Lenders aren't lending?　 Let me assure you loud and clear: mortgage lenders ARE indeed lending, homebuyers are buying homes, and homeowners are truly refinancing.　 There is money to lend and mortgage bankers are happy to loan it out to qualified buyers.　 (Stay tuned for the qualified buyers discussion)

 I chuckled when I saw this question come across my email this week - not because it was a silly question, but because of the misperception that continues to circulate.　 It made me chuckle because lending is exactly what lenders are in the business of doing: loaning money to qualified buyers so they can purchase or refinance their home.　 We only earn a living when loans close, so we are truly motivated to find safe ways to loan money and close loans.

 But perhaps because lenders are dotting their "I's" and crossing their "t's" more right now than they did 5 years ago, the (incorrect) conclusion that so many have come to is that mortgage companies are not lending right now. But also, perhaps, because borrowers grew accustomed to such ease of proving their creditworthiness that it feels like a tightening to them.　 I liken this phase to the growing pains consumers felt when the government began to tell us that seat belts in automobiles were going to be required.　 Riding in a car when I was 7 years old did not require a seat belt.　 But when I put my own children in the car many years later, the safety seats and belts had grown to a intense system of buckles and straps.　 This is similar to the system of underwriting today - more steps to ensure safety in lending.

 Let's also acknowledge that it requires more documentation today to get a loan approved than it took 5 years ago.　 Not too long ago, a borrower may have been asked only to provide a single paystub and maintain a decent credit score.　 Today, the lender and borrower go to much greater lengths to get that same loan approved.　 For example, borrowers today are asked to provide documentation for all non-payroll deposits in to their bank account.　 A decent credit score a few years ago would have been in the mid 600's.　 Today, the lender would prefer to see those scores in the 700's.　 When it comes to documenting how much income an applicant makes, the term, "declining income" has become a factor in many underwriting decisions. 　

 What we are telling our clients right now is that lenders are indeed approving loans.　 We want to loan money so that we can earn a living.　 After all, that is what we are in the business to do.　 Just keep in mind that we are all working a bit more diligently today than 12 months ago to get that same mortgage loan approved.　 It can be done, and you can get the loan you want to either purchase or refinance your home, we just need to realize that we will need to provide more documentation today than we did 5 years ago.

 Don't forget that there is a positive outcome to shoring up underwriting requirements, by the way.　 Think of it - by ensuring a higher quality loan application, as an industry we are taking greater care to ensure that mortgage loans are safer to more people.　 By tightening the requirements a bit, perhaps we will find fewer homeowners facing the danger of losing their home to a mortgage they couldn't truly maintain over the long run.　 We are keeping the cars safer, so to speak.　 We'd rather be sure that we help borrowers maintain homeownership successfully for many years to come.

Christine Jensen, CMPS ® 

 ROI - Return On Investment.

Advance apologies; this blog post is pretty numbers intensive.　 But the numbers turned out so striking I just had to share.　 Quick, go refill your coffee, then come back.　 I think you'll find this case study pretty fascinating.　 I could hardly believe it myself when I ran the calculations and came up with an ROI of 35%.

Let me set this up for you.　 A client called me this week and asked me to calculate the numbers on a property that she was looking to purchase that would make a good rental.　 She has the nearly $36k needed for the down payment.　 She is an experienced investor who already owns a few other rentals.　 Here is what she found for a home in the area:

This home is listed for $179,800 purchase price.　 The financing we discussed requires a 20% down payment of $35,960. She would have a mortgage of $143,840, with a fixed rate of 4.5% (4.732 APR).

Her total monthly mortgage payment would be $855.32 and she'd collect rent from a tenant of $1300. That means positive cash flow is $444.68 per month.　 If you multiply that by 12 months, that works out to $5,336.16 per year, which is a whopping 14.8% per year ROI just on her capital investment (down payment) alone!!　 This sounds pretty lucrative so far.

 But then consider the property should appreciate in value, the loan is paid down by someone else (the tenant), equity growth over 10 years, and she now has an investment that really soars.　 Let's say she only holds this property for 10 years.　 And, let's say she only increases the rent she charges to her tenant by 1% per year, and let's say that the property only increases in value by 1% per year.　 (We suspect that it could perform far better, but let's be conservative with our estimates.) Hold on, take another sip of coffee and hang in there with me.　 It gets even better.

