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Homeowners can make a lot of mistakes during that first year in homeownership, especially when eagerness can sometimes lead to ignorance. HouseLogic recently featured several of the most common and costly missteps homeowners most often make in their first year, including:

1. Always going with the lowest bid.

Homeowners may be smart about gathering multiple bids when, say, that HVAC system needs repairs. But they may be tempted to always go with the lowest price. HouseLogic recommends ensuring that all bids include the same project scope. At times, one bid may be less expensive but may not include all of the actual cost or details of the project, or the contractor may lack the experience to do a good job.

2. Submitting small insurance claims.

Owners shouldn’t be in a rush to submit an insurance claim every single time something goes wrong. Filing a claim or two, particularly over a short time, can prompt an increase to your premium. Amy Bach, executive director of United Policyholders, says it’s better to pay out of pocket than to submit claims that are less than your deductible. “You want the cleanest record possible,” Bach says. “You want to be seen as the lowest risk. It’s like a driving record—the more tickets you have, the more your insurance.”

3. Failing to consider the ROI of home remodeling improvements.

Homeowners shouldn’t believe that just because they see the value in an upgrade, they will get an added market value for it when they go to sell. Owners can over-upgrade their home. “It’s easy to build yourself out of your neighborhood” and invest more than you can make at resale, says Linda Sowell, a real estate professional in Memphis, Tenn. Homeowners should check with a real estate professional or appraiser before they start a project to learn whether the improvement will help boost their property value.

4. Tossing receipts and paperwork.

Homeowners need to be good record-keepers. HouseLogic recommends keeping home improvement receipts, contracts, and manuals in a three-ring binder with clear plastic sleeves. Or they can photograph documents and and store them on a computer or in the cloud.

5. Ignoring seemingly minor items on an inspection report.

An inspection report can make a great first to-do list once moving in, HouseLogic says. Seemingly minor issues, like loose gutters or uninsulated pipes, may eventually cause bigger damage if not repaired soon. New owners should consult a contractor and make an informed decision about what needs to be fixed right away and what can wait.

Source: Yahoo Finance

Is now the right time to refinance? If you’re a homeowner, it’s a question you’re bound to ask yourself at some point during the life of your mortgage.The short answer is … It depends on your specific situation and goals.

There are a few reasons to refinance your mortgage– maybe interest rates have dropped since you took out your initial loan and you want to take advantage of the lower rate, or you want to shorten your loan’s term.

For instance, if you have an adjustable-rate mortgage you might want to switch to a fixed-rate loan in order to lock in the lower interest rate.The good news is that mortgage rates are still near historic lows.
The national average for a 30-year fixed mortgage is currently about 4%, according to Bankrate.com.

But before you decide to take the plunge, you’ll want to ask yourself a few questions. First, do you own at least 20 percent of your home? Many banks won’t even consider refinancing until you do.

Ask yourself how long you have left on your loan and how long you plan to stay in your home.

If you have five years or more left on your mortgage and plan to live in your home for at least another three years, it may pay to spend the money and refinance now.

If you bought a house with a down payment of less than 20 percent, your lender required you to buy mortgage insurance. The same goes if you refinanced with less than 20 percent equity.

Private mortgage insurance is expensive, and you can remove it after you have met some conditions.

How to get rid of PMI

To remove PMI, or private mortgage insurance, you must have at least 20 percent equity in the home. You may ask the lender to cancel PMI when you have paid down the mortgage balance to 80 percent of the home’s original appraised value. When the balance drops to 78 percent, the mortgage servicer is required to eliminate PMI.

Although you can cancel private mortgage insurance, you cannot cancel Federal Housing Administration insurance. You can get rid of FHA insurance by refinancing into a non-FHA-insured loan.

Canceling PMI sooner

Here are steps you can take to cancel mortgage insurance sooner or strengthen your negotiating position:

Refinance: If your home value has increased enough, the new lender won’t require mortgage insurance.
Get a new appraisal: Some lenders will consider a new appraisal instead of the original sales price or appraised value when deciding whether you meet the 20 percent equity threshold. An appraisal generally costs $450 to $600. Before spending the money on an appraisal, ask the lender if this tactic will work in the specific case of your loan.
Prepay on your loan: Even $50 a month can mean a dramatic drop in your loan balance over time.
Remodel: Add a room or a pool to increase your home’s market value. Then ask the lender to recalculate your loan-to-value ratio using the new value figure.
Refinancing to get out of PMI

When mortgage rates are low, as they are now, refinancing can allow you not only to get rid of PMI, but to reduce your monthly interest payments. It’s a double-whammy of savings.

The refinancing tactic works if your home has gained substantial value since the last time you got a mortgage. For example, if you bought your house four years ago with a 10 percent down payment, and the home’s value has gone up 15 percent over that time, you now owe less than 80 percent of what the home is worth. Under these circumstances, you can refinance into a new loan without having to pay for PMI.

Many loans have a “seasoning requirement” that requires you to wait at least two years before you can refinance to get rid of PMI. So if your loan is less than 2 years old, you can ask for a PMI-canceling refi, but you’re not guaranteed to get approval.

