Tag Archives: homeowner

Mortgage Moves in 2017

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MortgageLoan.com quoted me in Three Mortgage Moves o Consider in 2017. It opens,

How much do you think about your mortgage? Probably not much at all.

But financial professionals say that homeowners can save money, lower the amount of interest they pay each year and maybe free up some extra cash, all by tweaking their mortgages, whether they are paying off a conventional loan, FHA mortgage or VA loan.

If you’ve gotten into the habit of ignoring your mortgage, it’s time to take a look at what is probably your biggest financial obligation. Here are three suggestions from mortgage lenders and financial pros to use your mortgage to better your finances in 2017.

Going Short-Term

Are you paying off a 30-year, fixed-rate mortgage? It might be time to refinance that loan, not for the benefit of lower interest rates but to turn your mortgage into one with a shorter term.

Turning your loan from a 30-year version to a 15-year one will result in a higher monthly mortgage payment. But you’ll also dramatically reduce the amount of interest you’ll have to pay over the life of your loan. Mortgage rates with 15-year, fixed-rate loans are lower than the ones attached to longer-term loans, too.

“Going shorter term is a big financial benefit,” said Jason Zimmer, president of Lockport, Illinois-based Parlay Mortgage. “The 15-year loan is where you want to go. You can save so much money.”

Look at the financial difference: Say you are paying off a 30-year, fixed-rate mortgage of $250,000 at an interest rate of 4.09 percent. Your monthly payment, not including property taxes or insurance, will be about $1,200. But you’ll pay a total of $184,000 in interest if you take the entire 30 years to pay off your loan.

But say you now owe $225,000 on that same loan. If you refinance that amount to a 15-year, fixed-rate mortgage with an interest rate of 3.33 percent, your monthly payment, not including taxes and insurance, will jump to just under $1,600. But if you take the full 15 years to pay off this loan, you’ll only pay about $61,000 in interest, a huge savings from that 30-year loan.

“Lots of people don’t consider a 15-year, fixed-rate mortgage for a refinance because they knew they could not afford one when they bought their house in the first place,” said David Reiss, professor of law at Brooklyn Law School in New York City. “But if you have had your house for more than a couple of years, and your income has increased in the interim, refinancing into a 15-year, fixed-rate mortgage can be a great way to get a lower interest rate and pay a lot less interest in the long run.”

New Protections for Homeowners

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Consumers Digest quoted me in Protections Coming for Homeowners. It opens,

New rules that cover mortgage servicing aren’t dramatic, but they should help certain consumers, experts say. In August 2016, Consumer Financial Protection Bureau finalized rules that focus on foreclosure protections and delinquencies.

“These changes are more at the margins,” says David Reiss, who is a law professor at Brooklyn Law School. “It’s looking at normal situations that occur and adding protections for consumers.”

The new rules, which are expected to take effect by 2018, would prevent dual tracking. Dual tracking is when foreclosure proceedings start while a homeowner who is current on his/her mortgage awaits a decision about a request to work with the loan servicer to avoid foreclosure. (This request is known as loss mitigation.)

In addition, borrowers who are current on their mortgage since a prior loss-mitigation application can avoid foreclosure by having their application reviewed again if they have unexpected financial difficulties. Loan servicers also have to notify borrowers when a loss-mitigation application is complete. Finally, if a borrower is in foreclosure and his/her loan is transferred to another servicer, he/she won’t have to restart the loss-mitigation application process with the new servicer.

Retired With A Mortgage

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photo by Katina Rogers

U.S. News & World Report quoted me in Rethinking a Mortgage While Retired. It opens,

It’s one of the cardinal rules of retirement planning: pay off the mortgage before quitting work. Giving up your income while still supporting a big debt can mean chewing away at your retirement savings way too fast, and can leave you in a tight spot if something goes wrong.

But paying off a mortgage years early is easier said than done, and the Center for Retirement Research at Boston College says way too many pre-retirees are too far behind schedule, largely because of borrowing before the housing bust and financial crisis.

On the other hand, some experts say carrying low-interest debt into retirement is not always such a bad thing, especially if it means leaving money in investments that perform well.

“In 2013, almost 40 percent of all households ages 55 and over had not paid off their mortgages, up from 32 percent in 2001,” the Center reports, citing a study using data from the Federal Reserve’s Survey of Consumer Finances in 2013. “These borrowers were also carrying a lot more housing debt by 2013.”

