Your Certified Mortgage Planner — Michael Eiden, Mortgage Blogger

We take a lot for granted here in the US. You cut your finger, no problem… It’s off to the emergency room and get a few stitches. Nagging cough, call up the family doctor and find what ails you. Not so in many other countries. Sure, we have more than a few kinks in our Health Care system… But, we do have a stem.

Imagine if you were ill and there were no doctors, no medicine to help combat a tiny bug waging war on your immune system. Imagine you are a small child presented with this challenge. That’s what breaks my heart. Their life is just beginning. You know, when we are born, we have unlimited potential and unbelievable drive. A baby doesn’t know the meaning of can’t. Think about when a baby first starts to walk. Think about that drive and tenacity. How many times do they fall only to get right back up? Over and over and over again.

We all know there is a serious problem in Kenya and other parts of the world for that matter. Most of us probably don’t help because we find it too overwhelming. “What can I do to help?” Well, luckily we have folks like a good friend of mine, Scott Campbell with www.nwpersonaltraining.com. Scott has taken it upon himself to give something we all have, take for granted and is the most precious… TIME.

Scott is heading up a mission to Kenya in April of 2008.to bring faith, hope, joy, supplies and service to AIDS stricken villages in East Africa. Please help support this important project to serve Kenyan families and children afflicted by AIDS. In villages devastated by AIDS, it is the children who suffer most. 100% of donation go towards charity.

To help raise monies for this worthy cause, Scott is going to try and break the World Record on a Stepmill. the old record is 106,377 steps in 24 hours! It’s held by Jim Campbell (no relation) a firefighter in Indianapolis.

He will be attempting this feat on March 21st at 7 p.m. You can download this flyer on the location and get more details on how you can help, donate and participate. Download stepmill_world_record_flyer.pdf

If you do decide to participate, make sure you thank Scott for heading up this project. I know that I am truly thankful for people like Scott. Like I said before, time is our most precious asset and he has decided to share some if his for a most worthy cause.

All the best to you Scott,

Michael J Eiden

P.S. If you’d like to get into direct contact with Scott to find out more. Send him an email to Scott@nwpersonaltraining.com.

When selling a home, understanding a little bit about home buyer psychology can help you move your home more quickly.

After all, what people perceive helps define how they act.

A recent article from RealEstateJournal.com listed techniques home sellers can use to attract more offers from buyers.

The tips included:

1. Number Play: $299,999 seems far less expensive than $300,000
2. Connotation: Precise numbers indicate value; Round numbers indicate prestige
3. Simpicity: If you drop the price, make the math easy for the buyer so the savings are obvious

Curiously absent from the piece, however, is the #1 home selling tip that every good real estate agent knows:

To sell your home quickly, price it right.

A “good buy” speaks for itself — no psychology required.

Federal Reserve Chairman Ben Bernanke testified to Congress Wednesday, alluded to further rate cuts to support an ailing U.S. economy.

Already, the Federal Reserve has lowered the Fed Funds Rate by 2.250% since September 2007.

The graph at right comes from the Wall Street Journal and it highlights a very important correlation between the Fed Funds Rate and mortgage rates.

The correlation is that there is no correlation.

Since the Fed began cutting rates five months ago, mortgage rates on 30-year fixed mortgages are higher, as are jumbo mortgage rates. ARMs, however, are lower.

Especially noteworthy is how 30-year fixed rates started to spike as the Fed cut rates through January. Another half-point cut in March could have a similar impact.

Yesterday, the Office of Federal Housing Enterprise Oversight released its fourth-quarter housing data.

The OFHEO report color-coded each state according to its annual price changes. The states shown in red lost value, and everyone else gained. Overall, the OFHEO measured a 0.8% national increase.

Also hitting the wires yesterday was the Case-Shiller Home Price Index.

This report focuses on the 20 largest metropolitan statistical areas in the United States and painted a much more grim outlook for housing. According to Case-Shiller, prices declined 8.9% nationally.

Both reports are imperfect but one notable difference is that the OFHEO report measures all 291 MSAs in the United States and its data showed that two-thirds of them appreciated last year.

Once again, this just reminds us: real estate is a local phenomenon. Every market is unique with its own price trends, independent from the rest of the country.

When a buyer and seller reach agreement on a home sale, the buyer typically puts a small amount of money into a trust account.

This up-front deposit is more commonly known as “earnest money”.

A sales contract’s earnest money requirement will vary from contract to contract. It can be as high as 10 percent of the purchase price and could be as low as $500; earnest money is a negotiable item between buyers and sellers.

Some factors that can influence earnest money amounts include:

• Market conditions: Stronger markets often call for more earnest money
• Buyer economics: First-time buyers often give less earnest money
• Seller psychology: Skeptical sellers often ask for more earnest money

No matter how large or how small, however, earnest money is supposed to give the seller a sign of good faith that the buyer wants to purchase the home.

