Realty World – Friend & Associates

Getting Inspections
When you are buying a home, it is vital to get your home inspected. Inspections can uncover flaws in the home or hidden hazards that can cost you thousands of dollars later on, and be a safety hazard for your family.
In the beginning of a real estate purchase transaction, you, as the Buyer, are given a contingency period.  This time period is negotiable with the Seller and varies from 7 to 17 days in length.  During this time it is your job to inspect the home.
Most home buyers do not have the expertise to see any hidden defects.  It is crucial to have a competent licensed professional conduct the various inspections on a home.
Most buyers are smart to get, at least:
a termite inspection to check for termites and water or fungus damage;
and a property inspection to inspect all  the major systems of the home such as plumbing, electrical, foundation, chimney, roof.
It is also a good idea to have a roof inspection conducted, and, if the house has a fireplace, get a chimney inspection as well.
There are also inspections available for lead-based paint, mold, foundation, swimming pools and more.
A good realtor will go over these inspections with you and help you understand the purpose of each one.
Inspections are always smart even if the house is new or has been remodeled, and especially if you are buying the house in its existing “as-is” condition.
Inspections will cost you some money up front, but can save you thousands of dollars in future repairs.
And remember; always choose a high quality inspector.  Not all inspectors are the same. It is smarter to spend an extra $150 or $200 to have a good thorough inspection.  A cheap inspection report can often miss hidden defects that a good inspector will discover.
For more information about buying a home, give us a call at 408 684 4469.
Related articles

Home inspection tips before deciding to buy a house (holidayhometimes.com)
4 Reasons Why You Should Get A Property Inspection Before You List Your Home (blogher.com)

When Selling Your Home, Have a Strong Internet Marketing Plan
Over 90% of home buyers today, use the internet to help search for a home.  People will spend a great deal of time researching a home on line before ever actually going to see it.  If you are selling your home, or thinking about selling your home, it is very important for your Realtor to have a good internet marketing plan to make sure you get the most potential Buyers to look at your home.
More interested Buyers, means a higher sales price for you.  Far too many Realtors are satisfied with just putting the home on a multiple listing service and putting a sign in the yard.
Sometimes they might have your house listed on their company website or maybe one or two real estate search engines.
Here is the lesson:  Cheap, lazy marketing gets you a lower sales price.
If you are evaluating an internet marketing plan for your home, ask yourself these questions:

Is your home listed on the internet?
And, if it is, how good does it look?
Can a Buyer easily see the best features and highlights about your home?
Are there plenty of high quality photographs to show off your home?
Does your property have a virtual tour or slide show?
Does your home have its own unique website that a potential buyer can go visit to get more information?
Are the important documents a buyer needs accessible on your home’s website?
Can a potential buyer get the information they want quickly and easily?
How many websites is your home listed on?
Is your home listed on the top 4 real estate search sites in the nation?
If a buyer is driving by your home can they quickly use their smart phone to access information about your home from their car?

If the answer to any of these is “no”, then you are probably missing potential buyers of your home.  That can mean a longer marketing time, and a longer marketing time means a lower sales price for you.
A good realtor will include these things as part of their service at no extra cost to you. Make sure you are getting the service you deserve.
Thinking of Selling your home sometime in 2012?  Compare our marketing strategy! Give us a call at 408 684 4469.

Winterize Your Home
Now that winter has begun, it is very important to have some routine maintenance done on your home.  A home must be constantly cared for or it will begin to break down.  If you discover potential problems early, this can save you thousands of dollars in repairs and protect your investment.
1-Get your furnace inspected each year.  PG&E will do a free safety check on your gas appliances. You can call them directly or visit their website.  Make sure you clean or change your furnace filter and don’t forget to install a carbon monoxide detector in your home.
2-It is a good idea to have your furnace pipes cleaned every 2-3 years.  This will remove germs, mold and dust from the pipes so it won’t get into your home.
3-Have your door and windows weather stripped.  This will help keep out drafts and save money on energy bills.
4-Keep your rain gutters cleared out.  Leaves and other plant debris clog the gutters and can cause them to backup.  This can lead to water damage of the roofing materials.
5-Make sure the downspouts drain water away from the house.  Too much water near the foundation can damage it and cause the house to settle.
6-Trim back trees and bushes away from your home.  Make sure all venting screens at the bottom of your home and on your roof are in good repair.  Small animals can enter your sub area or attic and nest there because it is warm.
For more advice about maintaining your home give us a call at 408 684 4469.
Related articles

