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March 2011 Newsletter for home buyers

  Stop paying rent, Start building equity:

Do you want to stop paying rent for nothing? Do you need a better neighborhood? Do you agree that Home prices will increase in the future? If your answer is “Yes” for all three questions, then you should continue reading. We want to make it as easy as possible for you to buy your first home. That’s why we provide you a mortgage product and an education designed exclusively for the first-time home buyer.             

* Low interest rate            

* Low down payment            

* Low price = Great buy opportunity            

* Preparation before you buy a home            

How MBA Mortgage Corp can help you?

MBA Mortgage Corporation is a broker, which means we have access to mortgage rates at a discount from many different wholesale lenders as opposed to retail branches.  Being a broker with a great reputation, MBA Mortgage also has broker priority at many levels which allows us to shop for the absolute lowest rates and best programs for each individual needs.   

Does this make sense? Why wait?   

What kind of benefit can you get if you decide to buy a house one year later? I can tell you now, it’s NOTHING! Even though you think the price of houses will come down but at the same time the interest rate will go up (as you can see both scenarios).  We will help you analyze how much your cash inflow and how much your outflow each month. When you apply for a mortgage loan, take the following information with you:  

1. Your addresses for the past two years. If you're renting now, bring the name and address of your landlord. If renting from a private landlord, bring canceled rent checks.
2. Your employer(s) for the last two years. Bring your pay stubs for the past few months as well as a W-2 form.
3. Bring a copy of your tax forms for the last two years; any divorce papers to show alimony or child support you receive; retirement benefit information; and information on any other income you have. If you are self-employed, you will need a certified profit and loss statement.
4. Bank account numbers and balances as well as information about any other savings or investments you have.
5. If you are a veteran, bring your certificate of eligibility or discharge form.
6. Bring identification with your picture on it and your social security number.

Where do you stay when you go on vacation! 

Summer is right around the corner, we all are scheduling our vacation for the summer (This happens every summer). Should we buy or rent? Every time we rent a place, it looks like we are throwing money away. What if we buy our own vacation house, and rent it out when we aren’t using it? Wouldn’t that be a better investment than renting a place each time we go on vacation?  

There are many benefits to owning a second home. Many people like to know that they have a place to which they can escape the chaos and tension of their everyday lives. Other people buy a second home in a location they’ve always loved, or so they can explore a new region. Second homes can range from cabins in the mountains, to beach houses, to penthouses in another city.   

The benefits from buying a Vacation Home:  

1. Rental Income: When you aren’t there, you could rent out the vacation home. Let's say that you own a home on a lake, very close to some good ski areas. The location makes your home attractive to skiers and snowmobilers in the winter, and to families and others who enjoy the lake, hiking, and so forth in the summer. There's a big demand for these properties, and you have no trouble renting your home for 210 days out of the year.
2. Extra Tax Benefits: There are some extra tax deductions you can take on your vacation home depending on how many days per year you rent it. The IRS has different rules based on whether or not you use it more than 14 days or 10 percent of the time it was rented. If you own a vacation home and rent it for less than two weeks, you get a tax break because you don't need to report the rental income on your tax return. All that rental income is, essentially, tax free.
3. Making memories with your family: The 2^nd Home or Vacation Home is basically a place where you go for relaxation (No Work, No Boss, and No Unpleasant Neighbors). There will be only people you love and are very important to your life. Every day you delay a decision to enrich life with a second home is a day spent delaying the opportunity to make memories.

Leveraging with real estate investment

If you answered yes to both of those, then you need to look more closely at investing in real estate.  Did you ever wonder way Donald Trump is so rich?  It’s because he knows how to leverage his investments with Real Estate.  But what is leverage and why does it make more sense now, than ever?? 

Leverage is the use of various financial instruments or borrowed capital to increase the potential return of an investment – and it is an extremely common term on both Wall Street and in the Main Street real estate market. 

Main Street being where you and I both come into play.  There is no doubt we have seen some changes in the past few years.  Prices have dropped, the market has tanked, and the growth in our portfolios is nearly non-existent.  There is a bright side though.  RENTAL INCOME.  Rental rates have stay constant, which means with rates still extremely low, prices still towards the bottom of the barrel, rental rates staying consistent and the rental market becoming more relevant, there is no better time to buy real estate and create an even cash flow to cover the expense of it!  3-5 years ago, when the market was booming, everyone was buying, but you needed 20% equity to cash flow evenly, which means most investors thought the same way.  Buy now, with low money down, let the home appreciate and the mortgage to reduce, and after 2-5 years, it will cash flow into a nice property for me.  Well…that didn’t work out so well.  Now….prices are as low as we have seen in years!  With lenders requiring 20% down, these rental units are now cash flowing evenly, and a modest appreciation rate of the property is still better than investment vehicle 5X that!  Take a look at the example below: 

If an individual has $60,000 set aside, and is trying to determine how to get the most bang for his/ her buck, then they may consider a 5% or even a 10% rate of return vehicle.  BUT…does that earn the greatest return on investment???  No.  For very round numbers we will look at this example without taking into consideration costs, or principle reduction.  If they were to invest that money into a 5% ROR (rate of return), then over 5 years, the net gain on investment would be about $15,000.  This is about 25% return on investment (ROI).  Even if they found a fantastic investment that was going to earn them 10% ROR, then over that same 5 year span, they would earn $30,000 or about 50%!   

