Now is Still a Great Time to Buy

Since 2012 I’ve been talking about the home affordability index and why buying a home now is a great option (prices of homes being lower, interest rates continuing in all-time low ranges, all combined with stable to rising income levels).  Granted with the increase we’ve seen in housing prices over the past 2-3 years, the affordability index is not as good as it once was.  But the lower interest rate environment is still giving us a great opportunity.  As a simple example, if a home can be purchased today at $200,000 with a 30 year fixed rate of 4%, it would provide a payment that is $271 lower per month versus buying that same home 2 years from now if the value of the home has increased to $216,000 (4% appreciation rate) and rates have increased to 5.5%.  I know you see stats like that all of the time.  But that is a pretty significant number – especially when the example given here is pretty conservative (I could easily see homes appreciating at a 4% clip over the next two years and rates could easily be at 5.5%, which is still very low, two years from now).  It’s almost the equivalent of adding a car payment to the mortgage when you think about it in relevant terms.

So I thought it would be great to provide a couple of really good visuals that you are able to share with clients who are debating buying a home right now.  The first chart shows the average interest rate per year for the past 30 years and the second chart shows the appreciation rate by state from September 2014 through September 2015.  It’s very eye opening when seen in this manner.

Click Here for the 30 Year FHLMC Rates On 30-Year Fixed-Rate Mortgage Chart

Click Here for the Housing Prices Chart

This will Likely be the Week

 has been 8 years since the Fed lowered the Fed Fund Rate to .25%, thus dropping the Prime Rate to 3.25% (December 16th, 2008 to be exact).  It hasn’t moved from that point since that time eight years ago.  The Fed meets this week (ironically on December 16th again) and I believe for the first time in a long time there will be a change in the Fed Fund rate.  The economy added 211,000 Nonfarm Payrolls in November, handily beating expectations. Plus, October's number was revised upward by 27,000 payrolls. This confirmation that October was a solid month for jobs is significant, because monthly employment data is volatile and can get hit with big downward revisions.  The Unemployment Rate held at 5.0%, the labor force grew by 273,000, and Hourly Earnings, up 0.2% in November, are now up 2.3% over a year ago. Home builder payrolls jumped by 32,000, their biggest monthly gain since 2005. Investors felt this data indicates the economic recovery is robust enough to withstand a rate hike from the Fed in December.  My guess is that we will see the rate move up .25%.
So what does that mean for mortgage rates?  In my opinion, not a lot – at least not immediately.  For the most part, I believe the long term markets, such as the FNMA mortgage bonds, which mortgage rates follow in step, have already built into their data the fact that this is going to occur.  Over the longer term, I still don’t see rates moving much above 5% (on the 30 year fixed), particularly in 2016.  Keep in mind that the Fed Fund Rate, that impacts the Prime Rate, is a short term rate and the primary focus of raising the short term rates is to stave off inflation – which is the real threat to longer term rates.  If you go back to the last time the Fed Fund Rate was in an upward trending environment, the Fed increased the rate over 4% between 2004 and 2006.  In that time period, mortgage rates increased less than 1 full percent.  Granted each scenario and time period is different, so there is always a question mark.  But the best way to predict the future, particularly with markets, is to look at the past.  Assuming we stay in line with what occurred before, we should see rates staying below 5% out into the near future (I’m thinking through 2016 at least).
The reality is that if the Fed is finally confident enough to start increasing short term rates, it is a good sign that our economy is finally on its feet again and that there is belief that it can once again stand on its own without all of the stimulus from the Fed.  We’ve enjoyed a great run here in middle Tennessee.  So let’s hope they are right.

Sales Numbers

On a national level, we hear reports that tried to make October's 3.4% drop in Existing Home Sales prove that the housing recovery has firmly changed direction. October may have been down, but the 5.36 million unit annual rate puts Existing Homes Sales up 3.9% over a year ago. Housing data can be volatile from month to month and many observers expect sales growth to return next month. I think that the supply shortage is the bigger issue right now, as total inventory was down 2.3% at the end of October. But the median price was up 5.8% over a year ago, the 44th straight month of price gains, which should draw more sellers into the market.
At the local level, there were 3,030 home closings reported for the month of October, according to figures provided by the Greater Nashville Association of REALTORS. This figure is up .5 percent from the 3,015 closings reported for the same period last year. Year-to-date closings for the Greater Nashville area have increased 11.9 percent. And to further my point about supply, inventory is down almost 15% compared to last October here in the mid-state.
We did get nice headline numbers on the new homes front nationally. New single-family homes sales shot up 10.7% in October to a 495,000 annual rate, up 4.9% versus a year ago. This performance was a strong rebound from the drop in September, one more example of monthly volatility. The important thing again is the trend in sales, which has been up, and many analysts expect it to stay there in the coming year. Other data continued to show housing is an appreciating investment. The FHFA index of homes financed with conforming mortgages was up 0.8% in September and up 6.1% over a year ago. The Case-Shiller home price index was also up 0.2% in September and up 4.9% from the year before.
An interesting tidbit on those seeking a mortgage: All-cash sales of existing homes are down 7.7% versus a year ago, while sales with a mortgage are up 8.1%, so a good sign for home buyers seeking financing.

