5 Mortgage Misconceptions Set Straight

Getting a mortgage can be a breeze or a slog, depending on what you know about the process. To get organized and set your expectations properly, let’s debunk some common mortgage myths.

1. Lenders use your best credit scores

If you’re applying for a mortgage jointly with a co-borrower, logic suggests that your lender would use the highest credit score between both of you.

However, lenders take the middle of three credit scores (from Equifax, TransUnion and Experian) for each borrower, and then use the lowest score between both borrowers’ “middle scores.”

So, if you had a middle score of 780, and your co-borrower had a middle score of 660, most lenders would qualify and approve you using the 660 credit score.

Rates are tied to credit scores, so in this example, your rate would be based on the 660 credit score, which would push your rate up significantly - or potentially even make you ineligible for the loan.

There are exceptions to this lowest-case-credit-score rule. Most notably, if you have the higher credit score and are also the higher earner, some lenders will allow your higher credit score on the file – but this is mostly for jumbo loans above $417,000.

Ask your lender about exceptions if you have credit score disparity between co-borrowers, but know that these exceptions are rare.

2. The rate you’re quoted is the rate you’ll get

Unless you’re locking in a rate at the moment it’s quoted, that rate quote can change. Rates are tied to daily trading of mortgage bonds, so most lenders’ rates change throughout each day.

Refinancers can often lock a rate when it’s quoted – as long as you’ve given your lender enough information and documentation to determine if you qualify for the quoted rate.

You typically receive a quote when you’re beginning your pre-approval process, but a rate lock runs with a borrower and a property. So until you’ve found a home to buy, you can’t lock your rate. And while you’re home shopping, rates will be changing daily, so you’ll need updated quotes from your lender throughout your home shopping process.

Rate quotes also come with an annual percentage rate (APR), which is a federally required disclosure that shows what your rate would be if all loan fees are incorporated into the rate.

This can make you think that APR is the rate you’ll get, but your loan payment will always be based on your locked rate, and the APR is just a disclosure to help you understand fees.

3. Fixed-rate mortgages are always better than adjustable-rate mortgages

After the 2008 financial crisis, many borrowers started preferring 30-year fixed loans. For good reason too: The rate and payment on a 30-year fixed loan can never change. But the longer the rate is fixed for, the higher the rate.

So before settling on a 30-year fixed, ask yourself this question: How long am I going to own this home (or keep the loan) for?

Suppose the answer is five years. If you got a five-year adjustable rate mortgage (ARM) instead of a 30-year fixed, your rate would be about .875 percent lower. On a $200,000 loan, you’d save $146 per month in interest by taking the five-year ARM. On a $600,000 loan, the monthly interest cost savings is $438.

To optimize your home financing, peg the loan term as closely as you can to your expected time horizon in the home.

4. Real estate agents don’t care which lender you use

A federal law enacted in 1974 called the Real Estate Settlement Procedures Act (RESPA) prohibits lenders and real estate agents from paying each other fees to refer customers to each other. So as a mortgage shopper, you’re always free to use any lender you choose.

But real estate agents who would represent you as a buyer do care which lender you use. They’ll often suggest that you use a local lender who’s experienced with your area’s nuances, such as local taxation rules, settlement procedures and appraisal methodologies.

These areas are all part of the loan process and can delay or kill deals if a nonlocal lender isn’t experienced enough to handle them.

Likewise, real estate agents representing sellers on homes you’re interested in will often prioritize purchase offers based on the quality of loan approvals. Local lenders who are known and respected by listing agents give your purchase offers more credibility.

5. Mortgage insurance is always required if you put less than 20 percent down

Mortgage insurance is a lender-risk premium placed on many home loans when you’re putting less than 20 percent down. In short, it means your total monthly housing cost is higher. But you can buy a home with less than 20 percent down and avoid mortgage insurance.

The most common way to do this is with a combination first and second mortgage – often called a piggyback – where the first mortgage is capped at 80 percent of the home’s value, and the second mortgage is for the balance of what you want to finance.

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Originally published January 12, 2016.

Source: zillow.com

5 Things to Look for in a Rental Listing

Whether you’re looking for an apartment, single-family house or townhome – and whether you’re in a city, the suburbs or a small town – be prepared to spend a lot of time online and even more time driving around to tour the most promising places in person.

If you want to save time and avoid headaches, make sure that every rental listing you consider has all the information you need. High-quality listings help you weed out the places that don’t fit your criteria (wait, Fido’s not welcome?), but they also indicate an organized, communicative and professional landlord – something every renter wants.

