Tuesday, April 22, 2014

Rent or Buy?

This article is borrowed from News.com
 I don't endorse the conclusion necessarily, but I totally agree with the questions you need to ask yourself as you evaluate this age old question of rent vs. buy.
IS IT better to rent or to buy? Typically, the rent-or-buy debate is limited to financial questions. Will my mortgage payments exceed my current rent? Should I wait for interest rates to drop a little further?
Recent years have demonstrated that there are no longer dependable answers to these money questions — and that maybe they weren’t the right ones to begin with. So we’ve shunted them aside to examine what we consider to be the more significant points of the debate: Does every person still need a kingdom, even if that kingdom’s value plummets from month to month? And how will a 25-year debate limit future opportunities?
Before you snap up a dream home, there is more than financial stuff to consider.
Before you snap up a dream home, there is more than financial stuff to consider. Source: ThinkStock
In the rent-or-buy debate, as with most big life decisions, a single, concrete answer is elusive. The most important thing you can do is make sure you’ve asked yourself the right questions.
My parents’ generation had a collective fantasy about being mortgage-free. I guess it’s understandable in some ways. So much of people’s incomes go to mortgages, so to have that burden lift could mean a considerable lifestyle change. For many, a mortgage payment eats up 30% of the monthly cash — sometimes more.
We often also believe that fully owning our homes allows us to enjoy them more. However, many will admit that once the debt is paid off, they sell up and buy the next debt-generating house. The truth is that paying off a mortgage isn’t the overwhelming relief many people expect.
What we homebuyers don’t consider is what happens to us for the 25 years during which we are paying the house off. Having a huge debt over our heads is not conducive to taking risks and seizing unforeseen opportunities. When all we can see into the future is the gradual eroding of our debt to the bank, it’s not exactly a carpe diem situation. It’s pedestrian, conservative and an almost imperceptible advancement from year to year. Our efforts fall like drips of water into a pool, hardly impacting the volume unless seen over decades. It’s no way to think about your life’s progress, that’s for sure.
We’d all love to own a home outright, but maybe the flexibility of renting is better for
We’d all love to own a home outright, but maybe the flexibility of renting is better for you? Source: Supplied
When you apply for a mortgage, you’re risk-profiled. Will you be able to pay back the debt? Is the security a good bet? Is your health good enough? That type of thing. Getting approved is a dream come true — now you can kickstart all your big plans!
But then you end up spending a ton on furniture, renovations, even landscaping. Most people don’t accurately estimate the costs of all these add-ons to the cost of a home, and it’s highly likely that you’ll go into more debt as you start racking up new expenses. Your dream home can easily start to feel more financially dangerous than a Hollywood coke habit. You start to worry about how you’re going to recover pretty soon after you’ve started.
At this point, making a career change or a risky move starts to seem like a pretty bad idea. Although you can sell the house, the costs of doing so in cash terms, not to mention emotional terms, often make it seem impossible. If a partner or young family is in the mix, there’s even more at stake, and even more inconvenience involved in making a sudden change.
I have known companies who do everything in their power to encourage their young up-and-comers to buy a house early in their careers, thereby tethering to a life nearby. Moreover, buying a house means you’re less likely to end up working for the competition once you’re comfortably settled in your job title. The dark artists of employee entrapment have used mortgages as weapons for decades.
A culture of home ownership is part of the great ‘Aussie dream.’
A culture of home ownership is part of the great ‘Aussie dream.’ Source: News Limited
The desire to own one’s own property is innate for many of us. Ownership gives us a sense of security and fuels our egos. Having a place that you call your own means that you can’t be evicted on a landlord’s whim. It’s easier to visualise a calm and happy future when your home is your own. But home ownership isn’t necessarily a requirement for rosy future planning. That’s a fallacy that’s grown up out of a culture of home ownership. After all, you don’t need to own a painting to enjoy it.
I have a friend who is a keen sailor and loves boats. He says there are only two days of boat ownership that give you great pleasure: the day you buy it and the day you sell it. It’s much better to rent them. If something goes wrong, someone else fixes it. If your family grows, you rent a bigger one. If you have a tough year, you trade down from a 90-foot Swan to a 30-foot Beneteau. You’re flexible.
The same can be said of renting houses. You can chop and change as your life develops, and if the market crashes, you aren’t locked into a house with so much negative equity that the next 10 years of sweat and toil will just get you back to level.
If home ownership is for you, however, it’s time to change your relationship with debt. My friends in banking think that paying back the capital on mortgages is crazy. They see a mortgage as a way of leveraging a great lifestyle. The more debt you can get, the better. It means more toys, more art, better wine and bigger houses.
Debt can be liberating, or a burden, depending on how you look at it.
Debt can be liberating, or a burden, depending on how you look at it. Source: News Corp Australia
They don’t see the debt as painful but liberating. As with all things, you can change it for a price. Get used to buying and selling houses, moving money and mortgages around, and you’ll see that 25-year debts are anything but. They are just about today, and if they get you want you want and free you to live your life the way you want, fantastic. Just don’t think in terms of paying the whole thing back. They don’t, which partly explains how the market collapsed so dramatically not long ago.
Since I can remember, I have been fascinated by people’s dreams. It struck me from an early age that our fantasies shape our lives and how we live them. Idle conversation often gives me insight into such dreams, as people almost unconsciously mention that if they were to win the lottery, they would take that trip, move to the country, learn to sail, and on and on.
Essentially, these people feel that if by the weirdest fluke of chance they miraculously won millions of dollars, they might then live their life. That still is very strange to me. It’s as if they are somehow incapacitated from choice and freedom unless they receive a huge windfall. This is a belief that is patently untrue.
Having a home or land of your own often has irrational emotion attached.
Having a home or land of your own often has irrational emotion attached. Source: News Limited
The bummer is, our minds can work like that. Many people look forward to retirement for their whole lives, thinking at that point they can finally do what they want. If you think like that, chances are you will be disappointed. You’ll be the same person when you retire, with the same limitations and fears. If you can’t enjoy the present, do you really expect to change that much when you’re 65?
The same can be said for houses. Our feelings toward them are irrational. They are loaded with emotion. A haven to raise a family, a sign that you are doing well, a place for friends to connect, a playground or an albatross around your neck — it’s all a matter of perception.
Buy or rent? I guess it doesn’t really matter. What matters is how good you feel about your decision. Big debt at a young age can be crippling for some and yet highly motivating for others. Inspired by my fanciful banking friends, I finally got over my fear of debt and now live in a huge pile by the sea.
My name is on the deeds, but I know that the bank really owns it. Nonetheless, I can live with that. I’m living the life I want, and I love it.
Paint some pictures in your head and choose the one that feels great regardless of the logic. It’s your life. Live it.

