Debt Freedom including your Mortgage? Dream or Possibility?

“Close your eyes and dream…….. What would it be like to be debt free?  Yes, even your home is paid for in full.”  What if that date wasn’t thirty years from now, but 12, or 10, what if it could be 8? Although you may be thinking that I am on my patio daydreaming and maybe even a little off my rocker it can be done. Your Grandparents or parents are proof that it can be done. So am I simply talking about Fiscal responsibility? Probably not? That seems to be frowned upon in the United States today. I am a firm believer in learning fiscal responsibility and if their is a tool that will coach you through the process that is a effective why would it be a bad thing?

Consider you are driving from Roseville to San Francisco but along the way you exit 12 toward Napa. This is definitely off course. However, most of us now have some form of GPS to alert us of the misdirection and recalculate our next move to insure arrival. The tool that I am going to speak about can be considered a Financial GPS. A tool that if you happen to get off course or life happens and you are forced to go another way (detour if you will) it will assist you in re charting the course. GPS, a coach, a mentor offers peace of mind. It allows you to focus on the important things while all the details are worked out for you. Peace of mind is valuable. So valuable that it can hardly have a price tag. After all I think that peace of mind is what many of us strive for. Paying off your home offers peace of mind.

Dennis and Cheryl Harris

As many of you may already know and for those of you who do not know I love meeting new people and seeing what they have to give back to the world. I do not freely endorse or promote anyone or their product without the opportunity to get to know them a little as a person.  Any product that is revolutionary can also be controversial. However the heart of the business person presenting the product is what I look for. I had the great opportunity to sit down both Dennis and Cheryl Harris on Thursday evening and learn about them. What I came to find out about them is that they are amazing people. I have met many U-first agents and asked the very questions I am going to summarize below and I have got all sorts of answers. None of those answers showed the level of genuine interest that I felt from Dennis and Cheryl. They were not selling me the product that they have. Instead they were sharing with me how it has changed their life. I could sense the peace of mind that they have in knowing that the financial gps they hired will keep them on course to realize DEBT FREEDOM. I would encourage anyone who desires debt freedom to sit down with Dennis and Cheryl and allow them to share with you their story.

Here is what we talked about

Matt: Considering the fact that America promotes Fiscal irresponsibility (cash for clunkers) and refuses to teach in the school systems how money works how do you explain and overcome our hard wiring to leverage and finance our  Dreams?

Dennis and Cheryl: There has to be a paradigm shift on the way we view our money. The first question is how is what you are doing right now, working for you today? If you continue to do the same thing will you achieve peace of mind or freedom from your debt? If you are serious about getting your debt paid off and someone shows you the way it is hard to ignore.

Matt: The cost of the product can be quite substantial. A Garmin or Tom Tom can cost about $199 but this “Financial GPS” is $3500. How can someone who is looking to become more fiscally responsible justify spending this much?

Dennis and Cheryl: $199 for a Garmin saves you the time and the gas of getting lost. It helps to increase the quality time that you will have once arriving. It is an investment into the quality of your life. Although the cost of the U-First Software is $3500 dollars the savings can be hundreds of thousands. If I said you can invest $3500 and yield a return of $200,000 and show you this with factual numbers would you not invest the funds? The investment is a fraction of the return.

Matt: If the system no longer used a Home Equity Line of Credit and now is done through the use of a checking, savings and Credit Cards, What happens if the consumers credit card balances are reduced to the current balance? This is quite common today.

Dennis and Cheryl: Although the use of the Credit card is a factor and part of the program it is not reliant on the card solely. The program works to help you also pay off your debts such as auto loans and credit cards a s well as your home. The upgrades that have been made include total DEBT FREEDOM not just the home. If you follow your financial GPS it will again help to reduce the balance on the card regardless of the limit so that you will free up space to use the credit card as necessary. I understand the concern, what happens if things change to the point the program no longer works. I lose my job or my investment income dries up or… The Financial GPS will recalculate and get you headed back to San Francisco. It will also tell you if you don’t have enough gas to make it to S.F. and how long you will last at the current spend rate. The system is based on interest cancellation and is a result of money movement in favor of the consumer not the bank.

