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Financial Freedom Real Estate - For your Home or Investing
 

Financial Freedom Real Estate - For your Home or Investing

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Module Seven for the Financial Freedom Seminar. Material is taken from the book" "Family Financial Freedom" and is one in a series of seminar designed to teach you how to have true financial security. ...

Module Seven for the Financial Freedom Seminar. Material is taken from the book" "Family Financial Freedom" and is one in a series of seminar designed to teach you how to have true financial security. You can now view the presentation here, order the Family Financial Freedom book from any of the ebook sites for iPhone, iPad, Kindle, Nook, Kobo reader etc. contact me at floyd.saunders@yahoo.com for a copy of the presentation or more information on how to get seminar materials.

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  • None of can plan for every event that might happen in our lives, but we can take charge of owning our financial future and developing a common sense plan to more financially secure.
  • More recently, the Federal Reserve has started a program of buying up mortgages and treasuries to pump more money into the markets and keep interest rates low.
  • Fannie Mae or Federal National Mortgage Association (FNMA) is a government-sponsored enterprise (GSE) that was created to expand the flow of mortgage money by creating a secondary mortgage market. Fannie Mae is a publicly traded company which operates under a congressional charter that directs Fannie Mae to channel its efforts into increasing the availability and affordability of homeownership for low-, moderate- and middle-income Americans.Freddie Mac or Federal Home Loan Mortgage Corp (FHLMC) is a stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress to keep money flowing to mortgage lenders in support of homeownership and rental housing for middle income Americans. The FHLMC purchases, guarantees and securitizes mortgages to form mortgage-backed securities. The mortgage-backed securities that it issues tend to be very liquid and carry a credit rating close to that of U.S. Treasuries.
  • Reasons for Non-Conforming Loan: ‪Loan-to-Value Ratio ‬(LTV): Represents the percentage of the home's purchase price that you pay for with a mortgage. If the home costs $100,000, and you take out a mortgage of $80,000, the LTV ratio is 80%. Anything higher than a 90% LTV ratio may disqualify you for a conforming loan.‪Credit Score ‬and History: Borrowers need to have a solid credit history, reflected by a credit score of at least 620. A lower credit score may disqualify you from getting a conforming loan.Documentation Problems: Conforming loans require complete documentation of employment history, income, and assets. If you can't provide all of this documentation, you may not qualify for a conforming loan.Total Debt: If your total debt load is very high, you may have trouble getting a conforming loan.Recent Bankruptcy: Borrowers who are recovering from a recent bankruptcy (within the past two years) may not be able to secure a conforming loan.‪Debt-to-Income Ratio ‬(DTI): If your monthly mortgage , insurance, taxes, and other consumer debt payments add up to more than 45% of your monthly pre-tax income, you may not qualify for a conforming loan.
  • The Federal Housing Administration, or "FHA", provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.An FHA refinance mortgage or FHA loan allows for the refinance or purchase of a home with a low down payment. These loans are great for the first-time homebuyer.
  • This is the most common type of residential home loan. It is repaid through fixed monthly payments of principal and interest over a set term. The borrowing rate stays the same over the life of the residential mortgage loan.The term of the home mortgage can be 10, 15, 20 or the popular 30 year fixed rate mortgage term. The way fixed mortgage loans are structured, the mortgage interest is front loaded. In the first years of the residential loan, the bulk of the monthly payments go to paying mortgage interest. It’s only later that you will start significantly building equity in your home as more of your mortgage payments go towards paying down the mortgage loan principal.A fixed rate mortgage is ideal for those who intend to stay in their properties for a long time. MeritsRepayments stay the same regardless of interest rate increases.Easier to budget because repayments do not change. DemeritsRepayments do not decrease when interest rates decrease.You can’t pay off lump sums or increase your monthly repayments.If you switch mortgage to a different rate, to a different provider or repay it early you may owe a fixed rate penalty
  • At the beginning of the mortgage term, the mortgage rate is fixed for certain periods. These periods could be for 3, 5, 7 or 10 years. After this period expires, the mortgage interest rate becomes adjustable. A popular ARM home loan is the 5/1 ARM Mortgage. Five denotes that the period and the borrowing rate are initially fixed for 5 years. After the fifth year, the mortgage rate becomes adjustable.Some ARM home loans come with options to convert them to a fixed rate mortgage based on a pre-determined formula, during a given time period. Example: the 1-year treasury bill adjustable may be converted to a fixed mortgage rate during the first five years on the adjustment date. Meaning, you have the option to convert during the 13th, 25th, 37th, 49th and 61st months of the mortgage loan.
