Should You Use a Builder's Preferred Lender?

One common scenario that buyers will often experience when purchasing a newly built home, is being approached by the builder and urged to use their preferred lender. 

The builder may offer various things, like extra landscaping, or money down at closing etc. And to the average buyer, these all seem to be really great deals! But who really benefits? How can a buyer know which source of financing is going to be best for them?

First, it is important to note the relationship between the builder and the lender. Are the lender and the builder financially tied? If so, the builder is collecting a portion of the profit through an affiliate company that shares the proceeds, which is why they are willing to offer extra concessions.

In this scenario, you don’t really have a second opinion to lean on, as the lender and the builder are effectively the same entity. There is no oversight if you end up getting a bad deal.

Other times, the company may really just like using that particular lender, or they may recommend them because they know the area well, etc. It is important to know the working relationship between the lender and the builder.

Second, how good is the actual deal they are making? It is always wise to do an “apples to apples” comparison with another broker or lender. Have them draw up a scenario with the same rates and see what they would be able to offer. Sometimes the offers the builders make are great, other times, they only seem that way on the surface. It is important to get an accurate reading on how much the concessions are worth in cash value.

A good mortgage broker will be able to do this pretty easily. Sometimes the math can get a bit tricky, especially if the builder is adding things to the house, you more or less have to price everything out and show a side by side comparison. This way, you can see which lender is offering the better deal in terms of cash to the buyer.

A couple real-life examples:

Recently a client came to us with a "great" deal: the builder offered to contribute $4000 towards the closing costs if the client would use their preferred lender.  After shopping, our client found that another lender (us, of course!) could offer a rate that was 0.5% lower with no closing costs. The builder was giving a false benefit to the borrower. 

In another example, the preferred lender offered $3000 in credits towards the closing costs.  But, after examining their official offer, they were charging an origination fee of $4000, which more than offset the credit.  Again, they advertised a false savings/benefit.

There can be some upsides to using a builder’s preferred lender, such as is the case when no one else will finance the borrower, or when the offer is really just better than everyone else’s. It can sometimes be the case that the builder is really offering a deal that is the best on the market.

Bottom line: Shop around.

You’re never going to be punished for shopping around and taking the best deal. Make certain you do this early on in the process, give yourself a few months, at least, to find the best deals.  Ultimately, you’ll have to make a choice, but it is never a bad idea to have a few different people competing for your business.

If you’re currently building a home and would like a side-by-side comparison of the costs and benefits of going with a particular lender, please feel free to give us a call!

FHA 203k Loans Explained

Looking to buy a fixer-upper? Consider a FHA 203k Loan.

Sometimes buying the home that could use some repairs isn’t a bad option, as it is a quick way of building up equity in a relatively short amount of time. However, for many first time buyers with low credit, or higher debt, this goal has often been out of reach. FHA is a stickler for what kinds of properties they will issue loans for, and the property has to pass an inspection. Which means no fixer-uppers. The FHA 203k loan works a bit differently.

What does an FHA 203k loan do?  

The FHA 203k loan allows the borrower to finance two major items: The house itself, and needed or wanted repairs. The Lender tracks and verifies repairs it is willing to approve. This means that more buyers are now eligible to purchase homes that require a bit of tender loving care to get started.

The process is simple, apply for the loan and get approved, then find a contractor (you have to find a licensed contractor) and get bids (don’t worry this is an easy process that we can help you with) finally, close the loan, complete the repairs, and then enjoy your upgraded home!

What repairs can I do?

The kinds of repairs that you are eligible for under the FHA 203k loan, depend on which of the 2 kinds of loans you apply for.

For a standard 203k loan,  you can do any of the following options:

• Modify the number of units in the home (turn a single family home into a 2,3,or 4, unit home or vice versa.

• Structural alterations

• Connect to public sewer or water

• Large landscaping projects

• Move the home to a different site

What you can’t do:
 

• Add in a luxury amenity (things like swimming pools or basketball courts)

• Minor Landscaping

• Any project that will take longer than 6 months.
   

A 203k streamline allows for minor repair work and upgrades. The limit to the costs is $35,000, with a contingency amount of 15% of the total bid  just in case the contractor goes over costs. (If the contingency fund is not used, it is credited back to you).

Most non-luxury and non-structural items are acceptable. Things such as:
 

• Kitchen and bathroom remodels

• Appliance upgrades

• Safety and health repairs.

• Carpet and Flooring

• Energy-efficient upgrades

And many more that we won’t list here. Any minor repair or upgrade under $35k may be likely to qualify as long as it doesn’t change the footprint of the home or structurally change the home in a fundamental way (such as moving a  load-bearing wall). Additionally, there is a minimum budget of $5,000 in repairs needed to qualify.

You Can Use This Loan To Refinance

While many people use this home to purchase a home, it can also be used to refinance as long as you have at least $5,000 in planned improvements. You can refinance into this kind of loan even if you do not currently have and FHA.

Eligibility

As a subtype of the FHA loan, the 203k is more flexible in their requirements to qualify. FHA allows for credit scores down to 580 (though a higher credit score will give better rates) as well as more forgiving debt to income ratios (typically less than 43% of your income should go toward the mortgage, repairs, and all other debts). So there is a high chance that you will qualify for the loan, as long as they would normally qualify for an FHA loan. Additionally, there is the added benefit of being able to receive up to 100% of the down payment as a gift from family members. You can borrow up to 110% of the proposed future value of the property or the home price plus repair costs, whichever is less.

Bottom Line

This is a great loan for those who want to do some serious work on their property, but would otherwise be prevented from doing so by their credit scores or Debt-To-Income. While there are other options available, especially for repairs that cost less, this is definitely a great option for those who are looking to upgrade, expand, or remodel a home.

The Truth About Mortgage Qualification

There are many reasons why people choose not to refinance, or purchase a home. However, one of the most detrimental reasons that I have heard during my time as a mortgage broker is: “I don’t qualify.” While this is sometimes true, I have often found that after a short discussion, things aren’t quite as impossible as they first thought. Many consumers are selling themselves short because they either don’t know, or have an incorrect view of DTI ratios, down payments, or credit scores.

