The first step you should take toward your new home

3486735_SVisiting open houses in your dream neighborhood is a fun way to spend your weekends, but it won’t get you closer to your goal of buying property. When you’re serious about purchasing your first home, you need to know how much money you’ll have to spend. That’s why you should talk to a lender and get prequalified or preapproved for a mortgage loan.

What’s prequalification?

The lender will perform an initial evaluation of your creditworthiness. You provide your income, debt and other relevant financial details, and the lender will crunch the numbers to figure out how much money you might be able to borrow. Of course, the lender hasn’t confirmed any details of your financial situation, so the prequalification number is just a rough estimate.

What’s preapproval?

A step closer toward a mortgage application, loan preapproval means you go through the full mortgage-application process. Fill out the paperwork, and the lender verifies your income, employment history, credit report and other details. Then the lender will decide what interest rate you’re eligible for and how much you could borrow.

Does that mean I have a loan?

Being preapproved or prequalified for a mortgage loan doesn’t guarantee anything. You still could fail to secure a mortgage loan for your desired amount or terms. However, both processes let an expert give you a sense for how much money you could have to work with. And a buyer with a prequalification or preapproval letter from a lender may be more appealing to sellers.

Before deciding where to put the couch in your dream home, talk with a lender. He or she will help you make sure your home-buying aspirations line up with your financial situation.

The mortgage that could double your down payment

3871040_SMost lenders require a down payment equal to at least 20 percent of the purchase price for a conventional loan. Anything less and you’ll have to pay private mortgage insurance (PMI).

But what if you don’t have the funds to put down 20 percent? One option is a piggyback mortgage.

Three parts, one mortgage

Also called an 80-10-10, the piggyback mortgage is made up of three things. There’s the first or main mortgage loan, which is usually for 80 percent of the sales price. The next piece is a second mortgage for 10 percent of the sales price. It’s also referred to as a second mortgage, home equity line of credit or home equity loan. The final part is your 10 percent down payment.

The good and the bad

You already know that a piggyback mortgage can help you avoid PMI on your loan. So, what’s the disadvantage of this type of loan?

You’ll pay closing costs on both loans. Also, the second loan will have an adjustable rate that’s likely to be higher than the first loan’s rate, so climbing rates will hit your checkbook. Piggyback mortgages usually require a high credit score than other low-down payment options, such as a Federal Housing Administration loan. But these disadvantages can be overcome with some careful planning and the counsel of your lender.

A piggyback mortgage isn’t right for everyone — each borrower’s situation is unique. However, it’s a great option to consider if you’re a strong mortgage candidate who’s a short on the down payment.

Take advantage of mortgage related tax deductions

2830656_SIf you’re looking at taking out a mortgage to buy a home, refinance an existing loan, or remodel your property, you will want to analyze all the relevant monthly costs. When you’re calculating the loan costs and other expected expenses, remember to consider the potential tax benefits.

The National Association of Realtors estimates that home owners save an average of $3,000 annually in taxes due to deductions related to mortgages and property tax. Make sure you factor potential savings from the many available deductions into your buying decision.

Mortgage interest
You may know that interest paid on a mortgage is tax deductible. But did you realize that mortgage interest on a refinance, a home­ equity loan, or a home­ equity line of credit may be deducted as an expense?

Discount points
If you paid points to lower your interest rate, those may be deducted for the year in which they were paid. Discount points on a refinance are also eligible for tax benefits but must be amortized over the life of the loan.

PMI
You can deduct private mortgage insurance for a primary residence and a vacation home, as long as you don’t rent out the second home.

Property taxes
Taxes you pay on the real estate you own can be deducted from your federal income taxes.

These items are just some of the ways you can reduce your tax burden when you take out a mortgage loan. The statement you receive at your loan’s closing will show you what is allowed to be used on your tax return. Some items will be tax-deductible while others will count as personal expenses.

While your lender can certainly help you understand the financial implications of your borrowing decision, it’s always a good idea to visit with a tax professional who can analyze your situation.

Keep an eye on your credit report

9182720_SImagine that you’ve scrimped and saved for a down payment, worked hard to pay your bills on time, and found the perfect home that’s in your budget. It sounds like the perfect set up for a happy ending.

