Sister and Brother Team Kristin Rial & Steve Rial - Edina Realty

Kristin Rial and Steve Rial, Serving The Twin Cities Metropolitan Area

Get off the couch and buy now…

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Hello Kristin here your friendly Lister Sister.

Here is my question to you.   What are you waiting for?

Buy if you can!  Interest rates are incredible and the market is flooded with great homes!  Name your price and go.  If you are new to the market realize interest rates are historically low.  This may be some of the lowest interests rates we will ever see in our life time.  Are you hedging because you think they may go lower?  Well, don’t.  Use a buy down technique to get the seller to contribute funding to “buy down” the mortgage to the percentage  you are hoping for.  I will post future articles (soon) about buy downs-what they are and how they work.  For the mean time if you can’t wait just talk to a friendly mortgage broker who can fill your head with tons of information on buy downs and other funding techniques.  Don’t hedge, don’t wait.  Take advantage and get the home you want before someone else does.  Things are starting to shake…

CASA program and affordable housing

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I stand corrected.  Fellow blogger and Edina Realty agent Aaron Dickinson caught an error in a previous post I made about the CASA program.   Thanks Aaron!

Here is the correct info:

If you are interested in information on loan program that helps low to moderate income Minnesotans buy affordable housing check out www.mnhousing.gov now.  Of particular interest is the Community Activity Set Aside (CASA) program for first time homebuyer.   The CASA program offers affordable, low, fixed interest rates to eligible homebuyers through lenders participating in initiatives in several communities around the state.  Edina Realty Mortgage is a participating lender.

For further information contact:

Robyn Kellogg

Edina Realty Mortgage – Eden Prairie

1800 Singletree Ln Ste 401 – Eden Prairie , MN 55344

Phone: (952) 947-036

Tighter Lending Standards ARE NOT the Problem with Housing

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Tighter Lending Standards ARE NOT the Problem with Housing

While the media has focused on declining sales, lower median sales prices, and elevated listing inventories, there is a sliver lining of good news. Predictably, the national news media has charged that tighter lending standards are the culprit and that the difficulty in obtaining a mortgage has increased over the past couple of months making it more challenging for creditworthy borrowers to find financing. As we all know, this is utter bunk. The idea that “obtaining a mortgage right now is all but impossible” seems to be seeping into the national consciousness, aided and abetted by mainstream media. Mortgage lending standards remain very reasonable, and that the problem is not “overly tight” standards, but that we are reaping the whirlwind caused by lending standards that were far too loose for far too long. The loose lending era stimulated a lot of artificial, unsustainable demand, which drove prices way out of line from reasonable market fundamentals. It is the aftermath of this era – too much supply and not enough legitimate demand – that’s driving prices down and putting many homeowners behind on their mortgage, not tighter lending.  No amount of yearning for those ridiculous lending standards of three years ago will fix that. Those days are thankfully gone, they aren’t coming back, and we’ll be lucky if we escape the whole mess with an intact financial system. Getting a mortgage today is not as tough as they may have been led to believe.

The Mi Casa Program through Edina Realty is available to all and is an excellent opportunity for first time buyers to obtain the home of their dreams with gifted down payment assistance.

Call me to learn more!

Kristin Rial  952-210-3121

Basic Mortgage Questions

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Fixed-rate. Adjustable-rate. Balloons. Negative amortization.

1.) What is a mortgage?
It’s pretty simple: A mortgage loan is a loan, with your house and land used as security; if you don’t pay back the loan, the lender forecloses on your home. The loan is secured by a lien (the “mortgage”) against the property (your house and land). The lender doesn’t own the house, you do. They just have the lien with your house as their collateral (i.e. the security).

When you are looking for a first mortgage, there are two things to think about: what you can actually afford, and what you can borrow. Why are they different? Because the lender is not going to look at how much you spend in a month on gourmet wine or movies, or how comfortable you’ll be with a big payment. They may be willing to loan you much more than you think you can spend on your mortgage. Only you know how much flexibility or not that your lifestyle has, which determines how much you can afford in a home.

A lender looks at your income (and income potential) vs. your debt, as well as your savings and credit history. Then they determine how big a risk you’d be for the lender to take on. They’re also going to look at the value of the house you want to buy, and the interest rate of the loan you’ll be getting. And then they arrive at a loan amount their firm can live with. In a perfect world it will match (or exceed) what you need to bridge the gap between your down payment and the price of the house you want.

