You may have noticed on the evening news and the local papers all the bad press about mortgages lately. Specifically sub-prime, negative amortized ARMs a.k.a. payment option plans (which I am opposed to for 99% of the population), 100% financing and interest-only ARMs…to name a few. Many sub prime lenders are restating their earnings and are suffering losses. Some are closing their doors and the remaining are changing their underwriting guidelines. It use to be very easy to obtain 100% financing with a credit score of 600…some lenders would even consider 580. Now, the benchmark is 620. Throughout history, lenders change underwriting guidelines based on market conditions.
Your ARM May Not Be Broken
February 26, 2007 by Leave a Comment
How Strong Are Your Legs?
February 25, 2007 by 1 Comment
A borrower in a mortgage transaction is kind of viewed like a chair with four legs. The legs on the chair provide strength to the base or seat of the chair. If one leg is shorter than the others, the chair is still strong, but may wobble a bit. Shorten two legs and the chair becomes less stable. Three week legs and the chair is just waiting to tip over on you.
So how strong are the legs of your chair?
Consider each of these items as one leg in your chair.
- Employment. Having a minimum 2 year history in your line of work (this can include education). Employment gaps that don’t make sense to an underwriter, may cause issues with getting your mortgage approved. A lender wants to know that you are going to be able to keep your job and therefore, make your mortgage payments on time.
- Income. If paid salary and regular hours, this can be pretty easy to compute. When your hours vary, the income needs to be averaged. Also, if you’re paid bonuses or commission and going for the best interest rate (not stated income or no income verified), then your bonuses and commissions are typically averaged for the past two years. Debt-to-income ratios are crucial for qualifying for mortgages. A $500 car payment equals $50,000 less home that you can purchase.
- Savings and assets. There are many zero down loans, even if you are considering that route, it is in your best interest to have at least three months of your future mortgage payments in savings after all closing costs are paid. The more money you can put down towards a home, the better your interest rate will be.
- Credit Scores. Having scores above 680 are a worthy goal. A score 700 or more is even better! Pay your accounts on time. Keep your balances below 30% of the credit limit for the best scores. Take care of your credit and it will take care of you. Credit is reflective. If your credit score is on the low end, meet with a Mortgage Planner to help you develop a plan to improve your score.
All of these factors impact how a borrower qualifies for a mortgage. The more strong legs you have reduces the risk to the lender, which in turn means a better interest rate for you!
The Cart Before The Horse
February 22, 2007 by 2 Comments
Note: I was contacted by the fine folks at DFI with corrected information to this post regarding continuing education. My corrections are either striked out or bold.
This week has been a bit crazy with mid-winter break…our three kids all have different break schedules so our family is home instead of vacationing somewhere. This has provided me with a great opportunity to attend classes and seminars, which typically take a bit of coordinating with getting the kids to schools (they go to three different schools due to their ages).
Anyhow, on Monday, I went to a seminar by Dustin Luther. Dustin is the creator of Rain City Guide, a blog that I contribute to that has been a force in the Seattle Blogosphere for years. This was actually my first time meeting Dustin! And, the seminar was great. I learned about Web 2.0–how the consumer is directing the web instead of the web attracting the consumer. It was fascinating. He is truly genuine.
Yesterday, I took my first clock hour course to retain my State of Washington Loan Originator License. It kind of feels strange to take a course before passing an exam that is not yet available (hence the cart and horse photo…I was going for the cart before the horse…but it was taking too much time to find the right photo). I am assuming I’ll pass the exam once it’s available (or I will be adding a post with a photo of egg on my face).
The course is required for all Licensed Loan Originators during their first year of being licensed and is on ethics. This one was taught by NAMB. I wish it would have been an exam on ethics, instead this was a class or open discussion. I typically do not attend "lender functions". When I took the CMPS exam, I really enjoyed networking with the professionals who cared so much to fly from all over the nation to take the three day exam (25% did not pass the first test). I was very proud to be a Loan Originator (or what ever title you wish to call me) in the company of those fellow lenders.
At today’s class, I was fortunate to sit with two other fellows who I feel also have very high standards and ethics. And I do believe overall, the room was filled with the same caliber of people who truly care about serving their client’s best interest before there own. I mean, they are there spending their time BEFORE taking the exam. (You must pass the exam to retain your license…you can re-take the exam for $125 a pop). the cost for the exam will be determined by the exam provider and is anticipated to be around $50 -$60. DFI also recommends that BEFORE a loan originator spends their time and money on continuing education classes, they check DFI’s website to make sure the professional organization or individual course are approved for loan originators or mortgage brokers continuing education.