What mortgage insurance is for

Mortgage insurance reimburses the lender if you default on your home loan. You, the borrower, pay the premiums. When sold by a company, it’s known as private mortgage insurance, or PMI. The Federal Housing Administration, a government agency, sells mortgage insurance, too.

Know your rights

By law, your lender must tell you at closing how many years and months it will take you to pay down your loan sufficiently to cancel mortgage insurance.

Mortgage servicers must give borrowers an annual statement that shows whom to call for information about canceling mortgage insurance.

Getting down to 80% or 78%

To calculate whether your loan balance has fallen to 80 percent or 78 percent of original value, divide the current loan balance (the amount you still owe) by the original appraised value (most likely, that’s the same as the purchase price).

Formula: Current loan balance / Original appraised value

Example: Dale owes $171,600 on a house that cost $220,000 several years ago.

$171,600 / $220,000 = 0.78.

That equals 78 percent, so it’s time for Dale’s mortgage insurance to be canceled.

For a fuller explanation of the above formula, read this article about figuring the loan-to-value ratio to remove PMI.

Other requirements to cancel PMI

According to the Consumer Financial Protection Bureau, you have to meet certain requirements to remove PMI:

You must request PMI cancellation in writing.
You have to be current on your payments and have a good payment history.
You might have to prove that you don’t have any other liens on the home (for example, a home equity loan or home equity line of credit).
You might have to get an appraisal to demonstrate that your loan balance isn’t more than 80 percent of the home’s current value.
Higher-risk properties

Lenders can impose stricter rules for high-risk borrowers. You may fall into this high-risk category if you have missed mortgage payments, so make sure your payments are up to date before asking your lender to drop mortgage insurance. Lenders may require a higher equity percentage if the property has been converted to rental use.

Homeowners think their homes are worth an average of 1.70 percent more than appraisers do, according to Quicken Loans’ National Home Price Perception Index (HPPI). This marks the first time in seven months that the gap between the two opinions of value narrowed.

Despite differing opinions in appraisals, home values continue to rise across the country. Quicken Loans’ National Home Value Index (HVI) showed appraisals rose an average of 1.25 percent from May to June and increased 5.35 percent year-over-year.

Homeowners are still estimating their homes at higher values than the appraisal, although the spread is now slightly narrower. Nationally, appraisals were an average of 1.70 percent lower than what homeowners thought they would be, as measured by the HPPI. This is compared to June when estimates were 1.93 percent higher. There is a wide range of perceptions across the country. The Midwestern and Eastern regions kept with the national trend of a lower appraiser opinion. On the flip side, the Western markets were more likely to have owners underestimate their home value.

The housing market crash, which started in 2007 and kicked off the Great Recession, blighted both the financial and real estate industries. Among the many participants whose reputations were ruined, few took more damage than the mortgage brokers who sold adjustable-rate mortgages. Known as ARMs, they became a four-letter word within the industry.

But nine years after their fall from grace into near oblivion, ARMs are making a slow, but steady, comeback. They’re getting a boost from rising interest rates, which make them more attractive, better government regulations and, perhaps, more restraint from the mortgage brokers who sell them and are looking for redemption.

“ARMs carry the stigma of being the villains of the housing crash,” said CEO Mat Ishbia of United Wholesale Mortgage, a national lending institution. “But they’re still around and could be the right product for a lot of borrowers.”

Prospective homebuyers, who can’t afford to pay cash, have two basic mortgage options. The first is a fixed-rate loan, usually with a 30-year payback term to spread out the interest and principal payments. The other is an ARM, which comes in many different forms.

A simple ARM allows the buyer to obtain a fixed-rate loan for an initial set number of years, say, five or seven. Then over the rest of the loan term, the mortgage rate is adjusted, say, yearly or every three years, to the prevailing rate — plus a margin — that the mortgage lender pays to borrow the money it then lends out as a mortgage.

The adjusted rate for an ARM could be higher or lower than the original rate, depending on whether interest rates have risen or fallen. For example, if rates rise four percentage points, the ARM would also increase by that much.

That means you need to keep a close eye mortgage rates if you buy a home with an ARM. Otherwise you can wind up paying twice as much for your monthly mortgage bill if the ARM is repeatedly adjusted upward.

ARMs were immensely popular in the early 2000s, but fell into obscurity due to their connection with the subprime market crash (subprime loans are those made to borrowers whose credit rating isn’t so good). Buyers who wanted to turn a quick profit on a home purchase used them as a way to “flip” houses and cash in on the soaring real estate market.

Banks and mortgage lenders expanded the types of ARMs they offered to the market during the housing boom to include “nontraditional options,” said Chief Economist Mark Fleming of First American Financial, which provides title insurance and settlement services for the real estate market.

Tactics included “teaser rates” to lure buyers into special ARMs, which would reset every year or two, often without their owners realizing it. And “negative amortization,” whereby you paid less than the minimum interest each month so the amount owed on the total mortgage increased rather than declined.

