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.
Wednesday, January 18, 2012
Wednesday, November 30, 2011
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.
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.
Wednesday, October 19, 2011
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.
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.
Friday, September 2, 2011
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.
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.
Friday, June 10, 2011
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.
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.
Friday, May 13, 2011
30 Year Loans As Low As 3.375% - Are They Real?
Customers call me all the time and say: “Hey, I saw a 30 year loan advertised by another lender for 3.375% on TV, are your rates that low?” The fine print at the bottom of the screen tells you it is an Adjustable Rate Mortgage (ARM), and yes we have rates that low.
ARM’s have a place for qualified buyers who understand the risk and can afford the adjustment; when it comes. Conventional ARM’s come in 3, 5, 7, and 10 year options and vary in rate. Right now, those products can be a very attractive alternative to a fixed rate and they are amortized over the 30 year life of the loan. Fixed rates today are about 4.625%, while a 5 year ARM is 3.375% and a 7 Year is 3.75%, almost a full point savings to the interest rate.
ARM’s are not products designed for borrowers in fixed income positions, or jobs with little opportunity for advancement or pay increases, because the rate will go up and if you cannot refinance you are stuck with a payment you may not be able to afford. Borrowers with reserves in the bank and with increased earning potential may want to look at an ARM as a way to maximize their home investment.
By making extra payments to the principal amount of the loan during the fixed period of your ARM, you reduce the amount that you will need to refinance when your rate increases. Remember that rates at the current time are at historically low levels and if you cannot afford a fixed rate today, you may have difficulty making your payment when that rate adjusts in the future.
A borrower who locks in to the lower adjustable rate now, but makes payments based on the fixed rate monthly amount, could reduce their principal balance and save $20,000-$30,000 in 5-7 years. Then when the rate is schedule to adjust, they can refinance a lower balance amount and still have a lower monthly payment because of the over payment for the last 5-7 years.
Your lender should be having these candid conversations with you at the time of your application, but if it doesn’t make sense to you, it probably isn’t the right loan to consider. If your lender is “pushing” an ARM because it will help you buy more house or have a lower payment, they may not be doing you a favor. Always deal with a reputable lender that is working for your best interest and not just to get “the deal.”
© 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.
ARM’s have a place for qualified buyers who understand the risk and can afford the adjustment; when it comes. Conventional ARM’s come in 3, 5, 7, and 10 year options and vary in rate. Right now, those products can be a very attractive alternative to a fixed rate and they are amortized over the 30 year life of the loan. Fixed rates today are about 4.625%, while a 5 year ARM is 3.375% and a 7 Year is 3.75%, almost a full point savings to the interest rate.
ARM’s are not products designed for borrowers in fixed income positions, or jobs with little opportunity for advancement or pay increases, because the rate will go up and if you cannot refinance you are stuck with a payment you may not be able to afford. Borrowers with reserves in the bank and with increased earning potential may want to look at an ARM as a way to maximize their home investment.
By making extra payments to the principal amount of the loan during the fixed period of your ARM, you reduce the amount that you will need to refinance when your rate increases. Remember that rates at the current time are at historically low levels and if you cannot afford a fixed rate today, you may have difficulty making your payment when that rate adjusts in the future.
A borrower who locks in to the lower adjustable rate now, but makes payments based on the fixed rate monthly amount, could reduce their principal balance and save $20,000-$30,000 in 5-7 years. Then when the rate is schedule to adjust, they can refinance a lower balance amount and still have a lower monthly payment because of the over payment for the last 5-7 years.
Your lender should be having these candid conversations with you at the time of your application, but if it doesn’t make sense to you, it probably isn’t the right loan to consider. If your lender is “pushing” an ARM because it will help you buy more house or have a lower payment, they may not be doing you a favor. Always deal with a reputable lender that is working for your best interest and not just to get “the deal.”
© 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.
Friday, April 29, 2011
Major Storms Across the Southeast Could Delay Your Closing
As many parts of the Southeast recover from a wave of storms that moved through the area, Realtors and Lenders may be surprised as their borrowers encounter additional costs and/or delays before closing. If you are currently in the process of buying a home, you may be contacted by your lender and told that you will have to have a re-inspection of your property completed by the appraiser.
Collateral is one of the main components in the lending process and in the case of buying a home, the structure itself is the value backing up the loan to protect the lender in case of default. Most lending guidelines have a disaster policy that goes into effect after major storms like, hurricanes, tornadoes, hail, etc. The purpose of these policies is to make sure that the home (the collateral) is still in the same condition as it was when originally appraised. As of this morning, the entire State of Alabama has been declared a disaster area by FEMA.
What that means for those in the middle of the loan process (in Alabama) is that the lender is going to require verification that the home is marketable at the same value and in the same condition as when it was originally appraised. Hopefully, this will just mean a short delay while the appraiser re-inspects the home. If the home was damaged, then repairs will have to be made and a possible decrease in value could occur.
If the property has not been appraised, then the appraiser is supposed to try and find comparables that have sold post disaster, or they must provide photos post disaster of the subject property and all comparables to show that no damage has occurred to either the home, or the comparable sales used in the appraisal report. As of right now, no areas in Tennessee have been declared “Disaster Areas” but as reports of actual damage are analyzed, this could be updated in the future requiring compliance. Make sure that you always deal with a lender that is on top of changes in their market and can anticipate these concerns.
As a Realtor, if you know that storms have passed through the area and caused damage to homes, you may want to be proactive with your buyer and ask the Home Inspector to re-inspect the property, just to make sure that the buyer is protected.
©Richard Swan 2011
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.
Collateral is one of the main components in the lending process and in the case of buying a home, the structure itself is the value backing up the loan to protect the lender in case of default. Most lending guidelines have a disaster policy that goes into effect after major storms like, hurricanes, tornadoes, hail, etc. The purpose of these policies is to make sure that the home (the collateral) is still in the same condition as it was when originally appraised. As of this morning, the entire State of Alabama has been declared a disaster area by FEMA.
What that means for those in the middle of the loan process (in Alabama) is that the lender is going to require verification that the home is marketable at the same value and in the same condition as when it was originally appraised. Hopefully, this will just mean a short delay while the appraiser re-inspects the home. If the home was damaged, then repairs will have to be made and a possible decrease in value could occur.
If the property has not been appraised, then the appraiser is supposed to try and find comparables that have sold post disaster, or they must provide photos post disaster of the subject property and all comparables to show that no damage has occurred to either the home, or the comparable sales used in the appraisal report. As of right now, no areas in Tennessee have been declared “Disaster Areas” but as reports of actual damage are analyzed, this could be updated in the future requiring compliance. Make sure that you always deal with a lender that is on top of changes in their market and can anticipate these concerns.
As a Realtor, if you know that storms have passed through the area and caused damage to homes, you may want to be proactive with your buyer and ask the Home Inspector to re-inspect the property, just to make sure that the buyer is protected.
©Richard Swan 2011
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.
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