HOME FINANCING MATTERS: Don't Wait To Buy A Home

Home Financing Matters: Don’t Wait to Buy A Home

by Richard Swan

A client came to my office recently and indicated that she wanted to look at buying a home in about 5 years.  “Why wait so long?”, I asked.  She told me that she attended a financial workshop at her church and what they had learned was not to buy a house until you can afford to do a 15 year loan.  I said, “Wait a minute, somebody is trying to sell you a bridge in New York.”

The main thing left out of the self-proclaimed guru handbooks on financing is that everyone has to have a place to live.  How you choose to do that will be the answer to your financial success.  With this particular woman, she was living in an apartment and paying about $900 per month in rent for 2 bedrooms, a kitchen, and a living room.  I told her that she could have more than that amount of room, plus a garage for less than what she was paying in rent.  “How?”, she asked.

You can buy a home in Tennessee for very little money down and in some cases with no down payment.  Rates right now are still extremely low and the difference in the cost of a 15 year loan and a 30 year loan is very small; maybe $5,000 over the life of the loan.  In two years, you will have spent $21,000 in rent with nothing to show for it.

In the five years she was intending to wait to buy a home, she could have $6,000 to $9,000 in equity already built in, without the added appreciation that most people see from their real estate investment of 2%-3% per year.  For most people who work for someone else in a clerical, manufacturing, office, or retail position, their home represents their biggest investment.  Many of those same individuals spend years, and thousands of dollars, wasting money on rent.

If you are currently living rent free with family or friends, then do that and set money aside to save for a house, but if you are currently renting and would like to talk about buying a house then give me a call to discuss your options.

If you have questions about financing options or credit scores, call me at 865-742-3384.

Copyright ©2015 Richard Swan

This blog is for informational purposes and is the opinion of the writer.  In financial matters always solicit professional advice and legal counsel if necessary.  

Home Financing Matters: What is a Reverse Mortgage?

Last week a Realtor called me asking about Reverse Mortgages and his underlying tone was really asking, “Are they safe?”  That started about a 30 minute conversation about the nature and purpose of a reverse mortgage.

Reverse mortgages are like any product or service, they are as good as the people behind them.  The risk to any undertaking is understanding the company you deal with and the guarantor behind the program.  FHA offers a reverse mortgage and its purpose is to help older individuals, or couples, stay in their home while reducing their monthly expenses.  Borrowers must be at least 62 years old at the beginning of the mortgage period and there is no limit as to how long they can occupy the home as their primary residence.

The borrower continues to own the home throughout their lifetime and is responsible for the maintenance, yearly taxes and insurance on the home, but never has to worry about making a monthly mortgage payment.  As long as at least one of the borrowers is able to continue to live in the house as their primary residence, then the house remains in their possession.  At the time of their death, the lender would give the family or their heirs up to 12 months to sell the property, and they would still be entitled to any equity but could not be held responsible for any loss on the lender’s part.

Reverse mortgages serve a purpose to allow elderly individuals on a limited income to remain in their home, while reducing their monthly housing expense by reducing their mortgage payment.  As with any loan product, borrowers should thoroughly discuss their loan with the lender and satisfy themselves with their options.  The one great thing about an FHA Reverse Mortgage is that it requires the borrower to go through a HUD/FHA approved counseling course before any decision is made.  

The course is taught by a third party not associated with the lender and the borrower must complete the course before the loan process begins.  A reverse mortgage may not be for you, but talk with your family, your lender, and a counselor before you rule it out.

Copyright ©2015 Richard Swan

This blog is for informational purposes and is the opinion of the writer.  In financial matters always solicit professional advice and legal counsel if necessary.  

If You Don't Use Credit, You Don't Have Any Credit!

This morning I received a phone call from a good friend, who started by saying, “I have a friend . . .” No honestly she really did say that. Anyway, her friend has paid off her mortgage, paid off the car loan, and paid off and closed her credit card accounts. She is totally debt free.

Knowing that she should be a great candidate, she went to her lender to talk about a new mortgage and found out that she currently has no credit scores. When her lender told her to go get a credit card account and come back in six months, she was shocked. In her defense, she has always had great credit, paid everything on time, and never been overwhelmed by debt. Why would she not be a stellar candidate for a loan?