“I’ve been advising clients for over 20 years and on just an anecdotal level, I can tell you that more clients are retiring with mortgage balances than in years past,” says Margaret R. McDowell, founder of Arbor Wealth Management in Miramar Beach, Florida.

A.W. Pickel III, president of the Midwest division of AmCap Mortgage in Overland Park, Kansas, says many baby boomers traded up as their families grew, then took second mortgages to help fund college costs.

In the years before 2008, homeowners were encouraged to take out big loans when home values appeared to be soaring, the center says. They bought expensive homes or tapped home value through cash-out refinancing or home equity loans, it says.

When home prices collapsed, millions were left “underwater” – owing more than their homes were worth – and were unable to get out from under because they could not sell for enough to pay off their loan. McDowell believes many homeowners also concluded their home was not the rock-solid asset they’d thought, so they felt it unwise to pour more money into it by paying down the mortgage early.

So many just hung in there. By taking on too much debt, and monthly payments so large they could not afford extra payments to bring it down, they left themselves with too much debt too late in the game.

The center says “that 51.6 percent of working-age households were at risk of having a lower standard of living in retirement,” largely because of mortgage debt.

“In recent years, U.S. house prices have started to really improve, to the benefit of homeowners and retirees,” the center says. “But it’s difficult to predict whether the other factor that has reduced retirement preparedness – more older households with big housing debts – was a boom-time phenomenon or represents the new normal.”

But is the situation really as dire as it seems? David Reiss, a professor at Brooklyn Law School in New York City, thinks it may not be.

“According to the National Association of Realtors, the median sales price of an existing home increased from $197,100 in 2013 to $232,200 in October of 2016,” he says. “That is a roughly 15 percent price increase and about $40,000 of additional equity for the owner of the median home.”

Many homeowners who were underwater may not be any longer.

Also, he adds, it’s not necessary to be absolutely debt free at retirement so long as income is large enough to cover expenses and leave a cushion.

“Often, paying off a mortgage gets a retiree where he or she needs to be in terms of that balance, but it is not always necessary,” he says.

The key, he says, is to not be underwater. Once the remaining debt is smaller than the home value, the homeowner is better able to sell. One option is downsizing, selling the current home, then using cash from the sale or a new, smaller mortgage to buy a cheaper home. A less expensive home will also likely have lower property taxes and maintenance costs.

Finding The Right Homeowners Insurance Policy

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Zing! quoted me in Find the Right Homeowners Insurance with These Tips. It opens,

For many of us, a tremendous amount of research and work goes into buying a home. When my husband and I bought our first home two years ago, I was surprised to learn that everything I thought I knew, I didn’t really know – including how to choose homeowners insurance.

I hadn’t thought about homeowners insurance until my mortgage company called and told me they needed my policy information. Panic poured over me. What policy? What are my options? How much coverage do I need? Where do I start? I was overwhelmed with questions and at a loss for answers. I had a whole lot of research to do and with a mortgage already underway, not a lot of time to do it.

Homeowners insurance policies can be confusing and complicated, especially if you’re not familiar. While these tips may be too late for me to use, I hope they can help you when considering your home insurance options.

Talk with Your Local Insurance Agent

If there’s one thing I recommend when it comes to homeowners insurance, it would be to talk to someone who knows your area like the back of their hand.

“Local agents are familiar with the city and surrounding areas – this means they should have a general knowledge of the market values and other information that may play a role in determining your coverage needs,” says Sarah Haun of Advanced Insurance Designs, Inc., who has been selling and servicing homeowners’ policies for more than 15 years.

Insurance agents can also help in determining how much coverage you need and if it makes sense to bundle your various insurance policies together. Bundling car and home insurance saves my husband and me a couple hundred dollars a year, but that’s not the case for everyone, so be sure to ask.

Haun also suggests working with an independent agent. “Independent agents have the ability to quote several different carriers, to find you the best coverage at the best value,” says Haun. “This may be a good option if you want to get several quotes without making several phone calls or filling out several online quote forms.”

My agent is an independent agent and I highly recommend using one. If ever I have a question about my policy, I call him directly. It also benefits me in the fact that he’s always looking for ways to save us money each year, and if he sees an opportunity, he shares it with us.

Shop for Home Insurance like You Would a New Car

“It pays to shop around,” says David Reiss, Professor of Law at Brooklyn Law School. “You want to shop around to get the best price, but you also want to get a sense of how each company you are considering treats claims when they are made,” he says. “Do they have a reputation for being difficult to work with and a reputation for not paying legitimate claims? You want to take that into account when you are making your decision.”

