DID I DIE?

Well, I got an email yesterday from a client who was surprised that I had not posted much in the past few months. He asked me if I was dead or alive of had simply given up on mortgages. I am here to set the record straight. I am not dead. I have not yet given up on mortgages—though at times in the past year I have wondered if I should!

So, here is your update: With banks struggling to find money to lend, it is becoming more common for home buyers and borrowers to be forced into considering FHA loan programs. FHA guidelines allow lower income, weaker credit scores and higher loan to value ratio. Recognizing that necessity, I have moved my mortgage affiliation to Envision Lending Group (www.envisionlending.com) . The reason is simple: I have access to all the great programs that my clients have come to expect and I also have access to the FHA programs that are becoming a necessity for many homeowners.

WHAT DOES IT MEAN FOR YOU? Nothing. Nothing has changed , except that now the name on the loan applications will read Envision Lending Group.

In the coming days look for more information on the new FHA loan requirements and processes.

Bail Out Good or Bad?

By now you have certainly heard of the Government stepping in to take control of Fannie Mae and Freddie Mac. But, just in case I am your only source or real estate news, let me give you the Readers Digest version of what has happened in the past few days:

Fannie Mae and Freddie Mac, the government sponsored agencies charged with setting mortgage guidelines and purchasing mortgage notes currently hold roughly 50% of all US mortgage notes. Over the past year the two firms have experienced $12 Billion in losses.

As of this morning, the Federal Housing Finance Agency (FHFA) has taken control of both Fannie and Freddie. By placing the two firms in what is referred to as a “conservatorship,” the government has replaced the CEO’s, eliminated some dividends, and put a freeze on all lobbying efforts on behalf of both Fannie and Freddie.

So what does it mean to you?

What everyone is really wondering is “what will happen to rates?” I am increasingly convinced that people have three concerns about the housing problem: First, when will it be easier to get a loan; second, when will rates go down; third, when will home prices go up again. Truth be told, the government takeover of Fannie and Freddie will have some effect on all three questions, but it is impossible to know the exact effect.

The more immediate result will probably be a decrease of interest rates. CNN is projecting that rates could drop as much as 1% in the next year. That is good. Unfortunately, with foreclosures still at all-time highs, it is unlikely that housing guidelines will loosen.

So what do I predict? Traditional home buyers (meaning those who get a W-2 and have good credit) will be able to refinance into lower payments. Some first time homebuyers will be able to get into larger homes. Eventually the inventory of available homes will slow down and eventually we will see prices increase. I still think we are 12 months away from Utah home values increasing much. I also think we are 12 months away from things getting any easier for the self-employed or credit-challenged borrowers.

I wish the bailout was nothing but good news. I do think it is a good step. I think we will see more government efforts in the coming months. I also think that we will never again see the combination of loose guidelines, low rates and rapid appreciation. If you are counting on those things, good luck!

PROPETY TAX NOTICES

Last week Salt Lake County mailed out the 2008 Property Valuation and Tax Change notices to homeowners. Many homeowners may be surprised to discover that in spite of the media attention given to the “slipping” real estate market, the tax valuation for their property has actually increased. In addition, many homeowners, feeling the crunch of our struggling economy, may not be comfortable with increased property tax assessments. Understanding the need for information, and the possible frustrations that may result from not feeling adequately informed, I offer the following regarding property tax valuation statements:

1) Property Valuation is determined by representatives of the County Assessor. These individuals compare sales data and property characteristics to determine a “market value” upon which your property may be taxed. Traditionally Salt Lake County homes have been assessed at nearly 20% below actual sales values. This is good for homeowners how have benefited from lower taxes. Over the past 3 years there has been considerable effort by Salt Lake County to more accurately represent home values, which may explain why homeowners who have been “under-taxed” are still seeing increases in spite of the slowing of the real estate markets.

2) Proposed Property Taxes may not be actually assessed. The valuation notice contains a breakdown of those government entities with taxation rights for your property. It also shows the amounts those entities collected last year and the amounts they may collect this year—both the amounts with no budgetary changes and the amounts if proposed budgets are adopted. Those entities levying taxes are required to hold public meetings to discuss the proposed changes. The information for those meetings is printed on the front of the notice.

3) Valuations can be appealed. The County Board of Equalization will accept appeal requests for those homeowners who feel their home is inaccurately valued. Any homeowner may file for an appeal if he or she feels that their home is not worth the amount being assessed. In order to have your value adjusted, you will need to provide supporting documentation justifying a different value from that which has been assessed. The most common evidence is information from the MLS (obtained by a realtor or appraiser) showing 3-5 comparable property sales. FOR DETAILS ON APPEALS, VISIT www.slcotaxadmin.org

4) YOUR MONTHLY PAYMENT WILL INCREASE, if your taxes go up. The amount you are assessed is divided into 12 installments to be included with your monthly mortgage payment. Your mortgage company will hold this tax amount in escrow until the tax payments are due, at which point the mortgage company will make the tax payment for you. Unfortunately, the amount collected for property tax is based upon last year’s assessment, meaning that if your taxes increase there will not be a sufficient amount in your escrow account. When this happens (and it happens regularly), the mortgage company will pay the balance due and then approach you for the difference. You have 2 options to repay the mortgage company:

a. Pay the difference. The first option is to simply pay the difference. In most cases, the tax increase may only be a few hundred dollars or less, however in the case of a new subdivision or newly remodeled home, this amount may be significant.

b. Include the difference in your monthly payments. The most common solution is to have the difference divided over the next 12 months. By choosing this option you will have your monthly payment increase to cover the amount that the mortgage company has essentially “fronted” for your increased tax assessment.

EITHER WAY, YOUR PAYMENT WILL GO UP. In order to avoid a similar escrow shortfall next year, your mortgage company will increase the amount you pay into your escrow account for the next 12 months, meaning that your total monthly payment will increase. Please note, this is not an increase to your actually mortgage payment, but rather to your escrow account. For example, if you pay $900 in Principal and Interest, with $35 for hazard insurance and $100 for property taxes, your total payment each month is $1,035. If your taxes increase from $1,200/year to $1,300 per year then you will see your total payments increase by $8.33/month ($1,200 divided by 12 is $100, while $1,300 divided by 12 is $108.33).

Every year I get two or three homeowners who call me in December, frustrated that they seem to have an increased monthly payment. And every year I ask these same homeowners if they remember receiving a notice of property valuation and tax change. My experience has taught me that unless we take a moment to review this important document we may find ourselves wondering why our escrow payments have increased.

Again, if you feel that your home is being inaccurately assessed, you may appeal by contacting the Board of Equalization. For more information on the appeals process you can call 801-468-3999 or visit www.slcotaxadmin.org.

As always, if you have further questions about anything mortgage or real estate related, feel free to drop me a line. You can call me at 801-256-0904 or email me at jayhart@cottonwoodmtg.com

A possible plan to fix the Mortgage Mess

CNN is reporting this morning about a plan that may give some traction to efforts to boost the struggling mortgage markets. In essence, the plan would make it easier for investors to feel confidence in placing their money in mortgage backed securities.

