A few months ago, MRIS tried to deal with problem that the “# of Levels” field in the MLS wasn’t being filled in consistently by agents; some agents were including the number of above-ground levels, while others were including the total number of levels including below-ground levels. Their solution was to follow the lead of most county assessors and change the field to become “# of Levels, excluding basement”. Based on agent feedback, as of Friday 6/26/09 they’ve changed the field again, to “# of Levels, including basement”. The change makes it easier to do some types of searches and harder to do other types, so it’s kind of a wash, but it’s the new law in town, so make sure you remember it.

If you’ve got current listings, make sure that their # of Levels info is correct using the new definition, and for the next few months, double-check the details on a listing if your client does care about the number of above-/below-ground levels, since many agents probably won’t learn about this change for a while, and since some agents are never particularly good at entering accurate data into the MLS anyway…

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NAR recently compiled some of their recent tips and tools for agents dealing with short sales; I’ve found the Buyer Handout on that page to be particularly useful in giving buyers an overview of the short sale process.

In my experience, though, the majority of short sales are still “fake” ones, where the listing agent either doesn’t know what they are doing or is working with an unrealistic seller or uncooperative lienholder(s), and which thus will have a very low chance of actually going to closing any time soon (if ever). I’ve put together a checklist of the questions that I recommend asking every short sale listing agent, and that I’ve found helps screen out almost all of the “fake” listings pretty efficiently.

Once you’ve found the legit short sales to look at, you also need to make sure that your clients know about the many ways that a short sale purchase is legally and logistically riskier than a traditional purchase. Having looked at literally dozens of different bank addenda used in short sale and foreclosure transactions, I’ve put together the Ethical Homes Bank-Influenced Property Disclosure, which enumerates most of the contract changes that the short sale or REO bank might require/request. You can present the disclosure to your buyer and have them sign it before they have you prepare an offer on a bank-influenced property, to confirm that they understand all of the potential pitfalls lying ahead of them; doing so serves three purposes: it reduces the amount of time that you spend on preparing short sale offers for buyers who aren’t serious about them but are hoping for an unrealistic bargain (since the disclosure makes it clear to most of them that any monetary bargain is usually offset by a corresponding increase in risk); it can help protect you as an agent from potential blame down the line if your buyer proceeds with the short sale purchase, things go awry, and they don’t remember your cautions about the potential hazards involved; and it helps make your buyers more comfortable with both you and the process when the inevitable issues with a short sale purchase do crop up.

If you’d like a copy of the Ethical Homes Short Sale Checklist or the Ethical Homes Bank-Influenced Property Disclosure, let us know and we’d be glad to send them to you.

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NAR recently negotiated an extra discount on select FedEx shipping options for Realtors; the extra discount is 5% on top of the existing 21% discount that Realtors can get from FedEx. To take advantage of the offer, go to fedex.com/nar and use discount code LCRS8PXX.

In the DC area, there are also a number of courier services that can beat FedEx in price, especially for same-day delivery requirements. The secret weapon for physical delivery of documents in this area, though, might be overnight local courier services; for as little as $3, you can have documents (such as listing presentations…) hand-delivered to your clients by the next morning. No single courier service is perfect; contact us if you’d like to know who we’re currently using for the types of deliveries you might want to make.

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Here are the two tricks for estimating payments that most of my buyers seem to prefer to use:

