Category Archives: Buying a Home

Is it Worth Paying Points On a Mortgage?

When financing a home purchase or refinancing a current home, you have to make a number of decisions. You will have to choose from among a half dozen different mortgage types available to you. Regardless of which type of mortgage you choose, you’ll be faced with another question: should I pay points?

Points, or discount points, are a cash payment that you make to the bank (or your mortgage lender) to get a lower interest rate on your loan. A lower interest rate means a lower monthly payment and savings to you, the homebuyer. The lender also benefits by getting some cash up front, so points can be a win for both parties. However, paying points for a reduction in your interest rate isn’t always worth it. Let’s look at some simple scenarios to answer the question, “Should I pay points on my refinance or new mortgage?”

Let’s assume you are borrowing $250,000. You are quoted an interest rate of 5 percent on a 30-year fixed rate mortgage. This means that every month you’ll be paying $1,342.05 in interest and principle for your mortgage. By the way, you don’t need to be a math wizard to calculate these numbers, your mortgage broker or bank loan officer will provide this information to you, and there are great mortgage calculators online that make doing the math a snap.

Here’s how buying points works: on this same type of loan you might see that paying 1 point lowers the rate to 4.675 percent. Each point equals 1 percent of your total loan amount. So, with our $250,000 loan, 1 point costs $2,500. The math looks like this:

[points] / 100 x [loan amount] = [cost of the discount]

1 / 100 x $250,000 = $2,500.

Also, points may appear on mortgage rate tables a few different ways – as number or a percent, and sometimes under the heading “points” or “discount.” Despite these stylistic differences, the numbers are always the same.

So, we know that to reduce this mortgage interest rate from 5 percent to 4.675 percent will cost $2,500. Now let’s figure out if it’s worth it. The new monthly payment at this lower rate is $1,292.84. This is $49.21 less than the payment for the loan at 5 percent. By spending $2,500 we save nearly $50 a month. Since our 30-year mortgage will last 360 months, that’s a savings of almost $18,000.

It sounds good, saving $18,000 by paying $2,500. But keep this in mind, you only get your $18,000 in savings if you stay in the house for 30 years. With a savings of $49.21 per month it will take you over four years to break even. Here’s the math:

[cost of the discount] / [monthly savings] = [number of months to break even]

$2,500 / $49.21 = 50.8 months (or 4 years and 3 months)

If all these savings sounds great, conventional wisdom actually tells us this is not a great deal. Most experts agree that it is not worth paying points on a mortgage if you won’t break even in less than four years.

This is true for a few reasons. Most likely you won’t be in your house for 30 years, so you never realize the full value of the savings. Second, your cash has value today. In the above scenario, if you spend $2,500, you break even in four years and three months, and double your money in eight years and six months. Could you make better use of this cash? When you pay points, you’ve spent the money, so it can be redeemed no matter how long you’re in the house. For it to make sense, in the above scenario, you’d ideally like to be saving about $60/month not $50.

Deciding whether it is worth paying points on a mortgage can be confusing because it’s difficult to know exactly how long you’ll be in a house and how your financial situation might change over time. If you’re faced with the dilemma of whether you should pay points during a refinance or home purchase, the simple formulas and guideline above can help you through the process.


When Will Home Prices and the Real Estate Market Rebound?

Consumers Want to Buy, but Waiting for the Right Time

A survey released this week by Hanley Wood shows that recovery is still evading the U.S. housing market. Consumers are in no hurry to buy a home even though they believe in homeownership as well as the significance of a healthy housing market in aiding economic recovery. “We thought people would be soured after watching home values fall, but instead we found the typical American still places high value on homeownership,” said Frank Anton, CEO of Hanley Wood in a release.

The media and data research company polled about 3,000 homeowners and renters in June and more than 68 percent of respondents believed that the time was right to buy a house. But, their belief and wishes were dampened by the realities of today’s economy, the survey found. Unemployment, strict lending practices and an uncertain future continue to take its toll on consumers. “As long as buyers are uncertain about what’s happening in the economy and where house prices are headed, they are going to be slow to move. There is no urging the market,” Kent Colton, a senior fellow at Harvard University’s Joint Center for Housing Studies told Reuters. There is a silver lining though. The survey found that 29 percent of renters and 19 percent of homeowners are considering buying a home in the next two years. Those numbers mean an upward of two million potential buyers are waiting for the right time to plunge into the market.

