To Buy Or Not To Buy?

By: Amy B.

Submitted: 06:28PM on Wednesday 17 December 2008

To Buy or not to Buy…that is the question”

Business follows a recognized cycle. Boom follows bust just as surely as Spring follows Winter. I am writing this at a time when the press is so negative about real estate that it pains me to read the newspapers. However, as we all know the media exists to sell papers not to provide a balanced perspective to the readership.

Let’s just take a minute to consider an alternative point of view. Homes are made to house people and does anyone really expect the population of the United States to start shrinking? Of course not! In fact, just recently the US population passed 300 million. Our country has the third highest population on Earth and is projected to reach 1 billion by the end of this century. (So you’d better visit the polar bears now.)

I can say with certainty, that many things will be in demand, one is housing.

Of course there are areas of the country that have been overbuilt. Speculators do this. However, instead of shying away from real estate completely or being paralyzed by fear from negative press, consider the old investment adage, “Buy when blood is running down the streets…..”

While this correction is taking place, I truly believe that we are being presented with an opportunity and we will look back and ask ourselves…“How could I have been so blind as to not comprehend that I was living through one of the most fabulous opportunities to purchase quality real estate at massive discounts?”

The Carolinas in particular are on the front end of a wave of population growth.

Forecasts are very clear that boomers will either relocate or purchase a 2nd home in affordable, temperate climates. In short, we are at the front of a Tsunami of housing demand, the like of which has never been seen since the post war period.

Don’t let fear get in the way of making great investment decisions.

During inflationary periods, the smart investor borrows money and buys assets. As time passes, this inflation causes the debt they have borrowed to devalue compared to the assets they hold. Think about that. Ask yourself, what did $100 buy ten years ago? What does it buy today? See? The assets you “bought” have appreciated, but you’d still only “owe” $100.

Interest rates, for the moment, have not yet reacted to the inflation building up in our economy. Now is an ideal time to consider a fixed rate type of loan, purchase quality property and profit from the results. After all you buy real estate and wait, you don’t wait to buy real estate.

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In a typical financing plan, the first mortgage helps take out the construction loan and also provides funds for getting a project prepared to open-for-business. In this section of the Template, you will enter details about the loan agreement. The Template will automatically calculate the actual amount of the loan for you. The input fields include:

• Minimum Debt Service Coverage, which is the ratio is used by lenders to assess a project’s ability to honor their monthly mortgage payments. The debt service coverage ratio is the project’s net operating income (NOI) divided by the amount of debt service payments. To lessen the risk of default, lenders typically look for debt service coverage ratios of approximately 1.20. Enter the minimum debt service coverage ratio required by your first mortgage lender as a percentage.

  Note that the debt service coverage constraint is calculated using the NOI from Year 2 of operations. Because the rent-up period occurs during Year 1, the Year 1 NOI may not represent stabilized property income.

• Maximum Loan to Value, which is the ratio is used by lenders to compare the loan amount to the market value of the project in order to evaluate their ability to recover loaned funds in the event of foreclosure. The loan to value ratio is calculated by dividing the loan amount by the appraised value of the project. An acceptable private lender loan to value ratio is usually below 80 percent. Enter the maximum loan to value percentage required by your lender.

  Note that in some cases, lenders will be willing to accept a relatively higher loan to value ratio (80 percent or higher), but will often charge a higher interest rate to compensate for the increased risk of making the loan.

• Points, which are up-front interest costs paid to the lender in exchange for a lower interest rate. Each point usually equals one percent of the loan principal. Enter the percentage by which you plan to lower your interest rate through the payment of points on your first mortgage. Once you have completed the Financing Sources tab, the cost of points for the first and second mortgages will be shown on the Gap Analysis tab and help to determine the amount of total financing needed for the project.
• Interest Rate, which is the yearly rate at which the loan accrues interest. Enter the interest rate for the first mortgage.
• Loan Term, as used by the Template, serves as both the term and amortization period for the first mortgage. "Term" refers to the number of years the project will make principal and interest payments on the loan. "Amortization Period" refers to the time it takes to retire a debt through equal periodic payments. Many loans have terms and amortization periods of 15, 20, 25, or 30 years. Although the loan term is entered in years, the Template calculates interest assuming a series of monthly payments.

  On the Operating Pro-Forma tab, this information will be used to calculate the monthly principal and interest payments. If the property is sold before the end of the loan term, the Template assumes the property will pay off the first mortgage in the year of the project sale.

  If your project’s first mortgage financing will involve a more complex or irregular schedule of payments, create a custom loan on the Custom Loans tab, instead, and leave all inputs related to the first mortgage at zero.

• First Mortgage Source, which identifies the private or public lender that will provide the first mortgage. In some cases, the HOME Program or another Federal, State, or local program will be the first mortgage source.

