Owning a home has always been the American Dream. Unfortunately the recession and bursting of the housing bubble has caused concern among home buyers. Now we have too many of them sitting on the fence thinking renting is a better alternative to owning a home. As first time buyers make up almost 50% of available buyers in the market these days, converting renters to buyers is a great opportunity to get more business. I wanted to share with you a "Rent vs Own" financial analysis report that I have been sharing with my clients recently. In this report, I will show you what you can buy for $2k a month, along with all the great financial benefits of why owning a home is a much better financial decision than renting.
Renting versus owning
In San Diego, I would say $2k a month is the average rent that a lot of young families or young professionals are paying these days. So let's take that $2k a month payment and see what you can buy with that monthly budget. We will assume the buyer only has a small down payment of 5% available. Now most people will assume that this buyer will have to go with FHA financing because of the small down payment funds available, that is not true anymore.
For example, a buyer can now get conventional financing and pay NO mortgage insurance "MI" with only a 5% down payment, all they have to do is take the loan option whereby they "buyout" the MI. This is a much cheaper alternative to a 3.5% down FHA loan, where they would have to pay really high mortgage insurance payments each month. For example on a $350k purchase, a FHA buyer will pay an extra $323 a month in FHA MI versus the 5% down conventional No MI loan option. The conventional buyer can now use these additional savings of $323 a month to purchase an extra $50k in home compared to the FHA buyer. Here is more more information on this Conventional No MI program.
How Much Home Can I Purchase with $2k a month?
Here is the example of a "Rent vs Own" report comparing renting versus owning for $2k a month. For a total monthly payment of $2k a month, a buyer will be able to purchase a property for $350k, using only a down payment of 5%, get an interest rate of 4.375% on a conventional loan with NO PMI, and have a total PITI payment of $2k a month.
As you can see above, the buyer will get to take advantage of a tax benefit of $451 a month and also pay $448 a month towards principle, versus the renter who will receive no benefits from writing a check for $2k in rent every month.
Rent vs Principle paid over 10 years
In this section of the report it shows the rent versus principle paid over 10 years. You can see the buyer will have paid down the principle on his loan $67k over the next 10 years, whereas the renter has paid no principle, and in fact will pay over $274k in rent over the next 10 years.
Net Worth in 10 years
In this section of the report it shows the buyers net worth after just 10 years. By deciding to purchase a home, the buyer has accumulated a net worth of $205k over 10 years from the financial benefits of home ownership. These 3 main benefits are, paying down the principle on the loan, substantial tax deductions at tax time, and accumulated equity gains due to appreciation on the property. Whereas the renter has a zero net worth due to no financial benefits of paying rent to the landlord over 10 years.
Here is also a link to view this report in full http://mcedge.tv/16a9w8 .FYI these reports can be emailed directly to clients, or you can post the links to be viewed on facebook too.
Why its time to buy and not rent!
If a buyer is one of those who is worried about prices declining further, then they should consider the following: Prices are low and rates are low. If you talk to your accountant and find out what the mortgage interest deduction and deduction for real estate taxes will do for you, you will probably find it is now cheaper to own than to rent in many areas.
When prices decline investors rush to buy properties. They hold on to these properties because they expect the values to increase. In the meantime they rent them out. Demand for rentals goes up when fewer owner occupant properties are sold. As demand for rentals goes up so do the rents.
But if you own your own home, and get a low fixed rate mortgage, your principle and interest payments are constant and will never change. The taxes and insurance usually go up, but guess what? Landlords also add this to the rental increase if you are renting.
The clients I work with love these "Rent vs Own" reports, because it shows them all the benefits and figures they need to see when when making the decision to buy versus rent. As the accumulation of these benefits will outweigh the worry a buyer will have about about price declines when making the decision to buy. If you would like to share one of these "Rent vs Own" scenarios like the example above with any buyers you are working with, please feel free to contact me directly at 858-200-9602 and I would be happy to put together some figures for you. I look forward to chatting soon.
Also, if you want to get updated more regularly on any new rule changes coming from the lenders and what is going on with interest rates too, make sure to join my Facebook page at www.facebook.com/FreeResourcesForRealEstateAgents
Did you know there are over 2.3 million veterans now living in California alone, and with a large percentage of these based in San Diego, working with VA buyers presents a tremendous opportunity to help you grow your business. I believe VA financing is the best purchase product available in the market today, especially as the VA makes it easier for their members to qualify to purchase a home, and as of today, VA buyers can get 100% financing at an incredible interest rate of 3.75% on a 30 year fixed. Here is all you need to know about VA financing, so you know who qualifies as well as some tips on how to get sellers to accept your VA purchase offers.
Who is eligible for VA financing
A veteran is eligible for VA financing if he/she served on active duty in the Army, Navy, Air Force, Marine Corps, orCoast Guard and was honorably discharged after 24 continuous months of active duty, or the full period for which called, or ordered to active duty, but not less than 90 days (during wartime) or 181 continuous days (during peacetime).