Matt: I think that it would be hard to hear about this product and not get excited. However, each year on the first people get super excited about working out and losing weight. That last the first two weeks of the year and then they fall flat on their face. How would this product be any different than the elliptical trainer sitting in the corner of the room with dust and clothes draped all over it?

Dennis and Cheryl: I would love to see the stats on those that hire a trainer and see how long they last. I would bet that those that have a coach and an accountability partner have a much higher success rate than those who do not. This program comes with not only great math behind your financial decisions but it also comes with Cheryl and me. We are a part of the process. Once you’re on this trip to financial freedom we are along for the ride with you. As much as you will allow us we want to walk this road home with you. We are just a phone call away and we stay in touch with our clients. The program requires desire. Remember I said at the beginning we want to partner with people who are serious about becoming debt free. However, the program requires discipline. All great things require discipline and obedience. To achieve DEBT FREEDOM you will have to make some changes in your life in the way you manage your money– changes that don’t affect your life style very much, but do affect the handling of your money. (Cheryl) I’m always encouraged by the graphic interface that shows our years to pay off, remaining interest to be paid and the date we will be out of debt coming down. U-First provides a written guarantee that if you follow the program you will get the guaranteed results shown in the free analysis that is done in the beginning. It is a lot like P90x or other workout programs. If you work them they will get you results.

Matt: How have you overcome the fact that is yet another Network Marketing Pyramid like business. The Stigma that accompanies this type of business can be a turnoff.

Dennis and Cheryl: First off this isn’t Network Marketing. There is nothing about the program that requires me to involve other people for it to be successful. It stands on its own. I follow the on screen prompts and I’m out of debt sooner rather than later. The hint of network marketing comes in when we start talking about the business opportunity that is here. I look at it like this: When is the last time that you got gas? The attendant gets paid when you do and the supplier and the company and etc. etc. Every business transactions have multiple levels of payment. The thing is I have a product that can impact the lives of many. That is what I present. If my business grows and others that I have helped want to share it and get paid for their efforts where is the harm in that. If it were only Cheryl and I think of all the people that I could not reach. I think that everyone should know about this great opportunity.

Matt: Today’s economy has created in many cases a Financial Paralysis among many. The instability of  jobs, the market, home ownership and life in general has lead to indecision. Given the fact that we often make Emotional decisions and our emotions are out of sorts how have you reached the consumer.

Dennis and Cheryl: Indecision is like inverted insanity. Doing the same thing or doing nothing hoping for something is just crazy. Whether or not this product is for you is purely MATHEMATICAL! The numbers are either supportive of a decision to move forward, or it just plain doesn’t work. (Cheryl) If you had a hole in your gas tank and were leaking gas would you not fix the problem. This is something I wish I would have known earlier. However, we will have our home paid off in less than twelve years leaving me plenty of time to enjoy the fruits of our labor.

Matt: Who is the ideal client?

Dennis and Cheryl: There are three different types of people that I have found have a genuine interest in the product. They get the concept and they move forward. Those people are:

1. People serious about getting out of debt
2. Those interested in Wealth Building
3. Those interested in increasing their income.

Dennis and Cheryl chose to take a hard look at where they wanted to be in the near future. They chose to go outside of the conventional way of thinking and take a look at something that could impact their life significantly. They took the steps to do so and they are already experiencing the results. This one choice has helped to change their thinking. They have seen the system work for them first hand. The Financial GPS has redirected them when “Life Happened.” Dennis and Cheryl would like to share with others what they have learned for themselves. It may not be for everyone but if I were looking for a coach whom I could trust Dennis and Cheryl would be just that. Their passion to help others is evident. If you are interested in hearing more about what has changed their life contact them at:

(916) 367-3453 or dennisgharris@gmail.com.