But then you submit your mortgage application, and the mortgage lender says that you don’t qualify for a mortgage loan with your poor credit. You get a copy of your credit report and realize that someone stole your identity and ruined your credit score with unpaid debts.

Do you think that scenario is far-fetched? Well, the IRS reports 2.7 million people in 2014 had their identities stolen. But if you stay on top of your credit report, you’ll know when something is amiss—before it gets out of hand. The best part is that you can check your credit report for free.

Each of the three national credit-reporting companies—Equifax, Experian and TransUnion—is required by law to provide you with a free copy of your credit report once a year at your request.

How many reports you request and when you make those requests is up to you. If you’re just checking your credit periodically, spacing them out can help you monitor any changes. If you know you’ll be applying for a mortgage loan soon, you might choose to get all three at the same time. Comparing all three can help you look for errors or address problems.

Go to www.annualcreditreport.com. This is the only website authorized by the federal government to provide the reports you’re entitled to receive. You’ll be required to provide some personal information to confirm your identity.

Monitor your credit report to ensure that there aren’t any surprises when you apply for a mortgage loan. It’s a free process that only takes a few minutes.

The requirement of title insurance

36413931_SDuring a property sale, the title company will perform a search, combing public records to verify the property’s chain of ownership and any issues that might affect whether title can be transferred to another owner. You wouldn’t want to purchase a home only to learn that the seller didn’t have the right to sell it to you or that the property is subject to liens for unpaid taxes.

This due diligence usually catches any problems and enables the seller to present a clean title of ownership. But what if the title company misses something? That’s why title insurance was created.

Title insurance comes in two flavors: the lender’s policy and the owner’s policy.

As the name implies, the lender’s title insurance policy protects the amount they let you borrow. This policy goes with the mortgage, so if you refinance, you’ll need another one.

The owner’s policy stays with the property and protects you, the owner, if someone makes a legitimate claim to your house.

Most lenders require that you purchase a lender’s policy, but owner’s policies may be optional, depending on your location. Who pays for these policies—buyer or seller—is subject to negotiation or may be established by normal business practices in your area.

Is it likely that a contractor will emerge and claim you owe him thousands of dollars that the previous owner didn’t pay? Probably not. But that’s the nature of insurance—it’s a waste of money until it’s not.

Different states have different regulations regarding title insurance. Check with your mortgage company to understand what you’re required to purchase and the best options for your situation.

What you should know about VA loans

11278885_SAs many as one third of home-buying veterans don’t know there’s a loan product designed just for them!

After 70 years of success, you would think that every veteran and active-duty service member would know about the Department of Veterans Affairs home loan program. Given that stat, it’s not as surprising that there are myths about VA loans. Here are a few.

Myth: They’re issued by the VA. Nope. Any lender who participates in the VA program can handle your loan, but the Department of Veterans Affairs is not a lender—it just guarantees the mortgage loan.

Myth: You have to pay PMI. Also not true. Unlike FHA loans, VA loans do not require private mortgage insurance, which saves borrowers a few hundred dollars per month.

Myth: You can only get one. Not only can you use this earned benefit over and over again, you can in certain cases have more than one VA loan at the same time

Myth: They require excellent credit. Not really. VA loans are typically less stringent about credit scores than conventional loans. In this regard, VA loans are similar to FHA products, which also approve borrowers with lower credit scores.

Myth: You can’t get one if you’re overseas. If you grant power of attorney to your spouse, or someone else, to act on your behalf in a transaction, you can use a VA loan to buy a home. Your spouse is the only person who can satisfy the occupancy rule, but if you’re serving overseas, you could get an extension to occupy the home.

If you’re eligible for a Department of Veterans Affairs mortgage loan, find a qualified lender. These products have been helping veterans and active-duty service members borrow funds for homes since the 1940s. Make sure you’re getting your full, earned benefit.

Up and coming areas in which to invest

45070128_SBuying a property in a popular area can cost a lot of money. If you plan to stay in your home for a few years, it might be worth it to look for an up-and-coming ZIP code—before it gets hot.

While luck plays a role in determining which area to invest in, there are signs that indicate a neighborhood might be headed in that direction. Here are some things that can help you find a place where future prices could appreciate considerably.