This is a common misconception held by many people. In a recent study published by Fannie Mae, we see that only around one half of consumers had an understanding of key mortgage qualification criteria. For example, most people thought you needed a 652 credit score or better on the study. (It’s 620) (You can find the rest of the study here.)

While there are exceptions to every rule, here are some good general guidelines to follow in the event you aren’t sure whether or not you qualify.

The Minimum Credit Score required to refinance, or purchase a home is 620. (Though this shouldn’t discourage someone who wants to refinance or purchase a home, as credit repair is -in most cases-  a viable option)

The minimum down payment required is 3% (Though there are programs that let you put either 1% or 0% down)

Maximum DTI ratios: (DTI stands for Debt-To-Income) This one is a bit tricky because you’re dealing with two ratios here. For more info on DTI ratios, check here.
Front End: The highest you can go is 45% for FHA Back End: The highest that you can go on the back end is 55% for FHA loans.

Highest LTV: For a more detailed explanation of LTV please go here. Otherwise, in most instances it is 90% unless you have a VA or FHA loan.

Luckily for our readers, we've covered these subjects multiple times in the past.

So why the info? It is our hope that we can help the 55% of first time home buyers and 60% of repeat buyers who are interested in purchasing a home to not disqualify themselves out of a great deal that could save them hundreds of dollars each month.

For those who are curious as to whether or not they qualify, please feel free to get in touch.

Protecting Your Identity

By now, many of you have probably heard about the Equifax debacle. But, for those who haven’t, here is what happened.

What Happened?

In mid may, the credit monitoring firm Equifax, was hacked and data relating to nearly 143 million consumers was stolen. To give you an idea of the scope, that is roughly seventy or so percent of the adult population of the USA.

They reported the hack six weeks later, after many of their top officials offloaded much of their stocks, and Equifax is currently being sued by at least 21 different class-action lawsuits as a result of negligence.

There is a strong likelihood that many people reading this are affected in some way by the breach in security.

What this means:

Essentially many Americans are playing the lottery right now to see if their identity gets stolen. Individual profiles can go for as much as $30 per person on the deep web, meaning that cyberthieves can purchase your information and use it to sign up for credit cards (and max them out), purchase medications, re-route your social-security check, and even take your tax-returns.

What Should I Do?

Here are some things that you can do, to protect yourself and your information.

1. Check to see if you are impacted.

You can learn more about whether or not your information was impacted https://www.equifaxsecurity2017.com/potential-impact/ (yes, this is being run by the very people who lost your information in the first place) This is a good place to start, but even if the website states that you weren’t likely impacted by the breach, it might still be a good idea to follow the next steps.

2. Sign up for Credit Monitoring.

The website will then offer to set you up for a year of free credit monitoring. This is actually a pretty good route to go, while they originally had a clause in place to prevent people who used this service from being sued, it has since removed that clause. So, you can still join one of the many class action lawsuits if you feel your credit or personal information has been impacted.

However, it is very likely that the impact of this breach will last far longer than a year. It may be a good idea to continue to monitor your credit in the long run.

3. Check your credit report.

A good site to do this with is www.annualcreditreport.com. Under federal law, you are entitled to a free copy of your credit report every 12 months from each credit reporting company, such as Equifax, Experian, and Transunion. If you find any issues or errors on your credit report contact each credit bureau individually to resolve the issues.

4.  Monitor your credit cards and bank accounts.

Check often to make sure that the transactions you are seeing are legitimate. For many people, this is already a habit, though over time monitoring the cash flow of accounts has become something that many people have stopped doing. It is time to change that.
 

5. Consider placing a credit freeze on your reports.

This will make it more difficult for a thief to open a new account using your information. However, it cannot prevent a thief from making changes to existing accounts.

6. Consider Setting a Fraud Alert.

This will require creditors to verify your identity before issuing a new credit card or opening a new account. This won’t prevent a lender from opening credit in your name like a freeze will, but does require lenders to take additional steps in verifying your identity before they can do so.

7. Become more security minded.

This sort of breach could affect consumers for the next couple decades. There is no telling if, or when your information will be sold. The steps listed above shouldn’t be treated as a patch, but a lifestyle change. We have to accept that we now live in a world where our information can, and often will, be stolen and repeatedly take steps to prevent such events from destroying our livelihoods.

In Conclusion

This sort of incident has happened before, but never on this scale. There will always be institutions which have your information, and there will always be people who try to steal it. Breaches will happen again. The best thing that we can do as consumers is to be mindful of our situation, become active in monitoring our own credit and expenses, and secure our data better, use different passwords for each website we join, etc.

In this day and age, we need to be more security-minded, and not simply assume that the companies which use our data will be able to protect us.

For more information on steps that you can take, visit this website.

A Few Tips and Tricks to Buying a New Home While Selling the Old

One of the easiest, and most common, ways to progress from an old property to a newer one, is to purchase the new property and move into the new one before selling your old property.  If you have read some of our previous articles about gathering a portfolio of rentals, this might not be the best move, but it does make it easier to afford that down payment on your next home.

The ideal situation would be to buy a new home, move, and then sell your old home. But for most, the financial burden of managing two mortgages at the same time, would prevent this, not to mention being disqualified from even receiving the mortgage for the second home due to high DTI’s.

If you aren’t keen on turning your old home into a rental, and need a sizeable down payment, there area few options available to you.

If possible,  the first step should always be to give us a call. Based on individual circumstances, different methods could prove superior and accomplish the thing you wish to do.

Make a Contingent Offer:

This is simply a fancy way of stating that you will buy your new home once the older home sells. Or that the sale of the new home to you is contingent upon you selling your old home.

While this strategy may work in slow-moving areas, where homes are on the market for months, Utah is a pretty hot market right now, and a seller can usually count on selling their home to someone who isn’t waiting to sell their own.

That being said, it never hurts to ask or negotiate, or perhaps even sweeten the pot by offering a bit of money up front.

Bridge Loans:
A bridge loan is simply a loan which pays off the original balance left on the house, as well as a down payment on your new home. The loan itself does not usually have regular payments, instead the interest is just added on to the loan balance.