The plan, proposed by the American Securitization Forum, calls for an increase in the transparency of the mortgage investment process. The idea is that by having a greater understanding of what is being purchased, Investors can make more informed decisions about the funds in which they choose to invest.

Additionally, the plan would call for a simplification of the loan bundling process. The goal of this aspect of the plan would be to have loan bundles that have greater similarities. In other words, investors who put money into a specific security can be confident that the loans in that “bundle” are all similar.

Now, if you are anything like me, you are thinking: Why weren’t these two strategies in place before? Isn’t it common sense to have transparency in securities? Isn’t it even more common sense to have similar loans bundled together?

The mere fact that there is a need for this new proposed plan is evidence of just how messed up the mortgage market has been—and just how necessary it is to find solutions and to find them fast.

So what does it mean to you? Well, if in fact more investors choose to return to the mortgage backed securities, banks will have an increase in liquidity. The new found liquidity will mean more money to lend, which will in turn lead to a loosening of the restrictions placed on borrowers. For the sake of us all, lets hope that this plan (along with a few other needed changes) gets pushed along quickly. We need some changes, and these are reasonable and actionable solutions.

Changes after a month away

Well, after taking the better part of a month away, I guess it is time to get back at it.

For those who are somewhat regular readers of this information, you will start to notice a few changes in the coming months.

First, you will notice fewer posts. It is not that I don’t care, and it is not that I am running out of things to say. The truth is, I have a few opportunities that have been made available to me and I need to allocate adequate time to those opportunities as well. This means that I will most likely move to a once or twice weekly post rather than 3-4 posts in a week.

Second, you will notice a slight shift in the nature of the information I share. I have discovered that this information is read more frequently by Realtors and Insurance agents, with fewer homeowners and clients jumping online for information. This only makes sense. Do most people have time to think regularly about the minutia of the mortgage process? No. In truth, when we are considering a purchase or a refinance we gather information, but the majority of the time mortgages are simply not at the front of our minds. But don’t worry; there will still be plenty of useful information for everyone.

The purpose of this blog has always been to provide information regarding Mortgages in Utah. I realize that many people reading this information are simply curious, while others have pressing issues or questions which they would like to resolve. My goal is to continue to present current and useful information that is both relevant and significant. I understand that for many people this blog contains enough information to satisfy the need for mortgage information; I also understand that for some people additional information may be needed. As always, I am more than willing to address any questions that come my way. Feel free to email me at jayhart@cottonwoodmtg.com or call me at 801-256-0904

Frustrated Borrowers - Appraisals

Another aspect of the loan process that is causing heartburn for many home owners is the difficulty involved with having a home appraise for as much value as expected. More than ever lenders are concerned about slipping home values. This fear, coupled with a tendency of many loan officers to “push” appraisers for a desired value has Underwriters being extremely scrupulous when reviewing the appraisal that is submitted. In many cases lenders are requiring 3^rd party reviews and certifications to ensure accurate estimations of value.

When waiting for an appraisal on your home, there are few items worth considering:

1. The job of the appraiser is to determine value based upon facts, not opinions.
   

It honestly doesn’t matter much to the appraiser if you have a cluttered garage or even a sink full of dishes. The appraiser is looking for “marketable” features such as granite counter tops, a 3 car garage, completed basements, upgraded travertine showers, etc. Just because you love the vintage art-deco bathroom left from the original owners doesn’t mean that the appraiser can increase the value.

2. Market trends and sales history influence value.
   

An appraiser will compare your home to several similar homes in your neighborhood. Most appraisers are looking for 3-4 homes within a 10 block radius which have sold within the past 90 days. The home across the street that is listed for sale does little to influence the value of your home; rather, the home around the corner that sold two weeks ago is a much more accurate comparable property. If you know that home values are declining in your neighborhood, then it may be unrealistic to expect and appraiser to deliver a value significantly above the value of similar homes which have recently sold.

3. Realtors and Appraisers don’t always agree.
   

I can’t tell you how many times I have heard a homeowner ask: “well, the realtor who stopped by the other night told me my home is worth $350,000, so why is the appraiser saying it is only worth $300,000?” I guess to be honest, the sales value of a home is whatever someone is willing to pay for it, and if your agent can get someone to offer more than the appraisal can support, good for you. Unfortunately, remember that the lender for the buyer of your home will also require an appraisal, and if they show the value to be lower than the sales price you will either have to adjust your price or the buyer will need to make up the difference, which is not very likely. Now, don’t get me wrong, I am not saying that Realtors are not accurate; in fact, most are very fair when they consider values. Sometimes, however, there may be a discrepancy between the two. When that happens, it is important to remember that the lender will most certainly side with the Appraiser.

Frustrated Borrowers - Income

I had a client who called me last week extremely frustrated with the loan underwriting process. My first response: get in line! As I wrote last week, things are getting tougher by the week. Loans which should have easily passed through underwriting in a few days are now taking weeks. In order to ease the process, I have been advising my clients to spend a little more time lining things up before we submit a file to an Underwriter.

With that in mind, I figured I would take a few posts and update you on some of the things to keep in mind when preparing to apply for a mortgage loan. Today, let’s tackle income.

Underwriters want to make sure you can make your mortgage payments. Essential in that process is your ability to earn money. An underwriter is looking to see that you have a job, that your job is stable, and that you make enough money to make all your payments.

To ensure employment you will provide a minimum of 30 days worth of pay stubs. These should include Year to Date earnings. The lender is concerned mostly with your Gross earnings; however they will be interested in your take home pay as well. If you have commission or bonus pay that makes up a significant amount of your income then expect additional paperwork. To calculate commission or bonus income an Underwriter will want to see your tax returns for the past 2 years. They will take the 2 year average of your “non-base” pay and add that to your gross base-pay.

To determine stability you will be asked to submit W-2’s from the past year, and in some cases, particularly if you have changed jobs multiple times in the past 2 years they may want 2 years worth of W-2’s. The purpose is to verify that you have been employed, and that your income has not taken a significant decline. For a self employed borrower you will need to submit your complete tax returns for the previous 2 years.

Lenders want to ensure that you are not paying too much for your house. That typically means that less than 40% of your monthly gross earnings should go to your house payment. While it is possible to receive an approval when you spend 50% of your earning on your home, it is becoming increasingly difficult for lenders to justify lending to someone who is literally living paycheck to paycheck.

By understanding what Lenders are looking for it is easier to prepare for an easier loan process. As always, if you have specific questions about your situation, feel free to email me at jayhart@cottonwoodmtg.com or call me at 801-256-0904.

CRAZY LENDERS

Well, it’s still summer, and it’s still vacation season. I have been crazy busy this week. Yet, in spite of the lack of new material for you to read this week, I have had a few items rolling around in my head.

Everyone knows about the problems facing the lending industry. By now most are realizing that the problems run deeper than any of us would like to admit. The housing markets, nationwide, continue to slip and interest rates are again on a gentle rise.

