Recent Credit is Critical

It is amazing how much weight the credit scoring models put on recent credit. Let me give you three examples:

1. In the first scenario, an individual who had perfect credit (car, student loans, house, all perfect resulting in a score exceeding 780), had three student loans go bad six months prior to applying for a loan – each had 90 day late payments. There was also a car loan that was late the month before the application. His score had dropped from the high 700’s to low 500’s.

2. Another individual whose score was over 690, dropped to 615 thanks to one 30 day late payment on a car loan two months before buying a home.

3. A third individual had a bankruptcy (chapter 7) from 2 years prior, a short-sale that took place about the time of the bankruptcy, multiple late payments on various accounts leading up to the bankruptcy, and only one new credit item opened since the bankruptcy (a small credit card opened a year before application). Yet her credit score was over 680.

If you compare the first scenario to the third scenario, there is a spread of over 150 points in score. The third individual committed what most would consider a much more egregious action from a credit standpoint – bankruptcy and short sale to go along with multiple late payments. The first individual always had great credit. And the issue causing the score drop was “only” late payments. There was no collection, judgment, foreclosure or bankruptcy. He was just late. The difference – time frame. For the third individual, whose score is over 680, all the derogatory credit issues occurred 2+ years before credit was checked. Yes, they were certainly much worse in the extent of the lack of payment, but because there had been 2 years with no negative issues, the score had moved back up. Same thing goes for the second individual referenced here as the first individual. One minor late payment dropped the score by 75 points, making qualifying nearly impossible. And it was simply because the late payment was so recent.

I give these examples simply to show illustrations of how devastating it can be to a credit score when late payments are recent. Our clients need to be aware that paying bills on time is critical – particularly the closer they get to wanting to buy a home.

Let Compound Interest Work for You

Throughout the year, I’m reviewing the top 20 lessons learned from Stan in my book “Your Mortgage Matters” (see last chapter for the list). This week we are on lesson #4. If you don’t have a copy, email me and I’ll send you one.

Lesson #4: Why Compound Interest is so Vital

Stan used the old “double a penny a day” routine when talking to the group of kids in the classroom when he was talking about how compound interest is so valuable. It goes something like this: Which would you rather have, $1,000,000 given to you right now or get a penny right now, but get the benefit of it doubling every day for a month? On the surface, you’d try to quickly do the math and get 14-15 days into it realizing that you were still under $500, give up and just respond that you’d take the $1 million now. But that is where the beauty of compounding becomes relative – the bigger the number that doubles, the bigger the number is that will double again. Granted, it is an unrealistic argument to have an investment doubling every day, but the point gets made. After 30 days, you’d have close to $11 million if you had taken the penny doubling every day.

Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” It’s a lesson that I wish more of us understood at an early age – and certainly one we should be teaching our younger generation. Because the sooner we get it and start saving, the more beneficial it will be to us in the long run. I visited with a young man this past week who was buying his first house. He was really sharp and had his financial house in order. He wanted to do a 15 year fixed rate loan. When I asked him why he wanted the 15 year loan, he responded that he wanted his house paid off by the time he was 45 (he was 30). I told him that I completely respected his wishes and would certainly help him with the 15 year loan if that is what he wanted – I’m all for helping clients get out of debt. But I asked him if he would be willing to let me show him a quick financial analysis. He said I could so I asked him what rate he thought he would earn on the money he currently had invested. He said he expected no less than 7% long term. He was buying a $250,000 house and borrowing $200,000. His principal and interest payment on the 15 year loan was $1,393 per month at 3.125%. A 30 year payment would have been $912 at 3.625%, or a difference of $481 per month. I then showed him that his balance on the 30 year fixed deal would be at $127,000 at the end of 15 years versus 0 if he went with the 15 year deal and had the loan paid off at that point. So he was immediately seeing the benefit of the 15 year loan. But then I showed him that if he invested the $481 every month, earning 7% (that he told me he expected), he would amass over $152,000 by the end of the 15 years – enough to pay the loan off and have $35,000 extra.

My point was not to convince him that doing a 30 year loan was better than the 15. Because of the lower rate, I could always argue that the 15 year loan is a better option – particularly if the payment fits well within a budget. I simply wanted him to understand the power of the money compounding if he chose to continue to be a wise saver. I then showed him that if he went another 15 years on the same route with the 30 year loan (saving $481 per month), his investment would grow to $585,000. If he started saving $1,393 per month in year 16 (the equivalent of the 15 year payment he had been making) and saved that amount every month for the next 15 years, he’d have $441,500 (over $140,000 less than the strategy using the 30 year loan). Obviously it takes a lot of discipline to save the extra money every month and not spend it. But hopefully you see the advantage of making your money work for you and taking advantage of compound interest.

