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A Worthwhile Struggle: Buying versus Renting in Utah

Utah continues to be one of the states attracting the largest number of new residents, according to the U.S. Census Bureau. Recent reports indicate that housing growth led the U.S. from 2016 to 2017, boasting a 2.1 percent increase with 22,177 new homes. While this growth creates new opportunities for Utah residents, it also creates challenges for those seeking to purchase a residence.

Tracking the Trend

The simple facts are that all indications point to an ongoing rise in the price of homes in Utah. Over the past 26 years home prices have risen an average of 3.3 percent per year, outpacing all but three other states. This compounding effect is the reason first-time buyers are now facing prices of more than $350,000 for starter homes. This compares to just $160,000 in 2004.

While it is difficult to accurately project the overall real estate market, one study by the Kem C. Gardner Policy Institute at the University of Utah projects a stunning possible future. The study, explains institute employee Dejan Eskic, predicts that those trends could result in an average price of $1.3 million for a Wasatch Front entry-level home by 2044.

Understanding the Economics

Unfortunately, many potential home buyers are intimidated by these economic realities, and they reconcile themselves to renting rather than buying their first home.

While renting is a viable options for some situations, it only adds to the challenge for those who desire to own. Even a 3 percent increase in price over a year can add as much as $10,000 to the purchase price of a home, and greatly increase the down payment needed.

Multiplying those numbers out over just three or four years provides ready evidence of the real cost of waiting to buy a home.

While rising prices create challenges for new buyers, they also create greater incentives for purchasing a home as early as possible.

If you are currently renting there are many options for low down and $0 down payment loan programs. Don’t let home prices rise to $1.3 million and regret not buying your first home now. Call me to get qualified today.


FICO or Vantage: Two Methods of Looking at Your Credit

In 1956 one of the earliest applications of IBM computers was conceived by engineer Bill Fair and mathematician Earl Isaac in San Jose, California. The two conceived their idea while working together at the Stanford Research Institute in Menlo Park. Two years later the two pitched their FICO system to fifty American lenders. This was the birth of the FICO® credit score, a financial measure that has shaped American financial lives for more than six decades.

What Credit Scores tell Lenders about You

It is easy to take for granted the fact that today you can go online 24/7 and get a credit decision from many companies in just seconds. Such decisions previously took days or weeks and filling out long forms of personal information. The primary reason for this change is based on the ability of FICO scores to predict your ability and willingness to pay.

Traditional FICO scores provide you with a number between 300 and 850 based on five primary financial factors. These include information about how you (and usually your spouse) handle your finances by showing:
· How you pay your bills
· How much you owe
· Who you owe and what types of credit you have
· Recent applications for credit
· How long your credit history has been established

The lower your score, the harder and more expensive it is to get credit for everything from credit cards to mortgages. Likewise, a high score will usually provide access to the very best financing options. When I meet with potential home buyers seeking to finance their purchase, one of the first things we focus on is that FICO score.

This is because most of the mortgage companies we work with build their lending programs around the FICO program. This has been the case since the late nineties, when Fannie Mae and Freddie Mac started the trend. They feel this allows them to assess risks and determine the segment of borrowers that fit their business model.

A New Player in the Credit Score Market

While the FICO score is still the dominant credit factor with mortgage companies, I am finding that an increasing number of our clients now track their VantageScore® . This credit resource was created in 2006 by the three major credit reporting agencies, and it is increasingly popular with both consumers and some lenders.

While VantageScores use much of the same basic information (with added emphasis on credit available), it does not rely on a rigorous a formula as FICO reports. However, both scores are ultimately most impacted by how you handle your credit and how reliably you pay on your existing debts.

One of the primary advantages of the Vantage Score process used by sites such as Credit Karma is your ability to access your current score for free and with no impact on your FICO as a “hard enquiry.” Since the two scores track closely (if your FICO goes up, so will your VantageScore), this free update from VantageScore lets you know you are on track improving your credit or you have an issue that needs addressing.

Which Credit Score Matters Most

I am asked this question more frequently these days, and my answer has three parts. First, there is always a difference between the scores, and there are a variety of reasons for those differences. Secondly, I will tell each of our clients that the score is only an indicator – both scores reflect your credit standing at a given point in time.

