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Bi-Weekly Mortgage Payments Will Payoff a 30-Year Mortgage in Only 24 Years

June 8th, 2018

The Bi-Weekly Mortgage Payment Plan is a convenient mortgage budgeting plan that can help you save thousands of dollars in interest and pay off your 30-Year Mortgage in only 24 Years. This also lowers the overall effective interest rate paid on the mortgage, so if your rate is around 5%, your effective payback interest rate will be around 4% when using the Bi-Weekly mortgage plan. The Bi-Weekly mortgage payment plan is easy to set up, as there are 3 different ways to make payments that will accomplish the same result.

Typical Mortgage = 12 Payments Per Year

The typical mortgage asks for one payment per month, which equals 12 payments per year. With a 30-year fixed rate mortgage, therefore, 360 payments are required to pay the loan in full.

Each mortgage payment is split into two parts — a principal portion and an interest portion. The principal portion is applied to the amount that you owe the bank.

This diminishes your remaining loan balance. The interest portion is your cost for borrowing from the bank.

As your loan moves toward maturity, the balance between your mortgage payments’ principal-and-interest shifts. In the early years, a significant portion of your payment is comprised of interest and just a small part goes to paying down your balance.

It’s not until later in your loan’s life cycle does the principal portion of the payment start to grow.

Bi-Weekly Mortgage Payments = 13 Payments Per Year

A bi-weekly mortgage payment program is meant to short-circuit your loan’s amortization schedule. Check out th example above.

Instead of taking 12 payments per year, the bi-weekly payment plan asks for one payment every two weeks, which adds up to 13 payments per year.

Except that you can’t make 13 payments per year on your mortgage — that’s not how a mortgage works.

With a mortgage, you pay a certain amount of interest on an annual basis and that amount is covered in your first twelve payments.

The 13th payment has to go somewhere, though, so it gets applied to your principal balance; the amount that you still owe to the bank.

And, this is how a bi-weekly payment plan works. With each “13th payment”, your loan balance is reduced by the entire amount of the paymentYou reach your loan’s payoff date sooner.

At today’s mortgage rates, bi-weekly payments shorten your loan term by at least 6 years. Here is an example above of a Bi-weekly payment plan on a $200k mortgage.

In this example the homeowner will save over 6 years off their mortgage and a total of $68,284 in interest using this payment plan, compared to making regular payments over a 30 year term.

This also lowers the over all effective interest rate paid on the mortgage. If the rate on your mortgage is 5%, your effective payback interest rate will be around 4% using the bi-weekly mortgage plan.

2 Other Ways to Make Bi-Weekly Payments

Bi-weekly payments plans work; there’s no doubt about that. It’s just basic math. There are two other ways you can self-manage your bi-weekly payment plan, so you accomplish the same goal of paying off your mortgage faster.

Here’s how to self-manage:

1. Rather than sending payments to the bank every other week, you can achieve the same result by making your regular mortgage payment once monthly, by adding 1/12 of your regular mortgage payment to your check each month.

For every $1,200 in your mortgage payment, in other words, add $100 to your monthly payment. By sending $1,300 to your lender monthly, you will “overpay” your mortgage by $1,200 annually, which is a 13th payment.

2. The 3rd and final way to accomplish the bi-weekly program, is to just send in one extra monthly payment a year. Some people do this after they get their tax refund.

Or if you earn bonuses and commissions at work, just send the bank one extra payment a year, and you can save 6 years off your mortgage.

Is it Better to Self-Manage Your Mortgage Payments?

One reason to skip the bi-weekly mortgage program is that bi-weekly payments are a contract and once that contracts starts, as a homeowner, you’re obligated to make those 13 payments per year no matter what.

By contrast, with a self-managed payment plan, you never have that obligation. You can choose to skip a month during the holidays, for example, then double-up on payments later on, or not at all. It’s all in your control — not the bank’s.

And, lastly, if you find your bank is charging for it’s bi-weekly mortgage payment program, I would probably say no to that, you can save that money by self managing your payments.

I hope you found these tips helpful. If you have any questions about how to set up a Bi-Weekly payment plan, please feel free to contact me directly at 858-442-2686. I look forward to chatting soon!

P.S. If you would like to be updated faster on any important industry news or new loan programs that come out, please join my Facebook Page.

Own vs Rent: Buy a $650k Home With a $3400 Payment vs Rent for $3400

May 28th, 2018

Many people ask the question, “is it better to own or rent“? A good answer to that question is, “you are paying for housing whether you own or rent, so you should take advantage of the financial benefits of owning a home“. Instead of renting for $3,400 a month, a buyer can purchase a $650,000 home with 20% down for the same monthly payment. Check out the “Own vs Rent 10 year Home Purchase Plan” I shared with a client this week that shows all the financial benefits that come with owning a home, vs renting for $3,400 a month.

Financial Reasons to Buy a Home versus Rent

Here are some of the financial reasons to buy a home instead of rent.

Homeowners get to take advantage of tax benefits and paying down the principal on their loan, whereas renters help pay the landlords loan so he can take advantage of tax benefits and principal payments.

When you own a home it is also a hedge against inflation.  You will get a low fixed rate mortgage and your principal and interest payment will never change. Whereas rent will continue to go up over time with inflation.

Homeowners get to take advantage of the magic of appreciation. Over time the value of a home will increase. If you bought a home anytime over the past 8 years, you have probably made some good appreciation on your home. Compare this to paying rent over the past 8 years.

Compare Owning vs Renting for $3,400 a month

Here is a “Own vs Rent 10 year Home Purchase Plan” I shared with a client this week, that shows the benefits of owning a home with a payment of $3,400 a month, versus renting for the same payment.

You can also review this Own vs Rent report online at https://mcedge.tv/1cb5pl

With a $3,400 payment, the buyers can purchase a $650,000 home with 20% down.

On the left column is the $3,400 in monthly rent.

On the right column, is the $650,000 home purchase with a down payment of 20% with conventional jumbo financing, with an interest rate of 4.625%. The total PITI payment is $3,398 a month, which includes principal and interest, property taxes and homeowners insurance.

As you can see above, the owner will get tax benefits of $923 a month, and pay down principal of $669 on the loan, versus no financial benefits from writing a check for $3,400 in rent every month.

Compare Principal Paid vs Rent Paid over 10 years

In this section of the report, it compares how much rent versus principal is paid over the next 10 years.

