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These
articles include helpful information about home loans, strategies
for loan financing, home equity loans, and consolidation loan
information written by Heidi Rivas. Some of these articles have
been published.
Please
feel free to copy, post, reproduce, or link these articles to your
website. Please make sure you give proper credit to the author
by including the following information at the end of each article:
" Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com,
a Crown
Home Loans company, is one of the leading mortgage originators
and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com"
Free
Articles and Editorials
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Buying a Home the Right Way
By Heidi Rivas, President & Senior Loan Consultant
(Published in the December Edition 2006, Magazine of Santa Clarita)
If
you have been on the sidelines waiting to purchase a home, this year
is beginning to look like a great year to pick up a home at a great
price. Interest rates are still low, home prices are reasonable, and
sellers are more than willing to negotiate their price and terms.
However, I strongly recommend getting pre-qualified before visiting
open houses or the internet looking for your dream home. By getting
pre-qualified for a home loan up front, you are going to ensure your
time is well spent viewing homes that fit your budget and needs. It
is very frustrating to home buyers to find their dream home just to
realize they can’t afford the payment. It is equally frustrating to
look for homes in a less desirable neighborhood when you could
afford something better. Also, by getting pre-qualified up front,
you will be able to address any issues in your credit report early
in the home purchase process in plenty of time to address those
discrepancies. Thus, guaranteeing you receive the best interest rate
to which you are entitled. In many cases, I have assisted home
buyers increase their credit scores over 100 points in a short
period of time.
Once
you know your price range and type of loan that fits your needs, it
is equally important to work with a reputable real estate
professional who works well with your lender and who truly possesses
great knowledge of the housing inventory in our community. When you
work with a great real estate agent, he or she will take the time to
find properties that fit your needs and budget. Moreover, great real
estate agents have access to listings not available in the Multiple
Listing Service.
In
the past, I have found that buyers who get pre-qualified up front
and who work with competent real estate professionals are more
likely to find their new homes in less time and for a better price.
If you are looking to purchase a home in 2007, I invite you to call
me for a complimentary loan pre-qualification. This no-obligation
call takes less than 10 minutes over the phone and will save you
time and money. Also, since I work with some of the most
professional, knowledgeable, and ethical real estate agents in our
community, I would be more than happy to recommend any of them to
you.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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Home Loan Write-Offs to
Remember
By Heidi Rivas, President & Senior Loan Consultant
(Published in the December Edition 2006, Magazine of Santa Clarita)
Write−offs are the government's way
of rewarding taxpayers when they've done something the government
likes. And to judge by the write−offs, the government likes it when
people borrow money to buy a house. There are write−offs aplenty,
many of which people often forget. Make sure you take advantage of
every break the IRS will give. Here are a few we tend to forget:
Points: According to the IRS,
origination fees charged as points must be paid for the use of
money, (for example, to obtain a lower interest rate) in order to be
tax deductible. Origination fees that constitute a “service fee" are
not tax deductible. The question must be asked, "Does the fee apply
to the use of money, or is it a service charge?" Discount points are
paid to secure a lower interest rate. IRS Publication 936 lists a
general rule that states, "You generally cannot deduct the full
amount of points in the year paid. Because they are prepaid
interest, you generally must deduct them over the life (term) of the
mortgage." However, there are conditions which, if met, make
discount points tax deductible in the year they are paid.
Pre−payment penalties: Unforeseen
circumstances often cause borrowers to pull out of their mortgages
sooner than expected. Fortunately, pre−payment penalties are tax
deductible, which helps ease the pain.
Pro−rated real estate taxes: Even if
the seller sent the tax collector the check, chances are the buyer
paid a pro−rated portion of the taxes for the year at closing. Be
sure they know to deduct their fair share.
Pro−rated mortgage interest:
Depending on when in the month the home sale closes, buyers pay
either a hefty or a tiny amount of pro−rated mortgage interest for
that month. Big or small, they can write that off. The Final
Closing/Settlement Statement will show just how much they're due.
Home construction loan interest: As
long as the construction period doesn't last more than two years
before they make the new place their "principal residence", they can
write off the interest for that construction loan. It pays to pay
attention—all these write−offs can add up to some serious savings
when tax time comes around. For more details on these or any other
deductions always consult a tax professional or the IRS.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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Refinance Before Adjustable Interest Rate Mortgages Reset
By Heidi Rivas, President & Senior Loan Consultant
(Published in the November Edition 2006, Magazine of Santa Clarita)
Since June of 2004, the Federal
Reserve has systematically increased the federal funds rate, causing
short-term interest rates to follow suit. As a result, consumers
with Adjustable Rate Mortgages (ARMs) tied to volatile short-term
rate indices, such as the LIBOR, are finding themselves at the mercy
of the Federal Reserve’s war on inflation.
