Uncategorized • June 3, 2025

How to Avoid Overpaying for a Home

by Tom Sommers

How to Avoid Overpaying for a Home

No one wants to overpay for a home, and as a real estate agent with over 20 years of experience, I’ve seen this fear surface whenever the market shifts. Buyers often worry about paying too much, especially in fluctuating conditions. Trying to time the market perfectly is nearly impossible—even industry insiders like me, who track data daily, can’t predict exact bottoms or peaks. Markets can change in weeks, while media reports often lag months behind. Chasing the “perfect” moment will only lead to frustration. Instead, focus on strategies that minimize the risk of overpaying and build confidence in your purchase. Here are five key steps, plus additional insights, to help you buy smart and avoid financial stress.

1. Tour Multiple Homes to Understand Value

The best way to gauge a home’s worth is to see many properties firsthand. Some buyers fall in love with the first house they visit and rush to make an offer, but this can lead to uncertainty about market value. By touring multiple homes, you’ll learn which neighborhoods command higher prices, how upgrades like renovated kitchens or bathrooms impact cost, and what features matter most to you. I tell my clients to view at least five homes in a session and pick their favorite as a baseline. Later, compare new homes to that benchmark. This process sharpens your understanding of the market, helping you recognize a fair price and avoid emotional overbidding. For example, you might notice that homes with updated HVAC systems sell for 5–10% more than those needing repairs, giving you a clearer sense of value.

2. Leverage a Professional Market Analysis
Before making an offer, work with your real estate agent to conduct a comparative market analysis (CMA). This involves reviewing sales of similar homes—matched by size, bedrooms, bathrooms, and amenities—within a close radius (e.g., two miles) over the past six months. A CMA reveals what buyers are paying per square foot in different areas, helping you craft a data-driven offer. For instance, if homes in one neighborhood average $200 per square foot while another is $250, you’ll know where your target property stands. This factual approach ensures your offer aligns with current market trends, reducing the risk of overpaying. It also strengthens your negotiating position, as you’ll know when a seller’s price is inflated.

3. Insist on a Home Inspection.

A professional home inspection is non-negotiable. It uncovers hidden issues—such as a failing roof, outdated mechanicals, or a leaky basement—that could lower the home’s value or require costly repairs. If significant problems are found, you can negotiate a lower price, request repairs, or walk away during the inspection contingency period without penalty. For example, discovering a $15,000 roof replacement need could justify a price reduction or seller credit. This step protects you from overpaying for a home with undisclosed defects and ensures you’re investing in a property that matches its listed value.

4. Rely on the Appraisal Process
When you secure a mortgage, your lender will order an independent appraisal to confirm the home’s value matches the purchase price. Appraisers use detailed data, including recent sales and property condition, to assess fairness. If the appraisal comes in lower than your offer, you have options: negotiate a lower price, cover the difference in cash, or exit the deal (depending on your contract’s appraisal contingency). For instance, if you offer $400,000 but the appraisal is $380,000, you can renegotiate or walk away, safeguarding against overpayment. This lender-required step adds an extra layer of protection.

5. Build a Strong Homebuying Team
Surround yourself with experienced professionals—a real estate agent, loan officer, home inspector, and title company representative. Each plays a critical role in protecting your interests. A skilled agent provides market insights and negotiates effectively. A loan officer ensures you get the best financing terms. An inspector identifies issues that affect value. A title company verifies a clean title, preventing costly legal disputes (e.g., from unknown liens or ownership claims). Interview candidates to ensure they’re knowledgeable and aligned with your goals. A strong team empowers you with information, helping you make confident decisions and avoid overpaying.

Additional Insights to Avoid Financial Stress

Understand Market Dynamics: Markets vary by location and timing. In a seller’s market, competition may push prices higher, but a well-crafted offer based on a CMA can keep you grounded. In a buyer’s market, you may have room to negotiate below asking price. Stay informed about local trends through your agent or online data.
Factor in Total Costs: Don’t focus solely on the purchase price. Account for closing costs (2–5% of the home price), property taxes, insurance, and maintenance (1–2% of home value annually). Overlooking these can stretch your budget and make a “fair” price feel unaffordable.
Avoid Emotional Decisions: Falling in love with a home can cloud judgment, leading to overbidding. Stick to your budget and the data from your CMA and appraisal to stay objective.
Consider Future Resale Value: Even if you plan to stay long-term, think about the home’s resale potential. Properties in desirable areas with good schools or amenities tend to hold value better, reducing the risk of overpaying relative to future market trends.
Protect with Title Insurance: Title issues, like undisclosed liens or ownership disputes, can lead to financial loss. Title insurance (a one-time premium at closing) covers legal fees and losses from such claims, ensuring you don’t overpay for a property with hidden risks.

