Denver's Blog

Analysis of the Denver Market

Denver Lender (Denver Lender) — Wed, 13 Dec 2006 12:52:13 -0600

I've always been a math geek. As a kid I remember asking my mom to take out the math flash cards as opposed to the other cards. Addition, subtraction, multiplication, or division, it didn't matter. As I got older I was always in the advanced math classes. I even joined the Math team competing against other math geeks. When I hit college, as the math got more difficult - calculus 1 through 3 and differential equations, I continued to excel. Then I took statistics, not the easy statistics either, and my perception of math changed. Statistics confounded every joy I derived from math as it made math confusing. My professor once wrote on the board, NUMBERS DON'T LIE, PEOPLE DO. Then crossed out people with STATISTICS.

If you read the newspaper's here in Denver, the Denver market is flat. They cite the glut of homes, the foreclosures, and the staggering amount of loan and real estate fraud. Not once do they cite that historically Denver's appreciation is above the national average.

I blogged about the Denver REal Estate Analysis, check it out here. It's about a report on Denver from another math geek. I'd love to hear your thoughts and comments.

I only give out Snickers for Halloween

Denver Lender (Denver Lender) — Sun, 29 Oct 2006 00:28:16 -0500

I live in an "up and coming" neighborhood in Denver. Whole Foods moved in last year and in a month the Light Rail will open so my neighborhood should be considered "up and arrived." The number of kids that come around trick or treating tends to double each year. A few years ago I bought my three favorite bags of halloween candy, Snickers, Kit Kat, and Twix. When the kids showed up, I showed them all three bags and one kid yelled "SNICKERS PLEASE!" Then all the kids wanted Snickers. So from then on, I just bought Snickers. It's my favorite and the kids don't walk away disappointed when they come to my house.

"If you want me to send you business, you need to send me business!"

Denver Lender (Denver Lender) — Sun, 29 Oct 2006 00:15:14 -0500

My all time favorite objection from real estate agents is "If you want me to send you business, you need to send me business!" It's a sound objection. They don't know me, I don't know them, so why on earth would they jeopardize their commission on an unknown entity. I know I wouldn't if I were in their shoes.

About 4 to 5 times each year, I have the opportunity to send qualified borrowers to real estate agents. In almost very situation I've sent these borrowers to agents who've sent me business. There have been a handful of opportunities to send borrowers to unchartered waters i.e. agents who I've never done business with in the past. Each time this has happened I've walked away very disappointed.

In the end I've become even more picky about which agent I send my business to because I want don't to risk my reputation or my paycheck.

The high tech world of real estate? [part 2]

Denver Lender (Denver Lender) — Thu, 10 Aug 2006 16:08:27 -0500

Let's say I get a mortgage lead from my site. I usually just collect the bare basics - name, number, and email address. The next step is to contact the borrower. If they don't respond by email (which I prefer) I usually call to follow up. If they're serious, I can usually fill out the loan application while I'm on the phone. We start with the basics of what they're trying to do, purchase or refinance? Then proceed to Name? Address? Employment? 15 to 30 minutes later we're done.

I email the loan application along with all the disclosures USING ENCRYPTION. The lead bears the brunt of printing off the documents then faxing them back to me along with the income and asset documents. All incoming faxes are stored in a secure server and an email is sent to me indicating I received a fax.

Instead of printing off the loan application, it's emailed. Saving trees. Instead of receiving a fax and having 20 pages printed, I can read them using Microsoft Photo Editor since the faxes come in as TIF files. Time isn't wasted. Fuel isn't wasted. Paper isn't wasted.

If the lead can qualify for a loan, I then start the paper trail.

Impersonal? MAYBE

Efficient? YES!

What are your thoughts?

The high tech world of real estate? [part 1]

Denver Lender (Denver Lender) — Wed, 09 Aug 2006 23:57:38 -0500

I love technology. I grew up programming BASIC on my Commodore 64 before I "kicked" into high gear with FORTRAN (Engineering major), COBOL (first job out of college), and JAVA (last job before getting into the mortgage business).

The mortgage and real estate world claims to be high tech but it really isn't. I don't ever remember writing anything on paper as a software developer, everything I did was on the computer. Everything. I never ever saw a fax machine. Ever. Email was the modus operandi for communication. If you wanted to speak to someone sooner, it was via AOL IM, YAHOO IM or ICQ. The only time I used a photo copier was when I gave a presentation. Check that, I never used a copier. I would email the agenda beforehand and it was up to them to print off the agenda. If the attendees didn't have it, there loss.

Now I use email less frequently and almost never chat with clients online. I'm on the phone more and on the computer less. I constantly print, copy, and fax. I waste enough paper in one day that I wonder if the real estate and mortage world really knows what it means to be high tech.