The third element of my answer is that for today’s lenders the FICO remains the most important for your mortgage search. Call us – we can help you understand how to help ensure you have the best chance for best mortgage, and to keep both your credit scores in a respectable range.


Experience Matters

One of the classic conundrums in buying a house is that buyers need to sell their homes before they can buy their new property. Even if they have the funds to close the transaction, for most people, having two mortgage payments at the same time (on the old and new house) means that their debt-to-income ratios fail to meet the lender’s standards.

However, the rules for Fannie Mae and Freddie Mac both have a loophole that might let you buy a new home before your old house closes without having to rent out your old home. It all hinges on whether or not you have found a buyer.

Fannie Mae’s rules say that you can exclude the mortgage payment on your existing home if you have a buyer with an executed purchase agreement without a financing contingency. This means that once the buyer for your existing home passes their financing contingency, you can close on the purchase of your new house.

If your mortgage is underwritten by Freddie Mac, the rules are even more flexible. Like with Fannie Mae, you can exclude your existing monthly mortgage payment from the debt-to-income ratio relative when your buyer’s financing contingency goes away.

However, where things get really interesting is that if you are relocating and have an employer relocation benefit, a relocation company will take responsibility for your old loan. You can exclude that existing mortgage payment from the debt-to-income ratio and close on your new mortgage prior to selling your existing house.

These rules can be complicated. They also require you to have the funds to close on your new home without the proceeds from the sale of your existing home. Nevertheless, a loan officer who understands these intricate guidelines can give you some additional flexibility and help you get into your new home more quickly.

If you are interested in taking advantage of these rules, work with both a real estate agent and mortgage broker that understands them and can help you structure your transaction appropriately.

To schedule an appointment to review your specific
situation please give me a call at 801-206-4343.


Buy First, Sell Later

Buying a new home after your current home has gone under contract and you only have 4 days to find a new home is stressful. One way to make buying the new home process easier is to buy first and sell later. Meaning buy your new home, move into it at your leisure, then once your old home is empty list and sell.

To make this type of financing happen there are 2 major considerations to work out:

– Down Payment
– Qualifying for both mortgage payments

Most people feel they are forced to sell their current property prior to buying, because they need the down payment from the sale of their house or they don’t feel that they will qualify for both payments. But here are a few tricks that may make a Buy First Sell Later home buying strategy work for you.

If we will be buying first we will not have the sales proceeds from the house we are selling to use for the down payment. We will need to use funds from savings, if you are lucky enough to have the funds.

If someone has a large savings account they can put down a large down payment then replenish their savings once their existing home has sold. Once the existing house sells we will have more funds available and can do a Re-Amortization.

A Re-Amortization is available on conventional loans, and costs a few hundred dollars. This process is done when you make a large principle payment and lets you lower your monthly payment based on the remaining principal and time left on the loan. For Example, if you bought a house with a small down payment then sold your existing house and netted $100,000 in sales proceeds. We could pay down the principal balance of your new house $100,000. Re-Amortize the loan and lower your payment based on the new loan amount.

More frequently, we turn our clients on to a HELOC (Home Equity Line of Credit) for the down payment. A HELOC is a line of credit tied to the equity in your existing property and provides a flexible way to finance a new primary residence, vacation home or investment property.

Utilize your equity and make a large down payment and avoid Mortgage Insurance. What I don’t like about the HELOC is that while you have drawn against it until you sell your home and payoff the HELOC you will have to pay interest against it. You will be paying interest on the HELOC for such a short period of time it really isn’t that big of a deal.

Qualifying for both payments can be tough.  If you qualify for both payments right away, it’s smooth sailing. If not, you can convert your existing home to a rental property and use 75 percent of the rental income to offset the existing payment. This works great when you want to acquire rental properties.


The Ultimate DIY: Construction Loans

Building your own home is the ultimate DIY if you have the skills, experience and connections to be able to pull it off. Buying your dream home requires getting a mortgage, but building your dream home from the ground up? Well, that requires a mortgage — with a twist.
Construction loans are shorter term loans that cover the cost of construction or remodeling a home. They are typically short term with a max of one year and have rates that adjust with the prime rate.
A mortgage is typically between a borrower and lender, but construction loans add a third party to the mix with a builder. The lender needs to see a detailed plan and timetable as well as a realistic budget for the project at hand. This is sometimes called the “story” of the loan and is necessary to provide the outline for a lender to consider the risks involved with this specific type of loan. If a borrower is building the home themselves, this helps them prove that they have the experience and skill set to complete the project.

