Be Careful Not to Get Caught in The Rental Trap!

 

There are many benefits to homeownership. One of the top benefits is being able to protect yourself from rising rents by locking in your housing cost for the life of your mortgage.

Don’t Become Trapped 

A recent article by ConsumerAffairs addressed the continuous rise in rents, stating:

“The cost of putting a roof over your head continues to go up. Not only are home prices still rising, but the cost of rent rose 0.5% in June.”

Additionally, in the Joint Center for Housing Studies at Harvard University’s 2017 State of the Nation’s Housing Report, it was revealed that,

“Despite a slight improvement from 2014, fully one-third of US households paid more than 30 percent of their incomes for housing in 2015. Renters continue to be more likely to face cost burdens…the number of cost-burdened renters (21 million) considerably outstrips the number of cost-burdened owners (18 million) even though nearly two-thirds of US households own their homes.”

These households struggle to save for a rainy day and pay other bills, including groceries and healthcare.

It’s Cheaper to Buy Than Rent 

As we have previously mentioned, the results of the latest Rent vs. Buy Report from Trulia shows that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro areas in the United States.

The updated numbers show that the range is an average of 3.5% less expensive in San Jose (CA), all the way up to 50.1% less expensive in Baton Rouge (LA), and 33.1% nationwide!

Know Your Options

Perhaps you have already saved enough to buy your first home. A nationwide survey of about 24,000 renters found that 80% of millennial renters plan to eventually buy a house, but 72% cite affordability as their primary obstacle. Aside from affordability, one in three millennial renters have concerns about their credit scores, and another 53% said that a down payment is an obstacle.

Many first-time homebuyers who believe that they need a large down payment may be holding themselves back from their dream homes. As we have reported before, in many areas of the country, a first-time home buyer can save for a 3% down payment in less than two years. You may have already saved enough!

Bottom Line

Don’t get caught in the trap that so many renters are currently in. If you are ready and willing to buy a home, find out if you are able. Let’s get together to determine if you can qualify for a mortgage now!

 

Posted by the KCM Crew

9 Easy Ways to Cut Your Electric Bill by up to $750

With just a few simple adjustments, you can plug into big savings on your annual utility spending.

We all want to save energy and money, right? But it’s not always so easy — perhaps you don’t have the time for a home energy audit, or maybe there simply isn’t room in the budget for that energy-saving appliance you want.

No worries! Here are some quick and easy ways to reduce your home energy usage right now.

Reduce hot water usage

Don’t worry — you don’t have to take a low-flow shower! But heating up hot water does require energy, so take the simple and painless route:

  • Adjust the water heater’s temperature. Lower your water heater to 120 degrees F (49 degrees C). An added bonus — you’ll lower the risk of scalding accidents.

  • Don’t overuse the dishwasher. Try to run your dishwasher only once a day or when it’s completely full. See if your utility company offers savings for running appliances at off-peak times.
  • Wash clothes in cold water. Most modern detergents clean clothes very well with cold water. If you have items that you really need to wash in hot water, save them up and do one hot load every few weeks.

Projected savings: Up to $250 per year, depending on the number of people in your home.

Turn it off

Little things add up! An easy way to save money on your energy bill is turning off the lights, electronics, and other energy users when you’re not using them.

  • Leave a room, switch lights off. Make a habit of turning off everything in the room when you leave it — the TV, lights, your computer, etc.
  • Get the kids involved. Make a game out of turning off the lights instead of constantly reminding them to do it. Offer some sort of small, nonmonetary reward for remembering to turn off their bedroom lights for a week.
  • Install countdown timer light switches. For intermittently used rooms, such as the bathroom or laundry room, install a countdown timer light switch that will turn off the lights after a specified period, so you don’t ever have to worry about it.

Projected savings: Between $100-$300 per year, depending on the number of people and rooms in your home.