Credit models have tightened up like everything else and the last six months to a year of your credit history is more important than ever. If nothing is there, then the credit repositories don’t want to recommend you as a good credit risk.

Credit counseling and advice is a big part of what I spend time talking with my customers about. Although I warn them against doing anything while we are in the mortgage loan process, I speak very candidly with them about developing and maintaining their credit history throughout their lives.

So, here is the 20 second version that I recommend to my customers:

• Always maintain at least (2) open credit card accounts.
• Never close credit card accounts unless you are having a problem with that particular credit card. The date opened of the oldest card you have is significant also.
• Use your cards routinely every 3-4 months.
• Always make at least the minimum monthly payment, if you miss the due date, pay it before 30 days passes
• Keep your open balance(s) below 50% of the credit limit(s) of your credit cards, this shows good utilization of credit

One last item of advice, never co-sign for anyone on anything unless the bill is coming to you. The problem occurs that if they get into trouble making their payments, you will always be the last to know and by that time, it has destroyed your credit also.

Credit affects many things in your life including, background checks, security clearance, insurance rates, and what you pay for future loans. Be aware of what affects your credit and know how to maintain good credit.


© 2012 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.

Home Mortgage Rates Have Never Been Better -Talk About Your Options

Almost daily, a past customer, or new referral is calling my office to ask about a refinance. They usually begin the conversation with, "Is now a good time to refinance?" There will likely never be a better time than now.

With refinance rates around the 4% mark, this is a great opportunity for so many mortgage options (i.e., refinance, buy a second home, home improvement, debt consolidation, rate reduction, term reduction, purchase an investment property, etc.). Rates have never been this low in my lifetime.

If you look at buying power, a 4% rate on a $200,000 loan will save a customer about $88,000 over the 30 year life of the loan, versus a similar 6% rate. What could you do with $88,000? For investors, people purchasing residential properties for rental purposes, the cash flow potential for their property is significantly better.

The rental market, or fair market rent of a property, is driven by two factors, what the market will bear, and what a similar house could be purchased for at prevailing rates. If an investor purchases a home with a 4% rate, and then the mortgage market moves to 6.0-6.5% for new home buyers, then that investor will typically increase his monthly rent. If the renter can’t buy for what he is paying in rent, then the rental market remains strong. Although the property owner’s costs remained the same, he can typically charge more for the property and increase his profit margin.

Second homes are another strong market when interest rates get extremely low. Buyers are able to maximize their buying power, or minimize their monthly payment for a second home. Using a $200,000 loan at a rate of 4% versus 6%, the average borrower will save about $250 on the monthly payment at the lower rate. The monthly savings can be the decision maker about whether a second home is affordable or not.

While mortgage rates are low, many credit cards are still charging 18-22% for balances carried to the following month. Borrowers can consolidate debt and pay off those bills in a fraction of the time, saving thousands of dollars in monthly fees and interest.

If you have considered a refinance or purchase of real estate, now is the time to get off the sofa and make a call. While rates could drop in the future, you have definitely lost the opportunity if they go back up.

© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.

Bankruptcy and Foreclosure: How They May Delay Your Next Purchase

Almost all mortgage loan programs have restrictions on how soon after a Bankruptcy and/or Foreclosure you can purchase a new home. The minimum is typically 2 years after a bankruptcy and 3 years after a foreclosure; with re-established credit. The problem arises as to when those dates begin.

I recently had a customer that was three years past their bankruptcy discharge date and had re-established suitable credit. Their previous mortgage was included in the bankruptcy and was not contested by the lender. Unfortunately, they did not sign over their previous house to the lender with a quit claim deed and the lender went through the foreclosure process on the property. Although not contested by my borrower, the foreclosure process took 16 months to complete, adding 16 months before the clock even began running on their foreclosure.

Neither your attorney nor the judge understand the ramifications that a court proceeding may have on your credit and your ability to borrow in the future. I see this all the time with both bankruptcies and especially divorces. For now, let’s concentrate on the bankruptcy process.