Now that could definitely be a game changer.

Home Prices May Not Climb Upward Soon

Without an aggressive and creative solution, home prices will not pick up and aid in economic recovery, according to new forecasts. Home values will continue to fall for years, says a poll conducted by the Professional Risk Managers’ International Association for research firm FICO. The poll conducted among industry experts found that bankers expect delinquencies on consumer loans to rise, underwriting to be stricter. They also expect the housing market to continue to struggle for a while. Forty-nine percent of the respondents said they don’t expect home prices to touch 2007 levels before 2020. Mortgage delinquencies will remain at a high for at least another five years, an overwhelming 73 percent of respondents said. The findings indicate that more needs to be done to aid the housing market toward a speedy recovery. Aggressive steps toward creating jobs is not a good enough catalyst for rejuvenating the housing market. Also, the never-before-seen low mortgage rates are good, but they are doing little to help the market when lenders are following strict lending guidelines.

Miami Magic Returns

Sellers are again smiling in the Miami market. Home sales in the city are up 50 percent so far this year, according to the Miami Association of Realtors. “People were saying, ‘Oh look at all those empty buildings in Miami,’ Oliver Ruiz, managing broker at Fortune Realty and former residential president of the Miami Realtors’ Association told the Voice of America. “Well, all those empty buildings are now full.” Foreign buyers are responsible for the major turnaround. Miami has always been an attractive destination with its beaches, nightlife and fine dining. Buyers are pouring in from all over the world to have “a piece of the pie in Miami,” Ruiz said.

Cap on Mortgages Eligible for Federal Loans Reduced

As if falling prices and stricter lending were not enough blows, the housing market received another terrible punch when the cap on mortgages eligible for federal loans was lowered. According to The Real Deal, only loans of $625,500 or less would be eligible for lower down payments and interest rates as compared to the previous limit of $729,750. This rule, of course, applies to the country’s most expensive markets. The changes baffled experts who are wondering why the government decided to act on this when the market is already comatose. Certainly not good news for sellers and buyers, who are already struggling.

Homeownership Sees Biggest Drop Since Depression, Despite Second Largest Ownership Rates

Homeownership rates plummeted to 65.1 percent in 2010, according to new data released by the U.S. Census this week. Tighter credit, unemployment rate and reduced government involvement could prevent the country from returning to its home ownership peak levels earlier in the decade, the story said. The trend is driven by more and more young adults moving in with their parents. Also, homeownership levels among middle-aged adults are at their lowest because of foreclosures or bankruptcy. Another significant find was that the homeownership gap between whites and blacks is at its widest since 1960, the AP story said.


Relocation Cover Letter: How to Stand Out From the Crowd

Writing a Cover Letter That Says You Will Pay for Your Own Relocation

You’ve been pouring over job listings for months, and you’ve finally found a position that really excites you. The only problem is it’s in a different city. How will you make yourself stand out from the local talent? When companies are recruiting, they look first at the candidates who are locally available. Why should a company hire someone from outside the city, when a person with the same skills is available locally? Is mentioning relocation in a cover letter even a good idea? You will need to find a way to make yourself look like a more attractive job applicant than your competition.

Relocation costs companies money, so if you are able to afford the costs, a relocation cover letter that says you will pay for your own relocation might be just the thing to get a hiring manager’s attention.

Selling Yourself in Your Relocation Cover Letter

When you are in a different city, the company may not have an opportunity to see you, which can make it harder to create a great first impression. All they have is your cover letter and your resume. While your resume is important, your relocation cover letter is where you really need to convince a company to consider you over other applicants. This is where you really sell yourself. Think of the company as your customer, and you are the product that you are trying to convince them they need. Let them know how you will benefit the company, and make sure they know that they will not incur any additional costs or hassles by choosing someone from another city. The last thing you want is for a company to feel as though hiring you might be a burden. You want them to put your relocation cover letter and resume on the top of the stack that is accumulating in their office.

