TedCo Software Financial Matters Blog

This is the tenth anniversary of one of Wheatworks Software’s most popular tools for home buyers. Home Buyer’s Calculator Suite $19.95 was first released back in 1999.

During the last ten years, as new features and additional real estate calculators were added to the software, the name was changed to Real Estate Calculator Suite from Home Buyer’s Calculator Suite. (Real Estate Calculator Suite, a more complete calculator suite is designed for home buyers, home sellers and real estate professionals. It covers the spectrum of real estate finances, from prequalification to estimated closing costs to refinancing and prepayment savings.)

I’ve been reminded recently that some people simply want to know about the front end of home ownership. They want to buy a home.

Wheatworks has reintroduced Home Buyer’s Calculator Suite just for those who are interested in buying a home. Like the original Home Buyer’s Calculator Suite, it focuses on helping home buyers calculate the financial scenarios related to buying a home.

ScreenShot

Home Buyers Calculator Suite includes the following calculators for home buyers:

• 2 quick calculators to calculate payments of principal, interest, taxes and insurance or to calculate for one of the missing values when given any three of loan amount, term, interest rate and payment,
• 2 down payment savings calculators; one to determine how long it will take to save a specific amount, the other to determine how much you can save during a specific period of time,
• a mortgage qualification calculator that shows you how much house you can reasonably afford under conservative lending standards (there are no funny-money loan calculators in Home Buyers Calculator Suite, the default housing ratio is 28 and the default debt ratio is 36),
• Home Buyers Calculator Suite includes LoanSpread™, a calculator that compares 135 loans at once and gives you details of any you wish to explore,
• 2 amortization schedule calculators which will calculate the effect of prepayments, too,
• an estimated closing costs calculator,
• a refinancing calculator,
• a rent or buy calculator (because renting is often smarter than buying),
• and a biweekly payment calculator which explains an easy way to pay off a mortgage loan early.

Less complicated than Real Estate Calculator Suite, but every bit as modern in terms of software technology, Home Buyer’s Calculator Suite is also less expensive. Available for a one-time fee of $19.95, Home Buyers Calculator Suite is designed to make real estate math easy for home buyers.

Can you be helped by the President’s “Making Home Affordable” plan which is designed to help distressed homeowners refinance or modify their mortgages?

FinancialStability.gov is a new government web site that can help you find out if help is available for you.

The four basic eligibility requirements are addressed by these questions:

• Is your home your primary residence?
• Do you have a Fannie Mae or Freddie Mac loan?
• Are you current on your mortgage (haven’t been more than 30 days late in the last 12 months)?
• Is the amount you owe on your first mortgage about the same or less than the current value of your home?

Even if you don’t believe you will qualify for help refinancing or getting a loan modification, you should still work through the evaluation pages at FinancialStability.gov. You don’t have to enter any personal information to explore the site and if you don’t qualify, the site offers suggestions about other options you can pursue.

The Federal Reserve cut the federal funds rate from 1% to a range of 0.0% to 0.25% this week. Homeowners immediately started taking advantage of the reduction in interest rates by refinancing their homes to a lower monthly payment.

The MSNBC.com story is titled, “Fed rate cut sparks a rush of refinancing“.

If you are interested in refinancing, the Refinancing Calculator in Real Estate Calculator Suite is a great tool to use for determining the effects of refinancing. It shows you the savings a refi can offer in terms of time and money. And it’s easy to use.

For those with good credit and the ability to make a healthy down payment, the current rates for refinancing into a fixed, conventional loan are now as low as 4.5%.

But how do you determine if refinancing will be a good financial move? Sometimes it’s not. There are many scenarios where refinancing is almost always a bad idea. If you plan to sell your house next year, you’ll probably not live in the house long enough to recoup the costs of refinancing through the monthly reduction in payment. If you already have a very low interest rate, refinancing with costs may be only a break even effort over the long term.

With rates as low as 4.5% though, refinancing will look good to a lot more people. But a caution is in order. Refinancing is best done when only the remaining balance is refinanced. Suppose the purchase price of your home was $200,000 and you’ve paid it down to a $150,000 balance. A simple refi of $150,000 is usually the best approach. If you refinance the full value of your home (also called a “cash out refi”), your payment will be higher than a simple refi and your debt will be greater. You’ll be buying your entire home over again!

The 16 real estate and mortgage calculators in Real Estate Calculator Suite, $39.95 US, give you the ability to play with your own numbers as you consider a real estate purchase. The Refinancing Calculator is an example of how Real Estate Calculator Suite “makes real estate math easy”!

Download an evaluation copy of Real Estate Calculator Suite and try the Refinancing Calculator. Here’s a screenshot to give you an idea of how simple it is to use.

(Click the screen shot to see the full sized image)

A search for “‘upside down’ mortgage” on Google returns 687,000 results. “housing crisis” returns 2,270,000 results.

In fact, housing news is so focused on the real estate bubble, that it’s difficult to find information about managing a mortgage loan responsibly. You’ll read more about home buyers walking away from their home than about paying off a mortgage early.