Heating and cooling bill savings

Generally speaking, the furnace and air-conditioner are the big energy hogs in your home. Here are some easy ways to reduce your dependence on them — and save money!

  • Use windows strategically. Install heavy drapes or blinds on windows located in sunny areas of your home. Open the blinds on cold days to take advantage of the sun’s warmth, and close them on warm days to block out the sun.
  • Install ceiling fans. This one takes a bit more effort than the others, but the payoff can be quite large. Run ceiling fans counterclockwise or downward during the summer to force cool air down into the room. Run them clockwise and upward in the winter to better distribute the warm air.

  • Adjust the thermostat. Yes, this sounds obvious, but one of the best ways to save on heating and cooling bills is simply lowering the thermostat in the winter and raising it in the summer! A programmable thermostat is ideal, but you can save money even with a traditional thermostat. In winter, lower your thermostat by 10 to 15 degrees for at least eight hours — when you leave for work, before you go to bed, or both — then raise it when you’re back.  If you have air-conditioning, do this in reverse come summer.

Projected savings: From 10-30 percent on your heating and cooling bills each year.

Saving energy doesn’t have to be a chore. With some very simple lifestyle changes, you can reduce your carbon footprint and save big!

 

Posted by Jane Drill on Zillow

Over Half of All Buyers Are Surprised by Closing Costs

According to a recent survey conducted by ClosingCorp, over half of all homebuyers are surprised by the closing costs required to obtain their mortgage.

After surveying 1,000 first-time and repeat homebuyers, the results revealed that 17% of homebuyers were surprised that closing costs were required at all, while another 35% were stunned by how much higher the fees were than expected.

“Homebuyers reported being most surprised by mortgage insurance, followed by bank fees and points, taxes, title insurance and appraisal fees.”

Bankrate.com recently gathered closing cost data from lenders in every state and Washington, D.C. to be able to share the average costs in each state. The map below was created using the closing costs on a $200,000 mortgage with a 20% down payment.

Keep in mind that if you are in the market for a home above this price range. your costs could be significantly more. According to Freddie Mac,

“Closing costs are typically between 2 and 5% of your purchase price.”

Bottom Line

Speak with your lender and agent early and often to determine how much you’ll be responsible for at closing. Finding out that you’ll need to come up with thousands of dollars right before closing is not a surprise anyone is ever looking forward to.

 

Posted by The KCM Crew

The No. 1 Tip To Pay Off Your Mortgage Early

Your home is a great source of pride. By implementing this tactic, you can call it all yours even sooner.

Your loan term might be fixed, but it doesn’t have to dictate when you’ll be mortgage-free. Find out how to speed up the process.

A lot can happen in 30 years. Kids become adults, jobs change, and life goals are accomplished and reset. Change during such a lengthy period is inevitable. But if you’re a homeowner, there’s one thing that won’t change: Your obligation to make a monthly mortgage payment.

The good news? A loan term doesn’t have to dictate when you free yourself from this financial commitment. There are a few tried-and-true ways to cut the ties early while lowering the total amount paid in the process. Follow these recommendations, including the No. 1 tip to pay off your mortgage early on your home, whether it’s in Seattle, WA, or Boston, MA.

5. Refinance into a 15-year mortgage

Cutting your loan term in half is a big financial step, but the benefits are substantial. Not only will you shorten the payoff time, but you’ll also be rewarded with a lower rate and pay significantly less in interest over the life of the loan.

The key here is determining whether you can shoulder the larger monthly cost that comes with a 15-year mortgage. Pamela Capalad, CFP and founder of Brunch and Budget, explains, “The downside is, you’ve locked in a much higher monthly payment. Make sure you have the cash flow to afford this new monthly payment on a regular basis.”

Not completely confident in your ability to commit to a higher monthly payment? Fake a 15-year mortgage by challenging yourself to make the payments you would be making if you had locked into a 15-year mortgage. Then, if financial circumstances change, you still have the flexibility to return to a lower monthly payment.