Over ten years, she would have collected positive cash flow of $60,538.　 Yowza!

 Now, let's suppose we are 10 years into the future and this home only appreciated 1% per year (conservative).　 This home is now worth $196,644 and she decides to sell.　 She pays seller expenses of approximately $14,300 and pay off what is left of your mortgage - $115,200.　 She would walk away with a check payable to herself in the amount of $67,144.　 I'd tell her: "Quick! Run out the door and cash the check before something thinks you've robbed a bank".

So, over that 10 year period she collected $60,538 in positive cash flow plus she net $67,144 in proceeds from the sale, for a net gain of…(wait for it)…$127,682.　 No, I'm not kidding.　 Average that net gain over 10 years and she just made over 35% per year on her initial investment of $35,960.　 Has Warren Buffet heard about this???

Certainly we must grant that these types of results are not common and the life of a landlord is not for everyone.　 But the takeaway from today's lesson is that there are still deals to be found and if you would like to explore further, we should talk.

Talk with you soon.

Christine

"But it's barely $100!"

Yes, you've heard that interest rates are at historic lows and everyone should look into refinancing right now.  Some of our clients are saving dramatic sums of money in interest payments each month and year.  Some of our clients are not only saving on interest, but they are also reducing the term of their loan.  I have to tell you that it does my heart good when I see a client save $250 each month, money that they can redirect to debt elimination or retirement savings.  For one of our clients recently, this savings meant the difference between sending her son to college and not.  Now, how's that for dramatic?!  By doing something as simple as refinancing their mortgage to a lower rate, we are seeing dreams come true.  Yep, I love my job.

For some of our clients, the savings is not that noticeable.  There have been a few clients I talked with this week that might only save $10 to $20 per month by refinancing.  With savings this low, it's hard to justify spending $425 on an appraisal.  I have recommended for many of these folks that they stay put in the mortgage they currently have.  When you already have a fixed interest rate of 4.25%, that's not a bad place to be.

But consider one of my clients I spoke with this week.  By refinancing, she will save nearly $100 per month.  For some of us, we might have a hard time moving forward with a decision when the savings is not as high as others are seeing.  I've talked with a few homeowners this week that would simply shrug off $100 a month as insignificant.  While some might say that $100 is a drop in the bucket, it is not so for this gal.

For her, a $100 lower house payment means she can get better coverage on her health insurance.  It means she can finally get serious about saving for retirement.  It means she can buy the better quality pet food for her beloved beagle.  It means that she doesn't have to go back to rework her budget just because she needs to replace her sneakers.  You see, for her, $100 per month means that we have cut her housing expense by more than 10% every month.  Now that's the kind of life-changing results that gets me excited.

What's in it for you?  Should you or someone you know take advantage of these historic low rates or is this just hype?  I don't know, but I wonder what you could do if your house payment were 10% lower each month.  I'd love to see what better uses you could put this money to.  All you have to do is grab a recent mortgage statement and spend about 10 minutes on the phone with me.  I can give you a quick analysis to see how much you could reduce your house payment.

At your service,

Christine Jensen

Reverse Mortgage - where's the catch?

My dear husband has always been a proponent of critical thinking.  Being around him I've learned to systematically evaluate claims so that I can carefully separate fact from fiction.  And of course, growing up around my father I learned that good things come to those that work hard and you don't get something good for free.  Thus, when something looks too good to be true, I certainly know that it likely is - too good to be true.  Or is it?

This week, I had the privilege of sitting with one of my clients to evaluate whether a Reverse Mortgage would be the right tool for him and his wife to consider.  This nice man that has worked very hard all his life reminded me of a phrase that so many of us have engrained in our psyche - there is no free lunch.  So you can imagine his skepticism (and my own!) when we discussed a feature of the Reverse Mortgage: No Recourse. 

What exactly does that mean, no recourse?  It means that when the senior borrower is done living in the home as their primary residence they simply sell the home, payoff the mortgage balance with proceeds of the sale (as they would with a traditional forward mortgage) and put the check in their pocket as they move to their next home. But in the rare and unlikely event that there may not be enough value in the home to payoff the balance remaining on the Reverse Mortgage then there is no obligation on the part of the senior or their heirs to make up the difference on the amount owed.  The mortgage company will not ask the senior nor their heirs to liquidate other assets to satisfy the balance.  There is no obligation to the borrower nor their heirs to make up any amount still due after the home is sold.  There is no recourse to other assets the estate may have.  The other assets remain intact.

