Blog with MAE Capital

You may hear from your Realtor that using a direct lender is faster and cheaper than using a Mortgage Broker.  That is just wrong, in fact, it is quite the opposite.  With Innovations in Technology and the laws that came about from the Mortgage Crisis it has made the Mortgage Broker more viable than ever.  The changes in the mortgage business over the last 10 years has been wide sweeping all designed to help the consumer, however, I feel it has just caused more confusion than ever.  The one constant is that all Loan Officers now have to be licensed under the National Mortgage Licensing System (NMLS) which I find to be a good thing as that forced Loan Officers to be accountable for their actions.  What also changed is how the fees became regulated and what institutions could charge what fees.  These little but significant changes have created areas within the Lending Industry where the consumer may not realize there can be significant Interest rate and fee differences from one company to the next and it all is determined by what regulator the Loan Officer falls under in California.   We will be exploring these differences and how you can benefit from having the knowledge.

If you are the market to buy a home and your Realtor has recommended a lender to you because they have worked with them in the past you might want to do your research as you could save yourself thousands of dollars.  The big Mortgage Bankers or Direct lenders as your Realtor will call them have carved themselves out a niche to where they can charge more money to consumers than that of a Mortgage Broker and most Realtors don’t even know of the differences.  That is where this article comes into play to open up some little known facts.  First, your Agent may think a direct lender is a better deal for you as they underwrite their own loans.  That sounds sexy, however, in today’s automated world every Loan Officer be it from a Direct lender or a Mortgage Broker has the same automated underwriting systems available to every underwriter.  So when you apply for a loan with either a big Direct lender or a Small independent Mortgage Broker they all have the same access to an underwriter.   So the myth of having your own underwriter as a selling point is just that a myth.  Technology has improved so much that all of the paperwork necessary to process a loan can be uploaded and transmitted to an underwriter instantly and that underwriter can make a decision quickly.  Most underwriters today use the Federal National Mortgage Association’s (FNMA or Fannie Mae) automated underwriting system to underwrite all transactions and that same system is available to all Loan Officers either from a Large Direct Lender or a small Mortgage Broker so the decision time is the same or better with a Mortgage Broker.

Let’s talk about the part of a Mortgage transaction that is the most important to all clients and that is where they can get the best interest rate with the lowest fees associated with that interest rate.   This is where it get interesting and you will not get a straight answer if you talk with a Loan Officer that works for a Direct Lender as they probably do not understand it themselves as they are working for the direct lender simply because their commissions are higher per transaction.  That is where, as a consumer, you should ask how or why their commissions are higher than that of a Mortgage Broker Loan Officer.  That’s right, you are paying them so you should understand how it all works.  You have to understand that all Loan Companies get their rates from the same sources it is how they stack their fees onto the interest rate that makes the difference.  I could go deeply into how the secondary and Primary mortgage markets work but that would utterly bore you so I will simplify it for you.  Big Direct Lenders have a larger overhead and more expenses than that of a smaller Mortgage Broker and they have to pay for all of that by adding fees to their interest rates.  In addition, the regulator in California for direct lenders is the Department of Business Oversight (DBO) and they have different laws than the other Regulator; the Bureau of Real Estate (BRE).  To be a Mortgage Broker in California you must hold both a BRE license and an NMLS license under the DBO all you need is an NMLS license.  The next big difference is how the loan officer receives the Interest rates they can quote to the public.  The DBO Direct Lender has to be able to make profit for the company to stay in business as does the Mortgage Broker but the Direct lender has to pay staff to originate the loan as well as the Loan Officer and that stacks up to be a whole lot more than that of a Mortgage Broker.    A Mortgage Broker is limited to a maximum of 3% of the loan amount they can make on any one loan and that is a combination of all fee charged or not charged.  A Direct lender does not have that limitation and can charge what they want to be profitable.  A Mortgage Broker can go to the back door of a direct lender and get wholesale interest rates that only includes a small company profit for the direct lender as they are not paying for staff, branch managers, and Loan Officers.  The Mortgage Broker will pass the lower fees and lower interest rates on the customer.

Having been on both sides of the fence I understand completely how this process works and will tell you that you will save thousands by working with a company like MAE Capital Real Estate and Loan.  Every Loan we close is a testimony to this as the client’s rates and fees are significantly lower than that of a Direct Lender.  As an example we closed a VA loan that came to us from a Veteran who works for the VA and he received a quote from one of the Veteran’s Administration’s “Approved Lenders” that is a Direct Lender and we beat them by .5 in interest Rate and $13,000 fees.  We closed the loan at 3.875%  and the veteran paid $0 down and $0 closing costs, saving him $13,000 in costs and has a lower mortgage payment.  We have many stories like this and most of our clients don’t even realize the savings they are receiving as most clients don’t shop for a loan.  So if your Agent is recommending a Loan Officer Check the rates and fees and then check with MAE Capital Real estate and Loan and you will be shocked at what you will save.  If you are buying a house in the Greater Sacramento Area (El Dorado, Placer and Sacramento Counties) ask about our Bundling of Services where we represent you as the Realtor and the Loan.  This has saved our clients even more money as we can bundle our commissions and get you a home warranty and other goodies that you would have otherwise had to pay for yourself.  MAE Capital Real Estate and Loan is one of California’s best kept secrets when it comes to saving people money on their home financing.  Call us today to find out more or have us compare your Direct Lender’s Loan Estimate with ours and see how we can save you thousands of dollars.  We can Lend all up and down the State of California.  Our phone number 916-672-6130 or go directly to our site at www.maecapital.com

Posted by Gregg Mower on April 18th, 2018 10:33 AM

What is the difference between the Large National Chain Real Estate Companies and the local mom and pop Real Estate brokerages?  The traditional thought is that if you list your home with a “Big Box” Real estate firm your home will have more exposure to more potential Agents that can sell your home.   But is this actually true anymore with the internet playing such a big role in real estate sales and marketing?  Can a small company compete with the “Big Box” real estate firm, or can they not only compete but beat them out in service and price?  The answer is not only can the small Local Firms compete but in most instances,  they can react faster to a changing markets and provide a better service at a more affordable price. 

 To prove this let’s first define what a Real Estate Agent’s responsibilities are.  There are 2 basic functions of a Real Estate Agent or Realtor (An Agent has to belong to the National Association of Realtors to be able to be called a Realtor) and those functions are representing buyers of real estate and or representing sellers of real estate.   When representing a Buyer an Agent must act in the buyer’s best interests and when working for a Seller the Agent must look after the Seller’s best interests.  It is possible to represent both but when doing so Real Estate law dictates that the Agent must look after the Seller’s best interests first. These functions have no relation to whether an Agent works for a large firm or a small firm, the law is the law.   

An Agent that works for the “Big Box” firm will generally be working there for one of three reasons and none of which benefit you the client.  One; they are new and work there to gain more information or are in constant training.  Two; they have a friend that works there. Or three; they believe that the name recognition will benefit them in their personal career.  I ask, does any one of those reasons benefit you the buyer or seller?  They will tell you that they can pitch your house to all of the Agents that work in their office and that might sound good to you but ask the Agent how often he or she is actually in the office and the answer might surprise you.  The Agent that works in the smaller firms actually gets more hands-on experience and has access to the Broker directly on a daily basis to get his or her situations handled quickly.

In today’s Real Estate world everything an Agent does revolves around the internet.  An Agent no longer has to go to the office to “pitch” their listings to their colleagues as their colleagues are all connected to the internet as well.  In fact, as an Agent today, we all have to go to the same internet source to see newly listed houses, and that is the Multiple Listing Service or (MLS) which is now done all on line.   The MLS is syndicated with many other internet Real Estate Search Platforms such as , Realtor.com, Zillow, Redfin, Tulia, MAEcapital.com and many more.  In the “good ole days” the MLS was published in a book and Agents depended on other agents telling them what was on the market.  This is how the business was done for years until the internet came along and changed everything.  There is still this belief in the minds of many consumers today and that is why there are still “Big Box” Real Estate Firms.  An Agent working for a small Local firm will have all the same tools available to an Agent that works for a large firm but will be able to work for their clients more efficiently with less overhead.  In fact, all Agents that have access to the MLS are members of the Local Real Estate Board, the California Association of Realtors and the National Association of Realtors whether they work for a large or small firm.