4. Refinance into a lower rate but keep payments the same

The benefits of refinancing your loan but sticking to the same payments are twofold: You will pay less in interest over the life of the loan and create a shorter path to mortgage freedom. Plus, it’s not as drastic as jumping from a 30-year mortgage to a 15-year mortgage.

However, it’s important to do a bit of research before you refinance. Closing costs for refinancing are generally lower than if you were to purchase a new home, but they’re still an added expense. Your new interest rate should be low enough to negate the cost of refinancing, or you should be planning on staying put long enough to reap the benefits of a smaller rate. (Use the Trulia refinance calculator to see if this is a good choice for you.)

3. Get rid of private mortgage insurance (PMI)

If you financed more than 80% of your conventional mortgage, chances are, you are paying private mortgage insurance to protect the lender in case of default. Redirecting this amount — usually 0.05%–1% of the loan amount annually — to the principal on your mortgage can have a big impact over time.

You can request to get rid of PMI once you reach an 80% loan-to-value ratio, but the lender is required to remove it after you’ve reached a 78% loan-to-value ratio. You can speed up the process by increasing your equity through home upgrades, or, if the home has already increased in value for other reasons, you can opt to refinance. Some lenders may even allow you to get an appraisal to show the new value and your increased equity — without paying for a refinance.

2. Put those windfalls to work

Maybe your monthly budget doesn’t have wiggle room and paying the costs to refinance isn’t in the cards. There’s another option.

Tax returns, bonus checks, and inheritance payments present the opportunity to pay off a chunk of your mortgage without feeling the pain in your monthly budget. This could mean thousands of additional dollars chipping away at this massive financial responsibility each year. Sometimes your money could be better spent elsewhere — like paying off high-interest debt — but if wiping out your mortgage early is a priority, this is a great place to start.

1. Make extra or higher principal payments

Jennifer Harper, CFP and director of Bridge Financial Planning, says one small change can make a world of difference. “Even small [additional] principal payments add up over time! On a $150,000 loan for 30 years at 3.75%, with no additional payments, more than $100,000 will be paid in interest over the course of the loan. By adding just $100 per month in principal payments, the total interest paid is reduced by nearly $25,000 and the loan will be paid off more than six years sooner!”

Another way to do this is by making biweekly mortgage payments. Instead of making 12 monthly payments, this equals out to 26 half-payments — or 13 full payments — per year. But beware, explains Harper, not all loan servicers make it easy to apply these extra payments to the principal. Make sure to speak to yours and ensure they aren’t simply holding on to the extra money and applying it toward the interest.

The bottom line: Choose what works for you

Which method should you choose to pay down your mortgage faster? That depends, explains Pamela Capalad.

“Choose the option that resonates the most with you based on your current financial situation and any possible changes you foresee. If you have a steady job or career that you feel confident will last in the long term, it might make sense to refinance to a shorter term. If your income is a bit less consistent, you may want the flexibility of making additional payments when you can.”

Posted by Kayla Albert on Trulia

 

The Truth About Housing Affordability

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From a purely economic perspective, this is one of the best times in American history to buy a home. Black Night Financial Services discusses this in their most recent Monthly Mortgage Monitor.

Here are two of the report’s revelations:

  1. The average U.S. home value increased by $13,500 from last year, but low interest rates have kept the monthly principal & interest payment needed to purchase a median-priced home almost equal to one year ago.
  2. Home affordability still remains favorable compared to long-term historic norms.

The report explains:

“Even though the value of the average home in the U.S. increased by about $13,500 over the last year, thanks to declining interest rates it actually costs almost exactly the same in principal and interest each month to purchase as it did this time last year.

Even taking into account the fact that affordability can vary – sometimes significantly – across the country based upon the different rates of home price appreciation we’re seeing, that’s a pretty incredible balancing act between interest rates and home prices at the national level…

Right now, it takes 20 percent of the median monthly income to cover monthly payments on the median-priced home, which is well below historical norms.”

