GET A MORTGAGE RATE UNDER 4%

Mortgage experts weigh in on six ways you can get an interest rate near the record-setting lows.

Photo: Thinkstock

Low mortgage rates: everyone wants them, but not everyone can have them. And with rates dropping to record-setting lows, it's no wonder why they're such a hot commodity.
Mortgage rates hit record-setting lows at well under the 4-percent mark in the first week of October 2012. That's when Freddie Mac, the government-sponsored home financing corporation, reported the average 30-year fixed-rate mortgage (FRM) average dipped to 3.36 percent.
Unfortunately, not everyone will be able to take advantage of these low interest rates.
Why not? According to Brownie Stanisch, a senior loan consultant from Sherman Oaks, Calif., the qualifying guidelines for loan approval are tougher than ever due, in part, to the rising amounts of home foreclosures.
"Every time a property is foreclosed, lenders look at what caused the foreclosure," Stanisch says. "If they look at 10 property foreclosures and eight of them were homes (purchased by borrowers) with low credit scores or a low down payment, lenders feel they have got to be more stringent."
Want to find out if you could score a 4 percent mortgage rate or less? Consider these six key factors that mortgage experts say could help you get a low rate.

Factor #1 - Good Credit

Nothing moves the needle in terms of an interest rate more than a borrower's credit rating, mortgage experts say.
"Good credit is mandatory," says Laura Hertz, a loan officer based in Sherman Oaks, Calif. "People think no credit is good credit, but no credit is no credit."
A primary form of determining one's credit "rating" in the eyes of lenders is a borrower's FICO score, a numerical calibration of one's credit risk (invented in the 1960s by a company called Fair Isaac).
[Got a good credit score? Click to compare mortgage rates now.]
According to myFICO, the consumer division of Fair Isaac, lenders use your credit score to determine how much money you can borrow and at what interest rate. FICO scores range from 300 (on the bad end) to 850 (on the great end).
"It's important to maintain good credit," Hertz says. "A score of 640 is an OK credit score, but 740 and above will get you the best rates."
To review your credit report, the Federal Reserve System, which oversees national monetary policy and the banks, suggests ordering a copy from www.annualcreditreport.com.

Factor #2 - Good Down Payment

Getting an interest rate under 4 percent truly is a game of percentages. The mortgage rate you receive is likely to be inversely proportional to your down payment - that is, the more you put down, the lower your interest rate tends to be, according to Hertz.
"To get the very best rate, you have to have a 30 percent down payment," Hertz says. "A 20 percent down payment is good, and that can be worked with for a better rate."
[Are you able to put down a good down payment? Click to compare mortgage rates now.]
But is a 20 percent down payment the starting point for interest rates under 4 percent? Not necessarily.
Hertz says down payments of 10, 5, or even 3.5 percent are good amounts, too, but borrowers might have to pay additional fees or purchase private mortgage insurance (PMI) to offset risk issues such as poor credit.
The Mortgage Insurance Companies of America defines PMI as a measure lenders use "for protection in case the homeowner fails to make his or her (mortgage) payments."
Borrowers with a low down payment, according to Hertz, might have to include PMI with their loan package in order to get an interest rate under 4 percent.
"If you do 20 percent down, you don't end up with high PMI," Hertz says.

Factor #3 - The Right Lender

Getting a loan with an interest rate below 4 percent depends heavily on finding a lender or broker who has your best interest at heart. But how can you find the right lender?
For starters, you need to shop around and consider recommendations from people you trust, Hertz says.
"Listen to your realtor," Hertz says. "Get different business cards and different references. Almost every one of my clients is a referral from somewhere else."
[Ready to shop around? Click to compare mortgage rates now.]
You also must be prepared to ask lenders questions about their track record and performance levels, Hertz says. Among the questions you might consider asking include:

• How quickly do your loans close?
• Do you have references from people in the area I can call?
• Does your company have a good rating?
• How much experience do you have?
• Are you in communication with the underwriter (the person who approves or rejects loan requests)?

The answers to these questions will hopefully help you find a lender that can improve your chances of getting an interest rate below 4 percent.
"You have to find a lender who has the time and patience to deal with any issues you might have," Stanisch says. "They need to be able to advise you on whether you can do anything to improve your pricing conditions, so don't wait until you find a house to start the process."