Are You Ready? Is Your Lender Ready?

There is a big change coming later this year...All mortgage applications taken after August 1 will require the closing documents to be provided to the consumer at least three business days prior to consummation. This is thanks to the new TILA-RESPA Integrated Disclosure rule. I have attached a brief recap below. (I say brief because the actual document is over 1,600 pages).

Think about this for a minute: When was the last time your lender had your client’s closing package to the attorney and the attorney had all of the documents prepared 3 days ahead of closing? I know, it’s frightening to consider. Well, in less than 6 months, that is going to be the new reality for all of us.

Fortunately, for my team, we have exceeded getting all of our purchase closing packages to the attorney at least 48 hours in advance of closing, over 85% of the time, covering the past 4 years. But even with an exceptional track record like ours, we are going to have to raise the bar even higher.

Our goal, starting at the beginning of this year, is to get every purchase closing package to our attorney 72 hours in advance. Granted, we can’t hold the attorneys accountable at this point to also prepare their docs, but we can certainly keep up with our performance. The reality is that when we get to August, we will likely need to have our closing docs out at least 4 days prior to closing, to give the attorney a day to prepare the docs for signature. Raise the bar again!!

Change is a constant for all of us in real estate. I’d suggest you start thinking now about how you can tweak your own process and timeline. A simple example would be to make sure you are scheduling all home inspections within 3 days of contract acceptance. This will allow your lender to get the appraisal ordered sooner, particularly on a deal with a short time frame. And, you certainly need to be thinking through all of the potential contractual issues, those that are typical and those out of the norm that tend to come up at the last minute, causing a change to the contract affecting the numbers. Any change to the numbers affecting the Closing Disclosure will require a restart to the 3 day wait. It’s a brave new world!

I’d also suggest that you work with a lender that is prepared for what is coming. Those that consistently miss closing dates and/or have packages coming in at the last minute are going to struggle mightily with this. Now is the time to start preparing!

Click Here if you'd like to read a recap of some important related items.

Don't Buy on Impulse

Throughout the year, I’m reviewing the top 20 lessons learned from Stan in my book “Your Mortgage Matters” (see last chapter for the list). This week we are on lesson #3.

Lesson #3: Avoid Impulse Buying – particularly with big ticket items

This might just be one of the biggest traps consumers fall into. Have you ever heard or said:

“With a sale like this, I can’t pass this bargain up.”

“My image would be enhanced by driving that shiny new SUV versus my 10 year old clunker.”

“That purse would look great with this outfit.”

“Sure, I’ll take fries with that”

“Oh, I don’t have to make payments for a year, definitely give me the upgrade.”

I know I’ve said things like this – well, maybe not the one about the purse. But it’s thoughts like these that cause us to buy things that we don’t need – and certainly don’t fit our budget. Often it is the first step down a path of no return. Nothing wrecks a budget like an unplanned and probably more importantly, an unneeded purchase - particularly if it is something that is more of a big ticket item. (We’ll call this anything over a couple hundred dollars). But don’t get me wrong, consistently making little purchases on impulse can add up.

Check out a few statistics about impulse buying:

• 40% of consumer spending is impulse buying (to put a number to that, it represents $4,207,920,000 per year in the U.S. – yeah, that’s $4 trillion)
• Up to 60% of super market purchases are made on impulse
• 88% of impulse purchases are made because the item is on sale
• 90% of people make occasional impulsive purchases and between 30-50% of all purchases were classified by the buyers themselves as impulse purchases
• Most people buy with their emotions and 75% feel happy after an impulse purchase
• Younger consumers with higher incomes have a greater percentage of impulse purchases

When I look at that dollar amount spent on things that the consumer had no intention of buying, it blows my mind. Here are five quick steps to help avoid impulse buying:

1. Shop with a list
2. Practice saying “no” to your children
3. Shop intentionally
4. Limit your shopping time
5. Pay with cash

Bottom line is that for us, and particularly our younger home buying clients, if we want to be able to save money and focus on the bigger picture of being able to make a difference with our finances, we must avoid buying on impulse.

Welcome Home!

