No-Cost Mortgages Still Cost

By Scott Sheldon

“There’s no such thing as a free lunch.”

Such words have never been more relevant to consumers being pitched no-cost mortgages, which offer borrowers the ability to pay no closing fees.

No-cost loans do provide the consumer another choice in world of mortgage financing. On the other hand, the fees associated with procuring these loans still need to be paid, and the cost comes in the form of a higher interest rate, costing the borrower more over the life of the loan.

Crunching the numbers

Here’s how a no-cost loan works: The mortgage lender offers you a higher interest rate in exchange for providing you a credit to cover your closing costs.

For example, assuming a loan amount of $300,000 and closing costs of $2,600, the lender might offer you three distinct choices:

1. 30-year fixed rate mortgage at 3.26 percent with 1 discount point (based on 1 percent of the loan amount) and you paying $2,600 in closing costs.
2. 30-year fixed mortgage at 3.5 percent with no points and you paying the $2,600 in closing costs.
3. 30-year fixed mortgage at 4 percent, no closing costs.

Comparing options 2 and 3, here’s how the math breaks down:

The 30-year fixed mortgage at 3.5 percent contains total interest paid over the life of the loan in the amount of $184,968, so the total cost of the mortgage (computed by adding the closing costs to the interest paid over the full term) is $187,568.

With the 30-year fixed rate no-cost option at 4 percent, the total interest over the full term of the loan comes to $215,609.

The total cost difference is $28,041, or about $85 per month.

So if the closing costs are $2,600, you would actually break even in about 30 months by paying the closing costs yourself and forgoing the no-cost option.

Length of loan

Ultimately it boils down to how long you plan to keep the loan. (Notice that’s how long you keep theloan, not how long you keep the house.)

If you plan on keeping the loan for:

• 3 years or less: A no-cost loan makes sense considering that you’re going to be paying off the loan anyway.
• 5 to 7 years: A no-cost loan begins to look less attractive than its fee mortgage counterparts.
• 10 years or longer: No-cost loans take a backseat to fee mortgages.

If you’re in the process of refinancing and qualifying for a mortgage is tight, then it might be beneficial to use a no-cost loan option. For example, if you have to pay down your principal balance to refinance your mortgage loan, a no-cost loan might make sense considering your cash assets would be going to the principal balance to reduce the amount financed.

Securing the lowest possible mortgage rate is on every consumer’s mind these days, but in order to achieve that, a no-cost option wouldn’t be suitable. To get the best possible interest rate and subsequently the lowest monthly mortgage payment, consider taking out a no-points mortgage loan or a loan containing discount points, so long as the interest rate is favorable.

Related:

• Which Mortgage Company Should Handle Your Loan?
• How the Election Could Influence Mortgage Rates
• How Much Income Do You Need to Buy a House?

Scott Sheldon is a senior loan officer and consumer advocate based in Santa Rosa, California. Scott has been seen in Yahoo! Homes, CNN Money, Marketwatch and The Wall Street Journal. Connect with him at Sonoma County Mortgages.

Date Issued: November 2012 Taken from: http://www.zillow.com/blog/2012-11-06/no-cost-mortgages-still-cost/

Real Estate Investing Fears and How You Can Overcome Them

By MIKe lacavai

I recently did a little survey to real estate investors to see what is holding them back from getting started real estate investing. I was really just curious to find out, more than anything.

Although I’ve done one-on-one personal coaching for new real estate investors for a while now I’ve been thinking about creating my first paid product. So in advance of that, I wanted to make sure I was on track with what really stopped people from getting into this business.

I figured I’d get the usual answers from the survey:

• I can’t find the money (check)
• I can’t find the deals (yep)
• I don’t know how to analyze a good deal from a bad deal (sure)
• I don’t know how to manage the rehab (definitely)

But what I didn’t expect was certainly surprising to me. Throughout all the hundreds of answers, one underlying emotional theme came through loud and clear: FEAR

The Biggest Problem Getting Started Investing in Real Estate

One of the biggest problems I found from the survey is that although most people REALLY want to learn how to invest in real estate, most people are TERRIFIED of actually starting.

