Friday, September 23, 2011

Debunking the 20% Downpayment Myth

Ok...I'm going to get it out of the way right now...You DON'T have to put 20% down when you buy your new home.  If you've been thinking about it and busting your hump to save up that $40,000 downpayment for that $200,000 home, I applaud you, but life can be a little easier.

To be clear,  putting more money down will usually get you a better interest rate, help you avoid Private Mortgage Insurance (PMI, explained later), and reduce your monthly payments.  But, if 20% down seems like a massive number that you might never reach, I've got options for you.  I won't go totally in depth because your lender will be much more knowlegable and will be able to give you current requirements for each loan scenario.

  • USDA Loans -  USDA (United States Department of Agriculture) loans are backed by the government and require 0% down and can in some cases offer closing cost assistance as well.  These loans are typically available in rural and agricultural areas and give you a great option to purchase that "nice ol' home in the country".  Elgibility areas can sometimes creep very close to urban areas, which means you don't have to be too far out of town to be elgible.  Parts of Fort Collins, Wellington, Windsor, Severence, Johnstown, Berthoud, Longmont, Loveland, and Greeley have USDA elgibility.  Go to to search areas of elgibility and talk to your lender early on if you want to pursue that loan program.
  • VA Loans -  VA (Veterans Administration) loans are also loans backed by the government and are designed to help those who have served in the armed forces with some of the best loans available.  VA loans require 0% down, with no private mortgage insurance. 
  • FHA Loans - FHA (Federal Housing Administration) loans require a minimum of 3.5% down.  They are privately funded loans, insured by the federal government.  There are credit score minimums and income requirements.  PMI is typically required on these loans as well, but closing cost assistance is also available.
  • Conventional Loans - Depending on your lender, loan programs with smaller down payments, typically 5%-10% are available with very reasonable interest rates.  Every lender has different requirements, consisting of debt to income limitations, credit score minimums, along with other financial requirements, all of which can affect your "credit-worthiness".  Speak with your lender to see what is available for your unique financial situation.
Let's take a quick minute to talk about Private Mortgage Insurance.  PMI is an additional fee charged to the borrower (i.e. you the buyer) to help protect the lender in case you default on the mortgage.  Typically until you have a 20% equity position in your home, your lender is taking a big risk lending to you, and you need to pay for it.  The fee for PMI is either a percentage of your loan amount, or closer to $55 per $100,000 financed.  So on a $200,000 mortgage, you would pay about $110 per month just to help protect your lender from your default. 

There are low downpayment options that will help you avoid PMI.  Combination loans called "piggy-back" loans give you a second mortgage to pay down in combination with your first mortgage.  You'll see piggy back loans in the following form 80/10/10 where you'll put down 10% and carry a second mortgage at 10% of the loan amount, or 80/15/5 where you'll put down 5% and carry a second mortgage at 15% of the loan amount.  Although you monthly payment will be similar to a monthly payment with PMI, your benefit is that instead of the PMI getting "thrown away", the extra money you're paying on your piggy back will be put into the equity of your house.  Having a good income history and great credit could be necessary for these loans.

So, that's a quick look at low down payment options, PMI and piggy back loans.  Contact me and I can put you in contact with great lenders who can maximize your options, I'm never too busy for you.

Friday, September 16, 2011

3 Tips for Buying a New Home, While Selling Your Old One

Moving on up? To the east side? Maybe?  Dated references are my specialty.  Well, regardless of which part of town you're moving to, you could be looking to sell and buy at the same time.  In Realtor jargon, we call you "move-up buyers" when really you could be moving up, downsizing, or moving sideways...however you want to slice it, you've got a lot of things happening at the same time.  Here are four tips for making the buy 'n sell scenario far less painful and stressful than it needs to be.

1)  Get a Realtor on board early
Ok, I have to say, I am a little biased on this tip, obviously.  Getting connected with a Realtor is typically the first step in anything I mention on this blog because I want to stress the importance of having a professional help you through the transaction and be a resource to you every step of the way.  A good Realtor will help you establish a marketing strategy, pricing strategy and more than anything, they will handle all of the transactional details so you don't have to take 2 months off of work to digest all the intricacies of the transaction.  Your real estate professional should give you ideas for any last minute improvements to help your home show its best and sell for top dollar.  They'll also be able to get you in tune with the local market and set up home tours to maximize your searching time together.

