Real Estate Financing...

***First Off, let me preface this by making something perfectly clear.  No matter what program or product you are getting into to buy a home, I highly recommend making sure you have money (reserves) in the bank after your loan closes.  Call it 'rainy day' money or whatever you want, you don't want to be financially strapped if something goes wrong.  Ownership has its privileges and responsibilities.***

That being said, there are only two ways I know of to get into a home with no money out of your pocket these days.  One is a VA loan, a loan for those who served in our military and who qualify.  They are still offering 100% Financing with an allowable 6% seller assist.  Those parameters can leave a lot of cash in your pocket. 

The other is renting to own and I'd like to go over the basic parameters of how it works as of right now.  It should also be noted that things have been changing rapidly, so please contact your Mortgage Professional to make sure they keep you abreast of changes as they occur.  With any 'niche' product, time is of the essence because you never know how long it will last under the current guidelines. 

While Mortgage Money has become tighter over the past year, the lease purchase program has become an increasingly popular method in which to finance the property the borrower is currently renting. The huge advantage to this program is we treat the transaction as a refinance utilizing the APPRAISED VALUE. Below are some of the program guidelines.  

• Max 85% Loan To Value Full doc (you must be able to prove enough income to be able to afford all current debts showing on your credit in addition to the new mortgage payment)
• Looking for minimum 600 credit score (the middle of your 3 credit scores)
• must produce 12 consecutive months cancelled rent checks (this is a documented housing history, Do Not pay by cash or money order.)
• Lease purchase contract must be seasoned minimum of 12 months (it's best to record this at the local courthouse for documentation purposes) 
• Owner Occupied Only
• Maximum loan size = $500k

This is a fantastic program that can enable a borrower to purchase their home without any money out of pocket.  The only other thing I would note is to get an Home Inspection (which is different than an appraisal...which is required by the lender) done.  Though you've lived in the property for at least a year and think it is in good condition, a home inspection will help lessen the chances of some surprise issue coming up after closing.  If you have any questions, comments, concerns, critiques, or just want to complain....give me a call or shoot me an email!

Catchy title, eh?  I don't want this to be a scathing documentary advising the masses to not work in the Mortgage Industry, yet I do want to state a spade as I see it.  I learned long ago to never treat or think about another's job as if it was ‘easy' or ‘anybody' could do it.  I never wanted to generalize, yet I do.  (I'm working on that.)

Back to my point though, sometimes I hate doing what I'm doing.  It has more drawbacks than reciting marriage vows with Elizabeth Taylor.  I've faced it (not reciting marriage vows with Ms. Taylor), but here it is...you are strictly commissioned-based, you rely on ‘other' people's money, and at one point in time you could get into it with no knowledge or training or education at all.  As far as the latter, I'm thankful for that because I was one of ‘them.'  Now, I'm damn good at what I do.  That does not mean I always like it.

It's no huge secret that this Real Estate Market (from a money perspective) is in challenging times.  Is ‘challenging times' not the most bull-shit political statement you've ever read?  Well, I'm not about all that but I do think there are reasons for our current situation.  Here says me....

-Products & Pricing are changing daily and rapidly.  It's hard to keep up.  One day you can concretely pre-approve somebody and the next day that pre-approval is gone with the wind that breathes from Mother Earth.

-Common Sense is still a rumor around here.  Few lend against it, for lending on a portfolio line makes so much more sense.  Right.....if $100.00 bills landed on your lap in multiple masses, then it makes total sense.  Money is the root...the barometer....at times the very charge we live by and under.  It's cool if you have it, un-cool if you don't & see the talking heads that have plenty of green and no common sense.

-Interest Rates.  Heck, I'm starting to hate the term.  A few weeks back I quoted a former client an interest rate on an investment property.  I told him he could get a fixed rate on a 30 year term of 6.25%.  He retorted, "That's way too high.  I think I'll wait until they drop in the 5% range."  Yup, he's a bonafide idiot in my book.  Sorry Mr. Consumer, but you are being ridiculous.

So with these things I hate about my job, I'm begging anybody who may read this to be a smarter consumer, for it makes my job easier.  Here are a few ideas on how:

-Monitor your credit score.  These days, lending is so credit score based that it's more important than ever to have a pulse on where you are at.  While government programs such as the FHA aren't credit score driven per se, they aren't always the best route or even an available route to take. (More on that at a later date....)

