From The Inside

Buying Rental Real Estate

2011-09-03T07:07:00.000-07:00

As a mortgage professional and real estate investor I continue to be amazed at the buying opportunities in today's market. Rates are at historic lows and real estate values have declined in some cases 25-35%. It is more affordable to buy housing today than it has been in the past 25 years.

As a real estate investor I bought my first property in 2000. Interest rates were in the low 6% range and the housing market was starting to show potential growth. I liked rentals because they are leveraged assets and the opportunity to appreciate that asset was 8-10% per year. Yet, as mortgage lending continued to get more aggressive more renters pursued buying a home and my investment business proved to be choppy throughout the past decade.

As the mortgage market offered loans to every potential buyer good tenants continued to become hard to find and I found myself vacant for several months at a time.

Fast forward to today and we find millions of previous home owners into foreclosure. Many of those families would prefer to find single family housing as opposed to going back to apartment style living. In many cases they make much better tenants because they have an appreciation for the upkeep of your rental.

Rental real estate can now provide positive cash flow and the potential for appreciation as our market will some day move out of stagnant growth.

$100,000 purchase with 20% down

$80,000 loan at 4.5% 30 yr term

$405.35 principal and interest
$165.00 property tax payments
$155.00 town home association or insurance
$ 20.00 additional insurance policy
$745.35 full payment

$1,000.00 Probable rent for 2 br town home
254.65 Monthly Cash Flow

Lenders have firmed up guidelines for those interested in rental real estate for the first time. They now require 20% down payments, 6 months liquid reserves in your bank account, and if you are a first time investor you will need to be able to carry the new housing payment within your current housing and credit debts. You will not be able to off set the expense of the rental for your first property from an underwriting perspective until you've shown a history of ownership on your most recent Federal tax return.

Today's rental environment shows demand for quality housing. With an over supply of families looking for quality housing, it could be the perfect time to invest in rental real estate.

If you'd like to discuss opportunities you can find me at 612-282-5863, visit my web site at www.brianparkinson.com, facebook at Brian Parkinson, mortgage banker at RMG

FHA Mortgages

2011-08-03T12:52:00.000-07:00

FHA loans developed as a financing alternative years ago when the typical conventional loan required the customer to fit into a specific "lending box". The typical conventional customer had steady employment, a reasonable down payment, and great credit history. Unfortunately, not all borrowers fit into those specific criteria and with the help of government backing the FHA loan emerged.

As the lending market changed throughout the decade of 2000 and as conventional lending became very aggressive with 0% down payment loans, FHA lending subsided. In the recent 4-5 years as conventional lending has tightened up FHA again emerges as an option for those that need extra consideration.

FHA loans are often misunderstood that they are for those with poor employment history and bad credit. In fact, many of my first time home buyers are surprised to find out the advantages of an FHA loan in today's market.

Here are a few examples of why you should consider and FHA loan:

1. Rates are typically 1/8-1/4 lower than a conventional loan
2. Rates are not driven by credit scores, unlike conventional loans
2. Closing costs are typically lower due to a reduced origination fee
3. The maximum down payment is 3.5% vs. 5% of the conventional
4. The entire down payment can be a gift from a family member
5. Underwriting takes into consideration "life's bumps and bruises"
6. No reserve requirements are expected after closing
7. A loan with a co-signor pools all income and assets of all borrowers allowing
a higher qualifying mortgage vs. the conventional co-signor

A couple of differences

1. FHA has an additional upfront mortgage insurance premium. It is currently
1% of the loan amount and is financed into the loan. So the final loan amount
is slightly higher.
2. FHA's monthly mortgage insurance premium is 1.15% vs. lower conventional rates

My favorite difference

FHA loans are assumable. We are currently in a very low interest rate environment. As rates continue to rise with the expected economic recovery, new buyers will be forced to use current interest rates. FHA loans can be assumed by the new buyer and they will keep the existing terms of the FHA loan such as interest rate, loan balance and remaining term.

Let's say the year is 2016. You've owned your home for 5 years, financed with an FHA mortgage rate of 4.375% and it's time to move up in housing for a growing family. New buyers in 2016 will be forced to attain current interest rates and I believe as our market recovers interest rates will certainly go up. However, as you put your home on the market you can advertise to potential buyers that you have an assumable FHA mortgage. If they qualify, the assumption process will cost them $500 and they'll take over your loan where you left off. Obviously, there will most likely be a difference from your existing loan balance and the final sales price of your home. The new buyer can assume your mortgage and make the difference up with either additional down payment or a new second mortgage.

