Category: Home Ownership

Operation Homeowner

 

In the early days of Word War II, before the United States joined in the fray, England’s European allies were quickly and systematically falling to the Nazi war machine. England, on its tiny island, was the David to Germany’s Goliath. Germany had an unparalleled advantage with an abundance of technological, industrial, and intellectual wealth at their disposal. Winston Churchill, the Prime Minister of England in these dark days, had no illusions about the Nazis’ power and resolve, but he refused to bow to what so many of his fellow citizens thought was inevitable: the surrender of Great Britain’s sovereignty to Adolf Hitler. Mr. Churchill knew he was outgunned and outmanned, and he had few allies. The only way he and his nation were going to gain an edge over the Germans was through creativity.

One such occasion, Operation Postmaster, involved an island off the coast of West Africa that was under Spanish control. At that time, Spain was neutral in the war, and there were certain rules of what you could and couldn’t do in neutral territory. The Italians had parked a large ship in the island’s tiny bay and turned it into a listening post for German U-Boats to hunt and destroy England’s ships in those waters. Alongside the Italian ship were parked two German ships that acted as support. This was really a no-no, but the Spanish governor of the island looked the other way. It was absolutely critical that these ships and their operations be neutralized, but destroying them would be an act of war committed in a neutral territory – this would not help England’s cause. They chose a more piratical solution.

On an moonless evening, a small group of commandos slipped into the small island’s harbor aboard two tugboats. On shore, English spies threw a large party for the Italians and Germans so the ships were virtually unmanned. While the party was in full tilt, the commandos boarded each vessel, destroyed the moorings, and tethered the Italian ship to one tug and the two German ships to the second tug. On board the Italian ship was a small crew of men who had not gone ashore, and they were summarily taken prisoner. As the party continued into the small hours of the morning, the tugboats whisked the Axis ships away and towed them out to international waters where an English battleship commandeered them as spoils of war. No casualties, and no violation of the rules of war. If it could ever be proven, the worst the English could be found guilty of would be grand theft boat (is that a term?) or “piracy” – which would fit nicely with their heritage.

Creative thinking is crucial in this business. A gentleman excitedly called me recently to ask about a hard-money option to finance the purchase of a home that he wanted to fix and flip. When I told him about the terms, interest rate, and down-payment requirements of a hard-money loan, his excitement turned to gloom, and he almost hung up on me. I told him he actually had three other options that had better interest rates, better terms, and no down-payment requirements. Recently, I worked with a woman who is self employed and didn’t have close to the necessary income to purchase a home on her own, and a co-borrower wasn’t an option for her. I then told her about another option that would enable her to purchase a home in her current circumstances, and she was excited. What are these options at which I’ve hinted? They’re not secret, but they are creative – creative enough that a lot of other lenders wouldn’t think of them at all. Give me a call and let’s discuss your plan of attack!

Odds Are in Your Favor

 

According to the US Census Bureau – that bunch who make every party worth attending – the homeownership rate for the first quarter of this year is 64.2%. In comparing that number against the same time last year, they stated, “The homeownership rate of 64.2% was not statistically different from the rate in the first quarter 2017 (63.6%).” While they may not find a .6% increase to be “statistically different”, I beg to differ.

According to this same bunch of party animals at the US Census Bureau, there are over 251 million people living here in the United States over the age of 18 years old. When you multiply that number by .6%, you get over $1.5 million MORE people who became homeowners. I’d say that’s VERY significant.

Before any of you get all technical and wonky on me by saying, “Well, sure, 64.2% is a pretty great number, but that means that there’s still 35.8% of us who aren’t homeowners – and when you multiply that number by the adult population of the US, that’s a big number.” I won’t argue that with you on the face of it, but let me give you a little perspective. There are MANY parts of the country where people CHOOSE to live where homeownership is next to impossible. A prime example is New York City. There are millions of people who rent in Manhattan and its surrounding boroughs – due to space and cost, owning isn’t really an option. This same “problem” applies to many metropolitan areas and even large swaths of the state of California. When you take those numbers and remove them from the adult population, the number goes down significantly, and you start to see that homeownership is VERY possible.

It comes down to choice, really. In some cases, it’s a very touch choice, but it’s still a choice. Many will argue that they have to live in a certain part of the country because of their job or a family arrangement. That’s fair . . . but what landed them where they are was the result of a choice (and it may have been the lesser of two evils in some cases). If it’s saving for a down payment versus going on a once-in-a-lifetime vacation to Europe (or Cleveland) or making major changes in your lifestyle for the next 18-24 months to pay down debt to clean up your credit score or actively looking for a job (that might even pay a little less) in another part of the country that is a little friendlier to homeownership, it’s your choice – and it’s in YOUR control.

Let me close this out with two statistics: The odds of dating a supermodel are 1 in 88,000.  The odds of getting a royal flush in poker are 1 in 649,739.   Yes, if you do the math, that means you are seven times more likely to date a supermodel than sitting down at a poker table and drawing a royal flush, but I wouldn’t rely on either one as a means of buying a house. You can’t control how you look or how the cards are dealt, but you CAN control how you spend your money – and THAT’s a power no one can take away from you.

Home Ownership – It’s in Our American DNA

Home Ownership

 

Each week, I’ve tried to take both simple and complex mortgage-related topics/issues and put them into terms here in this newsletter that make them more easily understood.  Since I’ve been doing that for quite a while, I have to be honest and admit this: I’ve come up dry this week on what to talk about, so I thought I’d do a little internet research (I believe the technical term is Googling) into what mortgages are like in other parts of the world –and after a relatively brief Googling, I’ve found that we here in the United States, well, have it pretty good.  True story!

Home Ownership in other countries

In a lot of other developed countries, mortgage interest isn’t tax deductible at all or there’s only a very limited tax benefit to be enjoyed from it –in Germany, they give tax incentives to encourage people to continue RENTING!  In many of those same countries, a 30-year fixed mortgage is only a thing of myths.  What? How do they afford a mortgage in other countries?  Here’s a breakdown of what is most common in some of these countries:

Canada, Britain, Australia, New Zealand:  no fixed-rate loans, only Adjustable Rate Mortgages and Hybrid ARMs with fixed rates for only 10 years.

Germany:   fixed-rate loans up to only 15 years, ARMs and interest-only loans.

Japan:  fixed-rate loans up to only 20 years, ARMs.

Switzerland:  generally, it’s a first and second mortgage; the first has an indefinite repayment period while the second has a fixed repayment period up to 15 years (or until an individual’s retirement age) at a higher interest rate.

I learned two other interesting tidbits:

Prepayment Penalty:  in the US, you can get a loan with NO prepayment penalty; in other countries, the banks/lenders have a guarantee that they get their interest even if you pay off your mortgage early.

Non-Recourse Loans:  these are available in the US, which means you can lose the property if you default on payment, but the lender cannot seek further compensation from the borrower even if the property’s value doesn’t cover the full value of the defaulted amount; in other counties, they can come after you and your assets and metaphorically bleed you dry to get back the full value.

As difficult as it is to save for a down payment –whether it’s 5% or 20% –the sacrifice is worth it because home ownership isn’t just possible, it’s encouraged here in the United States.  If this doesn’t convince you that it’s better to buy than rent, maybe it’s time to learn German and move.

For anymore information you may need at Priority Lending LLC we can help make things clearer for you.