Now…let’s look at the difference between that and investing it into a new investment property that will cash flow evenly.  That same $60,000 may get them a property worth $300,000 (20% down).  At a modest appreciation rate of 2% per annum and over a 5 year span, that same $60,000 investment will earn them the same $30,000 of 50% ROI, as that 10% investment vehicle.  2%!!!  What if we got a 5% appreciation rate on housing values?  This $60,000 investment into a home would give that same individual a $75,000 Net gain and a 125% return on investment.  That $300,000 house would now be worth $375,000.  In just 5 years, the home would have equity in the amount $135,000!  WOW!   

* This is a generic example and does not take into account fees or any costs involved.  This is for illustration purposes only 

Does leverage make sense now?Here are some tips for making sure you are leveraging the correct way

Ways to Access Leverage

The easiest way to access leverage is to use your own money. In the case of a mortgage, a standard 20% down payment gets you 100% of the house in which you want to live. Some mortgage programs let you put even less money down.

If you are purchasing the property as an investment, you may be in a position where your partners furnish some (or even all) of the money. Similarly, some sellers are willing to finance some of the purchase price of the property they wish to sell. Under such an arrangement, you can purchase a property with little money down and, in some cases, no money down at all.     

1. Don't Count on High Levels of Appreciation

Many a real estate investor has gotten into financial trouble by looking at past history, even if recent and relying on the future to produce the same results. Even if property has been appreciating at a 12% to 20% rate for a number of years, counting on that rate to continue is an extremely risky proposition. It can cause you to overpay for properties, expecting to realize the difference at sale from appreciation. If it doesn't happen, you're holding a loss or worse.

2. Don't End up With Too High a Payment

It can seem like a great investment to control a property with a very small down payment. You're looking at the numbers and seeing a really high return on investment due to your low cash outlay. The problem is the higher payments that come with higher leverage. Should the market soften or your properties experience higher-than-expected vacancy or credit losses, you could find yourself unable to maintain those higher mortgage payments that seemed fine at the beginning.

3. Don't Let Good Financing Result in a Bad Purchase

Many an investor has overpaid for a property because they found nirvana in a high leverage financing setup. Just because you can get a property with very little cash outlay doesn't mean that it's a good buy. Look at the value of the property in the context of current and expected market trends.  If the property is overpriced, appreciation will be minimal or worse be non-existent. And woe be unto you if the market retraces itself for a while. Your overpriced property will be a significant drag and you'll not be able to unload it without taking a loss.

4. Don't Forget That Cash Flow is King

If just one of these "don't" behaviors sticks in your mind, this is the one that you should consider carefully. Errors in judgment in one or more of the other items here can be overlooked if you have that one great thing - excellent cash flow.  

If your rental income minus your mortgage costs and expenses is putting a nice cash return in your pocket every month, then the fact that the property didn't gain in value this year won't be as worrisome of an event. 

 Are you looking to upgrade to a nice/ bigger home!

Buying a home has been known as the American Dream. However, once you've bought it, how long should you hold onto it becomes the big question. Well the truth is, most of the time it’s not your decision to make or at least the decision is so painful you hesitate indefinitely to make the next move. Fluctuating interest rates and home values, job changes or layoffs, a growing comfortability with the location, realization of new Real Estate fees and closing costs, etc. inevitably effect your decision to make that new home transition.  BUT…in a market like no other we have seen, this may be the ideal time to make this happen!

If you are a homeowner currently, you are in a unique situation, because you certainly think it is a terrible time to sell, with decreasing values, and volatility in the market, but as yourself this one question:Is the % lost on selling < the % gained on buying a nicer and a bigger home?It absolutely is!  You may have taken an equity hit on your small $240,000 house, but guess what…that big $400,000 house took the same hit.  If your home was worth $300,000 and now is worth $240,000, sure you lost 20% of your equity, but on a house that is currently worth $400,000, it was worth $500,000 at one time.  The percentages of depreciation are the same! 20% is 20%!!

So, let’s look at your current financial situation.  You may be able to get that $500,000 you wanted 2-3 years ago at a 20% off discount!  Of course the items above are items you want and need to consider (Fluctuating interest rates and home values, job changes or layoffs, a growing comfortability with the location, realization of new Real Estate fees and closing costs, etc), but rates are still at an all time low, and prices are also at discounts, so why wait?

Most new homebuyers say they will stay in the home for a few years then upgrade to a bigger one with all the equity they gain. Others say they will move to a bigger home once they have kids or when their salaries increase. All of these reasons sound reasonable, however much of the time they are not reality.

Before making the decision to upgrade to a new home, you have to figure out what your net proceeds will be from the sale of you existing home and what your future mortgage will be and whether or not you can afford it. That is why we are here.  Our licensed professionals will aid you and provide you with all options that are available! 

Call today to speak with your loan officer!