Death of a Borrower

sad-woman

This is part 3 of 4 of a series called “The most important things consumers can benefit from my 15 years as a mortgage expert”

This topic is so important my brother and I just got off the phone about it.  What is your answer to the question, “how will your spouse make the mortgage payment in the event you unexpectedly pass away?”  This should be an easy answer.

Over the years, two of my clients have called for help in making their mortgage payment due to the unexpected death of their spouse.  During a tragic event, such as an unexpected death, the mortgage payment should be the last thing someone should be concerned about.  Each day 2600 Americans expect to be alive tomorrow, but will not be.

Every client has heard me ask a version of that question.  Those words have been spoken tens of thousands of times because the goal is for homeowners to seriously take the advice into consideration.

Borrowers who have a home loan should plan on to immediately purchasing an inexpensive, term life insurance policy for an amount equal to or greater than the balance on their mortgage.  Just ask yourself a few questions to help imagine if your spouse’s income suddenly vanished…

  • Where would the funds come to pay the very first mortgage payment after the funeral?
  • What family member would you have to ask for money from because you were short funds?
  • How little time would you have to grieve over the loss of your loved one because you had to earn a living?
  • What changes to your life would occur because your spouse wasn’t there to take care of household and family duties?
  • How confident are you that your children would be able to continue to live a normal life in your home after a death?

This list of questions can go on and on.  There are so many other reasons to pay for life insurance and skip one trip to Subway each month, but very few individuals take the time to buy it.  I am not an insurance agent, but maybe I should be.

Most employer’s life insurance plans do not provide enough benefit to fund the same standard of living after you pass away.  Don’t plan on your aunt to setup a “GoFundMe” site and bankroll the roof over your family’s head.  Your spouse will never stop worrying about money.  It is very unlikely that your health insurance plan has enough death benefit to handle the household expenses.

If you own a home or plan to buy one, the second thing you should do after signing the loan application is setup an appointment with a life insurance agent and buy a new policy, or update your current one.  It is not unethical to have adequate life insurance to pay off the house in the event of an unexpected death.  Adequate coverage will provide the luxury of allowing your family to take as much time to grieve over your loss, all while maintaining the stability of life’s current routines.

If you think you are going to live to 100, guess again!  The U.S. Department of Health has some interesting statistics.  Accidents are the #4 cause of death each year.  Did you know that five percent of all annual deaths, over 130,000 Americans, die unexpectedly each year and not from old age?  For every 100,000 people in America, over 1,000 individuals between the ages of 25 and 54 pass away each year.

Think about the family of someone you know who passed away recently.  How are they managing their finances today?  Will they have to sell the home, or will the children have the comfort of keeping their bedrooms and attending the same school because of some very simple and inexpensive planning.

I have a list of highly qualified, trustworthy life insurance companies and agents, feel free to email me for recommendations at craigmarkhardt@gmail.com.  Consider buying life insurance today and give the best Christmas gift available, security.

Yes, I’ll still ask every client if they have adequate life insurance for each other, great bankers should be required to do so!

The Brutal Truth About the Real Costs of Home Ownership

home-under-repair
This is part 2 of 4 of a series called “The most important things consumers can benefit from my 15 years as a mortgage expert”

Nearly every first time home buyer, and some veteran home buyers, know little about the unknown costs of owning a home.  When people rent their home or an apartment, they have the luxury of not needing to regard any of the annual maintenance that occurs on the property.

No matter what the cost of a home is or the square footage, there will always be expenses that arise from time to time.   If you have not planned ahead for those unknowns, then they could break the bank and cause financial heartache because they will always occur at the most inopportune time.

Recently my wife and I purchased a home and less than two months after we moved in I had to replace the water heater.  Many of you are “do-it-yourselfers” like I am and have skills or the plumbing background to install a water heater, but there is still the expense of the heater, supplies, and disposal.  I spent over $900 on the heater itself, and in total I have close to a thousand in final installation costs.

Homeowners need to be aware that some repairs don’t take a vacation.  I always recommend that each family plan to spend 1% of the value of the home on annual maintenance and upkeep items.  Whether it is buying that first lawn mower or snow blower, or like me, installing a new water heater, surprises will occur.  If you budget for those expenses each year, your home will continue to be maintained very well.