To this end, earnest money can be forfeited if the buyer later “backs out” of the deal, or breaches the terms of the purchase agreement. Breaching, however, is infrequent.

This is because most purchase contracts are written with buyer-focused “outs” called “contingencies”.

A typical contingency is that the seller must provide a clean title policy to the buyer, or that the buyer must secure financing prior to given date, or that the home must pass a satisfactory inspection.

If any of these contingencies cannot be met, the purchase agreement is voided and earnest money returned to the buyer.

When contingencies are met, however, earnest money becomes a deposit and is applied directly to the buyer’s bottom line at settlement. If the buyer is expected to have $50,0000 for the closing, for example, the true bottom line is $50,000 minus the earnest money deposit.

Earnest money customs vary from state to state, city to city, and even locale to locale. Be sure to ask your real estate agent and/or real estate attorney for professional counsel before signing purchase contracts.

The earnest money you save may be your own.

It’s a big week for mortgage markets (again) and that should cause rates to fluctuate wildly (again).

The volatility we’ve seen since December has not been for the faint of heart. Even this past Friday, as mortgage rates were poised to end the week lower, a late-afternoon stock market rally reversed it.

In the last 45 minutes of trading, the Dow Jones Industrial Average swung 225 points. Mortgage rates rose, too, peeving Americans who planned to go house-hunting over the weekend.

This week, mortgage rates will take direction from a handful of economic reports including the Federal Reserve’s preferred inflation marker — the Personal Consumption Expenditures report. PCE is a Cost of Living index.

The biggest story, though, is Fed Chairman Ben Bernanke’s Wednesday testimony to Congress.

While he’s not expected to say “the economy is in a recession”, or “the economy is doing just fine”, markets expect Bernanke to give guidance about how far the Fed would cut the Fed Funds Rate to stimulate the economy.

The Fed Chairman won’t say outright, “The Federal Reserve intends to lower the Fed Funds Rate to 1.000%”. Therefore, it will be the guessing of how low the Fed will go that should cause markets to buck.

But remember: Cuts to the Fed Funds Rate do not necessarily lead to lower mortgage rates. To the contrary: Since the Fed started cutting the Fed Funds Rate in 2008, mortgage rates have moved higher. As they cut, though, ARM interest rates should become more attractive versus fixed-rate mortgage rates.

This is because additional cuts the Fed Funds Rate will fan inflation fires longer-term and inflation erodes the value of long-term mortgage bonds.

For a lot of homebuyers, calculating a prospective mortgage payment is an online experience. For example, a search on Google for “mortgage calculator” returns 39 million options.

Some people, however, prefer to plan on their local hard drive using spreadsheets. For these people, the hardest part is often figuring out what formulas to use.

Interest Only Payments

Home loans with interest only payments are much more simple to calculate than amortizing loans.

Using the graphic at right as a guide, enter your loan size and your interest rate into two separate spreadsheet cells.

Then, create a third cell and input the following formula that calculates the “Monthly Payment”. The formula is:

= (Loan Size) * (Interest Rate) / 12

Principal + Interest Payments

For a home loan with (principal + interest) payments, the formula is a little bit more complicated than with an interest only home loan.

Using the graphic at right as a guide, enter your loan size, your interest rate and the duration of your home loan into three separate spreadsheet cells.

Then, create a fourth cell and input the following formula that calculates the “Monthly Payment”. The formula is:

= – PMT(Interest Rate/12, Loan Term in Months, Loan Size)

For additional spreadsheet formulas and more in-depth reporting, explore your software’s “Help” feature to see what you can find.

When buying a home, there are two stages in the home loan approval process.

Stage 1 starts when a homebuyer submits a mortgage application to his loan officer for a pre-approval.

A pre-approval is a “walk-through” mortgage approval that says — at a given purchase price and downpayment amount — the home loan application will very likely be approved.

Stage 1 ends when the buyer signs a purchase contract on a home. At this point, the “walk-through” approval is useless because the buyer now needs a real home loan approval from an underwriter and not a loan officer.

Thus begins Stage 2.

During the second phase of the approval process, a mortgage underwriter is reviewing income, assets, credit, job history, and other items, too; the underwriters job is to make sure that the buyer meets the bank’s criteria for lending.

If the loan officer did his job in Stage 1, Stage 2 is just a formality. And most times, it all goes according to plan.

Occasionally, though, a homebuyer sabotages his own mortgage approval by inadvertently changing his “risk profile”. It doesn’t happen on purpose, of course — it just happens.

So, consider this a quick primer of what not to do while you’re between Stage 1 and the completion of Stage 2 of the home loan approval process. Following these pointers will help keep the risk profile consistent.