2.) Why are there so many kinds of mortgages! How will I ever figure it out?
When it comes to looking at mortgage types, ask yourself one giant question: What is your goal? Will you be in this new home when the grandkids come to play, or is this a starter home that you’ll trade up in the next five years? The answer to that question will help narrow your mortgage choices.

3.) Why does my length of time in the house matter?
It matters for two reasons: It will determine which type of loan is better for you, and it will dictate whether you look hardest at interest rates or at points.

If you are going to stay in your house and plan to pay off your mortgage over its lifetime, you can get a fixed rate loan where the payments will not change. (Of course, taxes and insurance are usually included in this type of loan and they might change.) The interest is a little higher than with an Adjustable Rate Mortgage but you have the security of knowing what your loan payments will be.

But if you know you won’t be in the house long, you can get a lower interest rate on an ARM. If rates take a big jump in a few years, it won’t matter because you’re planning on selling then anyway. You’ll also have the option of a hybrid ARM that is fixed for, say, five years, and then adjusts annually.

The lender may charge points, and required third parties charge for their services, which increases the cost of the loan. If you sell your home in a few years and have paid points to get a better interest rate, you may not recoup the cost of those fees. And your equity in the house will be minimal, but you are betting the home will appreciate enough to cover the fees, or that the money you save in interest will balance out the additional cost of the loan. (If you stay in the house longer than you expect, you take the risk that you can’t afford the higher payments as the interest rates adjust, or you risk not being able to refinance.)

There’s no free lunch (or free loan): You can choose between higher rates with lower points, or lower rates with higher points. The key is to compare different types of loans to see what works for your needs.

Tip: In general, you should never pay more than 1 to 1-1/2 points to a lender, depending on the loan. (In certain circumstances, you might pay 2 percent, but only if there is a good reason; e.g., bad credit, complex loan, or you are buying a great interest rate.) You should discuss with an independent mortgage professional the effect discount point have on your rate. If your holding time is less than five years, you might consider “negative points” or receiving a credit from yield spread premium for your closing costs.

4.) Where can I find today’s rates?
Lenders and your local bank will have the latest rates for each type of loan. Shop around for rates in your city to see who is offering the best deal locally. Looking at the advertised rates will not tell you which loan you qualify for and often times the lowest rates (“teaser rates”) can be misleading, so you should investigate several lenders.

5.) Why are some rates shown as a percentage and as an APR too?
The Annual Percentage Rate is what you will actually end up paying in addition to the principal. It wraps up the interest, points and fees in an effective annual rate. (When a lender quotes you a rate, it will be for interest only, so ask to see the APR.) As above, when you are using the APR to compare loans, make sure you are comparing apples to apples. You need the same loan from different lenders to make the comparison work.

Tip: Compare the APR on two identical loans and choose the one with the lesser rate. Does this seem confusing? Take a look at the resources at the bottom of this article or seek independent mortgage advice.

6.) What is amortization?
It is a true measure of what you are paying per year against your loan. A loan has a life — whether it’s 15, 30, or even 50 years. You pay in installments, and the principal decreases (except in the case of interest-only loans or negative amortization) until the loan is paid off by the end of the term. The payments are evenly spread over the life of the loan, with the interest payments the majority of the payment at the beginning, and then principal paid off toward the end of the term. Pay attention to the amortization schedule, which shows the payments for the life of the loan including interest.

Tip: Pay half your house payment every two weeks instead of one monthly payment. This results in 26 payments per year, one more payment annually than if you just paid monthly. The re-amortized loan will eventually result in more of the payment paid on principal and less on interest. The extra payments go to pay down the principal on the loan.

7.) I keep hearing that ARM rates are tied to an index. What’s that?
Fasten your seatbelt. This can get complicated.

An ARM loan’s interest rate is determined by an index, which adjusts periodically, plus a pre-set margin (e.g., Prime plus 2). In general, you want to understand this because some indexes change faster than others. The more change, the more fluctuation in the ARM. Most buyers want to choose an ARM based on a stable index (especially if you suspect the economy is less than booming), or at least consider it along with all the other aspects of the loan. Ask your lender to fill you in on how the index works for your loan.

Some popular indexes include:

T-Bills, the federal government’s treasury bill index; the most commonly used
LIBOR (London Interbank Offered Rate Index), based on international rates
COFI (11th District Cost of Funds Index), based on a moving average of rates
Prime Lending Rate

8.) What else should I watch out for?
Prepayment penalties. Think it’s a good thing to pay off a loan? Well, it might be, but certain lenders charge a penalty if you do. Penalties apply for a specific period of time, usually 1, 2, or 3 years after the loan is originated. How much is the penalty? Could be six months of interest or 2 percent of the principal remaining on the loan, but it varies.