If you decide to go it alone, Haun suggests to get three estimates and compare.

What’s Covered and What’s Not

You wouldn’t get halfway through a good book and stop reading it, so don’t just give your policy a once over. Experts recommend you read through your policy in full detail to know what is and what is not covered.

According to Haun, insurance coverage may include damage from

  • Wind
  • Hail
  • Fire
  • Smoke
  • Lightning
  • Weight of snow/ice
  • Bursting of pipes
  • Theft

“Damage from normal wear and tear would not be covered,” adds Reiss. “If an old boiler gives out, that’s on you.”

Properly Insuring a Home

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hands-and-house

Realtor.com quoted me in 3 Types of Insurance You Need to Buy a Home (and 4 You Don’t). It reads, in part,

When you buy a home, you will be showered with offers to buy insurance—and not just one type, but many types. Such awesome deals! So which ones do you really need?

There are a few that are downright essential, and others are nice but not necessary. Furthermore, others are total rip-offs to avoid at all costs.

To help you differentiate among them all, here’s a rundown of the types of insurance you’ll likely encounter on your home-buying journey and a reality check on whether you need them.

Title insurance

Do you need it? Absolutely!

Normally, this isn’t even a question because it’s almost always mandatory when you’re getting a mortgage. But if you’re paying all-cash, you have the option of skipping on title insurance. You shouldn’t.

Title insurance “ensures both the lender and the owner’s financial interests in the home are protected against loss due to title defects, liens, or other matters,” says Liane Jamason, a Realtor® and owner of the Jamason Realty Group at Smith & Associates Real Estate in Tampa, FL.

It’s especially important to get title insurance in transactions like short sales and foreclosures, which often carry the high risk of some kind of tax lien being attached to the property. Title insurance is going to safeguard against your needing to pay for liens, and will ensure the title is clear so no one down the road could claim they own the property and file a lawsuit.

If for some reason you’re dead set against getting title insurance, Jamason suggests you should at least get a lawyer to “thoroughly check the property’s history to ensure there could be no future claims to title.”

Homeowners insurance

Do you need it? You bet

Like title insurance, this is another one that’s not required if you own the house outright (you’ll need to have it with a mortgage), but this is necessary. Homeowners insurance covers you for a variety of things like fires and storms. You’ll want it even if you aren’t legally required to have it.

Eric Kossian, agency principal of InsurePro, a Washington state insurance agency, cites an example of a wealthy homeowner who had paid off his house and “figured since he had never had an insurance claim he would save himself the $700 a year in premium.” Then some kids near his home started a fire, which got out of control and burned down several houses—including his. It cost the homeowner about $450,000 in damages. Consider this a cautionary tale.

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Mortgage protection life insurance

Do you need it? Not really.

In case you die while you’re still paying off a mortgage (bummer, we know), this insurance is supposed to make sure your family is financially covered when it comes to paying your mortgage. But it’s basically pointless.

“I would say as a general rule that mortgage life insurance or mortgage protection insurance is unnecessary,” says David Reiss, a law professor specializing in real estate at Brooklyn Law School. Reiss says consumers “are generally better served by a cheap term insurance policy from a well-rated insurance company,” and “you will generally get more protection per premium dollar with a term life insurance policy.”

Umbrella insurance

Do you need it? Usually not.

Umbrella insurance is basically insurance for your insurance. It vastly expands the amount of damages your insurance will cover. But it’s not necessarily worth it.

“One common rule of thumb is that an umbrella insurance policy should equal the net worth of the insured,” Reiss says. So for the average middle-class American homeowner, Reiss notes that an umbrella policy is generally “less relevant,” probably because your regular insurance covers enough. For the rich, or those who are “reasonably expecting” a rise in income, Reiss says it can be a good idea and worth researching further.

Buyer’s or Seller’s Market?

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GoodCall.com quoted me in Is This a Buyer’s, Seller’s, or Balanced Housing Market? It reads, in part,

When buying or selling a home, everyone wants the most advantageous situation. Both buyers and sellers want “the best price,” but this definition varies: Home buyers want to purchase the desired property at a good deal, while sellers want to receive their asking price. But how does the housing market determine who wins this tug of war? Is this a buyer’s housing market, a seller’s market, or a balanced market?

What are the signs of each housing market, and how does each affect buyers and sellers?

WHAT TYPE OF MARKET ARE WE CURRENTLY IN?