  • A ratio 36 percent is seen as risky, and the lender will likely either deny the loan or charge a higher interest rate on the mortgage. Bankers also like to see that no more than 28 percent of your gross monthly income goes to housing expenses. Now determine if your situation allows you to get a mortgage. Add up all your family’s fixed monthly debt expenses, such as car payments, your minimum credit card payments, student loans and any other regular debt payments. Don’t include groceries and utilities, but you will need to include monthly child support, or alimony if those are part of your monthly obligations. *Your minimum credit card payment is not your total balance every month. It is your required minimum payment -- usually between two and three percent of the outstanding balance. 
To continue with the above example, let’s assume your total monthly debt payments come to $750. You would then subtract $750 from your total allowable monthly debt payments to calculate your maximum monthly mortgage payment: $2,340 (Total allowable monthly debt payments) 
$750 (Total monthly debt payments other than mortgage) 
= $1,590 (Maximum mortgage payment) 
In this example, the most you could afford for a home would be $1,590 per month. And keep in mind that this number includes private mortgage insurance, homeowner’s insurance and property taxes. You would then subtract $750 from your total allowable monthly debt payments to calculate your maximum monthly mortgage payment: $2,340 (Total allowable monthly debt payments) 
$750 (Total monthly debt payments other than mortgage) 
= $1,590 (Maximum mortgage payment)
  • 1. A pre-approval letter is more reliable than a pre-qualification letter. Getting a pre-qualification letter is easy. You just call a mortgage broker or lender, provide some basic financial information, then wait a few minutes for the letter to come through your fax machine. Getting a "pre-qual" from a Web site is just as easy. Enter some information, click "submit" and voilà. A pre-approval letter, on the other hand, involves verification of the information. Rather than taking your word on faith, the lender will ask for documentation to confirm your employment, the source of your down payment and other aspects of your financial circumstances. Granted, a pre-approval is more time-consuming (and possibly more stressful) than a pre-qualification The additional due diligence is exactly why the pre-approval carries more weight.2. You'll know how much money you can qualify to borrow. Most home buyers have a rough idea of how much they would feel comfortable paying every month on their mortgage. However, there's no quick-and-dirty way to translate that monthly payment into a specific maximum mortgage amount because other factors -- down payment percentage, mortgage insurance, property taxes, adjustable interest rates and so on -- are part of the calculation. And, you might not be qualified to borrow as much as you think you should be able to borrow, depending on your income, your debts and your credit history.3. You'll have more leverage in negotiations with the seller. Sellers often prefer to negotiate with pre-approved buyers because the sellers know such buyers are financially qualified to obtain the financing they need to close the transaction. A pre-approval letter is an especially favorable point in a close multiple offer situation. And, you might feel more confident about making an offer with a pre-approval letter in hand and the knowledge that you'll be able to obtain a mortgage.4. You Real Estate Agent will work harder on your behalf.5. A few caveats: Pre-approval letters aren't binding on the lender, are subject to an appraisal of the home you want to purchase and are time-sensitive. If your financial situation changes (e.g., you lose your job, lease a car or run up credit-card bills), interest rates rise or a specified expiration date passes, the lender will review your situation and recalculate your maximum mortgage amount accordingly.

