Home Buyers Are In Charge: 4 Strategies

Buyers in charge: 4 strategies
The good news: Rocky real estate markets mean home shoppers finally have the upper hand.
Money Magazine
By George Mannes, Money Magazine senior writer
April 12 2007: 8:54 AM EDT

NEW YORK (Money Magazine) -- You'll find no better experts on the real estate boom and bust than Joyce and Louis Bertulfo.

Between 2004 and 2006 the couple successfully navigated a hot San Jose housing market, buying and selling two homes for a profit.

By the time they relocated to Tampa with their three children this January, however, the winds had shifted. The pace of home sales in the area had fallen by 40 percent from a year earlier. Prices were already softening.

So Joyce, 32, and Louis, 33, spent weeks looking for just what they wanted (four bedrooms, three full baths and a three-car garage), adopting a decidedly more philosophical mind-set.

"We said, 'If this one doesn't work out, we'll find another house,'" says Joyce. When they saw the ideal home, they bargained hard. The house they finally bought, originally listed at $539,000, had been marked down to $479,000.

Still, the couple offered $410,000, 14 percent below the asking price. The sellers countered with $465,000. A few rounds later they met at $430,000.

"Now that we've settled in, we're just ecstatic," says Joyce.

Welcome to real estate's new reality, where prices are down, foreclosures are up, experts are jittery, and a lot of for sale signs are getting weather-beaten.

That may be bad news for homeowners, sellers and investors. Buyers on the other hand, have a rare point of advantage.

"We don't often have a buyer's market like we have now," says Ned Marrs, a longtime broker in Colorado Springs. "Every decade it happens for a year if we're lucky. Then it's a seller's market for another nine years."

Gene Trinks, 35, moved to the San Francisco Bay area in 2002, but the engineer couldn't bring himself to buy a house in that frenzied atmosphere. "People were just overbidding wildly," he says. "There was a danger of paying too much without regard for what a house is really worth."

In January, though, he and his girlfriend closed on a four-bedroom home in Oakland, paying $880,000 for a house originally listed at $979,000.

"We were the only offer, we bid below ask, and they accepted without any counters, which is a great position to be in as a buyer," says Trinks. "We could be a little bit more in control of the process."

As a buyer, you now have plenty of choice, as well as the upper hand in negotiations. You also still have the benefit of low interest rates. If you're tempted to upgrade yet worry that your home isn't worth what it was six months ago, keep in mind that the home you want to buy is worth less too.

Moreover, if prices have fallen at the same rate on all homes in your market, the discount, measured in dollars, will be bigger for a more expensive house.

Say you're in a $200,000 home and want to move up to a $500,000 home. Your cost of upgrading will be $300,000.

But if prices drop 10 percent, your current house is worth $180,000; the one you've got your eye on is worth $450,000. Cost to upgrade: $270,000.

Last fall Vinse and Kathryn Sullivan, 29 and 28, of Charleston, S.C., decided they wanted to move from their 2,000 square-foot home in the western part of the city to a larger one on the north side, putting them closer to Vinse's pharmaceutical-sales territory and giving them more space for their son Carter, 2, and daughter Kate, now nine months old. They listed their home, which they bought in 2003 for $215,000, for $358,000, and they expect to spend as much as $500,000 for a four-bedroom house with a home office.

Once they sell, the Sullivans are confident they can trade up. "I know I can pay the bills on a bigger house," says Vinse, "and at the end of the day, that's all that matters."

Vinse has that right. You can't be sure that a house you buy today won't lose more value before prices recover, but if you can pay well below what sellers were getting last year, you've already built in a comfortable cushion against price drops.

For extra protection, buy only if you can make a 10 percent to 20 percent down payment and heed the lessons from the current mortgage madness: Adjustable rates do adjust, and when you're paying interest-only, eventually you will have to pay the principal as well.

Can't afford to buy the home you want at today's fixed rates? Keep renting or look at cheaper homes. Once you jump into the market, follow these tips to make the most of your powerful position.

Free yourself to act fast Buying may be easy, but selling isn't, so you have to guard against getting stuck with two mortgages. The best way to avoid that trap is simply to sell first.

That's what Veronica and Maxwell Green, both 28, did last year after the birth of their baby. Realizing they were outgrowing their two-bedroom Tampa condo, they were desperate to find a bigger place. But they held off on house hunting until they had a sales contract on their condo.

"We didn't look. We didn't research. We didn't do anything," says Veronica. "We didn't want to find something we loved and not be able to sell our house."

Freed of their condo, they bid $275,000 for a four-bedroom home listed for $289,900. Two weeks later the seller took the offer.

Another option is to include a contingency clause in your purchase contract, which lets you exit the deal on your new home if you can't sell your old one. Shortly after the Sullivans put their home up for sale, they signed a contract to buy a newly built one but added a clause that they could bail on the deal if their home didn't sell by the time the new house was finished.

It didn't, but their only loss was $800 they paid for upgrades to the new house, which the developer subsequently sold. "Lesson learned," says Vinse. "I'm not losing sleep over it."

Know how strong you are The longer a house has been for sale, the more powerful your position as a bidder. "Time on market is a good indication that someone is likely to be really hungry," says Gary Eldred, author of "The 106 Common Mistakes Homebuyers Make (and How to Avoid Them)."

If you're browsing a public multiple-listing service, don't trust the date of that listing; sellers can game the system by briefly taking a home off the market, then re-listing it.

Ask your broker to look at the privileged MLS data, which details a home's full listing history, complete with time on market and any asking-price changes.

Pick allies carefully You can often hire an agent who works exclusively on your behalf. Typically, these buyer's brokers earn a 3% commission, usually paid by the seller (though if you buy from a seller using a discount broker, you may have to make up the difference).

Keep in mind that buyer's brokers, who theoretically work just for you, may have a financial incentive to push certain homes. In some markets builders and even individual sellers are offering higher-than-usual commissions to buyer's brokers, which can tempt your pro to skimp on negotiations or steer you to more costly houses.

Hire a broker who will work for a set fee or will sign a contract stipulating that his or her cut will be the same for any home you buy.

Wield your power If you see a house you like, chances are you can find another one that is similar. Exploit that advantage. Make demands you never would have dared ask for in crazier times, such as requiring the seller to make repairs or the builder to throw in free upgrades.

Sellers may be trying to make what their neighbors made two years ago, but they're too late, says broker Marrs.

Don't be afraid to start with an offer that's 15 percent below asking price.

In February, Joyce and Louis Bertulfo passed on a house over a $5,000 difference between their offer and the seller's. Where is it now? Still on the market, with the advertised asking price cut from $475,000 to $440,000, just $5,000 above their best offer.

Joyce's expert advice to sellers: "Buyers are scarce these days, so when you find some, don't let them go - especially over $5,000."

Here's how you can lower gasoline prices

Here's how you can lower gasoline prices
With just two, simple, no-cost steps, drivers could send prices tumbling
COMMENTARY
By John W. Schoen
Senior Producer
Updated: 9:46 a.m. PT May 16, 2007

Our column last week — on the folly of this week’s e-mail-hyped gasoline ‘boycott’ — drew a ton of mail. Many readers took issue with our view that not buying gas on Wednesday — and just topping off on Tuesday or Thursday — will have zero impact on prices.

Some were critical of our willingness to punch holes in proposed solutions without offering any of our own. (We suggest they read last week’s column all the way through.) Since many people missed the real solution, we’re going to give it one more shot.

The fact that the e-mail has generated such a "buzz" tells you how frustrated we are with Big Oil Companies, the Oil War in Iraq, the Bush Oil Administration in Washington, and the enemies in the Middle East to whom we give our hard-earned money. Don't be a Dream Killer!
-- Mark C., address withheld

So your advice is to sit back and take it like a man? I don't need a math quiz to realize that the doubling of gas is reducing my spendable income significantly. Just work harder and longer to make up the difference?
-- Ron K. Seattle,

No, working harder won’t cut gasoline prices. The problem with the proposed gas ‘boycott’ is that since it won’t cut consumption, it will just shift sales from one day to the next.

That’s also what’s wrong with an alternative proposal offered by many readers: singling out one brand of gasoline to “concentrate” the impact. Unfortunately, when you concentrate zero impact, you still end up with zero impact.

Big Oil companies like ExxonMobil and Chevron make very little of their money from retail gasoline sales. Most gasoline is sold at convenience stores, and even those with Big Oil company logos are mostly independently owned by people who make just a few cents on every gallon. Many of these store owners have invested their life savings to set up shop. Those are the people you’ll hurt if you target a single brand; refiners will simply sell the gasoline to other outlets.

But you can do something about gasoline prices: You can use less gas. As we’ll see, a relatively small reduction in demand can have a big impact on prices. So if you’re serious about doing something to lower the price at the pump, try these Two Simple Steps that won’t cost you a dime:

Simple Step No. 1: Stop driving like a jerk
You know who you are: You punch the accelerator the minute the light changes and cruise at top speed until the last possible moment before hitting the brakes hard at the stop sign. Just because you can go from 0 to 60 mph in seven seconds doesn’t mean you have to (unless you’re trying to merge onto a busy highway). Aside from annoying other drivers on the road, you’re wasting a lot of gasoline.

How much is a lot? According to fueleconomy.gov, you can save from 5 percent to 33 percent —depending on just how manic you are behind the wheel. The folks at Edmunds.com, a car buying Web site, tested the idea, running a 50-mile course with four different driving styles from “aggressive” to “moderate.” Average fuel savings: 31 percent.

Simple Step No. 2: Slow down
Look, we’re not talking about crawling along in the right lane backing up traffic. We’re talking about staying within the posted speed limit — or even a little over it. There’s no magic number for optimal mileage; it varies from one car to the next. But if your car has a tachometer, try keeping it as low as possible in the highest gear. That’s where you get the best mileage.

According to fueleconomy.gov, your gas mileage drops off sharply once you blow past 60 mph. By cutting your speed you can save 7 percent to 23 percent, depending on how heavy-footed your usual driving style.

Worried that you won’t get everything done in your busy life if you ease off on the gas? Take a look at how much time it will cost you: On a 30-mile trip, slowing down from 70 to 55 mph will get you there about 7 minutes later. Spend that extra time daydreaming about how you’re going to spend all the money you're saving on gasoline.

Changing your air filter can also make a difference — if it’s clogged up. So can keeping your tires properly inflated and your car tuned up. Taking all that junk out of your trunk wouldn’t hurt either. But the two biggest gas-mileage improvements won’t cost a dime — or even change how many miles you drive.

Not everyone drives like a jerk and whizzes by at 90 mph in the left lane. It turns out that we wouldn’t have to cut consumption by 40 percent or 30 percent or even 20 percent to send pump prices lower. Try 7 percent.