At a time when an entire industry is in upheaval, individual mortgage lenders are not doing much to help anyone out. Rather than simplify the process and streamline procedures which would allow for lower costs, larger margins, and ultimately lower interest rates, lenders seem to be stubbornly holding to the idea that jumping through more hoops will somehow ease the problems facing our economy.

This week I had an otherwise easy and straight forward loan delayed by an entire week simply because there was a discrepancy between the address on the appraisal. You see, on page one of the appraisal the house was listed at 433 E. New Castle Drive. Unfortunately, on page 5 of the appraisal the address was listed as 433 New Castle Drive. Now, I am all for accuracy, but to hold off a loan for an entire week because someone left out an “E” seems a bit over the top.

WHAT DOES THIS MEAN TO YOU?

If you are considering refinancing or purchasing a new home, get your ducks in a row. The reality is that it is taking longer than before and underwriters are being pickier than before. Just understand that every lender seems committed to saving the economy—one loan at a time! That means that when your Loan Officer asks for documents that would otherwise seem foolish, it is likely that he or she is just trying to think ahead to avoid any ridiculous delays.

Eventually this whole thing will sort itself out. In the mean time, we all have to adjust our expectations a bit.

Mortgage Time Line

From time to time it is worthwhile to take a look at the timeline that should be expected when undertaking a purchase or refinance. Typically I tell my clients to plan on 30 days from the day you complete the loan application, however in most cases we are able to close within 2 weeks. The time it takes to receive approval will depend largely on the amount of time necessary to gather documentation both prior to submitting a request to an underwriter as well as to meet any underwriting conditions. However, assuming a timely response on the part of the client, the following time line may be useful:

Day 1: Complete loan application, sign loan authorization and disclosure documents. Loan Officer completes initial authorization with automated underwriting engines.

Day 2: Deliver loan documentation to your loan officer. Loan Officer orders Appraisal and Title Report.

Day 3 – 5: Title Report and Appraisal are completed. Any remaining documents are delivered. Loan file is submitted to underwriting.

Day 6 – 8: Underwriter reviews application and loan file and requests any additional supporting documentation.

Day 9 – 11: Final Approval is received, closing documents are ordered and a closing is scheduled.

Day 12: Closing

Obviously this is a general guideline, but it does provide some idea of what to expect. In most cases, the most time consuming phase of the loan process is the gathering of documents. To save time I recommend that my clients us the loan application checklist and gather the necessary paperwork prior to application.

As always, if you have any questions or would like me to address a specific topic feel free to contact me at 801-256-0904 or by email at jayhart@cottonwoodmtg.com

How Soft is Real Estate in Utah

Well, in case you haven’t been paying attention, we are certainly experiencing a slowdown in the Real Estate Markets in Utah. Last week the Board of Realtors released information showing an average decline in value of 1.2% from the first quarter of last year to the first quarter of this year.

But just how bad is it?

I was reviewing the underwriting guidelines for one of the more aggressive lenders on the market today, and came across something that I thought was worth passing on.

This particular lender is notoriously difficult on appraisals. The vast majority of property appraisals will be reviewed and adjusted. In other words, this particular lender is suspicious of home values, and therefore more conservative in lending practices.

So, here is the thing I found: This lender has a list of every “at risk” county in the nation. Most States have several counties on this list. Utah, however, only has one county: Washington County.

What does that tell me? While we are slowing down, this is still a good time for Real Estate Activity in Utah. If one of the most difficult lenders views Utah markets as more stable than not, we ought to do the same.

Vacations and Open Houses

May brings two things to the Real Estate world: Vacations and Open Houses.

In the event that your agent and loan officer are not out of town, now is a great time to be visiting the many open houses in your area. Whether you are considering buying or selling, open houses can be a great way to see what is available, gauge your own interest, and set price points for your expectations and desires. Here are some things to keep in mind as you visit these houses:

1. Pay Attention to the Schools. Even if you are not in the phase of life where schools matter, it is worth considering the rating of the schools in the neighborhood you are considering. Quality schools will make resale easier in the future. Additionally, areas with higher rated schools tend to fare better in struggling markets.

2. Interest Rates are still low. I remember when people were excited to be offered 7.5% on a 30 year mortgage. Today we are below 6%. Eventually interest rates are going to climb. If you find a house that works well for you, it may be wise to make an offer rather than wait for better interest rates.

3. Timing the bottom is tough. As I have said before, it is extremely difficult to know when the market is at the bottom of a slide. Just because you think you may get a better bargain in 6 months doesn’t mean that interest rates will remain low. For that matter, who is to say that the homes you are most interested in will still be around?

How to Pay Off Your Home in Less Time

As more homeowners are starting to make plans to wait out the economic downturns and stay in their homes longer I thought it might be a good idea to offer some information on accelerating the payoff of your home. There are several strategies, and over the next few weeks I will offer a few of these strategies, however I will start with one of the most simple techniques: The Bi-Weekly Payment.

Just as it sounds, the bi-weekly payment is simply a payment plan that has you paying your house payment every two weeks. Now don’t panic, you are not paying the same amount twice, simply take your current payment, cut it in half, and then pay that amount every other week. At the end of the year you will have made the equivalent of 13 payments. By doing this you will shorten the term of a 30 year mortgage by roughly 7 years.

Unfortunately, a true bi-weekly payment isn’t always available. Many lenders will use what is called a “Standard Bi-Weekly” payment plan, also known as a “Pseudo Bi-Weekly” program. With a Standard plan the bi-weekly payments are put into an account managed by the lender. Once a month the mortgage payments are then made from that account. Any interest that accrues remains in the account until the end of the year. The interest will be equal to the amount of a typical monthly payment, which means that once per year your lender will make a “double” payment.

While most lenders do not offer it, you will pay off your home faster if you use a “True Bi-Weekly” or “Simple Interest Bi-Weekly” payment plan. With a True Bi-Weekly payment program the lender applies your payments immediately, rather than waiting until the end of the year. For this to work your lender must calculate your interest for 2 week intervals and base the interest upon the outstanding principle balance.

If you would like to consider a Bi-Weekly payment for your home simply contact your mortgage lender and ask what kind of program they offer. Be sure to find out if they apply your payments immediately or if they only apply payments once per month.

As always, feel free to email me with any questions. I can be reached at jayhart@cottonwoodmtg.com

Waiting Too Long to Buy A Home?

I have a client who has been considering upgrading to a newer and larger home for nearly a year now. Every month or so he calls me and asks if I think now is the right time, or if home prices will drop even more. I have started to realize that quite a few potential home owners are using the same rational to put off buying a home. I guess I am just not convinced that this is the best strategy. Now, don’t get me wrong, I am all about being conservative, but my gut tells me that if you are in a position to qualify for a new home (and that is something you are planning on) you ought to get going on it, rather than hold off. If you are planning on buying a home and only holding on to it for a year then be my guest and sit on the sidelines. You are probably better to wait and see if prices will drop.

