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Moving Day: What to Do to Make Moving Home Run Smoothly

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Moving Day TipsYou are moving home and moving day has arrived. You’ve hired the mover, changed your address with the postal services and subscriptions, got your moving insurance sorted and the packing has gone smoothly. What can possibly go wrong!

Here are some tips to make sure that your plans are not derailed, and that moving home runs as smoothly as you could have hoped for.

1. Make Space for the Mover

Make sure that the mover’s truck has plenty room to park close to your front door, and that the movers are not obstructed when carrying heavy items. Inform your neighbors so they leave as much space as possible.

If you live in a city apartment, contact the local authorities and find out about permits for reserved parking on moving day. Most will offer a means of facilitating your move, but if not then you could park your cars there or even ask your neighbors to park in the relevant space and then move when the truck turns up.

Don’t forget your new home – the mover will also need parking space here, so the arrangements made for your old home should also be applied to the new. It often pays to meet the new neighbors before your move, so that they will be more amenable to helping you out with the parking space needed.

2. Be Present

It is important that you are present while your belongings are packed into the truck, and also when they arrive at your new home. You never know when a problem might arise, and you will want to carry out a final check before you leave your old home for the last time.

Are all the lights switched off, electricity and gas shut off and windows properly closed and locked? It is not unknown for your back or front doors to be left open, or unlocked once the last item of furniture and the last box has been packed. You should be there to give yourself peace of mind.

3. Have a Last look Round

Check every closet, cupboard and shelf, and don’t forget the garden, backyard or shed. The attic is another area of your home where people tend to leave things behind. If you have a partner, the deal situation is to have your partner waiting at your new home for the mover to arrive, while you remain at the old home to check everything is OK and clean up after the mover has gone.

4. Children and Pets

It is best for the kids to be with a friend or relative while moving home. Alternatively, they could be with your partner on moving day, waiting in their new home for their belongings to arrive. It’s a good idea to let them help unpack their own stuff for their room. They are more likely to enjoy moving to their new home if they are permitted to carry small items and generally be involved.

Pets are another thing entirely, and a move can be very stressful for pets that are being taken away from their normal environment. New smells, other creatures and even the territorial marking of their new home by other cats and dogs! You might consider boarding them until you have your furniture set up again – this will help them to feel more secure.

5. Clean Up

Finally, be prepared to give your old home a final clean up. Don’t send off all your brooms and cleaning materials to your new home! Moving day is stressful enough, and knowing you have left a tidy clean house behind you will make moving home just that little bit less stressful.

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The Benefits of Real Estate Open Houses to Homeowners

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What You Can Learn From Visiting Open HousesVisiting real estate open houses can be useful to homeowners for a number of reasons, even if they are not thinking of selling their own home in the near future.

Here are three reasons why visiting open houses can keep you abreast of what is going on in the housing market in your neighborhood – or even outside of it.

1.  The Current Value of Your Home

More and more people are becoming actively interested in how much their home is worth. This is connected with recent and current financial fluctuations, and also with the availability of financial and real estate information in the computer age. People are not only becoming more aware of finance and the value of their assets, but also in how to increase that value.

By visiting open houses, you can check out the selling price asked for homes in your neighborhood that relate closely to your own home in size and amenities. By comparing their homes with yours, you will be able to estimate the current worth of your investment. That information could be useful to you in a number of ways, such as how much of a second mortgage you can get, or how much of a secured loan you can get for that cabin cruiser you have your eyes on.

2.  Current Decorative Trends and Contractors

Perhaps you are considering redesigning your home, or even changing the décor in just one room. It is much easier do this if you can find out what others are doing in homes similar to yours in dimensions and design.

By visiting real estate open houses for sale in your area that are close to yours in size and design – perhaps even identical – you can get seem great home décor and furnishing ideas. Not only that, but the agent selling the house might give you details of the contractors that carried out the work- or the current owners might want to boast about their beautiful room and who designed and decorated it.

3.  Get Home Staging Ideas

Maybe you are considering selling your own home. You can find out how others are staging their homes for sale, even if they are of a different style and in a different neighborhood. It’s one thing getting such ideas online, but something else entirely seeing them applied in practice.