That’s how much demand fell off last winter. After peaking at 9.7 million barrels in the week of Aug. 4, 2006, U.S. gasoline demand hit a low of 9.0 million barrels during the week of Jan. 19, 2007 — a difference of 7 percent. During the same period, the average U.S. price peaked at $3.083 in August and fell to $2.213 by the end of January — a drop of 28 percent.

Even a 1 percent drop would make a difference, according to Tom Kloza, president of Oil Price Information Service.

One big reason gasoline prices run up is that buyers and sellers bid up prices when supplies get close to demand. Right now, though there's enough gasoline still flowing through the system to meet demand, refineries are running at near capacity and stockpiles are far below normal for this time of year. The market is very “tight.”

When that happens, it doesn’t take much of a supply cushion to have a big impact on prices. Kloza likens this to the difference between a pot of water that’s about to boil and one that boils over — all it takes is that one degree of heat to make the difference.

“Right now, demand is running about 1 percent above last year,” he wrote recently in his blog. “Most professional traders would concur that if the market delivers 1 percent of ‘demand destruction’ in early summer, much of the froth in prices will decompose.”

A 1 percent drop in demand is tiny: Kloza figures if 100 million drivers used one less gallon a month, or 4.3 ounces a day, that would have an impact. Based on average 20 miles per gallon, he figures that would mean shortening your daily driving routine by 3,522 feet a day.

Or you could stop driving like a jerk and slow down. Either way, if you really want to do something about the price of gasoline, it’s in your hands.

© 2007 MSNBC Interactive

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Credit Repair

How can I fix my credit score?
Some simple steps you can take - without paying for "credit repair"
COMMENTARY
By John W. Schoen
Senior Producer
Updated: 12:50 p.m. PT May 28, 2007

Maybe it's the rising tide of spam offering "credit repair" but a number of readers have been asking lately how they can increase their credit scores. Before you go pay someone to give you advice you can get for free, check out these simple steps you can take to build better credit.

How would a person go about repairing their credit score when it is low?
— M.P., Bryan, Tex.

I'm trying to raise my credit score. Is it better to pay off credit cards and close them or leave them open with credit available showing?
— Tea C. Newark, Del.

Unfortunately, it's a lot easier to lower your score than it is it raise it.

But there are a number of things you can do to try to raise your so-called FICO score, named for Fair Isaac and Co., the company that created this credit rating system now widely used by lenders of all stripes for a quick read on your creditworthiness.

While the system is widely used, it’s far from perfect. Good lenders use it as a starting point, and each one has their own ideas about how high your score should be. They may also base their decision on other information not contained in the score — like how long you’ve lived at your current address or held your current job.

In general, you’ll pay higher interest rates the lower your score. In theory, the lower your score, the higher the risk to the lender that you won't pay the loan back. FICO scores range from 300 to 850; the median (average) score is 723. To get the best rates, you’ll usually have to have a score of at least low- to mid-700s.

Your credit score is compiled from information collected by the three major consumer credit agencies and each one calculates scores a little differently. So you probably have slightly different scores with each agency.

So the first step in raising your score is to make sure the information used to calculate it is correct and up-to-date. For that, you’ll need to get copies from each credit agency; you can get one free every year by going to AnnualCreditReport.com — a Web site set up under a federal law requiring the credit agencies who collect all this information on you to give you access to a free copy of your reports once a year. You’ll see a number of other pitches out there for "free" reports; when you get to the fine print, you have to supply a credit card, sign up for a "credit monitoring" service and then cancel after they've charged your account.

Once you get your report, look it over carefully. Are there records of past due payments you can show you made on time? Are there accounts still listed that have been closed? Worse, is someone else’s account or address listed under your name? One reason to check your report if to see if identity thieves have been opening accounts in your name. If you find any mistakes, write to the reporting agency and ask to have the information corrected. You should get a response within a few weeks; if not, give them a call.

OK, so now you know what your report says about you. Unfortunately, while the law gives you free access to your credit reports, you’ll have to pay to get your FICO score. Some lenders will provide your score when you apply for a loan. But if you want to know beforehand, you have to go to MyFico.com and pay $15.95. (You can sign up for a free 30-day trial once.)

While the exact formula for calculating your score is not public, the basics are available on the Fair Isaac & Co. Web site, along with guidance on how to raise your score. And while there are companies out there selling “credit repair,” you don’t need to pay to have someone else raise your score for you. Here are the types of information the formula takes into account, how much weight it gives each category, and what you can do on your own to raise your score:

Payment history: 35 percent
The single most important thing you can do is the simplest: Pay your bills on time. More than a third if your FICO score is based on your payment history: how often you’re late paying credit cards, car loans, mortgages and student loans. The later you are, the more you hurt your score. And closing an account with late payments after you’ve paid it off doesn’t get rid of the damage to your score any faster than leaving it open.

How much you owe: 30 percent
The next biggest chunk of the score is based on how much you owe. The simplest solution: Pay down your credit cards and other installment loans. Moving money from one card to another won’t help: you have to reduce the overall balance.

Credit issuers also look at how much of your borrowing power you’re using. Even though you’re keeping up with monthly minimum payments, if you’re at your limit on one or more cards, you’re at greater risk of getting in over your head — which will likely be reflected in your score. On the other hand, if you can get your bank to raise your limit, the extra headroom on your account should help your score.

Length of credit history: 15 percent
This one is hard to speed up; lenders want to see a track record of timely payments. Even if you have had credit for along time, a lot of newer accounts will lower your score. That’s why closing old accounts may reduce your score: it may shortens the average length of your credit history.

If you’re just getting started, stick with one or two accounts and gradually add more. If you can get yourself added to an account of a relative with good credit, that may help. And if you have no credit history, you may want to start with a secured loan or credit card. By keeping money in a savings account with the same lender — and using it to back your loan — you’ll lower the risk to the lender, get a better rate and start building a good payment history.

New credit: 10 percent
Opening up a lot of accounts all at once can also hurt your score — even if you pay all your bills on time and don’t carry big balances.

You may also hurt your score if you’re constantly changing cards and chasing a lower rate. Your score can also take into account how many inquiries lenders make to credit agencies asking about your credit. Too many request for information may mean you’re embarking on a borrowing binge. On the other hand, Fair Isaac says it doesn’t count inquiries form lenders who want to pre-approve you — without your approval. And shopping among several lenders all at once – without opening more than one account — also shouldn’t have an impact, according to the company’s Web site.

Types of credit: 10 percent
Most people have different kids of credit — credit cards, mortgage, car loan, student loan, etc. Open-ended credit — like a credit card is called revolving credit because it doesn’t have a fixed number of payments. A car loan or mortgage, which does, is known as an installment loan because when you finish the payments the loan is closed. Lenders want to see how you handle both kinds of credit. But opening more accounts won’t necessarily help offset a spotty track record of payments on existing loans.

I do not believe in credit cards and every online site I have gone to asks for credit card info. I don't have a credit card, don't want a credit card. So how can I get my credit scores for free?
— Connie S., Citrus Springs, Fl.

If you’ve never borrowed money from a bank or other commercial lender, you may not have a credit history. Which means you won’t need to check your score because you won’t have one.

But credit agencies keep track of more than just credit cards. You can still check to see if you have a credit history — for free — without a credit card. The sites that ask for credit card numbers are trying to trade on confusion about the process by signing you up for “credit monitoring” services for as much as $90 a year. You don’t need that.

The only thing you’ll need to provide AnnualCreditReport.com is your name, current address, Social Security number and date of birth. You’ll then be forwarded to the credit agencies Web sites one by one, where you can view your report online and print it out.

© 2007 MSNBC Interactive

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Practical Financial Tips 2nd Qtr 2007

Subprime Changes the Lending Landscape

The effects of the subprime crisis are becoming clearer with each passing day. According to the Wall Street Journal, tightening guidelines and fewer available products are creating challenges for borrowers with credit issues. If you're thinking about taking on or refinancing a mortgage, your credit score will be crucial when it comes to obtaining the best loan program available.

For homeowners with ARMs that are scheduled to reset anytime within the next 2 to 24 months, the challenges are even greater. With higher credit standards and tightening guidelines, you may not even qualify for a refinance if you wait too long. At this stage, a fixed-rate product may be your best chance at creating real financial stability before your loan resets and your payment adjusts. Even if your mortgage has a pre-payment penalty, it may be less expensive to absorb the penalty now and refinance into a more stable mortgage.

In the event that you now owe more on your home than it's currently worth, or if you don't have enough equity to sell your home and cover expenses, help could still be available – but you have to act now. Meet with a mortgage professional right away and see what options you have.



First-Class Mail is Forever Altered

The US Postal Service has introduced the "forever" stamp. This special stamp, good for any first-class letter weighing up to one ounce, is valid forever, no matter how much postal rates increase. That means consumers can purchase these special stamps at today's rate and use them for years to come, even if postal prices double or triple. And, while there are definitely better places to invest your money in the long term, the forever stamp offers consumers protection against rate hikes and the annoyance of having to purchase one- and two-cent stamps whenever prices do increase.

In 1968, first-class stamps were six cents. Since then, the price has risen 14 times, including the May 2007 increase to 41 cents. This past December, a new law was passed linking postal rates to the consumer price index, which could cause rates to increase annually. The forever stamp, an idea adopted in Europe years ago, features the Liberty Bell, which hasn't appeared on a US stamp in over 30 years.



Where Your Tax Dollars Go

The US government expects to collect some $2.6 trillion in tax revenue this year! That's a 6% increase over last year, and a 13% jump since 2005. With the tax season behind us, did you ever wonder how your tax contributions are spent? Well, according to the government's 2008 budget, nearly 71% of this money is already slated for mandatory programs such as Social Security, Medicare, and interest toward the national debt. The military receives about 17% of the total budget, with another 1.3% funding homeland security. The remaining discretionary revenue not only funds highways, railroads, airports, etc., it also pays for federal agencies responsible for science, space exploration, medical research, education, environment, labor, law enforcement, etc. Finally, about 0.5% is spent on foreign aid.

Mandatory Spending (Billions) Discretionary Spending (Billions)
Social Security $612 Military $438
Medicare $405 Homeland Security $35
Medicaid $219 Other $484
Interest on debt $266
Other $340

If the estimated numbers don’t seem to add up, that’s because the government expects to fall short of its fiscal budget by almost 8% this year, adding $200 billion or so to an almost $9 trillion national debt.



FSBOs: Don't Go It Alone

Selling your home on your own is a commendable achievement – if you can actually pull it off. But did you know that nearly 70% of For Sale By Owners end up enlisting the help of a professional? Of course, a few years ago, the real estate market was booming and obtaining a quick sale at the desired price was a much easier task. However, in today's challenging post-subprime market, buyers have more leverage and more inventory from which to choose. Beyond sheer negotiating power, a real estate agent can provide sellers with a comparative market analysis, accurate statistics which show exactly how much homes in your neighborhood are selling for. They will also have access to more serious and qualified buyers. Remember, your home is the most valuable asset you have. Having a qualified professional in your corner could make all the difference.

