While it may be acceptable to snap up a pair of shoes on an impulse, the choice to buy a home requires thoughtful planning and decision making.
Whether you’re becoming a homeowner for the first time or you’re a repeat buyer, buying a home is a financial and emotional decision that requires the experience and support of a team of reliable professionals including a REALTOR®, a lender, a lawyer and a range of other individuals.
Why Do You Want to Buy a Home?
The emotional part of the decision comes into play when you think about why you want to move. If you’re a first-time buyer, you need stability in your career and the desire to commit to living in the same community for five to seven years. You should want to establish roots in a neighborhood and look forward to decorating as you please without requiring a landlord’s permission.
Purchasing a home is a lifestyle choice that requires you to think about how you like to spend your time and the type of community where you want to live—such as a rural area without nearby neighbors, a high-rise building in a city or a home within a planned community with recreational amenities.
The more you understand your priorities for a home, the easier it will be for you to narrow your real estate decisions.
Homeownership can also be a powerful way to increase your personal wealth for you and your family, since you’ll be building equity in your home as you pay off your mortgage.
Are Your Finances Ready for Homeownership?
While your dream home may not be within your reach right away, you can take steps to become a homeowner the moment you earn your first paycheck.
In order to qualify for a mortgage to buy a home, you’ll need good credit, a pattern of paying your bills on time while still saving money and a maximum debt-to-income ratio—your gross monthly income compared to the minimum payments on all recurring debts—of 43% or less. Some lenders have stricter guidelines, so the lower your debt-to-income ratio, the better your chances of a loan approval.
While loan programs are available with low down payments of 3.5% to 5%—and a few programs offer no down payment at all—you’ll still need some savings to pay for closing costs, moving expenses and an earnest money deposit on a home. It also is very wise to have cash reserves on hand after you buy.
Saving money and preserving or improving your credit history are essential elements to homeownership.
What Can You Afford to Buy?
Housing prices and rents vary from one location to another, but you can use realtor.com®’s Rent vs. Buy calculator to estimate the difference between your current rent and buying a home. In some markets, buying a home can cost the same or even less than renting.
Remember, when you’re a homeowner, you also need to includehomeowners insurance, property taxes and homeowners associationdues in your housing costs. You should use realtor.com®’s home affordability calculator to help you estimate what you can pay for a home.
In addition, you should think about your plans for the future and how you spend your money—along with your comfort level with a mortgage payment. A lender will tell you how much you can borrow, but that lender won’t know how much you spend on travel or golf or your plans for potentially reducing your work hours when you have a family.
Once you've thought through the emotional and financial aspects of becoming a homeowner, your next steps should be to find a reliable, experienced REALTOR® to become your partner in the home-buying process and to meet with a reputable lender who can discuss your options for financing your purchase.
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Who said spring cleaning has to involve manual labor? This year, why not focus on spring cleaning your finances?
Local financial professional Cathy DeWitt Dunn from DeWitt & Dunn has some sprucing up you can do that doesn't involve a broom and feather duster.
1. Do a Budget Inspection
This can be an eye-opening activity. Take out your credit card bills from the last 6 months. Now get 3 highlighters. In one color, highlight the expenses that are necessary, like rent, utilities or groceries. In another color, highlight things you really want or use, like your Netflix subscription or a new vacuum cleaner. The third color is for the less thoughtful purchases, perhaps a daily cup of coffee, a round of drinks at happy hour or the clothes you still haven't worn. Cleaning out some of these unnecessary purchases will help you stick to your budget in the future.
Debt can really clutter up your finances. Make a plan to reduce the clutter. I recommend my clients work on building momentum. Start with your smallest debt - put as much toward it as you can, while still making minimum payments on the other debts. Once you've paid off that one, turn to the next one. The rush you feel from cutting up each credit card is great incentive.
3. Go Paperless
It's time to embrace electronic billing. Not only will cut down on all that mail lying around your house, but it can also save you money. Many billers offer a $1 discount for going paperless because it saves them on printing and postage. That discount, plus the money you save on stamps, can easily add up to about $70 a year (according to a report by Good Housekeeping).
4. Dust Off Your Tax Plan
April 15th is around the corner. While you are working on this year's return, you should be considering changes you can make now to reduce how much you owe the government next year. You can make changes to your tax withholding at any timeduring the year by going to your payroll office and filling out a new W-4. If you decrease your holding, you won't get as big of a refund next year, but you will get more in each paycheck throughout the year. Ideally, you want to have just enough withheld so that the amount will come as close as possible to your actual tax liability for the year.
5. Take out the Trash
Now it's time to tackle those piles of financial documents you have laying around. A couple rules of thumb- you should hold onto pay stubs and bank statements for a year. Keep tax documents for 7 years. For a complete list of what you need to save, head to my website, womenmoneyandpower.com. And remember, shred- don't trash- all documents that include: account numbers, birth dates, passwords and PINs, signatures and Social Security numbers.