You can assess the WOW! factor of any home staging work carried out, and establish whether or not that would help you get a good price for your own home. What did they do to their front garden, their doors, windows and external furniture and fittings? A free look costs nothing but your traveling costs, and can add thousands to your selling price.


Real estate open houses offer several benefits to homeowners, even if they are not currently considering selling. You can get an indication of the current commercial value of your own home, you can check up on how others are decorating theirs, and more importantly if you are selling shortly, you can check up on the staging that others are using.

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GDP Basics: Real and Per Capita GDP

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GDP BasicsThe following GDP basics explain what the term GDP means and how it is calculated.  The GDP is the Gross Domestic Product of a country, and is a metric that is used to measure the health of the economy of that particular country. It is fundamentally a measurement of consumer and government spending, the difference in value of exports over imports, and industry investments taken over a specific time period – usually one year.

The Per Capita GDP is the same figure calculated to take a country’s population into account, rather than comparing the nominal figure. This permits the figure for two counties to be compared accurately, irrespective of population. Another form is the ‘real’ GDP, which takes price increases and inflation into account when comparing different years.

Gross Domestic Product is normally expressed relative to previous periods, so rather than being expressed in firm cash figures, it would be stated, for example, as being up 2% on last year. What this means is that the country’s economy has grown by 2% over the previous year. What factors influence the Gross Domestic Product of a country? Here is a quick explanation of GDP basics regrading the factors involved , taking the USA as an example:

Consumer Spending

Every cent spent by American consumers forms one component of the GDP. So if you purchase a new car, a washing machine and tour Arizona, all the money you spend goes towards the calculation. What you earn is irrelevant – it is what you spend that matters. Spending on services such as life insurance and hair styling is also included.

Industry Investment

If the firm you work for buys a new fleet of cars, new manufacturing plant or even raw materials to be used in manufacturing, then that is also added to the figure. Industry investment can be high, which is why the health of a country’s manufacturing industries is so important to its GDP. The same is also true of service industries, such as insurance, banking and vacation companies.

Imports and Exports

The difference between the value of total imports and total exports to and from the USA also contributes. If a company purchases $1 million of raw materials from China and exports $2 million of product to Germany, then $1 million is added to the GDP of the USA and China, and $2 million deducted from that of Germany.

Government Spending

The government gets its money from your taxes. Every cent spent by the government for whatever reason is added to the GDP. It makes no difference if such expenditure is for pencils or space shuttles – it is government expenditure.

The above expenditure method of calculating the gross Domestic Product of a country is the one most commonly used. It can also be figured by taking the gross income of every employee in the country, all taxes paid and the gross profits of all companies. The two will roughly approximate each other, although the expenditure method is easier to use and less liable to error.

Factors that have no bearing on the  GDP include taxes (it is government spending using those taxes that count), gross and net income and interest payments made to you.

What is the GDP Used For?

This measurement is used by American and world banks to determine the health of a particular country’s economy, and is a key indicator for setting interest rates. Thus, if the GDP is rising too fast year on year, then interest rates might be increased to control industrial investment. Too rapid an increase in the economy can result in inflation and rising prices.

Since the Gross Domestic Product  is an absolute rather than relative figure, larger countries will have a higher figure than smaller countries. Therefore, as explained earlier, it can only be used to compare results with other periods.

GDP Per Capita

In order to compare the health of the economy of different countries, it is necessary to use the per capita GDP – fundamentally by calculating the figure for each individual in a country, such as GDP/population. This is simplified, but explains the concept that is use by bodies such as the IMF and the World Bank to compare the economies of different countries.

If the Gross Domestic Product of a country has dropped over that of the previous year, then banking interest rates might be held, or perhaps even reduced to give a boost to the economy by making it cheaper for firms to invest in equipment and infrastructure. A steady reduction can herald an oncoming recession and will also affect the stock markets.

Negative growth results in a lowering of share prices, so it is little wonder that the real or per capita GDP is a measurement that all financial analysts keep a close eye on. Up or down, trends can cause changes in the stock exchange, in interest rates and even in the money supply and house prices. Although the above GDP basics offer an insight into what the Gross Domestic Product is, no basic introduction could convey its importance to governments and financiers.