The Automatic Millionaire

Denver Lender (Denver Lender) — Wed, 26 Jul 2006 23:40:33 -0500

So I'm at the Denver Public Library (one of the smaller branches, not the behemoth on Broadway and 14th) and I notice while standing in line to checkout on my left lies a stack of The Automatic Millionaire by David Bach. So I decided to check it out.

The premise of the book is that no one got rich renting. The book explains in detail how to buy and finance real estate. The book also explain four reasons why REAL ESTATE is the best bet when it comes to investments.

Demographic change is driving demand for housing: in other words, people want to move to Denver (or your neck of the woods) coupled with Americans procreating equates to a population boom and a need for more homes.
It's easier to get financing: When I bought my first place several years ago, my wife and I didn't eat out for months to save our 5% down and all closing costs. If only 100% financing was available.
Mortgage companies now lend to riskier borrowers: NO FRICKIN KIDDING!
The 1031 tax break for rental properties: Buy an investment property, Sell the aforementioned investment property, Use the proceeds of the sale of the aforementioned investment property, Buy another investment property = NO TAXES ON PROFITS

Looking to blog, start here

Denver Lender (Denver Lender) — Tue, 25 Jul 2006 00:37:44 -0500

I was first exposed to the power of a blog when a friend of mine told me about Mark Cuban’s blog a few years ago. I passed it off as nothing more than Cuban’s ranting on the poor officiating that goes on the NBA.

I dug deeper into his site and noticed Mark had much more to say than the refs. He discussed his philosophy on success, what stocks he’d buy, the Donald, his movies (including the snoozefest “Godsend”) and countless other topics. I was hooked. Every day I checked the blog for new content. Occassionally I’d comment on his posts. I did comment that I hoped his future movies weren’t snoozefests like Godsend. Within hours that comment was gone.

The power of Cuban's blog is that I found blogs of other people and soon people were finding my blog. It was a way of connecting with others without ever meeting them.

Blogging has since spread like wild fire. Everyone blogs, even Donald Trump.

Should You Leverage Your Home or Pay It Down Rapidly

Denver Lender (Denver Lender) — Wed, 19 Jul 2006 22:18:37 -0500

There is a great debate within the inner-mortgage circles these days. Should we, as loan professionals, encourage clients to borrow as much money as possible? Or would consumers benefit more if we helped them to understand the advantages of 15-year amortization schedules and pre-paying principal? Let's examine the pros and cons of both strategies.

Leveraging Your Property. In order to understand why you'd want to borrow as much as possible for your home purchase, you must first grasp the concept that equity has a zero rate of return. Here's an example:

If Consumer "A" buys a home for $300,000, and puts 20% down, then they have $60,000 in equity. Over the next 5 years, the property appreciates $100,000 in value. Consumer "A" now has $160,000 in equity.

Consumer "B" buys a home for $300,000, and puts no money down. At the end of 5 years, that same home is now worth $400,000. Consumer "B" has $100,000 in equity, which is the same appreciation as Consumer "A", a net $100,000.

As you can see, your down payment has nothing to do with your rate of return. What becomes important is how you choose to manage the $60,000 you didn't use as a down payment. If you use it for frivolous activities, such as buying toys or going to Las Vegas, it would be more prudent for you to use that money as a down payment. Especially since this will enable you to obtain a lower interest rate.

However, if you were to invest the $60,000 in a vehicle that can out-earn the cost of that debt, then this could be a formula for success. This is why some lending professionals suggest putting as little down as you possibly can, maximizing your tax write-off, and investing the rest. This principle has been applied for many years in the life insurance game. The old saying goes, "Buy term and invest the rest." The key component is taking the money you would have used as a down payment and creating an asset accumulation account. This account should earn a significant enough rate of return to enable you to pay your mortgage off entirely and achieve the ultimate goal of being debt-free.

Paying Your Home Down Rapidly. There are very few times over the course of my career that I have seen a client with zero debt and no financial difficulties. Choosing to pay off all of your debt can reduce stress and help you to gain freedom of cash flow for investment opportunities. A 15-year mortgage or a bi-weekly payment strategy provides structure. It can also put you on track to have your mortgage paid off within a set timeframe. Simply put, it contains built-in discipline.

It's important, however, to understand that regardless of how rapidly you pay your home off, you're not getting any greater rate of return on your investment than if you paid it off slowly.

Conclusion. So how does one determine which scenario is best? The choice depends entirely upon the individual. Savvy consumers who are disciplined, and are comfortable taking chances from an investment perspective, would do well with the first scenario. Over the course of time, it's been proven that your rate of return over the long-haul will be far greater than the rate you'd pay for a mortgage in today's rate environment. It's important to seek the advice of a skilled investment advisor to ensure success with this strategy.