If spring is in the air, don't let a musty house spoil it. Here are seven tips for giving the season the welcome it deserves.
- The best refrigerator cleaner is a combination of salt and soda water. The bubbling action of the soda water combines with the abrasive texture of the salt to make a great cleaner.
- The best way to get rid of lime buildup around the faucet it is to lay paper towels over the fixture, soak it with vinegar and let it set for an hour. The deposits will soften and become easier to remove.
- Clean screens with a scrap of carpeting. It makes a powerful brush that removes all the dirt.
- Clean windows with a rag and soapy water, and then dry them with another rag. You can also go to an auto-parts store and buy a windshield squeegee, which cleans very well.
- If drapes are looking drab, take them out of the window, remove the hooks and run them through the air-fluff cycle in the dryer along with a wet towel (to draw off the dust) for 15 minutes. Hang them back in the windows immediately.
- Clean the blades of a ceiling fan by covering them with a coat of furniture polish. Wipe off the excess and lightly buff.
- Sometimes comforters, blankets and pillows don't need to be cleaned, but they do need to be aired out after a long winter in your closed-up home. Take them outside and hang them on a clothesline for a day.
Despite the increased prominence of back doors, mudrooms, and other alternative entryways, most visitors still enter a home through its front door. Here’s how you can help buyers and sellers set the stage for a gracious point of arrival.
With pressure to justify every square foot of real estate and conserve energy, the larger-than-life front hall is undergoing a metamorphosis. It’s not disappearing, though—rather, it’s doing its job of welcoming in a more compact, efficient way.
Design experts may use different terms to describe the space beyond a front door—vestibule, hallway, entryway, foyer. The terms are quite interchangeable with slight variations. A vestibule is generally a small, separate air-lock that stops cold and hot air from entering the rest of the house. A hallway provides entry but also links
spaces and rooms—at the front or anywhere in the home, says design guru Marianne Cusato, author of The Just Right Home (Workman Publishing). Of course there are dozens of other words you can use to describe this space. And whether you pronounce the foyer as foy-yay with a French spin or foy-er (rhymes with lawyer) really depends on how grand you or your home owners want the space to sound.
Whatever you call it, it’s important to understand the potential impact the entrance to a home can have on a visitor’s first impressions, says Stephanie Mallios, e-PRO, salesperson with Towne Realty in Short Hill, N.J. “If there are too many shoes and coats strewn about and no place to put keys or gloves, many buyers will have a tough time imagining how they’ll live there,” she says.
Study these eight design details to help your clients create a welcoming space that does its job well, both aesthetically and functionally—no matter what it’s called.
Size, scale, sequence. Due to energy-efficiency concerns,an entry with a soaring ceiling and sweeping staircase is far less popular than it once was. Still, a modest entryway as small as 4 feet to 5 feet wide can convey a proper sense of arrival, says Cusato. More important than size is the scale (the space should be in proportion with the rest of the house) and the sequence (the rest of the home should flow out in a logical way), says architect Duo Dickinson, author of Staying Put (Taunton Press). Upon entering, people should be able to see other spaces and rooms and know where to go next, says architect Julie Hacker of Cohen-Hacker Architects in Evanston, Ill. In the best layouts, there may even be a view straight through to a backyard.
Height. The number of levels or floors in the structure often determines this factor, though even two- and three-story homes are moving away from entries with soaring ceilings. The location of a stairway will hinge in part on square footage and what role an architect or builder wants the stairs to play. In smaller homes, it’s often part of the foyer but off to the side, and goes straight up—being purely functional. In larger homes, the staircase might occupy its own separate hall and curve gracefully to a landing, past a window or window bank, and up to the next level. To carpet or not is a personal preference, though bare treads can be noisy; a good compromise is a runner covering painted or hardwood treads.
Millwork. To fashion a gracious entry, most design pros recommend a door that is at least three feet wide and 72 inches tall. The trend of pricey double doors is disappearing, according to Chicago-area builder Orren Pickell. Whether a door includes a glazed transom or sidelights should depend on how home owners feel about privacy and bringing natural light into the interior. The size of the glazing should be proportional to the door’s width and height. For baseboard and crown molding, simplification is the overriding trend, which keeps fussiness and costs down, except for the most traditional houses, says Cusato. Wainscoting is another way to add visual detail. Columns are helpful to screen off adjoining rooms without completely walling them off. Hacker uses two columns with space for books cut out on the back side of each on the living room side to separate areas in her home.
Lighting. Good lighting is essential for safety, but it also sets a welcoming mood. A chandelier or large pendant is the obvious choice, while ceiling cans or sconces also work well. Whatever fixture home owners prefer, advise them to install dimmers. Not only will this allow them to save energy, but options for differing lighting intensity and color can also help set a dramatic mood for a party, a bright feel for an open house, and a low-light one for romance.