Take a look at just a sampling of the fears we found from people taking this survey:

• “I don’t have the knowledge of the house flipping process and I might screw it up”
• “Just plain fear of the unknown”
• “I work full time so I can’t do it with the time I have”
• “I have no idea how to find houses to flip”
• “Doubt and indecision as to what to do”
• “Lack of a good mentor”
• “If I do, what would my boss say if he found out”
• “I don’t have the confidence to do my first house flip deal”
• “Fear of what happens when the house flip doesn’t sell”
• “Don’t know how to analyze a deal to know whether its good or not”
• “I have no idea how to estimate renovations”
• “I have no clue how to manage a rehab”

Although, this is just a condensed list, what’s the overriding factor?

Fear.

If this is you, you’re not alone.

Change, Pain, Pleasure and Real Estate Investing

Everyone in the survey did express an interest in learning the nuts and bolts of flipping houses. But when you delve into the open answer section of the survey, what really stops them is not the “how to’s” but its the fear of making a mistake, fear of the unknown, fear of loss and fear of failure.

Why?

Its actually deeply psychological…and proven by many PhD’s far smarter than me, that people will do more to avoid pain than they ever will to gain pleasure.

One of the most important concepts on human behavior is that at the most basic level, there are two opposing forces that motivate people to do everything they do in their lives:

“The desire to avoid pain or the desire to gain pleasure”

Unfortunately, these “yo-yo” opposing patterns make people go back and forth between taking action to create some kind of change and losing their motivation to do anything at all.

Unfortunately, the majority of people do nothing at all.

But if you continuously take action (an object “in motion tends to stay in motion” as my old physics professor used to say), you change and when you start changing small things by taking action, then larger changes are easier to act on.

The Power of Leverage

Anthony Robbins talks a lot about an idea called “leverage”, which is really kind of simple. Leverage says that in order to get someone to take action and make a change, you must help that person to “associate massive PAIN to not changing NOW, and massive PLEASURE to changing immediately”.

The motivation then comes from using both forces, pain AND pleasure to get them to take action.

The “pain” part serves as the short-term motivation, while the “pleasure” side kick-starts the long-term motivation.

The Fear Mindset and Real Estate Investing

Let me propose something to you:
What if you could trick your mind into thinking that there was no way you could fail? And you associated massive PAIN with not investing in real estate and massive PLEASURE to getting started.

Would you get started?

Envision the following scenarios:

Scenario #1

• You’ve worked hard launching your real estate investment career and you find what you feel is the perfect real estate investment opportunity. All of the signs and all the numbers point to yes.
• You have good financing, you know how much renovations will cost you, the 70% rule is mailed down and your broker has given a fact-based ARV that you are 95% sure of the price you will get when you finally sell the property.
• With knees shaking and stomach churning…you buy the house, fix it up and flip it in less than six months…making a tidy $15,000 profit.

How much pleasure, joy and ecstasy would you feel?

Pour the expensive champagne (the one with a REAL cork)…you’d be feeling pretty good…

Scenario #2

• You’ve worked hard launching your real estate investment career and you find what you feel is the perfect real estate investment opportunity. All of the signs and all the numbers point to yes.
• You have good financing, you know how much renovations will cost you, the 70% rule is mailed down and your broker has given a fact-based ARV that you are 95% sure of the price you will get when you finally sell the property.
• At the last minute, the day before the closing to buy it, your fears overwhelm you and you pass…only to see that in six months a real estate investor (not all that different from you) sells it at a price for what you are positive is at least a $15,000 profit.

How much pain, anguish and REGRET would you feel?

Pass the Jack Daniels with a side of hemlock….

Either You Control Fear or Fear Controls You

In both scenarios, there was fear, but the difference is that in scenario #1, the fear was controlled, channeled and defeated. In scenario #2 fear was succumbed to and fear, I’m sorry to say, kicked your butt.

Don’t get me wrong – by merely “controlling fear” and “associating massive PAIN with not investing in real estate and massive PLEASURE to getting started real estate investing” this is not going to guarantee you success entirely.

You still have to do all the numbers and double check everything after all. And you need to use a specific SYSTEM of steps that minimizes that odds of a really awful deal – so you can place yourself in a position to reap the profits while dodging the pain of losing your shirt.

But if all is right, you need to act. Don’t second guess . . . take action and start investing in real estate. This is the mindset you need to invest in real estate and the first most critical step to real estate investing success.

What’s holding you back?

If you made it this far, please leave me a comment below! I’d love to hear about what you think of “The 70% Rule” or questions about anything at all relating to real estate!