The owner will have paid down the principal on the loan by $101,881 over the next 10 years.

Compare this to paying $467,726 in rent over the next 10 years to the landlord.

Compare Net Worth in 10 years

In this section of the report, it compares the net worth after 10 years of owning a home versus renting.

The owner will accumulate a net worth of $455,427 over the next 10 years, by paying down the principal on the loan, tax benefits, and accumulated equity gains due to appreciation on the property.  In this example I used a conservative 3% annual appreciation rate.

There are no financial benefits to paying rent over the next 10 years.

The Impact of Rising Rates on Buyer Purchasing Power

As interest rates have continued to rise recently, a question that many renters and buyers are asking is, “If rates rise how will this affect my affordability?”

Here is a chart that shows the “impact of rising rates on a buyers purchasing power or affordability”.

As you can see below on the chart, if rates just increase by 1%, from current levels of 4.5% to 5.5%, a buyer will lose 10.75% in purchasing power.

This means, if a buyer can afford to purchase $600k today, but rates increase by 1%, they will only be able to afford $535,500 using the same monthly payment.

If a buyer can afford to purchase $800k today, but rates increase by 1%, they will only be able to afford $714,000 using the same monthly payment.

If a buyer can afford to purchase $1,000,000 today, but rates increase by 1%, they will only be able to afford $892,500 using the same monthly payment.

It is still a good time to buy a home

It’s still a good time to purchase a home, especially as the cost of borrowing money with today’s interest rates is still very low historically. The average 30-year fixed rate over the past decade was 6.7% and 8.9% over the past 30 years.

When you crunch the numbers and weigh up all the financial benefits that come with home ownership, and compare it to what you are paying in rent, buying a home is a better financial decision.

It is important that buyers are given all the information they need so they can make an informed decision about buying a home. Buyers love these “Own vs Rent Reports”above, because it shows them all the financial benefits and different figures they need to see when making the decision to purchase a home.

If you would like to review one of these “Rent vs Own Reports” like this example above, please contact me directly at 858-442-2686. I look forward to chatting soon.

P.S. If you would like to be updated faster on any important industry news or new loan programs that come out, please join my Facebook Page.

The Extra Cost of Waiting to Buy a Home as Rates and Home Prices Increase

May 11th, 2018

The Cost of Waiting to Buy is defined as the additional funds it would take to buy a home if home prices and interest rates were to continue to increase. So far in 2018, both interest rates and home prices have continued to increase. If rates continue to increase 1% higher from where they are today, a buyer who can afford to purchase $800,000 today, will only be able to afford $714,000 using the same monthly payment, which is a loss of 10.75% in purchasing power.

Why Interest Rates Will Continue to Increase

It looks like rates are going to continue to move higher again over the next few months, as the technical trading signals are growing louder and more dangerous.

With every moment that the 10-Year Treasury remains above the 2.95% technical level (see chart below), it is looking likely that rates have turned 2018’s previous ceiling into a floor.

This means the 10-Year Treasury is probably going to increase to the next technical trading level of around 3.35%, which will increase the 30-year mortgage rate another “.30” from current levels. The 30-year mortgage rate follows the direction of the 10-Year Treasury.

This means we are looking at 5% interest rates soon. If you know of any buyers who have been putting off a home purchase, let them know their interest rate is probably going to increase as each month goes by.

The Impact of Higher Rates on Buyer Purchasing Power

A question that many buyers ask is, “If rates rise how will this affect my affordability?”

Here is a good chart that all buyers should review, that shows the “impact of rising rates on a buyers purchasing power or affordability”.

As you can see, if rates just increase by 1%, from current levels of 4.5% to 5.5%, a buyer will lose 10.75% in purchasing power.

This means, if a buyer can afford to purchase $600k today, but rates increase by 1%, they will only be able to afford $535,500 using the same monthly payment.

If a buyer can afford to purchase $800k today, but rates increase by 1%, they will only be able to afford $714,000 using the same monthly payment.

If a buyer can afford to purchase $1,000,000 today, but rates increase by 1%, they will only be able to afford $892,500 using the same monthly payment.

The Cost of Waiting to Buy a $750k Home

Here is an example below of the potential extra cost for waiting to buy a $750k home, if both rates and home prices continue to increase.

As of today, if a buyer pays a point they will be able to buy down the rate to 4.02%.

But if rates increase to 4.80% and the home price increases by 5% over the next 12 months, the monthly payment will increase from $3,589 to $4,127, which is an increase of $538 a month.

This amounts to an extra $6,456 annually, and $193,680 over the life of the loan. Therefore the cost of waiting to buy this home could cost an extra $193,680.

The Cost of Waiting to Buy a $250k Home

Here is another example below of the potential extra cost for waiting to buy a $250k home, if both rates and home prices continue to increase.

As of today, if a buyer pays a point they will be able to buy down the rate to 4.3%.

But if rates increase to 5.1% and the home price increases by another 4% over the next 12 months, the monthly payment will increase from $1,237 to $1,415, which is an increase of $178 a month.

This amounts to an extra $2,136 annually, and $164,080 over the life of the loan. Therefore the cost of waiting to buy this home could cost an extra $64,080.

The Cost of Borrowing Money is Still Cheap Historically

When compared to rates historically, current rates are still very cheap. This chart below puts current mortgage rates in perspective.

Did you know the average 30 year fixed mortgage rate over the past 40 years is roughly 8.7%, and 6.29% over the past decade.

Compare this to current rates around 4.5%. As rates are going to continue to increase, current rates are still a gift to anyone looking to borrow money to finance a home.

Tips for homebuyers

It is still a good time to buy a home, as the cost of borrowing money to finance a home is still historically very low.

It is a great time to get out there and shop for homes. We are entering the summer months soon, which means there will be more inventory available.

I tell my buyers not to focus on rising rates or home prices. Find a home that you love and that you can afford for your family.

If you have any questions about any of this information above, please feel free to contact me directly at 858-442-2686. I look forward to chatting soon!

P.S. If you would like to be updated faster on any important industry news or new loan programs that come out, please join my Facebook Page.

2018 Mortgage Waiting Periods for Buyers With Prior Short Sale, Foreclosure or BK

April 21st, 2018

It is hard to believe that it has been a decade since the housing crash in 2008. It is another year that has passed for buyers to recover from a prior foreclosure, short sale or BK. We have been seeing lots of buyers who suffered a financial hardship in the past get back into the market recently to purchase a home again. Here are the current 2018 mortgage waiting periods and loopholes available for buyers who had a prior Foreclosure, Short Sale or Bankruptcy.