Portable toilets

Where there are portable toilets, there are construction workers building homes and remodeling others. Not every home renovation signals an explosion of a neighborhood, but several projects in a rundown or less-desirable area could indicate things are on the rise. 

Transit investment

Light-rail stations and other transit hubs aren’t built in places where there isn’t demand. Plus, nearby public-transit options usually increase a property’s value. Watch a community’s transit planning and look for properties around scheduled projects.

Bars, shops and restaurants

Notice lots of new commercial activity? Hip bars and trendy boutiques don’t usually open in places that won’t attract any customers. If you notice construction on these types of businesses in one area, look at what’s available for housing.

These signs don’t prove that a neighborhood is poised to take off, but they point you in the right direction. A real estate professional or other property advisor can further analyze the market you’re interested in and help you make a better informed decision.

When you do find a property to buy, your lender can point to appropriate products, such as a Federal Housing Administration 203k loan, which lets you borrow enough to buy and rehab a neglected house.

Unauthorized Email

This morning you may have received an email from me that I had no knowledge about. The list of people who received it came from my contact list off one of my social media pages. Please disregard and delete it, and I am truly sorry if this caused you alarm. My team at PRMI is in contact with the social media site to rectify this “hack” of my contact list so it doesn’t happen again.

The New Era of Marketing and Technology: Looking Ahead

Dave Zitting Future of Marketing

By: Dave Zitting and John Seroka
This was originally published in California Mortgage Finance News, a California Mortgage Bankers Association publication.

Results. We want them quicker now than ever before. There’s an app for just about everything you want to do in your life. Want to get healthy? There’s an app for that – try Fitbit which allows you to control your weight, set goals, monitor your physical activity and calories burned, map your running routes and much more all in one place. No need to build spreadsheets and gather information from a collection of devices. Would you like a personal assistant? There’s an app for that too – try Speaktoit which will search for websites, make calls, get weather data and help you prepare for meetings. Suffice it to say that since the birth of the iPhone, we’ve been conditioned as a society to expect more and more from technology.

It used to be that enterprises (medium to large businesses) were the primary users of technology. Enterprise technology vendors like IBM, Oracle, Salesforce and many others would, and still do in many cases, target the CIO of an organization with their solutions. The focus of the technology was to capture, store, manage and deliver content and documents to eliminate paper, lower costs and create other efficiencies. However, the accelerated growth of content and information, the Cloud, analytics and collaborative technologies at a time when workforces were becoming increasingly mobile started to drive change.

Enterprises are no longer the primary purchasers and users of technology. This change has happened largely over the last decade and arguably started about 20 years ago. Remember the Palm OS released back in 1996? A bit clumsy to use, but early adopters were all over it. It was the first true PDA (personal digital assistant) that allowed for basic functions to organize your day, store contacts and take notes. Then, shortly thereafter, was the introduction of the Nokia phone that came with a game called “Snake” which landed in the pockets of millions. Fast forward to the release of the iPhone in ’07 and about a year later the App Store was launched with 552 apps created by third party alpha “rock star” developers…and life changed as 10 million app downloads were recorded within a week!

Now, Android users have access to over 1.6 million apps. Apple’s App Store gives consumers access to over 1.5 million apps. This kind of rapid innovation makes it so that consumers just want an end result, which is what these apps all do their best to provide – constantly updating to provide the best user experience they can deliver.

Today, the bottom line is that enterprise level technology platforms like IBM, Salesforce and others that you use to manage your business, sales efforts, marketing and more are becoming obsolete. We now live in a world of apps that are designed to provide us with the results we’re looking for in an instant. And, not just any result, but the very end result. For example, if you’re in a rental car travelling to a meeting and want to get a Starbucks coffee on the way, you don’t need to pull over to Google it and then open a separate app to find a location, you just ask Siri and she’ll find it for you and start telling you how to get there in about 5 seconds. This is the level of responsiveness that people expect from technology now. Anything less is too much work and wears quickly on the nerves of a populace accustomed to instant gratification.

What does this mean for the future of marketing?