For resources to evaluate the cost of homeownership check out my website here.

Monday, March 17, 2014

Will Rising Interest Crush Your Home Ownership Dream?

Attention buyers and agents. I don't want to try and predict the future or scare people into making quick decisions. But lets be honest for a minute. Most economist are saying we can expect to see rising mortgage interest rates in the next year. Honestly it would be a really good thing for the overall economy but thats not the point of this post. 

Rising interest rates will slow down the housing boom if rates rise more than half of a percent. Interest rates are most likely going to jump up quickly again like they did last year. Take a look at the 3 year chart from Bankrate.com below.

We enjoyed a great run there for a while. But if you look at around June of 2013 we saw a very quick increase. Between May and July we saw an increase of nearly 1%. To give you an aidea of how much that affects the normal persons buying power lets look at an average loan in El Paso. 

Purchase Price: $120,000
Down Payment 5% or $6,000
Monthly Principle and Interest at 4.5% = $578
Add Taxes, Insurance and PMI = $418.00
Total Monthly Payment = $996.00

Now lets assume the rate is 5.5% as many experts expect in 2015
Purchase Price: $120,000
Down Payment 5% or $6,000
Monthly Principle and Interest at 5.5% = $647
Add Taxes, Insurance and PMI = $418.00
Total Monthly Payment = $1,066

A 1% rise in mortgage rates translated into a $70 monthly increase in payment. The larger the mortgage the larger the payment increase.

Over a 7 year period (the average time americans stay in the same home) you would have spent an additional $5,880 on monthly payments by waiting. The bummer about interest rate increases is they usually catch peopl off guard and are very quick. Interest rate drops seem to happen more gradually. 

You can play with your own numbers on my website here to see how a rate increase would affect your home buying plans.



Monday, January 27, 2014

What's My Rate?

