your equity in the property is $150,000. Repeat home buyers usually rely to some extent on the equity in their current home to help buy their next home. The more equity you have, the larger the possible down payment for the trade-up home.

Home equity also equals security. The more you have, the better off you are, the more financial leverage you have, the more stable you feel. So how do you build home equity faster? Especially at the beginning of a mortgage loan, so little of your payment goes to principal that equity builds maddeningly slowly.

Naturally, building home equity comes at a price, usually in the form of larger payments. One trap you want to avoid is becoming house-rich and cash-poor. If building home equity means incurring debt to make ends meet, then you've defeated the purpose of building equity in the first place.

The first option in home equity building is to make additional principal payments. One way to do this is to sign up for a bi-weekly mortgage, in which you make two payments per month (which added together equal one monthly payment). You will make the equivalent of 13 monthly payments per year instead of 12, which may seem insignificant. But a 30-year loan with a bi-weekly payment plan is usually paid off in about 20 years.

To compare this option to other ways of building your financial security, let's look at additional principal payments in contrast to investing. Additional principal payments make sense when you save more on your mortgage interest expense on an after-tax basis than you would earn on your investments on an after-tax basis. If you are able to deduct your mortgage interest from your income taxes and your marginal federal income tax rate is 27 percent or higher, then your after-tax cost of mortgage debt is between 3 and 4 percent.

In the current economy with its low interest rates, the after-tax return on money market investments and CDs won't offset your after-tax cost of debt. For instance, if you earn 4 percent pretax on a five-year CD, and you're in the 27-percent bracket for federal income taxes, the after-tax return is less than 3 percent.

However, contributing to a tax-advantaged retirement account, especially a 401(k) plan where your employer matches all or part of your contributions can be a better strategy than prepaying your mortgage -- at least up to the limit of the employer match.

Before you start making additional principal payments, use one of the many amortization calculators you can find on the internet to do the math-how much interest you would save if you made additional principal payments, and how much it would shorten your loan and increase your home equity.
The other way to build home equity faster is to refinance. Recently, the reason most people have refinanced is to lock in a lower interest rate and/or lower their monthly payment. But you can also refinance to shorten the term of your mortgage, which builds equity. The down side to this is that a 15-year mortgage is harder to qualify for than a 30-year.

If you had a $200,000 30-year ARM at 8.13 percent and replaced it with a 15-year fixed rate loan at 6.75 percent, your monthly payment would go from $1485.69 to $1769.82. But the total interest on the 15-year loan will come to $118,567.29 as opposed to the $334.855.28 on the remaining life of the ARM, assuming your adjustable rate holds steady at its current 8.13 percent. So in addition to saving more than $200,000(!), you build the same amount of equity in half the time.

But what if you can't afford a higher house payment? Your next best means of building equity is to refinance for less than 30 years. To do so, ask your mortgage company to customize your new loan's term to match the years that are left on your old loan -- if you are five years into a 30-year mortgage, for example, ask for a 25-year loan.

You probably won't receive the entire amount of your equity as cash when you sell your home. Most sellers use part of their equity to pay selling costs, such as brokerage commissions and transfer taxes. Also, if you are delinquent on your property taxes, or have other liens secured against the property, such as an IRS tax lien, these would have to be paid at closing.

In past years, homeowners saw their equity grow significantly due to home price appreciation. Appreciation is the increase in the value of a property. Picture this: You bought your first home for $125,000 in 1985 with a 10 percent down payment of $12,500 and a mortgage for $112,500. By 1989, your property had doubled in value to $250,000. After you paid back the mortgage and your selling costs, you were left with about $122,000 in cash.

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

Should You Borrow From Your 401k?

2006-12-01T11:57:00.000-08:00

Have you refinanced your home into oblivion? Tapped out every available money resource with a myriad of loans and credit cards? There is one last option: borrowing from your 401(k). If you've never heard of this option, it's because until recently, it just wasn't done that frequently. But with the market still not fully recovered, and people desiring to cut their high interest debt, more folks are discovering this alternative lending source.

Before you decide to borrow from your 401(k), it is crucial that you understand the pros and cons. Don't forget that your 401(k) is your retirement nest egg, and you are putting that nest egg into possible jeopardy. If you're thinking of borrowing from your 401(k) to buy a luxury automobile or a larger home, stop. Mortgaging your future to live a lifestyle that's beyond your income is a mistake. But if you're trying to get out from under high-interest debt and plan to use this opportunity to live within your income, it could be your ticket to becoming debt-free.

Here's how they work: most plans allow you to borrow up to half of your vested balance, but not more than $50,000. You apply to the company that manages your 401(k) plan, but you don't have to "qualify"-after all, you're borrowing money from yourself. You sign a promissory note and receive the money within a couple of weeks. The interest rate is usually equal to the prime rate or slightly over. You have five years to repay the loan, and most of the time, you make payments through payroll deductions.

Now let's look at the pros and cons of borrowing from your 401(k):

Pros:

A 401(k) loan does not appear on your credit report. They are not reported to Experian, and do not become a part of your credit history.

The interest on these loans is typically lower than offered through most banks.

You're paying yourself the interest, not some bank.

You'll get your money more quickly than if you were using another means of borrowing.

Since it's a loan, you will not be charged the 10 percent early withdrawal penalties plus income taxes you would have to pay if you withdrew the money.