Factor #4 - Stable Job History

How is your employment history? If you have been off and on the job for an extended period of time, that could affect whether your interest rate will find itself near the record-setting low marks, mortgage experts say.
Even with a good income, you'll still need to prove that your job history bodes well for your future employment, thus enabling you to borrow at a lower interest rate. The key word here: documentation.
"Lenders will definitely decline loans if you can't provide documentation or back up what you are telling them," Hertz says. "They don't take things at people's word unless they can be backed up."
[Think you have what it takes to land a low mortgage rate? Click to compare mortgage rates now.]
Hertz says you can expect lenders to ask you to sign a Form 4506 from the Internal Revenue Service to request a transcript of your tax return. You'll likely also be asked to provide pay stubs and bank statements to verify your income and assets.
People who are self-employed, receive other types of taxable income, or earn substantial commissions or bonuses have to be diligent in keeping track of their salary history, according to Hertz. Lenders tend to scrutinize job history the way Sherlock Holmes works a case, leaving no stone unturned.
Hertz recommends having the following documentation in good order to show lenders:

• Two years of tax documentation
• Any bonus check stubs from the previous year
• The most recent month of pay stubs
• Two forms of legal identification
• Two months of bank statements

"If your work hours are not guaranteed, that's a big problem," Hertz says. "If you're somebody who has a big part of their income that's a bonus or a sales rep whose income is decreasing, they might not qualify for the loan. You have to show your income is increasing or staying the same."

Factor #5 - Few Liabilities

The amount of debt you owe can play a significant role in whether you get an interest rate near the record-setting lows. If your financial liabilities or debts are too much in comparison to how much income you make, lenders might balk at giving you a rate below 4 percent.
The Federal Housing Administration (FHA), the government-sponsored mortgage financing entity, describes these debt ratios as loan requirements based on whether potential borrowers are "in a financial position that would allow them to meet the demands that are often included in owning a home."
A debt ratio is an indicator that measures the proportion of debt an individual has compared to their assets.
[Are you ready to score a low mortgage rate? Click to compare rates from multiple lenders now.]
For people with a lot of credit card debt, for example, Stanisch says you want to pay off balances or get them as low as possible before you attempt get a home loan with an interest rate under 4 percent.
Here are some other ways Stanisch and Hertz say you can improve your debt-to-income ratios:

• Lower your liabilities or debts, such as paying off a car
• Increase your income, perhaps by getting a second job
• Some combination of both lowering debt and improving income

Factor #6 - Loan Type

Choosing a loan type could spell the difference between getting an interest rate that's well below 4 percent and one that hovers high above it. So which way do you go - a conventional loan or one that's financed by a government-sponsored program?
Depending on your situation and the loan terms, Hertz says you might get a better rate with a government-backed loan.
"The FHA's actual rate can be a bit lower than a conventional loan," Hertz says, "but the mortgage insurance is often higher than a conventional loan."
[Shop around for the best mortgage loans and rates. Click to get started.]
Hertz says it's important for borrowers to be aware that getting an FHA loan can require an upfront insurance premium and another monthly premium based on the loan amount. But if having an interest rate under 4 percent is important to you, paying the additional premiums might be worth it.
"The upfront mortgage insurance and monthly (premiums) are aversions, but most Fannie and Freddie loans are under 4 percent," Hertz says.

Home sales climb 2% in October

Six key questions for Contractors

No matter how big or small the home remodeling project, you can find the perfect contractor by posing the right questions.

Photo: Thinkstock

Getting antsy to remodel your home? You might think your kitchen or bathroom needs a remodel right this minute, but remember: Haste makes waste.

Rather than rushing to hire the first - or even cheapest - contractor you come across, asking the right questions upfront will help you filter out the bad apples and find a reputable contractor to meet your needs.

"I want my clients to feel 100 percent comfortable with me," says Shawn Kruse, president of the Remodeling Contractors Association of Connecticut and owner of Kruse Home Improvement, LLC. "And honestly, the more investigation they do about me and questions they ask me, the better it is for me. It helps me get the job."

As Kruse points out, a thorough investigation can benefit both parties in the end.