How is this possible?  It is a function of the FHA mortgage insurance premium (yes, the same type of FHA MIP that we see on traditional forward mortgages)  that is part of a Reverse Mortgage.  If an insufficient amount of equity remains to pay off the loan balance then a claim is made on the FHA Mortgage Insurance Premium to satisfy the difference.  It is with this insurance policy that the No Recourse feature is made possible.

There is no other loan type that we have that offers this safety feature to the client.  But truly, it is available to our senior borrowers with a Reverse Mortgage

A couple of weeks ago I had the opportunity to show my networking group an illustration of what a file looks like when we start and what a file looks like by the time we are finished and the loan is headed to closing. That manila file folder grows like a teenager during the process of putting a client's loan application together, often bursting at the seams by the time we reach the finish line. In fact, we recently had a file that did indeed burst the seams of the folder so we had to divide it in to two very full folders and bind it all together with a huge rubber band. Whew!

Then last week I had the opportunity to see the opposite. A client had an old lien still showing up on their title work, so they brought in their old loan files to ask my assistance in locating which document would provide the evidence of the payoff. Looking at their loan files from the 90s brought back memories of how few pages went in to a single loan closing back in the day. It made me chuckle to contrast the dozen or so pages from the 90s compared to the 60+ page packet that it takes to close a loan today. What a difference a decade makes.

So why does so much paperwork go in to a file like this? The answer can be found in many reasons. For one thing, as applicants and consumers our lives have become more complicated. It is common for an applicant to have numerous past employers, numerous credit accounts, numerous asset accounts. And each one must be properly documented. But from another aspect me and my team are working hard to ensure that not only have we included the minimum documentation needed to get your file approved, we are also attempting to stay compliant with all the state and federal rules. Ultimately, we want to be sure we do everything within our power to make it easy for the underwriter to say yes to granting the loan.

I described it to a client this way yesterday. Think of those cooking contest shows on the Food Network. (Many of you know that I am a Food Network junkie.) Each of the contestants competes to win the prize for having the best dish to present to the judges. They prepare tasty food, develop the flavors, incorporate texture and technique, and then present their preparation with such beautiful garnishes that the judges are compelled to grant them a prize. That's how we want to present your file to the underwriter--we want them to see that your story is so compelling and so well-documented, that it becomes easy for them to say yes to granting your loan.

So when we ask for the 5^th page of a 5-page bank statement, please know that it is because we are working on your behalf. Equip us with the garnishes we need to put a tasty touch on your file. Help us make it easy for the underwriter to say yes.

So, what's really impacting my credit score? (read all the way to the end today, there is a great announcement at the bottom)

I continue to be amazed by the amount of misinformation that is still circulating about what factors make up the strongest credit scores. Factors that were important to creditors 30 years ago may not be the exact same factors that influence credit scores today. Let's take a look at a few of the criteria that are important to build the strongest credit score in today's environment.

Good - Unused, but available and open and active, revolving credit. The old way of thinking said that open, available revolving credit was a bad thing, but the contrary is actually true today. Old thinking believed that if you had large amounts of credit available to use you were at high risk of running up so much debt that you fall in to bankruptcy. Today, the thinking says that you demonstrate responsibility by having credit available to you and you use it responsibly. Thus, we often advise clients to keep a reasonable amount of revolving credit available to them but use just a small amount of it. In fact, on any given day, you will hear me recommending that someone put a small amount of a purchase on to their credit card (only a purchase that they have the cash for, and only something that they actually needed) such as a tank of gas or a pair of socks. Keep a low ratio of balance due proportionate to limit allowed; that is, have a lot of credit available to you, but use very little of it. Use it, but use very little.

Bad - Late payments. I know, sounds simple, right? But even a 30 day late payment can weigh heavily on your credit score. Occasionally I will hear a client tell me that they did not send in their minimum payment on something because they couldn't pay as much as they wanted to. A recent example is a client who had two payments remaining on a student loan. This trade line had a perfect payment history till the very end of this loan. She got down to the last two payments and decided to send them in at the same time - only she sent the two payments when the second one was due, making the first payment late. This loan had a perfect history, till the second to last payment. Darn - perfect history now gone.