You don't have to qualify for the loan through the usual long, painful credit approval process, because in effect, you are the lender.

No assets or collateral are needed to secure the loan.

Cons:

The biggest con is that you are forfeiting the accrued interest you would earn if your money stayed in the 401(k). Calculated over the long term, it can cost tens even hundreds) of thousands of dollars in potential gain.

Unlike a home equity loan, the interest is not tax deductible.

Some plans do not allow contributions to the 401(k) for the period of the loan.

If you lose or quit your job, the loan is often due in full in 30-60 days although some plans are open to renegotiating the terms of the loan. Find out before you sign the papers.)

If you default on the loan, it is considered a withdrawal and you will owe a 10 percent penalty plus a hefty tax payment. So if you had borrowed $50,000 and couldn't pay it back, you would have to pay a $5,000 penalty and federal and state taxes that could take another $20,000 of the amount.

To calculate the actual cost of borrowing from either source: for a home equity loan, ignoring upfront costs, the after-tax cost is the interest rate minus your tax savings (interest rate times 1 minus your tax rate).

The cost of borrowing from your 401(k) is what your loan would have earned had you kept the money in the 401(k). Since your 401(k) accumulates tax free, the total return on the fund is a close approximation of the after-tax cost.

Let's say you need to borrow $10,000 and you have $100,000 in your 401(k) earning an average of 10 percent a year. Interest on a home equity loan is 8.5 percent and you are in the 28 percent tax bracket. The after-tax cost of the home equity loan is 8.5x(1 - .28) or 6.12 percent. The 10 percent cost of borrowing from the 401(k) is higher than the 6.12 percent cost of the home equity loan.

If both loans are repaid in full after one year: if you use a home equity loan, you will have $110,000 in your 401(k), you've paid the lender $10,850 in interest and you have a tax savings of $238. Your financial wealth will therefore be $110,000 - $10,850 +$238 = $99,388.

If you borrow from the 401(k), you will have only $99,000 in your 401(k) at the end of the year because you haven't earned the 10 percent on the $10,000 you borrowed. Whatever you pay back to the fund does not affect your wealth. You are thus $388 poorer if you borrow from your 401(k).

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

When is it Time to Refinance?

2006-11-21T10:01:00.000-08:00

You've probably begun to receive the calls during the dinner hour - mortgage companies' telemarketers are out in force trying to convince you that now is the time to refinance, as interest rates continue to drop. But should you take the advice of a minimum-wage phone solicitor on how to handle the financing of your largest, most important asset - your house?

Obviously, more thought should go into the idea of refinancing your home. Like anything else, refinancing has its good points and bad. First of all, trying to predict the best time to refinance is like trying to predict a teenager's moods - impossible and slightly dangerous. But there are some gauges you can use to decide if refinancing makes sense for you.

Refinancing 101

There are myriad motives for refinancing your home mortgage, but the most common reasons to refinance are to lower your interest rate thereby lowering your monthly payment; to use your equity for home improvements or other large expenses; when interest rates are low, to lock in a constant interest rate if you have an adjustable rate mortgage (ARM); when rates are high, to convert to an ARM to lower monthly payments; if your mortgage has a balloon provision with no conversion option; and/or for debt consolidation.

Refinancing for debt consolidation can be tricky. The loans being consolidated may include second mortgages, credit lines, student loans, credit cards. In many of these cases, debt consolidation also carries with it tax savings, since mortgage interest is tax deductible and consumer interest is not.

While all the above refinancing reasons are legitimate and reasonable, there are many factors to consider. For instance, it will be identical to the process you underwent when securing your original mortgage - requiring an application, credit check, title search, etc. This process, as you already know, is time-consuming and often expensive. Refinancing is not free. There are bank fees, appraisal and inspection fees, lawyer's fees, points and closing costs, just like the first time around.

Calculating Your Savings

So how do you calculate what rate you need for refinancing to be worthwhile? The interest rate isn't the only thing to consider when shopping for a new loan. However, the general rule of thumb is that if you can get an interest rate at least two percentage points lower than what you are currently paying, refinancing will pay for itself.
Pull out a piece of paper and figure out:

1) your current monthly payment,
2) the original cost of the home;
3) an Itemization of refinancing costs,
4) your monthly payment after the refinance,
5) the length of time you plan to live in the house after the refinance,
6) the amount still owed on the house,
7) the break-even point (calculate this by dividing the total cost of the refinance by how much you'll save each month on your payment; for example: $2000 cost of refinance divided by $100 per month savings equals 20 months).

Depending on your ultimate goal in refinancing, the above numbers should give you a good idea of whether or not it makes sense. If it still looks like a jumble to you, there are many online "calculators" that can assist you in figuring out the pros and cons of refinancing. I have one on my web site at http://www.noelwheeler.com under Resource Center tab.

Plan carefully

If you want to refinance, it's a good idea to think and plan carefully before you do so. First rule: if you plan to pull out cash from your refinance to pay off credit card debt, close your credit card accounts (don't just cut up the cards) so you don't run them up again.

If you're pulling out cash to make home improvements, do them right away. It is very easy to fritter money away without realizing it, and to adjust to a higher standard of living - even a temporary one. If you're pulling out cash for any reason, consider not pulling out the maximum. Leave some equity in place for your security, to ensure a lower house payment, or in case of emergency.