3 reasons why VA financing is the #1 loan progra
1. VA buyers can purchase with $0 down
Did you know that eligible veterans are allowed to take out a mortgage up to $537,500 and 100% financing here in San Diego? Check here for your County limit as designated by the VA, VA Loan Limits for each county for 2011 . VA financing is still the only loan program that allows 100% financing in any area (FYI the USDA allows 100% financing, but this is strictly for rural properties), as the FHA still requires a 3.5% down payment and most conventional loan programs still require anywhere from 3% to 20% down payments depending on the credit profile of the buyer, which is still putting home ownership out of reach for many first time home buyers.
2. Easier qualification rules for VA buyers
Most banks have easier qualifying and credit guidelines for VA buyers. Because many first time buyers typically don’t have a lot of established credit, getting qualified for a conventional loan can be difficult. Most VA lenders only need a 620 credit score to offer 100% VA financing, whereas FHA and Conventional financing now require higher credit scores. Also some VA lenders allow a buyer to qualify up to a 60% debt to income (DTI) ratio on VA loans, Fannie Mae is now capped at 50%.
3. VA buyers pay no monthly Mortgage Insurance
Another huge advantage for VA buyers is that they do not have to pay any monthly mortgage insurance (MI) ontheir loans, as these are backed by the government. Remember, most conventional loans require mortgage insurance if you put down less than a 20% down payment, and all FHA loans now require mortgage insurance. So having no monthly mortgage insurance allows VA buyers to either purchase more home, or have have a lower monthly mortgage payment.
3 Tips to get your VA purchase offers accepted
There is a misconception out there that sellers discriminate against buyers using VA financing because of the following three reasons: 1. The low down payment requirement means less skin in the game. 2. The (misguided) perception that the seller must pay for some or all of the buyer's closing costs. 3. The (false) belief that VA appraisers are less generous in their appraisals. Here are 3 tips to debunk seller held credit myths about VA financing, so you can ensure your purchase offers will get accepted.
1. The zero down payment requirement means less skin in the game
We can't argue with this because VA does allow 100% financing, so this does amount to very "little skin in the game". But what we can do, is strengthen the VA buyers profile and show the seller that the borrower has a DU approved loan (automated underwriting approval) and also include income and asset documentation (proof of reserves etc) to support that approval. This will assuage the fears a seller might have about a buyer (and that buyer's lender) performing with their financing.
2. The (misguided) perception that the seller must pay for some or all of the buyer's closing costs.
On VA transactions, the seller is NOT required to pay ANY costs for the buyer, but is allowed to pay up to 4% towards a VA buyers costs. There are certain "VA non-allowable" costs for which a VA buyer is forbidden to pay, (for example No escrow fees, wiring, notary, tax service or processing fees are allowed to be charged).
So here is a good tip to help get a VA offer accepted, so this issue of who covers these VA non allowable fees does not become an issue when negotiating a purchase price. It is advised that the following language be inserted in to the purchase contract so the seller is not put off by the VA offer: “Seller not responsible for any buyer closing costs, regardless of the selected loan program. All agency-related "non-allowable" costs to be borne by lender”.
3. The (false) belief that VA appraisers are less generous in their valuations.
There is a common misconception that VA appraisals usually come in lower. While I am sure that a lot of people have had a VA appraisal come in lower, I am sure they can say the same about FHA and conventional financing too. Underwriters and appraisers will point out, that as long as the property is properly priced and the offer is reasonable, the VA appraisal should go smoothly. I have been averaging at least 2 VA transactions a month for the past few years and I have only seen a value come in lower in maybe 10% of these VA transactions, which is probably typical for other forms of financing too.
TIP. One of the most common appraisal "hits' I have seen is when the purchase price is increased, above listing price, to accommodate for the seller-paid contribution. Be wary of that when submitting/accepting offers and have a back-up plan. If the appraisal does come in low make sure the buyer has additional reserves to potentially come in with more cash to close. Remember the lender will only approve financing to 100% of the appraised value.
Support our Troops, and a great marketing opportunity
Because of the large number of veterans that are living in California, this represents a tremendous opportunity to work with VA buyers. I have always found that VA buyers are a pleasure to work with because they are very loyal and they communicate very well too, and it also feels good to know you are giving back a little to our armed forces by helping them obtain home ownership, as they sacrifice so much for all of us on a daily basis. As a VA buyer is able to purchase a home with 100% financing and get an interest rate of 3.75% on a 30 year fixed, it really is a wonderful opportunity for our military friends to buy a home right now.