Another one that I sometimes see is a client who has a dispute with a creditor and refuses to pay them. "It's the principal of the issue" is the reason I hear. Sadly, while they are arguing with the creditor, it is their own credit that is taking a beating because the payment due is not being paid.

Good - Old tax liens can now be deleted from a credit profile, not simply update to show that they are paid. You can read more here.

FAQ - there are many other questions that often come up when we are having conversations with clients and others when in comes to credit scores. Since FICO and other models are dynamic and constantly changing, get the most current information by speaking with us (we are trained professionals!) or you can find more info here.

And we are thrilled to announce that we have a new service that we've added to our website! By going in to my website using the link below, you can now access your own credit report with credit scores. Start on my homepage by clicking the button for Credit Analysis and you can simply fill in the fields from there, using your credit card for the payment. At the end, you will receive a report that gives you guidance on steps you can take to increase your score. Certainly we'd be delighted to review it with you personally, coaching you through the actions we recommend to give you the strongest score possible.

It happened again this week.

We worked hard for a client, wrestled through all the ups and downs of the process in order to get their application file through processing, underwriting, then closing. And finally, through much trial and tribulation, we got to the closing table. You would think this is just routine to us by now, right? After all, we are about to celebrate our 10^th anniversary in this branch doing this very thing - helping folks get financing so that they can purchase their home. We've been through this over a thousand times (literally - over a thousand) by now. It would only seem natural that this becomes mundane after all this time.

Yet when I got home last night and checked my Facebook page, there was my client - shouting from the screen "We are the proud owners of a new home!"  Then all their friends chimed in with congratulations and the cyber-celebration was grand. I joined in the fun, posting a comment, then watching as others posted, too.

I don't know that I'll ever really get used to this feeling - the pure joy of a family's dream finally coming true and closing on the purchase of the home of their own. Yes, call me sappy, but I get goosebumps! Yes, I've said this many times before, but to me there is no more sacred place on earth than a family's home. And sitting back at a closing table, watching them take ownership of their little piece of the planet, nearly brings tears to my eyes. Even a thousand times later. To me, it is almost as thrilling as seeing a new baby enter the world.

When you go home tonight, look around at your place. Drink in the experience of your home. Stand for just a moment, observing the place that you are in. There is no place like home.

Before you chalk this up to an old adage, let me tell you that it is this very concept that keeps us motivated to work so hard for our clients. You see, I could be accused of being one of those sappy folks that actually believes - at my core - that a family's home is the most sacred place on earth. And this coming from someone who has had the great privilege of visiting the Galleria dell'Accademia in Florence, Westminster Abbey, and the Sistine Chapel. But of all the magnificent places that I've had the honor of seeing, none can compare to a family's home.

And yes, it has been pretty hard work lately. Mind you, we are up to the challenge! Hard work doesn't faze us one little bit around here. But there is no getting around the reality that to get a loan approved these days in the face of increasing investor requirements, changing underwriting guidelines, and the incredible environment of State and Federal regulations, only the hearty in our industry remain today. In fact, I heard of two other mortgage companies that closed shop a couple weeks ago because they were unable to keep things going in this environment.

Yet our company and our branch remain strong and remain vibrant regardless. And I think I can attribute that to our amazing teams both here in our branch and at our corporate office. It is because we all stay focused on helping people get the most cost-effective financing so that they can buy a home of their very own - their very own sacred place. It is there that they laugh, live, love and learn. It is in the home that one's character is formed.

Some have been given one talent, others another talent. Here, we've been given the gift to help people navigate what can be a minefield some days as they work their way through the financing of the purchase of their new home. Here we use that gift to help them reach their dream of homeownership, turning it in to reality.

In this historically low interest rate environment coupled with some uncertain time, I (almost) always recommend a fixed rate mortgage.

I was meeting with a client this week who wanted to look at options for refinancing his home. The loan that he is currently in was originally a 5/1 ARM and has now entered its adjustment period. Fortunately, the index on which his adjustments are based are very low right now so when his rate came up for adjustment he received the benefit of this low environment. So for the next 6 months, he's in a great spot.