There are three types of construction loans:

One-Time Close
This is one single loan that converts to permanent financing once the construction is complete. These loans are great because the interest rate is locked in for the duration and cannot change if rates go up during the construction period. This type of loan will save you thousands in closing costs as you only pay closing costs once.

Two Time Close
The first loan pays for construction of the home as it takes place and once construction is complete, the second long term financing loan pays off the initial construction loan. The benefits of this type of loan are a lower overall down payment as well as a lower initial rate, however, the interest rate does not get locked in and can increase.

Renovation Construction Loan
This is a construction loan for remodeling or renovating existing homes. This is a one-time close loan that can be done as an FHA or Conventional loan but may also be used on purchases or refinances. You could use this loan if you buy a home with an unfinished basement or want to create an addition off the master bedroom.
We recently helped a client with five children who were anxiously seeking the perfect home in 9th & 9th district of Salt Lake. They could not find a home in this neighborhood with enough bedrooms to fit their needs. We were able to find them a very large 2 bedroom outdated home in 9th & 9th. It did not have the number of bedrooms they needed but it had good bones. The client bought the home for $310,000 and included about $100,000 in Renovation financing. The final appraisal after the remodel came back at $450,000, which means he gained $40,000 in equity!
Whether you are a first-time homebuilder, or just want to make the current home you live in feel like new, we have a solution that is sure to fit your needs. There is no such thing as a “one size fits all” approach when it comes to mortgages, and you don’t have to DIY. We have the foundation of knowledge to help you build your dream home one brick at a time!


Anthony’s Office: Where There’s a Will, There’s a Way

Recently I had a client in my office brainstorming ways she could acquire more rental properties. She was 64 years old and was dressed somewhere between homeless and casual.

She already owned 12 properties, seven of which were owned free and clear, but she wanted more.

I was amazed and wanted to learn more about how she acquired and paid off so many investment properties, so I asked how she did it. She told me her story as she was double dunking a week old donut into her coffee (don’t ask me why we had week old donuts in the office, we just did). I warned her the donuts were a week old and she still ate two.

It was 1976, she was 22 years old, and living in an apartment building across the street from the University. She had the bright idea that she would like to own the apartment building. She strolled into her bank, sat down with the bank officer and told her she would like to buy the apartment building she was living in. The bank officer started rolling in his chair with laughter; he couldn’t believe his ears. He brought the bank manager into his office to have her tell him what she came in for and they both started laughing and cracking jokes at her.

She had never been so humiliated, crushed in her life. She walked out of there feeling devasted, but also with a profound sense of vengeance and “Screw you!” attitude towards the bank officers. She promised herself she would purchase those apartments and nobody would ever treat her like that again.

In the following year, she bought her very first condo. A couple years later, she bought another condo, then another, as well as a single-family home. In the 42 years since her first rejection, she has acquired a total of 12 properties – Did I say seven of which are now owned free and clear? She has not sold a single property. Her average monthly income as a result is over $15,000, a gross income over $180,000 per year.

Roadblocks have not been an option for her! Her resulting success is middle finger enough to the nay-sayers that threatened to thwart her from her path. If she would have accepted her initial “no” answer, she surely would not be where she is today. Refusing to take “no” for an answer clearly afforded my client the life she has always dreamed about, perhaps more.

At some point in every one of our lives, we face rejection as a natural reaction to be being in alignment with our goals. Life puts many roadblocks in front of us and it is our job as individuals to either let those blocks separate us from what we want or accept them and find ways to overcome them. Challenging the odds and refusing to give up hones our character to be able to defeat obstacles standing in our way.

My client’s success did not come overnight. It came brick upon brick or condo upon condo over 42 years. It’s amazing to me what we can accomplish slowly and over time with diligence and staying close to our goals.


10 Ways to Avoid Boredom This Summer!

Summer is in and kids are out – of school, that is. After the summer camps, the family trips and the holidays, a lot of parents are left wondering what activities they can use to keep the kids busy and get them out of the house. With triple digit weather just around the corner, we know you are looking for simple, cool and entertaining ideas for the kiddos this year. Beside perhaps letting the kids frolic in the yard, what’s a parent to do?

