Mortgage Pitfalls

In the 1980s, there was this video game called “Pitfall.” To beat the game, you had to traverse various levels while avoiding the big black holes that would lead to your character’s demise. The more you played it, the more you got used to the challenges. You could plan ahead.

The mortgage process is the same way. It’s easier to avoid the pitfalls if you know what to expect. You can have a game plan to avoid them.

Quicken Loans Senior Purchase Banker Patrick O’Connor pointed out the most common challenges clients face and how a little preparedness can help you avoid missteps.

Gift Funds

Normally when we get a gift, we’re not supposed to consciously keep track of its value. That’s not the point. We’re taught to just let friends and family do something nice for us.

With a down payment gift, you absolutely need to document everything.

“A lot of times people are getting gift funds to purchase a home,” O’Connor said. “Maybe they’re not initially looking to do that, but a family member finds out they’re buying a home and wants to help out. We have to show a paper trail for all the money that’s gone into their account for the last 60 days.”

You can’t bring recently deposited cash to the closing table. It can sometimes complicate things because the cash used for close has to be documented and in your account for a period of time. If it isn’t, you may not be able to use those funds to finish the loan process.

Avoiding a Sour Gift

So how do you avoid a problem and still let someone help you with your down payment? Start getting everything down on paper in the form of a gift letter.

The gift letter should include, among other things, the amount of money being gifted and who or where it’s coming from, as well as a statement that the funds don’t have to be paid back.

On an FHA loan, lenders also need to see bank statements from the donor showing that they had the funds in their account for at least 30 days prior to the gift.

What do you do if you suddenly come into some money – maybe from your birthday or the holidays – that you would otherwise put toward your down payment, but can’t document on short notice?

O’Connor recommends you spend this money by taking a page out of Destiny’s Child’s book and start paying those “bills, bills, bills.”

While this can be a helpful guideline, you also don’t want to pay off something like your car or student loans in full with that money before closing. Funds used for the purpose of fully paying off accounts have to be documented.

“Avoid cash deposits that are around $400 or $500 or even a series that adds up to that,” he said. “Spend saved up cash on bills so you can have sourced paychecks build up in your account.”

Successful Sales

Another common issue O’Connor said people run into is when they sell assets in order to quickly boost the funds available for a down payment. If it’s your stuff, what’s the problem?

First, you can’t sell that pool table your wife wants you to get rid of for cash. The transfer has to be somehow documentable in the form of a check or other transfer medium that leaves a paper trail.

The second and perhaps more sticky issue is that you have to be able to document that what you’re selling was indeed yours to sell. Otherwise, the lender has to treat it like a loan, which can’t be used for a down payment.

Things like selling your used car are easier than selling something like furniture because you have a title and a bill of sale to which you can point back. Maybe you have the receipt for the pool table and a way of documenting things, but probably not. You also have to be able to show its value.

Reserves

The last important thing we’ll cover around sourced funds here are reserves. Reserves are evidence that you have the money to make your mortgage payment for a while if you lose your job or experience some other hardship.

What’s covered in your reserves and your mortgage payment in general is best remembered by the acronym PITIA. Since I “pity the fool” who doesn’t understand what PITIA stands for, let’s briefly cover it here.

• Principal
• Interest
• Taxes
• Homeowners insurance
• Homeowners association dues (if applicable)

Depending on the type of loan you get, reserves may be required. Even if they aren’t, O’Connor said having a couple months of payments can strengthen your case for approval because you look better prepared.

Appraisal Problems

If a client has an appraisal come back lower than expected, it can cause an issue during the buying process because you can’t get a mortgage for more than the value of the house.

If this is the case, O’Connor said clients have some options. The first two may not be preferable: walk away from the deal or bring the difference between the appraisal and the purchase price to closing.

There is a third option, however. You can work to renegotiate the deal with the seller. If they are serious about moving, they probably don’t want to have you back out of the deal. You also have some additional leverage because you can now point to a document that gives the house a definitive value that’s lower than the sale price.

Dodging Credit Conundrums

It’s also important to avoid doing anything that could cause a potential credit hit during the mortgage process. This is particularly important if it takes longer. You could have a bit of trouble finding a house, for instance.

Lenders try not to pull credit more than once. However, one of the more common reasons they might have to do it is if your credit report expires due to a longer loan process.

If it takes a little longer, you don’t really have to worry as long as you don’t take on any new debt that could mess with your credit report or debt-to-income (DTI) ratio. This means not buying a new car and not opening up any new credit accounts until after the loan is closed, no matter how tempting the financing deals may seem when you’re shopping for appliances.

