MORTGAGE APPLICANTS: School up on the new forms for 2016

If you're among the lucky few who will pay all cash for your home, you can stop reading right now! If you are among the many who will be taking out a mortgage loan, however, and who may have read home buying articles that stated the required forms included a HUD-1 Settlement Statement, a Good Faith Estimate, and a Truth-in-Lending disclosure form, keep reading.

These forms will no longer be used for borrowers who submit a mortgage application on or after October 3, 2015 (this date was extended from August 1, 2015). Hopefully, the change will be for the better. It's a move meant to simplify matters for consumers, consolidating the information conveyed and highlighting the significance of important loan terms.

The replacement forms will include  a "Loan Estimate" and a "Closing Disclosure." They were created by the Consumer Financial Protection Bureau,  after a long process of several years gathering input from consumers and real-estate industry groups.

• The Loan Estimate: This form will be provided to consumers within three business days after they submit a loan application. It replaces the early Truth in Lending statement and the Good Faith Estimate, and provides a summary of the key loan terms and estimated loan and closing costs. Consumers can use this new form to compare the costs and features of different loans.

The second form, the "Closing Disclosure," will come your way three business days before your close of escrow. Its purpose is to provide a more final accounting of the transaction, covering the same terms, but with exact statements of costs and required cash.

• The Closing Disclosure: Consumers will receive this form three business days before closing on a loan. It replaces the final Truth in Lending statement and the HUD-1 settlement statement, and provides a detailed accounting of the transaction.

It’s still early as we’re only a few months into the new process and forms used by mortgage lenders.  However, if you are going to obtain a mortgage to purchase a home, it’s a good idea to review the new Loan Estimate and Closing Disclosure forms as you will see these for any mortgage in 2016 and the foreseeable future.

4 Financial Terms Every Home Buyer Should Know

Financial fitness and money management generally isn’t a fun topic for most of us--it can be boring, scary, and frustrating. In Fidelity’s recent study, 39% of millennials worry about finances and 25% don’t know who to trust.  How do you know if you can afford to go to that music festival with your friends today and not need that money later? Are you aware of where much of your money goes, or how to best allocate it? These are all common questions that potential home buyers have as they start to plan for the future…..Your financial fitness depends on your financial knowledge; so let’s look at 4 financial terms that every homebuyer should know and why:

1. Debt-to-Income Ratio – This is a ratio of your total monthly debt payments divided by your monthly take-home pay or after-tax pay.  This is an important ratio to understand when purchasing a home as it’s a key measure for mortgage companies to qualify you for a loan.  To qualify for a conventional mortgage, your Debt-to-Income should be less than 45%.  For a first time homebuyer, there are programs out there that you can qualify for with up to 55% Debt-to-Income ratio.  For example, if your after taxes take-home pay is $5,000/month, all of your monthly debt payments should not exceed $2,250.  Your monthly debt payments would include mortgage + car loans + student loans + credit cards + personal loans = $2250 or less.

2. Credit Score (aka FICO) - One of the most common ways credit scores are calculated is the FICO method, from Fair Isaac Corporation. A FICO credit score can range anywhere from 300 to 850. FICO credit scores are calculated based on five categories of information:

1. Payment history - 35% or 297.5 points
2. Amounts owed -30% or 255 points
3. Length of credit history - 15% or 127.5 points
4. New credit - 10% or 85 points
5. Types of credit - 10% or 85 points

The graph below shows the relative weight that each one of these categories has in the calculation of your credit score.

Category Possible Points

Payment history	297.5
Amounts owed	255.0
Length of credit history	127.5
New credit	85.0
Types of credit	85.0
Totals	850

Credit Score Ranges

700-850 A "very good" or "excellent" credit score. You should not have a problem getting a loan from a lender.

680-699 A "good" credit score. Though not considered very good or excellent, most lenders will not have a problem giving you a loan.

620-679 An "acceptable" credit score. Lenders will most likely require you to provide supporting information regarding your income, time in your current home, bank statements, time with current employer, etc.

