HOW DO FED RATE HIKES AFFECT MORTGAGES?

Eeeeek! Rates are going up … or are they?

Last week, for the first time after years of historically low rates, the Federal Reserve decided to raise short-term interest rates. For homebuyers, any rate hike often is seen a negative, but here are some reasons why this rate increase is good.

First of all, understand that the interest rate hike was NOT on mortgages. The Federal Reserve does not directly control interest rates on mortgages. What the Fed does control is the overall money supply. By raising interest rates at the Fed level on the “Federal Discount Rate,” they have begun a trickle-down effect that will begin to tighten the money supply. This makes it more expensive for commercial banks to borrow money and so decreases the amount of money available for short-term borrowing.

1. It’s a good sign

For the Federal Reserve to take such a bold step after years of low rates means that the Federal Reserve Board believes that the economy has improved enough that it can withstand an increase. Because the Federal Reserve has a mandate to achieve maximum employment rates AND keep prices relatively stable (curb inflation), raising rates means that employment levels have improved. An improved economy is a good sign that homebuyers will be able to afford to buy a home.

2. It does not directly influence mortgage rates

The discount rate does NOT directly influence mortgages. Mortgage-backed securities (bonds made up of pools of mortgages) track with the percentage yield on 10-Year U.S. Treasury bonds. Regular mortgages follow the mortgage-backed securities. While some mortgage rates increased slightly after the announcement, the bond markets have not settled on rate hikes, so the could end up either higher or lower once it becomes apparent how the economy reacts to the Federal Discount Rate increase.

3. It should be a slow increase

Because of the dual mandates of the Federal Reserve (low unemployment and stable pricing), the increases should be gradual rather than quickly increasing hikes because the Fed needs to make certain the economy is keeping pace with the increases. While it seems counter-intuitive, the Fed would like to see inflation rise slightly and this move is one way they can affect inflation in a gradual manner.

4. It might be good for your bottom line

Yes, your mortgage rates might increase a bit, but so will the interest on your savings accounts and securities. You’ll begin to see higher offerings on CDs and other interest-based income streams.

5. It’s still historically low

The current generation of homebuyers has not experienced high rates. Most millennials or Generation Xers do not remember when mortgage interest rates were in double digits and may fear the worst, but the changes in mortgage interest rates, at least for the near term, won’t increase their payments by more than their designer coffee or energy drink habits.

As always, if you have questions about the housing market, contact us. We stand ready to help you make sound decisions on the home of your dreams.

PROTECTING YOUR HOME DURING HOLIDAY TRAVEL

Plane tickets? Check

Suitcase packed? Check

Wrapped gifts packed? Check

House protected? Oooops!

If you’re planning on traveling for the holidays, don’t leave your home’s protection to chance. Coming home from a holiday trip to find your home has been broken into, or that a pipe has broken in your absence can ruin all those relaxing hours with family and friends.

While this is true for anyone, it is especially important that new homeowners take steps to safeguard their home while out of town.

Here are some of the basics:

Get a little help from your friends: Ask a friend to water plants, check on your house and pick up mail or newspapers.

If you’ve met your neighbors, you should let them know you will be away. Give them you phone number and the date you’ll get back. If you are having a friend check on your home or water plants while you’re away, let your neighbor know that too so they don’t accidently call the police on your friend.

Avoid posting to social media: In a world filled with tweets and posts that go out to the wide world, you can’t be certain that your posts of being away aren’t being viewed and monitored by thieves. Save your pictures to post after you’re back home. The memories will be just as sweet.

Lights, Curtains: All the world’s a stage…

While you’re gone, to make your home not appear empty, you might think about lighting up the rooms in the evening. This does not mean leaving the lights on in all the rooms the whole time. First off, that would seem weird, and secondly, it will give you a higher electric bill. The best course of action is to get timers and connect them to lamps. Have them set to come on and go off in each room as you would normally use that room. For example, from early evening to just prior to bed time in the living areas and in the bedrooms briefly as if you were getting ready for bed. You can find timers at many retail outlets and online for less than $10.