Buying a Home Again After a Financial Hardship

More than 9 out of 10 mortgages are either funded by Fannie Mae/Freddie Mac, the FHA or VA!

Therefore if a buyer is looking to purchase a home and needs financing, it is more than likely they will be using one of these 3 financing options.

If a buyer does not fit these guidelines, there are a lot of new financing products that are available in the market again to help fit a buyers needs. We have options where a buyer can finance a home with less than one month out of a BK, foreclosure or short sale.

Here are the current 2018 mortgage waiting periods when a buyer is looking to repurchase a home after either a short sale, foreclosure or bankruptcy.

1. When Can I Repurchase Again After a Foreclosure?

Here are the current waiting periods when a buyer can repurchase again after a Foreclosure and they are trying to obtain either Conventional, FHA or VA financing.

Conventional. It is 7 years before a buyer can repurchase again using conventional financing.

Loophole. There is a loophole that not many are aware of, see below. If you included the foreclosure in a bankruptcy, you can qualify after 4 years instead of 7 years. Contact me for more details on how to qualify under this new rule.

“For conventional financing, the bankruptcy guidelines have been updated to indicate that if a mortgage debt has been discharged through bankruptcy, even if a foreclosure action is subsequently completed to reclaim the property in satisfaction of the debt, the borrower is held to the bankruptcy waiting periods and not the foreclosure waiting period.

This means a buyer can now qualify for conventional financing after 4 years from the bankruptcy date, instead of the foreclosure date of 7 years”.

FHA. It is 3 years before a buyer can repurchase again using FHA financing. Or, see below for how a FHA buyer can qualify again after just 1 year if they experienced an economic event.

VA. It is only 2 years before a buyer can repurchase again using VA financing.

2. When Can I Repurchase Again After a Short sale?

Here are the current waiting periods when a buyer can repurchase again after a Short Sale and they are trying to obtain either Conventional, FHA or VA financing.

Conventional. It is 4 years before a buyer can repurchase again using Conventional financing.

Loophole. If you included a short sale in a bankruptcy chapter 13, you can qualify after 2 years instead of 4 years. We have been helping buyers recently qualify under this rule. Contact me for more details on how to qualify under this new rule.“For conventional financing, the bankruptcy guidelines have been updated to indicate that if a mortgage debt has been discharged through bankruptcy, even if a short sale action is subsequently completed on the property, the borrower is held to the bankruptcy waiting periods and not the short sale waiting period. This means a buyer can now qualify for conventional financing after 2 years from the bankruptcy date, instead of the short sale date of 4 years”.

FHA. It is 3 years before a buyer can repurchase again using FHA financing. But here are 2 different ways to qualify less than 3 years.

*Tip #1: The FHA has a loophole that not many people know about, if the FHA buyer did not have any late payments before their short sale, they are allowed to automatically qualify again for FHA financing.

Tip #2. The FHA reduced the time line that buyers must wait after a bankruptcy, foreclosure or short sale before qualifying for an FHA-backed mortgage, if a buyer experienced an “economic event” whereby their household income fell by 20% or more for a period of at least six months.

The period had previously been two years following a bankruptcy, and three years following a foreclosure or short sale. The FHA reduced the waiting period to ONE YEAR. 

For additional information on how to qualify under this rule, I wrote an article on this subject for the San Diego Union Tribune newspaper, see HERE

VA. It is only 2 years before a buyer can repurchase again using VA financing.

3. When Can I Repurchase Again After Bankruptcy?

Here are the current waiting periods when a buyer can repurchase again after a Bankruptcy and they are trying to obtain either Conventional, FHA or VA financing.

Conventional. For a chapter 7 Bankruptcy it is 4 years and 2 years for a chapter 13 bankruptcy, before a buyer can repurchase again using Conventional financing.

FHA. For a chapter 7 Bankruptcy it is 2 years and 1 year for a chapter 13, before a buyer can repurchase again using FHA financing. Or, see above for how a buyer can qualify again after just 1 year if they experienced an economic event.

VA. For a chapter 7 Bankruptcy it is 2 years, and 1 year for a chapter 13 bankruptcy, before a buyer can repurchase again using VA financing.

4. What if a buyer does not fit the waiting periods above? New Financing programs available

There are new mortgage options available for buyers who do not fit the more traditional mortgage options above.

Portfolio lenders are stepping in to provide mortgage options for buyers who cannot qualify for conventional, FHA and VA financing, and with terms much better than private financing.

We have lenders who will now provide financing for buyers less than 1 month out of a foreclosure, short sale or BK for example. A larger down payment will be required, and rates will be higher than traditional loans.

We also have several different stated programs for self employed and W2 buyers who cannot verify their income.

We also have bank statement programs available for borrowers, whereby we can use their monthly deposits to qualify. This is a great option for self employer borrowers who do not show all their income on their taxes.

Contact me with any scenarios you have, we typically can find a solution to most borrower situations.

Helping Buyers Rebuild Their Credit

It is also very important that buyers start to re-establish their credit again since their hardship.

For example, even though the required waiting period of say 2 or 3 years may have passed, it is also important that buyers have the required credit scores to qualify again for financing. For example, the FHA and VA only require a 580 credit score to repurchase a home again. 

The first step is for a buyer to get a copy of their credit report to verify if their financial hardship or discharge is reporting correctly and to also see what their scores are.

Then the next step is for buyers to start rebuilding credit scores. I have a section on my website  which is devoted to helping buyers and consumers  rebuild and improve their scores, see HERE, so they are able to score the best rates and financing terms.

Tips for Buyers Looking to Purchase Again

There are many buyers who suffered a financial hardship in the recent past who are already back in the market again to purchase a home.

As the VA only requires 2 years from a short sale or a foreclosure, and the FHA only 1 year in some cases, there are a lot more buyers who are eligible to repurchase again but probably just don’t know they can.

A lot of buyers I talk to who suffered a financial hardship in the past, are genuinely surprised when they realize that the FHA or VA for example allows them to purchase again after just 2-3 years!

Tip for real estate agents: A good idea is to check the dates with any clients, friends or family you helped short sale in the past, or anyone you know who had a foreclosure, and verify how much time has elapsed since their hardship. Now you can let them know when they can repurchase again using these waiting periods above.