There are a couple of downsides to be aware of going this route though, If your house doesn’t sell within the allotted time frame, the lender can choose to foreclose your home. Additionally, the loans themselves are rather expensive, usually having much higher interest rates than other loans.

But, for those with no better option, this provides a way to avoid having to stay in the back of your moving truck while you wait to move into your new home.

Buying and Selling Simultaneously:

The best options usually are the most straightforward, though buying a home and selling one on the same day can be tricky to execute properly.

This is all a matter of timing.  Essentially, you would need to schedule the closings of both the house you are selling as well as the home you intend to purchase, on the same day. While not too difficult to accomplish, a number of things can postpone one closing or the other. This method doesn’t have too many drawbacks though, as long as you prepare for it.

Right now, the housing market is hot enough where this can be a common occurrence, though it does require you to do some extensive legwork and make several offers very quickly.

This is actually something that we can do for you, and the first step is getting pre-approved. We can help you plan things out, so that you don’t have to take out an expensive loan, or make a weaker offering. Instead, you’ll just close both loans the same day.  Ultimately, this is your safest bet, and the one which we would recommend. So, give us a call if you are looking to buy a new home, and we’ll help you get pre-approved, and close the same day yours sells.

First-Time Homebuyer Tips: The Preapproval Process

What are the first steps in buying a home?

So, you are interested in buying your first home, but don’t know where to begin? Here is a helpful guide to get started.

The first step is to get pre-approved. This involves giving us a call around 3-6 months before you intend on purchasing the home. 

This is to prevent any surprises that might come up, either in the credit report, or due to income, etc. Even if you aren’t ready to buy at this time, we can come up with a plan to help you become a homeowner in the near future.

Here are some of the things that we can go over with you, to help you prepare for a home purchase.  We can:

·         Go over different home values that you would be able to afford given a specific down                 payment at this time.

·         Find a home value where the monthly payment would be comfortable for you to make.               (For instance, how much home you could acquire with a $1200 a month payment.)

·         Get you pre-approved to buy a home.

This last part is important.
Even if you aren’t yet ready to buy, a home just yet, we can assist you in getting your credit and finances ready for when you want to move forward.  A pre-approval letter allows you to put an offer on a home, backed by the guarantee of the mortgage broker and lets real-estate agents take you more seriously.

There are certain requirements to get pre-approved, you will usually need to have your credit checked, which means that you will need to give them info such as birthdays, social security numbers, and the address of the borrower, or both borrowers if there is more than one.

At Evergreen, we like to go one step further with automated underwriting.  We can run your information through Fannie Mae and Freddie Mac’s systems and they can give us a decision right then.  Now we have to back it up with an appraisal and other things, but 95% of the time we get approval on the automated underwrite, we get approval on the loan.  This is just another layer of protection for you, the consumer.
 

Down Payment Options That First-Time Homebuyers Should Definitely Consider

For most people, owning a home is a major step in life. There are many financial and even emotional benefits to owning your own home. Unfortunately, for many the idea of owning their own home seems too far-fetched. Among the most common of problems, is coming up with the money for a down payment. This is a major problem for many would-be first-time home buyers, or at least they think it is.

Many first-time home buyers believe that they need to be able to put at least 20% down, this isn’t the case, in fact, in most cases it is better to put less down.

The reality is, you can afford to get a home with as little as 0%,1%,or 3.5% down. Each option carries different benefits as well as drawbacks.

The 0% down option:
 

This is a topic that I have covered in another blog post here.  I’ll briefly cover the benefits and drawbacks of a 0% down, but for more detailed info, check out the post linked above.

VA, FHA, and USDA loans all have methods to get a home without putting a single penny down out of pocket!

Benefits: 

·         These are good options if you don’t have any money saved, but still have good (700+) credit

·         Allows you to move in without putting any money down.  

·         You also immediately start building equity, though you are starting from 0% equity.

Drawbacks:  

·         Depending on which loan you get, you may end up paying a bit more per month with a 2nd loan, as well as mortgage insurance. However, it is likely still going to be comparable to renting a home of the same value.  

·         In the case of USDA loans, you end up living in rural areas, which, if you like that sort of thing, isn’t really much of a drawback.

·         There are also limits in some cases on how much income you have, and what kind of home you can get.

 

The 1% down option:

This is a much better option for those who can afford to save up a small amount of money. Consider for a moment a $200k home. The down payment at 1% would be around $2,000 or around 2 months’ rent for a 2 bedroom apartment.  

This loan is actually a 3% loan that the lender pays 2% out of their own pocket as a grant to help finance, money that doesn’t have to be repaid (a gift). This option requires that the borrower have good credit (700+). The remaining 1% can either be paid by the borrower, or be a gift by parents, friends, etc.  This is a better option for those who have access to some kind of down-payment.

Benefits:

·         You get to move into a home quicker.

·         You don’t need a 2nd loan to help finance the home or have to live rural.  

·         This gets even better if you can convince mom and pops to gift you the 1% down for the home.

Drawbacks:

·         The mortgage insurance can be a bit higher if you only put 1% down. 

·         This would effectively be a 3% conventional loan, which means that for a while the payments will be higher that they would normally be. But eventually this mortgage insurance drops off.

·         The borrower needs good credit to qualify for the program

 

The 3.5% down option:

FHA minimum requirements are usually around 3.5% down, which for a $200k home is around $7,000. This is a great option for those who are a bit deficient in their credit. And while $7k may seem like a lot, remember that some of that can come in the form of a gift. The loan carries mortgage insurance, which will make it a bit more expensive, but typically these loans are refinanced later into a conventional loan by the borrower once they have paid down the loan a bit. If you have around 3% saved up for a down payment, this might be the option for you, saving that extra .5% or having it gifted, can net you less mortgage insurance than you would pay with a 3% conventional.

Benefits: 

·         You get to move into a home quicker.

·         Credit scores can be lower.

·         FHA is more forgiving of debt.

·         Lower Interest rates!
 

Drawbacks:

·         Carries mortgage insurance, which causes the loan to be more expensive than if it were conventional with 20% down, due to the extra payment of mortgage insurance.