Regarding window coverings, keep them the way you usually do, but move electronics and other costly items out of sight.

Stop the mail: If you have mail or newspapers delivered to your home, suspend delivery while you are gone. The US Postal Service allows you to sign up online for most ZIP codes to hold your mail with the use of a credit card (for a nominal charge to prove identity).

What else should you do? If you have a neighborhood watch or community association, let them know to keep an eye on your place. Make arrangements with services to sweep leaves and snow off your walkways and driveway. Unplug appliances that have LED lights (coffee pots, microwaves, televisions, etc.) so that your electric bill isn’t huge when you get home. Lastly, if there is any chance of freezing weather, leave your furnace set to no lower than 56°F to keep your pipes from freezing. If you aren’t sure how well your pipes are insulated, open the cabinet doors below your sinks to let the warmer air circulate.

SLASH YOUR ENERGY BILL

We don’t think about our heating bill much in the summer, but this is the time to make some upgrades to your home that will see you through the winter, such as adding insulation, changing out windows for double or triple panes with low U-factors and repairing any leaks and drafts.

If energy-efficiency is at the very top of your list, however, consider a home with passive construction.

Passive building

The concept of passive building comprises specific construction principles designed to give measurable energy efficiency. There are five main principles that, using building science, offer the highest options for energy efficiency in both single-family and multi-family homes.

Scientists and builders developed the original design principles in the 1970s with funding from the U.S. Department of Energy and the Canadian government. In the 1980s, German scientists added to that information to develop passive principles for homes in the northern European climates.

The principles are:

1. Insulation: the construction utilizes continuous insulation throughout the building’s envelope (its weather barrier, air barrier and thermal barrier).
2. The envelope is airtight, so it prevents outside air from entering and inside “conditioned” air from seeping out.
3. It utilizes high-performance windows (typically triple-paned) and doors.
4. It utilizes some form of heat- and moisture-recovery ventilation and a minimal-space air conditioning system.
5. It exploits the sun’s energy for heating purposes, but minimizes it’s impact for cooling purposes.

The super-tight insulation and design strategy balances heat emissions (from appliances and the home’s occupants) to keep the indoor temperature comfortable throughout all seasons. Continuous mechanical filtration keeps the air quality fresh and comfort. The combination of insulation and consistent low-level filtration prevents mold and mildew from establishing inside the home, making this construction-type perfect for allergy-prone family members.

Passive house certification is stringent and means the home has high R-value insulation with up to 90 percent less energy required for heat, and overall 60 to 70 percent less energy overall compared to a regular code-built home.

Flat-paneled rooftop solar systems heat the water typically to between 100 and 140 degrees, even on cloudy days. A small electrical system works as a backup if there are an unusual number of cloudy days. Some passive homes include wood heat for the very coldest days in winter.

Other features of passive building include metal roofing which, in snowy climates allows the snow to slide off, and covered porches and patios to allow for outdoor living spaces and to protect the home’s entrances from snow buildup in inclement weather.

WHAT TO ASK FOR THIS HOLIDAYS — A DOWNPAYMENT!

You’ve been saving for a downpayment and you’re almost there.

Almost!

You just need a little more money in that account and you can make an offer on your starter home. Now, your parents and grandparents want to give you a gift of money toward your new house.

Gifts for downpayments can come from a variety of sources. Mortgage lenders will let you use a cash gift toward a plethora of loan options as well. These include FHA loans, VA loans (which only need a down payment if they exceed the threshold), USDA loans, conventional loans and even jumbo loans. In fact, affording a twenty percent downpayment puts you in position for a conventional loan backed by the Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac), potentially saving you money over the life of your loan.

Before you ask for that gift, however, you need to understand how it should be wrapped! If not done properly, you might just end up with a lump of coal in your pocket.

Here’s the skinny of how it works.

When you accept a downpayment gift, you cannot just deposit it into your bank account and co-mingle it with the funds you have there. You need to follow the required process for documenting the gift so that your loan isn’t denied.

