What are these mortgage points about?

It’s time to purchase that new house and you are comparing lending options.   You’ve met a couple mortgage brokers and maybe your agent has suggested their in-house person.  There’s a lot of options and formulations to consider.  Each mortgage is like a complicated recipe that would even make the people who constructed multi-level marketing payouts blush.  One fairly common ingredient in loan offerings is points and you need to know if they work for or against you.

To answer that, you first have to understand the difference between the two types of points:

  1. Origination points – This is a fancy term for charging you a fee to process all the paper work.  One “point” is simply, one percent of the loan amount.  So if you are borrowing $300,000, then one point will cost you $3000.  Most often you can negotiate to reduce this amount.
  2. Discount points – This is more commonly seen and the most simple explanation is that it is prepaying part of the interest from the total loan… Sort of.  Many lenders will allow you to negotiate the dollar amount of these back into the loan (so now you’re paying interest on interest).  On the flip side, you can offer to pay more in discount points to reduce your loan interest.  Just how much of a reduction in negotiable, but a good median is to look for one point to take off about 1/4 percent.

So, you might ask, is it worth it to pay discount points and save interest?  If you plan to stay in the home for a long time – like the full 30 years of the mortgage – the common thinking is that it could be good.  In a recent USA Today article, an example was given in which a $250,000 loan at 4.5% interest would cost you $456,000 over 30 years.  Paying 2 discount points ($5000) to lower your rate by 1/2% would lower the total by $26,000 over those 30 years.  Not bad.   What would it take to beat that with the same $5000?

The answer is 5.6%, which yields a return of $25,628.20.  So, sticking it in a CD over and over isn’t going to do it, but using it toward any decent investment real estate or even a mediocre stock portfolio should have you seeing returns better than that.

If you go the Dave Ramsey mutual fund route, you are looking at 12%, or $149,799.61.

The S&P average of 9.14% in the last 10 years yields $68,942.73.

Investing in real estate… Well, that’s going to give you more angles of return, so it’s harder to quantify quickly.

In short, though I think you can see that you might want to look at other options before you go ahead and pay those points.

5 Outside The Box New Home Buyer Tips | Thursday Thought

So you’re in the market for a new abode and you want to make sure you do the right thing.  Maybe it’s your first time and you are overwhelmed with the process (not to mention the advice from every family member and friend who has ever been there before), or maybe you’ve done this before and have a few scars to show for it.  You’ve read all the articles and you know not to do anything that’ll mess up your credit.  You watched hundreds of hours of HGTV and you know exactly what kinds of rehab/updating you want to do.  You’re cautiously optimistic.  I’m not here to give you the same advice you’ve heard umpteen times already, though.  Nope.  I’m here to give you my top five, slightly out of the ordinary tips for the would-be home buyer.

5) Consider a grant. Did you know there are government grants for home buyers?  Especially if you are a first time purchaser.  Most of these programs are going to apply in specific geographical locations or if you meet personal income criteria, but the options are more numerous than you might realize.  This one thing could be an entire article on it’s own, but there is good information just a click away.

4) Know your neighborhood (1). Just driving through when you go to see your potential dream home is not going to give you a full picture.  You might want to try to stop in at a couple different days and times of day/eve to get a feel for the activity on your street.  You don’t want to find out a week after you’ve moved in about the neighbor with the Harley repair side business that wakes up the whole block every weekend morning.  You can only find out so much, of course, but spreading out your visit times gives you the best chance at a true picture.  That said…

3) Know your neighborhood (2).  Something I do for all my buyer clients is to go visit the neighbors of a home they are seriously considering.  No one knows the neighborhood or some more facts about your target purchase quite as well as the neighbors do.  In a recent transaction, I had a neighbor be very forthright with me about the constant termite problem on their block and, although the client didn’t end up making the purchase, had they gotten as far as the inspection process, they would have had been prepared for this.  Another thing that has come up in the past is when a neighbor shared that the whole block was going to the next council meeting to oppose a strip mall that was being put up where the nice barn was at the end of the street.  These are things you might want to know!  Plus, wouldn’t you like to get a feel for the personalities of the people you’ll be living next to for the next part of your life?  Maybe you aren’t the make-friends-with-everyone type that I am, but I’ve always enjoyed living in a home surrounded by neighbors who feel comfortable asking to borrow one another’s lawn tools.  Maybe it’s just me. 🙂

2) Know your neighborhood (3). Another extremely important aspect of your neighborhood has more to do with it’s financial future.  To this end, you may wish to have your agent research how many of the nearby homes are rental properties as opposed to owner occupied ones.  When thinking about the resale value of your home, the overall quality of the surrounding homes and their resulting sale prices have a huge impact on your own home’s value.  The value of your home is based on “comps” – or comparative analysis.  That comparison isn’t based on a home 10 miles away.  It’s based on your neighborhood and owner occupied homes are going to be better cared for (and thus sell at higher values) than rental homes in at least 90% of the cases.  In other words, be in a neighborhood that’s best set up for future value growth.