580-619 An "okay" credit score. 620 is the prime rate cut-off point, so you can expect to pay a higher interest rate with any lender who is willing to give you a loan.

500-579 A "bad" credit score. You may still be able to get a loan with a score like this, but you will most definitely be paying a higher interest rate.

350-499 A "very bad" credit score. You can still get a loan with this low of a credit score, but you may be better off turning it down and cleaning up your credit score over the next several years. Otherwise, the interest on the loan may be too difficult to handle.

Generally speaking, you need at least a 620 credit score to qualify for a conventional mortgage.  However, there are FHA or first time homebuyer programs out there where you can qualify with as low as a 580 credit score.

3. Assets - Of the “four legs of the table” (Debit, Income, Credit, Assets), assets are the least discussed, and yet may be the most important. Assets are usually categorized into 4 main areas:

• Business Ownership - you own your own business or % of someone else’s business
• Real Estate - primary residence, investment/rental properties, vacation home, etc.
• Paper/Liquid Funds - savings, checking, stocks, mutual funds -
• Commodities - oil, gas, gold silver, etc.

So, your assets include, real estate, cars/boats, checking/savings account, stocks/bonds, money markets, mutual funds, jewelry, etc.  Lenders look at your assets to make sure you have the needed down payment (the difference between the purchase price and the loan amount which may or may not be the same as the money deposit at contract signing), but also reserves after closing in case an emergency arises you have the means to continue paying your mortgage.  The key areas that lenders look for:

• Monies needed for closing costs (fees to the lender and third parties for things like appraisals, title insurance, settlement services, and so on)
• Monies needed for Pre-Paids (homeowners insurance, flood insurance, real estate taxes, etc.) and establishing escrow accounts for future payments
• Monies for Reserves- the money you still have left after closing. Monies that would be available, if a problem were to arise

4. PMI (Private Mortgage Insurance)- Another real estate related term, but another important one to learn. PMI is a policy that all mortgage lenders require if you’re putting less than 20% down payment of a home. It protects the lenders against a loss in case you default on the mortgage. Your PMI will be paid monthly along side with your mortgage payment, but once your balance reaches under 80% of the property value, you can have your lender remove the PMI.  This generally takes 7-8 years with a 3.5% - 5% down payment.

How many of these did you already know? Understanding the intricacies of personal finance can give you a huge edge moving forward--especially as you look towards buying that first house!.

Any questions you may have about Real Estate finance terms, let us know and happy to talk you through it.  Call us at 855-REC-6700 or email at concierge@reconcierges.com .

Stage your Home for Resell: 15 Budget-friendly Ways to Prep on a Budget

Now that you’ve decided to sell your home, sinking a bunch of money into home improvements probably isn’t high on the priority list. But inexpensive upgrades are crucial for curb appeal and leave a strong first impression to buyers.  The good news is that it doesn’t cost a lot to stage your home to sell and make a big impression. Here are a few easy ways to upgrade on the cheap.

1. Kick up your kitchen a notch

Changing the knobs on your cabinets is an easy fix. If your appliances don’t match, order new doors or face panels for them to create a uniform look.

2. Buy new “jewelry” for your sink

Swap out the faucet set in your kitchen for a spiffier version. It costs a few hundred dollars and will draw attention away from, say, an outdated dishwasher.

3. Spruce up that bath

Replace old or broken toilet seats with new ones and consider re-grouting your shower or floor tiles if they look dingy or outdated. Clean grout says “new bathroom” — or at least one that hasn’t been showered in a thousand times.

4. Ditch those hoarder tendencies

Declutter! If you must, rent storage space for a couple of months and remove any unnecessary items (including furniture) from your home. The more uncluttered your home, the larger it will look.

5. Decor your front door

Install a new handle and lock and give your door a coat of fresh paint. If budget allows, add a new light fixture too.