Why This Matters
These steps—touring homes, analyzing the market, inspecting thoroughly, relying on appraisals, and building a trusted team—create a safety net against overpaying. They provide data-driven confidence and protect you from costly surprises. Information is power: the more you know about the market and the property, the better your decisions. In a competitive or shifting market, these strategies are your playbook for securing a home at a fair price, minimizing financial stress, and ensuring your investment is sound. For personalized guidance, consult a trusted real estate professional to navigate the process with confidence.

Uncategorized • June 3, 2025

Title Insurance: Where Does Your Dollar Go?

by Tom Sommers

Title Insurance: Where Does Your Dollar Go?

When buying a home, you’ve likely heard of title insurance, but do you know what it covers and how your payment is used? Understanding where your title insurance premium goes can clarify its value in protecting your investment.

How Title Insurance Differs from Other Insurance
Unlike property, casualty, or medical insurance, which pool premiums to cover anticipated losses based on actuarial data, title insurance operates on a risk-elimination model. Title companies invest heavily in collecting, storing, and analyzing public records to identify and resolve issues that could affect your property’s title before closing. These issues might include recorded liens, legal disputes, easements, or other encumbrances. The goal is to clear any unwanted claims so you take ownership with a clean title.

This approach contrasts with other insurance types, which prepare for unpredictable future events. Title insurance requires only a one-time premium at closing, unlike property or medical insurance, which involve recurring payments. By focusing on prevention, title companies aim to minimize claims, though no process is foolproof due to human error or evolving legal interpretations.

What Your Premium Pays For
Your title insurance premium funds a labor-intensive process to ensure your property’s title is clear. Here’s where your dollar goes:

Title Plants and Record Maintenance: Title companies maintain extensive databases, or “title plants,” often spanning over a century of property records. These are updated daily with recorded documents, such as deeds or liens, to ensure accurate, up-to-date information. Building and maintaining these systems requires significant investment in technology and skilled personnel.
Title Search and Examination: Trained experts review public records to identify any issues—liens, legal actions, or disputed interests—that could cloud your title. This thorough process ensures risks are addressed before you close.
Risk Elimination: If issues are found, the title company works to resolve them, such as clearing liens or settling disputes, so you don’t inherit problems.
Claims Handling: In rare cases where claims arise after closing (e.g., an unknown heir contests ownership), professional claims teams manage them per the policy terms, covering legal fees and potential losses.

This proactive approach means most of your premium supports upfront research and risk mitigation, not claim payouts, unlike other insurance models.

Why Title Insurance MattersTitle insurance protects both you and your lender from financial loss due to title defects. An owner’s policy safeguards your ownership rights for as long as you or your heirs own the property, while a lender’s policy ensures the lender’s interest takes priority. The one-time premium provides peace of mind, knowing potential issues have been addressed and you’re covered if challenges arise.

Additional Benefits and Considerations
Title companies offer more than just insurance. Many provide services like escrow management, closing coordination, or document preparation, which streamline your transaction. Since rates vary between companies, shop around and compare costs with help from your real estate agent. Ask about additional services that might add value to your homebuying process.

Avoiding Financial Stress with Title Insurance

Title insurance is a key tool for minimizing financial stress when buying or owning a home. By addressing title issues before closing, it prevents costly surprises, such as unexpected liens or legal disputes, which could jeopardize your investment. For example, a hidden lien from a previous owner’s unpaid taxes could lead to significant legal fees or even loss of the property. Title insurance ensures these risks are identified and resolved upfront or covered if they emerge later, protecting your financial stability.

Choosing the Right Title Company

To maximize value, select a reputable title company with a strong track record. Your real estate agent can recommend options and help compare rates and services. Ensure the company maintains robust title plants and employs experienced professionals to handle complex title searches. This diligence reduces the likelihood of issues and enhances your confidence in the transaction.

By understanding where your title insurance dollar goes, you can appreciate its role in securing your homeownership journey. For personalized guidance, consult your real estate professional or title company representative to ensure your investment is protected.

Uncategorized • June 3, 2025

Avoiding Financial Stress When Buying or Owning a Home

by Tom Sommers

Avoiding Financial Stress When Buying or Owning a Home

Purchasing or owning a home is a major financial commitment, but with careful planning and informed decisions, you can minimize stress and secure a mortgage that fits your budget and goals. By asking the right questions, understanding your needs, and exploring your options, you can avoid common pitfalls and save money. Here’s how to approach the process wisely, along with additional strategies to maintain financial stability as a homeowner.

1. Know Your Budget Before You Borrow
To avoid financial strain, determine the monthly payment you’re comfortable with before speaking to a lender. This figure should account for your income, expenses, and other financial goals, such as saving for emergencies or retirement. When discussing mortgage pre-approval, share this amount with your lender to identify a loan that aligns with your budget. Avoid being swayed by a “dream home” that pushes you beyond your financial limits, as overextending can lead to stress and potential default. For example, aim to keep housing costs (mortgage, taxes, insurance) below 28–36% of your gross monthly income, a common guideline for affordability.