What is a Relocation Cover Letter?

Your resume should always be accompanied by a formal business letter known as a cover letter. The cover letter is used to highlight the specific reasons you feel a company should consider you an attractive job candidate. Therefore, if you will need to relocate to accept the job for which you are applying, you should send a relocation cover letter along with your resume. In it, be specific about your intent to relocate to the city where the job is located without any hassles.

A company will be interested in the following points, which should be included in your cover letter. Use these as the main points in the body of your relocation cover letter template.

Why Should They Hire You?

The most important part of any cover letter should be to include details about your skills, your qualities and how you intend to benefit the company. Talk about your qualifications, your specific talents, and aspects of your personality that will make the hiring manager see you as a top candidate for the job. Remind them that you may not be in the city in which they are recruiting, but good companies select top talent regardless of location.

Let Them Know Why You Want to Relocate

Typically, it is not a good idea to state that you will move only for the purpose of the job. For a company, this looks like you’re not too sure you want to make your new location permanent. It is better to say that you’ve decided to relocate to the city where the job is located anyway, as opposed to stating that you are moving just for the sake of the job. You should state in your relocation cover letter that you’re looking for jobs in that city and looking to permanently shift there. This gives the recruiting company more assurance that you will actually move.

The Costs of Relocation

If you are willing to pay your own costs of relocation, you must state this in your relocation cover letter. This is an important thing for the company to know. If you leave this information out, the company may assume that they will incur the costs of you packing, moving, finding a house, finding new furnishings or getting temporary storage, and they are less likely to consider your application over local talent. The company needs to know if you are willing to pay for these relocation expenses yourself. If you are, communicate that in your cover letter, so the company will notice.

Relocation Cover Letter Sample

Writing a compelling cover letter that sets you apart from other applicants can be an arduous task. Deciding between writing a full relocation cover letter versus just mentioning relocation in a cover letter can be a hard choice. Either way, your cover letter should deal with the topic of relocation in a clear and concise manner.

Here is a relocation cover letter sample that addresses the issue of paying for your own relocation:

Your Name
Street address
City, State Zip

February 21, 2011

Mr./Mrs./Ms. (name of the person)
(street address of the office of the company)
(City, State Zip of the office of the company)

Dear Mr. Surname:

Self-Motivated Advertising Executive with Excellent Marketing Skills Wishes to Make Meaningful Contributions to a Growing Organization. (Use your own specific skills as they relate to the position for which you are applying.)

This letter is in reference to your job listing for (specific position for which you are applying) that was advertised online (provide the name of the specific website.)

I have (number of years) of experience in the (name of industry) industry, working with (name of previous company). (Use this paragraph to highlight your specific skills and qualifications.)

I will be relocating to (name of the city to which you want to move) as my spouse has been transferred there to manage an entire branch of his current organization. (Insert your own reason in the last sentence, but be honest. You could also say that you believe the job opportunities will be greater for you there.) I am presently located in (name of city) but am willing to incur all the expenses that might be involved in relocating.

I will be in (desired city) between (date) and (date). You may call me at 123-555-4567 to arrange a meeting to discuss the position in accordance with my experience and your requirements. I look forward to hearing from you. Thank you for your consideration.



Latest Breaking News on Housing Market

First up is some positive breaking news for the housing market. Shadow inventory of homes is declining, providing a dose of good news for the glum housing market. Shadow inventory, or homes on the verge of foreclosure, fell to 1.6 million units representing a five-months supply in July compared to 1.9 million units representing a six-months supply a year ago, according to CoreLogic. It’s a good sign that troubled homes, normally headed toward foreclosures, are getting sold faster. Lesser inventory will help stabilize falling prices on homes for sale. Of course we won’t be seeing a drastic change in numbers, but even a small percentage of troubled homes off the market is a blessing for sellers and the industry as a whole.