Sean's Hobby

To see what I enjoy doing when I am not processing loans check out: http://www.TRPPhotography.com

Sub-Prime Meltdown!

The headlines are once again full of news from the mortgage and real estate front...and this time, the "Sub-Prime meltdown" is taking center stage. What exactly is going on, and what does it mean to you?

A "Sub-Prime" home loan is a loan where the client has some significant credit issues, or was otherwise unable to qualify for a standard, conventional loan. Due to the fact that these loans tend to be quite risky for the lender...they also bear higher interest rates to match, as well as often being adjustable rates that likely have recently hiked sky high, not to mention the steep prepayment penalties they generally carry.


These loans have been around for years—so why all the drama now?

Many Sub-Prime and other adjustable home loan rates have moved dramatically higher, due in part to the Federal Reserve Boards recent rate hike cycle. So as these rates are adjusting higher—and the payment right along with it—the homeowners are finding that they are unable to keep up with the dramatic increase in payment.

In the past, homeowners in this situation would simply throw the house on the market, realize enough of a profit to cover any prepayment penalties, and literally move on. But the soft real estate market isn't making this quite so easy any more—houses are not selling as quickly, and the home appreciation rates enjoyed in the past have moderated.

So the Sub-Prime homeowner is stuck—and many of these homes are falling into foreclosure, causing even more problems. As more and more loans are defaulting, mortgage lenders are forced to tighten up their lending standards across the board in response...making it tougher for a troubled homeowner to even refinance to get out of trouble. Many Sub-Prime lenders are feeling the pain, and in some cases, actually being forced to close their doors as they are hit with all the defaulted loans and foreclosed properties coming back home to roost.


How does this impact you?

In the short term, home loan rates are benefiting, as the stock market is taking a beating, causing money to flow into Bonds and Mortgage Backed Securities, which benefits home loan rates. But the longer term picture may spell higher interest rates ahead, as lenders have to absorb the cost of the loans that went belly-up, combined with the cost of increased compliance and accountability standards.

Now in many cases, the advice and loan strategy given to the client was perfectly appropriate for the client at the time they took out the loan…but the “perfect storm” of colliding economic events may have just worked against them. Yet unfortunately, many homeowners are paying a very steep price for what may have been poor advice and counsel given them at the time of their home purchase or refinance. Now more than ever before, it is clear that it pays to work with a true professional, especially when your home is on the line. If you've ever thought it's too expensive to work with a real professional...just wait until you work with an amateur. The price paid is clear—and in this case, it's a very painful one.


Because of these events, credit and lending standards are tightening across the board—so it's also a very wise idea to make sure your own credit score is as high as possible.

As you probably know, I regularly invest in my business to make sure I have the best tools and systems available to serve your needs. One of the programs that I have recently invested in is called the Credit Paradigm, which allows me to analyze your credit and give you a detailed report of the actions that can be taken to increase your credit score—all at no charge to you. I've already made the investment in this service on your behalf, because I want to ensure that my clients receive a level of service unlike what most would expect. We build relationships for the long run, not just to provide a "transaction"—so although you may not have a need for my home loan services at this time, I'd like you to take advantage of the investment I made and allow me to provide you with your own personalized instructions for improving your credit score—even if it's already great!

Just give me a call or email—I am always glad to hear from you on this matter, or any other questions you might have. By the way, I would be glad to extend the Credit Paradigm offer to anyone in your own network as well, so please feel free to refer your friends, family members or coworkers to take advantage of this valuable program.

Looking out for your best interest, your Trusted Advisor,

Sean La Rue

Don’t Pay Points, Please!

Don’t Pay Points, Please!

By Barry Habib
Contributing Editor to CNBC.com


So you’re in the market for a mortgage. After hearing about all the options and products, your head is probably spinning. If that weren’t enough, after you pick your mortgage you then have to decide whether to pay points, and how many.

What is a point anyway? Points are prepaid interest. One point equals one percent of the mortgage amount. One point on a $200,000 mortgage is $2,000.

People are often tempted to pay points because it will reduce their interest rate. And why not? If it saves you money in the long run, then it must be good. But in the real world, it usually doesn’t work out that way.

Let’s look at an example: You take on a $200,000 mortgage with a 30-year fixed-rate. Your lender offers 8 percent with no points, or 7.75 percent with one point, or 7.50 percent with two points, and so on.

Generally one point equals a quarter of a percentage point. It’s not a hard and fast rule, but it usually works out that way.
• The 8-percent/zero point option equates to a monthly mortgage payment of $1,467.
• The 7.75-percent/one point option equates to a $1,433 monthly payment, but with $2,000 paid up front.
So your choice is: save $2,000 now, or save $34 each month going forward.

It’s quite natural for you to make a few quick math calculations: $2,000 divided by $34 equals roughly 59. So 59 months (nearly five years) from now, the point you paid will pay for itself.

This is probably how some mortgage bankers will explain it to you. In turn, you might respond by saying: I plan to live here more than five years so the point makes sense. That can be a big mistake. Worse yet, it’s the kind of mistake that goes unnoticed. The simple calculation is flawed; that’s the whole problem. This is one case where simplicity isn’t good.

Here’s why. The question really boils down to how you can best use that $2,000. You can pay a point, you can invest it, you can pay down other debt, or you can put it toward a bigger down payment on your house. If you plow it into the down payment, now you have a mortgage balance of $198,000. This changes the original choice you were faced with above. Now the choice is:
• The 8-percent/zero point option gets a monthly mortgage payment of $1,452 with the lower starting balance.
• The 7.75-percent/one point option equates to a $1,433 monthly payment, but with $2,000 paid up front.
So now your choice is: put the $2,000 toward the down payment, or pay the point and save $19 each month going forward. Now when you do the quick math: you will divide $2,000 by $19 and come up with about 105 months or nearly nine years. This isn’t quite the no-brainer the previous decision was.

The average family changes residences about every nine years, according to the National Association of Realtors. And first-time homebuyers move frequently. The Mortgage Bankers Association says the typical homeowner refinances once in nine years. All this brings us to the average life of a mortgage, which is less than five years. So more often than not, borrowers will find themselves with a new mortgage before one point pays off.

The case for avoiding points is even more compelling when you refinance a mortgage. That’s because the tax treatment is less favorable. The points paid on a first mortgage when you purchase a home are fully deductible on your federal taxes that year. That’s one of the selling points of points to begin with. But on a refinance, you must amortize those points over the life of the loan. This leaves you with slim pickings at best, on the tax benefit side of the equation. On a refinancing with $3,000 of points paid, you get to deduct just $100 per year on a 30-year loan.

Lenders love to take your point money. But you should keep it and put it toward a sure thing, like cutting your loan size.

How Purchase Loans Are Made

How Purchase Loans Are Made:
A Step-By-Step Walkthrough

1. Pre-approval - Get pre-approved for a mortgage and know in advance exactly how much house you can afford. Completing this step will also increase your negotiating power since you'll be viewed as a "cash buyer".

2. Loan Search - Put yourself in the hands of an experienced mortgage professional, someone who will help you to determine which financing options best suit your needs today and in the future.

3. Loan Application - It's crucial to supply the lender with as much information as possible, as accurately as possible. All outstanding debts as well as assets and income should be included.

4. Documentation - Paperwork supporting the application must also be submitted. Information commonly sought includes pay stubs, two years' tax returns, and account statements verifying the source of the down payment, funds to close and reserves.

5. The Hunt - Begin shopping for a house. Once you find the right one, the terms of the sale will be negotiated, including the price and potentially the terms of the loan being sought.

6. Appraisal - Lenders require an appraisal on all home sales. By knowing the true value of the home, the borrower is protected from overpaying.

7. Title Search - This is the time when any liens against the property are discovered. A lien may have been placed on a property to ensure payment of outstanding debts by the owner. All liens must be cleared before a transaction can be completed.

8. Termite Inspection - While most purchase loans do not require a formal inspection for termite and water damage, some loans (especially government loans) allow for the possibility. If problems are found, repairs may be necessary.

9. Processor's Review - All pertinent information will be packaged by your mortgage professional and sent to the lending underwriter, including any explanations that may be needed, such as reasons for derogatory credit.

10. Underwriter's Review - Based on the information put together by the loan professional, the underwriter makes the final decision regarding whether a loan is approved.

11. Mortgage Insurance - Many lenders require private mortgage insurance when borrowers put down less than 20 percent on a loan.

12. Approval, Denial or Counter Offer - In order to approve a loan, the lender may ask the borrowers to put more money down to improve the debt-to-income ratio. The borrower may also need a bigger down payment if the property appraises for less than the purchase price.

13. Insurance - Lenders require fire and hazard insurance on the replacement value of the structure. Flood insurance will also be required if the property is located in a flood zone. In California, some lenders require earthquake insurance on condominiums.

14. Signing - During this step, final loan and escrow documents are signed.

15. Funding - At this point, the lender will send a wire or check for the amount of the loan to the title company.

16. Confirmation of Funding - The lender authorizes the disbursement of loan proceeds.

17. Closing - Documents transferring title will now be officially recorded by the County Recorder.

18. Congratulations, you are now a homeowner!

If you'd like to learn more, please give me a call. I'd be happy to speak with you!

Maximizing Your Vacation

Maximizing Your Vacation

Summer vacation is right around the corner. Our aim this month is to show you three vacation options, each with the flexibility to fit into different budgets and lifestyles. Ready for a well-deserved break? Then YOU Magazine is ready to help you maximize your vacation!

The Day Trip
For those on a budget or with less time on their hands, full or half-day trips make for great getaways. These short excursions are also family friendly, especially when younger children are involved.

Nearby beaches, parks, and light hiking trails are just a few examples of inexpensive half-day getaways that require little investment. Take the time now to jot down ideas for future getaways. This way when vacation time rolls around, you'll have a full list of short trips that can be scheduled or done on a whim. Pack a lunch, grab a few essentials, and you're out the door.

If you have a more distant destination in mind for your day trip, then our suggestion is not to leave anything to chance. Utilize www.mapquest.com for exact driving directions. If your destination has a website, log on to find out about the hours of operation and available amenities. Lastly, be sure to check out www.weather.com for current weather conditions.

If younger children are involved, don't forget to bring along a stroller. Having a stroller on hand gives them an immediate place to rest while not slowing down the day. The stroller is also a great place for children to nap and can even serve as a carrier for your belongings when your child's not using it.

If you are looking for ideas for either full or half-day trips, there are many resources at your disposal. One of the best places is the local Chamber of Commerce. Start by conducting a simple Google search with your city of choice, along with the words, "Chamber of Commerce." This will allow you to obtain the Chamber's website. Most sites have a "visitor's guide" which will provide an ample amount of ideas for day trips. The site should also list the COC's phone number and hours of operation.

