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Should you buy a home?

For most people, tax and investment benefits make home ownership an attractive option compared to renting.

Financial incentives vary, but many buyers are motivated by three major benefits:

1. Income tax reduction. In most cases, mortgage interest and property taxes reduce both taxable income and overall tax bills. Also, if you sell your home at a profit, it’s likely that much or all of your gain will be tax-free under federal tax rules approved in 1997.
2. Wealth-building possibilities. A home is not only shelter; it’s also an investment. While there’s no guarantee that real estate prices will rise, a home is the single largest asset that most people hold. 
3. Tax-deductible borrowing power. As your home equity increases, you can borrow against it for any need with a home equity loan or line of credit. Because your loan or line of credit is backed by the equity in your home, you may be able to subtract the interest from your taxable income – which could lower your final tax bill.

The benefits and overall financial incentives grow the longer you stay in your home. If you can’t commit to remaining in one place for at least a few years, then owning is probably not for you, at least not yet. With the transaction costs of buying and selling a home, you may end up losing money if you sell any sooner – even in a rising market. When prices are falling, it’s an even worse proposition. 

Rates are low right now, so if you would like more financial help make an informed decision, please call me at GSF Mortgage, Aurora today.

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Shorten Your Mortgage

The low mortgage rates are sparking many homeowners interest at refinancing.  It is the really smart ones that are looking at refinancing not just as a lower rate, but also for a shorter term.  Many people are finding out that they can drop to a lower rate, a shorter repayment period and not increase their monthly payments.

 More than one-third of all refinancers this year have chosen loans shorter than 30 years, and one in four chose a 15-year loan, according to CoreLogic, which tracks mortgage statistics.

In 2007, only about 15% of borrowers chose shorter-term loans, and fewer than one in 10 opted for a 15-year loan.

In one way, the trend is counterintuitive. Shorter loans mean bigger payments — the monthly cost of a 15-year loan can be 45% higher than that for a 30-year loan — and many people are trying to economize right now.

Additionally, the gap in rates between 15- and 30-year loans has narrowed in recent months, which means you don’t get as much of a break for shouldering a shorter loan. Lending standards have tightened to the point where most people getting refinanced are considered “high quality” borrowers. They have decent credit scores, steady incomes, some equity in their homes and not too much debt.

These borrowers refinancing today, are the type who are more likely to have their financial acts together enough to swing 15-year loans.

Rates have fallen to the point where people who missed the past few opportunities to refinance at lower rates can now opt for shorter loans without busting their budgets. If you still have a loan around 6% and have paid down your loan for a few years, you may be able to make the switch without a big increase in monthly payouts.

For baby boomers looking at retirement, today’s low rates may offer a kind of break that they may need – an opportunity to pay off a mortgage sooner without stretching their budget.  Paying off a mortgage before retirement is a smart move for most people. It greatly reduces their cost of living.

If you would like to discuss your mortgage in more detail, contact me at GSF Mortgage, Aurora, IL.

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4 Things Not To Do Before Closing

Going through the mortgage process, you have been inundated with tasks and forms that you need to do and complete.  Due to Fannie Mae’s Loan Quality Initiative, lenders are looking closer at credit and doing checks in the final hour even minutes before closing.  Here are 4 things that you should not do, no matter what, before closing on your new home or the refinancing of your current home.

The First – Take a Loan out on a Car

Let’s say you purchase a car days before you are closing on your new home.  The lender is not aware of the new car loan and closes on the home.  A few months down the road, you fail to make your mortgage payments.  If Fannie Mae digs back into your files and credit history and discovers the undisclosed car loan, Fannie Mae can make the lender buy back the bad loan.  Obviously the lender loses money.

Number 2 – Apply for a New Credit Card

It seems that every store has a credit card and retailers often offer discounts to customers if you carry their card and use it.  Even if the card sits in a box untouched, your FICO and debt to income may be affected by the new card.

If you fail to make a mortgage payment down the road, the lender would be responsible for your actions and would need to purchase the bad loan back from Fannie Mae.

The Third – Max Out Your Credit Cards

Yes, another credit card warning.  It is understandable that you have this new home and no way to furnish it.  The way not to is by charging everything to your cards. 

