Lending Questions February 21, 2007
Posted by therealestateguru in real estate, real estate finance.add a comment
1. What is the most you will lend on a non-owner occupied property? What is the minimum amount?
Lending restrictions based on property type (owner occupied, second home, or non owner occupied) depend on the lending institution. Although once you begin looking at the extremes 30,000 or 2,000,000 you begin to pay for it with the rate, meaning, there are hits increasing the rate due to the irregualrity of the loan amount requested. If your credit and income support the loan there is no real limit to the size of the loan amount.
2. What is the most percentage-wise you will lend on owner occupied loans? What is the most for investor loans? We are talking percentage or LTV.
Again this is based on the lender you choose (another reason I recommend using a broker) For owner occupied loans, there are lenders that will go up to 125% of the value of the home. For investment, non owner occupied properties 100%… again if your financial situation supports the financing arrangment.
3. Is that amount (the amount you are willing to lend) based on appraised value or purchase price?
It is always based off the lower figure. If your home appraises for more than the contract price, 100% financing is based on the contract price, if the appraisal comes in lower than the contract price, 100% financing is based off the appraisal. The only way around this is 125% financing.
Suppose I get an even better deal on this house that appraises for $100,000. Instead of paying $80,000, my purchase price is $70,000. Would you lend me $100,000.
Not unless you were willing to take out a loan that was structured as 125% financing (or whatever the percentage works out to 125% being the maximum LTV allowed. Of course if you did take out this loan and new your home was worth an additional 20-40K then despite the loan structure, you would be able to refinance into 100% financing as soon as seasoning requirements have passed, or if you have a lender that does not have seasoning requirements, which I do.
4. Do you lend on the after repair value?
There are specific loans designed to accomplish this, although you will be required to bring in a down payment for the original purchase, between 5% and 15% depending on the purchase price.
5. Do you allow the seller to take back a note
Yes.
So if the seller were willing to take back a 2nd mortgage of 20%, you would give me an 80% 1st mortgage?
Ultimately this is up to the lending institution, a good broker has probably done his research and will know the answer based on your situation and the lender that he or she plans on using, as a general rule of thumb this can be accomplished without any real magic.
6. Do you do piggybacks?
Yes, piggyback is an industry term for the 2nd loan closed concurrently with the 1st. Piggybacks are very common, and easier to obtain than stand alone 2nds…that is to say more lenders offer piggyback 2nds than stand alone 2nds. But both are obtainable.
7. Do you have any creative financing, private investors, or hard money?
Yes. Any good broker will have a number of hard money and private investors ready.
8. Do you have any equity lenders?
Yes. ie: Home Equity Lines of Credit (HELOC)
9. Do you offer any loans for fixing up the property?
Yes. ie: construstion loans, and construction to permanent.
10. Do you have non-conforming loans?(Stated income loans, No ratio loans, No income or asset verification, No Docs)
These income verifying tactics have become an industry standard, but borrowers should understand the less verifiable information you give to the lender the more risk they assume, and you will pay for it with the interest rate charged… I recommend trying to document everything possible, it is well worth the extra work, and can save you literally thousands.
11. Is the loan based on the property itself or do you look at my income?
Loans are provided to qualified borrowers which is based off employment, income, and credit history. There are a number of ways this is done, but these are the most importnant components. The property is merely the collateral you are providing the lender. It is their security that you will pay back the loan, because if you don’t they have the right to sell it accordingly to the loan arrangments.
12. Up to how many units do you lend?
Once you are lending on property that is zoned commercial or has more than four units, typically you are looking at a commercial loan, which is a different beast. Brokers if experienced and established with the right lenders can make commercial loans. We can do commercial loans, but the qualifying process is different.
13. What is the interest rate?
The interest rate depends on program security, credit, and doc type (full doc, stated income, etc…) Ultimately it will dictate your mortgage payment when taken in consideration with your loan amount, and can be thought of as the interest the bank is making off you… a simple calculation is loan amount (200,000) times interest (.06) equals interest paid over the course of a year (12,000).
14. Wjat kind of fees do you charge?
Fees are always negotiable, and depend on the type of financing the borrower needs.
15. Do you allow the seller to pay the closing costs? How much closing costs typically run?
The seller can pay closing costs if it is included in the purchase contract. A common practice is what is known as seller credit. Closing costs depend entirely on the size of the loan amount.
16. Do you allow some type of seller concession, such as a repair or decorating allowance?
The contract is what should address these things, however you should know it is illegal for a buyer to receive cash at closing on a loan that is not structured to do so. So you must be careful when considering these things.
17. How long does it usually take to get an approval? How quickly can you close?
An approval can be accomlished in as little as an hour, but the amount of time it takes to close depends on the working relationship between borrower and lender. If the borrower provides the necessary paperwork in a timely fashion, and the broker expedites his responsibilities, you can close in two weeks.
18. What would you like to see in a loan package?
That it is structured to accomplish my overall financial goals, not just put me into anther home. If the loan has a purpose, and an objective, and it coincides with my overall goals, I am happy.
19. If the seller were to put me on the deed, could I get a refinance loan instead of a purchase loan? Is there any “seasoning?”
No, you would need to prove that you have been paying the current mortgage with cancelled checks, or something of the sort. If you had been paying their mortgage for 12 months, and can prove it, than there is a chance you could get a refinance loan rather than a purchase loan, but there is really no advantage to doing this, in fact if you use a quit claim deed to transfer you onto title and them off title they have granted you no warranties and will be taking on unnecessary liability.
Expectations for the Housing Market in 2007 January 3, 2007
Posted by therealestateguru in investors, real estate, real estate finance.16 comments
Moving into the New Year many people are optimistic that 2007 will prove to be a lucrative year; the question remains, is this just wishful thinking, or are there economic indicators that support such thinking? Of course today will be a day of reckoning as government employees return to work after mourning Gerald Ford yesterday, and many anticipated reports are released, specifically the minutes from the Federal Reserve’s last meeting, its next meeting scheduled the 30th and 31st of this month.
Of course the Fed is not the only indicator that we should be paying attention to. Recently rates have risen, the 30 year fixed hovering at 6.18, and construction spending fell by .2% in November, an number thought to be closer to .5%; despite this, we have not seen an increase in this figure since April. More importantly residential spending has dropped for the eighth consecutive time to the rate seen in two years.
Doom and gloom appears to be the forecast, however, like the glass, you may see these figures as half full rather than half empty. Yes rates are up, but loan applications are up as well, signalling perhaps a turning point that has been long anticipated by insiders waiting for market recovery. Despite numbers being down, we must keep in my these figures represent the conclusion of the year last, a typical down time in the market cycle, and not necessarily indicative to what we should expect in ‘07. With applications up, it is not a hasty conclusion to believe that people are beginning to look at home purchases for the New Year.
Moreover with the bullish stock market, money is being made in different sectors, and may be diversified into longer term investments like real estate after a slight fall and market correction in housing prices. Historically rates are still lower than there counter parts through out the last few decades, and despite recent rate hikes, which were minimal, there are no real indicators that suggest we will see significant hikes causing concern in the market.