Another aspect of Real Estate that has not changed is the commission rate charged to sell a house.  Astonishing enough the standard rate to sell a home is still 6% of the selling price of the home.  I am not downplaying what an Agent must do and maintain to be able to sell your home, I just think the concept of 6% is just a bit out of line.  If you are trying to sell a $600,000 house and you list it with a 6% commission with a Big Named Real Estate Firm you will have to pay $36,000 in commission.  What do you get for that you ask?  You get an Agent that will put your home in the computer (MLS) and put a sign in the ground and will hold your home open several weekends for potential buyers to see.  You also get the professionalism of a contract that will be written to a high legal standard.  Your Agent will have to go over any work requests of the buyer and work with an Escrow on your behalf.  This is what an Agent will do for your no matter if they work for a large or small firm.  Your 6% helps pay for that nice “Big Box” office that you will probably never go in.  A Small Frim will have the ability to make that number a whole lot less offering the same services and some cases the small firms have more local contacts as they have been local longer.  When you sell your house, it is all about exposure whether it is a Million dollar house or a fixer-upper, as a seller you need to look for experience and someone you can trust and hold accountable and knows the local market. 

As a Buyer of Real Estate, the commission your Agent gets doesn’t really matter to you, as it has been pre-determined prior to the house coming on the market, or does it?   When looking for an Agent to represent you as a buyer they need to know the local market, have knowledge of financing available, understand the local closing costs, and understand how to research properties.  Although, the commission that is paid to them is truly not your concern as the seller pays the Buyer’s Agent but what your agent does with commission is.  Most “Big Box” Agents have no say in what they can do with the money they receive when representing a buyer, an Agent working for a small firm can chose to give back some towards closing costs, work items, warranties and title costs.  At a minimum a good buyer’s Agent should pay for a home warranty, that insures the buyer if there are problems with any of the major systems of the house in the first year or 2, they have a warranty that will fix those issues with little or no cost to the new home owner.   This, however, is not legal for an Agent to advertise as is goes against the Real Estate Settlement and Procedure Act or RESPA to tell a potential client that.  So it is always a good idea to establish what they will pay for you, on your behalf upfront, but you have to ask them they can’t say “if you use me I will pay for X” that would be a violation.

The newest type of Brokerage is a Hybrid Real Estate Agency, a Real Estate Brokerage that also can arrange your Home Loan and bundle all the services into new low cost package.    Now the smaller local shops, like MAE Capital Real Estate and Loan, can offer all the same services as the their “Big Box” Competitors, but they also have the opportunity to offer more.  The listing and selling of homes is an art and you want a person that knows this and has the experience to do so on your side.  At MAE Capital Real Estate and Loan our Agents typically have far more experience than those in the “Big Box” shops.  This experience also allows us to provide multiple services to our clients such as standard financing options for homes as well as private money options.  We have found that being able to show the Sellers and the Buyers how they can save money by bundling the services they need to sell and buy homes proves to be invaluable to them.     At MAE Capital Real Estate and Loan your home is marketed on the MLS, on our site, Realtor.com, Zillow, Tulia, RedFin and 70 other sites along with social media, and if you request your home can have its own page with video and all the interactive bells and whistles.  As a Hybrid Real Estate Firm, we find homes for our buyers that fit their needs, and yes we are “Realtors” (belong to the National, the California, and the local Association of Realtors), in addition to that we can also qualify our clients for their mortgage and provide them financing.  We will also screen potential buyers in ways our competition cannot.  This ability to offer more services not only benefits our clients in the time they save to find out if they can sell their home and buy another home, it also saves them thousands of dollars.   Take a typical seller of a home, they have to find an Agent to list their home as well as find a Loan Officer to see if they qualify to purchase their next home.  As a smaller shop we can do all this at the same time for you with one call to one office to get multiple answers. 

Let’s talk about cost now, as that is the most important part of all this.  Remember the typical Commission on Real Estate is 5-6% (2.5%or 3% to the listing Agent and 2.5%or 3% to the Selling Agent respectfully).  What if you could get away with 3-4% or even less in some cases would you do that?  Of course you would, as you know you will get exactly the same service, or better in most cases, and reach the same or more people for far less money.  One more thing, the cost of your loan will be less as we don’t charge you any fees for your loan.  That’s right as a Broker we go and find you the best rates for your situation.  As a Mortgage Broker with a long history in the Mortgage Business MAE Capital Real Estate and Loan has sources across the country that can fund your loan.  Also a little known fact, as a Mortgage Broker, we are limited on the fees we can make, and we receive wholesale rates (lower than retail rates) and pass those low rates on to you.  In addition, our Agents must hold both a California Bureau of Real Estate license and the Nation Mortgage Licensing System license (NMLS).  So what you end up with for your loan is a lower interest rate and a no fee loan transaction.  As we are bundling these services we can lower your cost of all them, thus saving you thousands of dollars upfront and a lower monthly payment than you could get going to a Banker.

So let’s recap the differences between Large and Small Real Estate Firms.  A large firm has high overhead, Agents that are there for selfish reasons, and they don’t do the mortgage portion of the transaction, and expect higher commissions.  So a small Hybrid firm like MAE Capital Real Estate and Loan (selfish plug) has low overhead, Agents that value their customers, and sincerely want to help them with the costs, can do the mortgage portion, can bundle services to make the cost significantly cheaper for their clients, and generally have more years of experience, and hold both a BRE and a NMLS licenses.  It is still your choice on who you pick to help you with your real estate needs, but now you have the facts about the differences between a small real estate firm and a large one.   I don’t want you to be underserved and over charged as you can see this can happen quickly in the Real Estate world.  We would be happy to sit with you and show you how this works and the consultation is free, let’s get going today.  To talk with an Agent click here, For Employment inquires click here or Call us at 916-672-6130

PS.  Further proof of how Box Box Firms really are not in your best interests.  We had a listing that was priced really aggressively to get a bidding situation going at the seller's request.  We had one offer come in significantly over the listed price but upon inspections during the contingency period that buyer decided the house was not for them.  Then a hot- shot Agent from a Big Box Firm submitted the next best offer at a lower price with no contingencies (meaning that they were to take the house as it sits with the inspections we provided) and promised to have the earnest money deposit (EMD) in within 3 days of acceptance.  Every day for 10 days we were promised the Deposit would be in and that the clients were in Hawaii and would get to it when they could.  Then 10 days after the Deposit should have been in escrow we get a cancellation from the Agent from the "Big Box Firm" with no call back.  This goes against ethics in Real Estate, so we called the Agent's manager from the Big Box Firm at 3:00pm and left a message and no answer or callback.  Before that trying to get a name of a manager was a chore as it is not published on their site at all.   In addition, this particular Agent was part of a "team" within the Big Box structure which can be confusing to clients, so watch out for the "Team Concept" within a Big Box firm as it is an attempt to hide from accountability.  If you choose a an Agent from a Large firm see if you can find who their broker in charge is prior to engaging.  The "Big Box" firms and those Agents that work for them appear to be insulated from ethics (In some cases) of Real Estate, which I find appalling.  I believe that an Agent should have all parties interests not just their own, in fact, Real Estate law states specifically that the Agent's have to look after the seller's best interests first.  Just one recent example of many.    So Buyer Beware.   

Posted by Gregg Mower on March 14th, 2018 4:26 PM

2018 started off with relatively low interest rates but in the last few weeks interest rates have been on the rise.  The stock markets have hit record highs and the economy has added over 200,000 new jobs.   Although the Stock has corrected and has become volatile in the last week or so it is still trending over 24,000 points, the highest in it’s history.   So with the strong stock market and new jobs interest rates are rising to slow inflationary pressures, a kind braking system to the economy.  In order to understand this affect to the equity markets (Stock Markets) and why it signals coming inflation, we have to break it down to why it is happening.   As people make more money and buy more things that puts a pressure on the supply of goods and services and when there is a stronger demand for goods and services prices will tend to go up.  As prices go up for goods and services the Federal Reserve will raise interest rates to slow the demand down as the higher prices for credit (higher interest rates) will slow people from purchasing goods and services, in theory.   

The theory of fighting inflation by raising interest rates has been a policy of the Federal Reserve Board since the 1970s.  So, when the interest rate markets see any possibility of inflation they will tend to start the process of raising interest rates in anticipation of the Federal Reserve raising them.  This is what we have been seeing since the first of the year. Several events have happened to signal possible inflation in the future and as they unfold we see the markets adjusting to stay in front of what the Federal Reserve will do with interest rates when they meet at their monthly meetings.  One of the major events that is signaling inflation is the lowering of the corporate tax rate to 20%.  It seems people in the media and some closed-minded folks think that by lowering corporate taxes helps the rich some how when, in fact, it helps the American middle class people far more.  This is simple economics that is not taught in our public schools.  