Flooring. A visually rich, substantial looking floor will reward visitors, says Dickinson. But due to the wear and tear common for front entryways, it should also be practical. Slate, stone, and porcelain meet that criteria, though they can be cold on bare feet in winter. Avoid soft woods that may dent and scratch; don’t use carpeting since it will become too dirty with traffic; and avoid vinyl unless it’s one of the more expensive, newer-looking versions. Home owners may wish to set off the area in a different material than adjacent rooms and hallways. But choosing one common material for several rooms produces a feeling of continuous flow and makes smaller rooms appear larger.
Furnishings. Depending on the entry’s size, home owners might consider adding a table to place mail, gloves, hats, and keys. Also, a mat or rug to wipe off feet and a chair or bench to put on and take off footwear can be helpful for maintaining tidiness. Finally, a mirror to check one’s appearance before heading out the door—or joining a group when entering—can be a welcome sight.
Wallpaper vs. paint. This choice is highly personal. If home owners love color, they should go for the paintbrush, with the knowledge that darker palettes can add drama and romance. Of course, not all future buyers will have the same taste, but repainting is an easy home repair in smaller areas. If your clients are into patterns, the same rule applies, though today many wallpapers are quite easy to hang and remove. The key is for surfaces to appear clean and not look dated, which may mean banishing that old-school floral style.
Bells and whistles. A coat closet is a nice extra, as is a powder room, though newer construction may feature such conveniences at the back of a domicile where they’ll be used most frequently. An umbrella stand can hold a variety of other items—canes, tennis racquets—neatly, and niches or shelves can display collectibles. A doorknocker outside, even if rarely used, is a classy touch akin to wearing one great piece of statement jewelry. It can really give the front door a Downton Abbey feel.
If your buyers and sellers take away just one lesson from you, it should be that a well-planned front entrance—no matter the name, size, or style—will add value to their home.
Mortgage applications for home purchases and refinancings continue to rebound, with volume rising 4.6 percent on a seasonally adjusted basis last week compared to the week prior, the Mortgage Bankers Association reports in its latest index reading for the week ending March 27.
“This week’s mortgage application survey falls right into line with recent indications that home sales – new, existing, and pending – are on the rise, as is consumer sentiment,” says Lynn Fisher, the MBA’s vice president of research and economics.
Broken out, loan applications for home purchases, viewed as a gauge of future home sales, increased 6 percent week over week. Purchase applications are 8 percent higher than year-ago levels. Refinancing applications increased 4 percent during the week. Refinancing applications are 44 percent higher than they were a year ago, according to the MBA.
Federal Housing Administration loans, a big draw to first-time buyers, and Veterans Administration loans continue to post a strong performance with volume of these government-insured loans growing by 19 percent compared to last year.
The average 30-year fixed-rate mortgage fell to 3.89 percent last week, from 3.90 percent the week prior, the MBA reports.
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Having your offer accepted feels great—but for most home buyers, it’s just the beginning. There is still a lot more to be done before you’re over the front threshold. Here’s a rundown of what comes next.
1. Apply for a loan
Unless you’re paying in cash, you’ll need to apply for a mortgage loan (if you’re already pre-approved, good for you). If you’re not pre-approved, meet with at least two or three lenders and compare their loan options. Be prepared to ask questions, and be completely open with the lenders about your finances.
2. Home appraisal and inspection
The next step is getting your home appraised and inspected.
Your lender will require your house be appraised by a professional, who is usually provided by the lender. The appraisal gives you a detailed report on the value of the home. If the home’s appraised value is less than the purchase price, you will need to either make a greater down payment or negotiate with the seller to lower the price. A lender won’t give you a loan for more than the appraised value.
A home inspection tells you if the home has any issues. Inspections aren’t always required, but you should absolutely get one even if you’re not getting a loan. Go over the inspection report in detail with the inspector to make sure you’re familiar with any problems, their severity, and the estimated cost to fix them. Additionally, you may also want to get your home checked for radon and pests, which are additional costs.
If the inspector finds problems, you may be able to get the seller to pay for necessary repairs or lower the price to adjust for the cost.
3. Get your funds ready
Make sure the funds you need for closing and in reserves are both accessible. If you need to pull money from an investment, do it right away. Keep the paperwork for the transaction to show your lender you liquidated funds to get your down payment.
4. Find homeowners insurance
In most cases, buyers are expected to pay for homeowners insurance upfront, before closing. Depending on where you live, you might need extra insurance, like flood coverage. Shop around at several different insurance companies for the best rate. Your lender will need proof of insurance before approving your mortgage.
5. Final walk-through
You will be allowed to do a final walk-through of your new home 48 hours before closing.