Thank you Dennis and Cheryl for taking the time to sit down with me and share your story.

Recurring vs. Non-Recurring Closing Costs!

I am all set and ready to buy a home what are my closing costs and how much out of pocket do I need?

This question is one that I here very often. As a consumer I would want to know this as well. This would be a significant part of what helped me make my decision. Like they say an informed decision helps make the choice that much simpler. Ok so I made that saying up but it is what I believe.

Recurring Closing Costs – Costs that will continue to be paid throughout the ownership of the home – Recurring costs should actually be named Homeowner expenses in advance. Commonly they are called Pre-Paid Items. These items include the following:

Hazard Insurance – one year in advance + 3 months reserves (reserves needed if impounding which is a requirement on all loans that exceed 80% LTV)

Property Taxes - Pro-rated taxes based on purchase date + specified number of months to be impounded determined based on the month that you close. EX. July = 7 months taxes in advance

Pro-rated Interest – This is your first month’s mortgage in advance. It will be pro-rated from the date of close to the end of that month. Your first payment will be the following month on the first. EX. July 15th close date would require 16 days pro-rated per diem interest calculated on your interest rate. You would then have a first payment date of September first.

Mortgage Insurance – Although I do not find this common some lenders will ask for 1 month mortgage insurance in advance.

Miscellaneous – If there is a Homeowners association you may be required to pay a month or two upfront as well.

Non-Recurring Closing Costs – These are the expenses that we are trying to get the seller to pay. These are the one time fees that you have been putting money in the piggy bank for. You will not have to pay these fees ever again unless you buy another home or refinance your existing mortgage. These include but may not be limited to the following:

Origination – This is what the broker or the loan originator charge you to do your loan. Generally 1% on all FHA deals. This does not have to be a fee that you pay but your interest will rise if you choose not to pay it. See – Origination Definition for a more elaborate explanation.

Discount - See Discount Definition for more detail.

Broker Costs – The only fee that Capitol Mortgage Corporation charges its borrowers is $695 for processing. Many brokers will charge processing, admin, broker fee or many other miscellaneous. When in doubt ask.

Wholesaler Costs – Generally the wholesaler that will actually fund the money for you charges an Underwriting fee $750-$850, wire fee, tax service and a MERS which is electronic registration.

Appraisal – For Conventional done through HVCC and for FHA through an independent appraiser.

Credit – There is a cost for the Credit Report through a third party generally collected at the time of application.

Title and Escrow Fees – This is a third party gatherer of the docs. They will collect monies, sign the loan document, provide a preliminary title report, draw up the estimated settlement statement etc. There fees are determined by the loan amount and purchase price. The standard fees that are charged include but are not limited to: Title Insurance, escrow fee, doc prep, notary, Recording, courier, endorsement and other miscellaneous expenses.

I have found that Non-recurring costs generally run between 2.5-3% of the purchase price when you pay an origination of 1%. The lower the loan amount the higher that figure can be because there are set cost ie: $695 processing that is a higher percentage of 100K than it is of 200K.

Recurring Costs depending on the month and the amount of property taxes can range from 1-1.5% of the purchase price.

It is important to know the difference between recurring and non-recurring closing costs and have an understanding of who is going to pay what. You are responsible for the down payment and all of the costs recurring and non-recurring that the seller does not credit for.

EX: FHA PURCHASE 3.5% down payment requirement

100K Purchase Price – Down Payment $3500 (minimum statutory investment required by HUD)

Recurring Costs 1.5% or $1,500

Non-recurring Costs 2.5% or $2,500

Seller Agrees to Pay 3.5% toward closing or $3,500

Borrowers Estimated Cash to close would be Down Payment $3500 + Recurring Closing Costs $1500 + Non-recurring Closing Costs $2500 – Seller Credit $3500 = (3500 + 1500 + 2500) -3500 = $4000 cash out of the borrowers pocket. In this example the seller paid for all the Non-recurring costs and 1% of the recurring closing costs leaving the buyer responsible for down payment and .5% of the recurring costs or Homeowner expenses in advance.