"Potential clients learn about your credentials, background and experience. They start to get to know you and see if your personalities can get along," Kruse acknowledges.

[Ready to find the perfect home contractor? Click here to locate one in your area.]

You may know exactly what you want out of your remodel - from the fixtures to the flooring - but you should know what you want from your contractor, too. Don't settle for the first or cheapest bid. Your contractor will control the project - and probably your stress level - from start to finish, so it's important the two of you are a good match.

If you want to find a contractor who suits your needs, try asking these six questions during the interview.

Question #1: What's Your Business History (and Much More)?

You wouldn't hire a surgeon without knowing how many surgeries he or she has performed, would you? Well, your home is about to go under the knife, so you'll want to evaluate contractors with the same level of scrutiny.

Kruse suggests first asking questions about a company's business practices and experiences with the remodeling project you need. Find out what kind of procedures and rules this contractor would follow to meet your demands.

Here are a few other things Kruse thinks you should ask contractors:

• How long have you been in business?
• Are you licensed by the state?
• What percentage of your clientele is repeat or referral business?
• Are you a member of a national trade association?
• Do you have a list of references from past projects similar to mine?
• Have you or your employees been certified in remodeling or had any special training or education?

[Ready to put a contractor to the test? Click here to find one today.]

Kruse also recommends contacting a client with whom they are currently working. "This way, you can see how things are conducted on a day to day basis," he says. "You can find out if there are problems or issues that have arisen, and ask how well they communicate throughout the project."

Question #2: Do You Provide a Detailed Written Contract?

Misunderstandings happen. People forget. Things change. But a contract helps both you and the contractor know what is expected from both parties.

Every job, no matter how small, should have a signed contract by the contractor and customer, Kruse says. Seems like a no-brainer, right? Not so fast - the devil is in the details.

"A contract should be very specific and point out step by step what will be going on throughout the project and before it even begins," he adds.

Some things that should be on a contract - all written in great detail - include:

• Names, addresses, and phone numbers of all parties involved in the project, including vendors
• Detailed list of the work to be completed
• List of each product along with its price and model number
• Who is responsible for pulling permits
• Where deliveries will go and where the dumpster will be placed
• What time the workers begin and end their day
• Project's start and completion dates plus payment schedule
• All work carried out by subcontractors

[Ready to look for a home contractor? Click here to find one in your area.]

Anything that changes along the way must be written and signed in a change order, which makes sure everyone is in agreement on the change, price, time, or anything else that is adjusted from the original contract.

Question #3: How Much Do I Need to Put Down?

If the contractor asks you to pay for all of the project's cost upfront, it's time to find another contractor. An unreasonable deposit is the first sign something is fishy, Kruse says.

The Better Business Bureau's website suggests going by the rule of thirds: Pay one third at the beginning of the project, one third when work is 50 percent complete, and one third after it is final and you are satisfied with the outcome.

But chances are your contractor will have a formula to determine how much money is needed to get the job started. "Most contractors go with a 15 percent down payment on larger projects," Kruse says. "My clients usually give me the 15 percent deposit at the same time they hand me the signed contract."

[Ready to start your home remodel? Click here to find the right home contractor today.]

Keep in mind that if the job is a small one, it's okay to provide money for the cost of materials - which might be 50 percent of the job or a little more, he says.

Question #4: Can I Get Itemized Price Estimates?

Some contractors like to hand you a bid with one price estimate for the entire project because it's less work on their end. Don't let them. You will need details on all the costs associated with the project and each item purchased.

Here's why an itemized estimate is essential: If midway through the project you decide to put in a less expensive countertop than the one originally discussed, you need to know the exact cost of the first countertop. Without it, you have no way of knowing how much of a credit you should receive.

An itemized price list should detail the cost of labor, demolition, materials, electrical, plumbing, permits, and more.

Kruse explains how an itemized estimate is better for client and contractor: "It just makes it easier to track work, and it's transparent to both the client and I of what is expected on the job. I also offer my preferred vendor list to our clients so they know who we are buying their products from."

Some contractors use their estimates as proposals, but these might be very inaccurate and could mislead the homeowner, Kruse says. Don't assume anything. Be certain that once you sign a contract, what you see on paper is what you will be paying.