This allows you to make sure any items that should be there, as per your contract, remain. It also lets you check the condition of the home to make sure no extra damages have occurred. If you find anything different from what you agreed upon, you may postpone the closing to give the seller time to fix the problem.
It’s important that you catch every issue during the final walk-through. If you spot them after closing, they’re going to be your problem.
This is the day when you sign the mortgage documents and officially gain ownership of the property. Most likely your Realtor® will be there, as well as the seller, the seller’s Realtor, the closing officer, and perhaps the mortgage broker.
You will need to bring ID and a cashier’s check to pay closing costs, which you will know in advance (and if they look different, don’t be afraid to walk away). Your spouse will also need photo ID. (In some states, spouses are required to attend and sign papers even if they aren’t on the mortgage.) Check with your Realtor about the details of your closing.
Attention potential sellers sitting on the fence: It could be time to make a move.
Mid-March to mid-April is the best time to hang the sale sign nationally, with homes selling 15% faster and for 2% more than the average sale, according to Zillow. The window tends to be a little earlier for sellers in warmer climates and a little later in colder climates.
"It's still predominately a seller's market, but less so than the last year or two," said Stan Humphries, Zillow's chief economist. "Some advantages are moving back to buyers; but largely and broadly ... it's still favoring the sellers."
Here are four reasons you might want to list your home:
1. Low housing supply: Tight inventory is a main reason the ball is still in the sellers' court.
The level of unsold homes was 4.6 months in February, according to the National Association of Realtors. That means it would take a little less than five months for all available inventory to sell. In a normal market, a five-to-seven month supply is considered balanced, said Danielle Hale, director of housing statistics at the NAR.
Tight inventory tends to prop up home prices and can result in multiple offers and spur bidding wars.
But at the same time, low supply is also keeping some sellers in their homes. "They aren't typically going to sell and then rent," explained Hale. If sellers aren't comfortable that they will be able to find a new home, it can keep them off the market. "There needs to be more construction in the market to ease the pressure," she said.
2. Fewer cash buyers: All-cash and investment buyers helped buoy home sales in the last couple years. And while the acceleration of home prices has slowed from its recent double-digit growth, experts still expect modest gains this year, but with fewer cash buyers.
All-cash offers made up nearly 31% of sales in 2014, according to RealtyTrac, a 13% drop from 2013 and the lowest level in four years.
"We are predicting a more stable and sustainable housing market in terms of price growth," said Ralph McLaughlin, Trulia's housing economist. "A lot of the growth we saw was from cash buyers, but now we are thinking those buyers will play less of a role."
3. Higher interest rates: While mortgage rates remain low, experts predict more buyers will enter the market in the coming months.
The Federal Reserve's recent hint that higher interest rates are coming sooner rather than later could prompt buyers to start their house hunt in order to take advantage of lower mortgage rates.
"When interest rates are thought to be escalating, we see a wave up activity with people getting off the sidelines," said Budge Huskey, president and CEO of Coldwell Banker Real Estate.
4. Rising rents: Rising rental prices could motivate tenants to make the leap into home ownership. Rent prices have risen 15% nationwide in the past five years in 70 metro areas across the U.S. and income growth hasn't kept up, according to NAR.
"Every time there's an increase, it triggers the decision processes on whether [renters] should go into the market and buy," said Huskey. Getting more buyers into the market, especially first-timers, can help sellers feel more comfortable about their prospects. "It allows others to move up the chain in the market."
But higher rents can be a double-edged sword, according to Humphries. "Renting is so darn expensive already it makes it hard to save for a down payment."
Whether you see your residence as a forever home, a financial investment or just a place to crash for the night, there’s no denying how much the cost ofhousing cuts into your available funds at the end of the month. According to CNN, housing expenses top the list of how Americans spend their money, regardless of income or age, and it has been this way for quite some time.
GOBankingRates reached out to experts in both the real estate and mortgage loan fields to get a sense of simple ways to save money on this massive monthly cost, without having to downgrade accommodations.
Here’s what the professionals had to say.
1. Don’t Throw Money Out The Window
“Check your windows and doors,” said Shawn Tamarro, co-owner of Entourage Elite Real Estate. “These openings have the least amount of insulation between your warm house and the blizzard conditions that we are experiencing right now.”
This concept goes both ways, whether you’re caught in the wrath of the polar vortex or are fortunate enough to live in warmer West Coast temperatures. Weatherproofing your doors and windows can help save 25 percent to 40 percent off heating and cooling bills, meaning more savings in your pocket that can go toward paying down your mortgage loan or growing a nest egg.
Tamarro recommended that homeowners look into insulated windows with a 0.35 or lower fenestration rating, where possible.
2. Double Your Monthly Principal
John F. Sullivan, a 20-year exclusive buyer agent and vice president of Buyer’s Edge Co., Inc., explained how to pay down a 30-year mortgage loan fast, but without the pressure of taking on a larger mortgage payment every month.
