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6 Reasons it pays to shop around before choosing a mortgage

by Paige Tepping, RISMedia

Lowes and RISMedia publish daily posts for consumers that are interested in buying and selling homes. Since most folks don't get mortgages too often it can be a very confusing and intimidating process. The following is an article that I found interesting that helps to answer the question of why you need to 'shop around' or at least do some homework before commiting to a lender. Hopefully, as you choose your home in Williamsburg, VA. you will also find this of value.

6 Reasons it Pays to Shop Around Before Choosing a Mortgage

By Paige Tepping

RISMEDIA, August 26, 2010--You wouldn’t buy a house without shopping around first, right? Then why would you commit to the loan you use to buy that house without making sure you’re getting the best deal possible? From the experts at LendingTree, here are six reasons why it’s essential to take a few minutes to browse before you borrow:

1. To get the best interest rate possible
Over the life of a $200,000, 30-year fixed rate loan, a one-tenth of a point difference in interest rate could save or cost you thousands of dollars.

2. To pay lower loan fees
Once your loan application is accepted, the lender will get back to you with a good-faith estimate (GFE), including an itemized list of all the costs associated with the loan. If there are any parts of the GFE that you don’t understand, don’t be afraid to ask the lender to explain each fee that is listed.

3. To avoid a prepayment penalty
In these transient times, it seems no one stays in their home long enough to pay down their mortgage the old fashioned way: in monthly increments over a period of decades. So you’ll want to be clear on whether the terms of your loan include a penalty if you pay off your mortgage early—either because you move or refinance.

4. To find a lender you feel comfortable with
You don’t want any surprises popping up at closing time. Get a lender who is responsive to your questions and is willing to give you the details in writing.

5. To find a lender that specializes in your situation
Recent volatility in the mortgage markets means that people with bad credit or little money for a down payment might have to look a little harder to find a lender.

6. To get the rate lock period you want
Once you’ve found the lender offering the best mortgage rate and terms, you’ll want to get a written commitment, known as a “lock” that puts in writing that the lender will make the loan to you at that the specified interest rate. The length of the lock can vary from 30-90 days, but many lenders will charge a fee for a rate commitment of longer than a month. Negotiate the lock period that is right for you, depending on when you plan to close on your new home and if interest rates are expected to creep higher during that time. 

Want a daily update on Williamsburg News?

by Deelyn Neilson

For lifelong locals and new folks alike, the Williamsburg Yorktown Daily is a fantastic online resource to give the the most up-to-date news on Williamsburg and Yorktown happenings.  Sign up at their website http://www.wydaily.com/ --it's fast and free.

How much of a mortgage can I afford?

by G. M. Filisko

4 Tips to Determine How Much Mortgage You Can Afford

By knowing how much mortgage you can handle, you can ensure that home ownership will fit in your budget.

Homeownership should make you feel safe and secure, both physically and financially. In order to do that, you must understand how much you can afford as your mortgage. The number that a lender says you're qualified for is only their estimate: it's up to you to decide how much you can really afford based on your financial goals and budget.

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

Still not sure how much you can afford? You can use the same formulas that most lenders use, or try another of these traditional methods for estimating the amount of mortgage you can afford.

1. The general rule of mortgage affordability

As a rule of thumb, you can typically afford a home priced two to three times your gross income. If you earn $100,000, you can typically afford a home between $200,000 and $300,000.

To understand how that rule applies to your particular financial situation, prepare a family budget and list all the costs of homeownership, like property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care costs.

2. Factor in your down payment

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

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

3. Consider your overall debt

Lenders generally follow the 28/41 rule. Your monthly mortgage payments covering your home loan principal, interest, taxes, and insurance shouldn't total more than 28% of your gross annual income. Your overall monthly payments for your mortgage plus all your other bills, like car loans, utilities, and credit cards, shouldn't exceed 41% of your gross annual income.

Here's how that works. If your gross annual income is $100,000, multiply by 28% and then divide by 12 months to arrive at a monthly mortgage payment of $2,333 or less. Next, check the total of all your monthly bills including your potential mortgage and make sure they don't top 41%, or $3,416 in our example.

4. Use your rent as a mortgage guide

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

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

However, if you're struggling to keep up with your rent, consider what amount would be comfortable and use that for the calculation instead.

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

How to Improve Your Credit to Get a Mortgage Loan

by G. M. Filisko

One of the biggest problems that I have found with buyers today is low credit scores. So many folks have been hit hard by the recession and many have 'dings' to their credit scores for things that they may not know actually lowers their credit score. Here are tips for improving your credit score and getting the best loan.

7 Tips for Improving Your Credit

1. Know your credit score

Credit scores range from 300 to 850, and the higher, the better. They’re based on whether you’ve paid personal loans, car loans, credit cards, and other debt in full and on time in the past. You’ll need a score of at least 620 to qualify for a home loan and 740 to get the best interest rates and terms. 