6. Sell it with flowers

Add plants or flowers along the walkway that potential buyers will use to enter your home.

7. Make it sparkle

Power-wash your front walkway or porch. It’s the first thing buyers will see, so it should look bright and clean.

8. Scrub, scrub, scrub

Wash all of your windows (inside and out) and replace heavy drapes with sheer curtains, which will let in more light.

9. Invest in a few bags of mulch

It’s inexpensive and can instantly tidy up flower beds or line walkways, giving the feel of professional landscaping.

10. Really clean your floors

Really, really clean them (as in more than just doing a once-over with the vacuum). Rent a steam machine to give your carpets a deep scrub. If you have hardwood floors, have them buffed and polished.

11. Switch out your switch plates

If your outlets and switches are mismatched or look grimy, replace them with new ones. Stick with white and opt for a contemporary style.

12. Hang a pendant light in your kitchen

Doing so instantly adds a modern edge to the space and creates a focal point.

13. Increase the wattage in your light fixtures

It’s a subtle change, but new, brighter bulbs make small spaces feel larger.

14. Undo the unsightly

Is your storm door on the decline? Remove it. Carpeting looks worse for the wear? Rip it out. The less “unclean” your home looks, the newer it will feel to a buyer.

15. Give your guest room a purpose

If the guest room is currently the catchall for everything you don’t know what to do with, clean it out and repurpose it as an office or make it a real space for guests.

Did you know we can help? Our Real Estate Concierges Handyman services can take care of these low budget items for you, saving you time and stress! Let us help stage your home for a successful resell. Give us a call @ 855-REC-6700 or email at concierge@reconcierges.com.

Happy Selling!

R > O > I = Home$mart

You want to build wealth and achieve financial stability, but where do you start?  Especially if you’re renting and paying a landlord 25% of your income, how do you get out of the Renter rat race to become an Owner and ultimately an Investor where you are the landlord and achieve Home$mart financial stability?  How do you go from living paycheck-to-paycheck to your landlord to building wealth through real estate?

As I was writing this blog, I was thinking back on my experience and how I made the journey to becoming more Home$mart and achieving financial stability.  I wanted to share the steps that helped me move from Renter > Owner > Investor > Home$mart.  One of the first questions I always get is, ‘Where do I start and what’s my next step?”  Here are my thoughts/answers:

Preparing to move from Renter to Owner:

Owning a home is probably the biggest investment/purchase you will make in your lifetime.  It’s a big financial decision, therefore you need to have your finances in order to move from Renter to Owner.

Step 1: Understand your financial situation and get on a budget.  If you don’t know where your money is going, it’s difficult to work towards Home$mart and financial stability.  You can own anything with a 20-30-50 plan.   There are some great online tools/resources out there such as PersonalCapital.com or Mint.com to help you organize and understand your finances better.  But at the end of the day, you need to establish a budget where you invest in yourself and put 10-20% of your take-home income towards your financial stability and growing your net worth.

Step 2: Build an Emergency Fund - you don’t want to drain your savings to purchase your first home.  I recommend having an emergency fund equivalent to 3 months of your living expenses.  Again, you won’t know how much this should be if you don’t understand your financial situation and get on a budget as outlined in Step 1.

Step 3: Payoff Bad Debt - Any credit card, student loan, car loan, personal loan that you have greater than 8-10% interest, you should try to payoff beforehand.  The more your monthly debt payments are, the less mortgage/home you will qualify for.  As a rule of thumb, your monthly Debt-to-Gross Income ratio can not be greater than 45%.  Meaning if your gross monthly income is $10,000, all of your monthly debt payments including mortgage, property taxes, insurance, can not be more than $4,500.  So the less monthly bad debt you have, the easier it will be to qualify for a mortgage.  Start with your highest interest balance or the lowest balance and pay it off first and then apply that extra income from debt #1 payment to increased monthly payment on your #2 bad debt loan/credit card.  There’s something about being able to get rid of one bad debt first vs. paying a little across all bad debt loans.