Also let them know too how important it is that they rebuild their credit, and that they should contact you if they need credit tips on how to rebuild their credit.

If you have any questions about any of these mortgage waiting periods, or you would like to get approved for financing, please call me at 858-442-2686, or you can also email me at mdeery@citywidefinancialcorp.com .

P.S. If you would like to be updated faster on important industry news or any new loan programs that come out, please join my Facebook page .

Buyers Don’t Need 20% Down to Remove the Monthly Mortgage Insurance “PMI” on a Home Purchase

March 16th, 2018

Most home buyers today assume they need to put down 20% to eliminate the monthly mortgage insurance “PMI” on a mortgage. I probably get asked this question as much as any other when it comes to mortgages. With Conventional financing, you only have to put down 5% to remove the monthly PMI on a home purchase up to $685k in San Diego, and $715k in LA and Orange County for example. Instead of waiting to save up more money for the down payment to try and purchase a home while home prices and rates continue to rise, you can put down as little as 5% with this program. Check out how to qualify below.

Check out Saturday’s San Diego Union Tribune

If you read the San Diego Union Tribune, check out Saturdays Home Pride section. I was interviewed for a piece discussing the current housing market for home buyers.

Buy a Home With Less Than 20% Down With No PMI for Buyers

With Conventional financing, you only have to put down 5% to remove the monthly PMI on a home purchase.

The 5% down Conventional Jumbo mortgage with No PMI is helping lots of buyers finance a home in markets like San Diego, Orange County and LA, where a jumbo loan is needed to purchase a home.

Each county in California has it’s own conventional jumbo loan limit, click HERE to check your county loan limit, or contact me for more details.

This program also allows ALL of the down payment to be gifted, so buyers can reach out for a gift instead of having to wait and save up the full 5% down payment.

*If you put down less than 10% with FHA financing, you have to pay the monthly mortgage insurance for the life of the loan.

Purchase a $675k Home With Only 5% Down and No PMI

Let’s take a $675k home purchase and compare the savings with the 5% down Conventional Jumbo loan with No monthly PMI, versus a Conventional Jumbo loan with regular monthly PMI, and a 5% down FHA Jumbo loan with expensive monthly FHA mortgage insurance.

To calculate the total monthly PITI (principal and interest, taxes and insurance), we will use 1.2% of the purchase price to calculate property taxes, which is $675 a month, and $75 a month for homeowner’s insurance.

Option #1. The figures on the first column is a conventional 5% down loan with No PMI. The rate is 4.75% on a conventional jumbo 30 year fixed with No PMI. The total monthly PITI payment is $4,095.

Option #2. The 2nd option is a conventional 5% down loan with monthly PMI. The rate is 4.5% on a conventional 30 year fixed, the monthly PMI is $298. The total monthly PITI payment is $4.297.

Option #3. The 3rd option is a FHA 5% down loan with monthly mortgage insurance. The rate is 4.375% on a 30 year fixed rate, the monthly FHA mortgage insurance is $543. There is also a FHA funding fee of 1.75% due on all FHA loans, this fee of $11,221 is financed into the loan amount. The total FHA monthly PITI payment is $4,556.

Option #1 with No PMI will help you obtain the lowest monthly payment. It will save you $202 a month over the conventional loan with PMI, and saves $461 a month over the FHA loan.

As you can see below, over the next 10 years the conventional loan with no PMI will save $17,506 over the conventional loan with PMI, and $57,594 over the FHA loan.

In Summary. To obtain the lowest monthly payment and the most long term savings, the conventional jumbo loan with No PMI will get you the lowest monthly payment.

FAQ’s for the Conventional Jumbo 5% Down Mortgage with No PMI

Here is a list of frequently asked questions and answers that realtors and buyers have on the conventional jumbo 5% down loan option with No PMI.

1. What is the maximum loan amount with the Jumbo 5% down program?

The maximum loan amount with 5% down is $679,650 for for Orange Co and LA County and SF, San Diego is $649,750. You can check your county loan limit HERE.

2. Can I receive the 5% down payment as a gift?

Yes, all of the 5% down payment can be gifted on this program. Closing costs and reserves can also be gifted if needed. We can also give a lender credit to help pay closing costs too.

3. What credit score is required to qualify for this program?

We require a 620 credit score to qualify for conventional financing. A 680 score is required to remove the monthly PMI depending on what your down payment is. Please note, the lower the credit scores the higher the interest rate will be.

4. How do you eliminate the monthly mortgage insurance “PMI’ option on this program?

It’s very simple. All you have to do is take a slightly higher interest rate than normal, say from 4.5% to 4.75%, and we use a lender credit with the higher interest rate to eliminate the PMI from the mortgage payment. This is also known as lender paid mortgage insurance.

5.  Can I get 5% down with No PMI on 2nd homes or Investment Properties?

No, the 5% down is for Primary Residences only. You have to put down 10% for a 2nd home and 15% down for an investment property. The NO PMI option is also available on both.

7. Are co signers allowed on this program?

Yes co-signers are allowed on this program, the co-signer does NOT have to reside in the home.

8. Is this program for first time buyers only?

No, this program is available to all buyers.

9. Do condos qualify for this program?

Yes, you can also purchase a condo using this program with only 5% down and get the No PMI option.

10. What is the maximum number of units for a home with the 5% down payment mortgage?

The 5% down mortgage is for single-unit homes only. This includes single-family detached homes and single-family attached homes such as condominiums and town homes. 2-unit homes, 3-unit homes, and 4-unit homes cannot be financed with the conventional 3% down mortgage.

11. What if I put down 10% or 15%, will I get a lower rate?

Yes, if you put down 10% or 15% as a down payment, you will get a lower interest rate. With conventional financing, the larger the down payment, the lower the interest rate you will get.

If you have any questions about any of these programs or getting approved for financing, please feel free to contact me at 858-442-2686. I look forward to chatting soon.

P.S. Please join my Facebook page if you would like to be updated faster on any new loan program changes or industry news.

Own vs Rent for $3600 a Month: Buy a $600k Home With 5% Down and No PMI

February 10th, 2018

Instead of renting for $3,600 a month, did you know you can purchase a $600,000 home with only 5% down with No monthly mortgage Insurance “PMI” for the same monthly payment. When you factor in all the financial benefits and tax deductions you get to take advantage of when you own a home, it is cheaper to own a home versus rent in many parts of California. Check out the “Own vs Rent” report below comparing renting versus owning for $3,600 a month.