-Exit Strategies.  If you are a Real Estate Investor, make sure you have several.  As an investor of any sort, you probably should.  The past few years have been a spoiled bunch, with interest rates so low and so little money out of one's pocket to buy Real Estate.  With 100% financing on Non-Owner Occupied Properties so prevalent at one point, it probably makes the founding fathers of this land roll over in their graves.  Investor = Investment.  Enough said, I hope.

-Work with the right people.  If you are looking to buy a home or sell it for that matter, your first call should be to a REALTOR to help you along the way.  If you want to know how much your home is worth, contact an appraiser and set the appointment.  If you are applying for a Mortgage of any sorts, talk to your local bank or credit union, a mortgage broker, & your rich uncle.  See who has the best terms & service.  While we can quote you rates and terms all day long, nothing replaces being able to talk to the person behind the quotes...especially if things change for whatever reason.  Personally, I don't mind hearing ‘Bad' news as it happens.....I mind hearing ‘Bad' news when the transaction is already done.

There have been mixed reviews about Adjustable Rate Mortgages throughout the Real Estate Industry, our beloved Media, & the General Public as a whole.  Personally, I stand by the credence that they are a very good product & tool for some people.  Just because Neighbor Bob, who is being transferred to Western Pennsylvania  to head up the Academic Advisory Role at Penn State has an adjustable rate, doesn't mean that it's right for you and your particular financial situation.  In celebration of keeping it simple, I won't go into a breakdown in which cases that an Adjustable Rate may make more sense than a Fixed Rate, or vice-versa.  That's a unique & individualized case by case call, dependent upon a variety of factors including your goals, current financial make-up, possible future financial make-up, etc, etc.  I'd advise you consult a Mortgage Professional to analyze your situation to help make the best decision for you.  I'd also highly recommend you don't let Neighbor Bob advise you on your Mortgage Needs, he's probably better suited to help your children in the pursuit of a higher education at a College Institution.

What I really want to concentrate on is 2/28 ARM's that were entered into by a lot of individuals with less than stellar credit and highlight one particular case study whose loan closed earlier today.  These adjustable rate loans were typically fixed for two years, at a lower rate than one may qualify for otherwise, and then became adjustable after the two year time frame was up.  The philosophy, if used and recommended correctly, would give you a lower payment and allow you to clean up your credit to 'White House Dining Stature'.....all along making sure all your mortgages payments were being made on time.  Some followed the plan, some didn't.  Some were advised well, some not so much.  The important thing to me was that when you entered into that loan, you did so in a good equity position.  After-all, if you owe a high percentage or more than your home is worth after your rate adjusts, I don't care how good your credit is....you are going to be in a proverbial pickle.

Earlier this morning, a former client of First Choice Equity Group Inc.,refinanced into a conforming interest rate that is in tune with the best rates the market has to offer.  Just two short years back, his financial life was a tad off track and he needed to refinance to consolidate debt and get back on track.  To try to lessen the impact of the risk factors he fit under at the time by putting him in a relatively high fixed rate, we put him into a 2/28 loan to get him a lower rate for those initial two years.  For his situation, the game-plan was pretty simple.  Since we consolidated all is bad debt and he was still in a good equity position, we'd use those two years to make sure he kept making his mortgage payments on time, gradually see an increase in his credit scores and not accumulate any more debt....let alone the bad kind.

I got an email from him yesterday asking me what he should bring to closing, besides a 'smile'.  I told him, "Just your driver's license, we'll supply the coffee." (1)

Today marked a day and yet another example of having a plan, following the plan, & it working out in the end.  The client in this case put himself in a very good position with the help of proper guidance and now qualified for the best rates on the market.   Not only did he end up saving over $300.00 a month, but now his credit is back in good standing...which will save him mountains of money shall he need to utilize it down the road.  There's a lot of talk about a lot of stuff out there in regards to the Housing Market, Mortgage Industry, & overall Economic Outlook of our country.  Yet, in my opinion, proper guidance & education & follow through are the necessities to put your own situation in a better one no matter what's going on in this World.  I believe that is slowly becoming an Universal Truth.

(1)  Of note, the author doesn't condone the use of such drugs as coffee, the borrower was a 'user' before we got our hands on him:-)

It's funny.  My mother & father are pretty good with finances, they have a ton of equity in their home and a pretty wide array of money in retirement, stocks, etc.  Yet, when it comes to mortgages, they are like most people....they don't really understand them or how to shop for them.  About a year ago, they were talking about refinancing and since my firm isn't licensed in the great state of North Carolina, I could only really advise them accordingly.  When I mentioned looking not only into their bank, but to a Mortgage Company as well....my father scoffed. Now usually when my father scoffs, that means I'm doing something wrong.  I won't get into all that since I'm now reformed and darn near an angel these days:)  The conversation went something like this.....