Something to Be Thankful for

I can tell that it is that time of year.  No, I’m not talking about the holidays.  I’m talking about the slower time of year in real estate (funny how quickly we forget, but this happens every year about this time) where deals are fewer and farther between AND they all seem to be complicated.  I talked with 4 different potential buyers last week that are nowhere close to qualifying for a mortgage at this point and three more that could qualify but aren’t looking to do anything for 4-5 months.  I talked with several different Realtors who all were bemoaning the fact that every client/deal they are working on right now has some type of problem.  It’s just that time of year.

On the bright side, especially when we take more of a higher level review of where we are each at individually, we have a tremendous amount to be thankful for.  With that in mind, I wanted to share a quick blog that I wrote for our Homes for Homes website about a trip I recently got to take where we were able to build a home for an impoverished family.  If nothing else, it helps put a lot of our current complications into proper perspective.

http://www.homes-for-homes.org/news/2015/11/19/a-home-for-patricia

A Special Invitation

There’s nothing like witnessing the joy of homeownership on the face of a homebuyer, and we have the privilege of providing that joy as a part of our career. I believe that everyone deserves to experience that joy – here in our communities and in communities around the globe.  No matter where you live or what it looks like, calling a place “my home” is a game-changer.

Over the past several months I've had the privilege of helping form a non-profit organization that funds home ownership for individuals that would never have that opportunity.  Homes for Homes sustains families around the globe by providing quality homes for families in need.

On November 12th, we are hosting a breakfast to share with the Nashville community about this ministry and how your team could fund an entire home for a family.  I would love your support and attendance!  If you would like to sponsor a table and invite friends, then just let me know and we will reserve your table.  Or if you would like to attend individually, just email me and I will reserve a seat for you as my guest.

You can find out more information about the ministry at  http://www.homes-for-homes.org

If you have any questions or want to get involved, just let me know!  I would love for you to be a part of Homes for Homes and make an investment that impacts a family for generations.

Mike

TRID is Here

This will be the last week of files getting into process with the old GFE, TIL and HUD-1.  Starting next Monday we will be under the new TRID guidelines where the GFE and TIL will be replaced by the Loan Estimate and the HUD-1 will be replaced by the Closing Disclosure.  I’m not going to rehash what has already been expounded upon over and over the past 6-9 months.  But here is my thought in a nutshell:  DON’T FREAK OUT.  Sure the 3 day deal is going to be a challenge and there will be some delays along the way.  But the CFPB finally did something right as it relates to disclosure (what the documents cover, the simplicity of understanding them, matching initial paperwork with final paperwork, etc….).  So we take the good with the bad and we move on.

Speaking of moving on, thought I’d give you some suggestions related to the things you can do when advising your clients when they need a mortgage (most of these apply specifically to Realtors, but are worthy recommendations to any client you may be advising from a financial standpoint):

Top 5 things that you can do to help your lender with your client’s mortgage process

1.  Encourage your clients to be on a 48 hour alert – any time the lender asks for documentation or sends disclosure forms to sign, return within 48 hours (24 if possible, but never more than 48 hours).  Lenders will not ask for documents or disclosures unless they need it.  Prep your clients to be ready to respond efficiently.
2. Encourage your clients to get their homeowner’s insurance lined up as soon as the home is under contract (and on FHA transactions, get termite inspection done and letter to lender within 2 weeks of contract acceptance).
3. Only work with title companies that are awesome - agree to have the title work done within 1 week of home being under contract and are all over getting closing figures (used to be HUD-1’s) back to the lender quickly after receiving instructions from the lender.
4. Provide complete contract (including all addendums – like FHA/VA) to lender the moment all signatures are obtained.  TN Property Disclosure or exemption is required on all loan transactions.  Include a copy of the earnest money check.
5. Set the actual closing date and time with the attorney within a week of contract acceptance and basically get everyone involved (in your specific transaction as well as any that might be a part of yours from a “domino effect”)

What Does it Mean to be Debt Free?

I had a great conversation last week with a client.  We’ll call her “Jill”.  Jill was in her early 50’s and had just gotten divorced from her husband of 20+ years.  She had gotten about $400,000 in the divorce and kept her retirement account (another ~$250,000).  I knew her financial counselor and he had already advised me that her return on the retirement account that he had managed for her over the past 20 years had been 7.2% during that time period.  She had a great job and shared with me that she intended to work for at least 10-15 more years.  She was buying a house for $400,000 and asked for my advice on what made the most sense from a financing perspective.  Her main goal was to be debt free, so she had planned on paying cash for the house.  I told her that I loved the idea of being debt free, so I asked her what that meant to her.  As expected, she told me that to be debt free, “I don’t owe anyone any money.”  While I didn’t disagree with her, I asked her another question.  I asked her “If you have the ability to pay off any debt you may have, but choose to have debt anyway, are you any less debt free?”