As you can see FHA loans have many features and benefits to buyers. Sitting down with a mortgage professional to review your needs will help determine if an FHA loan is appropriate for you. I can be reached at brian@brianparkinson.com or 612-282-5863.

Now is the time for "First Time Buyers"!

2011-07-06T07:46:00.000-07:00

In today's real estate market the new buyers have such an advantage. Yet, I've heard many news casts that speak of the need for a 750 credit score, 20% down payment, and great labor during the mortgage process. Much of this is incorrect.

Within the Minnesota market the first time home buyer has multiple options based on their total household income, liquid assets, and credit. In fact, if they pursue a home in a specific zip code, can show total household income less than $82,000 per year, and will have less than $5,000 in their bank after closing they will most likely qualify for a "First Time Home Buyer" program.

These programs typically require attendance of a seminar which could be 4-8 hours in length. However, with typically a below market interest rate and down payment assistance, many buyers will find themselves in a new home in less than 60 days.

Recent customers of mine were renting a town home for $1,100 per month. My customers had been previous home owners but life found them out of their educated fields of expertise and unemployed. Life happened to them and as they neared retirement the dream of owning their own home again prevailed. They hadn't owned a home for almost 10 years. My clients were first apprehensive that they could own again since they had a past bankruptcy and unstable job history. within 45 days they had closed on their new town home with as little as $1,500 into the transaction and a payment at $800.

Before you listen to the medias bias interpretation of the mortgage and real estate market make sure to contact a local professional that will clearly explain and educate you on the many market opportunities today.

Brian Parkinson can be contacted at 612-282-5863 or brian@brianparkinson.com

Buying out Mortgage Insurance vs. Paying Monthly

2011-04-14T06:35:00.000-07:00

For those that put down less than 20% on a conventional loan or finance with an FHA loan they are required to pay mortgage insurance. MI is calculated on the amount of down payment so the less you put down the higher the factor and monthly payment.

Example

5% down conventional the factor to determine the payment ranges from .72 - .94% or on a $150,000 loan , $150,000 x .72% = $90 per month.

3.5% down FHA the factor is 1.15% (as of 4/18/10) $150,000 x 1.15% = $143.75

If your credit score is high and you've managed your monthly credit debts well there are other options. We have multiple MI companies that offer a reduced monthly payment or a single premium upfront and they buy out the MI altogether.

Example

High credit score and low debt customer with 5% down payment on a conventional loan

Monthly MI factor is .55%, $150,000 x .55% = $68.75 per month
Super Single buyout is 1.34%, $150,000 x 1.34% = $2,010 in closing fee buyout
(When you buyout the premium up front there is no monthly MI payment)

If you divide the $2,010 single premium by the monthly MI payment of $68.75 and if you love in your home 29 months after your purchase, it would've made sense to buy out your MI premium upfront. That is, if you had the funds for the additional cost.

Many customers have never heard of this option and I pride myself in looking at multiple options for every customer. We have relationships with multiple MI companies that may have the right product for your situation.

Call Brian Parkinson at 612-282-5863 for additional financing expertise.

Not all Lenders are the same.

2011-04-08T05:59:00.000-07:00

As I meet new customers many times I get into conversations regarding the structure of my company, comparisons to Big Box Banks and many times they think I'm a broker. There are 3 basic structures of mortgage companies that can affect your total payments on your new mortgage for the life of the loan.

I've heard many times, "tell me about your company I've never heard of RMG." Many clients are more familiar of Big Box Lenders because they are on tv, radio, news print but I'd also like to explain the differences between 3 basic structures so you can choose the structure that works best for you.

Big Box- I won't name them you know who they are. I spent 14 years as a mid level sales manager with a Top 20 Big Box. Layers of management on salaries, brick and mortar, advertising, call centers, centralized underwriting and processing. Rates tend to be higher to pay for all of the above. If that Big Box is in the market to increase volume their pricing may be good. If they are swamped with refinance business and the market is heavy in volume,they increase rates to slow down the faucet. You become one of many, many files and the processing and underwriting groups may not have a sense of urgency on every file. Service tends to suffer. Typically these Big Box Lenders are well known and customers feel more comfortable because it's a familiar name and there may be a banking relationship.

