Mortgages prefer sunshine

 Homebuyer Tips, Loan Guidelines  Comments Off on Mortgages prefer sunshine
Feb 212016

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By G. Steven Bray

I’m not sure what to make of this, but I felt I needed to share. Check the weather forecast before you apply for a mortgage. Mortgage approval rates are higher when it’s sunny.

That’s the result of a study by the Cleveland Federal Reserve. It studied data from 1998 to 2010 and found that sunny days boosted approval rates by almost 1% while overcast days reduced approval rates by almost 1.5%. That may seem insignificant until you consider that the extra credit provided on a sunny day is about $150 million. Now, it seems significant.

But the result for gloomy days has a silver lining. It turns out sunny-day borrowers aren’t as financially responsible. Loans approved on sunny days have significantly higher default rates. Maybe that’s explains bankers’ penchant for golf.

Tapping your retirement to buy a home

 Homebuyer Tips  Comments Off on Tapping your retirement to buy a home
Aug 272015

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By G. Steven Bray

While current mortgage guidelines require only a 3% to 3.5% down payment to purchase a home, even that’s a hurdle for some folks. If this sounds familiar, I may have a solution if you have retirement savings. The approach depends on the type of retirement plan you have.

If you have a 401k, you may be able to borrow against the account balance, if your plan permits it. Typically, the loan is limited to the lesser of $50k or 50% of the balance. Note that if you’re not using the loan to purchase your primary residence, the loan typically must be repaid within 5 years.

For those folks who have an IRA, you cannot technically borrow from the account. However, if you’re buying or building your first home, you can take out up to $10k without the distribution being subject to the standard 10% penalty. Note that if your IRA contributions are with pre-tax income, you’ll owe income tax on the money you take out.

Before you exercise either of these options, I suggest you talk to your financial advisor about how tapping your retirement account will affect your retirement plans.

Buyer beware when buying new home

 Homebuyer Tips  Comments Off on Buyer beware when buying new home
Mar 052015

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By G. Steven Bray

If you’re in the market for a newly built home, I read an article about an ugly case of buyer beware the other day. When you buy a new home from one of the big homebuilders, you typically have to plunk down a sizable deposit as your commitment to the process. A normal person would think that if the sale doesn’t close, you would get your deposit back.

That wasn’t the case for a number of folks who tried to buy a Toll Brothers home. Instead, Toll Brothers kept the money. The article cited one case of $20,000 and another of $52,000.

Toll Brothers has an affiliated mortgage company, and they incent you to use that company by promising free upgrades only if you use their mortgage company. The problem is the mortgage company never pre-approved the buyers, and the company promised attractive loan terms for which the buyers would not qualify. Once the buyers signed the contract, the company informed them they didn’t qualify for the good loan terms and offered them less favorable ones they couldn’t afford (or no loan at all). Because the buyers already had signed the contract, their deposit money was gone.

It all sounds pretty slimey, but homebuilders have been using the affiliated mortgage company gimmick for years. It’s unfortunate they haven’t faced the same scrutiny for their deceptive practices as the rest of the housing industry.

I’ve included a link to the article at the end of my blog, and I invite you to read it yourself.

What’s the best day to close your mortgage?

 Homebuyer Tips  Comments Off on What’s the best day to close your mortgage?
Mar 042015

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By G. Steven Bray

The National Association of Realtors recently released data showing the most popular days to close a home purchase. The top 7 were the last days of a month, and in the top 25 most of the remaining ones were Fridays.

From a mortgage perspective, your choice of closing date effects the amount of pre-paid mortgage interest. At closing, you prepay interest from the closing date to the end of that month. If you close at the end of the month, you prepay less interest than if you close on the 10th, but you also would enjoy the home for 20 fewer days, and you paid an extra 20 days to live wherever you were previously.

Some cite the desire to have a weekend for moving to explain the concentration of closings on Fridays. Month-end closings may coincide with the end of leases for renters. Sellers with FHA loans may prefer month-end closings because FHA charges a full month’s interest regardless of when closing occurs (but that policy recently changed). And it just feels better to close before you turn the page on the calendar.

The takeaway is if you can close in the middle of the week or month, you’re likely to encounter less stress, and you might even save some money from service providers like movers.