*****Disclaimer – The Examples illustrated in the post are merely to paint a picture and may not represent your transaction. The purpose of this post was to explain the difference between loan costs and pre-paid homeowner expenses. If you have any questions regarding items in this post please add them in the comment section or call your Loan Officer.****

As always thank you for reading.

Eliminating Capital Gain on Real Estate Owned by Married Couples: A Simple, Yet Critical Strategy By Brian Qualls, Esq.

 

California Home Strategies is happy to bring you the first in our series of featured business partners. Brian Qualls, Esq. is an attorney who specializes in Estate Planning. What he has brought to California home strategies is invaluable information. Enjoy the first in the series of many great guests to come.

How do you hold title to your home? Odds are, if you are married and purchased real estate with your spouse, you elected to hold the property as Joint Tenants. This has been the common practice recommended by many real estate agents, lenders, and attorneys for quite some time. The advantage to holding property in Joint Tenancy is that when the first spouse passes away, the deceased spouse’s one-half interest in the property automatically passes to the surviving spouse with little to no transfer cost. Provided that such a transfer of ownership was the couples’ objective upon the first spouse’s death, holding property as Joint Tenants seems like a no brainer.

Here’s the downside: If you hold real estate in Joint Tenancy with your spouse, you are missing out on significant tax benefits that are available under another method of holding title (which has all of the benefits of Joint Tenancy discussed above) that we’ll discuss in just a moment. First however, we need to understand the basics of calculating capital gain for tax purposes under the traditional Joint Tenancy method. Here’s how it works … when the first spouse passes away, the surviving spouse receives a “step up” in cost basis equal to 50% of the market value of the property at the time of the first spouse’s death (cost basis is, essentially, what you paid to purchase the property). The remaining 50% of the property retains the surviving spouse’s original basis. This concept is best illustrated through an example:

Max and Marge bought a house and took title as Joint Tenants. They paid $200,000 for the home (their cost basis for the purposes of calculating capital gain is therefore $200,000). Thirty years later, Max passes away. At the time of Max’s death, the property has increased in value to $1,150,000 (this assumes an annual appreciation of 6% over a 30 year period). Since Marge gets a “step up” in cost basis to 50% of that amount ($575,000), her new cost basis is $775,000 (her initial basis of $200,000 + Max’s stepped up basis of $575,000). Assuming that Marge chooses to downsize and sell the family home immediately, she will have capital gain in the amount of $375,000 ($1,150,000 sales price – her new $775,000 cost basis). At best (assuming Marge had lived in the home for 2 out of the last 5 years), she will have $250,000 of that $375,000 exempt from capital gains tax. But she’s still left subject to capital gains tax on $125,000 when she sells. This will result in a pretty hefty tax bill.

Fortunately, there is a better option. Since July 1, 2001, married couples have been able to take title to real estate as Community Property with Right of Survivorship. The “Community Property” designation will entitle the surviving spouse to a “double step up” in cost basis equal to 100% of the market value of the property at the time of the first spouse’s death. Therefore, in the example above, Marge’s new cost basis will be the full market value of $1,150,000, and she will be able to sell the property for zero capital gain. Moreover, if she chooses to remain in the residence (or even rent it out for a few years), she will still be able to rack up an additional $250,000 in appreciation and sell it tax free down the line.

It is important to note the significance adding the of the “with Right of Survivorship” language to the Community Property designation. That is what enables the surviving spouse to automatically inherit the deceased spouse’s one-half interest in the property with little to no transfer cost (the same benefit of Joint Tenancy that is often so appealing to married couples). If the property were only taken as Community Property without the “with Right of Survivorship” language, a court process would be required to transfer the deceased spouse’s one-half interest over to the surviving spouse. Therefore, if the couples’ objective is for the survivor to receive full ownership and control over property, opting for the “with Right of Survivorship” designation makes perfect sense.

