Gloom to Bloom in 12 Days

This is one of the most exciting aspects of my profession — working on a tight 12-day renovation deadline to transform a worn-out home into a beautifully staged and photographed home just in time to go on market. This Mountain View listing located in the heart Silicon Valley brought together a lot of the expertise I’ve gained over the years, so we documented the entire process to show how I took the home from “gloom to bloom.”

Phase One

With a flea infestation and near dilapidated conditions, we hit the ground running on day one. First things first, we had to rid the home of the mountains of trash that had accumulated over time. The hauling helped us remove everything from the home so that we could get to work on renovations.

Multiple truckloads of junk were removed from the home with the help of our hauling crew.

The only way to tackle this much trash is with a shovel, and that's exactly what we did.

Phase Two

The second phase was undoubtedly the busiest, starting with flea bombing the entire property. From there, the landscapers and painters got to work while my assistant, Kris, and I went over the property with the handyman to ensure all repairs would be completed on time.

The landscaping crew rids the front yard of unsightly junipers to enhance its curb appeal.

Kris and I go over kitchen repairs with the handyman.

You'd be surprised how far a fresh coat of paint goes when it comes to making a property pop.

This phase was a blur of activity, and we made significant strides as a team in preparing the home for sale. See all of the action in the video clip below.

Phase Three

By phase three, the home had come to life. All that was left was to stage it so that prospective buyers could envision what it would be like to live there. Once the furnishings were in place, it was time to go over every last detail to ensure the home was ready for showing, and ultimately, move in. We also brought in a team of inspectors to prepare pre-sale inspections. After three days of hard work, this home was ready to hit the market.

The professional stagers put the finishing touches on the home.

To ensure the renovation was successful, I personally go over every aspect of the home.

A pre-sale property inspection helps to make sure there aren't any surprises during the sales process.

While the home’s initial conditions didn’t shock me, the final reveal did. The home turned out even better than I could have imaged. I went into the open houses with confidence, knowing that the work would pay off for my sellers. Check out the clip below to get a full look at phase three and see the finished product.

Securing the Sale

Preparing a home for market means nothing if an agent can’t deliver on the sale. Within a week of concluding the renovation process, I had received three offers. Ultimately, the sale was finalized in just nine days with an all-cash offer above asking price. All in all, it was a great experience for everyone involved, myself included.

When a client entrusts me with the sale of his home, he can be sure that I will take care of every aspect of the sale from start to finish.

If you have questions about selling your Silicon Valley home, let’s talk.

To see the full process from start to finish, check out the video below!

Thinking About Becoming a Real Estate Agent? Read This First...

A great post from Greg Nino, Houston real estate agent, titled, "An Open Letter to Anyone Wanting to Get Their Real Estate License". Don't get me wrong, I love my job. But like any industry, it has it's challenges. If I had a dollar for every time I heard, "I like people and love looking a homes. I would like to be a real estate agent." Nino's well-written 42-point letter below plus my commentary:

1. Passing the exam is easy. Creating a business with real income is a different story.

So true, the barrier to entry is low. Creating a business with real income is a different story.

2. Now that you have your license, be prepared to lose friends and get your feelings hurt. Most, if not all, of your friends and family will avoid using you the first year or two that you’re licensed. Simply put, you don’t know what the hell you’re doing. Earn your battle scars. Even after you’ve gained experience, you’ll have friends and family who will not work with you because you’re a friend or because you are family. It happens every day to Realtors across the country.

Credibility. It’s not bought or you are born with it. It’s earned.

3. If you don’t spend money, you won’t make money. You need to spend THOUSANDS of dollars to create a business. Most of what you are thinking is a cute and new idea has already been tried a thousand times. You will do what every new agent does: Spend money (A LOT OF IT) on the wrong things. Over and over again. There’s a famous saying in this business: “If you want to get rich in real estate, sell stuff to Realtors.”

Truth: There’s no silver bullet. Takes hard work to build a real estate business. In the meantime, spend money wisely on long term impact and not on gimmicks. Vet technology opportunities too. If the technology doesn’t have an established track record or presence, then don’t waste your time.