2. Understand How Qualifications Impact Rates
Your financial profile—credit score, income, debt-to-income ratio, and down payment—directly affects your mortgage interest rate. Strong qualifications typically secure lower rates, saving you thousands over the loan’s life. However, mortgages are available for a wide range of borrowers, including those with lower credit scores or smaller down payments, though these often come with higher rates or stricter terms. Check your credit report for errors and improve your score if possible before applying. Even a small increase in your score can lower your rate significantly.

3. Research Mortgage Types for Your Needs

Not all mortgages are created equal, and choosing the right one depends on your circumstances. Consider these factors:

Market Conditions: Are interest rates rising or falling? In a rising-rate environment, locking in a fixed-rate mortgage can provide payment stability. In a falling-rate market, an adjustable-rate mortgage (ARM) might offer lower initial rates.
Fixed vs. Adjustable Rates: A fixed-rate mortgage ensures consistent payments, ideal for long-term stability. An ARM may start with a lower rate but can increase over time, suiting those planning to sell or refinance soon.
Loan Term: Shorter terms (e.g., 15 years) often have lower rates but higher monthly payments, while longer terms (e.g., 30 years) lower monthly costs but increase total interest paid.
Your Goals: Are you staying in the home long-term or planning to sell within a few years? Short-term owners might prefer an ARM or a loan with lower upfront costs, while long-term owners may prioritize fixed rates.

Research options like FHA loans (for lower credit scores or smaller down payments), VA loans (for veterans), or conventional loans, and compare their requirements, rates, and fees. Online tools or a mortgage broker can help you evaluate options tailored to your situation.

4. Shop Around for the Best Deal
Don’t settle for the first lender you contact. Compare offers from multiple lenders—banks, credit unions, and online lenders—to find the best rates and terms. Small differences in interest rates or closing costs can add up over time. Ask for a Loan Estimate, a standardized form that outlines fees, rates, and terms, to make comparisons easier. Also, inquire about lender credits or discounts for automatic payments, which can reduce costs.

5. Plan for Ongoing Homeownership Costs
Financial stress doesn’t end with securing a mortgage. Homeownership includes ongoing expenses that can strain your budget if you’re unprepared. To avoid surprises:

Build a Maintenance Fund: Set aside 1–2% of your home’s value annually for repairs and maintenance, such as fixing a leaky roof or replacing an HVAC system.
Account for Property Taxes and Insurance: These costs can rise over time. Ask your lender for estimates and check if they’re included in your monthly payment (via an escrow account).
Prepare for Rate Changes: If you choose an ARM, model potential payment increases to ensure you can afford them if rates rise.
Create an Emergency Fund: Aim for 3–6 months of living expenses to cover unexpected events like job loss or medical emergencies, preventing reliance on high-interest debt.

6. Avoid Common Mistakes

Overbuying: Don’t let emotions drive you to buy a home beyond your means. Stick to your pre-determined budget.
Skipping Pre-Approval: Getting pre-approved clarifies your borrowing power and strengthens your offer in competitive markets.
Ignoring Total Costs: Look beyond the monthly payment to include closing costs, property taxes, homeowners insurance, and potential HOA fees.
Neglecting Future Goals: Consider how your mortgage fits into long-term plans, like starting a family or saving for retirement, to avoid financial strain later.

7. Leverage Professional Guidance
A trusted real estate agent, financial advisor, or mortgage broker can provide clarity and help you navigate complex decisions. They can explain loan terms, negotiate on your behalf, and connect you with reputable lenders. If you’re a first-time buyer, look into homebuyer education programs, which often provide valuable insights and may qualify you for down payment assistance or better loan terms.

8. Protect Your Investment with Title Insurance
When buying a home, title insurance is a critical safeguard against financial stress. It protects you from unexpected claims against your property’s title, such as liens or ownership disputes, that could arise from issues predating your purchase. An owner’s policy covers you for as long as you own the home, while a lender’s policy protects your mortgage provider. The one-time premium, paid at closing, can save you from costly legal battles or financial losses, providing peace of mind.

By taking these steps—knowing your budget, researching loans, planning for ongoing costs, and protecting your investment—you can buy or own a home with confidence, minimizing financial stress and building a secure future. For personalized advice, consult a financial professional or lender to ensure your decisions align with your goals.

Uncategorized • June 3, 2025

What Is a Living Trust?

by Tom Sommers

What Is a Living Trust?

A Living Trust is often recommended by estate planners as an effective way to hold title to real property. When property is held in a Living Trust, title companies have specific requirements to ensure a smooth transaction. Below are answers to common questions about Living Trusts, though this is not an exhaustive guide. For specific concerns, consult your title company representative or seek legal counsel.