But suppose you didn’t buy more home than you can afford. Suppose, you’re like many homeowners and you can comfortably make your mortgage payments. Suppose, you even want to pay your mortgage off early.

How do you crunch the numbers? Use Real Estate Calculator Suite, a Windows-based collection of real estate and financial calculators designed to make financial math easy.

Making additional payments towards the principal of a loan is a great way to reduce the total amount of interest you will pay over the term of the loan. The Prepayment Calculator shows you the effects of making these prepayments (paying additional amounts to more quickly reduce the principal of your mortgage).

Here’s a quick example:

Amount Borrowed: $100,000
Interest Rate: 8.75%
Term in Months: 360
Annual Property Taxes: $1,200
Annual Insurance: $1,200
Annual PMI Payments: $600
Total Monthly PITI Payment: $1,036.70
Total Interest Over Term: $183,212.97
Total Interest and Principal: $283,212.97

Using the Prepayment Calculator to calculate the savings of adding an additional $100.00 to your monthly payment, you’ll find that you’ll shorten the term of your loan from 360 months to 238 months (save 10 years) and save a total of $72,330.29!

And you’ll save the time and money by simply adding an additional $100 to each monthly payment!

Here’s a screenshot of the Prepayment Calculator:

Learn more and download a free trial version at Wheatworks.com

When the real estate market “woke up”, outlandish home prices had to come down because they weren’t based on real value. Rather, the over-pricing occurred because of greed which was at the root of much of the foolish lending and foolish borrowing of the last few years.

People say, “Real estate is local”. By that, they mean that what you experience in your neighborhood may be very different from what you see in the national news. Without a doubt, nationally, real estate has taken it on the chin and in the gut.

Because of this home prices have dropped significantly in many areas of the US. Some areas will continue to see home prices decline. In this bubble and its pop, lenders may have learned important lessons about loose credit. Home owners in some areas certainly have. And they’ve learned about the importance of affordability.

For years, one of the tips in Real Estate Calculator Suite has been this: “As tempting as it may be and even though you may qualify for a big loan, avoid buying more home than you can comfortably afford.” The temptation has been great in areas where home prices sky rocketed in recent years.

So, if prices are down in your neighborhood of the world and you plan on buying a new home, how do you know what “comfortably afford” means for you?

To my way of thinking, “comfortably afford” means a lot of things. It means that couples buy homes they can pay for even if one partner loses their job, wants to take off for children, or becomes disabled. It means there’s money left over for family fun. “Comfortably afford” means you don’t lay awake at night and thinking about how to stretch your budget.

Banks and mortgage lenders are returning to the concept of qualifying ratios: 28 for housing and 36 for debt.

If you want an easy way to see what safe lending standards indicate about the amount of home you can “comfortably afford,” use the Mortgage Qualifier in Real Estate Calculator Suite. It gives you a good idea of what you can expect to comfortably pay each month for your home. And it allows you to easily play with the numbers to see the effects of a pay raise or reduction in income.

Using the Mortgage Qualifier is easy. You enter your monthly income and your co-borrower’s monthly income, enter your monthly credit card, auto loan and other loan payments, and enter the amount you have available for a down payment.

As you enter your personal financial values, the calculator automatically updates the results to indicate how much you can comfortably afford.

The Mortgage Qualifier is one of 16 financial calculators in Real Estate Calculator Suite. It’s the one that will quickly get you in the home-buying ballpark in terms of what you can afford.

Learn more about Real Estate Calculator Suite or Download a Trial Version and play with your own numbers.

Of course, you can purchase Real Estate Calculator Suite for your Windows-based computer for only $39.95 USD.

Homebuyer complaints about the slow responses of mortgage companies to borrowers’ requests for information about problems with their mortgage loan appear daily in the media. This morning’s New York Times has “The Silence of the Lenders” which offers a suggestion by Mr. Moe Bedard, president of Loan Safe Solutions, which may make your pen mightier than a telephone or email.

Mr. Bedard describes the use of a “qualified written request under Section 6 of Respa”. RESPA is the “Real Estate Settlement Procedures Act”, a Federal law which protects borrowers from unlawful activity by lenders.

The U.S. Department of Housing and Urban Development offer a sample qualified written request letter that shows what information must be included in your qualified written request for information. The sample letter is here:

HUD RESPA Sample Written Complaint to Lender Letter

The benefit for borrowers? Under Section 6 of RESPA lenders and loan services are required to acknowledge your request within 20 business days and must try to resolve the issue within 60 business days.

It’s important to remember that your qualified written request for information must not be included with your payment. It should be sent, instead, to your lender’s customer service address. You should also continue to make your required mortgage and escrow payments.

To learn more about RESPA, visit http://www.hud.gov/offices/hsg/sfh/res/respareg.cfm

Wheatworks Software announces the release of a new Free Rent or Buy Calculator for people considering the question of renting or buying real estate.

Deciding whether it’s better to rent a home or buy a home is a complicated decision. One fallacy that many succumb to is that home ownership is the cornerstone of the “American Dream”. It’s not.