4. You and your smartphone will become inseparable. You will have to get up from eating, watching a movie and sleeping to take calls, return emails and respond to text messages. Of course, you don’t have to do this, but you also don’t have to make any real money in this business. You’ll get out of it what you put into it. Ignoring a call could be a $20,000 mistake. Or more.

I’m OK with not picking up the phone when I’m busy. That said, I have lost business because I wasn’t quick enough on picking up the phone, but I’m OK with that.

5. Be prepared to be second-guessed, doubted, questioned, accused and lied to repeatedly. Buyers and sellers have the propensity to lie just like you and the guy next to you at the grocery store. People have perceptions about lawyers, mechanics and police officers. They have them about us, too. Even after years of experience there will be clients who will second-guess your every move. This will never go away.

Buying or selling a home is a big step. And with that there are a lot of emotions involved. Earning clients’ trust is not always easy.

6. You will show thousands of houses. Showing a house isn’t just about unlocking a door. Sometimes you get rained on while showing. Sometimes the house says active on the market when it’s already under contract with another buyer. Sometimes you are late to the appointment because of traffic. Maybe your buyer will be late. The number of things that can go wrong are practically endless.

Just when I think I’ve seen it all, there’s more… I couldn’t make some of the stuff up that I experience even if I wanted to.

7. Almost nobody will respect your time. Almost everyone thinks you are overpaid.

Sadly, this is quite true.

8. Expect people to ask for kickbacks both legally and illegally. Buyers and sellers will often want to haggle with your commission.

It’s unfortunate, but with the Redfins and Zip Realty agents out there, many buyers and sellers try to commoditize real estate agents. Not all agents are the same.

9. You will pay taxes. A lot of taxes. Expect to pay for the gizmo you use to unlock doors. You will pay for this yearly along with dues to three different associations. You’ll pay for signs, lockboxes, tools, equipment, cameras, advertising for both you and your listings, leads, websites, and on and on and on.

Endless fees. And not to mention that there’s only one Multiple Listing Services (MLS) that monopolizes... I mean... covers our area. With no competition, no incentive to innovate = real estate tools that suck.

10. You will pay for your own health and life insurance. There is no 401(k) matching in real estate. You are an independent contractor. In fact, YOU will pay to be at your local real estate office! The broker will take money from you. You will also pay for an office if you want one. Your phone is your cost. Your Internet is also your cost. So are your paper, pens and everything else imaginable. You’re running a small business. It’s ALL your costs. You’ll also pay for errors and omissions insurance. The list is really long. Yay!

A ton of insurance policies to choose from but none or close to what we had when my wife was working a nine-to-five job. 

11. You will get screwed in this business. It’s not for the naive, lighthearted, ignorant or thin-skinned. You will work your rear end off and sometimes not make a dime.

But you will earn a valuable experience and hopefully not get screwed again. How does the saying go? "Fool me once, shame on you; fool me twice, shame on me"
   
12. You will deal with a certain number of psychopaths each year.

Psycho-meter definitely improves over time...

13. You will meet criminals, convicts and felons, especially if you work in the leasing industry.

I remember representing a seller and the buyer’s agent when I looked up the buyer’s agent real estate license number, he had a slew of felonies on his record including ‘assault with a deadly weapon’. Needless to say, I never met the agent in person, but since he was the only buyer, I had to work with him to help my seller sell their house.

14. Strange men and women will ask you to meet them at houses RIGHT NOW.

Some people think that I’m just waiting at home for them to call me.

15. You might get a gun pointed at you while showing a house or two. Sometimes rabid pit bulls will chase you down.

There have been times in which I’ve been concerned with having some of my agents show properties in certain areas. You can never be too careful.

16. Expect to get towed at least once.

Haven’t been towed but have had dozens of parking tickets.

17. Eventually you’ll get in a wreck while showing. You better hope your clients aren’t with you. Is your auto insurance updated correctly?

While on broker tour viewing new listings, got in an accident… with another Realtor on tour viewing homes. What are the chances?

18. There is no disability insurance. So, if you break a leg while playing softball, you’re screwed. It’s going to hurt your business.

Disability insurance is a must.

19. You might get sued even when you aren’t at fault.

Having good legal support is extremely important especially in these cases.

20. When you become successful, your competitors might file complaints on you because they are jealous. You won’t like this.