You might think that it’s stupid to get a loan with a prepayment penalty, but some lenders offer very low (and therefore tempting) interest rates in exchange. Also, some borrowers agree to loans with penalties if they have bad credit and it’s the only way they can get the loan. Mostly, a prepayment penalty is a financial decision. There are situations where accepting a prepayment penalty on a loan can save you thousands of dollars in interest.

9.) What’s a traditional vs. non-traditional loan?
Lenders are creative when it comes to loans to enable people to own a home. That sounds very American, but sometimes the loans are issued regardless of a buyer’s ability to pay. Recently, when the housing market was hot, non-traditional loans sprouted up like dandelions in your front lawn.

Non-traditional loans include:

Interest only loans mean the buyer pays no principal and only interest for a period of time. Payments are low because the buyer is not paying anything down on the principal, though he can if he wants (though few do). If this is a short-term loan, buyers can benefit from the reduced payments — it enables them to borrow more in the loan amount. But it all depends on the length of the interest-only period; the shorter the better.
Payment-option ARMs let the buyer choose from a selection of payments: negative amortization, interest only, or fully amortized. The buyer has to be careful not to pile up an even higher debt by always choosing the lowest payment.
Zero-down loans do not require a down payment, so the loan amount, as a percentage of the purchase price, is usually higher than the Fannie Mae guidelines; if the borrower gets a second mortgage to cover the amount above the guidelines, it’s called a “piggyback loan” or a “purchase money second mortgage.” Ditto if the borrower does not have enough for a down payment, and gets two mortgages instead. (See Understanding Mortgage Types.)
Home Ownership Accelerator Loan Products are mortgage products (or software) that promise to accelerate your mortgage payoff; many times promising that you do not have to change your spending habits! Buyer beware; these products require a high degree of financial dicipline and adequate discretionary cash flow. Please seek independent mortgage advice before applying for any type of home ownership accelerator loan.

Traditional loans are those where the principal and interest are paid in an agreed-upon payment schedule, with a down payment that fits within the usual parameters. Fixed and conventional ARM loans fall into that description.

10.) What’s mortgage insurance? Do I need it?
If you are making a down payment of less than 20 percent, you will most likely have to get Private Mortgage Insurance (or PMI). It ensures that the lender is guaranteed, by the mortgage insurer, 80 percent of the loan if you default. The insurance premium amount varies by the loan to value of the house and type of loan. Another option is to get a second mortgage to use for part of the down payment. For example, you can get an 80/10/10 loan (80 percent loan, 10 percent second mortgage, and 10 percent down) or a variation thereof and avoid paying PMI.

Government loan programs, such as FHA or VA loans, are backed by the government rather than PMI. There is no monthly mortgage insurance on VA loans, however you will have monthly mortgage insurance on a new FHA loan.

Click here if you’d like to use my calculator to assist you in approximating mortgage payments.

How Much Can I Afford?

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How Much Can I Afford?

Look at your income to get a guesstimate

As you think about applying for a home loan, you need to consider your personal finances. How much you earn versus how much you owe will likely determine how much a lender will allow you to borrow.

First, determine your gross monthly income. This will include any regular and recurring income that you can document. Unfortunately, if you can’t document the income or it doesn’t show up on your tax return, then you can’t use it to qualify for a loan. However, you can use unearned sources of income such as alimony or lottery payoffs. And if you own income-producing assets such as real estate or stocks, the income from those can be estimated and used in this calculation. If you have questions about your specific situation, any good loan officer can review the rules.

Next, calculate your monthly debt load. This includes all monthly debt obligations like credit cards, installment loans, car loans, personal debts or any other ongoing monthly obligation like alimony or child support. If it is revolving debt like a credit card, use the minimum monthly payment for this calculation. If it is installment debt, use the current monthly payment to calculate your debt load. And you don’t have to consider a debt at all if it is scheduled to be paid off in less than six months. Add all this up and it is a figure we’ll call your monthly debt service.

In a nutshell, most lenders don’t want you to take out a loan that will overload your ability to repay everybody you owe. Although every lender has slightly different formulas, here is a rough idea of how they look at the numbers.