“This can be accomplished by making your normal 30-year mortgage payment, plus the principal of the following month’s payment,” Sullivan said. “The result is substantial savings in interest paid and the flexibility to pay down the principal when it fits [a homeowner’s] budget.”
The housing expert is exercised this strategy on his own mortgage loan, and was 53 months ahead of his lender’s payment schedule as of last year.
Before paying off your mortgage loan early, however, identify whether your lender imposes a prepayment penalty to avoid additional fees.
3. Talk to the Right People
“Reach out to a mortgage banker (not a broker) and clearly define [your] goals so that a customized solution can be offered,” said Jorge Avila, in-house mortgage banker at Opulence International Realty.
Although a mortgage broker can be helpful in the initial home-buying process, once the broker finds an adequate lender and financing terms for his client and connects the borrower to the lender, the broker’s role is looped out of the process.
On the other hand, Avila said, mortgage bankers still play an active role in assessing your financial situation and offering viable options, should you need to adjust mortgage loan terms after the starting stages.
“If it makes economic sense, we [mortgage bankers] restructure their current mortgage to accomplish one of three goals,” Avila said. “We lower their rate and thus their payment amount, we lower the term and thus save them on interest payments, or use existing equity in the home to accomplish another financial goal.”
4. Use a Home Improvement Organizer
“Have a personalized maintenance schedule that reminds you every month of what needs to be done to maintain your home,” said John Bodrozic, co-founder of HomeZada, a home improvement resource and tool. “Most people forget or just don’t know all the little things to do to keep the home running smoothly.”
Aside from repaying your mortgage loan, a large housing expense that can easily send your savings account spiraling downward is routine household maintenance needs that go unattended. At times, scheduled maintenance gets overlooked by accident, but this forgetfulness can lead to costly repairs down the line.
Not only does staying on top of home improvement projects and maintenance schedules keep your home in tip-top shape, but it also helps keep a home’s resale value intact, Bodrozic said.
Finding ways to save money and maintain affordable housing costs can take very different approaches, all of which are viable if you’re willing to put in the effort to achieve a lower monthly payment goal.
ou may have heard about it on the news, your neighbors may be bragging about it or you could have even received eligibility notice in the mail — but what is the real deal behind refinancing? Before you crunch your personal numbers and weigh the costs and benefits of refinancing your mortgage, you need to be sure you understand what exactly we're talking about.
How Does It Work?
Basically, refinancing a mortgage means getting a new loan with new terms on your home. When you went through the homebuying process, you likely thought — or hoped — that you were done with picking mortgages, but if you can secure a lower interest rate, need lower monthly payments or want to build equity in your home sooner through a shorter-term mortgage, it may be time to revisit your situation. Refinancing also gives you the option to switch between an adjustable-rate mortgage and a fixed-rate mortgage.
Should I Do It?
When making the decision, it's important to consider your current mortgage size, details of the new mortgage you would be taking out, the current home value, the interest rate of your loan options and the closing costs. A refinance calculator can help determine if refinancing is right for you. You enter specific information about your personal finances and the calculator determines what makes the most sense for you. If you plan to stay in the house longer than it will take for the monthly savings on your new mortgage to recoup the upfront costs of refinancing, you may want to move forward.
What Will It Cost?
When you bought your home, you probably paid closing costs to complete the sale. When you refinance, you have to pay these again to replace your original mortgage with the new one. You can expect to fork over 3% to 6% of your principal in refinancing fees along with any prepayment penalties you could incur. Beware that if you are offered a "no-fee" refinance, the lender may be charging you extra interest to make up for the fees you are avoiding upfront.
When Is It a Bad Idea?
Refinancing may sound great, but it isn't for everyone. You need to be eligible for the new loan, which means you usually need to have a certain amount of equity in your home and decent credit score. If you don't qualify, it obviously isn't an option for you. You also should probably not refinance if you plan to move from your home soon, since this doesn't give you time to recoup the closing costs for the new loan. Being able to afford closing costs upfront is also important. Though lenders may offer the option to roll them into your new mortgage, this isn't always the best decision and can cancel out the savings you would make from the switch. Also, if the prepayment penalty on your original mortgage is too high, this can also negate the potential savings of a refinance.
If you’re planning a move, you may have an overwhelming urge to throw all your possessions into cardboard boxes, tape them shut and think, “I’ll deal with this after moving!”
We get it. But before you start dumping drawers into boxes willy-nilly, we implore you:Declutter first.
There’s no better time to get rid of unnecessary stuff than right before a move. You’re in the right mindset—you’re open to change.
Plus, you have to go though everything already, and if you follow through, you’ll start life at your new home with less junk and a stronger connection to the items you decided to hold onto before moving.
Sounds great, but how do you do it? We recently gave a best-selling book—“The Life-Changing Magic of Tidying Up,” by Marie Kondo—a read.