Mike LaCava is a full time real estate investor, house flipping coach and the President of Hold Em Realty located in Wareham, MA. Mike specializes in flipping houses with no money and runs the website House Flipping School to teach new real estate investors how to flip houses. He is also the author of the eBook "How to Flip a House in 5 Simple Steps", which you can get on his website for free.

Date Issued: November 2012 Taken from: http://www.biggerpockets.com/renewsblog/2012/11/10/real-estate-investing-fears-and-how-you-can-overcome-them/

Brokers Open Today 2-4 pm *Light Fare and Refreshments*

Real Estate Professionals Optimistic About Home Values

Taken from: realestate.aol.com

With signs that a real estate recovery may be kicking into gear, a new survey shows a sharp increase in optimism among real estate professionals about the direction of home values.

A survey conducted by home valuation website HomeGain found that the number of real estate professionals who expect home values to increase has more than doubled over just one quarter. Thirty-seven percent of respondents surveyed so far in 2012 said they anticipate that home values will rise in the next six months, up from 15 percent in the fourth quarter of 2011.

"The trend has been stay the same or decrease. And here it flipped for the first time," HomeGain General Manager Louis Cammarosano told AOL Real Estate. He added that since HomeGain began administering the survey in the second quarter of 2009, the percentage of respondents who have expressed a bullish outlook on the market has never risen above 25 percent, and for much of the time, has sputtered around 15 percent.

The spike in optimism about home values follows recent reports that corroborate the view that the housing market is stabilizing. Home sales are trending upward and homebuilders are reportedly more optimistic than they've been in many years. Home prices continue to fall, but a number of industry observers say that price direction isn't necessarily the most important bellwether of a recovery.

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Budge Huskey, president and chief operating officer of Coldwell Banker Real Estate, says he sees confidence among real estate agents that he hasn't observed since the housing meltdown. "What is consistently being represented out there today is that there is a sense of optimism in the real estate business that has not been seen in the last five to six years," he told AOL Real Estate.

While cautioning that real estate agents "tend to always be optimists," Huskey stressed that "this time it's based on what we believe to be some clear trends."

Prominent among the hopeful signs, Huskey says, is the state of the housing inventory, which had fallen to 2.3 million homes, or approximately a six-month supply of for-sale homes, as of January. That's the lowest level of inventory since March 2005, according to the National Association of Realtors, which released the statistic.

Meanwhile, total home sales have risen by 13 percent in the last six months, Capital Economics says. And while construction of new homes, dropped marginally in February, they still were at the second-highest level since October 2008, the National Association of Homebuilders says.

A last sign, much ballyhooed by industry optimists, is the state of homebuilders' confidence: The National Association of Home Builders sentiment index reached 28 in February and remained at that level in March. Not since 2007 have homebuilders expressed such confidence in the housing industry.

Despite sprouting green shoots in the market, home prices continue to slide, and even when they do eventually trend upward, many economists say, the increase will be gradual. That fact has led some industry observers to call for a rethinking of what actually constitutes a housing recovery, and to avoid treating price movement as the all-important indicator of a recovery.

Capital Economics, for instance, recently stated that even though prices declined last year (around 4 percent according to various estimates) and mortgage rates are finally ticking up, theeconomic analysis firm still believes that the real estate market is making inroads.

But CoreLogic senior economist Sam Khater advises against buying too much into the hype. "I would be cautious about folks getting too optimistic," he says.

The 1.6 million homes that are in a state of foreclosure are about to hit the market at a faster pace in the wake of an agreement reached between the government and major mortgage servicers over acceptable foreclosure practices, Khater says. That'll drive down prices, he says, as banks begin to push through foreclosures that they previously halted during negotiations of the $25 billion settlement reached last month.

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"There's going to be a really long tail to this," he cautions. Still, Khater says that rising sales and the fact that fewer homes are flowing into the "shadow inventory" -- homes in a state of foreclosure -- are positive signs for the real estate market.

Huskey says the next healthy housing era will be a more "traditional market" that will stand in stark contrast to what he calls the "steroid years," when prices rose at an unsustainable pace.

As CNNMoney recently put it, "If you're waiting for home prices to go up, then you're missing signs the troubled housing market has finally turned around."

Gallery: 10 Places Where Home Prices Are Soaring

Real estate professionals also stress that a housing recovery should not be judged from a birds-eye view, since market conditions vary dramatically from state-to-state and city-to-city. In states walloped by the real estate market collapse, real estate agents are significantly more optimistic that home prices will rise in the next six months.