The Long Weekend
Since the cost of a "long weekend" trip can range from inexpensive to pricey, this type of vacation especially benefits those with little time. The question is, where are you going to go?

When deciding on a destination for your long weekend, the possibilities within the US are endless. Your big decision is whether you want to fly or drive.

If you could do either, then here's what we suggest. Plot the driving distances between your departures and destinations and estimate the cost for gas. Don't forget to add in the cost of any meals you'll need to purchase while on the road. Now, start looking into the cost of plane tickets. Very quickly, you'll be able to see what makes more financial sense.

If you decide to drive, we suggest not only plotting out the driving directions, but figuring out where you'll buy gas as well. By logging on to www.gasbuddy.com, you can obtain daily listings of the least expensive gas stations in every city of the country. By knowing your car's MPG, you can literally choose where you'll fill your tank.

If you decide to fly, we suggest visiting www.travelzoo.com. Travelzoo's specialty is that it does the legwork for you by conducting ticket searches on every travel site. Not only does Travelzoo pull up a list of websites with the best fares, it also provides the same service for hotel rooms and rental cars.

One of the best ways to save money on weekend trips is to travel in the opposite direction of the crowds! For example, summer months are when the most people visit beach cities. As a result, the associated costs go through the roof. So plan a summertime trip to the mountains instead. Mountain biking, fishing, and hiking are just three of the available summer activities in mountain locations.

Extended Vacations
For the sake of this article, we consider "extended vacations" to be any trip lasting longer than 4 days.

Due to the extra preparation and money involved, we recommend utilizing a qualified travel agent whenever planning a trip of this nature. The service they provide is invaluable for two reasons. First are the discounts they can acquire from the various airlines and hotels. Second is the legwork they save you.

The key to a successful experience with a travel agent starts with finding the right one. When it comes to locating qualified professionals in any field, we always recommend word-of-mouth referrals from people you know and trust. Don't be surprised if your mortgage originator or real estate professional has several references for travel agents who fit the bill.

Once you decide on a travel agent, the first step is to be forthright about the vacation you want and the amount of money you're willing to spend. The sooner and more clearly you communicate these details, the better the agent will be able to do his or her job.

In return, good travel agents should be knowledgeable about their product. They should be able to answer (or find the answer) to any question you may have regarding your chosen destination. This knowledge also includes the condition of any hotels they book on your behalf.

If you are looking to cut the cost of an extended trip, try organizing a group vacation. Generally speaking, the bigger the group you bring to a travel agent, the better deal you will get. Another way to cut costs is to look for an all-inclusive land package such as those found throughout the Caribbean Islands. These resorts can offer great bargains as well as a variety of fun activities for their guests. Also, look into taking a cruise. Aside from being a good deal, cruises offer the opportunity to stop in many ports and visit multiple cities.

Whether you are planning a day trip, a long weekend, or an extended vacation, planning ahead ensures that you can relax and unwind when you arrive at your destination.

Good luck and bon voyage!

Cinco de Mayo A Celebration Without Borders

Cinco de Mayo
A Celebration Without Borders
By Kirk Leins

Cinco de Mayo - A Celebration Without Borders - By Kirk Leins

As we begin the month of May, it's a perfect time to explore a celebration that is rich in culture yet transcends nationality. May 5th, also known as Cinco de Mayo, is a day celebrated by Mexicans, Americans, and Mexican-Americans alike. Much of the celebration revolves around food, and I've got that part covered. The bigger question is – why are we all celebrating in the first place?

History of Cinco de Mayo
Many people believe that Cinco de Mayo is the day that recognizes Mexico's independence from Spain. To set the record straight, that conquest happened on September 15th, 1810. Cinco de Mayo, on the other hand, celebrates an event that took place over 50 years later.

On May 5, 1862, the Mexican cavalry, under the command of Texas-born General Zaragosa, defeated the French at the battle at Puebla, a city 100 miles east of Mexico City. The French army, having not suffered a defeat in nearly 50 years, landed in the port of Vera Cruz and headed toward the capital city with a specific mission.

Fearless of any opponent, the French sought to overthrow the capitol and gain control of Mexico, even bringing along a Hapsburg prince to oversee the would-be empire. The goal of France's leader, Emperor Napoleon III, was to gain proximity to the US in hopes of supplying the Confederate Army in their fight against the North. He had a vested interest in sustaining the division within America.

To America's benefit, the undersized Mexican cavalry used their knowledge of the terrain to defeat the powerful French army. This victory enabled the Northern States to build the greatest army in the world at that time. Fourteen months later, the North soundly defeated the Confederate Army in the battle at Gettysburg, thus ending the civil war. Union troops were subsequently rushed to the Texas/Mexican border to help expel the French from Mexico.

It's hard to tell how much influence Mexico's victory had on the North's overall success, but it's safe to say that it was the beginning of a friendship between Mexico and the United States. For this reason, Cinco de Mayo is celebrated in both countries. Truth be told, it's probably celebrated more on this side of the border. Nonetheless, it's a great occasion to honor freedom and friendship.

The Food
When it comes to Cinco de Mayo faire, the options are endless. Serving any type of Mexican food would obviously work, but I think we can do better. It's my belief that the proper way to honor a holiday celebrating the efforts of two countries is to feature food that represents each of them. So, instead of serving Mexican food to my guests, I will be offering… Mexican-American food.
If you're wondering about the difference between the two – the answer lies in their respective monikers. I consider "Mexican food" to be any dish developed and served in Mexico. Just like any other cuisine, the food served within Mexico differs, at least slightly, from the majority of the Mexican food served here in the States. Unless you are dining at someone's home, or in a restaurant that specializes in authentic, regional Mexican cuisine, you are probably being served something closer to Mexican-American food.

But here's where it gets a little tricky. Aside from less authentic versions of traditional Mexican dishes, Mexican-American food has a second meaning. To me, it would also include any dish indigenous to the United States developed by someone of Mexican heritage, utilizing the flavors of their homeland. One such style of cooking is what's known as Tex-Mex. Popularized by Mexican immigrants in Southern Texas, Tex-Mex cuisine is actually a perfect example of this second definition. I think it's also the perfect choice for your Cinco de Mayo menu.

Chili con Queso
Literally translated it means "chili with cheese", but for Texans it has an alternate connotation. Simply referred to as "queso", Chili con Queso is a melted cheese dip served at nearly every Mexican and Tex-Mex restaurant in the Southwest. More upscale versions of this Tex-Mex dish would include Queso Flameado (Cheese melted in the oven with chorizo sausage) and Queso Fundido (Cheese melted in a typical fondue style).

In most Texas households, a very quick version of Chili con Queso is made by combining Velveeta with a can of Ro-Tel brand tomatoes and melting them together in the microwave. The version you are about to receive is slightly more involved but absolutely delicious and relatively easy. It makes for an awesome appetizer to kick off your Tex-Mex feast.

Restaurant-Style Chili Con Queso (Serves 4)

* 1 C extra-sharp cheddar cheese, grated
* 1/2 C Velveeta, cubed
* 1/2 C heavy cream
* 1/2 of a small onion, finely minced
* 1 medium-sized tomato, seeded and chopped small
* 1 jalapeno, seeded and chopped small
* Good-quality tortilla chips

In a double boiler over medium heat, combine Velveeta and cheddar cheese until melted. Add cream and stir until you achieve a smooth consistency. Stir in onion, tomato, and chili. Transfer the mixture to a small bowl and serve immediately along with tortilla chips.

For a larger group, double the recipe and serve in a heated fondue pot to ensure your queso stays warm.

Fajitas
Many Tex-Mex restaurants claim to be the originators of the dish known as Fajitas. In my estimation, it's more likely that Mexican-American butchers or ranch hands are responsible for fajitas. Here's why.

Although fajitas now include both chicken and fish, authentic versions of the dish utilize only beef. The beef used for fajitas is what's known as skirt steak. For those who may be unfamiliar, the skirt is a long, narrow piece of meat that wraps around the cow's stomach and acts as a diaphragm.

My guess is that butchers and cattle owners of days gone by had a hard time marketing "cow diaphragm", especially since it was a fairly tough piece of meat back then. Typically, these texturally inferior yet tasty cuts were saved by the butchers for their own consumption or given to ranch hands as a form of payment.

Another reason for my theory is that in Spanish, faja is a belt or a girdle. I believe that only someone highly familiar with the anatomy of the cow would use that word in its diminutive – fajitas, or little belts.

One final piece of evidence is that butchers and/or ranch hands marinated the meat in large amounts of citrus juice for several hours. The acidity caused the meat to break down and, in turn, soften up. The meat was cooked on grills over mesquite wood, resulting in a smoky-citrus taste. Thin strips of the meat were then piled into tortillas, along with sautéed onions and bell peppers, and topped off with a dollop of guacamole. That's my theory…and I'm sticking to it.

If you've never tried skirt steak, it has several upsides. For starters, it's fairly inexpensive, especially when compared to more traditional cuts of steak. Another plus is that modern cattle-raising techniques have yielded much better skirt. Now it's not only moist and tender, but quite flavorful as well. Lastly, because of its long, narrow shape, a piece of skirt can be portioned off into a variety of sizes, making it family-friendly and perfect for the barbecue.

Beef Fajitas With Guacamole (Serves 4)

* 2 lbs. high-quality skirt steak, cut into 4 equally-sized pieces
* 12 flour tortillas (6 inches in diameter), warmed
* Lime wedges

For The Marinade:

* 1/2 C freshly-squeezed lime juice
* 1/4 C vegetable oil
* 1 clove garlic, minced
* 1 tsp Worcestershire sauce
* 1/4 tsp liquid smoke
* Half of a small onion, thinly sliced
* Kosher salt and freshly ground black pepper

For The Vegetables:

* 2 small onions, cut into 1/2-inch wide slices
* 1 green bell pepper, seeded and cut into 1/2-inch wide slices
* 1 red bell pepper, seeded and cut into 1/2-inch wide slices
* 1 tomato, cored and cut into 8 wedges
* 2 Tbsp. vegetable oil
* Kosher salt and freshly ground black pepper

For The Guacamole:

* 2-3 medium/large-sized, ripe Haas avocados
* 3 Tbsp freshly-squeezed lime juice
* 1 clove garlic, finely minced or crushed in a garlic press
* Kosher salt and freshly-ground black pepper

In a bowl, combine all the marinade ingredients except for the onions. Place the steaks, along with the onions, inside a large freezer bag. Add marinade and close the bag. Refrigerate for 4 to 8 hours, turning the bag occasionally.