She was well versed financially and I could see the wheels spinning in her mind – I could tell that she had never really thought about it from that perspective.  I showed her that she could put $80,000 down on the house (20% to avoid MI) and get a 15 year loan at 3% with a $2,209 monthly payment.  Even though she didn’t really want a mortgage payment, this payment fit well within her budget.  If she paid the loan for the full 15 years, her total payments would be $398,000 (so she paid back the principal + $78,000 in interest).  I showed her that she could invest the other $320,000 at 3.5% (which was less than half of what her average return had been – I wanted to be ultra conservative), and that investment would grow to over $536,000 by the end of 15 years.  At 7%, it would be $883,000.  And even at 2%, it would be over $430,000 (so the additional $110,000 is still way more than the interest paid over that time).

I also showed her that it is more than just the return.  If she paid cash, she would have liquidated pretty much all of her liquid savings.  Sure, she would have no mortgage.  But she would still have taxes, insurance and all of her other bills as well – with no solid safety net.  What happens if she lost her job or had a medical set back – or really any emergency that required immediate cash?  I asked her “which is the better place to be in – no debt and no money, or debt but plenty of cash to live on if things go bad?”  She was already convinced, just from the investment opportunity, that getting a mortgage was the more financially astute thing to do.  But when I reminded her of the importance of being liquid, it was an easy decision.  And the reality is that she will still have the ability to pay the loan off any time she wants to if her monthly budget changes and she no longer wants to make a mortgage payment.

When I hear people talk about the great feeling they will have when they go to bed knowing their mortgage is paid off, I understand and empathize with that feeling.  But in my opinion, it is much better to go to sleep knowing that there is money invested safely, earning a return, and ready/able to pay the mortgage off whenever I choose.

RIch Habits

I recently heard an interview with Tom Corley, author of “Rich Habits – The Daily Success Habits of Wealthy Individuals”, that I thought was fascinating.  And while his focus is on the difference between the habits of the wealthy (people with annual gross income north of $160,000 and net liquid assets of $3.2 million or more) versus the poor (those with gross income of $35,000 or less and no more than $5,000 in liquid assets), I think we can apply what he calls “habits of the rich” in reality to what I’d suggest are simply “habits of the successful”.
He points out that the difference between the two lie in our daily habits. He implies that these subconscious, second-nature activities make up 40 percent of our waking hours. That means that two out of every five minutes, all day and every day, we operate on autopilot.  So to be successful, we need to train our subconscious to operate in a productive manner.  The way to do that is to develop the habits of these successful people that he studied.  I found an article (the link is at the bottom) that details the habits.  Listed below are his top 16.  But I promise you it is worth the five minutes to read the article and see the statistics represented in several of the habits.

1. Live within your means.
2. Don’t gamble.
3. Read every day.
4. Forget the boob tube and spend less time surfing the Internet.
5. Control your emotions.
6. Network and volunteer regularly.
7. Go above and beyond in work and business.
8. Set goals, not wishes.
9. Avoid procrastination.
10. Talk less and listen more.
11. Avoid toxic people.
12. Don’t give up.
13. Set aside the self-limiting beliefs holding you back.
14. Get a mentor.
15. Eliminate “bad luck” from your vocabulary.
16. Know your main purpose.

http://www.success.com/article/16-rich-habits

Brand U - Branding Yourself for Success

The theme from this past week's GNAR convention was on branding and how important it is to establish your own personal brand.  Ultimately our clients work with us not only because of what we do for them, but because of who we are as individuals.  We want our own personal brand to be recognized and to tell a simple story that describes who we are and the experience a client should expect when they use our services.  The key note speaker was Chris Hogan who works for Dave Ramsey.  I thought he made some great points in his address to the luncheon crowd related to building a brand and wanted to share those with you.

Branding You

• People trust you not your employer
• Keep your social media current
• Associate your brand with other well-known brands (it builds credibility)
• Leverage what makes you different from everyone else
• Keep it simple
• Share the good news
• Create a cultural connection through meeting an emotional need for your customers
• Cultivate trust
• Pull people in with the power of your story
• Know who your competition is and what makes you different
• Show your passion for what you do
• Don't be afraid to make a course correction if needed
• Intentionally network
• Don't be needy (serve don't sell)
• Become a trusted adviser in your area
• Be a giver
• Stay centered (not balanced, centered)
• Be effective (not popular)
• Your word is your character and your work is your reputation
• You are always getting better or getting worse - nothing ever stays the same