10 ways to winterize your home (seattletimes.nwsource.com)
10 Quick Tips to Winterize Your Home (bargaineering.com)
Repair Your Gutters and Downspouts Before the Next Storm in Somerset County, NJ (manvillenj.wordpress.com)

Long term savings on your Home Loan
When getting a home loan, everybody wants to get the best bargain. For a lot people, that means getting the lowest interest rate at no cost. But this is not always the best bargain for the borrower.
Many times a home owner will take that option and find themselves refinancing again in 2-5 years just because interest rates went a little lower. Every time you refinance your home you start the loan term all over again. That means if you had a 30 year fixed rate loan and if you refinance after only a few years, then you will have to start that 30 year loan term from the beginning for a full 30 years. That could cost you thousands of extra dollars over the years. This is money that goes to the banks and not toward your own investments. The banks love it when you refinance because they make money.
Don’t count on the banks to give you the best advice. Remember they want you to refinance even if it’s not the best bargain for you in the long term.
If you plan on staying in your home for more than 5 years it may be a better bargain to pay some fees up front and buy your interest rate down to a lower rate.  Then you don’t have to try to refinance every few years trying to chase interest rates down. The money you spend in the beginning may save you thousands and thousands of dollars over a 5 or 10 year period.
The lesson is: Pick a loan professional you can trust. Choose someone who is more interested in establishing a long term relationship by doing what is right for you instead of someone who has a quota to meet.
For a free, no obligation analysis of your current loan, give us a call at 408 684 4469

So today it was announced that the “Super Committee”- a team made up of equal members of the House and from the Senate and equal in Democrats and Republicans- isn’t going to resolve anything about our nation’s debt by the Thanksgiving deadline.
Hey!…There’s a surprise! Our legislators have dropped the ball again.
I think Republican presidential candidate and former Speaker of the House, Newt Gingrich probably summed it up best:
” I think this super committee is about as dumb an idea as Washington has come up with in my lifetime. I used to run the House of Representatives. I have some general notion of these things. The idea that 523 senators and congressmen are going to sit around for four months while 12 brilliant people, mostly picked for political reasons, are going to sit in some room and brilliantly come up with a trillion dollars, or force us to choose between gutting our military and accepting a tax increase, is irrational. They’re going to walk in just before Thanksgiving and say, ‘All right, we can shoot you in the head or cut off your right leg, which do you prefer?’ What they ought to do is scrap the committee right now, recognize it’s a dumb idea, go back to regular legislative business, assign every subcommittee the task of finding savings. Do it out in the open through regular legislative order and get rid of this secret phony business”
I can’t claim to know a lot about Gingrich’s political platform, in fact I know nothing about his platform, but I can agree with this statement.
While the world is watching…we…the greatest country on this earth, show the rest of the world how impotent our government has become.
And…to a large degree we, the American people have reaped the seeds of our own apathy.  We’ve actually allowed these clowns to be elected!
I know many of these issues are complicated and I’m looking at it from a very limited viewpoint.
But I’m tired of just talking about it.  From now on I’m going to actually look at the senate and congressional records and see who votes what on the issues.  I want to KNOW who is doing and saying the things that affect my life, my livelihood and my security.  I think that I have sat around and complained too much and looked too little.
I’ll bet that if every member of our government knew people actually LOOKED at their production, they might do a better job.  And those of you that have looked, and made the noise, and pointed things out in order to get the rest of us to take notice…I salute you.
Related articles

Why the Super Committee is Super Illegitimate (alternet.org)
Gingrich: Super Committee Failure ‘Good for America’ (newser.com)
Super committee about to fail: Is it Obama’s fault? (csmonitor.com)
Breaking: Super Committee declares defeat (hotair.com)