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How Does Refinancing Work: How to Refinance a Mortgage

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Mortgage Refinance BasicsHow does refinancing work in terms of refinancing a mortgage? If you want to learn how to refinance a mortgage it is first necessary to understand the term. Fundamentally, it means that you are replacing your existing mortgage with a new one in order to get a lower interest rate or cash-out when you close your current mortgage.

You might take a mortgage on your home and happily continue repaying month after month for years, and then see the opportunity to get a different mortgage at more attractive rates. You must then close you current agreement, and start up a new one – either with the same lender or a different one.  Generally, if you make this decision, your current lender may offer you a better deal in order to retain your business.  You are then in a negotiating situation.

How Does Refinancing Work

There are several steps involved when you refinance a mortgage. Fundamentally, you are applying for a completely new loan, rather than changing the conditions of your existing mortgage. You must therefore go through the entire process of applying for a mortgage as if you did not already have one.

When you apply to refinance, your lender will review the following, just as you did with your original mortgage:

  • Your credit record, credit score and credit history of repayments.  Your lender will check with Experian, Equifax and TransUnion, and make an assessment of your credit-worthiness. If you have missed a few mortgage payments in the past, this will count against you, but not significantly if you have quickly rectified the situation.
  • Your employment history will be checked, along with your current income to check the affordability of the mortgage you are seeking. You must have a good record of continuous employment, with no rapid changes of employer.
  • If you are retired and are seeking a better deal for your mortgage, your retirement income and assets will be investigated, and the lender will make sure you have sufficient income and reserves to meet your mortgage commitment.

Sure, they will take into consideration that you have already paid off a good proportion of the principal sum originally borrowed, and your repayment record to your existing mortgage account will be taken into consideration, but all of the above must still pan out to your advantage as it would have to have done when you were granted your first mortgage.

Three Ways to Refinance a Mortgage

There are three different ways of doing this, so how does refinancing work with each of these? Here is simple explanation of each:

Rate and Term Refinance

Rate and term refinance is exactly what its description suggests: you can change your old mortgage for a better new one, with a more favorable interest rate or term, or even both.  You are not changing the amount you still owe, but you can switch from a 30 year a 15 year fixed rate agreement for example.  Alternatively, you could change the interest rate from 4% to 3% – a 30 year mortgage at 4% to the same term at 3%.

You can also achieve both: you can switch from 30 years at 4% to 20 years at 2%, and end up paying much the same, but over less time. With such mortgage refinance agreements closing costs can be added, and you cannot increase the mortgage principal by more than $2,000 or 2% of the new mortgaged sum, whichever is the lowest.

Cash-Out Refinance

With a ‘cash out’ refinance deal, you can either combine a first and second mortgage on a property, consolidate your debts by combining them into your new mortgage, or receive cash in your hand at closing to be combined into your new mortgage agreement. With this type of mortgage refinance, you can walk away with cash in your hand (without the 2% restriction) based on the equity of your home.

You would usually need to have a good credit record with a high score to get this type of agreement, and they are usually offered only on lower loan sums where the bulk of the principal has been cleared.  However, you have to repay the cash as part of your mortgage, and your equity is reduced correspondingly.

Cash-In Refinance

Sometimes borrowers have saved or inherited a cash sum that can be used to reduce the principal on their mortgage.   By making a cash payment, this type of cash-in refinance enables them to get a lower interest rate on the balance owing, or reduce the term to completion.

By reducing the loan-to-value ratio on your home to 75% as opposed to 80%, you will be able to get a better interest rate. There are also benefits to be had with respect to mortgage insurance below 80% LTV you would normally pay no private mortgage insurance.

If you are not sure which of these various types of refinance works,  require more information on how to refinance a mortgage or would like more details on the best way to release some of the equity on your home, then check out an independent financial advisor who will give you good advice independent of any specific lender or bank.