Eighty percent of Arizona real estate agents and homeowners, 75 percent of Nevada agents and homeowners and 51 percent of Florida agents and homeowners told HomeGain that they believe home values will rise in the next six months. The optimism in Florida dovetails with dramatic price gains recently reported by Realtor.com. The online marketplace reports that out of the 10 metropolitan areas that saw the highest price increases in their database in February of 2011, seven were in Florida. Miami median home prices increased by 26.19 percent, the listing service says.

Meanwhile, in states that weathered the housing crisis relatively well, a much higher percentage of real estate agents and homeowners believe that prices will drop. In Connecticut, 60 percent of agents surveyed said that they thought prices would continue to fall.

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Time, Dollars and Equity - Learn All About Real Estate Investing

Taken from: www.biggerpockets.com

By completing the previous Key to Successful Real Estate Investing while Working Full Time you should have a good understanding of what is “Core” to your business and what is “Context”. Remember “Context” should be outsourced to other team members and “Core” are items you complete.

With this you now have some things to focus on and at the top of this list is Leverage.

Leverage Time, Dollars and Equity as you build and run your business.

Given that you work full time, leveraging your time both effectively and efficiently is Key as available time is a scarce resource. However, the real trick is to get good at leveraging other resources or team members’ time. If you can find multiple ways to leverage team members time you will see your business explode with positive growth.

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Let me give you a couple of examples that work in our business:

As you know we are buy and hold investors in a California market. We pride ourselves in turning ugly and distressed properties into quality rentals. However, given we work crazy hours and travel all the time it is very hard to find these properties before they get bid up or scooped up by local investors who follow the same model.

That is exactly why we listened to Tony Alvarez (Our Mentor) and learned how to work with real estate agents in our market. We spend lots of time leveraging our relationships and helping those agents sell problem properties. By working with agents and getting them to trust us as closers of tough properties, we get the phone calls when other deals fall apart.

Lots of investors will pay more for properties as we don’t get in bidding wars; additionally, we close 100% of the deals we get in escrow. Thus, on occasion we get a call from an agent about a flaky buyer or problem property. By earning the trust of these agents we can pick up some nice properties because we will close if we get the deal in escrow; of course, closing is more important than a couple of extra bucks to many agents.

Leveraging your financial resources is also key, because we want our dollars working for us as hard as possible. If you simply spend your resources and then sit back and wait you will have a slow road.

I suggest a better approach is to investigate every avenue you have to leverage your dollars. Perhaps you can find away to recycle your hard earned capital. Perhaps you can find away to leverage past 401K’s by converting to Self-Directed IRA’s? Perhaps you can find a way to leverage dollars via VA foreclosures or other like-financing options.

The final area to get focused on, is leveraging equity as the market changes over the years. You may not get a chance to use this tip for a few years, but the ability to leverage equity will be key to accelerating your business.

In our business we leverage our equity in several ways. First we did cash out refinancing when it was possible before the crash. Second and more powerful for us was when single family homes made no business sense, we sold them and did 1031 Exchanges into small apartment buildings. This exchange allowed us to leverage our equity into a lot more cash flowing rental properties. 

In addition we created a business model that allows us to buy distressed assets for cash, repair the asset and then via passive investors, extract a portion of our equity by offering a 10% interest-only note and first deed of trust on the now repaired and leased property.  This model works very well for us in today’s market as intrest paid on savings is very low. 

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Our passive investors love the return, the security, and the fact that they get a chance to participate in the Real Estate Market without taking the risks of active investing or having to invest all the time in learning the market.

Now I admit that cash out refinancing and selling properties via a 1031 Exchange today are not great options, but over time they will be, and you need to be ready for it. As the market changes and the press picks up on the fact we have hit the bottom in the market, real estate will come back in vogue and you need to be ready to leverage your equity.

Have you noticed lately that at least 75% of the press on real estate is positive the last 6-8 weeks? When the market changes from a buyers market to a sellers market we will be ready to exchange all of our houses for small apartment buildings again. It is a very profitable strategy.

In the end the fifth key is about getting good at leveraging Time, Dollars and Equity to insure maximum return to your business.

Opening an Escrow Account -Learn how It Works!!!

