General Index 

I think that current homeowners will be asking themselves this question a lot in the coming days, especially for those that didn't take my advice in my last newsletter to stop being picky and refinance.  But I thought I'd offer a layman's explanation here, as I suspect a number of the business articles will be written for CFO types.

Let's start with some myth clarifying.

Myths about Interest Rates

1. The Fed controls interest rates:  This is TOTALLY FALSE.  And if you learn anything from this post, you should learn that.  We all know that the Fed, or more accurately the Governors of Federal Reserve, has an impact or rates.  But it's INDIRECT.  Simplistically, they set rates of lending for financial institutions. And financial institutions set their rates based on those rates. But the market, which includes large banks, large companies, municipalities and other countries, makes bets on the direction of rates. For the purposes of this post, we'll call these guys "Treasury Traders".  If the Treasury Traders think rates are headed up, they sell treasuries (Treasuries are US Govt Bonds) and other long term securities, If the Treasury Traders think rates are headed down, they buy them.  I won't get into why they do this, other than to say if they guess right they make money.  The important thing here is that when Treasury Traders sell treasuries, the rate goes up.
2. The Fed wants rates at 3.5%.  This is probably false too.  We don't actually know WHAT interest rate the fed would like to see for home purchases and refis.  They aren't likely to tell us.  We do know that they want rates low.  But what is low?  I would argue that low is anything under 6%.  And anything under 5% is SUPER low.  And we have been spoiled lately, as we hardly remember the days of 7% rates, let alone 10%.  My opinions aside, the only definition of low that matters is the Feds.  And we don't know what that is.

How Interest Rates May Change going into 2011

• What would the affect be of eliminating the home mortgage interest deduction
• How Rates affect Inventory and Prices in Real Estate

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And I thought that Christmas had already come early with the Gonzales signing.

I'll admit, I'm pretty surprised that the Sox were willing to dole out this type of money for a player who doesn't hit a ton of home runs.  I'll also go out on a limb and say that they could be the next JD Drew deal - a deal where we get a great player, but not as great as the contract.  We'll have to see where the chips fall, but rumored for 7 years at over 20 million a year, I know Sox tickets won't be getting cheaper for a while!  Simply a monster contract.

But now, as the team is clearly done with the big pieces, we get to project line-ups.  This is trickier than it might seem, and we'll see why in a moment.

1. Ellsbury, CF, LH

Ellsbury gets the nod.  As a young player who can hit lefties and righties, and has seen his OBP rise steadily (let's not talk about last year people.  It's in the past....) to .350 - a critical threshold for a lead off hitter by the Sox standards, who view getting on base as a key element to their lead off hitters (and hitters in general).  Remember Scutaro, he of the .720 OPS, (but .330 OBP) batted lead off most of last year.

2. Dustin Pedroia, 2B, RH

A great role for Pedy, who's just too good to bat any lower.  And we know Francona really likes his order to go R/L/R/L, for those of you paying attention, to make bullpens suffer down the stretch.

3. Adrian Gonzales, 1B, LH

I think's he's really the clean-up hitter on this team, and it will be tough to keep him in the three hole if he hits the number of home runs I think he will, but R/L/R/L kinda dictates this lineup.

4. Kevin Youkilis, 3B, RH

I don't really think people in Boston REALLY understand how good Youk is.  But the last three years he's been an MVP candidate.  He does it all.  Average, on-base, power.  Maybe he's not as exciting to watch as Manny or Ortiz.  I'm not sure why though.  He's just as good.

5. Carl Crawford, LF, LH

I'm sure you thought I had David Ortiz penciled here.  Nope.  I'd like his power here, but we know David can slump, and a his lower average and slumps can be better protected lower in the line-up.  Why isn't Crawford batting lead off?  Well, his career at the top of the order suggests that he can't bat lead-off for this team.  His OBP is too low, and I'm not sure he want to be up there. His power numbers are all better the lower in the lineup he hits. With Ellsbury on the team, he shouldn't have to do lead off, except for injury replacement.  You could, COULD mind you, swap Crawford and Gonzales.  But I believe your best hitter should be in the 3 hole, and Gonzales is that guy.

6. David Ortiz, DH, LH

Nice protection for Crawford.