Your mortgage is based on your debt-to-income ratio and the approval for how much the lender is willing to give you relies heavily on this number.  Just because you have been approved by the lender doesn’t mean the deal can fall through at closing. Fannie Mae urges lenders to recalculate the debt-to-income ratio before the closing.  If the lender see this ratio increase, you loan may be denied.

The Fourth Point – Changing Jobs

Fannie Mae likes to see history and documentation.  If you switch jobs, obviously you don’t have that anymore.

And don’t rule out switching positions within the company.  If you go from being salaried to an hourly wage or one based on sales and commission, your prior documentation of income may not be usable.  If this happens, you may not qualify for the loan amount you did prior to the recalculation.

If you have any questions regarding your current or future mortage, do not hestitate to call me at GSF Mortgage in Aurora.

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How Can You Cash in on Low Mortgage Rates?

With the mortgage rates being so low, more homeowners and homebuyers are looking to save money on new home loans. Current homeowners can save monthly by refinancing at a lower rate. Some borrowers are opting for a shorter mortgage term of 15 years because the monthly payments are more affordable. And not only are people saving money, but lower rates can shave thousands of dollars off the total loan amount over time.

Homebuyers can afford a larger loan because the mortgage rates are low and they, too, are opting for shorter loan terms.

But in spite of low rates, not everyone can take advantage of the opportunities these low mortgage rates provide. Borrowers need to meet today’s tightened credit guidelines to qualify.

To be approved for a low rate, borrowers need to have a high credit score. Typically – scores need to be 740 or higher. Additionally, borrowers need to have a reasonable debt-to-income ratio. The qualifying percentage is usually a max of 45 percent of overall debt to household gross income.

A good credit score can have a big impact on qualifying for the lowest mortgage rates, and therefore on the monthly budget. A recent example on MyFICO.com compared mortgage interest rates and monthly payments on a $300,000 mortgage at different credit scores.

Borrowers with the highest credit scores (760 to 850) could qualify for a mortgage rate of 4.378 percent and a monthly payment of $1,490.  Borrowers with a lower credit score (620 to 639) would qualify for a mortgage rate of 5.917 percent, resulting in a monthly payment nearly $300 per month higher, at $1,783.

Make sure your credit score is as high as possible before applying for a loan to take advantage of low mortgage rates today. At GSF Mortgage we have the tools to check in on your credit score to see if you can qualify for a low rate or to purchase that dream home you have your eye on. Contact us today to see how we can help you!

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Will Your Home Remodel Pay Off?

Remodeling certain areas of your home is a great way to increase your property value – or so you may have thought. Not all projects are created equal when it comes down to how much of an increase you are looking for.

Think Before You Build
The return on investment or ROI of the remodeling project that you are planning is dependant on the local market, the residential real estate market and its condition when the property is sold and the overall craftsmanship of the renovation. On average, there are certain projects that yield a higher ROI like a wood deck, an updated and upgraded kitchen and bathroom as well as window replacements no matter where the property is located or how the market is responding.

Consider Your Location
When considering any type of remodeling project, you need to make sure that any improvements made are appropriate for not only your home, but the neighborhood as well. Buyers are attracted to a particular area because of the services located nearby and because houses are in that buyer’s price range.

Additions or finishing off the basement or attic as well as fixing structural issues will add value for much longer than projects like updates to kitchens and bathrooms or technological improvements, such as new air conditioning systems, because these do become outdated over time.

Project Returns on Investment
Of course the ultimate reason behind remodeling is to enjoy living in an updated home. Secondary is the ROI that may be had on the particular remodel.

If you are interested is finding out if the project you are planning, below is a quick look at ROI for the most common projects.
This should give you a broad idea of which projects have the greatest probability of returning a bulk of the project cost at sale. Differentials in average recoveries are explained by the scope and quality of work performed, with smaller, less-useful projects being on the lower end of the range.