Subprime borrowers were given ARMs with no or limited documentation, meaning they didn’t have to prove what their income was or even if they held a job (also known as “liar loans”).

But many buyers still saw them as a good deal. In the greater Los Angeles area, a house hunter could buy a $400,000 home with just $10,000 down. ARMs represented more than 50 percent of the mortgage market in 2005. But when the recession came and foreclosure filings began to inch toward almost 4 million a year, ARM originations dropped close to zero.

It has taken a long time for ARMs to rebound, but that’s the situation today. “They’re about 5 percent of the market right now,” said United Wholesale’s Ishbia, “and we expect it to grow to 17 percent in two years.” That would still be only third of its former size, according to Black Knight Financial Services, which provides data and analytics to the real estate industry.

The market also appears to be healthier this go around. Federal government-sponsored agencies such as Fannie Mae (the Federal National Mortgage Association), Freddie Mac (the Federal Home Loan Mortgage Corp.) and Ginnie Mae (the Government National Mortgage Association) are now offering ARMs. Also, the U.S. Consumer Financial Protection Bureau is placing tighter restrictions on the ARM market and is educating consumers on how best to use these loans.

According to a study by the Federal Reserve, ARMs are a play on rising interest rates. When rates are low, as they have been for many years, homebuyers prefer a fixed-rate 30-year mortgage. But the Fed is gradually raising interest rates due to an improving U.S. economy.

When mortgage rates head toward 5 percent, some borrowers may move to ARMs, which usually carry an interest rate more than half a percentage point lower than the 30-year fixed rate. During the life of an average mortgage, which is around nine years (because so many people sell before paying off their mortgage), the borrower of a $300,000 ARM could save more than $8,000, according to lenders.

And that’s particularly true for first-time buyers, who are millennials these days. “Why borrow with a higher interest rate and pay a mortgage for 30 years, when the odds that you’ll actually reside that long in the first house you buy are slim to none,” said First American’s Fleming.

But most prospective buyers still remember the homeowners who lost their houses because they gambled on ARMs in an overheated market. Even advocates of ARMs admit they’re more complicated than fixed-rate loans and that you can’t just shop online or go to your local bank and demand the best rate.

“Go to a broker,” urged Ishbia. “It sounds counterintuitive to use a middleman, but they will shop for you and get you the best deal.”

The Fannie Mae Home Purchase Sentiment Index® (HPSI) decreased 0.5 percentage points in May to 86.2. The slight decrease can be attributed to decreases in three of the six HPSI components being larger on net than the three increases. The net share of Americans who reported that now is a good time to buy a home reached a record low after falling 8 percentage points, while the net share who reported that now is a good time to sell a home reached a record high, increasing 6 percentage points.

This is only the second time in the survey’s history that the net share of those saying it’s a good time to sell surpassed the net share of those saying it’s a good time to buy. Americans also expressed greater belief that mortgage rates will go down over the next 12 months, with that component increasing 5 percentage points. Finally, the net share of consumers who think home prices will go up fell by 5 percentage points this month.

“High home prices have led many consumers to give us the first clear indication we’ve seen in the National Housing Survey’s seven-year history that they think it’s now a seller’s market,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “However, we continue to see a lack of housing supply as many potential sellers are unwilling or unable to put their homes on the market, perhaps due in part to concerns over finding an affordable replacement home. Prospective homebuyers are likely to face continued home price increases as long as housing supply remains tight.”

Source: Associated Press

Saving up for a down payment is the biggest hurdle for many would-be homebuyers, particularly those looking to make the leap from renting to owning.

More than two-thirds of renters consider setting aside money for a down payment the No. 1 obstacle to buying a home, according to a recent survey by real estate data provider Zillow. That edged out other concerns, including job security and a thin supply of homes on the market.

While there are home loans that require as little as 3 percent down, rising home prices, especially in expensive coastal states, keep driving up the amount of money buyers need to come up with for a down payment.

Start saving now. Renters may want to calculate what their extra monthly costs would be as a homeowner and then set aside that amount, minus rent and utilities. This accomplishes two goals: Saving money for a down payment and getting you accustomed to the financial constraints of living with the costs of homeownership.

The type of home loan you get may determine how much of a down payment you need. For many years, buyers sought to put down 20 percent of the purchase price. That would lower their monthly mortgage payment and allow them to avoid having to pay for private mortgage insurance, or PMI. But as home prices have risen, that trend has waned. Loans that require as little as 3 percent up front have become more common. As a result, the median U.S. down payment has declined to 10 percent the past four years, according to the National Association of REALTORS®.

Borrowers with low or moderate income, and teachers, firefighters or other public service job holders may also qualify for down payment assistance through thousands of federal, state or local programs aimed at helping homebuyers.
There are more than 2,100 funded programs, many of which help cover the down payment and closing costs through loans that can sometimes be forgiven over time, or paid back only once the buyer sells the home, according to Down Payment Resource, a tracker of homebuyer assistance programs.