Why is my APR 5% when you said I was getting a 4.625% interest rate on my loan? this is one of the most common questions we get on a mortgage when folks review their Disclosure Forms. I want to shed some light on this situation for you. I came across this post on Activerain the other day and thought it would be helpful for you all. I'm not too proud to shared great work from other lenders around the country so please take a minute and read what George Souto has written on the topic. If you still have questions on the subject please leave a comment and we will open up a discussion here.
And keep in mind, if you are comparing several lenders the greater the difference between the APR and the interest rate, the more expensive your loan is. So don't just go out and pick a lender based on the quoted rate.
ORIGINAL CONTENT BY GEORGE SOUTO NMLS #65149
One of the most frequently asked questions I get from Borrowers when we go over the Truth In Lending Statement is Why Is The Annual Percentage Rate (APR) Higher Than The Interest Rate?  The (APR) is probably the most misunderstood and confusing elements in the loan process. 
The APR is not only confusing and misunderstood by Borrowers, it is also confusing and misunderstood by Loan Originators as well.  If you doubt that, just ask the next Loan Originator you speak to, to explain what the APR is, and what fees go into the APR calculation?  The odds are most Loan Originators are not going to be able to provide a good answer, or will most likely give a very vague one.  So if those who make a living originating loans have a difficult time explaining how the APR is arrived at, how can anyone expect a Borrower to understand it?
Let's first make one thing very clear, the APR is NOT an interest rate.  The interest rate is the rate which makes up the interest portion of a mortgage payment.  As oppose to the APR which is simply a calculation that is expressed as a percentage (%) which is suppose to reflects the Lender Fees in a loan.  The purpose of this figure (APR) is to give a Borrower a quick and easy way to determine which Lender has the higher fees.  So if two Lenders have the same interest rate for the same loan product, the Lender with the higher APR has the higher Lender Fees.
That in a nutshell is all the APR is meant to be.  If those reading this blog remember nothing else, please remember this:
  • The APR is NOT an Interest Rate
  • The APR IS is a percentage which reflects costs
  • The intent of the APR is for Shopping Purposes
It is interesting how the APR percentage is arrived at.  The government takes the base loan amount and subtracts the fees which make up the APR from it.  So if the base loan amount is reduced, but the monthly principle and interest figure remains the same, the result in a higher percentage which reflects the Lender Fees.
The most common Fees that go into the APR are:
  • Points
  • Processing Fee
  • Underwriting Fee
  • Closing Fee
  • Application Fee
  • Appraisal Review Fee
  • Lender Inspection Fee
  • Wire Transfer Fee
  • Flood Certification Fee
  • Broker Fee
All these are not charged by all Lender, generally a combination of these fees are what is charged and they vary from Lender to Lender.  But these are among the fees most commonly charged which make up the APR.  The important thing to remember is that any fee which is Lender related is part of the APR.
Fees that are NOT part of the APR are:
  • Title Fee
  • Attorney Fee
  • Recording Fee
  • Credit Report Fee
  • Appraisal Fee
  • Notary Fee
  • Home Inspection Fee
  • Taxes
  • Homeowners Insurance
  • Re-Inspection Fees 
I hope the above explanation has made it easier to understand Why The Annual Percentage Rate (APR) Is Higher Than The Interest Rate?
Note:
One more thing, a Lender is required to state the APR every time the Lender quotes an interest verbally or in writing. 
- See more at: http://activerain.com/blogsview/4310538/why-is-the-annual-percentage-rate-apr-higher-than-the-interest-rate-#sthash.5B9eBkXL.dpuf

As always, please make comments below with any questions you may have on this topic or other lending and real estate related topics. Thanks for stopping by.


Friday, January 3, 2014

It's a new year...In case you hadn't noticed

To get this year kicked into high gear, we are putting on a special free event. You have plenty of time to get it on your calendar so please save the date now!

This is for our realtor partners around El Paso so if you aren't in real estate you can ignore this one.



Lunch is provided and a happy hour mixer after the presentation. Please let me know if you can make it and invite your real estate partners and associates.

Let's make 2014 the best sales year ever for you!

A huge thanks to our sponsoring partners: 

Christina Dominguez, First American Home Warranty
Vianey Martinez, Premier Insurance Services
Steve Raney, Texas Title


Thursday, January 2, 2014

QM Rules Continued

As promised I am continuing to provide insights on the QM Rule changes that are coming next week. The good news is, it won't affect a lot of our clients who use Government backed loans such as VA or FHA.

In my research I found a really good, short and to the point post from another professional. I am going to share her post and give you a link to her site. I don't usually like to promote competitors sites but I think she did a really great job of simplifying the issue for us.

Here is what she posted on December 18th.

