When selling a home, understanding a little bit about home buyer psychology can help you move your home more quickly.

After all, what people perceive helps define how they act.

A recent article from RealEstateJournal.com listed several techniques that home seller can use to attract more offers from buyers.

The tips included:

1. Number Play: $299,999 seems far less expensive than $300,000
2. Connotation: Precise numbers indicate value; Round numbers indicate prestige
3. Simpicity: If you drop the price, make the math easy for the buyer so the savings are obvious

Curiously absent from the piece, however, is the #1 home selling tip that every good real estate agent knows:

To sell your home quickly, price it right.

A “good buy” speaks for itself — no psychology required.

Federal Reserve Chairman Ben Bernanke testified to Congress Wednesday, alluded to further rate cuts to support an ailing U.S. economy.

Already, the Federal Reserve has lowered the Fed Funds Rate by 2.250% since September 2007.

The graph at right comes from the Wall Street Journal and it highlights a very important correlation between the Fed Funds Rate and mortgage rates.

The correlation is that there is no correlation.

Since the Fed began cutting rates five months ago, mortgage rates on 30-year fixed mortgages are higher, as are jumbo mortgage rates. ARMs, however, are lower.

Especially noteworthy is how 30-year fixed rates started to spike as the Fed cut rates through January. Another half-point cut in March could have a similar impact.

Yesterday, the Office of Federal Housing Enterprise Oversight released its fourth-quarter housing data.

The OFHEO report color-coded each state according to its annual price changes. The states shown in red lost value, and everyone else gained. Overall, the OFHEO measured a 0.8% national increase.

Also hitting the wires yesterday was the Case-Shiller Home Price Index.

This report focuses on the 20 largest metropolitan statistical areas in the United States and painted a much more grim outlook for housing. According to Case-Shiller, prices declined 8.9% nationally.

Both reports are imperfect but one notable difference is that the OFHEO report measures all 291 MSAs in the United States and its data showed that two-thirds of them appreciated last year.

Once again, this just reminds us: real estate is a local phenomenon. Every market is unique with its own price trends, independent from the rest of the country.

When a buyer and seller reach agreement on a home sale, the buyer typically puts a small amount of money into a trust account.

This up-front deposit is more commonly known as “earnest money”.

A sales contract’s earnest money requirement will vary from contract to contract. It can be as high as 10 percent of the purchase price and could be as low as $500; earnest money is a negotiable item between buyers and sellers.

Some factors that can influence earnest money amounts include:

• Market conditions: Stronger markets often call for more earnest money
• Buyer economics: First-time buyers often give less earnest money
• Seller psychology: Skeptical sellers often ask for more earnest money

No matter how large or how small, however, earnest money is supposed to give the seller a sign of good faith that the buyer wants to purchase the home.

To this end, earnest money can be forfeited if the buyer later “backs out” of the deal, or breaches the terms of the purchase agreement. Breaching, however, is infrequent.

This is because most purchase contracts are written with buyer-focused “outs” called “contingencies”.

A typical contingency is that the seller must provide a clean title policy to the buyer, or that the buyer must secure financing prior to given date, or that the home must pass a satisfactory inspection.

If any of these contingencies cannot be met, the purchase agreement is voided and earnest money returned to the buyer.

When contingencies are met, however, earnest money becomes a deposit and is applied directly to the buyer’s bottom line at settlement. If the buyer is expected to have $50,0000 for the closing, for example, the true bottom line is $50,000 minus the earnest money deposit.

Earnest money customs vary from state to state, city to city, and even locale to locale. Be sure to ask your real estate agent and/or real estate attorney for professional counsel before signing purchase contracts.

The earnest money you save may be your own.

In general, the farther a home is built from a metropolitan area, the more affordable that home is for a buyer.

The desire for affordable housing helped fuel the real estate markets earlier this decade.

It also helped to add “extreme commuting” into the American lexicon.