The book isn’t necessarily about moving; it’s more about how to live a less cluttered, happier life. But many of the suggestions Kondo offers are invaluable to those brave souls about to pack up their possessions and begin anew.
Here are four tips from Kondo’s book we found for downsizing before a move.
1. Category by Category
Think about your past attempts to tidy up or simplify your physical space. Odds are you went about it room by room. Rookie mistake!
Kondo subscribes to the theory you should instead go category by category. For example, if you keep some dinner plates in the kitchen and others in the dining room, put them all together in one place before going through them and deciding what to keep. Same for clothes, books, athletic equipment and so on throughout the house.
Don’t focus on what you’re discarding. Rather, focus on the things you are choosing to keep: This makes the process feel more positive.
2. Handle Everything
Kondo suggests touching everything you own in order to determine if you truly want and need it.
Take clothes, for example. Kondo believes it best to remove all your clothes from your closet and dresser, physically hold them and decide one-by-one if you want to keep each item.
You might be tempted to just flip through your shirts as they hang in your closet. According to Kondo, that’s a no-no. You have to get everything out of its place to determine if you want it—and if it truly brings you joy.
3. Find the Joy
This is a little touchy feely, but bear with us: Kondo believes that a possession either “sparks joy,” or it doesn’t.
It’s all about keeping the items that do offer that spark and getting rid of everything that doesn’t. Kondo uses books as an example: Does being surrounded by books you’ve never read bring you joy? Maybe not.
Of course, the standard doesn’t work for each and every item in a household. A plunger isn’t likely to “spark joy”—but having one around is still a good idea.
4. Make Moving an Event
Most people believe tidying is something you need to work at, something that requires upkeep. However, Kondo writes that if you’re constantly tidying up, you’re probably doing it wrong.
Instead of doing a little tidying up here and a little there whenever you have time, make your clean-up an event—something you spend a weekend doing with friends and family.
Painful? Maybe. But you’re more likely to experience a significant and long-lasting change. Of course, you’ll still need to put stuff away (unless you have a butler), but the effort will be minimal.
Consider this a gift to home buyers: Mortgage interest rates dipped to 3.78% this week, just in time for the spring housing market.
For people who are in the process of buying a house, our best advice is to lock in your rate now. “This is the last call before the bar closes at these historically low levels,” saidJonathan Smoke, chief economist at realtor.com®.
Currently, rates are low, but they are expected to rise. On Wednesday the Federal Reserve issued its first warning that rates will increase in the near term, because the economy has stabilized. The Fed has been propping up the economy by keeping rates at zero since late 2008, when the housing market collapsed. Now that employment is up, gas prices are low, and consumers are feeling more confident about the future, interest rates are sure to rise. Observers expect the Fed action to happen as early as June.
“From here, rates should go up more than down, which means affordability declines rapidly,” Smoke said. “It also means that navigating mortgage choices becomes simultaneously more important , but also more complex as higher rates would cause qualifications to be harder and some options will fall off the table.”
It goes to reason that as interest rates increase, affordability decreases. Home prices are rising and now that rates are indicated to follow suit, your buying power will not be as great as it once was. These are the waning days of remarkably low rates.
According to the Freddie Mac Primary Mortgage Market Survey:
- 30-year fixed-rate mortgage averaged 3.78%, down from last week when it averaged 3.86%. A year ago at this time, it averaged 4.32%.
- 15-year FRM this week averaged 3.06%, down from 3.1% last week and 3.32% last year at this time.
- 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 2.97%, down from last week when it averaged 3.01%. It averaged 3.02% last year this time.
- 1-year Treasury-indexed ARM averaged 2.46%, unchanged from last week. At this time last year, it averaged 2.49%.
We all want to be smart about refinancing our mortgage. Done right, it can save thousands of dollars in interest and lower your monthly mortgage payment. Done wrong, it can be a money loser if you have to sell. So don’t just pay attention to interest rates—follow these six refinancing rules to know when and how you should refinance.
1. Be a half-percenter
There used to be a rule of thumb that said to refinance only when you could shave at least 1% off your interest rate. But with today’s ultralow interest rates, that rule has gone the way of the VCR. Today, the ability to shave your interest by half a percentage point is a viable option.
But don’t go chasing interest rates with refinancing—you shouldn’t refinance more than two or three times during your loan.
2. Get rid of mortgage insurance
You can refinance your Federal Housing Administration loan into a different mortgage to shed any FHA premiums.
Many FHA loans require mortgage insurance for the life of the loan. For example, if you have a 30-year FHA loan and put less than 10% down—a common move for FHA borrowers—you would be expected to pay premiums for the life of the loan. Other nongovernment loans (except Veterans Affairs loans) may require private mortgage insurance, which can be canceled after you reach 20% equity in your home.