With that said, shopping for a new home, is, in my professional opinion, a wise investment; but like any other market those investing should consider and research all the factors, such as population increases in their specific areas as well as median income hikes (links on this blog down the left hand side can assist you in this research). We are not at a point in time where you can simply expect appreciation, however, finding a home that will appreciate is very possible. Finding the right agent, (a point discussed in a previous entry) is one of the most important steps in this process. In addition finding a established lender with references readily available from past clients is as important.
Should anyone have additional questions, or concerns about a particular transaction or regional market, please comment, my many readers along with myself are ready and willing to produce the necessary information you need.
Here’s to a prosperous 2007.
The FUTURE is Hard Money… December 19, 2006
Posted by therealestateguru in investors, real estate, real estate finance.8 comments
It seems everyone these days is interested in hard money. With the secondary market shrinking, foreclosures up 10%, lending restrictions in subprime becoming an industry standard, and the FBI cracking down on illegal and unethical lending practices; more and more borrowers have found salvation in hard money.
Often times the advantages out weigh the disadvantages, namely the short term and high closing costs.
What will follow will break down the general rules of hard money lending so you will have an idea of what to expect if you are in the market, or you can use as a reference if you happen to be in the industry and speak with someone that is in the hard money market and needs more information.
First and foremost hard money is equity driven. I can’t think of one hard money lender that will lend over 80% loan to value (if you happen to know of one please leave a comment for our readers), in fact most cap out at 70%, some 75%. So the first thing you need to do, is take a hard look at how much you owe in relation to how much your home is worth. Add the necessary amount of cash you need to the current loan balance (and any penalties you may be facing), and closing costs for hte new loan, then divide this number into the value of your home and you will have an idea of what your loan to value is.
Keep in mind many hard money lenders do not require a full appraisal to be completed. Instead their particular investors will research your home and come up with a value that they feel comfortable loaning against; a rough fact to live with, but it’s their gold so they make the rules.
As for income and employment history, typically this is not not as important to the investor as you would think. There are many hard money lenders that do not require debt to income ratios to “make sense” in the conventional standard – that is under 50%. Usually they simply require that you document your employment history, and demonstrate you income in the form of W2s or 1099s, but do not consider the final DTI ratio.
In addition, your credit scores are not weighted as heavily as some would think. You can borrow money with a sub-500 credit score from a hard money lender. Ultimately, your credit score, and final loan approval are not dependent on one another. There are however other stipulations that they may have, for instance paying off all existing revolving debt, and having enough loan proceeds left to make payments on your home loans (Principle Interest Taxes and Insurance = PITI) for the next 6 months. Please keep in mind that it is an example, but something to prepare yourself for, especially if you are running numbers like I suggest.
To get started in a hard money loan is very similar to your typical home loan. Most likely you will have to complete a 1003 or Universal Residential Loan Application. Once this application has been completed, it is forwarded over to the investor who will conduct their investigation on the property – typically a two to three day process. Assuming they agree to proceed with the loan they will grant approval conditions pending. Fulfill the conditions and you have your loan. Based on this breakdown, the immediate advantage of hard money is all the red tape you are able to cut through; point in fact, you can receive proceeds from a hard money loan in much less time then your typical refinance.
As for the cost, this is dependent on the lender and investor that is chosen. Typically a lender is going to charge anywhere from 2 to 7 points, depending on the loan. Yes, this is a steep figure when comparing it to other conventional financing methods, but is often times justified based on how quickly they can expedite the process, and the ability to loan money when other people won’t.
For more information please feel free to comment or email peter@approved-online.com. Hope you find this helpful.
The Secrets of Real Estate Investors December 12, 2006
Posted by therealestateguru in investors, real estate, real estate finance.2 comments
As the bond market softens, rates have been following suit placing the prepared investor in an advantageous position. There is no doubt this market is, well, new ground so to speak, but that is not to say there is not money to be made, and investors are beginning to lick their lips.
Don’t believe me… then you probably buy stock when you should be selling and vice versa…
Right now interest rates are as low at a low point in the year, housing prices have fallen, and lenders are rolling out programs that are more secure than their past counterparts providing the informed investor with the know-how to leverage themselves into real estate.
Let’s first look at why many people think now is not the time to invest in real estate, at which time we will shift gears and discuss how investors are turning profit despite these protests.
The most obvious rebuttal is home prices are falling. According to the media the housing market is upside down, construction is down, inventory is up, and there are not many signs that suggest recovery any time soon. If you have read any of my past posts particularly “The Biggest Housing Slump in 40 Years” then you know what I am talking about. I am not contradicting myself here. The market is in a interesting place, and many people are going to recognize a loss on their real estate investment; but that fact has nothing to do with what investors are going to accomplish in the future. Because of increased inventory, finding a justifiable (meaning profitable) opportunity is only a question of locating a regional market that is still moving in the right direction. What is the right direction? Population is rising, there is adequate job security, there is a sound rental population (as in a college town) etc… Once a region has been identified, then it is only a matter of finding a home that is priced right, and due to negative media, most homeowners are only thinking short term, and offloading property that has the potential to be very profitable 3, 5, or 10 years down the road.
Moreover, because many of these homeowners got into the market under 100% financing at the peak of the market with adjustible rates need to refinance. For many reasons this may not be possible (if you fit into this catagory I suggest you talk to a lender sooner rather than later so you can prepare yourself for when the time comes). Whether it is credit, value, etc… this will place the burden of sale on the homeowner placing most of the cards in the hand of the investor.
I know what you are thinking. Short sales and foreclosures. Point in fact, buying short sales and foreclosures is much more difficult than you think. It is not as easy as walking in and offering cash under value. This process is more difficult than many give credit to, and although there is money to be made, and many will, unless you have experience in this market I don’t recommend it… moving on…
The next obvious rebuttal is financing. Rates have risen, various government bodies (namely the FBI) are cracking down on unethical lending practices, and the secondary market (wall street) is tightening, their investing practices leaving warehouse lines backed up. All true, but keep in mind, cracking down on unethical lending practices is a good thing for everyone, and anyone participating in such practice is not helping their client, has ignored their fiduciary responsibility and deserves what is coming to them. As for the secondary market, this is mostly affecting the subprime sector, and will not affect investors that are typically A-paper borrowers – enough said. As for financing. Rates are the lowest they have been year to date, and as we move into the winter months (months typically reserved for buyers), you can be sure that many investors will be taking advantage of the low rates offered. Furthermore, the programs available are more secure. This is due part in fact to the inverted market, meaning, many fixed programs are priced as competitively as adjustible rate mortgages. But that is not the only factor coming into play. Recently fixed option ARMs have sprung up. Banks are starting to offer 40 year fixed with interest only options (in the past it was one or the other) allowing borrowers to lower their payment even further; and there is talk that 50 year programs will have longer fixed terms (typically they are only fixed for 2 years at which time they will be adjust. All this means is there are more options for the saavy investor, allowing them to leverage a postion easier than ever before.