1. To estimate how much each 1/8-percentage-point (0.125%) change in your interest rate will affect your monthly payment: take your loan amount, divide it by $100,000 (or just move the decimal 5 spots to the left), and multiply it by $8. So if you are looking at a $250,000 loan, divide by $100,000 to get 2.5, and multiply by 8; $2.5 x $8 = $20, so each change in your rate of 0.125% means that your monthly payment will change by about $20/mo. This trick is most accurate when dealing with rates close to 6%; if you are looking at rates below 4% or above 8%, the estimates it gives you might be further off than you'd like. (I suggest that all buyers who aren't going to lock their rate in immediately use this trick at least once to figure out how much their monthly payments will be effected by the the minor day-to-day fluctuations in interest rates that often happen while they are evaluating their options. In most cases, those fluctuations are only in 0.125% increments, and buyers are usually much more comfortable taking their time to evaluate their options knowing that the corresponding fluctuations in their payments will be relatively small.)
2. To estimate your monthly payment:
   • First, figure out how much your monthly payment would be if your rate were 6%, by dropping the thousands part of your loan amount, and multiplying the result by 6. So if you are looking at a $500,000 loan, drop the thousands portion to get $500, and multiply by 6; $500 x 6 = $3000, so that $500k loan would, if the rate were 6%, cost approximately $3000/mo. (The actual payment, if you did the real math, would be $2997.75.)
   • Second, use Trick #1 (above) to figure out how to change that payment for a 6% rate into a payment for your actual rate. If you were looking at that same $500,000 loan, Trick #1 would tell you that each 0.125% change in rate would change your payment by about 5 x $8 = $40/mo.; if your rate was 6.5% rather than 6% (i.e. it was four 0.125% increments higher than 6%), you could add four of those $40/mo bumps to the $3000/mo estimate for the 6% rate, and come up with an estimated monthly payment of $3160. (The actual payment, if you did the real math, would be $3160.34.)

(Note that these rules of thumb don’t work if you are looking at a loan with mortgage insurance, and they don’t account for things like taxes, property insurance, or HOA/condo/co-op fees.)

Interested in getting more accurate numbers about monthly payments? Let us know what you are looking for and we’d be glad to run specific numbers for you, and talk to you about the loan options available to you.

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There are three main reasons that Mortgage Protection Insurance (MPI) doesn’t make sense for most homeowners:

1. MPI policies are usually pretty expensive–usually, in fact, they are more expensive than the same amount of coverage under a “regular” life insurance or disability insurance policy.
2. Under most MPI policies, if a covered homeowner dies, all the insurance policy will do is pay off the homeowner’s mortgage–and that means that with every passing year, as the homeowner pays their mortgage balance down, the coverage that they are getting effectively decreases, while their premiums stay at the same high level; under a regular life insurance policy, on the other hand, in the tragic event that a homeowner does die, their heirs would get the full amount of the coverage and would be able to keep and use any money left over after paying off the mortgage.
3. For most homeowners, death or disability is (thankfully) a pretty rare occurance; a far more common risk for most homeowners is that they might lose their job and thus be unable to pay their mortgage–and that is a risk that most MPI policies do not cover at all.

So an MPI policy will usually cost a homeowner more than a regular insurance policy, while giving them less coverage and not addressing the most common risk that might affect a homeowner’s ability to pay their mortgage.

For these reasons, I usually advise most homeowners who are concerned about possible events that might leave them unable to pay their mortgage to skip the MPI policies. Instead, they should make sure that their life and disability insurance coverage is sufficient to cover their mortgage in addition to any other expenses they might have in such a situation; to be really safe, they can take the difference between the money they would spend on a pricey MPI program and the lower premiums for a regular insurance policy, and set up an emergency savings fund to cover their expenses in case of a short-term job loss.

Disclaimer: Always consult a licensed professional about insurance questions.

If you’ve got questions about your current insurance coverage, we’d be happy to give you a referral to a trusted insurance agent who can help you to evaluate your current situation and make sure that the coverage that you have is appropriate to your needs.

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Rule of 6: At a 6% interest rate, the monthly payment will be $6 for every $1000 of the loan amount.

Using this rule, a $300,000 30-year loan at 6% has an estimated monthly payment of $300,000 / $1000 x $6 = $1800; the actual monthly payment for that loan is $1798.65. For some people, it's easier to think of this rule as “drop the thousands part of the loan amount, and multiply by 6″; using that way of looking at it, a $650,000 30-year loan at 6% has an estimated monthly payment of 650 x $6 = $3900, and an actual payment of $3897.08.