If you want more of Chris Hogan, check him out at http://www.Chrishogan360.com

Why TRID is Really a Good Thing

Let me say first that I get the challenges that we are going to face once the new rules go into place.  Getting the HUD (or I guess to use updated terminology, the Closing Disclosure) into the buyer’s hands three days before closing is going to require all of us to really step up our games.  But why is that a bad thing?  Shouldn’t we always be looking for ways to get better – particularly in the way we serve our customers?  And isn’t giving a buyer more time to review the numbers to the biggest financial investment that he or she is going to make, a good thing?  Personally, I probably would have set the number at 1 or maybe even 2 days that the closing disclosure should be delivered prior to closing, as 3 days is probably a bit excessive.  But in principal, I agree with this direction and think it is a good thing for our borrowing clients.
And speaking of what is good for the customer, I personally believe that the CFPB really got this one right from a disclosure creation standpoint.  We all know that when the government gets involved, specifically when their intent is to make things easier for the borrowing public, it normally goes in the opposite direction.  We need to look no farther than their first attempt at making a mortgage lender’s Good Faith Estimate better for the borrowers.  It even confused me when it was originally rolled out.  But this time, I think the powers that be have hit a home run.  The Loan Estimate (which now replaces the Good Faith Estimate and Truth in Lending disclosures) is much easier to follow and better explains to a buyer what their costs will be and does so in a format that is much easier to understand.  And the new closing disclosure is equally impressive from an ease of understanding standpoint.  And best of all, it mirrors the Loan Estimate.  So now instead of having a HUD-1, which clearly spells out the costs, but is in a completely different format than anything the buyer has seen to that point, the new Closing Disclosure follows the same format as the Loan Estimate.  So the client is not seeing something for the first time at the closing table, and trying to figure out how it matches what they’ve been provided.  Below are examples so you can see exactly what I'm talking about.

Personally, I’m on board with these new changes.  I think it is great for our customers and that it will make us better at what we do.  Those that can’t step up to the challenge just won’t get the business.

TRID Closing Disclosure (1)

TRID Loan Estimate (1)

D.A.N.G.E.R Report

D.A.N.G.E.R. Report

(Definitive Analysis of Negative Game changers Emerging in Real estate)

The GNAR released this report, that was prepared for NAR by the Swanepoel/T3 Group, a couple of weeks ago.  It’s 166 pages long, so I don’t suspect that you took time to read it – and I don’t expect that you will do that now either.  But I thought it would be good to provide you a summary of what the report says, or at least hit what I perceive as the high-lights that impact us directly as agents.  The full report is available by clicking the link below.  The purpose of the report, which was done by interviewing many of the top industry minds, is to give us a description of what are to be the challenges (or “threats” to use the report’s term) that we’ll face in real estate in the years to come.  It addresses threats to Agents, Brokers, Associations, and the MLS.  There are 10 listed for agents directly.  I’m going to high-light what I think are the top five and some suggestions to counter the threats.

1. Masses of Marginal Agents Destroy Reputation – the real estate industry is saddled with a large number of part-time, untrained, unethical, and/or incompetent agents.  This knowledge gap threatens the credibility of the industry.  This one hits close to home for me because I’ve seen it in the mortgage industry as well.  All it takes is the notion that there is an easy buck to be made doing something and everyone wants to do it.  As a group, we need to make it harder for individuals to enter our profession.  That alone would cut down on the people entering just to make “easy money”.  The other thing we can all do as individuals is differentiate ourselves with better knowledge and service platforms.  The better I am at what I do, the less likely I am to lose business to those that are marginal – even if the marginal competitor happens to be friends with the client.
2. Commissions Spiraling Downward – a variety of powerful forces exert significant downward pressure on real estate commissions.  Discount brokers are becoming more and more commonplace.  With the availability of information that is now at the consumer’s disposal, we have to do more today to earn our commissions than ever in the past.  If we don’t start thinking outside of the box, and creating value to provide our clients, then what we give them will become worth less, and we don’t deserve the commissions we are paid.
3. The Decline in the Relevancy of Agents – the role, function, and perceived value of agents deteriorates as agents fail to properly assess and respond to changing consumer demands and expectations.  Whether it is dealing with new technology or with what the different generations want from a home, it is our job to be relevant and needed.  We will only become obsolete if we let ourselves become so.  What is your value proposition to your client?  Are you trying to do business today like you did 10 years ago?  Staying relative is a conscious choice and one we must all make if we want to see our businesses progress.
4. Commissions Concentrate Into Fewer Hands – a very small group of very efficient and effective agents discover the winning formula and secure a disproportionate market share.  Everyone is familiar with the 80/20 Rule, where 20% of the people do 80% of the business.  To me, this is a concept that has been around forever and will continue to be so.  I think the bigger question here is simply:  What are we doing individually to be in the 20% that is closing 80% of the deals?  Emulate those that are already there.  No need to reinvent the wheel – learn from those that are where you want to be.
5. The Agent is Removed From the Transaction – a tech company cracks the code and connects enough of the dots to conduct real estate transactions without the need of an agent.  FISBO’s have always been a part of our business.  There are always going to be those that think that selling on their own is a more cost efficient manner of selling.  And while we might think that the Millennial Generation, who are more technologically advanced than any before (and more than most real estate agents), would make this number grow, I would argue, as the report does to a degree, that they are in more need of help, primarily because of their financial situation, than any generation before.  They need guidance more than anyone.  We just need to understand that and create a service platform for them that meets their need.  Again, it is about being relevant to the client.