If you have any questions in regards to VA loans please feel free to contact me directly at 858-200-9602. My company is approved directly with the VA, so we are able to offer all the best programs that are available to our military friends. I look forward to chatting soon. If you want to get updated more regularly on interest rates and lending rules, make sure to join my Facebook page at www.facebook.com/FreeResourcesForRealEstateAgents
A good sign for the housing market
How does this No PMI work?
If you are just looking to do a regular refinance and you do NOT need to take advantage of this No PMI loan program, you may be able to qualify for a 3.99% refinance with no closing costs. Check out the savings below on this scenario. Even if you have a current interest rate at 4.75%, at 3.99% you will save $220 a month on a $410k loan, or you can even take a 25 year fixed and still save $13 a month over your current 30 year loan at 4.75%, but save 5 years off your loan.
I think this is one of the better loan programs out there today, as this program now allows a borrower to either #1, refinance and put additional savings back into their pocket each month, or #2, it also works really well on purchase loans too, because it now allows the buyer to purchase "extra home" with the additional monthly savings. For example, because of the expensive mortgage insurance payments that come with a FHA loan, a buyer is now able to purchase a $400k home with only 5% down and No MI with conventional financing for the same monthly payment as a $350k FHA purchase loan.
Feel free to contact me directly at 858-200-9602 if you have any questions about this program above. I look forward to chatting soon.
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Most first time buyers today assume they have to get FHA financing to qualify for a low down payment loan option to purchase a home. That is not the case anymore as Fannie Mae is now offering financing up to 95%. Also, did you know there is now an option where you can choose to NOT pay mortgage insurance "MI" on this 95% financing, as you can pay for “Lender Paid MI” instead, which allows you to buy out the mortgage insurance. Because of this awesome loan product, you can now purchase a $400k home with a 95% conventional loan for the same payment on a $350k FHA purchase.
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National Mortgage Professional Magazines Top 25 "Most Connected Mortgage Professionals" First of all, I got some good news last week, as I was named in the "National Mortgage Professional Magazines top 25 "Most Connected Mortgage Professionals". They did a special edition on Social Media, so it's always nice to be recognized for your hard work:). You can check it out here on page 40 of 52 in their July Edition A good sign for the market A good sign for the real estate market is that the lenders and the mortgage insurance companies have reintroduced this 95% conventional loan product. I think we can look at these new financing options as a positive sign for our market place, as investors and mortgage insurance companies are now willing to offer these loan programs that have been unavailable for the past few years. Let's hope for more of these positive changes. A $400k Conventional Purchase has the same payment as a $350k FHA Purchase Let's look at some figures so you can see how you can purchase a $400k home for the same payment as a $350k FHA purchase. For example, here is a scenario I had with a first time buyer last week. This particular buyer wanted to purchase a single family home but they started at $400k in her area. She was told by another lender that she would have to take FHA financing to purchase at this price because she only had a minimum down payment available of 3.5%. She said she was only able to afford a $350k loan payment with FHA, which unfortunately meant she could not look at single family homes. The buyers agent called me and asked me if there was anything we could do to help the buyer. After looking at her profile, I advised her instead of trying to qualify for 3.5% down FHA financing, she only needs to come in with a little extra down payment (by taking a small loan from her 401k) to be able to qualify for a 5% down conventional loan, and that we could also set her up with the loan option that does not pay monthly mortgage insurance either. Here is a quick summary of the 2 loan scenarios side by side so you can see that it is the same monthly payment on a FHA $350k purchase as a $400k Conventional purchase with NO MI.
So instead of paying the expensive MI each month with FHA (loan payment on left), instead she would "buy out" the MI by taking a slightly higher interest rate at 4.75% with the 95% conventional loan (loan payment on right) & put the monthly savings towards an extra $50k in purchase price. My buyer was ecstatic because now she was able to afford the payment on a $400k purchase with this loan option! Also, because she was able to buy the larger $400k home, in 30 years with a 2% annual appreciation rate, she will have accumulated an additional $121,363 in equity or "Net Worth" (see above) from the value of this property compared to the $350k home. A great alternative for buyers who want to purchase singlefamily homes I have been coming across several buyers recently who have been able to switch their search from condos to single family homes because of this loan option where they can now "buy more home" with conventional financing. We all know buyers who have had to settle to purchase condos because they assume that is all they can afford. It sure is easier to purchase a single family home instead of a condo these days, as you do not have to deal with HUD's minimal standards to get FHA condo financing approved (owner occupied ratios, & HOA delinquencies etc). So make sure the buyer has explored all financing options available. Feel free to contact me directly at 858-200-9602 so we can chat about the best way to use this program to meet a clients specific buying goals. Also, if you want to be updated faster on any new loan programs that come out, please join my Facebook page at www.facebook.com/FreeResourcesForRealEstateAgents |
I am an expert mortgage planner working in the San Diego area. I specialize in providing buyers, homeowners and Real Estate agents with the right answers & solutions to all their mortgage needs!
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