By John Rapasky

            I am seeing many investment purchase transactions come across my desk.  It seems that many of you feel it is a great time to buy an investment property.  Based on today’s interest rates and prices of homes, I can see why.  Rates of return on an investment property can range between 10% to 25% per year, putting the purchase of an investment property as one of the best investments you can make today.  An examination of the numbers bears this out. 

            Most of the investment properties that come to us have sales prices under $150,000.  In order to get the best rates and costs, be prepared to make a 25% down payment on these properties.  As an example, let’s assume a $125,000 sales price.  With a 25% down payment, this results in a $93,750 loan amount.  At a 5.5% interest rate, the principal and interest payment is $532.50 per month.  Assuming $720 per year in insurance, and $1,800 per year in real estate taxes, your monthly principal, interest, taxes, and insurance payment is just under $750 per month.  Depending on where you purchase, you may be able to receive $1,200 per month in rental income.  This results in $450 per month in income.  To determine your return on investment, you take the annual income from the rental property, $5,400 ($450 x 12 months), and divide it by the down payment, closing costs, and prepaid expenses ($31,250 + $5,000 estimated closing costs and prepaid expenses).  This results in approximately a 15% return per year.  As compared to other investments today, this is a very competitive return.  Also, you will have the appreciation of capital, assuming the housing market will begin to recover. 

            You may think that it could be hard to get the property rented.  Well, like with any other piece of real estate, it all depends on location, location, location.  We have seen that there are many good renters in this market.  Many people find themselves renting because they cannot qualify for a home due to economic factors such as a past foreclosure, short sale, loss of job, or other factors.  Notwithstanding these prior misfortunes, they could be good tenants as they now have these events behind them. 

            Knowing that the return on investment is competitive, and that there are many good renters in the market place, do you think it is a good time to buy an investment property?  Contact us and we will be happy to go over your scenario with you. 

John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2011 Counsel Mortgage Group®, LLC

By Ken Janzen

Is renting in today’s market really a good deal?

What do the numbers tell us? To get an idea, let’s take a look at the 85254 ZIP code as of today. MLS offerings indicate that a typical monthly rent on a 3 bedroom home in the area might run about $1800 a month.  The MLS also shows that there are over forty 3 or 4 bedroom homes in the ZIP code listed for sale at less than $230,000.

Given this information, let’s ask the question again. Is renting in this market a good deal? The math tells us that for a significant number of people, it probably is not.

A fun way to test this is to run a simple cost/savings comparison and there are some reasonably good, easy to use, on-line Rent versus Buy calculators readily available to consumers. In my opinion, two of the better ones are offered through Freddie Mac and Yahoo!®.  Freddie Mac’s calculator will allow the user to account for acquisition and selling expenses as well as the amortization of the loan (both links are listed below).

Using the 85254 zip code rent estimate from above and assuming a very modest 2% rent increase per year, a tenant would pay in excess of $114,000 in rent and insurance payments over a 5 year period. Wow!

What if that same tenant could scrape together less than $10,000 and bought a home, say for about $225,000? Over the same five year period, assuming a 28% combined tax bracket for the buyer, allowing for $6000 in maintenance expenses, 6% in selling expenses and assuming the home experiences zero appreciation, Freddie Mac’s calculator estimates that the “tenant-turned-buyer” would be over $30,000 ahead! Now we’re talking!

It’s interesting to note that the total monthly payment on the example home is estimated to be lower than the typical rent and the economic benefit of buying is significant, even without considering the potential income tax savings generated by mortgage interest and property tax deductions!