When it comes to marketing, businesses are demanding the same thing – just bring me the end result. They don’t care what steps you took to get there, they just want to have the customer materialize in front of them. So, much like their alpha developer counterparts, enterprise developers are creating apps that businesses and business people can use with the goal of delivering the end result to replace older platforms still in broad use today that enable users to simply “do a lot of marketing.” Newer platforms, however, focus on smarter, data-driven marketing to help businesses find only their most valuable prospects.

So, where does this data come from and how is it used?

Frequently, companies will turn to 3rd party data sources like BlueKai or eXelerate which are data aggregators. For the most part, they pay publishers to let them collect information on site visitors and then segment the data into various user profiles. Then, this data gets sold to advertisers who use it to develop highly targeted online ad campaigns, called “programmatic display.” The data they sell is great for demographic, behavioral and contextual targeting of online ads. These online ads are programmed to reach the specific people that fit the correct profile when they visit particular websites. These people are targeted according to their behavior, demographic makeup and context…the closest you can get to PII (personally identifiable information) without actually having it.

Here’s one example of how all of this comes together to the benefit of all parties in a real estate transaction…

Not long ago, Nationstar launched an end-to-end real estate platform called “Xome,” giving homebuyers a better alternative to Zillow, Trulia and other apps with far less functionality. Once in the Xome app, users can search homes, place offers, sell a home, arrange inspections, arrange appraisals, become prequalified by a Nationstar MLO, receive and e-sign most mortgage documents and more. Users also receive a minimum 1% savings on the transaction if they close through Xome which also means using a Xome-approved Realtor®. Accordingly, this app provides a win-win-win situation for the consumer, Xome and the Realtor®.

From what we can see, Xome has a site retargeting strategy (based upon ads that we’ve seen after visiting their site) and likely has a programmatic display strategy in place as well that leverages third party data sources. That’s just a guess, but probably accurate and would make sense since it was just launched and they surely want to build their brand awareness and drive users.

In an interview with investors, Jay Bray, Nationstar CEO, states “Today, real estate search engines allow you to search for homes, find the estimated property value of your home and, somewhat realistically, those of your neighbors.” He goes on to say, “However, these search engines are not currently designed to allow consumers to transact.”

The future of marketing is upon us and it’s all about obtaining real results. We’re quickly moving away from a long era of enterprise technology solutions that capture, store and manage data and into an era where data is analyzed, correlations are made and real results can be instantly provided. In fact, right now, there are new technologies that we’re either aware of or directly participate in, that will change the game for real estate professionals and consumers alike – all with the end result as the top priority!

Stay tuned…

Is early mortgage payoff right for you?

16328299_SYour mortgage payment probably occupies a sizable chunk of your monthly bills. Why wouldn’t you want to get rid of it as soon as possible? Well, with today’s low interest rates, there may be better ways to use your extra cash.

Where else might I put the money I spend on my mortgage payment each month?

  • Do you have high-interest debt elsewhere? Credit-card debt and any other higher-interest loans—that aren’t tax deductible—may be better places to place your cash.
  • How’s your retirement fund? Before you put money toward an extra mortgage payment, make sure you’ve taken full advantage of your 401(k) and individual retirement account.
  • Do you have an emergency fund? Most financial advisers will tell you it’s wise to have enough in savings to cover your expenses for at least six months.

Who will benefit from paying off early?
If you don’t deduct your mortgage interest, the actual cost of your mortgage is higher. Paying it off early makes sense.

Do you pay private mortgage insurance? Lenders typically charge PMI to borrowers with less than 20% equity in their homes. If you’re close to 20%, making extra payments could put you over the top, eliminating PMI and reducing your monthly payments.

How can I pay off my mortgage early?
If paying off your mortgage early makes sense for you, first confirm that your mortgage agreement doesn’t have penalties for early payment. If you won’t be penalized, budget for paying off half your mortgage every two weeks. Because there are 52 weeks in the year but only 12 months, you’ll end up with 26 half-payments—13 monthly payments—during a calendar year.

Is it better if I have an ARM or fixed-rate mortgage?
Paying extra on an adjustable rate mortgage typically lessens the amount due but doesn’t change the term. Conversely, when borrowers make extra payments on a fixed-rate mortgage, they shorten the term but don’t affect the payment.

As you can see, paying down your mortgage isn’t right for everyone. Talk to your mortgage lender for their expert advice.