·         Limitations on what kinds of home you can buy (No fixer-uppers, no loans over $337k).

 

The Bottom Line:

The above options are only a few available to the average home buyer.  Don’t let a down payment deter you from owning a home. There are so many options these days for people to move into a new home with little to no down payment, that it doesn’t make sense to pay rent anymore. 

While having a larger down payment reduces the overall amount that you end up having to repay, moving into a home immediately means that you are building equity.

As for paying 20% down, it’s great if you can afford it right off the bat, but most people can’t. Remember, you will always end up paying a mortgage. Either your own, or someone else’s.  If you aren’t sure that you are ready to own a home yet, check out our guide of things to consider before buying a home.

If you have any questions, don’t hesitate to contact us for free information regarding the path to home ownership.
 

In the meantime, take care and have a wonderful day!
 

Managing Debt: How To Deal With Low FICO Scores.

As many of us are all-too-aware, there are many things which can affect our credit score, whether positively or negatively. Every purchase you make, every line of credit extended, and even the amount that your credit balance sits at each month, all affect your credit score.

If you’re reading this, chances are that you have thought about either purchasing a home, or refinancing a mortgage recently. One of the key factors in determining whether or not you can move forward in these endeavors is your credit score.

What is a FICO score?

Your FICO score is a history of all of the payments, debts and accounts that you have ever held in your life. Recent events are weighted higher than older ones, as people can change.

If you have a history of missed payments, bad purchases, or high balances, chances are your FICO score will be pretty low. Anything below 620 is generally considered “poor” credit, usually barring you from (or making it exceedingly difficult to) refinance or home purchase. From 620 to 689 you are generally considered to have fair credit. 690-719 is considered good credit, and 720-850 is considered excellent. (850 is the highest credit rating a person can have)  


What can I do to improve my FICO score?

If your FICO is down in the dumps, the first best thing to do, would be to take a look at your credit report and actually pay the $7 or so for a credit score. This will help you find a place to start. From there, do these 3 things:

·         Check for inaccuracies or overdue payments you were unaware of. If such events exist, get the items scrubbed from your records, in the case of payments you were unaware of, try negotiating to have them delete the record for payment. (Make sure to get this in writing, that they will delete the event from your credit history.)

·         Make certain that you don’t have an overdrawn account or excessively high credit account. They will punish you for this one, the good thing though, is that it is easily taken care of, just pay down your cards.

·         If you do have a large amount of money owed, or a large number of items on your credit report, pay off the most recent events first, ensuring thatyou attempt each time to work with the company involved to have the event taken off of your credit report.

This list isn’t meant to be exhaustive, but rather a good place to start. If you are having credit troubles, don’t fret. Credit scores, just like your situation, can change for the better, and with time and attention, they most certainly will.

If you have any questions regarding your credit, or how to mitigate debt, please give us a call at 801-223-7060. In the meantime, please have a wonderful week! Take care!

Why Cutting out the Middleman in Mortgages Is a Bad Idea

One idea that is often thrown around is that it is better to simply finance directly through a lender or bank, rather than employing the services of a mortgage broker. Thus a large majority of homeowners turn to banks when the time comes to finance a mortgage.
 

Banks Can Be Bureaucratic

There is a sense of familiarity working with the same organization that one banks with, you already know the banker who will be handling your mortgages. This makes them a comfortable option to work with for most people

But there are some cons as well. Typically banks will take longer, their processes are very bureaucratic, and the bankers aren't very experienced. They don’t have to disclose how much they receive in commission. So in the end, the borrower might end up paying more, as there is little incentive for them to go above and beyond for the customer. 

While it  can be said that there is an argument for “cutting out the middleman” to save money,
in the case of purchasing a home, or refinancing one, the reverse is often true.

Mortgage Brokers Often Get Better Rates

Mortgage brokers do a lot of the legwork, so that borrowers don’t have to, and utilize a variety of lenders, usually gaining access to wholesale rates that the general public wouldn’t have access to. In fact, many banks and lenders  offer lower rates when accessed through a mortgage broker.

Since the rates are lower, you save more money.

This is because around 30% of financing is done through brokers, in order to stay competitive, and access that part of the market, they will offer these brokers wholesale rates.

Mortgage Brokers Have More Experience

Additionally, brokers are often much more experienced than their banking counterparts, needing to pass licensing exams among other things. This gives them a better knowledge of the industry in general, including various kinds of loans outside of the typical FHA or Conventional loans.

As such, many brokers will be able to offer a variety of programs that fit different needs, in comparison to the neatly packaged products that the banks sell, borrowers benefit from the knowledge and experience the broker possesses, even being able to finance trickier loans that would often be denied by banks and other lending institutions.

If you’re unsure about which way to go, whether through a Mortgage Broker or Bank, try giving each a call, and comparing not only rates, but closing costs, as well as the time it will take to close.

Why You Don't Have to Worry So Much About Down Payments.

It's a rather safe assumption that most people, especially those reading this, have either purchased a home, or would like to in the future. If the latter is the case, this article might just convince you to pull the trigger on becoming a new homeowner.

It’s the American Dream to own a home, and to be in control of one’s finances. But more than that, it is actually cheaper to own your own home, than to pay rent.

This is because paying rent usually means that you are paying the homeowner’s mortgage, and a little extra. Many people understand this, yet there are many who continue to pay rent rather than own a mortgage.

While reasons for not owning a home can vary, there is one which is very common among millennials. It is rather simple, and something that many who have sought to purchase a home have run into in the past.

Down payments can be EXPENSIVE!

Consider for a moment, the cost of putting 3% down on a $200k home. The down payment would be around $6000 dollars, which is much more than many people have saved in their bank accounts. Especially if they are living from paycheck to paycheck! For many Americans, this is a bit out of their price range.

But, did you know that some lenders are willing to gift borrowers 2% of the down payment? This leaves just 1% of the down payment left for the potential homeowner. In the case of a $200k home, that would be just $2,000. For many, this is around the price of 2-3 months’ rent. Depending on the price of the home you decide to purchase, this number could obviously be much lower.

