Making Money Work

Financial Independence is something we all dream about but few actually obtain. Why? Really, I asked myself why I am not financially independant. I was supposed to be retired by 30 and living the dream afterall so what happened?

Money makes Money! Financial independence is reaching a point that your money is working hard enough that the annual return is equal to your annual earning. Retirement and financial independence are really two seperate things. You can be financialy independant and still work because you love what you are doing but now it is a choice. You can retire and try to get by on Social Security but not be financially independent. Making Money Work is a simple strategy. Make your money work harder!

What do you do if you feel like you have no money or not enough to matter. Here is how it works:

  • Start Today! Time is everything
  • Bottom line / Have a budget
  • Pay yourself 1st / 10% off the top
  • Investing beats Saving
  • Reduce Taxes
  • Live Debt Free

HARP, HAMP, HOPELESS

Turned down for a mortgage refinance or afraid you won’t be approved? Are you angry and frustrated with your mortgage lender? Why is it so difficult to get a better rate? Why does the lender say that I don’t qualify for a LOWER payment when I am already paying my current HIGHER payment?

I am a mortgage Broker here in PA and I share your frustration and can maybe offer some insight and even a little hope about how it works from the inside. I will save the details about Short-sales and Foreclosures for a future post but just note these are not good for lenders… loans gone bad! I think we can all agree that if the lender lowers you mortgage payment then regardless of the property equity you would be better able to make your mortgage payment and stay current. Many of the new HARP type programs are designed to help homeowners left out of the normal products that require substantial property equity or at least not have your home value be less than your current mortgage balance. Great Idea but they fall short on the execution, meaning that many questions of loan structure, lender participation, pricing and the guidelines for underwriting have been left up to the lenders. The result is that many lenders are not participating and many have placed restrictions or overlays on top of the standard rules like; Credit scores,  income and property ratios resulting in many rejected loans that may be approved at a different lender without the overlays. WHY? Lenders are about risk and many of these loans have past a certain point of liability to the lender so a new loan even though the payment is lower for you it will increase the lenders direct liability if the loan goes bad.

What to Do: Talk with your existing servicer and see what they can do for you (many say you don’t qualify because they don’t offer a program)and then talk to a Broker with a good reputation and compare prices and products… a broker will have access to many lenders and should be able to direct you to a lender that is favorable to your particular circumstance.  It is always smart to get a second opinion.

By Bill Frantz at Norstar Mortgage 6-18-2012

 

Bi-Weekly Mortgages, Deal or No Deal…

DEAL- The benefits of a bi-weekly mortgage

  • Faster Equity Build Up
  • Pay Less Interest
  • Easy Automatic Withdraw
  • Easier to Budget

NO DEAL- The cons

  • Higher Rates
  • Increased Fees
  • Contracts
  • Less Flexible
  • Higher Annual Payments

OK… What gives? Is it a good deal or not?

 On a normal mortgage your payment is posted 1 time per month… It’s due on the 1st and generally will have a 15 day grace period but the posting is adjusted on the 1st. So if you pay your mortgage early on the 25th or later on the 10th your payment is posted on the 1st and this is when your interest and principle + any pre-payment will be applied. Basically a 30 year mortgage is a series of 360 payments with a fixed payment. If additional principal is paid it will reduce the balance which will reduce the interest portion of your next payment (Bal x % /12 = interest portion). Your total payment remains constant resulting in a quicker amortization. (pay off  sooner)

Now let’s look at what a True Bi-Weekly mortgage is and how it works. A Bi-Weekly Mortgage is about Posting. There is no grace period and it must be drafted from your account every 2 weeks and Posted to your account. This quicker Posting results in a reduction of interest on the unpaid balance as well as making 26 payments per year which would be about equal to 13 monthly payments so you are also adding principal compared to a normal loan.

This can be a great deal but be careful.

NOTE: You can not make a regular mortgage into a Bi-Weekly by making extra payments because the POSTING periods cannot be changed!!

Here’s the problem. Many lenders charge a higher rate for a Bi-Weekly negating much of the posting benefit. Some lenders and some third party companys will try to sell you a Bi-Weekly payment program wrapped around an existing mortgage… Several hundred dollar fee upfront and cost per draft… Save your money and just divide 1 payment by 12 and add that to your regular monthly payment and avoid all the additional cost. Be Careful… some lenders will use Bi-Weekly to sell negative amortization type loans which could lead to trouble unless you fully understand them

If the payments work and you can find a TRUE Bi-Weekly at the same rate as a comparable regular loan then it may be a great deal… but make sure you fully understand how it works.

