Simply The Best Loans

Walking through my neighborhood in recent weeks, I made an interesting observation. Most of the houses, while lived-in and well-groomed from the outside, are surprisingly stark on the inside. In some cases, rather than curtains, sheets or towels have been draped over windows or they have been left bare. When lighted from inside in the evenings, it is clear that the majority of rooms in many of these homes have no furniture, pictures or decoration of any kind.

My conclusion is that large numbers of homebuyers are buying beyond what they can reasonably afford. Once they close on the purchase, they have nothing left with which to furnish and decorate their new home. Since all the homes in the area where I live are less than 3 years old and builders don’t offer any window treatments as part of the deal, it is apparent that many of the homeowners didn’t budget for even basic window treatments such as blinds or shades.

When investing in real estate, buying something that is a stretch for your budget in the right market can often bring an excellent return. However, when purchasing a home for yourself and/or your family, you should also take other factors into consideration.

Your home should be a place where you are comfortable and secure. All creatures, humans included, have a natural instinct to “feather their nests”. If you stretch yourself so much on the home purchase that you can’t afford anything for furnishings, you just own a piece of real estate, you haven’t created a home.

Anyone considering buying a house should carefully weight all the aspects that go into creating a home. If the overriding objective is to make an investment that will offer an opportunity for a substantial return, the lack of furnishings may not matter to you. If you value quality of life and are interested in everything that creating a home encompasses, you may be better off to be more conservative in your real estate purchase so that you have funds for the those other aspects.

Consider what you want, what you can afford and what you are willing to do without. If a home is your goal, better to buy a less expensive house and have the resources necessary to make it one.

Despite the Federal Reserve’s recent increases in short term interest rates, the bond market has continued to be strong and mortgage interest rates have continue to remain at their record lows. Why?

Some reports indicate that baby boomer investors have consistently been choosing bonds over stocks as a safe investment. In the US, Europe and Japan, those reaching retirement age are buying longer-term treasuries, from 10 to 30 year bond notes. The result, an inverse movement of increased prices and lower yields.

Since bond prices and yields are the driver for mortgage interest rates, mortgage rates have continued to creep downward even as the Fed’s rate went up. Should this investment trend with the baby boom generation continue, mortgage rates could drop even more. David Rosenberg, Merrill Lynch’s chief North American economist considers this trend as having “already started. It’s a global development.”

For those of us that bought our first houses when mortgage rates were in the double digits, this is difficult to imagine. However, Stephen King of HSBC Holdings Plc in London reports, that baby boomers are “more likely to be interested in avoiding capital losses than making capital gains, pointing to a wholesale shift out of equities into bonds.”

All that being said, it seems that the fears and predictions of mortgage rates shooting back into double digits by the end of the year may have been premature.

Going through the loan process for most people only happens two or three times in their life. Many people are frustrated when one experience differs so dramatically from the last. Why is it so different?

On a day-to-day basis, the mortgage process is always in some state of change or transition as lenders and regulators make changes in their processes, qualifications, programs, etc. The result is, by the time several years pass and you’re going through the process again for a new home purchase or a refinance, enough changes have been made that it seems completely different than it was before.

Many of my clients get concerned because they give me a bunch of paperwork upfront when I submit their loan but a week or so later, I’m back asking for additional paperwork. Is there a problem? Did I not get everything in the beginning I was suppose to?

The answer is, yes I did, but the underwriter can always request additional documentation. Remember, as I have said, in earlier posts, the underwriter’s job is to find a reason to deny a loan, not approve it.

My loan officers and I try to get as much as we reasonably can at the beginning to save having to call you and ask for something else later, but, unfortunately, for both of us, it is sometimes inevitable. Underwriters always seem to want something else. (I secretly think they get bonuses based on the number of pieces of paper they can collect on each loan )

I actually got this message on my home phone number despite being on the national Do Not Call list and it being unlisted.

Hello, my name is [Joe] and I’m calling about your mortgage payment. It seems that you have paid your mortgage on time and are, therefore, are qualified for a one-time interest rate reduction. If you wish to reduce your interest rate, you can do a cash-out refinance and pay off other debt, such as credit cards, cars or just take a trip. So give me a call at 1-800……… Oh, and by the way, if you complete a transaction today, you’ll receive two free airline tickets to one of our sponsored cities located within the continental US. So, give me a call at 1-800-………

I have seen a lot of advertising in the mortgage business but this is the first time I’ve heard of getting airline tickets as a bonus to refinancing.