According to Ben Bernanke, the
Federal Reserve’s chairman, the real estate market is experiencing a
“substantial correction”. This, economists say, is the result of the
Fed’s attempt to engineer a “soft landing” by systematically
increasing interest rates to control inflation without fueling a
recession. Fed officials believe that they are making strong
progress towards this difficult goal. However, even moderate
economic growth will give the Fed room to increase short-term rates
further, according to David Leonhardt of The New York Times. This
means more bad news for ARMs holders with life-caps at 10% or more,
and even worse news for the estimated 70% of Option ARM borrowers
who chose the minimum or negative payment options of their mortgages
and are now actually accruing and compounding a larger balance than
what they originally borrowed.
All is not completely lost, fixed
interest rates are still low. There is still time to take advantage
of alternative loan programs, such as intermediate fixed-rate loan
programs that can effectively limit one’s liability before rates
increase again. These programs enable borrowers to stabilize their
finances and know exactly what their monthly payments will be over
the next few years while the Fed does its best to stifle inflation.
We have access to a variety of these
alternative loan programs including 3, 5, 7, 10, or 40-year
fixed-rate products to counter fully-indexed ARMs and Option ARMs. A
5-year fixed rate mortgage, for instance, converts to an adjustable
at the end of that fixed tenure. Taking out such a loan, with no
prepayment penalty, may make a lot of sense right now because it
will provide some interest rate relief in today's market, while
buying the consumer time to refinance once rates begin to decrease.
I welcome your call to explore your possibilities.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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Protecting Your
Credit During Divorce
By Heidi Rivas, President & Senior Loan Consultant
(Published in the October Edition 2006, Magazine of Santa Clarita)
During divorce, the one thing that shouldn’t have to change is your
credit rating. By taking a proactive approach and creating a
specific plan to maintain one’s credit rating, anyone can ensure
that “starting over” doesn’t have to mean rebuilding credit.
The
first step is to obtain copies of your credit report from the 3
major agencies. Once a year, you may obtain a free credit report by
visiting www.AnnualCreditReport.com.
Once
you’ve gathered the facts, you can begin to address what’s most
important. Create a spreadsheet, and list all of the accounts that
are currently open. Now that you have this information at your
fingertips, it’s time to make a plan.
There
are two types of credit accounts. The first type is a secured
account. The most common secured accounts are car loans and home
mortgages. The second type is an unsecured account. These accounts
are typically credit cards and charge cards.
When
it comes to a secured account, your best option is to sell the
asset. This way the loan is paid off and your name is no longer
attached. The next best option is to refinance the loan. In other
words, one spouse buys out the other. Your last option is to keep
your name on the loan. If you choose this option, make sure your
name is also kept on the title. The worst case scenario is being
stuck paying for something that you do not legally own.
When
it comes to unsecured accounts, it’s important to know which spouse
(if not both) is vested. If you are merely a signer on the account,
have your name removed immediately. If you are the vested party and
your spouse is a signer, have their name removed. Any joint accounts
that do not carry a balance should be closed immediately.
Jointly vested accounts with a balance should be frozen. This will
ensure that no future charges can be made to the accounts. If you do
not have any credit cards in your name, it is recommended you obtain
one before freezing all of your jointly vested accounts. By having a
card in your own name, you now have the option of transferring any
joint balances into your account, guaranteeing they’ll get paid.
Ensuring payment on a debt which carries your name is paramount to
preserving your credit. Keep in mind that one 30-day late payment
can drop your credit score as much as 75 points. It is also
important to know that a divorce decree does not override any
agreement you have with a creditor. So, regardless of which spouse
is ordered to pay by the judge, not doing so will affect the credit
score of both parties. The message here is to not only eliminate all
joint accounts, but to do it quickly. I welcome your call to explore
your possibilities.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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How to Build Unprecedented Wealth in a Declining Housing Market
By Heidi Rivas, President & Senior Loan Consultant
(Published in the September Edition 2006, Magazine of Santa Clarita)
The Pay Option ARM loan is a very
effective home financing tool to create unprecedented wealth. Many
of my clients choose this financing strategy to maximize their
mortgage interest deduction and to set a course to pay-off their
mortgage in about half the time. However, this type of loan receives
mixed reviews, primarily because of the borrower’s responsibility in
managing their own interest rate risk. This loan can be either very
effective or very risky depending upon the financial capacity of the
borrower. This loan is designed for the financially mature. A person
with good credit, stable income, and sufficient cash reserves to
provide the ability to repay in tough times.
