Top 10 Do’s and Don’ts for Home Buyers

Here are the Top 10 Do’s and Don’ts for Home Buyers currently in escrow:

#1 – DON’T change jobs.

#2 – DON’T make new purchases with your existing credit cards.

#3 – DON’T apply for new credit.

#4 – DON’T make large deposits into your bank account.

#5 – DON’T accept gift funds unless they are given in the form of a personal check OR wired into escrow directly.

#6 – DO transfer all funds used to purchase the property into ONE bank account asap.

#7 – DO expect to provide MANY necessary documents up until the time that your new home keys are in your hand.

#8 – DO shop for homeowner’s insurance and provide a quote to your loan officer.

#9 – DO make copies of all checks before depositing them into your bank account.

#10 – DO expect to receive calls and correspondence from your real estate agent, loan officer, loan processor, escrow company, and title company.

The home buying process is stressful enough. Keep these 10 do’s and don’t rules in mind to make sure the home buying process is as smooth as possible.

Top 10 Truths: Mortgage Interest Rates

Here are the top 10 insider tips about mortgage interest rates.

  1. Mortgage interest rates change daily, Monday through Friday, and can go up or down multiple times per day.
  2. Rates are locked for a specific time period. Most commonly, rates are locked for a 30-day period, but 45-day, 60-day, 90-day, and 180-day lock periods are also available.
  3. Rates are locked by your loan officer.
  4. Being quoted a rate does not equate to locking a rate. A quote is a quote, and a lock is a lock.
  5. Rates can be locked once a property has been purchased and you’re in escrow.
  6. The longer the lock period, the higher the rate.
  7. Your FICO score, down payment amount, property type (house vs. condo), occupancy (owner occupied or non-owner occupied), loan term (30-year fixed vs. 5, 7 & 10-Year Adjustable) ALL affect your rate.
  8. Once a rate is locked, no rate changes can be made. Think of locking a rate like buying a stock. Once you’ve bought it, it’s final. Rate changes barely affect your monthly payment. On a $500,000 loan amount, the difference between a 4% and 4.125% rate is $36 per month
  9. The truth is that no one knows whether interest rates will rise or fall in the short term, so lock your interest rate as soon as possible and feel great about the rate you locked.

In the 1980’s, first mortgage interest rates exceeded 16% and never dropped below 9%. Today, interest rates are at an all-time historic low. Why try to bet that things will get even better when you can take advantage of great current rates?!

Top 10 Truths: Mortgage Insurance

Mortgage Insurance (MI) aka Private Mortgage Insurance (PMI) is a necessary evil in today’s lending environment for many home buyers. Here are the top 10 things to know about mortgage insurance:

  1. What is Mortgage Insurance?
    Mortgage insurance, aka MI, is an insurance policy which compensates the lenders or investors for losses due to the default of a mortgage loan. If a borrower defaults on the mortgage, the lender or investors is paid back a portion of the loan balance.
  1. Why do I pay Mortgage insurance?
    Loans requiring mortgage insurance are considered higher-risk. Put 20% down on a conventional loan and pay no MI.
  1. When do I pay Mortgage Insurance?
    There are two types of loans that charge MI: Conventional Loans and FHA Loans.

Conventional loans typically require mortgage insurance when down payments are below 20%. More factually, mortgage insurance is required with the 1st mortgage is over 80% loan-to-value.

FHA 30-Year loans require mortgage insurance on all loans regardless of the down payment amount. As of June 3, 2013, the monthly mortgage insurance remains for the life of the loan – for loans over 90% loan-to-value, i.e. when the borrower puts less than 10% down.

  1. How do I avoid paying Mortgage Insurance?

Put 20% down on a conventional loan or chose a 1st and 2nd loan combo. No FHA.

  1. How do I pay the Mortgage Insurance?

Mortgage insurance is charged two ways: Monthly-Paid or Single-Paid. Monthly-Paid MI charges on a monthly basis. Single-Paid MI charges a one-time fee at the close of escrow as part of the closing costs.

  1. What determines how much Mortgage Insurance I pay?

FICO score and down payment are the two main factors to determine the cost of mortgage insurance. Higher FICO scores and a larger down payment = lower MI costs. A high FICO score will lower the mortgage insurance premiums dramatically.

  1. Mortgage insurance Cost

FHA charges 1.30% annually on average.

Monthly-Paid MI costs 0.70% on average.

Single-Paid MI costs 2.5% on average.

Actual charges vary.

  1. How to get rid of Mortgage Insurance?

The US Homeowners Protection Act of 1998 allows for borrower to require PMI cancelation when the amount owed is reduced to a certain level, most commonly = 80% loan-to-value. This is for conventional loans only as FHA charges MI on every loan. The only way to ever get rid of MI on FHA loans is to refinance out of FHA and into a conventional loan. Paying down the loan balance or property values increasing are the two ways to get rid of mortgage insurance.