Compare Owning vs Renting for $3,600 a month

There are many renters in California paying monthly rent around $3,600. What many renters don’t know is, how much home they can purchase for the same monthly payment.

Instead of paying $3,600 a month in rent to your landlord, did you know you can purchase a $600,000 home with only 5% down conventional jumbo financing with No monthly mortgage insurance “PMI”, for the same total monthly payment.

Check out this “Rent vs Own” report below comparing renting versus owning for $3,600 a month.

On the left column is the $3,600 in monthly rent.

On the right column, for the same monthly payment of $3,600 a month, you can buy a $600,000 home with a down payment of 5% using conventional jumbo financing, with an interest rate of 4.625% with NO monthly PMI. The total PITI payment is $3,600 a month, which includes principal and interest, property taxes and homeowners insurance.

As you can see above when owning a home, $733 a month will go towards paying down the principal on the loan. You will also get to claim tax benefits of $978 a month. Both of amount to $1,712 a month in total benefits.

Compare this to zero tax benefits when paying rent of $3,600 every month.

Compare Principal Paid vs Rent over 10 years

In this section of the report, it compares how much rent versus principal you will pay over the next 10 years.

By owning a home, you will have paid down the principal on your loan by $111,677 over the next 10 years.

Compare this to paying $495,240 in rent over the next 10 years with no financial benefits.

Tax Benefit Analysis Over Next 10 years

As you can see below, when owning a home you will be able to claim tax benefits of $978 a month. Over 10 years the tax benefits amount to $109,198.

When paying rent of $3,600 a month, there are No tax benefits.

Compare Net Worth in 10 years

In this section of the report, it compares your net worth after 10 years of owning a home versus renting.

By owning a home, you will accumulate a net worth of $348,027 over the next 10 years, from the financial benefits of home ownership.

The 3 main financial benefits to owning a home are, paying down the principal on the loan, tax deductions, and accumulated equity gains due to appreciation on the property. In this example I used a conservative 3% annual appreciation rate.

Whereas with renting over the next 10 years, you will have a zero net worth, as there are no financial benefits to paying rent.

Click HERE for more information on how to qualify for this loan program above, the 5% down conventional jumbo loan program with No monthly mortgage insurance “PMI”. There is also a Q&A section in the article too.

The Impact of Rising Rates on Buyer Purchasing Power in 2018

As rates have already increased over “.5” since the New Tax Bill was passed in December, it is important that buyers understand that rising mortgage rates do more to influence their home affordability than rising home prices.

Here is a good chart below to share with home buyers. It shows the “impact of rising rates on a buyers purchasing power or affordability”.

Current jumbo rates today are around 4.5% on a 30 year fixed.  If a buyer can afford $600k at a rate of 4.5% today, but rates increase by another 1%, the buyer can only afford $535,500, a loss of 10.75% in affordability.

Based on how rates are currently trading, it looks like mortgage rates may be moving towards 5% over the next several months.

Why Now is still a great time to buy a home

It’s still a great time to purchase a home, especially as the cost of borrowing money is still very low historically. The average 30-year fixed rate over the past decade was 6.7% and over 8% over the past 20 years.

When you crunch the numbers and weigh up all the financial benefits that come with home ownership, and compare it to what you are paying in rent, you will be surprised how much home you can actually afford to buy in many cases.

A good idea is to talk to your accountant and ask them what the mortgage interest deduction and deduction for real estate taxes will do for your income, you will probably find it is now cheaper to own than to rent in many areas.

Remember too, when you own a home, it is also a hedge against inflation for the future too. When you own a home, you will get a low fixed rate mortgage and your principal and interest payment will never change. Whereas rent will continue to go up over time.

In this market, it is important that buyers are been given all the information they need so they can make an informed decision about buying a home. These “Rent vs Own” reports are a great tool for buyers to review, because it shows them all the financial benefits and different figures they need to see when making the decision to purchase a home.

If you would like more information on the “Rent vs Own” report like this example above, please contact me directly at 858-442-2686. I look forward to chatting soon.

P.S. If you would like to be updated faster on any important industry news or new loan programs that come out, please join my Facebook Page.

5 Reasons to Purchase a Home Soon in 2018

January 29th, 2018

The “Cost of Waiting to Buy” is defined as the additional funds it would take to buy a home if home prices and interest rates were to continue to increase over the next 12 months. Mortgage rates have already increased “.5%” since the New Tax Bill was passed in December and are now at 3 year highs. Did you know that just a “.5%” increase in rates reduces a buyers purchasing power by 5%, which means a buyer being able to afford a $570k home instead of a $600k home with the same monthly payment. Here are 5 reasons to purchase a home soon in 2018.

1. The Extra Cost of Waiting to Buy a Home

It is important that buyers consider rising interest rates and rising home prices when thinking about the true cost of a home.  The “Cost of Waiting to Buy” is defined as the additional funds it would take to buy a home if home prices and interest rates were to continue to increase over the next 12 months.

This example below is for a $750k purchase. It shows the additional funds it would take to buy a home if rates increase from 4.02% to 4.80%, and the home price increased by 5% from $750k to $786,750.

The monthly payment will increase from $3,589 to $4,127, which is an increase of $538 a month.

This amounts to an extra $6,456 annually, and $193,680 over the life of the loan.

That means a buyer who waits a year to purchase a home, could pay an additional $193,680 in interest and payments over the life of the loan to purchase the same home.

2. Mortgage rates will continue to rise in 2018

It has been a rough ride for mortgage rates since the New Tax Bill passed, see below. Rates have already increased by “.5%” in just the past month and are trading at 3 year highs.

With the new administration talking up higher spending, lower taxes, protectionist trade policies, and deregulation all adding up to inflation (inflation is the mortal enemy of bonds and low rates), all of this is causing rates to increase.

The 10-year Treasury is one of the main drivers for the direction of long term rates. The 30-year fixed mortgage rate follows the direction of the 10-year Treasury.

As you can see below, the 10-year Treasury has broken through several ceilings of resistance over the past month, and is approaching 5 year highs around 3% from back in 2013.

If the 10-year Treasury continues to move towards 3%, it means 30-year fixed mortgage rates are going to increase another “.25%” from current levels.