Of course all of this does not mean a lick of difference if the home does not appreciate, and that is the concern most people have in today’s market. For a true investor this is not the primary concern. The primary concern is turning over a positive cashflow on a monthly basis. They view the home as a long term investment, and I challenge you to find a state that has not watched home value appreciate over the last 20 years. 20 years too long, try five years. As long as their is a postiive monthly cashflow on the property and nothing is out of pocket, they understand that they will make money in the long run. Obviously this is a more conservative investment approach rather than the high risk property flipper.
In light of all these facts, it becomes clear how one can make money despite the flattening market. The points made above is the foundation to investing in real estate, and should not be the sole factor guiding someone into a new investment property. There are other considerations to take into account like pyramiding, 1031 exchanges, property management, etc..
If anyone would like more information, or specific advise, I encourage you to comment.
?Housing Forecast! December 8, 2006
Posted by therealestateguru in investors, real estate, real estate finance.3 comments
This article was sent to me by a colleague in the industry, and is something I feel compelled to share with everyone curious about the potential collapse of the real estate market.
Dark economic clouds are gathering ahead. After six years of booming home prices, the great American housing bubble has finally popped, and the market is now on the verge of collapse. Tens of millions of families who bought homes at bubble-inflated prices “now face the prospect of seeing their life savings disappear.” This development will have wide-ranging effects on the American economy. “Over the last few years,” writes Princeton economist and New York Times columnist Paul Krugman, “most good U.S. economic news has been the result of soaring home prices.” With this engine of economic growth now broken down, America faces a potential future of “rapidly falling house prices, rising default and bankruptcy rates,” lost jobs, fewer consumption, even a possible recession. The dark clouds ahead may be a perfect storm hitting the U.S. economy. (Read “The End of the Great American Housing Boom,” a new report by American Progress Senior Economist Christian Weller.)
THE GREAT AMERICAN HOUSING BOOM: Over the past decade, home prices in the U.S. have climbed to never-before-seen heights. Traditionally, home prices tended to rise at the same pace as rental costs (since both reflect the price of a roof over one’s head). In 1975, the home price index was equal to 108 percent of the rent index. By 2000, the ratio of home prices to rents had jumped above 130 percent for the first time. By the beginning of 2006, the ratio of home prices to rents had grown to a whopping 178 percent. Similarly, home prices compared to other prices remained relatively stable until 1999, when the ratio of home prices to other prices surpassed all previous ratios and grew to 208 percent at the beginning of 2006.
U.S. ECONOMY DEPENDENT ON THE BOOM: “The economic recovery since 2001 has been disappointing in many ways,” Krugman writes, “but it wouldn’t have happened at all” without the housing bubble. The boom spurred the economy directly by surging spending on home construction and renovation, which created jobs and poured cash into the economy. It fueled the economy indirectly by making it “easy for consumers to spend freely by borrowing against their rising home equity.” Homeowners have been borrowing “more than $700 billion a year from the equity in their houses,” and economists estimate that “annual consumption is approximately $250 billion (2 percent of GDP) higher than it would be in the absence of the housing bubble.” This spending spree, bolstered as it was by home equity borrowing, had consequences: For the first time since the Great Depression, savings rates have fallen into negative territory. The average American is spending more than he or she earns.
THE BUBBLE HAS POPPED: Nationwide, house prices are down between 4 percent and 5 percent from their levels at the same point in 2005, adjusted for inflation, and “price declines in some of the most over-valued areas, like Washington, DC, and parts of Florida and California, have been considerably sharper.” The glut of unsold homes “is the highest since 1993 and the year-over-year price decline is the biggest since 1990.” The health of the U.S. economy will be determined by the direction of home prices in the next year.
PREDATORY LENDERS AND THEIR ‘NEUTRON BOMB’: Traditionally, mortgages have been low risk lending. That changed during the recent housing bubble, which was in large part driven by high-risk loans given to “subprime” lenders (people who have “troubled credit records or otherwise have difficulty obtaining a mortgage,” disproportionately black and Hispanic Americans). For instance, option adjustable-rate mortgages (ARMs) “have soared in popularity” particularly among subprime borrowers, jumping from as little as 0.5 percent of all mortgages written in 2003 to at least 12.3 percent through early 2006, estimates show. (In some booming coastal housing markets, they represent up to 40 percent or more of loans.) Today, as these subprime loans come up for renewal and are reset to even higher interest rates, delinquencies and foreclosures are rising. “Most of the pain will be born by ordinary people,” according to BusinessWeek. “And it’s already happening. More than a fifth of option ARM loans in 2004 and 2005 are upside down — meaning borrowers’ homes are worth less than their debt. If home prices fall 10 percent, that number would double.” Roughly $2 trillion in option ARMs come due in the next two years, about one-third of the $6 trillion U.S. mortgage market. The option ARM is “like the neutron bomb,” says George McCarthy, a housing economist at New York’s Ford Foundation. “It’s going to kill all the people but leave the houses standing.” Progressives have long warned against marketing these loans to a vulnerable subprime market. “Subprime lenders are fueling their business by aggressively marketing these risky home loans without considering whether families can truly afford them,” according to the Center for Responsible Lending.
WHAT A CRASH MEANS FOR THE ECONOMY: The downturn following the collapse of the housing bubble is “likely to be far more severe than the downturn from the stock bubble,” says Dean Baker, co-director of the Center for Economic and Policy Research. Housing construction and sales directly account for more than 6 percent of GDP, and housing wealth “is far more evenly distributed than stock wealth.” Declines in residential construction and housing related sectors will have a severe impact on the economy, and will be amplified by a decline in consumer spending. “With home prices falling, millions of homeowners will soon lose the ability to borrow against their homes,” which have lost their value. That means less money spent on cars, travel, appliances, and other goods. “The economic picture over the next couple of years is likely to be one of rapidly falling house prices, rising default and bankruptcy rates, which will be associated with job loss and sharply higher unemployment.” The problems don’t end there. “Other critical sectors are not picking up the slack,” Christian Weller writes. With the government mired in deficits, consumers running out of steam, and trade deficits at new record highs, “business investment must carry the economy forward. This will have to lead to job creation domestically, predominantly in the manufacturing sector, to be successful. This has not happened. Manufacturing employment also fell by a whopping 39,000 jobs in October.” Paul Krugman says “the odds are very good — maybe 2 to 1,” that the U.S. will teeter towards a recession in 2007. Renowned Morgan Stanley economist Steven Roach says the economy is “dangerously close to what we call stall speed. The odds of the U.S. economy tipping into recession are about 40 to 45 per cent.” The Swiss Reinsurance Co., “one of the world’s foremost experts on risk,” puts the chance of recession at 35 percent. And Dean Baker predicts “The Housing Crash Recession of 2007.”
Projected Regional Numbers… November 30, 2006
Posted by therealestateguru in real estate, real estate finance.1 comment so far
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These statistics were pulled off CNN money earlier today… Keep in mind these numbers are forecasted so there is obviously some questionability to whether or not home value will follow this trend. Typically I am reluctant to publish this type of news on my blog because the justification for the drop does not warrant such a percentages quoted, however the reasoning backing these numbers is something I consider credible. If you are considering buying in this area, it would be wise to wait 6 months, you’ll save a substantial amount of money. If you already own a home in one of these areas, you need accept that it is a long term investment that may fall in value before it rises to its full potential. This may mean you need to refinance if you are holding a short term vehicle. The issue with many of these programs is prepayment penalties. I know what you are thinking it is not worth it. Well keep in mind often times prepayment penalties are tax deductible because it is actually prepaid interest, a fact that lenders are reluctant to publicize, so the actual cost (after taxes) if you do have a penalty might be less than you expect.