File complaints, talk badly about you to prospective clients, or write fake negative reviews on Yelp.

21. As you show houses you’ll be in questionable neighborhoods from time to time. You need to learn self-defense, and carry a gun or a can of mace. Everyone should be concerned about their safety.

Letting a co-worker or significant other know where you are is a good rule of thumb.

22. Be prepared to leave a social event early to run and show a house or to get yelled at by one of your clients for something you did not do. It doesn’t matter, you are the chew toy sometimes.

Thick skin. I’ve grown thicker skin.

23. It’s likely you’ll get audited by the IRS. You have too many write-offs and, once again, you make too much money.

Happens all the time.

24. Lawyers are annoyed by Realtors.

And vice versa?

25. Expect to list homes and never sell them. No agent sells every home they list. You will waste time, money, energy and resources.

Nothing is guaranteed.

26. Your signs will be stolen, spray-painted and eventually played with by the local kids.

Graffiti. Or even better… disappearing signs. Now you see it, now you don’t.

27. Your flier box will always be empty because kids, passersby and neighbors will take too many. Sometimes they’ll take all of them in one day. Then you’ll be chastised for not having fliers in the flier box.

Need to have a system to keep the box full.

28. Did I mention you’ll deal with at least two crazy people each year?

Par for the course.

29. EACH real estate transaction you work means you are likely dealing with at least eight different people. You’re responsible for 15-20 things. Right now I am trying to close 11 contracts. I am a little stressed. Sometimes I wake up in the middle of the night thinking about my paperwork, my clients and my business.

Managing the stress is an art...

30. You will become an unlicensed therapist, divorced lawyer and counselor. You aren’t allowed to give legal advice, and you shouldn’t. You aren’t a doctor, but everyone will unload their personal lives with you. You will sometimes live their life.

Quite often we know when a couple is expecting a baby before their family does. Quite an honor I must say. There are definitely negative aspects as well of being so close to clients lives for such a short and intense period of time. And then when the deal is over, it feels like a divorce. 

31. Your spouse will at times hate what you do for a living.

Prioritizing priorities. :) Easy to say...

32. Your wife or husband will despise the fact that you are always on your phone.

Sometimes I just have to turn the phone off. Business will still be there in the morning.

33. When you’re sick, you still work. There’s no floating holidays.

No one cares if you’re sick. You still got to get the job done...

34. While on vacation, you still work. You can get an agent to cover your business, but NOBODY will care for your business the way you do.

True.

35. Sometimes when you make mistakes it costs people money. You can’t just apologize.

Taking ownership of your mistakes. And learning to not take ownership of mistakes that are not yours. Everyone wants to point the finger at someone.

36. You have to have a nice car. You must wear nice clothes.

Perception is everything? In Silicon Valley, I drive a Tesla Model-S and like to wear Converse All-Stars to view property. Is there a happy medium?

37. When you first get started everyone will know you don’t know what you’re talking about. It’s a fact. This sucks. But if you stick it out, you’ll be OK. Seventy-five percent of the new agents don’t make it.

I hear that it was only a 5% success rate after 2 years...

38. You get to work with agents! Not all of them are put together correctly. A lot of your problems in this business will be because of the other agent. You will get upset, angry, pissed and offended. Egos are here, too.

Ego vs. humility. My constant struggles. Sometimes agents get in the way of the clients too. Need to constantly check myself by asking… what is best for the client?

39. Wait for it:  Friends, neighbors and family will ask you for real estate advice while they are involved in a real estate transaction YOU aren’t.

Quite funny actually. Happens once every other week. Why are you asking me for advice? Why don’t you ask your real estate agent?

40. Other Realtors will give your client advice when they aren’t supposed to. Every buyer and every seller knows an agent somewhere.

Amazing… we have 25,000 real estate agents in our MLS. That’s a lot of licensee giving advice though only a select few are selling most of the real estate in the area.

41. Each market is different. Very different sometimes, but that won’t stop friends and family from influencing your client. Your client will become confused at times.

Confidence and trust. If that’s non-existent, then you’ll be climbing up a very big hill.

42. You have a better chance of meeting E.T. than you do working real estate part time and being successful. It takes time, effort and money to be a part-time Realtor. In fact, being a part-time agent can be even more difficult.