If, however, you are looking more long-term, then it is probably better to get into the home you are looking for sooner rather than later. Members of my Inner-Circle will remember that the NUMBER 1 RULE when purchasing a home is to treat your home as an investment. Remember, our first home is 95% investment. Our second home is something closer to 75% investment, and our third (and for most Americans our final) home is more like 25% investment. Unless you plan on remaining in your home for 15 years of more you need to treat it as an investment. Period.

So, why not wait? Well, first off let’s remember that our economy isn’t exactly booming right now. Interest rates will very likely increase, making that home more difficult to pay for. Second, as home values decline more people who have been previously “priced-out” will be back in the market, meaning that there will be more competition for the home you want. Third, as more buyers enter the market we will likely see home prices edge back upward (remember the supply and demand discussion from your freshman economics class?)

Here is another reason to stop waiting: Utah has a different Real Estate Market then the rest of the country. I have written extensively about the fact that while home sales have slowed we are not seeing the kind of losses that the rest of the nation is facing. The article I posted yesterday only confirms that while we are slowing, the market in Utah is still one of the stronger in the nation.

And another reason: Buy when you are ready—stop timing the market. If you are renting you are throwing money away. A family paying $750 per month in rent will loose $9000 just by waiting an extra year to see if the market drops much more.

So, if you are thinking about buying a home, whether it be your first or your next, I guess it is probably worth taking a serious look at why you are waiting. If you have questions about your specific situation just shoot me an email at jayhart@cottonwoodmtg.com

Are Utah Home Losing Value?

I would say that the most common question I am asked these days is whether or not homes in Utah are loosing value. I have maintained that while home sales have slowed, the average sales price is staying pretty much level. I base this upon what I am seeing for my clients, as well as what I have seen on the homes that I own which are for sale. The truth is that it is getting more and more difficult to sell a home right now. Potential buyers are concerned about the direction of the housing market, and the economy isn’t exactly bursting with signs of consumer confidence. In spite of that, home values have not dropped in most of the state.

The Salt Lake Tribune had an article last week that only proves my point. You can read the article here: http://www.sltrib.com/realestate/ci_9033973

Here is a quick summary for you:

1. Salt Lake County Home Sales dropped 42% over the past year, but values increased by only 1%
2. Davis County Home Sales dropped by 26%, but home values remained unchanged
3. Home prices dropped in Tooele County and Utah County
4. Weber County saw an increase in prices of nearly 8%, the largest of the counties along the Wasatch Front.
5. Experts are now predicting that Utah home values will likely experience slight declines through 2009.
   

SO WHAT DOES THAT ALL MEAN?

Well, if you are looking for a home you might be able to get a good deal on a new home. Conversely, if you are looking to sell a home you may have to choose between waiting another year or more to sell or simply accepting a lower price for your home.

Personally, I am seeing more home owners preparing to take advantage of the slowing market. I believe that as more people realize the good opportunities in the Utah housing market more people will look to buy newer homes at discounted prices, meaning that we will most likely see a quicker turn around than many would predict.

That’s my two cents!

5 Ways To A Greener Home—Save Money and Have Less Guilt!

To be honest, I have never really been into the whole “green” movement. Don’t get me wrong, I am a bit of a conservationist at heart—I think it is the Eagle Scout in me. I try to keep the lights off when I leave a room, and I wear a sweater before I jack up the thermostat. I even have a compost heap in my yard. My problem has always been with the companies that are cashing in on our fear of environmental oblivion. I guess my cynicism has kept me from getting on the band wagon with all my energy.

That being said, I do think there is tremendous value in finding ways too be more conservation minded. With that in mind, and considering that it is Earth Day, I offer a list of 5 things that anyone of us can do to have a more Green home.

1. Program Your Thermostat.
   

I read recently that by turning the thermostat down 1 degree you can save as much as 30% on your monthly heating bill. If you are out of the house throughout the day, turn the heat down. Have your thermostat adjust the temperature when you are home.

2. Stop Air Gaps.
   

Buy a cheap can of Caulk and fill any cracks that allow air to pass through your walls. Check you doors, if there is a gap on the sides or the top you may have to re-hang your door, or consider buying new rubber strips to block any air flow. Check the damper of your fireplace—an open damper can increase your heating costs by as much as 8% per month.

3. Save Water.
   

If your toilets were installed before 1995 it is likely that they are using twice the necessary water. In addition, consider installing an aerator to your faucets to cut the water usage in half. For your landscaping, choose plants that require less water. Also, remember to water your lawn between the hours of 8:00pm and 8:00am. You will use less water, and loose less to evaporation.

4. Use Less Plastic.
   

Each year Americans throw away 100 Billion plastic bags—grocery bags, garbage bags, even sandwich bags. There is a simple solution: Use less plastic. Consider paper bags from the grocery store, and then re-use them as garbage bags. Consider using a sandwich bag more than once. Recycle your plastic. Stop buying bottled water and use your tap. Purchase a refillable water bottle.

5. Use Better Light Bulbs.
   

Florescent Lighting can use 33% less energy while lasting up to 10 times longer. That means you can save $30 over the life of that one bulb. Now think about that: Assume you have 16 light bulbs in your home—in stead of replacing the bulbs two times a year you can have a single bulb last 3 years, a savings of nearly $500.

Are People Buying Homes?

We have all heard the reports of the slumping housing market. Anyone who is trying to sell a home right now has probably had at least one prospective buyer say something to the effect that it is a buyers market. I have been hesitant to agree that it is a particularly good time to buy a home—or, more accurately, that it is a particularly bad time to sell a home. The truth is that while home sales have decreased, there are still plenty of people buying and selling homes in Utah. With the population increasing, and as new jobs are created on a fairly regular pace, it is not unrealistic to assume that in Utah it is still possible to sell a home.

That being said, a new report released by the Associated Press has me wondering that perhaps the general public is buying into the recession hype. I have spent quite a bit of energy the past few months telling people that there is a bigger problem with public perception which in turns creates a bigger problem for home owners.

Here is some information from the AP to support my claims:

• 43% of those expecting to purchase a home in the near future are considering waiting because of a fear that home prices will decline over the next 2 years.
• 60% of those surveyed nationwide do not expect to buy or sell a home for at least 2 years.
• Nearly 2/3^rd of those surveyed believe it is extremely difficult for someone to purchase their first home.
  

AND FINALLY, here is the information that concerns me the most:

One is Seven Home Owners fear that they will not be able to make their monthly house payments with the next 6 months.

OK, that is a big deal, and here is why: Not making payments leads to foreclosures, which in turn leads to lower sales prices, which, contrary to what many would believe, leads to a slow economy, which, of course, leads us into recession.

Foreclosures are bad news for the economy, and that affects everyone, even those who are making their house payments with ease.

If you or someone you know is worried about making their home payments in the future, please, contact me or another licensed loan officer. We, as a county, cannot afford the foreclosures to continue.