Dad: "Why would I go to a Mortgage Company when I can just go to my bank?"

Me: "Well, often times you'll get a better deal."

Dad: "How's that, they are a bank?"

Me: "These days mortgages aren't necessarily their forte.  Besides, mortgage companies tend to be able to get folks like you wholesale rates, which means a cheaper interest rate."

Dad: "Yeah, but the closing costs are so high."

Wait, stop!  I'll end it right there.  A fellow Active-Rainer (The beautiful & poetic Jennifer Bukaty) had a similar situation with a client who was shopping and had it narrowed down to her credit union and a local Mortgage Company.  Jennifer had asked me about it and gave me some rough quotes from the two institutions.  Here was the synopsis I emailed her back after quickly crunching the numbers:

Contestant #1....The Mortgage Broker:  

Loan Amount = $222,000  

Interest Rate = 5.60%  

Total Fees = $1650.00  

Principal & Interest Payment = $1274.46  

Contestant #2....The Credit Union  

Loan Amount = $222,000  

Interest Rate = 5.85%  

Total Fees = $525.00  

Principal & Interest Payment = $1309.67    

She would save $35.21 a month going with the Mortgage Broker, though she's paying $1125.00 more in fees for the privilege.  It will take her a little less than 3 years to recoup the costs.   So, it all depends on how long she plans on staying in the house.  It should also be noted that she would pay more on the principal with the lower rate...not a heck of a lot, but some.  Both are very good deals, she should know that.  This is based on $90,000 down, I'd recommend keeping the other $5,000 and have it as reserves (money in the bank) in case something goes wrong with the home.

Given the numbers and what she was looking to do now and down the road, the customer decided to go with the Mortgage Company.  It's a new age folks and keep one thing in mind.....all Mortgage Companies do is mortgages.  That's their expertise.  They don't dabble in investments, personal loans, car loans, etc.  They have one area of expertise and that generally translates into better service and products for consumers.

All that said, there are times when Banks, Direct Lenders, or Credit Unions may have the better deal.  Anyone who tells you different is probably not telling you the truth.  At the same time, give a reputable and/or referred Mortgage Company licensed in your area a chance.  In the end, it will ensure you have your best interests at heart.

Just two more tries and he would reach his destination...

He rose quickly with his eyes, focusing away from the screen to peer anxiously at the window, staring down the somewhat dim lights that huddled over the city he sat in.

There were moments of unrest, of uneasiness, of unparalleled cynicism directed to his very cause.  Would he awake tomorrow morning with angst or extreme passion for what he did and can do?  Never sure, he walked slowly from the computer to gaze at last year's statement, providing a black & white example of the worth of the work he put in.  It wasn't easy on the eyes, at least at first.  It was downright shameful, for he was better than that....than this.  He looked again out the window, calling upon God's that would never stand up and speak...at least not yet.

As the smoke billowed from between his lips, the voices continued to raise ruckus between his temples.  "Go forth and be thy destiny"...they announced.  The problem was, what the hell was his destiny?

We are born and we die...throughout the process we tend to laugh and cry.  Those are beautiful & bountiful moments, if not the most apparent reasons why life is more peculiar than we give it credit for.  He crossed his legs like a woman wearing a short dress...thinking heavily of what needed to be done to achieve happiness and to realize the destiny they/he threw upon him.  Uncrossing his legs and focusing his eyes, he saw paths of righteousness dance across his lap and fondle his soul with their spirit.  The truth was about to hit home...

He met with a man named Jim who was a lost soul with no cause.  Jim's finances were about as healthy as Keith Richards lungs, yet they were alive now and screaming in terror.  But he could help...or so he thought.

He gave Pam a call and even though she was down on her luck, he thought he could help her too!!  Ironically, Jim & Pam needed the same thing.  They needed a warrior to help them travel through a corporate world that had little regard for their well being.  He tried to help each of them and fell short with both...

As he printed the standard denial notice to send to all those who don't qualify for what they may need, he tilted his neck gently until those warrior eyes saw that window he was looking out just moments before.  No clouds could be seen, only distant lights. 

