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!

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.
 

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).  

Evergreen Cookie Consuming Contest!

Sounds courtesy of Sound Bible, Music Courtesy of bensound.com

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.”

Rate Post 8/15/16

Don't miss out on the opportunity to refinance into a lower rate if you haven't already done so. Additionally, it's a great time to upgrade your home, or even purchase a new one.

Rate post 6/1/2016