Step 4: Save for your home purchase - you are now on your way to becoming an Owner!  Most conventional loans require 20% down payment, but if you are a first time homebuyer or veteran, there are programs where you can purchase a home for as little as 3.5-5% down.  Meaning if you want to buy a $200k house, you might only need $7k-$10k downpayment vs the conventional loan that would require $40k down payment for a $200k home.  Don’t be shy about also asking friends, family, parents to help you achieve Step 4.  Rather than holiday, birthday, or wedding gifts, ask your friends to help you with saving for your downpayment.  You can get an FHA loan defined by first time homebuyer or if you have not owned a home within the last 3 years for as little as 3.5% downpayment.  In some emerging cities the Government has land opportunities called USDA loans where you can get 100% financing!  Also, as a first time home buyer, you can take 100% of the downpayment as a gift.  Ask your parents to prepay your next 10 yrs of Christmas or Hanukkah and get the ultimate gift of building wealth in real estate this season.  Maybe your parents are willing to loan you the money or give you a larger holiday gift in cash!  Like anything else, make your goals known and you might be surprised who will help you achieve getting into your first home.  There are also some crowdsourcing fundraising out there where friends and family can contribute to your dream of owning a home vs. buying you steak knives!  You can get a conventional loan for as little as 5% down.  One guideline for financial gifts to achieve your downpayment is that they need to be in your bank account at least 2 months prior to your mortgage funding.  There are strict guidelines around tracking your down payment funds, so talk to your realtor or mortgage lender, but crowdsourcing for your downpayment is a great way to accelerate your ability to move from renter to owner.

Step 5: Where would you like to live? - Based on your lifestyle or how far you want to live from your work, start thinking about areas where you want to live and drive the neighborhoods.  Do you want to live within a 15 minute commute to your office or within walking distance to restaurants, shops, night life?  Most people start with how much house they can afford and then start their search for the biggest home they can buy given their budget.  However, you can always update the home, but you can’t take the home out of the neighborhood.  So no matter how nice or big the house might be, if you don’t like the area or neighborhood or traffic, you can’t change that.  You can remodel the house, but you can’t improve the school district, shopping conveniences, traffic, etc around you.  Think about your lifestyle and what are the top 3 things you want in your ideal neighborhood?

Get Started on your Home Buying Process!

Once you’ve narrowed down where you’d like to live, there are a lot of online resources like Zillow and Trulia to give you an idea of home prices in your desired area.  It’s about this time you should contact a mortgage broker/lender and see what you can qualify for given your current financial situation, interest rates, etc.  You can also contact a local realtor and they can guide you through the process, including mortgage lenders, details about specific neighborhoods, schools, etc.  Once you have your mortgage lender and realtor, you have a team to help you move from Renter to Owner - - Congratulations!

Preparing to move from Owner > to > Investor:

Transitioning from Owner to Investor is a big financial milestone, but not as hard as you think with the right team in place (Realtor, Lenders, Attorney, Title).  You are approaching a new phase in your journey towards financial stability and building wealth and income through real estate.  Very few people achieve this financial milestone and you should be proud to taking this next step.  However, just like moving from Renter to Owner, most people ask me, “Where do I start and what’s the next step?”  I thought I’d share my experience in how I made the move from Owner to Investor in 2006 and never looked back.  It goes like this:

Step 1. Have a clear vision and purpose of why you want to be a successful real estate investor and what your business needs to do for you. Are you looking for short-term gains with flipping houses or long-term cash flow with passive income?  Do you want to do this full-time or part-time with property managers and others doing the day-to-day work for you? For my wife and I, our goal was to do this part-time while building long-term wealth via passive income over a 20 yr period.  Our goal is to acquire 200+ units generating over $20k+/month (minimum of $100/month positive cash flow per unit) in passive income for our retirement, but a business to also pass on to our children.  We are better than 40% along our path to financial freedom, but excited about beating our initial goal of $20k/month positive cash flow.  It’s not easy, but again, if you have the right team working with you (realtor, lender, attorney), jointly you will achieve your goals.