Who Are the Parties to a Trust?
In a typical Family Trust, the Trustors (or Settlors)—often a husband and wife—establish the trust and transfer their property into it. They typically serve as Trustees, managing the trust during their lifetime, and are the primary beneficiaries. Their children or grandchildren usually become beneficiaries after their passing, either receiving distributions or continuing the trust, depending on its terms.

What Is a Living Trust?
A Living Trust, also known as an Inter-vivos Trust, is created during the Trustors’ lifetimes, unlike trusts formed through a will after death. It typically terminates after the Trustors’ deaths, with the trust’s assets distributed to the beneficiaries.

Can a Trust Hold Title to Real Property?
No, the Trustee holds the property on behalf of the Trust, managing it according to the trust’s terms.

Is a Living Trust the Best Way to Hold My Property?
This depends on your situation and should be discussed with an attorney or accountant. Common reasons for using a Living Trust include minimizing or delaying estate taxes, avoiding lengthy probate processes, and protecting assets from certain unsecured creditors.

What Taxes Can a Living Trust Help Avoid?
Married couples may exempt significant assets from taxation and delay taxes after one spouse’s death. Always consult an attorney or accountant before making decisions, as tax rules vary.

Can I Homestead Property in a Trust?
Yes, if the property meets homestead qualifications.

Can a Trustee Borrow Against Property in a Trust?
Yes, if the trust agreement allows it, which most do. However, some lenders may hesitate to lend on trust-held property, so confirm with your lender beforehand.

Can Someone Else Hold Title for Me “In Trust”?
While some arrange for a third party to hold title as a Trustee, this can be risky and potentially illegal. Only the Trustee of record can legally convey or borrow against the property. Private agreements with a Trustee may not be honored, and title insurance cannot protect against a Trustee acting against your wishes. Always seek legal advice for such arrangements.

For further guidance, contact a qualified professional to ensure your trust aligns with your estate planning goals.

Uncategorized • June 3, 2025

How to Sell Your Home Quickly: 5 Key Strategies

by Tom Sommers

How to Sell Your Home Quickly: 5 Key Strategies

Selling your home fast requires strategy, but success depends on your local market conditions. Here are five proven practices to help you sell efficiently, with the caveat that market dynamics can impact results.

1. Make Necessary Repairs
Buyers are less likely to overlook major issues in today’s market. Address critical repairs, like replacing a faulty furnace, to avoid costly buyer demands later. Also, consider minor updates, such as a fresh coat of paint for worn walls. View your home objectively: What would turn you off as a buyer? Fixing these issues upfront makes your property more appealing.

2. Price It Right
Pricing your home according to current market trends is critical. Work with a real estate professional to review comparable sales in your area and understand their valuation rationale. While you have the final say, remember that price drives speed. Overpricing is a common mistake that can stall your sale. Set a competitive price to attract buyers quickly without undervaluing your home.

3. Consider Staging
Staging can help buyers visualize living in your home, especially if it’s vacant. Highlighting key rooms with furniture can create an inviting atmosphere. However, staging isn’t always necessary and can be costly—sometimes $5,000 or more. Ensure your home is priced correctly first, as staging won’t fix an overpriced listing. Evaluate costs versus benefits based on your situation.

4. Hire a Skilled Real Estate Agent
A licensed real estate agent is your advocate, guiding you through the process and protecting your interests. Choose someone experienced who can demonstrate their value. A good agent helps price your home, markets it effectively, and navigates negotiations to get you to closing smoothly. Don’t assume all agents are equal—ask about their approach and track record.

5. Invest in Professional Photography and Tours
High-quality visuals are non-negotiable in today’s online-driven market. Professional photography showcases your home’s best features, while a detailed virtual tour—beyond just slideshows with music—lets buyers explore every detail, from pull-out drawers to spacious closets. When interviewing agents, confirm they provide these services, as not all do. Strong online presentation is your first chance to impress buyers.

Why It Matters
In a competitive market, these steps work together to make your home stand out. Most buyers start their search online, so a polished, well-priced listing is crucial. By addressing repairs, pricing strategically, staging thoughtfully, hiring a skilled agent, and showcasing your home professionally, you maximize your chances of a quick sale. For personalized advice, reach out to a real estate professional with no obligation.

Uncategorized • June 3, 2025

Understanding Title Insurance: What You Need to Know

by Tom Sommers

Understanding Title Insurance: What You Need to Know

When browsing real estate sections in newspapers or chatting with brokers, you’ve likely heard about title insurance. If you’re a seasoned homeowner, you may already appreciate its value. But if you’re a first-time buyer, you might be wondering, “Why do I need another insurance policy?” Let’s break it down.