Part-time effort yields part-time results.

So why do agents do this?

You’ll have the amazing opportunity to reap what you sow. You can work when you want. No matter how bad your boss (client) is, you are working for them for only a certain period of time. You get new bosses all the time. You can make a real difference in a lot of people’s lives. You literally help shape dreams. YOU can be the difference in someone’s life as they look to sell and buy a home. And not all clients, buyers and sellers are bad. Most of them get it. It’s awesome when everything works out.

And that’s why I do what I do. Building long term relationships. Helping transforming lives on household at a time.

Silicon Valley Housing Market Trends – Third Quarter 2010 Update

For the 2010 third quarter housing market report we are going to look at quarterly graphs back to 2006, which should help us better understand where we are today in the Silicon Valley. After the crash in 2007, the best thing we can do is look how are we doing compared to the year before. Putting a long view on it spins it for the worst: Bay Area sales: a region on a tight rope; Bay Area September Home Sales Second-Lowest in 19 years. Our four comparison cities -- Sunnyvale, Mountain View, Palo Alto, and Los Altos -- have performed well in the last year. Here are some highlights that compare this quarter from the same period in 2009:

- Sunnyvale, Mountain View, and Palo Alto have improved their median sales price - Average days on market dropped 30% or more in all four cities - Palo Alto bumped above 100% in the sales price to listing price ratio for the first time since 2008 - Number of closed sales are up in Palo Alto and Los Altos, and down in Mountain View and Sunnyvale; Concurrently, the same is true for total sales volume.

So read on to get more information about the number of homes sold, median sales price, average days on market, and selling price to listing price ratio. All of our data comes from MLS listings inc. measuring single-family homes.

closed sales - 2010 Q3

The homes sold graph clearly shows the natural market cycle that dips in the fall and peaks in the spring and summer. What we are looking for in the following graphs is how each individual city performed before the housing bubble crash (pre-2007), during, and in the recovery period (after 2009).

All cities began to slide in 2007 and dropped to their lowest levels at the end of 2008. This also meant more homes on the market and an increased inventory, including foreclosed and short-sale properties.

If we compare the first quarter of 2009 to the first in 2010, all four cities jumped in number of homes sold: Los Altos (+133%), Mountain View (+130%), Palo Alto (+44%), and Sunnyvale (+13%).

median - 2010 Q3

In median sales price we can see the obvious spike in home prices that occurred because of the housing bubble. Mountain View peaked mid-2008, about a year before the other three cities did. Mountain View also suffered less of a downturn when the bubble popped. You can see the other three cities sliding at the end of 2008, while Mountain View prices increased.

Today, we notice that levels have smoothed out since 2009 and have worked their way towards 2006 levels, experiencing a small drop, with Los Altos the exception, this quarter.

Another thing to consider in the steep drop of home prices at the beginning of 2009 was in part of expensive homes coming off the market, such as in Los Altos, and low-valued foreclosures and short-sales coming onto the market, bring down the overall median sales price. Like mentioned earlier, Sunnyvale (+3.6%), Mountain View (+3.4%), and Palo Alto (+6.7%) increased their median sales price compared to last year, but realized a deprecation from last quarter; the reverse is true for Los Altos.

average days on market - 2010 Q3

Average days on market is a good indicator of market health -- closer to 30 days means properties are coming onto the market at a good price and buyers are interested; above 60 days means properties are priced poorly or buyers are nervous about the market, or both.

Los Altos peaked in early 2007, quickly dropped, and followed the similar trend of the three other cities, but taking, until 2010, the longest to recover.

Sunnyvale is interesting because it has the largest population and is the city with the lowest median sales price. It is more likely that Sunnyvale had more distressed properties that pushed up its average days on market higher than the other cities from 2007 to 2009. But Sunnyvale also dropped the soonest once buyers became confident in the market again just after 2009.

Palo Alto, considered one of the strongest housing markets in the state, had the lowest days on market this quarter of our comparison cities. In the next graph we can see that it is also the only market that has turned into a seller’s market.

sales to listing ratio - 2010 Q3

In the sales price to listing price graph we explore what makes a buyer’s market (below 100%) and what makes a seller’s market (above 100%).