Refinancing can be a boon - or a bust. It's up to you to do the homework and decide if it makes sense for you.

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

The Truth about Credit Cleaning Companies

2006-11-14T07:54:00.000-08:00

The internet has made so many goods and services available; it's hard to keep up. Books, music, stocks, education - and the latest internet pitch: "Remove poor credit from your credit report immediately and permanently!" Can it be true? Is it this simple? Is it legal? Is it expensive?

The answers: No. No. Definitely not. And absolutely
Ten state attorneys general offices, 29 better business bureaus, and the National Foundation for Credit Counseling recently went web surfing and found almost 200 web sites that make the above claims. Their objective was to examine the advertising claims of the companies. The Federal Trade Commission emailed the sites to let them know that they were under investigation, and that their claims may violate federal and state statutes. In the email, the FTC stated: "If your company engages in any deceptive or fraudulent credit repair activities, we strongly urge you to stop; otherwise, you may be subject to legal action."

According to the FTC, many of these so-called credit repair companies "guarantee" that they can expunge negative information from credit reports, even if the information is accurate and timely. Not only is this claim false, but it may cost clients hundreds, even thousands, of dollars - and place them in jeopardy of committing a felony.

The Tactics
The credit cleaners take advantage of a practice known as "spamming" - sending out thousands of unsolicited emails to unsuspecting consumers. Their pitches are hard to resist, with lines like "Erase your Bad Credit!" "You'll have new credit in no time," "Start over with a clean slate." "It's 100% LEGAL," or "It's not only legal, it's your right." What they don't tell you is that the only way to erase bad credit is with time and effort, and that what they propose is not only illegal, it's a felony with jail time.

Credit cleaners depend on people's desperation and lack of education. One of their most common "strategies": they advise their clients to apply for a new Social Security Number. Just so there's no misunderstanding here - it's against the law to apply for a new Social Security number to create a new identity, no exceptions.

Another scheme they advise is to obtain a federally issued nine-digit Employer Identification Number (EIN), or a Taxpayer ID number, and substitute that for your Social Security number. Again, this in effect illegally creates a new identity, which can be used to get credit cards and loans. Add to the above using internet phone lines for the transaction, and you'll be guilty of racketeering as well.

Less fraudulent - but no less unethical - ways the credit cleaners try to achieve their goals include inundating credit bureaus with dozens of letters, disputing all negative information on your credit report

By law, if a credit bureau does not respond to requests within 30 days, they must remove the disputed items from your credit report. The theory is that the bureau will be so busy answering all the frivolous claims that they won't be able to review them all and therefore default on the 30-day limit. In addition to its questionable morality, this tactic has been rendered ineffective by the credit cleaners' frequent use of it. Credit bureaus are now allowed to refuse or ignore frivolous requests from credit repair services - they automatically red flag bulk requests that refute each and every entry (even the good ones) on the report. And the fact is that the bureaus are practiced at determining whether bad marks on your report are bona fide.

Legal and Ethical Tactics You Can Do Yourself For Free
Credit cleaners claim that they can persuade credit bureaus to remove negative information from your credit report for a fee. What they don't tell you is that you can accomplish the same thing in the same way free of charge. How? Contact your creditor personally. The credit bureau cannot remove valid bad marks off your record unless told to do so by the creditor who put it there. Inaccurate negative info on your credit report can be removed easily with a simple phone call to the creditor. Be calm, respectful, and grateful, never aggressive or angry. Many times your creditor will work hard to help you. Even if you paid a bill late years ago, you may be able to convince them to remove the bad mark on your credit report, especially if there were mitigating circumstances.

New Law on the Books
As it happens, there is a new federal law, the Credit Repair Organizations Act (CROA), designed to help consumers combat fraudulent credit repair scams. Any credit cleaner that claims it can improve a consumer's credit report and charges for the service in advance is in violation of CROA, plain and simple.

Don't be taken in by the "quick and easy" pitches of credit repair companies. If it sounds too good to be true - it probably is. Brochures about credit repair schemes are available on the FTC's web site (www.ftc.gov) or by calling toll-free 1-877-382-4357.

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

Down Payment Grants

2006-11-07T14:20:00.000-08:00

Want to buy a home but can't seem to get ahead enough to save for the down payment? What if you could snap your fingers and make money appear, specifically down payment money? Well, start snapping and say hello to down payment grant programs. Sound too good to be true? It's not. There are programs available to help deserving folk-people with decent credit and stable work histories-get a home without having to save up for years while pouring rent money down the drain. And even better-because they're grants, you never have to pay them back. More than 200,000 homebuyers nationwide have benefited from these programs. Nonprofit organizations like Partners in Charity and the Genesis Program provide from 1 to 10 percent down payments, up to $22,500. While the qualifications vary according to program, each program requires that buyers qualify for financing with their lender. Other requirements may include completing a Home Ownership Counseling course, or that the home buyer provides 1 percent of their own money. Sellers are sometimes asked to contribute as well. Sellers benefit as well from these programs. By broadening the pool of potential homebuyers, grant programs help sellers and lenders sell homes faster than they might otherwise with a smaller group of eligible buyers. In effect, down payment grant programs bring more buyers to the marketplace. As you might expect, many programs have income/asset restrictions, recapture clauses, reserves required or geographic boundaries. Down payment assistance programs generally participate with FHA, conforming and jumbo loan products, and can be used for single family homes, manufactured/modular home, condos, town homes, existing or new construction, rehab and jumbo. Most of the programs don't underwrite the loan or add any cost in the form of points or fees. They just provide the gift for the down payment and/or closing costs. Let's look at two of the programs:

Partners in Charity (PIC): Provides 2 to 10 percent down payment.