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Three Tips to Help Sell Your Home Quickly

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Sell Your Home QuicklyThere are several reasons why you might want to sell your home quickly. Perhaps house prices are falling, and you want yours to be sold before prices fall too much in your area. Maybe housing demand is falling and you want yours to be more attractive than most in your neighborhood.  Perhaps you are desperate to sell, because you have a new house in mind, but have to sell yours first.  You could even be moving abroad shortly.

There are other potential reasons, but there are certain things you can do to help you make a quick sale. Each comes under one of three broad categories:

•    Curb Appeal
•    Improve apparent room size
•    Cleanliness and good repair

We shall discuss each, and what is needed to maximize the impression potential buyers get when they arrive for a viewing.

1.  Curb Appeal

The first thing a potential buyer will see is the exterior of your home. How does it compare with the other houses in your neighborhood? Does it impress at first sight? Is anything wrong, such as flaking paint, an unkempt garden with long grass and weeds, and does the gate close properly?

Spend some time improving the exterior appearance of your home.  Repaint anything that can be painted: window frames, doors, fences, the gate and so on. If you have the cash, replace old wooden windows with modern double-glazed uPVC windows. Manicure your lawn and the hedge, and pull out all the weeds!

When you are finished, stand back and look at your house subjectively.  How does it look to you – would you buy it if you were starting all over again? Get a friend or neighbor to look it over and give their comments – and then act on them.

2.  Remove the Clutter

Declutter!  Make sure you remove the clutter in every room. A room filled with your belongings looks smaller than it really is. Allow you prospective buyers to imaging themselves in each room with their own belongings – they can’t do that if most of the floor space is being used!

Include closets, because your viewer will almost certainly want to see inside them. Remove all that old stuff, clean them out and brighten them up. Go through your entire home and remove everything that is not needed to show it off to its best advantage. Maybe you can hire space in a repository, or perhaps a friend or relative will give you attic space meantime. One thing is sure – if your home is full of clutter you will be unlikely to get a sale, let alone sell your home quickly!

3.  Clean and Repair

Make sure your house is spotlessly clean. If it is not, your prospective buyers might believe that they will have to clean it if they purchase it. Either do it yourself, or employ a professional cleaning firm to do it for you – that is the best option.

Everything must be in good working order. Check your whole house, including the backyard and front garden. Make sure there are no dripping taps or broken light bulbs, and if you have a pond or fountain, everything should work as intended.  Every window should open if designed to do so, and locks must all be in order, including gate locks.

Sell Your Home Quickly – Summary

If you want to sell your home quickly, it is essential that it looks good, both externally and internally. Redecorating and cleaning will pay in the price you get.  However, it might also be worth your while employing a specialist staging company to stage your home for the sale.

Do all you can to sell your home before the viewers even arrive, and then be prepared to act positively on any negative comments the first viewers make. If they comment on your grubby brown garden fence, paint it white for the next viewers. As a final option to help sell your home quickly, have a concession you are willing to make at closing and you should successfully sell your home in the time frame you have set yourself.

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What is an HOA: Homeowners Association Basics

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HOA BasicsWhat is an HOA or homeowners association? Fundamentally, an HOA is a body that sets rules and restrictions for people that belong to neighborhood communities for the benefit of the community as a whole.

These communities can take several forms, and it is generally a condition of purchasing a home in such communities that you join the HOA. An obvious example is a condominium, where you would own the inside of the condo, but neither the fabric making up the structure nor the common services and amenities provided.

Another example is a gated community, where residents are responsible for the maintenance of everything within the gate: sidewalks, lighting and security being just three obvious examples. Others may be landscaping, communal facilities such as fitness rooms and pools, and also rules such as pets and noise.

There are several other types of community that can form such an association, including leased land property and new housing developments with common shared areas such as tennis courts that are the residents’ responsibilities. Here are some basics to explain how they work and how they can be set up.

Setting Up an HOA

To set up an Association you must first establish your state’s property code, and are advised to use a real estate attorney or even contact your mortgage advisor. The developer, if appropriate, must agree and will likely also help you with the process.  The HOA must be set up as a company, and you will first have to form a board of at least 4 members with the usual officers: chair, secretary and treasurer.

It is important to contact every member of the community and get them involved, because if membership was not a condition of purchase you could have a problem if any disagree. This is why using a lawyer experienced in this type of work is important.