In addition the 10 year bond market has fallen significantly (an economic indicator for the finance market) and rates have followed suit. 30 year fixed are again under 6.000% (assuming you have the credit and equity to support it) is it is not all bad news. If you are in a program that is going to adjust within the next five years I would definitely speak with a professional and re-evaluate your current program. After your conversation you may decide not to do anything, but having the conversation and exploring your options in your particular regional market is simply managing your investment, a smart move all things considered.
If you have decided to sell your home, you might want to think about reducing the price straight out of the gate, to come in lower than other homes on the market. This tactic could mean a faster sale, and an overall profit, if you do list it high and are forced into price reduction over a 4, 6, 8, or 12 month listing (the average listing is on the market right now for 8.3 months).
Please comment, or email me directly if you would like to discuss your situation confidentially: peter@approved-online.com.
To check the forecast for your particular region click on the link below and scroll to the bottom of the page: http://money.cnn.com/2006/11/20/real_estate/summer_house_prices_cool/
Advantages and Disadvantages of 100% Financing November 29, 2006
Posted by therealestateguru in real estate, real estate finance.2 comments
So you are thinking about buying a home, and are exploring your options. The old school philosophy is 20% down, but is putting your hard earned money down the best option for you? Do you have money to put down? 5%, 10% 15% or 20% are the most common down payments without question, but is this the best way to spend your money?
That is what this entry is about. Of course this issue is not black an white – every situation is different, therefore I suggest you use this discussion as a guide for your personal situation, and if you have questions you can either comment for a board range of opinions and suggestions, or email me and I will provide you with my professional opinion confidentially: peter@approved-online.com.
The obvious first step is deciding whether or not you have money for a down payment. For those without any real savings this is an easy conclusion. For other that have savings that they can put toward a down payment but will virutally tap you, this is a serious question that needs to be given some thought. Then there are those of you that have enough savings to allow you to make a down payment without wiping out your entire savings.
100% financing can be accomplished in all of these situations, but the advantages and disadvantages are a little bit different based on the above situations. The most obvoius advantage of 100% financing is you are not using any of your own money to buy your own home. Leveraging someone else’s cash even if it is an institution’s is one of the best kept investor secrets. Donald Trump has gotten to where he due to his ability to find financing for major projects. Using some else’s money allows you to use your money in other ways while benefiting from the appreciating investment you are still apart of despite your not contributing initial capital. If you put zero money down and the property appreciates 20,000 dollars; that’s an incalcuable/exponential return on investment (ROI) where if you had invested 30,000 initially and made 20,000 your ROI would be 67%. Of course 67% is not bad, but if you had financed the full loan and had put your 30,000 in a Mutual Fund that had a 15% ROI. Not only would you have 20,000 from the appreciation of your home, you’d have an additional 4,500 profit from investing that 30,000 in another investment – point in fact you have diversified.
Now for the majoy disadvantage, if you’re home doesn’t appreciate, there are only two other options, it retains its value and you sell it for what you bought it at, or it depreciates, and you owe more than it is worth. Despite this disadvantage, the potential for depreciation (home value holding is not really as large of a concern) is something that any homeowner faces. Had you put a down payment down, you just lost that money (or a part of it) and can no longer look to alternative investments. If you used 100% financing, yes you owe more than it is worth, but if you plan on sticking around for a while, you still have money you would have used as a down payment to make money in an alternative investment, stocks, bonds, money markets… you get the point.
Which brings us to the next point. How long do you plan on staying in the home and how is the local housing market? These are very important questions. Real estate is a long term investment. Yes we have all heard of house flipping and pyramiding (I’ll write about that at a later date if you haven’t so don’t forget to subscribe to my blog) and the fortunes people have made. But just like day trading they can lose it just as quickly… anyone else hear about the day trader who recently lost 5 billion in a single week? Well flipping real estate is like investing in penny stocks – they can go up quickly and down just as fast. Of course it is for different reasons – many equity is not liquid and it takes time to sell a home, so if you are spread to thin and are unable to sell you start reducing prices and a slippery slope follows. I make this point because real estate is a long term investment. If you are planning on staying in your home for a long period of time, then 100% financing makes more sense than if you plan on moving in 6 months. Of course this conculsion is based on todays flat market. Two years ago I would be singing a different tune. If you happen to be in an area (real estate markets are obviously regional) that is booming than you may take a hard look at 100% financing so you can flip, but I’d make sure that look is a HARD look… 100% financing is risky right now if you are thinking short term because if values fall and you wnat to move and don’t have the capital to pay off the loan that is now for more than your home is worth, things can get ugly. Generally speaking of course, real estate will appreciate which is why 100% financing is much safer for this type of borrower.
Probably the only real disadvantage 100% financing has is its effect on a borrower’s cashflow. You will pay more for this type of loan, moreover you will probably have a second that is at a higher rate than you are willing to consider. My advice is consider it, because it isn’t the rate on the second that is going to run you under. It is the blended rate – the combining of the 1st and 2nd – that matters. To find your blended rate. multiple your first rate by 80% and your second rate by 20% and add those two numbers together (formula for your typical 80/20 loan), that is your blended rate. NOw for the good news these rates are tax deducible so you have a larger write off than you would with a single loan (obviously you should discuss this with your tax preparer), so if you can afford the payments and are not stretched to thin, then you still may want to consider it.
Finally we come to programs…. This is where the qualified buyer (assets) has the advantage over the under qualified buyer (no assets). If you are in a position to put money down, you will most likely be able to get a longer fixed term on your first then you would if you cannot put any money down. Remember these loans are great as long term vehicles. Getting into a loan that you are going to need to refinance in a couple of years because of an adjusting rate is basically like selling your home, you are going to need to get an appraisal done which means if value has shifted against you, that rate will probably go up, and you will be paying significantly more than you ever thought it would cost you. This is why we are starting to see more and more foreclosures, so if you don’t think it will happen to you, I hope you are right, and consider yourself warned.
These are the nuts and bolts. I could go on, but this will give you enough to get started, and allow you to consider the options in front of you. Ultimatley you should talk with a professional that understands your future goals and is willing to go over the specifics on your situation. This is an important step that should not be overlooked. If you find youself working with someone that is taking the hard line and telling you what you should be doing without listening to your position, than take a step back and find someone that is not going to pressure you, and above all things, make sure you are comfortable and understand the program, if you are not, no matter what the benefits are, you are going to be living in a constant state of fear and will never be happy. Get all the facts, know how the program works and you are comforrtable with it. Only when these things fall into place will you have a finance program in sync with your overall financial goals.
