PMI Now Tax-Deductible

Congress has just passed legislation allowing Private Mortgage Insurance (PMI) to be tax-deductible beginning in 2007. Click here for the whole story.

Mortgage insurance has been a bit of dirty word in lending (at least from the homebuyers perspective) for quite a while due to the fact that it couldn't be written off like mortgage interest can. Combination or piggyback loans (like 80/20's) have gotten very popular as a legitimate way around PMI.

It will be interesting to see how quickly this catches on - my guess is that it will be a big thing, fast. One loan rather than two? We're all about simplifying our lives!

Interest-Only Loans & Option ARMS -- Be Informed

There has been a lot in the news about these types of loans lately. You have also seen some posts on this blog about them.

The Federal Reserve has been putting a good amount of time into studying these loans out of concern for the borrowing public. They have just released an informative new booklet that you can find here. This booklet, coupled with the advice of a Mortgage Consultant, should help you to make an appropriate decision on the right type of loan for you.

Home prices in NC still doing well

The North Carolina Association of Realtors just released the home sales statistics for the month of September and we are still doing great compared to other areas of the country.

"Nationally, statistics through August released by the National Association of REALTORS indicated a 12.6 percent year-to-date decrease compared to the first eight months of 2005. Conversely, North Carolina showed a 6 percent increase, one of only a handful of states to be on the upswing. National data for September will be released by NAR before the end of this month."

Contrary to popular belief (i.e. the media), we still have a very good real estate market here in N.C.!

Buying a New House Before Selling Your Old House

So you've done what so many people do -- you've found the house of your dreams before you've sold your existing house (or even thought of selling if you're like me and my wife).

How do you make it happen and keep from causing yourself a divorce or nervous breakdown?

There are quite a few questions that arise and need to be addressed when you consider making a move like this:

• Will you qualify -- typically, your new mortgage and your existing mortgage(s) will count in your debt-to-income ratios
• What about your current equity -- how will you move that from your existing home into your new home?
• Double payments -- when do those kick in and are you willing and able to take that risk?

The way that I usually suggest that people handle the new loan is to do something like an 80/15/5 on the new house -- 80% first mortgage, 15% equity line and a 5% down payment from their own funds or from their current equity line. This allows you to payoff the equity line if you choose to once your house sells and get into the new home without fussing about the equity that remains in your existing home. However, you still face the possibility of double payments after a month or so.

Let's consider a "Plan B"

This is a twist that takes an open-mind and some creativity -- some banks out there offer something called a single-pay note (also referred to as a 90 day or 180 day note). You could apply for such a loan, use it to payoff what you owe on your existing home and then get a new loan for the new house.

The beauty of the single-pay note is that you do not have to make monthly payments on it, thus taking out the worry of "double payments." The interest accrues on the note, but it is not required to be paid until the 90 or 180 days has passed. If you reach that point and your house has not sold, you are required to pay the original principal balance plus the accrued interest OR slip your banker a 20 spot and ask them to extend the note for you ;-)

Creativity can go a long way when you want to buy before you sell!!!

Find Comparable Rent Amounts - Rentometer

If you are thinking of buying a rental property or, if you are an agent helping someone else to do so, here is a new tool that may trump the MLS -- Rentometer

This is a very cool tool put out by Google. You just plug in the address, current rent, number of bedrooms and number of units in the building and it puts up a gauge showing how the current rent compares and a Google map that shows the locations of other rentals in the area. It is slightly big-brotherish, but so is Google Earth and everyone thinks that is cool ;-)

Thanks to Joshua Dorkin for this info. Joshua puts out a popular blog for real estate investors called Bigger Pockets.

Prepaying Your Mortgage versus Saving

A recent report released by the Federal Reserve Board of Chicago provides us with some empirical evidence that mortgage planning is hugely important. This report states that,

...about 38% of U.S. households that are accelerating their mortgage payments instead of saving in tax-deferred accounts are making the wrong choice.....reallocating their savings can yield a mean benefit of 11 to 17 cents per dollar......these mis-allocated savings are costing U.S. households as much as 1.5 billion dollars per year.