• No cash investment required of the buyer.
• No extra qualifying after mortgage lender approval.
• First, log on to www.partnersincharity.org and fill out an application
to be added to PIC's "Grant Reservation List.
• If you've already selected a lender, have them call PIC, who will explain
the program to them. Your lender will then determine the down payment you'll
need and will advise PIC of the amount.
• After pre-qualifying for a mortgage, we will work together to find a home
in your price range.
• The seller is required to participate in the PIC program, so it's important
that I explain it to them before making a fair offer.
• Your lender will send an appraiser to the property to make sure everything's
in working order and you didn't overbid on the house.
• After the appraiser submits the appraisal report to your lender, they'll
approve your mortgage and settle on an interest rate.
• Now your lender will request your gift from PIC. PIC will wire your gift to
the closing or escrow company prior to your closing.
• Once you move into your new home, all PIC wants in return is for you to
refer someone else to them who needs help with a house down payment.

The Genesis Program: This program is similar to PIC in that it provides homebuyers with free money to use toward down payments, closing costs and other funds needed to buy a house. You can receive up to $22,500, and like PIC, no lien is recorded against the home and you don't have to repay.

• Homebuyers are not required to provide any of their own money.
• Sellers are required to put up a contribution equal to the gift amount
provided by Genesis to the home buyer (1 percent of the contract sales price
or $750 whichever is less).
• Buyers are automatically qualified for a gift from Genesis if they purchase
a Participating Home (a home in which the seller has entered into a
participating home agreement with Genesis Housing Development Corp. The
Participating Home Agreement outlines the contribution the seller makes to
Genesis and its use.) and obtaining financing through an eligible loan
program (any single-family mortgage loan that allows charitable
organizations to provide gift funds to a buyer for use toward their down
payment and/or closing costs. FHA guidelines allow a gift from a charitable
organization as an acceptable source of borrowers “Funds to Close” (HUD
Handbook 4155.1, Rev-4, Chg-1, Para.2-10C.)

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

Housing Slump

2006-10-31T08:16:00.000-08:00

With all the dismal reports about the home real
estate market, don’t lose track of something critically important:
Mortgage interest rates have been falling quietly but steadily for
weeks, and are now at their lowest level in half a year, barely a
percentage point above 40-year lows.

New mortgage applications are up sharply, the number of pending
home sales is up, the national economy continues to expand
moderately, and the rate of unemployment just declined again to
4.6 percent.

All of which raises the question: Just what kind of housing bust is
this anyway? With gloom-and-doom purveyors forecasting
imminent crashes in dozens of metropolitan areas, how could such
key fundamentals as jobs, interest rates and even pending home
sales simultaneously be trending in the opposite direction?

Donald L. Kohn, the Federal Reserve’s vice chairman, took a stab
at that seeming conundrum in a speech Oct. 4 at New York
University. His views are worth keeping in mind if you want to put
the negative news on home prices and sales in perspective.

To begin with the fundamental point: Kohn sees no imminent bust
or crash in housing at all. It is a “correction” that’s under way a
cyclical rebalancing of a marketplace that got too hot for too long
in some parts of the country, and is now heading back toward more
“normal” conditions, where prices are more in line with what
consumers can afford.

“The reported declines in house prices in a number of areas should
help to facilitate the rebalancing of supply and demand in those
markets,” said Kohn.

Not all home sellers have fully grasped the altered realities in their
own local markets that they’ve got to reduce their asking prices if
they truly want to sell so the process is still unfolding. Re-priced
houses, in turn, should stimulate greater numbers of potential
buyers to get off the sidelines and make offers. The unexpected 4.3
percent increase in the latest monthly number of pending home
sales contracts heading for closing nationwide reported Oct. 2 by
the National Association of Realtors could be a sign that Kohn’s
prediction is already taking shape.

Second, said Kohn, the housing correction expressed through new
home starts “may be closer to (its) trough than to (its) peak.”
Translating from Fed-speak, this means that we appear to be well
on our way toward bottoming out and eventually returning to
positive growth in new home starts and resales.

Now to interest rates. Today’s “unusually low” long-term mortgage
rate environment “stands in sharp contrast to some past downturns
in the housing market that followed actions by the Federal Reserve
to tighten credit conditions significantly.” Translation: Affordable
HOUSING SLUMP NOT ALL DOOM AND GLOOM
mortgage money should help shorten the current housing down
cycle compared with credit-squeezed periods in the 1980s, when
mortgage rates sometimes exceeded 16 percent for fixed-rate loans.

A final key factor, according to Kohn: “Continuing growth in real
incomes should underpin the demand for housing, and as home
prices stop rising, help erode affordability constraints.”

Add it all up: Lower asking and selling prices on houses are integral
parts of the self-correction and should help shorten the whole
process. Lower interest rates should make those lower prices
affordable to a broader number of potential buyers. That could
become an even more important factor if mortgage rates dip below
6 percent in the coming months, as some Wall Street capital market
analysts expect.