What was interesting to me is that when you survey a room full of people, ethics can become a bit blurry. I left the four hour class with my certificate…I have one more class and an exam to go before all of the criteria is met to REALLY be a Licensed Loan Originator.
Recently at Rain City Guide…
February 19, 2007 by Leave a Comment
I have been meaning to highlight post over at Rain City Guide on a more regular basis…I’m slipping! Here are a few I thought you might benefit from reading (or just click on over and check them all out).
Earlier this month, Jillayne tackled why you should not shop interest rates by APR. This is a must read if you are a "rate shopper".
There have been a couple post forecasting the future of our local real estate marketing, including this one from Ardell and Jon featured two posts that inspired reactions from the "Bubble Bloggers".
If you’re considering buying home at a new construction site, then Ardell’s post is a good read for you regarding dealing with site agents and when lots are released.
Yours truly added two post to RCG dealing with zero down buyers and the future for subprime borrowers.
Enjoy!
It Pays to Plan for College
February 7, 2007 by Leave a Comment
My son will be entering high school next year. I really can’t believe it. If all goes as it should, he’ll be in college in four years! I did start a 529 account for him a few years ago…much later than I should have, but I’m thankful that we have it.
Yesterday, Ben Bernanke said…a "key observation is that over the past few decades, the real wage of workers with more years of formal education have increased more quickly than those of workers with fewer years of formal education. For example, in 1979 – median earnings for workers with a Bachelor’s or higher degree were 38% more than those of high-school graduates with no college experience; last year, the difference was 75%."
Do you have children that you’re planning to help finance their college tuition? I would love it if my son receives a full scholarship…however, I certainly can’t depend on that. Salary.com has an useful college tuition calculator for crunching tuition dollars.
For example, assuming your child attends a public in-state college with a tuition, room & board of approx. $12000 per year (factoring in tuition inflation). Both scenarios are using a return of 6% on the investments.
Scenario A: Future college bound student is currently 3 years old. Total est. tuition cost to be saved: $101,500. Here are some options:
- Start investing $384 per month for 15 years, or
- Do a lump sum today in the amount of $44,850, or
- Lump sum today in the amount of $15,700 plus $250 per month for 15 years.
Scenario B: Future High School freshman, currently 14 years old (gulp). Total estimated tuition cost to be saved to go to the same college as Scenario A: $62,850 (less time for inflation). Here are the same options:
- Start investing $1,200 per month for 4 years, or
- Do a lump sum today in the amount of $50,000, or
- Do a lump sum today in the amount of $39,400 and $250 per month for four years.
If $250 seems like a bit too much to part with, you may want to consider meeting with your Mortgage Planner and/or Financial Planner in order to review your current debt structure. A 529 is just one option. I like it for my scenario because the money I put in grows tax free. And…I tell my son that if he doesn’t go to college, I will select one of my nieces or nephews to be a benefactor! Funny how that motivates him. And, I don’t HAVE to do this…but I want to. In my profession, I see many first time home buyers buried in student loans…some of the amounts can be staggering.
The bottom line is, the earlier you begin saving and planning for your child’s education, the more funds you will have for furthering their education and it will actually cost less to fund the education. And…it’s never too late!
My Second Home
February 1, 2007 by Leave a Comment
I often tell the story, when I’m meeting with first time homebuyers who are a bit discouraged with today’s home prices, about my first home. We were renting a nice apartment in Kent when a builder had left a flyer on our car promoting that if we could afford $X in rent, then we could afford $X of a brand new house! WOW! I couldn’t believe it…but my wheels were turning.
I began picking up the Homes & Land magazines and before you know it, we had landed with a real estate agent and were looking at homes…with that bright and shiny brand new home in our minds. In reality, we qualified for a 900 square foot older rambler with 3 bedrooms and 1 bathroom…and we pounced on it for about $65,000. In 1989, our interest rate was in the 11% range. My commute out of NE Tacoma to downtown Seattle was horrendous! Even back then.
We lived there about one year and we were experiencing a market similiar to what we have lately in our area. I began to panick that we would be "trapped" in that house forever. Although I was grateful to own a home, it was not where I wanted to raise our future family. My (then) husband and I discussed matters and agreed to wait 5 years to move. The next day, when he was at work, I bought a house…subject to his approval, of course! He wasn’t very happy when I called him at work to tell him what I had done. He forgave me when he learned that our house we had purchased a year ago was worth $90,000!