Meanwhile, remove seeds and skins from avocados, placing the avocado meat in a bowl. Add lime juice, garlic, and season with salt and pepper. Using a fork, combine ingredients by mashing avocado. Be careful to not over-mash as good guacamole should have a chunky consistency. Taste and adjust seasonings if necessary. Place a piece of plastic wrap directly on top of guacamole. Using an additional piece of plastic wrap, tightly cover the top of the bowl and refrigerate.

Remove skirt steak from refrigerator. Drain off excess marinade, and pat the meat dry with paper towels. Allow meat to come close to room temperature.

Light your grill or barbecue, and allow it to become quite hot. Grill steaks over a medium-high flame for 31/2 - 4 minutes per side, or until charred on the outside and medium rare on the inside. Remove steaks to a plate and head indoors.

In a large skillet, heat 2 Tbsp of vegetable oil until quite hot. Add onions and peppers, and season liberally with salt and pepper. Sauté vegetables for 3 minutes or until slightly charred but still crunchy.

Slice the steaks across their grain into pieces 1/2-inch thick. Add meat slices, along with their juices, to the vegetables and sauté for an additional 2 minutes. Remove the fajitas to a plate and garnish with tomato and lime wedges. Serve along with warmed tortillas and guacamole.

You now have the perfect menu for any Cinco de Mayo celebration. If you're looking for a beverage to wash it all down with, I would suggest making a pitcher of your favorite margaritas. If you're looking for something non-alcoholic, pick up a bottle of horchata (sweetened rice milk located in the milk case of most supermarkets, as well as any Latin market). Serve the horchata in large glasses filled with crushed ice and garnish with ground cinnamon. Have a wonderful and safe Cinco de Mayo!

Kirk Leins has been cooking his entire life. No stranger to professional kitchens, he currently devotes most of his time to cooking instruction, food writing, and producing television. Kirk also provides his services as a personal chef in and around the Los Angeles area. He has made several TV appearances on both the national and local level, and is the Executive Chef for YOU Magazine. His free newsletter, The Everyday Gourmet, is available by contacting Kirk at EGcuisine@gmail.com.

Today's Cell Phones

Today's Cell Phones - Going Beyond the Everyday Phone Call

It wasn't long ago when cell phones were the same size as old rotary phones. Big and bulky, their features included both a large antenna and a coiled telephone cord that connected the handset to a clunky base. But times have changed. Today's cell phones are a fraction of their old size, and they now support a variety of other functions, ranging from the practical to the purely fun.

With so many options to choose from, however, it's easy to become overwhelmed. Thankfully, we've done the research for you! All that remains is for you to choose which cell phone best fits into your life.

Getting Started
It's important to keep in mind that the primary job of a cell phone is to enable you to make phone calls. It sounds obvious, but with the myriad of choices for additional features, it's easy to get caught up in being hip, rather than focusing on what's practical. At YOU Magazine, we believe that whatever cell phone you choose, the first consideration should be how well it functions as a phone.

It's also important to note that most quality cell phones have only one or two additional features worth writing home about. It is very rare that you will find a phone that does everything well. While some phones may carry more features than others, it does not mean that all of them will work to your liking, or suit your needs. The lesson here is to really think about which features matter most to you.

Lastly, it is no secret that electronic products of any kind will never be more expensive than at the time of their initial release. If cost is a consideration, we suggest waiting 6 months before purchasing a phone that's new to the market. Use this time wisely by researching its overall quality. Thanks to the Internet, there is no shortage of trustworthy reviews on every cell phone available. Two such websites are www.cnet.com and www.pcmag.com. But remember, if your current cell phone enables you to successfully make phone calls, there is no hurry to purchase a new one.

The Options
Let's take a look at the many features available. Along with each listing, we have included a cell phone that performs that particular function quite well.

PDA Blackberry Cell PhonePDA
PDAs (Personal Digital Assistants) are electronic handheld organizers with the ability to send and receive emails. Because of these abilities, most phones that include a PDA (they are known as “smart phones”) also share the characteristic of a dedicated keyboard. This feature generally adds to their overall size, making them considerably larger than other types of cell phones. While a good smart phone can be handy for fairly obvious reasons, there are a few, not so obvious downsides.

The first is the potential for poor call quality as it seems that many of the PDA combo phones carry the same rap – great for sending emails but the phone calls sound muffled. When shopping for a smart phone, be especially sure to research the phone's ability to make quality calls.

The second downside is an issue shared by other combo products such as TV/DVD players. The problem is if you break or lose the phone, you are immediately without a phone and a PDA. While the chances of this happening are somewhat slim, it's still something to think about.

When it comes to shopping for smart phones, there are several great choices. One of those choices is BlackBerry®, a name that's been at the forefront of smart phones since their inception. While there are several versions of the Blackberry, one that we find extraordinary is the BlackBerry 7130c™.

On the market for roughly a year, the 7130c is somewhat considered the crown jewel of the BlackBerry line. Sleek and slim for a PDA combo, it is nothing less than a great looking phone. But aside from its aesthetic beauty, the 7130c is a high quality phone with excellent call quality.

As with all BlackBerrys, it also manages email and web browsing quite well. While personal email must be accessed via your provider's website, a little help from your company's IT department will enable your BlackBerry to receive corporate emails in real time.

The 7130c does not include a camera or an MP3 player. It does, however, include features like a calendar, alarm, task list and a memo pad. For individuals who use their cell phone for business, or who travel frequently, the BlackBerry 7130c is a great choice.

Sony Camera PhoneCamera
There are many reasons to have a camera included on your cell phone, ranging from the practical to the purely fun. We could chronicle all of them, but why bother? Only you know why and how you plan on using it.

Our focus, instead, is to bring you a camera phone that we believe to be a quality device. After all, what's the purpose of buying one if either feature is substandard, especially when high quality cell phones and digital cameras can be purchased separately and at very affordable prices?

If the camera feature is something you deem important, you may want to check out the Sony/Ericsson K790a. Superbly designed, the K790a sports simple yet attractive features. And, while its call quality is great, its camera function is even more impressive! The sad irony is that this wonderful camera phone does not have world phone capability, making it impractical for any globetrotters.

The K790a does, however, boast a Cyber Shot-branded, 3.2 megapixel camera. Its related features include auto-focus, 16x digital zoom, Xenon flash, and image stabilizer. The camera also functions as a video recorder and is equipped with something known as PictBridge Technology. This gives you the ability to hook your phone up to a printer (via USB cable) and print pictures without the need for a PC.

The K790a also comes equipped with an MP3 player. But let's face it, this is not the reason you are buying this phone. Think of it as a great camera phone that does a decent job of playing music.

iPhone Apple Mp3 playerMP3
We're going out on a limb on this one but for very good reason. When you talk about MP3 players, one name is at the top the list – iPod. So, it only seems logical to recommend Apple's new iPhone as a great choice. The problem is the iPhone will not be available until June. To make matters worse, the only person who's even seen the iPhone up close and personal is Steve Jobs, CEO of Apple Computer.

Despite all the "what ifs", most experts are still excited about the iPhone's potential. According to Jobs, the iPhone promises to be 3 state-of-the-art devices in 1: a wide-screen iPod, a revolutionary phone, and a breakthrough Internet device. But, believe it or not, the feature that has people the most excited is the iPhone's keypad.

In lieu of a dedicated keypad, the iPhone will contain a whopping 3.5-inch widescreen display that will double as a keypad during certain functions. Jobs and his design team felt that dedicated keypads not only take up a lot of space, they're rather cumbersome to use. By making the keypad a multi-touch display, he not only created a wider screen, he simplified the interface. If the expectations of the iPhone become reality, it could be one of those special cell phones that can do many things well.

The phone function will reportedly include some interesting features, such as the ability to see all of your voicemail messages and then choose their listening order. The widescreen iPod also promises to be awesome – all the features associated with a traditional iPod but now with a much wider screen. As far as the web browser is concerned, Apple promises it will be the most advanced on any portable device, especially when it comes to properly displaying web pages. The iPhone will also feature a 2-megapixel camera equipped with a state-of-the-art photo management application.

Apple will be charging $499 for iPhones with 4 GB of flash memory and $599 for versions with 8 GB. This may sound like a lot but remember, many smart phones cost close to that amount. If the iPhone delivers on Steve Jobs' promises, it will make $600 for a phone seem like a great deal.

GPS Cell PhoneGPS
At first thought, having GPS (Global Positioning System) on your cell phone may seem a bit excessive. But what if you do a lot of job-related traveling in rental cars that aren't equipped with GPS? Then you might be glad to have it. The same can be said for someone who enjoys outdoor activities like hiking or camping.

If this sounds familiar, than you'll definitely want to look in to the Sanyo SCP-7050. While it may not be the most attractive phone, it ranks high in both durability and practicality. Speaking of durability, the SCP-7050 actually complies with military standards for dust, shock, and vibration.

As a phone, the SCP-7050 has superb call quality for both the handset and the speakerphone. It also has the ability to act as a nationwide walkie-talkie, as it fully supports Sprint's Ready Link service. It may not have a camera or an MP3 player, but it does include all the basics as well as a web browser.

Buying the SCP-7050 for its aesthetics is questionable. If, on the other hand, you're looking for a durable phone with excellent call quality and the ability to guide you between destinations, it's a great choice.

While the overviews you just read may have sparked your interest in buying a new cell phone, they merely scratch the surface of the options available. It's important to first ask yourself what features you need or which ones will best fit your lifestyle. Then, utilize the Internet to seek out what the experts are saying, as well as where to get the best deal. And remember, if your current phone still does the job, there's no hurry to get a new one. Unless you just can't resist!

The Secret to Getting Fitter, Firmer, Faster

The Secret to Getting Fitter, Firmer, Faster

Everyone would like to be in good shape. Let's face it, who doesn't want to look good and be fit? The only problem is the path to a picture-perfect body is typically paved with deprivation dieting and endless exercising. As a result, most people throw in the towel, sit back on the couch with some chips, and kiss their bathing suit days goodbye.

Luckily, there's a hot new weight loss approach that promises maximum results with minimal effort and no deprivation…guaranteed. The program was developed by a husband-and-wife team; Dr. Larson is a bariatric (weight loss surgeon), and his wife, Ivy, is a fitness instructor certified with the American College of Sports Medicine.

Using their combined knowledge and experience, the Larsons created a program that revolves around whole foods, nutritional supplements, and thirty-minute workouts three times a week. These elements form the three basic principles of the Fitter, Firmer, Faster Program (2006, Health Communications), a new approach to weight loss without going to extremes.

Good Health with a Side Order of Weight Loss
Paving the way for their newest book was the Larsons' first collaboration, The Gold Coast Cure (2005, Health Communications), geared toward helping sufferers of 10 chronic conditions reverse their symptoms through diet and exercise. The Larsons monitored people with a variety of conditions – including MS, heart disease, arthritis, and other inflammatory diseases – who followed their recommendations and not only improved their health, but lost weight as a "side benefit". The average person on their program lost 7 ½ pounds and 4 ½ inches from their waist and hips in just 4 weeks!