Some takeaways from this report for me were:

• This is something that we can control and put into place very easily
• It comes from the Government -- i.e. typically some pretty conservative financial information comes out of the Government!
• A remarkable percentage of us do not contribute to retirement as we should (about 1/3 don't take advantage of employer-sponsored retirement plans and give up free money)
• The general arguments people make for paying down their mortgage versus saving elsewhere are very unfounded

The main argument here is that there is a true cost to not saving outside of your home or, put differently, that there can be big benefits to having money invested in retirement accounts (and elsewhere) and not having your money buried in your house.

I have gone through the entire report and have some other big "ah-hahs" that I have gotten from it which I will save for a conversation if you want to contact me or you can look for them in future posts.

Annual Equity Review & Mortgage Review

We are all encouraged to meet with our financial planner once a year, get a physical once a year, go to the dentist once or twice a year, but how often do we get a checkup on our mortgage and our home equity situation? I propose that it should rank right up there with the annual physical. Heck, it's almost as important because if you mis-manage your mortgage, the stress that comes from it could be hazardous to your health! Ok, so I'm pushing it a bit, but you get the point ;-)

The "conventional wisdom" tells us to get our mortgage, preferably a fixed rate with a principal and interest payment, pay extra monthly and build up as much equity as possible. That thinking is passed on to us effectively from the Depression and still permeates the way we think. See my previous post to learn more about this topic, but here I will urge you to contact me or your Mortgage Advisor (if you have one) to review your current loan and home equity situation. Doing so can help you to meet, and hopefully exceed, your long-term financial goals.

Do you have an adjustable-rate mortgage?

I recently heard a statistic that $2 trillion worth of ARMS are going to adjust in the next 1.5 years. For perspective -- the normal mortgage loan volume in the US annually is about that much.

This means that many of us in and around Raleigh are going to be looking to refinance to avoid the very likely increase in our interest rates. Some steps to take right now:

• Pull out your promissory note from your closing and look for the date of first adjustment
• Make a note of your current rate, your index that your rate is tied to, the margin associated with your loan and your current balance
  
• Call a mortgage consultant to analyze your situation to see if you can head off a big increase in your rate
  

My take on adjustable rate mortgages (ARMS) -- a huge percentage of us have them and a huge percentage of us should have them. As a mortgage consultant, I recommend them to the majority of my Clients because they can be a great financial planning mechanism. Simply put, why pay more for a 30yr fixed rate if the average homeowner gets a new loan (either due to refinancing or selling) every 4.7 years?

Choosing the right mortgage can be a huge step toward the success of your financial plan and reaching your financial goals. Don't think of it as "just a loan" or a commodity -- think of it as a tool to help get you where you want to go.

Raleigh real estate prices

So you're shopping for a four bedroom, two and a half bath house with about 2,200 square feet in Raleigh -- how much will you need to spend? The average reported in a study by Coldwell Banker says $218,575. That lands us about in the middle of the pack for the 6 North Carolina real estate markets on the list. Wilmington and Charlotte came in a little bit higher than us.

Sound like a lot? Well feel better, the cheapest California city on the list came in at $411,500!

House payments on the rise compared to income

Believe it or not, lenders don't always want to get you in to the most house possible. If we let you get in over your head, we end up owning the house (after foreclosure) and mortgage companies aren't in the business of owning homes.

Our rule of thumb is to not allow your house payment to be more than 30% of your gross monthly income. Most people think we're crazy and wouldn't even let it be that high, but others will often push the envelope. This article by CNNMoney talks about the fact that house payments have grown recently in comparison to rises in income.

Sometimes an even more important number is what we call your "back ratio" -- this is your total monthly debt (new house payment + car + credit cards, etc) divided by your gross monthly income. The rule of thumb here is usually 41-45%, but there are programs that let it go up to 50% or so. In my eyes, that's when we all can get into trouble and we start to sacrifice our long-term financial goals.