Qualified Mortgage Rule Changes – What You Need to Know

There has been a lot of news surrounding the latest mortgage rules (often referred to as “Qualified Mortgages” or “QM,”) which will be implemented January 10, 2014. These new rules, instituted by the Consumer Financial Protection Bureau (CFPB), are designed to protect you and hold lenders legally responsible for the loans they approve.
As a bit of background, the CFPB was established in 2010 as part of the Dodd-Frank Act; the financial reform bill passed and signed into law in the wake of the financial crisis. The Act itself protects consumers from deceptive practices in the financial and banking industries, including excessive fees and bait and switch tactics.
The CFPB’s job is to ensure federal consumer-related financial laws are executed. Some of the CFPB’s responsibilities include: drafting rules; overseeing financial institutions; sanctioning federal consumer protection laws; observing financial markets for inequitable consumer risks; bolstering consumer financial education; and examining consumer trends.
The most recent CFPB provisions governing mortgages, the Ability to Repay (ATR) and Qualified Mortgage (QM) rules, ensure that:
  • Consumers are able to repay the loan for which they’ve applied:  If you’ve applied for a mortgage any time after 2008, you’ve likely noticed the increase in paperwork requested by your lender. Thefinancial documents requested are part of the “Ability to Repay” rule which states that every lender must take steps to confirm that consumers can reasonably repay the loan.
  • Consumers will be qualified using 43 percent gross income versus 45 percent for non-agency and non-government loans: Debt-to-income ratios are used to qualify consumers for a mortgage – this percentage tells the lender whether or not you can afford the loan. The new requirement of 43 percent is a small change and equates to a minimal monthly payment difference. Let’s look at the math: using pre-tax monthly income of $50,000 per year and assuming no other major monthly debts, the maximum monthly mortgage payment (including taxes, insurance, assessments, and mortgage insurance) allowed under the qualified mortgage rules will drop from $1,874 to $1,791, or $83 per month. For most buyers, this means the total size of the loan they will qualify for under the new rules will be reduced by several thousand dollars.  
  • Consumers are not being offered risky loans:  While there aren’t as many risky loan programs available today as in the past, the CFPB classifies some mortgages that include features such as: balloon-payments, interest-only, negative-amortization, and loan terms of more than 30 years amortization as “risky.”
  • Consumers are not charged exorbitant fees:  The CFPB considers fees exorbitant when they exceed 3 percent of the loan amount for any loan over $100,000. For loans under $100,000 the percentage threshold is adjusted, as reasonable loan fees may surpass the 3 percent requirement for smaller loan amounts.
Moving forward, lenders will carry greater legal liability for those loans closed outside of the ATR/QM rules. Additionally, those loans which fall outside of the QM guidelines may become difficult to sell on the secondary market to lenders such as Fannie Mae and Freddie Mac. Ultimately, the new rules hold lenders legally responsible for ensuring consumers can afford their purchase and as a consequence, mitigating the risk of default.
Loans which fall outside of the QM requirements such as jumbo loans or loans which offer risky features like negative amortization or interest only options are not backed by Fannie Mae or Freddie Mac, and thus will need to be held in a lender’s portfolio.
There are several real estate-related loan types that will not be subject to the new ATR/QM rules, including:
  • Second mortgages;
  • Time share plans;
  • Reverse mortgages;
  • Bridge loans with less than 12 month terms; and
  • Credit transactions secured by vacant land.
Some home buyers have expressed concern that the new rules will limit the ability to buy a house or choose a lender, but chances are you won’t notice the difference. Most of the loans made today—indeed, most loans made since the financial crisis—have not fallen far beyond the current QM rules. Some lenders will still continue to offer loans that do not meet the QM guidelines; however, it will likely require more documentation on the part of the buyer, since the lender will be taking on additional legal responsibility.
If you are currently shopping for a mortgage, or plan on purchasing a home in the near future, contact a mortgage professional to discuss the impact of the recent rules and how they might affect you.  
More information is available on the Consumer Financial Protection Bureau website
There is a ton of information on this subject and I will continue to look for simple explanations to help bring clarity to the matter.

Monday, December 23, 2013

Success Stories

Over the past few years there has been a lot of buzz about how difficult it is to get financing for a home. Well, I am going to feed a different buzz here for the next few posts.

Just this month, we have helped some clients with some very difficult and interesting situations. Here's a quick recap of a few of them.

A single woman with limited income (as in under $1,100 per month income) wanted to buy a Fannie Mae Repo home. The cool thing about these homes is the the Fannie Mae Home Path loan program. It allows a buyer to put down only 5% and purchase a home with no Mortgage Insurance. Another side benefit is there is no appraisal required. So, we were able to qualify her for this program and get her loan closed well before the contract date. Our professional staff is totally dedicated to making loans to people who are qualified, regardless of how much effort it takes to make it happen.

We had a client who went to three lenders in town and each one only qualified the buyer for $100,000 in financing because of how they calculated income. Our dedicated team would not accept this, we put our skills to work and took the time to calculate the income correctly and helped our client buy a home. The final loan amount was nearly $160,000 and they are thrilled!