You’re entitled to a free copy of your credit report annually from each of the major credit-reporting bureaus, Equifax, Experian, and TransUnion. Access all three versions of your credit report at www.annualcreditreport.com. Review them to ensure the information is accurate.

2. Correct errors on your credit report

If you find mistakes on your credit report, write a letter to the credit-reporting agency explaining why you believe there’s an error. Send documents that support your case, and ask that the error be corrected or removed. Also write to the company, or debt collector, that reported the incorrect information to dispute the information, and ask to be copied on any materials sent to credit-reporting agencies.

3. Pay every bill on time

You may be surprised at the damage even a few late payments will have on your credit score. The easiest way to make a big difference in your credit score without altering your spending habits is to diligently pay all your bills on time. You’ll also save money because you’ll keep the money you’ve been spending on late fees. Credit card or mortgage companies probably won’t report minor late payments, those less than 30 days overdue, but you’ll still have to pay late fees.

4. Use credit carefully

Another good way to boost your credit score is to pay your credit card bills in full every month. If you can’t do that, pay as much over your required minimum payment as possible to begin whittling away the debt. Stop using your credit cards to keep your balances from increasing, and transfer balances from high-interest credit cards to lower-interest cards.

5. Take care with the length of your credit

Credit rating agencies also consider the length of your credit history. If you’ve had a credit card for a long time and managed it responsibly, that works in your favor. However, opening several new credit cards at once can lower the average age of your accounts, which pushes down your score. Likewise, closing credit card accounts lowers your available credit, so keep credit cards open even if you’re not using them. 

6. Don’t use all the credit you’re offered

Credit scores are also based on how much credit you use compared with how much you’re offered. Using $1,000 of available credit will give you a lower score than having $1,000 of available credit and using $100 of it. Occasionally opening new lines of credit can boost your available credit, which also affects your score positively. 

7. Be patient

It can take time for your credit score to climb once you’ve begun working to improve it. Keep at it because the more distance you put between your spotty payment history and your current good payment record, the less damage you’ll do to your credit score.

 

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I hosted a seminar recently in Ford's Colony that covered the most recent sales trends in Ford's Colony. Home sales and home prices are always interesting and very useful information. Taken with a grain a salt, checking recent sales and comparing properties is as close as you can get to a "quarterly statement" on what could be your largest investment : your home. I always hear people saying that they think that they are being "nosy" when they are curious as to what their neighbor's home sold for, when in truth, you really should know the values around you. While you may not being selling your home right now, knowing the value of your home is just as important as knowing the value of your stocks/bonds or money market funds. The values of all certainly fluctuate but it is always good to know where you stand.

In our little corner of the world we have several items to contend with: the general state of the economy and housing, the end of the government tax credits and, finally, more specific to Ford's Colony is the announcement on April 3, 2010 that the country club had filed for Chapter 11 bankruptcy protection. I always emphasize that the country club and the home owners association of Ford's Colony are two VERY DIFFERENT and UNIQUE entities.  The HOA in Ford's Colony is alive and well and functioning as a very strong and healthy congruent group. 

I took sales in Ford's Colony for the prior 12 months (June 2009- June 2010) and studied  what had sold, how much had sold and compared those sales prices to  the assessed values.( I always tell folks that assessed value and market value are two different animals, however, it is useful to see how those two figures compare.) SO for purposes of not getting too long on evaluating numbers, I will divide my findings into a couple of blog posts. There are few folks that enjoy looking at numbers we all just want the bottom line!   

So the first question how were sales during the past 12 months and what was the impact on sales from the April 3 country club bankruptcy filing?   

The Grits and Grasshoppers of the Story:

The months supply of inventory in Ford's Colony went from 28.8 months of inventoryin 2009 to 24.8 months of inventory in 2010. So- while not a fun number to see 2010 IS better than 2009. Here is the most interesting statistic from the Months Supply of Inventory: during the month of April 2010, the months supply of inventory declined to 11.4 and then in May 2010 it declined to 10.5. In April there were 12 homes that went under contract and in May there were also 12 homes that went under contract. June saw a huge drop to 5 homes under contract. Those are VERY important numbers as the country club announcement of the bankruptcy protection plan was made on April 3! The numbers immediately following that announcement were the best of the entire 12 month time period. We do have to consider the tax credit stimulus during those months also which, in the short-term anyway, certainly gave a jolt of energy to sales. The tax credit ended April 30,2010. Home buyers had to be under contract by the end of April to qualify. We saw a lot of buyers rushing at the end of the month to be under contract which resulted in a 'trickle around' effect in May as those month-end April sellers then became our May buyers.

Bottom line? Sales in Ford's Colony seem to be more affected by the TAX credit ending versus any perceived issues with the country club. This is good news in and of itself.   

 For more information here is the chart-click here for an easier to read PDF .     

Homes under contract June 2009 to June 2010
The graph is difficult to read: it does show the trend of sales over the 12 month time period. Inventory declined (albeit slightly) year over year.
 
 

For more information on Ford's Colony please visit my blog at www.fordscolonyinsider.com

 

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