To fully understand this, you must first look at corporations as tax pass through entities.  When a corporation pays higher taxes they just pass that cost through to the consumer in the form of higher prices for their goods and services.  Higher taxes also mean a big corporation will limit how much money they keep as profit in the U. S. as opposed to taking that profit in a country with lower taxation rates.  The money saved by the lower tax rates will tend to keep the money in the US and will be re invested to hire more American workers and keep dollars in the US.  Thus; more money in our economy for the American people to spend and eventually driving up prices causing inflation and forcing the Federal Reserve to raise interest rates to slow the economy down.  You see, if the economy grows too fast then there will be a higher demand for goods and service than they can be provided and that will cause prices to go up.  The theory has been to raise interest rates so the flow of money slows down with the higher cost of money.  This is a confusing topic for most people that don’t have a degree in economics like your author, but if you understand these basic principles you can not only save yourself money, but you can make money by knowing what is coming.       

So how does this relate to Real Estate you ask?  Knowing the economics behind the economy you can make better decisions as to when to buy home for investment or when to lock in your interest rate on your home or when to refinance and save on your monthly payment.  What this tells me about this year in Real Estate is that it should be a hot year for Real Estate Investment on both the Residential side as well as the commercial side of Real Estate.  A smart investor will note the economy is starting to improve and more people will have more disposable income to invest thus driving up Real Estate prices.  We have seen this happening in the residential sector for a few years now but it did not have to do with a strong economy as so much as the lack of supply of homes.    We have seen builders come back into the markets where they can build, and the supply of homes has increased to offset demand.  In the markets where builders can not build, due to lack of land, we have seen prices increase to astronomical levels.  IN some markets the Government has kicked around rent-control which would limit the amount of rent a landlord could collect in a certain area.  The result of rent control would be more run-down real estate, lack of new investment and corruption.  The Government should let the free markets figure out where rental prices should be as well as values.  As you can tell I am a firm believer in free markets and less government involvement as history has shown that when governments intervene in economics it causes markets to tighten as people and companies have to spend more for compliance of the government regulation that enviably hurts the very consumer they are trying to help.  I know the what the argument is from the other side is but it makes no economic sense as every result of more government is higher prices to people, bar none.  

In conclusion my advice to potential new home buyers is to lock in their interest rate as soon as they can when they are buying a home in this market.  If you have been contemplating refinancing your home my advice would be to do it sooner than later as you will be facing higher interest rates.  If you are looking to invest in Real Estate, again do it sooner than later as you will not only get a lower interest rate today than you will tomorrow, but the prices of the Real Estate Investment will be lower today than tomorrow.  Interest rates will be common place to be in the 5%-6% range for residential homes in the next 30-60 days from February 7, 2018.  For more questions on buying Real Estate or Refinancing or even commercial Real Estate give us a call and we will help you with all your Real Estate investment needs.  Again, MAE Capital Real Estate and Loan 916-672-6130.  

Update to this article 2/22/18- Rates continue to rise due to all the factors listed above and now the Federal Reserve has also said they need to counter inflation by raising rates.  I will  predict that interest rates will be consistently in the 5's by mid summer.  So if you are looking to refinance to take cash out to consolidate bills, pay for college, or home improvement I would suggest that you push up your time frames and get it done now so you can lock in a lower interest rate.  It is simple, call one of our qualified Loan Officers and lock you interest rate in today.  

Update: March 5 2018,  Interest Rates still are trending upward although not as fast as we have seen.  Again the stance we are taking is to lock our clients in as soon as we can to get the lowest rate possible.  As a Broker we are trending about 1-2 points lower in fees or about .125%-.25% better in interest rates than our Mortgage Banking friends.  

Posted by Gregg Mower on February 7th, 2018 4:43 PM

 

As a Real Estate Broker who has been in the industry for the last 33 years I have learned several tricks and secrets that other Brokers don’t want you to know about.  I want to share them with you as I have learned to save my clients money using the secrets other Brokers don’t want you to know about.  In Real Estate everything is negotiable and that is the first secret I will share with you as that will be theme of this whole post.  We will cover how Agents are paid and how loan officers are paid, as knowing this will help you negotiate and choose the best firm and Agents to work with.  We will explore the various other aspects of Real Estate like how the financing works and how you can bundle the services from one company to save thousands of dollars.

Let’s start with selling a house.  If you are considering selling your home, you should know that when you talk to an Agent about listing your home that he or she’s commission is negotiable.  The Agent will tell you that the going rate is 6% or 5% but the dirty little secret here is that there is nothing written in stone.  If you did a little research you could find a company like MAE Capital Real Estate and Loan that can that can save you thousands by bundling Real Estate services you will need anyway and receive a discount on the commission you pay to sell your home leaving you with more money to buy your next home.  If you are dealing with a “Big Box Real Estate Firm” you may not be offered this option as they are not allowed to negotiate like that and may not offer all the same services, but the smaller firms can.  Another little secret is that when you list your home for sale whether it is with a small Brokerage or a large Brokerage the way your home is marketed is exactly the same.  Your home is listed on the Multiple Listing Service (MLS) that is a digital service that every Realtor has to belong to.  So, if you think your home will be seen by more Agents if you list it with a large firm you would be mistaken.  In fact, smaller firms generally have strong roots in the community and those Agents that work for these firms understand that they have more ways to serve their clients and save them money.  Another secret is that when listing your home and you know you will buying another one the same Agent who listed your house for sale can sell you your next home and when doing so can now accept a lesser of a commission on the sale of your giving you more money to buy your next home.  Here at MAE Capital Real Estate and Loan this practice is common place.

This brings us to Buying a home.  Did you know that you don’t pay your Agent to represent you when you are buying a home?  It’s a fact, the seller pays commissions to the Listing and the Selling Agent as per the listing agreement already completed before you ever saw the house.  This is why, as the seller, you will have to pay something to sell you home or you won’t get anyone to show the house.  So as a buyer, either moving up or a first-time home buyer, you should always have representation.  Did you know that if you go directly to the Agent who has the house listed it won’t save you any more money as a buyer?  This is a common myth when looking to buy a home, as what you don’t know is that the Agent who has the house listed for sale has already made arrangements with the seller for their commission, in fact, in that scenario it might end up saving the seller money and not you as the buyer.  In Real Estate in California the Agent has to look after the seller’s best interests first, that is the law.  So, knowing this will put you at the advantage as, if you remember, everything is negotiable and if you have the right Agent they should be able to negotiate a better deal for you than the Agent representing the seller could by law.  The trick is when you are selling a house and buying another is to work with a MAE Capital Agent as they will bundle their services and take less when they sell your home leaving you with more to buy the next home if they also represent you when you buy your next home, this is called service bundling.

The next aspect of the Real Estate transaction is the financing.  This is probably the part of the transaction that you will be least knowledgeable about as you can’t see a loan like you can physically see a house.  This part of the Real Estate transaction is the part most people are afraid of and have no knowledge of how it all works.  I’m not going to teach you how the financing works, but I will teach you the secrets that your Loan Officer doesn’t want you to know about.    Again, going back to our theme of everything being negotiable, you guessed it, the financing is also negotiable.  Most people don’t realize this as the laws have changed to where Loan Officers and companies have to set their fees up in advance of disclosing to you.  This is where you have the advantage as you can easily shop an interest rate and fees to get the best deal.  Going back to small shops verses large shops, the same holds true for Mortgage companies.  The large Mortgage shops are far more restrictive when it comes to negotiating fees and interest rates than smaller shops and the reason for this is the regulators who the companies report.  A dirty little secret is that most of that larger Mortgage Companies in California are licensed under the Department of Business Oversight(DBO) which means they don’t have the same restrictions that the smaller companies that are Regulated by the Bureau of Real Estate (BRE).  The secret is that if the regulator is the BRE the Mortgage Company under them can only make a total of 3% in fees and commissions whereas the Mortgage company regulated by the DBO can make unlimited amounts of money on your loan thus they are generally higher in interest rates and fees.  Choosing a Mortgage Company under the BRE that can provide multiple services translates to you not only having a lower mortgage payment but also lower costs to get that loan.  At MAE Capital Real Estate and Loan, we are regulated by the BRE and thus ours rates and fees are less than any of our DBO competitors before we discount anything.  Here is a secret that will save you thousands, and you can quantify it. If you use MAE Capital to Sell and Buy your next home and use our financing without any discounts you would be better than our competition in fess and costs and monthly payments, however, the reason for sharing this is to show you how we do use discounts to save you additional money.   Having the ability to have Listing, Selling and Loan Agents under one roof will not only save you time it will save you money, we are here to help.