James Glassman, a managing director at JP Morgan Chase, says 30-
year fixed-rate mortgages at 5 percent are a distinct possibility if
long-term rates in the global bond market continue to ease. The
current cyclical downturn in housing “is not your classic interest
rate story” he says. Money is available at low cost, and there’s a
good possibility “it won’t be long before we work through this.”

The source of some of the confusion about just where housing is
headed, and how bad things are likely to get? Mike Moran, chief
economist of Wall Street’s Daiwa Securities America, minces no
words: The financial press and TV news shows are overly
dramatizing what is a normal and long-predicted cyclical
rebalancing, and “portraying it as a catastrophe.”

Housing “is going through a correction that’s badly needed,” he
said. “The key issue is whether it is orderly or disorderly” and all
signs point to a continued orderly process, not a breakout bust or
panic.

Doug Duncan, chief economist of the Mortgage Bankers
Association, points out that national housing sales numbers are
merely rolling back to 2003 levels “and that was a record year.”
Serious sellers and buyers shouldn’t be misled by predictions of
imminent crashes, said Duncan. Not only do the doom reports
ignore the positives out there in the marketplace mortgage rates in
particular but “the rhetoric is just way overwrought.”

Kenneth Harney · San Diego Union Tribune · October 15, 2006

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

ARM vs. fixed-rate mortgage

2006-10-24T08:53:00.000-07:00

Which is the better mortgage option for you: fixed or adjustable?

The low initial cost of adjustable-rate mortgages, or ARMs, can be very tempting to home buyers, yet they carry a degree of uncertainty. Fixed-rate mortgages offer rate and payment security, but they can be more expensive.

Here are some pros and cons of ARMs and their fixed-rate brethren.

Adjustable-rate mortgages

Advantages
• Feature lower rates and payments early on in the loan term. Because lenders can use the lower payment when qualifying borrowers, people can buy larger homes than they otherwise could buy.
• Allow borrowers to take advantage of falling rates without refinancing. Instead of having to pay a whole new set of closing costs and fees, ARM borrowers just sit back and watch the rates -- and their monthly payments -- fall.
• Help borrowers save and invest more money. Someone who has a payment that's $100 less with an ARM can save that money and earn more off it in a higher-yielding investment.
• Offer a cheap way for borrowers who don't plan on living in one place for very long to buy a house.

Disadvantages
• Rates and payments can rise significantly over the life of the loan. A 6 percent ARM can end up at 11 percent in just three years if rates rise sharply.
• The first adjustment can be a doozy because some annual caps don't apply to the initial change. Someone with an annual cap of 2 percent and a lifetime cap of 6 percent could theoretically see the rate shoot from 6 percent to 12 percent 12 months after closing if rates in the overall economy skyrocket.
• ARMs are difficult to understand. Lenders have much more flexibility when determining margins, caps, adjustment indexes and other things, so unsophisticated borrowers can easily get confused or trapped by shady mortgage companies.
• On certain ARMs, called negative amortization loans, borrowers can end up owing more money than they did at closing. That's because the payments on these loans are set so low (to make the loans even more affordable) they only cover part of the interest due. Any additional amount due gets rolled into the principal balance.

Fixed-rate mortgages

Advantages
• Rates and payments remain constant. There won't be any surprises even if inflation surges out of control and mortgage rates head to 20 percent.
• Stability makes budgeting easier. People can manage their money with more certainty because their housing outlays don't change.
• Simple to understand, so they're good for first-time buyers who wouldn't know a 7/1 ARM with 2/6 caps if it hit them over the head.

Disadvantages
• To take advantage of falling rates, fixed-rate mortgage holders have to refinance. That means a few thousand dollars in closing costs, another trip to the title company's office and several hours spent digging up tax forms, bank statements, etc.
• Can be too expensive for some borrowers, especially in high-rate environments, because there is no early-on payment and rate break.
• Are virtually identical from lender to lender. While lenders keep many ARMs on their books, most financial institutions sell their fixed-rate mortgages into the secondary market. As a result, ARMs can be customized for individual borrowers, while most fixed-rate mortgages can't.

All of these things should factor into your decision between a fixed-rate mortgage and an adjustable. But there are other important questions to answer when deciding which loan is better for you:

1. How long do you plan on staying in the home?
If you're only going to be living in the house a few years, it would make sense to take the lower-rate ARM, especially if you can get a reasonably priced 3/1 or 5/1. Your payment and rate will be low and you can build up more savings for a bigger home down the road. Plus, you'll never be exposed to huge rate adjustments because you'll be moving before the adjustable rate period begins.

2. How frequently does the ARM adjust, and when is the adjustment made?
After the initial fixed period, most ARMs adjust every year on the anniversary of the mortgage. The new rate is actually set about 45 days before the anniversary, based on the specified index. But some adjust as frequently as every month. If that's too much volatility for you, go with a fixed-rate mortgage.

3. What's the interest rate environment like?
When rates are relatively high, ARMs make sense because their lower initial rates allow borrowers to still reap the benefits of homeownership. Rates could fall even further, meaning borrowers will have a decent chance of getting lower payments even if they don't refinance. When rates are relatively low, however, fixed-rate mortgages make more sense. After all, 7 percent is a great rate to borrow money at for 30 years.

