Why To Think 5 Years Out When Buying Your Home

Simple way to avoid a $16,000 mistake!dog-at-home

Planning ahead is not natural for most of us.   When it comes to buying your next home, spending time thinking about the next 5 years of your life could be the most valuable use of your time ever.

I’ve sat down and advised literally tens of thousands of people during my career, and closed on over 3200 loans since 2001.   Based on my experience, the costliest mistake that any buyer can make is not what they get for interest rate on the loan, but it is not thinking about what your life will be like in 5 years.

When making the decision to buy a home, most people let their emotions take control and then blinders are put on, whether they like it or not.  People focus on so many details that won’t make a difference in their life such as what color the walls are in that house on Main Street, or how many cars the garage can fit in that house on Phillips Avenue.

Buyers really need to slow down and focus on one thing PRIOR to looking at houses; and that is what their life will be like in 5 years.  Not the next 5 years, but 5 years out.  You are in the middle of your life right now, so you can already see what is in store over the next few year, but you really need to do is stop and imagine your life in 5 years.

I am emphasizing this because most of us will not become independently wealthy over our lifetimes, so financial fitness should be a very important part of our life.  Lifelong financial fitness should be considered during every decision you make, not the decision to spend extra on premium fuel for your car, but what you are spending today that will affect tomorrow…like one or ten years tomorrow!

Don’t buy a house that fits your life today, buy a house that will fit your life in 5 or more years.

I have seen more people spend tens of thousands of dollars that they didn’t need to buy purchasing a home and then turning around and selling it a year later to buy a move-up home.  Here are some details of one of the worst decisions I have ever seen by a guy (we’ll call him Steve) that I helped buy his second home, only 13 months after buying his first home!

  • Steve bought first home for $119,000 in 2014
    • Real estate agent and sales tax fees paid was $7568.00 (by seller, but was built into the pricing when the seller’s agent set the market price of the home)
    • Steve paid $3900.00 worth of mortgage closing costs, inspection, survey, appraisal, etc. at the close.
  • Steve sold first home for $126,500 in 2015
    • Steve paid real estate agent and sales tax fees of $8045.00
    • Steve paid state transfer fees and other sales fees of $826.00
    • Steve paid (through splitting costs) of buyers closing and pre-paid item totaling $2530.00
    • Steve paid for a radon mitigation system at the buyer’s request totaling $1050.00
  • Steve bought second home that fit his lifestyle better for $250,000 the same day he closed on the sale of his home in 2015
    • Real estate agent and sales tax fees paid was $15,900.00 (by seller, but was built into the pricing when the seller’s agent set the market price of the home)
    • Steve paid $5560.00 worth of mortgage closing costs, inspection, survey, appraisal, etc. at the close.
  • Unknowns not considered – moving expenses, home insurance costs, maintenance and upgrades to first home, cost of time off work to buy, sell, move, etc.

In this example, the yellow highlighted items total to $21,911.00, that is a whopping $16,351.00 more than he would have needed to if he had just bought his “move up house” the first time!  This is real cash that came out of Steve’s pocket!  Most people don’t understand or pay attention to it since it is paid through the transaction, but it is real money that he could have saved and used toward the house he currently lives in.

Another, and possibly even bigger mistake is that he lost his IRS First Time Buyer Tax Credit.  I’ll blog about the unbelievable benefits of that program later, but Steve has essentially lost tens (yes TENS) of thousands of dollars in credit from the IRS toward his future annual income taxes.

If Steve had spent just an hour in 2014 thinking about his life he would have found that he needed to buy a home that wasn’t a starter, but was one that was a home that fit his lifestyle.  He was excited to buy his first home and emotions took over, big mistake!

You may be thinking maybe his income increased that year, but no, nothing significantly changed with Steve’s financial picture during that time.  He works the same job, has the same income, same savings, and same expenses and same family.

Steve spent over $16,000 he didn’t have to when  he bought the home that fit his lifestyle better.  Steve is young at only 26, and that money could have made a significant impact on his financial future, just calculate it yourself by using the Rule of 72- see Rule of 72.

My goal here is to ask you to slow down and push away your emotional thinking and think logically for an hour before you decide to look for a new home.  I think you will gain a slightly different perspective after that exercise and your retirement will thank you later.

Feel free to contact me if you want some perspective on your situation.

Until next time,

Craig

What’s up with that number?…NMLS Number that is

Startup Stock Photo

It is not likely that you’ve paid much attention to the little number that is below some advertisements and promotional materials for banks and mortgage professionals.  Take a look next time and you’re likely to see an NMLS number.

What it is…

The NMLS stands for the National Mortgage Licensing System (& Registry).  This was created by the Consumer Finance Protection Bureau around 2008.  It is a requirement for every individual and company who communicates and originates home loans for consumers to obtain an identifying number.   You will see both companies and individuals display their number.  There is no difference in the purpose or process of obtaining the number for either.

One interesting fact of the system is that the numbers are assigned in order.  This means the lower the number, the earlier that individual or company volunteered to enroll in the system.   Early on it was on a volunteer basis, but now it is one of the first requirements to get into the profession.  At this point, the larger the number, the later that individual entered the profession.