The other threats to agents listed in the report were: Agent Teams Threaten the Survival of Brokerages, The Agent-centric Era Ends, The IRS Forces Exodus of Independent Contractors, The Housing Finance System Fails, and The Commoditization of Residential Real Estate.  These are all definite threats to our individual businesses going forward.  But to a large degree, they are things that are out of our individual control.  Not that we can’t make an impact – like voting in an election.  But the reality is that by myself, I can’t keep the housing finance system from failing nor can I keep an institutional investor from coming into Nashville and buying up 100+ homes to rent.  But I can all focus on how well I am doing my job – Are we up to date technologically?  Do we understand the latest rule changes that impact our clients?  Are we communicating well?  Do we give exceed our client’s expectations and do we even know what they are?  And most importantly – Am I doing all of these things better than my competition?  When we focus on getting better ourselves, the rest takes care of itself.

https://s3.amazonaws.com/dangerreport.com/Danger+Report+-+Item%23E135-107.pdf

From Africa to England, Home Ownership Matters

As is typical for me, upon my return from a significant trip, I like to take note of what I’ve learned and see what new perspective I might have as a result of my journey – and also typical for me, there is a tie to real estate. Here goes…

I’ve been helping start a new ministry (more on that later) and the first strategic step in organizing our efforts had me hiking through the village of Nasuuti (in central Uganda) looking for opportunities to provide housing to very deserving families who would never have the opportunity to own a home without our assistance. That’s not hard to find in Africa. The material poverty and desolation in most of Africa ceases to amaze me. But it’s more than just seeing 12 family members sleep on a dirt floor in a one room shack made of whatever rubble is available to scrap together, that fascinates me. It is the hope that I see come into their eyes when they realize that they will be the owners of a new home – one that has a concrete floor, with bricks and a metal roof. Owning a home like that is a game changer for them for the rest of their lives.

On the other end of the spectrum, I wrapped up my trip with a couple of days in London to celebrate my 25th wedding anniversary. Michelle and I stayed at the end of Oxmoor Road, not far from what is considered the “richest section of housing” in the world, boasting the largest number of billionaires on the planet (yeah, that’s billionaires with a “B”). Certainly the housing is different in every aspect that is imaginable for the folks that live there versus those that I encountered back in Nasuuti. In their scenario, it was more about how to one-up any and everyone else on the extravagancies their money afforded them. And not far from this area, new condos were going up on the Thames River. A 3 bedroom on the top floor would set you back about $24 million. That’s about $8,500 per square foot for those of you who like to compare that figure to determine your listing value.

It would have been easy for my observation to simply be on the vast difference between the “have’s” and the “have not’s”, or even look with disdain on the waste of the rich when the poor lack so much. Instead, what resonated with me is the importance of home ownership for anyone who is part of the human race. Like me, you fit somewhere in the middle of these two extremes. And no matter where we fit in the grand scheme of the hierarchy of net worth, owning a place of our own fulfils a God-given desire we all have in some form or fashion. The description of that “place” differs greatly for all of us. But the description does fit somewhere in the realm between safety and hope to fulfillment and accomplishment. It’s a great thing.

Education is a Good Thing

In my opinion, too many loan officers are threatened when their clients start asking questions, particularly if they are asking the questions of other loan officers.  I love it when they ask me questions.  It not only shows their desire to learn and make educated decisions, it allows me to coach them and use my 25 years of experience to advise them well.  And when they are asking questions of multiple lenders, it simply validates what I’m advising them (they either get wise counsel and realize I’ve advised them well or they get crazy answers and realize how important it is to be working with someone who is on top of his game).

But here is the catch – it isn’t easy!  Staying on top of all the changes (pricing, products, compliance, underwriting changes, etc…) is hard work.  Being the best means giving more effort than the person beside you.   It means reading up on things like sales techniques, communication, market data, and all sorts of personal growth ideas.  How about you?  Are you willing to go the extra mile to make sure that you encourage questions?  Whether you are a doctor, financial planner, lawyer or a Realtor, clients who are asking questions should be an inspiration, not a threat.  When you are prepared, questions give you the opportunity to shine!