Call me at 801-256-0904 or email me at jayhart@cottonwoodmtg.com

Market Commentaries and Updates

Many of the Lenders and Investor I use have started offering “market updates” on the bottom of their rate sheets. Here are some snippets from this morning that might be worth considering:

First, from a large regional lender:

This will be a busy week for economic reports being released. This morning, retail sales in March were reported as being slightly better than economists had forecast. Later in the week we will receive updated reports (PPI & CPI) on how inflation is behaving. Stocks, bonds, and mortgage prices are all trading in a fairly narrow range so far this morning.

Now, from one of the nations largest lenders:

U.S. Treasuries rose after stocks in Europe and Asia fell and as traders speculated a U.S. government report may show retail sales stagnated in March. Two-year yields approached the lowest level since April 1 after Group of Seven finance ministers said the eight-month financial crisis has further to run, helping spur demand for the relative safety of government debt. Yields on benchmark two-year notes declined 4 basis points, or 0.04 percentage point, to 1.71 percent. The market is unchanged to .25 better in discount this morning.

So What?

First off, you can see how mundane much of my job is. Reading too many market commentaries like those I listed above isn’t exactly the most entertaining way to spend your mornings.

As for my take away, there is little to decipher from those messages. First, it is too early in the week to be able to make projections. Second, the yields have changed so slightly that there is really nothing reliable right now to use as indicators.

As of this afternoon the bonds are down, but the yields are slim enough that there is no reason to expect much to happen for the next 24 hours or so.

Minimum Credit Requirements for Mortgages

If you are one of the many who are working diligently to restore your credit, it may have just become a bit more difficult to qualify for a mortgage. Last week Fannie Mae, the government sponsored agency that funds and purchases mortgage loans, announced to it’s lenders that it will begin requiring a higher credit score requirement for individual loans. While Fannie Mae did allow that some lower credit loans will be considered on a case-by-case basis, the new “floor” for credit is 580. In other words, if you don’t have a score above 580 don’t bother applying. While they claim they will consider files with lower credit ratings my anticipation is that individual lenders will not bother themselves with these files.

In addition, if you are recovering from a foreclosure it is also more difficult to qualify for a mortgage. Fannie Mae also reported that it will increase the minimum time requirement after foreclosure from 4 years to 5 years, meaning that if you now need to wait 5 years from the discharge date of your bankruptcy, if a foreclosure was involved, before applying for a new mortgage.

In October of last year I posted strategies for credit improvement. My four part posting was actually the test of a special report that I had written previously for members of my Inner Circle. You can find the first part of the report here: http://utahloanexpert.blogspot.com/2007/10/credit-repair-step-1.html

As always, if you would like the full report just email me at jayhart@cottonwoodmtg.com and I will send it your way. And, as always, if you would like to join my Inner Circle and receive periodic newsletters and special offers you can email me or call me at 801-256-0904.

Buying Foreclosed Homes in Utah

Last week I had two separate people tell me they were looking to buy foreclosed homes. They both told me that since they had heard it was a buyers market they wanted to take advantage of the steep discounts that are available when a foreclosed home is purchased. Now, I realize that just last week I discredited those who claim that the Utah Housing Market is a “Buyer’s Market” but I cannot claim that there are not tremendous deals to be had, nor can I say that purchasing a home from a foreclosure sale isn’t a good option to consider.

With that in mind, here are some things to remember when considering a foreclosed home.

1. Use a Realtor, not and Auction.
   

The process of purchasing a home from an auction has become increasingly competitive. With various Real Estate Investing Programs and Coaches out there more and more people are turning to auctions. That means that home prices are being driven up. To make things worse, in most cases you are not allowed to inspect the property prior to making your purchase, which means you could be walking into a much more expensive project than you anticipated. The most successful Real Estate Investors and Purchases that I know are not using Auctions.

To be honest, the best values rarely sell through an auction. In many cases a bank or mortgage lender, realizing the difficulty with getting what they determine to be sufficient offers, will hire a Real Estate Agent to market and sell the property. In many cases the lender will repair the major problem areas before selling the home, meaning that while you may pay slightly more, you will also have less to do once you move in.

2. Know what the Home is worth, according to Experts.
   

The best determinant of value is an appraisal. Costing between $350-$400 a full appraisal will give you extremely detailed information regarding the home, it’s sales history, and comparable properties. When you get your financing an appraisal will be required, so it may not hurt to consider investing a small amount up front if you are serious about a home.

Another benefit for using a Real Estate Agent is the ability that he or she has to help you determine value. Many agents have software that provides data similar to that of an appraisal, which means you can get a good idea of the value of comparable properties before making your offer. While my experience has taught me that Real Estate Agents tend to be optimistic concerning the value of a home, I have also learned that a good Agent can give me tremendous information to guide my search.

3. Don’t overpay
   

The main reason to consider a foreclosed home is to get a low purchase price. Keep that in mind when making your offer. Remember that, unlike a more traditional sale, the owner of a foreclosure is not emotionally attached to the value of the home, which means you don’t have to deal with the unrealistic expectations that influence so many of our thoughts when valuing our homes.

Remember also that the Bank or Lender probably has an ever increasing number of foreclosed homes to sell. Adding to the fact that you may very well be the only potential buyer for the home you are considering, it is important to keep in mind that they probably want you to purchase the home more than you would like to buy it.

The first time I bought a home after a foreclosure I made an offer that I felt was appropriate. My offer price was validated by a qualified Real Estate Agent as well as a licensed Appraiser. I took into consideration the costs of updating the home as well as the value that I could anticipate upon completion. The bank sent me a counter offer that was significantly more than I felt the home was worth. Realizing this, I simply said “no thank you” and continued my search. Nearly one year later the same home was still available, so I made a second attempt, this time at an even lower price. This time around the bank jumped at my offer.

If you are considering purchasing a foreclosed home, remember the three keys I have outlined and then enjoy the process of searching for and negotiating the right deal. As always, if I can help, call me at 801-256-0904 or email me at jayhart@cottonwoodmtg.com

IS IT A BUYERS MARKET IN UTAH?

With the current housing dilemmas appearing to be longer lasting than most anticipated, I have been wondering about the current state of the mortgage market, particularly in Utah.

Traditionally spring is the most active time of the year for home purchases. We see refinance applications rise slightly through the summer, but the spring is for buying. Now, with a larger number of homes on the market and with home values declining nationally, the general consensus according to the various housing and real estate “expert” around the country is that we are in a Buyers Market. The funny thing is, as I have been saying all along, Utah is not on the same wavelengths as the rest of the nation. So is it a buyers market now?

What about Utah?

According to the National Association of Realtors (NAR), existing home sales are down nearly 28% from a year ago. In addition, the NAR reports that existing home sales prices are down 8% from a year ago. Does that make it a buyers market?

Recent articles in local newspapers have highlighted the fact that while existing home sales in Utah are down approximately 30% when compared to last year, the average sales prices actually increased—with a state wide average of 12% appreciation. In fact, according to the Utah Association of Realtor some areas of the state experienced appreciation of over 15% in the past year.