Financial Freedom Real Estate - For your Home or Investing Financial Freedom Real Estate - For your Home or Investing Presentation Transcript

  • Family Financial Freedom Seminars Real Estate InvestingSaunders Learning Group, LLC
  • Training from Saunders Learning Group Saunders Learning Group provides a variety of training programs, workshops and seminars targeted to the financial services industry. Programs are available in a wide range of topics, and we are specialists in developing custom programs that are targeted to your needs. Contact the founder, Floyd Saunders at 316-680-6482 or at floyd@floydsaunders.com for more information. Saunders Learning Group, LLC, Andover, KS Real Estate Investing2
  • Agenda Home Ownership Mortgage Options Check Your CreditDetermine How Much You Can Afford Get Prequalified for a Loan Real Estate as an Investment Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • "Dont wait to buy real estate. Buy real estate and wait." Robert G. AllenSaunders Learning Group, LLC, Andover, KS Real Estate Investing 4
  • Home Ownership  Home ownership has long been a part of the American dream.  Yet the housing crisis of 2005-2010 effected one in 700 homeowners, with millions of homes going into foreclosure.  Interest rates are at record lows, and loan qualification procedures more difficult.  Real Estate Investors have taken advantage of the crisis by buying up foreclosed homes and converting them to rental properties.  Understanding the new rules of home ownership will help restore the American dream to millions of Americans.Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • New Rules of Real Estate  Buy your home to live in, not as an investment. Flipping a home every 24 months, because of rising prices is dead. Enjoy your home for what it is, a home.  Mortgage loan requirements are tougher, but you can do it! — You need: a job, an income, a down payment and a good credit score — You also need a stable neighborhood (few foreclosures) and a property with good appraised value.  Work with a great real estate agent you understands the local market, short- sells, foreclosures, financing and how to help you with a great deal.  It is an amazing time to buy investment property.  Plan to stay in place for seven to 10 years in order to realize a return on your investmentSaunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Current U.S. Mortgage Requirements Credit Scores — A credit score of 600 or higher for FHA loans, and 620 or higher for conventional mortgages. Down Payments — A veteran or VA loan does not require a down payment. With an FHA the down payment could be as low as 3.5%. Conventional mortgages generally require a down payment of at least 5%, and often 20%. Debt Ratios — Lenders are concerned with your combined debt ratio (a comparison between monthly earnings and debt expenditures). Generally not more of 45% of your income to cover your debts (including the new mortgage payment). Funds for Closing — Your lender will check your bank account to make sure you have enough money to cover your closing costs. There are the various fees and charges you’ll accrue during the home-buying process. You may need to have these funds on deposit for at least 60 days in advance of loan closing. Employment — Many lenders want to see at least two years of steady employment, documented with W-2s and paystubs. Documents — As of 2012, documentation requirements became more stringent These include federal tax returns for the last two years, bank statements, pay stubs, employment letters and a list of any other assets you have. Most lenders today want the tax records to be sent directly from the IRS Cash Reserves —Some leaders require extra money in the bank at closing, theoretically earmarked for your first few mortgage payments. Other lenders only care that you have enough to cover your down payment and closing costs. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Steps in Loan Origination Stage 6 Closing Loan documents signed and recorded Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Avoid Private Mortgage InsuranceDown Payments and PMI with 20% or more down. Prospective Home Buyer Visit Real Agent, looks for home Finds dream home to purchase Visits Mortgage lender and completes mortgage application Puts less than 20% down payment Puts 20% down payment Lender obtains insurance to cover risk of default Mortgage approved Bank completes mortgage loan to homebuyer Bank sells mortgage to secondary markets, gets money to make more loans. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Mortgage Interest Rates  The stated rate on a mortgage loan is determined by three rates:  Market Rates: general rates on Treasury bonds  Term: longer-term mortgages have higher rates  Discount Points: a lower rates negotiated for cash upfront  The next slide shows the relationship between mortgage rates and long-term treasury rates.  As can be seen, mortgage rates are typically higher than Treasury rates, but the spread (difference) between the two varies considerably.Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Mortgage Interest RatesLenders typically match the interest rate on a mortgage to an index like 10 year treasury bonds. Saunders Learning Group, LLC, Andover, KS