But like so many that have had Adjustable Rate Mortgages (ARMs) in the past, this may be the time to switch to a fixed rate loan. In fact, that is exactly what my husband and I did this past year. The reason so many are electing now to now move to a fixed rate is that 1) rates are at historic lows, 2) we plan to be in our home for another 7 to 10 years at least, 3) we would like to move to certainty from uncertainty and 4) we believe rates are going to rise in the future. Thus, this is the season to lock in low rates for the long term.

In fact, this story has been repeated with so many of my clients lately, that I nearly forgot that there are a few that do not necessarily follow this pattern. Case in point was my client this week, I'll call him Jim. You see, Jim agrees with 1) and 4) above, but he's not in the 2) camp. Jim plans to enter his next phase of retirement in the next 3 to 5 years and take a snowbird flight to Arizona. So if he plans to sell his home in the next 3 to 5 years, he asked me, why would a 30 year loan benefit him? While he agreed with 3) above, he was weighing this thought of uncertainty with the certainty-enough that he gets with another 5/1 ARM. Paraphrasing his words, "if I'm only going to need the loan for the next 3 to 5 years, it shouldn't matter if the rate adjusts 5 years down the road because I'll be done using the loan by then, right?" He has a good point.

What really makes this an intriguing option for him is that the start rate on his loan would be 1.5% lower on the 5/1 ARM than it would be on the 30 year fixed. That rate difference equated to approximately $10,000 in interest over the next 5 years! Now those are the kind of savings that get me excited - $10,000!

To be sure we weren't missing anything, we also looked at going in to a 15 or 20 year fixed rate loan. Both the 15 and the 20 year loan have an interest rate that is lower than a 30 year fixed rate. And yes, the payments are higher on a 15 or 20 year loan over a 30 year loan because you are paying the loan off in a shorter period of time. This has been a very viable option for a number of my clients. But for Jim, the 5/1 ARM got him the greatest savings for the period of time he plans to use the loan.

It was a good exercise for me this week; a good reminder that while the fixed rate option is the best option for most of the clients we are talking to right now, there are still some for whom an intermediate ARM could be an option to consider. What is most important is to understand each client's individual needs and find the financing strategy that works best for them and gets them the greatest value (and lowest risk) over time.

Down payment. Where to find the cash for a down payment. Hmmmm.

I haven't sold my previous home yet, but I'd like to move forward with the purchase of a new home. Where can I get the down payment from?

This is a conversation we've been having with a number of clients recently. In some cases, these folks would like to move forward with the purchase of their new home but their current home has not yet sold. In other cases, they may have decided not to sell the existing home and rent it to a tenant instead. But in both cases, this means that the equity that they would have otherwise taken out (upon selling the current home) is locked up in that house for a little while longer. So what can we do about the down payment for the purchase of the new place?

We've actually seen a few creative solutions to this dilemma over the past couple of months. I will outline a few in the blog today. But there are many other ideas we could come up for your situation, so be sure to give me a call if none of these meet your criteria and we'll come up with a perfect scenario for you.

In one client's situation, they are actually planning to use the bonus that he is getting from his employer. However, the timing for receiving the bonus check will not correspond perfectly for the closing so family members are helping them out with a gift in the meantime.

In another scenario, the client is taking out a short-term loan against his 401k, but then plans to repay the loan as soon as he has the proceeds from the sale of his home.

In yet another client's situation, they have enough cash liquid that they can do a 5% down payment. So for the purchase of their new home, we are planning to finance about $150,000 on their permanent 1^st mortgage and finance the rest of the purchase on a temporary 2^nd mortgage of about $100,000. Then when their current home sells (they plan to fix it up a bit then put it on the market in the Spring) they will take the proceeds from the sale of their current home and pay off the temporary 2^nd mortgage, leaving them with just their $150,000 first mortgage. Pretty creative, right?

Years ago, we would have looked at bridge loan financing for transactions like this. And in some cases, we may look at doing a version of a bridge loan if that is what works best for the client. Tapping in to the equity of the current home could be a very viable alternative. But with so many other creative alternatives these days, a bridge loan may not be the most cost effective.

Let's sit down and review your situation to see what works best in your case. There could be a number of creative options that are right around the corner!