As you begin your search, consider these five important things every good rental listing should contain:

1. Detailed details

Front and center should be the number of bedrooms and bathrooms, square footage, storage space and a floor plan to help you visualize the layout.

Avoid listings with vague terms like “junior one bedroom” or “open one bedroom.” According to Zillow research, 65 percent of renters require their preferred number of bedrooms. Landlords know this, so they get creative with descriptions to attract more tenants.

Another need-to-know detail is how safe the property is. Zillow research reports that 75 percent of renters said that a safe neighborhood is a must-have. Most landlords will say that the neighborhood is safe, so do your own research, especially if you’re new to the area.

Speaking of being new – if you’re moving to a new part of town or an entirely new city, look for listings with important facts about the neighborhood, including proximity to transit or major freeways, convenient shopping centers, and nearby recreation and entertainment options.

2. Amenities – all of them

Beyond basics like heating and kitchen appliances, every renter has different amenities that they consider must-haves.

The most popular amenities renters look for include air conditioning, in-unit laundry, ample storage and private outdoor space. Watch for other nice-to-have in-unit amenities, like recent renovations, hardwood floors, plenty of windows and upgraded kitchens.

Shared amenities should be included in the listing too – things like parking, rooftop decks, fitness areas, outdoor space, swimming pools and bike storage.

3. Major (and potentially problematic) policies

The listing should disclose any policies that could be a deal breaker for you. Examples include rules around pets (including specific breeds), the maximum number of people who can live in the unit, smoking, parking, noise and – most importantly – lease terms and length.

Additionally, see if you can tell if the landlord lives on-site or if a local property management company manages things. If the landlord is nearby, they’ll likely handle repair requests quickly, along with general building upkeep and maintenance.

4. Clearly described costs

Make sure the landlord is exceptionally clear about the dollars and cents:

  • What is the monthly rent?
  • How much of a deposit is required, and is any of it refundable?
  • Are there any one-time fees?
  • Is there a pet fee or monthly charge?
  • Does parking cost extra?
  • Who pays for utilities?

These additional charges can quickly move a listing from feasible to fruitless, so make sure you have all the info you need to do the math ahead of time.

5. High-quality photos

Focus on listings that have not only good photos but also recent photos – and lots of them.

Look for listings that include both interior and exterior shots, plus photos of all shared amenities. But renter beware: If the landlord says the photos are of a similar unit – not the one that’s actually for rent – you may find yourself in a bait-and-switch situation.

Once you find a few listings that include these details, you’re off to a great start. You can more easily compare properties side by side, identify deal breakers and find areas where a landlord might be open to compromising.

Related:

Originally published June 2018. Statistics updated January 2019.

Source: zillow.com

3 Reasons to Live in a New Home Before Renovating

In today’s market, many buyers forego fixer-uppers for move-in ready homes. As a result, significant opportunities abound in prime locations as homes that need work linger on the market.

In competitive markets, savvy consumers gravitate toward these homes that nobody else wants. Why? They can customize the home to their requirements and build equity along the way.

That said, I often recommend that buyers live in a new home for a while before undertaking any major remodeling or pricey home improvements. I’m not talking about lighting or plumbing repairs necessary to make the house habitable. Rather, I’m referring to discretionary remodeling, expansions and other improvement projects.

Here are three good reasons to at least consider holding off on the big home improvement projects until you’ve had some time to settle in.

1. Living in the home can change your mind

You may have grand visions for what you’d like to do to a home, based on its condition and your priorities at the time you buy it. But until you’re actually living there, it’s difficult to know exactly how you’ll use the house, what will work for you and what won’t.

Ultimately, it’s this day-to-day experience that will inform your home improvement decisions, instead of early notions of how you want your everyday experience to be.

2. After buying a home, you deserve a break

Buying a home is a massive project, an enormous change in your life and a shock to the system – if not your finances. I’ve seen buyers jump through hoops, spending months on end looking for a home. In some situations, it becomes a part-time job.

A home renovation can be yet another big and stressful project, what with all the decisions to make and contractors to deal with.

My recommendation: Take a break from the stress of buying your new home.

3. You need time to plan

Any renovation, no matter how small, should be designed with care. That means speaking to multiple architects, contractors or designers to get their take on your ideas and options – a time-consuming process.

An hour with a well-qualified contractor can uncover opportunities where you least expected them. For instance, even though it may be an added cost now, moving the laundry machines from the garage to the top floor during a larger renovation may save you time and money down the road.

Conversely, hiring architects and contractors while under the constraints of an escrow period is likely to cause problems for you later.