Project	Avg. Recovery %
Wood Deck Addition	80-85%
Siding Replacement	75-83%
Minor Kitchen Remodel	75-83%
Window Replacement	75-80%
Bathroom Remodel	70-78%
Major Kitchen Remodel	70-78%
Attic Bedroom Remodel	65-76%
Basement Remodel	65-75%
Two-Story Addition	65-74%
Garage Addition	60-70%

 

Improvements, such as office and bedroom remodeling had the largest recovery ranges: from 50-70%. The large spread is due to differences in the size of the renovations and the importance the room has on the overall design of the home, such as guest bedroom versus master suite.

Conclusion
When contemplating any remodeling project, the most important consideration is the value you will receive from the improved home over any cost recovery that may be forthcoming from the sale of the home. If you are concerned about the ROI, be sure to research local real estate guides to determine which projects are most likely to pay for themselves.

Remember that bigger is not always better, and spending more does not always ensure a greater amount of value creation. Home prices will always reflect the tastes of local property buyers and the amounts that buyers are willing to pay in a particular neighborhood or subdivision.

If you are looking to fund a remodeling project, the government offers a 203 loan for this purpose.  Call me today at GSF Mortgage in Aurora for more information about this loan product!

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Managing Your Mortgage the Right Way

The one sure bright spot for borrowers: ultralow mortgage rates. According to Freddie Mac’s weekly survey, the 30-year mortgage averaged a record low 4.69% for the week ending June 24, down from 4.75% the week before and 5.42% a year ago. CAll GSF Mortgage Aurora today for the most current rates!

Given the favorable rate environment, borrowers might be feeling pretty smart after snagging a great rate on a home loan. But there’s plenty of room for financial slipups while you’re paying off that mortgage. Here are some pitfalls to watch out for while managing your mortgage.

Not refinancing when you should

Homeowners can lower their costs by refinancing, but only if they can recover the refinancing costs in a short period of time relative to how long they expect to be in the house. If you foresee living in the house for another five years, for example, and can expect to recover the associated costs within two or three years, then refinancing is a savvy move.

Refinancing when you shouldn’t

Some borrowers assume that refinancing from a 30-year loan at 6% to a 30-year loan at 4.75% will save them in reduced interest payments. That’s not always the case if you’re essentially extending the term of the loan. If you have just 10 years left on a 30-year mortgage and you’re offered an opportunity to reduce the payments by taking out a new 30-year mortgage, it’s not a win.

Getting complacent about your adjustable rate

Homeowners who have adjustable-rate mortgages have seen their payments go down as rates have decreased. But these rock-bottom rates can’t last forever, and before you know it, you’ll get hit with a nasty rate increase when your ARM resets. One way to avoid that potential surprise is to refinance into a fixed-rate loan before the impending reset. Locking in a rate now is a particularly good idea for borrowers who had gotten an ARM with the intention of living in the home for, say, five or six years, but who, because of the bleak housing market, have decided to stay longer to wait out a rebound in values.

Not prepaying when you should

Think of prepayment as one type of investment. If you have a good amount of cash sitting in the bank earning a paltry 1% or 2%, you should seriously think about using that money to pay down your mortgage balance. Paying down your loan amount earns a return equal to the rate on your mortgage.

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Federal Reserve likely to stay on low-rate path

The Federal Reserve’s Federal Open Market Committee, or FOMC, is meeting this week in a two-day session scheduled to conclude with an announcement today at 2:15 p.m. Eastern.

What will the Fed discuss behind closed doors? Not interest rates, ironically, or at least not much. There just isn’t much to discuss on that front.

Instead, the FOMC’s time will be occupied discussing more pressing matters such as Europe’s debt woes, the anemic U.S. job market and a still-weak housing market. The committee will also probably do some scenario planning regarding the possibility of deflation.

Will the Federal Reserve raise interest rates before year-end? Not unless we see a big jump in private sector job growth, an easing in global financial tensions and a surge in inflation. In other words, probably not.

Deflation worries

Even with financial tensions easing, as evidenced by Libor stabilizing since the beginning of June, inflation has been running so low in recent months that the Fed will focus more on preventing an onset of deflation.

This means benchmark interest rates aren’t going anywhere. While the Fed may discuss downsizing its balance sheet, it won’t act on it anytime soon.