You should also avoid charging more to credit cards and using and using too much of your available credit at any time as this can drop your score. A good guideline is to use no more than 30% of your available credit on a monthly basis. The key is really to try to maintain a status quo in your credit during the buying process.

Hopefully these tips help you get a head start in the mortgage game so you can level up and get into your own home. 

Budget-Friendly Tips on How to Improve Your Home

by Alison Hamilton on June 28, 2016 from Quicken Loans

Improving and redecorating your house may seem like a lot of work that just leaves your wallet empty. But with a little effort and a mind for saving a few bucks, there are plenty of home improvement projects (including some that are even tax-deductible) that can spruce up your space – and you can start working on them today.




Install a Removable Backsplash

Installing a new backsplash may sound time-consuming, but according to the DIY Network, it can often be done quickly and taken down just as easily. If you’re not feeling your current backsplash, why not install a chalkboard backsplash? Installing a backsplash is a perfect project for those who enjoy change. For example, you can easily switch to a pegboard backsplash to have nifty storage space for your kitchen utensils. And whenever you’re feeling like a décor makeover, you can simply take down the backsplash and replace it with another style that suits your fancy.

Use Mason Jars in a New Way

If you’re running out of space to store the miscellaneous items throughout your kitchen and other knick-knacks, how about a cheap twist on a classic way to store your stuff? Use empty mason jars or baby food jars to create some homespun storage by hanging the jars on the underside of a shelf. You can hang your mason jars in your bedroom, garage or kitchen – or anywhere you need extra storage space! With the simple turn of an electric screwdriver, you have a convenient storage solution that also looks artsy.

Add a Creative Flare to Your Headboard

If you’re looking to make your bedroom more luxurious, vintage, happy or alternative, try throwing a quick and easy headboard up on your bed. If you’re looking for an antique style, use an old closet door that’s been sitting around – just turn it sideways and mount it on the wall. Or to display a more expensive look, hang paintable wallpaper along with a wall décor piece behind your bed. To get a stately and creative headboard style without the high cost, HGTV offers up budget-friendly headboards that spruce up your bedroom and match your bedroom to your personality.

Use Gel Stain to Update Your Garage Door

The outside appearance of your home is just as important as the inside décor. Over time, the paint on your garage door can start to peel and age your house. Instead of spending a lot of money on a can of paint, you can follow Domestically Speaking’s advice and purchase a quart of gel stain. A gallon of high quality exterior paint can cost around $40. And that’s not including paint brushes! But you can avoid buying pricey paint and renew your garage door by purchasing a quart of gel stain with brushes, all for under $20.

So the next time you want to update your old home, remember: You’re not the only one in the world with good taste and a tight budget. There’s a world of quick DIY projects out there just waiting to be tackled. And to avoid breaking the bank and getting overwhelmed, keep in mind your goals and budget, the cost of materials and the labor involved.

5 Financial Moves to Make Before Turning 30 (though it's never too late!)

We all have different life goals, but everyone wants financial security, especially with regard to retirement. When you’re in your 20s, turning 30 may seem a long way off, making it easy to procrastinate on getting your finances together. But before you hit that milestone, you’ll want to make sure your personal finances are off to a good start.

To ensure you enter your 30s on the right track with your money, consider these five expert-recommended moves before you blow out your birthday candles.

Contribute Regularly to a Retirement Account

When you’re young, it can be hard to even imagine retirement. But “time is only your friend if you start preparing for retirement now,” says Roslyn Lash, a financial educator and coach at Youth Smart Financial Educational Services in Winston-Salem, N.C. Your 20s are the best time to start contributing to an IRA or 401(k) because you can harness the power of compounding – earning returns on your returns. In addition, “the earlier you start investing, the more you will be able to handle the fluctuations of the market that may occur,” Lash says.

So how much should you have saved for retirement by age 30? “By age 30, the balance in your 401(k) should be equal to at least half of your current annual salary,” says Steve Branton, a certified financial planner and senior financial planner at Mosaic Financial Partners in San Francisco. If you haven’t reached that milestone yet, it’s time to increase your monthly retirement contribution, Branton says. And make sure to take advantage of any employer matches, since it’s free money.