The first misconception of this type
of loan is that it allows a person to “get in over their head” and
purchase a more expensive home than they would normally qualify for
on a fully amortizing basis. The borrower’s financial capacity
should allow them to pay the fully amortizing schedule, however, the
borrower chooses to pay the interest only or minimum payment option
and save the difference in a safe, liquid, interest-bearing
accumulation account. This strategy places the borrower in a
stronger position by creating two independent assets with earning
capacity.
In a rising interest rates
environment, the Pay Option ARM loan has built-in contractual
limitations on when and how much the payment can increase. Based
upon this schedule, there will be increases, but not astronomic
leaps. When the borrower has been diligently saving the difference
between the fully amortizing payments and the interest only or
minimum payment, there is additional liquidity available that can be
tapped to cover increased payments.
Also, as home values decline, the
potential of having your home value be worth less than your loan
balance increases. The main fear is one may owe more than what the
home is worth. Borrowers who have been diligently saving the
difference in a safe, liquid, interest-bearing accumulation account
do not stress because they have the ability to pay back the lender
should an unexpected home sale be necessary and keep all the
interest they earned along the way.
The Pay Option ARM home loan should
be considered as an additional financial tool to be utilized in your
overall wealth planning. The loan is capable of producing tremendous
results when properly constructed, implemented and monitored. I
specialize in preparing these loans and welcome your call to explore
your possibilities.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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The Truth About Option Arm Loans
By Heidi Rivas, President & Senior Loan Consultant
(Published in the August Edition 2006, Magazine of Santa Clarita)
The
Pay Option ARM loan is a very effective home financing tool to
create unprecedented wealth. Many of my clients choose this
financing strategy to maximize their mortgage interest deduction and
to set a course to pay-off their mortgage in about half the time.
However, this type of loan receives mixed reviews, primarily because
of the borrower’s responsibility in managing their own interest rate
risk. This loan can be either very effective or very risky depending
upon the financial capacity of the borrower. This loan is designed
for the financially mature. A person with good credit, stable
income, and sufficient cash reserves to provide the ability to repay
in tough times.
The
first misconception of this type of loan is that it allows a person
to “get in over their head” and purchase a more expensive home than
they would normally qualify for on a fully amortizing basis. The
borrower’s financial capacity should allow them to pay the fully
amortizing schedule, however, the borrower chooses to pay the
interest only or minimum payment option and save the difference in a
safe, liquid, interest-bearing accumulation account. This strategy
places the borrower in a stronger position by creating two
independent assets with earning capacity.
In a
rising interest rates environment, the Pay Option ARM loan has
built-in contractual limitations on when and how much the payment
can increase. Based upon this schedule, there will be increases, but
not astronomic leaps. When the borrower has been diligently saving
the difference between the fully amortizing payments and the
interest only or minimum payment, there is additional liquidity
available that can be tapped to cover increased payments.
Also,
as home values decline, the potential of having your home value be
worth less than your loan balance increases. The main fear is one
may owe more than what the home is worth. Borrowers who have been
diligently saving the difference in a safe, liquid, interest-bearing
accumulation account do not stress because they have the ability to
pay back the lender should an unexpected home sale be necessary and
keep all the interest they earned along the way.
The
Pay Option ARM home loan should be considered as an additional
financial tool to be utilized in your overall wealth planning. The
loan is capable of producing tremendous results when properly
constructed, implemented and monitored. I specialize in preparing
these loans and welcome your call to explore your possibilities.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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Buy Vs. Rent:
Your Choice, Your Future.
By Heidi Rivas, President & Senior Loan Consultant
(Published in the July Edition 2006, Magazine of Santa Clarita)
Buying a home vs.
renting is a big decision that takes careful consideration. But the
rewards of home ownership are great. For many years, purchasing real
estate has been considered an extremely profitable investment. It is
an achievement that offers a sense of pride, financial stability and
potential tax advantages.
The numbers are
staggering if you look at it this way. If you are paying $1,000 per
month for an apartment, and you know your rent will increase 5%
every year, then over the next five years you will pay your landlord
$66,309. If you are currently renting a house, you may be paying
much more than that each month. Either way, you gain no equity by
shelling out this monthly housing expense and you certainly won’t
benefit when the property value goes up!
However, if you
were to purchase your own home or condominium, you would be well on
your way toward building equity. Also, should interest rates drop
in the future, you would have the option of refinancing to a lower
interest rate and lower your monthly mortgage payment.