Buying a home is one of the biggest investments you’ll ever make. You and your lender want assurance that the property is legally yours, free from liens, claims, or encumbrances. That’s where title insurance comes in. The Land Title Association provides answers to common questions about this often-misunderstood form of protection.

How Does Title Insurance Differ from Casualty Insurance?
Unlike casualty insurance (e.g., auto or fire insurance), which assumes risks and collects premiums to cover expected losses, title insurance focuses on preventing risks before issuing a policy. Title companies identify and resolve potential issues—like past title defects—before you buy. They maintain extensive records, called title plants, which track property transfers and liens going back decades. Most of your premium funds this risk-elimination process, ensuring a clean title.

Who Needs Title Insurance?
Both buyers and lenders in real estate transactions benefit from title insurance. It protects against specific title defects outlined in the policy, giving peace of mind to the buyer, seller, and lender.

What Does Title Insurance Cover?
Title insurance safeguards against claims arising from title defects existing at the time the policy is issued. These could include someone claiming ownership through a deed or lease, asserting an easement for access across your land, or holding a lien for an unpaid debt. Whether the property is a vacant lot or a high-rise, title insurance covers all types of real estate.

What Types of Policies Exist?
Title companies typically issue two policies:

An owner’s policy, protecting you and your heirs for as long as you own the property.
A lender’s policy, ensuring the lender’s interest takes priority over other claims.

What Protection Does a Title Policy Provide?
Your policy covers legal fees to defend against covered claims and compensates for losses if a claim is valid. You pay a one-time premium at closing, with no ongoing costs, unlike other insurance types.

How Likely Am I to Use My Title Policy?
Because title companies proactively eliminate risks, the chance of needing to file a claim is low. However, the policy’s ongoing protection is crucial, as invalid claims can still arise. If a claim is covered, the legal defense provided by the title company often far outweighs the cost of the one-time premium.

What If I’m Buying from Someone I Trust?
Even if you know the seller, unforeseen issues can affect the title. Personal circumstances like divorce, revised wills, or undisclosed liens can create problems. A title search uncovers hidden issues, ensuring your investment is secure.

By identifying and resolving risks before issuing a policy, title companies minimize disputes, keeping costs low and providing affordable protection for one of your most significant investments.

Uncategorized • June 3, 2025

Which ARM is the Best Alternative?

by Tom Sommers

Resources, Mortgage Information 0 Comments | Add Comment

Which ARM is the Best Alternative?

How would you like a mortgage loan where you did not have to make the whole payment if you did not want to? Or would you like a loan with an interest rate about 1% below a thirty-year fixed rate mortgage and pay zero points? Or a loan where you did not have to document your income, savings history, or source of down payment? How would you like a mortgage payment of only 1.95%? You can have all that with the 11th District Cost of Funds (COFI) Adjustable Rate Mortgage.

Sound too good to be true? Sound like a bunch of hype?

Each statement above is true. However, it is also only part of the story and loan officers do not always tell you the whole story when promoting this loan. Other loan officers may try to scare you away from adjustable rate mortgages. However, once you become aware of all the details of the loan, it is an excellent way to buy the house of your dreams, especially when fixed rates begin to go up.

ARMs in General

Adjustable rate mortgages all have certain similar features. They have an adjustment period, an index, a margin, and a rate cap. The adjustment period is simply how often the rate changes. Some change monthly, some change every six months, and some only adjust once a year. Indexes are simply an easily monitored interest rate that moves up and down over time. Adjustable rate mortgages have different indexes. The margin is the difference between your interest rate and the index. The margin does not change during the term of the loan.

So if you have an adjustable rate mortgage and you wanted to calculate your interest rate on your own, all you have to do is look up the index in the paper or on the internet, add the margin, and you have your rate.

Indexes and the 11th District

The “Prime Rate” you hear about in the news is one interest rate index, although it is very rare that mortgages are tied to this index. It is more common to find adjustable rate mortgages tied to different treasury bill indexes, the average interest rate paid on certificates of deposit, the London Inter-Bank Offered Rate (LIBOR), or the 11th District Cost of Funds.

COFI ARM Index

The 11th District Cost of Funds (COFI) is the weighted average of interest rates paid out on savings deposits by banking institutions in the 11th district of the Federal Home Loan Bank (FHLB), which is located in San Francisco. The 11th District includes the states of California, Nevada, and Arizona.

The COFI index moves slower than the other indexes, making it more stable. It also lags behind actual changes in the interest rate market. For example, when rates begin to go up, the COFI index may continue to decline for a couple of months before it also begins to rise.

The Margin and Interest Rates

The margin on the COFI ARM typically ranges between 2.25-3%.