By Bill Frantz

PaFhaMortgage.com

 

 

 

Mortgage Approval, How Much Can I Get?

Congratulations!! You have done your homework and decided that home ownership is right for you. Many preparing buyers get anxious, frustrated, confused and possibly derailed by the whole mortgage approval and how much a Lender will qualify them for. Even worse many buyers are mislead into a loan that pre-approves them for a payment much higher than their comfort range or programs that lower the payment but needlessly increase the risk of future default! Let’s change MORTGAGE APPROVAL to PERSONAL RISK ASSESMENT to more accurately define the true goal in the process. As a buyer I’m concerned with the risk that my payment will be too high, home values may drop,  I’ll be house poor, I don’t have enough reserves,  I could lose my job and if something goes wrong I will lose it all. All of these risks should be concerns of the Lender as well but many times lenders do not always explain the negatives of a product. Lenders invest money and are concerned with you paying them back. Lenders are not investing in real estate, if they were, they would simply buy the home and rent it to you. Consider talking with at least one licensed  local mortgage Broker to compare products available from many lenders as well as your Bank or any online offers to make sure you are getting the best rates and programs and reducing your risk! 

RISK MANAGEMENT: Risk is just a fact of life. If I jump out of a plane there is risk. If the plane is on the ground I have minimal risk. Jumping out at 5,000 feet my risk of death is great, but if I use a parachute I can greatly reduce my risk. Buying life insurance does not reduce my risk of death but it will replace the loss of wages that others may depend on, greatly reducing their risk of financial hardship.  Knowledge, education, training and experience can all reduce risk.

If I came to you in 2005 and wanted you to invest everything in gold at $444.74 per ounce knowing the high was $615.00 in 1980 would you borrow money to invest? What if you knew the price would be over $1,500 per ounce just 6 years later?  

If you had a choice between twenty pounds of gold or a parachute and you must immediately get out of the plane, which would you choose? What are the conditions of the terms of this offer? You are at 5,000 feet and the plane is going down, which do you choose?  The plane has boarded but not yet left the gate, which do you choose? The offer is the same, the answer may vary as a matter of the terms or conditions. The same is true of a mortgage, unless you understand the terms and conditions of your mortgage you may not have full disclosure and be able to make an informed decision.

 The point is that risk is personal and the correct decision on payment and terms for you, is best made by you, based on the most reliable and complete information available.

TERMS MATTER: Lenders base their decision on your PITI Payment not a set loan amount!  Most Mortgages are based on simple interest, it is the terms that vary! Consider ways to reduce your PITI payment that reduce payments with little or no increase in Risk!

PRINCIPAL: This is the portion that repays the loan (Buying Equity). The difference between a 30 year term and a 15 year term is the amount of minimum principal obligation per month. You can pay extra as a prepayment and reduce the unpaid balance. Consider a 30 over a 15 to buy more house.

INTEREST: A mortgage is a series of payments. The interest is calculated by multiplying the unpaid balance, times interest rate, then divide by 12 to get the interest portion due that month. A lower interest rate will lower your obligation and also accelerate principal reduction! Consider a Hybrid ARM with a risk appropriate fixed portion or points to lower rate.

TAXES: Taxes are the taxes. You can consider an area with lower taxes to reduce the payment and qualify for more house.

INSURANCE: You can shop for home insurance. Reducing the cost of your home insurance by $25 per month will buy about $5,000 more house

MORTGAGE INSURANCE:PMI or MIP are generally required with less than 20% down. Mortgage insurance protects the lender if you default and can be very expensive. Consider a single MI or a split loan to reduce or avoid monthly mortgage insurance if possible!

ASSOCIATION FEES: Condo and HOA fees are added to the PITI payment for qualifying and are generally overlooked by buyers. A $250 dollar a month condo fee will cost you almost $50,000 in purchase power. Consider if the association is really a benefit to you and avoid where possible.

CREDIT SCORE: Your score may greatly impact the PITI. It can affect your interest rate, closing cost, increased mortgage insurance and reduce the programs available changing the terms offered to you!  Consider a rapid re-score or other techniques to improve your score. The pricing difference with <25% down and a credit score of 679 vs. 720 is about 1.5% price hit. On a $200,000 loan that is $3,000 or a Rate increase of .25% to .375% costing $40 per month and losing about $8,000 purchase power with rates around 4.5%.

CHOOSE DON’T LOSE: You qualify with payment (PITI+) Here are 3 Scenarios.