If you have received a call like this and thought it would be cost effective to refinance to get two free airline tickets, I would have to say “think through that one again!”

If you are looking to buy a new home and you’re thinking about a 100% loan, there are some things you should consider before making your decision. Is this your first home purchase? If so, 100% financing could be the easiest way for you to go from renting every month to building equity every month. The additional tax savings of owning versus renting would also lower the risk of 100% financing.

Second, do you have assets that you could use toward the purchase? If you have assets that you could put down but are choosing to hold on to them because they are invested some other way, 100% financing can be an attractive mortgage option.

However, if you have no money saved, are having trouble scrapping together enough money for closing costs and/or are expecting to get seller paid closing costs, you might want to reconsider.

I’m not suggesting individuals trying to get into their first home should necessarily wait until they do have money for a down payment and closing costs but I am recommending caution in purchasing any property with 100% financing.

100% financing programs were designed to let people get out of renting and into home ownership more easily. For young adults, just beginning their careers or young families looking for that first home, 100% programs provide opportunities for homeownership that would otherwise be unavailable.

When is 100% financing not a good idea? Just like interest-only programs, if you are buying a property that is beyond what you can reasonably afford and have no reserve assets, 100% programs could put you in jeopardy if you experienced an unexpected loss of income. Also, if you are in a job that could have you relocating unexpectedly or within a few years of your purchase, you may find that you don’t have enough equity to cover the expense of selling the house and still payoff your mortgage in full.

I never recommend 100% financing for investment property. Unless you are buying the property far below market value and can generate a positive cashflow of $250 or more each month, 100% programs for investors hold significant risk. As with all investments, you can not predict absolutely what the future holds. If your investment property doesn’t appreciate, is vacant for any length of time or requires unexpected maintenance, you will be more likely to suffer a loss with a 100% loan.

Last Thursday, Alan Greenspan testified before the Joint Economic Committee of Congress. In his statements, Greenspan referred to the US economy as being on “reasonably firm footing”, but indicated that interest rate increases would probably continue to keep inflation in check.

Other issues identified included: imbalances and uncertainties regarding the yawning US budget and trade deficits, slow wage growth, rising oil prices, and concern that housing prices are overvalued across the nation.

However, during the same week, Greenspan also “asserted there was no national housing bubble, but that the overheated housing market is more properly described as ‘froth’.”

“There do appear to be, at a minimum, signs of froth in some local markets,” Greenspan said. He added, “the apparent froth in the housing markets may have spilled over into the mortgage markets.” And the mortgage and housing situation is “clearly without recent precedent.”

All that being said, are we bubbling or frothing?

I believe that even if mortgage rates begin to go up, the average American will be more likely to invest in a home before investing in other things. Along with the real estate boom across the country, there has been an increase in available information educating consumers of the benefits of homeownership versus renting.

Boom or bust, the average American aspires to homeownership and I don’t think that’s likely to change.

You may have heard recently in the news that a large creditor recorded several million Amercian consumers’ personal information on a data-storage disk/tape and shipped it via “a reliable courier” to the credit bureaus. The only problem is it never arrived and can not be found.

What does this mean? To one of my loan officers, a great deal. She received a letter from the referenced creditor informing her of the loss and offering her reimbursement of credit watch costs for up to 90 days. Ninety days worth of a computerized “alert” notation on her credit if someone steals her identity is hardly going to cover the potential loss and expense of repair that she will face if her information is highjacked and used by someone else.

So who’s responsible? The creditor will, of course, wish to lay the responsibility at the foot of the courier. I don’t agree. It’s the creditor who put millions of Americans at risk by putting their personal information on a transportable medium and didn’t ensure that it got to the credit bureaus.

I’m a mortgage broker and I often send critical documentation to different locations. When I do, I send it by courier. Doctors and lawyers do the same. We don’t depend on the post office or some other mail courier. You get a real person with a professional service to pick up and sign for the package and that person delivers it directly to the recipient who must also sign for it. It’s done in a matter of hours, not days and you can verify quickly that your documentation is where it’s suppose to be.

Identity theft is devastating to anyone, but it can be so detrimental to some, that it is almost unrecoverable. Why? Mostly because the credit bureaus, while quick to report negative credit, are not quick to correct it. Also, even when it has been corrected, due to their systems, they often will begin reporting a credit problem again after the consumer has corrected it once.

This has happened to me twice. A creditor reported something deragatory on my credit in error. I found out, sent the bureaus and the creditor the correct information and supporting documentation and it was corrected. The account in question was paid in full and closed a couple of months later. Then after another few months, I check my credit only to find that the account is being reported open with the deragatory notation again. Several months after the account was paid off and closed!