1. Don’t buy a new car (or take on a larger lease payment)
2. Don’t quit your job or change industries (and certainly don’t switch to a heavily commissioned role)
3. Don’t transfer large sums of money into or out from your bank accounts (and remember that “large” is relative)
4. Don’t miss a payment to a creditor (even if you don’t think you owe it)
5. Don’t open a new credit card (even if you’re getting 10% off your new bedding)
6. Don’t accept a cash gift without talking to your loan officer first (because there’s rules on how to accept them)

There’s other items, too, but this a good start.

Now, avoiding these mistakes may not be practical for everyone. Therefore, if you know you’re going to violate a “rule”, check with your loan officer first.

There are a lot of “gotchas” in mortgage lending and it helps to have professional guidance for your individual questions.

For homebuyers and homeowners expecting low mortgage rates this week, Tuesday marked the unofficial end to basement 30-year fixed mortgage rates.

According to the market analysts at BestInfo, Inc., the 30-year fixed rate measured its largest one-day movement in more than 10 years Tuesday.

Nationally, 30-year fixed mortgage rates increased 0.375%.

Here is the “real life” impact to mortgage applicants whose mortgage rates were not yet locked:

• $150,000 mortgage: $37 increase to the monthly mortgage payment
• $250,000 mortgage: $61 increase to the monthly mortgage payment
• $300,000 mortgage: $73 increase to the monthly mortgage payment
• $400,000 mortgage: $99 increase to the monthly mortgage payment

ARMs did not move as harshly as fixed-rate mortgages but they still increased Tuesday.

Mortgage rates can change quickly, and often do. Be prepared to lock your mortgage rate and make informed decisions quickly.

The mortgage markets wait for no one.

I know you are asking yourself this question (I know because I had 3 clients ask me yesterday) “What are you talking about, everyone is saying how low rates are, I am going to wait for them to go lower.” Not good. You see, if you rely on the media, internet or your mechanic for what rates are doing or going you are going to be in for a big surprise. Take a look at the chart below:

This Chart is the real deal. It is a snapshot of ‘REAL TIME’ data that most folks, and even loan officers don’t have access to. You see all the red bars going down? It started going down on February 6th, 2008. Since that time, Mortgage Backed Securities (security on which mortgage rates are based) have lost about 300 basis point since that time.

What does that mean in layman’s terms? 30 year fixed rate mortgage have deteriorated by about .625% since that time. So you can practically double the numbers stated above.

If you are in the market for a home loan, do yourself a favor, make sure you are working with a qualified professional. Ask them these 4 questions:

• What are mortgage rates based on? (hint, the wrong answer is the Fed’s or 10yr treasuries)
• What is the next Economic Report or event that could cause interest rate movement? (a savvy professional will have this at their fingertips. You can see what is on the calendar by clicking the MMG Weekly banner in the top right of this BLOG.)
• When the Fed “changes rates” , what does this mean… and what impact does it have on mortgage rates? (Very tricky. In most cases when the Fed’s lower their benchmark rate… mortgages often go up, not down. For further explanation, read some earlier posts or just give me a call and I can explain.)
• Do you have access to live, real time, mortgage bond quotes? (If the lender can’t explain how rates are moving, then they are reading yesterday’s paper, listening to the media, or their mechanic You wouldn’t work with a stockbroker reading yesterday’s paper and making recommendation would you?)

Be Smart… Ask Questions… Get Answers!

Mortgages are some of the largest most important decisions you can make. You might do this only 3 or 4 times in a lifetime, I do it everyday. It’s my profession… my passion.

All the best,

Michael Eiden

P.S. I WELCOME YOUR COMMENTS/FEEDBACK. Please use the comments section at the end of each post.

P.P.S. If you have enjoyed what you have read, or learned something new. Pass it on, knowledge is power right? Then wisdom would be to act. Pass it on to someone you know that could benefit.

For homebuyers and homeowners expecting low mortgage rates this week, Tuesday marked the unofficial end to basement 30-year fixed mortgage rates.

According to the market analysts at BestInfo, Inc., the 30-year fixed rate measured its largest one-day movement in more than 10 years Tuesday.

Nationally, 30-year fixed mortgage rates increased 0.375%.

Here is the “real life” impact to mortgage applicants whose mortgage rates were not yet locked:

• $150,000 mortgage: $37 increase to the monthly mortgage payment
• $250,000 mortgage: $61 increase to the monthly mortgage payment
• $300,000 mortgage: $73 increase to the monthly mortgage payment
• $400,000 mortgage: $99 increase to the monthly mortgage payment

ARMs did not move as harshly as fixed-rate mortgages but they still increased Tuesday.

Mortgage rates can change quickly, and often do. Be prepared to lock your mortgage rate and make informed decisions quickly.

The mortgage markets wait for no one.