I sat in on a buyer consultation last week with a Realtor buddy of mine and I loved what he told his client.  He said, “My job is not to sell you a home.  My job is to educate you and empower you to make a great decision.”  I left that meeting not only impressed by his words, but challenged to continue treating my job as that of an educator and master of my trade.  It was kind of ironic because right after that meeting, I got the monthly update from the GNAR.  In it contained the link below from our friends at the CFPB.  They have finally done something that I really like.  This little brochure is something that is phenomenal to provide your clients.  It is a great tool that can help your client understand the lending process better and make educated decisions.  And that is what we should be about, educating our clients so that they can make great decisions!

http://files.consumerfinance.gov/f/201503_cfpb_your-home-loan-toolkit-web.pdf

The Main Purpose of Living on 80%: to Give/Save the First 20%

If you remember a couple of weeks ago, the 6th lesson I learned from Stan was that to have a proper budget, I had to live on 80% of my net income.  While that serves as the function of the budgeting process, it is not the purpose.  The purpose comes in Lesson 7, which goes like this:  When I keep my expenses within 80% of my net income, there is 20% extra built in for giving and saving every month.  Notice that I said “extra”.  I did not say “left over”.  For us to be motivated to live within the 80%, there has to be a passion for what is being done with the 20%.  The 20% becomes the first line item of the budget every month.  I know before I spend the first penny that I’ve created an expense model that gives me the flexibility to prioritize what is most important.

When we realize that true meaning in life comes from what we give away, motivation will follow to execute a budget that allows this.  Who are you passionate about helping?  What do you want your legacy to be?  When those things start to become our driving force, executing a daily budget becomes easy.  Action will follow passion.  Think about any successful team you have been on.  The desire to experience victory is the driving force behind all the hours of practicing.  It’s no different with your money.  When you become passionate about making a difference with your resources, your daily actions and the decisions you make with your money will start to line up.

And while generosity is the overriding passion, savings is what will allow this lifestyle to be permanent.  Having adequate savings is what will allow someone to not only handle unexpected needs for immediate cash, it will also prevent the need for future borrowing for purchases that need to be made in cash versus taking out a loan (clothes, cars, furniture, home improvements, education for children, weddings, just to mention a few).  Having adequate savings is what allows us the freedom to give generously, knowing that our needs will be met.

So the two go hand in hand.  Passionate generosity serves as the driving force.  Savings allows the generosity to become a lifestyle.  And focusing on these things allow the execution of a disciplined budget, which permits them to happen.

A Loan Program You Need in Your Arsenal

I’m talking about USDA.  This is a phenomenal program and if you are not familiar with it, it’s time that you get well acquainted.  It may be somewhat of a niche program, but for the right buyers, it is a game changer.  I have four of these loans in process right now and every customer that is getting this program is thrilled. For example, I locked one in last week at 3.25% on a 30 year fixed with a $232,000 sales price in Mt Juliet, paid a 1% lender credit to help with closing costs, and got the seller to contribute $3,500 plus title.  The buyer is getting this home for no money out of pocket and a payment based on a 3.25% rate.  I’m still a little giddy thinking about what a great deal it is.  Below are the main highlights and drawbacks (although I should probably just call them parameters versus drawbacks).

Benefits:

• Requires no money down
• Seller can pay closing costs and prepaid items
• Credit qualifying is very reasonable
• Rates are phenomenal
• Monthly mortgage insurance (called a guarantee fee) is cheaper than FHA by 35 basis points

Parameters:

• Must be in a designated area (rural property)
• Household income limit (most of our MSA is $75,650 per year)
• Can’t own another home (don’t have to be a first time buyer, just can’t own another home at closing)

To find if a specific property is available, simply go to http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do, click “single family housing” under the Property Eligibility tab and type in the address.  You can also zoom out from this spot and see the areas that are eligible (anything that is not in the shaded area is eligible).  With properties so difficult to find in the city limits, it might be worthwhile for your buyer to look a little further out (Spring Hill, Mt Juliet, Thompsons Station, parts of Nolensville, Fairview and Pegram are just a few that might surprise you).  You might just find a diamond in the rough – and get them a great loan program at the same time!

Great Reminders from the GNAR

I attended a panel discussion this past week at GNAR where several of the area’s top Realtors gave recommendations and examples of how they do business, and gave some tips on some of the things they do that are successful.  The overriding theme that I heard was that each of these individuals are organized, have a plan, and are very deliberate in following the plan.  Here are some of the notes I took and wanted to pass along:

Daily Routine:

• "I try to have a successful day by noon every day."
• Say ‘no’ to just about everything that is not relevant to growing your business when determining your schedule.
• Block time for specific activities (particularly those that are sales related).
• Be proactive with your schedule and not reactive to the events of the day.
• Have a checklist for the important tasks that must be accomplished (a “to do” list).
• Remember that clients must still be cared for, so flexibility has to be built into each day.

Tracking Leads and Follow up:

• “I’m old school – I have a paper file for every lead with all the appropriate info on the client”
• Some suggestions on systems: boomtown, wiseagent, top producer, excel, or a simple note card system

Past Clients:

• Monthly newsletter
• Mailing birthday cards
• “Client Appreciation” events (happy hours, movie nights, ice cream socials, etc….)
• “I use several methods (email, social media, regular mail, phone calls) to reach every past client at least once a month – I want to stay ‘top of mind’

Marketing:

• Social media – use videos when possible, pictures at a minimum;  Hootsuite is a great site that allows you to supercharge your various social media outlets.
• Get help with any phase of marketing that you don’t do well.
• Whatever you do, be consistent with it.  One and done will never work (this isn’t NCAA basketball).