Typically, your monthly housing expense, including monthly payments for taxes and insurance, should not exceed about 28 percent of your gross monthly income. If you don’t know what your tax and insurance expense will be, you can estimate that about 15 percent of your payment will go toward this expense. The remainder can be used for principal and interest repayment.

In addition, your proposed monthly housing expense and your total monthly debt service combined cannot exceed about 36 percent of your gross monthly income. If it does, your application may exceed the lender’s underwriting guidelines and your loan may not be approved.

Depending on your individual situation, there may be more or less flexibility in the 28 percent and 36 percent guidelines. For example, if you are able to buy the home while borrowing less than 80 percent of the home’s value by making a large cash down payment, the qualifying ratios become less critical. Likewise, if Bill Gates or a rich uncle is willing to cosign on the loan with you, lenders will be much less focused on the guidelines discussed here.

Remember that there are hundreds of loan programs available in today’s lending market and every one of them has different guidelines. So don’t be discouraged if your dream home seems out of reach.

In addition, there are a number of factors within your control which affect your monthly payment. For example, you might choose to apply for an adjustable rate loan which has a lower initial payment than a fixed rate program. Likewise, a larger down payment has the effect of lowering your projected monthly payments.

Click here to go to my calculator that can assist you in determining what is affordable for you.

To Remodel Or Not To Remodel, That Is The Question

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I recently had a question from a client who was deciding whether to remodel their home or sell.  The following  was my reply and some additional articles on remodeling versus selling.

Hello Paul and Sue,

· First and most importantly, what is your home worth? Is your house at the top price range, mid or low? If you are at the top, STOP! Think about how long you really want to stay in your home and if you can recoup the investment. If you are at the mid to low range…still ask yourself how long you plan to stay and if your remodeling plans will put you at the top range of your neighborhood. Rule of thumb-you never want to be the most expensive house on the block and remember people may love your home improvements, but they usually don’t want to pay for them. This can be a different if you live in a “highly desired” area.

· Second what type of remodeling are you going to do and is it worth the investment? Is it maintenance, such as window replacement, siding, roof etc…or are you adding square footage or remodeling a Kitchen or Bath? People expect maintenance on a property and even though it’s great to have new windows in your home, people don’t want to pay for them when they buy your home. People will however, pay for basic kitchen and bath upgrades and additional “useful” square footage. They usually  never pay for something that is “over the top” for your area. You will probably never recoup 100% of your investment if you sell too soon.

· Third do you love the schools, the location and neighborhood? There is something to be said about great neighbors. I think they are golden. Schools are also so very important. Are you going to be happy sending your kids to the schools in your community or are you going to go the private route or open enroll? If you want to stay and raise your kids here, maybe remodeling makes sense. However if you plan on moving in the future use caution when remodeling. You don’t want to use all your equity and then a couple of years later want to move.  Now you’re stuck, you owe too much and you have nothing to bring to the table for your next purchase.

Well that’s my two cents. If you would like, we could get together and run a market analysis of your home and neighborhood…see what’s happening and what your property is worth in comparison. That might give you a little better idea. Another thing you can do is go to EdinaRealty.com, Realtor.com or Zillow.com and do a home value guesstimate. They are not going to be 100% accurate, but they will give you a rough idea.

I also found a website www.remodelormove.com. I have never used it. It says it is free and will give an unbiased opinion on remodeling or moving. I am going to try it out and see if there is any hitch. I can let you know.

In addition I have found a couple articles that discuss remodeling vs. selling.

Article 1

Most homeowners will sooner or later give serious thought to remodeling. Recently, a homeowner contemplated doing a costly renovation to a small, two-bedroom home. The major expense was the kitchen, which was only marginally functional. For more space, walls had to be knocked out. The engineering that was required to do this ran the cost of the kitchen up to $100,000. Does it make sense to make such costly renovations if you don’t increase the square footage of the house in the process?

Before you can make a decision, you need to know the approximate current value of your home. The easiest way to get this information is to call your real estate agent and ask for a current market evaluation of your property. One quick phone call to your agent may be all it takes to decide whether or not to proceed with your plans.

For instance, one Oakland, Calif., homeowner paid $350,000 for his home six years ago. Without doing anything to the house, it would probably fetch $600,000 in the current market. If he were to proceed with the renovations at a cost of $150,000, he’d have $500,000 invested in the property-well below the current market value of the home in its present condition. The property will no doubt be worth quite a bit more after it’s remodeled.