Stockpile Emergency Savings

If you’re not prepared for a financial emergency such as a broken-down car, a lost job or an unexpected health issue, you may be forced to rely on credit cards or expensive payday loans. Building up savings throughout your 20s makes it more likely that you’ll hit 30 with a buffer so you can handle emergencies without going into debt.

A good rule of thumb is to have three months of living expenses saved by the time you turn 30, Branton says. Lash says that it’s better to have eight months of emergency savings, if possible, and that the ideal savings rate is 15% of your net income. If that’s not possible for you, she suggests simply starting with a goal of setting aside $1,000.

This account should be for emergencies only, she says, and “once you’ve borrowed from this account, you must develop a budget or spending plan which allocates money for you to pay back the funds.” If you’re saving for other goals, such as buying a car, it’s best to keep that money in a separate savings account and not mix it with your emergency fund, Lash says.

Consider Buying Rather than Renting

For some, the flexibility and freedom of renting make it the superior choice. But if you’re still renting at 30, it’s worth doing the math to see if it makes more financial sense to buy a home. Lash points out that spending $800 a month on rent may fit well in your budget, but after five years, you’ll be out $48,000 with nothing to show for it. If you’re planning to live in the same city for several years, consider looking into whether you can afford to buy a home. Owning a home allows you to build equity and gain tax benefits such as deductions for mortgage interest and property taxes, Lash says.

We're here to help you with your planning

If you’re interested in buying a home, the first step is to apply to get preapproved by a mortgage lender. “This analysis determines the amount of mortgage that you can afford based on your income, debts, savings and credit history,” Lash says. “This is an important step because it tells you how much the bank is willing to lend.” You’ll find out if you’ll qualify for a mortgage and, if so, what price range you can afford to spend on a home.

Keep in mind that while a monthly mortgage payment can sometimes be less than your monthly rent check, owning a home also means extra expenses such as property taxes, homeowners insurance and possibly homeowners association fees, so compare costs carefully.

Get Your Debt Under Control

Many people in their 20s struggle with budgeting and credit card debt. By 30, aim to get this under control. Branton advises getting current on debt payments such as car loans and student loans and not carrying a monthly balance on credit cards. “If you are carrying a monthly balance and not paying off the amount in full, you need to review your budget to find out where you are spending too much and make the appropriate reductions,” he says.

Lash adds that by 30, it’s wise to create a spending plan or budget you can stick to so you know where your money is going and how much you can afford to spend. “Keeping track of spending and minimizing your debt is an essential part of building wealth and becoming financially mature as you age,” she says.

Look into Life Insurance

Life insurance may be the last thing on your mind in your 20s, but it could be worth buying to protect your family as you near 30. If you have children, it’s especially important to have enough life insurance to ensure your spouse will be financially stable without you, Branton says.

If you don’t have any dependents, Lash says it’s smart to get a simple, inexpensive policy that will be enough to cover your burial expenses. “Having a policy or money allocated for your final expenses will relieve your family of the financial burden should something happen to you,” Lash says. She notes that if you can save up enough money to finance your own burial expenses, you can cancel the policy. While some employers provide life insurance as a benefit, you lose it when you leave, so it’s best to purchase your own policy, Lash adds. Additionally, the younger you enroll, the lower your premium will be.

There are no guarantees in life, but tackling these five financial goals by age 30 – or at least making strong progress toward them – can help your future look a lot brighter.

Deciding Which Rental is Best for You

By Chris Beringer

You’ve found some great places and you’re ready to make a decision. But how do you know which rental is the best for you?  It might help to revisit these basic questions:

Is it what you had in mind?

Before you started your search for a rental apartment or house, what was most important to you? Did you need a certain number of bedrooms or more storage space? Does it have the parking you wanted? If you’re choosing between a few places, revisit or create a list to see which place ticks most of your boxes.

Does it fit the budget?

Before you sign the rental lease agreement, think seriously about how the rental home fits in your budget. It’s recommended to spend no more than 30 percent of your income on a rental home, but if spending more on a rental means spending less on transportation, that may be something to consider. Typically, though, it makes sense to choose the budget-friendly rental home so you can more easily pay bills, build some savings and have money for entertainment and travel.

Is it close to necessities?

Think about all of the places you regularly go every day or week. How convenient would each rental be to work, school, groceries and entertainment? If you are the type of person who often forgets things at the grocery store, for example, it may not be wise to be 30 minutes away from one. Or if you need to pick up kids for after school activities, it may be essential your home be near school.

Does it feel safe?