After two cases of being unable to help, he realized his very destiny on this great big mystery we call earth.  There aren't many who will fight the cause that doesn't reward overnight.  There aren't many who will try to guide and teach and hold their hands no matter how hard the storm is falling upon them.  The destiny is simple.  The cause is great.

He is I and I am he and by the way....we are we and we should stand together!

Enough of the 3^rd person B.S., I can help....it just may take some time.

I got a call from an old friend of mine shortly after the New Year.  He wanted to consolidate his 1st & 2nd Mortgages into one loan at a reduced term, a financially savvy decision for sure.  So, onward we went with the process.

Now, this young gent lives in a rather eclectic neighborhood with properties that tend to differ in appearance, size, & condition.  His property happens to be one of the nicer ones in the neighborhood, which tends to make its worth not as ideal as one would like.  None the less, the appraisal was done and came in at a rock solid 290K.  The comparable properties were there, all except for a less than desirable abode across the street that had sold recently for 215K.  The appraiser noted it in the report and while it hurt the value of our subject property, the 290K was still as solid as Lou Ferrigno in the movie "Pumping Iron."

Well good old Murphy's Law came into play and the lender came back with their own search saying the value was only 230K.  Holy slap in the face Batman!  After the initial fury of wanting to briskly walk a few hours and give their Appraisal Review guy an Atomic Wedgie, we stepped back and got the facts.

It seems that another property sold literally right after the appraisal was done.  It was just down the street and it sold for 240K.  Uh oh.....that's not good:-(  So, the appraiser had to re-do the appraisal making note of this new comparable property that just came into play.  We went from 290K to 260K.  It didn't kill the deal by any means but it did introduce the dreaded PMI.

While it didn't help that they sat on the appraisal way too long for my or my amigo's taste, upon hearing this he became agitated.  To a large degree, I completely understood.  His payment would be going up $78.90 and he would have that dreaded term attached to him for at least 2 years.  That said, the deal was still a no-brainer across the board, making total financial sense.  But my amigo, a smart guy but stubborn like me, was going to throw in the towel and forget the whole thing.  Our conversation on the phone was relatively brief.  Normally, with any other client, I would point out the very reasons it made perfect sense to get it done even though it wasn't as ideal as it was initially on paper.  In this case, I didn't do that.....not initially.

After getting off the phone, I noticed the error of my ways.  I then sent him the following email.....

Hey (Name witheld to protect from prank calls from other AR members)!    

Thought I would shoot you an email to summarize our conversation & the specifics of the transaction regarding the refinancing of your property:  This will prove helpful in sitting down with your wife tonight at dinner.

• Because the appraisal of your property came in lower than initially anticipated, the loan to value ration is over 80% (88.8%) necessitating a mortgage insurance premium of $78.90. Once the balance reaches 80% of the fair market value, that premium can be removed. Approx. 24 months, an investment of $1893.60.
• By reducing the term of your loan to twenty years, you are saving over $120,000.00 in total monthly payments over the life of the loan. Additionally, the principle reduction with each payment will far exceed what you are seeing on your current mortgages. In other words, equity in the property will be established faster than in your current mortgage situation.
• The rate of interest is being reduced nearly 2% vs. your second mortgage, and .625% on your 1st mortgage.
• As it stands, you are paying $167.95 on the principal each month on your Second Mortgage and $227.31 on the principal each month on your First Mortgage.  Your first payment on your new loan reduces your principal $507.40 off the bat.

As a fellow amigo, I would be doing you a disservice if I were to not outline the facts of the matter.  That's my job.  Because we're friends, I'm not pushing you as hard as I would most of my clients to have them see the proverbial light, but at the same time it is my job to look out for your best interests from a Mortgage Standpoint.   It's unfortunate that the sale of properties in your neighborhood adversely impacts the current value of your property. However, the overall savings to you afforded by this transaction far out weigh the negative impact of a 78.90 monthly payment of mortgage insurance for a couple of years. Let me know what you think.       

Sardi

I made a crucial blunder initially in not imposing my expertise to make sure he made the right decision for him and his wife.  Instead, I played the part of a buddy and not a true Mortgage Consultant.  If I hadn't stepped up to give him a piece of my expertise, I wouldn't be doing my job.  When it comes to dealing with friends, family, former clients or with anyone with whom trust is earned....part of our job is to make sure they don't make bad decisions.  No action is sometimes the worst decision of all.

We'll see what happens....