If you or someone you know is planning on buying a home in 2018, or looking to refinance, it would be a good idea to try and lock in a rate soon as the current trend is for rates to continue moving higher.

3. As Mortgage Rates increase in 2018, buyer purchasing power will fall

A question that many buyers have is, “if rates continue to rise how will this affect my affordability?” 

Here is a good chart below that all buyers should review, that shows the “impact of rising rates on a buyers purchasing power or affordability”.

As you can see on the chart, when rates increase by just “.5%”, a buyer loses 5% in purchasing power. 

For example, see how the payment at the 4% rate on a $400k loan, is roughly the same payment as the 4.5% loan at $380k, a loss of 5% in purchasing power for a buyer.

If rates increase by 1%, from 4% to 5%, a buyer will lose 10% in purchasing power. This means, if a buyer can afford to purchase $600k today, but rates increase by 1%, they will only afford $540k using the same monthly payment.

4. Home Prices will probably continue to rise in 2018

Many housing experts are predicting home prices will continue to increase in 2018, and increase around 5% for most markets in California.

2018 will probably play out the same as 2017 for many California markets, where limited inventory and strong demand for homes will continue to push purchase home prices higher.

The San Diego County median home price finished 2017 at one of its highest points. The median home price was $540,000 in December, tied for second-highest of the year, capping off a year of record price gains, said real estate tracker CoreLogic.

In 12 months during 2017, the median price in San Diego increased 9.1%, outpacing the 4.2% yearly increase in 2016.

One thing to keep an eye on is the effects of the new tax law. The new tax law caps the mortgage interest deduction and the deductibility of state and local taxes, so this may impact the upper-end market in 2018. Precisely how and the extent of which remain to be seen.

5. The cost of borrowing Money is still cheap historically

Even though rates have increased over the past month and look like they will continue moving higher in 2018, the current cost of borrowing money to finance a home is still low when compared historically.

This chart below puts current mortgage rates in perspective.

Did you know the average 30 year fixed mortgage rate over the past 40 years is roughly 8.7%,and 6.29% over the past decade!

Share this chart with anyone who thinks current rates around 4% are too high. Current rates are still a gift and should be taken advantage of by anyone looking to borrow money to finance a home.

Who knows how high rates will move over the next few years. They certainly cannot stay this low forever and will one day revert to their mean.

Tips for Homebuyers

All evidence above suggests that rates and home prices are going to continue to increase over the next 12 months.  A good tip for buyers is to focus on the monthly payment and NOT the rate. Yes rates have been increasing recently, but is the monthly payment still affordable? If the payment is still affordable, do not focus on rising interest rates.

This time of year is also a great time to get out there and shop for homes. Buyers who purchase homes in the spring always note there is less competition, so you can negotiate better terms with the seller.

If you have any questions about getting approved for financing, please feel free to contact me directly at 858-442-2686. I look forward to chatting soon!

P.S. If you would like to be updated faster on any important industry news or new loan programs that come out, please join my Facebook Page.

8 Tips to Get Your Purchase Offer Accepted in a Sellers Market!

January 14th, 2018

In today’s competitive housing market where inventory is limited and multiple offers are the norm, it is important that a buyer’s offer stands out from the crowd. Buyers and agents have to be creative with their offers and also provide full transparency upfront, so the seller will feel comfortable that a buyer will be able to obtain financing and close escrow. Here are 8 tips that will help your purchase offer stand out from the crowd and get accepted.

8 Tips to Help your Offer stand out from the crowd.

Here are 8 tips that will help your purchase offer stand out from the crowd.

1. Include a personal cover letter with your purchase offer

A good idea is for the buyers to write a personal letter to the seller, so they can explain why they love the home and why they are the perfect buyers to purchase their home.

Include this letter with your offer and also include a family picture too.

If you can tug at the heart strings of the seller, they may be more inclined to choose your offer over others. Many agents and buyers tell me this strategy works like a charm!

2. Your loan approval letter verifies the type of financing

Include a loan approval letter with your offer that clearly explains what type of financing the buyer is getting and how much they are putting towards the down payment.

Make sure the loan approval letter is signed by the lender and lists their contact info too, so the seller can call and verify all the information.

If you are qualified for conventional financing and putting down 20% or more, write this into the loan approval letter, as this will usually place ahead of an offer with a lower down payment.

If you are submitting a FHA or VA offer and are using a limited or zero down payment, follow the rest of these steps below to strengthen your offer.

3. Include a DU underwriting approval with your offer

Always include a Conventional, FHA or VA DU underwriting approval with the loan approval letter to strengthen the offer.

A DU (desktop) underwriting approval is when a buyer’s loan application, credit report, income and assets have been ran through the conventional, FHA or VA automated underwriting systems and was approved.

A DU underwriting approval displays the most important information on a buyer’s profile. For example, a DU approval verifies a buyer’s credit scores, debt to income ratios, down payment amount, total assets and reserves, and the type of loan program they are approved for.

This is a great tool to discuss the strengths of the buyers profile with the seller, so they can see how well qualified the buyer is.

4. Provide proof of down payment funds

Always include proof of down payment funds along with your purchase offer.

Make sure the name on the bank statements, or any other account being used for the down payment, matches the buyers name on the contract and approval.

Always verify there are enough funds in the statements to cover the down payment listed on the offer.

If the buyer is getting a gift from a family member, provide a gift letter and proof of funds from the donor so the seller knows where the funds are coming from.

5. Close the Transaction Faster

Being able to close a transaction faster is another way to entice the seller to accept your offer in this competitive market.

For example, if a seller is reviewing 3 offers, and there is a 17 day offer, a 30 day and 45 day offer, often the seller will go with the faster closing.

My company Citywide Financial Corp can close a Conventional or FHA Purchase Transaction in 17 days, and a VA purchase in 21 days. I have a great team set up with 2 loan assistants dedicated to help close transactions fast. Contact me for more details on how we can close your transaction faster.

6. Increase your deposit

Want to show a seller how serious your offer is? Consider putting down a bigger deposit in earnest money.

This may seem risky for some, but earnest money is there for a reason. If you are uncertain about putting a “noticeable” amount of earnest money on the table, it may be a sign to the seller that you are uncertain about the house itself.

Assuming you hold up your end of the bargain and you have the right contingencies in place, it won’t cost you any more in the long run since the deposit goes towards your down payment if financing is involved.

7. Be flexible and don’t ask for any seller credits

It’s a good idea to ask the seller’s agent upfront what you can do to make the offer more enticing to the sellers.