We bought our second home. This one was new construction in southwest 
Federal Way. The plat was marketed as "The Affordable Street of Dreams". This photo is not of our second home, but is in the neighborhood (Madrona Meadows…there were no Madrona trees in the plat…btw) and is similiar in size and age.
I thought I would provide you with the sales history on our former home in Madrona Meadows (these figures are not for the home in the photo):
- We purchased July 1990 for $124,495
- We sold in April 1993 for $134,900 (approx. 7.5% appreciation over 3 years)
- Sold again in July 2003 for $215,000 (approx. 9% appreciation in 10 years)
- Last sold in March 2006 for $303,000 (approx 14% appreciation in 3 years)
Owning a home can be the best savings plan a person can have. In 16 years, the property more than doubled in value (241%), provided income tax benefits, not to mention shelter! Back in 1990 when we purchased in Madrona Meadows, there was "bubble talk" as well and in our area, we have yet to see real estate take a nose dive. It may simmer or slow down a bit, I certainly would not recommend that potential buyers sit on sidelines waiting for that event. Our local economy is too strong for that to happen anytime soon. In addition, "first time" homes are great purchases because there will always be a market for them.
How to Pick a Lender
January 10, 2007 by 1 Comment
Picking your mortgage professional is not as easy as selecting a good cantaloupe or watermelon at
the market. As tempting as it may be, I certainly wouldn’t recommend thumping a Loan Officer on the head to see if there’s anything in between the ears or smelling them to see if their fresh! So how does a potential buyer decide who they should use for possibly the financing one of their largest investments in their lifetime?
The “R” Word
January 4, 2007 by 2 Comments
Resolutions. I was not going to post New Years resolutions since they are everywhere.
..however, I can’t pass up this opportunity. Beyond the perennial lose 10 pounds, start excising, or stop smoking; here are a few goals to consider for your financial health. I plan on revisiting these goals more indepth on future blogs…so I’ll try to be brief for now.
- Have an emergency fund established with at least 3 months of living expenses in an accessible account. You can also use a HELOC for an emergency fund account IF you have the discipline to leave it alone. A HELOC can be an excellent tool and should be applied for before you have an emergency situation (loss of employment, medical, or a tree landing on your house from sweet Mother Nature) and may not be able to obtain one. In the event of an emergency, do you have your finances organized? A recent article I read from the Financial Planning Association recommends having copies of all your pertinent financial documents in a binder that you can find quickly in the event you need to evacuate your home.
- Know your score, or at least what is being reported on your credit history currently. Credit scores are not only used for determining what mortgage programs and rates you qualify for. They also impact insurance, credit card rates and auto loans to name a few. In addition, reviewing your credit will help determine if you credit is being used without your knowledge (identity theft). You can visit www.annualcreditreport.com for a free credit report. This is provided by the “big 3 bureaus” and it may not provide your score without paying an additional fee. As you are allowed one report from each bureau annually, I would recommend that you pull your report from one bureau every four months to keep a constant monitor on your credit activity. There may be simple ways to improve your credit score that you can determine once you have the information available.
- Create or review your Will. I had a pretty cheesy will until I married last year. My husband and I spent quite a bit of time with an attorney to make sure we have everything set up as we wish it to be instead of letting the government have it. You would be surprised how easy, with home values, a retirement account, etc. that your net worth can grow. Whether you have children or not, a will is a must. After you have a will, it’s a good idea to have your information organized for your loved ones. A great website to check out is www.readyornot.biz.
- Get a mortgage check-up. If your mortgage has an adjustable rate (ARM), if you are paying private mortgage insurance (PMI) or if you have two mortgages on your home, this could be a great time to review your current scenario to see if you can reduce your monthly payments. There is no sense in paying more than you need to, unless you plan on selling the home soon. An Annual Mortgage Review is more in-depth than checking out your mortgage to current rates and products.
- Eliminate credit card debts. It is too easy to fall into credit card debt. Banks do not want you to ever pay them off with all the interest they earn. Start with paying additional towards your smaller debts and then work toward the next one. This is a slow process, but worth it. It is boggling how much the interest can mount up on these types of loans with no tax benefit to you. Improving monthly cash flow reduces stress and allows you to eventually save for more important life items such as retirement and college.
I know this is a few days past New Years…however, it’s always relevant. I wish you and yours a very happy, healthy and prosperous New Year. Cheers!