Alright, we are continuing here with data on mortgages and the ins and outs of how they really work.  I would encourage you to read Parts 1 and 2 so you can track with this easily.
Lenders will also have pricing adjustments as part of their wholesale price sheets. These are called “hits” or “add-ons” in the industry. Sometimes there are ‘hits’ for a lower credit score, or if it is non-owner occupied etc.  These are ‘add-on’ (increases) to the price of the loan.
Likewise, the lender may give certain ‘credits’ on the pricing for positive aspects of the loan. For example if you have a credit score above 740 than the lender may offer an additional yield spread premium of .125 to .25 points.  This can help lower your overall fees.  If you choose not to have impounds then the lender will usually add .25 points to the cost etc. (Impounds are where the lender pro-rates your annual property taxes and your homeowner’s insurance and collects a portion of them for you each month and then pays them for you when the premiums are due.)
Hopefully you now have a basic understanding of how loan pricing works.  So how do you use that to your advantage?
Now it is time to shop.
1-A good start is your bank.  Have them give you a quote. This will be in the form of a fee worksheet called an “Estimated Fees Worksheet”. This is a basic quote and is not based on them reviewing any of your financial information.  You don’t need a credit report or anything yet.  It is just a line item breakdown of costs and rate.
2-You should also get one of these from any broker you speak to as well. Again, have them give you a quote. As a reminder, a broker can shop many, many different wholesale lenders for you.  In my experience it is NOT easier, or cheaper or a better deal or faster to go to a regular bank.  Mortgage brokers deal directly with the wholesale lenders and shop for programs very specific to your needs, whereas a bank may or may not have a program best suited to your particular situation.  Again, you should shop and compare.  Be sure to get your questions answered so that you really understand the loan you may be looking at.
NOTE:  Make sure you are getting quotes on the same type of loan from banks and brokers, so you can compare apples to apples (30 year fixed no point no fee for example). Again, your loan scenario is unique to you (credit score, assets, income, what you are trying to accomplish etc.) and may or may not be the same rate as you have heard advertised.  (For example, the rate for a 10% down purchase loan and the rate for a 20% down purchase loan may be different and require different percentages of assets, income etc. to be in place to get that particular loan rate.)
Now,an Estimated Fees Worksheet is NOT the same as a “Good Faith Estimate” or “GFE”.  A GFE is only required to be issued by a lender after they have received your financial information such as, name, address, income and credit.  Then they are required by law issue one within 3 days of receiving such information.  There is also another document called a “Truth in Lending Disclosure”.  This is a document that gives you the amount financed and what the cost of credit is on your loan.  This is generally issued with the GFE.
You don’t need those yet.  You get those after you choose a lender to work with.  The Estimated Worksheet has all the numbers you need. These numbers are entered into the lender’s loan application software and at the correct time these same numbers are used to auto populate the GFE and Truth in Lending disclosures.
So when you approach a lender the first thing you ask for is an Estimated Fees Worksheet along with a rate quote. You don’t need to give them your financial information or pull credit at this stage.  This is just a “what if” type of document.  Get a sheet for a “par” loan and get a sheet for a “no point no fee“  loan.  A “par” loan is when the broker’s wholesale cost is zero.  So you would pay all points and fees.  (Look at the table in part 2 of this blog at the 3.625 rate on a 30 day lock.)
They may ask you if your credit is good and may ask how much you plan on putting down on a purchase or if you are refinancing, how much equity you think you have. This is to help them adjust for any “hits” on their wholesale price sheets.
So for shopping purposes only tell them your score is above 740.  If you know your recent score go ahead and tell them what that number is. Again, be sure you tell each lender or broker the same information so that when you compare you are looking at apples to apples. Different data can make a huge difference in your rates and does not give you the data you need.
Once you get 2 or 3 Estimated Fee Sheets you are now ready to get down to business and compare.  See part 4 for how to get a good comparison.

