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        <title>Seaport Real Estate Services Blog</title>
        <link>https://www.seaportre.com/blog/2017-10/</link>
        <description>Read up on the latest happenings in the housing market, plus get some tips whether your buying a new home or selling your old. We have must reads for first time home buyers. </description>
<item>
    <guid>https://www.seaportre.com/blog/credit-flu-causes-and-cure.html</guid>
    <link>https://www.seaportre.com/blog/credit-flu-causes-and-cure.html</link>
        <title>Credit Flu: Causes and Cure</title>
    <description> <![CDATA[ 
 


Written by Robert H. Ruth


Remember when you were a kid, and you got a really bad cold or the flu?  You couldn’t go outside and play with your friends, because if you got sweaty from running around the symptoms could linger, or worse, you might relapse. And then when you did feel better, and were allowed to go outside again, your mom made you wear a coat or a sweater, even though it was warm outside. The reason was that your mom believed you were in a somewhat weaker state and might catch a cold again if you got a chill. So she made you bundle up as a way to protect you from getting sick again. 


I shared this with you because when I first began my career, I wanted to learn how to do VA Loans, and in order to learn the program I sought out the guidance of the Regional Underwriter for the VA in Boston. He told me something that made a big impression on me: he said that when he looked at a borrower’s credit report and there was a history of late payments, he thought it was like the borrower had the flu…credit flu.   His job was to determine if the borrowers had recovered sufficiently.  I really liked that and I have used it ever since.  


So I want to look at this in a bit more detail so you can get a better idea of what a Mortgage Underwriter looks at when they see late payments on a credit report.  


Diagnosing and recovery from Credit Flu


The past credit history of a borrower is a very reliable indicator of whether or not the mortgage will be paid on time every month.  If a borrower does not pay their monthly obligations in a reliable manner, it is likely they may not pay the mortgage reliably either.  The credit report shows a 24 month payment history for each current open account the borrower has and the credit history can be seen at a glance. The payment history of an account is reported on the following scale :




1: Payment was made on time (as agreed)


2: Payment was 30 days late


3: Payment was 60 days late


4: Payment was 90 days late




 So the payment history for an account that was always paid on time (as agreed) would show all 1’s like this for the most recent 24 months : 111111111111111111111111


If a borrower made a 30 day late payment twice in the last 24 months it would show like this:111121111111211111111111, where the 2’s denote a 30 day late


 A pattern can be seen quickly if a borrower has a possible problem. Here is what that might look like:111112223432111111111111. So this borrower has four 30 day lates, two 60 day lates, and one 90 day late, all in a 7 month period. That would need to be explained in detail for an Underwriter. If the borrower had this pattern over 4 different accounts that would indicate a bad case of credit flu.


So the job of an Underwriter is to determine 2 things: what was the cause of the late payments and whether the borrower has sufficiently recovered from the cause. 


For example, if a borrower suffered an injury or illness and was out of work for a period of time during which they did not receive income, their ability to pay their bills would be impacted. This would cause the late payments. The important thing to determine is whether it was an isolated incident due to the illness and whether the borrower is back on their feet and making all their payments on time now.


If that is the case, the Underwriter would want to see a period of time, say 6 months, sometimes longer,  to have elapsed since the credit flu occurred.  If during this time, all payments were made on time and the borrower had rebuilt their savings, and their credit score had increased, the Underwriter might say they have recovered sufficiently.


To support that they have fully recovered from credit flu, the borrowers should explain the cause and the steps they took to correct the problem. Typically they would write a letter for the loan file along with any other supporting documentation that demonstrates the cause of the late payments and why they are no longer a problem.


If borrowers have no sound reason for the existence of late payments on their credit report, there is really no sound reason why an Underwriter would issue an approval on their loan request.  Having said that, it is important to remember that your credit history is a marathon, not a sprint, and in life people encounter difficulties that impact them financially from time to time. The important thing is how these difficulties are dealt with.


