More commonly called APR, Annual Percentage Rate is a government-mandated mortgage comparison tool. It measures the total cost of borrowing over the life of a loan into dollars-and-cents.

A loan’s APR is printed in the top-left corner of the Federal Truth-In-Lending Disclosure, as shown above. When quoting an interest rate, loan officers are required by law to disclose a loan’s APR, too.

APR is meant to simplify the process of choosing between two or more loans. The theory is that the loan with the lowest APR is the “best deal” for the applicant because the loan’s long-term costs are lowest. However, the loan with the lowest APR isn’t always best.

APR makes assumptions in its formula that can render it moot.

First, APR assumes you’ll pay your mortgage off at term, at never sooner. So, if your loan is a 15-year fixed rate, its APR is based on a full 15 year term. If you sell or refinance prior to Year 15, the math used to make your loan’s APR becomes instantly flawed and “wrong”.

Example: Let’s compare two identical loans — one with discount points and a lower interest rate; and one without discount points and a higher mortgage rate. The loan with discount points will have a lower APR in most cases. However, if the homeowner sells or refinances within the first few years, the loan with the higher APR would have been the better option, in hindsight.

Second, APR can be “doctored” early in the loan process.

Because the APR formula accounts for third-party costs in a mortgage transaction, and third-party costs aren’t always known at the start of a loan, a bank can inadvertently understate them. This would make the APR appear lower than what it really is, and may mislead a consumer.

And, lastly, APR is particularly unhelpful for adjustable-rate loans. Because the APR calculation makes assumptions about how a loan will adjust during its 30-year term, if two lenders use a different set of assumptions, their APRs will differ — even if the loans are identical in every other way. The lender whose adjustments are most aggressively-low will present the lowest APR.

Summarized, APR is not the metric for comparing mortgages — it’s a metric. For relevant comparison points, talk to Dan Green at dan.green [at] waterstonemortgage [dot] com

For more information on buying a home for sale in Colorado Springs,
please contact the Wagner iTeam: 719.434.8346

The Colorado Springs Real Estate Connection would like to introduce another great article from our friends at Bring the Blog. This article explains exactly what a short sale is.

A “Short Sale” is when a home seller sells his home for a leser amount than what is owed on his mortgage, and the mortgage lender agrees to accept the lesser amount in lieu of a full payoff.

By way of example, a Short Sale may be appropriate for a home seller whose mortgage balance is $250,000 but whose home wouldn’t sell for more than $220,000.  Rather than pay the $30,000 difference to the lender at the time of sale, the seller enters into an agreement with the lender by which all sale proceeds are paid to the bank and the deficient balance is forgiven.

Read Also: Why a Colorado Springs Short Sale is a Great Alternative to Foreclosure

Short Sales are a preferable alternative to foreclosure but the process still harms both parties. For one, the seller is penalized with a derogatory tradeline on credit for not fulfilling a mortgage obligation. And, two, the lender is forced to take a loss on a mortgage loan.  Versus an executed foreclosure, however, Short Sale damages are relatively limited on both sides.

Read Also:  Colorado Springs Foreclosure and Short Sale Information

For this reason, Short Sales are sometimes considered “the economical alternative” to default.

The process of getting a Short Sale approved varies from lender-to-lender and can be time-intensive. Home sellers should not go at it alone — speaking with a real estate agent about the proper protocol is usually the best place to start.  And sellers should be aware of how a Short Sale on their credit can impact future borrowing.

Current Fannie Mae guidelines prevent short-selling homeowners from obtaining new mortgage financing for a period of 2 years.

For more information on buying a Colorado Springs short sale, or if you are facing foreclosure and want to know if you qualify for a short sale, please contact the Wagner iTeam: 719.434.7525

We are  Certified Distressed Property Experts and know what it takes to buy or sell a short sale in Colorado Springs.

There are 4 ways that a home seller in Colorado could choose to sell their home:

1. Exclusive Right to Sell with an agent
2. Exclusive Agency with an agent
3. Open Listing with multiple agents/offices
4. For Sale By Owner with NO agent

An open listing is basically an agreement between the home seller and multiple agents to get their home sold. Whoever sells it first, gets the commission. The major issue with this is that a property can only be active in the MLS with one agent at a time, so there is no incentive for the 2nd or 3rd agent to even enter into such agreement.

If you decide to sell For Sale By Owner you are opting to sell your home without the assistance of an agent. (Hint: most home buyers DO work with agents, so co-op’ing something to a Buyer Agent would definitely get you more buyer traffic, and a better chance at selling.)

Now, the first two listing agreements are the most common and also the most misunderstood:

Exclusive Right to Sell

An Exclusive Right to Sell agreement is when a home seller signs an “exclusive” agreement with an agent. The agent represents the interests of the home seller and gets paid the agreed upon commission at time of successful close, regardless of the source of the Buyer.

In most cases, the home seller agrees to pay the listing agent X% commission*. If the Buyer is represented by another agent, then that X% commission is split between the listing agent and the Buyer Agent.

*Note: Commissions are always negotiable and are decided between the agent and client at time of signed listing agreement.

This is the most common form of listing agreement in Colorado, as it takes most of the marketing, negotiating, selling and closing responsibility OFF the homeowner.

Read More: Colorado State Exclusive Right to Sell Contract

Exclusive Agency

An Exclusive Agency Listing Addendum is used when the listing agent agrees to EXCLUDE the home seller from the “source” of the Buyer. Basically, if the home seller is the one who finds and secures the home buyer, the listing agent will not get paid.

Per the Exclusive Brokerage Listing Addendum:

“This Seller Listing Contract does not apply to a Sale of the Property to a buyer procured solely by Seller without the assistance of Broker or any other person (Seller Sale).”

This addendum is usually used with former FSBO home sellers who may already have a few potential home buyers interested in the home before they listed with an agent. Or, when a home seller has the potential to sell it to a friend or family member, but lists with an agent “just in case” that buyer doesn’t work out.

Hopefully these explanations will clear things up next time YOU enter into a listing agreement.

For more information on listing your Colorado Springs home with a Realtor®, contact us today: 719.434.7525

The basis of most mortgage lending is credit scoring.  In general, the higher a person’s credit score, the lower his offered mortgage interest rate.

Despite the many credit scoring models in use today, however, just 3 are relevant to American homeowners:

• The Equifax BEACON^® score
• The Experian Fair Isaac Risk Model
• The TransUnion EMPIRICA^®

Generically, these scoring models generate what are commonly known as “FICO” scores.

FICO scores are measurements of probability.  The higher a person’s credit score, by definition, the less likely a person is to default on his home loan.  This is one reason why credit scoring has added importance lately — mortgage lenders are very careful about what they’re lending and to whom.

Notably, minimum FICO thresholds have been added to all types of mortgage loans.

FICO scoring has 5 main components as listed above.  Payment history and credit capacity are two of the largest pieces, but a myriad of other factors contribute to a credit score, too.  For example, the longer your reported history of managing credit, the more favorably your credit score will respond.

The myFICO.com website does a terrific job with credit education, explaining in plain language the ins-and-out of credit scoring and ways to boost your score.  It also makes a free, 20-page PDF available for download.

Whether you’re a homeowner or lifetime renter — consider it required reading.

[Information provided to the Colorado Springs Real Estate Connection courtesey of the mortgage and real estate professionals at Bring the Blog.]

Click here to view the embedded video.

This video talks about the current market, affordability, Buyer’s Markets and if/how/when to sell your home.