How should consumers respond to an environment of prolonged low interest rates? Paying down debt is a good start. And never mind what we hear about consumers doing just that, as the declining debt burden has come overwhelmingly from lenders writing off bad debt.

The Federal Reserve’s G.19 Consumer Credit statistical release shows a decline in revolving debt — primarily credit card debt — of $129 billion since September 2008. But credit card charge offs represent more than $120 billion of that.

Refinance opportunity

The outstanding mortgage balances on one- to four-family residences has been down every quarter since early 2008. In the context of distressed sales — where foreclosures and short sales involve lenders receiving much less than owed — that decline is not surprising.

But let’s not kid ourselves into thinking the decline is driven by homeowners around the country writing sizable checks to pay down or pay off mortgage balances.

Debt burdens have come down, but any evidence that consumers are the ones paying debt down is pretty scarce. A prolonged low-rate environment acts as a tailwind for those borrowers looking to pay down variable rate debts, such as credit cards and home equity lines of credit.

With mortgage rates hovering at record low levels, the window of opportunity remains open to refinance and lock in low fixed rates, especially for homeowners with adjustable-rate mortgages bound to reset higher over the next few years.  

If you are looking to take advantage of the low rates and purchase a property or refinance your home, call GSF Mortgage Aurora today!

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Mortgage Interest Rates Heading Up in 2010

Mortage interest rates have edged higher in the last couple of weeks of 2009, and that trend will most likely continue in 2010.  Mark Zandi, chief economist at Moody’s states “I don’t think there’s any question rates are headed up.”

At the end of the third week of December, the average interest rate on a 30 year fixed mortgage  was 4.94 percent.  On December 3rd, that rate was 4.71 percent. 

The chief economist at the National Association of Realtors Lawrence Yun states “I don’t see anything too alarming.  Rates will still be considered attractive.”

So, what has caused mortgage interest rates to stay low?  One crucial component has been the Fed’s purchase of almost $1.5 trillion in mortgage backed securities.  That program expires in March of 2010. 

Mark Goldman of San Diego State University states that “the ending of the Fed program will definitely affect interest rates…inflation is the key.”

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Foreclosures Suspended At Citigroup and Fannie Mae

Citigroup has given an early holiday gift to approximately 4,000 of it’s at-risk homeowners.  The bank has suspended 2,000 foreclosure sales and another 2,000 foreclosure notifications between December 18th and January 17th.  Approximately 20% of Citigroup’s $746 billion mortgage servicing and lending portfolio will be affected.  

In addition, Fannie Mae has announced that all foreclosure evictions scheduled December 19 through January 3rd are suspended for the holiday season.

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Mortgage Interest Rates Near Record Lows

Mortgage Rates Near Record Low

The benchmark 30-year fixed-rate mortgage rose 9 basis points, to 5.13 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week’s survey had an average total of 0.42 discount and origination points. The benchmark 15-year fixed-rate mortgage rose 6 basis points, to 4.53 percent. Meanwhile, the 5/1 ARM rose 5 basis points, to 4.6 percent.

Mortgage applications edged up a seasonally adjusted 0.3 percent when compared to a week earlier, according to the Mortgage Bankers Association. For the week ending Dec. 11, refinancing activity increased 0.9 percent, while applications for new purchases fell 3.6 percent.

Housing starts rose 8.9 percent in November compared to the October number, according to the U.S. Commerce Department. Housing starts were down 12.4 percent year over year.

Weekly National Mortgage Survey

Results of the December 16, 2009, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
	30-year fixed	15-year fixed	5-year ARM
This week’s rate:	5.130%	4.530%	4.600%
Change from last week:	+.09	+.06	+.05
Monthly payment:	$898.91	$1,264.77	$845.86
Change from last week:	+$9.12	+$5.0	+$4.92

GSF Mortgage Interest Rates

Conforming Interest Rates for December 16, 2009. Example assumes rate and term refinance at 80% LTV, escrowing taxes and insurance. The APR has a total of .38 closing costs.
	30-year fixed	15-year fixed	5-year ARM
Rate/APR:	5.000%, 5.038%	4.375%, 4.413%	3.750%, 3.788%

If you’re in the market for a mortgage or refinance, please call me to discuss your current situation and how I can help you.

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