7. Salty/Varitek, C, S (both).

There's enough pop and patience for #7 hitters here.  It's worth noting that even with the decline in JD's numbers, he's still better than either catcher, you could swap this position with JD.  But then you'd be left for 5,6, and 7, and I think Francona will avoid that.

9. Marco Scutaro, 2B, RH

He's definitely a weaker hitter in this group of mashers, and he shouldn't feel badly about anyone saying that with the line-up that's here.  His OBP makes pitching around anyone difficult, and a few less at bats should keep him steady at short.  Last year, I was unimpressed with this signing.  But he proved himself to be a heck of a player, defensively and offensively, and I look forward to his return.

Those are my thoughts people, so go make your own.  As an editor's note, we really have TOO MANY lefties.  But I don't see them trading Ellsbury, but he is clearly trade bait now (as if he wasn't before).  It's also interesting to note that the next level of players (McDonald, Lowrie and Nava) are all righties or switchers (with the super impressive Kalish being the exception).  So if there is an injury, the lineup will be more balanced, if weaker.

Top Seven Articles

• Are fences a good way to build equity in my home?
• Does the basement get water? Don't wait to find out!
• How serious is that moss on the roof?
• WHAT DOES 'PASSED TITLE V', or 'TITLE V IN HAND' MEAN?
• I Just Signed an Offer, Now What?  For Sellers
• How can I find an accurate valuation of my home for refinancing or sale?
• How can I shop for an interest rate for a refi or purchase?

Matt Heisler is a real-estate professional and owner of Heisler & Mattson Properties. He has been selling residential real-estate for over 10 years. He has given several talks on real estate, including presentations on first-time buyer tips & tricks, and profiting in real estate investing in Massachusetts. As a Vanderbilt University alumnus, he is proud to serve his local community.

• Hudson has 54 (versus 72 in last report) single family homes listed as Active
• Hudson had 65 (versus 80 in last report) single family sales in the last 6 months, and 13 single family sales last month
• Hudson had 3 single family homes in pending last month
• Hudson has an Average Market Time of 103 days for sold properties
• Hudson has an Average Sold Price of $ 335,000 for sold properties

Top Seven Articles

• Are fences a good way to build equity in my home?
• Does the basement get water? Don't wait to find out!
• How serious is that moss on the roof?
• WHAT DOES 'PASSED TITLE V', or 'TITLE V IN HAND' MEAN?
• I Just Signed an Offer, Now What?  For Sellers
• How can I find an accurate valuation of my home for refinancing or sale?
• How can I shop for an interest rate for a refi or purchase?

Matt Heisler is a real-estate professional and owner of Heisler & Mattson Properties. He has been selling residential real-estate for over 10 years. He has given several talks on real estate, including presentations on first-time buyer tips & tricks, and profiting in real estate investing in Massachusetts. As a Vanderbilt University alumnus, he is proud to serve his local community.

• Hopkinton, MA has 57 (vs. 85) single family homes listed as Active
• Hopkinton, MA had 88 (vs. 89) single family sales in the last 6 months, and 10 single family sales last month
• Hopkinton, MA had 6 single family homes in pending last month
• Hopkinton, MA has an Average Market Time of 101 days for sold properties
• Hopkinton, MA has an Average Sold Price of $ 580,000 for sold properties

Hopkinton has regained some mojo in the last few weeks, as sellers have not come on the market and sales have kept up their steady pace.  That results in a tighter Active/Solds ratio, and at 101 Days, buyers should be prepared for competitive offers for well priced properties.  While we're on that note, buyers December is a great time to buy a home in a tight market.  Remember, December listings are motivated sellers, and there are fewer buyers to contend with, so this can be a good time to sharpen that pencil.  (Well, I know you're busy, but too busy to save thousands??? And what a Christmas gift...).  Seller's should note that if their home isn't drawing good traffic, or if you've been at a price for a while and don't have an offer, don't blame the market....  It's good in your town.

Top Seven Articles

• Are fences a good way to build equity in my home?
• Does the basement get water? Don't wait to find out!
• How serious is that moss on the roof?
• WHAT DOES 'PASSED TITLE V', or 'TITLE V IN HAND' MEAN?
• I Just Signed an Offer, Now What?  For Sellers
• How can I find an accurate valuation of my home for refinancing or sale?
• How can I shop for an interest rate for a refi or purchase?