Foreclosure Tips… November 22, 2006
Posted by therealestateguru in real estate, real estate finance.1 comment so far
If you are in foreclosure or about receive a notice of default (NOD) you should understand that the bank does not want to foreclose and take your home. As far as they are concerned, owning real estate is a liability that they do not wnat on their books. They become responsible for any other liens on title, paying taxes, maintaining the property, etc… which is why they hold auctions and often times sell the property at a loss. Once you understand and accept this it becomes obvious you are in a better position to negotiate then you might originally think.
The most common cause of foreclosure is failure to make payments. This can be for a number of reasons, which may or may not have a baring on your negotiations with the bank. Our point of conversation is the negotiations, not the events that have lead up to the foreclosure.
Here are some of the options you can get your lender to accept. When discussing your situation bring these to their attention and you may be able to strike a deal that will allow you to save your home. Before I continue, please understand that despite these options, most will affect your credit negatively, so refinancing may still be the course of action you decide to take. This will pull your home out of foreclosure the fastest and will settle the account quickly thereby improving your scores immediately.
If however, refinancing is not an option consider these:
Forbearance or Moratoriums – these partial or full payment waivers can provide you the necessary time to recover from whatever crises has caused the foreclosure. Keep in mind though, you will at some point in time need to make up the difference in payment which will cause extra money to be added to your regular payments once they resume.
Another option is a balloon payment for all the money accrued during the moratorium to be paid at the loan’s scheduled expiration date. This option will allow your current payments to continue without causing a burden of increased payment, but you will owe a significant amount of money at the end of the loan which will require you to save funds for this date, or sell your home for a higher price so you can afford to pay off the balloon amount.
Recasting… you can have the company recast the loan to lower the payments and stretch out the time period in which you must pay the full amount. This option however typically requires them to run a new title search to make sure their liem position is still secure. If you have other liens that could jeopardize their priority this option will not be available unless those liens are satisfied in full guaranteeing their first lien position.
If your situation is beyond negotiating, you may want to consider voluntary conveyance. Voluntary conveyance means you sign the property over to the bank without it going into foreclosure. Yes you lose your home, but you will save your credit, and move on with your life.
For more information, or you would like to discuss a particular situation feel free to comment.
peter@approved-online.com
Title Report Horror Story (True Story) November 21, 2006
Posted by therealestateguru in real estate, real estate finance.2 comments
Everyone who has ever bought a house will enjoy this.
A New Orleans lawyer sought an FHA loan for a client who lost his house in
Hurricane Katrina and wanted to rebuild.. He was told the loan would be
granted if he could prove satisfactory title to the parcel of property being
offered as collateral. The title to the property dated back to 1803, which
took the lawyer three months to track down.
After sending the information to the FHA, he received the following reply:
(Actual letter):
“Upon review of your letter adjoining your client’s loan application, we
note that the request is supported by an Abstract of Title. While
we compliment the able manner in which you have prepared and presented
the application, we must point out that you have only cleared title to the
proposed collateral property back to 1803. Before final approval can be
accorded, it will be necessary to clear the title back to its origin.”
Annoyed, the lawyer responded as follows: (Actual Letter):
“Your letter regarding title in Case No. 189156 has been received. I
note that you wish to have title extended further than the 194 years covered
by the present application. I was unaware that any educated person in this
country, particularly those working in the property area, would not know
that Louisiana was purchased by the U.S. from France in 1803, the year of
origin identified in our application.
For the edification of uninformed FHA bureaucrats, the title to the land
prior to U.S. ownership was obtained from France, which had acquired it by
Right of Conquest from Spain. The land came into the possession of Spain by
Right of Discovery made in the year 1492 by a sea captain named Christopher
Columbus, who had been granted the privilege of seeking a new route to India
by the Spanish monarch, Isabella.
The good queen, Isabella, being a pious woman and almost as careful
about titles as the FHA, took the precaution of securing the blessing of the
Pope before she sold her jewels to finance Columbus’ expedition.
Now the Pope, as I sure you may know, is the emissary of Jesus Christ,
the Son of God, and God who created this world. Therefore, I believe it is
safe to assume that God also made that part of the world called Louisiana.
God, therefore, would be the owner of origin and His origins date back
to before the beginning of time, the world as we know it AND the FHA.
I hope you find God’s original claim to be satisfactory. Now, may we
have our damn loan?”
He got the loan.
For Sale By Owners – Beware of what you are losing… November 21, 2006
Posted by therealestateguru in real estate, real estate finance.5 comments
You are not hiring a Realtor to put a sign on the lawn, an ad in the paper, and hold an open house. You can do this yourself. You are hiring a Realtor to provide you with maximum exposure to the greatest number of qualified buyers for your home.
Supply and Demand
You’ve heard of supply and demand? The more potential buyers at your supply, the higher a price you can demand.
The absolute number one tip I can give you to help you get the most money possible for your home is this: make sure you get full Multiple Listing Service (MLS) coverage.
Don’t look at any offers until you are sure your home is on the MLS computer.
I will say this again…
Don’t look at any offers until you are sure your home is on the MLS computer. An army of Realtors at your disposal can’t be beat.
Dump any Realtor that tries to tell you to put your house on exclusive (only his/her company) or wants you to negotiate offers before it gets on MLS.
Dump any Realtor that wants to list your house on a Friday and have a public open house the following Sunday. There is not enough time to get your home on the system.
I do not care how good a Realtors marketing plan is, it is worthless compared to the value of having your home on the MLS system. Think of it this way. Realtor = home on MLS = most Realtors = most buyers = most money.
Is the first offer the best offer?
There is a saying in real estate. The first offer is usually the best one. This is only true, if everyone knows it’s for sale.
Real estate surveys in my area showed the owner lost an average of $2000. when their house was sold by the same office or Realtor that listed their home. The reason…the offer was written before any one else knew it was for sale.
MLS Comes First
Ask any realtor you are contemplating dealing with, what the order of their marketing plan is. If submitting to the Multiple Listing Service is not the first thing they are going to do, look for another realtor.
If you took away every selling tool I had, and said I could only have one of them back, I would choose the MLS service. This is not a commercial for MLS. It is just the best weapon Realtors and the public have for getting maximum exposure on property..
MLS is a strong selling tool,…use it… It will make a difference on your bottom line.