Monthly Adjustments Sound Scary, but…

Although you can get a COFI ARM with an adjustable period of six months, you can get a lower margin if you go for the monthly adjustment period. Since the margin plus the index equals your interest rate, the lower margin is an advantage and most people choose the monthly adjustment.

Monthly adjustments sound scary to the uninitiated, but keep in mind that this is a slow moving index. Most other ARMS have an annual cap of 2% a year. Since 1981, when the FHLB began tracking the index, the most it has moved during any calendar year is 1.6%. So why get a higher margin just to get a rate cap that you probably will not use anyway?

The“life-of-loan” cap for the COFI ARM is usually 11.95%. The most recent year that this cap could have been reached was 1985. Plus, most experts do not expect a return to the interest rates of the early 1980’s when interest rates were pushed up artificially to combat the inflation of the 1970’s.

Make Only Part of Your Payment?

This is the really interesting feature of the loan. You do not have to make the whole payment. Each month you get a bill that has at least three payment options. One choice is the full payment at the current interest rate. A second choice allows you to pay only the interest that is due on the loan that particular month, but does not pay anything towards the principal. Finally, the third option gives you the choice to pay even less than that and is called the “minimum payment.”

The minimum payment when you start your loan can be calculated as low as 1.95%. Keep in mind that this is not the note rate on your loan, but just a way to calculate your minimum payment.

Deferred Interest and Amortization

Of course, if you only make the minimum payment each month, you are not paying all of the interest that is currently due that month. You are deferring some of the interest that is currently due on the loan so you will have to pay it later. The lender keeps track of this deferred interest by adding it to the loan and the loan balance gets larger. Neither you nor the lender wants this to continue forever, so your minimum payment increases a bit each year.

The payment cap on the loan is 7.5%, which also has nothing to do with the interest rate. All it means is the most your minimum payment can increase from one year to the next is seven and a half percent. For example, if your minimum payment is $1000 this year, next year the most it could be is $1075. This continues each year until your payment is approximately equal to the payment at the full note rate.

Just in case, there are fail-safes built into the loan. If you continue making only the minimum payment and your current balance ever reaches 110% of the beginning balance, the loan is re-amortized to make sure you pay it off in thirty years (or forty years, whichever option you chose). Every five years the loan is re-amortized to make sure it pays off within the term of the loan.

Stated Income and Other Features

Many COFI lenders allow Homebuyers with good credit to apply without documenting their income, assets, or source of down payment. Of course, you have to make a twenty or twenty-five percent down payment on your home purchase. This is helpful for self-employed borrowers or those who have jobs where it is difficult to document their income. Plus, some people just do not like the bother of supplying W2 forms, tax returns and pay-stubs. Anyway, it makes for a quick and easy loan approval.

Sub-Prime COFI ARMs

Some people have less than perfect credit and they are used to being charged outrageous rates for past problems. Some COFI lenders offer this same loan but have a slightly higher starting payment and a higher margin. The end result is that your interest rate would be about one percent higher.

Who Should Get This Loan?

Most people who get the COFI ARM are purchasing a home between $300,000 and $650,000, but it is not limited to that. It is a real favorite of those working in the financial industry and those with higher incomes. One reason these groups like this particular loan is because they consider any deferred interest to be an extended loan at a very attractive rate. By making the minimum payment, they can do other things with the money.

Homebuyers whose income has peaks and valleys, such as self-employed or commissioned salespeople also like the loan, because it provides flexibility in the monthly payment. During a slow month they can make the minimum payment if they choose.

Another reason borrowers like the loan is because it allows for tax planning. The borrower can defer interest payments and at the end of the year, analyze their tax situation. If it serves their tax interests, they can make a lump sum payment toward any interest that has been deferred and deduct it for tax purposes.

Skipping the Starter Home or Move-Up Home

If you’re buying a home with the intention of living in it for only a few years before you move up to a bigger home, the COFI ARM makes sense, too. With this loan and its low start payment you can often qualify for a larger home than you can when applying for a fixed rate loan. This allows you to skip the intermediate purchase and move up immediately to the home you really want, which makes more sense and saves you money.

If you buy a home then sell it to move up to a bigger home, you are going to have to pay a REALTOR’S® commissions and closing costs. On a $300,000 house, this would be around $25,000. If you skip buying that home and buy the home you really want, you save that money. Plus, you save money in another way. Say you live in your intermediate purchase for five years, then move up and buy another home with another thirty-year mortgage. That is thirty-five years of home loans. If you buy your ideal home now, you save five years of mortgage payments. Depending on your loan amount, that can be a lot of cash.

Conclusion

So, when rates start going up this is an attractive alternative to a fixed rate mortgage. It even makes sense for some borrowers when rates are low. Something we also did not mention is that most COFI lenders also give you a fourth option on your monthly mortgage statement, which allows you to pay it off quicker.