Question #5: Who Will Be at the Site?

Just hiring your contractor doesn't ensure he or she will be the one hammering and sawing. They might only show up to sign the contract and present the finished product. It's important to know that certain contractors manage their companies by getting bids or supervising many job sites at once and are not hands-on people.

How do you find out which one you have? "Ask potential contractors who is going to be in charge of your project at all times," Kruse says. "You need to meet with that person, get a feel for what he/she is like and get acquainted a bit. Go check out that person at one of their current jobs."

[Ready to get started on your home remodel? Click here to find a contractor in your area.]

In their "Home Sweet Home Improvement" guide, the Federal Trade Commission urges homeowners to ask if subcontractors will be used on the project. If so, homeowners should ask to meet them to make sure they have insurance coverage and proper licenses.

When meeting the subcontractor, ask if the lead contractor pays them on time. Why is this little detail important? According to the Federal Trade Commission, "A 'mechanic's lien' could be placed on your home if your contractor fails to pay subcontractors or suppliers," who, in turn, could take you to court to retrieve their unpaid bills.

Question #6: Do You Think We Can Get Along?

Just like any good relationship, the one between you and your contractor should have harmony, communication, and collaboration. Some personalities and styles just don't mesh, so don't pick someone just because their bid is the lowest, says Kruse.

Your contractor will be part of your daily existence for quite some time. They will see how your children behave, how you don't water your plants, and how your breakfast dishes sit in the sink all day.

Hiring a contractor without much thought can be a big mistake, says Kruse. "Sometimes [homeowners] end up with work that is less than adequate, or they give these shady contractors a large chunk of money upfront and then they never show up again."

Protecting yourself from these nightmares means knowing exactly who your contractors are before you hire them. After all, it doesn't hurt to ask - but it sure could hurt if you don't.

Buying Home 45% Cheaper than Renting

You can save hundreds of dollars a month by buying a home instead of renting – especially if you can get today’s low mortgage rates, itemize your tax deductions and plan to live there for 7 years.

The most important housing decision that most consumers face is whether to rent or to buy. So to help them with this decision, we took a look at the key market factors affecting the cost of homeownership.  First off, asking home prices have started to rebound and have risen by 2.3% year over year in August (3.8% excluding foreclosures); however, rents have risen more (4.7%). This means that prices are lower relative to rents than they were a year ago. But more importantly, mortgage rates have fallen: the best rates this summer have been around 3.5%, while last summer rates were closer to 4.5%. Based on asking prices and rents during the summer of 2012, buying is now 45% cheaper than renting in the 100 largest U.S. metros, on average – that’s a savings of $771 a month. If you plan to stay in a home for 7 years, which is the average time that Americans traditionally live in a home before moving again, it is more affordable to buy than to rent in ALL of the 100 largest metros in the U.S.

Costs aside, the decision to rent or buy a home is very personal. There’s a strong emotional component: some people want the security of homeownership and others want the footloose freedom of renting. But the financial factors are also very personal because the decision to rent or buy depends on:

1. Can you qualify for a mortgage at the best rate available?
2. Which tax bracket are you in, and do you itemize your deductions?
3. How long will you stay in your home?

To calculate whether renting or buying costs less, we assume people can get a low mortgage rate of 3.5%, itemize their federal tax deductions and are in the 25% tax bracket, and will stay in their home for seven years. (Below, we’ll show how changing these assumptions can affect the rent-versus-buy math.) We do the following calculations:

• First, we looked at all the homes for sale and rentals listed on Trulia in June, July and August 2012. On for-sale homes, we took the asking price and estimated what it would rent for; for rentals, we took the asking rent and estimated what it would sell for. That way, we can calculate the average rent and asking price for an identical set of properties in a metro area, for a direct apples-to-apples comparison. By looking at homes currently for sale or rent, we’re able to illustrate the actual housing options that consumers face right now.

• Second, we estimated the total costs of renting and buying for the typical property in a metro over a seven-year period. We factored in all the costs of homeownership (e.g., closing costs, maintenance, insurance, taxes, etc.), along with the tax benefit of deducting mortgage interest and property taxes, as well as the proceeds from selling the home after seven years with modest home price appreciation. On the rental side, we factored in renters’ insurance and the security deposit. Finally, we calculate the net-present-value of all those costs to capture the opportunity cost of tying your money up in a down payment. This gives us the total cost of buying versus renting. We then calculated the dollar difference and percentage difference between renting and buying.