Matt Heisler is a real-estate professional and owner of Heisler & Mattson Properties. He has been selling residential real-estate for over 10 years. He has given several talks on real estate, including presentations on first-time buyer tips & tricks, and profiting in real estate investing in Massachusetts. As a Vanderbilt University alumnus, he is proud to serve his local community. *All information is posted in good faith and is assumed to be reliable, but may rely on third party information sources.

Like many new things, the vocabulary involved in a particular new field or endeavor can be a barrier all on it's own.  To help you understand short sales, I've compiled this quick terminology list that might help you if you're considering buying or selling short.  It'll help you with THIS ARTICLE ON SHORT SALES, and many others.

1. Underwater

    If you're underwater, it means that your mortgage is bigger than the market value of your home.  Some people use the term if the home is less worth than what they paid, but that's not correct.  If you put 20% down, your house may have fallen in value, but it has to fall over 20% before you are truly underwater, as far as a short-sale is concerned.

2. Subject to a third party

    This is advertising language that most commonly means that someone other than the seller will have to agree to this transaction.  It's almost always a bank, and it is almost always because a sale will not generate enough money to pay the bank back in full.  It's used to protect the seller, and give notice that they are short funds at the list price.

3. Short-Sale Approval

    This is the approval from a bank agreeing to what they are going to be paid back.  While it is often based on the purchase price of the home, it is separate.  There are some homes that have already negotiated short-sale approvals, and the seller's ability to sell is based on what you can pay at that number.

4. Short-Sale Petition

    This is a seller's petition, to the bank, for the reasoning for their short-sale.  A job loss or other financial hardship is often required to show the bank that their chances of collecting on the loan in full are poor.

5. Hardship Letter

    A short-sale often involves a hardship letter as part of the Short-Sale Petition.  

6. Preliminary Net Sheet

   A document that shows what amounts are owed to who as part of the sale, and that describes what the bank can receive as net payment on the loan.  Helps them ballpark their loss.

7. BPO

   : A BPO is short-hand for Broker Price Opinion.  The bank will often hire real estate agents to give an "opinion" of what the property in the short-sale is worth in today's market.  They may do one or many BPOs, 

    

   which are cheaper than appraisals.  Contrary to popular belief, the bank is just as interested (if not more interested) in getting market value for the house as most sellers.  If the BPO (or the appraisal) comes in higher than the purchase price, the bank may decline to do the short-sale unless the buyer pays more money!!

8. Comparative Market Analysis (CMA)

   This is a reasoning that, in fact, the price the buyers are paying is top dollar in your market.  It is similar to an appraisal, but is often done by the seller's real estate agent.

9. Equity

    Equity is how much is left over in value after the home is purchased and the loan (and other commitments) is paid.  Usually in a short-sale there is no equity.

10. In Arrears

     This is number that states how far behind the sellers are in mortgage payments.  Arrears can be used for any payment that is behind (condo fees, taxes, etc), but is most commonly talked about with mortgage payments.  

Generally, in order to look at a real estate market, there have been a couple of statistics that are relatively easy to gather, and that can tell you either about the direction or the market or the status (current state) of the market.

Here I explain the ones I use, and the ones I don't, to make my short hand during the reports a little clearer for those out there who are unfamiliar.

1. Real Estate Statistic #1: Home Selling Index

   I refer to this as the HSI, and it is the red line in my charts. This is a composite indicator that takes in to account all the relevant factors and sums them up in one, easy to digest number for how easy it will be for a seller in that particular location or town to sell a house. It tries to estimate the imbalance of buyer and sellers (more sellers than buyers pushes the number up, more sellers than buyers pushes it down) as well as how FAST houses are selling (Sellers are not real patient and will cut prices when they sit on the real estate market).  Numbers under 75 are generally buyers markets, where there is too much inventory or the inventory is moving so slowly that sellers will be receptive to offers. Numbers from 80-90 are generally neutral markets, where desirable properties are moving quickly, but less desirable properties, or over priced properties, are not moving well at all, and are racking up market time. Numbers above 100 indicated that the sellers are starting to take charge, and nice properties will go quite quickly, perhaps with multiple offers.  At 120+ virtually all properties desirable or not, will attract attention and attractive prices will sell these properties. As you get above 130, it indicates buyers are willing to take much more risk, and rising prices are likely to follow any sustained push above 130.