One of the cool things about working for F&M is that they participate in the FHLB (Federal Home Loan Bank) of Cincinnati’s Welcome Home program. This may be one of the coolest programs out there for low to moderate income buyers.

Welcome Home grants are used to fund reasonable down payments and closing costs incurred in conjunction with the acquisition or construction of owner-occupied housing. The grants are limited to $5,000 per homebuyer. All funds are reserved for specific homebuyers purchasing specific homes and cannot be transferred to other homebuyers or to other homes, and the funds are on a first come, first served basis.

Welcome Home funds will be available for reservation beginning at 8AM ET on March 2, 2015, and will remain available until all funds have been reserved. The funds are typically completely reserved (thus exhausted) by early April, so there is a narrow timeframe to take advantage of this. Once the funds are exhausted, FHLB will no longer accept requests for funds. Here are the basic eligibility requirements:

• Applicants do not have to be first-time homebuyers. However, all first-time homebuyers must complete a homebuyer counseling program.
• Income limits are based on 80% median income for the appropriate county.
  • For Davidson and surrounding counties, 1-2 person families must have household income of less than $61,440
  • For Davidson and surrounding counties, 3+ person families must have household income of less than $71,680
• Homebuyers must contribute at least $500 of their own funds toward down payment and closing costs (60% of these funds may be received as a gift).
• Must be used for primary residence and one to four unit properties are eligible
• Funds are to be used for reasonable down payment and closing costs
• Funds must be used in conjunctionwith a government loan (like FHA, THDA, VA or USDA; but not 203K)
• There is no repayment required of the funds if the property is retained for at least five years.  If property soldinside of the five year retention period, the loan must be paid back.  However, 20% of the initial loan balance is forgiven each year.  So if the property is sold in year three, for example, 60% of the initial grant must be repaid.
• If earnest money is paid and reflected on the HUD, the buyer may not receive that back through the use of these funds.
• The review period for the grant can take a couple of weeks, so quick-turn contracts will not work with this program.

Click HERE to view the 2015 guidelines for the program if you are interested.  Feel free to call with any questions.

It's Back!

For several years I’ve been recommending to anyone with a decent credit score that they do whatever they can to come up with a 5% down payment to avoid FHA financing. As the mortgage insurance charged by FHA continued to become more and more expensive, that type of financing became somewhat of the “new sub-prime” loan for those with minimal down payment and poor credit scores. However, with the introduction of the new monthly fee for mortgage insurance being charged at 85 basis points versus 135 basis points (see my update from two weeks ago – it goes into effect January 26th), FHA is back in business!

FHA has once again moved to the forefront of viable loan options for first time buyers and move up buyers with minimal proceeds coming from selling their current home. If FHA continues to price their loans competitively from a rate perspective, an argument can be made for anyone with a smaller down payment to consider this option over a conventional loan. For the past several years, the 30 year fixed rate for an FHA loan has been around .5% better than a conventional 30 year fixed. So right now, someone with good credit can get a conventional loan at 3.75% or an FHA at 3.25%. If the loan amount were $150,000 for each, the P&I would be $42 cheaper on the FHA due to the lower rate. For the very best credit scores, the MI factor is still around 30 basis points higher on FHA versus a 95% conventional loan, so for the same loan amount, the borrower would pay $37 more for the FHA loan. FHA still wins by $5 – and this is for borrowers with the best credit scores. As the credit score gets lower, the impact to both the rate and the MI for conventional is significantly greater than FHA. FHA only requires 3.5% down and for the most part, offers more lenient underwriting guidelines than conventional loans.

Fannie and Freddie made big announcements back in the fall that they’d be rolling out new 97% loan options this year. I can assure you that the rates and MI costs for those higher loan to value loans will be greater than what they are at 95%. With the new change FHA has made, it may render Fannie and Freddie’s 97% loans pretty insignificant.The one major argument that is still in favor of a conventional loan is that the monthly mortgage insurance can be removed at some point in the future (minimum of two years), whereas the FHA monthly mortgage insurance payment is permanent. But in most cases, it is at least 4-5 years down the road before that is possible on the conventional loan, and the average first time buyer isn’t in a home much longer than that anyway.

And don’t forget that FHA loans are assumable (on a qualifying basis). If rates go up in the next few years, even if only to the 5.5 - 6% range, how attractive might a house be to a buyer if he/she can assume the existing loan at 3.25%? Something else to think about...

Oh, one more thing – you might suggest to anyone that purchased a home in 2013 or 2014 using an FHA loan, to consider refinancing that loan to take advantage of the lower MI.