2)  Get Connected with a Lender or Mortgage Broker
A mortgage professional is a very important resource when starting your buy/sell transaction.  First, they will qualify and approve you for a loan, so you'll know exactly how much home you can afford.  This will help narrow your home search, and keep your expectations in line with your finances.  Your lender will also be able to run all the scenarios and let you know exactly how much you will "net" from the sale of your old home or how much you might need to bring to the closing table.  Just having a good estimate of all the costs involved will help put you at ease and help you move forward.

3)  Expect The Unexpected
Expecting your old home to get sold in coordination with buying your new home could leave you missing out on a great opportunity.  Typically, if you have a home to sell your contract to buy will have a contingency in it that you need to sell a home to execute the buyer contract.  This clause is useful but can also tie up your transaction waiting for your home to sell, and who knows, maybe the person buying your old home will also have a home to sell as well.  Do you see where you can really get bogged down?  If you have the financial means to buy a home and take advantage of a great deal, then do it, don't wait for your old home to sell, or better yet, price it to get it sold quickly so you don't have to worry about it.  Chances are, pricing your home to sell quickly will be your best shot at making the transaction run smoothly and you'll make up on the buying side, and you won't have to pay two mortgages at the same time for months and months...

With these tips you should be set for any move up, down or sideways.  Make it easy on yourself and let your realtor sweat the details.  I'd be happy to help.  By the way, I'm never to busy for your referrals.

Friday, September 9, 2011

The Obvious Reason the Rental Market is like, "Soooo Hot Right Now"

Over the past few months, I've been tracking the news about the national and regional rental markets in preparation for what I declare will be a "home buying boom" in the semi-near future (intentionally vague statement).  By tracking the rental markets, I, in theory, should be able to understand when a tipping point is reached and when all those who are renting currently, will jump into the lovely world of home ownership.  That means a lot to me, but what does it mean to you? 

Basically, whether you're a buyer or an investor, you've got the same play.  As Jim Cramer from tv's Mad Money would say: BUY BUY BUY.  As an investor, it is your best bet right now to get in on the hot rental market, buy and hold for the long term and realize both consistent (hopefully positive) cash flow, along with expected long term appreciation.  As a buyer, there has been no better time to buy a home:  rates are near 4%, prices have dropped, and the supply of available homes are abundant.  Have you heard me mention all of this before?  Do I sound like a broken record?  Probably.  I'm not hopping up on my soapbox for my benefit, I want you to get off the fence, you'll be happy you did.

So let's talk about why you're reading this in the first want to know why the rental market is so hot right now.  If you can think back to (or vaguely remember) your high school economics class, the only thing you'll ever need to remember is the concept of Supply and Demand.  Vacancy rates are near their lowest points both regionally and nationally.  We are seeing some of the highest demand in history for rentals; from large apartment/condo/townhome complexes, all the way to investor owned single family homes, duplexes and the like.  Let me break down the reasons for all the demand.

  •  Foreclosures, Short Sales and Distressed Properties, oh my! - These are just part of the game these days...If someone is foreclosed on, or if they need to sell their home for less than what they owe on the mortgage, these people are typically not able to buy a home for at least 18 months, and in most cases, 3 years or more.  When you can't buy a home, the only other option is to rent.
  • Job Losses - After the financial meltdown, a lot of people lost their jobs, did you hear about it?  It was on the news one time, I think.  Well, some of those folks were lucky enough and had the financial capability to sell their homes and go to the safe harbor of the rental market which offers typically lower payments, and flexibility.  While renting, these folks were able to search for jobs away from home base, and have the relative flexibility to move when a job was found.
  • Tighter Lending Climate - Along with the financial meltdown, lending practices were restricted.  No longer could Joe Somebody go in to Banks-R-Us and get a zero-down mortgage or interest only mortgage.  All the folks who could have gotten loans to buy homes they couldn't afford can't now, simply because the restrictions have made it tougher for people to get into bad situations, which is a good thing.
  • Fear, Indecision, and Downright Ignorance - From what I've seen in the market, fear, indecision and ignorance is keeping the rental market hot.  There are some very well qualified people who might just be either ill-informed about what's happening out there right now, or they might just be sitting on the fence to wait for things to "calm down".  Whatever the reason, people aren't buying homes right now, and they are flooding the rental market because it's "safe".
Ok, ok...I've taken enough of your day.  I just wanted to let you know, if you're renting -  talk to me if you aren't sure where to even begin about buying.  I'll help you figure out if it is a good time for you and get you into something you can comfortably afford.  If not, I can help you establish savings goals so that you can get to where you need to be.  If you're investing, keep at it, there are abundant deals out there and plenty of people to fill your rental.  Talk to me, I can provide some interesting options for amazing returns.  Life is great!