Eric D. Berman, director of communications at the Massachusetts Association of Realtors, tells GoodCall that the country is currently in a seller’s market. “We have near record-low inventory, which means the market benefits sellers,” Berman says.

Adam DeSanctis, economic issues media manager at the National Association of Realtors, agrees that most of the country is in a seller’s market. So what does this mean? “Given the imbalances in demand in relation to supply in most of the country, homes are selling quicker than a year ago and prices continue to rise,” DeSanctis explains.

While a balanced market would usually have a six-month supply, DeSanctis says the last time this happened was in June 2012. “Furthermore, total housing inventory has decreased year-over-year for 16 straight months.”

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FACTORS INDEPENDENT OF THE MARKET

Whether it’s a buyer’s, seller’s or balanced market, experts agree that some decisions should be made independently of the housing supply. Berman warns that consumers should not take on more debt than can afford – the monthly payment should always be an amount they’re comfortable paying. “On the other hand, sellers should understand there price is not the only factor when it comes to selling a home, and the highest offer may not always be the best offer,” Berman says.

David Reiss, professor of law and academic program director at the Center for Urban Business Entrepreneurship at the Brooklyn Law School in New York, agrees that buying or selling a home is a personal decision.

“Does a new home work for you and your family in terms of its size, its cost, and the length of time you expect to live in it?  Does selling make sense in terms of changes in your family, your work expectations, your retirement plans?” Reiss says these are the types of questions that will produce the best answers. “But if you try to ride a wave in the market, you may set yourself up for a lot of disappointment.”

Beware of Contractor

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photo by Rogier Krens

Realtor.com quoted me in Beware of These 8 Red Flags When Hiring a Contractor. It opens,

Finding the right contractor for a major renovation is like finding a spouse. You have to have chemistry, you have to be on the same page, you have to trust each other, you have to love pugs, and you must share a passion for Korean barbecue (oh, scratch the latter two—it’s not totally like finding a spouse). And while there might be more than one Mr. Right, there are plenty of Mr. Wrongs who can transform your beloved renovation project into a nightmare (and give new meaning to the term “punch list”).

In 2011, the average U.S. homeowner spent $2,889 on home improvements—it’s a pretty penny, but a fraction of the cost of a big project like a major kitchen overhaul ($60,000) or bathroom renovation ($18,000). So a lot of cash is at stake here, along with your mental health! Here are some matador-worthy red flags to look for when researching a contractor, and strategies for finding one you’ll love.

1. They have lousy reviews

We live in a world saturated with social media, where it’s harder for bad contractors to hide. When you see a Yelp review that slams a contractor, your antennae should go up. Not that any one review is gospel; review sites often are battlegrounds for competitors who unfairly slam one another.

“Anyone can have one or two bad reviews from cranks or revenge seekers, but a pattern of problems or red flags should make you think twice,” says Sandy Edry, a real estate agent with Keller Williams in New York City.

2. They’re not responsive

As in any long-term relationship, communication is key. If you have trouble getting a contractor on the phone before you give him your business, imagine how hard it will be for him to return calls after he already has your security deposit. Give a prospective contractor 24 hours to return your introductory call—48 hours, tops—before you move on.

3. They insist on unlimited time and materials

The best way to wreck a budget is to sign a time and materials contract that puts no fence around expenditures. Make sure a contractor offers you a flat fee for a project and specifies how much change orders will cost. If he won’t, walk. Or run.

4. They lack a sense of humor

When it comes to home renovations, Murphy’s Law (anything that can go wrong, will) might be a bit exaggerated (although we know quite a few homeowners who’d beg to differ). No matter what, you should be prepared for at least one unexpected problem to arise. Look for a contractor who can keep his footing when things get rocky, and has the expertise to remain calm—and to help calm you down—while sorting out a solution.

5. They overpromise

Before you sign a contract with anyone, do your homework to get a rough idea of how long a project should take and cost. Remodeling’s Cost vs. Value annual report provides national averages for popular projects and is a great resource. Beware of contractors who offer you a much lower price and faster delivery. If it sounds too good to be true, it probably is.

6. They have outdated references

Good contractors have a constantly revolving list of new and satisfied customers. If they can’t provide a current reference, perhaps the quality of their work has dropped.

“You don’t want any old references,” says David Reiss, research director for the Center for Urban Business Entrepreneurship in Brooklyn, NY. “You want references for recent and current jobs, and for jobs that are similar to yours.”