I Wish Someone Had Told Me This When I Was Twenty

Throughout the next year, I’m going to review the top 20 lessons learned from Stan in my book “Your Mortgage Matters” (see last chapter for the list). This week we are on lesson #2.

Lesson #2: Spending is Fun, but saving is the key to long term financial success.

Here is a simple fact: The geometric average return of the S&P 500 from 1928 – 2014 was 9.6%. If someone coming out of college saves $500 per month for retirement from the time he is 22 until he is 40, then never pays another penny into his retirement account, while still earning 8%, he will have amassed $1.6 million by the time he is 65. If his friend doesn’t start saving for retirement until she is 40, she will have to save $1,735 per month from the time she is 40 until she turns 65 to amass the same $1.6 million. He put in $108,000 while she put in $520,500. As Albert Einstein quoted, “The eighth wonder of the world is compound interest” – or something like that. The earlier in life we grasp this concept the more rewarding it will be for us.

I realize that the older most people get, the more money we make, and therefore it should be easier to save as we get older. But I would argue that the older someone gets, the more expensive life becomes. Anyone with children would agree with me on that. I also understand the argument exists for someone getting started in life that they have many purchases in front of them (car, clothes, furniture, appliances, etc...) and it is easy to burn through income “getting established”. These arguments are valid. After all, for someone in his early twenties, retirement is so far down the road, it seems irrelevant.

But there is more to think about than just retirement. That is not the only big ticket item that will consume cash. Car purchases, weddings, college and vacations are just a few of the things that “surprise” us when the time comes to pay for them. The only away to avoid going into debt for these things is to save for them ahead of time. I don’t have enough room in this update to mathematically show the damage borrowing for these types of purchases does for someone’s savings efforts. Saving for things ahead of time may mean making some difficult decisions and take some “fun” out of our routine. It may mean something simple like taking the family for a picnic versus taking them to Chili’s. Heck, it might mean taking your lunch to work. And heaven forbid, it might mean driving a car past 100,000 miles. I think I make my point, well, the numbers make the point for me, that having an attitude that puts savings ahead of spending, painful as it can be at times, will allow us to come out ahead financially in the long run.

Lions and Tigers and Bears, Oh My!!!

A couple of pretty important announcements/notices came out in the past week and a half that I thought worth mentioning (a couple of good ones and another – not so much):

Rates (Lions): Barry Habib, probably the most well-known prognosticators of mortgage interest rates, came out this week and boldly predicted that mortgage rates would actually fall in 2015.  The culprit?  He believes oil is driving the latest trend.  He is dead on right now as we are at the lowest level for fixed rates that we’ve seen other than the window of time from late 2012 to early 2013.

http://thenationalrealestatepost.com/barry-habib-predicts-big-rate-drop-for-2015/

FHA (Tigers):  In a move designed to bring more first-time homebuyers into the housing market, President Barack Obama said Wednesday the Federal Housing Administration (FHA), the government insurer of home loans, will lower its annual insurance premiums from 1.35 percent to 0.85 percent.  He didn’t give a timeframe, but indicated that it would be sooner than later.  This would in effect drop someone’s payment on the MI portion, assuming a purchase price of $200,000, from $217 per month to $137 per month (regardless of the interest rate).  That is pretty substantial and quite the statement that FHA wants back in the mortgage game.

http://www.cnbc.com/id/102318078

Fannie (and Bears):  On January 26th, Fannie Mae is rolling out its Collateral Underwriter (CU). The objective of CU is to assist lenders with assessing property eligibility and appraisal quality by providing risk scores, flags, hard stops and messages all in real time.  I use that term “assist” very loosely here.  There will be 21 different messages related to eligibility violations that can hold up a lender from being able to proceed with an appraisal if not properly addressed.  Comparables will be analyzed more thoroughly and in a more systematic way, requiring appraisers to be much more thorough with their analysis.  To prevent delays, it will be important to you and your clients that you are working with a great lender (I know one if you need a referral J) during this period of change with the way appraisals are going to be handled.  Found a great blog on the topic:

http://www.mortgageorb.com/e107_plugins/content/content.php?content.16311

Make it a great week!

20 Lessons in 2015

hroughout the next year, I’m going to review the top 20 lessons learned from Stan in my book “Your Mortgage Matters” (see last chapter for the list). As relevant news comes up, like Fannie’s new policy on appraisals going into effect on January 26, I’ll make sure to cover those and push the lessons from Stan back a week. Just wanted to give you a little heads up as to what is coming throughout the first half of 2015.