2. Real Estate Statistic #2: Days on Market

   Called DOM for short. This is the easiest to understand, but not the most reliable statistic.  It reflects the length of time that a home has been on the market, and when looking at a collection of homes is usually averaged.  The number is a good indicator of demand, with a couple of exceptions.  Even in tight markets, it is unusual to see numbers under 60.  So I would characterize the numbers this way: 60-90= very strong demand.  90-120=Good Demand, 120-150 = Balanced Demand, 150-190 = Soft Demand, 190+ Weak Demand.  In my report I look at the DOM of both SOLD properties, which I consider to be the most reliable indicator, and Active properties, which is less accurate.  Active properties can be influenced by new construction and "unreasonable" sellers, and only a few can throw off the data significantly in some of Metrowest's smaller markets.  (There are some people comfortable marketing their property for 2-3 years, or more, and that screws up the data set).  

3. Real Estate Statistic #3: Active/Solds ratio

   I don't actually track the ratio directly, but my graphs show the solds in Yellow and the Actives in Green.  When those lines are moving apart, prices are probably moving up or down, depending on which line is one top. When they are moving closer to each other, the market is closer to balance and level prices. The active/solds ratio is the Ratio of the Active properties on market divided by the Solds in the last six months.  I find this to be an excellent predictor of activity in most markets.  If you have many more solds than actives, that means that buyers like the prices in that town, and property is moving quickly.  This type of momentum often feeds itself, as buyers start to get into competitive situations, and start losing bids on preferred housing. Most buyers don't like to lose twice, so they get more aggressive the second time around.  As the solds number increases, there are fewer houses to go around, and if sustained, price increases are inevitable.  Conversely, if the actives far outnumber the solds, there are not enough buyers to go around, and sellers will need to make their property "stand out" in the buying community by lowering the price. (Or improving the property).  Note for all statistics after February, 2011 - I changed the data I collect to include pendings - properties that are firmly under contract.  I hadn't been collecting them as they eventually (about 90% anyway) to the sales statistics, but that's a lag period that I don't want in my data sets.  A very small number of these transactions do not go to completion, but it's worth that issue to get more relevant data.

4. Real Estate Statistic #4: Price per Square foot

   This measures the sale price of a home based on the listed square footage.  Although square footage is not tracked uniformly, it differences tend to be constant and come out in the wash over town-sized data sets.  This number isn't often easy to get, but I record it when I can.  I feel it's a much better indicator of pricing and value (ONLY in aggregate!! To be used carefully when looking at one house) then it's most common friend, Median Home Prices.

5. Real Estate Statistic #5: Median Home Prices

   Median price data is a statistic I do not track.  Frankly, I think it shouldn't be used except in the largest collections of data.  The reason I don't like it, and don't use it, is that real estate markets often see the top or the bottom of the market move INDEPENDENTLY of each other.  So in a small town, if the lower end starts selling while the top end stagnates, the median can fall dramatically, even though town pricing hasn't changed.  In 2010, most towns saw the opposite.  The top end moved dramatically while the lower end stagnated.  This had to do with more attractive Jumbo financing, and the end of the home buyer tax credits (which favored smaller housing purchases).  In many towns, the medians went up 10, 20, even 30% or more, but pricing was actually up less than 5% in most towns.  Due to the unreasonable expectations this number can set in both directions, I don't track it.

6. Real Estate Statistic #6: Dollars per Square Foot ($/ sq foot)

   This is a statistic that I track, as it is probably the best metric of how expensive a town is. Although there are problems with this data set, due to the way square footage is often (mis)-represented, many of the misrepresentations cancel each other out. There's much less volatility in these numbers, and can be useful even in very small data sets over similar inventory. Appraisers calculate and reference this number a lot, and while it's hardly a definitive analysis of the value of a property, it makes an excellent starting point.