If you are buying a new home or refinancing and would like to take advantage of taking title as Community Property with Right of Survivorship, it is as simple as checking the appropriate box in your closing documents. If you already own a home in Joint Tenancy and would like to change how you hold title, no problem. You can simply sign a new deed transferring your property from yourselves as Joint Tenants, to yourselves as Community Property with Right of Survivorship. Ask your title company or a competent attorney to assist you.

 

About the Author:

 

Brian Qualls is an estate planning and trust attorney who assists families throughout California in protecting their loved ones (and their hard earned assets) through well designed estate plans that work. He firmly believes that everyone should at least have a basic plan in place, and therefore guarantees that every client who consults with his firm will walk away equipped with a simple will, power of attorney for finances, and advance health care directive for a nominal consultation fee. The fee itself is refundable at the end of the consultation in the event the client is not fully satisfied with the experience. If more comprehensive planning is requested by the client, the consultation fee is applied accordingly. Brian can be reached by email at

Brian@BrianQualls.net, and his educational blog is available for the public at www.PlanYourEstate.net.

 

The 8 stages to homeownership. An illustrative guide for buyers

Stage 1 – Pre-approval – The pre-approval process is a time that you meet with your Loan Officer and talk through the financial side of the purchase. The loan officer will take an application and gather all of your documentation required for pre-approval. This documentation includes but may not be limited to the following: Last Two Years Tax Returns, current pay-stubs covering 30 days (W-2), last two years W-2’s, two month’s bank statements all pages and all accounts, most recent statement for 401K, money market, cd’s, stock, mutual funds and the like. Other items can include mortgage statements, homeowner’s insurance declaration page, bankruptcy papers, divorce papers, lease agreements and more. The more detailed you are with your documentation the more accurate the pre-approval will be. Loan Officers review the documentation, check credit, verify income and run your scenario through our automated engine to receive an automated approval. The automated approval assesses risk and cross references secondary market guidelines to determine your borrowing capability. The accuracy of the information inputted into the system is everything. The automated approval will give you a list of items that you will have to provide to obtain funding of your loan in the end.

Stage 2 – The House Hunt – After you are pre-approved by your Loan Officer they will issue a pre-approval letter to you and your Realtor. As far as the lending side of things you are on a hiatus. Your loan cannot be locked until you have found a property. We lock the collateral not the borrower. During the house hunt your loan officer will keep you up to date on any guideline changes, industry news, and rate movement. They will also be in communication with your Real Estate agent to make sure that your team is all on the same page. When you find a home that you like you will place an offer and wait for the response. There may be counter offers and you may have to write more than one offer before you have an offer accepted. Your Real Estate agent will guide you through this process and provide great advice on how to approach the house hunt.

Stage 3 – Offer Accepted – Now that the offer is accepted and you are in contract to buy the home. There are several things that will occur during this stage. The first few days will be a flurry. In my practice I like to meet with you again and obtain updated information if the hunt has taken a few months. Along with gathering updated information we will go over current rates and pricing, fees, and determine if we want to lock now or hold off. At this point a check for the appraisal is collected and the appraisal is ordered, preliminary title reports are requested, and I request a copy of the fully executed contract. (Please note every loan officer will approach this differently and certain loans such as VA have different appraisal processes.) Gathering the information above from the Title Company and the BANKS can sometimes be a process. The title companies on the Bank owned properties are located all over the place. I have worked with one in Philadelphia. At the same time Your Real estate agent and you will be ordering inspections such as home and termite if you choose too. It is highly recommended and your Real Estate agent will talk you through this. Once the documents above are gathered the loan package will be submitted to our wholesaler of choice to be underwritten.