Some buyers want to jump into renovations because they don’t want to live in a construction zone or pay rent and a mortgage at the same time. While this may make some economic sense upfront, it can still cause costly problems later.

Often, buyers who said they don’t want a home that requires any work end up buying a home that needs at least some. It’s the natural evolution of the buying process. Rarely does someone end up buying the home they started off thinking they wanted.

While you should be open to doing work on a home, don’t feel stressed about getting it all done at once. Live as-is for six months to a year. Take the home for a test drive and see how it runs. You may be surprised at how your perspective and priorities change once you settle in.

Find out which home renovations DIYers most regretted tackling themselves.

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Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.
Originally published August 2016.

Source: zillow.com

“Can I Put a Tiny House on My Property?” What to Know So You Don’t Break the Law

a40757/iStock

For some of us, downsizing to a tiny home is the dream—the ultimate minimalist lifestyle, a chance to try living closer to nature, with none of the stress of paying off a mortgage for the rest of our prime years. It’s a new house movement whose time may have come.

After all, for most of history, families lived without huge living rooms and spare bedrooms. Why not trade big house living and all that space you have to maintain for living in your own tiny house?

Can I put a tiny house on my property?

But before you and your family start plotting your new, full-time tiny-house living, it’s important to remember that these cute creations still occupy a gray zone.

The law often sees tiny houses as ambiguous little islands floating somewhere between camper vans (aka recreational vehicles), mobile homes, and traditional single-family residences. So it’s easy to get confused about what’s legal and what’s not.

So how can you make sure your own small house isn’t an outlaw? Let’s go over some of the most common issues in planning, zoning, building, and living in a home that’s tiny, but still has just the room you need.

Decide which type of tiny house you want

First, a quick primer on the tiny-house movement: To officially be considered tiny, the house has to be 400 square feet or less (excluding lofts), according to the International Code Council.

Tiny living also comes in two different forms: movable (on wheels) or stationary (on a foundation). Which one you pick will largely influence where you’re allowed to live, so it’s important to know what’s what.

“There’s a lot of confusion in the [tiny-home] community,” says Andrew Morrison, who builds tiny houses and co-wrote the National Tiny House Building Code. “The house has to be put on a foundation for it to be an actual house.”

Why does it matter? If your small house has wheels, it may fall under the recreational vehicle code, which is far less stringent than the code required for a house on a foundation. It may even sound good if you dream of the off-grid life.

But that flexibility comes with a catch: If you build using an RV code, it will be a lot harder to get residential status if you and your family want to put down roots with your living space later on. (More on that later.)

On the other hand, small homes on foundations fall under the same building code as residential homes. This can throw a loop in zoning regulations. Buildings are generally required to be more than 70 square feet in size, but in some areas they are required to be at least 1,000 square feet.

The square footage required also depends on which county or city you’re planning to build in. In some places, it’s illegal to build a home smaller than a certain square footage. So make sure to check your local ordinances before you get started.

Decide where you’re going to park it

Maybe you’ve been dreaming of living the tiny life on your favorite waterfront spot. It’s easier and faster than building a house or even a cabin.

There are no neighbors, no traffic, no noise except for the sounds of nature. But we’ve got bad news: You can’t plunk down a tiny space and start living just anywhere.

Before you sell your house and downsize to something tiny, start by calling your planning or zoning department to ask about the local ordinances: Are there any restrictions on areas where you’re thinking of building? How are tiny homes zoned, what’s the required square footage, and where is tiny living allowed?

Of course, some spots are more open to tiny homes than others. Some communities, such as Sarasota County, FL, and Philadelphia, have no size restrictions for tiny homes as long as they meet building codes.

Other jurisdictions, like El Paso County, CO, are adopting new legislation to allow tiny homes wherever mobile homes are allowed—usually in unincorporated areas.

Then there are cities that allow living in tiny homes as accessory dwelling units, which means that tiny abodes can be put on a property and used for living anywhere that already has a residential home. (This is more common in urban areas, such as Los Angeles; Portland, OR; and Seattle.)

To find out more info about living in small spaces in a particular area, check the national, state, and local regulations compiled by the American Tiny House Association.

“If you can, forming an advocacy group will be to your benefit—the more public interest, the better,” says Alexis Stephens, co-director of Tiny House Expedition. “Together, you can set up an educational session for your city officials and planners.”

So what does a tiny home need to be up to code?

Whether or not you build the house yourself or hire someone to build it, it’ll have to meet your local building codes.

“Facilities for eating, sleeping, washing, and living are required, plus a source of heat,” Morrison says.