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OK, so hopefully you have at least a basic understanding of how mortgage loans are created.  If I confused you don’t worry.  The really important stuff is coming up.
Mortgage banks have two ways to work with a borrower.  There is “retail” and there is “broker wholesale”.
Retail is when you walk into your bank and sit at someone’s desk and ask for a loan.  The bank may call them “loan consultants” or “mortgage professionals”… whatever. This is what you are doing if you go to Wells Fargo or B of A or Chase etc. You get only the programs that particular bank has to offer.
If you use a mortgage broker then the broker takes your loan application and shops around for the best “wholesale”pricing.  The mortgage broker has access with many different lenders with many different programs to choose from.
OK so what’s the difference? Well…I’m obviously biased towards brokers but I’ll try to be fair in my explanation.
RETAIL PRICING WITH A BANK When you walk into say…Chase or Wells Fargo and you meet a “loan consultant”.  He or she will show you their line of products.  To keep it simple let’s just stick with 30 year fixed loans for now.
So you get a rate quote and you usually have 2 choices.  You can get a no point loan which means you are not paying any points but will pay a higher interest rate, or you can pay points and get a lower rate.
Remember… the lower the rate the higher the upfront cost.  The bank has to sell that loan and they will not get as high a price from an investor for a lower interest rate.  So they basically have to charge you the difference.
WHOLESALE PRICING WITH A BROKER If you go to a broker he or she will check their wholesale pricing.  Wholesale pricing on loans is like any other commodity.  It’s cheaper than retail pricing.  So a broker picks an interest rate at their wholesale pricing from one of the lenders they deal with.  If you want to pay points then he/she can choose a lower interest rate.  If you don’t want to pay points then he/she will choose a slightly higher rate.
OK…so how does this work?
The table below will show a typical wholesale price sheet and will you how ALL loans are priced on the wholesale end.
Lock period
Rate 12 day 30 day 45 day
3.500                     0.250                     0.500                   0.625
3.625                     -0.125                    0.000                   -0.250
3.875                     -0.750                    -0.500                    -0.375
4.000                     -1.375                    -1.000                    -0.875
4.125                     -1.875                    -1.625                    -1.500
4.250                     -2.250                    -1.875                    -1.750
Take a look at the 3.50% rate at a lock period of 30 days.  The table tells us that the broker’s wholesale cost is one half (.500) of a point for that rate.
If you move down to 4.125% rate and the same lock period of 30 days you will see that the broker is now getting a “yield spread premium” of 1.625 points. That little minus sign means the lender is paying the broker for that rate.
That means the lender is going to pay the broker 1.625% of the loan amount for that rate.
You will also see that the higher the interest rate, the higher the yield spread premium.
A broker is going to usually try to make at least 1 point on a loan.  Sometimes more and sometimes less depending on the size of the loan and the complexity of the loan.
If we have a $400,000 loan and use the chart above for a 3.5% rate then you would have to pay .500 points to the lender and 1.0 points to the broker (if the broker was charging 1 point). (.500 + 1.0=1.50 points)  That’s $6,000 just in points for that 3.5% rate.  But if you didn’t want to pay any points and the broker needs to make a point then he would just slide down to 4.0% on a 30 day lock. You see there that the lender is paying the yield spread premium of 1.0 points.
So you should see that the higher the interest rate the lower the closing costs and the lower the rate the higher the cost.(See Part 1 of this Series.) Make sense?  ALL loans are priced this way.
At a retail bank such as Wells Fargo you will never see this matrix.  But it will be there in the background.
Some brokers will show this and some will not.  The lenders consider this confidential information so it depends on the broker. These sheets change daily and sometimes several times per day.  Depending on what is happening in the financial markets.
WATCH FOR PART 3  TO LEARN ABOUT CLOSING COSTS
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Ok, so you want a loan either for a purchase or a refinance.  Do you just pop into your bank and apply?  Should you use a mortgage broker?  Go online?
I’m going to explain as clearly as I can how ALL loans are priced.  First let’s cover some basic mortgage concepts.  I’m going to try to keep this very simple.
A “conforming” loan is a loan amount of $417K or less.  In some counties like Santa Clara County the conforming loan limit is as high as $625K.  If the loan amount is higher than $625K then it is considered a “jumbo” loan.  I’m going to talk mainly about conforming loans but the same concepts apply to jumbo loans as well.
Interest rates on loans are priced based on “points”. A point is equal to 1% of the loan amount. So, one point on a $100,000 loan is equal to $1,000. On a $200,000 loan it is $2,000 etc.
Loans are “originated” by “mortgage banks”.  A mortgage bank is a lender that makes the loan and then sells it on what is called the “secondary market”.  Generally they do not have depositors or allow customers to have an account, but sometimes the mortgage bank is a large bank like Wells Fargo or BofA.
A mortgage bank strikes a deal with an investor-usually another large financial institution.  The bank will make the loan to the borrower. Afterwards the investor will then purchase that loan for a set price. This “price” is based on percentage points of the loan amount.  Remember that term “points”? The investor may keep the loan on its books or it may sell it again.  This is a very basic description of the “secondary market”.
The higher the interest rate the more the investor will pay for the loan since it gives a higher return.  So an investor will pay a mortgage bank more for a 4.5% 30 year loan than it will for a 4.0% 30 year loan.