An “extreme commute” is an office drive-time of at least 90 minutes and at least 2 million Americans are doing it. Because of rising gas prices, though, extreme commuting is much more expensive than it used to be.

GasBuddy.com says that the average gallon of gas now costs $3.13. That’s up 32% from a year ago and more than double the 2002 level. For Americans with long commutes, this is having a palpable impact on family finances.

It’s important to remember that there is more to the cost of a home than just the purchase price — there’s also the costs after the purchase.

When planning your family budget, be sure to consider everything, all the way down to the commute times.

With gas prices predicted to rise throughout 2008, extreme commuting figures to get more expensive.

The interest rate differential between a 30-year fixed rate mortgage and a 5-year adjustable-rate mortgage is growing.

An economic recession is expected to damage the economy over the near-term and so mortgage rates tied to that same time frame are falling.

This includes ARMs with initial fixed periods of 1-5 years.

Meanwhile, the cumulative impact of Fed Funds Rate cuts and the stimulus package are expected to stoke U.S. inflation over the longer-term.

Therefore, mortgage rates tied to longer-term maturities are rising. This includes the 30-year fixed rate mortgage.

The spread between the 30-year fixed rate and the 5-year ARM had been as wide as 1.250% this week before settling closer to 1.000%.

This past summer, the two products had carried identical rates on occasion.

When buying a home, there are two stages in the home loan approval process.

Stage 1 starts when a homebuyer submits a mortgage application to his loan officer for a pre-approval.

A pre-approval is a “walk-through” mortgage approval that says — at a given purchase price and downpayment amount — the home loan application will very likely be approved.

Stage 1 ends when the buyer signs a purchase contract on a home. At this point, the “walk-through” approval is useless because the buyer now needs a real home loan approval from an underwriter and not a loan officer.

Thus begins Stage 2.

During the second phase of the approval process, a mortgage underwriter is reviewing income, assets, credit, job history, and other items, too; the underwriters job is to make sure that the buyer meets the bank’s criteria for lending.

If the loan officer did his job in Stage 1, Stage 2 is just a formality. And most times, it all goes according to plan.

Occasionally, though, a homebuyer sabotages his own mortgage approval by inadvertently changing his “risk profile”. It doesn’t happen on purpose, of course — it just happens.

So, consider this a quick primer of what not to do while you’re between Stage 1 and the completion of Stage 2 of the home loan approval process. Following these pointers will help keep the risk profile consistent.

1. Don’t buy a new car (or take on a larger lease payment)
2. Don’t quit your job or change industries (and certainly don’t switch to a heavily commissioned role)
3. Don’t transfer large sums of money into or out from your bank accounts (and remember that “large” is relative)
4. Don’t miss a payment to a creditor (even if you don’t think you owe it)
5. Don’t open a new credit card (even if you’re getting 10% off your new bedding)
6. Don’t accept a cash gift without talking to your loan officer first (because there’s rules on how to accept them)

There’s other items, too, but this a good start.

Now, avoiding these mistakes may not be practical for everyone. Therefore, if you know you’re going to violate a “rule”, check with your loan officer first.

There are a lot of “gotchas” in mortgage lending and it helps to have professional guidance for your individual questions.

For homebuyers and homeowners expecting low mortgage rates this week, Tuesday marked the unofficial end to basement 30-year fixed mortgage rates.

According to the market analysts at BestInfo, Inc., the 30-year fixed rate measured its largest one-day movement in more than 10 years Tuesday.

Nationally, 30-year fixed mortgage rates increased 0.375%.

Here is the “real life” impact to mortgage applicants whose mortgage rates were not yet locked:

• $150,000 mortgage: $37 increase to the monthly mortgage payment
• $250,000 mortgage: $61 increase to the monthly mortgage payment
• $300,000 mortgage: $73 increase to the monthly mortgage payment
• $400,000 mortgage: $99 increase to the monthly mortgage payment

ARMs did not move as harshly as fixed-rate mortgages but they still increased Tuesday.