So, how does it work? And why would lenders be so willing to gift 2% down?
Depending on credit history, income, and other factors, some lenders are willing to front the 2% down payment to incite home ownership, while the borrower benefits from having to put hardly anything down, the lender benefits from having more borrowers.

If the only reason you aren't currently living in a home you own, is because of the down payment, it might be time to consider making the purchase. Two months rent, that's all you're going to need. 

If you would like more details on how this can work for you, please feel free to give us a call anytime!

A “Hello” to ARMs?

How the once avoided ARM may be a smart move for homeowners

A Brief Description/History of ARMs

Adjustable Rate Mortgages (ARMs) are loans that- at some point in the term- have an interest rate that is not fixed (30-yr loans and 15-yr loans have interest rates that are fixed for the life of the loan).  Most ARMs start with a period of time- usually 5-10 years- where the rate is fixed, but is allowed to vary after that period.

Why would anyone want a variable rate mortgage?  The reason is that ARMs with a fixed term often start with an interest rate that is significantly lower than the going rate for 30-yr and even 15-yr loans.  The savings accumulated over the fixed term can be substantial.

ARMs used to be quite popular.  During the housing bubble (from about 2003 – 2007), ARMs were almost as prevalent and 30-yr fixed rate loans, because they offered affordable payments when home prices kept shooting up.  However, some ARM products were just…not good…and were used/sold inappropriately.  For example, the infamous Option ARM offered a “teaser” rate in the first year, but after that, the mortgage balance actually increased each month.

After the crash, ARMs became quite unpopular and- due to increased regulation- didn’t really provide much benefit.  In fact, until recently, ARMs had higher starting rates than 30-yr mortgages, so it just didn’t make sense to get one.

The Rebirth of the ARM

As the economy has been improving, interest rates have been rising.  Since the November election alone, mortgage interest rates have increased almost 0.75%, and there appears to be no end to that trend.  In order to keep selling loans, lenders have made ARMs significantly more attractive.

Note that a the part of the ARM description is the period of time for which the rate is fixed (so a 5/1 ARM would be fixed at the starting rate for 5 years).

	30-yr Fixed	5/1 ARM	7/1 ARM	10/1 ARM
Interest Rate	4.250%	3.375%	3.625%	3.875%
Payment ($200K mortgage)	$984	$884	$912	$940

Notice the savings of a 30-yr compared to an ARM: the payment difference is as much as $100, in this example.

Should You Consider an ARM?

An ARM may be the way to go if you fall into one of these categories:

·         You’re confident you will only have the mortgage for around 7 years – Studies show that Americans tend to move every 7-9 years and refinance every 5-7 years.  If you think it’s quite likely that you’ll do one of these, then an ARM may be a smart move.  Note that even if you had to stay into the variable period of the mortgage, and your rate increased 1% each year, you would still see a net benefit for even 3 years after your rate adjusts (let us know if you’re interested in seeing “the Math”).

·         You’re confident that rates will decrease – This is a questionable conclusion in this market (most experts agree that rates will continue to rise for the foreseeable future), but if you’ve got a crystal ball or some insider information, get an ARM and laugh all the way to the bank!

Evergreen Mortgage offers not only the most competitive Fixed-Rate mortgage in the state, but also the lowest ARMs, so call us today and get a side by side comparison!

How Rates Affect Your Buying Power

Over the past decade, interest rates have been historically low, but are now starting to build back up. Right now, the interest rate for an FHA loan is at about 3.625%, which is a bit up from January, and significantly higher than last year.

The difference between interest rates

So, how does an increasing interest rate affect your buying power?  Let’s consider how much home you can afford at different interest rates

In November of 2016, the 30-year FHA rate was at 3.25%. At this rate, if you wanted to buy a house, and pay no more than $1,200 a month for your mortgage (including taxes and insurance), you would have been able to afford a home worth about $218,000.

Now consider an interest rate of 3.75%, which about what you can expect now (depending on your credit score).  The amount of home that you would be able to afford at $1,200 per month becomes substantially reduced to $205,000.

That is a difference in buying power of $13,000.  In other words, the amount of home you can afford dropped by $13,000 with an interest rate increase of just 0.5%.

So, are higher interest rates “bad”?

Not necessarily, since higher interest rates also mean that you will earn more on your interest-bearing accounts (savings, money-market, investments, etc.).  Higher interest rates also normally indicate a stronger economy, so your other assets (home, 401K, etc.) will be increasing in value faster than when rates were lower.

However, a higher interest rate means that buying a home will be more costly.

What this means for buyers

A 3.625% is still a phenomenally low interest rate, but rates are likely to steadily increase over time and the economy continues to improve.  Additionally, significant increase in demand for housing in Utah is driving up home prices.  Before you put an offer on a house, set a monthly payment at which you are comfortable, and then determine how much you can offer, based on the current interest rates.  If you’ve been on the fence for a while, it may be wise to act now before higher interest rates/home values price you out of the market.

So, jump on the opportunity while the interest rates are still low, and give us a call for a free consultation to see how much home you can afford right now. 

A Growing Utah: Everyone wants to live here (and buy our houses!)

A review of some key reports from 2016 yields some revealing information about how much Utah is growing, and what that’s doing to the real estate market.

Fastest Growing State

The US Census Bureau declared Utah the fastest growing state in the country, with a 2% population increase in 2016 (reference this article: http://www.builderonline.com/design/consumer-trends/census-utah-leads-all-states-in-growth-in-2016_o).  Compare this to the national average of only 0.7%.  The country in general is seeing a migration from the northeast (avoiding extremely high tax rates/costs of living) to states in the south, west, and southwest, and some of that population growth can be attributed to birthrate (we Utahns like to have babies!), but a large driver seems to be Utah’s fast-growing high-tech industry (the “Silicon Slopes”).  Having many Utah cities (Orem, Provo, Salt Lake) being listed at the top of many “Best Places to Live” surveys helps to!

…And People Need a Place to Live!