And although the FHA recently dropped rates, paying a monthly premium when you have decent equity built up isn’t desirable. Plus, the FHA could always increase its rates in the future. Just be sure to compare your new PMI rates with your old premiums to see how much you’ll save.
3. Counteract same-length loans
After five years of homeownership, refinancing one 30-year mortgage into another 30-year mortgage isn’t always the right move, even if you save money on a rate reduction. You can save money on a monthly basis, but you’re also resetting the mortgage clock and adding another five years to the life of your loan.
To reduce the pain, try to pay a little extra toward your new mortgage each month. Any extra money you pay will go toward your principal, which will build you equity faster and reduce the total amount paid on interest.
4. Leverage your current financial power
You should also consider shorter loan lengths if your financial situation has improved.
For example, say you have had a 30-year FRM of $350,000 at a 4.7% interest rate for five years. After five years of on-time payments, you owe $320,000 on your mortgage.
If you refinance that $320,000 into a 15-year FRM with an interest rate of 3%, you’ll pay $602 more per month—but after 15 years, you’ll own your home outright. You’ll also have saved $218,419 in interest payments.
It’s not the right situation for everyone, but crunch the numbers to see how much a shorter loan could save you in the long run.
5. Know when you’ll recoup costs
Because refinancing comes with closing costs, you can determine when you’ll be able to recoup those costs with your monthly savings.
For example, say you spent $5,000 in closing costs to refinance and your new mortgage saves you $250 a month. It’ll take you 20 months before you recoup your closing costs and actually begin saving money. If you can recoup those costs in less than five years—preferably within three years—of a refinance, you’ve made a good deal.
This is especially important if you are considering selling. In the above example, if you sell within that 20-month time frame, it’s a money-losing proposition.
6. Always shop around
Don’t just go to your old lender for a refinancing package. It pays to shop around—don’t assume because rates are at all-time lows that they’ll be the same every place you look. Rates can differ substantially among lenders when there are lots of people shopping for a new mortgage.
Buying a House can be a scavenger hunt -- or a feeding frenzy -- depending on where you live.
Nationally, home prices were up a little over 5% last year, and Fannie Mae Chief Economist Douglas Duncan expects about a 4.5% average increase this year.
Overall, in spite of the challenges, there seems to be a sense of optimism in the market.
"I think the optimism is reasonable," Duncan says. "For people who are credit qualified -- and that's the critical issue -- if they have good credit, and they're interested, in most markets they'll be able to find something that will suit their needs."
Duncan says that while the real estate industry lost a little ground in home sales last year as sales softened due to a spike in mortgage rates, this year should see a bit of improvement.
"We think 2015 will be up 5 to 6% -- that means it will be higher than 2014 and 2013, but we think that those folks who are looking for a real breakout year are probably going to be disappointed," he adds.
The spring housing market
Susan Wachter, professor of real estate and finance at Wharton, has a similar outlook and expects single-digit price appreciation. The allows sellers to get sizable returns but lets buyers wade into the market at reasonable prices.
"Despite the fact that housing prices have increased, in many markets they're still below where they were at the peak in 2006," agrees Susan Wachter, professor of real estate and finance at Wharton, expecting single-digit price appreciation. "I do see prices continuing to increase at a moderate pace, certainly not the pace of a year or so ago. And I do see construction activity across the board, not simple multi-family but also single family -- I see it coming back, but slowly."
That said, the housing recovery will be slow-going; Wachter expects housing growth to lag the overall economy.
"It doesn't yet have the big engine of growth behind it, which is the three million or so households who are missing," she said.
As such, Wachter is looking for an uptick, but not a surge in real estate sales this spring.
"I think that many buyers will be coming out," she says. "The economy has been improving, consumer confidence rising, the stock market essentially at an all-time high. I do anticipate buyers to check the market out. The key choke point is the inventory. Are we going to have enough inventory to satisfy the market?"
Location, Location, Location
Of course, the extent of buying fanfare really depends on the market.
"There has been a great deal of multiple offers and bidding up properties," says Sue Brodie, with 30 years in the real estate business in Seattle. Residential listings are on the market for an average of 30 days, she says, but in some areas it's less than seven days.
The fastest she's seen a house sell?
"Oh, same day,” she tells MainStreet. “People have been waiting for either that neighborhood, that price-point, or that area near a school they want. So, as soon it becomes available their agent alerts them. They're on kind of an on-call basis."
Contrast that with Wade Treadway's home market in Vermont. Based in Woodstock, he's been in the business for 20 years. Forget listings selling in hours; he has seen houses that have been on the market for years.
"Some people come into the marketplace and go, 'Gee, that place has been on the market for four or five years,' and my reaction is 'Well, you can take three of those years and throw them away because if nobody is here looking, that's not an active marketplace.'"
The roadblock to homeownership
America’s housing market is a study in contrasts. Hot here, in-recovery there. Meanwhile, the percentage of first-time homebuyers hit a 20-year low last year. One reason: It has been hard to qualify for a loan.