“The steady improvement in the shadow inventory is a positive development for the housing market,” CoreLogic Chief Economist Mark Gleming said in a press release. “However, continued price declines, high levels of negative equity and a sluggish labor market will keep the shadow supply elevated for an extended period of time.”

Housing Prices Increase, but not Enough

Some more indication of baby steps toward a market recovery. For the fourth consecutive month, home prices were on the upswing in July compared to the previous month. But the bump wasn’t good enough to give the market a clean bill of health, yet. According to data released by S&P/Case-Shiller Home Price Indices, home prices across 20 major urban areas in July remained flat when adjusted seasonally, and down 4.1 percent compared to a year earlier, despite showing a 0.9 percent gain. The trend of prices rising is a good sign, analysts said.

“With July’s data we are seeing not only anticipated monthly increases, but some fairly broad improvement in the annual rates of change in home prices,” said S&P’s David Blitzer, according to an AFP story. However, he said, “if you look at the state of the overall economy and, in particular, the recent large decline in consumer confidence, these combined statistics continue to indicate that the housing market is still bottoming and has not turned around.” Prices across the country were at the level of 2003, according to the report.

Mortgage Rates Continue to Slide

Here’s more music for the ears of potential homebuyers. Nudged by the Federal Reserve’s proposal to reduce borrowing costs, mortgage rates fell to the lowest in Freddie Mac’s recorded history this week. Rates on a 30-year-fixed loan hit an unimaginable 4.01 percent, down from 4.09 percent. On a 15-year loan rates dropped to 3.27 percent. The lucrative rates are aimed to lure consumers toward buying and refinancing their existing mortgages. Many are taking the bait. According to the Mortgage Bankers Association, there was a 9.7 percent rise in loan applications last week. However, a good section of consumers have not been able to take advantage of the rates because of stricter lending standards.

Existing Home Sales Drop

Some good news for buyers which turns out to be not-so-good news for sellers. Sale of existing homes dropped 1.2 percent in August, according to an index by the National Association of Realtors. The measure shows that sales dipped to 88.6 percent in August from 88.7 percent the prior month. The data, which takes into consideration signed contracts but unclosed deals, shows that the numbers are higher when compared to the same period last year, but that’s hardly a consolation since last year’s showing was affected by the expiration of a federal tax credit for homebuyers. Lawrence Yun, NAR chief economist in a press release blamed the numbers on an uneven market.

“The biggest monthly decline was in the Northeast, which was significantly disrupted by Hurricane Irene in the closing weekend of August,” he said. “But broadly speaking, contract signing activity has been holding in a narrow range for many months.” If you are looking to buy, now may be a time to get involved in the market, Paul Dales, senior U.S. economist for Capital Economics, told the Wall Street Journal. But, a lot of people have been unable to cash in on the situation, he said. Some analysts blame the job market and slipping consumer confidence. In these shaky times, many people prefer to rent than invest their savings on a new home.

How to Negotiate: 7 Clever Home Buying Negotiation Tactics

Getting the house you want at the price you want can be tricky – even in a buyer’s market. Sometimes a home seller just isn’t willing to budge on price. Don’t despair! There are other ways to sweeten the deal and drive it to close in a buyer’s market. Here are seven tips on how to negotiate with a home seller.

Get the Dirt on the Home Seller

Learn as much as you can about the motivations and situation of the home sellers. For instance, if they’re living in the house and they need flexibility around the closing date, you could offer to be flexible on closing if they move on terms. In the case of estate properties, take some time to learn about the heirs – where they live, what kinds of houses they live in and whether or not they are in legal or financial trouble. It sounds creepy, but most of this information is available for free online once you have the names of the home sellers. You can also research obits and marriage documents that are in the public domain. The more you know, the more leverage you have when it comes time to negotiate.

Know What the Property is Worth

Work independently or with your agent to research comparable sales in the immediate area of the home, then make an offer at least 10 percent below what the market says it’s worth. Dig into the details to figure out how the home you want to buy stacks up against comps, and look for ways to communicate the legitimacy of your offer or requests by backing it up with data. For instance, if all comparable sales have a pool, waterfront property or updated kitchens and the house that you want doesn’t, point that out. Use this data to justify your offer or other requests to create value if they won’t budge on price.