Credit score 679, 5% down 200k 30 yr fixed loan at 4.75%, taxes of $325 per month, Ins at $70 per month, HOA of $50 per month, PMI at $150 per month. $1043.29 + $325 + $70 + $50 + $150 = $1,638.29

Credit score 720, 5% down 200k 30yr fixed loan at 4.5%, taxes $300 per month, Ins at $60 per month, No HOA, Single PMI. $1,013.37 + $300 + $60 = $1,373.37

That’s a $264 per month savings and that would buy  $52,103 more home at the same monthly payment!!

Credit score 720, 5% down 200k 10-1 ARM loan at 3.875%, taxes $300 per month, Ins at $60 per month, No HOA, Single PMI. $940 + $300 + $60 = $1,300.47  If you plan to be in the home 5-7 years a 30 yr amortization with the first 10 yrs fixed adds a greater benefit without additional risk.

That’s a $338 per month savings and that would buy  $71,878 more home at the same monthly payment!!

You have choices! For more detailed info please check  the Norstar University section of www.PaFhaMortgage.com

By Bill Frantz         at Norstar Mortgage

CASH POOR, GET MORE!

$12,000 DOLLARS!  Did you know that in Pennsylvania the average closing cost  run about 5% to 7% of the sale price… $12,000 for a $200,000 purchase!! Closing Costs are in addition to your down payment. Is it any wonder Buyers have a hard time getting a new home.

Fortunately there are several ways to structure your financing to secure additional cash from a Real Estate transaction.

SELLER ASSIST-  The name is somewhat misleading. The seller does not pay out of pocket for the buyer’s closing cost. Here’s how it works. The home is priced at $200,000. The buyer will determine their net price they would pay for the home.

1. $200,000. The buyer would add the assist of $10,000 and make an offer of $210,000. $10,000 would be a credit to buyer.

2. $190,000. The buyer would add the assist of $10,000 and make an offer of $200,000. $10,000 would be a credit to the buyer.

This only works with a mortgage, the result is that the buyer increases their mortgage by $10,000 and essentially finances the seller assist. The seller simply is agreeing to a finance option for the buyer.

NOTE: the home must appraise for the Sale Price. In option 1 the sale price would be $210,000 and must appraise for $210,000. If you are competing with a strong buyer that does not need an assist the seller would accept their offer over yours not having to worry about the home appraising.

How Much Assist Can I Get? It varies based on the type of financing and can only be used towards allowable closing cost. If you have $8,200 in allowable cost then your assist would be capped at $8,200. Below are the basic Max assist percents generally allowed but like everything there are some caveats, so always check with a mortgage professional when structuring your financing.

  • FHA= Max 6%
  • USDA= Max 6% with zero down!
  • 5% down= Max 3%
  • >=10%= Max 6%
  • Investor= Max 2%
  • 

LENDER ASSIST-  Again the Lender is not just giving you money. Lender assist is more accurate to be called Premium Pricing. Basically if you select a higher rate the lender can credit the YSP (yield spread premium) toward your closing cost. For example taking a rate .25% higher might give you a 1 point (1% of loan) credit toward closing cost with only a minimal payment increase. More info:   http://pafhamortgage.com/norstar-university/ysp-and-srp/

REALTOR ASSIST- The Realtor can also contribute. Let’s say that you need to sell an existing home. The Realtor may charge full or reduced commission on the sale of your home but because they benefit from multiple transactions they may be willing to discount or credit commission on your sale/purchase package. Many seller/buyers lose this advantage. A good example might be new construction. You went to the new construction sample home and put down a deposit and then called a Realtor to sell your home. If you tied the sale and purchase together with the same Realtor you could easily save 1% to 2 % and reduce your expense. More info:   http://pafhamortgage.com/real-estate/buyer-agent/

These techniques can also be combined and can really be significant in reducing the cash needed to purchase a home.

By Bill Frantz   www.PaFhaMortgage.com

I’m Going To Live In My Car!

Why pay RENT! Did you know that rents are rising? You are going to pay more and more and more for ever and ever and pay someone else’s mortgage.

(sound effect of needle scratching across album as light bulb appears above your head) If you don’t know what an album is… it doesn’t matter, just go with the light bulb. OK… Renting doesn’t make sense!  We all need to live somewhere.  If Mom and Dad locked the basement and you can’t live there what do you do?

 I’m going to live in my car. It’s nice and the back seat folds down… I gain mobility and can have a new neighborhood every night but I do give up a lot as well. Then I was thinking about the car’s value, my loan and re-sale. I paid $32,000 for the car and lost so much value instabtly as  I drove off the car lot with my now used car that I’m actually upside down with my value. The added wear and tear is not going to help. I am losing value everyday. Right now I’m just hoping my car lasts longer than the loan!