  • Mortgage Interest Rates & Points Paying points will reduce your mortgage payment each month. However, you pay interest $2,000 upfront. (Which may be tax-deductible) You can see that the decision depends on how long you want to live in the house, keeping the same mortgage. If you only want to live there 12 months, clearly the $2,000 upfront cost is not worth the monthly savings. If you plan to live in a home for more than five years, paying points might be worth it. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Conventional Mortgage Loans  A type of mortgage in which the underlying terms and conditions meet the funding criteria of Fannie Mae and Freddie Mac.  About 35-50% of mortgages in the United States, depending on market conditions and consumer trends, are conventional mortgages.  In other words, Fannie Mae and Freddie Mac guarantee or purchase 35-50% of all mortgages.  Conventional mortgages may be fixed-rate or adjustable-rate mortgages.  Conventional Mortgage Loans are eligible to be resold by the loan originator in the secondary mortgage markets. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Non-Conforming LoansNon-conforming loans are offered to borrowers who do not qualify for conforming loans. Though they are the only borrowing option for some home buyers, they typically have higher interest rates, and may carry additional upfront fees and insurance requirements. Loans can be non-conforming for several different reasons. The best-known type of non-conforming loan is the jumbo loan. Jumbo Loans  Jumbo loans are too large to meet the guidelines of a conforming loan. For example, if you are buying a home and the conforming loan limit is $417,000, but need a single mortgage for $500,000, it would be jumbo loan.  As jumbo loans do not meet the standards of a conforming loan, they are more difficult to sell on in the secondary market. Reasons for Non-Conforming Loan:  Loan-to-Value Ratio (LTV).  Credit Score and History.  Documentation Problems.  Total Debt.  Recent Bankruptcy.  Debt-to-Income Ratio (DTI). Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Federal Home Administration Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Fixed Rate Mortgage This is the most common type of residential home loan. It is repaid through fixed monthly payments of principal and interest. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Fixed Rate Mortgage Advantages  Stability: With your mortgage rates fixed, the loan period set, you know what your mortgage payment will exactly be for the whole life of the residential loan. Given the certainty of your mortgage loan payment, you can plan your finances accordingly. Lower payments in a low mortgage interest rates environment: A lower monthly mortgage payment frees up your purchasing power and gives you greater financial flexibility. Using a 30 year fixed mortgage of $150,000 as an example, if the borrowing rate is 6.50%, the monthly payment would be $948.10. If the mortgage interest rate is 8.50%, the mortgage monthly payment would amount to $1,153.37. The difference in monthly payments is $205.27. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Fixed Rate Mortgage Disadvantages  Affordability: If mortgage interest rates are high, you might have difficulty making the high mortgage payments. The home loan in this situation might not be approved.  High payments in a high mortgage rate environment: Nobody wants to be saddled with high home mortgage payments over the long term.  When borrowing rates are lower, you can refinance your mortgage.  A refinance mortgage is the process of replacing your current mortgage with a new residential mortgage with better borrowing terms. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Adjustable Rate MortgageThe adjustable rate mortgage or ARM is a combination of a fixed rate mortgageand a floating rate mortgage. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • The Adjustable Rate Mortgage (ARM) • The market derived interest rate which is used as a base to set future Index: rates of the ARM mortgage loan. The rate could be adjusted monthly, quarterly, semi-annually or annually. The index could be pegged to the following: Treasury Bill Rates, The Prime Rate, Libor and 6 month CD. • The spread added to the index to determine the actual rate charged to the mortgage borrower. Margin: Example: Index is based on One Year Treasury Bills 3%. The margin is 2%. The mortgage rate the borrower pays is 5%. Rate = Index Rate + Margin. • The duration for which the mortgage interest rate is fixed. If the Adjustment adjustment period is one year, then the interest rate will remain fixed for Period: one year, after which time it will adjust. • The maximum the interest rate can adjust either up or down for eachAdjustment adjustment period. Cap: Example: The adjustment cap is 1 point. The index based interest rates since the last adjustment period went up 1.5 points. • The maximum mortgage interest rate charged over the duration of the armLifetime Cap: mortgage loan. The cap can be as high as 6%. The cap is based on the interest rate from the first year adjustment period. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • The Adjustable Rate Mortgage (ARM) With low interest rates, more people will select a fixed-rate loan as they will be more affordable. An ARM is more attractive when interest rates are rising, as you can still qualify for a mortgage, and plan for a rate increase if it happens. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Adjustable Rate Mortgage Advantages  Teaser Rate: The starting interest rate of an adjustable rate mortgage. It is usually referred to as the teaser rate, since it is lower than the fully indexed rate.  The initial low mortgage rate is used to attract people.  An arm mortgage is ideal for people who intend to stay in their homes for no more than 5 to 7 years.  The benefits of an arm are realized at the beginning.  Affordability: If current mortgage rates are high this may be the only option available to you.  You may have a better chance of getting the home loan since the lender incorporates the gross monthly income and the monthly loan payment amount to determine how much you qualify.  The monthly amount will be less with a lower interest rate so you might qualify for more. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Adjustable Rate Mortgage Disadvantages  Complicated to understand: Unlike a fixed rate mortgage that is simple to understand,  there are many variables that go into calculating adjustable rate mortgage loans.  