However, the report warns that affordability will be dramatically impacted by an increase in mortgage rates.

“A half-point increase in interest rates would be equivalent to a $17,000 jump in the average home price, and bring that ratio to 21.5 percent. This increase is still below historical norms, but puts more pressure on homebuyers.”

Bottom Line

If you are ready and willing to purchase a home of your own, find out if you’re able to. Now is a great time to jump in.

Posted by The KCM Crew

Buying is Now 37.7% Cheaper Than Renting in the US

The results of the latest Rent vs. Buy Report from Trulia show that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro areas in the United States.

The updated numbers actually show that the range is an average of 17.4% less expensive in Honolulu (HI), all the way up to 53.2% less expensive in Miami & West Palm Beach (FL), and 37.7% nationwide!

Other interesting findings in the report include:

  • Interest rates have remained low, and even though home prices have appreciated around the country, they haven’t greatly outpaced rental appreciation.
  • Home prices would have to appreciate by a range of over 23% in Honolulu (HI), up to over 45% in Ventura County (CA), to reach the tipping point of renting being less expensive than buying.
  • Nationally, rates would have to reach 9.1%, a 145% increase over today’s average of 3.7%, for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.

Bottom Line

Buying a home makes sense socially and financially. If you are one of the many renters out there who would like to evaluate your ability to buy this year, meet with a local real estate professional who can help you find your dream home.

Posted by The KCM Crew

What You Need to Buy a House: Do You Have It All?

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You’ve been drooling over local listings and saving every penny for a down payment. You’re ready. But before you begin your new home hunt in earnest, it’s helpful to know exactly what you need for a purchase. Do you have it all, or are you missing something that could throw a wrench in your dream of owning a home?

After all, you can’t just slap down a credit card to buy a house, particularly if you need amortgage—your lender will want to check your financial background to size up whether you can afford the place you’re eyeing. That means you’ll have to round up some paperwork as proof.

So here’s a handy checklist of what you’ll need to sail through this process without a hitch.

Tax returns

To ensure you have the income history to buy a house, most lenders will ask for two years’ worth of tax returns, two years of W-2s, or both. This is definitely the case for freelancers and self-employed borrowers, but full-time employees may be asked for all of this paperwork as well. Your lender may even retrieve your tax returns themselves straight from the IRS  (with your written permission, of course), since this cuts down on potential fraud. Still, it’s a good idea to get those documents in order just in case.

Pay stubs

Tax returns won’t be where your proof of income ends. You will also need to rustle up copies of your past two months of pay stubs, according to Martha Witte, vice president of FM Home Loans. If you’re self-employed or freelancing, things get a bit more complicated.

“Most of the time, contract employees receive a 1099 and file a Schedule C on their personal returns. In this instance, we would take a two-year average of the Schedule C income,” Witte says.

Also be prepared to show a projected balance sheet, detailing what you’ve earned this year and what you plan to earn in the coming months.

“It doesn’t need to be fancy, but it should ideally support that you are on track to have consistent income in the current year, when compared to other years,” Witte says.

Financial statements

You will also need to show two months of asset statements—think your checking and savings accounts. This one is a biggie because your lender will use these statements to prove you have enough money available to buy a home and then some.

“You will need liquid funds available for the down payment and to cover closing costs. You will also need reserves after closing, which means you can’t be left with $0 once you buy the home,” Witte says. While the reserve amounts vary, two to four months of reserves is enough for most conventional loans, she says.

Getting a down payment gift?

Finally, if you’re planning on getting a portion of your down payment as a gift (you lucky dog, you), plan on getting some documentation from the gift-givers, like copies of their checking or savings account monthly statements. “We need to also verify the donor’sability to give the gift,” Witte says.

When in doubt, follow this simple rule of thumb from Witte: “Follow the rule of twos,” meaning you’ll need a two-year snapshot of your income and finances.

Posted by Angela Colley on realtor.com