A general rule-of-thumb for remodeling is to make sure that you don’t over-improve your home for the neighborhood. If the renovation tab in the above example were to escalate to $300,000, you could risk over-improving for the neighborhood. It’s not a good idea, from an investment standpoint, to improve your home to the point that it’s best house on the block. Market price is held back somewhat by the lower-priced homes on the block.

Your real estate agent can help you to determine if you will be over-improving for the neighborhood. Ask for comparable sales information for listings in the neighborhood that you foresee will be similar to your home after it’s remodeled. If the comparables sold for less than the amount of the current value of your home plus the cost of the renovation, you may be spending too much on the remodel.

Home Seller Tip: Keep in mind that you usually don’t recoup 100 percent on a major renovation if you sell immediately after the work is done. Just as it’s risky to buy a home if you plan on moving again soon, it’s also better to postpone a major remodel if you’re personal life or financial situation is uncertain.

The disruption of remodeling can be murderous on relationships. If the construction will take the kitchen and baths out of commission, consider moving to an interim rental for the duration. The cost of maintaining two homes should be factored into your budget.

Before embarking on a big remodeling project, find out what kind of home you can buy for the same investment. You may find that for the same amount you plan to invest in remodeling, you can buy a larger, more comfortable home that will provide more appreciation potential in the long run.

For instance, let’s say you own a two-bedroom home that’s worth $600,000. If you invest $100,000 in a kitchen remodel, you’ll still only have a two-bedroom house. If you can find a suitable three-bedroom replacement home for $700,000, you might be better off selling your home and buying the larger one.

The Closing: Don’t forget to take resale value into account when you remodel. It’s important to please yourself. But, from an investment standpoint, you should make sure that potential buyers will also think your improvements add value.

Article 2

The following are questions to ask yourself both in favor of remodeling or moving. Let’s deal with the remodeling first.

1. Your community is great, why move? For some homeowners they already live in the best community for their family and lifestyle. The schools are great, it’s near their worship center, shopping and they are plugged in with neighbors and the community. So instead of moving, it might be best to expand or remodel.

2. Sometimes, it’s just time to upgrade the house — even if you’re planning on selling in the future. If you bought a home with 15-year-old appliances and décor, it may be time to switch them out, now that they are 20 or 25 years old. I always get frustrated with homeowners who want to remodel right before they move — they’ve never had the opportunity to enjoy the house they’ve just remodeled. Upgrades may include flooring, bathrooms, kitchen, exterior facelift, paint, curtains, furniture — not just the house itself.

3. It might be cheaper than selling. If you need more space, the remodel may actually be cheaper than selling, especially if you’re looking at finishing or remodeling the basement. The basement remodel is the easiest and most affordable remodel available to homeowners because the exterior walls, plumbing and most electric may have already been run throughout.

4. You’re a do-it-yourselfer. Okay, you love those Old House, Fix-It or Nix-It, Saturday morning programs. Living in a dust-ridden environment with tools and power cords strewn throughout is your vision of heaven on earth. Go for it.

5. You’ll have to remodel the new house anyway. Most new homeowners spend upwards to 30 percent of the value of the new house they just bought fixing it up the way they want — so why move? Just spend that money where you are.

Now, there are just as many reasons to move instead of remodeling.

1. The move could take less time and hassle. Depending on the condition of your local market, you may be able to list, sell and move in a shorter period of time than it would take to actually remodel your current home. Time is a major factor in our busy lives, and many times it would be quicker to just move.

2. Remodeling would disrupt your lifestyle more than you’re willing to deal with. You have to hire a designer, then a contractor, move furniture from one area to another in your house, find storage for the rest, live with dust, workmen, etc., for several months and then HOPE you like what you get at the end of it. Better to buy the house that’s already finished the way you want it than betting on a finished product you’re not sure about.

3. You don’t want the hassle of dealing with contractors in case they don’t get it right. The challenge for remodelers is that they are being told by a remodeling-challenged homeowner what they want and then try to create that environment. If the homeowner doesn’t like it at the end — it’s very expensive to change once it’s done.

4. Remodeling could cost more than moving. For some people, to get what they really want, they would have to double their mortgage anyway — so it might be better to check out what’s available in new construction or even in a move up in the community. Plus, builders in some markets are starting to offer free upgrades — including rec rooms, decks, and other add-ons that usually are the subject of a remodel job.

5. Finally, you’re family has enlarged. You just may need a larger home because you have more children or your parents/au pair/adult children have moved in with you.

When it’s time to remodel, look over the local real estate market before making your final decision, it might be in your best interest to make that move instead of knocking down a wall.

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