I understand you have choices when you need a Real Estate Service or services, I wanted you to learn some secrets and tricks to save money whether you use MAE Capital Real Estate and Loan or not.  I am a firm believer in empowering my clients to make informed decisions.  If you are reading this blog then you are one who researches and fills your brain with knowledge before you make any big decisions.  You are the smart one as most people follow the leader like sheep and you know where that leads you (to the slaughter house).  Here at MAE Capital Real Estate and Loan we pride ourselves on serving our customers and they keep coming back so we must be doing something right.  When you talk about experience and the ability to think outside of the box that is what we are and sharing the secrets of the trade is just one way of keeping our clients informed.  If you need further assistance with one or a bundling of our services, we would love the opportunity to show you how we do this Real Estate and Loan Business.  www.maecapital.com 916-672-6130  

Posted by Gregg Mower on January 23rd, 2018 5:00 PM

Welcome to 2018.  I think it is a good time to review all the available loan types in today’s lending world and what they are uses for.   Although there has been changes in the industry There are still options for people to get financing for both their primary homes and their investment property.  There are creative options for those that are self-employed that don’t show all their income on their tax returns.  Of course, we have the basic home loans like FHA, VA and Conventional loans that are still priced really good for an economy that is starting to build steam.  On the end of the spectrum we have Hard MoneyLoans available for those investment properties that banks may have said no to for one reason or another.  All these loans have their purpose in today Real Estate Markets.

Let’s start a look at the most basic of loans that are used for purchasing and refinancing primary residences.  These loans are, what we in the industry call, “A” paper loans.  These loans also fall under, what the government calls, Qualified Mortgages or QM loans.  These loans are full of regulations designed to protect the consumer from lenders that may not have their best interest in mind.  One of these loan types is the Convectional loan and is the most widely used type of mortgage.  The Conventional Home loan will allow buyers to purchase home and put as little a 5% down.  A Conventional home loan is privately insured which means if you put less than 20% down you will be required to purchase mortgage insurance from a private institution.   The same would hold true for a refinance, you would need greater that a 20% equity position in order to refinance a Conventional loan without Private Mortgage Insurance (PMI).   Because the insurance is private the underwriting guidelines are a little tighter than that of the Government insured loans like FHA.   Traditionally FHA insured loans have had the full faith of the Federal Government backing these loans making them more desirable for banks to sell the loans to each other.  Thus, interest rates on these loans are little lower than their Conventional counterparts and the underwriting criteria for FHA loans are little easier as well.  So, if you have a lower FICO score (550-660) FHA will probably be your best bet as there are not additions to the interest rate with lower credit scores with the FHA loans.  FHA does come with mortgage insurance, however, with the higher Loans to Value loans it still is a lower payment than a conventional loan.   Both FHA and Conventional loans now do not require a termite report and clearance unless it is asked for in the Real Estate Contract making both loans flexible for home buyers in a tight Real estate market or if buyers are willing to buy light fixers.  The Veterans Administration loans or VA loans are only for those that have served in the military and have the eligibility required (usually 4 years in) to qualify.  The benefits of being able to use a VA loan are great, besides the fact that the Veteran does not have to put any money down at all it is fairly easy to qualify for the payment as interest rates are low for these loans, as well.  VA loans will take Veterans with credit scores as low a 550 with no money down and no mortgage insurance.  These are all considered Qualified Mortgages in the Government’s eyes and will require certain waiting periods to ensure borrowers have the ability to shop and compare and make sure the loan being offered them is good for their situation. 

Another option for home buyers under the Primary Residence type of loan is the Bank Statement qualifying loan.  These types of loans are still considered Conventional loans as they are privately underwritten.  They are specifically designed to provide an alternative way of qualifying as opposed to the traditional way of having to provide Federal Tax Returns.  These loans will require a borrower to provide 12-24 months of bank statements from their personal or business accounts or both.  They will be qualified by averaging their deposits and taking out a certain expense number and that will be the income that will be used to qualify them.  As it still falls under QM loans these loans are required to make sure the borrower has the means to make their mortgage payment that they are applying for.  Due to the fact that Private Mortgage insurance companies will only underwrite under traditional income qualifying guidelines these loans will require a 20% or more down payment.  As they are considered “higher risk” loans and interest rates are bit higher than Traditional Conventional loans and FHA loans. 

Lastly, we need to cover a sector of the market that is almost considered “Underground Funding” and that is Private Money Loans or Hard Money loans as they have been called traditionally. Private Money loans are for those investors that don’t qualify for financing under traditional bank guidelines.  Hard Money loans are used primarily on investment property both Residential and Commercial properties.  These loans are arranged by mortgage brokers with private funds from private investors (individuals) and hedge funds.  The borrower is not scrutinized as much as the property is under this type of funding and the bigger the equity position is the better chances are that an investor will fund the project.  The minimal investment required to get a Private Money Loan or Hard Money loan is 30% of the project’s value or purchase price. whichever is less.  These loans can be used to purchase Residential, Commercial, Industrial, Mixed-Use, Land, Construction projects, Churches and those properties that Banks tend to shy away from.  Hard Money loans can be used to refinance an existing project, or provide funds for construction.  

There are many different types of loans available today and can be used for many purposes.  Here at MAE Capital Mortgage we have all these loans available.  Not only do we have these loans available we have experts in guiding you to the right loan product.  As we are a Mortgage Broker we are also limited by the government on the amount we can charge for certain products thus making our loan interest rates and fees the best in the market.  We work with direct lenders and get what is called a wholesale interest rate which is lower than a retail interest rate you would get from a Banker or direct lender and we pass those saving on to you.  We know you have options out there and I would advise that you work with a team like MAE Capital Mortgage that has decades of experience that will be passed on to you in the form of knowledge and  reduced costs and fees.  Please call our offices is you have any questions regarding these loans or Real Estate we welcome the opportunity to help you with this process.    MAE Capital Mortgage 916-672-6130 or www.maecapital.com. 

Posted by Gregg Mower on January 8th, 2018 12:55 PM

Without a doubt this is the hardest time of year to try and sell the family home.  It is not so bad for home buyers this time of year, but a seller has to always have their home ready to show.  With family coming and going from the family home it can be nearly impossible to keep your home “show ready”.   If you are selling a staged and remodeled home this may be the perfect time of year to sell as homebuyers are always looking and inventory is traditionally lower this time of year.  As homebuyers are always ”in the market to buy” a seller may not be for obvious reasons. 

Traditionally, during the holidays there is so many extraneous things going on in lives of people that they most often decide to wait to sell their homes after the first of the year when things calm down and they have the time to keep their homes “show ready”.   Most folks that want to sell the family home, decide not to list and sell their homes during the holidays as they may have family coming and going or they may be going to family.  They may also be shopping coming and going from their home, decorating,  or parties or all the above.  So, for these reasons some people will opt to wait till after the first of the year to put their home on the market.  In January you will traditionally see more homes come on the market as time has freed up for the potential sellers to get their homes ready to sell and all the holiday decoration have been stowed away.   Homebuyers, I have found, are always looking to buy so if there would be a possibility to list your home during the holidays chances are greater that you will sell your home during this time.

For investors listing and selling their houses, they won’t have of the same pressures as they do not depend on the house they are selling for their family.  For an investor this is a business of buying, fixing and selling homes so they don’t have the same problems that a homeowner will have that lives in the home they are selling.  So, for that reason you may see more remodeled homes hitting the market place this time of year as investors are smart and know that their houses will be in more demand this time of year as the inventory of available homes for sale has shrunken due to the holidays.  For a smart homebuyer they may get to take advantage of buying a newly remodeled home where other home buyers may have opted to wait till after the first of the year to resume looking for a home. 

There are pro’s and con’s to buying and selling a home this time of year, but always remember that both Buyer’s and Seller’s can write anything they want in the contract.  If a Homebuyer doesn’t want to move over the holidays they can always write a Close of Escrow Date to be after the first of the year so they do not have disrupt their living arrangements during the holidays.  The same holds true to a seller they can dictate when they wish to close escrow as well.  Some other factors during this time of year to take into consideration is that the service providers such as the Lenders, Title Companies, Escrow Companies, and even Realtors may have travel plans with their families that may slow things up as well.  The toughest time of year to try and close an escrow is the last day of the year and that should be taken into consideration.  This year is particularly difficult as the 31st falls on a Sunday which makes December 29th the last business day of the year and it is a Friday before a 3 day weekend, people may be leaving town or trying to leave town which can slow or delay a closing.  Also, Christmas falls on the Monday of the same week making that week only a 4-day week at best.  There are a lot of things going on this time of year that doesn’t usually happen other times of the year, so if you are buying or selling a home I would say be flexible as you never know what may happen to delay a close of escrow.     Working with a team like MAE Capital that has figured this out ahead of time will aid in your negotiations this time of year.  We always look forward to helping our Buyers and Seller's navigate this time of year and throughout the year.   Click here to learn more about selling your home.  Click here for more information on buying a home.  Or call our office and we would be honored to help answer your questions 916-672-6130.