Lesson #1: You Must Have a Plan for Your Money

We’ve all heard the old adage “if you fail to plan, you plan to fail”. Well, I’m not trying to beat a dead horse here, but that statement could not be more true as it relates to personal finance. Starting off a new year, there is probably no better time for us to help our home buying clients get their finances in order. It's also a great time for us to do that individually as well. Whether we are talking about big ticket items that need to be purchased or saved for (house, car, college, wedding, retirement, etc...), or simply breaking down a monthly budget to align our priorities, unless we become the boss of our money, it will always tell us what to do.

I had a great conversation this past week with a group of college kids. I love their enthusiasm for life in general, but I’m concerned about how naïve they are as it relates to the financial world. I’m not going to go down the “student loan debacle” rabbit hole that I’ve gone down before. I believe that is a looming crisis and I’ll leave it at that. But that crisis is symptomatic of our young people today – those that will soon be our first time-homebuyers. Most don’t even have a clue what a budget is, let alone how to create one. They are graduating from college and immediately becoming a servant to money. I’m amazed at the potential first-time homebuyers that I talk to whose lives are spent on the month to month merry-go-round of bringing just enough money in so that it can go right back out to cover their life’s expenses – with nothing left over. They never had a plan for their money and never made savings a priority. So their expenses dictate their behavior.

The key to financial success can be found by simply mapping out an exact plan for every penny earned – before it is earned and certainly before it is spent. Call it a state of mind from a big picture perspective or call it budgeting from a rubber meets the road standpoint. The bottom line is that we need to lead by example by having our own plan for our money and help our clients do the same. They’ll be better homebuyers as a result – now and in the future.

Planning for Success

If you want a great way to get a little traction for your plans for 2015, I’ve attached a form (click here to open in a new window) that you could use that will help you not only formulate a solid plan of attack, it will also give you a living and breathing document that you can use to monitor your progress throughout the year. For those of you that were able to attend Doug Smith’s sales event that F&M sponsored a couple of weeks ago, you already have a copy of this document. If you attended, you already had the opportunity to fill one out. If you were unable to attend, this document is pretty simple to follow and will allow you to get your goals in writing. Once you have put this information in writing, it becomes a binding agreement that you make with yourself to perform the necessary activities to make your goal a reality. Feel free to call me if you have any questions.

I appreciate everything you have done to help me have such tremendous success in 2014. I’m more excited about 2015 than I can remember being about any upcoming year. My passion for helping clients buy homes and coaching them on how to structure their financing to meet their life’s goals has really been rekindled this year and I’m excited about the opportunities ahead. I hope you share that same enthusiasm and are ready to make next year your best ever!

Your Mortgage Matters

I mentioned in my update two weeks ago that I had a special gift for you. Hopefully by now you will have received a copy of "Your Mortgage Matters." I’m not much of a writer, and this is my first attempt at putting this type of instruction together in book form. But I think there is some really good information in there that applies to all homeowners, and especially those getting in position to buy their first home.

I’d love your feedback and I'm happy to provide additional copies if you know of friends/family/clients that might benefit from the information. And please let me know if you did not receive a copy.

Couple of quick industry notes:

• FHA is NOT Extending the Flipping Waiver. The flipping waiver was issued in Feb 2010, and allowed an FHA loan to be closed without the seller owning theproperty for 90 days  BEFORE a contract is written. They are Not extending this.  For contracts written Jan 1 and later,  seller must have owned/had title (recording date) for 90 days before a contract is written on Day 91.
• Fannie is rolling out the 97% loan. I’ll provide more information on this in a later update, but wanted you to be aware of new offering. It will be available for first-time homebuyers with good credit starting this week. My guess is the rate will be a little higher as will the cost of the mortgage insurance. As I mentioned in an update a couple of weeks ago, I wish Fannie would look at loosening the guidelines for income/asset documentation for customers putting 20% or more down with excellent credit. But I guess we’ll consider this progress and move on.  Ultimately, we will need to compare each customer’s individual scenario to see how the 97% conventional loan stacks up against FHA to determine which is better. But that is something I love to do for clients, so no worries there.
• Great article from Quentin Fottrell at MarketWatch on why home buying is now much more beneficial than renting. According to Zillow, US renters spent nearly 30% of their monthly income on rent in the third quarter of 2014 (versus 15% towards their mortgage payment not counting taxes and insurance). Here is the link to the article: http://www.marketwatch.com/story/buying-a-home-is-now-twice-as-affordable-as-renting-2014-12-11

Real Estate Tech Trends

How are buyers searching for property? Where do buyers/sellers come from and what information do they find useful? How important is communication and what is the role of technology? These are just some of the questions answered in a commentary by Properties Online Inc. Click the link below and check out one of the most informative articles you will read this year.