Success… November 16, 2006
Posted by therealestateguru in real estate, real estate finance.2 comments
The Common Denominator of Success
By Albert E.N. Gray“The common denominator of success — the secret of success of every man who has ever been successful — lies in the fact that he formed the habit of doing things that failures don’t like to do.”THE COMMON DENOMINATOR OF SUCCESS is as timely and inspirational, as it was when it was first delivered in 1940. Though it was written for life insurance professionals, it’s message is equally well suited to anyone in the sales profession, or anyone in any field of endeavor who seeks success in their professional, personal or spiritual lives. —This inspiring message by Mr. Gray is one of the most timeless pieces of life insurance literature. It first appeared as a major address at the 1940 NALU (National Association of Life Underwriters) annual convention in Philadelphia and has been available to association members in pamphlet form ever since. Although our author has passed away, his words of wisdom and moving philosophy — so manifest in “The Common Denominator of Success” — are part of the current life insurance scene and have real meaning for today’s professional life underwriter. Mr. Gray was an official of the Prudential Insurance Company of
America and had 30 years of continuous experience both as an agent in the field and as a promoter and instructor in sales development. He was known throughout the country as a writer and speaker on life insurance subjects. —Several years ago I was brought face to face with the very disturbing realization that I was trying to supervise and direct the efforts of a large number of men who were trying to achieve success, without knowing myself what the secret of success really was. And that, naturally, brought me face to face with the further realization that regardless of what other knowledge I might have brought to my job, I was definitely lacking in the most important knowledge of all. Of course, like most of us, I had been brought up on the popular belief that the secret of success is hard work, but I had seen so many men work hard without succeeding and so many men succeed without working hard that I had become convinced that hard work was not the real secret even though in most cases it might be one of the requirements. And so I set out on a voyage of discovery which carried me through biographies and autobiographies and all sorts of dissertations on success and the lives of successful men until I finally reached a point at which I realized that the secret I was trying to discover lay not only in what men did, but also in what made them do it.I realized further that the secret for which I was searching must not only apply to every definition of success, but since it must apply to everyone to whom it was offered, it must also apply to everyone who had ever been successful. In short, I was looking for the common denominator of success. And because that is exactly what I was looking for, that is exactly what I found. But this common denominator of success is so big, so powerful, and so vitally important to your future and mine that I’m not going to make a speech about it. I’m just going to “lay it on the line” in words of one syllable, so simple that everyone can understand them.The common denominator of success — the secret of success of every man who has ever been successful — lies in the fact that he formed the habit of doing things that failures don’t like to do. It’s just as true as it sounds and it’s just as simple as it seems. You can hold it up to the light, you can put it to the acid test, and you can kick it around until it’s worn out, but when you are all through with it, it will still be the common denominator of success, whether you like it or not.It will still explain why men have come into this business of ours with every apparent qualification for success and given us our most disappointing failures, while others have come in and achieved outstanding success in spite of many obvious and discouraging handicaps. And since it will also explain your future, it would seem to be a mighty good idea for you to use it in determining just what sort of a future you are going to have. In other words, let’s take this big, all-embracing secret and boil it down to fit the individual you.If the secret of success lies in forming the habit of doing things that failures don’t like to do, let’s start the boiling-down process by determining what are the things that failures don’t like to do. The things that failures don’t like to do are the very things that you and I and other human beings, including successful men, naturally don’t like to do. In other words, we’ve got to realize right from the start that success is something which is achieved by the minority of men, and is therefore unnatural and not to be achieved by following our natural likes and dislikes nor by being guided by our natural preferences and prejudices.The things that failures don’t like to do, in general, are too obvious for us to discuss them here, and so, since our success is to be achieved in the sale of life insurance, let us move on to a discussion of the things that we as life insurance men don’t like to do. Here, too, the things we don’t like to do are too many to permit specific discussion, but I think they can all be disposed of by saying that they all emanate from one basic dislike peculiar to our type of selling. We don’t like to call on people who don’t want to see us and talk to them about something they don’t want to talk about. Any reluctance to follow a definite prospecting program, to use prepared sales talks, to organize time and to organize effort are all caused by this one basic dislike. Perhaps you have wondered what is behind this peculiar lack of welcome on the part of our prospective buyers. Isn’t it due to the fact that our prospects are human too? And isn’t it true that the average human being is not big enough to buy life insurance of his own accord and is therefore prone to escape our efforts to make him bigger or persuade him to do something he doesn’t want to do by striking at the most important weakness we possess: namely, our desire to be appreciated? Perhaps you have been discouraged by a feeling that you were born subject to certain dislikes peculiar to you, with which the successful men in our business are not afflicted. Perhaps you have wondered why it is that our biggest producers seem to like to do the things that you don’t like to do. They don’t! And I think this is the most encouraging statement I have ever offered to a group of life insurance salesmen. But if they don’t like to do these things, then why do they do them? Because by doing the things they don’t like to do, they can accomplish the things they want to accomplish. Successful men are influenced by the desire for pleasing results. Failures are influenced by the desire for pleasing methods and are inclined to be satisfied with such results as can be obtained by doing things they like to do. Why are successful men able to do things they don’t like to do while failures are not? Because successful men have a purpose strong enough to make them form the habit of doing things they don’t like to do in order to accomplish the purpose they want to accomplish. Sometimes even our best producers get into a slump. When a man goes into a slump, it simply means that he has reached a point at which, for the time being, the things he doesn’t like to do have become more important than his reasons for doing them. And may I pause to suggest to you managers and general agents that when one of your good producers goes into a slump, the less you talk about his production and the more you talk about his purpose, the sooner you will pull him out of his slump? Many men with whom I have discussed this common denominator of success have said at this point, “But I have a family to support and I have to have a living for my family and myself. Isn’t that enough of a purpose?”No, it isn’t. It isn’t a sufficiently strong purpose to make you form the habit of doing the things you don’t like to do for the very simple reasons that it is easier to adjust ourselves to the hardships of a poor living than it is to adjust ourselves to the hardships of making a better one. If you doubt me, just think of all the things you are willing to go without in order to avoid doing the things you don’t like to do. All of which seems to prove that the strength which holds you to your purpose is not your own strength but the strength of the purpose itself. Now let’s see why habit belongs so importantly in this common denominator of success. Men are creatures of habit just as machines are creatures of momentum, for habit is nothing more or less than momentum translated from the concrete into the abstract. Can you picture the problem that would face our mechanical engineers if there were no such thing as momentum? Speed would be impossible because the highest speed at which any vehicle could be moved would be the first speed at which it could be broken away from a standstill. Elevators could not be made to rise, airplanes could not be made to fly, and the entire world of mechanics would find itself in a total state of helplessness. Then who are you and I to think that we can do with our own human nature what the finest engineers in the world could not do with the finest machinery that was ever built? Every single qualification for success is acquired through habit. Men form habits and habits form futures. If you do not deliberately form good habits, then unconsciously you will form bad ones. You are the kind of man you are because you have formed the habit of being that kind of man, and the only way you can change is through habit.