1. Write a “gift letter” that notes the following:

• The amount of the gift
• Who gave you the gift and your relationship to the giver
• A note specifying that the gift is REALLY a gift and not just a loan you’ll have to pay back in the future
• The property address you intend to buy
• The signatures of the givers and the recipients
• Don’t add anything extra to your gift letter either. Make it simple and strait forward.
• Write a separate letter for each gift

2. Keep a paper trail:

The gift should be in the form of a check in the exact dollar amount you noted in your letter. (Do not just have the money transferred to your account.)

• Make a photocopy of the check
• With the check in hand, take it to your bank (the same bank your other downpayment money is in) and deposit that check alone (nothing else in the transaction) into the account.
• Make certain you get a receipt

If you receive more than one gift, deposit each one separately and get a separate receipt for it.

When applying for your loan, give copies of the gift letters along with copies of the checks and deposit receipts to the underwriter. Your underwriter will use the letters in the effort to get your loan approved and funded.

One side note: there may be tax implications for both the givers and receivers of financial gifts. Be sure to check with your tax advisor if you have questions or to find out how a gift might affect your situation.

HACK YOUR DOWNPAYMENT

The biggest hindrance to home-ownership for most young couples is the dreaded downpayment. In fact, may couples believe that between living expenses and school loans, they’ll never be able to save up enough for a downpayment on a house or even a condominium. If making the move from renting to owning is a priority for you, you’ll need to become aggressive in your savings and spending-cuts.

Here are some ideas to get you started:

• Create a separate savings or money market account for your downpayment monies. Having your money in a separate account helps you avoid infringement into your nest egg when emergencies crop up. In fact, you should set aside about $1000 for emergencies outside of your downpayment savings to cover pesky things like blown tires, unexpected fines or other unforeseen drains on your money.
• Take an extra job. If you can pick up some hours in the evenings and weekends and earmark ALL of the income for your downpayment account you can boost your account considerably. On the other hand, avoid trying to make side money with a hobby unless you already own the equipment (cameras, tripods, etc., if you’re a photographer or saws, power tools and other equipment if you’re into woodworking), because you may end up spending more than you make.
• Make extreme decisions such as selling an expensive vehicle and driving a less expensive one or ridesharing for a specific period. During this time determine to socialize on a more limited basis … instead of eating out, host a potluck or BYOM barbecue.
• Evaluate memberships and subscriptions (gym membership, Netflix, cable, coffee of the month) and consider suspending them for 12 to 15 months and redirecting that money into your savings. Or, substitute Netflix for cable and movie night if you’re the type that goes out a lot.
• Make your savings fun. Create games and competition to see who can save the most. If you’re saving alone, find a friend in a similar situation and create a savings race with them.

Don’t forget to set aside a little fun money along the way. Too much austerity can cause stress and friction when you’re used to more extravagant spending habits. So, when you reach a milestone, have a dinner out, or go see a movie. Just don’t slip into retail therapy without specific limits or you’ll just be frustrated when you don’t reach your goals as soon as you planned.

SELLING? SHOULD YOU EXCHANGE THAT CARPET FOR HARDWOOD

Flooring is one of the more controversial subjects when it comes to home improvements. There are two firm camps and rarely do they meet in the middle. When you’re planning to sell your home, you may think you need to replace the carpet in order to get the best price on the market.

While only your local real estate professional can advise you on the best option for your situation, here are some thoughts for consideration:

Hardwood Flooring: Hardwood flooring has become central to modern design and many homeowners raised in wall-to-wall carpeting are easily persuaded to exchange their carpet for hardwood. Updating an older look with wood flooring might just be the key to getting your home sold. Before you do, however, make sure you’re doing it for the right reasons.

Visual appeal: There’s no getting around it: wood is simply beautiful. Whether you’re into dark cherry or a modern light bamboo, a wood floor can complement most décor and most tastes.

Maintenance: For many people, a modern wood floor product is easy to maintain. Usually sweeping or a light dust mop works for most cleaning. Periodically going over your floor with a damp mop using a wood safe product can pick up sticky residue or spills. In addition, they handle a lot of traffic without the “traffic patterns” that carpets pick up. Finally, if your floor gets scratched, you can have it buffed out, re-stained and coated with a clear protective coating.