Broker- Through the years mortgage brokerages became another option because banks dominated the mortgage market, controlling it and the prices. Mortgage brokers have relationships with multiple banks and can shop your loan to lock with a lender that is in the market to gain business and also find lenders that specialize in loans such as Jumbo, Renovation, or First Time Home Buyer loans. The broker's advantage is that they will typically find better rates, terms of products and variations of products. The disadvantage is that the broker has no skin in the game. They have no control of your file. They lock the loan, send it to the lender to be underwritten, etc. If the lender they lock your loan with is busy with other files the brokers doesn't have the ability to push the loan any quicker through the process. Brokers use the lenders underwriting, closing dept, and also the lender's funds to close your loan. No control, but better pricing.

Bankers- RMG! We have relationships with multiple lenders like a broker but where we differ is that as a banker we use our money from our Bank, Alerus Financial. We underwrite, process, and use our loan closing department assuring total control. To the customer we can offer the most competitive rates and also be in total control of the file. If a loan needs to close in 10 days, we close in 10 days because my entire support group is in Minnetonka. Bankers give you better pricing and better control.

Customers also need to understand that a high percentage of conforming (non FHA/VA) loans are sold to the secondary market, Fannie Mae and Freddie Mac. All lenders will sell a high percentage of their loans. The Big Box will keep the servicing rights, that is collect payments but they typically sell the loans to Fannie and Freddie. I've heard clients tell me in an initial meeting, "Big Box doesn't sell their loans." That's not always true and in the end it really won't matter because the terms of your loan will never change.

If you are in the process of shopping for a mortgage make sure to find a company whose structure will benefit you best. RMG is a local Minnesota company. We use our money, our support staff, and we have no layers of management. I meet you face to face, fully consult your specific needs and find a program that works for you and is priced right. Contact Brian Parkinson at 612-282-5863

First Time Home Buyer Alert!

2011-03-30T08:42:00.000-07:00

We keep hearing the news about home values expecting to fall again. The alerts tell you not to buy until prices hit bottom. Buy low sell high. Well, I don't entirely agree with this as there are incredible opportunities in the Twin Cities market place.

I've been in the lending industry for 17 years and the past 3-4 years have certainly been new ground for all members of the lending club. 10 years ago clients were frustrated with the continued rising costs of home ownership and as new listings hit the market multiple offers came pouring in. The affordability index continued to rise as homes appreciated and payroll income couldn't keep up. The affordability index measures the cost of housing against household income. As home prices go up and incomes don't keep up with the rising making, it becomes harder for new buyers to enter the market.

Fast forward a few years as lenders developed new loan programs initiated to increase home ownership. Our government felt that we could move the % of ownership up to 75% from the 65 percentile. "You too can own a home for as little as no money down and payments as low as XXX" was the buzz in the market." First time investors purchase non owner occupied properties with "no money down". They were sold the appreciation model which says, in another year your property will be worth another 10-15%. Imagine the wealth you can create with multiple properties working for you. The problem is, with higher purchase prices and no money down the monthly cash flow numbers didn't work, rent wasn't high enough to cover the monthly mortgage costs. At that same time, renters were being told they could own with "no money down even bad credit." The new landlords were then competing with great rates and aggressive lending so finding tenants was a challenge. But they could bank on appreciation.

Our house of cards finally came tumbling down and the market is correcting itself. I like this market as a buyer because it's a buyers market and prices have corrected in some cases more than 25%. The affordability index is now coming back into a reasonable range for affordable home ownership and the buyers have the advantage. The media continues to bang the drum that if your credit score isn't 750 and you don't have a 20% down payment you can't buy a home or qualify for a mortgage. That couldn't be farther from the truth. I have first time home buying programs that allow as little as $750 of the borrower's money into the transaction. Keep in mind, the only way for a buyer to purchase for as little as $750 is to fit within a specific income range, buy in a specific location and have the sellers pay the closing costs. You may ask how often do sellers pay for closing costs? I see it in about 90% of my purchase transactions. The programs are available and many home buyers don't know about them.

I believe now is the time to take advantage of historic low interest rates starting as low as 4.45%. If you know someone interested in buying their first or their fifth home, have them give me a call.

When rates fall.................consider Twitter

2009-05-03T07:42:00.000-07:00

Since November of 2008 mortgage rates have been on a series of ups and downs and many times frustrate those considering a refinance. I've experienced those frustrations more than once with customers fixed on a specific rate. When rates have fallen in the past 6 months to 4.375% or 4.5% many times it's only been for 2-3 hours. My ability to get in touch with my customers may determine if they'll lock into a historic rate!