Ask your mortgage lender questions

I am all for capitalism when it comes to people seeking home loans. That said, I think borrowers tend to talk to too many and end up getting confused. My suggestion to those who speak to more than one lender is to ask yourself this question after speaking with them -- "Who asked more questions?"

As a mortgage planner, I strive to always ask more questions than the Client does. Doing so allows me to accomplish many things:

• Build trust with my Clients
  
• Avoid hurdles and challenges once we are into the loan process
• Get borrowers into the proper mortgage loan product
  

Now let's just hope that I ask more than the other guy does, too ;-)

Real estate investor tips

Boy do I wish I had found this article about 5 years ago! As a real estate investor, I know that it is so easy to put down the phone when talking to a contractor and just pick up the hammer to do it myself. Well, the author of this article has some fantastic advice in a few words -- "Find 'em, don't fix 'em."

Time is money, so thanks Dan Auito for writing this article!

Five home selling tips

I just found a great article that fleshes out 5 home selling tips. The article focuses on doing so in a buyers real estate market, which I don't think we necessarily have here in Raleigh, NC, but they are still great tips. One of the best tips I saw in the article said,

"Asking a few thousand dollars less than your closest competitor homes can mean your home sells while the others don't. Holding your home an extra month or two often costs more than setting a realistic asking price."

This is along the same lines as what I tell a lot of my Clients -- don't fret over that couple of thousand dollars when making an offer on a house because it will probably make a whopping $12 per month difference in your house payment!!

Good home financing advice

Regular readers know that I am a big proponent of the home equity management strategies put forth in the Missed Fortune 101 book. Essentially, the book makes the argument that home equity (either what you've paid toward principal, money you've put down or equity you've gained from appreciation) does not pass three big litmus tests for a good investment -- liquidity, safety, and rate of return.

In the interest of sharing the bizlove, I'll point you toward an article that Bankrate put out that fleshes out some examples of this strategy (note to self -- Bankrate is your competition, Scott -- share the love, share the love,....) The author does a good job of pointing out an oft-overlooked fact --Uncle Sam is our friend when it comes to being able to write off mortgage interest.

Good stuff

Warning -- off-topic!

Occasionally I will go off-topic on this blog....I promise. You'll see a link to Tim Sanders on this blog and mention of one of his books, Love is the Killer App. The speech that I heard Tim give a few years ago and this book have had a great influence on how I do business.

Essentially, Tim talks about "bizlove" -- the idea of bringing love into business. The primary takeaway from the book that I have used is introducing people who I know, who don't know each other, who can benefit from meeting each other. Try it -- it's fun, it can be great for the people you are introducing, it's the right thing to do and hey, people may end up saying good things about you as a by-product.

In the interest of bizlove, take a look at this post by Bob Parsons, Founder of GoDaddy.com. I think he's kinda smart and we can learn from him ;-)
One thing I learned is that he wants me to say this for using his post "the above mentioned article is included with the permission of Bob Parsons and is Copyright @ 2004-2006. All rights reserved."

Triangle NC real estate is stable

The North Carolina Association of Realtors just released the home sales statistics for the month of August and it looks like we don't have any bubble trouble here.

August 05 - August 06 sales were up 1%
August 05 - August 06 average price went up 6% (now $230,959)

At the beach, however, many areas are down in units and volume. I am happy to see Carteret County still up 6% in the average home price category. Anyone want to buy a share of my beach condo? :)

The 3 C's of a mortgage loan

On day one of my career in this business I learned the 3 C's of a mortgage loan. As a home buyer, it is important to know what they are and why they are important when trying to get your loan approved.

Credit -- no doubt, credit history is the entry ticket. Scores range from 500 - 800 [I've seen better and worse, but not often].

Capacity -- your ability to repay the loan. You'll hear the term "debt to income ratio" -- this is the measure we use to (try to) make sure that you don't get in over your head.

Collateral -- this can be the amount you put down or amount of equity if refinancing AND assets / investments that you have that you may not be using for the transaction. We typically use LTV (loan to value) as the guide for this one of the C's.