• Finally, we looked at alternative scenarios of the costs of renting versus buying, by changing the mortgage rate, the income tax bracket for tax deductions, and the time horizon.

Where Buying is a Slam Dunk
With a 20% down payment, a 30-year fixed mortgage rate at 3.5% and at the 25% federal tax bracket, homeownership is cheaper than renting in all of the 100 largest metros by a wide margin. There is no market where the financial decision is even close, so long as you plan to stay in the home for at least seven years, get 3.5% mortgage, and itemize your tax deductions. However, how much cheaper it is to buy a home than to rent really depends a LOT on where you live.

Buying is 24% cheaper than renting in Honolulu, 28% cheaper in San Francisco, and 31% cheaper in New York. On the other end of the spectrum, homeownership is extremely affordable in Detroit, where buying a home is 70% cheaper to buy than to rent, and 63% cheaper in both Oklahoma City and Gary IN. Check out the top 10 lists below to see where the cost differences between buying and renting are smallest and largest.

Where the Financial Advantage of Buying Over Renting is Smallest
U.S. Metro	Monthly cost of home ownership ($)	Monthly cost of renting ($)	Difference ($)	Difference (%)
Honolulu, HI	$1,519	$2,007	-$488	-24%
San Francisco, CA	$2,327	$3,226	-$899	-28%
New York, NY-NJ	$1,857	$2,687	-$831	-31%
San Jose, CA	$1,819	$2,646	-$827	-31%
Los Angeles, CA	$1,379	$2,020	-$641	-32%
Ventura County, CA	$1,516	$2,274	-$759	-33%
Orange County, CA	$1,610	$2,423	-$813	-34%
San Diego, CA	$1,314	$1,981	-$667	-34%
Albany, NY	$999	$1,535	-$536	-35%
Long Island, NY	$1,603	$2,513	-$910	-36%

Note: Cost of homeownership assumes that the home is sold after 7 years and includes closing costs, maintenance, insurance, property taxes and other costs. Cost of renting includes security deposit and renters insurance. Monthly cost is based on net present value of costs over 7 years. Monthly costs are based on the average across all properties listed in the metro area, including those for sale and those for rent, in summer 2012.

Where the Financial Advantage of Buying Over Renting is Huge
U.S. Metro	Monthly cost of home ownership ($)	Monthly cost of renting ($)	Difference ($)	Difference (%)
Detroit, MI	$349	$1,149	-$800	-70%
Gary, IN	$616	$1,649	-$1,033	-63%
Oklahoma City, OK	$590	$1,576	-$987	-63%
Lakeland-Winter Haven, FL	$495	$1,276	-$781	-61%
Toledo, OH	$476	$1,222	-$746	-61%
Dayton, OH	$524	$1,332	-$808	-61%
Warren-Troy- Farmington Hills, MI	$588	$1,494	-$907	-61%
Memphis, TN-MS-AR	$548	$1,389	-$841	-61%
Cleveland, OH	$585	$1,464	-$879	-60%
West Palm Beach, FL	$723	$1,764	-$1,041	-59%

Note: Cost of homeownership assumes that the home is sold after 7 years and includes closing costs, maintenance, insurance, property taxes and other costs. Cost of renting includes security deposit and renters insurance. Monthly cost is based on net present value of costs over 7 years. Monthly costs are based on the average across all properties listed in the metro area, including those for sale and those for rent, in summer 2012.

What does this mean in dollars? Buying is cheaper than renting by several hundred dollars a month in every large metro. The charts above show how the percent difference in buying versus renting may be smaller in San Francisco (-28%) than in almost all other metros, but the annual dollar savings is big ($899) because the rents and home prices there are so high – so even a smaller percentage difference means a big dollar difference. (Remember that we’re looking at the annual cost of buying or renting the typical listed home. Most homes listed are for-sale, and for-sale homes tend to be much larger than rentals, on average. That’s why the monthly cost of renting the typical home is higher than the actual amount most renters pay.)