These incredible circumstances are not confined to just one or two neighborhoods or ZIP codes. There is money to be saved all across the valley. Don’t just talk about it, SHOUT about it!

http://www.freddiemac.com/corporate/buyown/english/calcs_tools/

http://realestate.yahoo.com/calculators/rent_vs_own.html

Ken Janzen is a Senior Mortgage Consultant with the Counsel Mortgage Group, LLC.  Contact Ken to help you evaluate whether you should rent or buy at  ken@counselmortgage.com.  Counsel Mortgage Group, LLC is an Arizona mortgage brokerage.  You can learn about them at www.counselmortgage.com.  Copyright © 2011 Counsel Mortgage Group®, LLC l

By John R. Rapasky

            Can you get a mortgage if you have a derogatory item on your credit report, such as a collection, charge-off, or a judgment?  Maybe.  Believe it or not, your credit score may be high enough to qualify even with the derogatory item on your credit report.  Also, depending on the dollar amount of the derogatory item, it may not need to be paid off in order to qualify. 

            The first thing to do is to pull your credit and take a look at the derogatory items.  If you want to do this on your own, you can go to www.annualcreditreport.com, where you get one free credit report per year.  You cannot get your credit score at this website, but you will be able to see what is reporting on your credit.  Alternatively, contact us and we can pull your credit.  If your score does not qualify, we will work with you to improve your score.  If the score meets the minimum requirement, complete a loan application on our website at www.counselmortgage.com to see if you can qualify for a home loan. 

            Once you review your credit report, your initial reaction may be to pay off the collection, charge-off, or judgment thinking your credit score will improve.  However, this may not be the case.  When you payoff a collection or charge-off, your score actually goes down first, before it will go up.  In fact, it may take months before the score will improve.  The rationale for this, in my opinion, is that it is an admission by you that you have owed this debt and are now getting around to paying it much later.  As a result, the score initially decreases.  The score typically recovers over a period of time.    

            Judgments are a little different.  You most likely will have to satisfy the judgment before you will be approved for a mortgage.  The lender will want the judgment satisfied in order to ensure that no other liens could affect their mortgage on the home.  Contact us about the judgment and we can let you know if you should satisfy it before applying for the loan. 

            In sum, derogatory items on your credit report do not necessarily mean that you will not be able to qualify for a home loan.  Have us review your credit report and see if you can qualify notwithstanding the derogatory item.     

            John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2011 Counsel Mortgage Group®, LLC

By John R. Rapasky

            On occasion, we will provide tips to help you to improve your credit score.  In this article, we will talk about credit cards, and how they can help, or hurt, your score. 

            Credit cards are a significant factor in determining your credit score.  Credit bureaus look at your credit card balances and history to determine how you manage your discretionary spending.  The credit bureaus do not know your spending habits, but by reviewing the credit card balances, they can make conclusions regarding your ability to manage credit which will affect your credit score.  If the cards are “maxed out”, or at their limit, they can negatively affect your credit score as the credit bureaus will conclude that you have trouble managing credit.  On the other hand, if you do not use credit cards, or have no credit, it does not help your credit score because the credit bureaus see that you do not use credit.  In order to obtain a credit score, you have to use credit.  Thus, the answer lies somewhere in between. 

            Ideally, you want to maintain a balance of no more than 20% to 25% of the high credit limit on the card.  So, if the credit limit on the credit card is $1,000, in order to maximize your credit score, you do not want to have a balance any higher than $200 to $250.  By maintaining this balance, it tells the credit bureaus that you are using credit and can manage credit.  Thus, it generally has a positive affect on your credit score, and can improve your score.  Maintaining about 2 or 3 credit cards with these balances may be a good idea.  Also, credit cards that are secured by banks seem to be more favorable than credit cards that are secured by retail stores. 

            We have counseled our customers on this issue over the years, and have seen scores improve as a result.  If you have any questions on your credit, contact us.  We will counsel you to help you improve your score so that you can purchase a home. 

            John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2010 Counsel Mortgage Group®, LLC

By John R. Rapasky

            Loans today require full documentation.  Many times I get asked why certain documents are required.  In today’s lending environment, files are scrutinized closely.  The following are some items that are being requested, and the rationale for the requests. 