In addition to building equity, there are tax
advantages that come into play with home ownership.
Depending on your tax bracket, owning a
home is often less expensive than renting after taxes.
Interest payments on a mortgage below $1
million are tax-deductible. We can
help you evaluate the tax advantages of
various loan scenarios, and share this information with your tax
consultant on your behalf.
To find the loan
program that is right for you, we will need to evaluate your monthly
household income, current assets and savings, as well as any monthly
obligations you may have for credit card payments, car payments,
child support, etc. These prequalification factors, along with the
report of your credit score, will determine how much house you can
afford and what interest rate you will pay for financing. It is also
important to let us know what your future goals are, because this
will help narrow down which loan option is the best fit for your
long-term needs.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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Strategic Equity Management
By Heidi Rivas, President & Senior Loan Consultant
(Published in the June Edition 2006, Magazine of Santa Clarita)
There are several reasons why
purchasing a home is preferable to renting one. Rent payments go
directly into the pocket of a landlord, while mortgage payments
result in the accumulation of equity and the eventual ownership of
the property. The tax advantages of home ownership are also
significant since mortgage interest is tax deductible.
Ironically, these two benefits do
not always work well together. Financial planning expert and
best−selling author, Douglas Andrew, has revealed some surprising
misconceptions as well as some innovative strategies in his book,
Missed Fortune 101. Andrew explains that most homeowners believe
that paying down their mortgages quickly and increasing their equity
is the best investment they can make. However, doing so results in
a decrease in the tax benefits available since the loan is paid off
sooner, causing the interest deductions to disappear.
As an alternative, rather than
putting down a large down payment or paying extra principal, he
recommends placing these funds in a carefully chosen investment
vehicle that will earn a higher rate of return. By using the tax
benefits of the interest deductions and the compounding of interest
on the investment account, homeowners have the potential to earn a
higher rate of return. In addition, should an emergency need for
cash arise, the investment account will be much more liquid than the
equity of the home.
Equity earns a zero percent rate
of return. Regardless of whether you own your home free and clear
or have it mortgaged to the hilt, your home will appreciate at the
same rate as your neighbor. This strategy can generate significant
long term wealth for you and your family and is definitely a very
prudent financial decision.
I encourage you
to consider this Equity Management Strategy when purchasing or
refinancing a home. I invite you to contact me to discuss how you
can best take advantage of this proven strategy to optimize your
assets and create wealth.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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Home Buyers Must Choose
Wisely
By Heidi Rivas, President & Senior Loan Consultant
(Published in the April Edition 2006, Magazine of Santa Clarita)
Taking the step
into homeownership is one of the most important financial decisions
a person will make in their lifetime. There are many factors to
consider when embarking on this venture. Literally hundreds of loan
programs are available, and it is important to find the one that
best fits your personal long-term goals.
Curious
prospective home buyers sometimes turn to Internet-based services
just to see what current interest rates are. But a faceless web site
will not take the prospect’s future financial planning into
consideration or guide the potential borrower through the many
nuances of the loan process. When shopping for a home loan, be wary
of web-based services that offer programs to reel prospects in with
attractive rates that are based upon unrealistic time frames. This
is called short-pricing, and when it comes time to close the
transaction, the rate that was originally offered is simply no
longer available. As a result, the unfortunate prospect is bulldozed
into a loan program with a higher interest rate.
Because I have built my company based on my reputation and
referrals, my clients feel comfortable working with me. My clients
lay their goals out on the table because they know I work diligently
to help them choose the right loan program. One of the most
important factors to consider is how long you wish to borrow the
money for. For example, if you know you will only be in the home for
five years, it wouldn’t make sense to opt for a 30-year loan program
or pay points up front to secure a lower interest rate. You would
not be in the home long enough to benefit from such action.
Moreover, based on the information my clients provide, I present
them with an easy-to-read form that clearly defines viable loan
options and any potential savings they may realize by paying points
up front.
Homeownership
imparts a rewarding vehicle for building wealth and a strong
financial future. I assist my clients not only until their loan
closes, but also provide them with ongoing services to assist them
over time.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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How to
Get The Best Interest Rate on Your Home Loan
By Heidi Rivas, President & Senior Loan Consultant
(Published in the March Edition 2006, Magazine of Santa Clarita)
Consumers
interested in purchasing or refinancing a home will pay an interest
rate based on current market conditions and their ability to pay
back the loan. The borrower’s income and debt ratios are taken into
consideration by the lender, as well as the predictability factor
provided by credit scoring. It’s important to have a mortgage
professional like myself to help you improve your credit scores in
an effort to get the best interest rate possible.