Don’t be Afraid to Ask

If there are things that you want or need to feel comfortable with the deal, ask for them. The home seller can always refuse, but if you don’t ask, you don’t know. If you’ve created leverage by learning about the property and the seller’s situation, you can use this information to ask for things, such as repair of items found during the inspection period or appliances that weren’t listed on the original contract for the house. Don’t make assumptions. Even if your realtor balks at the idea, always ask.

Offer a Quick Close

The faster a deal gets done, the more quickly the home seller can cash out their asset and move on with life. Homes that remain on the market or unsold for extended periods of time become costly to sellers (especially if they’re unoccupied) and start to decline in condition. Offering a quick close builds confidence with the seller as it means that there’s less time for things to go sour with the deal. If you’re situation allows for this negotiation tactic, you might be able to either lower your price or get other benefits in exchange.

Make an As-Is Offer and Ask for the Furniture

If you want to make a reasonable but low offer on a property, consider the pros and cons of presenting an “as-is with right to inspect “ offer. The upside is that you can walk away from the deal if the inspection frightens you. The downside is that what you see is what you get, leaky plumbing, termites, mold and all. If you really want a property and are willing to take it as-is, but aren’t really comfortable with the seller’s floor price, ask for the furniture or other non-fixed assets that make the deal more palatable such as a boat or fitness equipment.

Ask the Home Seller to Cover Closing Costs

If you’re apart on price for the home itself, one way to get around the cash crunch and get a deal done is to meet the home seller on price, but ask them to cover all or part of the buyer’s closing costs. Some home sellers might balk, but if they’re able to do this and want to finish the deal with a sale at a particular price point, this technique can work.

Be Willing to Walk Away

Buying a home can be an intensely emotional experience, but at the end of the day it is really just a business transaction. This means you can’t get attached, and you have to be willing to walk away if you’re unable to negotiate with a home seller or if the seller becomes unreasonable. If the seller’s agent senses desperation or over-eagerness on your part, they might interpret that as a signal that they have the upper hand. Silence can be your friend. Hold your cards close and always be willing to walk away.

How to Bid on a Repossessed Home

With the downturn in the economy, many homes have been repossessed or are known as distressed properties. Bidding on a repossessed home can be a great value and save a prospective buyer anywhere from 10 to 70 percent because banks or government agencies are eager to unload the properties. However, when bidding on a repossessed home, the buyer must remit all funds at the time the auction closes. Unless you have a large cash reserve or are able to arrange a large reserve from your lender in advance, bidding on a repossessed home or distressed property may not be possible for the average consumer. Bidding on a repossessed home is also a challenging process that requires extensive research, so some buyers may want to rely instead on the expertise of a real estate agent.

Two Ways to Bid on a Repossessed Home

There are two options for bidding on a repossessed home:

  • Through a trustee/lien. All sales are made public knowledge. Check your newspaper or contact your local county courthouse. Before actually bidding on a property, you may want to attend an auction or watch a webcast and see how they operate. Do not bid too early or you will only push the price higher.
  • Online. You can also bid on repossessed properties online. Try the websites of Fannie Mae, Freddie Mac, credit unions and major banks. eBay’s real estate section also offers prospective homebuyers the opportunity to bid. If bidding on eBay, you need to know whether you’re bidding on just the down payment or the total amount. Read the fine print, and do your research before bidding.

When you’re ready to bid, contact the lender and make an offer. Read below how to determine the market value and reduce the sales price that’s listed by up to 40 percent. If that offer is declined, resubmit an offer of 30 to 35 percent below market value.

Before Bidding on a Repossessed Home – Research and Inspect

Once you have located a repossessed property you’re interested in bidding on, you need to research the property. Do a title search so you can determine if any back taxes or a second or even third mortgage are due on the property. The winning bidder will be responsible for all debts past due.

You will also want to determine the market value of the property. Look online at your local property appraiser’s office or tax collector’s office. Find recently sold properties that are similar. You can also consult a real estate broker to do this research for you, but they will charge you for this service.