Here are some quick stats from the piece:

• Mobile apps and searches increased over 400% from 2012 to 2013
• Searches in newspapers have dropped over 50% from 2007 to 2013
• Roughly 80% of buyers found pictures and detailed property information very useful in their search versus just 19% using videos
• Over 50% of buyers/sellers chose a Realtor from referral or past use
• There are some very interesting statistics from California (maybe where we are heading) about where buyers/sellers found their real estate agent
• Communication and expected response time from buyers/sellers might surprise you
• Social media must become a tool for you (Facebook is currently king)

It’s worth a 5-10 minute read. Click below. Have a great week!

http://propertiesonline.com/Reports/annual-real-estate-trends-report.pdf

Who Would You Lend Money To?

Today we are going to look at why down payment and credit don't really matter. To drive home the point, who would you rather lend money to?

A) First time home buyer, getting a gift for the down payment (because she has no savings), who has a 650 credit score with a debt ratio of 45% based off of the income she receives from the job she has been on for 3 months since graduating from school... OR

B) Someone, who after being in the same line of work for 20 years, decided to started a business of her own, who has 50% to put down, an 800 credit score and cash reserves available to pay the loan off 5 times over...

I can promise you that if it is my personal money that is being lent out in this situation, I’m loaning my money to Ms. B! But guess what – if Ms. B tries to get a loan through the usual suspects (Fannie, Freddie, FHA, VA, etc...), she is getting declined while Ms. A is getting approved.

In the effort to continue easing credit restrictions on mortgages, everyone who matters (Fannie, mortgage insurance companies and even Congress) seem bent on re-establishing the 97% conventional loans. I’m not opposed to this and believe that when underwritten properly, good loans can be made to buyers who only have 3% to put down. But what I continue to be amazed at is the lack of effort to help those who have great credit and good down payment (20% or more), but lack the appropriate “documentable income”, qualify for financing.

I realize the pundits will say that it was all the stated income “no doc” loans that got us in trouble. But I’d argue that it was really a combination of giving those types of loans to borrowers with shaky credit and/or minimal down payment. When someone has great credit, there is a significant statistical improbability that he/she is going to walk from their loan. Combine that with a sizable down payment of 20% or more and the chances of default are almost negligible. When the downturn comes and real estate values decline a little, it’s the borrowers who only put 3% down that are going to be under water – not likely the ones that put 20% or more down.

I’m glad to see that there is an effort being made to soften credit standards. It is the natural pendulum swing from the extreme back to the norm. I’m just curious when our law makers will realize that the combination of great credit and good down payment count for something – even when the income doesn’t fit into the qualifying box.

Help Yourself by Helping Others

Maybe you've heard this before, but Zig Ziglar once said:
"You can have everything in life that you want if you will just help enough other people get what they want."
-- Zig Ziglar

As we embark on the Thanksgiving holiday and begin our annual run through Christmas and New Year’s, I believe this thought process needs to come alive in our spirits. Let me ask you this, when was the last time you did somethingcompletely out of the norm and completely for the good of someone else? When there was nothing to be gained personally other than the blessing of helping someone? I believe that in business and in life, our ultimate success is not about what we get.

It is about what we give - our time, our money, our talents and our love.

I want this to be my slogan for next year and beyond. I’ve always believed it, but I’m going to make a concentrated effort to live it out every day. Want to join me?

In the month of December, I’m going to be sharing a personal goal for 2015. But it is not just for me. I’m going to invite you to be a part of it. And I have a little gift coming your way too. Stay tuned...

Are You Ready

This week I asked a Realtor friend of mine how things were going.  She said her business had definitely slowed down and that the lack of inventory was certainly limiting her potential buyers from engaging in contracts right now.  But she also said that she was being very productive in mapping out a plan for next year and beyond.  She is being coached by another Realtor, who is a top national producer in another state, on ways to improve her daily activities to produce better results.