Interest rates
are broken down into schedules based on credit score ratings. It’s
safe to assume that as the consumer’s credit score goes down,
interest rates will go up.
A borrower with
an outstanding credit rating will get what is called an A-paper
loan. Loans designed for consumers with less-than-perfect credit –
sometimes referred to as “sub-prime” – can range anywhere from
A-minus, B-paper, C-paper or D-paper loans.
If you have
already taken out a mortgage loan with a higher interest rate
because your credit score was a little under par, a little work to
improve your credit score and could save you literally thousands
of dollars over the life of the loan.
Some of the basic
strategies to improve your credit score include very conservative
use of credit cards, paying off debt as much as possible and not
applying for additional credit cards. You will want to verify that
negative items you have paid off have been removed from your credit
report. You’ll also want to dispute any errors that appear on your
credit reports and have those removed entirely.
Once your credit
score improves, it’s time to refinance at a better interest rate. A
good loan program carries no more than a two-year prepayment penalty
so you can continue to refinance as your credit score increases. You
can repeat this process until you reach A-paper status and secure
the best interest rate available. This is a strategy that also works
well for first time home buyers who do not have enough credit
history to get an A-paper loan at the time of purchase.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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Unleash The Power of Your
Equity
By Heidi Rivas, President & Senior Loan Consultant
(Published in the February Edition 2006, Magazine of Santa Clarita)
The housing
market continues to boom here in the Santa Clarita Valley. Homes
have consistently appreciated and homeowners are seeing record
levels of home equity. Many of my clients have been asking how they
can take advantage of this equity and optimize their assets. I
agree that their home equity is better utilized outside of the
home. You may be surprised to hear that home equity is not liquid,
not safe, and earns a zero percent rate of return.
Home equity can
be easy to access when you have good credit, stable employment, and
cash savings. But, when hard times hit; such as a divorce, a
layoff, or a disabling injury, loans can be very difficult or very
expensive. Separating your home equity and having cash reserves
available for emergencies is a very prudent financial decision.
Home equity is
not safe. Home equity is a function of your outstanding loan
balance and the current fair market value of your property. Your
home equity will fluctuate with market conditions, of which you have
no control. Economic climate, natural disasters and global
terrorism can all have a negative impact on your very own home
equity, even over night. Separating your home equity and having
these funds in a safe, guaranteed environment is a very prudent
financial decision.
Home equity earns
a zero percent rate of return. Regardless of whether you own your
home free and clear or have it mortgaged to the hilt, your home will
appreciate at the same rate as your neighbor. The only way to
‘unleash’ your equity is by separating the equity via a mortgage and
allowing the equity to earn a positive investment rate of return.
Creating this ‘interest rate arbitrage’ can generate significant
long term wealth for you and your family and is definitely a very
prudent financial decision.
When considering
the role of home equity in your financial portfolio, it is
imperative to talk with a mortgage planning expert. I invite you to
contact me to discuss how you can best take advantage of the idle
home equity in your property and optimize your assets.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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How to Shop Around
For the Best Home Loan
By Heidi Rivas,
President & Senior Loan Consultant
Buying a
home is the biggest financial transaction in most people's lives.
In order to make your home purchase process as smooth as possible you
should make
sure you are working with an experienced, professional loan officer. The
largest financial transaction of your life is far too important to place
into the hands of someone who is unable of advising you correctly based
on your needs and qualifications.
Here are four questions
you should ask a lender before you hire a loan consultant. A
knowledgeable lender should easily be able to answer correctly. If
you are working with someone unable to provide you with the answers to
these simple questions, you should look for another lender.
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What
are mortgage interest rates based on?
The only correct answer is Mortgage Backed Securities or Mortgage
Bonds, NOT the 10-year Treasury Note. While the 10-year Treasury
Note sometimes trends in the same direction as Mortgage Bonds, it is
not unusual to see them move in completely opposite directions.
Do not work with a lender who has their eyes on the wrong
indicators.
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What
is the next Economic Report or event that could cause interest rate
movement?
A professional lender will have this at their fingertips. For
an up-to-date calendar of weekly economic reports and events that
may cause rates to fluctuate.
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When
the Fed “change rates”, what does this mean and
what impact does this have on mortgage interest rates?
The answer may surprise you.
When the Fed makes a move, they are changing a rate called the
“Fed Funds Rate”. This is a very short-term rate that
impacts credit cards, credit lines, auto loans and the like.