Another client had been turned down by one of the biggest lenders in town simply because they had three jobs in 12 months. This was easily overcome because we look at the whole picture with each borrower. We don't give up just because it's not easy!

Big news coming to El Paso soon. We will have our own underwriter and closer right here in our local office. This will allow us to offer even better, faster service to our clients. Come grow with us, we are the premier lender in town. Let us prove it!

Tuesday, December 17, 2013

Attention Realtors---Must Read Post

Attention Texas Real Estate Agents! This post is for you and I would encourage you to become familiar with the changes coming up that will affect your business. You can count on Security National Mortgage to continue to educate you about the changes as they take affect in 2014 and as they are modified in the months to come.

What is the general ATR (Ability To Repay)
standard?
Under the general ATR standard, you must make a reasonable, good-faith determination before 
or when you consummate a covered mortgage loan that the consumer has a reasonable ability to 
repay the loan. 

What are the eight ATR 
underwriting factors I must 
consider and verify under the 
rule?
A reasonable, good-faith ATR evaluation must include eight ATR underwriting factors: 
1. Current or reasonably expected income or assets (other than the value of the property that secures the loan) that the consumer will rely on to repay the loan 

2. Current employment status (if you rely on employment income when assessing the consumer’s ability to repay) 

3. Monthly mortgage payment for this loan. You calculate this using the introductory or fully-indexed rate, whichever is higher, and monthly, fully-amortizing payments that are substantially equal.

4. Monthly payment on any simultaneous loans secured by the same property 

5. Monthly payments for property taxes and insurance that you require the consumer to buy, and certain other costs related to the property such as homeowners association fees or ground rent.

6. Debts, alimony & child support payments. 

7. Monthly debt-to-income ratio or residual income, that you calculated using the total of all of the mortgage and non-mortgage obligations listed above, as a ratio of gross monthly income 

8. Credit history, the rule does not preclude you from considering additional factors, but you must consider at least these eight factors. 

How do I determine ATR?
Our organization is responsible for developing and applying its own underwriting standards and 
making changes to those standards over time in response to empirical information and changing economicand other conditions. Implementation Tip: When determining ATR, you have to verify only the income or assets used to qualify the consumer for the loan. Implementation Tip: When the consumers’ applications list debt that does not show up on their credit reports, you must consider that debt in assessing either the consumers’ 
debt-to-income ratios or residual income, but you do not need to independently verify that debt.  17 
To help your organization incorporate the ATR concepts into its operations, the Bureau has prepared some examples that illustrate how your internal policies can influence your ATR determinations. 
The list below is not a comprehensive list of all the ways your underwriting guidelines might measure ATR. 
Each of you must look at the issue of ATR in the context of the facts and circumstances relevant to your market, your organization, and your individual consumers. Given those caveats, here are some of the types of factors that may show that your ATR determination was reasonable and in good faith: 

 Underwriting standards: You used standards to underwrite the transaction that have 
historically resulted in comparatively low rates of delinquency and default during adverse 
economic conditions. 

 Payment history: The consumer paid on time for a significant time after origination or reset of an adjustable-rate mortgage. Among the types of factors that may show that your ATR determination was not reasonable and in good faith: 

 Underwriting standards: You ignored evidence that your underwriting standards are not effective at determining consumers’ repayment ability. 

 Inconsistency: You applied underwriting standards inconsistently or used underwriting 
standards different from those you used for similar loans without having a reasonable justification. 

 Payment history: The consumer defaults early in the loan, or shortly after the loan resets, 
without having experienced a significant financial challenge or life-altering event. 
The reasonableness and good faith of your determination of ATR depends on the facts and 
circumstances relevant to the particular loan. For example, a particular ATR determination may 
be reasonable and in good faith even though the consumer defaulted shortly after consummation 
if, for example, the consumer experienced a sudden and unexpected loss of income. 
If the records you review indicate there will be a change in the consumers’ repayment ability after 
consummation (for example, they plan to retire and not obtain new employment, or they plan to 
transition from full-time to part-time work) you must consider that information. 

Ok that is enough for today! I will be posting pieces of the rule between now and the end of the year. I don't expect you to remember all of this so you can refer to http://files.consumerfinance.gov/f/201310_cfpb_atr-qm-small-entity_compliance-guide.pdf for the complete rule. As ammendments come out I will try to stay on top of those here as well. 

You can expect some lenders to get even more picky and careful about accepting income verification and making exceptions on Debt Ratios. It will be wise to prepare your clients to document everything, especially if they are self employed.
NMLS #3116