Sometimes you are able to put off a repair, it is called deferred maintenance.  If you are unable to afford the fixes and deferred maintenance begins to pile up, then the value of your home could be compromised and begin to go down.  We have all seen those properties around town that are in terrible shape and are visually seen as dilapidated.  The only reason those have gotten that way is because the homeowner has failed to invest a minimum of 1% annually into ongoing maintenance.

If getting into the home is taking every penny that you have, then it may be smart to hold off on buying until you get your future home’s maintenance account fully funded.

Another mistake that I see is that buyers don’t plan for the expense of furnishing the home.  One of the worst things a buyer can do is close on the sale of a beautiful home, and not be able to afford to nicely furnish it.  There are always those no interest financing options at furniture stores, but please don’t use those types of credit accounts!  I am still trying to understand why someone would want to “finance” a couch or a bed for five or ten years.  Those choices don’t help anyone financially except the furniture salesperson.

Planning ahead is the best solution to that scenario.  It is not very well known, but you could easily spend $30,000 for every 1000 square feet to finely furnish a new home.  Take a quick minute and think about that.  If you stepped into a home with absolutely nothing, there are hundreds of things you would need to buy from flat ware , dishes, cleaning supplies, wall hangings, curtains or blinds, in addition to the furniture.  For quality items that will last a lifetime, it will cost you about that amount.  Depending on your personality and expectations, you will need to prepare for those expenses.

The purchase of a home is just the beginning, so proper financial preparation is very important as a homeowner.

What Every First Time Home Buyer Needs to Know About the IRS

study-girl-writing-notebook-159810This is part 1 of 4 of a new series called “The most important things consumers can benefit from my 15 years as a mortgage expert”

First time home buyers are a unique group of people.  There are many things in common such as dreams of owning, visualizing themselves taking care of a place they call home, talking with friends over lunch about their searches with a real estate agent, and the list goes on and on.

One thing that I have found that they don’t talk much about is finances or financing of the property to the most important people in their lives like their spouses and most importantly, their banker.

Through the lack of detailed conversations about financial goals, income, expenses and in the case of this article, IRS Taxes; with experienced bankers such as myself, most first time buyers are losing money like water through a strainer.  But the tap is not on trickle, it is on full blast!

Most first time buyers qualify for a tax credit from the IRS which is available IF you ask for it and sign the paperwork at or before closing.  It is not like the old tax credit where all you had to do is buy and then when tax season rolled around simply complete some paperwork and hand it into the IRS for $8,000.  This tax credit has the potential to be significantly more valuable, but the paperwork must be signed and delivered at closing. Let me repeat, this request must be signed with your banker before you own, no exceptions!!

The IRS is allowing first time buyers to receive up to $2,000 of credit toward Federal Income Taxes each year you own the home and occupy it, forever.  That means after only 4 years of owning, the potential of this credit can begin to exceed anything that the IRS has offered in past history.  Can you imagine that after ten years of owning your home you potentially could have received a total credit of $20,000!  There is not a single other advantage that the IRS has that is more valuable to the mass population in the United States than the little known current tax credit.

Shortly after the beginning of each year borrowers receive a statement from the servicing agent of the loan showing the total amount of interest that was paid over the calendar year.  The first time buyers that qualified and completed the INITIAL request form for a Mortgage Credit Certificate (MCC), will receive up to 50% of each dollar paid as a credit back toward their IRS Tax Bill.  (This is where you pause and go get your 2015 IRS Form 1040 and look at line 63 on p.2 to see how much you were charged in taxes)

The result of this credit directly and immediately reduces the charges from the IRS for Federal income taxes.  That is the easiest $2,000 that could be made each year, and just for owning a home with a mortgage on it!

But don’t ask for it AFTER the closing.  You are disqualified immediately after closing if you did not complete the request for MCC paperwork that your banker should have offered to you.  If your banker didn’t offer it to you, then you are also out of luck.  Maybe a little shopping would have been beneficial in that case because he could have just cost you tens of thousands of dollars.

There are some restrictions, but it is definitely worth investigating and discussing with bankers.

To learn more about the tax credit and if your situation would allow you to take advantage of it, sent me an email at craigmarkhardt@gmail.com.

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.