We just wanted to thank you for all of your help during the process of buying our home. Thank you for making us feel comfortable and doing everything you could to make the process go smoothly.
Steve & Sharon
More rave reviews...
Helped My Clients
Case Study #1
Recently prospective clients, John and Tracy, were referred to me for a loan
they needed to purchase a house. They had already made an offer of
$520,000 for a house they were interested in and the offer had been accepted. Up
to that point they had lived with John's parents, rent free, which allowed them
to save $37,000. John and Tracy intended to put 5% down on the house and obtain
a first mortgage of 80% of the house value and a second mortgage for 15% of the
house value. They had already decided, based on Tracy's father's advice, that they
wanted to put a 5% down payment and get a 30-year fixed rate first mortgage and
a 30-year fixed rate second mortgage. They did not come to me for advice. John and
Tracy had already met with another lender who offered them exactly what they stated
they wanted. They simply came to me to see if I could do the same loan structure
cheaper than the other lender.
I invested about 45 minutes discussing their situation and addressing their
concerns. I presented them with two scenarios. Scenario A was the 30-year
fixed rate loans they desired, which had a total monthly mortgage payment of $3,180.
This required a $26,000 down payment and $9,000 to cover their closing costs and
initial escrow account setup, which left them with only $2,000 in the bank.
Scenario B was a 10-year fixed rate (30-year term) first mortgage with an interest-only
minimum payment and a 30-year fixed rate second mortgage and a total monthly mortgage
payment of $3,040. On the surface, not much of a difference, but
besides saving $140 per month, they would keep their $26,000 in the bank because
no down payment was necessary, which would give them a total of $28,000 in a cash
cushion. John and Tracy were going from paying no rent to
greater than a $3,000 mortgage payment and were only going to have $2,000 in the
bank as a cushion. They were first-time homebuyers and were not used to a $3,000
monthly payment. Scenario B saved John and Tracy a great deal of money and put them
in the best position to handle their new mortgage payment.
Case Study #2
Not long ago long-time clients, Bill and Mary, returned to me because they were
frustrated by their lack of cash flow. The high mortgage payment associated
with their Jumbo 30-year fixed rate mortgage left them unable to save any money.
Bill figured there had to be something better they could do with their money than
give it to the mortgage company. When they took out the loan a year and a half earlier,
Bill and Mary thought a 30-year fixed rate was the best loan program around, as
most people do.
Our conversation revealed that they had four IRAs: one for Bill, one for Mary,
and one for each of their two children. Up to this point each account
had only $2,000 in it, which was the initial deposit he provided to open the accounts
several years earlier. By restructuring their mortgage Bill and Mary were able to
reduce their monthly mortgage payment by $1,140 per month, or $14,680 per year.
Bill's plan for the following five years was to add $1,000 per month ($250 a month
x 4) to the IRAs instead of sending that $60,000 to the mortgage company. This would allow Bill and Mary to earn compound interest
on $68,000 and still retain their tax deduction on both the mortgage and the IRA contributions.
What Bill and Mary realized was that the lowest interest rate on the
wrong loan program is not as good as a great interest rate on the right
loan program and that the right loan program is the one that best suits
your current situation and helps you accomplish your goals.
Case Study #3
Just last week a client named Tara, who was referred to me 11 years ago, returned
for a new loan. Only this time she wanted to buy a house instead of
refinance. The current state of the housing market got her thinking that maybe now
would be a great time to buy a larger home. She found a great bank-owned foreclosure
that was worth about $375,000 and made an offer, which was accepted at $315,000.
The lender even agreed to pay $10,000 of Tara's closing costs and initial escrow
account setup. The real issue was figuring out how we were going to pull it off
so she could afford the payment on both houses.
To buy the new house Tara would need to put 20% down. She didn't
happen to have that much lying around. We decided to do an equity line of credit
for $90,000 on her current house. The first mortgage payment on her current house
was $1,480. The new payment on the equity line would $400 for a total mortgage payment
on the current house of $1,880. Tara could rent the property for $1,800, which would
result in an $80 monthly loss.
The reason we did the equity line of credit for $90,000 was so we would have
enough money to put 20% down, pay off a car loan for $20,000, which
had a monthly payment of $455, and put the balance of the money in the bank as reserves.
Because we paid off the car, we were able to use $80 of the $455 to offset the rental
loss and apply the remaining $375 to the property taxes and homeowners insurance
of the new house leaving Tara with a $1,593 monthly payment. She also retained a
30% equity position in her now rental house and secured a 20% equity position in
her new house.
Case Study #4
A few years ago Jeff and Samantha called me because they wanted to buy a piece
of investment real estate. I had already done multiple loans for them
over the preceding ten years but now it was time for the daughter to go to college
and they wanted to purchase a condominium for her to live in. I reviewed all of
their assets and determined that Jeff and Samantha had a great deal of equity in
their primary residence that wasn't earning them anything. House equity accounts
or a large percentage of most homeowners' wealth and tends to make homeowners feel
secure but it has no rate of return and, consequently, adds nothing to your future
wealth. We decided that the dead house equity could be extracted from their house
and used as a down payment for not one, but two, investment properties.
Jeff and Samantha were able to leverage $60,000 of house equity to purchase
two condominium units totaling $380,000. If they had decided to purchase
stock instead they would only own $60,000 worth of stock because no leverage was
employed. When Jeff and Samantha decide to sell the two condominium units they will
likely make enough money to cover the real estate commissions as well as the cost
of the college education, and possibly more. In the meantime, their daughter acts
as a property manager for both units and is learning valuable lessons about business
that will pay her dividends for years to come. She rents rooms in both units
to her friends and the rent collected covers the mortgage payments so it costs nothing
for Jeff and Samantha's daughter to live off campus.
Case Study #5
Curt and Tammy called me about a month ago because they were interested in buying
a house together. They each owned a house already but needed something
larger to accommodate the combining of two families. Curt & Tammy wanted to keep
their respective houses and rent them out but lending guidelines were changing rapidly
and there was a strong possibility that they would not be allowed to do that. Due
to market trends lenders had to be concerned about people buying a new house and
walking away from their old house.
While waiting for me to resolve the rental house issue Curt & Tammy were
strongly encouraged by someone else to speak with another lender and they did.
The solution offered by that lender would have cost them an additional $515 per
month for as long as they held that mortgage plus an additional 7,250 in closing
costs. Over 10 years, the period of time Curt &
Tammy felt like they would live there, they would spend an extra $69,050,
which doesn't include the interest they would have earned on that money if it had
been invested monthly, not to mention the benefit of having that money available
to them should circumstances arise that left them needing access to the money.
In the meantime, I was able to solve the rental house issue and get them a mortgage
with an interest rate 1% lower than the other lender offered, saving them the $515
per month, plus the additional $7,250 in closing costs.
Now that you have seen specific situations I've assisted my clients with
to see my clients'
Borrow Smart Retire Rich
by Todd K. Ballenger
and Shawn R. Perkins
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