As the housing bubble grew, buyers were willing to pay above listing prices to get the home they wanted. From our previous median sales price graph, home prices peaked in the third quarter of 2008, but then quickly fell in 2009 -- Los Altos being a major example of peaking in median sales price then falling the most in both the median sales price and the listing price to sales price ratio. Buyers weren’t taking anything for a period and sellers weren’t ready to adjust their home prices.

It has taken until 2010 and later for the market to really stabilize here in the valley. The ratios for Mountain View and Sunnyvale are hovering around 100%; Los Altos is still struggling at 97%, while Palo Alto has turned to a seller’s market at 101.26%.

Closing It’s always easy to look back and be able to see that the housing market was peaking, but at the time it is very difficult for an individual to judge if the market would sustain its levels or pop like it did. What we are realizing today is a much more conservative market that is looking for a sustained growth rather than the feeding frenzy that happened. One advantage of being in the Silicon Valley is that although we took a hit, we returned to levels that existed only four years ago and are seeing signs of stabilization or even growth (Palo Alto really standing out). We’ll be able to tell in the next couple quarters if that holds true (the upcoming winter quarter is slower for real estate), and we’ll try to do a larger comparison that shows the Silicon Valley compared to other parts of the nation, and lastly, how neighborhoods within cities are doing.

Where Are We Now? 2000 to 2010 Silicon Valley Real Estate Report

Real estate levels in 2010 appear to be either dropping or freezing nationwide during the usually active spring and summer months due to the wake of the 2007 housing crisis. But in Silicon Valley, where the characteristically warmer temperature seems to not only apply to the weather, the local real estate is making its way back from the extremes of a couple years ago. So from 2000 to the second quarter of 2010, where is the Silicon Valley housing market now? Pretty much where we started. Number of closed sales for single-family homes in Santa Clara County during the second quarter of 2010 are down 4% from the same period in 2000; and the average sales price is up 3%.

This post is an update of an earlier market analysis that we did in 2007. And in the graphs below we’ll be able to see the dot-com bubble burst, the effects of the 9/11 terrorist attacks, the housing bubble develop and pop, and the current signs of a housing recovery. The data is collected from 2000 to the second quarter of 2010 from all 15 cities of Santa Clara County off of MLS listings Inc., looking at single-family homes and condominiums/townhouses._

Number of closed sales in Silicon Valley

The sales spikes we see every year are part of a natural market cycle that peaks in the spring and dips in the winter. Competition is greatest in the spring when the most inventory is available and the most prospective buyers are out looking.

Sales numbers were negatively affected by the dot-com bubble burst in 2001 but shot back up once the housing bubble formed. What’s closest to buyers and sellers minds alike is the housing crisis that bottomed out in 2008. Silicon Valley’s strong economy (that some reports say is losing its edge) has meant a swifter recovery than the rest of the nation.

If the economy continues its recovery, the housing market could return to a seller's market. But sales numbers are only one facet, where other areas of the market are still depressed.

Average days on market in Silicon Valley

Average days on market (DOM) is less influenced quarter by quarter from natural market cycles compared to number of sales. Homes were being sold at record pace in 2000 and between 2004 to 2006. The two recessions in the last 10 years pushed DOM to above two months, even up to three. Though desirable homes in good neighborhoods will always sell quickly, the housing bubble inflated everything, which resulted in a flood of overpriced homes during the crisis and pushed DOM upward.

Since low DOM numbers are attractive to buyers, they are sometimes falsified to make a house appear more attractive on the market. Or poor sales strategies can make an otherwise good home sit on the market for an extended period of time. So don’t let DOM be the final judgement when deciding on a house. But overall a low DOM is a good indicator of market health.

Average sales price in Silicon Valley

Here we can see how big the housing bubble really was. With the dot-com bubble, money was focused in the stock market. But when that crashed, homes became “hot,” lending requirements loosened, and real estate became the new investment trend.

The recession in 2001 dropped the average price for single-family homes 19% from its peak ($750,039) in the second quarter of 2000 to the low ($605,286) in the fourth quarter of 2001; compared to the 48% drop from the housing market bubble peak ($1,083,930) in the second quarter of 2007 to the low ($568,542) in the first quarter of 2009.