Is MI tax deductible?

No. As of Dec 31, 2013 mortgage insurance the IRS longer tax deductible.

               9. Who pays the MI?

Three parties are allowed to pay the MI.

  • Borrowers (you).
  • Sellers.
  • Lenders

10. Lender and Seller Credits

Lending guidelines allow sellers and lenders to give limited credits to be applied to the borrowers closing costs. To pay off the mortgage insurance entirely, typically the borrower chooses the Single-Paid MI option and negotiates with the seller or lender to cover the cost.

Seller Credits
have to be negotiated as part of the contract negotiations between the buyer and seller. Lenders have the ability to generate Lender Credits by increasing the borrower’s interest rate on most loan products and in most cases. On average, a 0.50% increase to the rate generates enough credits to pay the cost of the Single-Paid MI fee. The benefit to increasing the interest rate and eliminating the mortgage insurance payment is an overall lower monthly payment.

In conclusion, nobody likes mortgage insurance but the alternative is to either make a larger down payment or not buy at all. VA loans do not charged mortgage insurance but one must be a Veteran. Good news! Go enlist for 4 years with the US Military, Army or Navy and pay no mortgage insurance on your next loan.

Top 10 Truths: FHA Loans

The FHA was established in 1947 and experienced a re-birth after banks discontinued the stated-income qualification around 2008. For buyers who had between 3% and 10% down FHA became the “only game in town,” as conventional loans required 10% down before the minimum down payment dropped to the current 5% level.

Here are the top 10 things to know about FHA loans:

  1. FHA is NOT a first-time home buyer program.
  2. FHA allows buyers to have one FHA loan at a time–with few exceptions.
  3. FHA charges monthly mortgage insurance FOR LIFE on ALL LOANS regardless of the down payment.
  4. FHA allows a low 3.5% down payment.
  5. FHA charges the highest mortgage insurance premiums in the industry.
  6. FHA allows for bankruptcies, foreclosures, short sales, and loan modifications, with a waiting period of only a few years after-the-fact.
  7. FHA does not require “reserves” in most cases, meaning you are allowed to have only $1 in the bank “post-close,” i.e. after paying the down payment and closing costs and closing escrow.
  8. FHA allows “owner-occupied” properties only. No investment properties or second homes allowed.
  9. FHA charges a 1.75% one-time upfront mortgage insurance fee on all loans in addition to monthly mortgage insurance.
  10. FHA’s monthly mortgage insurance premium has tripled since 2010, and its one-time upfront mortgage premium has almost doubled since 2010.

The most common misconception is that FHA is a first-time home buyer program, which it is not. But with its low 3.5% down payment option, many first-time home buyers use FHA loans and, for them, they can be a great option.

Top 5 Ways to Avoid Monthly Mortgage Insurance

Many home buyers are unable to avoid monthly mortgage insurance–it’s part of taking that next step and buying a property even if you don’t have a large down payment. But if possible, use these 5 strategies to avoid paying monthly mortgage insurance.

  1.  Make a minimum 20% down payment on a conventional loan. 20% down is the magical number to avoid paying monthly mortgage insurance.
  2. FHA requires mortgage insurance on all loans, so avoid FHA loans if possible.
  3. 1st and 2nd mortgage combos eliminate the need for mortgage insurance.
  4. HOMEPATH loans do not require mortgage insurance. Homepath loans are only allowed when “Fannie Mae” is the seller.
  5. Mortgage insurance can be paid in two ways: “Single-Paid” or “Monthly-Paid”. Choose the single-paid option and pay the mortgage insurance in full to eliminate the need to pay monthly.

With a conventional loan, monthly mortgage insurance eventually falls away, and FHA loans can always be refinanced into conventional loans to eliminate mortgage insurance. So don’t feel bad if you need to incur mortgage insurance to get into a home.

Mortgage Payment 101

When calculating a mortgage payment, here are the four basic costs:

  • Principal
  • Interest
  • Property Taxes
  • Insurance

Online mortgage calculators tend to give you the principal & interest payment but don’t forget about property taxes and insurance! Property taxes rate are county specific. LA County charges 1.25% (of the purchase price) every year, for example. Insurance costs around $100 per month on average.

Three additional costs may apply to you depending on the type of property you are purchasing and the type of loan you are qualifying for.

  1. Mortgage insurance:

Mortgage insurance is required the vast majority of the time when making a down payment less than 20%. Note: FHA loans require mortgage insurance on all loans regardless of the down payment amount.

  1. Home Owner Association Fees:

HOA fees apply to all condos, townhouses and even single family residences located when a PUD (planned unit development).

  1. Mello Roos and CFD fees.

These fees apply to many brand new home development communities. One pays either Mello Roos fees or CFD fees. Never both.

The added costs of mortgage insurance, HOA, Mello Roos and CFD fees can greatly increase your monthly mortgage payment. Make sure you know all the costs associated with any given property to give you the most accurate monthly payment.

