Monday, March 27, 2017

To Buy This Home, I Need a Lot of Money. Where can I get it?

People buy homes and real estate investments through me all the time, and a bit more than 80% of my clients need or choose to secure mortgages.  When they’re looking to spend hundreds of thousands of dollars (and at times even more), it’s hard for most people to find that kind of whoop-out money to pay cash.

That means that most buyers are in the position to have to ask someone to give them a lot of money.  We don’t think of it that way, but that’s what it is.  You walk up to a stranger and you ask for a great deal of money so that you can buy something you don’t right now have the money to buy.  In that situation, choosing that person carefully is very important.

So who lends that kind of money?  You have at least two sources, maybe three.

Firstly, the family or very good friend option.   You may have a rich Uncle Jim.  If you do, that’s wonderful, I hope.  Understand, of course, that I’m going to need to talk with him to set this whole thing up, because the real estate broker representing the seller of your next home will want to know that this guy is real.  If he is, we can make this happen.  No rules.  The money is either there or not.  He’s either willing to give it to you or not.  You either agree to repay him or not, and on what terms is for you guys to discuss.  I’m happy to talk everyone through it.

If you don’t have that option, you have two others -- mortgage brokers and mortgage bankers.  There’s a difference.  In one way.  Then again maybe the difference isn’t so important.

Mortgage bankers work for the lender – not for you.  The lender may be a huge bank, but as easily a smaller local credit union.  The point is, that person behind the desk is not working for you, but for the company that hired him.  He’s an employee.  He gets paid by the company for improving its bottom line by selling you a mortgage.

That sounds bad, but keep in mind that that person’s paycheck doesn’t land on that desk until you buy that loan.  That person has a real interest in doing right by you, by finding the right loan in the right amount, and on terms that make sense for your financial situation.  If he’s a good person who’s good at his job, you’ll get a good mortgage.

Some of those banks are able to offer wonderful opportunities for specific groups of people.  Some have very beneficial features in loans to military people, or union members, or first-time buyers, and especially to people who have a lot of money invested in that particular bank.  The rates are competitive, and they get the job done.  It’s well worth the look.

A mortgage broker on the other hand does not work for the lender.  She works for you, and has a fiduciary duty to represent you in the greater marketplace.  She’s like me in that I don’t own all the properties I show you.  I’m brokering the sale for you in a transaction with a person who does own that home.   The mortgage broker and her company don’t have a vault full of all that money to lend you, but negotiate with the financial institution that does have it.  She has the ability to negotiate with any number of lenders in the marketplace, and is tasked with finding and negotiating for you the best mortgage out there.

That sounds wonderful.  Why would you not want someone working specifically for you?

Answer:  If your neighbor’s kid just graduated from somewhere and became a mortgage broker, would you run in to see him about negotiating your next multi-hundreds of thousands of dollars of debt?

The point is that these two options (I’m passing on Uncle Jim for now) are significantly structurally different, but not that much different in a very practical way.  Most important is that you always hire the best person.  Always work with the person who honestly and ethically wants you to come out strong and secure.  Always the person who has the experience to make it happen for you, who knows what challenges need be addressed and how to deal with them.  Always the person who can meet the goal.

The good news is that I know many of them.  I’ve worked with them on transactions with other buyers and sellers.  I know who has performed, and who hasn’t.  I’ve seen the mortgages they’ve negotiated or provided.  I can pass those names and all of that information on to you.

In the alternative, you can always ask your relatives if there’s a rich Uncle Jim in the family.

Call me as you need.  I’m always here for you.

Enjoy the day,
Mike Moger
WK Real Estate
303.541.1920 office
303.859.4467 mobile

Friday, March 17, 2017

The Fed Raised Interest Rates. What Really Happened?

Breaking News:  The Federal Reserve Board today (15 March 2017) raised interest rates .25%, the second time in three months.  Further, it hinted that it would raise rates twice more in this calendar year.

Great.  What just happened?

Most people, not being wonky economists, think that the Board of Governors (of the Federal Reserve Board, not your state government) voted to raise interest rates on all loans that banks give, and that they decided on what those interest rates will be.  The overnight rate has been at .50% for a few short months, and the Fed raised it to .75%.
That would be wrong.  It’s so much more entertaining.  Our economy is a Keynesian economy. What that means mostly is that it’s a free market enterprise.  The market conditions will determine what costs are.

Think about it.  If you own your home and now want to sell, your broker will show you market conditions and past sales to help you determine for how much you can sell that home.  You can’t just throw a price out there and expect buyers to pay you what you want.  That would be foolish.

The Fed has to follow the same rules.  It cannot just decide what interest rates will be, change the number on it’s website, and that’s what people now have to pay.  Those people will pay what they are willing, and en mass, their actions will determine what that rate will be.