 


 


Robert H. Ruth


Senior Mortgage Banker


Direct: 401.789.4441


Mobile: 401.743.4364


Email: rhr11@icloud.com


 
  ]]> </description>
    <pubDate>Mon, 30 Oct 2017 16:27:00 -0400</pubDate>
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    <guid>https://www.seaportre.com/blog/does-it-matter-if-my-realtor-is-local-or-from-far-away.html</guid>
    <link>https://www.seaportre.com/blog/does-it-matter-if-my-realtor-is-local-or-from-far-away.html</link>
        <title>Does It Matter If My Realtor Is Local or From Far Away?</title>
    <description> <![CDATA[ 
Written by Tim Bray


 


I get it..Your Aunt Jenny, Cousin Uma or Brother Sam just received their real estate license and you feel compelled to utilize their services in order to keep the peace within your family tree which happens to be shaped like a wreath.  STOP BEING A PLEASER as it is you who will be adversely affected by the negative outcome of utilizing an agent who is not at the top of his/her game.  Next Step…


You just located a Superstar Agent or team of agents but they are located over 30 miles away from you.


 15 Years ago I would have recommended that you utilize the services of a location specific agent as they really had their finger on the pulse of print advertising. Today print advertising is simply a tool for agents to market themselves in an attempt to exploit the number of properties that they have accumulated.  Agents focusing on Print may want to shift gears and take a look at the State of The News Media in 2013.


Marketing dollars are much better spent on a great website, social media, digital marketing, professional photography, aerial photographs, research tools, and services such as Loopnet or CoStar Group.


Your Superstar Agents who are located in Connecticut have the ability to market your property in Maine better than anyone in the industry if they are utilizing the right combinations of online marketing.  92 of buyers are utilizing the web to find homes these days.  Check out the Field Guide to Quick Real Estate Statistics.


Instead of focusing on the location of your agent’s primary office you may want to explore this question.  Are you ready to sell? (Seven Costly Mistakes that Sellers Make)


Did you know that 43.6 of homeowners can’t afford to sell at this time?  Save yourself and your agent a ton of aggravation, stress, and time by exploring whether or not you are truly able to sell.


We wish you the best of luck in selling your property this year.  Remember, “Hope is not a strategy” and you do not need to hire an agent who is local.


 


 
  ]]> </description>
    <pubDate>Mon, 23 Oct 2017 14:38:00 -0400</pubDate>
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<item>
    <guid>https://www.seaportre.com/blog/private-mortgage-insurance-overview-part-2.html</guid>
    <link>https://www.seaportre.com/blog/private-mortgage-insurance-overview-part-2.html</link>
        <title>Private Mortgage Insurance Overview, Part 2</title>
    <description> <![CDATA[ 



Written by Robert H. Ruth


Last week, in part 1 of this topic, I explained that the purpose of PMI is to offset the additional risk faced by the lender in giving a loan to a borrower when they purchase a property with less than 20 down.


In that post, I explained the basics of Borrower Paid Mortgage Insurance (BPMI), which is the most widely used type of Private Mortgage Insurance.




My comparison showed that the expense of PMI is completely driven by the amount of down payment a borrower can make and their credit score. 


I also explained that a borrower would pay the PMI until they reach a 20 equity position based upon the initial amortization schedule of their loan or,


The BPMI will terminate automatically when the loan gets to 78 of the original value of the property.


Finally I explained that BPMI is paid in addition to the borrower’s normal monthly mortgage payment of principal, interest, taxes and insurance.




There is another type of Private Mortgage Insurance, not as widely used, that is called Lender Paid Mortgage Insurance, or LPMI for short. LPMI is the focus of this week’s post.


Lender Paid Mortgage Insurance (LPMI) explained:






LPMI is quite different and it is gaining in popularity, but ironically, it is not really Lender paid, the borrowers still pay it, just in a different fashion as you will see below






There are two basic options to use LPMI :








The first LPMI option is that the borrower pays an upfront fee at closing that eliminates the requirement to collect mortgage insurance on a monthly basis.






The second option is that the LPMI  can be paid by the borrower agreeing to take a higher interest rate for the life of the loan and the higher rate will cover the mortgage insurance








Usually borrowers take the higher rate because even with a higher interest rate their total monthly payment will be lower than a loan that includes traditional borrower paid MI.