#1 Tax Benefit in America: The Home Sale Tax Exclusion

Did you know that in 1913 only 1% of the population paid income taxes, with a rate of up to 7% depending on their tax bracket. Yes, taxes are higher today (to say the least), but the good news is that there are still a number of great tax benefits out there. In fact, the Home Sale Tax Exclusion is one of the most incredible tax benefits remaining today!


Here are the top 4 things to know about the Home Sale Tax Exclusion:

  • The property must be owner occupied the last 2 out of 5 years.
  • Second homes and investment properties are not allowed.
  • You only pay taxes on profits above $250,000 for a single person and $500,000 if you’re married and after a 24-month ownership period.
  • There are no limits to how many times you may use this benefit.

It is perfectly legal to buy a property, live in it for 2-years, sell the property, take advantage of the Home Sale Tax Exclusion and do it all over again. How else can you make $250k to $500k in profit and pay zero taxes!

Top 4 Reasons Why Rich People can’t Qualify for a Home Loan

If you are home buyer of more modest means who has had a challenging time qualifying for a home loan, you might enjoy reading this article! In today’s lending environment, even being rich does not necessarily mean that qualifying for a loan will be easy. Income is just one of many factors needed. In fact, many successful people have a harder time qualifying for a loan than the average person.

Here are the top 4 reasons why rich people can’t qualify for a home loan:

  1. Not Enough Documented Income

Business owners have the luxury of managing how much income they pay themselves. It is perfectly legal not to pay yourself and keep the money in your company in order to avoid paying taxes on that money. This is a great way to save on taxes, but it can be a detriment when it comes time to qualifying for a mortgage. Lenders qualify home buyers based on their adjusted gross income, i.e. income one pays taxes on.

  1. Lack of Credit

To qualify for a loan, one must have a history of credit established. On average, you need a 2-year history showing 3 active accounts, which includes credit cards, student loans, car loans, to name a few. A lender or investor wants to see that you have the ability to borrow money and pay it back on time. Rich people don’t always have car loans, student loans, or have a need for multiple credit cards—they may not even have a credit card. Not having a credit history can be as limiting as having a bad credit history, and sometimes it’s even more limiting!

  1. Bad Credit

Rich people can afford to pay less attention to their credit than the average person. Paying a bill late is not necessarily considered a big deal in the eyes of someone making a ton of cash, yet too many late payments or collection accounts reported on one’s credit report is damaging regardless of how much money you make!

  1. Too Much Debt

Rich people oftentimes are not afraid of taking on debt. High car payments, other mortgages and high credit card debt ads up quickly. If you’re the successful one in the family, you may have co-signed for a car or student loan for one or multiple family members. Co-signing is a very nice thing to do for someone, but it can bite you in the butt when it’s time for you to qualify for a new home loan.

Regardless of how much money you make, keep your credit clean, pay all bills on time, manage your debt, and use your credit frequently. It pays to have excellent credit.

Top 4 Major Tax Benefits to Owning a Property

Home ownership has its privileges, including saving money at tax time! Here are the current major tax deductions home owners enjoy as of Jan 1, 2014 and the top major tax benefit to owning a property today.

  1. Mortgage Interest.
  2. Property Taxes.
  3. Points – “Discount Points” are a cost paid to “buy-down” the interest rate. Point costs are tax deductible.
  4. Only some renovations are tax deductible. Solar panel, small wind turbines, geothermal heat pumps and solar powered water heaters for example are tax deductible through 2016.

Note! Mortgage insurance premiums paid or accrued after December 31, 2013, were supposed to no longer tax deductible but the Obama administration extended the ability to write off mortgage insurance premiums for the tax year 2014.

Home owners are allowed to write-off mortgage interest and property taxes annually along with discount points paid at the time of purchase and limited renovations. Writing off these expenses allows the home owner to not pay taxes to the IRS on the amount deducted. To fully understand these tax rules, visit the IRS website or contact your CPA or tax preparer.

3 Basic Requirements to Qualify for a Home Loan

There are many requirements to qualify for a home loan, but it all starts with these 3 basics:

Employment: A 24-month work history is required. Time in college may be counted as part of the 24-month history.

Credit: A 2-year credit history with 3 active trade-lines. “Trade-lines” are lines of credit reporting on your credit report such as credit cards, car loans, and student loans.

Money: A minimum down payment and closing costs are required.


As always, exceptions to most rules in lending do exist. Yes, you can sometimes get away with less than a 24-month work history but MOST of the time you need 2 years on the job to show stability. If you’re returning to work after taking time off, a 2-year history is not generally required. Same goes for the credit history. One does not always need 3 active trade-lines for 2 years. For more specific questions, feel free to contact me anytime.

Fun Fact: Sellers, lenders, and agents are allowed to contribute towards your closing costs!