4. Could you still afford your monthly payment if interest rates rise significantly?
On a $150,000, one-year adjustable-rate mortgage with 2/6 caps, your 5.75 percent ARM could end up at 11.75 percent, with the monthly payment shooting up as well.

By Bankrate.com

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

Market Update

2006-10-18T10:45:00.000-07:00

Rates on 30-year Mortgages Decline, Reach Six-Month Low
Martin Crutsinger
San Diego Union Tribune
September 22, 2006

WASHINGTON – Rates on 30-year mortgages fell the week of September 22 to the lowest level in six months, offering support to the sagging home market. Mortgage giant Freddie Mac reported that 30 year, fixed-rate mortgages dipped to 6.4 percent this week, down from 6.43 percent last week. The latest drop puts the 30-year mortgage at the lowest level since it stood at 6.35 percent in late March.

Rates on 30-year mortgages hit a four-year high of 6.8 percent July 20, but since that time have been trending downward as financial markets have become more convinced that a slowing economy and recent declines in energy costs will help keep inflation contained. Such a slowdown would allow the Federal Reserve to keep interest rates on hold. Fed officials announced Wednesday that they were leaving a key interest rate unchanged for the second straight month, raising expectations that the Fed’s two-year campaign to raise interest rates to fight inflation pressures may be coming to an end.

Many analysts believe interest rates will hover around current levels for the rest of the year. Such a development is expected to help the housing industry level off after sharp declines in recent months, which have seen construction of new homes fall to the lowest levels in more than three years.

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

Real Estate and the Internet

2006-10-11T12:21:00.000-07:00

There is no getting around the Internet in today’s world. From grocery shopping, to seeking medical advice, to finding your next mate—there is a web site for everything. So why should buying and selling real estate be different? We aren’t suggesting that the Internet will do away with the need to see a property in person, or list your home with a living, breathing human. It has, however, changed the way home buyers and Realtors are searching for and marketing homes.

In this newsletter, we have pulled together a series of articles that drives home the importance of the Internet in the home buying and selling process. Gone are the days of just listing a home for sale in the local paper. Gone are the days of just putting a For Sale sign with a flyer box on the front lawn and waiting for the phone to ring. Welcome to the world of unique Web IDs and personalized web sites for your properties. Marketing a home for sale requires the use of the Internet to reach prospective home buyers. Your real estate agent would be amiss to tell you otherwise.
Realtors and their clients can choose to fight this changing world, or to jump on board and trail blaze this new frontier. At Rodriguez, Wheeler & Associates, we’ve chosen the later.

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

Yahoo! Online Seller Advantage

2006-10-10T08:44:00.000-07:00

List with us and gain the advantage

Rodriguez, Wheeler & Associates is dedicated to providing our clients with cutting-edge services. We embrace technology and are always looking for that “something extra” we can provide our clients that will further distinguish their properties from the masses. This is why we have invested in a unique program called Yahoo! Online Seller Advantage. Stemming from an exclusive partnership between Prudential Real Estate and Yahoo! Real Estate, this program gives you a distinct advantage over other sellers in today’s market.
By listing your home for sale with us, it will be a part of this program and will receive the following exclusive benefits:
- Listed as a Featured Property on Yahoo! Real Estate
- Receive daily reports with detailed information about how often your home:
- Showed up in search results conducted on Yahoo! Real Estate
- Was viewed in detail format
- Was saved in a prospective buyer’s portfolio
- Installation of a Yahoo! Real Estate sign rider that is designed to streamline the process a “drive by” prospective buyer goes through to view details about the property. The Yahoo! sign rider will encourage the prospective buyer to go to Yahoo! and enter a special “Web ID” in any Yahoo! search engine. The search results for this action is the detail listing information of the featured property.

If you are thinking of selling a home and want a distinct advantage over other sellers in today’s market, call your Rodriguez, Wheeler & Associates team member and ask about how to access Yahoo! Online Seller Advantage.

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

70% of All Home Buyers Use the Internet

2006-10-09T10:39:00.000-07:00

According to the California Association of Realtors' 2006 “Internet Versus Traditional Buyer Survey”, home buyers using the Internet are younger, wealthier, better educated and more likely to be married than traditional buyers. Internet buyers also reported greater satisfaction with the home-buying process compared with traditional buyers. However, these two types of buyers have started to converge over the last few years.

The Internet buyer has become the "typical" home buyer, C.A.R. said, though important distinctions between Internet and traditional buyers remain. Since 2001, the share of home buyers using the Internet as an integral part of the home-buying process has nearly doubled to 70 percent.

"The Internet is changing the dynamics between buyers and their agents, as well as the way business is conducted throughout the real estate industry. However, while the Internet has become an important research tool for home buyers, it has only enhanced the Realtor's role in the transaction," C.A.R. President Vince Malta said. "Buyers continue to rely on their Realtor for help with interpreting the information gathered from the Internet and to guide them through the home-buying process."