What other option do I have?   What if I bought a place of my own… But I worry about the home values still dropping. I’m already losing value on my car! I need to live somewhere and living in my car may not be the best… I need a place for my stuff. My friend bought last year and was telling me about the great tax break he got… almost $2,800 refund! Mortgage rates are at an all time low… I wonder… how much would my payment actually be? My credit was OK when I got my car, but I don’t have a lot of money. My friend Joe bought a house and he makes about the same as me and so did that girl in accounting at work. Could I buy…  BUT… What if ?

  • I can’t get a mortgage
  • I can’t make the payments
  • value drops
  • my credit is not good enough
  • I don’t have enough money

4 out of 5 buyers surveyed had these same What ifs! 1 out of  5 did something about it! The first step is the hardest and NOW is the time. If you have even the slightest thought that a home is in your future, you’re tired of ever increasing rent and living in your car is not really an option then you owe it to yourself  to get a Pre-Qualification for a mortgage. It’s Free! No Hassle!

Did you ever notice that the News is 95% negative… Fear sells ratings! Ratings bring advertisers and advertisers bring money!

 HEADLINE         “Buy Home Now Before World Ends”

For more info check out the www.PaFhaMortgage.com website and get your pre-approval today!

By Bill Frantz  at Norstar Mortgage

Condo Shmondo

What Is a Condo? Condo is short for condominium. A condominium is a form of ownership where you own the interior walls of the home and the exterior is owned collectively through a HOA ( Home Owners Association)  I have read some descriptions that seem to say it is the same as an apartment that you own. While it may be true that many apartment buildings have been converted to condominium ownership this represents a small portion of condo’s here in the Philadelphia, PA Metro area and leads to the confusion that there is some physical description of a condo.

Pick the Condo? 

  • 4,000 Square Foot Colonial
  • 900 Square Foot Flat
  • 1800 Square Foot Townhouse
  • 200 year old Farm House
  • 1100 Sq. Ft. Garden Villa

The correct answer would be “All of the above”. Really! You can have a 4,000 square foot Colonial that is part of a Condominium. The association owns the golf course, the club house and maintains all the grounds and the exterior of the homes.

If it has an HOA Fee is it a Condo?   No… It could be a PUD (Planned Unit Development) A PUD differs from a condo in that you own both the interior, exterior walls and usually a small parcel of land and are responsible for the maintenance. A good way to tell is to ask about roof replacement. You are responsible… PUD.  Association is responsible… Condo.

Another distinction is the home insurance. A condo will include the major fire and liability insurance as part of the association fee. You will be responsible for an HO6 policy which is like a renters policy for contents PLUS coverage for things like kitchen cabinets, flooring, appliances, bathroom and light fixtures and possibly windows and doors. Think of things that would normally be part of the home as fixtures but are inside the walls. A PUD will need a standard home insurance policy like an HO3 endorsement or similar.

A PUD and a Condo are similar in that both have common elements. Common elements are the things owned, maintained and controlled by the association; Pools, Tot lot, Common hallways, grounds, parking areas, Club house, etc. Both must also have a master insurance policy to cover the common elements. Remember that you are a member of the association as well.

Are There Risks To a Condo?  Yes… lenders generally will have a different set of guidelines for a Condo than a PUD because of the increased risk. Here is a quick guide;

  • 1,000,000 liability insurance
  • Reserves for maintenance
  • Current budget
  • Investor ratio
  • Ownership by Single Entity
  • NO first right of refusal
  • Control of Association
  • Pending Lawsuits
  • Delinquent Assoc. Fees

A current questionnaire will be sent to the association to complete for the lender to review and this may cost several hundred dollars in some cases. If the lender or PMI company are not satisfied they will decline the loan.

 WARNING: if the Condo Association is not healthy it could prevent financing in the development. No FHA, No PMI … this would result in 20% to 25% down payments and possibly No financing so that all purchases would need to be cash. This would negatively impact your value. Always review a Condo’s info before a purchase.

Can I Have a Dog?  You have the right to review the Association rules and regulations as part of your Agreement of Sale. READ THEM!! You will have to live by them. You may not be able to have a dog or it’s size may be limited. You may only be able to paint your front door red. You may not be able to place a grill outside or a table. You may not be able to put a flower pot on the front steps or porch. You may not be able to park a car or truck with any writing on it… company pickup with the name on the door.

Rules can be good as it keeps the development at a certain standard but sometimes it can also prevent your enjoyment of your home. Make sure you are comfortable with the rules before you buy. Associations all vary… some are very loose and others very tight so please read the rules.