Step 2. Build a Great Team. Find great team members to help you pull off your overall vision and purpose. One person alone can only handle so much (and it limits your education).  You need a real estate attorney, a realtor, and accountant as a minimum to round out your initial team.  If you don’t want to be a property manager, but rather just want checks deposited in your account so you can focus on the next property acquisition, then hire a property manager.  Just build this property management expense into your business model which will run you between 6-10% of monthly gross rent.  It’s what I do.  My goal is to be a real estate investor, not property manager.  My current team is one that I’ve built over the past 10 yrs, but consists of a real estate attorney, a broker, 3 agents, 2 property managers, and a handyman.  I also have built relationships with 3 different mortgage lenders that I trust and they trust me.  Like any business, it comes down to building a great team that trusts one another and understands each other’s role on the team.

Step 3. Know your business model and focus. It's easy to get emotional about a deal, no matter how experienced you are.  If you know your numbers and stick to them, it takes the emotion out of the equation.  This can save your wallet, big-time.  For us, every property has to be cashflow positive from day 1.  No Exceptions!  Learn to day NO hear and walk away.  Or negotiate a deal that meets your positive cash flow from day 1 objective.  Meaning, I don’t purchase properties with negative monthly cash flow on a hope of significant future appreciation.  My business model is they have to be cash flow positive after all expenses are paid (mortgage, property mgmt, insurance, taxes, etc.) and I can put a plan together to achieve at least 25% annual return on my money after 1 yr.  If I can’t make a property perform at this level, then I move on to the next.  To be honest, it’s not that difficult to achieve this in real estate, one of the greatest leveraged investments around.  As an example, if you invest $20k on a $100k property (20% down), your tenant will pay down about $1300/yr in principle for you and if the home appreciates at the rate of inflation or 3% per year, that’s $3000 in appreciation + $1300 in principle reduction or $4300 gain in the first year.  This gives you just over 20% return on your initial $20k downpayment investment.  If you are cashflow positive and with depreciation tax deductions, you should be well over 25% annual return on your initial investment of $20k consistently year after year.  Compare this to 5-8% in the stock market.

Step 4. Be fanatical about due diligence. Try to obtain and confirm every bit of information you can about an investment — not just the physical property but the history and potential future of revenue, operating expenses, and capital costs.  Work with your team to get you the data and put together the numbers to meet your business model or not.  That’s why you have a team (realtor, mortgage broker, property manager, etc) to work for you, get you the data, so you can make the investment decision or not.

Step 5. Be a Closer Not a Poser. It only takes a moment to tarnish your reputation. You can’t fake it till you make it. If you can’t close, don’t make an offer.  If your plan is to be a long term investor in the area, you’re reputation is bigger than the deal.  Be open and realistic with your team.  Long-term trust is critical with not just your team, but also your reputation among other realtors, investors, contractors, etc..in the area.   If you burn the trust of a contractor, they talk to 10 other contractors, and your next fixer-upper/flip becomes impossible.

Take action! We all have fear when we do something that pushes us out of our comfort zone.  The only way around fear is to take action, learn, and educate yourself in the real world.   It will be uncomfortable at first, but like anything else, you will become used to it and will most likely get excited about it.  I know I did.  My wife and I love looking at properties, running the numbers, and envisioning what we can do to improve the property’s financial performance and how it might fit into our long-term vision of passive income and financial stability for our family.

My Top 5 Insights for Real Estate Investing

I call it the R.O.I. Journey to Financial Freedom.   I’ve seen hundreds of people like my wife and I move from Renter >> Owner >> Investor to achieve financial freedom.  My wife and I bought our first home in 1994 and moved from Renter to Owner.  In 2005, we moved from Owner to Investor and we’ve never looked back.  We now have over 40 units in our portfolio with a goal of reaching 200 in the next 5 yrs.  Our purpose is to build long-term wealth and passive income for our two children.  Our goal is financial freedom for ourselves while building long-term wealth for our kids and their kids.  Our first LLC is named after our kids initials, and oh yeah, our dog KC :).   With that said, I wanted to share our top 5 learnings with you about moving along the R.O.I. journey from Owner >> Investor and achieving financial freedom.

