Why Not?

I was chatting with a friend from home a few weeks ago. Soon, we started talking about mortgages. Here is his scenario.

30 year fixed loan

90% financing

Low interest rate

This young lad has made some pretty wise decisions! After all, he is planning on living in this home for a long time. He is in the right loan product and he is locked in at a competitive interest rate which will save him thousands of dollars over the life of his loan.

Problem: He is putting every spare dollar towards paying off his mortgage as soon as possible.

Question: Why is this a problem? Won't this save him even more money in interest paid?

Answer! Before paying down your mortgage, take some time to evaluate your overall financial situation.

1 - Do you have any other debt that carries a higher interest rate? (i.e. auto, personal loans, credit card debt)

2 - Do you have at least enough money in the bank to cover 6 months of expenses?

3 - Are you on pace to retire at the income level you desire?

For those who are not carrying extra debt, have substantial savings and are investing for retirement.... go ahead and pay that mortgage down.

For the rest of us.... don't do it!

When you pay towards a fixed rate mortgage, you lose liquidity. In other words, that money is no longer yours and you can no longer access those funds.

What will happen if you lose an income or encounter unforeseen expenses and find yourself unable to make your mortgage payment? Will the bank give you a credit for the extra payments that you have made?

Nope. The bank will begin the foreclosure process. Not only would you lose your home, but you'd lose all of those extra payments as well. Yikes!

Don't fear! With a little education and a little bit of discipline, you can build some reserves, save for your retirement and pay down your mortgage early!

Would You Like to Own a Home?

I think it's fair to say that everyone would like to own their own home. It's the American Dream after all!

Oftentimes, sacrifices must be made to own a home. Most people will do whatever it takes. Others will not.

I think people need to take time to honestly and realistically analyze their financial goals as they prepare to buy a home.

1 - Budget. Don't fit your budget to the home. Find a home that fits your budget. Of course the more expensive home is nicer. As you battle to pay the bills every month, find yourself behind on taxes, fighting with your spouse and spread so thin that you can't afford to go out for a nice meal, you will despise this nice home and long for affordability....

2 - Stability. If you have no idea which state you will live in 6 months down the road.... don't buy a house unless you plan on renting it out. Have a stable job? Lead a pretty stable life? It might be time to buy!

3 - Prioritize. For fun, please rank the following in order of importance:

1. New Rims
2. $8,000 Birthday Party
3. Brand New Car
4. A Home

This seems like a big joke, but it's really not. Sitting in the office today, we were chatting about the most mind boggling reasons we have seen to NOT buy a home... Numbers 1 - 3 were our finalists.

My definition of "hood rich":
My rims are 20" and spinning. I partied like Keith Richards for my 25th birthday. Oh, by the way.... those rims are on my new Beemer!

If you're earning huge money, have a balanced portfolio of investments and are on track to meet your long term financial goals, I could care less if you are blowing some cash. It's play money for you!

Prioritize. Create goals. Build a realistic game plan to obtain those goals.

Would you like to own a home or are you on your way to home ownership?

Quote of the Day

"Somewhere along the path to and from irrational pessimism, this real estate bust may deliver the place you've been looking for."

**Time Magazine, 9/14/7 http://www.time.com/time/magazine/article/0,9171,1661682,00.html

Accountability

I'm working on some loans right now for an investor who owns over 15 properties and has been working within the real estate/ development industry for over 20 years. He has never missed a payment. He has over a million dollars in the bank.

His loans were just canned because of the Colorado legislature.

Why??

Foreclosures have been blowing up. The government has to step in to protect its constituents right?

I disagree.

The loans that the lender canned were sophisticated loans that required no income disclosure.
(If you want to know exactly why the no income loan fits borrowers who retain many properties, please contact me. Basically, those who own & rent real estate have an extremely high overhead because the mortgage payments are so high.)

Anyway.... back to the task at hand.

1.) Should mortgage broker's be licensed?
-Absolutely. You, as a consumer, have a right to know that the person handling your mortgage is not a criminal.

2.) Should consumers enter mortgage agreements with caution?
-Yes! If your mortgage broker isn't willing to tell you how much money they are making or let you know that your loan terms are changing minutes before closing, get out! Work with someone who can provide references. Work with someone who deserves your trust and has your prosperity in mind.

3.) Should the legislature determine which loans are acceptible for consumers?
- No! Borrowers need to take responsibility and understand the exact terms of their loan. When I speak with borrowers, the most important question I ask is, "What is your worst case scenario?" I work with investors, first time home buyers and everyone in between. Their needs are different. The loans that fit these needs are different.

The bottom line:
Don't trust anyone with your financial future. Ask the hard questions, understand your worst case scenario. Make wise investments that will build wealth! There will always be scum looking to kill it off of some poor sucker. Work with people who are honest and deserve your trust. Am I the richest loan officer you'll meet? Absolutely not. Will I do everything in my power to help my customers achieve wealth? Yes!

Most Important Number

Not your birthday.

Not the significant other's birthday.

Not your anniversary.

Not your income.

Not your checking account.

The most important number you will encounter is your credit score.

I have no idea why they don't require a high school or college course on credit. Here is an article posted by Bankrate concerning the costs of poor credit.

http://www.bankrate.com/nltrack/news/Financial_Literacy/June07_credit_scores_value_a1.asp?ec_id=brmint_ns_cc_20070625&s=1&caret=36c

If you have any questions about building credit or repairing damaged credit, feel free to contact me.
No cost.
No obligation.
Free advice that can empower your financial security.