All of this gets thrown into the pot and usually a computerized underwriting system will evaluate the risk level of your 3 C's. No, we aren't completely dependent on a computer for our approvals, but pretty darn close these days ;-)

Don't kill your home value

Thanks to fellow Raleigh real estate blogger Jason Graves for pointing out a great Money magazine article on how to kill your home value [note to self -- do the opposite of what this article says].

Real estate is tricky enough to sell sometimes, so articles like this can make our lives a whole lot easier. These kinds of things are yet another reason why NOT HIRING YOUR OWN REALTOR was #1 on my list of miscues home buyers make in my previous post.

College Real Estate

Forbes recently published a list of the top 20 "college towns" to consider owning real estate. While the Raleigh-Durham, NC area did not make the list [I'm sure we were #21 :-) ], we were represented when Rhonda Butler from Fonville Morisey was quoted as saying,

Say you have a $200,000 townhouse, you can take 4 students and charge them $700 a month for rent, and suddenly you're going to have a positive cashflow on the transaction.

The article makes a good case for buying a place for your child to live in while they are in school rather than throwing money away for rent. A common way of doing this AND BENEFITING YOUR CHILD is to purchase the home with them on it. A very good program that I recommend a lot is an FHA loan.

Mortgage-Banker or Mortgage-Broker?

Most people use the term Mortgage Broker when they are talking about a lender. There can be a huge difference between the two.

A Mortgage Banker is one who uses their own money to close the loan -- Bank of America, GMAC Mortgage, etc. are examples.

The good:

• Potential for great service throughout the transaction -- they process, underwrite and close the whole enchilada.
• They may choose to service the loan, so you stay with them after you close.
• Extra services may be offered to you during and after the transaction.

The bad:

• Their rates may be higher because they have huge overhead.
• You may not get that cozy feeling that people like when they go through the mortgage process.

A Mortgage Broker is typically a middle man between the borrower and the "investor" that the loan will get placed with. These companies can be anything from a guy working out of his house to a big company with numerous loan officers.

The good:

• Brokers are often setup to do business with numerous investors (mortgage companies) so they may come up with slightly lower rates than mortgage bankers.
• Being setup with numerous investors can allow them to offer some seriously creative financing for those in need.
  

The bad:

• Brokers typically have less control over the transaction since it will almost always be underwritten and closed by the investor.
• Brokers may spread their business out over various investors, so when a favor is needed for a last-minute closing for example, it may be harder to make that happen.

[Sandwiched] in-between these two ways of doing business is an Independent Mortgage Banker, like Cunningham & Company.

We are setup with numerous investors (like a broker) so our rates and product offerings are great, but since we close the loan in our name (as a banker) we are able to control the transaction and regularly offer a great service level.

Top 5 miscues when buying / financing a home

I recently wrote an article for the HR department of a local employer to put in their monthly company newsletter. I outlined 5 bullet-points for mistakes that people routinely make when financing their home:

• Not hiring your own Realtor when purchasing a home
• Making a large down payment / leaving equity sitting in your home
• Getting an interest-only loan OR not getting an interest-only loan
• Asking for a 30 year fixed
• Going to a loan officer rather than a mortgage consultant

Email me (see Contact Scott in sidebar) and I'll send you the entire article.

"Nightmare Mortgages"

There was an article in BusinessWeek recently with this title. The article made a huge case against the Option Arm loan -- a loan that a lot of mortgage lenders recommend to Clients.

I am not going to argue for or against the program and here is why -- everybody is different! Certain loans are good for certain borrowers and not for others. My job as a Mortgage Advisor is to help people choose the proper loan in order to help them meet their financial goals.

That said, my issue with this particular article is the fact that they leave out the other side of the case -- that this can be good for some people! The following text was a very minimal part of the whole article:

"Option ARMs were created in 1981 and for years were marketed to well-heeled home buyers who wanted the option of making low payments most months and then paying off a big chunk all at once. For them, option ARMs offered flexibility.
...And then they flogged option ARMs -- not as financial-planning tools for the wealthy but as affordability tools for the masses."