What does this tell me? I guess it all depends on how you define the term “buyers market.” In simple terms of supply and demand one would assume that the increase in home inventory when compared to the decrease in the number of existing home sales would have a downward pressure on home sale prices, making it a buyers market.

Then again . . .

On the other hand, multiple state economic statistics would indicate that it is still a good time to sell. The Utah Association of Realtors has a new website (www.utahhousingfacts.com) that lists several reasons why it is a good time to sell in Utah. Here are 3 of the most significant in my view:

1. Utah has a growing population, with an increase of 84,000 people anticipated for 2008.
2. Utah is increasing the total number of jobs at a pace that exceeds the rest of the nation with 44,000 new jobs expected to be created in 2008.
3. Utah unemployment is nearly half of the national average.

So what does it all mean?

My feeling is that while it is more difficult to sell a home in Utah right now than previously, we are nowhere near the “buyer’s market” that many would have you believe.

If I were buying a home I would take advantage of the increased inventory and shop around. I would not feel pressure to make an offer right away on a home because I realize that there are more homes for me to consider than ever before. However, I would not assume that just because someone has had their home on the market for a longer than normal period of time that I can lowball my offer.

If I were selling a home in Utah (which I, in fact, happen to be doing) I would not panic, but I would accept that it may take many months longer than anticipated. If I need to move, I would not rule out looking for someone to rent my current home, nor would I rule out renting in my new location for a few months (but I would look for a rent-to-own in both cases). Perhaps most important, if I were selling a home in Utah right now I would start the process much earlier than before, giving myself an extra few months to find the right buyer.

Tired of being the Bad Guy

This weekend I had an open house at a home I have for sale. A gentleman came in, looked around, and then started to criticize my asking price (which happens to be nearly $30,000 below the recommendations from realtors and agents with whom I have consulted) telling me that “with the housing bust I need to take whatever offer comes my way.” Obviously I disagreed with his suggestion, reminding him that while home purchases may have decreased last year, home values still increased by an average of 9% state wide.

Next the man started on a diatribe about how “all this economic mess is because of the crooks that lend money.” When I told him of my career his reply was simply: “then you ought to be more honest with people, and stop giving people loans that you know they cannot afford.”

ARE YOU KIDDING ME!

I am sick and tired of people accusing mortgage brokers and loan officers of ruining the economy and creating the current lending environment. Blaming me for the high rate of foreclosures in this country is like walking into a McDonalds and blaming the cashier for obesity in America.

Do loan officers have some responsibility? Yes. As I mentioned in my series last fall about Loan Fraud in Utah (http://utahloanexpert.blogspot.com/2007/10/utah-loan-fraud-part-1.html), brokers and loan officers who have participated in fraudulent activities should be identified and help accountable. But loan fraud is a small portion of the problem.

Yes, the Mortgage Lenders are paying the price of having too loose lending guidelines and requirements. Yes, it was too easy for someone with limited income to qualify for loans. Yes, too many home owners to given high-risk mortgages without proper education concerning those risks.

But we must not forget the homeowners themselves. Not reading the loan disclosures is not my fault. Choosing to state a higher than actual income level is not my responsibility. And, perhaps most significant to me, it is not my fault that home owners in recent years have proven themselves to be more than willing to “shop” for the loan officer that will give them exactly what they want.

CNN.com has and article this morning that blames “poor underwriting standards and abusive lending” for the current mortgage mess. Well, that may be true to some point, but when will some responsibility fall on the shoulders of the actual home owners who accepted loans they knew darn well they couldn’t pay. Last I checked, economic institutions in America are the result of the actions of individual people coupled with market demand. I can tell you right now, if thousands of homeowners weren’t willing to have bad loans, those loans would have never been written.

I guess, until this whole mess gets fixed I will have to continue being the scapegoat for everyone’s problems.

So, I have a home in Riverton that I have been unable to sell for a few months. We decided recently to see if someone would like to move in with a Rent-to-Own agreement. As I have been visiting with potential tenets the past two weeks it has occurred to me that most people are not familiar with the generally accepted principals of Rent-to-Own Real Estate. Commonly referred to as a Lease Option, the concept of Rent-to-Own essentially means that you move in and begin paying rent while earning equity. At any point in a pre-determined time frame you have the option of purchasing the home. This approach can be extremely beneficial to both parties, if done correctly. There are 4 Keys to remember when considering a Lease Option.

1. Deposit.

The traditionally accepted deposit for a Lease Option is 3% of the sales price. In most cases this deposit is at least partially refundable when the option is exercised. In other words, on a $200,000 home you would be expected to pay $6,000 up front as a deposit, of which, a portion may be credited to you when you choose to buy the home.

While 3% is most common, it is important to remember that most sellers are more interested in having someone move in, which means they will probably accept less than 3%. Remember that if you can only provide 1-2% (or even less) that you may not be able to expect any refund or credit.

2. Monthly Payment.

Monthly Payments may be more than what you would expect to pay for traditional rent; however this is beneficial to you. It is not uncommon for a seller to credit a portion of the monthly payments towards your equity at the time you finalize the purchase. For a lower payment consider having no money credited.

3. Appreciation.

Typically, when someone leases a home for 1-2 years, it is expected that the home will gain value. To be fair to both parties, most lease option agreements have an appreciation factor included. In other words, if the home is sold for $200,000 today, it may have 6% annual appreciation added to it, meaning that during the first 12 months the home will be sold for $212,000. This is important because the appreciation factor is typically less than actual appreciation, meaning that your equity position improves.

4. Flexibility.

Remember, the goal of a Rent-to-Own is to find an agreement that is mutually beneficial. You gain equity and establish and “alternate” form of credit that will make qualifying for a mortgage much easier. The seller is able to have someone take over their payments and sell the home for slightly more than a traditional payment. That being said, there is nothing wrong with negotiating. My experience tells me that most people don’t have a 3% deposit. Not a problem, simply negotiate terms that are advantageous to both.

So, if you or someone you know is interested in exploring the possibility of a lease option—of if you know someone who may want to move into a completely updated rambler in Riverton, give me a call, or email me at jayhart@cottonwoodmtg.com.

Another Reason to Love Utah

In case you didn’t see, CNN just released a list of the top 100 places in the United States to start a business. The top spot? Bellevue Washington. To be honest, that really didn’t matter to me. What caught my eye was when I saw Salt Lake City at the #15 spot on the list.

Why Salt Lake City?

According to the article, not only do Utahns benefit from the 11 local ski resorts, they also have the Utah Microenterprize Loan Fund which provides start up capital for business requiring fewer than 5 employees and $35,000 initial investment. The article also mentions the Salt Lake County Economic Development Office which has grant programs, free education programs and loan programs available.

How does that relate to Mortgages and Real Estate in Utah?

A strong economic outlook for a state will lead to lower unemployment rates, which in turn leads to higher income levels, which leads to increased consumer spending, thereby creating more consumer confidence, and thus encouraging investing. In addition, lower levels of unemployment leads to fewer foreclosures.