Currently, home prices in Santa Clara County are on the rebound and trending towards 2000 and 2004 numbers. Strong markets in smaller cities like Palo Alto and Los Altos faired much differently than the large city of San Jose because of a difference in demand and foreclosure rates.

Sale-to-list price ratio in Silicon Valley

The ratio compares buyer and seller perceptions, where above 100% is a seller's market and below 100% is the opposite. The bubbles and crashes are clearly seen here but reflected in a much different way than what is seen in the average sales price graph. The boom in the early 2000s shows that buyers where much more willing to pay over listing price until the 2001 recession. The ratio later peaked again in 2005. Sellers priced their homes much higher during the real estate bubble but the ratio stayed near 100%, meaning buyers believed the inflated prices were worth the investment.

In recession periods buyers are hesitant and sellers have to adjust their listing price. Today, the average listing price is increasing again with the ratio near 100%.

Takeaway:

The graphs above give a bird’s-eye view of the real estate market in Santa Clara County beginning to settle. Although it may be a very different perspective from an individual home buyer or seller, who could have gotten caught in either the bubble or the crash. The view can also be very different city to city, reflecting hyper-local markets, as we have seen in our second quarter 2010 analyses of Los Altos, Mountain View, Palo Alto, and Sunnyvale. The main idea of these graphs is to show that real estate markets, while unpredictable, are cyclical.

Silicon Valley Housing Market Trends - Second Quarter 2010 Update

In the second quarter of this year (April to June) we can really see which areas of the housing market have bounced back from the crisis and which areas are still struggling. To visualize those details, and to complement our second quarter 2010 analyses of Los Altos, Mountain View, Palo Alto, and Sunnyvale, we have created some city comparison graphs. We’ll cover total sales volume, sale price to listing price ratio, days on market, median selling price, and number of homes sold, using data on single-family homes off of MLS listings Inc.

First, let’s have a look at: 

Total sales volume clearly shows that over the past two-plus years the housing market dropped after peaking in 2008, then slowly bounded up and down, successively higher each quarter. The second quarter of this year really reflects a trend towards returned growth in the housing market of our local cities.

One additional interest to point out is that although most of the cities have not yet reached 2008 sales volumes, Mountain View has surpassed it.

The sales price to list price ratio is one way to show buyer and seller perceptions: above 100% is a seller’s market, and buyers are paying above the listing price to win a house; below 100% is a buyer’s market, and sellers are having to reduce their listing price in order to sell a house. The closer a city is to 100% the more the market is balanced.

On a house that is listed for $1 million, a 1% change would amount to $10,000.

In both quarters this year, Mountain View and Sunnyvale have both been above 100%, a result of high demand for entry-level homes. Palo Alto and Los Altos, the more desirable and expensive of the cities, are still under 100% (Los Altos is at 98.21%, recovering from a glaring low of 93.56% in the beginning of 2009).

_

The Average days on market is a good indicator of buyer demand and the overall health of the housing market. From the graph, we can see all four cities returning nearly to 2008 levels this quarter, with Palo Alto and Los Altos realizing the greatest second quarter drops. This is another signal that the market is shifting to a seller’s market, making it more difficult, once again, for buyers to get find a good deal.

The median selling price can be used in conjunction to the earlier ratio graph. Palo Alto, Mountain View, and Sunnyvale, which are all near or above a 100% ratio, have median prices that are rising. Los Altos, however, is still far from a 100% ratio and its median sales price remains stagnate.

Currently all four cities are off second quarter results in 2008 by more than 5% -- Los Altos is even more at nearly 13% under -- so buyers can still expect to save money due to depreciated home values.

The number of homes sold for each city has either nearly returned to 2008 levels, or surpassed it in the case of Mountain View, which is 50% higher this quarter than the same period in 2008. Part of the reasoning is traditionally more homes go on sale and are bought during the summer months. But this also a result of more sellers willing to sell their homes in a stronger market and a release of pent-up buyer demand.

Recommend Reading:

• Comparing Real Estate Trends of Local Cities -- First Quarter of 2010
• Silicon Valley Housing Market Update – July 2007
• Silicon Valley Housing Market Update – April 2007

Is it Time to Refinance Your Mortgage?