My point -- use the media for basic education, but be open-minded to the other side of the argument. That other side will likely come from a trusted advisor -- a Mortgage Advisor. In the end, it's up to you to make the decision that you are most comfortable with....after you have all of the info ;--)

Tools I Use

You'll see that I call myself a Mortgage Planner and Mortgage Advisor. These "titles" are not only based on my experience, but my belief that what I do should be done with sincerity, integrity and genuine concern.

In order to make sure that the advice that I give is valued and well-founded, I invest in two tools created by some people a whole lot smarter than me -- Dave Savage and Barry Habib. Their respective products, The Mortgage Coach and The Mortgage Market Guide, allow me to provide some fantastic guidance to my Clients.

The Mortgage Coach is software that allows me to give guidance to my Clients to make sure that I integrate the proper mortgage into their financial plan. I do not see the mortgage process as just "getting a loan" because that would be plain-old irresponsible -- we're talking about a huge debt with huge ramifications if the wrong one is chosen.

The Mortgage Market Guide is a tool that I use daily to watch the bond market -- i.e. mortgage rates. This service provides me with a daily update and recommendation for my Clients to lock in or "float" their rates. It also provides me with an alert on my cell phone and email that tells me if the market is taking a turn for the better or worse. A weekly market guide is also provided to inform my Clients, potential Clients and business partners about what is coming up this week that may affect mortgage rates (see link in the sidebar for this weeks report).

Raise your credit score - at least a few points!

UPDATE -- I have recently learned that it may be a hoax that this opt out offer will raise your credit score. While it is still a great way to stave off junk mail and prevent identity theft, it remains to be seen if this will truly raise your credit score.

Your credit score is the A#1 most important part of your financial makeup when it comes to getting a mortgage loan. This is a topic that is near and dear to me because I see it hold back so many people when I am reviewing their situation and counseling them on their home loan options, so you will see a lot of information on this blog about credit scores.

I recently learned of (what I think is) a new tool that will not only stop some junk mail, but also raise your credit score a few points. You can go to http://www.optoutprescreen.com/ to opt out of insurance and credit card offers for either 5 years or FOR LIFE!

Why would this raise your credit score? One of the many components of credit scoring is the access that you have to credit (lender speak for how high your credit limits are and how many credit cards you have) and your propensity to seek credit (lender speak for how many people look at your credit report each month to see about extending credit to you). When you opt out, you eliminate a lot of credit offers and make yourself a little bit less-risky to mortgage lenders.

Raleigh / Cary, NC Real Estate Market Report

We have all heard a lot about the "real estate bubble." As a lender and real estate investor, I've not been too pleased with all of the negative press. Yes, we've seen some corrections in certain areas of the country that went crazy over the last couple of years but here in the Triangle NC area, appreciation has been somewhat tame.

Take a look at this report that I recently found on the National Association of Realtors site. I think we'll be ok 'round these parts for a while.

Here I go!

Welcome to Raleigh Mortgage Advisor!

I am diving into the blogging world! I am not necessarily the most tech-savvy guy, so I'll go ahead and thank Andy Beal of marketingpilgrim.com for his help in getting me into the blogosphere!

Thanks for joining me as we explore mortgage and real estate news that impacts North Carolina, specifically Raleigh and the surrounding areas. My name is Scott Wittig and I am a Raleigh mortgage banker. My goal in my 11 years of lending has always been to educate my Clients and business partners as much as possible about not only mortgage topics but also real estate-related issues as well.

The mortgage process can be a stressful one for borrowers and industry employees alike. That said, you will find humor here on my blog just as you will find when you deal with me directly. Life is just too short to be too serious! I will be talking about what is new, what is old (but should be revisited), what's bugging me, what I'm excited about, what you should be excited about, what is pending in the industry and in my business, challenges, .... anything that I think you will benefit from or that will help my marriage by getting it off my chest before I go home!

I plan to provide mortgage and real estate industry news as well as pointers, observations and tools. You will see some links in the sidebar of books that have helped to shape me as well as links to some people whom I respect, appreciate and recommend.

I welcome your comments and feedback and hope that you will visit often.

All the best,
Scott Wittig