Fear not! We’ve compiled a list of 10 fun summer activities for you, all within the Salt Lake Area. Get your planning in gear today!

  1. Red Butte Garden Outdoor Concert Series – Located on the upper east side of campus, the Red Butte Garden will be hosting some amazing musical talent this summer such as Sugar Ray, Steve Miller Band, and a host of well-known artists.
  2. Hit the biking/hiking trails – Some of the best biking trails are also some of the best trails for a great hike. There are trails just east of the U of U campus; you might also consider nearby canyons such as City Creek Canyon and Millcreek Canyon.
  3. The Utah Arts Festival – The Arts Festival will be held at the downtown Library Square from June 25 – June 28. See more info on their Facebook page by clicking here.
  4. Fireworks at the park (twice in the same month) – One of the benefits of living in Utah is that we have two July holidays with fireworks—the 4th of July and the 24th of July (Pioneer Day). Why not take advantage of both days?
  5. Go to the pool or water park – You can go to a local pool or you can try out Seven Peaks Waterpark (formerly called Raging Waters) at 1200 West and 1700 South.
  6. Twilight Concert Series at Pioneer Park – Join gatherings of outdoor concertgoers for some of the hottest shows in town, such as Death Cab for Cutie. Tickets are only $5 in advance and $10 at the door.
  7. Drive-In Movie Theater – Pack up a cooler with your favorite beverages and snacks, along with some blankets and beach chairs, and you’re good for a relaxing time with two great flicks for a low price. Click here for more information.
  8. Hogle Zoo – Not only are there dozens and dozens of exhibits for kids to bounce back and forth between, there are also great clubs, camps, Harry Potter themed zoology classes and sunrise/sunset safaris where no kids from 1 – 92 will be able to find anything to be bored about.
  9. Boondocks Fun Center – Tuesdays will never be boring again when you can get unlimited Laser Tag, XD Theater, Kiddie Cove and video games all for $12 at Boondocks. For an extra $8 per person, you can buy an Outdoor Upgrade with Go-Karts, Batting Cages and more. Military discounts apply.
  10. Wheeler Historic Farm – This is a working farm with a museum and a great amount of open space for kids to run around. Picnic facilities and a playground make for a good afternoon escape, and wagon and train rides give a very nostalgic feeling to the whole experience. Did we mention it’s a public park, so it’s free?

Mortgage Insurance : A Breakdown

What is Mortgage Insurance?

Mortgage insurance is a specialized protection for the lender -not the buyer- if you are unable to make your mortgage payments, for any reason. If you fall behind, your credit score may suffer, and you could stand to foreclose on your home.

How does it work?

Mortgage insurance lowers the risk to the lender making the loan to you, that way you are eligible for a loan you might not otherwise get. This does increase the cost of the overall loan but if you are required to get it, it will either be included in your monthly payment, your costs at closing, or both.

Who needs Mortgage Insurance?

Typically, borrowers making a down payment of less than 20 % of the purchase price of the home also will need to pay for mortgage insurance. This insurance is also usually required on FHA and USDA loans.

Are there different ways to pay for Mortgage Insurance?

There are several different kinds of loans available to borrowers who have low down payments, and the resulting mortgage insurance can be paid for in a number of ways:

  • Conventional Loans – your lender may arrange for a private company to insure you. Private mortgage insurance (PMI) rates vary by the amount of the down payment amount and credit score, but are tend to be cheaper than FHA rates for good credit. Under certain circumstances, you may be able to cancel your PMI. (see last question)
  • FHA Loans – premiums from your insurance are paid to the Federal Housing Administration (FHA). This insurance is required on all FHA loans. FHA insurance is paid by both monthly payments and upfront costs included in closing. Loan amounts can increase if there is not enough cash on hand to pay upfront and the fee is rolled over to the mortgage.
  •  USDA Loans –  Similar to the FHA but typically cheaper. You will pay for insurance both upfront and monthly. You may choose to roll the upfront portion to the mortgage but again, this will increase overall loan cost.
  • VA Backed Loans – replaces mortgage insurance and functions similarly to it. There is no monthly premium with this loan but there is an upfront “funding fee”, which varies depending on the type of military service, the down payment amount, disability status, type of loan (buying or refinancing), and whether or not it is a first VA loan. You have the choice to roll the upfront fee with this as well.