Mortgage rates can change quickly, and often do. Be prepared to lock your mortgage rate and make informed decisions quickly.

The mortgage markets wait for no one.

For a lot of homebuyers, calculating a prospective mortgage payment is an online experience. For example, a search on Google for “mortgage calculator” returns 39 million options.

Some people, however, prefer to plan on their local hard drive using spreadsheets. For these people, the hardest part is often figuring out what formulas to use.

Interest Only Payments

Home loans with interest only payments are much more simple to calculate than amortizing loans.

Using the graphic at right as a guide, enter your loan size and your interest rate into two separate spreadsheet cells.

Then, create a third cell and input the following formula that calculates the “Monthly Payment”. The formula is:

= (Loan Size) * (Interest Rate) / 12

Principal + Interest Payments

For a home loan with (principal + interest) payments, the formula is a little bit more complicated than with an interest only home loan.

Using the graphic at right as a guide, enter your loan size, your interest rate and the duration of your home loan into three separate spreadsheet cells.

Then, create a fourth cell and input the following formula that calculates the “Monthly Payment”. The formula is:

= – PMT(Interest Rate/12, Loan Term in Months, Loan Size)

For additional spreadsheet formulas and more in-depth reporting, explore your software’s “Help” feature to see what you can find.

Your home’s heating, ventilation and air conditioning (HVAC) unit must be clean to run at peak efficiency. “Efficient” means “cost savings” so this is just one reason to change your system’s air filter regularly.

Experts suggest changing your air filter at least quarterly, with more frequent replacements in special situations:

• Homes with shedding pets
• Homes that are under construction
• Brand-new homes with dust in the air
• Homeowners with asthma or allergies

Watch this 1-minute video demonstration of how much powerful and efficient a clean filter is versus a dirty one.

The $168 billion economic stimulus plan signed Wednesday includes a temporary increase to conforming loan limits in some parts of the country.

Currently, many homeowners whose loans exceed $417,000 are paying higher interest rates because their loans are not securitized the way that smaller loans are.

The loan limit increase is intended to make housing more affordable in certain “high cost” areas around the United States.

However, the loan limit changes are not immediate. The stimulus package grants HUD 30 days to determine which metropolitan areas should be designated as “high cost” and it should take another few weeks for Fannie Mae and Freddie Mac to remodel their mortgage pricing engines.

All told, it could be mid-April before the new limits are in place.

Author’s Note: There is a lot of speculation about which areas will be designated as “high cost” and nobody knows for certain until HUD decides. Rather than misreport the facts, we’ll save our coverage until something is concrete. However — if you’re in a “high cost” area, you probably already know it.

When the new limits are official, though, expect that many homeowners will take advantage. That will lead to underwriting delays because mortgage refinance activity will surge.

Therefore, consider being proactive about your financing options if:

1. You suspect you live in a high-cost area
2. You have liens on your home exceeding $417,000

If you don’t live in a high cost area, you can’t take advantage of the new loan limits; and if your outstanding liens total less than $417,000, you won’t want to be helped.

Converting from a jumbo home loan will not be appropriate for everyone, but it will be right for some. Get personal advice and figure out what’s best for you.

And then hope the HUD fingers your neighborhood as high cost.

President Bush is expected to sign the economic stimulus package today.

The package includes tax rebates and incentives for business and its purpose is to jumpstart a stalling U.S. economy.

If the package is deemed “effective” by Wall Street investors, we should expect the stock market to rally on the prospects of business growth.

The flipside of stock market gains is that they will likely come at the expense of the bond market.

If you’re currently shopping for a home or for a home loan, this is bad news because when mortgage bond markets fall, mortgage rates to rise.

A 0.125% increase in mortgage rates, as an example, adds $125 to the annual interest payments on a $100,000 home loan; a $400,000 home loan increases by $500.

One major reason why home financing has been so (relatively) cheap lately is because economists forecasted a major recession for 2008.