The success habits in life insurance selling are divided into four main groups:
1. Prospecting habits 2. Calling habits 3. Selling habits 4. Working habitsLet’s discuss these habit groups in their order. Any successful life insurance salesman will tell you that it is easier to sell life insurance to people who don’t want it than it is to find people who do want it, but if you have not deliberately formed the habit of prospecting for needs, regardless of wants, then unconsciously you have formed the habit of limiting your prospecting to people who want life insurance and therein lies the one and only real reason for lack of prospects. As to calling habits, unless you have deliberately formed the habit of calling on people who are able to buy but unwilling to listen, then unconsciously you have formed the habit of calling on people who are willing to listen but unable to buy. As to selling habits, unless you have deliberately formed the habit of calling on prospects determined to make them see their reasons for buying life insurance, then unconsciously you have formed the habit of calling on prospects in a state of mind in which you are willing to let them make you see their reasons for not buying it. As to working habits, if you will take care of the other three groups, the working habits will generally take care of themselves because under working habits are included study and preparation, organization of time and efforts, records, analyses, etc. Certainly you’re not going to take the trouble to learn interest-arousing approaches and sales talks unless you’re going to use them. You’re not going to plan your day’s work when you know in your heart that you’re not going to carry out your plans. And you’re certainly not going to keep an honest record of things you haven’t done or of results you haven’t achieved. So let’s not worry so much about the fourth group of success habits, for if you are taking care of the first three groups, most of the working habits will take care of themselves and you’ll be able to afford a secretary to take care of the rest of them for you. But before you decide to adopt these success habits, let me warn you of the importance of habit to your decision. I have attended many sales meetings and sales congresses during the past ten years and have often wondered why, in spite of the fact that there is so much good in them, so many men seem to get so little lasting good out of them. Perhaps you have attended sales meetings in the past and have left determined to do the things that would make you successful or more successful only to find your decision or determination waning at just the time when it should be put into effect or practice. Here’s the answer. Any resolution or decision you make is simply a promise to yourself, which isn’t worth a tinker’s dam unless you have formed the habit of making it and keeping it. And you won’t form the habit of making it and keeping it unless right at the start you link it with a definite purpose that can be accomplished by keeping it. In other words, any resolution or decision you make today has to be made again tomorrow, and the next day, and the next, and the next, and so on. And it not only has to be made each day, but it has to be kept each day, for if you miss one day in the making or keeping of it, you’ve got to go back and begin all over again. But if you continue the process of making it each morning and keeping it each day, you will finally wake up some morning a different man in a different world, and you will wonder what has happened to you and the world you used to live in. Here’s what has happened. Your resolution or decision has become a habit and you don’t have to make it on this particular morning. And the reason for your seeming like a different man living in a different world lies in the fact that for the first time in your life, you have become master of yourself and master of your likes and dislikes by surrendering to your purpose in life. That is why behind every success there must be a purpose and that is what makes purpose so important to your future. For in the last analysis, your future is not going to depend on economic conditions or outside influences of circumstances over which you have no control. Your future is going to depend on your purpose in life. So let’s talk about purpose. First of all, your purpose must be practical and not visionary. Some time ago, I talked with a man who thought he had a purpose which was more important to him than income. He was interested in the sufferings of his fellow man, and he wanted to be placed in a position to alleviate that suffering. But when he analyzed his real feeling, we discovered, and he admitted it, that what he really wanted was a real nice job dispensing charity with other people’s money and being well paid for it, along with the appreciation and feeling of importance that would naturally go with such a job. But in making your purpose practical, be careful not to make it logical. Make it a purpose of the sentimental or emotional type. Remember needs are logical while wants and desires are sentimental and emotional. Your needs will push you just so far, but when your needs are satisfied, they will stop pushing you. If, however, your purpose is in terms of wants and desires, then your wants and desires will keep pushing you long after your needs are satisfied and until your wants and desires are fulfilled.Recently I was talking with a young man who long ago discovered the common denominator of success without identifying his discovery. He had a definite purpose in life and it was definitely a sentimental or emotional purpose. He wanted his boy to go through college without having to work his way through as he had done. He wanted to avoid for his little girl the hardships which his own sister had had to face in her childhood. And he wanted his wife and the mother of his children to enjoy the luxuries and comforts, and even necessities, which had been denied his own mother. And he was willing to form the habit of doing things he didn’t like to do in order to accomplish this purpose. Not to discourage him, but rather to have him encourage me, I said to him, “Aren’t you going a little too far with this thing? There’s no logical reason why your son shouldn’t be willing and able to work his way through college just as his father did. Of course he’ll miss many of the things that you missed in your college life and he’ll probably have heartaches and disappointments. But if he’s any good, he’ll come through in the end just as you did. And there’s no logical reason why you should slave in order that your daughter may have things which your own sister wasn’t able to have, or in order that your wife can enjoy comforts and luxuries that she wasn’t used to before she married you.” He looked at me with rather a pitying look and said, “But Mr. Gray, there’s no inspiration in logic. There’s no courage in logic. There’s not even happiness in logic. There’s only satisfaction. The only place logic has in my life is in the realization that the more I am willing to do for my wife and children, the more I shall be able to do for myself.” Imagine, after hearing that story, you won’t have to be told how to find your purpose or how to identify it or how to surrender to it. If it’s a big purpose, you will be big in its accomplishment. If it’s an unselfish purpose, you will be unselfish in accomplishing it. And if it’s an honest purpose, you will be honest and honorable in the accomplishment of it. But as long as you live, don’t ever forget that while you may succeed beyond your fondest hopes and your greatest expectations, you will never succeed beyond the purpose to which you are willing to surrender. Furthermore, your surrender will not be complete until you have formed the habit of doing the things that failures don’t like to do.
Advantages of a Buyers Market November 16, 2006
Posted by therealestateguru in real estate, real estate finance.add a comment
People across the board are complaining about real estate, and I can’t for the life of me understand why. Yes it is a buyer’s market, which means current home owners are not realizing the appreciation that they enjoyed over the last couple of years, but that doesn’t mean there are not significant opportunities to make money. The incentives offered to people right now are amazing, and rates are still historically very low.
Let’s take a look at what the saavy investor is able to accomplish right now.
More inventory means more options…
Purchasing short sales…
Recognizing incentives offered on new construction…
Having sellers take care of all closing costs…
Ability to negotiate lower sales price…
Purchasing with 100% financing and having an equity position…
Are only some of the different opportunites available. In a market like this, buyers do have the avantage, but like any negotiation, you have to not only believe you have to recognize it, and act. This means finding a buyer’s agent that is willing to do a little more work than usual, and falling in love with the first home you look at is not the recommended formula. Having multiple homes you are interested in, and making that clear to the seller makes the point that you are not committed their property only considering it.
If they are in a position that requires them to sell, they may be more inclined to accept a lower offer if they are under the impression you are going to stick around and play games.
If you are serious about buying right now, you need to go over more than just what type of house you are looking for with your listing agent. In fact, let’s digress, unless you are an experienced investor that has bought on your own before, you need to find yourself a qualified buyer’s agent that has a track record for success. Do not simply call listings. If you do, you will probably find yourself in a dual agency, that is, an agent working for both the buyer and seller. Now ask yourself, how can she have your best interests at heart if she has the seller’s best interest at heart too.
Find yourself a buyers agent! Then discuss what your goals are which include not only the type of home you are looking for, but what you want the investment to accomplish for you. If you plan on flipping this property in a short period of time, then the buyer’s agent needs to know this and you should focus on short sales. If you plan on living in the home for an extended period of time, buying new home that was just built may be the play from you so you can take care of free up grades llike marble counter tops, no HOA fees, or stainless steel appliances. These incentives to buy difference between builders, but it is something you should look into.
The point is this market has much more to offer home buyers than the market did two or three years ago. If you know what you are looking for, and you have a professional working with you, then you are in an excellent position to realize a significant return on your investment.