Homeowners associations are set up with non-profit articles of incorporation, conditions and restrictions and bylaws that apply to the area or communities involved. There will be a board of directors, and each homeowner will make monthly payments to the HOA treasurer.  If you intend purchasing a home in a neighborhood with an HOA, make sure you fully understand its bylaws and what you can and cannot do with your home before purchasing.

Purchasing a Home in a Homeowners Association Area

If you are purchasing a home, and the property you like is situated in an existing HOA area, there are certain things you must establish before signing any contracts.

Restrictions may apply on the color of your exterior decoration (doors, windows, fences, walls, etc), and even whether or not you are permitted to dry your washing outdoors, have a real log or coal fire, the size of your satellite dish (or even if you are permitted one), whether you are allowed pets, and if so what species and size.  Many do not allow cats, while yappy dogs may also be frowned upon.

There are many other potential restrictions, such as the design and size of fences and hedges, the type of blinds, shutters or drapes permitted on windows overlooking the street and whether or not you can park your car in the street or even in your driveway.

These are just simple examples, and most communities have reasons for applying them. They generally tend to enhance the look and peacefulness of a neighborhood, and most are not overly restrictive. Make sure you know what the HOA rules are in your neighborhood before making a decision to purchase a home.

Homeowners Associations Rules

Among the Homeowners Association rules you should establish are:

  • Restrictions on external décor and dimensions of fences and hedges.
  • Must you keep your garden or backyard tidy?
  • Are you allowed a barbecue in your backyard?
  • Are you permitted pets?
  • I street parking permitted?
  • Can you park in your driveway – many do not allow certain types of vehicle.
  • Can you install solar panels – some HOA agreements o not permit these.
  • Does your HOA have the power to approve or reject projected home improvements, such as adding a conservatory or extra garage?
  • What is an HOA in a neighboring community doing with regard to the above – is yours average, lenient or strict?
  • What happens if you break a rule?
  • Can the HOA foreclose if you miss payments?

There are many more aspects of your HOA that you should establish before deciding to purchase a property. One of these is how the HOA is managed – is it strict or lenient? Another is whether there are personality clashes within the board, and how that might affect decisions made that could affect you.

A homeowners association can benefit a community if run efficiently. An HOA can benefit you in many ways, particularly in maintaining the look of the district and the amenities available to your family.  The vast majority believes them to enhance their community and help to develop a genuine community spirit.

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How Much Home Can I Afford: Mortgage Affordability Factors

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How Much Home Can I Afford?The question “How much home can I afford?” is a common one with new buyers, and there is no easy answer to mortgage affordability without having a lot more information.  There are several ways to work out how much of a home you can afford to purchase, although the two fundamental questions to be answered first are:

a) How much of a deposit are you able to pay?

b) How much can you afford to pay each month?

The way your potential lender will work out how much to lend you is different to the way you will calculate how much you can afford to pay. Sometimes the lender will offer you more than you expected, and at other times will offer less and leave you unhappy. So what’s the difference?  Let’s first look at how you might work out how much you can afford.

Mortgage Affordability: What Can You Afford to Pay?

Don’t look at your dream home, get the price, and then figure how you are going to afford it. People are very good at making themselves promises to economize, stop going out and eat frugally to afford this fabulous home – but they are also very good at failing to do these things and ending up in serious financial trouble, terminating in repossession and eviction notices.

Work out what you can afford to pay each month without making promises to yourself that you know you will ultimately fail to keep. Take the gross (pretax) income for your household, and you should be able to afford a monthly mortgage repayment of around one third of that. So if you and your partner, say, earn $4,800 between you, then you should be able to afford a monthly mortgage repayment of $1,600.

However, if you have other debts such as credit cards and student loans to pay, you should take these into consideration. If you work to about 40% of your gross income as debt, then that should work fine for you. Keep in mind that you can claim tax relief on your mortgage interest payments so once you agree a mortgage make sure you know how much you are paying each month in interest and how much is coming off the principal.

What Does the Lender Think?

Lenders evaluate your DTI or debt to income ratio. This is the ratio of your total debts to your income, so if you make $4,800 monthly and have debts of $1,730 your DTI is 100×1730/4800 = 36%.