Posted by Gregg Mower on November 28th, 2017 12:24 PM

Wow, the DOW Jones Industrial Average is over 23,000 and to think just 10 years ago it dipped to 8,000.  If you are invested in the Stock Market, chances are you have done pretty well.  So, when is the right time to take money out of a hot Stock Market and invest in Real Estate?  My contention is any time, as Real Estate over time has outperformed the Stock Market in many ways.   I know it is tough to give up those double digits gains in your stock investments year after year, but as you know there has not always been those gains and when you take out management fees on mutual funds and 401ks you might only have only had single digit gains or none at all.  Not to mention unless you are invested in income producing stocks (stocks that pay a dividend) you generally have just realized equity gains or value increases.  Real Estate has also seen double digit gains but the difference with Real Estate Investments are that you also receive rents, so you have appreciation as well rents received. 

Every Financial planner will tell you that you need to be diversified with your portfolio, but what exactly does that mean?  Well simply put you should have investments in the Stock Market, Real Estate, Gold, Bonds, etc..   When you find yourself too heavily invested in one area you should spread out your wealth.  If you can devise a way to sell some of your stocks that may have seen the bulk of their gains and are poised to have a correction and turn around and buy Real Estate, I think when the correction does come to the Stock Markets you will already have the hedge with Real Estate.  When the Stock market corrects money tends to move towards Real Estate.  If you are prudent and can see ahead, you will profit greatly when the correction does happen. 

So what type of Real Estate Investing is for you?  Most people know single family homes as they probably own one as the house they live in.  But there are many other types of Real Estate Investment.  Of course, you can invest in single family homes, but don’t throw out the possibility of investing in multi-family homes, Commercial property or even Notes.  Single family homes are pretty straight forward in that you have one home one renter pretty easy to take care of.  The only downfall is that when that renter moves out and you have the downtime to find another renter and fix up the damage from the previous renter.  With Multi-Family homes you will still have income, however, if one renter moves out you have others still paying so you are still receiving income.  In addition, with multi-family properties you generally get more rent per square foot over time.  The Percent of appreciation you receive will vary from location to location on any property.  With a commercial property you generally have better rents and better lease opportunities such as triple net leases where the renter(s) will pay their portion of taxes and expenses on their space.  With a commercial property you get a different kind of use than that of a single or multifamily dwelling.  You might have a retail building with shops that are only open during the day, or an office building that the tenants must keep up for their clients, or a warehouse, all of which bring in good rents but are very different in the up keep and maintenance and the ability to have the tenants pay for it.  

You have to ask yourself if you are getting all the return on your money that is possible.  If the answer is no then you should look towards Real Estate.  It is a fact that the wealth of the top wealthiest people  in the world have huge Real Estate holdings.  Starting your investing in Real Estate can easy, first you have to come up with a budget for purchasing Real Estate.  Unlike Socks (generally) you can leverage Real Estate to get the most for your money.  As an Investor you don’t have buy property outright you can get a loan against it allowing you to purchase more thus leveraging your investment dollars.  Investors should obtain an operating statement from the seller when purchasing commercial properties as you need to know what the income and expenses are of a property before purchasing.  Then you can apply your new tax base and your loan expenses and get an accurate income estimate of the property prior to purchasing.  This is far easier with a residential Single Family investment home as you will know what the expenses are prior to purchasing as the renter will pay for their own utilities and maintenance, you will have to pay taxes and insurance which you can estimate pretty close prior to purchasing.  One more thing you have to ask when placing investment dollars is when will the next correction be in the stock market and can you weather that storm before it comes back.  Here at MAE Capital Real Estate and loan we love to help investors obtain investment property as well as helping them finance those ventures. 

 

Posted by Gregg Mower on October 31st, 2017 3:35 PM

The Income Solving home loan has been designed to fill the gap for those folks that can’t qualify when they have to provide their Federal Income Tax Returns.  Current rules for obtaining a Conventional or FHA loan require the applicant to provide tax returns to prove they make enough income to qualify for a home loan.  This traditional style of qualifying for a home loan can leave an entire segment of the population out for qualifying for Conventional, or FHA and even VA home loans.  So, the market place has come up with a type of loan that will comply with the current laws and allow for those that are self-employed or on commission to be able to qualify for a home loan without having to provide Federal Tax Returns.  You may have even heard them advertised as Income Solving Mortgages. 

The current law states that a borrower must be able to show “the ability to repay” the mortgage when applying for an owner-occupied home loan.  This does not hold true for properties that are being purchased as a rental or for business purposes.  So how have lenders come up with ways to avoid providing Federal Tax Returns?  First, you may want to ask why not show the tax returns?  The answer is simple as people that are self-employed or on commission don’t get the luxury of company expense accounts, paid health care, and other expenses.  So those folks may make more than enough money to actually make the payments they just have to write off so many other expenses that a normal salaried person may not need to.   This, in turn, lowers the income shown on their tax returns and, in some cases, may take them out of being able to qualify for a traditional home loan with their tax return. 

The solution to being able to show “the ability to repay the loan” comes in the form of showing the actual income made by the individual.  Showing the income can be best done by showing the deposits made to a business or personal bank account.  For example; a borrower may show $300,000 in deposits for a year and yet their tax returns after expenses only show an income of $25,000.  If we are allowed to look at the deposit record and apply the actual expenses of running their business their income would be far greater and probably enough to qualify for what they wish to purchase.  So, to prove deposits we would require a borrower to bring in one or two years of bank statements to support their “ability to repay the loan”.   We may also ask for a year-to-date profit and loss with the true income and expenses minus any paper write offs like depreciation.

That said, these types of loans will require a minimum of 10-20% down payment and for the borrower to have a good credit score of 680 or better.  So, when evaluating a potential borrower you could see they have good credit and a larger down payment thus lowering the risk of them defaulting on their mortgage.   These loans will also come with a higher interest rate than the traditional Conventional or FHA Loans as the risk is higher of foreclosure according to the market.  This is what is commonly referred to as an Income Solving Loan or an Income Solving Mortgage.  Here at MAE Capital Real Estate and Loan we offer these loans from serval sources.  The reason for having several different sources for these loans is that each lender has slightly different guidelines and each borrower has slightly different circumstances so we can fit our clients to the right lender without the client having to do the shopping themselves.   We also get to go in the back door of the lenders we do business with getting a wholesale interest rate which we pass on to our clients.  For more information and to see if you qualify for this type of loan please contact our office at 916-672-6130 or click here and complete the contact form
Posted by Gregg Mower on October 11th, 2017 11:50 AM

 

Have you ever wondered what it takes to become a Real Estate Agent or a Loan Officer in California?  First, you have to ask yourself what exactly you want to offer your clients once you have the appropriate licensing.  You might just want to sell Real Estate which will only require you to have a California Bureau of Real Estate License.  If you just want to be a Loan Officer you would have to take and pass the National Mortgage Licensing System (NMLS) test for both State and Federal.   This is where it becomes confusing for new licensees with the NMLS license.  If you just have the NMLS license and not a Real Estate License you can only work for a Mortgage Company that is regulated by California Department of Business Oversight (DBO) or a Bank.  If you hold both a Real Estate License and an NMLS license you can go to work for a Mortgage Broker that is regulated by the BRE and you can practice both Real Estate and Loans.  If you want to offer your clients a one stop approach where you can offer both the Real Estate Services as well as Loan services you want to hold both licenses and work for a company that has the appropriate licensing under the BRE, like MAE Capital Real Estate and Loan

So, once you have decided that you want to get your Real Estate License where do you go to get your licensing prerequisite courses.  The Bureau will require that you take an approved Real Estate Principles course, and Real Estate Practice then you can choose from a specialty course such as:  Appraisal, Property management, Finance, Economics, Legal aspects, Accounting, etc.  for more information on the specifics click here to go to the BRE license requirements page.    If you have 4 year degree you may be exempt from taking all or some of the courses and you can go right to the Broker’s test if you wish as opposed to getting the Sales Person license first then wait the 2 years to get the necessary experience to take the Broker Exam.  Now if you have not taken the college courses and need to take the prerequisite courses you can find approved Real Estate Schools online and they will generally walk you through exactly what you need to have to take the test and get your license.  The school I recommend to my people is a school called First Tuesday they will look at what education you have already and let you know what you need to take to get the license, they also provide test preparation courses which I would strongly recommend.  Once you have taken the online courses you need you can then apply to take the Real Estate Exam from the BRE.  You can go to the BRE site to follow their instructions as you will need to be finger printed, and not have been convicted of a felony and pay the necessary fees and for sites where the Exam is held.  Click here to see the detailed steps you need to take to get to the Exam.   Then take the Exam when you are ready, it will require you to study hard as it is not easy if you are not prepared.  Once you pass the exam you will be notified by the Bureau and when your license has been issued you can now work as a licensed Agent.  But since you know nothing about how the real world works you will need to find a company like MAE Capital Real Estate and Loan to train you in the Art of Selling which will revisit in a minute.