For example, can you be flexible on the closing date for the seller?

Also, a purchase offer asking for seller credits to pay for your closing costs will usually place behind an offer that does NOT ask for any seller credits. Instead of asking the seller for a credit, we can give the buyer a lender credit to pay for some or ALL the buyers closing costs.

Another tip is to offer to pay for the sellers Owners title policy and transfer tax. These fees only amount to roughly $2,500 on a $400k home, so this is another way to sweeten the deal for the seller to accept your offer.

8. Offer one month of free occupancy. 

When purchasing a home with a mortgage, your payment doesn’t actually come due until a month after you close. Why not offer it up to your seller to sweeten the deal? A seller could very well need that occupancy and offering to pay their “rent” for a month could strengthen your offer.

In Summary

I hope you founds these 8 tips helpful. The offer that is presented the clearest, is flexible, and addresses any issues upfront, is usually the offer that stands a better chance of getting accepted.If you have any questions about any of these tips above or getting approved for financing, please do not hesitate to contact me directly at 858-442-2686. I look forward to chatting soon.

P.S. If you would like to be updated faster on important industry news or any new loan programs that come out, please join my Facebook page .

How the New Tax Bill Will Affect Mortgages and Rates in 2018

January 2nd, 2018

The new income tax bill goes into effect for tax year 2018. Many people are asking how this will effect mortgages and rates in 2018. For example, did you know the mortgage interest on a Home Equity Loan “HELOC” is no longer tax deductible under the new tax bill? I listed a summary below of the main points in the new tax bill that will affect home buyers and sellers and homeowners in 2018.

Rates Move Higher Following Passage of the Tax Bill

The new tax bill has already had an effect on mortgage rates. Rates rose to their highest level since the summer following congress passing the the tax bill, see chart below from Freddie Mac.

This is something to keep an eye on over the next month or two, as lower taxes and deregulation all add up to inflation, and inflation is the enemy of bonds and low rates.

Current mortgage rates are still very good historically. With a 740+ score and 20% equity, we can get a buyer 3.875% on a 30-year conventional fixed rate, 3.625% on a 20-year fixed rate, and 3.25% on a 15-year fixed rate.

FHA and VA 30-year fixed rates are around 3.5%.

If you or someone you know is planning on buying a home in 2018, or looking to refinance and lower the current rate, it would be a good idea to get approved for financing soon in case rates continue to increase.

The Impact of Rising Rates on Buyer Purchasing Power

Changing mortgage rates do more to influence home affordability than changing home prices. This chart below shows the impact of rising rates on a buyers purchasing power.

As you can see on the chart, when rates increase by just “.5%”, a buyer loses 5% in purchasing power. For example, see how the payment at the 4% rate on a $400k loan, is roughly the same payment as the 4.5% loan at $380k, a loss of 5% in purchasing power for a buyer.

A 1% increase in rates reduces a buyers purchasing power by 10%. For example, see how the payment at the 4% rate on a $400k loan, is roughly the same payment as the 5% rate loan at $360k, a loss of 10% in purchasing power for a buyer.

In a high cost market like San Diego for example, a 5% reduction in purchasing power means a buyer being able to afford a $570k home instead of a $600k home with the same monthly mortgage payment.

How Will the New Tax Bill Affect Mortgages in 2018?

Here are some of the main parts of the new tax bill that will affect homeowners, home buyers and sellers in 2018.

1. Downsized mortgage interest rate deduction: New home buyers would now only be able to deduct interest on the first $750,000 of mortgage debt on a newly-purchased home—down from the current $1 million threshold, but higher than the $500,000 limit the House proposed in its tax overhaul in November. The good news is that existing mortgages are grandfathered in.

The new cap would also apply to mortgages on second homes. The original House bill wanted to eliminate the deduction on second homes.

2. Interest on Home Equity Lines of Credit “HELOCs” are no longer tax deductible. This is for existing HELOC’s and new HELOC’s.

Solution. If you are looking to borrow money to pay for home renovations or payoff credit cards, doing a new first mortgage cash-out refinance will probably be a better option, as you can still deduct the interest on the loan.

3. Limit on property tax deduction: Taxpayers will no longer be able to fully deduct state and local property taxes plus income or sales taxes. Instead, the legislation allows individuals to deduct up to $10,000 in state and local income and property taxes or state and local property and sales taxes.

That means homeowners living in high-tax states like New York, California, and New Jersey for example, could see an increase in what they owe.

4. Tax break stays for home sellers: Both the House and Senate bills originally wanted to scale back a tax break for homeowners when they sell their home for profit. Taxpayers will still be able to exclude up to $500,000 (or $250,000 for single filers) from capital gains when they sell their primary home, as long as they’ve lived there for two of the past five years.

Earlier tax reform proposals would have increased the live-in requirement to five out of the last eight years, so this is good news this is staying in place.

Top 4 Low Down Payment Options for Home Buyers in 2018

There are some excellent low down payment options available to all buyers to help them buy a home in 2018. With the new higher Conventional, FHA and VA loan limits available for 2018, see HERE, here are the top 4 low down payment purchase programs available for home buyers in 2018.

1. If you need to borrow up to $453k, you can buy a home with only 1% down conventional financing with No monthly mortgage insurance “PMI”.

We can also give a buyer a lender credit to help towards their closing costs.  Click HERE here for more details how to qualify for this 1% down program.

2. If you need to borrow over $453k and up to $679k, you can buy a home with only 5% down conventional jumbo financing with No monthly PMI.

All of the down payment can be gifted too. We can also give a buyer a lender credit to help towards their closing costs. Click HERE here for more details how to qualify for this 5% down program.

3. Military buyers can purchase a home up to $679k with zero down payment. We can also give a buyer a lender credit to cover all their closing costs. Click HERE for more info on how to qualify for zero down VA financing.

4. You can buy a home with only 3.5% down FHA financing up to a loan amount of $679k. All of the down payment can be gifted too.
We can also give a buyer a lender credit to cover all their closing costs. Click HERE for more info on how to qualify for FHA financing.

If you have any questions about a loan program or getting approved for financing, please feel free to contact me at 858-442-2686.

From my family to yours, we wish you a Happy New Year. I look forward to chatting soon.

P.S. Please join my Citywide Financial Facebook Page if you would like to be updated faster on any new loan program changes or industry news.