Can you get rid of mortgage insurance?

In order to remove private mortgage insurance (PMI), you must have at least 20% equity in your home. You may ask the lender to cancel PMI when you have paid down the mortgage balance to 80% of the home’s original appraised value. When the balance drops below 78%, the mortgage servicer is required to eliminate the PMI.


Housing Becoming Less Affordable Along Wasatch Front


In March, researchers at the Kem C. Gardner Policy Institute found that our current market conditions are threatening to cause a crisis in Utah based on a growing housing shortage, while current home prices continue to appreciate.

The Wasatch front housing market is stronger than ever with an increasing demand for both single family and multifamily rental units through the northern part of the state. New research shows that demand has outpaced wage growth which is causing a greater rift in affordability. Studies show that median home prices during the first three months of 2018 were not affordable for average wage earners in about 68% of the counties included in the US report.

Incomes in Utah have failed to keep pace with interest rates, the report noted. The report also defined housing affordability as a unit where an owner or tenant pays no more than 30 percent of their household income toward housing costs — rent or mortgage.

Davis, Utah and Weber counties, which are located along the Wasatch front rated less affordable than any prior quarter average during the first three months of 2018, while Salt Lake county was equal to its historic affordability index.

Affordability often suffers during booming economic cycles, which frequently outpaces incomes for at least the start of these growth spurts. The risk is that individuals and companies could pull out of the area when they are no longer able to operate or live because of the expensive housing.

Home values are going up quickly [but] the negative side of that is that the homes themselves are also becoming less affordable. Three factors that could help improve affordability in the short term are things like decreasing home prices, increasing wages and although cited as the least likely to happen, decreasing interest rates.

However, the Wasatch front is still a more reasonable market than other large surrounding urban areas like Northern or Southern California, Las Vegas, Seattle or even Denver. Housing prices in Utah will continue to increase at rates well above the national average due to relatively high rates of population and economic growth. As long as the state is considered a bargain for some other competitive markets, we will probably see home prices continuing to grow and affordability continuing to be an issue.


Five Signs You Are Ready to Buy a New Home

Have you been asking yourself if it might be time to fulfill the American dream of home ownership? There are many factors to consider before making this decision — beyond low interest rates and competitive pricing. Here are five signs which might indicate that the time is finally right for you:

1. Debt Elimination

Being able to conquer outstanding car payments and credit card debt means you won’t have as many extra bills, which could diminish your available funds to be able to support a mortgage. The increased cash flow (which is now not going toward debt) gives the opportunity to make sure other homeowner related expenses can be covered, such as property tax, homeowners’ insurance, repairs, maintenance, furnishings, etc.

2. Job Security

While any job always comes with the possibility of uncertainty, the longer you are in a position or have obtained enough years as a business owner, the more likely that your job will be viewed as sustainable enough to back up home ownership.

3. Income Increase

No more than 30 percent of your total monthly income should be going toward a mortgage payment. However, you are able to put as much as 50 percent toward the mortgage payment, if you know you are able to live within your means until a raise comes your way. Earning more means you won’t have to put as high of a percentage of your earnings toward your house payment. Otherwise, lack of extra income could put you at risk for financial vulnerability.

4. A Solid Savings/Emergency Fund

Acquiring a new home can mean many potential surprises. In general, something unexpected will always come up in life as well. It is logical and vital to minimize stress and prepare in advance with extra accounts, including a savings account and emergency fund. After all, having to rely solely on a monthly income to cover unexpected costs (since monthly income has already been calculated and is needed for the mortgage and other bills) can create avoidable issues.
By having funds set aside in the amount of an equivalent of at least a year of monthly bills — is a good position to be in before considering a big move. Setting and sticking to a firm goal is the only way to attain this level of security for your household.

5. Higher Credit Score

After paying off debt and monitoring your credit report, you are able to increase your credit score to obtain a more ideal interest rate. Qualifying for a better interest rate means you get to enjoy a lower monthly mortgage payment, making the option to become a homeowner an obtainable goal.


These are just some of the signs that you can use to determine whether or not you are ready for the home-buying process. Our friendly and knowledgeable staff is happy to answer any questions or concerns you might have. Please contact us if you feel you are ready to pave the road to your new home!