A Smaller House

Tips for buying a smaller house that is more affordable:

Truth #1: Rising interest rates hurt more with a bigger, more expensive house. With gobs of people wondering how they’ll manage their whopper mortgages because of the spectre of rising interest rates, smaller is starting to look sweeter. We’re at the tail end of a generation-long cycle of declining interest rates, so people are thinking about how their increasing costs will squeeze their cash flows when they have to renew their mortgages at higher interest rates.

Truth #2: No down-payment mortgages are gone. They were stupid to begin with. They let people who had done no planning for home ownership into an arena many weren’t prepared for. They got eaten by the lions. If you can’t afford to save a downpayment, you likely can’t afford to be a homeowner.

Truth #3: Longer amortizations cost way more money. Choosing a 35-year amortization on a mortgage was the only way some people could afford the huge homes they were buying. The fact that they would end up paying almost three times the cost of the home after all was said and done seemed of little concern. With the shift to getting out of debt, which, please God, I hope is firmly taking hold, a 35 year mortgage is far less attractive to smart home buyers.

Truth #4: A home is a place to live, not a retirement savings account. The era of double-digit annual gains in home prices is gone. Tying up all your money in mortgage payments when you should be investing for retirement is far less attractive now. Buying smaller means more money for RRSPs, TFSA and unregistered investment portfolios.

Truth #5:  Smaller homes have lower carrying costs. It’s not just the mortgage. It’s the property taxes and insurance. It’s the utility bills and maintenance. And it’s all the stuff it takes to furnish a bigger home.  Spending less to keep your home all gussied up means more money for a life now, and a future.

Source: Gail Vaz-Oxlade

What Does a Home Inspection Entail?

There are four basic steps to the home inspection.

First, the inspector arrives at the property, makes general introductions and both explains what is going to take place and asks about any special questions or requests.

Next, while the inspection agreement is being reviewed, the inspector will make a quick circuit of the property to size up the scope of the inspection.

Then, there will be an in-depth walk-through inspection with the client. This involves inspecting all visible areas and reviewing all accessible items and areas, including the heating system, central air conditioning system, interior plumbing and electrical systems, the roof, attic space and all visible insulation, the walls,ceilings, floors, doors, windows, basement or crawlspace area, and the foundation and all visible structural components. Any questions or items of special interest regarding a particular system or structural component are usually addressed at this time.

Finally, a check of the entire property is made to verify that the condition of the property is the same as when the inspection started. After this last circuit, the inspector will complete the hard copy of the inspection report. All deficiencies and maintenance recommendations will be noted and a recap of deficiencies will be entered onto the summary sheet for the client.

Source: Active Rain

How Much House Can I Afford?

To determine how much house you can afford, factor in several things:

• Net income from employment
• Any additional income
• Monthly expenses, including car payments
• Down payment
• Home repair expenses
• Moving cost
• Maintenance fees (lawn/pool care, etc.)
• HOA fees
• How much you'd like your mortgage payment to be monthly
• Your credit score (to determine your mortgage rate)

Here is a good article on how to determine those figures for maximum wealth from Dave Ramsey.

Trust the Wall Street Journal

There has been a lot of speculation regarding the housing market. When will it come back around? Is buying a house still a good investment? Is now the time to buy? The Wall Street Journal, certainly one of the most trusted names in media, says that it is time to buy!

Finally it is Time to Buy a House by David Weidner

Warren Buffett famously once said: “Be fearful when others are greedy, be greedy when others are fearful.”

And if you’re not instinctively scared of the housing market, then global warming, saturated fat, running with scissors and the bogeyman probably aren’t keeping you awake at night, either.

The fact that everyone is scared to dabble in—much less commit to—housing makes it a close-to-perfect investment based on Mr. Buffett’s principle. But buying real estate is a good long-term investment for many more reasons, some of which have only become apparent in recent weeks.

The most striking: Housing prices rose sharply from April to May. The S&P/Case-Shiller Index rose 2.2% in 20 of the nation’s big cities. Prices shot up more than 3% in Chicago, Atlanta, San Francisco and Minneapolis. Even Detroit’s housing market scored a gain, inching up by 0.4%.

Nationally, the increase was the first in seven months. More importantly, the increase matched other data and empirical evidence this spring that foreclosures slowed and inventories were shrinking. Simple economics suggests that as the supply of distressed property slows, buyers will be forced into higher-price properties.

In addition, interest rates on 30-year fixed mortgages have tumbled below 3.5%. For those who can get credit, these aren’t just historically low rates; they are one-sided deals tilted toward borrowers.

Other good signs: Housing starts rose 6.9% in June. Home-building stocks are on the rise, with the Philadelphia Housing Sector Index up 27% so far this year. And for those who can invest in property, rents continue their ascent. Prices are at a 10-year high, with the median unit renting for $710 a month. Real-estate website Trulia found that it is cheaper to buy than rent in each of the nation’s 100 biggest metropolitan areas.