When the Fed “raises interest rates”, it simply means that it will change the way it’s done business in the immediate past.  The Fed decides how much money it will sell each month, and it does that in an auction.  If it floods the market with a massive amount of money, banks (the buyers of that money) will be able to buy it at a better (lower) price.  If it offers less money than usual, the buyers will have to bid higher or lose to another bidder.  It’s no different than a farm auction, except that the bankers are all wearing suits and it all happens with computers now.

In short, the Fed doesn’t “raise interest rates”.  It decides how much money it will sell in the coming weeks, and in so doing, will help guide the market to what it thinks the value of that money might be.

Having done this for a very long time, the Fed knows approximately how much less money it needs to offer in the auction in order to move prices up approximately .25%.  In reality, it has to wait and see what it gets.  The real overnight rate will probably end up somewhere between .75% and 1.00%.

The overnight rate is the lowest rate in the country.  Every night after the banks close, bank computers borrow and lend to each other in order to be certain that no bank is out of line with federal regulations, that they all have enough money to conduct business the following day, etc.  Some banks will have more than they need, so they lend to others until the next night, when it all happens again.  That .75% is the interest rate that one bank pays another for that overnight money.

Other interest rates (car loans, mortgages, business loans, etc.) will be determined by what the market is doing, along with what the banks had to pay for the money it will lend.  Mortgage interest rates will probably go up over time, but mortgages are some of the longest term debt in the country.  Rates won’t automatically increase .25% tomorrow morning.

Other shorter term money will.  Look to the interest banks will charge you on your credit cards to increase pretty quickly, along with 60-90 day loans.  Interest on auto loans will increase right behind them, as most are 3-5 year terms, but far short of the average mortgage.

I picture the Federal Reserve as a choreographer.  And everyone knows that the most beautiful choreography will be upstaged every time by a single dancer falling headlong into the orchestra pit.  It has to make the decision, and watch it all play out, just like the general public.

If you’re looking to sell your home or investment property, now might be a good time, before those interest rates start moving up.  Call me anytime.  I’m always here for you.

Enjoy the day,
303.541.1920 office
303.859.4467 mobile

Wednesday, March 8, 2017

Money is important. Learn it all. I'll help.

A receptionist at the office many years ago asked for a favor.  One of her professors at CU had told her that her generation was the most ignorant when it came to general knowledge, and she was mad about it.  She asked me to ask her a question every day when I came in, so that over an extended period of time, she’d know more than others in her age group.

All of our receptionists took advantage of our exercise and had some fun with it.  I was quite surprised when not one of them could name all four Beatles (first and last names), and disturbed when half couldn’t name the last two vice presidents of the United States.

Fact is, knowledge is a good thing.  Everyone should have the basics.  You can get by without knowing who is in what rock group, but the VP of the US is actually important.  

Critically important, though, is money.  How does it work?  What's the difference between a stock and a bond?  What's an annuity?  Is the value of your home increasing, decreasing or not moving at all?  What affects that value?  What’s happening in your neighborhood that might affect that value?  If I add a family room to my home, will I get my money back when I sell?  How about a pool?  What does it cost to sell?  Where are interest rates today, and why is that important?  Are insurance costs stable?  Will my lender suddenly require flood insurance for my neighborhood?  What’s a FICO score, and what happens to it if I buy a car?  How did that huge recession mess happen back in 2008?  Why is it true that lower income people actually pay more (quite a lot more) for goods and services in this country than their wealthier neighbors for the same stuff?

I asked someone recently how much additional money someone would have to make to pay off a $30,000 debt in one year.  The answer is not $30,000.  It’s not even $30,000 plus the interest you have to pay for that year.  It’s much higher.  Because we pay income taxes (both federal and state income taxes in most states), you actually have to make enough to pay all of the taxes on that additional income first, and have the $30,000 plus interest left over.  Unless all of that debt and interest is tax deductible, you have to budget a much higher income – somewhere in the $35,000 to $40,000 range for most people -- in order to have enough.

Money is important.  We need it to buy homes and everything else, and how you manage your money matters.  General knowledge about money is Step One.  So I’m making a commitment to you.

In the coming weeks and months, I’m going to send you tidbits of information – important information -- about money, business, your home, taxes, investments, retirement and a host of things that will directly affect you.  No Beatles questions.  I’ll even skip the one about the VP.  Only the actually important ones that have to do with your money.

I’ll also give you the answers.

I used to be certified as a CFP (Certified Financial Planner).  I know the difference between a stock and a bond, and what makes them increase or decrease in value.  Academically, it fascinates me.  But practically, I benefit from it all.  As a REALTOR, I know that you will benefit also from the common sense common knowledge that I’ll give you in the business world.  Nothing confusing or complicated.   Entertainingly written.   Just the facts.  I’ll have a graph or two.  Nothing political for one side or the other.

And if you’re planning a move in the coming year, we should talk.   If you know people planning to move in the coming year, I’d love to talk to them as well.

Call me.  I’m always here for you.

Enjoy the day,

303.541.1920 office
303.859.4467 mobile