A rental home may be beautiful and have all the necessities you need on the inside, but is it safe and secure? What security does each building offer? Check online to learn about area crime rates, and take daytime and evening walks around the neighborhood. Do you feel comfortable or is it a place you’ll want to run to the door late at night?

Does it feel like home?

Sometimes, you have to throw the lists aside and just go with what really felt like home when you walk in – the rental where you can picture your furniture or that has cute little quirks you love. No rental is perfect, but this is the place where you want to start and end your day. That’s where you should end your rental search.

4 Garage Dangers You May Have Overlooked

By Tarsila Wey, First Alert, Allstate Insurance

Do you cringe when you open your garage door? All of that clutter - from gardening tools, old furniture and sports equipment to half-empty paint cans and pesticides - limits the usability of the space and, what's more, it's exposed for all your guests and neighbors to see.

Rolling down the door won't make that mess, or the potential safety hazards, disappear (trust me, I've tried). So consider devoting some time to making your garage safer and more functional. Here are a few garage organization and safety measures to guide you:

1. Clutter

You don't have to sell your car in order to have super-sized storage capacity. Separate items into categories such as auto supplies, lawn and garden tools, holiday decorations and sports equipment. Then pitch, donate or sell the items you don't need or use. Invest in wall organization and storage solutions such as shelving units, cabinets or peg boards to keep the floor clear of clutter. This can also help reduce the risk of people tripping and falling.

2. Fire Hazards

Garages aren't exempt from the rules of fire safety. Combustible chemicals such as fertilizer, paint thinner, pesticides and gasoline can create especially dangerous fires. Identify, organize and properly store all flammable products (in a well-ventilated area, in their original containers). Follow disposal instructions on product labels and properly dispose of old materials that are collecting dust or have expired. I recommend keeping a fire extinguisher on hand - but make sure you have the right kind. Fire extinguishers are categorized into five general classes; you may want to consider Class B/C extinguishers for the garage because they are able to fight fires involving grease, oil, gasoline, kerosene and flammable liquids, as well as energized electrical equipment.

3. Carbon Monoxide Fumes

In attached garages, fumes from vehicle exhaust can build up quickly and seep inside your home. Carbon monoxide (CO) is produced through fuel-burning equipment and engine-powered machines, including portable generators and cars.  Having carbon monoxide alarms installed on every level of your home and near sleeping areas can be crucial to ensuring your family's safety in the event that fumes do enter your home. This colorless, odorless gas can only be detected through the use of alarms. But, even with CO alarms in place, remember that it's never safe to leave a vehicle running while parked in the garage, even if the garage door is open.

4. Security Breaches

Garage doors can provide easy entry points for burglars. Never leave your door open after you leave the house. The door leading from the garage into your home should always be locked, too. Installing motion sensor lights above your garage door can also help deter a nighttime break-in through the garage.

Garage safety can be easy to achieve with a few simple steps. So, set aside some time, get organized and reclaim that space.

Gardening's Fun With the Right Tools

5 Gardening Tools the Pros Love
by Victoria Slater on June 17, 2016Lawn & Garden

Homeowners across America aren’t afraid to get their hands dirty in order to enjoy a flourishing garden. But with all the different tools out there, which ones are the most useful? We chatted with a few professionals to find out which tools are their favorites so you can get the most out of your efforts.

Gardening Gloves 

A good pair of gardening gloves is essential. Heavy-duty gloves work well for clearing brush or pulling thick weeds, while lightweight synthetic gloves are better for pulling smaller weeds and planting flowers or seeds. The best gloves are lightweight with a protective coating on the palm and fingers, allowing you to pick weeds and plant seeds easily while also protecting your fingers and hands.

Trake: a Trowel and Rake Combined

A trowel and a rake combined into one, the ergonomic trake has a pointed, scoop-shaped blade on one side and long prongs on the other. A trowel is perfect for digging, mixing soil and moving plants from one area to another. The rake is used for cultivating, loosening and leveling soil. Combining these tools into one allows you to plant in tight spaces and minimize plant damage while avoiding reaching around for a new tool. Compared to other tools, it’s lightweight and easy to use. It’s important to select a tool that feels natural in your hand, as it will be used frequently. Test several different trakes before you make your purchase.