During the bankruptcy, you can choose to either include the house losing the equity in your property, or you can choose to “re-affirm” that debt and continue with your payments. In my borrowers situation, they chose to walk away, not able to continue with the payments. What they should have done was to sign a quit claim deed and have it recorded, giving their rights in the property to the lender.

If you choose to re-affirm the debt, then there is also paperwork that you must complete with your lender. Otherwise, even though you never miss a payment, they will continue to report your mortgage as included in the bankruptcy and not show your current “good” payment history.

Your lawyer, and the judge, are only responsible for dealing with the matter at hand and do not look to see how that will affect you in the future. Speak with someone that understands how such an action can affect you going forward. If you know someone going through a bankruptcy or divorce, have them call me.


© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.

Is Now A Good Time To Buy A Home? Yes Virginia, It's a Great Time To Buy

The question that I have heard most over the last year echoes in my mind, “Is now a good time to buy a home?” My unequivocal answer is yes, but let me explain why I believe now to be a great time to buy.

The first and foremost reason is low interest rates. Borrowers can maximize their buying potential today, unlike any other time in modern history. Rates today are in the 4.0%-4.375% range for a 30 year fixed rate mortgage. At 4%, as opposed to 6%, on a $200,000 loan you will save $88,000 in interest over the life of your loan. That does not even take into consideration using the monthly savings (about 20%) to pay additional towards your mortgage each month to pay off your home early.

If you look at the difference in buying power, you can look at over a $250,000 house today for the same payment that a $200,000 house will cost you monthly; when rates rise back to 6%.

Secondly, home prices are very attractive. Many studies seem to indicate that we have reached the floor in home values. Some studies point to average home sale prices being comparable to 2003 values; this reflects a 30% drop in home values since June of 2006. While home prices vary from state to state, buyers are still able to find great deals and many foreclosed properties are still on the market.

While foreclosed properties appear very attractive based on their price, buyers should avail themselves of qualified professionals to evaluate the property. Many foreclosures suffer from deferred maintenance and may have problems that are far worse than they appear. Speak with a licensed contractor and obtain estimates on repairs during your evaluation process. While the price may seem attractive, repairs often push the property above the average sales price of similar properties on the market.

First Time Buyers and those currently renting benefit most of all from the current conditions, because they don’t have a property to dispose of at present. Many current homeowners’ have shown reluctance to take advantage of historically low rates, because of fear of selling their current home. This is a conversation to have with a Licensed Realtor. They can do a CMA (Comparative Market Analysis) of your home to determine a reasonable list price.

All in all, now is a great time to look at increasing your buying power in the real estate market. Low interest rates, coupled with low home prices, maximize your buying potential, allowing you to consider the home of your dreams.


© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.

Adjustable Rate Mortgages (ARM's) Still Have a Purpose

Recently, I recommended one of my customers close on an Adjustable Rate Mortgage (ARM) and they will save approximately $30,000 over a similar fixed rate loan. I don’t recommend ARM loans for most borrowers, but there are still instances where it saves customer’s money and may be their best option.

In this particular situation, the borrower had not listed their current home for sale, but wanted to take advantage of an excellent deal they found on a new home. Because of carrying both mortgages, their ratios were too high on a fixed rate product to allow them to qualify. Since their intent is to sell the other home, the 7 year ARM (fixed for the first 7 years of the loan) gave them a lower payment on the purchase and got their ratios in line. Once their other home is sold, they will more than qualify for a either a fixed 30 year loan, or the 15 year that they prefer.

During the 7 year period before the loan adjusts, they are saving approximately $32,000 over what another bank had offered them on a fixed rate. That savings will allow them to refinance to a 15 year loan with an even lower monthly payment, because of increased equity they have built up in the property.

In the past, many lenders have used ARM’s to allow borrowers on fixed incomes to buy too much house. The adjustment periods were for one to three year periods that really did not allow the borrower to build equity in their home. In many of those instances, the borrower may not have even understood the terms and conditions under which the loan would adjust. With the right borrower, and their understanding of the product, ARM’s still have a purpose and can help you build equity in your property.


© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.