Moving on to getting the NMLS license or Mortgage Loan Originator (MLO) License.  The test will be the same whether you want to have both licenses and sell real estate and do loans.  To get your NMLS license you will need to have 20 hours of prerequisite courses that can also be obtained from any California Approved Licensing Agency and again First Tuesday can also provide the necessary courses required to obtain the NMLS License.   I would again, stress that you take an Exam Preparation course that has practice tests and if you use First Tuesday they also have these courses.   You will need to follow the steps on the NMLS site as well as signing up online.  You will also need finger prints and no felonies to apply.  Once you have completed all the steps to take the exam make sure you are ready by taking preparation tests and classes if necessary and take the test.  Once you have passed the test you will have to know what you want to do with your new license as you will need to be trained in the art of Mortgage Lending.  If you only have the NMLS license and have no desire to offer both Real Estate services and Loan Services you will have to pick a Mortgage Banker regulated by the DBO.  Then, in order to start work, you must pay the $300 to the DBO.  If you have your BRE license already you have the option for working for a Mortgage Broker that can offer both Real Estate Services and Loan services, like MAE Capital Real Estate and Loan.    

Once you have the licensing you desire you will need to be trained in real life practice.  You will need to choose a company that offers training like MAE Capital Real Estate and Loan.  We will train you as a Realtor and as a MLO, so if you have one or both licenses you can utilize both licenses to their fullest.  It has baffled me as to why if you have a BRE license and an MLO license you would work for a company regulated by the DBO where you are restricted to only doing loans.  If you have the ability to offer your client a one stop shopping experience where you can “Bundle” your services and save you client money and make commissions on both the loan and the Real Estate why wouldn’t you choose that rout.  Yes, you will have to pay your dues to the Association of Realtors but that gives you the opportunity to know the inventory in your area and become more professional in both fields as they have to work hand in hand in most every Real Estate transaction.   Your dues will give you access to the Multiple Listing Service (MLS) where you can view all the details of property offered for sale or what has sold.  YOur dues also gives you access to Zip Forms that are the online Real Estate Contracts and forms.  Even if you have a client that just is requesting a refinance you will have the ability to log on and determine the value of the home prior to ordering an appraisal taking the guess work out of the equation and potentially saving your client the cost of an appraisal.   With both licenses working for a Mortgage Broker you will have more products to offer than working  for one Mortgage Company under the DBO as a Mortgage Broker has the ability to use many different lenders that offer many different products.  At MAE Capital Real Estate and Loan we also offer the ability to Broker Hard Money Loans, thus further opening the doors to more commission possibilities. 

Once you have obtained both licenses and you want to be trained in both fields or if you have been a Realtor and just got your MLO license and need training what do you do?  Training opportunities in Mortgage business has always been costly or self-done and there are very few companies that offer extensive training prior to going out  in the field .  Here at MAE Capital Real Estate and Loan we have developed a training programs from the over 30 years of mortgage experience.  We combine mentoring with classroom and homework to get the details needed to be a professional Loan Originator.  If you would like more information please click here to be directed to our employment page and complete the form or simply call us (916) 672-6130 and we will show the benefits and the opportunities that you may not have known about before.  Our training program will take 4-6 weeks where you can be working at the same time.  You will learn all the ins and outs of the business from how to take a loan application and write a contract to how to close out a transaction and get referral business and all the marketing that you will need to know.  I hope this has helped with your quest to enter the Real Estate and Loan business we are here to help as MAE Capital Real Estate and Loan has developed a reputation of being smart and innovative and are always looking for individuals that want to have the opportunity to expand their career to limitless possibilities.    

Posted by Gregg Mower on September 6th, 2017 12:27 PM

Are you planning on buying a home in the near future or currently looking to buy a house?  If you are, you need to know to know how to save money.  It is a little-known fact that here in California a Broker can sell Real Estate and arrange the financing of it.  This may not sound that earth shattering on first look but if you find this article you found a company that has been doing this service for years.  Some people in the industry believe that you can’t legally do both and those people would be wrong.  There are very few of us that have the expertise to handle both functions and the licensing to do it.  As a California Real Estate Broker you can act as an Agent representing buyers and sellers of real estate and represent them in the loan transaction if you hold the proper National Mortgage Licensing System (NMLS) license. 

Why would this matter in a Real Estate transaction?  It won’t matter if the company that holds these licensing does not utilize them to save their client’s money.  Here at MAE Capital Real Estate and Loan we believe, first and foremost, that saving our customers money is one of the major reasons we even take on both functions.  So how does that work you ask?  Which is a great question.  This works whether you are a seller or a property then a buyer of another one or if you are a first-time buyer.  You see we will take the commission generated from the Real Estate commission and apply it towards you home loan to lower your interest rate thus lowering your monthly payment.  We also will buy your home warranty on the purchase of your new home saving you thousands in potential work repairs. 

Not only does this process work in saving you thousands of dollars you will only have to make one phone call or email to find out what is going on with your home and how the loan is doing.  Traditionally, you will generally use a Realtor that does nothing but the Real Estate function and has no real ties with the loan company doing your home loan.  This can cause communication problems and slow a transaction down trying to get a ahold your Loan Officer and or your Realtor.  Under MAE Capital’s system you make one phone call and you can find out what is going on with the house and the loan and the sale if you are selling a home in addition.  With all the functions under one roof the transactions will be far more efficient for all involved.   If you were to ask an Agent their number one complaint with the business they would say the communication issues with Loan Officer and other Agents in the transaction.  If they are all under the same roof everyone is held accountable to get the job done efficiently. 

What makes this legal is that MAE Capital Mortgage, dba Mae Capital Real Estate and Loan is licensed under the California Bureau of Real Estate (BRE)not the Department of Business Oversight (formally the Department of Corporations, DBO).  Most Mortgage Companies that you will talk to are licensed under the DBO which only allows Mortgage Companies to do loans, whereas, the BRE allows you to do many functions with your Broker License.   So why are there only a few firms like MAE Capital that does both you ask?  The answer is fairly simple, as a Loan Officer working under the DBO you can make up to 3% in commission per loan and under the BRE you can only make 3% as a company as a whole on the loan.  That looks the same you say.  It looks the same but is very different.  You see a Mortgage company under the DBO allows a Loan Officer to make that kind of commission after the company has made their profit and if you are dealing with a branch of a larger company that branch will also have to make money to stay open so you have 3 to 4 layers of profit centers before it gets to you the consumer.  With a Mortgage Broker we deal direct with the main company (No Branch) and no other loan officers so we cut out 2 layers of profit, making our interest rates points and fees far less than a large company.  Then the large company cannot give you money towards the purchase of your home as that is not legal under the DBO but under the BRE you can give back to your customers towards costs and fees all day long saving clients thousands of dollars.  This is why MAE Capital Real Estate and Loan came into existence to save our client money and make the process more efficient. 

Here at MAE Capital Real Estate and Loan we call this “Service Bundling” designed to save our clients thousands of dollars and hours of time in their transactions.  This is not a new concept it just has been refined by MAE Capital Real Estate and Loan.  If you are looking Sell then Buy a new home in the Greater Sacramento area or Placer or El Dorado Counties we are here to help.  For those professional that would like to explore the possibility of being more efficient you should contact us for a free overview.  This is the best kept secret in the Real Estate Industry today and your Agent that doesn’t work for MAE Capital will try to change your mind as they work on commission.  We are here to help those that have little knowledge of Real Estate and Lending.  At MAE Capital we have over 50 years’ experience in both Real Estate and Home Loans and invite you to call us to today to learn more about how we can save you Time and Money. Call and talk with one of our licensed Agents today at 916-672-6130 we look forward to helping you with your Real Estate needs.  