Mike & Georgea Lipinski Office: 208-498-1780 Cell: 208-989-4648 SpudLoans Home

Academy Mortgage 915 12th Ave South  Nampa, ID 83651  Phone: 208-498-1780 Fax: 208-498-1787 Blog Home

by Dale Rogers

Many working people in the U.S. have no established credit, but want to own their own home. They never held a credit card or bought a car with installment payments. There is no credit score with any bureau. It’s almost like they are leaving ZERO financial footprints as they traverse through life. Almost certainly, large deposits need to be paid to secure basic services such as water, electric, phone, etc. This particular segment of the home buying public is a throw back to the way business was conducted a 100+ years ago. Other than Sears and Roebuck and small home savings banks a credit report with scores didn’t exist. The credit grantor would size you up see if you were a good bet. You needed a job and would need to demonstrate some community stability coupled with a good down payment then an arrangement could be made for you to buy. The small savings and loan companies granted mortgages based on savings deposits of your community of neighbors. There wasn’t any secondary market to sell the newly originated loan. I recall having to postpone a home sale in the late 1960’s because they were waiting for a payoff on a house that had sold. When that sale closed, the buyer’s were able to go ahead and fund their new loan by the freed up money. Credit crunches were prevalent before the secondary market came into play.

As mortgage financial markets have evolved they primarily were geared to a cookie cutter segment of the market that had established credit. Politically, banks and lenders were buttoned holed and urged to work toward establishing mortgage programs for people who had no established credit, but had a job and some how met their financial obligations every month. Their rent, insurance, groceries, phone, water, sewer, car repairs, gasoline, doctor and dentist bills were paid every month. As an added incentive community investment credits were offered which would be beneficial in the eyes of bank and lending regulators as lenders pointing to those institutions who were helping this community home buying segment and could then make a case for their Federal and/or State charter renewals. It turns out to be a strong incentive to offer community based lending to working people who want to buy a home and have no recorded credit.

So how might this work for a working person with no credit and who wants to buy a home. First, there would be an effort to determine their current housing history. If they have been renting and paying said rent in cash an effort would be made to document the pay history of the rent by way of a Verification Of Rent, called a VOR in the lending trade. The most weight is given to one with a professional manager in place such as an apartment community or Realtor managed property. Verification Of Rent directly from a private individual where cash is exchanged is a bit more of a challenge. However, falsifying a document (VOR) in order to get rid of a bad tenant carries heavy penalties for the landlord. Other types of bill paying would be verified and is called Alternative Credit verifications. Letters from utility companies indicating on time payments of electric, phone, cell, water and such could form a further basis for building an Alternative Credit file. Sometimes potential buyers of a home live with relatives and have no rental history. This too, can be addressed. The other aspect of these community based lending programs is the verification of a job or business or other means of income. This can be done with pay stubs, business bank statements (if available but not required for the self-employed) or what ever means available to verify the existence of some type of employment income. State or city occupational licenses are sometimes used. Verification Of Employment is another way to show periods of employment and income whether it is W-2 or Miscellaneous 1099 income. The whole point of this collection of information is to try and build an Alternative Credit file, which can be utilized to make a lending decision. Just like in the old days, these files are hand underwritten with a human being pouring over all the documents. It is truly common sense lending. Many of these loans require some type of investment on part of the borrower. It could be as little as ZERO, $100, 2.25% or higher down payments. Some borrowers do not have any bank accounts and operate on strictly cash basis. Check cashing services with free money orders is their bank. Lenders call cash on hand as “mattress money”. Lenders can handle this scenario as well. Sellers can pay all or most of the closing costs for buyer/borrowers per lenders.

With all of this gathered, Neighborhood Lending Programs, FHA (although some automatic underwriting now-but hand underwriting available), VA, do not require credit scores. Utilizing Alternative Credit a borrower with a job and NO CREDIT can buy a home with a little work. Even those known as undocumented workers can buy. If there are collections a credit repair program will be required to payoff those collections.

About the Author
Dale Rogers is a thirty-year mortgage veteran and frequent contributor to the Broken Credit Blog. The BCB is a free website created to assist the general public with information about credit repair and responsible mortgage lending.

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Mike & Georgea Lipinski Office: 208-498-1780 Cell: 208-989-4648 SpudLoans Home

Academy Mortgage 915 12th Ave South  Nampa, ID 83651  Phone: 208-498-1780 Fax: 208-498-1787 Blog Home

Welcome to SpudLoans.Com! Mike and Georgea Lipinski have been in the lending business for over 10 years and invite to continue to come back and watch the Boise Mortgage Blog grow. Thanks for visiting!

Mike Lipinski :
With my 10+ years of experience, I have helped many people, like yourself, make their home buying dreams a reality. I will make every effort to provide you with a closing that is pleasant and uneventful. Please contact me if you have any questions. Whether the questions are simple or complex, it does not matter. My time is yours and I look forward to giving you the best possible home financing experience.

Georgea Lipinski:
Over the years, I have helped many people, like yourself, make their home buying dreams a reality. I will make every effort to provide you with a closing that is pleasant and uneventful. Please contact me if you have any questions. Whether the questions are simple or complex, it does not matter. My time is yours and I look forward to giving you the best possible home financing experience.
Thank you.

Mike & Georgea

Mike & Georgea Lipinski Office: 208-498-1780 Cell: 208-989-4648 SpudLoans Home

Academy Mortgage 915 12th Ave South  Nampa, ID 83651  Phone: 208-498-1780 Fax: 208-498-1787 Blog Home