7. Real Estate Statistic #7: Average Sold Price

   This is a statistic that I track, as it can be a little better than town medians. I look at the average sold price over the last 6 months.  Although the numbers, especially in small towns, can jump around just as median prices do, the jumps are less in volume (typically).  I don't feel that it has a lot of value looking at the changes from month to month, but over a 6-12 month period will give a good view of what kind of home you can buy at what price, and whether markets are strengthening or weakening.

Hopefully these will make my reports more readable in the future!

Matt Heisler

Top Seven Articles

• Are fences a good way to build equity in my home?
• Does the basement get water? Don't wait to find out!
• How serious is that moss on the roof?
• WHAT DOES 'PASSED TITLE V', or 'TITLE V IN HAND' MEAN?
• I Just Signed an Offer, Now What?  For Sellers
• How can I find an accurate valuation of my home for refinancing or sale?
• How can I shop for an interest rate for a refi or purchase?

Well, the Sox have been busy this week for sure.

First, a weak offer to Victor Martinez.  But that wasn't much of a surprise.  As remarkable as his second half was last year, one things was obvious:  Defensively, he could be challenged by opposing base runners.  I won't speculate as to his ability to develop game plans with the pitchers, but the bottom line is that offensively, he is almost 70 points points higher on his OPS at first base than at catcher over the last three years - and those numbers aren't likely to improve.  So, from the Sox perspective, they would be paying catcher money to a player who wouldn't likely be catching much by year three of the deal, if at all.  Hence, the weak offer.  They've been stocking up catching prospects - an executed a big trade for Salty at last years deadline - and seem committed to finding the next Joe Mauer (if we're lucky) from their cluster of young talent.  And good for them, I say.  What I was pretty sure of was that V-Mart would create more problems than solutions as that contract moved along.  Signing Varitek gives Salty his best chance of success - a chance to study under a gritty veteran.  No one remembers anymore, but Tek was hardly a sure thing, and didn't exactly storm the gates when promoted to the big leagues.  Two of his first three years his average was under .250, but you can see the progression with plate discipline, and with that eventually came the power that made him the terrific offensive force that he was.  Bottom line:  Anyone who tells you they "know" who the answer is at catcher for the sox is full of it.  All you can do is collect chips, develop talent, and wait to see if that flower blooms.

But that is hardly the news of the day.  As I have suspected, the Sox were planning on grabbing Gonzales from the Padres.  Why?  Simple reason.  The Yankees are tied up in the position.  Let's face it, AG has little point in waiting out his free agency status.  He isn't going to NY, and that's that. Mark Teixeira has underperformed in NY (my opinion), but that contract is untradeable.  With the biggest player not at the table, and the Sox with prospect to give, they were the logical choice for each other.  AG will get his big deal, and the Sox should get a cornerstone-type player at first for the better part of the next decade.

Yankees GM Cashman is probably sweating a little bit right now about Cliff Lee.  He needs him.  I'll make some bold talk, but I think Theo has put himself in position to really stick it to the Yankees, and there's not much they can do about it.  Who would you rather have in your infield, especially the corners?  Yankees have Teixeira, Cano, Jeter (much discussed in this blog), and A-Rod.  That's an .829 OPS average, largely thanks to Cano (surprise!) who is the only player above .900.  The Sox have Gonzales, Pedroia, Scuturo, and Youkilis, which is an .865 OPS, and that's assuming AG's numbers don't improve in Fenway, and that Jeter stops getting worse. (Prediction:  AG has an OPS near .950 at season end, and Jeter has a better year offensively.  But not by much.  )

Defensively, you'd have to give it to the Sox too.  I hope Youk still looks as good at third as he used to, but I'll take him over A-Rod defensively.  Jeter is done defensively, so Scutoro is a win.  Pedroia has never had more than 9 errors, and seems to stick around 6, while Cano hovers above 11.  I'll give the edge at first to Teixeira, there's no doubt he's helped the Yanks there tremendously.

Both infields are set for the forseeable future, so this rivalry could really get nasty - these guys will get tired of each other quick. Yay.

The Sox now have the rotation and the lineup to go toe-to-toe with the Yankees.  Can't wait for spring training already.