"The ratcheting-up of lending standards across the board is so dramatic -- we are so beyond historic norms in our criteria for first-time homeownership. It is putting the squeeze on potential buyers,” Wachter tells MainStreet. "There have been zero net new homeowners, essentially since 2006. It's all a reflection of the unsettled state of housing finance in this country."
Of course, Wachter notes, housing finance right now is basically another branch of government -- particularly for first-time homeowners.
"It's FHA, Fannie and Freddie," she said. "And Fannie and Freddie standards have ratcheted-up so tremendously, so 740 is a typical [credit] score you need for a Fannie or Freddie underwritten loan. That's way beyond historic norms."
Combine tougher lending standards with stagnant income growth and the result: a roadblock to homeownership, especially for Millennials.
"Their unemployment rate is higher than the same age-group would have seen a decade ago,” says Fannie Mae Duncan. “And their real, adjusted household income is actually significantly lower than it would have been a decade ago. Today, demand weakness trumps credit tightness."
In terms of obstacles in the housing market, there has been a lot of discussion about the fact that credit is tighter than it was, and it certainly is.
"But if you look at how big a factor [credit tightness] is compared to the lack of demand because of income growth, it's actually demand weakness that is a bigger factor than credit tightness, in our view today," Duncan says.
A window of opportunity
But assuming they can qualify for financing, buyers may find a window of opportunity now, before homes prices edge even higher.
"I think there is an improved chance to get in if they lower their expectations in terms of price-point," Lawrence Yun, chief economist with the National Association of Realtors, told MainStreet. "So, rather than trying to go for their dream home, go for a starter home that may require some repairs."
And lenders may be finally loosening those standards ever so slightly, opening the door just a crack to first-time buyers. One sign: the recent move by the FHA to lower mortgage insurance premiums, the price a buyer pays for the FHA to insure a loan for lenders.
"That will help some people on the margin," Yun says. "And some of the Fannie and Freddie-backed mortgages, which are predominant in the marketplace, appear to be easing modestly compared to last year. But we are not back to normal in any sense. So it's just about moving the dial a little more towards normal."
Build it and they will come
But America has been under-producing new homes for years. In fact, for the past seven years total units built have averaged 750,000 annually, essentially half of the normal rate of construction.
Yun says that for the nation to be under-producing homes -- not just for one or two years, but for seven consecutive years -- has created a dire lack of inventory.
"Builders need to greatly ramp up production to satisfy demand and they're not doing that," Yun says. He believes there are two factors holding builders back: a labor shortage and a lending crunch. "Builders are saying that it is very difficult to find qualified construction workers. During the housing market bust many construction workers left the industry and never came back. And the second factor -- which may be even more important -- is that local builders require construction loans from local lenders and that has been extremely difficult, post financial-market crisis."
Not only has credit been a hurdle for builders, but Fannie Mae’s Duncan singles out another issue.
"To survive the crisis, a lot of builders had to either release their options on land or sold land to maintain liquidity in order to stay afloat, so (now) they'll have to reacquire land. And then they have to get permitting, and in some areas of California that can take over three years." he says.
In spite of all of these factors, Fannie Mae expects to see a boost in building. "We expect that construction to be up something on the order of about 18% this year, both single-family and multi-family and manufactured housing," Duncan says. "But in some markets, that probably will only keep pace with the current level of demand."
Finding the buyer's markets
That real estate inventory shortage is leading to too many buyers chasing too few properties. In some markets -- Yun mentions Boston, Seattle and San Francisco in particular -- that's leading to bidding wars. "It's an unfortunate side effect of not having the necessary new home construction and everyone is fighting for existing inventory," he adds.
However, buyer's markets do exist in the U.S., but usually in cities with poor employment growth and in areas where there weren't significant price declines. Yun points to the industrial Midwest including the Great Lakes states, particularly Wisconsin, Illinois, Indiana, Michigan and Ohio. Home prices in these states are “very affordable” and inventory is adequate to meet demand. New England -- outside of Boston -- including upstate New York, Vermont, New Hampshire, Maine and Connecticut are also buyer's markets in Yun's view. Opportunities for buyers may also open up in Texas and Louisiana because of low oil prices.
"Whether or not the individual who is interested in an affordable house can find a job in those markets, that's the question," Duncan adds.
"Actually, in many markets it's cheaper to own than to rent,” Wachter notes. “Particularly with today's interest rates. We don't know with mortgage rates going forward, but at today's historically low mortgage rates, it's cheaper to be an owner -- that's the conundrum."
Meanwhile, the real estate market is improving in the Sunbelt states. Yun mentions Atlanta, Charlotte, Raleigh-Durham and Nashville. And Florida is regaining the retiree market. And home building is on the upswing in the Southern states, so inventory is also improving.