Buy a Home Up to $715k With a 5% Down Conventional Jumbo Loan and No Monthly PMI

December 15th, 2017

Many buyers today assume they need to put 20% to eliminate the PMI on a mortgage, or they need to go with FHA financing and their expensive mortgage insurance if they only have a limited down payment. The 5% down Conventional jumbo mortgage with No monthly mortgage insurance “PMI” is a terrific financing option for borrowers who want to purchase a home or refinance.  For example, a buyer can now purchase a home up to $685k in San Diego and $715k in LA and Orange County, with only 5% down and No monthly PMI. Check out how to qualify for this program.

A Great Option for Buyers Who Need a Jumbo Loan

The 5% down Conventional Jumbo mortgage with No PMI is helping more buyers finance a home in markets like San Diego, Orange County and LA, where a jumbo loan is needed to purchase a home.

Each county in California has it’s own conventional jumbo loan limit, click HERE to check your county loan limit, or contact me for more details.

This program also allows ALL of the down payment to be gifted, so buyers can reach out for a gift instead of having to wait and save up the full 5% down payment.

Most buyers assume they need a 20% down payment to eliminate the monthly mortgage insurance “PMI” on a mortgage, or they need to go with FHA financing if they only have a limited down payment. The 5% down conventional jumbo program has an option to eliminate the monthly “PMI” from the mortgage payment, so this is helping buyers obtain an even lower monthly payment on their home purchase.

*Remember, if you put down less than 10% with FHA financing, you have to pay the monthly mortgage insurance for the life of the loan.

Buy a $715k Home with only 5% Down and No PMI, vs a loan with monthly PMI

Let’s take a $715k home purchase and compare the savings using the 5% down Conventional Jumbo loan with No monthly PMI, versus a Conventional Jumbo loan with monthly PMI, and a 5% down FHA Jumbo loan with monthly mortgage insurance.

To calculate the total monthly PITI (principal and interest, taxes and insurance), we will use 1.2% of the purchase price to calculate property taxes, which is $715 a month, and $80 a month for homeowner’s insurance.

Option #1. The figures on the first column is a conventional 5% down loan with No PMI. The rate is  4.25% on a conventional jumbo 30 year fixed with No PMI. The total monthly PITI payment is $4,131.

Option #2. The 2nd option is a conventional 5% down loan with monthly PMI. The rate is 4% on a conventional 30 year fixed, the monthly PMI is $333. The total monthly PITI payment is $4,365.

Option #3. The 3rd option is a FHA 5% down loan with monthly mortgage insurance. The rate is 3.75% on a 30 year fixed rate, the monthly FHA mortgage insurance is $575. There is also a FHA funding fee of 1.75% due on all FHA loans, this fee of $11,886 is financed into the loan amount. The total FHA monthly PITI payment is $4,571.

Option #1 with No PMI will help you obtain the lowest monthly payment. It will save you $234 a month over the conventional loan with PMI, and saves $440 a month over the FHA loan.

As you can see below, over the next 10 years the conventional loan with no PMI will save $18,486 over the conventional loan with PMI, and $53,765 over the FHA loan.

In Summary. The conventional jumbo loan with No PMI will get you the lowest monthly payment on your home purchase, it will also save you more money long term too compared to a loan with monthly PMI.

Frequently Asked Questions for the Conventional Jumbo 5% Down Mortgage with No PMI

Here is a list of frequently asked questions and answers that homebuyers and real estate agents have on the conventional jumbo 5% down loan option with No monthly PMI.

1. What is the maximum loan amount with the Jumbo 5% down program?

The maximum loan amount with 5% down is $679,650 for for Orange Co and LA County and SF, San Diego is $649,750. You can check your county loan limit HERE.

2. Can I receive the 5% down payment as a gift?

Yes, all of the 5% down payment can be gifted on this program. Closing costs and reserves can also be gifted if needed. We can also give a lender credit to help pay closing costs too.

3. What credit score is required to qualify for this program?

We require a 620 credit score to qualify for conventional financing. A 660 is required to remove the monthly PMI. Please note, the lower the credit scores the higher the interest rate will be.

4. How do you eliminate the monthly mortgage insurance “PMI’ option on this program?

It’s very simple. All you have to do is take a slightly higher interest rate than normal, say from 4% to 4.25%, and we use a lender credit with the higher interest rate to eliminate the PMI from the mortgage payment. This is also known as lender paid mortgage insurance.

5.  Can I get 5% down with No PMI on 2nd homes or Investment Properties?

No, the 5% down is for Primary Residences only. You have to put down 10% for a 2nd home and 15% down for an investment property. The No monthly PMI option is also available on both.

7. Are co signers allowed on this program?

Yes co-signers are allowed on this program, the co-signer does NOT have to reside in the home.

8. Is this program for first time buyers only?

No, this program is available to ALL buyers.

9. Do condos qualify for this program?

Yes, you can also purchase a condo using this program with only 5% down and get the No PMI option.

10. What is the maximum number of units for a home with the 5% down payment mortgage?

The 5% down mortgage is for single-unit homes only. This includes single-family detached homes and single-family attached homes such as condominiums and town homes. 2-unit homes, 3-unit homes, and 4-unit homes cannot be financed with the conventional 3% down mortgage.

14. What if I put down 10% or 15%, will I get a lower rate with a larger down payment?

Yes, if you put down 10% or 15% as a down payment, you will get a lower interest rate. With conventional financing, the larger the down payment, the lower the interest rate you will get.

Refinance Tip for Homeowners

This conventional 5% down jumbo program with No monthly PMI also works the same for refinances, as homeowners with limited equity can now refinance up to 95% of their home value with No PMI. 

For example, many homeowners who bought a home over the past 12-24 months with a FHA jumbo loan and only put down the minimum down payment of 3.5%, have probably gained at least 8% – 10% equity due to appreciation in their local market. Now is a great time to eliminate the monthly mortgage insurance while home values are rising and rates are good.

This loan program will help you refinance out of your current FHA jumbo loan with mortgage insurance, and into this conventional jumbo loan option with No PMI, so you can save some extra money and get a lower monthly payment. By removing the FHA mortgage insurance, we have been saving homeowners on average $300 a month.

If you have any questions about any of these programs or getting approved for financing, please feel free to contact me at 858-442-2686. I look forward to chatting soon.

P.S. Please join my Facebook page if you would like to be updated faster on any new loan program changes or industry news.