In other words, if you can buy a home today, you can save the difference it would cost you to rent even if you stay in the home just five years. If you can buy a property and rent it, it is almost certain that the rent will cover the cost of the financing—and the property will appreciate.

Here’s where the fear comes in. From 30% to 50% of existing mortgages in the U.S. market are underwater, depending on the estimate. That means many borrowers are trapped in their homes and loans. They either can keep paying and hope prices will improve or walk away, putting downward pressure on home prices.

Foreclosure rates have leveled off, but market analysts believe an increase is likely.

Here’s why. Since the financial crisis, 3.7 million homes have been foreclosed on, but an additional 1.4 million remain in the national foreclosure inventory, according to CoreLogic, a real-estate research firm.

Finally, a housing recovery won’t happen, or could be snuffed out, by a rotten economy. There’s never been significant growth in housing with high unemployment. And as Dow Jones’s Kathleen Madigan noted, “Potential buyers must feel secure with their job prospects before they commit to long-term mortgages. Higher loan standards mean banks want to see an applicant’s solid income history before lending.”

There is plenty to be afraid of when it comes to home buying. But in the current investing climate, housing presents an attractive long-term investment that should hold steady or even have upside surprise in the short term.

Fixed-income yields have fallen to historic lows, and the stock market has traded in a range, rising and falling skittishly on jobs, growth data and the news from Europe.

Recently, I was forced to choose between renting and buying. I decided to buy because it offered immediate monthly savings compared to renting, not to mention a mortgage-interest deduction.

So this is at least one case where I’m putting my money where my keyboard is.

Mr. Buffett would remind us that investments of any kind are not without risk. Each should be considered with the investor’s time horizon and appetites. But he also has acknowledged that real estate is especially attractive when financing is cheap, there is pent-up demand and prices have been driven down by a spooked market. Put another way, it’s time to be greedy.

South Florida Housing Market

South Florida home values rose more than 6 percent in the second quarter and likely will keep appreciating by roughly the same amount into 2013, according to a report from aZillow.com.

The real estate website’s Home Value Index for Palm Beach, Broward and Miami-Dade counties is $148,300, up 6.4 percent in the April-through-June period compared with the same months of 2011. Prices in the three-county region are projected to jump 6.1 percent through the middle of next year.

This is the most sustained uptick in more than six years. Still, the region’s housing recovery is likely to level off, Zillow Chief Economist Stan Humphries said.

The price increases now are driven mostly by a lack of properties for sale. When more sellers put their homes on the market, the supply will increase to meet demand and prices eventually will soften, Humphries said.

He expects that cycle – price spikes, more homes for sale, values languishing -- to repeat during the next few years.

“I think we’re going to have more flatness in the market – not price declines,” said Humphries, who has called a housing bottom in South Florida. “Coming out of a long recession like this, that’s fantastic.”

The local markets with the biggest annual price increases in the second quarter were Deerfield Beach (20.8 percent) and Fort Lauderdale (17.3 percent), Seattle-based Zillow said.

Nationwide, almost one-third of the 167 metro areas analyzed posted annual increases. The Zillow index reflects values of all homes – not just recent sales.

Broward County real estate agent Jon Klein agrees that prices here can’t keep up the current pace and are bound to retreat.

“You’ve got to be realistic,” he said. “It’s not 2006 anymore.”

Source: Sun Sentinel

Owning is Better than Renting

A recent study of housing markets across the US showed that in a few locations, it is better to rent.

"In theory, plummeting home prices and record-low interest rates should make buying a home cheaper than renting one. But experts say in some parts of the country, it still pays to be a tenant."

South Florida is NOT one of those regions

Selected areas were:

• Northern New Jersey
• Long Island, New York
• California (all)
• Seattle, Washington
• Honolulu, Hawaii

Source: Market Watch

Real Estate Vocabulary P

partial payment

A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.

payment change date

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.

periodic payment cap

For an adjustable-rate mortgage where the interest rate and the minimum payment amount fluctuate independently of one another, this is a limit on the amount that payments can increase or decrease during any one adjustment period.

periodic rate cap

For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

personal property

Any property that is not real property.

PITI

This stands for principal, interest, taxes and insurance. If you have an "impounded" loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.

PITI reserves

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

planned unit development (PUD)

A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.

point

A point is 1 percent of the amount of the mortgage.

power of attorney

A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

pre-approval

A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.

prepayment

Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

prepayment penalty

A fee that may be charged to a borrower who pays off a loan before it is due.

pre-qualification

This usually refers to the loan officer's written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.

prime rate

The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.

principal

The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

principal balance

The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.

principal, interest, taxes, and insurance (PITI)

The four components of a monthly mortgage payment on impounded loans. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

private mortgage insurance (MI)

Mortgage insurance that is provided by a private mortgage insurancecompany to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

promissory note

A written promise to repay a specified amount over a specified period of time.

public auction

A meeting in an announced public location to sell property to repay a mortgage that is in default.

Planned Unit Development (PUD)

A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.

purchase agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

purchase money transaction

The acquisition of property through the payment of money or its equivalent.

Source: Real Estate ABCs