Tag: prioritylending

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.

Humble Pie Tastes Awful

 

Recently, a friend of mine sent me a link to a story with a note that read, “This will make you laugh.” My friend hasn’t been wrong before, so I clicked on the link and gave it a read. I’ll recreate it here and let you decide if my friend chose well.

The author of the story had been working hard and felt a small headache coming on, so he decided to take a break and get some lunch at a local Burger King. The line to place an order was fairly long (who knew Burger King as that popular?), and it was moving rather slowly. While he was waiting for the line to move at its glacial pace, a woman and her son had taken up a place behind him to wait. The woman was jabbering away on her cell phone at a decibel level probably akin to that of a 747 firing up its engines to ready for takeoff, and she wasn’t paying attention to her son.

The author’s slight headache was growing as the woman yammered on about something that was more appropriate for a discussion to be held in the privacy of a doctor’s office, and the child at her side was making it very clear that he was tired of waiting in line and that he wanted a pie. Spying the front of the line, the author noticed that the restaurant’s manager had chosen the lunch hour to train a new cashier who wasn’t exactly catching on that quickly. The headache grew.

As the woman behind him continued to speak on her cell phone, completely oblivious both to the unwritten rule of society that there are things you don’t talk about in public and her son’s growing volume in letting his mom (and everyone within earshot) know that he wanted a pie, the author turned around and asked the woman if she would please speak a little more quietly and rein in her son. She exploded and told the author how rude he was; she then looked down at her son and assured him that he would get his pie to make up for the rude man in front of them. The headache has now reached migraine levels.

At last, the author made it to the front of the line and instead of placing his order for the burger-and-fries combo he had originally intended on buying when he had decided to hop over to Burger King for a break from work, he asked the cashier how many pies they had on hand and ordered them all: 23 pies in all, to be precise. As he was handed his bags teeming with his order, he heard the woman behind him step up and place her order and her son’s request for a pie. Upon being told that they were completely sold out, the woman asked who had ordered all the pies because she had seen them behind the counter when she and her son first walked into the restaurant. The hapless cashier pointed to the author and told the woman he had purchased all the pies – and the author, while taking a bite into one of the pies and heading out the door, looked the woman in the eye and just smiled.

The sale and purchase of a home, no matter what anyone says, is an emotional transaction. Sure, you can run the numbers and make sure it’s a good decision financially, but the ultimate trigger is emotional – sort of like falling in love. While the author of the link I read began his quest for lunch simply as a need to get some food to tamp down a headache, emotion caused him to pay more than he had intended and walk away with something he really didn’t want. The woman didn’t fare any better either as she was stuck with a deal that didn’t get her any closer to her goal. Remember this the next time you’re buying/selling a home: if you don’t keep your emotions in check, you could end up eating humble pie – and that’s not tasty!

Herding Cats: Notes From an LO

Cats in the street

 

Someone much wiser than I once told me that there are always three sides to a story: Party A’s side, Party B’s side, and the truth. In the mortgage/real estate world, that’s especially poignant.

On a recent transaction, the real estate agent representing the sellers was eager to get the appraisal ordered –we had a short escrow, and she wanted to make sure there were no delays.  I don’t blame her at all, as it’s her job to keep the sellers’ interests at the top of her priority list.  When I conferred with the buyers’ agent, I learned that the inspection had JUST been completed, and he and his clients had just sent over their response for what they wanted to see repaired.

I reminded the buyers’ agent that, while I didn’t wish to delay the transaction either, we needed to be mindful of certain aspects of the appraisal process.  In this instance, if the appraiser went out and did her/his job before the repairs were completed, there’s a strong possibility the buyers would have to pay an additional $150-250.  Why?  If the appraiser included mention (and photos) of these unrepaired items in her/his report, the underwriter would require the appraiser to go back out to the property to confirm that the repairs had been completed.  The underwriter is not going to accept a note and a pinky promise from anyone else that this has been done –only the appraiser can confirm this.  And if this were to be required, the appraiser would charge a return-trip fee, and the buyers would be the one paying that fee.

We explained all of this to the buyers so they could decide with their agent how they wanted to proceed –all agreed to have the other agent stress to her sellers that these repairs needed to be made quickly (and correctly, of course) so the appraisal could be ordered in a timely fashion.  As an aside, one of the repair items was exposed wires in an exterior sprinkler box (the timer most likely), and one of the buyers laughed and said it could probably be “fixed” by closing the box before the appraiser showed up.  No argument there, but I wouldn’t want the buyers to have to pay $150-250 because someone forgot to close that box.  The buyers agreed with me.  And herein lies the dilemma:

Party A’s side (sellers): we’re busy professionals, and we’ll get to the repairs when we can, but we don’t want the transaction being held up.  We’ve given you concessions, so work with us.

Party B’s side (buyers): we met your asking price on the house, so all we’re asking is that you get these items repaired quickly. We’re going to need that extra $150-250 for “house stuff”.

The truth: the underwriter isn’t going to fund this transaction until all the repairs are made and nothing appears on the appraisal that would adversely affect the “lendability” (I’m pretty sure there’s a better word for that) of the home.

In all of this, my job is to spread my arms wide and keep everyone (including the underwriter) moving in the right direction –it’s often like herding cats.  Regardless of how we get there, as long as everything closes on time, I’ll take my scratches –I can always make up a really cool story about how I got them.

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.

Run, Don’t Walk!

stop light

 

Full disclosure: this is a reprint from a few years back – I’ve updated the numbers to reflect the conditions occurring in the market today.

The New York Federal Reserve’s economists conducted a study and published the results: changes in down payment requirements have MORE influence over homebuyers’ willingness to buy than changes in rates.  Surveying both buyers and renters, the Fed found that the effect of interest rates may be overrated when compared to even small changes in down payment requirements. The study found:

•  Dropping the down payment from 20% to 5% increases the willingness to purchase, on average, by 15% among buyers and 40% among renters
•  Decreasing the interest rate on a 30-year fixed-rate loan only raised the willingness to purchase by 5%, on average

As you straddle the fence between BUY RIGHT NOW with a higher interest rate and WAIT AN UNKNOWN PERIOD OF TIME to save 20% of the purchase price, here’s an example to give you a push.  Take a look at the numbers for a house with the purchase price of $250,000 with a 30-year fixed mortgage:  (1) WAIT: $50,000 down payment, $200,000 total loan amount, 4.5% interest rate, monthly mortgage (P&I) payment – $1013.37; OR, (2) BUY NOW: $12,500 down payment, $237,500 total loan amount, 4.875% interest rate, monthly mortgage (P&A) payment – $1256.86.

No doubt $1013.37 is better than $1256.86 for a monthly payment – that’s not what’s at stake here. The difference between those two payments is $243.49. In order for a person to save the additional $37,500 to go from a 5% down payment to a 20% down payment at the rate of $243.49/month, it would take 154 months – 12 years and 10 months! – to get to that point, which is almost half the life of a 30-year mortgage. Obviously, for many prospective buyers, that additional $244issignificant.  We have a number of strategies to help make up that difference so you can get into a home as soon as possible!

When this was originally written, interest rates were fairly steady –even stagnant –so the scenario of waiting to amass a larger down payment to get a better interest rate was much more plausible. As we’ve seen recently, though, rates are not going to be stagnant –this is not a pronouncement that they’re going to skyrocket overnight –so this has taken on a greater sense of immediacy to get into a home rather than sitting on the rental sidelines for who knows how long.

Contact Priority Lending

Priority Lending, LLC

8035 N Oracle Rd
Tucson, AZ 85704

520-531-1119

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