Weeding Tool or Cultivator

Having a weeding tool is essential, as weeds will always find their way into your garden. It’s better for your plants and the environment to use one of these instead of spraying chemicals to get rid of them. Depending on the size and quantity of weeds, you can choose a larger weeder, such as a CobraHead Weeder, or use something smaller, such as a Ring Weeder. Kenan White from the Growers Exchange recommends the CobraHead Weeder, which has a narrow blade head and pointed tip that allows you to not only weed but also cultivate, edge and harvest with ease. The Ring Weeder, on the other hand, fits over your gardening glove and can be used in areas where larger tools won’t fit, ensuring nearby plants aren’t damaged.

Mattock

Used for any gardening application, the mattock’s pickaxe-like shape chops, digs, weeds and cultivates soil. Tony Smith from Nursery Enterprises highly recommends the mattock, which is one of his favorite tools. It’s perfect for hand-digging transplants and is particularly useful for working in between plants. It drastically cuts down on time spent weeding. While the trake also allows you to dig and transplant, the mattock is much heavier, and according to Smith, it’s “far more efficient than any trowel – you can get all of the roots with it.”

Hand Pruner

Sometimes referred to as clippers, pruning shears or scissors, pruners are some of the most useful gardening tools. They’re used to trim and shape plants and small branches and to cut out dead or damaged foliage, allowing you to perfect even the smallest of details in your garden.

Anvil vs. Bypass Pruners

Two basic types of pruners are the anvil and the bypass. Bypass pruners are better for cutting green (living) wood. They allow for a more precise, cleaner cut, which is essential for smaller flowers and growing culinary plants such as herbs. On the other hand, the anvil pruner is better for cutting tree branches and dead or old wood. They are oftentimes less expensive than bypass pruners but harder to handle.

It’s important to select a pruner that fits your hand size and grip strength in order to reduce wrist strain and obtain leverage. It’s also imperative that you keep the blade sharp for maximum efficiency. Some of the more expensive pruners have blades that can be easily replaced should they become worn or damaged. This might be more cost effective in the long run than purchasing a less expensive pair that has to be replaced in its entirety every so often.

Gardens and gardeners are all different, so we recommend testing different tools to determine which ones are best for you. After all, they’re supposed to make gardening fun and simple.

Homeowners and Appraisers Grew Further Apart in June

by Kevin Graham of Quicken Loans

The gap between homeowners’ expectations and appraisers’ opinions grew slightly in June, as appraised values were 1.93% lower than homeowner expectations. In comparison, the difference was 1.89% in May.

Home values were up 0.84% since last month. This is a 4.47% rise since June of last year.

Home Price Perception Index (HPPI)

Although a 1.93% difference in the opinions of homeowners and appraisers is certainly not a huge gap by any measure, it does represent a widening of the gap month to month, with May coming in at 1.89% lower than expected nationwide.

Quicken Loans Chief Economist Bob Walters said even small differences in opinion potentially have a huge impact by the time buyers and homeowners reach the closing table.

“Perception is everything. It can make or break a home sale or mortgage refinance,” said Walters. “That’s why it’s so important for homeowners to realize how they perceive their home’s value could vary widely from how an appraiser views it. If the estimate is lower by just a few percentage points, the buyer could need to bring as much as another several thousand dollars to the table to avoid having to restructure the loan.”

If you take a look at the regional differences, the West remains closest to equilibrium, with the residents rating their homes just 1.70% higher than appraisers. In the South, the difference was 1.90%, followed by the Midwest at 2.02%. The Northeast brings up the rear, with homeowners overestimating their property values by 2.14%.

If you look at metropolitan areas, homeowners in Denver have the most undervalued homes, with appraisers reading home values 3.23% higher than homeowners. Philadelphia may be the home of the Flyers, but its residents really need to ground their appraisal expectations, as they’re valuing their homes 3.40% higher than appraisers do. Sunny San Diego wins the prize for closest to the bull’s-eye, undervaluing their homes by just 0.11%.

Home Value Index (HVI)

Home values continued their rising trend in June, up 0.84%. In the past year, values have been up 4.47%.

Walters said nationwide value trends are definitely affecting local opinions.

“Nationally, home value increases are well within the healthy range,” said Walters. “Although, the variances across the country can influence owners’ perception. Owners in the West, where appraised values are rising more quickly, tend to underestimate their home’s value. The opposite is true for those in the Northeast, with appraised values showing slower growth.”

The West leads the way again in terms of price appreciation, up to 1.45% for the month and 5.84% on the year. The Midwest played runner-up, rising 0.87% in June and 3.57% annually. The South came next, rising 0.66% month-to-month and 4.62% on the year. Finally the Northeast was up 0.17%, with a modest 2.07% yearly price growth.