Your lender splits this into two components:  the total DTI and the proportion of that which is connected with your housing.  That can include your interest and principal payments, any property taxes, any homeowner’s insurance payments and anything else connecting with buying your home such as any payments to a housing association. If you are renting, it includes your rent and any regular maintenance payments.

No more than 28% of the household’s monthly income should involve the housing component. Also, lenders like to see no more than 36% DTI. So if your household earns $4,800 monthly, you should be given a mortgage if your total debts are no more than $1,730.

Since no more than 28% should be used for housing, you can get a mortgage where your total housing costs, including repayments, insurance, etc, are no more than 28% of your $4,800 = $1,344 ( a bit less than the $1,600 estimate above).  That also means that your other debts should be no more than 8% (so all debts = a maximum of 36%) or $384 monthly.

Using that example, you should be able to work out how your mortgage affordability, or much you can spend on your mortgage. Obviously, the lower your other debts, the more you can afford for your home to a maximum of 28% of your total monthly pre-tax income.

That’s the way your lender calculates it, which is not the same as you would have done. It is important to understand how your mortgage lender thinks in order to make sure that you meet their requirements.

To answer the question, ‘How much home can I afford,’ you can work out you mortgage afordability using that $1,344. If the current mortgage interest rate is 4%, and you pay around 2% annually for taxes and insurance, you can afford to pay in the region of $200,000 for your home. You would have to check with your choice of mortgage lender or building society for exact amounts.

How Much Can YOU Afford?

We can help you understand how much home you can afford with a FREE consultation. We can also get you up to date on where mortgage rates are and which loan programs fit your needs the best.

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Meeting Your Home’s Former Owners Before and After the Sale

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Meeting Your Home's Former OwnersBuying and selling a home can be a strange combination of very personal feelings and very impersonal relations. Both the buyer and the seller usually have strong emotional connections to the house, but in the course of making the sale, the two parties don’t always meet in person.

If you don’t get an opportunity to met the current owners before you buy, there are important questions you need answers to that you should ask the selling agent. That being said, an unexpected visit from a former owner can give you the chance to ask lingering questions and learn more about the house from before it was yours.

What to Ask the Home Owner or Realtor Before You Buy

  • How recently were the plumbing and other systems updated?
  • Were there any problems during the updates?
  • Are there other issues with the neighborhood, area, or the home?
Sometimes you don’t get an opportunity to met the sellers before the transaction is complete, but come face to face with their seller some time later when the seller chooses to return to their old home.

What To Ask a Former Owner After the Sale

Undoubtedly, when a stranger comes to your door, it can be a little disconcerting. When it’s the former owner of your home, however, you can take advantage of the fact by asking them questions your home inspector might not have elaborated on, or about things that weren’t disclosed during the actual sale. Some of these questions can include:

  • How receptive were the neighbors to renovations and updates to the home?
  • Do they have any favorite contractors they can suggest?
  • Do they have any thoughts for upgrades that they were considering before they sold. They may have ideas and thoughts about improving the home that hadn’t occurred to you? 
  • Do they have any stories about the home’s history? 

Of course, the former owner may wish to ask you questions too. Many sellers often still feel a personal connection to the house and want to share that with you.

What Former Owners Might Say

It isn’t uncommon  for former owners return for sentimental reasons. They may have had children grow up in the home, or it might have been their first major purchase. Ultimately, they often just want to make sure you’re caring for their former residence. They even may ask you questions about your family, or how you plan to change the house to fit your tastes. In any case, meeting your home’s former owners is a chance to learn more about your home and learn about your home’s history.


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Strategies for Paying Off Your Mortgage Faster

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When taking out a mortgage, buyers often consider how they will get a rate that will enable them to pay off their mortgage as quickly as possible. In other words, they want the lowest rate possible, as we all do. Many times it is often only those that are approaching retirement that actually start to think about how they will pay off their mortgage. With careful planning, paying off your mortgage faster can be a realistic goal regardless of what your rate is.