Uncategorized • June 3, 2025

Rates, Rates, Rates!

by Tom Sommers

tips for sellers, tips for buyers, homeowners information 0 Comments | Add Comment

Rates, Rates, Rates!

I’m sure some people are running up and down the halls of their workplace or home yelling rates, rates, rates! It seems to me making everybody crazy right now especially with what we have going on in the United states. I’d like to peel that back and give you a ground level view of what causes interest rates for home loans to rise and to fall. Hopefully it will give you a clear understanding of the basics and will help you to look at things from a logical standpoint to make the best decision for you.

If you’re trying to time the market, good luck it’ll never happen. Is there a bad time to buy a home or sell a home? That all depends on your situation. There are some people who are moving due to financial hardship, divorce or a job transfer that have no choice in the matter. buyers want to time the market to get it when it’s at its lowest and sellers want to time it when it’s at its highest. But is it really that simple?

let’s take what’s going on right now in November of 2022 as an example. Rates have risen to over 7% but have now dropped back below 7% recently. Inventory is still low. A lot of the multiple offers have disappeared but not completely. So if the huge frenzy is over why are there not more buyers right now? It can’t simply be because of the interest rate. Some people are waiting for the interest rates to drop so they can purchase a home. But the other side of that is the moment that the rates come down, a lot of buyers who have left the market will jump back in again which will drive the price back up. I still believe in that saying from my last week’s blog that you marry the home and date the interest rate. Meaning purchase the home that you love and know at some point you will refinance to get a lower house payment when things go in a positive direction.

Every time the Fed raises the prime interest rate, everybody freaks out. But the prime rate is not tied to the mortgage rate. Mortgage rates follow bonds. Think of it this way, inflation is what will drive up interest rates for home mortgages. When the Fed raises the prime interest rate by.75% or 75 basis points. They’re trying to get inflation under control. When inflation starts to stabilize and lower, the interest rates we’ll start to drop. So if you’re in a situation where you’re looking to buy or sell a home with high inflation, you want to hear that the Fed is going to raise the prime rate.

For those of you that don’t know, prime rate is tied to the interest rate on a car loan, the interest that you pay on your credit cards and other types of debt. Instead of believing everything that you read including this blog. I encourage each and everyone of you to call a mortgage broker and speak to them directly. Verify the information I just shared with you and ask them to explain where rates are currently and what they think will happen in the next three to six months. That way you’re not just relying on things you see and hear on the Internet but you’re actually talking to mortgage professionals who work in this field every single day.

Many economists believe that we have a 10 year shortage of homes. They feel that we could build homes 24 hours a day seven days a week and it would take almost 10 years to get to the point where we now have serviced all of the people who are looking to purchase a home. So no matter what happens with the interest rate in the next year, we still have a housing shortage. That’s why I don’t believe that the value of the home will drop a huge amount. As long as there is a home shortage there’s always going to be demand.

Uncategorized • June 3, 2025

What kind of lender is best?

by Tom Sommers

Mortgage Information

What kind of lender is best?

If you ask a loan officer, “What kind of lender is best?” the answer will be whatever kind of company he works for and he will give you a list of reasons why. If you meet the same loan officer years later, and he works for a different kind of lender, he will give you a list of reasons why that type of lender is better.

REALTORS® will also have differing opinions, and those opinions have and will continue to change over time. In the past, it seemed like most would recommend portfolio lenders. Now, they usually recommend mortgage bankers and mortgage brokers. Most often they direct you to a specific loan officer who has demonstrated a track record of service and reliability.

This article discusses the advantages and disadvantage of different types of institutions, not the individual loan officers. However, it is often more important to choose the correct loan officer, not the institution. The loan officer has many responsibilities, one of which is to act as your representative and advocate to the lender he works for or the institutions he brokers loans to. You want someone who has proven dependable and ethical in the past.

Regarding the institutions, the truth of the matter is that each type of lender has strengths and weaknesses. This does not even take into account the variety of other factors that influence whether a lender is good or bad. Quality can vary, depending on the loan officer, the support staff, which branch or office you are obtaining your loan from, and a variety of other factors.

PORTFOLIO LENDERS

Savings & Loans are quite often portfolio lenders, as are some banks. Portfolio lenders generally promote their own portfolio loans, which are usually adjustable rate loans. They will often pay more compensation to their loan officers for originating a portfolio product than for originating a fixed rate loan. You may also find that they are not as competitive as mortgage bankers and brokers in the fixed rate loan market.

However, it is often easier to qualify for a portfolio loan, so borrowers who may not qualify for a fixed rate loan may be able to obtain a loan from a portfolio lender. A borrower may be able to qualify for a larger loan from a portfolio lender than he could obtain from a fixed rate lender.

Portfolio lenders also can serve as niche lenders because certain things are more important to them than meeting the more standardized underwriting guidelines of a mortgage banker. An example would be a savings & loan, which is more concerned with an individual’s savings history than being able to fully document income and other things.