A good state economy will make it easier for new jobs to be created. As individuals move from other states in search of higher paying jobs there will be an increase demand for existing housing as well as new home construction.

As the state economy remains healthy, in spite of the slipping of the economies of neighboring states, investors will experience an increase in confidence regarding lending in Utah. Eventually such confidence will lead to lower interest rates.

Yet another reason why I just never understand the people who tell me they don’t like living in Utah. If you would be more comfortable in one of the roughly 45 States with worse economic conditions than Utah, be my guest. As for me . . . well, you know what I think!

Why the Fed Cut Didn’t Lower My Rate!

Well, after much anticipation the Federal Reserve voted yesterday to drop the discount rate by three-quarters of a percent yesterday. In the minds of many on Wall Street the cut was not enough, as pressure had been mounting for a full percentage point drop. Still, by lowering the cost of borrowing money the Federal Reserve was able to motivate good activity on Wall Street, which is exactly what they wanted. The problem is that most homeowners in Utah are conditioned to expect a drop in the Fed Rate to lead to immediate drops in the mortgage rates. That simply isn’t the case.

Remember that mortgage interest rates are linked to the Bond Market. Traditionally the 10 Year Yield on the Treasury Bond has been a good indication of the direction of Mortgage Rates. In other words, as investors put money into Bonds the Mortgage Rates decrease. Similarly, as the amount put into Bonds increases the amount put into Stocks decreases. So, typically, when the bond goes up the stocks go down, and as the bond goes up the mortgage rates go down.

Yesterdays Federal Reserve moves motivated investors to put money into Stocks, which means that less money was available for Bonds. Therefore, yesterday’s action by the Fed was, in the short term, less beneficial to mortgage rates than one would have hoped.

For those who feel that the Federal Reserve cut didn’t help in any way, remember that the job of the Federal Reserve is to set monetary policy for the national economy, and that includes limiting degree of inflation. High rates of inflation means a weakened dollar, which leads to higher prices of oil, gold and other commodities. The Fed is in a balancing act between protecting the dollar (which is hard to do when the continually drop the short term lending rates) and limiting or avoiding a recession (which is hard to do without dropping the short term lending rates).

My advice: Be patient. As stocks increase investors will have more liquidity, which will translate into more money in bonds, thereby driving the interest rates down.

Avoiding a Foreclosure in Utah

I had an interesting conversation the other day with an individual who is working very hard to avoid foreclosure. From this conversation I discovered that many homeowners don’t understand what steps to take if they are facing foreclosure. With this in mind I have been working on a special report on foreclosure avoidance. As she ran through the list of strategies she had been using I suddenly realized that she was leaving out the single most important step.

The Single Most Important Step to Avoiding Foreclosure is . . . RESPOND TO THE MORTGAGE COMPANY.

When you receive letters of phone calls the worst thing you can do is avoid the mortgage company. If you are in default, you will remain in default whether you ignore them or not. I read recently that OCWEN Financial, one of the larger loan servicing companies in the nation has expanded their collections department from 70 people to 123. These individuals are trained to use empathy when communicating with homeowners. Remember, it is in the best interest of the lender to work something out with you, but if you don’t respond to them they cannot find any kind of resolution.

REMINDER: While it is important to communicate with them, DO NOT AGREE TO ANY TERMS WITH OUT CONSULTING A PROFESSIONAL.

Fraud, Rate Trends and Jumbo Conforming Loans.

I have too many things I wanted to mention before the week is us, so here are 3 topics for your Utah Mortgage Education as you go into the weekend.

First, the Mortgage Bankers Association released their annual fraud rankings yesterday. Once again Utah is found right near the top. This year we are number 5, with only Florida, Nevada, Michigan and California ahead of the Beehive State. Back in October I posted a 4 part article on Loan Fraud in Utah. I posted an article that I had recently written regarding loan fraud, its many faces, how to avoid it, and how to fix the problem facing Utah. You can read my postings here: http://utahloanexpert.blogspot.com/2007/10/utah-loan-fraud-part-1.html

Or you can simply email me at jayhart@cottonwoodmtg.com and I will send you the entire report.

Second, I recently read a report that included a survey of Mortgage Professionals from across the country. Loan Officers were asked to predict the where interest rates will go over the next 90 days. Of those surveyed 82.7% believed that interest rates will either remain unchanged or will decrease in the next 3 months, with 51% saying that rates will decline only slightly.

As for me, I think I agree. I don’t anticipate any major drops in rates, but I do think we will see some movement. There has been downward pressure on rates this entire week as stocks have struggled. I wouldn’t be shocked to see incremental drops over the next 2-3 weeks followed by a leveling out for a period. But then again, every time I read a prediction it turns out to be wrong.

And finally, earlier this week I mentioned that Fannie Mae and Freddie Mac had increased the Jumbo Loan Limits in parts of Utah, allowing for previously held Jumbo Loans to be refinanced at the conforming interest rates. Well, more information has come out which makes it not quick as big a boon for home owners as anticipated. Here are some guidelines for the new loan limits:

1. No Cash Out. Rate and Term Changes only.
2. 90% Loan to Value limit for Fixed Rate and 80% Loan to Value for ARM’s for Purchases, 75% Loan to Value limit for refinances.
3. 660 FICO requirements for purchases.
4. Absolutely no late mortgage payments in the past 12 months.
5. No Stated Income loans.
6. No Construction-to-Permanent Financing available.
   

Make sense? If you are looking for a loan between $417,000 and $729,000 and you wonder if these restrictions apply to you, you can call me at 801-256-0904 or email me at jayhart@cottonwoodmtg.com and we can break it down.

Have a great weekend.

Utah Mortgage Rates and Fees

Yesterday I was asked two questions which I think are worth a brief discussion:

Question: Why is the interest rate I am being quoted higher than the interest rate that I see on cnnmoney.com and other financial websites?

Answer: It is important to understand that most financial websites publish a national average interest rate. Lending institutions set interest rates on a regional or statewide basis. Because of the high level of foreclosures in Utah we tend to receive interest rates that are slightly higher than many states from other parts of the country.

Another reason that the interest rate you are quoted by a loan officer is typically slightly higher than that which you may find on various financial websites is because those sites will usually publish what we call the “par” rate. As I have previously discussed, Lenders pay a Brokerage for loans. This amount is tied somewhat to the interest rate you receive. The industry standard is to offer an interest rate with a back-end payment of around 1%. This amount is then used to offset the amount of closing costs that you are assessed. The “par” rate has no back-end payment to the Brokerage. While it may seem like better to have the lower rate, remember that by having the “par” rate you can expect to pay more in closing costs.

Question: Why do we pay closing costs?

Answer: The simple answer is that loans cost money. Closing costs are assessed on every loan. Even the so called “no-cost” mortgages still have closing costs; they are simply paid by the bank. A Loan Officer is typically paid betweem1% and 1.5% of the loan amount. The Brokerage has a fee, as does the Underwriter, the Appraiser, the Credit Reporting Agencies, the Title Insurance Agencies, etc. All of these entities and individuals render services which enable you to receive a loan.