Technology suggestions:

• MileIQ – to track mileage
• Pdfexpert – for contracts
• Expensetracker – for managing expenses (receipts)
• Dropbox – for managing files (essential for teams)
• Other suggestions – dotloop, odesk, outdesk, googledrive, easilydo and fullcontract
•  

I think the other thing that I re-learned listening to the panelists is that there is no reason to ‘re-invent the wheel’.  Creating new ideas and processes can be fun, but can also be very time consuming.  There are so many ways to do our business well.  If we will simply learn from others, we’ll have the best ideas.  And these ideas are already proven to work.

Lesson #6 - Living On 80% of Your Net Income

When I qualify someone for a loan, all I’m looking at from a debt ratio standpoint is how much is going out each month in debt payments as a percentage of how much is coming in from a gross monthly income standpoint. Most of the loan programs we do allow that number to go up to 45%. While I’m neither advocating that percentage nor am I an opponent of it, I do have a recommendation that I believe is better. I call it the 80% Solution. It is simply setting up your budget every month so that the total of the money you spend does not exceed your net monthly income by more than 80%. As a simple example, if someone’s income is $60,000 per year and she is in a 25% tax bracket, her net income is basically $3,750 per month ($60,000/12*.75). She would be limited to $3,000 per month ($3,750*.80) to cover ALL expenses – including her house payment, if she were “living” within the 80% rule.

Keep in mind that qualifying ratios will still prevail when determining the amount of monthly payment a borrower can qualify for. So in the example listed above, the maximum debt payment that she could have per month (counting her house), would be $2,250 ($5,000*.45). In other words, her house payment plus all of the other debt obligations that she may have (student loans, car loan, credit cards, etc….) could not exceed that $2,250 figure. What I’m suggesting here is not overriding this number. I think it is just a better mechanism to help a potential borrower stay financially fit. It works out great when both of these numbers are in sync – where a borrowing client meets the qualifying ratios (debt payments, including mortgage, fit within the required ratio allotment), thus allowing him/her to purchase the home, but also when there is a commitment to keep total expenses in check (80% or less than net income), allowing for a lifestyle that is less burdened by monthly obligations in relation to net income.

Why 80% and not some other number? The primary focus behind this specific number is that it allows someone to have an immediate 20% that can be either given away or saved. I believe that both are critical. We are blessed beyond our imaginations (go spend some time in a third world country where the largest percentage of our planet’s people live, and you’ll immediately agree with me). With that blessing comes a great responsibility for us to help. Secondly, as I’ve written about many times, and it is the underlying theme to the “Your Mortgage Matters” book – having adequate savings is crucial to financial health. Living within that 80% framework will go a long way to satisfying both of these objectives. Obviously anything lower than that number is just icing on the cake, providing more flexibility for everything else. If you, and our borrowing clients, can manage to do this, or even better, financial success is sure to follow.

Do I Really Need a Budget?

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 #5. If you don’t have a copy of the book, email me and I’ll send you one.

Lesson #5: Budgeting May be Boring, But it is the Difference Maker

One of John Maxwell’s best quotes ever is “A budget is telling your money where to go instead of wondering where it went.” How many times do you get to the end of the month or year and wonder “where the heck did all the money I made go?” A lack of a budget may be the number one mistake I see my mortgage borrowers make. It is particularly true for the younger crowd, but you’d be shocked at how many middle aged clients I come across that really don’t have a clue how to make their money obey them. It is why people don’t save money, why they run up credit card debt, and too many times, why they wind up behind on payments. And the sad thing is that it is soooo easy! But guess what – it’s also very boring. It’s boring to take time to put pencil to paper to design a budget and it is even more boring living within the constraints of a budget. But for our home buying clients, it is critical.

Surveys have shown that the number one reason that prevents first time homebuyers from being able to buy a home is a lack of money for the down payment. Unless a first time buyer has a nice friend or family member to help them out with a gift, the only way to come up with the down payment is to save. And the only way to save is to get a grip on spending so that saving can take place. How do we do that? We set a budget for every penny we make and we make sure that we only spend money on the things we allocate the money to be spent on – and we make the allocation ahead of time. Getting into that kind of habit before buying can carry over into homeownership. Using the same mindset, we save for things that need to be purchased for the home by budgeting ahead of time versus borrowing to buy.

And it doesn’t have to be boring. Make a game of it. Have contests with friends and family – see who can save more or spend less. Set specific goals of saving for certain things you want to purchase or certain debts you want to pay off. Use Dave Ramsey’s envelope system. Use an on-line tool – especially the ones that you can use on your phone. Or you could even do what I’ve always done, use an Excel spreadsheet. It can be elaborate or simple. Bottom line is that if we want to be successful financially we have to budget. And if we want our home buying clients to be successful as well, we have to encourage them to do the same.