Just as important when bidding on a repossessed property is to inspect the property. Many repossessed homes or distressed properties have fallen into disrepair. If the home needs a lot of work, get an estimate from a reputable contractor. Too many repairs and the home is no longer the bargain you are looking for.

Using a Real Estate Agent Instead of Bidding on Repossessed Homes

Bidding on a repossessed home is challenging and time-consuming. Buying a home is huge investment. Many buyers choose to use a real estate agent to do all the research and background work for them. If this is the route you would rather take, make sure you look for a CDPE (certified distressed property expert). These real estate agents have been trained and certified in dealing with foreclosed or short sale homes.

Should you Bid on a Repossessed Home?

If you have the time and knowledge it takes to do the background research on a repossessed home, you could save yourself a great deal of money off the market value of the home. Keep in mind, however, that you will need to add the cost of any repairs to the home to your bid in order to determine the true savings. If you’re a DIY (do it yourselfer), the savings could be substantial. Doing your homework on the property before bidding is imperative.

Buying a House “As-Is” With Right to Inspect

In this new age of foreclosures and short sales, more and more homes are offered “as-is.” For the prospective homebuyer, it’s now essential to understand what this means. Buying a home as-is sounds like it would be a disadvantage, but it also has a number of benefits that could play to your favor.

First, what does it mean to buy a home as-is? It means that you are buying a home exactly in the condition that it appears, and the sellers aren’t making any warranties about the condition of the property. If there are things wrong with the house, from cosmetic damage to major structural issues, they will be the responsibility of the buyer to repair. In other words, as the house’s new owner, its problems are your problems.

Homes that are in foreclosure and short sales are typically sold as-is. In both cases, the seller is taking a loss on the property and understandably doesn’t want to sink more money into making repairs. In the case of foreclosures, the seller (usually a bank) hasn’t lived in the property and isn’t in a position to know everything that’s wrong with the house. Since foreclosures and short sales frequently occur below market value, it’s understood that the buyer will have to repair any issues at his or her own expense, adding to the costs involved when buying a house as-is.

When houses are considered teardowns or are otherwise in poor condition, it is common to present a purchase offer that is as-is. This communicates to the seller that the buyer is going to invest in the house and expects a lower price because they’re willing to assume full responsibility for everything that’s wrong with the house. For the same reason, it is also common to present an as-is offer when bidding well below the asking price, even if the house being sold is in good condition. In these instances, it indicates that the buyer has fewer hang-ups that may prevent a deal from going through. It also means that there won’t be ugly or expensive surprises for the sellers if issues are uncovered during the inspection period.

Just because a home is offered as-is, it doesn’t mean that the seller can lie outright as to the condition of the property. Regardless of the terms of sale, the seller is obligated to disclose any major issues with the house. Even if you purchase a home as-is, a major undisclosed issue can be found to be the responsibility of the seller, provided he or she knew of them prior to sale.

When a house is being offered as-is, there is always concern on the part of prospective buyers that something is wrong with the house. Once your offer to purchase a home as-is has been accepted, it is still essential to have a full inspection and to use your inspection period wisely. With the inspection report in hand, qualified tradesmen or contractors can come to the property to present you with bids to fix the issues that were uncovered. This will let you know exactly how much repairing your new house will cost and allow you to assess the purchase.

Even if your purchase agreement for a home states that you’re buying the home as-is, there is no reason that you can’t go ask the sellers to make repairs. If it’s an older home, you’ll certainly have uncovered things that they failed to disclose and some things that may cause the house to deteriorate if not addressed promptly. Sellers are not obligated to fix these issues. That said, pointing out nicely that they are sticking points in advancing the deal may encourage them to repair a few outstanding issues or provide a credit to you at closing.

Buying a house as-is with right to inspect can be a hornet’s nest, but most contracts are designed with clauses that allow the buyer to exit an agreement if the property proves to be uninhabitable or simply unappealing after the inspection period. Ultimately, this deal type has few drawbacks and can be a useful approach for getting a great deal on a home. Just be sure to budget carefully and consider all the costs involved when buying a house as is.