Mortgage rates most often will actually move in the opposite
direction as the Fed change, due to the dynamics within the
financial markets.
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What
is happening in the market today and what do you see in the near
future?
If a lender cannot explain how Mortgage Bonds and interest rates
are moving at the present time, as well as what is coming up in the
near future, you are talking with someone who is still reading last
week’s newspaper, and probably not a professional with whom
to entrust your home mortgage financing.
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Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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New Conforming Loan Limits Offer Great Savings For Homeowners
By Heidi Rivas, President & Senior Loan Consultant
(Published in the
January Edition 2006, Magazine of Santa Clarita)
Fannie
Mae (FNM/NYSE) announced that it will apply new conforming loan
limits, as determined by the Office of Federal Housing Enterprise
Oversight (OFHEO) based on federal data on mean (average) home
prices, to increase its single-family mortgage loan limit to
$417,000 for 2006.
As a
result of the new loan limit, Fannie Mae estimates that in 2006, as
many as an additional 466,326 homeowners would be eligible for a
conforming loan. Conforming loan limits may adjust annually. The
conforming loan limits adjustments are based on the
October-to-October changes in the mean (average) home price, as
published by the Federal Housing Finance Board (FHFB).
The FHFB
figures come from its monthly survey of lenders. Both new and
existing homes are included in the survey. Limits for multi-unit
loans for 2006 will be as follows: two-family loans $533,850,
three-family loans $645,300, and four-family loans $801,950. The
2006 loan limit for second mortgages will be $208,500.
If you
are one of many homeowners who currently have a jumbo loan or
a conforming loan with a piggy-back fixed second/line of credit, now
is the time to refinance or consolidate into a conforming loan with
a lower rate to save you thousands on your monthly payment.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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Real Estate Will Continue to Boom Despite Naysayer Claims
by Heidi Rivas, President and Senior Loan Consultant
In
recent years, it's impossible to turn on the television or read the
headlines without seeing a warning of impending doom. The media
claims that the housing bubble is growing too big, and it's about to
burst! This pessimism has sold a lot of news stories, but it has
also created many false concerns for first-time and move-up home
buyers as well as investors. We keep hearing about this horrible
catastrophe, yet the real estate market continues to boom. Why is
that? Because the media neglected to consider one very important
factor that is driving our current economic recovery: demographics.
The real estate boom began when mortgage interest rates fell into
the single digits, making housing much more affordable. While this
certainly contributed to home sales, there are additional causes we
can isolate. Dr. David Lereah is a best-selling author and the Chief
Economist for the National Association of REALTORS® (NAR). In a
recent interview, Dr. Lereah revealed, "The biggest factor that
affects real estate today, and has made it immune to some cyclical
changes in the economy, has been demographics."
The most
significant and frequently mentioned demographic is the "Baby Boom"
generation, which refers to children born in the years following
World War II. Economic forecasting expert and author, Harry Dent,
has written extensively about how property buying habits occur in a
predictable fashion as a generation ages. From needing an apartment
in college, to buying a starter home and eventually trading up to
something larger, it is all cyclical. Since the Baby Boom generation
is the largest so far, their impact has been far greater than the
generations that preceded them.
Now that Boomers have moved into their top earning years, they
continue to push the housing market to new levels. They are
purchasing larger primary residences as well as vacation homes and
investment properties. The statistics for 2004 reflect this trend,
with 36% of home sales going toward second homes and 23% of sales
going toward investment properties.
Demographic trends don't end there:
Immigration - There has been a large influx of immigrants over the
past three decades. According to Lereah, it typically takes at least
a generation for immigrants to become fully active in the home
buying market.
Children of Baby Boomers - This generation is now in their twenties
and looking to purchase their first homes.
With
advancements in medicine and treatments of disease, retirees are
living longer. This means that they are occupying their homes for
more years, which decreases the supply of homes available for
purchase.
In addition to the demographic factors listed above, real estate has
been a rewarding investment. Stocks and bonds have not performed as
well as investors were used to, while real estate has exceeded
expectations. In an uncertain world, people are more comfortable
investing their money in property which will appreciate.
So if the current boom can primarily be explained by the factors we
just discussed, how do we know whether it will continue?
Dr. Lereah says, "We are in the Golden Age of Real Estate." Even if
the economy should slow and interest rates increase slightly in the
coming years, the demand for houses is still strong. The biggest
impact that such a change would have is to decrease the rate of
price appreciation. While this may sound ominous, it really isn't.
The media likes to refer to the real estate boom in terms of bubbles
and balloons.