In 2016, home values increased 7.1% and are expected to rise another 5% in 2017.  Compare that to the national average of 4% (the rate of real estate appreciation nationwide).  Salt Lake City, Provo, and Ogden are all “sellers’ markets”, with very strong buyer demand, but are still considered affordable areas.

What Does this Mean for You?

If you’ve owned a home for the last few years, you likely have equity.  If you’re thinking about “trading up”, that equity can cover the down payment for your new home (and then some!).  Be prepared, though, to compete with multiple offers, and low-balling will probably get you nowhere (unless the home is significantly over-priced).  

Home Equity Lines of Credit: How a Short-Term Solution Can Lead to Long-Term Problems

The Basics

Home Equity Lines of Credit (also known as HELOCs, which is how I’ll reference them from here on out) are mortgages, but with some key distinctions:

·         During the “draw period”, you can borrow up to your credit limit, pay it down, and borrow up to the credit limit again.

·         You only have to make interest payments during the draw period (but doing so will not pay down the balance).

·         The interest rate is variable, normally based off of Prime

·         After the draw period, you enter the “repayment period”, during which the balance must be paid off.

HELOCs are great ways to consolidate credit cards, get access to cash for home improvements, finance a new business, etc.  But unless there is a long-term plan, HELOCs can cause more problems than they solve. 

Here’s why:

The Variable Rate Will Change…and Go Up

Most HELOC interest rates follow the Prime rate, plus 1-2%.  Prime is currently at 3.75% and has been under 4% for the last 8 years.  But, Prime is increasing and will continue to do so as the economy slowly improves.  Since 1990, Prime has averaged 8.75%.  If your interest rate is Prime plus 1-2%, you could likely face a 10% interest rate if you hold on to your HELOC.

The Balance Isn’t Going Down

During the draw period (which is typically 5-10 years) you are only required to pay the interest accrued on the balance.  While many people fully intend to pay more than the minimum (interest-only), the number of borrowers that actually pay a significant amount towards the balance during the draw period is MINISCULE.  The vast majority of HELOC borrowers that start with a $25,000 balance will have a $25,000 balance 10 years later.

The “Payment Shock” Can be Substantial

After the draw period is over, borrowers enter the repayment period, which is typically 15 years.  That means that not only can you not make the interest-only payment, you have to make a 15-year payment.  For the typical HELOC borrower, once they start the repayment period, the payment will increase by over 125%.

Here are some examples of what normally happens to HELOC payments after the draw period (assuming a $25,000 balance):

Interest Rate	Payment (Draw Period)	Payment (Repayment Period)	Increase In Payment
4.00%	$83	$185	$101 (125%)

If we assume that Prime reaches its 30-yr average, it gets even worse:

Interest Rate	Payment (Draw Period)	Payment (Repayment Period)	Increase In Payment
8.75%	$185	$250	$167 (200%)

What to Do?

The best way to avoid the increased interest expense and “payment shock” of a HELOC is consolidate it into fixed-rate 1st mortgage.  Here’s why this helps:

·         The rate will be fixed, and likely lower than your HELOC rate.

·         The balance will actually paid off!

·         The payments will stay the same and be substantially lower what they would be during the repayment period.

If the same borrower with the $25,000 HELOC balance consolidated that into a fixed rate 30-yr loan, the payment for that balance would only be $119/month.

We are in a unique market here in Utah.  Home values have finally re-achieved their peak from 2006, but interest rates are still historically low.  That means that this is the perfect opportunity to “fix” your HELOC problem.

Call us today to see what your scenario would look like.

Evergreen Mortgage 2016 Year In Review

2016 is just about done. It's been a hectic year, and I think many are looking forward to the year ahead. A lot happened in this last year, and it is our hope that we were of some help to many of our readers out there. Here is a list of blog posts that were written along with a brief description of what is inside, for your browsing perusal. 

Thanks! and have a great New Year!

1/7/2016 Some Facts About ARMS - Don't understand how 5/1, 7/1 or 10/1 ARMS work? This is a great read for those who might be moving in the next couple of years.

1/16/2016  Credit Card Consolidation Myths - We explain how and why Consolidating Credit Card Debt is usually the best choice when available. 

2/22/2016 Should I Choose A Home Before Talking To A Mortgage Broker? - Short answer, probably not. We'll explain in this post how talking with a broker can give you a better idea of what you can afford.

2/29/2016 Renting Is Cheaper Than Owning A Home - It really is, and we'll explain some of the reasons why here. (Among the most important of which is, you are investing money.)

4/11/2016 Recent Home Valuations: Utah VS Everyone Else - Ever wonder how Utah fares when compared to the rest of the nation when it comes to home value? 

5/16/2016 A Few Tips To Add Value To Your Home - Planning on selling your home soon? Or possibly building an addition? Remodeling? This is a good, quick read for those who are planning on selling their home someday. (protip: Pools aren't necessarily a great investment)

6/17/2016 How To Leverage Your Children - A good read for mom and pops who have kids going to college. They need a place to live, and you benefit from getting Rentals at a lower Interest Rate. 

6/29/2016 Rentals: An Excellent Investment, If You Know What To Expect - Some great advice on how to manage and buy rental properties, get the best rates, and ensure that your rentals are taken care of properly. 

7/8/2016 Mortgage Definitions Made Easy - Simple Mortgage Definitions, reference this if you are ever unsure of what a term means. 

8/26/2016 HOA's What To Expect and What to Watch For - We Explain how HOA's don't necessarily have to be the devil incarnate, and how they can actually benefit you, if you know what to look for. 

9/25/2016 Guide to Skipping Payments When Refinancing - A great guide on how to save yourself a bit of money up front when refinancing your mortgage. 

10/19/2016 Retiring A Millionaire - We discuss some solid methods, that when used in conjunction have the best results of netting you over a million dollars upon retiring. 

11/11/2016 VA Loans: Reason Enough for Everyone to Join The Military - VA loans are arguably THE best loans in the biz. Low interest rates, 100% LTV refinancing... read more if you're interested to see why you should join the military. 

12/12/2016 Christmas Budgeting Guide - Read this if you find yourself falling short near the end of the year, or really if you just want some tips on how to budget better. 