The purpose…

This will give you an advantage when selecting a mortgage loan officer that has the experience level you desire.  The smaller the number, the more experience that person will have.  My NMLS number is 7026.  That means there were about 6000 individual registrations submitted before mine.  The lowest NMLS number I have ever found is 1031, and currently the NMLS is issuing numbers over 14 million (14,000,000).  That is a lot of individual registrations and licenses!

The NMLS system was developed as a site for consumers to view the history of the company or individual they are working with, file complaints, and see if any regulatory actions have occurred.  There is a lot of interesting information on the website, which can be found at http://www.nmlsconsumeraccess.org/.

The important details…

The next, and likely the most important fact, is that although the system seems to work the same there are two VERY important differences.  This is a registration system, and a licensing system.  The least of which is the registration part.  EVERY company or individual must register, but ONLY non-depository institutions and the employees who work in those companies are required to also become licensed.

Licensing of mortgage bankers (lenders who do not work for FDIC Insured banks) and brokers (intermediaries, who do not approve, nor actually lend any money themselves) is required and means they have both passed a State administered Federal criminal background check, but they have also completed the required 20 hours of pre-licensure education, passed both a Federal and State competency exam, but also do annual continuing education.

This amount of additional work required in order to work in the profession typically shows consumers that the individual (or individuals owning the company) can display a higher level of competency and knowledge than individuals of FDIC Insured banks.

Registration is a very simply a process of entering your information into the fields on the website and then that person is authorized to originate loans.  Licensing on the other hand, is a time consuming, financial commitment to learning and displaying that knowledge through examinations.  The exams are extremely difficult, and I have found that less than 50% of the people pass on their first attempt.

The summary…

I’ve seen competent and incompetent originators both with only a registration and also with a license.  The one fact of the system is, that if you have a license, the loan originator CAN display competency in residential finance, where if that individual is holding the number simply as a registration, then you cannot be sure that person is also competent to do the job of closing on your loan.

Next time you are talking with your loan originator, as them what their number is, or better yet, look up their history on the NMLS website.  The mortgage loan officer is likely the most important person to your financial health you will ever work with.

Good luck!

 

First blog post

Three keys to becoming the most successful real estate finance professional in your market. 

Craig Markhardt – September 15, 2016

Success in the mortgage industry could be fairly simple and easy, but most professionals either make it far too complicated or do not know the basics of sales.   There are three keys to optimizing performance and standing out against your peers in the office or the market you are in.  These are completely independent on demographics, economic conditions, or even interest rates.

Three keys to success are as follows:

  1. Know and use the Cycle of Selling.  Yes, you are in the sales field, and although “selling” money is very easy, knowing the basics of sales is how to stand out from your peers and maximize your income.
    1. Prospecting – prospects can be found everywhere, including through simple conversations with current customers where you can learn information (pre-approach) on others that may need a home loan.  Write every name down in a ledger titled LEADS.  Ask your customers how you might be able to get in touch with the prospect and you will be surprised at how helpful they will be at getting in touch with them.
    2. Approach – develop a method on how to get in touch with the prospect such as a quick introduction and statement that you memorize to the point of fluidity so you do not even need to think when opening up dialogue.
    3. Demonstrate your service – offer your expertise and educate them on how to make a decision when it comes to their new mortgage.
    4. Cover their objections by asking questions and listening to them.  You will learn their hot buttons and how to cover their concerns during these few minutes of conversation.
    5. Ask for the business (Close) – make it simple and tell your prospect the first step to get started is to get their information in the form of an application.   How you are most comfortable on doing that is up to you, but I have always given my customers three ways to provide it.
    6. Get an appointment for the next call or face to face meeting.  At that time get pre-approach on who they know and start the cycle all over again.

2.  Work.  When you are at work, work.  You are paid as an employee to perform.  If you are putting in 8 hours a day then you should be working the 8 hours.  Most people do not realize but it takes 15 minutes to regain concentration following a distraction.  If you have only 2 distractions a day, that is about 30 minutes you will spend getting back into the “groove” of work.  Multiply that times 5 days, then a month, then a year and all of a sudden you have blown 130 hours re-focusing throughout the year.  That is a lot of time wasted on doing nothing.

3.  PMA – Positive Mental Attitude.  Look around you, what is the attitude or mindset of the people you come into contact with on a daily basis.  If you counted the people who you consider having a positive outlook on everything they approach, then you will find yourself in a unique category.   Positive thoughts on your day, the activities that you are doing, or even the circumstances that you are in will create not only good energy, but momentum that will be felt by everyone you come into contact with.  When is the last time you wanted to be around “Debbie Downer” or wanted to deal with someone who had a poor attitude that you could feel?   Positive thoughts and self talk are attractive and contagious.  You will help the whole office when you are positive, unless you are to the point of annoyance!

There is always something good about every situation. When you are working you prevent from being distracted by others and also poor attitudes cropping up.  Grass has never grown under the foot of an idle person, so always be prospecting and closing to gain more business.

Ten percent more effort tomorrow is easy, and likely to take your performance to the next level.