1. Have a clear vision and purpose of why you want to be a successful real estate investor, and what your business needs to do for you. Are you looking for short-term gains with flipping houses or long-term cash flow with passive income?  Do you want to do this full-time or part-time with property managers and others doing the day-to-day work for you? For my wife and I, our goal was to do this part-time while building long-term wealth via passive income over a 20 yr period.

2. Build a Great Team. Find great team members to help you pull off your overall vision and purpose. One person alone can only handle so much (and it limits your education).  You need a real estate attorney, a realtor, and accountant as a minimum to round out your initial team.  If you don’t want to be a property manager, but rather just want checks deposited in your account so you can focus on the next property acquisition, then hire a property manager.  Just build this property management expense into your business model which will run you between 6-10% of monthly gross rent.  It’s what I do.  My goal is to be a real estate investor, not property manager.  My current team is one that I’ve built over the past 10 yrs, but consists of a real estate attorney, a broker, 3 agents, 2 property managers, and a handyman.  I also have built relationships with 3 different mortgage lenders that I trust and they trust me.  Like any business, it comes down to building a great team that trusts one another and understands each other’s role on the team.

3. Know your business model and focus. It's easy to get emotional about a deal, no matter how experienced you are.  If you know your numbers and stick to them, it takes the emotion out of the equation.  This can save your wallet, big-time.  For us, every property has to be cashflow positive from day 1.  Meaning, I don’t purchase properties with negative monthly cash flow on a hope of significant future appreciation.  My business model is they have to be cash flow positive after all expenses are paid (mortgage, property mgmt, insurance, taxes, etc.) and I can put a plan together to achieve at least 25% annual return on my money after 1 yr.  If I can’t make a property perform at this level, then I move on to the next.  To be honest, it’s not that difficult to achieve this in real estate, one of the greatest leveraged investments around.  As an example, if you invest $20k on a $100k property (20% down), your tenant will pay down about $1300/yr in principle for you and if the home appreciates at the rate of inflation or 3% per year, that’s $3000 in appreciation + $1300 in principle reduction or $4300 gain in the first year.  This gives you just over 20% return on your initial $20k downpayment investment.  If you are cashflow positive and with depreciation tax deductions, you should be well over 25% annual return on your initial investment of $20k consistently year after year.  Compare this to 8-10% in the stock market.

4. Be fanatical about due diligence. Try to obtain and confirm every bit of information you can about an investment — not just the physical property but the history and potential future of revenue, operating expenses, and capital costs.  Work with your team to get you the data and put together the numbers to meet your business model or not.  That’s why you have a team (realtor, mortgage broker, property manager, etc) to work for you, get you the data, so you can make the investment decision or not.

5. Be a Closer Not a Poser. It only takes a moment to tarnish your reputation. You can’t fake it till you make it. If you can’t close, don’t make an offer.  If your plan is to be a long term investor in the area, you’re reputation is bigger than the deal.  Be open and realistic with your team.  Long-term trust is critical with not just your team, but also your reputation among other realtors, investors, contractors, etc..in the area.   If you burn the trust of a contractor, they talk to 10 other contractors, and your next fixer-upper/flip becomes impossible.

Take action. We all have fear when we do something that pushes us out of our comfort zone.  The only way around fear is to take action, learn, and educate yourself in the real world.   It will be uncomfortable at first, but like anything else, you will become used to it and will most likely get excited about it.  I know I did.  My wife and I love looking at properties, running the numbers, and envisioning what we can do to improve the property’s financial performance and how it might fit into our long-term vision of passive income and financial freedom for our family.

Happy Investing!