The big question a homebuyer has to address is how long will they stay in the house?  If it is a short time, LPMI is a great option. If the borrowers intend to stay for a long time, they have to carefully consider which option is best for them financially.






What does it cost for LPMI ?


As with traditional PMI, the cost is calculated based upon the FICO score range and loan to value for the particular transaction. Like we did last week, let’s look at a chart showing the LPMI cost based upon a 5 down transaction financed with a 30 Year Fixed Rate Mortgage for $ 285,000


FICO Score Ranges








 




Coverage






≥ 760






740-759






720-739






680-719






660-679






640-659






620-639








95 LTV






30






1.95






2.15






2.23






3.29






4.93






5.12






5.79














So, if a borrower getting a mortgage with a 3.75 interest rate has a FICO score of 685 their LPMI cost would be based upon a factor of  3.29 which is the loan amount x 3.29 or






$ 285,000 x 3.29 = $ 9,376.50 . This option would increase their closing costs by $ 9300, not a good option for a borrower who can only put 5 down.






Another possible option would be for this borrower to take a higher interest rate , say 4.625 and they would not be required to pay anything extra for the LPMI . Here is how the 2 payments compare :














Interest Rate


3.75






P/I Payment


$ 1319.88






LPMI Cost


$ 9376.50








4.625






$ 1465.30






-0-














Obviously the 3.75 rate has a monthly payment that is $145 lower than the higher rate option at 4.625






However, the lower rate carries a pretty stiff price tag with an upfront cost of $9376






The higher rate is actually a better deal for the first 5.4 years because the borrower did not have to pay the extra money to get the LPMI. After 5.4 years the 3.75 rate is the better deal. And over the long haul, say 10 years, the lower rate is a clear winner as we can see below :














Rate


3.75






P/I Payment


$ 1319.88






10 yrs. Payments


$ 237,578.40






Cost of LPMI


$ 9376.50






Total $ spent


$ 246,954.90








4.625






$ 1465.30






$ 263,754.00






       -0-






$ 263,764.00













Comparing Traditional PMI and LPMI :


Finally, here is a comparison showing the difference in total payments including taxes and homeowners insurance for both types of PMI. For this chart I assumed taxes at $4800 per year and homeowners at $1200 annually. This is for a 5 down loan and a mortgage of $ 285,000 for a borrower with a 680 FICO score.


 










Mortgage Option






3.75


Loan w/ BPMI






3.75


Loan w/ LPMI






4.625


Loan w/ LPMI








PMI cost






Paid Monthly






$ 9736.50 at closing






-0-








Monthly P/I






$ 1319.88






$ 1319.88






$ 1455.30








Taxes






400.00






400.00






400.00








Homeowners Insurance






100.00






100.00






100.00








PMI






256.50






-0-






-0-








Total Payment






$ 2076.38






$ 1819.88






$ 1965.30 










 


Robert H. Ruth


Senior Mortgage Banker


Direct: 401.789.4441


Mobile: 401.743.4364


Email: rhr11@icloud.com


 
  ]]> </description>
    <pubDate>Mon, 16 Oct 2017 12:51:00 -0400</pubDate>
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<item>
    <guid>https://www.seaportre.com/blog/private-mortgage-insurance-overview.html</guid>
    <link>https://www.seaportre.com/blog/private-mortgage-insurance-overview.html</link>
        <title>Private Mortgage Insurance Overview</title>
    <description> <![CDATA[ 





Written by Robert H. Ruth



Private mortgage insurance (PMI) is required whenever the borrower’s down payment is less than 20 of the home’s value. This insurance protects the lender in the event the borrower fails to pay the mortgage and defaults on the loan.




The industry belief is that a borrower who has more equity invested in their home would be less likely to default on their mortgage since doing so would mean they would lose their equity in the event of a foreclosure. 


So the lending industry views a borrower with 20 or more equity as a lower risk than a borrower with less than 20 equity.


However, the reality is that there are many borrowers who manage their finances well and have not been able to accumulate the savings for 20 down, for various reasons: they live in a high housing cost market, they have a large student debt loan burden, or they have young children and the expenses associated with day care, etc. These borrowers should not be excluded from home ownership if they are credit worthy, and borrowing with PMI allows these people to become homeowners.