Paying Down Your Mortgage

  1. Pay your Mortgage More Than Once Per Month – Setting up a bi-weekly or weekly payment schedule can help you pay of your mortgage many times faster than by making a standard monthly payment. If you pay bi-weekly, you end up paying one or two extra mortgage payments per year which automatically reduces your amortization period.
  2. Increase Your payments When You Have More Money Coming In – Instead of using additional funds from a raise or bonus at work for something else, put it towards your mortgage every time you make a payment.
  3. Get a Reasonable Interest Rate – It goes without saying that it is important that you do your due diligence when shopping for a mortgage. While rate is only one of the factors to consider when choosing a mortgage professional, it is important that you choose your mortgage professional and rate carefully.
  4. Consider an Adjustable Rate Mortgage – While an adjustable rate mortgage may not offer the security of an unchanging mortgage payment, it can provide for a smaller rate and payment due than a fixed rate mortgage. This lower rate / payment will enable you to make larger payments towards the principal, which can help you pay off your mortgage significantly faster. Keep in mind that an adjustable rate mortgage may or not make the most sense for your needs, we can help you understand the options and which ones fit your needs the best.

If you abide by some of the above strategies, it may be possible to pay off your mortgage up to a decade earlier. Not having to pay substantial housing costs later in life can help ease a major financial burden and can free up money for retirement, college education for the kids, investments or other financial needs.


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Debt to Income Ratio Basics: The Importance of Your DTI

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Mortgage Debt to Income BasicsFundamentally, your debt to income ratio (DTI) is the percentage of your income that is used to pay your debts, and is often abbreviated to the ‘debt ratio.’ Your ‘income‘ is your total gross income from all sources before tax, and the ‘debts‘ cover everything that you are currently repaying.

For example, let’s say you earn $4,200 each month and also have an investment income averaging $300 each month. Your income is then $4,500 monthly. Let’s also say that your mortgage is $870/month, your home insurance and property taxes come to $200, your credit card payments average $300 and you have an auto loan of $250 each month. Your total monthly debt is $1,620, so your income to debt ratio would be calculated as:

100 x 1620/4500 = 36%

This means that 36% of your total gross income is used to repay your debts.

Presentation of Debt Ratios

In the USA and some other countries it is common, but not essential,  to present debt to income ratios using two figures, known as the ‘front-end’ and back-end’ ratios.  While the above 36% is useful to lenders, it is even more useful to separate the payments made to the individual’s current home costs from their other debts. To make this clearer, let’s consider another set of figures.

The front-end ratio relates to the income spent on housing costs, including the mortgage repayments, rental payments, housing taxes, home insurance, mortgage insurance and so on. In the simplified example provided, this sum totals $1,070 each month. The rest of the 36% involve costs not associate with your home ownership or rental.

Taking this figure and calculating the debt to income ratio for that, it comes to 100×1070/4500 = 24% (to nearest whole figure). The DTI here would then be expressed as 24/36. The lender now knows that 24% of the 36% DTI is related to your home, and only 12% to other debts. This is important because it gives the lender an idea of your debts unconnected to your home ownership or rental.

Speaking generally as diffferent lenders vary, one lender might insist on a figure of at least 28/36, so that the above person would not qualify. With a DTI lower on the front end, it means that there are more debts other than for housing. This would have a negative effect on your likelihood of being offered a loan or another mortgage.

How to Improve your Debt to Income Ratio

It is important that you start by getting an accurate indication of your current DTI. Then you should work on paying less each month on your non-housing related debts.  Reduce your credit card payments, pay off your auto loan(s) and try to clear as many other debts as you can, or at least negotiate reduced monthly payments.

It is not your total debts that lenders are concerned about, but with how much income you have available after paying the monthly repayments for your non-housing related debts. They want to get a feel for whether or not you can afford the added burden of a monthly mortgage payment. They know the rough cost of living in your area, and will apply a debt to income ratio appropriate to what they believe you will have left after paying your other debts plus your living expenses.

Where Is Your Debt to Income Ratio?

For a FREE rate quote and an evaluation of your current debt to income ratio and ability to qualify for a new home purchase or refinance, please call us at the number above. We can also help you understand what loan programs are available and which ones makes the most sense for your needs.

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