Taken From: www.realestate.yahoo.com

If you've ever made an informal bet with a friend, you may have asked a third person to hold the money until the wager was resolved. When you take out a mortgage to buy a home, you're doing something similar by opening an escrow account.

How it works

When you put money in escrow it is held by a neutral third party (called an escrow agent) who works for both the lender and the borrower. The agent's role is to carry out the instructions agreed upon by both parties. The money is released when all the terms of the agreement are met. Escrow can be involved in anything from multimillion-dollar building projects to purchases made on online auction sites.

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When it's used

When your mortgage closes, your lender will usually require you to open an escrow account to cover property taxes and homeowner's insurance. You'll make an initial deposit, followed by payments to the account every month. (Usually these are added to your regular mortgage payment.) The escrow agent will then release these funds as your taxes and insurance premiums come due.

Its purpose

The idea is to protect the lender by ensuring that you pay your taxes and insurance on time. If you default on your property tax, for example, your municipality can put a lien on the house, which would make it difficult to sell. Or if your house burns down and you've neglected to pay the insurance, the lender would be left with no collateral.

How you benefit

Escrow can benefit borrowers by helping them spread insurance and tax expenses evenly over 12 payments. For example, assume your yearly property taxes are two payments of $1,000 each, and your insurance is $400 annually. If you paid these directly, it would mean three large payments a year; your escrow costs, however, would be a manageable $200 a month.

Escrow payments

Your escrow account will have a built-in cushion -- if you miss a payment, the lender must still be able to pay your accounts on time. However, federal law prohibits lenders from requiring more than two months. expenses in escrow. And because your tax and insurance costs will change slightly from year to year, the lender will review and adjust your escrow payments annually.

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When escrow may be waived

In most states, the money you place in an escrow account earns no interest for you. For that reason, many borrowers prefer to pay their taxes and insurance directly. Lenders may agree to this if your down payment is more than 20 percent, although some will raise your interest rate slightly to compensate. Once you agree to putting funds into an escrow account, however, it is difficult to cancel it, so make sure you fully understand the arrangement before your mortgage closes.

Learn the Steps for Establishing Your Real Estate Investing Criteria

Taken from: www.biggerpockets.com

Assume you are following the series of successful tips to Real Estate Investing while working full time, you know that you need full and complete support from your significant other and you need to invest time doing “The Homework” in your market.

Once you have a handle on your market and a good understanding of a bad deal, average deal, good deal and great deal, you are ready for the next step.  I suggest the next thing you do is sit down and review your homework and document your buying criteria.

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Establishing Your Real Estate Investing Buying Criteria

Let me be clear, the more specific buying criteria the better.  For Example:

• I want to get a good deal is a terrible buying criteria!
• I want to get a deal that returns 15%+ on my cash is a great buying criteria!
• I want to get something at a 20% discount.

This last one sounds like a good goal but who gets to decide the price or the discount level?  I know lots of investors use this or similar criteria.  I would argue that the criteria is too subjective and open for interpretation.  Buying criteria like this can lead you to lie or mislead yourself into thinking you have found a good or great deal.  Don’t let this happen to you.

Once you decide on your buying criteria I need you to do two things.

First, write it down and put the buying criteria in a couple of places.  I suggest putting it near the computer you do your research on.  I also recommend putting it in your wallet or purse to ensure it is always with you.  It wouldn’t hurt to put it in your car as well.

By writing it down you can hold yourself accountable and remind yourself of what you are looking for.

Second, tell your significant other.  Remember they are already on board with you, so share the buying criteria with her/him and tell them why you have decided on the criteria.  I would also share the homework you did from key #2 to ensure they completely understand the buying criteria under the lenses of the effort you have already expended.

Sharing the buying criteria with your significant other ensures they understand and they can help you hold yourself accountable.  I am a huge fan of teamwork and families working together in this business.

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A quick caveat about buying criteria:

I have one additional filter I put all my deals through to ensure I don’t get too focused on the numbers.  I use the following rule to insure I am not too numbers focused.

Would I be comfortable with my wife driving to the house during the day, getting out of her nice car and going into the house alone? 

If the house or property doesn’t pass this test, I don’t care if it is the best deal on the planet.  I won’t buy it.

I use this filter to avoid war zones.  I love buying properties in older areas and showing how much we care by remodeling the property, but I won’t take a risk in areas where I am afraid to drive and review my property.  It is just not worth it.