In
keeping with that analogy, Lereah indicates that local markets may
react to higher interest rates by letting some air out of the
balloon. The double digit price appreciation we've been experiencing
could decrease over the next year or two to a more typical 4-6%
range. This is still a higher rate of return than found in the stock
market, all things considered.
So if you are looking to purchase a second home or investment
property, where might be a good location to focus your attention?
Ideally, where the Baby Boomers are planning to retire.
The demand for housing in these areas continues to grow. Over the
past year, some of the highest price appreciation took place in the
resort areas of Florida.
The next time you turn on the television or read the headlines, be
secure in the knowledge that the sky is not falling.
Additional Resources:
Are You Missing the Real Estate Boom?: Why Home Values and Other
Real Estate Investments Will Climb Through The End of The Decade -
And How to Profit From Them by Dr. David Lereah
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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^
Reverse
Mortgages: Financing The Golden Years
by Heidi Rivas, President Senior Loan Consultant
Until
recently, seniors 62 years of age and older have not had the best
choices when it came to getting cash from their homes. Traditional
home loans only offered the option of either selling their house, or
borrowing against its equity.
With reverse mortgages coming on the scene, seniors now have some
additional cash-flow alternatives. This type of loan allows mature
borrowers to convert their home equity into tax-free income without
leaving their current home or making mortgage payments - and they do
not need an existing income to qualify.
How a Reverse Mortgage Works?
Reverse mortgages are probably best understood when compared
side-by-side with traditional home mortgages, otherwise known as
"forward" mortgages.
Both
loans incur debt against your home, and both affect equity, but they
do so in different ways. Traditional home mortgages require making
monthly payments to a lender. With a Reverse Mortgage, payments are
made to you.
What a Reverse Mortgage Involves?
Here are some important points to know when considering a reverse
mortgage:
Eligibility: To qualify for a reverse mortgage, you must be at least
62 years of age. All owners who are on the title deed must meet this
age requirement. You must also have paid off all, or most, of your
home mortgage. Lastly, the home you reside in must remain your
principal place of residence.
Mandatory Counsel: To receive a reverse mortgage, Federal law
requires that you first undergo counseling to understand how this
these mortgages work. This ensures you will make the right decision
when it comes to choosing a plan. Also, the counseling service must
be provided free of charge.
Tax-Free Income: A nice feature of reverse mortgages is the money
you receive is considered tax-free income. The amount you will get
depends on several factors including the plan you select, the type
of cash advances you choose, your age, and the value of your home.
Typically, the older you are the larger the loan, as you will have
more equity in the house.
Cost:
The cost of a reverse mortgage varies considerably from one type to
the next. However, you can typically use the money you receive to
offset the loan fees. The costs will be added to the loan balance
and must be repaid with interest once the loan terminates.
Repayment: Reverse mortgages do not require any payment as long as
the borrower(s) remain in the home. Should the borrower(s) expire,
sell the home, or permanently relocate, then the loan would be due
in full, along with interest and additional costs. If two borrowers
are on the loan and one expires, the loan would not be due since one
of them still occupies the home.
Home Equity Conversion Mortgage - The Federally Insured Loan
The most common type of reverse mortgage is the Home Equity
Conversion Mortgage, otherwise known as an HECM or FHA-insured
mortgage. This is the only reverse mortgage program federally
Insured and backed by the U. S. Depart-ment of Housing and Urban
Development (HUD). This type of reverse is popular for a few
reasons:
· Ability to choose your own interest rate. You can select one that
changes annually, or one that changes every month.
· You have several payment options. You may receive monthly loan
advances for a fixed term, or for as long as you live in the home.
You may also choose to receive a line of credit, or combine monthly
loan advances with a line of credit.
· The loan can be used for any purpose. With an HECM you don't have
to designate the loan to a specific use; you can apply the funds to
anything you choose.
· Protection. This is one of the most attractive features of an HECM.
This plan protects you by guaranteeing continued loan advances even
if your lender defaults.
Sell or Stay?
The main reason people choose a reverse mortgage is to gain
financial independence and maintain an adequate standard of living
without leaving their current home. The best way to decide if a
reverse mortgage is for you is to compare it to the other option of
selling your house. To do this, ask yourself these three questions:
1. How much cash can I get by selling my home?
2. How much will it cost to buy or rent a new place?
3. Is it worth my moving now, or do I prefer doing something else
with the money?