Our current rate environment has been extremely volatile as it has also challenged historic lows. During the last week of April 2009, rates were within .125% of the lowest recorded 30 year fixed rate.

As many consumers consider a refinance, they find that the ability to react quickly is necessary to capture historic lows. As I encourage customers to shop mortgage service providers, I also suggest that you provide the necessary qualifying information so that when rates fall you are ready to lock. To assure instant rate messaging I suggest Twitter.com. Yes, many Americans today have fallen into the fad of setting up a Twitter account to inform friends of their daily activity but I consider it a great tool to keep you informed on rates.

As I considered Twitter as a mortgage professional the main benefit that I appreciated was my ability to notify customers of immediate, up to date, rate improvements. If you'd like to discuss how this easy service can benefit you as you consider a new refinance or purchase contact me at 612-282-5863, or sign up at Rate Watch on my home page.

Watching Rates? Don’t forget to subscribe to my feed. My link TwitterHomeRates is posted in (almost) real time, you can grab the feed directly and have updates piped to your phone, RSS reader, IM, or Twitter account.

First Time Homebuyer $8,000 Credit

2009-04-27T14:29:00.000-07:00

Since the early months of 2009 there have been many attempts to get the economy moving into a positive direction and as many know the real estate market can be a big contributor of that.

As I discuss the affordability of home ownership in 2009 with many "First Time" buyers I continue to find many buyers are confused about the $8,000 tax credit. I've included specific information that I hope will clarify the financial benefits of buying your first home before December 1st, 2009.

Feel free to call me as questions arise.

Tax Credit for Homebuyers
First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction - a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income.

The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.

Tax Credit Versus Tax Deduction
It's important to remember that the $8,000 tax credit is just thatâ€¦ a tax credit. The benefit of a tax credit is that itâ€™s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a homebuyer were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, they would owe nothing. Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a homebuyer is liable for $4,000 in income tax, he can offset that $4,000 with half of the tax creditâ€¦ and still receive a check for the remaining $4,000!

Homes that Qualify
The tax credit is applicable to any home that will be used as a principal residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principal residence also qualify.

So, if you know of anyone that has heard about this great buying opportunity please give them my name and number so I can discuss the benefits of this exciting offer!

Refinancing with less than 20% equity

2009-04-17T22:05:00.000-07:00

In the past 3-4 months most of my business has been working with customers that refinanced their homes with our current "historically" low fixed rate mortgages. In many of the early conversations with each customer the discussion of owners estimate of value comes up. I've seen many values drop as much as 20% within the past couple of years. Unfortunately, we've all experienced the fall of our market values and to many homeowners it has meant that they simply can't take advantage of sub 5% rates. I've locked customers into 30 year fixed rates as low as 4.375%.

In April, new refinance options allow those without 20% equity to refinance.Today I talked to my first customer that has found himself below the previous minimum equity standards for refinancing. And thanks to a new stimulus option my customer can refinance as long as his home's first mortgage isn't more than 105% of the home's value.

This to me is truly amazing. To take advantage of this incredible opportunity and participate with many other home owners there are a few simple steps that need to be taken and I wanted to share them with you.

Step 1) Identify your servicing lender. Access the following web site to identify if your first mortgage is serviced by Fannie Mae.

http://loanlookup.fanniemae.com/loanlookup/

Once you put your information into the site it will tell you if your loan is Fannie Mae serviced.

Step 2) Let's talk about any other mortgages that you may have on your home. That not only includes fixed second mortgages but Home Equity Lines of Credit. If so, your process may be even more challenging.

Step 3) Confirm that when you bought your home you put 20% down. Transactions that had less than 20% down and instead chose to pay a (MI) mortgage insurance premium are not currently able to proceed. So find your closing documents and provide the Hud-1 (closing statement) as an additional document needed for this new refinance.

Step 4) Gather the typical documents needed for a refinance.

A couple of items to keep in mind if you qualify.

1. You can only pay off your current mortgage and roll your closing costs into the new loan.
2. You need a 12 month payment history on your existing loan showing good payments.
3. Homes with second mortgages are not currently able to participate, but that may change.
4. Previous loans that included mortgage insurance are currently not eligible.
5. An appraisal still needed.
6. The newly established mortgage cannot exceed 105% of your homes value. Wow!

This new program called the DU Refi Plus will benefit many customers that didn't think they could refinance into rates as low as 4.5%. If this applies to you or any friends, neighbors, relatives please have them give me a call at 612-282-5863. And don't forget that I can lend in up to 50 States!