What You Can Do To Help The Mortgage Process

This month, we’ve had two different clients that didn’t get their closing package until the day before closing and the HUD wasn’t ready until a few hours before the closing. Starting in August, these loans wouldn’t even have been allowed to close (new rules we addressed in our update a few weeks ago where we explained that lenders will be required to provide the final HUD to buyers three days in advance of closing). It is my team’s responsibility to get loans processed timely and make sure closings happen efficiently and I own that responsibility. There is nothing more displeasing, and stressful for all involved, than when there are last minute issues that have to be addressed the week of closing. But we are all on the same team (mortgage loan officer, borrower, seller, agents and attorney) and everyone wants the same thing – an efficient on-time closing.

For the mortgage process to work, accomplishing the end goal, there has to be cooperation from all involved. In both of these scenarios where issues were still being addressed at the last minute, we did not get timely help from our borrowers, following instructions and getting documents provided to us – and one of those deals was a three week turnaround from application date to closing date.

We have an incredibly efficient process and we communicate very clearly from start to finish. We encourage timeliness in every facet.  But if we don’t have full cooperation from our borrowers when it comes to providing documents and returning disclosures, we are limited in how quickly we can make progress. What can you do to help? Here are a couple of suggestions:

• Let your clients know how important it is to provide all documents requested and the importance of providing them quickly.
• Encourage them to respond quickly to any follow up requests and to sign and return disclosures immediately.
• Remind them that they are responsible for obtaining homeowner’s insurance and to go ahead and get that set up the week their contract is accepted.
• Provide the final contract as soon as all signatures are obtained.
• Order a timely home inspection. We typically hold up the appraisal until the inspection is complete and acceptable. So the sooner the inspection is done, the sooner the appraisal can be done.
• Make sure the closing attorney is either on the contract or identified soon after contract acceptance.
• Go ahead and schedule closings (time and date with the attorney) well in advance of the week of closing.

These are just my thoughts on a couple of things that I believe will assist the mortgage process. I’m open to any suggestions you may have as well – and this goes for my end too. It’s our job to get to closing on time and as efficiently as possible. When we work together to this end, it is a win-win for all. An encouraging word from you requesting a timely response from your buyer regarding all things mortgage related, can go a long way to making the mortgage process much smoother.

To Co-Sign or Not to Co-Sign? That is the Question!

Last week I had a buddy send me The Ten Commandments of Buying a Home. They go something like this:

1. Thou shalt not change jobs, become self-employed or quit your job.
2. Thou shalt not buy a car, truck or van (or you may be living in it)!!
3. Thou shalt not use credit cards excessively or let current accounts fall behind.
4. Thou shalt not spend money you have set aside for closing.
5. Thou shalt not omit debts or liabilities from your loan applications.
6. Thou shalt not buy furniture.
7. Thou shalt not originate any inquiries into your credit.
8. Thou shalt not make large deposits without checking with your loan officer.
9. Thou shalt not change bank accounts.
10. Thou shalt not co-sign a loan for anyone.

I know this list is somewhat facetious – but maybe not by much. Notice commandment number 10? It’s ironic that I would get this list this week. If you remember last week, we reviewed how recent credit is much more impactful to a credit score than older credit is.

What I didn’t tell you is that both of those scenarios came about because the potential borrower had co-signed loans with someone else. One of the two would be a mortgage borrower co-signing with one of his children on some student loans and a car lease. The other co-signed with her son’s girlfriend on a car loan. The scary thing is that neither of these two had any idea of how badly their own credit score could be wrecked by the person they were willing to co-sign with. The term “co” in this case means equal – as in equally liable.

I understand the intent to help out when co-signing a loan, particularly with a family member. And now that my own kids are getting older and approaching the ages when they may need help with certain purchases, where financing is involved, I can see even more clearly why the natural instinct we have is to help them. And it is no different with a child than a brother, sister or best friend. But I think the main thing we need to ask ourselves in that situation is “are we really helping them?” In other words, have we taken into consideration why they need us to co-sign? I’ll take a guess and say that at least 8 times out of 10, co-signing winds up being a short term bail out versus a long term change in action for the person receiving the benefit of having a co-signer.

So, while I’m not a huge fan personally of co-signing, I am a big advocate of helping a child get a start with their credit early in life (like college age), by co-signing a credit card for them to help them build a credit rating. But guess who is going to manage those payments? You got it, ME! And if I ever went against my better judgment and co-signed for some other reason than that, I can assure you that I’ll be making the payment to the creditor while my co-signer pays me. No way am I trusting my credit to someone else.

I’m not going to answer the question for anyone as to whether he or she should co-sign a loan with someone else. But if asked, I’m going to make sure that the person doing the co-signing is fully aware of all the ramifications that go along with it – particularly the potential it carries to wreck their own credit.