If you apply for a loan with a portfolio lender and you are declined, you usually have to start the process over with a new company.

MORTGAGE BANKERS

If we are talking about the larger mortgage bankers, you can count on them having several strengths. For the biggest ones, you will recognize the brand name.

Usually, they are much better at promoting special first time buyer programs offered by states and local governments, that have lower interest rates and costs than the current market rate. These programs are often available to buyers who have not owned a home in the last three years and fall within certain income guidelines.

Mortgage bankers may incur problems because they are just too big to manage, or they may operate like well-oiled machines.

If you are buying a home and you need a VA or FHA loan and the development you are buying in has not yet been approved, they will be better at getting it approved than other lenders.

If your home loan is declined for some reason, many mortgage bankers allow their loan officers to broker the loan to another institution. However, because your loan officer is so used to promoting the company’s product, he may not be familiar with which institution may be the best one to submit your loan to. Another reason is because wholesale lenders do not expect to get many loans from direct mortgage bankers, so they do not expend much marketing effort on them.

BANKS and SAVINGS & LOANS

Their major strength is that you will recognize their name. In addition, they will usually be operating as a mortgage banker, a portfolio lender, or both, and have the same weaknesses and strengths.

MORTGAGE BROKERS

The major strength of mortgage brokers is that they can shop the wholesale lenders for the best rate much easier than a borrower can. They also learn the “hot points” of certain wholesale lenders and can handpick the lender for a borrower that may be unique in some way. He will be able to advise you whether your loan should be submitted to a portfolio lender or a mortgage banker. Another advantage is that, if a loan gets declined for some reason, they can simply repackage the loan and submit it to another wholesale lender.

One additional advantage is that mortgage brokers tend to attract a high number of the most qualified loan officers. This is not universal because mortgage brokers also serve as the training ground for those just entering the business. If you have a new loan officer and there is something unique about you or the property you are buying, there could be a problem on the horizon that an experienced loan officer would have anticipated.

A disadvantage is that mortgage brokers sometimes attract the greediest loan officers, too. They may charge you more on your loan, which would then nullify the ability of the mortgage broker being able to shop for the lowest rate.

WHOLESALE LENDERS

Borrowers cannot get access to the wholesale divisions of mortgage bankers and portfolio lenders without going through a broker.

When REALTORS® or Builders Recommend a Lender

If your REALTOR® or builder makes a suggestion for a lender, be sure to talk to that lender. One reason REALTORS® and builders make suggestions is the fact that they have regular dealings with this lender and have come to expect a certain amount of reliability. Reliability is extremely important to all parties involved in a real estate transaction.

On the other hand, a recent trend in mortgage lending has been for real estate companies and builders to own their own mortgage companies or create “controlled business arrangements” (CBA’s) in order to increase their profitability. These mortgage brokers sometimes become used to having what is essentially a captured market and may not necessarily offer you the lowest rates or costs.

Some real estate companies also offer different types of incentives to their REALTORS® in exchange for recommending their company-owned mortgage and escrow companies or lenders with whom they have CBA’s. Dealing with one of these lenders is not necessarily a bad thing, though. The builder or real estate company often feels they have more ability to expedite matters when they own the company or have a controlled business relationship. They cannot usually influence the underwriting decision, but they can sometimes cut through red tape to handle problems or speed up the process. Builders are especially forceful on having you use their lender. One reason is that there are certain intricacies in dealing with new homes. If you use a loan officer who usually deals with refinances or resale home loans, he may not even be aware of how different it is to close a mortgage on a new home and this can lead to problems or delays.

It is in your interest to know if there is any kind of ownership relationship or controlled business arrangement between the real estate or builder and the lender, so be sure to ask. Do not automatically disqualify such a lender, but be sure to be more vigilant on getting the best interest rate and the lowest costs.

Conclusion

Make sure to do a little shopping. By knowing the interest rates in your market and making sure your loan officer knows you are looking at rates from other institutions, you can use that as leverage to make sure you are obtaining the best combination of service and the lowest rates.

Uncategorized • June 3, 2025

Why You Should Not Make Any Major Credit Purchases

by Tom Sommers

Resources, Tips for Buyers

Why You Should Not Make Any Major Credit Purchases

Don’t go on a spending spree using credit if you are thinking about buying a home, or in the process of buying a new home. Your mortgage pre-approval is subject to a final evaluation of your financial situation.

Every $100 you pay per month on a credit payment could cost you about $10,000 in home eligibility. For example, a car payment of $300/month could mean that you qualify for $30,000 less in a mortgage.

Even if you have accumulated enough savings, you should consider not making any large purchases until after closing. The last thing you want is to know that you could have purchased a new home had you curbed the urge to spend.