With each attempt to spur the economy, those odds are reduced and mortgage rates trend up.

On the backs of surging purchase activity across the country and low mortgage rates, home loan applications have risen to a near four-year high.

For people with mortgage applications in process, some patience may be required.

In 2006 and 2007, mortgage volume slowed nationwide. Narrowing mortgage guidelines restricted the number of eligible borrowers and rising mortgage rates made refinancing impractical for many homeowners.

In a push for profitability, lenders eliminated jobs because fewer applications meant fewer people were needed on staff.

So now, with rates edging near their 2004 lows and with strong demand for home purchases nationwide, mortgage lenders are finding themselves short-staffed.

Lenders are understaffed to handle the volume of mortgage applications coming in each day.

As a comparison:

• October 2007: 24 hours to review and approve a home loan
• February 2008: As long as 20 days to review and approve a home loan

Some lenders have gone so far as to eliminate the benchmark 30-day rate lock option, replacing it with a 60-day option instead.

60-day mortgage rates are typically 0.125% higher than comparable 30-day ones.

As a home buyer, home seller, or mortgage refinancer, it’s important to recognize that lenders may not have the capacity to move as quickly as you’d like them to. To help them move more quickly (and possibly save you money), be prepared and be responsive.

30-day closings are still possible, but, given today’s demand for mortgage money, they are increasingly rare.

Mortgage markets are conflicted about the U.S. economy and the confusion is impacting home buyers.

If you’ve recently tried to lock a mortgage rate, you’ve probably experienced it personally.

On one hand, reports of plunging sales suggest that the economy is slowing more quickly than expected.

This is recessionary and tends to be good for mortgage rates. So, some days, rates have been down.

On the other hand, some pundits (including a Federal Reserve official) are saying that recent Fed cuts may stoke inflation in the second half of 2008.

This is inflationary and tends to be bad for mortgage rates. So, some days, rates have been up.

Neither side is wrong — 2008 will likely show signs of both recession and inflation at some point. Markets are waking up to this fact.

And this is why mortgage rates have changed so much from day-to-day — investors can’t agree upon exactly when the Fed rate cuts will work their way through the economy. With each “target date” change, mortgage rates change.

This week, expect more of the same volatility with January’s Retail Sales data being released and five Fed speakers (including Fed Chairman Ben Bernanke) stumping.

The spoken word of the Fed Chief can be a very powerful influence on markets.

If you’ve recently gone under contract for a home, you may find peace of mind by concentrating on a mortgage payment as opposed to a mortgage rate; rates could change multiple times each day and timing a market-bottom can be futile.

A 2004 study showed that 4 out of 5 credit reports contained at least one error.

The errors were of various types with different implications. A quarter of the errors, for example, were of the “serious” nature; errors that could lead to a credit denial because of a false-reporting delinquency or collection.

A much larger source of credit scoring errors, though, was related to misreported personal data.

More than half of the mistakes on credit reports were found to be related to erroneous name spellings, incorrect social security numbers, and/or wrong addresses.

These types of demographical errors can damage credit scores in not-so-obvious ways:

1. The strong credit report of a “Jr.” may mix with the weak credit report of a “Sr.”, or vice versa
2. Credit accounts demonstrating strong payment histories may be omitted
3. Derogatory credit of like-named people can “merge”

To limit demographical errors, a person should apply for new credit using a consistent form of their name, and then use that form on every new application.

John A. Smith, Jr., for example, should always apply for credit using the name “John A. Smith, Jr.”.

Short-cutting an application with “John Smith” can lead to a “mixed” credit report that combines the tradelines of multiple John Smiths. Especially because there is a John Smith, Sr., who likely lived at the same address at one time, and who may have a similar social security number.

Credit agencies do not discern between two similar sets of demographic data very well.

In the four years since the original study, it’s not likely that the 80% error rate has improved, but by limiting demographical errors in our own histories, we can reduce the frequency and severity of the problem.