According to the survey, more than nine out of 10 Internet buyers indicated that the Internet helped them better understand the process of buying a home. Additionally, Internet buyers are accustomed to receiving more frequent communication and faster response times from their Realtors.
Other key findings from C.A.R.'s survey include:

• Internet buyers had an annual income of $184,900, compared with $148,910 for traditional buyers.
• Internet buyers spent an average of 5.8 weeks considering buying a home before contacting a Realtor, nearly three times more than traditional buyers, who spent 2 weeks in this stage of the home-buying process.
• Internet buyers spent 2.2 weeks looking for the home they ultimately purchased, compared with 7.1 weeks for traditional buyers.
• Fifty-four percent of Internet buyers said the information that they gathered from the Internet was less useful than that provided by their Realtors; none considered the information gathered from the Internet to be more useful than that obtained from their Realtors.
• All first-time buyers typically spent 5.3 weeks considering buying a home and 4.3 weeks investigating homes for sale before contacting a Realtor. They then spent 3.2 weeks previewing eight homes with their Realtor.
• All repeat buyers spent 3.3 weeks considering buying a home and nearly three weeks investigating homes for sale on their own. They spent 5.4 weeks previewing 13 homes with their Realtor.

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

Is Buying A Home The Ticket To Financial Freedom?

2006-09-11T08:51:00.000-07:00

Financial Expert Estimates Some 10 Million Renters Could Save Money by Buying
According to financial expert and author David Bach, home ownership is the key to personal wealth.

Is buying a house the ticket to financial freedom? According to financial expert and author David Bach, home ownership is the key to personal wealth.

"You can't get rich if you're a renter. The American dream of home ownership has really separated the rich from the poor in this country. The average renter in America today is worth less than $5,000. The average homeowner is worth over $172,000," Bach said.

Bach is spreading that message in his latest best-seller, "The Automatic Millionaire: Homeowner." And he's spreading that message on a bus tour, with the zeal of a gospel preacher.

"It's more than just the gospel of home ownership. It's the gospel of freedom," he said.

Nearly 10 Million Renters Could Afford a Home

Bach isn't opposed to other investment strategies, he's just convinced that homeownership is a sure bet. "I'm not against the stock market, but the simplest investment people will ever make that really performs well for them is their home. It's the ultimate retirement account," he said.
"There are nearly 10 million renters today that could actually afford to buy a home, to get a mortgage, but they don't know it," he said. "You don't need a big down payment. You don't have to have perfect credit. Even if you have credit card debt, the banks will loan you money to buy a home," he added.

"20/20" challenged Bach to help just two families out of that 10 million realize the American dream of buying their first home.

One couple, Alison and Greg Kenyon, from the metro Detroit area, together make nearly $60,000. They have a 2-year-old and a baby on the way and are quickly outgrowing their rental apartment but admit they don't know a thing about buying a home.

During a meeting with the Kenyons, Bach had surprising news for them: Their monthly payments might actually be less if they buy.

"Because you get a tax writeoff for your mortgage -- it will actually be less expensive for you to own than rent," he told them.

He told them that based on their strong credit history, they should have no trouble getting a $180,000 loan.

Tracking 'the Latte Factor'

Even though they have a nest egg of $10,000, Bach advises them to take a hard look at their spending, especially at Greg's specialty beer collection.

"I teach people to look at what I call the latte factor. Because it helps to find money. We all spend money on little things, like lattes at Starbucks or bottled water or cigarettes, eating out," he said.

Next, Bach met the Norrises, Bambi and John. They live in a rented home outside Fresno, Calif., with their two children. Bambi is a school teacher, Jason sells tires. With a combined salary of $40,000 (less than the national average), the Norrises are a bigger challenge for Bach. Although they're eager to have a place of their own, it's an uphill battle as they struggle to pay the bills every month.

When Bach visits, he took one look in the kids' rooms and immediately discovered their "latte factor."

Their son's video games and their daughter's pricey hobby, beauty pageants. "I'm not trying to take all the fun out of your life here, but just cutting that back would probably be a difference between a $150,000 home and a $200,000 home," Bach told them.

It's a welcome and important dose of reality for the Norrises.

"My stomach hurts to think of all the money that we've put into games and silly things that we could do without," Bambi said.

Bach says saving money is serious business if you want to buy a home. The Norrises have only $4,000 in savings -- just a drop in the bucket in the pricey California market -- especially since they have big dreams.

They're hoping for a home with three bedrooms, a good-size garage and nice yard.

Aim for a Starter Home Before a Dream Home

Bach has a bit of a reality check for the Norrises and Kenyons.

"Here's the truth. You can't buy your dream home first. You have to get your starter home. And often your starter home is not going to be as nice as what you rent. In fact, in most cases, you have to go backward in the real estate game to go forward. You have to make a sacrifice. And that's the hardest hurdle for many people," Bach said.

But that sacrifice will make you rich, Bach said, especially if you buy more than one home and rent the others.

Mark Ruggiero is practically a walking advertisement for Bach's advice. Even though he makes less than $50,000 in New York City -- one of the country's most expensive markets -- he scrounged up a down payment to buy a studio apartment two years ago. When it went up in value, he was able to take out another loan, for another studio. Finally, with a roommate he bought a one-bedroom apartment that's almost triple the size of his first place.

This was the key for Ruggiero -- instead of selling his first two places, he rented them out -- and the rent covers almost all three of his mortgages.

So, to people who feel there is no way they could possibly afford to buy their own home, Ruggiero says, yes you can.

"I honestly believe that if I did it two years ago, that anybody can do it," he said.

There's Risk, but It's Worth It in the Long Run

But should everybody do it? Ruggiero had a hot market on his side, but with the market cooling, foreclosures increasing, and interest rates rising, some critics say returns on home buying are less of a sure thing.