What about you?  What are you doing between now and the end of this year to prepare for next year – so that it will be your best year ever?  Here are some thoughts:

• Hire a coach of your own to make recommendations of things you need to get better at or stop doing
• Attend a seminar or workshop on selling fundamentals
• Commit to reading books or other material relevant to your occupation
• Get in shape
• Call everyone in your database to wish them happy holidays or provide something of value to them
• Analyze your daily routine to see where you can spend more time devoted to the things that make you money versus those that don’t.

These are just a few items of a much larger list of things you can be doing right now to get better. The projections from NAR indicate that next year should be very similar to this year from a number of sales standpoint (projecting 5.1-5.3 million in total sales; this year’s number should be right at 5.1 million). So there is likely not going to be more houses to sell than what we had this year. That means to have a better year in 2015 than you had in 2014, you are going to have to be better than you were – and better than those that do what you do. Don’t just ease into the new year casually because "it’s the slow time of year." Take it by storm!  Now is the time to get ready to make 2015 the best year ever!!!

What Do You Want Your Payment to Be?

Invariably when I get a call, and the first thing the customer tells me is that they are calling to see how much they qualify for, my immediate response is to ask them, “how much do you want your monthly payment to be?”

I ask this for a couple of reasons. Number one is that I want to know if they have done some budgeting analysis to determine what they believe their budget will allow them to pay each month. And number two, I’m curious to know if they are just “window shopping”, wanting to see if they can buy in the price range that they are looking. Sometimes the two go hand in hand, but many times they don’t. I will always explain to them how the qualifying works and ultimately let them know how much they can qualify to buy. But, I strongly encourage them to stay within the number they believe best fits their budget – even if they qualify for more.

I know that may go against the grain for what many lenders and Realtors may do. I get it – we are in a commission world, so the bigger the sale, the bigger the paycheck. So it would make sense to help them buy as much as they can qualify to buy. But I’ve found through experience that when we do what is really best for our clients, the result is better for everyone. They have a great home and a payment that fits comfortably in their budget – they are much happier than someone who is maxed out in his budget, resulting from buying too much home.

We’ve all heard the term ‘house poor’ and it is not a good place to be. I really believe that we should advise our customers, both from a lending perspective and a buying perspective, to consider the payment first. It isn’t fair for them to get excited about a home priced over what the ultimate payment will need to be to make their budget work. By helping them keep their budget manageable, they will be in a better place. And those customers are the ones that become lifetime clients, coming back to us again and again for their future home buying and selling needs – oh yeah, they also refer their friends!

Real Estate is a Commodity - Let's Not Forget That

I love my home and I love helping others get their own home. For most of us, it is not only the place we live and raise our families, it is our largest asset. So before we get too far removed from the nightmare that took place with the drop in real estate values starting in 2006, let’s remember what real estate is and treat it accordingly – at least from a valuation standpoint. Over time, home values have consistently risen – a quick look at the numbers below (taken from the National Census Bureau) shows that the beginning of every decade going back to 1940 reflects values have risen to a figure higher than the decade before. Sometimes the increase in value from a percentage basis is impressive and sometimes not so impressive.

Something I found interesting, particular from the information below, is how drops tend to follow spikes or vice versa – even when viewed decade over decade.   Today, we are still sitting well above the average trend line of appreciation going back to 1970. Click the link and you will see what I’m talking about: http://www.jparsons.net/housingbubble

In other words, there is room for values to drop from current levels and still maintain a consistent increase going back over the last 4 decades. I’m not saying they will, but I would also argue that it isn’t catastrophic if they do. Following the huge run-up in prices from 2000 to 2010 (and that even includes the significant drop from 2006-2010), it would make sense that the decade of 2010-2020, would see much more moderate appreciation numbers.

The point is this: Real Estate is a commodity - tread cautiously, remembering that values have always risen over the long term, but that doesn’t mean they always rise. There are spikes (an update I did not too long ago trumpeted the gains we’ve seen here in Nashville since the beginning of 2012), and there are drops (2006 – 2011). Right now we are on a run and values have been rising at a good clip. But the world is not coming to an end if that slows down. Honestly, it might be a good thing.