Posted by Gregg Mower on August 28th, 2017 4:36 PM

Most people think when you buy a new home in a brand-new subdivision you can’t use your Realtor.  This is a myth; most major builders will co-operate with outside agents to get their inventory sold.   This will help you as a buyer in that your Agent is driven to work for you not the builder, whereas the sales agent in the subdivision is looking out after the builder’s best interests not yours.   Having representation with your own Agent will not cost you anything as the builder will pay your Agent at the close of the sale.  It most cases, your Agent will be able to better represent your best interests in getting the best base price and will have the ability to negotiate on any improvements you might want. 

It is very tempting to just stop into a builder’s sales office and look at the model homes they have staged to view.  When or if you do this, you should tell them you are working with an Agent even if you are not.  This will allow you time to get representation to negotiate the best deal possible.  Communication with your own Agent will be far easier than trying to deal with the sales Agent that works for the builder as they don’t have the incentive that an Agent working for you would have to get the answers back to you in a timely manner.   Real Estate Law states that an Agent must look after the seller’s best interest first, except if a buyer designates an Agent to work exclusively for them. 

Your Agent can generally provide you with more information on the project than the sales Agent working for the build can or will.  A good Agent will be able to tell you the dynamics of the neighborhood and surrounding area better than the builder’s Agent as they don’t have any incentive to know what is going on around the builder’s project, they are there to move units like a car dealer.  If there is a Home Owner’s Association (HOA) your Agent should be able to get you good information on what it pays for and what the goals of the association are.  An Agent will also be able to take the time to research the schools and if there any new schools coming to the area and when they will be opening.   Your Agent will have the time to devote to you to research school bonds, Mello Roos,  and other items that may affect your payment when purchasing a new home. 

If you have never purchased a new home before you will notice that the model homes have tags on several items in the homes that may say “optional” or “upgraded item” these items are not included in the base price of the home.  Potential home buyers will sometimes miss these items and expect them to be in the home they purchased when it is completed.    Then when it becomes time to do the walk-though they are not in there and this can bring confusion and disappointments to new home buyers where if they had representation their Agent would have known to put those items in the initial contract.  These upgraded items can raise the price of a new home significantly so it is important that you know exactly what the end price will be with all the upgrades you want.  MAE Capital Real Estate and Loan’s Agents know how to negotiate for these items for you and you would be surprised how much money you can save by having that representation.

You will also see that when you are dealing with a builder’s sales Agent that they will steer you towards their lender in the form of giving you incentives to use their lender as opposed to an outside lender.  This is an illegal activity specifically called steering, however, they still do it.  At MAE Capital, we have a system that will be able to work around the builder’s lenders, in most cases, and still get you the best interest rate and the lowest costs even if the builder is offering $10,000 in incentives to use their lender.  This actually works in the form of “Bundling” our services.  We have proven this to work and save our client’s money and maintain control over their own transaction.  This helps our clients in that they only have to make one phone call to find out about the house and the loan.  This not only saves time but will save thousands of dollars.

To recap, when looking to purchase a New Home in a New Subdivision you should really try to have your own representation.  This will work in your advantage in many ways.  You will, generally get a better price with the upgrades you want, you will get more financing options, you will get more knowledge of the area and feel more comfortable that you have someone working for you towards the purchase of a new home.  Your Agent will go through the walk-through with you at the end and if anything is not up to your standards your Agent can deal with it for you with the builder directly.  This is a big undertaking so if you are looking to purchase a new home in a new subdivision you should get some advice from a professional Agent prior to making an offer to purchase and you could be saving thousands of dollars just by having a conversation that doesn’t cost you a thing.  Here at MAE Capital Real Estate and Loan we are here to help guide you through this process and save you money.  Give us a call today at 916-672-6130. 

Posted by Gregg Mower on July 24th, 2017 10:14 AM

I know you have heard the ads on the Radio or TV and probably are wondering what all the hype is about with certain loans or Loan Companies.   I know most of you have heard of Rocket Mortgage and some of you may have even tried it to find out that it is not as easy as it sounds.  You may have heard of loans that can qualify you with just bank statements or “Income Solving Loans”, as advertised.  You may have heard of Down Payment Assistance programs that are designed to help you with your down payment so you don’t have to come out of pocket to buy a house with very much money.  These are all programs designed to get your attention and some are very viable programs and others you soon find out are a whole lot of work for very little.

So, let’s start with Rocket Mortgage and getting a mortgage with a push of a button.  This is a bit of a pipe dream, so to speak, as in order for this to work you have to input all you information into their system before it can work and in some cases it won’t work and you end up having to deliver the traditional documentation anyway to get approved for your mortgage.  Rocket Mortgage is a division of Quicken Loans which has emerged as one of the largest Mortgage Companies in the nation after Mortgage Melt down of a decade ago.  The way their system works is based on a software platform that is designed to interact with different employer’s payroll systems and different banks.  The software sets up, with your permission, an interaction with web based companies like ADP, Paychex, Talx and other payroll associated companies to verify your income information.  The software also gets your permission to get your online banking information, as well, to verify that you have enough money for the down payment and closing costs associated with the loan.  It will interact with credit reporting agencies as well.  Once you have inputted all your information into their system the software can run income, bills, and cash to close to accurately give you an approval.  However, if your job or bank does not interact with any of the online systems you will have to provide traditional documentation anyway.  The major problem with this system is that you don’t have a human to be able to tell you how to fix any issues with your employment or deposits or any other reasons why their system is declining you for a home loan.  This system is only as good as the information that is inputted from you the borrower and if you are confused as to what to put into the system you may make a simple input error and that could cost you the decision of an approval.  When you work with a traditional Loan Officer they generally do all the input for you based on the documents you provide them and it is in their best interest to get your loan approved and closed as their income depends on it.   This automated system might work for the perfect borrower who has perfect credit and has had one job, one bank account and works for the government.  This, unfortunately, is not the real world, but it is a system that will be refined and eventually something like this will be the way mortgages are delivered in the future, but for now we still need human interaction to deal with problems or glitches that may arise.

Now down payment assistance programs (DAPs) have been around for a long time.  The problem with these programs are that they have become so regulated over the last decade now since the Mortgage Meltdown that there are very few programs available.  In California we have the California Housing Finance Agency or CalHFA for short and they offer an income limited program that is called MyHome Assitance program.  This program will offer up to 3.5% second mortgage on the purchase of a home and the money is ued for the down payment on the first mortgage and closing costs if necessary.  For the MyHome program you need to be a first time homebuyer (not claiming mortgage interest on your primary home for the last 3 years).  You must occupy the home as your primary residence, and complete a homebuyer education course and you must fit into the income limitations.  This assistance program can be used with an FHA or Conventional loan.  For more detailed information and help with doing this loan please contact MAE Capital directly and one of our licensed and qualified Loan Officers can walk you through this process.   CalHFA also offers, though approved Lender’s and Brokers like us the Mortgage Credit Certificate or MCC that is designed to help first time homebuyers receive and additional tax credits from homeownership and this program is also limited by the amount of household income that is made and does not help with the down payment it is only a tax credit program.  This is really your only options for Down payment assistance in California.   It all boils down to being able to get a down payment of 3.5% which is the minimum amount for an FHA loan.  With an FHA loan, the 3.5% can come from a DAP or it can be a gift so it is very flexible as to where the funds to close come from.  Here at MAE Capital we can hold your hand though this process and provide different options as they arise.

Lastly you may have heard of the Cash Call ”Income Solving” loans for owner occupied homes.  These loans are being presented for those folks that may have trouble showing their income to a lender because they are self-employed or write off too many expenses on their Federal Tax Returns.  The commercial on the radio states to call them if you have been declined by a lender for lack of income. Back in the day we used to be able to do stated income loans for those that write too many expenses off their tax returns if it made sense to for the client.  These loans have been made illegal with Dodd Frank Act of 2008 which states that lenders must prove a borrower’s ability to repay the loan they are requesting.  This has been interpreted to mean that you must get Tax Returns, and Pay statements in order to prove the borrower’s ability to repay a loan.  There have been serval institutions that have looked at the law and came up with alternative ways of proving the ability to repay.  One of the best ways to show that a borrower is actually making enough money from their self-employment would be to look at the deposits they make into their bank account every month.  The Bank Statements will also show how a borrower is spending the income that is made from their business.  If a borrower can show that their business is making good deposits every month and they are saving money after paying their usual bills then why would they not be able to afford a house payment.  It is these bank statement loans or “Income solving Loans” that have been becoming more popular with self-employed people as they have a tendency to write-off more expenses than a typical salaried person would simply because they can.  When we analyze a person’s bank statements for the last 24 months you can see trends and habits of good paying individuals or poor paying individuals.  That coupled with a good credit score and savings habits will generally get a loan approved.  These alternate income qualifying or Income Solving products are all different and different lenders will handle them differently, so it is important to use a Mortgage Broker for these products for no other reason than they can find the lender that will approve your loan.   The Cash Call Loan is not the only alternative it is only one of many lenders that offer this type of solution.  Don’t give up if you have been trying to get a bank statement loan from a mortgage banker or a Bank and it is declined chances are there is a lender out there that will probably approve the loan if it makes sense and it will generally be from a lender you have not heard of before. 