Dr. Larson says their plan works because it allows people to eat until they are full and satisfied without restricting food intake. Their whole foods diet not only provides the nutrients necessary to curb food cravings and appetite, the diet and recommended supplements also reduce inflammation, which in turn helps to crank up the metabolism. Factor in the exercise program, which is designed to increase one's resting metabolism the energy equivalent of running 1 ½ miles a day, and the result is a fitter, firmer body…fast.

A Closer Look
Now that we've established the logic behind the program, let's take a closer look at exactly what it entails.

The Larsons' approach focuses on consuming whole foods, following a vitamin, mineral and essential fat regimen, and doing a time-efficient 30-minute/ 3-day-a-week exercise routine that combines interval training with resistance training.

"We try to get people away from the dieting mentality," Ivy says. "Instead of encouraging people to 'count their food', such as calories, carbs, or fat grams, we encourage people to make their food count nutritionally. The nutrients in the whole foods diet we recommend support a healthy metabolism, help curb food cravings, and reduce the inflammation and insulin resistance that thwarts fat burning. On our program, people lose weight without a low-calorie diet."

"We also add targeted nutritional supplements and an exercise program specifically designed to increase metabolism and reshape your body…something you can't get from the cardio-based workouts most people follow for weight loss. If you just rely on diet, you're going to end up looking like a smaller apple or pear. You're not going to reshape your body. The only way to increase your metabolism and reshape your body is with the right type of exercise."

The Next Steps
Prior to beginning any new weight loss or exercise program, it's important to consult with your physician. Once you have done so, you can begin to take steps to improve your health, your appearance, and your life!

Here are six weight-loss secrets from Fitter, Firmer, Faster to help you get on the fast track to weight-loss success:

1. Go Natural
It's important to consume an all-natural whole foods diet, one filled with unrefined, real foods packaged the way nature intended. Following a diet that consists of whole foods promotes weight loss and better health. Whole foods provide the right ratio of omega-3 to omega-6 fats, decreasing inflammation and increasing insulin sensitivity. This makes it easier for the body to burn fat for fuel. A whole foods diet is also rich in nutrients and fiber that help curb food cravings. In addition, you feel fuller on fewer calories…without having to count calories.

2. Seek Out Nutrients
Instead of counting calories, carbs, or fat grams, make your food count nutritionally. Focus on the nutrients in the foods you eat. Nutrient-rich foods curb cravings and prevent overeating. Foods rich in vitamin C, calcium, B-vitamins, essential fats, and chromium support a healthy metabolism and help your body burn fat for energy. A deficiency of certain nutrients, such as omega-3 essential fats, can actually slow your metabolism and make it more difficult to lose weight.

3. Forget About Fearing Fats
Eating some fat at every meal is very important for satiety because fat slows gastric emptying and delays hunger pangs. Fats are also important for the absorption of fat-soluble vitamins, such as vitamins A, D, E, and K, as well as certain antioxidants such as lycopene. And some fats, specifically the essential fats (the kind found in foods like fish, flaxseeds, flaxseed oil, walnuts, edamame beans, and wheat germ), actually help the body burn fat for energy. Stick to essential fats or heart-healthy monounsaturated fats, such as avocados or extra virgin olive oil.

4. Go for Whole Carbs
Avoid carbohydrates made from refined flour or sugar, including bread, pastas, crackers, and other "white" processed foods. Instead opt for "whole food" carbohydrates, including potatoes, beans, corn, fruits, vegetables, whole grains, and breads made from whole grains. (Ideally you should eat sprouted whole grain bread that does not contain any flour, but breads made with whole grain flour are also acceptable.) When purchasing packaged foods, check the nutrition label to make sure carbohydrates have at least 2 to 3 grams of fiber per 25 grams of carbohydrate – the more the better.

5. Exercise: Keep It Short But Intense
You'll get much better body-reshaping and fat-burning results if you follow a short but intense 30 minute, 3-day-a-week workout program. Specifically, one that combines interval training with resistance training. Try doing this program rather than the steady state, hour-long cardio routines (think treadmill running) most people try in an attempt to lose weight and get fit.

To get the most bang for your buck, incorporate both resistance training exercises (to boost metabolically active lean muscle mass), and short but intense 1-2 minute cardiovascular interval training exercises (such as jumping rope) to increase EPOC (excess post-exercise oxygen consumption). Combining interval training with resistance training will increase your resting metabolism the energy equivalent of running 1.5 miles a day.

6. Indulge a Bit
Some "vice foods", like coffee, wine, and chocolate, actually offer health benefits. For example, coffee is rich in antioxidants and may reduce your risk of type 2 diabetes and Parkinson's disease. Wine cleanses the arteries and has been shown to lower insulin levels and reduce the risk of type 2 diabetes. And, according to a 1997 study reported in the Journal of the American College of Nutrition, moderate wine consumption does not interfere with weight loss. There's also sweet news for chocolate lovers! The cocoa in dark chocolate contains anti-aging antioxidants and anti-inflammatory polyphenols not typically found in other sweets (such as cake, cookies, and pie). The feel-good bottom line here is not to worry about indulging in a cup of coffee, a glass of wine, and a small sweet treat a day – the cheating could help you to stick with your healthy lifestyle and may even be good for you!

Speaking of indulgence, here are three tasty, healthy recipes from the Larsons' Fitter, Firmer, Faster Program.

Spring Quinoa Pilaf with Macadamia Nuts and Fresh Dill (Serves 6)

* 1/2 cup macadamia nuts
* 1 tablespoon extra virgin olive oil
* 3/4 cup diced carrots
* 1 1/4 cup diced red onions
* 1/8 teaspoon coarse sea salt, plus more to taste
* 2 cups cooked quinoa
* 1/4 cup chopped fresh dill

Place macadamia nuts in a ziploc plastic bag. Transfer the bag of nuts to a cutting board and pound with a mallet to convert into "crumbs". Set nuts aside. Heat the oil in a large skillet over medium-high heat. Add the carrots and onions, and sauté for several minutes until clear, yet crisp. Add the salt. Stir in the cooked quinoa, fresh dill, and macadamia nuts. Sauté for an additional 1-2 minutes.

Lemon-Peach Pie Smoothie (Serves 2)

* 1 1/2 cups frozen peaches
* 1 cup silken tofu
* 1/2 cup low-fat plain yogurt or kefir
* 1/2 teaspoon pure lemon extract
* 1 tablespoon plus 1 teaspoon raw honey

Place all ingredients into a blender, and whip until smooth and frothy. (About 1 minute.)

Sea Bass with Coconut Cream Sauce (Serves 4)

* 1/2 cup light coconut milk (such as Thai Kitchen "Light Coconut Milk")
* 1/2 cup all-natural creamy peanut butter
* Juice from 1/2 lime
* 2 teaspoons grated fresh ginger
* 3 teaspoons good quality soy sauce (such as Kikkoman)
* 1 teaspoon canola oil cooking spray
* 1/4 cup diced onion
* Salt, to taste
* 1/8 teaspoon cayenne pepper, plus more to taste
* 1 pound Chilean sea bass fillets

In a food processor or blender, combine the coconut milk, peanut butter, lime juice, ginger, soy sauce, and cayenne pepper. Process until smooth and creamy. Set aside. Heat the oil in a large, non-stick skillet over medium-high heat; sauté the onion for 3-4 minutes, or until soft. Season the onion with salt to taste. Clear the onion to either side of the pan, and remove the pan from the heat. Season both sides of the sea bass fillets with salt and cayenne pepper. Place sea bass fillets in the center of the skillet, and sear for 4-5 minutes on each side. After searing the second side, add the sauce and bring to a boil. Flip the fish once, and cook 1-2 additional minutes. Serve immediately.

Fitter, Firmer, Faster
Follow the Fitter, Firmer, Faster Program and the Larsons say you'll see body-changing results in as little as 5-weeks…without going to extremes. The Gold Coast Cure's Fitter, Firmer, Faster Program is available at Amazon.com and through the Larsons' website: www.goldcoastcure.com.

Unleash the Power Within by Tony Robbins

Unleash the Power Within
By Tony Robbins

How much easier is it to accomplish a goal once you've taken those first steps and created some momentum? Just think about the little things – like the last time you tackled a project around the house or sorted through paperwork you'd been putting aside.

Or maybe it was something bigger, like committing to run a marathon. Once you reached that crucial milestone in your training, it didn't seem nearly as impossible as it once had, right?

Once you've created momentum, things that initially appeared tedious or difficult will now seem easy. In this short video clip from a recent seminar, Tony Robbins describes one of the Five Steps to Building Momentum and explains how just a few minor shifts can help you get – and keep – the ball rolling.

If you'd like to learn the rest of the Five Steps, consider attending Tony's cornerstone event. Entitled "Unleash the Power Within", this event will enable you to identify what it is you truly want. You’ll discover how to break through any barriers that might be holding you back, dramatically increasing your mental clarity, physical energy, and overall passion for life. Visit www.TonyRobbins.com to learn more.

Homeowner's Insurance: How to Get the Most for Your Money

Homeowner's Insurance:
How to Get the Most for Your Money

Multiple hurricanes along the East and Gulf coasts over the past few years have left more than debris in their wake. One ripple effect that's slamming coastal residents is double-digit increases in their once-stable homeowner's insurance rates.

From Florida to Massachusetts, many coastal homeowners have seen their insurance rates climb by 20% or more. "Someone in Ohio who's moving to coastal South Carolina should expect to pay more for insurance than what they're paying now," says agent Wendell Sutton, of Kinghorn Insurance Services, in Hilton Head, S.C.

In many cases, insurance companies are not renewing policies. Dennis Slattery, 60, a 19-year resident of Hernando Beach, Fla., lives in a house on the beach. He recently learned that his carrier was dropping his coverage because of "catastrophic risk management" – in other words, the risk from future hurricanes. Many other Floridians, he notes, are facing rate increases that they can't afford. "People are worried, and some are thinking of moving," Slattery says.

Insurance companies are raising rates and dropping coverage in an attempt to reduce their risk exposure. "The old view was that we would have a bad hurricane every few years," says Robert Klein, director of the Center for Risk Management and Insurance Research at Georgia State University. "The tone of insurers started changing after the fourth hurricane hit in '04."

Not ready to give up the surf? There are some ways you can reduce your insurance costs.

Shop Around
"You can easily pay twice as much from one company to another," says Robert Hunter, director of insurance for the Consumer Federation of America. Compare rates of two or more carriers.

Most state insurance commission websites offer price information, a list of the state's leading insurers, and buyers' guides. Visit www.insureuonline.org to find links to each state commission.