And that's all! It's been a blast folks! We'll be back in 2016 with more new content, so stay tuned, and if you haven't already, subscribe to our newsletter!

 

Evergreen Mortgage’s Guide to Christmas Budgeting

 © Copyright Christine Matthews and licensed for reuse under this Creative Commons Licence.

Christmas is just around the corner folks!  For many this is a time of joy, where families come together to exchange gifts and enjoy one another’s company.

However, Christmas can also be a budget-buster.  The average American household plans to spend just under $1000 this year on Christmas gifts, and few of us have enough discretionary monthly income to cover that.  If you’re just now having the Christmas budget discussion, the reality is, it’s a bit late.  

Many will use credit cards to finance the holiday cheer, some may turn to crime, and the Flanders will have an “Imagination Christmas” (Simpsons, anyone?), but once the tinsel settled, here is how to prepare for next Christmas.

Warning: Budgeting for Christmas is just like budgeting for anything else.  This is going to be a general budgeting lecture, not just a Christmas post, so if the discussion of budgeting turns your stomach, beware.

Amortize the Expense

“Amortization” is one of our favorite terms in the mortgage industry.  It simply means to take a single expense and break it up into increments, or payments.  Amortize your projected 2017 Christmas expenses (let’s say, $1000) by figuring out your “monthly” Christmas expense; $1000 / 12 = $83.  So, you’ll need to set aside $83/month in 2017 to pay for Christmas.  Now, let’s work this into the rest of your budget.

Create a list of expenses

First, write down what your different expenses are and list them by category in order of importance: Mortgage/Rent, food, kids clothing, forecasted repair costs, auto-loans, student-loans, taxes, emergency savings, and any costs that are absolutely necessary.  It’s helpful to see what your expenses in these categories were for the previous year, so that you know what to plan for.

Next, create a list of “less necessary costs” such as a planned vacation, optional upgrades on home and vehicles, Christmas(!), etc.

This can be a moment of reckoning for many of us.  If you find that your expenses are outpacing your income, then it’s time to start trimming expenses or find a feasible way to increase your income, or both.

Automated Payments and “Buckets”

Budgeting is all about discipline, and one of the keys to successful budgeting is to do whatever is feasible to reduce temptation.  Just as someone who is dieting would find it unwise to leave a jar of cookies on the counter, a budgeter needs to make sure spoken-for funds are “off limits”.  This is best done with automated payments/transfers and “buckets”.

Automatic Payments/Transfers:  For set monthly expenses (like your rent/mortgage, car payment, etc.), set up automatic payments and get the money out of your account as fast as possible.  This will keep you from making late payments, but also keep you from thinking you have more discretionary income than you really do.  Automate as much as you can!

Buckets:  For your non-monthly expenses (like Christmas), have a savings account set up (you can use more than one account, but that can get cumbersome) and automatically transfer into that account the amount needed to cover the monthly portion of those expenses.  For example, if you were setting aside $83/month for Christmas, $50/month for an upcoming vacation, and $200/month for a tuition bill, then your monthly “bucket” transfer would be $333.  Use a spreadsheet or ledger to keep track of how much is in each bucket.  Make this bucket account as inaccessible as possible (you don’t want it to be “easy” to blow your budget!).

The leftover money can be your “fun” bucket, money to play with and do as you please, eat-out, go to a ball-game, etc. As long as you have your necessary expenses covered, you won’t have to worry about coming up short later.
 

Enjoy the Christmas Season

It is a rather simple approach to saving and budgeting, but if you follow this key bit of advice, you won’t have to worry about not having enough come Christmastime, and you won’t fall short during the rest of the year either.

Again, this is all about discipline, and most of us will have to make some cuts/trade-offs to be successful budgeters, but as we’ve learned from the Rolling Stones; “you can’t always get what you want, but if you try sometimes, you just might find, you get what you need.”

Retiring a Millionaire: Why Owning a Home is King

Image by UnSplash

Becoming a millionaire is the quintessential American dream.  While seemingly lofty, it is an achievable goal (there are about 11 million millionaires in the US as of 2011) and it is accomplished in a variety of ways: most people save it, many invest it, some start successful businesses, some buy the right scratch-off, Bernie Madoff steals it, etc., but we’re going to briefly discuss the most reliable, least labor-intensive, and most boring way of becoming one of the 2.5-Percenters: owning a home.

The reason that homeownership is such a beautifully simple and inexpensive way to wealth is because housing costs are required living expenses (unless you are happy living in mom’s basement and she’s nice enough to let you stay there for free).  You have to eat, you have to sleep and wear clothes (please), and you have to have a roof over your head.

You’ve got 2 housing options: rent or own.  Renting provides no return on investment.  The rent you pay is like credit card interest: aside from giving you a month’s reprieve from the landlord, there is nothing to show for it in the end.  Owning (assuming you pay a mortgage instead of a rent payment) leaves you with something: a house.  Add to that the predictable nature of housing prices to rise and you have the recipe for millionaire-ship.

Example:

Homeowner Joe buys a modest house for $254,000 in Salt Lake City (the average home price these days).  He puts down 5% and his total mortgage payment is about $1300 (which is significantly less than rent for that same home in Salt Lake).  It’s a 30-yr mortgage and he doesn’t refinance (for simplicity’s sake) for the life of the loan (the next 30 years).

Joe has a relatively hard life for the next 30 years.  His income is limited and he is never able to set aside anything for retirement (like an IRA).  Nor does he work for a company that offers a 401K.  In short, Joe has nothing to expect in the way of retirement income (except Social Security).

But, Joe is a millionaire.

Over the last 30 years, Joe has slowly chipped away at his mortgage.  Bit by bit each month, the home becomes “his”.  Also, the price of his home increases by an average of 4.00% each year (100-yr average and a modest estimate for Salt Lake).  When Joe finally does retire at age 65, his mortgage balance is “0” and his home is worth $1,002,000.

And because math hasn’t changed since you’ve been in 1st grade:  $1,002,000 - $0 = $1,002,000!

Joe can keep his home (his housing expenses will be cheap since he has no mortgage), rent it out, or sell it and rent a condo in Florida (just as rest stop for his constant travels).  That $1,000,000 could equate to $6000/month in income for the next 20 years (if put in a conservative annuity).