Home ownership can be for many their biggest financial asset, and as a result, biggest financial concern. But with current mortgages dropping to their lowest point since the 1950s, many Silicon Valley homeowners are saving thousands a year just by refinancing. Is the time right for you? Let’s go through some considerations that cover the why, how, and hurdles of refinancing.

• Why refinance?
• Hurdles in refinancing
• Break-even calculation
• Comparing interest rates Shopping for a new mortgage

Why refinance?

The most common and obvious reason is that homeowners refinance to lower their mortgage rate. A lower rate means lower monthly payments and less money towards interest over the life of the loan.

For example, a 30-year fixed-rate loan of $400,000 at 6% would have a monthly payment of $2,398. But if you were to qualify for 5.5% on the same loan amount, your monthly payment would be $2,271, or a savings of $127 a month and $1,524 saved in a year.

Or you may want to adjust the term of a loan. Decreasing the time period of a loan results in a lower rate and paying off your loan sooner, for a slightly higher monthly cost compared to a 30-year loan. Increasing the length of a loan is a cash-flow option, freeing up cash now, but paying more over time.

You can also switch between an adjustable-rate mortgage (ARM) and a fixed-rate mortgage. The riskier ARMs float with current interest rates, so your payments increase or decrease accordingly. Commonly, homebuyers are moving to a safer fixed-rate mortgage.

Cash-out is the last option, where you refinance a mortgage for more than you owe and receive equity in cash, which can help pay for large debts now.

Options outside of refinancing are home equity loans and lines of credit, and reverse mortgages.

Common hurdles when refinancing

Before you think a refinance is the easiest route to saving your financial back, strict requirements and sometimes extra costs don’t make the trip worth it.

Similar to the first time you applied for a mortgage, lenders are looking at three qualifications: income, credit score, and property value. If any one of these has suffered, lenders will likely charge additional fees or raise your rate.

Another issue can be if your current mortgage has a prepayment penalty, which reduces the benefit of refinancing, again, because of additional costs.

So talking to a loan officer is the first step to see where you fall financially and what you qualify for in terms of refinancing your mortgage.

Break-even calculation

How long it takes to recoup the cost of refinancing realized with a lower rate, the break-even point, is useful for determining if it is worth refinancing when considering how long you plan to stay in your home.

Typical fees that add to the cost of refinancing are loan origination fee, points paid to lower your interest rate, appraisal fee, inspection fee, closing fee, title search and title insurance, and other miscellaneous lender fees. Total fees can easily get into the thousands.

Lenders sometimes offer “no-cost” refinancing. Though you may not have to pay the above fees at closing, you will have to either accept a higher interest rate or the fees will be rolled into the term of the loan.

If you leave your home before recouping the closing costs there is little point in refinancing.

Let’s use our previous example, and say a refinance will save you $127 a month but closing costs were $4,500. To break-even, you would have to keep the loan for about three years; if you were to keep the house for 10 years you would save $10,720, including the cost of closing.

There are numerous refinancing calculators on the Web, like at bankrate.com, where you can plug in your own finances and get a quick estimate.

Comparing interest rates

As we saw with the initial graph, rates have been dropping over the years. But interest rates and fees change daily from lender to lender.

In addition to the most surefire ways -- good credit, income, and equity -- to an excellent rate you can also pay points. A point is equal to 1% of the total loan amount and the more points you pay the lower the rate.

To give you an idea of the current rates for a 30-year mortgage, here are some from a Bay Area lender as of July 2010:

No point, conforming loan (under $417,00) = 4.5% No point, “no-cost” conforming loan (under $417,00) = 4.75% High-balance loan (under $729,250) = .125% - .25% higher than a conforming Jumbo loan (anything higher than $729,250) = low-to-mid 5s

Shopping for a new mortgage

Shopping around and comparing loan offers by different lenders is the best way to save money. First, talk to your current lender, as they could save you time and wave fees since you are a returning customer.

Feel free to contact us if you are looking for recommendations on Bay Area lenders or mortgage brokers; also, if you would like to find out more about our real estate services. _

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• Credit Surprises That Damage Mortgage Applications
• Loan Rates Based on Mind-Boggling Number of Criteria