If your coverage has been dropped, you can learn about "last resort" options at the commission sites. Most states have insurance pools for coastal residents who can't get coverage, but be prepared to pay higher rates than other residents who still qualify in the private market. For example, those in Louisiana's last-resort option, called Louisiana Citizens Property Insurance Corp., pay premiums that must be 10% above the average of the top ten writers in the parish they reside in. "By law it's more expensive than the private sector," says Jim Donelon, Louisiana insurance commissioner.

Keep Coverage Up to Date
If you've fixed up your house or property, tell your carrier; maintaining your home will reduce your liability. Also, don't overinsure. Madelyn Flannagan, a vice-president of the Independent Insurance Agents and Brokers of America, notes that "homeowners just need to insure the cost to replace the house."

Seek Discounts
Improvements for safety, such as installing windows that can survive winds of 150 to 180 miles per hour, could cut your premium. Ask for a senior discount or for a longevity discount if you're a longtime client. Cobbling together several discounts could offset any increases in your premium. Also, you could save money if you buy your homeowner's, auto, and other coverage from the same insurer.

Adjust Out-of-Pocket Costs
"Play with your deductible," says agent Kathy McKay, of McKay Stelling & Associates, which serves Charleston, S.C. Raising your deductible from $250 to $1,000 might save you 10% to 15% on your premium.

In many coastal areas, you may need a separate policy for wind and hail. And flood insurance is a must, insurance experts say. You can purchase flood insurance through the federal subsidized program, and you can buy extra coverage from private insurers.

Reprinted with permission. All contents © 2007 The Kiplinger Washington Editors, Inc.

Home Buyers & Refinancing Handbook!

The Home Buyers & Refinancing Handbook! Email Sean for 13 Page Handbook

Compliments of
Sean La Rue

Franklin Loan Center

Work: (760) 837-1488 · Fax: (760) 779-8114 · Cell: (760) 835-5663


the home buyer’s
and refinancing
handbook

The idea of purchasing your new home or refinancing a existing house is bound to bring many questions to mind. This is a natural reaction, because this is one of the biggest decisions you will ever make in your life. Rest assured, my team and I are here to assist you in understanding the loan process, and our ultimate goal is to make your experience a
pleasurable one.

This book covers the basics about buying your first home. It is designed to answer commonly asked questions and provide clear definitions of terms you may be
unfamiliar with.

Contents

Rate Shopping 4
The Nuances of Your Contract 5
Points vs. No Points 7
Credit Scoring 8
Pre-Payment Penalties 8
Negative Amortization 9
Junk Fees 10
Glossary of Terms 11























Rate Shopping

Shopping for the best interest rate possible has always been the consumer’s primary objective when borrowing money. As well it should be! The challenge with this strategy is that there is much misleading information released on the subject by various media. Internet web sites and email marketing, along with other media such as radio, television and billboard advertising, has brought the importance of interest rates to the forefront of consumers’ minds.

The problem for the consumer with this type of marketing is that it is designed to make the lender’s phone ring. Often, the advertiser offers an interest rate at a ridiculously low price, with the intent of using a bait-and-switch technique once the client is reeled in. This is often done through short pricing. Short pricing is a term that is used when a lender offers an extremely attractive interest rate, but that rate is only locked-in for a very brief period of time.

Know up front that the average consumer enters into a purchase contract to buy a home for at least 30 days. Pricing on an interest rate locked in for a 10-day period is of no use to most prospective home buyers. It simply isn’t enough time to complete the transaction. While the billboard advertising or Internet banner ad may boast a terrific rate, the lock-in period is often not realistic in terms of providing enough time to negotiate a purchase contract and close the deal. Be very careful when shopping for interest rates. Make sure that when you are quoted a rate, you are asking the broker what the lock duration is. Make sure that lock period allows you enough time to complete your purchase transaction.

Another common marketing ploy that makes interest rates appear attractive is geared around the manner in which fees are presented. All lenders are required by law to state the real cost of the financing through the



Annual Percentage Rate (APR) each time an interest rate is quoted in advertising. APR
takes all fees associated with the loan into consideration, and it is usually listed in fine print as a disclaimer.

Advertisers often list a low interest rate in large bold type, but the higher APR indicates in fine print that one or two points are being charged to get that rate.

While APR can be helpful in comparing rates seen in advertising, it is important for consumers to know that all lenders do not calculate APR in the same way. Hence it is not an entirely failsafe method for comparing interest rates.

Additionally, the consumer must take into the consideration that the interest rate is not the only important factor in obtaining financing. An equally important question to answer is, “How long do you need to borrow this money?”

The length of time you need to borrow the money has a profound impact on whether or not you should be paying upfront fees (points), and likewise has bearing on your loan program selection.

Statistically, a first time home buyer usually stays in their new home between 3.2 and 4.7 years. One of the common mistakes made by first time home buyers is selecting a 30-Year Fixed Rate loan program for financing. The chance of needing the financing for 30 years is actually slim to none. Statistics show the buyer will most likely not be in the home for 30 years, and if the home buyer is somewhat transient in their job or is planning a family in the near future, the home may not really meet the buyer’s long-term needs.

First time buyers are often solicited with FHA loans and other types of low-money-down programs that are contingent upon 30-year financing. The interest rates that are offered, regardless of how low they might be, are often irrelevant.

Statistically, an interest rate that is fixed for three, five or seven years is a much more realistic option for the first time home buyer. This allows the buyer to capitalize on a low introductory rate and save a significant amount of money, which can then go toward the down payment on their next home.
It is of utmost importance to work with an experienced loan consultant that understands some of the practical aspects of financial planning. A well-versed consultant will ask you many questions about your short- and long-term goals, and assist you in choosing a loan program that is truly suited to those goals.


The Nuances of Your Contract

The process of purchasing your new home is often much more complex than the average individual expects it to be. Items involved in your purchase contract can have a significant impact not only on the success of your purchase transaction, but on your stress level as well. We have listed out some of the important items you should be aware of, that require you to make decisions as a buyer entering into a purchase contract.



Loan Contingency

Loan contingency is the period of time the seller is giving you to obtain full, formal loan approval. This contingency is typically between 15 and 21 days depending on what you and your Real Estate Agent have negotiated on your behalf in the contract. The earnest money deposit that you put into an escrow account at the time the offer is accepted will be put in jeopardy once that contingency for the loan has expired. In fact, pursuant to the terms of the contract, if the loan contingency has expired and you fail to close the purchase transaction, you can lose your earnest money deposit and not have the failure of obtaining loan approval to lean on as an excuse.

For this reason that it is extremely important to make sure you are not agreeing to a loan contingency in an offer negotiation unless you are absolutely certain you will be buying the home and you know you do not need to depend on financing approval to close the transaction. Formal pre-approval will help to eliminate any problems in this area.


Pre-Approval

Seeking complete pre-approval for financing prior to making an offer on a property is a sound strategy that can help you get the best


deal possible, especially if you plan to make a minimal down payment. The seller is often leery of the stability and reliability of the buyer if the buyer is only capable of making a down payment of 10% or less. This can cause the buyer to lose a significant amount of negotiating ability, by being perceived as a weak buyer rather than a strong one. This is why it is very important to get full loan approval in advance, and provide a written confirmation of that loan approval when an offer is made on a property. This shows it is a done deal, and you are perceived to be a cash buyer.


Contract Period

The contract period is the period of time in which all due diligence must be completed, including obtaining loan approval, property appraisal, home inspection reports, termite inspection, etc. Give yourself enough time for all due diligence to be completed for this very important purchase you are about to make. Typically, purchase contracts are drawn up for a period of 30 days, 45 days or 60 days. However, it is really not uncommon for a purchase contract to be written with terms in excess of 60 days if the parties involved need that long of a grace period to complete all aspects of due diligence.


Home Inspection Contingency

As part of the negotiation in your purchase contract you and the seller will mutually agree upon the amount of time needed to complete all the home inspection procedures that are required. Utilizing an outside third party service to complete these inspections is highly recommended.

You will be provided with a report by the home inspection company that you should review very thoroughly to make sure there are no material defects in the property that you were not aware of, and which could subsequently have an impact on the value of the property. If there are material defects, you and your Real Estate Agent should go back to the negotiating table and discuss an ample reduction in the purchase price to offset the cost of any necessary repairs. Once your home inspection contingency has expired, you no longer have the leverage to go back and renegotiate the purchase price to resolve any issues revealed by the home inspection.


Termite Inspection

Termite inspection is required by the lender if it is listed in the purchase contract. One common fallacy in the home buying process is that the lender always requires termite inspection, regardless of what the contract states. This is not true. A lender only requires it if both the buyer and seller mutually agree to termite inspection and it is included in the terms of the contract. From there, it is up to both parties to determine who will be responsible for the remedy of the problem, if in fact termites are present. Most commonly, the solution is that Section 1 termite work will be covered by the seller, and Section 2 termite work to be covered by the buyer. Make sure when you negotiate your contract you state up front whether you want the property checked for termites.


Seller Rent Back

It is often the case that when the buyer and seller are unable to agree upon a specified closing date for the transaction, the Real
Estate Agent involved will negotiate a “rent back” period. This means the transaction technically closes, the loan funds and ownership of the property is transferred into the buyer’s name, but the buyer does not take occupancy of the property until several days later. In this scenario, the buyer sets up a rental agreement, in which the property is leased back to the seller.

An important footnote to this somewhat common strategy is to make sure the seller is not occupying the property in a lease agreement for more than 30 days after the close of the purchase transaction. This would constitute a non-owner occupied purchase in the lender’s eyes, and would cause the terms of the loan to change radically.


Seller Contributions

Depending on the seller’s eagerness to close the transaction, the seller of a property will often become aggressive and offer to pay some or all of the non-recurring closing costs and/or origination points associated with the purchase on the buyer’s behalf. This common strategy can be very beneficial to the buyer, particularly if the buyer is short on funds to close. It can also be the vehicle that effectively drives the interest rate down and provides the buyer with a more affordable monthly payment.

Note that there are limitations on how much the seller is permitted to contribute, depending on the loan-to-value ratio. The typical limitation stipulated by the lender is that the seller contributes no more than 6% of the purchase price. Seller contributions MUST BE isolated to non-recurring closing costs and/or origination points only. The lender will not permit the seller to contribute funds back to the buyer after the close of escrow to accommodate repairs to the property. Items such as roof leakage, new carpet, new paint, etc. cannot be covered by any seller contribution clause.


Points vs. No Points

Points are often a misunderstood concept for first time home buyers. Points are nothing other than interest paid up front (at the time of closing), to obtain a lower interest rate on a loan. One point is equivalent to 1% of the amount of money borrowed. If you are going to borrow $300,000 on your loan, one point would equal $3,000 up front. This generally generates 1/4 to 3/8 of a percent lower interest rate, depending upon the loan program.