The second scenario is best for those who have a difficult time managing their money or who'll sleep easier at night knowing they have a plan in place to pay their loan off more rapidly. Be sure that your budget can handle accelerated payments. When consumers "bite off more than they can chew" with a 15-year mortgage, they frequently end up having to refinance back into a 30-year schedule.

If you find this subject intriguing and would like to know more, I recommend that you read a book titled, Missed Fortune 101, by Douglas Andrew. It's an outstanding read that is very simplistic and goes into far greater detail than I can cover in this column. Douglas is a financial planner who advises safe-structured investments such as whole life policies and tax-free fixed income instruments.

A Qualified Mortgage Consultant Can Help Boost Credit Scores

Denver Lender (Denver Lender) — Wed, 19 Jul 2006 22:17:17 -0500

Consumers interested in purchasing or refinancing a home will pay an interest rate based on current market conditions and their ability to pay back the loan. The borrower’s income and debt ratios are taken into consideration by the lender, as well as the predictability factor provided by credit scoring. It’s important to have a mortgage professional in your corner that has a keen eye for solutions to improving credit scores in an effort to get the best interest rate possible.

Interest rates associated with various loan programs are broken down into schedules based on credit score ratings. While each lender has its own guidelines, it’s safe to assume that as the consumer’s credit score goes down, interest rates will go up.

A borrower with an outstanding credit rating will get what is called an A-paper loan. This type of borrower is rewarded with a lower interest rate because they have a proven track record of using credit sensibly and paying their bills on time.

Loans designed for consumers with less-than-perfect credit – sometimes referred to as “sub-prime” – can range anywhere from A-minus, B-paper, C-paper or D-paper loans.

If you have already taken out a mortgage loan with a higher interest rate because your credit score was a little under par, you will really appreciate the value in doing a little work to improve your credit score. Refinancing from a D-paper loan to a B-paper classification can save literally thousands of dollars in financing fees over time, even though the B-paper loan is still considered sub-prime.

A qualified mortgage consultant will guide you through the nuances of the process of improving your credit score to refinance and save money. First and foremost, he or she will want to review the terms of the existing mortgage loan to determine if you have a pre-payment penalty clause written into your contract. In general terms, that means that if you sell the home or try to refinance before the pre-payment penalty expires and you have not already paid off 20 percent of the original loan amount, you will most likely have to pay a 3 percent fee back to the lender to compensate for the high risk and high costs incurred to provide that financing.

Next, you should obtain free copies of your credit reports from www.annualcreditreport.com and start working on improving the credit score six months prior to the expiration date on your existing pre-payment penalty.

There are five factors that make up the credit score and your mortgage consultant can coach you through some basic strategies to improve your credit score. This means very conservative use of credit cards, paying off debt as much as possible and not applying for additional credit cards unless you will benefit from such action. You will want to verify that negative items you have paid off are being removed from your credit report, and that good credit history is being reported to all three bureaus. You’ll also want to dispute any errors that appear on your credit reports and seek to have those removed entirely.

Once your credit score improves, it’s time to refinance at a better interest rate. Your mortgage professional should look for a program that carries no more than a two-year prepayment penalty so you can continue to refinance as your credit score increases. You can repeat this process until you reach A-paper status and secure the best interest rate available.

This is a strategy that also works well for first time home buyers who do not have enough credit history under their belt to get an A-paper loan at the time of purchase. The important thing is to work with a mortgage consultant who can give you a roadmap to follow and a strategy for success in building personal wealth.

Renters Have Much to Gain by Pursuing Home Ownership

Denver Lender (Denver Lender) — Wed, 19 Jul 2006 22:15:42 -0500

Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage consultants will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages.

Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment.

The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up!

However, if you were to purchase your own home or condominium, you would be well on your way toward building equity within that same five-year period. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop, and this would cause your monthly mortgage commitment to go down.

In addition to building equity, there are tax advantages that come into play with home ownership. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf.

To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.

There are many different types of loan programs available, including “low” and “no” down payment mortgage programs. These types of programs require the borrower to provide less than 3 percent of the loan amount as down payment. FHA lenders rule that the mortgage payment, including principal, interest, taxes and insurance (PITI) should not exceed 31 percent of your gross income, and the PITI plus other long-term debt (car payments, etc.) should not exceed 43 percent of your gross income.

Housing is an expense that takes a big bite out of the monthly budget. If you are a renter and feel that “home” is more than just someplace to hang your hat, think about the advantages of purchasing real estate. It may be time to take the step into building your personal net worth as a home owner.