            1.  Unexplained deposits in your bank accounts – lenders will ask for documentation to support deposits in your bank accounts where there is not any explanation for the deposit.  For example, some deposits appear on bank statements with simply the word(s), “Deposit” or “Counter Credit.”  As such, the underwriter does not know the source of this money.  The underwriter will inquire as to the source of these funds in order to make sure it will not affect their lien.  For example, they may want to make sure you did not borrow any money that could potentially result in a lien on the property.  They will generally request documentation relating to these deposits.    

            2.  Letter of explanation regarding inquiries on your credit report – many lenders require a letter of explanation regarding inquiries appearing on your credit report in the last 120 days.  They want to make sure you have not obtained any credit that may not appear on your credit report.  You will have to explain the inquiries appearing on your credit report, and, in some instances, provide documentation regarding these items.    

            3.  All pages of your bank statements, retirement account statements, investment account statements – lenders want to see all pages of your statements, even if the last page is the advertising circular, or is blank.  These statements typically show the page numbers as page __ of __.  Because the underwriters know the page numbers in the series, the underwriter does not know whether the last pages are advertising or blank, and will want to review them.  Among other things, the underwriter reviews the bank statements for unexplained deposits (see #1 above).  They want to make sure there is nothing on the bank statements that could affect their lien. 

            4.  Last two years tax returns, all pages – more lenders are requiring tax returns, especially if you are self-employed.  In order to qualify, self-employed individuals must have been self-employed for at least the last two years.  The income used for qualification will be the net income, after expenses.  So, if you write-off all of your expenses, and don’t pay any tax, you may not qualify.  Lenders want to see stability of income.  They want to see that you have been making money over a period of years.  Thus, when it comes to self-employed borrowers, the lenders rely on the past to predict the future, i.e. stability of income. 

            In sum, if you want the loan, provide the documentation.  As I was told years ago, the golden rule of lending applies.  He who has the gold, makes the rules.  The lenders have the gold, if you want the loan, follow their rules – provide it, don’t fight it. 

            John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2010 Counsel Mortgage Group®, LLC

By Ken Janzen

The August 19th Arizona Republic Business Section contained an article entitled “Low rates out of reach for most Arizonans.”  Fortunately, that’s not necessarily true!

Although the main news story is certainly timely and reasonably accurate, the “What it takes to qualify” box that follows the article contains several statements that could potentially and inadvertently discourage some homebuyers from looking for a new home or existing homeowners from applying to refinance.

Specifically, the myths are:

1.  Front-end ratio:  The proposed mortgage payment must be no more than 31 percent of the buyer’s gross annual income.”  FALSE!  Every borrower is unique and evaluated individually; all facets of the profile are considered.   An acceptable “Front-end” ratio frequently exceeds 31%.

2.  Back end ratio:  Consumer debt must total no more than 43% of the buyer’s gross annual income.”  FALSE!   Total debt to income ratios are often approved at levels in excess of 43%; although potential borrowers should carefully consider the true affordability of high debt ratios.

3.  No late payments:  The buyer cannot have made any payments more than 30 days late on credit cards, rent or a mortgage within the past two years.”  Once again, FALSE! Multiple late payments over the past couple of years may preclude some borrowers from being approved, but isolated late payments will not prevent most applicants from obtaining a new home loan.

The take away is to always consult with an experienced, qualified, licensed mortgage originator. You may be pleasantly surprised by what you hear!

            Ken Janzen is a Senior Mortgage Consultant with the Counsel Mortgage Group®, LLC.  He would be happy to guide you through the new regulations.  You can contact him at ken@counselmortgage.com.  Copyright 2010© Counsel Mortgage Group®, LLC

By John R. Rapasky

            We were recently quoted in the Arizona Republic on the state of the real estate market in Arizona.  Click here to see that article.     