Top Seven Articles

• Are fences a good way to build equity in my home?
• Does the basement get water? Don't wait to find out!
• How serious is that moss on the roof?
• WHAT DOES 'PASSED TITLE V', or 'TITLE V IN HAND' MEAN?
• I Just Signed an Offer, Now What?  For Sellers
• How can I find an accurate valuation of my home for refinacing or sale?
• How can I shop for an interest rate for a refi or purchase?

Hey, it's a common question.  Most people feel that they know how to "value" their home.  But your homes value is a difficult and ever changing number.   We'll look at some of the ways you might be able to "narrow in" on what your home is worth, the pluses and minuses of each approach, and try to carve out a strategy based on your goals.

Let's start with the the different methods of finding out, from simplest to the more involved.

Town Assessment

It's right there, on your tax bill.  That's the amount that the town thinks is a fair assessed value, for tax purposes.  Many assessments, probably about 90%, are within 15%.  But not all are, and it can be hard to know if you are in the 10% that's inaccurate.  Most towns use lot size, house size, age, and a "condition" factor, stuff them all in a computer and it spits out the valuation for your house. There's more problems with how the towns calculate the rate, most of them around how old the data is, but I won't address that here.  What I will point out is that since no one came to your house recently, looked at the improvements you've made, or made an assessment of your floor plan, there's simply no way for it to reflect market value.  And to be fair, it's not trying to.  It's trying to decide on a fair valuation to collect taxes, and that's a different goal.

Internet

Our next stop, the internet.  The most popular home valuation site is Zillow.  And for a while, those Z-estimates were giving Realtors like me fits on both sides of the customer relationship. But if you look right at any Z-estimate, they tell you it's a range for a property.  The problem with Zillow, is it relies on data to make a determination, much like the town assessment.  And so all the "subjective" and "non-quantifiable" elements are uncaptured.  These can be quite basic, such as highway noise.  If you can hear the highway, Zillow can't, so your estimate will be higher on Zillow than the market will likely bear.  It also can't see your lot, or your floorplan.  I did some preliminary research and found out that the average z-estimate was off by about 14%, with some estimates off as much as 30%.  But if you have a straight forward house that hasn't had a lot of additions, in a relatively populous area and a lot that isn't really unusual, Zillow can give decent estimates.  That's a lot of ifs though, so use it cautiously.

Real Estate Agents

Most real estate agents will be happy to tell you what your home is worth for free.  This is likely to be your most accurate and up to date information, as most agents will look at comparables that have recently sold, and look at the existing market to judge if prices are rising or falling, or if you have features that could command a higher or lower price.  To get your best estimate, you should talk to at least three, and make sure they are knowledgeable in the area that you are in.  It won't do you much good to talk to a Realtor friend who's not local if you're looking for a tight estimate. Similarly, you should talk to more agents if the comparables for your home aren't that similar.

Appraisers

Appraisers tend to do a data based approach combined with the comparable search. While this is accurate, appraisers typically charge several hundred dollars to do an appraisal, so getting multiple estimates is usually not practical.   Further, appraisers tend to be less concerned with what's truly marketable, and their methodology is not infallible.  It is truly a point-in-time estimate of what a home is worth.

Your Own Research

I find that if I spend time with buyers and really analyze about a dozen houses, they start to develop a good "nose" for what is worth more than what.  While it's likely that you'll have to look at more than a dozen homes on your own, the more you see the better you'll be able to determine on your own what your home is worth.  It should be noted that it can be difficult to be objective about your own home, but you can get close. This is obviously the most time intensive approach, but has the advantage of being private.

The most common reasons that you would need to know the valuation of your home is if you are re-financing or preparing to sell.  Its generally a good idea in each case to do some research on your own and develop a range that your home is in.  That should be good enough for a re-fi, but if the numbers are close, you may want to talk to an agent before paying for an appraiser.  If the goal is to sell, bringing in the agents after you have framed your own opinions will allow for you to have the most constructive dialog with them about how homes compare, and you'll be more invested in the strategy and marketing of your home, which is a good thing.

