What To Do?

"Matt, we're buying our first home in June. How do we get the whole process started?"

Congratulations!
Buying a home (especially your first) is an extremely exciting time. Many times, it is a roller coaster process as you find the perfect home, make an offer and obtain financing.

1. Establish a Budget & Get Preapproved. I would run numbers based upon a 6.5% interest rate. Rates are lower than that right now, but we're still 6 months out. Establishing and remaining within your budget is vital! When you are preapproved, find out when your rate will be locked.
2. Find a Realtor. Typically, references are the best resources. Know anyone who has purchased a home recently and had a great experience? Make sure that your Realtor treats this purchase as an investment.
3. Start shopping. Take notes to remember each property. As you narrow down your choices, have your Realtor pull some comparable sales in the neighborhood to make sure that you're getting into a sound investment.

“Should we put money down? If so, how much?”
I'm not a financial investor and won't pretend to be one. However, some basic financial principles need to be applied.

I would start with 3% down in order to qualify for FHA financing. You'll obtain great rates & will lower your mortgage insurance premiums. The more money you put down, the lower your mortgage insurance payments. However, mortgage insurance is only required on homes whose financing exceeds 80% of the value. For that reason, I would not recommend putting more than 20% down as it will not improve your financing. Conservative investments offer returns that exceed the 6 – 7 % mortgage rates so reducing your principle may not always be the wisest investment.

There is one big problem when you pay down your mortgage. Liquidity. Once additional payments have been made, your monthly payments do not change. Should you run short on cash, the bank will not float your payments for 30, 60, or 90 days, they will begin foreclosure proceedings. Ugh.

Always have a plan for a worst case scenario. If you do decide to put additional money towards principle, obtain a HELOC first. This line of credit will provide the necessary liquidity while allowing you to accelerate the pay off. This is a win, win. You have access to your equity & you will reduce the amount of time you are exposed to the interest rate, thereby reducing your effective interest rate!

Hope this helps! Happy home buying!

Slimeball?

I recently shot an email off to a realtor whose client may be interested in our condo. Mid e-mail I stopped and asked myself what I was doing and why. Am I doing this for the buyer or for myself?

The honest answer is that I'm selling this condo for myself (and Tanna). Why? This was a business investment. I've put a ton of time, taken a lot of risk and worked like crazy to complete this project.
-My time is worth money. If I contracted this project out, it would have tripled my costs!
-This is an investment and I need to be see a return on this investment!

The fact that someone else will be able to buy their first home is nice. It makes me feel good to help make that a reality, but that is not why I bought a house and completely remodeled it!

So... am I a slimeball?

Absolutely not. This is a win-win situation. No one has ever told me that the condo is over priced! It's a fair deal and I truly believe the new owner will be stepping into some equity.

I win. I sell my condo and make a little bit of money for my efforts.

They win. They are homeowners stepping into a fully remodeled condo in an established neighborhood with instant equity!

Ouch....

I'm not referring to my back after 8 hours of laying tile yesterday... I wish I was.

"Colorado came in second with one foreclosure filing for every 290 households, which was 2.3 times the national average. Colorado's foreclosure activity, at 6,231 foreclosure filings in May, rose 9 percent from the previous month and was an increase of more than 50 percent from May 2006" (Source: CNBC http://www.cnbc.com/id/19193611)

OUCH!

What does this mean for homebuyers, homewners and investors?

• Homeowners - Foreclosures drive market prices down, making it more difficult to sell & move up or to refinance.
• Homebuyers - Lenders have cut back first time buyer programs, but if you can qualify there are a ton of good deals out there.
• Investors - Get off of this foreclosure mindset. Will your investments probably be foreclosures? Yes. 1 of every 290 houses is in foreclosure! Does this automatically mean you're getting a great deal? No way! Look for great deals. Who cares if the property is owned by a bank or private seller?