            The article provides that Scottsdale existing home sales jumped 36 percent in the fist half of 2010.  Likewise, we are beginning to see lenders offering more aggressive products.  For a conventional loan, the minimum down payment is now 5%.  Also, lenders will allow 20% down on loans up to $2 million.  These 2 products have come back into the market in the last year.  Hopefully, this means that lenders are starting to feel a little better about risk and are willing to lend.  In order to qualify for these loans, you would have to meet the elements of the ACID^sm test, written about in one of our previous blog articles. 

            We hope we are at the beginning of a period where lenders are offering more products to borrowers to meet their financing needs.  We stay on top of the various products offered in the market.  Contact us and we can see if you will be able to qualify for one of today’s products.  

            John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2010 Counsel Mortgage Group®, LLC

APR – ANNUAL PERCENTAGE RATE

WHY IS IT IMPORTANT? 

By John R. Rapasky

            In every residential loan transaction, the Truth-In-Lending disclosure form contains the Annual Percentage Rate (known as APR).  Often, this rate is different than the interest rate on the loan.  I often get asked why this is, and what is the real rate on my loan?  This blog article explains APR, and why it is important to you in evaluating a loan. 

            The APR discloses the cost of credit.  The APR is calculated by taking into consideration the finance costs of the loan, and disclosing those costs in terms of the interest rate.  The APR is usually different than the note rate on the loan. 

            Often, on a 30-year fixed mortgage, the APR is higher than the note rate.  This is due to the costs of the loan.  Typical costs that affect the APR are underwriting, processing, origination, discount, escrow, and prepaid interest.  Be careful, a simple comparison of APRs will not tell you what product has the lowest rate and costs.  There are other costs to the loan transaction that do not impact the APR, such as appraisal fee, credit report fee, title insurance, and recording fees.  Thus, a review of the APR by itself may not give you the lowest rate and costs on a loan. 

            On adjustable rate mortgages, the APR could be misleading.  For example, if the loan is a 5/1 ARM, the rate is fixed for 5 years, and is then adjustable for the remaining 25 years of the loan.  The rate during the 25-year adjustment period is based on an index, such as the one-year treasury index or the one-year LIBOR, plus a margin.  The index can vary from year to year, but the margin is the same for the remaining 25 years.  If the rate during the adjustment period is less than the note rate, the APR will likely be lower than the note rate.  Therefore, a review of the APR on adjustable rate mortgages may be misleading when determining the lowest rate and costs on a loan. 

            In sum, APR can be helpful when comparing the rate and costs of various loan programs.  However, it is only one factor to consider when evaluating a loan.  Feel free to contact us if you have any questions regarding APR and selecting your loan.   

            John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2010 Counsel Mortgage Group®, LLC

By John R. Rapasky

            With all of the changes in the lending industry, I thought I would write a blog on why you would want to work with a Counsel Mortgage broker.  When I looked for a mortgage loan the first time I purchased a home, I did not know there were a variety of different options to get a mortgage loan.  I went to a mortgage broker, and since then have obtained all of my loans through a mortgage broker.  In this blog article, I will discuss the different options available to get a home loan, and why you would want to work with a Counsel Mortgage broker.  As you can see from our website, the professional experience of the loan originators at Counsel Mortgage is unmatched in the industry. 

MORTGAGE BROKERS

            Mortgage brokers provide consumers with a choice.  Brokers have relationships with many lenders and are aware of their rates and products.  The broker is able to obtain mortgage products and rates for you at wholesale, which typically result in lower rates and costs.  If not for mortgage brokers, you would be left with going to different banks yourself, selecting from typically higher retail rates and costs, and trying to determine on your own which bank’s rates, costs, and products are best for you.  A mortgage broker does this work for you. 

Further, beginning July 1, 2010, Arizona loan originators who work for mortgage brokers must be licensed in order to originate your mortgage loan.  The requirements for licensure can be found in our blog on loan originator licensing by clicking on this category in the right hand column. 