Many people view PMI negatively, which is a mistake, because this allows more people to get into a home with a lower down payment. The tradeoff is the cost of the additional insurance. This article will explain what you need to know to better understand PMI.


The Two Most Popular Types of PMI


A third party insurance company charges the lender for the coverage so they can originate loans with lower down payments. The lender collects the insurance from the borrower either on a monthly basis called Borrower Paid Mortgage Insurance (BPMI), or in an upfront fee called Lender Paid Mortgage Insurance (LPMI).  There are some key differences between the 2 types do let’s look at that in greater detail next.


Borrower Paid Mortgage Insurance (BPMI)




BPMI has been the most widely accepted form of PMI for many years.


The way that BPMI works is that the borrower pays an amount of money every month into an escrow fund for the PMI. 


The cost of the insurance is calculated based upon a premium card that takes into account the LTV ratio of the loan and the borrowers’ credit score. 


Therefore, a borrower who is putting 5 down would pay a higher monthly premium than a borrower who has 15 down, and a borrower with a higher FICO score would get a lower rate than someone with a lower FICO score.  That is because the 5 down borrower or the borrower with a lower FICO score is a riskier borrower and their premium is based upon the higher risk factor they carry.


BPMI would be paid by the borrowers until they reach an 80 Loan to Value Ratio based upon the initial amortization schedule of the loan, or  BPMI will automatically terminate when the loan reaches 78 of the original value of the property.






So, for example, if a borrower buys a $300,000 house and puts 5 down ($15,000), and gets a loan for $ 285,000, the borrower can request the cancellation of PMI when the loan balance reaches 80 of the original value of the property which would be  $240,000, or the BPMI will automatically terminate at 78 of the original value of the property, which is $ 234,000.






The borrowers can also request the PMI be cancelled if they make extra payments on the loan that bring the balance to 80 of the original value sooner








What is the monthly cost of BPMI ?


Here are some examples of the difference in BPMI cost based upon FICO score ranges for a 5 down transaction financed with a 30 Year Fixed Rate mortgage for $ 285,000:


    FICO Score Ranges








 




Coverage






760+






740-759






720-739






700-719






680-699






660-679






640-659






620-639








95 LTV






30






.41






.59






.73






.87






1.08






1.42






1.50






1.61














So if a borrower had a FICO score of 685 their PMI expense would be based upon a factor of 1.08 which is the loan amount x 1.08 or $285,000 x 1.08 = $ 3078 per year ÷ 12 = $ 256.50 per month.










If a borrower had a FICO score of 735 their PMI expense would be based upon a factor of .73 which is $285,000 x .73 = $ 2080 per year ÷ 12 = $ 173.38 per month …a BIG difference in payment






Now, let’s see what the cost of BPMI would be if these borrowers could put 10 down. Here is the range of premiums for a 10 down mortgage at $ 270,000 :


    FICO Score Ranges








 




Coverage






760+






740-759






720-739






700-719






680-699






660-679






640-659






620-639








90 LTV






25






.30






.41






.50






.60






.73






1.00






1.05






1.10















Here our borrower with a 685 FICO score would have a PMI factor of .73 which calculates as $270,000 x .73 = $1971 per year ÷ 12 = $ 164.25 per month











If the borrower had a 735 FICO score the PMI expense would be based upon a factor of .50 which is $ 270,000 x .50 = $ 1350 per year ÷ 12 = $ 112.50 per month






So the point I want to get across here is that the expense of PMI is driven completely by the amount of down payment the borrower can make and their credit score.  And also remember, the PMI is paid in addition to the Mortgage Principal and Interest + taxes and homeowners insurance.  If you are contemplating purchasing a home and cannot make a 20 down payment, make sure your credit score is as high as possible so that you are able to get the best rate on your PMI. This covers the basics of Borrower Paid Mortgage Insurance. Next week, in Part 2, I’ll explore another mortgage insurance option, called LPMI.