Stage 4- Underwriting – Once we have chosen the wholesaler that will provide you the money to buy your home we submit the loan package that we have created to be underwritten. The cleaner the package we submit the smoother the process. This is why I am so through upfront and ask you to provide all the information and all pages of everything. The reason that there is an underwriting process although you were already approved through our engine is that we have to have a human check to make sure that the data that we entered in the computer is supported by our documentation. They are checking income, assets, credit depth, appraisal, title reports and contracts for accuracy, missing signatures, appropriate calculation and use of income such as overtime. This underwriter will be overly thorough in today’s market environment so this process will take time. The time varies depending on who we choose to work with and their current volume of business. One thing that will delay the underwriting process is incomplete files. Again, this is why it is important to work with a Loan Officer that can package a clean file for underwriting and important for you to provide everything they ask for to the best of your ability. This stage can be as quick as 48hours and some wholesalers are running 20+days. If the wholesaler is quick it can because they are well staffed, the rates are not that great, they specialize in few products or if they are slow it could mean all the same. The goal of this process is to get a conditional loan approval from our underwriter.

Stage 5 – Loan Approval and Conditions – Once the underwriter has approved the loan they will issue a conditional loan approval. There are conditions that are labeled prior to documents and there are prior to funding conditions. Many of the conditions are behind the scenes and should not be a requirement of you as the borrower. If you are through upfront with documentation there should be minimal conditions at this stage. Some examples of typical prior to document conditions include updated pay-stub, appraiser to provide more data, estimated closing statement, W-2 or letters to explain items that may need clarifying. Some example of prior to fund conditions may include insurance or 4506T results. The conditions I have given as examples are not the only conditions that may occur they are meant for example only. At this point our job is to quickly gather the conditions and submit them back to the underwriter to be satisfied. This process, like underwriting, varies on the time to complete. The quicker we get back the conditions necessary the quicker we move to the next step. Once the underwriter has cleared the conditions we move to the next stage loan documents.

Stage 6 – Loan Documents – When the Underwriter clears the prior to loan document conditions we are able to order your loan documents to be signed. Loan Officers fill out a request for loan documents and submit this to the wholesaler. The wholesaler has a department that works specifically on preparing loan documents to send to the title company. Again, this is a process and every wholesaler will vary on the time that it takes to get the loan documents sent out. In the electronic era that we live in the loan documents are most commonly sent via e-mail. Once the title company receives the loan documents they will prepare the estimated settlement statement and send to your loan officer to review. The settlement statement reflects the costs, loan amounts, down payment requirements and any deposits you have already made as good faith. The Loan officer will review this statement to make sure that it is in-line with the good faith estimate and what you discussed with your loan officer originally. There are a few items that are pro-rated so the numbers will very slightly. Once the settlement statement is reviewed for accuracy either the title company or the loan officer or a combination will schedule a time for you to sign. The signing will take place at the title company, at your home with a notary or at an alternate location that is convenient to all parties. The signing of the loan documents is where you agree to the terms of the loan. You will in front of a notary acknowledge this agreement. Once the signing is complete the title company will overnight the signed package back to the wholesaler for the next stage.

Stage 7 – Funding – Once the wholesaler receives the returned package from the title company they will review the package for completeness. This again is a process that varies from institution to institution. Once the file is reviewed they will issue a funding checklist with any outstanding conditions to be satisfied. There should be very few conditions if any at this stage that require you as a borrower to do something. Between your loan officer and the title company all conditions will get completed. That does not mean that you will never have any conditions required of you. There are cases that you will have to provide additional documentation. This is a rare case as all of it should have been handled prior to documents. Once the funder has cleared all the conditions they will fund your purchase. This is the process of sending a wire of the funds from the loan to the title company to be combined with your down payment to complete the purchase. Once the wire is received the escrow officer will release the file to be recorded in the county of the purchase. Now for the last stageJ

Stage 8 – Recording – The purchase transaction is recorded with the county recorded so that you are officially the homeowner on record. Congratulations you have made it through all eight stages of the home ownership process.

 

* These stages do not represent the process for every loan officer or lending institution. They constitute the process I have learned as a Mortgage Broker and through my time in the industry. You may use them as a general guide to help better understand the stages that you may encounter when buying a home. This is for illustration and not intended to be the ultimate guide to home-ownership.