These negotiated prices between the investor and the mortgage bank will vary depending on the financial markets and may vary depending on the size of the mortgage bank and the amount of money being committed by the investor.
Pretty much all conforming loans are priced based on what the US Treasury bonds are doing.  The bonds that have the most impact on mortgage rates are the 10 year bond and the 30 year bond. Basically ALL lenders respond to what the bond market dictates.
Typically, when the yield of the bond goes down, so do interest rates.  (The ‘yield’ is the return on investment.) There are always exceptions but this is basically what happens.  I’m not going to get into the details of secondary markets and mortgage backed securities. It’s not something you need to know in order to get the best rate at the best price.
KEY CONCEPTS TO KEEP IN MIND:
Just remember that loans are made, then bought and sold by investors.
Investors pay more for loans with higher interest rates.
Mortgage interest rates are affected by the US Treasury bond markets.
The lower the yield,  the lower the interest rates.
ALL lenders play by the same rules.
Part 2 will help you learn the difference between ‘retail’ and ‘wholesale’ pricing, why choose a broker or a bank, and how do rate sheets work!  Stay tuned!
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Now that we are starting to see the rain again it is time to perform a few simple but important maintanance tasks on your home.
Get a gas appliance safety inspection from PG&E.  This is a free service they provide. The sooner you schedule it the sooner they will come out.  Don’t wait until the weather gets cold.  Once that happens PG&E will get backed up and it may take a few weeks before they can get to you. You can schedule the inspection by going to www.PGE.com and click on “My Account” or you can call 1-800 PGE-5000
Change your furnace filter.  When you go to the store get yourself at least 2 filters and change them at least every 2-3 months during the Fall and Winter months. Filters are graded by an efficiency rating number.  The higher the number, the better the filter quality.  So make sure to purchase at least a #7 rated filter. For ”how to” instructions just go to You Tube.  There are lots of good videos.
Have your heating ducts cleaned by a professional. It’s amazing how so many people have never had those ducts cleaned.  Imagine what kind of stuff could be living in the ducts after 5, 10 or even 20 years.  This can help rid you of unwanted allergens and also detect any problems such as leaks or damage from rodents etc. Professionals recommend cleaning every 5 to 7 years.  There is the “Negative Pressure” method which is basically a huge vacuum cleaner. There is also the brush/vacuum system where a brush is fed into the ducts followed closely behind by a vacuum.
CLEAN those gutters! Water is one of the most damaging forces to a home.  Clogged and slow draining gutters can saturate the wooden roof parts and cause dry rot, fungus and attract termites.  This can cost you a lot of money later.
Make sure water from the gutter down spouts is directed away from your home. There are inexpensive ways to do this such as splash blocks and flexible piping.  Water that drains into the ground near the foundation can cause excessive settling of the house.
If you need personal help figuring out what I talked about above, just call me.  I’m very happy to talk with you about your home.  These things are simple to do and not expensive but can save you thousands of dollars in later repairs.
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No point?  No fees?  No points No fee????? What does it really mean for MY loan?
Once again mortgage rates are at historical lows.  The financial markets are experiencing a lot of volatility right now and rates are expected to stay in their current range for the near future.
So the question I am always asked is: Should I go with a no point and no fee loan? Or should I go with a “No point” loan or should I just buy the rate down as much as possible?
There is no single answer that fits for everyone, but there are some basic concepts and definitions you should know so you can make a smart decision.
Concept #1: There is NO free lunch in banking.  Even if you choose a no fee option you are STILL paying money in the form of higher interest payments.  They are just spread out over time.  This may not be the best option for you if you plan on owning more than 5 years. Those additional interest payments add up and over time may end up being more than the upfront fees paid to secure a lower rate.
Concept #2: Time IS money.  This can be part of #1 above.  The longer you hold the money the more interest you pay. So if you constantly refinance chasing lower rates you could still end up paying a LOT more money in the long run. Every time you obtain a new loan it is amortized over the loan period.  So if you have a 30 year loan for 3 years and refinance it then you now have to start over on the 30 year amortization.  This adds more to your overall interest paid.
“Fees” include some or all of the following:  Lender fees including any broker fees, loan origination fees, title insurance and escrow fees, appraisal fees, credit report fees, recording fees, notary and document preparation fees. Lender fees, broker fees and loan origination fees are usually expressed in “points”.  A point is equal to 1% of the total loan amount.
So, which is right for you?  The first thing is to find out what the loan is going to cost you in the short term and in the long run.  There are plenty of free calculators available on line. (See the links below) Once you know these numbers then see how that fits into your plan.  If you are going to stay in the property for more than 5 years it may be cheaper in the long run to pay fees but get a lower interest rate.
Give us a call to find out which is best for you. There is no obligation and no pressure.  Just straight answers.
CHECK OUT OUR NEXT SERIES OF BLOGS TO FIND OUT HOW LOANS ARE PRICED BEHIND THE SCENES SO YOU CAN SAVE AND GET THE LOWEST RATE FOR YOUR MONEY.
www.dinkytown.net/java/mortgagerefinance.html
www.dinkytown.net/java/shouldirefi.html
www.dinkytown.net/java/mortgagepoints.html