Average Home Values in the U.S.:

1940 - $30,600
1950 - $44,600
1960 - $58,600
1970 - $65,300
1980 - $93,400
1990 - $101,100
2000 - $119,600
2010 - $180,000
Today - $213,000

Percent increase decade over decade:

1940 to 1950:  4.6% annualized
1950 to 1960:  3.1% annualized
1960 to 1970:  1.1% annualized
1970 to 1980:  4.3% annualized
1980 to 1990:   .8% annualized
1990 to 2000:  1.8% annualized
2000 to 2010:  5.0% annualized
2010 to 2014:  4.5% annualized

Suzie Agrees with Me

I mentioned in an update several months ago how crippling student loans are becoming for first time home buyers. Suzie Orman stated in an article on CNBC this past week “If one were to ask me what I think is the most dangerous threat to our economy, the answer is very simple: student loans.” Here are some statistics to consider (according to Transunion):

• Current amount of student loan debt in the United States: $1,200,000,000,000 (that’s $1.2 trillion)
• Total student loan debt has grown more than 150% since 2005
• Costs have “only” grown 22% in that same time period – so inflation is not the culprit to the loan epidemic
• In 2005, student loans accounted for less than 13% of the total debt load for adults age 20-29. Today, student loans account for nearly 37% of that group’s outstanding debt.
• The average loan balance for that group has risen from $15,900 in 2005 to $25,500 in 2014.
• Mortgage debt represented 63% of total debt for this group in 2005 and now is less than 43%

It’s pretty easy for me to see what is happening. I’ve felt it for several years, but when I see these statistics, it confirms what I’ve been thinking. Student loan debt is a significant detriment to a young person’s ability to buy a home. What I’m recognizing as a huge obstacle for homebuyers, Suzie sees as an even bigger threat – to our economy as a whole. She added, “When students of the greatest nation on Earth are buried with student loans, their ability to buy a home, to have disposable income, to be a vital participant of the economy, is greatly reduced.”

We have to encourage our kids, our grandkids, and even our neighbor’s kids, that there is a better way. Postponing college, going to junior college for a couple of years (a great option in Tennessee now), working a job or two through college, living at home if necessary, and seeking out every grant and scholarship possible are just the ones that come to mind. We also need to encourage parents to help as much as possible – and plan for it! Believe me, with five kids, this is something that is regularly discussed at my house. Sending the future homebuyers of America into the world with an average of $25,000+ in student loan debt is not the way they should begin adulthood. If this trend continues, we will continue to see the age of our first time homebuyers get older and older.

Are You a Good Delegator?

A manager that I used to work for was the best delegator I’ve ever met. He had a fundamental understanding of what tasks were the most profitable and he focused his time and attention on doing those things. The rest he left for others to do.

I admit that my first impression was that this was laziness on his part. He didn’t seem willing to do the “tough” work. But the longer I worked with him, the more I realized that he truly understood the meaning of working smarter, not harder. He realized that not only was his time more valuable spent performing activities that led to increasing the bottom line, he realized that things he delegated were accomplished in a more efficient manner than he could have done them anyway.

I was at a conference earlier in my career and the speaker made this statement: “Never perform a task, that someone else can do, if it is less than your hourly wage.” His instruction was to take our annual income, divide it by 52 (for weeks in the year), then by 40 (for hours worked per week) to determine our hourly wage. Once I knew that, I was to cease doing any task that I could pay someone a rate that was less than that. I immediately made a list of the things that I was doing that I should be paying someone else to do (yard work and home repairs topped the list, but there were countless activities that I was performing at the office that could be delegated as well). It was an incredibly freeing exercise.

It’s easier said than done. If you are like me, you likely have a hard time letting go. No one does the job better than you, right? I have a tendency to think that way, but that is where specific training and tremendous communication come into play. It may be a trial and error process. But when done properly, delegating will free you up to focus your time and energy on the activities that are more profitable for your business.

Best Deal in Town

We just closed a deal this week where the buyer bought a $200,000 priced home with only $300 out of pocket and got a 30 year fixed rate at 3.25%. How in the world was that possible???

He got a USDA loan. I mentioned in an update a couple of weeks ago how USDA has expanded their lending territory from a geographical standpoint – including all of Wilson county and now even including small sections of Davidson county that boarder outlying counties. While I realize that this program only applies to people wanting to buy in these areas, and having income that fits within the household limit (which for most of the counties around middle TN is $77,200 per year), it is a program that you should definitely be familiar with.

In the case referenced above, my buyer’s agent was able to negotiate a contract where the seller paid the buyer’s closing costs. USDA allows the buyer to obtain 100% financing, so that combination created the ability to get our client into the property for virtually no money out of pocket. The monthly fee that USDA charges for “mortgage insurance” (they call it a guarantee fee) is less than 40% of what FHA charges and the rates are fantastic.

Click the link below to learn more about income eligibility and property eligibility. There might be an opportunity here for a client that could surprise you.

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do