 




 


Robert H. Ruth


Senior Mortgage Banker


Direct: 401.789.4441


Mobile: 401.743.4364


Email: rhr11@icloud.com


 
  ]]> </description>
    <pubDate>Mon, 09 Oct 2017 14:22:00 -0400</pubDate>
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    <guid>https://www.seaportre.com/blog/why-real-estate-agents-take-overpriced-listings.html</guid>
    <link>https://www.seaportre.com/blog/why-real-estate-agents-take-overpriced-listings.html</link>
        <title>Why Real Estate Agents Take Overpriced Listings</title>
    <description> <![CDATA[ 
By Tim Bray


BE AWARE THAT OFTEN IT DOESN'T MATTER TO THE REAL ESTATE AGENT IF YOUR OVERPRICED LISTING EVER SELLS


Free Advertising for the Agent


Every &quot;For Sale&quot; sign advertises the agent's company and the agent. Many signs contain the agent's Web site and cell phone number. Some even sport a large color photograph of the real estate agent.


Think of it like a giant billboard for the agent.


If the home is located on a major thoroughfare, all the better. Probably thousands of drivers pass the sign each day and will see that agent's name. And after the sign post is in the ground, it's not costing that agent one thin dime to leave it there.


Agents Find Buyers Through Listings




Sign Calls If a buyer wants to find out the price of a home, typically they will call the agent's cell phone number and ask. Agents who are on the ball will try to recruit that buyer to work with them, providing the buyer is not already working with another agent.


Open Houses Moreover, agents can hold an open house and find buyers that way as well. If the buyer is not interested in the home -- and once they find out the price they won't be -- the agent is then free to show the buyer other homes.


Newspaper Ads An agent with an overpriced listing often won't put the address in the paper but will list the details along with the price. That way, buyers who can afford to pay that amount will call to inquire. Now, all an agent has to do is suggest other homes in that particular price range that are worth what the seller is asking and she's off and running into escrow on another transaction. Not yours.




Real Estate Agents Hope for a Price Reduction


Even if an agent knows she is taking an overpriced listing, she might be telling herself that when the home doesn't sell within a few weeks, she can persuade the seller to lower the price and then earn a commission when it sells. So she justifies her actions and accepts the listing. Except that studies show that interest in a home typically wanes after a few weeks, so there are fewer buyers for that home when the price falls. Buyers also think there is something wrong with a home that doesn't sell right away or they worry the seller dropped the price because a major defect was discovered. Price reductions hurt. They hurt the seller, and they often make a buyer wonder how much lower the price could drop. So, a buyer will often offer even less after a price reduction.


 To Secure the Listing and Blow Away the Competition




Sometimes It's a Deliberate Lie. As a seller interviews each agent, often the estimate of value creeps upward. Maybe the first agent knows there will be two other agents competing for the listing, so the first agent names an astronomical figure. The second agent, upon hearing the first agent's price, beats it. The third agent comes in higher yet.A seller who chooses an agent based on which estimate is highest can often times become the ultimate loser….but it is human nature to choose the agent who says they can fetch the highest price. Almost every seller operates in this manner. To the defense of the Agent, sometimes they just “Don’t know what they don’t know”.  The traditional approach to valuation can sometimes leave an agent scratching their head when no comparable homes have sold recently. The agent is forced to utilize radically different homes in varying locations and attempt to justify the differences in value.Sometimes the Seller has Unreasonable Expectations.This still doesn't excuse the agent from explaining how a home is valued A home came on the market on a storybook street in a desirable area of Mystic, but it was priced $100,000 too high. When asked why, the agent replied, &quot;I know it's overpriced, but I would have lost the listing to somebody else if I didn't agree to that price.&quot; Turns out a home two doors down sold for a high figure, but that home had been meticulously maintained, and it boasted a newly remodeled kitchen with top-of-the-line appliances. By comparison, this home was a fixer, but the seller insisted he could get the same price as his neighbor.




Conclusion: Choose your agent based on honesty, ethics, experience, competence and marketing, and don't chase after those tossing around pie-in-the-sky numbers.


 
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    <pubDate>Mon, 02 Oct 2017 12:54:00 -0400</pubDate>
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