As for terms and financing, which a lot of people are concerned about, the thirty year fixed just dropped to its lowest point in the last year and a half. Rates are stable, and opportunities are there… just like the stock market buy low, sell high.
peter@approved-online.com
Option ARMs – Are They an Endangered Species? November 13, 2006
Posted by therealestateguru in real estate, real estate finance.3 comments
Many people have found homeownership possible with option ARMs… a program that allows you to choose your payment between four options. The problem is proper disclosure, and inaccurate bean counting – what follows I pulled off National Mortgage News Online…
On Tuesday the American people spoke and the message was this: the payment-option ARM is an endangered species. Follow the logic of one of my Republican friends: Republicans are out in the cold which means those liberal, lawyer-loving Democrats are in charge and that means class-action attorneys are going to have a field day suing the pants off payment-option ARM lenders. They will sue over less-than-accurate disclosures on these exotic loans. Is this just more fear-mongering from the GOP? Who knows? But one thing is clear: POA borrowers are starting to refi like crazy…
Meanwhile, read Brian Collins’ story in Monday’s National Mortgage News. Brian reports that, yep, class-action lawyers are ready to pounce on the POAs. “This is going to be an absolute nightmare for the industry,” attorney Andrew Sandler told a Consumer Bankers Association conference last week.
Needless to say, the mere possibility of litigation is enough for lenders to abandon these programs and stick with the more traditional. The question that remains, is what is that going to do to the purchase sector, and refinance sector – especially here in California – where homeowners, prospected included, need this type of vehicle to afford their home. Tell me what you think.
Build Equity in your Home Faster… November 8, 2006
Posted by therealestateguru in real estate, real estate finance.1 comment so far
There is a new program out that has been recieving quite a bit of talk lately that addresses a problem (if you classify it that way) that many homeowners are beginning to complain about – their equity position.
There is no question most people over the last few years took advantage of 100% financing to get into their new home, a smart play in the eyes of this consultant because it allows you to take what you would have used as a down payment and let that money work for you in others ways (stocks, bonds, etc…); but as the market settles, and homeowners are not seeing the 21% appreciation they saw in 2005 (sorry – couldn’t last forever), they are starting to panic.
This new program is structured to releave that stress without changing your daily lifestyle… let me explain. Ultimately you refinance your mortgage into this new program that sets up an account backed by your home. Let’s say your mortgage payment is 3000. You make 6000 per month, and are pretty good at staying the black by about 1500 a month. What you do is deposit your paychecks into this account. Your mortgage payment is automatically deducted every month, in addition the left over 1500 is applied to your principle balance. Over the year if you continue this pattern, you will reduce your principle by an additional 18,000. You accomplish this by not changing your spending patterns and living the same life you did with the same spending patterns.
I know what you are thinking, what if I need that 1500 or 5000 that I would typically take out of my bank account in an emergency? Well this account also functions like an equity line of credit allowing you to withdraw that money should you need it.
With that said, this program is not for everyone. This program is for the disciplined money saver that finds themself with additional cash at the end of each month. I make this point because it is too risky for someone just making ends meet. Rather than improving your equity position you could find yourself deeper in the hole, and would defeat the whole purpose.
With that said if you can document your income and demonstrate assets, then you may want to consider this as an option should your home equity be a real concern.
Keep in mind this is a relatively new program, and the vote is still out… if you have information, are participating in this program, or have questions, I encourage comments.
peter@approved-online.com
Secrets on Shopping Real Estate Lenders November 3, 2006
Posted by therealestateguru in real estate, real estate finance.add a comment
So you are in the market to buy a new home or refinance your existing house. You know you are a qualified borrower. What you don’t know is how to choose a lender. If this is your situation, you aren’t alone. About 60% of the population is in your situation, and there are steps you can take to make sure you do not end up working with someone that is unethical or inexperienced.
To begin with, you should understand the difference between a broker and a bank or mortgage company (keep in mind, this is a simple breakdown). A bank or mortgage company is limited by the programs, pricing, and guidelines that their underwriting department, and investors will accept. This means, unless you fit into their niche program, there is an excellent chance that another bank or mortgage company will have a better program or rate. Unfortunately finding and comparing individual bank or mortgage companies can be time consuming and taxing. In addition if each is requiring you to run a credit report, your scores could begin to fall. Typically shopping banks is a difficult process, because you are dealing with a large number of sales people. If this is the tactic you choose, make sure they are comparing the same programs with one another so you can gage the offers accordingly. You should alos know that simply because you choose to shop banks, it does not mean that they are going to be servicing your loan, something that a lot of people expect when they decide to do this, so if this is one of your goals make sure you ask.
A broker operates differently. They get approved with different banks and are licensed to take loans to the various banks they are approved with. Ultimately they shop the loan for you. The benefit is, they know which banks offer the best programs and prices depending on your specific niche. In addition an established broker will be approved with banks that are “wholesale” and do not allow the general public to apply for loans. Because these banks do not have the overhead that your typical full service corner bank does, their terms are more agreeable aving you money in the long run. A broker can be approved with as many banks and lending institutions has he or she stays in good standing with which means a good broker will be able to take your loan scenario to 40, 80, 200 different lenders. Obviously they will probably not need to because your situation will eliminate the banks that they know are not competitive, but it is an option that they have, and with email it is very easy for them to blast a scenario out to 30 different banks and allow them to compete over rate and terms. Since a good broker will check your credit to know what you qualify for, he will simply provide the relavent numbers to the different institutions, so they can provide a quote without jeopardizing your credit score. For this reason 65% of the population find their home financing needs through a broker rather than a bank or mortgage company.
So, you have decided on how you want to shop for a loan. If you do it yourself then not only do you have to evaluate the bank you are choosing but the knowledge and credibility of the loan officer that is assisting you. If you choose a broker, finding the right one is the same problem. Here are the questions you want to ask when talking with them. Also keep in mind you do not have to shoot these off one after another, mix them into the conversation, catch them off guard, and you will have a better chance of an honest answer, and if they do try to lie, you’ll be able to catch it more easily.
How long have you been doing this? (longer is not always better, but is a good indicator)
What did you do before? (looking for relevant education, or similar past employment)
Do you have letters of reference I can see? (they should – available for you to see)
What type of lending do you focus on? (every good loan consultant has a niche)
Are you a licensed real estate associate or broker? (not everyone is, and not everyone is required to be, but it’s a good idea to work with someone who is)
How do you get paid? (closing commission is not necessarily a bad answer)
How much do you plan on making in each transaction? (one point is reasonable, perhaps two for a very difficult situation, any more is abusive)
How much are you charging me? (they should not hesitate) Following this question up immediately with…
Are you charging me on the front or the back? (this question will ground them, and make them think you know more than you probably do)
Assuming their answers meet your requirements, then you have done all the shopping you need. Do not get duped into looking at other programs that someone else is trying to sell you. The qualifying questions above, will provide you with the answers needed to make sure that you are working with a professional, and once you have found one stick with him.
In addition there are some sayings that are flags you should watch out for. First off… someone that says “no problem” is not being honest, there are always problems that come up. A professional knows this and will prepare you for such times. With that said they also know how to handle them, someone that lives on the two words “no problem” is probably going to ignore the problems that do come up, and keep them from you which means you are not going to be able to help solve them. Similar sayings can produce similar flags, so just be careful, by salesman with catchy lines. They use them to razzle dazzle, and will not help you get the best program. If you have particular questions I would be happy to answer them.