Until creditors and the credit bureaus are held accountable for their errors and/or omissions in reporting, you are the one bearing the burden should something go wrong. It is vital that each individual vigilantly guard their personal data. Don’t give your social security number to any vendor you deal with simply because they ask for it.

It is imperative that consumers demand better controls. I would rather not have service from a company than to give them my personal information and risk my credit history. Checking your credit report regularly is not enough. Consumers must begin limiting their exposure until better systems are in place to protect our personal information.

Where is the legislation to protect our personal data and credit history? We have very stringent laws protecting our medical records which Congress implemented many years ago, yet we have very little to protect our personal data and credit records. Until we demand it, it will go unaddressed by our Congressional representatives.

Truthfully, while having my medical records protected against exposure is nice, I’d rather have my credit protected. Far more of my day-to-day experience is affected by my credit history than by my medical history. If stiff fines and penalties for violating someone’s medical history can be legislated, why can’t they be instituted for credit violations as well?

When you’re shopping for a mortgage and your financial picture requires an unusual program from a lender, you will usually find yourself paying a higher than market interest rate on the loan. Does this mean that you might have to consider a less expensive house because the loan you need has a higher rate? Sometimes.

There are programs out there for almost every borrower, even those with credit issues. What the borrower needs to realize is that for every “concession” you want the lender to make to you in underwriting, the lender wants something in return, normally higher interest.

You want a 100% financing? Fine. It can cost up to a half point or more than if you put some money down. You want interest-only payments? Okay, the lender will probably charge some additional discount fee or increase your rate. You want stated income or stated assets? The risk is higher to the lender so the lender charges more.

So many people see advertisments for a particular rate on TV or the internet and they assume, because there is no explanation on the advertisement, that it’s available to every borrower. However, what they don’t realize is, to get that rate they have to have everything the lender wants….good credit, good income, little to no debt, and plenty of assets.

I have actually had people tell me they expected to get the lowest advertised rate, put no money down, and pay no closing costs when they have no money in the bank, limited income and poor credit. It doesn’t work that way.

I’ve also had people tell me they want to buy a $300,000 house, put no money down, pay no closing costs and have a monthly payment of not more than $800. No matter how low interest rates are, this is not a feasible scenario.

So, if the mortgage you qualify for has a rate that makes the payment on the $250,000 house you want more than you can comfortably afford each month, it would be better to decide on a $175,000 house. Then you have a mortgage, save on taxes and plan to move up a few years down the road, rather than continue to rent.

When clients balk at this notion, I explain that if they buy the $175,000 house today and make $1200 a month payments, a few years down the road they will have equity in the property and have experience significant tax savings during that time. If they continue to rent for 3 years, they have gained nothing and saved nothing. In some instances, it may even cost them more.

When we shop for anything, it can be difficult to restrain ourselves from considering a purchase that is more than we can afford. Buying a house is no different. The easiest way to avoid disappointment, when what you want and what you can afford don’t match, is to get qualified BEFORE you begin to look at property.

Know going in what type loan you can get, what rate you’ll have to pay and what price range house will fit your budget on a monthly payment basis. Then only look at properties that fit your criteria. You will be happier with the results in the long run.

Remember, home ownership is a great thing, being “house poor” isn’t. You want to enjoy owning a home, not just work to make the payments on it.

Believe it or not there are times the interest rate is unimportant when you are getting a loan. Right now everyone is caught up in trying to explain what Greenspan calls the “conundrum”. The National Association of Realtors’ chief economist, David Lereah, is reported as saying,

Not only have mortgage interest rates declined, but an expected rise in the second half the year will be slower than in earlier projections.

With the rate on 30 year fixed mortgages dropping below 5.5%, almost a full percentage point less than this time last year, when would someone purchasing a new home not want to worry about the interest rate?

If you are a first time homebuyer and have been paying premium rental fees, you will save money by purchasing a home no matter if the interest rate is 5.5 or 6.5. Depending on your income and tax bracket, the interest rate would have to hit double digits for you to question whether or not you would experience savings. It is almost always cheaper to own home than to rent, especially if you earn over $40,000 a year and have no dependents.

If you have specific circumstances which make your loan program a niche item, your rate won’t be as low as current market but if it allows you to meet your overall financial goals, then you want to do the loan despite a higher rate.

I tell my clients routinely that they have to look at the big picture of what they are trying to accomplish. If the higher rate program helps them better meet their financial needs, then the rate doesn’t matter.