1) Think like an investor. Some of what I’ve said above (especially in tip #2) applies to this, but I want to take this point even further.  I know when you’re buying a home, it’s emotional and you are picturing living in it and all the fun things you can do there.  It’s one of the most significant decisions of your life.  It’s also a monumental part of your financial health.  To that end, it behooves you to step outside of dreams of living there and step into the mindset of someone who would be buying the house strictly for profit at some point down the road.  When done right, a home can be a great investment.  In fact (as I’ve outlined in a previous article), real estate is one of the few investment vehicles in which your own effort/labor can effect the value of the investment.  I’m not saying you have to buy a complete fixer-upper, but it’s a wise decision to look at potential home purchase and ask yourself: “Will I be able to make this worth more?”  If you can think of a way or two that you’ll be able to add value to the home over the years you’ll be living there, then it’s that much wiser a purchase.  Maybe it’s just some landscaping you’ll do to really make that curb appeal pop.  Maybe it’s just some minor updating and a facelift.  Maybe it’s adding a convenience like central air.  Whatever it is, if you will be able to make your home worth more than just normal inflation will, then you have another positive and well advised reason to make the purchase.

That sums up my outside the box tips for you.  If you’re new to this and looking for some very inside the box tips, I recommend you check out the following links:



25 Tips for First-Time Home Buyers

Is This The One To Flip? | Thursday Thought

It’s 1:30am and you can’t believe you’re still awake, but you just watched a 12 hour HGTV marathon of house flipping shows.  This is your jam.  You can rehab with the best of ’em and you’re ready to take your share of the real estate fortune pie.

Now, there are a million ebooks and videos on how to make a fortune flipping that will tell you it’s not all as peachy as an HGTV show – yet still profitable if done right.  What I’m here to talk to you about, however is what might be the single most important decision you are going to make if you’re looking at a potential rehab project:

Is this the right property to flip?

Sounds obvious, yet so many people get caught up envisioning a beautiful final product and how inexpensively they can do it with their own sweat equity.  Losing sight of the first step – a zero-emotional analysis of the profitability potential – is an easy trap to fall into.  It’s not voodoo magic figuring it all out of course, but it does take some effort and attention to detail.

  • Step one: Once you’ve found a potential place, drive around the neighborhood and get a feel for the quality and size of the other houses on the block (and perhaps the two nearest blocks), especially the newest ones.  Write down all the addresses.
  • Step two: When you get home, plug each address into a site like Zillow and get the info on it’s last sale date and price. It’ll look like that and is in the upper right area of the text info on the property.  DO NOT go by the Zestimate⌐ to guess values.  They are more often than not too high and you will get burned!*  Looking at all houses in your area that have sold within the last year or maybe two, you can get a feel for exactly what that neighborhood will bear and what quality of home you will need to be in a desirable range there.  Houses that are currently for sale give you useful info as well, in so far as you can look at ones that have been on the market more than 60 or 90 days and know that a house of X quality at Y price doesn’t sell easily in that neighborhood.  Getting all this data can be arduous and it’s certainly more available to a real estate agent, so if you know one (*ahem, CALL ME 201-800-2166), you might one to lean on them for help.
  • Step three: Make sure you’re not going to end up with the most expensive home on the block.  It’s okay if you’re going to fix it up so nice that you think it’s got the best detail work, but you don’t want to try to recoup your investment when you’ve got something that’s bigger and going to go for $100,000 more than anything else in the immediate area.  Invariably, the biggest house on the block will give you much less return on your investment than if that same house was in a more fitting neighborhood and was of median price to the area.

When my partners and I look at a property, I do all this, plus a full workup on the local economy – looking for any pending changes that might effect value.  A Walmart coming in, a major employer closing, etc.  My reports are 6 or 7 pages, and look like the image below:

As you can see on this one, it wasn’t an investment we’d pull the trigger on.  Hopefully this gives you an idea of the amount of attention you need to pay to your ROI potential before making a purchase, though.  From there, it’s onto the other steps that are all on your HGTV mind. =]


* In the Zillow graphic above you see a Zestimate⌐ of $593,312.  I can tell you with a high degree of certainty that that house wouldn’t go for more than $575,000 today, especially given that I live in it and know the neighborhood inside and out.  Another person down the street from me has their home listed at the Zestimate⌐ price, which is a solid $100k too high, given that the interior of the home hasn’t been updated in a couple decades.  As you can imagine, there’s been exactly zero interest in the property and it’s been on the market for a month already.  Get REAL comps if you are going to do serious business.



Recovery Report | Thursday Thought

Ah to have the glory days of 2008 back!  Real estate prices were trending upward in double digits and mortgages were flying off the shelves like Twinkies in Zombieland.  Unfortunately, those loose mortgage practices would also lead to a crash that we’ve slowly been climbing out from under.

So where are we at now?  From a pricing standpoint growth is slow, but steady.  Perhaps it’s more realistic, one might muse.  It’s also very dependent on what area of the country you are looking at.  Places with burgeoning economies are still seeing growth and in some places double digit upward trends have returned.  Areas like Denver, Seattle and San Francisco are doing very well.  Based on data from Trulia, 98% of homes in those markets have surpassed their pre-recession peak.  Other, perhaps more surprising markets to do well have been Oklahoma City and Nashville, Tennessee.