Rule of 8: For every 1/8 of a percentage point (0.125%) that the interest rate changes from 6%, the monthly payment will change by $8 for every $100,000 of the loan amount.

Using this rule to estimate the payment on a $300,000 30-year loan at 6.375% first involves estimating the payment for the same loan at 6%; as we saw above, that estimate is $1800. Since 6.375% is an increase of three-eighths of a percentage point from 6%, the difference is +3 x $300,000 / $100,000 x $8 = $72, so the estimated monthly payment would be $1872, vs. an actual payment of $1871.61. Again, for some folks, it's easier to just mentally shift over the decimal place rather than dividing by $100,000, in which case you could convert the rule to be “shift the decimal 5 places left in the loan amount, multiply by $8, and then multiply by the number of eighths of a percentage point difference bettwen the rate and 6%”. Looking at a $650,000 30-year loan at 5.75% in that way, we could shift the decimal in the loan amount 5 places left, giving us $6.5; we would multiple that by $8, and then multiply it again by -2 since 5.75% is two-eighths lower than 6%. 6.5 x $8 x -2 = -$104; we know using the Rule of 6 (above) that the estimated payment for a $650,000 loan at 6% is $3900/mo, so the estimated payment for the 5.75% loan is $3900 – $104 = $3795/mo, vs. an actual payment of $3793.22. (And another variation to cater to different math styles: it might be easier for you to do the math by saying that 5.75% is two-eighths different from 6%, calculating the corresponding $104 change, and then reasoning that since 5.75% is lower than 6%, you need to subtract that $104 from the initial $3900, rather than turning “a decrease of two-eighths” into a difference of “-2″ as I did above. Go with whatever floats your mathematical boat.) Note that this rule isn’t as precise as the Rule of 6, because that $8 factor that we use isn’t actually linear–the further you get from 6%, the larger it should be, so that at 12%, for example, the value used should be closer to $8.92. “The Rule of 8, or $8.92 at 12%” isn’t nearly as easy to remember, however, and the $8 factor is fairly accurate for interest rates between 4% and 8%, where rates are expected to stay for the forseeable future.

Rule of 5 and 10: At a 6% interest rate, the portion of the monthly payment that is initially interest is $5 for every $1000 of the loan amount, and for every 1/8 of a percentage point (0.125%) that the interest rate changes from 6%, the monthly payment will change by $10 for every $100,000 of the loan amount.

The interest portion of your mortgage payment is usually tax-deductible, so sometimes people want to estimate that as well to see how a given mortgage will affect their take-home pay each month; once you know the Rules of 6 and 8, all you have to remember is that for the interest portion of the initial payments, the analogous factors are $5 per $1000, and $10 per $100,000, while the things you are measuring against remain 6%, and eighth-of-a-percentage-point changes from 6%, respectively. For that same $300,000 30-year loan at 6%, then, the estimated portion of the initial payment that will be interest is $300,000 / $1000 x $5 = $1500; the actual interest portion of that payment, as it turns out, is also exactly $1500. For the $650,000 loan at 5.75%, the estimated interest portion at 6% would be $650,000 / $1000 x $5 = $3250, and since 5.75% is two-eighths lower than 6%, that changes the estimated interest portion by -2 x $650,000 / $100,000 x $10 (or -2 x 6.5 x $10 if you prefer) = -$135, so the estimated interest portion of the initial payments is $3250 – $135 = $3115, vs. the actual number of $3114.58. (As with the Rule of 8, the $10 factor isn’t linear, but should be fine for interest rates between 4 and 8%. Also, it’s worth noting that while your monthly payment stays the same over the life of a fixed-rate loan, the portion of that payment that is interest doesn’t; at the beginning, almost all of your payment goes towards interest, while at the end of the loan, almost all of the payment goes towards principal, so the Rule of 5 and 10 is most accurate when looking at the first months of a loan.)

Interested in getting more accurate numbers about monthly payments? Let us know what you are looking for and we’d be glad to run some more specific numbers for you.

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