LOAN OFFICERS WITH A BANK

            Many people like to go to their bank for a loan and work with a loan officer.  However, the products and rates at a bank are limited to only those offered by that bank.  The rates are at retail, which are usually higher than wholesale.  Furthermore, loan officers who work at a bank do not have to be licensed.  Thus, by going directly to a bank, you have limited options and work with an unlicensed loan officer. 

MORTGAGE BANKERS

            Another option is to work with a mortgage banker.  Mortgage bankers typically have a relationship with a bank, and may also be able to broker loans.  They market themselves as offering the convenience of a bank with on-site underwriting and funding for a quick close, plus the ability to broker outside of the mortgage bank to another lender.  Nevertheless, in many instances, mortgage bankers work with their bank, rather than brokering the loan.  One of the main reasons why this occurs is because bankers do not have to disclose their commission if the loan is sent to their bank. 

Mortgage bankers sell their loans into the secondary market like every other entity.  Thus, they will likely need to meet similar documentation requirements that would be required by a mortgage broker or loan officer.  We, at Counsel Mortgage, actually have close relationships with lenders and underwriters and can underwrite or fund loans quickly, and in some instances more quickly, than a mortgage banker or bank.  Furthermore, we do not have any ties to a bank and therefore are not compelled to send loans to one bank.    

BROKERS MUST DISCLOSE COMMISSIONS, BANKERS DO NOT

The only loan originator that has to disclose their commission is the mortgage broker.  Loan officers at a bank and mortgage bankers do not have to disclose their commissions for non-brokered loans.  But, mortgage brokers, like every other entity in a real estate transaction, i.e. real estate agents, title companies, appraisers, etc., must disclose their commission.  In fact, many mortgage brokers have recently become mortgage banks for the simple fact that they do not have to disclose their commission.  You will know what the loan originators at Counsel Mortgage make on every transaction as we disclose our commissions. 

WORK WITH A COUNSEL MORTGAGE BROKER

            As described above, mortgage brokers provide choices for their customers to help them find those products that suit them.  They must broker the loan, and do not have the option of keeping it in house to avoid disclosure of their commission.  Further, they must search the market for the best product for their customers in order to be competitive.  Counsel Mortgage originators work hard at customer service and educate our customers about the process to keep them informed of the transaction.  You can see the experiences of some of our customers in the testimonials section of our website. 

            We look forward to the opportunity to work with you and to show you how we care about you and your loan.  Please contact us and we will be happy to help you. 

            John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2010 Counsel Mortgage Group®, LLC

By John R. Rapasky

            All loans today require full documentation.  The most common question I am asked is what documents are needed to apply for a loan.  The following is a list of documents that are typically needed to apply for a residential loan.  Each scenario is different, and there are probably documents that would not apply to you in this list.  Alternatively, there may be items that do apply to you that are not in this list.  Contact us and we will be happy to make sure you have the correct documentation to get your loan approved!

           1.  Copy of front and back of drivers license

           2.  Copy of social security card

           3.  Last two years W-2s

           4.  Last two years tax returns, all pages

           5.  Last two paystubs

           6.  Last two months bank statements, all pages

           7. Last two months brokerage account statements, retirement and non-retirement, all pages

           8.  Copies of leases for rental properties

           9.  Copy of divorce decree, court order for child support

          10. Name and phone number of your homeowners insurance agent

          11. Copy of front and back of canceled earnest money check and bank statement showing the check cleared

          12. Name and phone number of the property manager for the HOA for condominiums

          13. Executed Power of Attorney, specific to the address and limited in time, in the event you cannot sign and someone will sign on your behalf

          14.  Gift letter and copy of bank statement from where the gift will come

          15.  Social security award letter

          16.  Pension award letter

          17.  Copy of HUD closing statement for the sale of your home if down payment on the new home is coming from the sale of your old home

             John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2010 Counsel Mortgage Group®, LLC