For the markets I work in primarily in Northern New Jersey, growth rates have been modest, but steady.  On the whole, we are seeing prices at about where they stood in and around 2003.  Looking at countywide trends reported by the New Jersey Realtors Association:

  • Bergen County rose from median prices of $508,850 in 2010 to $531,621 in 2015.
  • Passaic county, 2010 prices averaged $340,614 and dipped to $334,274 by 2015.  There has been a 3.2% growth in Passaic County in the last year, however.
  • Morris county rose from $473, 205 in 2010 to $506,946 in 2015.

In most cases, full recovery is expected by 2025 at the latest.  Standard & Poors has a nifty little map based on a study called, “The Case-Shiller Index” which can give you a good visual representation of where your area is at.  I’ve attached the graphic here for your perusal:

Until next time, my friends.  Happy property hunting!

What Does Fair Housing Mean To You? | Thursday Thought

It’s April and that means it’s Fair Housing Month.  It’s also Autism Awareness month, Jazz Appreciation Month, and Mathematics Awareness Month (the square root of pi is… 1.7 apple cobblers).

What does fair housing mean to you, though?  Most likely it factors into your life when you are looking to rent a place to live or are a landlord renting to tenants.  It applies in home sales as well, but is much less frequently an issue in purchase transactions.

On the face it seems fairly simple.  As per a nicely summarized Wikipedia entry:

The Fair Housing Act (Title VIII of the Civil Rights Act of 1968) introduced meaningful federal enforcement mechanisms. It outlaws:

  • Refusal to sell or rent a dwelling to any person because of race, color, religion, sex, familial status, or national origin.
  • Discrimination based on race, color, religion, sex, familial status, or national origin in the terms, conditions or privileges of sale or rental of a dwelling.
  • Advertising the sale or rental of a dwelling indicating preference, limitation, or discrimination based on race, color, religion, sex, handicap, familial status, or national origin.
  • Coercing, threatening, intimidating, or interfering with a person’s enjoyment or exercise of housing rights based on discriminatory reasons or retaliating against a person or organization that aids or encourages the exercise or enjoyment of fair housing rights.

As straight forward as this seems, It’s actually not uncommon for landlords to mistakenly violate fair housing laws.  Let me give you a couple examples which might surprise you:

  • A landlord advertises in a local paper: “One bedroom apartment. Easy access to the city. Perfect for bachelors.”
    • Seems simple enough.  There’s nothing discriminatory in there, right?  Think again.  The landlord is inadvertently stating a preference to a class of persons that he/she wishes to rent to.  “Perfect for bachelors” might be construed as not wanting a single mom there, for instance.  Advertisements like this are considered a violation of the Fair Housing Act.
  • Let’s try this advertisement: “Lovely home for rent.  Walking distance to local churches.”
    • Houston, we have a problem!  Once again this landlord is inadvertently stating a preference.  What if the prospective tenant goes to a temple or a mosque?  What if they aren’t religious in any way?
  • You meet with a landlord to look at renting the second floor of a two family home.  She asks if you have any young children.  She says that she doesn’t want to rent to anyone with young kids because it’ll be too noisy for the people downstairs who have been great tenants for many years.  Sorry, but this is discrimination based on familial status.

As you can see, some things many people consider to be normal verbiage or simple conditions landlords might require, can often be against the law.  What it comes down to – in the most simple terms – is this:

  • A landlord can refuse to rent based on a prospective tenant not meeting credit check/financial requirements.  Those requirements must be the same for all applicants.
  • A landlord can refuse to rent to tenants with pets unless that pet is a certified service animal.  (An important aside here, a landlord can ask for additional security money for pets but CANNOT ask for increased monthly rent).
  • A landlord can refuse to rent based on criminal history in specific instances so long as that is also a policy that is applied equally to all applicants.

Anything else is going to be a violation of FHA laws.  The only time a landlord has some more flexibility here is when renting part of a home that is also that landlord’s primary residence.  That’s a whole other pile of words for another post, though…

Until then, if you think you may have faced discrimination trying to rent or if you’re a landlord who wants to make sure you don’t violate any FHA laws, you can always pop over to the FHA website and investigate more.

How Interest Rates Affect Your Monthly Payment

Considering a real estate purchase in the next year or so? It looks like the Fed’s promise to start increasing interest rates is coming to fruition.

“The Fed on Wednesday raised its benchmark short-term rate by a quarter percentage point to a range of 0.75% to 1% and stuck to its forecast of two more such increases this year and three in 2018. Some economists had expected Fed policymakers to modestly step up the pace.”

It seems NOW is the time to buy and let’s look at why. In the example in my attached picture I show a purchase with a loan of $300,000 over 30 years. The rate in example one is 5% and in example two is 6%. Waiting that extra year or so to buy might end up costing you $189 a month or $67,748 over the course of the entire loan. This is an amount that goes to nothing but the bank. You don’t get a nicer house for it, you don’t get a complimentary box of chocolates!

If you are investing in a property to rent out, then this number can be the difference between a profitable deal and one that isn’t.  So, in the words of every bad late night infomercial… Act now, while supplies last!