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• Holliston, MA has 58 (vs. 84 in last report) single family homes listed as Active
• Holliston, MA had 64 (vs. 71) single family sales in the last 6 months, and 6 single family sales last month
• Holliston, MA had 5 single family homes in pending last month
• Holliston, MA has an Average Market Time of 83 days (vs. 88) for sold properties
• Holliston, MA has an Average Sold Price of $ 424,000 for sold properties

Past Holliston Reporting HERE

Top Seven Articles

• Are fences a good way to build equity in my home?
• Does the basement get water? Don't wait to find out!
• How serious is that moss on the roof?
• WHAT DOES 'PASSED TITLE V', or 'TITLE V IN HAND' MEAN?
• I Just Signed an Offer, Now What?  For Sellers
• How to Handle a Home Inspection (Tips)
• How can I shop for an interest rate for a refi or purchase?

Matt Heisler is a real-estate professional and owner of Heisler & Mattson Properties.  He has been selling residential real-estate for over 10 years.  He has given several talks on real estate, including presentations on first-time buyer tips & tricks, and profiting in real estate investing in Massachusetts. As a Vanderbilt University alumnus, he is proud to serve his local community.

*All information is posted in good faith and is assumed to be reliable, but may rely on third party information sources.

Shopping for an Interest Rate

I'll put forward a basic strategy to find the best rate, but let me start right off the bat, that the most important thing that you're looking for is not a rate, but a seasoned professional who will GET THE LOAN DONE.  A great rate that is offered, but ultimately not delivered, isn't worth anything, so I recommend getting personal with with folks to get rates.  Yes, that means I'm not going to suggest that you just enter in some basic information in to a loan hunting web site.  That's easy, and may work out for you, but in this environment, I would really work with someone who knew what they were doing AND could get you a great rate.

Types of Interest Rate Providers

Basically, you're looking at Four types of providers.  Large Banks, Small Banks, Credit Unions, and Mortgage Brokers.  They all make money different ways.

• Large banks try to make money with economies of scale, by offering more services under one roof, they hope they can mange more of your money under their roof, which makes their business model possible.  Large banks also can have the clout to offer "unique" programs that other vendors can't match.
• Small Banks try to make money by making use of inefficiencies in the market.  When large banks get squeeze by the economy or other market forces, smaller banks are better insulated from national market swings (generally), and can offer programs that are highly individualized, which may help non-standard borrowers.
• Credit Unions share much of the aspects of smaller banks, but typically do less advertising, and have smaller staffs.  This means they have less overhead, which can mean better rates, but generally also means that your customer experience may not be what it would be at a more "traditional" bank.

• Mortgage Brokers have deals in place with banks and occasionally private financing as well.  In exchange for handling much of the processing, they get discounts from the banks but they add a fee for their services.  It doesn't quite even out, but since the mortgage brokers have access to many banks, they can "shop" your loan for you, and when rates are in flux (as they always seem to be) it's easier for them to find the "best rate today" instead of you needing to do it.  They'll save you time for sure, and may save you money, and should always be part of your searching.

Finding the best Interest Rate Available

OK, so, now we know who the players are.  How do we find a loan?

1. Referrals.  Ask people who've had to get a loan, what problems their loan provider overcame, and the customer service provided.  Pay close attention to what type of provider they are.
2. Pick Up the Phone.  If you referral network yielded a big bank loan officer, and a mortgage broker, time to call a small bank and a local credit union.  Get some contacts there as well.  Ideally, you'll have someone from each "pool" of lending.  If you call Bank of America, and then Citibank, well, I don't know that you're really shopping around, that's really the same pool.  Also, remember if you're calling around, you won't be able to know how "good" they are.  So ask good questions like, "how long have you been a loan officer" and "how long is a rate-lock good for" and "how much are typical fees".
3. Understand your credit scores, debt, and income pictures.  To truly get a rate, you'll need to provide solid information to each one of your contacts.  (IMHO, please let them know it's a competitive situation, no need for secrets!). I recommend letting one person run your credit, and then using the scores that pop up as information for the other folks.  You don't have to let each one run your credit if you can provide them recent scores.  Similarly, debt and income can be figured out as well.  This information will allow the loan reps to determine a lender profile, for which they will be able to offer you a program. Each program* has a rate. Voila.

* Note each program also has fees associated with it. So ask!  Saving an eight of a point in the interest rate but paying an extra three or four thousand dollars at closing may not be what you want.