Or he could convert it to nickels, buy an old empty swimming pool, and go swimming in his own “Money Bin”.  Every day.

Notes/Disclaimers

We are huge proponents of diversification, especially IRAs and 401Ks.  If Joe did have a 401K and they matched his contributions, putting aside just $150/month would give him another $600,000 at retirement.

Also, poop happens, and Joe/you may have to refinance at some point to cover unexpected medical expenses, job losses, divorce, etc.  You may find yourself approaching retirement and still having 15 years on your mortgage.  The point is that if you are a homeowner, you at least have the option of doing those things!  Renters can’t cash-out equity to pay for medical bills because there is no equity.  Even if your home isn’t paid off at retirement, you still have the equity (the difference between the home’s value and the balance of your mortgage) which could be substantial.

Call Evergreen Mortgage today.  We’ll come to you to discuss your home-buying options.  

Or buy more scratch-offs.

HOA’s: What to Expect and What to Watch For

What is an HOA?

If you purchase a condominium, townhouse, or property in a gated community or subdivision (anything considered a PUD, or a “Planned Unit Development”), you will likely be obligated to join that community’s Homeowners’ Association (HOA).  

HOAs help protect property values and keep common areas/interests functioning properly.  HOAs collect dues for the upkeep and management of common areas/interests such as insurance, security, landscaping, parks, parking lots, pools, security gates, pest control, etc.  It’s important to note that “common areas”, at least for condominiums, often include anything not within the walls of your own unit, so HOA fees also cover the costs of maintaining (or replacing) roofs, exterior walls, stairwells, etc.

HOAs also set forth rules which may prohibit certain actions or activities such as painting your house neon green (thus lowering the value of not only your home, but the homes nearby); having a big, loud dog; parking in certain locations; or starting a garage band and playing at midnight. Typically the HOA can levy fines against individuals who break the rules and in some cases can even foreclose on your home.

Benefits of an HOA

The major benefit is from economies of scale. Because everyone is pitching in and the HOAs are buying these services in bulk, 50+ HOA members can negotiate better rates (per unit) than the individual homeowner. The overall cost is usually much cheaper for everyone involved. For example, the insurance that you would normally have to pay to protect your home from flooding, fires, or natural disasters –which normally cost you $40 – now costs $10 through the HOA.

These are typically things that a homeowner would naturally have to pay for anyway, so it is a major benefit to not only pay a bit less, but not have to worry about securing these services for yourself. (I.e. you don’t have to set-up trash pickup:  it’s already available through the HOA.)

What to look for

It is important to read through the rules of the HOA (called the CC&Rs) to understand its responsibilities and what actions they are able to take in fulfilling those.  Finding an HOA that lines up with your values is a must.  Is garbage pickup included?  What are the smoking restrictions?  Are pets allowed (if you’re a big dog person, it might not be the best idea to jump into a community that forbids pet ownership)?  What kind of insurance does the HOA have against flooding, fires, or other natural disasters?  Is the HOA managed by professionals or by a few members?  And finally, how much are the fees, and have they risen substantially in the last few years (and if so, why did they rise)?  

Research what kind of reserves the HOA keeps. What sort of things do they spend it on: new roofs for homes or carnivals?  Have they saved enough for upcoming maintenance or are they going to have to raise the dues?  Try to find out if the HOA is spending their reserves on things that are truly important to you or things that you don’t really care about.

Finding out these key pieces of information can be a huge breath of relief – or a warning signal to stay away. Think seriously about whether or not you want to buy a home with the current HOA.
 

Conclusion:

All-in-all the benefits outweigh the costs. If you have a good HOA you can rest easy knowing that the neighborhood you bought property in will not only have its property value protected, but that the standards are clearly outlined for you to see up front. HOAs can save you a lot of time, money, and stress if managed properly.

Mortgage Definitions Made Easy

Whether you already have a mortgage, or are planning on purchasing a home, there are a lot of industry related terms that get thrown around rather casually. Here’s a handy guide for navigating through some of the lesser known terms.

Amortization

This simply refers to the schedule of how the loan is going to be repaid. For instance, you have both 15 year and 30 year fixed rate conventional loans. In the case of each of these, the amortization schedule would be the monthly payment for a 15 year, and 30 year respectively, including interest rates.

Closing Costs

These are costs associated with closing the loan which can include, but is not limited to: fees for a credit report, loan origination fees, and underwriting fees among others. 

Mortgage Escrow

An escrow is the payment that is collected by the lender each month, along with the regularly scheduled mortgage payment, to pay for real estate taxes and hazard insurance premium. While mortgaged homeowners can choose to make these payments themselves, they often benefit from mortgage rate discounts by simply passing them on through the lender, who then holds the funds for payment to the homeowner’s county assessor and insurance company when the payments are due.

To find your home escrow payments, simply find your latest home real estate tax-bill, add in the annual insurance premium, and divide it by 12 (the number of months in a year) This is your monthly escrow payment.

PITI

This is an acronym which stands for Principal, Interest, Taxes, Insurance and represents the total housing payment made in that month. It is calculated by simply adding all of them together.

PMI (Private Mortgage Insurance)

When the loan to value ratio (LTV) is above 80% lenders will generally require private mortgage insurance (PMI) to guarantee the loan against default. Borrowers pay a monthly premium until the loan to value ratio (LTV) drops below 80%. In the case of FHA loans, the only way to get rid of PMI is to refinance into a conventional loan once the LTV is below 80%. Another popular option for conventional loans, to avoid having to pay the monthly mortgage insurance, is to take on a 2nd mortgage.

Points

Percentage points of the loan amount. As an option to borrowers, lenders can allow the borrower to “buy down” the interest rate by paying portions of the loan up front, saving the borrower money over the long term in the form of lower interest rates.

Title  Insurance

Insurance paid by borrowers that ensure the property is free and clear of any liens against it, so that the property may be used as collateral in the event of a default on payment.

This is just a small list of terms that many individuals will often face when refinancing. For more information on terms like LTV, check out our video.