The American Dream is related to life, liberty and the pursuit of happiness. A lot of happy people rent. They’re happy to let a landlord care for the property instead of enduring the stress of falling real estate prices and home maintenance.

Other important considerations include the local real estate market, how long you intend to live in the location, whether it’s a “buyer’s market” or a “seller’s market”, whether you have grown children or haven’t yet had children, and whether your concept of “home” requires ownership.

There are many things to consider when deciding whether to rent or buy a home. Some of these include whether or not you believe real estate is over-priced, the real estate market conditions where you wish to live, how long you’ll live in the home, and other considerations.

The most important consideration is probably financial. Wheatworks’ new Free Rent or Buy Calculator helps people look at the decision from a financial perspective.

Learn more about the Free Rent of Buy Calculator.

Download the Free Rent of Buy Calculator.

I talked with a friend tonight. He recently moved to Florida to work as CEO of a non-profit organization. We talked about tying flies (Fly Tyer Magazine) and swapped fish stories. He fishes much more often than I do and so had more and better fish stories to tell.

Because he lives near water, he fishes more frequently. It’s much more convenient for him. Where you live matters.

Then we talked about housing.

We’re in similar houses in terms of age, size, and features. But that’s where the similarities end.

His monthly property taxes are 4 times my annual property taxes.

In fact, his monthly property taxes are twice my total monthly PITI!

Where you live matters!

The last few years have been an odd time for home buyers. Adjustable Rate Mortgages with little or nothing down have been the order of the day. However, ARMs have also hurt a lot of home buyers who can’t keep up with the rising payments as the mortgages adjust.

One thing most experts expect is the return of the down payment. So many risky loans have been made during the recent housing market boom, that lenders have been taking significant hits. As ARMs readjusted and home buyers couldn’t afford to make the larger monthly payments, lenders have been left holding the bag more often than they wish.

And because many mortgage loans made in the recent past required no down payment, lenders are being left holding the entire bag. And in many of these cases, because of the recent decline in appraised values, the bags the lenders have been left holding are larger than the value of the property.

Down payments offer lenders a form of protection when a loan goes into foreclosure. The lender at least has the down payment. Also, history seems to indicate that the more of their own cash a home buyer has in a home, the less likely they are to walk away from it.

The financial hurdle for young home buyers in the future won’t occur on the back side due to rising monthly payments they can’t afford to make. Rather, it will occur on the front side: the hurdle will be saving enough money for the down payment required to purchase a home.

Real Estate Calculator Suite, from Wheatworks Software, has two Down Payment Savings Calculators, that help you discover how long it will take to save a desired amount and how much you must save each month to save a certain amount by a particular deadline.

Learn more about Real Estate Calculator Suite and its Down Payment Savings Calculators at Real Estate Calculator Suite.

We’ve all heard of the problems with sub-prime lending and the economic concerns these problems have generated across the country. A couple dozen sub-prime lenders have hit the skids and are going/have gone bankrupt. Some reporters and prognosticators are calling this initial sub-prime lending problem the “tip of the iceberg”.

These sub-prime lending issues will have an impact on mortgage lending. Fortunately, one change that will occur is that lenders will begin paying closer attention to borrowers’ ability to make their mortgage payments without going under. Foreclosures hurt all the parties involved.

Somewhere along the way, significantly sized groups of lenders and borrowers lost touch with basic financial realities. Home buyers cannot borrow more than they can repay and expect good to come of it. Nor can lenders provide more than a borrower can repay and expect a good result.

During the last few years many lenders have set aside the time-tested qualifying ratios to meet the appetites of home buyers whose eyes were bigger than their stomachs. No doc loans, adjustable rate mortgages and negatively amortizing loans were passed out by brokers and lenders who immediately passed these hot potato loans on to those holding mortgage backed securities.

This freedom to loan money without consequence for defaults is one of the reasons so many bad loans were made in the last few years.

I am much more likely to pay attention to whether you can repay me if you are actually borrowing my money than I would be if I’m merely the middleman collecting a “finder’s fee” or yield spread premium (YSP) for getting you to sign some papers.

Perhaps you remember when the standard housing ratio was 28 and the debt ratio was 36. And you may remember when buying a home required a home buyer to make a significant down payment. Many will remember when credit reports were pulled and reviewed with a fine-toothed comb by lenders.

Meeting the qualifying ratios, making a healthy down payment and having a good credit report will soon be back in financial fashion for home buyers. And this will be a very good thing.

During recent years, several people have asked why Real Estate Calculator Suite does not have an ARM calculator. It hasn’t needed it. During these strange times when many have used ARMs and NegARMs to buy houses, interest rates for fixed rate mortgages have been at historic lows!

Since 1997, using Real Estate Calculator Suite has been a good way calculate financial scenarios for home buyers using safe, fixed rate mortgages. The software’s default settings have always included the long-standard use of housing and debt ratios, qualifying based on income, and the expectation of a down payment.

Buying a home has always been serious business because it has financial consequences lasting long into your future. It’s good to know that standard financial values and risk-averse lending practices are coming into their own again.