Special considerations: People that suffer from allergies may find that they have fewer episodes with hardwood over carpet. Since the carpet fibers can collect pollen, animal hair and dander, dust mites and other allergens and irritants, you may find removing the carpet and replacing it with hardwood is an excellent and healthful idea.

People looking at your home with an eye to purchase it will find that hardwood holds a lot of attraction for them if they suffer from allergies or asthma.

A note of caution: If you’re considering a vinyl or other synthetic wood-look flooring, you might find you have fewer takers. Those with allergies tend to stay away from household products that can release VOCs (volatile organic compounds), which make asthma worse. Laminate products and especially those products requiring glue can be a source of VOCs. A better option is engineered wood since the surface is a layer of wood veneer over several layers of wood.

In many cases, hardwood can boost your resale value above that of carpet and yet the cost to you is relatively reasonable. According to a market data study done by USA Today, hardwood flooring is one feature people are willing to pay extra for.

If you’re considering some upgrades before you put your home on the market, take a look at replacing the flooring with real hardwood, or an engineered hardwood. Many retailers have end-of-the year specials on home upgrade products.

TIPS FOR HOME BUYERS

Finding a new home can be one of the most exciting times of your life. It’s a little like dating – the pursuit, the “getting to know you” period, the proposal (aka “offer”), and the marriage (aka “closing”). If you don’t want your relationship with a new house to crash and burn, you need to know a few things before you fall in love.

1. Know thy numbers.

You’d be surprised at how many home buyers start their new home pursuit without really knowing what they can and can’t afford. Avoid being disappointed later by getting preapproved for a mortgage before you even get started. And be sure you know the difference between being “prequalified” and “preapproved.” You can be preapproved only after a lender has reviewed all your financial information and has told you how much the bank is willing to lend to you. Being pre-approved will let sellers know you’re a serious buyer, and it will also prevent you from falling in love with a home that is financially “out of your league.”

2. Love the neighborhood, not just the house.

It’s easy to get caught up in how perfect a house is and forget that the house is only part of a bigger picture. It won’t matter how awesome the master bathroom is if you discover that the neighborhood just isn’t a good fit for you. Spend as much time researching the neighborhood as you do checking into all the nooks and crannies of the house. Regardless of whether or not you have kids, ask questions about the neighborhood’s school district since that will impact the home’s resale value. And be sure to drive through the neighborhood at various times of day to make sure you’re not missing any “deal breaker” factors.

3. Beware the lure of the lowball offer.

Even though buying a home is a financial decision that involves legal contracts, that doesn’t mean it’s devoid of emotion. If you’re tempted to make a lowball offer on a home just to see what happens, be aware that some sellers will be so offended that they won’t entertain future offers from you. It may be a business deal, but this is still their home – and that’s personal. Make an offer based on the selling price of other homes in the same neighborhood and then determine what the average price per square foot is for that area. Also, make your offer number an odd number instead of a round one. For example, an offer of $352,500 sounds like you put some thought into it based on real calculations, whereas an offer of $350,000 sounds more like a shot in the dark.

4. Get a home inspector’s “blessing.”

Some churches require engaged couples to go through a few premarital counseling sessions before they can be married in the church. Similarly, you’d be wise to seek the counsel of a qualified home inspector before you make things official with a new home. If the house has hidden baggage, a good home inspector will find it, which gives you the opportunity to decide if it’s something you’re willing to deal with or not.

By following a few simple guidelines and leading with your head instead of your heart, your destiny with a new home is much more likely to end with “happily ever after.”

5 WAYS TO HELP KEEP YOUR HOME SAFE WHILE ON VACATION

Vacation plans may have you planning on leaving your home in the near future. Don’t forget to take a few preventative measures to ensure the safety of you and your home while you are away. You’ll find that being prepared and aware of potential risks makes for a better vacation and homecoming.

5 Things To Remember When Vacationing Away From Your Home

Summer is definitely here and vacation plans may have you planning on leaving your home in the very near future. Don’t forget to take a few preventative measures to ensure the safety of you and your home while you are away. You’ll find that being prepared and aware of potential risks makes for a better vacation and homecoming.