When does it make sense to pay points? Paying points is a prudent financial move, if you are planning to be in the loan for a long period of time. Again, one of the most important questions to address when you borrow money is, “How long do you need to borrow this money?” This will answer the two all-prevailing questions you will have, which are 1) Should I pay points? And 2) What loan program is best for me? Notice that the question is not geared to, “How long do I plan to live in the home?” But more appropriately, “How long am I likely to be in this loan?”

How long you will be in the loan is not only affected by the tenure that you own the home, but also the probability of seeking a refinance at some point in the future. As a general rule of thumb, you will need to be able recuperate the total cost of the points in a period of time that is less than the amount of time you will need to borrow the money for.

Here’s an example. Let’s say you are going to borrow $300,000 for your mortgage, and choose to pay one point, which equates to an initial up front closing cost of $3,000. If paying one point up front saves you $100 a month, this means it will take you 30 months or 2.5 years, to recuperate the cost of the point that you paid. If you refinance the home anytime before that 30 month mark, or decide to sell the home, you will have effectively wasted money. However, if you stay in the home for longer than a 30-month period of time, it is a prudent financial move.

When deciding whether or not you should pay points, take into consideration where interest rates are at when you seek financing, and compare that to historical market trends.

When interest rates are at historical lows, it makes much more sense to pay points, especially if you think you will live in the property for an extended period of time. Historically low rates, combined with the fact that you know you do not intend to move would indicate you will have longevity in the loan. It is unlikely rates will go down, giving you incentive to refinance.

Rates are cyclical. When interest rates are off of their historical lows, and higher than they generally are, we know that there is a strong likelihood rates will eventually come down. This is certainly no time to pay points. The chances of refinancing at some point in the future are extremely high, and therefore, you would not need to be in this loan for a long period of time.


Credit Scoring

Your credit score is a factor that will be considered by the lender when they look at your loan application. They want to know what your credit history is, and whether you have the ability to pay back the loan you are asking for. In short, good credit translates into lower rates for the home buyer and represents less risk to the lender.

Credit scores can range between a low score of 300 and a high of 900. Most commonly, we deal with scores ranging from 400 to 800. The higher the client’s score is, the less likely they are to default on their loan. We will run a credit report and determine what your credit score is, and if necessary, we can point out some simple ways to help you improve your credit score without enlisting the help of a credit repair service.

Once you fill out a loan application and enter into the loan process, you should not run up your charge cards! This would have an adverse effect on how the underwriter looks at your file.

If you have a poor credit score, it doesn’t mean you can’t qualify at all for a loan. There are loan programs available even if you’ve had a recent bankruptcy. While you may not get the interest rate you had hoped for, it is an opportunity to start building up your credit again. Once you begin making mortgage payments on time and in full, your credit standing will improve and we can seek to refinance you at a lower rate as soon as the opportunity arises.
Pre-payment Penalties

Lenders attach pre-payment penalties to loans to ensure that the loan will be profitable for them. As a general rule of thumb, we do not suggest that you accept a pre-payment penalty as a part of your loan structure. One of the most important aspects of financial planning is to have options with your money. Restrictive clauses such as a pre-payment penalty can prohibit you from maneuvering when it is necessary and when other opportunities arise.

If you want to accept a pre-payment penalty clause in your loan, it is much more advisable to go with a “soft pre-pay.” This only penalizes you in the event of a refinance, but not if you decide to sell the home.

Interest rates have dropped significantly many times over the last 15 years. Many home owners have not been able to take advantage of lowered rates by refinancing, because their hands have been tied by a daunting pre-payment penalty. Pre-payment penalties will generally provide you with a slightly lower interest rate in exchange for the pre-payment penalty clause. Mortgage professionals will sometimes push the benefits of a pre-payment penalty so they can beef up their commission. Be very leery of this type of sales pitch!


Negative Amortization

Negative amortization loans are some of the most misunderstood loans available in the market place. The negative stigma (no pun intended) comes from a lack of education to the consumer by mortgage professionals. The only way you can get into trouble with a negatively amortized loan is if you truly don’t understand how it works, or if you lack the financial discipline to make sure you are not allowing yourself to fall into a compromising position.



In a regularly amortized mortgage payment, part of the payment goes toward a portion of the principal and part goes toward interest payment. In a loan that involves the potential for negative amortization, you have several payment options each month. You can make a low introductory rate payment, an interest-only payment, or a fully amortized payment. This type of loan works very well for borrowers with a seasonal income, or income that fluctuates. Certified Public Accountants, investment advisors, and sales people who work on a commission basis often go with this type of a loan because it allows them to have greater control over their cash flow on a month-to-month basis.

Once again, each and every month you must choose between three payment options. Let’s understand how a negatively amortized adjustable rate mortgage works. All adjustable rate mortgages require the lender to add a fixed component (which is known as the margin) to the varying portion of the adjustable known as is the index (T-Bill, Libor, 11th District Cost of Funds, etc.). In an adjustable rate mortgage, the margin + the index = your interest rate.

If your fixed margin is 3 and at the time of an adjustment the varying index of a treasury bill is 4, then your interest rate is 7%. Negatively amortized loans typically adjust on a monthly basis, which means that every single month the lender takes the fixed margin and adds it to the varying index to derive your current


interest rate. One of the protection vehicles of an adjustable rate mortgage is called CAPS.

CAPS limit the amount that your payment can go up in any monthly period of time. In a negatively amortized adjustable it is common to have a 7.5% annual increase CAP.

For example: If your mortgage payment in the calendar year of 2003 was $1,000 per month, the most that your mortgage could be in the calendar year of 2004 is $1,075 dollars per month. This is because the annual payment increase CAP of 7.5% would kick in and limit an obligated payment to the lender to a maximum of 7.5% increase over the previous year’s payment. However, during each of those months the lender would still add the fixed margin to the varying index to derive what the true interest rate is and calculate the mortgage payment associated with that true interest rate. If in fact the payment in this example came out to $1,100 a month, you would still only be obligated to pay $1,075. However the $25 difference would be tacked on to your principal balance that you owe, therefore accruing interest against your principal and increasing the balance that you owe on your loan to more than you originally borrowed. Hence the term “negative amortization” comes into play.

Once again, a negative amortization loan doesn’t have to be a negative situation. It
works well for people who understand how to use it to their benefit. Many consumers actually use this type of loan as an equity line of credit that is built in to their 1st Trust Deed indebtedness. Often when consumers want to invest money in the stock market or other types of investment vehicles, or simply want to control their cash flow and minimize their monthly payment, they will intentionally choose this “equity” that a negatively amortization loan permits. Just remember that most of these loans have a 125% CAP on the original amount borrowed. This means if you originally borrowed $100,000, once the loan amount rises to $125,000 the lender would not permit you to continue to use negative amortization.


Junk Fees

A junk fee is a derogatory term defining extra fees tacked on by the lender, which are charged as a dollar figure rather than a percentage. It is important to know that you can often negotiate these fees or have them removed if they have not been properly disclosed to you. The lender is required to provide you with a Good Faith Estimate disclosing their fees within three days of your application.

Other fees that are NOT considered junk fees are the appraisal fee, credit report fee, escrow or attorney fee, title insurance fee, recording fee, notary fee and transfer taxes. These are legitimate fees that are paid to third parties and are necessary to complete the transaction.















Glossary of Terms


Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also referred to as the renegotiable rate mortgage.

Amortization
Means of loan payment by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Annual Percentage Rate (APR)
An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan, however all lenders do not calculate APR the same way.

Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client, but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Buydown
When the lender and/or the home guilder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

Construction Loan
A short-term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.

Discount Points
Prepaid interest assessed at closing by the lender. Each point is equal to one percent of the loan amount. (e.g. two points on a $100,000 mortgage would cost $2,000.)

Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

FHA Loan
A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderately priced homes almost anywhere in the country.

FHA Mortgage Insurance
Requires a small fee (up to 3% of the loan amount) paid at closing or a portion of the fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5% $75,000 fixed-rate FHA loan, this fee would amount to either $2,250 at closing, or an extra $31 per month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5% of the current loan amount in the years the fee must be paid.

Impound/Escrow
That portion of a borrower’s monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one-year, three-year, and five-year US Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans) which is then used to adjust the interest rate on an adjustable mortgage up or down.

Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20%. See Private Mortgage Insurance or FHA Mortgage Insurance.

Negative Amortization
Negative amortization occurs when the monthly payments are not large enough to pay all of the unpaid balance of the loan, therefore increasing the loan balance and going in a "negative" direction. In this particular scenario, a borrower can literally end up owing more money than they originally borrowed. The reason that this occurs is because on a negatively amortized loan, the borrower is given several different payment options.

• OPTION 1: To pay what is known as the fully indexed payment. This is the margin plus index on the adjustable. This payment, which is typically the highest of the options, will prevent you from going negative.

• OPTION 2: An interest only payment. You would not be going negative by making this payment either, but you would not be decreasing the principal balance that you owe on your loan. This is because you are paying only the interest portion and no additional principal to your loan.

• OPTION 3: (And the one that most often gets people into trouble...) The negatively amortized payment. This is a payment that not only does not cover the principal, but doesn't cover all of the interest owed on the monthly payment, therefore accruing negative equity as a result.

Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of face value of the loan.

PITI
Principal, interest taxes and insurance. Also called monthly housing expense.

Piggy Back Loan
”Piggy Back Loan” is a slang term, which really is another way of describing a 1st and 2nd Trust Deed that are closed concurrently at the close of escrow. This combination of a 1st and 2nd Trust Deed can be effectively utilized to avoid the need to pay private mortgage insurance. The borrower may apply for a loan at 90% with the same 10% down payment. A 1st Trust Deed at 80% and a 2nd Trust Deed at 10% could be procured concurrently. The interest rate on the 2nd Trust Deed is typically higher, often a double-digit figure. However, the fact that the interest can be deducted on the 2nd Trust Deed often makes this a prudent financial option for the borrower. The net result is often cheaper than borrowing 90% of the financing as one loan and incurring a private mortgage insurance payment. See Private Mortgage Insurance.

Pre-payment Penalty
Money charged for an early repayment of debt. Pre-payment penalties are allowed in some form (but not necessarily imposed) in most states in the US, as well as the District of Columbia.

Private Mortgage Insurance (PMI)
In the event that you do not have a 20% down payment, the lender will allow a smaller down payment, sometimes as low as 3%. However, with a smaller down payment, borrowers are usually required to carry private mortgage insurance on the loan. Private mortgage insurance will require an initial premium payment of 1% to 5% of your mortgage amount and may require an additional monthly fee, depending on your loan structure. On a $75,000 home with a 10% down payment, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.

Title Insurance
A policy usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller.

Underwriting
The decision whether to provide funding to a potential home buyer, based on credit, employment, assets, and other factors, while matching this risk to an appropriate rate and term or loan amount.

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Franklin Loan Center

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