A cape, townhouse, flat or garden villa are styles of homes, a Condo or PUD are a variation of ownership and have no physical description.

For more info checkout the website     www.PaFhaMortgage.com

By Bill Frantz

Homeowner Tax Credit is Still Here!

No… Not that flash in the pan backward $8,000  stimulus credit… The real Homeowner credit! The Credit that has  been here in the form of deductions all along… Still here!

What am I talking about? The IRS allows you home mortgage interest along with your property taxes to be deducted from your income on Schedule A of your federal tax return. That means if you have a $250,000 mortgage at 4.75% that’s over 11,500 in interest. If you add that to a $4,800 property tax bill you would have a $16,300 tax deduction. You would need your actual tax bracket but let’s assume a net rate of 20% for federal taxes. $16,300 x 20% would be a $3,260 refund and you get to do this every year!

The smart money would adjust your W4 federal withholding and take home $271.67 more each month! That’s like giving yourself a raise…

If you are considering a home purchase in the current year don’t forget about the tax saving associated with home ownership. Remember it’s not what you make but what you keep that is really the bottom line.

For more onfo check out  “What can we afford”

By Bill Frantz    PaFhaMortgage.com

Rule of 72

What is the rule of 72?

Simply it is a quick approximation of how long at a rate of return it will take to double your money.

How’s it work?

Divide 72 by a number: Rate or years, 6% will take 12 yrs to double or 12% will take 6 yrs to double

  •      72/15= 4.75
  •      72/12= 6.0
  •      72/10= 7.2
  •      72/8= 9.0
  •      72/5= 14.4
  •      72/3= 24.0
  •      72/2= 36.0

If you had $100 dollars and you double your money well it just doesn’t seem life altering.

What if you had a penny and doubled it every day for 30 days?

$10.7 MILLION… Crazy isn’t it! But true. At 15% it takes 4.75 years to double once. Apply that to the Penny and it would take 30 x 4.75 = 142.5 years. I wish you a long life but frankly I don’t want to wait that long so I will need some leverage.

How does leverage help double my money?

  •      $250,000 x 5% = $12,500
  •      $25,000 x 50% = $12,500

72/50= 1.44 years… This is your 10% down payment leveraged with a mortgage to control an asset that appreciates 5%. Over time Real Estate appreciates around 5%. Yes Real Estate Values have ups and downs so timing is important but with Values approaching record  lows we are seeing huge upside potential for future growth.

Combine low values with low rates and the tax breaks for interest and property tax deductions it is cheaper to own than rent! Rents are also on the rise and we are seeing positive cash flows on even single unit investment properties.

Don’t get left behind…

By Bill Frantz   www.PaFhaMortgage.com

 

 

 

 

 

How I Stole 2 Million!

TWO MILLION DOLLARS!!

Did you know that the median income in the US is about $50,000 dollars a year. If you worked for 40 years that is 2 million dollars that will pass through your hands.

So… Who stole your money?   It’s not what you make but what you keep that is important! Take a look at your pay check and review the deductions. Whats missing between your gross and your net? 15%, 30%, or even higher!

What can You do about it?  When you purchase a home the property taxes and mortgage interest are tax deductable. You make $50,000 minus $12,000 (int & tax) = $38,000 that you now pay income taxes on instead of $50,000.  

I want my money NOW?  It’s great to get a tax refund but in reality a refund is nothing more than a loan of your money to the IRS for free. Remember that W4 form you filled out when you started your job. Update it with your current info and you will lower your withholding taxes and get a bigger net pay check.

What to do with your new wealth? Put it to work. Invest in You! Most people work for their money, wealthy people make their money work for them. Look at your debt, 12% credit card, 6% car loan. Paying ahead on revolving and installment debt is like investing at that interest rate!

Pay yourself first! 401K and IRA’s will not only build wealth but you get another tax deduction. Also consider a Roth IRA where you use after tax money to invest upfront but at the end it’s all tax free!

Who else is taking your Money?  Do a budget audit. Yes you have a budget, it’s what you spend your money on. Know where your money goes. Track it for a week or better for a month. $5 in debit fees, $125 fast food, $30 morning coffee, $250 dinners out, newspapers, magazines, your food shopping. You decide if your getting your monies worth for the small things and habits that we all fall into. Review and update any insurance, car, life, disability and any other policies you may have and look for lazy dollars!

Life is like a hole in your pocket that the change keeps falling out. Fix the hole and a few adjustments on spending as well as watching the back door with taxes and looking for opportunities to make your money work just a little harder will keep everyone else from stealing your millions!

By Bill Frantz    www.PaFhaMortgage.com