The idea of staying put while collecting monthly advances can be
very attractive if you've put down permanent roots. Add to this not
having to pay the debt until a future time, and a reverse mortgage
can be an ideal option for your golden years.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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^
Leveraging You Home or Paying it Down - Which is The Best Way to Go?
by Heidi
Rivas, President and Senior Loan Consultant
There is
a great debate within the inner-mortgage circles these days. Should
we, as loan professionals, encourage clients to borrow as much money
as possible or are we better serving them by helping them understand
the benefits of 15-year amortization schedules, as well as the
pre-paying principal? Let's analyze the pros and cons of both
strategies and then I will share my views on when it’s appropriate
to go with either option.
The argument for leveraging your property. The concept that equity
has a zero percent rate of return must be understood before really
understanding why you would want to borrow as much money as
possible.
Here’s an example showing why this is true.
If Consumer “A” buys a home for $300,000, and puts 20% down, he/she
has $60,000 in equity. Over the next 5 years, that property
appreciates $100,000 in value. Consumer “A” now has $160,000 in
equity.
Consumer “B” buys a home for $300,000 and puts no money down and at
the end of 5 years that same home is now worth $400,000. Consumer
“B” has $100,000 in equity, which is the same appreciation as
Consumer “A”, a net $100,000.
It is important to understand that your down payment has nothing to
do with your rate of return. The key component becomes what you
choose to do with the $60,000 you did not use as a down payment. If
you use it for frivolous activities, such as buying toys, going to
Las Vegas or just spending freely, it would likely, from a financial
perspective, be more prudent for you to use that money as a down
payment. Especially since you will get a lower interest rate as a
result of having a down payment.
However, for the prudent investor, who invests the $60,000 in a
vehicle that can out-earn the cost of that debt this could be a
formula for success and is the argument that lending professionals
make for putting as little down as you possibly can, maximizing your
tax write-off and investing the rest.
This principle has been applied for many years in the life insurance
game. The old saying goes, "Buy term and invest the rest." The same
holds true for the philosophy of leveraging your property to the
highest degree possible. The key component behind making this
formula successful is once again, taking the money you would have
used as a down payment and creating an asset accumulation account.
This account should earn a significant enough rate of return to
enable you to pay your mortgage off entirely and achieve the
ultimate goal of being debt-free.
The case
for putting down more money and paying on a rapid acceleration
schedule. There are very few times over the course of my career that
I have seen a client with zero debt and financial difficulties. Debt
often represents an over-extension of what is realistic for an
individual’s existing lifestyle.
Paying off all your debt can reduce stress and put you in a
situation with more freedom of cash flow for investment
opportunities. A 15-year mortgage or a bi-weekly payment strategy
provides structure for the consumer that literally puts them on a
game-plan to generate the predictable result of having their
mortgage paid off in a certain period of time. Simply put, it
contains built-in discipline.
Many consumers have a difficult time setting aside the money
necessary to pay their loan off rapidly. But if they can do it in a
structured plan, it serves as a very valuable piece to the long-term
financial planning strategy. It's important to understand that
regardless of how rapidly you pay your home off, you're not getting
any greater rate of return on your investment than if you paid it
off slowly. The key reverts back to what you could do with that
money if you were investing it in a different place, rather than
paying that extra amount of money monthly through an accelerated
amortization schedule.
Conclusion: I believe the choice depends entirely upon the
individual. Savvy consumers with great discipline who are not
fearful of taking some chances from an investment perspective would
bode well with the first scenario. Over the course of time it is
proven over and over again that your rate of return over the
long-haul will be far greater than the 4½ to 5% you pay for a
mortgage interest rate in today's day and age. You would always want
to seek the advice of a skilled investment advisor for these
purposes.
For those who will sleep easier at night knowing they are part of a
plan to have their loan paid off more rapidly and/or have a
difficult time disciplining their money on a month-to-month basis
are better served to set themselves up on a rapidly accelerating
amortization schedule, as long as they are not putting themselves in
a crippling position with cash flow. Too often times, I see
consumers “bite off more than they can chew,” structure themselves
in a 15-year mortgage, and then have to turn around and refinance
back into a 30-year schedule because they can’t make the larger
payment.
If you
find this subject intriguing and would like to know more I recommend
that you read a book titled, Missed Fortune, by Douglas Andrew. It's
an outstanding read that is very simplistic and goes into far
greater detail than I can cover in this column. Douglas is a
financial planner who advises safe-structured investments such as
whole life policies and tax-free fixed income instruments.
Heidi
Rivas, President and Senior Loan Consultant of LoanGal.com, a Crown
Home Loans company, is one of the leading mortgage originators and
strategists in the nation. Visit Heidi Rivas at
www.HeidiRivas.com
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