Bach acknowledges that the market has cycles and that real estate is not a risk-free transaction. "It's not enough to be able to afford your home, you have to be able to afford your mortgage. Just because the bank will loan you $200,000 doesn't mean that you should borrow $200,000. In fact, I recommend that people borrow 10 [percent] to 20 percent less than the bank has told them they can borrow," he said.

"Real estate is not a risk-free transaction. A lot of it comes down to time. The more time you have, the better chance you have to ride out a bad real estate market," he said.

Given that real estate values have been going up for 40 years, however, Bach says the biggest risk is never buying at all.

The Norris and Kenyon families followed Bach's advice.

Just two months after their first meeting, the Norrises made an offer on a house not far from their current rental. At $180,000, and no down payment, the house is at the upper limit of what they can afford. Still, they say the house is priced under market and, best of all, fulfills some of their dreams -- in particular, having three bedrooms.

The Kenyons in Detroit are also thrilled with their progress. With Bach's advice, they got a mortgage and found a house they could afford. At $170,000, it still had most of what they wanted. They closed on the property this week, and now the house is officially theirs.

Allison Kenyon is glad she and her husband followed Bach's advice. "The possibilities are endless with this home. We can do anything to this, and it's ours. Hopefully, the choices that we make will do nothing but add value to the home and to our pockets."

Article from ABC News found online at www.abcnewsonline.com

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

How to get the best deal in real estate

2006-09-07T13:25:00.000-07:00

How to get the best deal when you buy and the best price when you sell
By Pat Mertz Esswein

Home buyers and sellers gearing up for high season are encountering a swing in the balance of power: more parity between supply and demand, sellers and buyers. Last year, home sellers worried about missing out on thousands of dollars in profit if they sold too soon. This year's class frets about how long it will take to get their price. Last year, buyers feared that if they didn't jump into the market, they would miss their chance. Now they wonder how long they should watch prices fall before they make their move.

Nationwide, the National Association of Realtors (NAR) has forecast a 5% price rise for existing homes in 2006. That's less than half of last year's rise of 13%. In some of the hottest markets, the froth in prices will evaporate. Buyers will have more homes to choose from and more bargaining clout -- that is, a return to contracts with contingencies and without escalation clauses. The NAR also expects the number of existing home sales to fall 4% or 5% in 2006 (although that would still make it the second-best year on record).

What this means is that sellers need to lower their expectations. The days are over when you can slap any home on the market and sell it for more than asking price. Now you have to find the pricing sweet spot and work harder to reel in a buyer.

Sellers: Price it right

It can be difficult to price a property when recent comparable sales are higher than you can reasonably expect to get for your home. Roberta Murphy, a real estate agent in San Diego, says you have to look not only at how much comparable homes sold for but also at how much time they spent on the market. In Murphy's market, homes that are priced right sell within 30 days. Keep in mind, too, that houses on the market for "too long" can develop a bad reputation, and today's buyers are more clued in to time on the market than in the past. "Buyers often ask about it and construct their offers accordingly," says Murphy.

Stay flexible. A more balanced market means you'll probably be negotiating with the buyers. Also, don't judge an offer on price alone because other factors may make it worthwhile. For example, an offer from buyers who will rent back the house to you until you're ready to move might be worth a lot. Or maybe you've found a buyer who can easily qualify for a mortgage at your price but will have difficulty coming up with the down payment or closing costs. In that case, a seller contribution in exchange for a higher price might make sense.

Make it stand out. At a minimum, make repairs, clean your house and get rid of clutter. You'll also give buyers peace of mind if you're willing to share the cost of a current appraisal and any appropriate inspections, such as for termites.

Buyers: Don't wait

Is now a good time to buy? Dave Liniger, chairman for a nationwide real estate company, gave his four children some advice when they asked if they should buy or wait: "In every case, I advised that it's impossible to time the market -- no one can say accurately what will happen." He recommends that buyers go ahead and buy something they want to stay in for at least the next five to ten years. "If prices go down, you're not hurt -- you're in the house you want to live in."

Target your offer. Start by finding out how motivated the sellers are, then target your offering price. Roberta Murphy, the San Diego agent, tells buyers that if a home is new to the market and priced very well, they should make an offer at the top of the range; if it has been on the market for six months, they might make an offer at the bottom of the range or even below.

Many builders have begun to offer concessions and upgrades as their new-home inventories grow fatter. If those aren't advertised, negotiate for them. You may find bargains on resale homes in developments where builders are still selling new properties. The owner of one slightly used property may have more freedom to reduce the price than the builder who has already sold 200 at the higher price.

Win the beauty contest. You may still find stiff competition for properties with the greatest discounts, so you'll want to look like a sure thing to sellers. Get pre-approval for your financing and try to schedule any appraisals and inspections in advance to minimize the time those will take. You can even write a "love letter" to the seller, pleading your case. "By putting a personal story to the offer, you stand out," says Murphy.

Protect yourself. In some of the hottest markets during the past few years, buyers have felt compelled to make "clean" offers. As sanity returns, get price and property protection by adding to the contract contingencies for a current appraisal, financing and a home inspection.
Article from Kiplinger’s Personal Finance Magazine found online at http://www.kiplinger.com/
March issue 2006

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/