It sounds pretty standard, right? Here are some other things a tiny house must have in order to be up to code:

  • Plumbing: A tiny house requires at least one separate bathroom.
  • Stairs: Tiny homes are allowed to have stairs, including ladders, ship ladders, or alternative ways for people to reach the loft.
  • Minimum ceiling height: The habitable living space must have a minimum ceiling height of 6 feet 8 inches. Bathrooms and kitchens can be a bit lower, at 6 feet 4 inches.
  • Windows: A tiny house does not need a minimum number of windows, but has to meet the standard for emergency exits.

The tricky part about building your home as an RV

If you build your tiny home on wheels, you have a lot more flexibility. You can pack your tiny dwelling up and head for new scenery any time. But you’ll operate under a whole different set of regulations for small spaces, some of which are quite constricting.

Many local ordinances prohibit people from taking up permanent residence in RVs, even in the backyard.

“Therefore, they end up with an illegal home,” Morrison says. “There are some exceptions, but in general, an RV is not a tiny house and can’t be substituted for one.”

So before you go this route, check local restrictions.

The post “Can I Put a Tiny House on My Property?” What to Know So You Don’t Break the Law appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

What You Need to Know About the Fair Housing Act

If you’ve searched for a new place to live recently, you’ve likely seen the Equal Housing Opportunity logo (an equal sign inside a house) on a landlord’s, real estate agent’s or lender’s paperwork.

But the Fair Housing Act is more than just a logo. It’s a federal law designed to protect renters and buyers from discrimination.

Here are some key points to know about the Fair Housing Act when you’re searching for a place to live.

What is the Fair Housing Act?

Also known as the Civil Rights Act of 1968, the Fair Housing Act was signed into law by President Lyndon B. Johnson just days after the assassination of Martin Luther King Jr., who had championed the cause for many years.

The act prohibits housing discrimination based on race, color, religion, national origin, sex, disability and familial status (sex was added in 1974, and disability and familial status were added in 1988).

At the time the act was signed, overt housing discrimination was a huge problem throughout the country, including the attempted segregation of whole neighborhoods and the outright rejection of qualified renters based on race and other factors.

Today, much of the discrimination in the housing market is less obvious, but it’s still an unfortunate reality.

According to the National Fair Housing Alliance (NFHA), over 25,000 housing discrimination complaints were filed with the federal government and local and national fair housing agencies in 2017. Over half of the complaints were based on disability, followed by race at 20 percent.

But these numbers reflect only reported incidents. The NFHA estimates that over 4 million instances of housing discrimination occur annually, but many people don’t realize they’ve been discriminated against – or know what steps to take when it happens.

What does housing discrimination look like?

Most of the people you encounter in your home search, including real estate agents, sellers, landlords, property management companies and lenders, are bound to Fair Housing Act regulations and additional state and local laws, based on where you live or are looking to live.

Fair Housing Act violations can occur in all phases of buying and renting, including in advertising, while you search, throughout the application process, in financing or credit checks, and during eviction proceedings.

Here are a few examples of discrimination people in protected classes have encountered:

  • A real estate agent tries to “steer” a buyer away from a certain neighborhood
  • A landlord tries to avoid renting to someone by saying the unit advertised has been rented when it hasn’t
  • A property management company refuses to rent to a family with children or requires a higher deposit
  • A landlord evicts a person of color for a reason they wouldn’t evict a white tenant for
  • A mortgage broker asks questions or requests excessive documentation from an immigrant couple that they wouldn’t request from another buyer
  • A lender charges a single woman a higher interest rate than what her credit score should dictate
  • A landlord refuses to make reasonable accommodations for a tenant who is disabled

What do I do if I’ve been discriminated against?

If you’ve been discriminated against in any of the ways above, or if you suspect that other actions taken by a property manager, landlord, real estate agent, broker or lender may be discriminatory, there are many resources at your disposal.

  1. File a report: File a complaint with the Department of Housing and Urban Development (HUD) at HUD.gov. You can also file a complaint with local housing resources found through the NFHA.
  2. Get more info from local housing agencies: You can find a list of local housing counselors at HUD.gov. Besides answering questions about discrimination claims, these agencies provide home buyer education workshops, pre-purchase counseling and rental housing assistance.
  3. Talk to an attorney: Like any other legal issue, when pursuing a complaint under the Fair Housing Act, it’s smart to consult a lawyer.
  4. Find people you can trust: If you experienced housing discrimination from your real estate agent, mortgage broker or lender, it’s time to find a new professional to help you in your home search. Ask friends, family members and colleagues for referrals they know, like and trust. Remember – these real estate professionals are working for you, so their only concern should be finding you the home that’s right for you.

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Source: zillow.com