I never really understand people that expect to be offered money for free. I have frequently reminded those who attend my home buying seminars that just as you would not expect your doctor or your attorney to provide a service free of charge it is unrealistic to expect your financial professionals to provide a free service. The reality is that it takes time and effort to secure your loan. I have also told people that if they would like to call each individual who works for their loan and ask them individually if they will waive their fees then I will not charge them, but how realistic is that?

Luckily for most home buyers, as the lending industry faces turmoil it is becoming more common for Loan Officers and Lenders to be more flexible with some fees in hopes of attracting more business. Personally, while I do offer incentives to members of my Inner Circle and those referred by previous clients, I am quick to remind potential clients that you are paying for a service, I can slash my fees, but then I will be forced to lower the quality of my service to free up time to find more “discount” clients.

New Jumbo Mortgage Limits for Utah

Well, it just got a whole lot easier for Utah Home Buyers to borrow large amounts of money. Fannie Mae and Freddie Mac, the 2 governmental agencies chartered to purchase and oversee mortgage lending increased the loan limits for conforming mortgages. On the heels of similar increases from the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac have now made it easier to purchase larger homes for lower interest rates.

What is A Jumbo Loan:

A traditional mortgage in the United States, in order to have the best possible interest rates, must conform to certain standards and guidelines. These Conforming Loans are subject to a limit that is determined by local median prices. While the conforming limits have increased slightly over the years, the increases have not matched appreciation in most areas. In Utah, however, we have been doing alright. The Conforming limit in most of the state has been $417,000. In other words, as long as you borrow less than $417,000 you can get the best interest rates. Any loan above the conforming limit is considered a Jumbo Mortgage. The problem with Jumbo loans is that the interest rate is typically quite a bit higher than a conforming loan.

The Good News:

In Salt Lake, Tooele, Summit and Wasatch counties the Conforming loan limits have increased, making it easier for individuals with higher end homes to qualify for less expensive mortgage rates. Bellow is listed the new limits for the State of Utah:

• Salt Lake County: $729,750
• Tooele County: $729,750
• Summit County: $729,750
• Wasatch County: 431,250
• The Rest of the State: $417,000
  

What That Means:

By increasing the conforming limits it is now easier for home owners to access equity for debt consolidation, remodeling and investing. More significantly, home owners with larger loans can lower monthly payments, thereby increasing their personal cash flow allowing for the acceleration of debt settlement or debt avoidance. For example someone with a $500,000 mortgage is now looking at an interest rate around 6.25%, whereas before that same borrower was facing an interest rate around 7.5%, which can represent a payment difference of around $400 per month.

As always, if you have specific questions about how this might affect you, shoot me an email, I will be happy to discuss your own situation and ensure that you are taking full advantage of what is available. Jayhart@cottonwoodmtg.com

What is the Utah 529 plan?

You may have noticed an article at cnn.com today titled “Why Financial Planners Hate Utah” The article then explained that the Utah 529 College Savings Plan is a low cost investment that is not Advisor Sold, meaning you avoid the fee’s that a financial planner requires.

(Click Here to Read the Article: http://money.cnn.com/magazines/moneymag/moneymag_archive/2008/03/01/103491792/index.htm?postversion=2008030504 )

I realize that some of us are fairly savvy investors—or at a minimum we are growing savvier with time, however I have also noticed that a very small number of my clients have invested in a 529 plan, which tells me that many individuals are simply not aware of the benefits of such a plan. So, here is a brief overview:

A 529 plan is a tax-advantaged investment vehicle designed to encourage saving for the future higher education expenses of a designated beneficiary. The characteristics and behavior of 529 Plans are determined by the State Legislature, however most plans allow investors from out of state. That being said, there can be significant state tax advantages and other benefits, such as matching grant and scholarship opportunities, protection from creditors and exemption from state financial aid calculations, for investors who invest in 529 plans within their state of residence.

There are 2 main types of 529 plans: Prepaid and Savings. A Prepaid plan allows you to purchase education credits today, at today’s tuition rates, to be utilized later. A Savings plan allows you to invest in market driven vehicles such as mutual funds of CD’s.

Aside from the potential of high fees, as discussed in the cnn.com article, another potential downside to investing in a 529 plan is that any money not used specifically for education will be subject to income tax. In addition, moneys in a 529 plan are considered assets, which may have some effect on the qualification for certain kinds of financial aid programs.

That being said, there are obviously several advantages to investing in a 529 plan. First, everyone is eligible, and essentially any amount is adequate. In addition, the donor remains in control of the funds, in other words, don’t worry about little Jimmy trying to cash in the fund on a classic sports car when he turns 18. And of course, the potential tax benefits can be well worth the investment.

Now, as I have said in the past, I am not a financial planner. I am not licensed to give financial advice, nor would I want to. But, as a licensed mortgage professional who spends his days reviewing the financial situations of my clients, I can tell you that too many of us have too much debt and not enough savings. I can also tell you that the vast majority of my clients have not started any kind of education savings for their children, or even themselves for that matter. All I am saying is that maybe it would be worth finding more information about the Utah 529 plans. You can call 800-418-2551 or visit uesp.org for more information.

5 Things that Anyone Can do the Save Money Now

I mentioned the other week that I had been traveling a bunch and had gained greater appreciation for the financial struggles that so many people are facing in our nation. As I have said multiple times, we can all count ourselves lucky to be enjoying the healthy economy that the State of Utah has to offer. That being said, I still encounter too many home owners, or would-be homeowners, who struggle to make ends meet.

Obviously paying down and avoiding debt should be a priority for all of us. Unfortunately, I have found that finding a few extra dollars to accelerate debt payments or, better yet, stay out of debt in the first place, is not as easy as one would hope—but it should be!

Those who have been receiving my Inner Circle newsletter for some time will remember a report I wrote as part of the 5 Things series about saving money. I thought it might be a good idea to revisit a few of the keys I wrote about at the time. Briefly, here are 5 things that literally ANYONE can do to save money, starting today.

1. Drink More Water.

Avoid costly soda and you will be healthier and have more money. But don’t just move to expensive bottled water.

2. Cancel your Netflix Account.

Get your movies for free from the Library. If you must rent, consider a RedBox.

3. Save your Windfall.

Just because you get a little extra back from the IRS or from Grandpa doesn’t mean you need to run out and buy yourself something nice.

4. Increase your Deductibles.

Pay less each month, and then hold onto the savings. If you need it, it will be there later.

5. Build an Emergency Fund, and then pay off Credit Cards.

3-4 months worth of your expenses is crucial—start savings 10% of your income, then, once the emergency fund is set, use that 10% to pay off debt.

How does this relate to mortgages? Well, more money means less debt, which means higher credit scores and more money for down payments, which means more equity, which means lower interest rates, which means lower house payments, which means more financial stability!

As always, if you are not receiving the Inner Circle newsletters, just drop me an email at jayhart@cottonwoodmtg.com and I will add you to the list.