5 Things To Remember When Vacationing Away From Your Home

• You cannot control your level of visibility entirely once you leave. If you post to social media, including Facebook and Pinterest, while on vacation you may be putting your home at risk. Sharing vacation photos are an obvious way of showing that you are away and may create an easier target for your home for thieves.
• Lock it up. From windows and doggie doors to gates and garage doors, the security of your home requires diligence on your part. Don’t let the rush of leaving for vacation make you forget to batten down the hatches throughout your home.
• Ask for some help. A trusted neighbor or friend can notify you if something looks out of place or odd while you are away. Or you can employ a house sitter for greater peace of mind. You may even find one who will water your plants, too!
• Consider installing an alarm or timed lighting system prior to your vacation. Both can deter possible intruders.
• Truly vacation while away and plan a day to get organized when you get back. Placing your mail and delivery services on hold while you are away is critical, too. 4-5 newspapers or forgotten milk bottles on your porch signal to everyone that something is amiss. Plus, having planned an extra day to recover from your travel to go through mail and grocery shop may also allow you time for the first tip mentioned… post your awesome vacation photos to social media!

FALL FILTER FIXES

Okay, some home maintenance items just don’t make the urgent list.

Changing your furnace filter doesn’t often make the cut. As we head into autumn, take a moment to check your furnace filter to get it ready for a winter workout.

Why your filter is important

A filter protects the blower on your furnace from dirt and debris. Its basic function is to keep the dirt from the air out of your furnace, but specialty filters can reduce airborne dust, remove allergens and pet hair, and improve air quality.

The filter’s location at the air in-take means that particle removal happens before air is heated and forced through your home’s vents. Since the air from your vents is clean, you may not notice that your furnace isn’t running efficiently, but a clogged it can lessen the life of your furnace. The extra wear and tear that pulling air through a dirty filter causes may lead to inadequate airflow, overheating and even complete shutdown of the system.

Ideally, you should check your filter once a month. If your system involves just a furnace, then check the filter monthly during the cold season and again in the fall just prior to cool weather returning. If you have a complete HVAC system, the filter affects your air conditioner as well. A dirty filter in the warm season can cause the air conditioner’s cooling coils to freeze up, stressing the AC system.

Here’s what to do

Experts suggest checking the filter every month and changing it at least every three. Check your owner’s manual for information on the filter’s location and the best size and type of filter to use. Determine if you have a disposable filter or a reusable filter. A disposable filter typically has a cardboard frame while a reusable one is made of plastic or metal.

• Disposable:
  —Turn off the furnace system. This means shutting it off at the fuse box, the circuit breaker or a furnace cutoff switch.
  —Remove the cover from the filter holder.
  —Remove the filter from it’s housing either inside the furnace or at the return air vent. The existing filter probably has a marker indicating the correct position to install the filter so that the airflow goes toward the furnace. Make a note of this so you can correctly install the new filter.
  —On the new filter, look for the markings that indicate the airflow direction and match them up to the correct flow direction toward your furnace.
  —Replace the cover.
• Reusable:
  —Turn off the furnace system. This means shutting it off at the fuse box, the circuit breaker or a furnace cutoff switch.
  —Remove the blower door or locate the filter in the return air vent.
  —Use either your regular vacuum or a wet/dry vacuum to remove dust from the filter. Vacuum the area around where the filter goes as well.
  —Wash the filter. You can do this outdoors using a garden hose or indoors in the bathtub or shower (although this is messier). Be sure to spray the water in the reverse direction of the airflow at the end to make certain no dust particles are left on the inside of the filter.
  —Allow the filter to dry completely before you reinstall it.
  —Check the filter for indicators of which direction should face the furnace and reinstall the filter, insuring that loops or clips are in their proper position.

If this seems like a lot to do, or if your furnace filter location is awkward, consider hiring a certified HVAC service to check, change or clean your filters for you.

If you’re planning to sell your home, keeping your furnace in great working condition contributes to its resale value.