Interest rates have bottomed out: By going with an adjustable rate mortgage arm at the bottom of the interest rate cycle, successive borrowing rates will likely go higher as interest rates go down.  Your monthly mortgage payments will become less affordable.  Uncertainty: If you plan to be at your property for more than 7 years, you will be dealing with the uncertainty associated with an ARM mortgage.  After each adjustment period, you will be getting new mortgage payments. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Biweekly Mortgage Mortgage payments are made every two weeks. You make 26 biweekly mortgage payments. You’ll save significant amounts in mortgage interest and pay off your home mortgage years earlier.  Example: 30 year fixed mortgage $175,000 Interest Rate: 6.75%  you will be saving $54,257.52 in mortgage interest.  your mortgage will be paid off 5 years 9 months earlier. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • How good is your credit? FICO Lender Score Grade 760-850 A+ 700-759 A 660-699 B 620-659 C 580-619 D 500-579 F Source: myFICO.com Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Building a Credit History Establish a steady work record. Pay all bills promptly. Open a checking account and don’t bounce checks. Open a savings account and make regular deposits. Apply for a local store credit card and make regular monthly payments. Apply for a small loan using your savings account as collateral. Get a co-signer on a loan and pay back the loan as agreed. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Credit Report Payment Codesstatus type of account code status timeliness of payment 0 Approved not used; too new to rate 1 Paid as agreed 2 30+ days past dueO Open (entire balance due 3 60+ days past due each month) 4 90+ days past due 5 Pays or paid 120+ days past the due date; or collectionR Revolving (payment amount account variable) 6 Making regular payments under wage earner plan or similar arrangement 7 RepossessionI Installment (fixed number 8 Charged off to bad debt of payments) Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • How Much Can You Afford? (the 36% rule)Debt-to-Income Ratio = What your bank says you can afford for a home.>36% <36% Housing Expenses Risky Good >28% 

Maximum mortgage payment = $2340 - $750 = $1590 Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Get Prequalified vs. Pre-approved for a Loan1. A pre-approval letter is more reliable than a pre- qualification letter.2. Youll know how much money you can qualify to borrow.3. Your real estate agent will work hard on your behalf4. Youll have more leverage in negotiations with the seller.5. A few caveats: Pre-approval letters arent binding on the lender, are subject to an appraisal of the home you want to purchase and are time-sensitive. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Real Estate As an InvestmentWhen considering real estate as an investment, be sure an evaluateall four of these components: Cash flow from rents Tax Benefits Appreciation of the property Equity increase from the mortgage payment. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Real Estate Investment Trusts Equity Trusts own income- processing properties like shopping malls and self- storage.Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  •  Mortgage Trusts are involved in the financing of real estate. Mortgage REITs provide money to real estate owners and operators either directly in the form of mortgages or other types of real estate loans, or indirectly through the acquisition of mortgage-backed securities.  Hybrid Trusts generally are companies that use the investment strategies of both equity REITs and mortgage REITs.Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • How do I invest in a REIT?1. An individual may invest in a publicly traded REIT by purchasing shares through a securities dealer.2. An investor can enlist the services of a broker, investment advisor or financial planner to help analyze his or her financial objectives.3. These professionals may be able to recommend appropriate REIT investments for the investor.4. An investor may also contact a REIT directly for a copy of the companys annual report, prospectus and other financial information.5. REIT.com maintains a list of publicly traded REITs and provides links to websites.6. Many financial websites and local libraries offer a wide range of investment research and information on REITs.7. Another alternative is to buying shares in a REIT mutual fund or exchange-traded fund. A list of REIT mutual funds is also available on REIT.com.8. Investors can compare and evaluate fund performance at Morningstar.com. Saunders Learning Group, LLC, Andover, KS Real Estate Investing
  • QuestionsSaunders Learning Group, LLC, Andover, KS Real Estate Investing
  • Post Workshop Action Plan  Complete the Post Workshop Action Plan Saunders Learning Group, LLC, Andover, KS Real Estate Investing36
  • Reference Material Family Financial Freedom 140 pages ISBN 978-1-60-746269-9 Available Formats: 6"x9" paperback PDF download eBook download Link to order: http://www.fastpencil.com/publications/4498-Family-Financial- Freedom?tid=bookbuy#read_book Also available on Kndle, Nook, iPad and other popular e-readers can be ordered from Amazon or Barnes and Noble in paperback (available soon). Book summary: You might be struggling to make ends meet, but achieving true financial freedom is still possible. The good news is virtually anyone with a desire to learn and the willingness to plan can achieve a considerable degree of financial security. This book is a road map to the personal financial freedom you want and deserve. There are no quick-rich schemes here, just common sense advice on how to manage your money, protect your family from risks and start making the moves to being more financial secure.Saunders Learning Group, LLC, Andover, KS Real Estate Investing