The bottom line with regards to loans and specialty financing is that you should be dealing with a Mortgage Broker that knows the ins and outs of these products to get you hooked up with the right lender the first time.  The myth that it will cost you more money dealing with a Mortgage Broker I just that a myth.  In most cases a Mortgage Broker can find you the best interest rate scenario for you as opposed to a Bank or a Mortgage Banker as a Mortgage Broker is paid by the lender in the form of Lender Paid Commission.   So not only could a traditional loan cost you less working with a Mortgage Broker but these specialty loans might only be found to be offered by a company you may never had heard of before but your Broker knows of them as it is our job to know where to find the right loan for our clients.  With specialty loans and down Payment Assistance Programs and even software programs here a MAE Capital we can walk you through the maze of ever changing finances and trends and get you the answers you need to make informed decisions.  We know that you are an expert in your trade or occupation and so are we, and it is our job, and our pleasure, to help you with all of this confusing stuff.  With one phone call you can get the answers you need to Buy, Sell, Finance or Refinance all types of Real Estate.  We look forward to guiding you to your next Real Estate transaction.  Give us a call today at 916-672-6130 and ask to talk to one of our qualified Loan Officers.  If you are selling a home and buying another one ask about our special bundling packages that can save you thousands in Real Estate commissions and fees.

 

 

Posted by Gregg Mower on July 19th, 2017 10:53 AM

Some of you are hearing that we are in a “Seller’s Market”, but have no idea what that really means.  It is interesting times right now and every Real Estate Market in America is different.  I am writing this article from Northern California in the Greater Sacramento area, but the definition of a “Seller’s Market” is good for any market.  The factors that make a Seller’s Market are many but the biggest factor is the lack of supply of housing for sale in the affordability range.  The affordability will differ from town to town is based on the average income for the particular area.  In in Northern California You can see the highest priced Real Estate Market in the world with Silicon Valley and the San Francisco Peninsula and drive 2 hours to the east and see some the most affordable housing in California in the Stockton and Central Valley.  Real Estate markets are driven by supply and demand with a higher supply of housing the lower the pricing and the lower the supply the higher the price becomes with the same amount of demand. 

Although the rules of supply and demand work in any market place, in Real Estate it is especially prevalent as people generally don’t have choice to buy or rent they always need a place to live.  With most goods and services people have a choice as to purchase and item or not based on price, but if your job is in a Real Estate Market that has a low supply of housing and a high demand for that housing you will be forced to take housing at elevated prices.    Even if you are renter you will be forced to pay higher rents in markets with a low supply of housing.   Some markets with high demand for housing have implemented rent control to try to keep rents low in certain areas so people can afford to live there.  This concept, although with good intentions for potential renters, is a horrible way to try and combat high rents as it will force corruption and landlords that can’t get market rents will tend to not do the necessary maintenance that would be necessary in an uncontrolled market to save money.  You have seen this in areas in major cities that have tried this and what you end up with are areas that are run down and crime ridden.   The solution is a supply problem and if you can build more housing and move the jobs away from high concentration areas you will fix the problem. 

As for a “Seller’s Market” in Real Estate market you will generally have a high demand for housing and low inventory to choose from.   Here in the Greater Sacramento area we are experiencing just such a market.  What this does for a seller of Real Estate is insure that they will get the highest price possible for their Real Estate.  As for buyers in this market they will be forced to make full price offers or even above full price offers to get the seller to sell to them.  As a buyer, it becomes frustrating to look for a home to buy and every house you see in your price range has multiple offers and some are cash offers.  If you are a Veteran and want to try to use your benefits you will have a very tough time to purchase, as if a seller takes a VA loan offer on their home they will have to clear the termite report and take the house to VA standards.  If a seller has multiple offers on a house they will generally take the path of least resistance to them and the highest price.  For example, if a seller has 3 offers to purchase their home and one is a cash offer (meaning they are not seeking a loan) and one is a conventional loan, and one is a VA loan and even if the VA loan is offered at more than the asking price the seller will look at the type of buyer that they will make the most off the sale from.  With the cash offer, with no repairs being asked for verses a conventional loan buyer that may have no repairs requested either at the same price and a VA loan buyer offered above the asking price with repairs, it would generally be the cash offer that wins every time as it would be known that the cash buyer can perform whereas the conventional loan still has to go through the process and the VA loan buyer just becomes more of a hassle.  Thus, putting the seller in control of who they sell their house to.

With the seller in control of who they sell their house to it becomes an art for a Buyer’s Agent to make an offer that will get accepted.  Here at MAE Capital Real Estate and Loan our Agents are trained in the art of deal making and have special ways to convince a seller to accept the offer we provide.  We are one of only a few Real Estate firms that can bundle our services thus sweetening the offer we can make to a seller.  If we work with you on your home loan and represent you in the Real Estate Transaction we can reduce our fees and make the seller’s bottom line sweeter where other Agents will not have this as an option to help potential buyers.  If you are a seller in this market and we list and sell your home and bundle our services with the purchase of the next house or home loan or both we can really save you thousands of dollars. 

Back to what a seller can expect in this market when selling their home.  Since the seller is in the driver’s seat, so to speak, they will be able to take the highest and best offers presented.  Some techniques that are happening in this market is to set a date where the offers will be reviewed by a seller so the seller can pick the best one.  Generally, when the house is listed on the MLS there will be a note to other Agents stating that offers will be reviewed on a certain date usually 7 days after it is put into the system.  So if a house is listed on a Friday the Agent may suggest to the seller that the following Friday evening they will get back together to go over all the offers received during the week.  If some of the offers are the same the Agent will suggest doing a “Multiple-Offer Counter Offer” where the Agent will send to all offers one final chance to send a higher or better offer than they originally sent in.  Once those are back the seller will then pick the best offer out of the bunch.  This technique is good for a seller but potential home buyers get really frustrated with this type situation as they find out that they didn’t get the house and they offered the highest they could.  This should be explained to all potential buyers prior to even going to look at homes so they are prepared to battle for what they really want. 

Another problem that arises in a Seller’s Market is the lack of tolerance from a seller.  Although, it should be a given to be as courteous as possible in a Real Estate transaction a Seller doesn’t really have to be tolerant of the home buyer’s problems.  So if a home buyer’s lender has requested that they want the seller to comply with work or to participate in closing costs, the seller might not have the tolerance for that and cancel the transaction and move to the next buyer and if a few weeks have passed then they might be able to sell the house for even more.  This is especially prevalent with builders as they are professional sellers and have zero tolerance.  In fact, most big builders have their own lending institution so they will steer you to their lender by offering incentives to use their lender as they make money from the sale and the loan.   This is illegal per the Consumer Finance Protection Bureau (CFPB), but it is still common practice with builders.

So bottom line, if you intend to sell your home or property in the next 6 months to a year in a “Seller’s Market” picking your Agent is the most important part of the transaction as they will pay for their services over and over not just from keeping it legal but getting the best price and you not having the hassle of showing your home and answering all the buyer’s questions.  MAE Capital Real Estate and Loan is here to help you list and sell your home, Land, or Commercial property.  We can also bundle our Real estate Services with our Loan services to save you big dollars so weather you are a seller or a Buyer we are here to save you money.  Give us a call at 916-672-6130 or click here to email us.

  

Posted by Gregg Mower on April 14th, 2017 12:49 PM

After one of the rainiest winters on record the sun is finally shinning and you are thinking it is time to put your home on the market.  So you ask, Is it time to sell your home?  For everyone that realization comes at different times.  Maybe you just got married and its time to sell that bachelor or bachelorette pad.  Did you have another child and don’t have enough rooms.  Has your company decided to relocate you?  Do you just want to move up?  Kids out of the house and want to move down?  Whatever your reason is you have come to the conclusion that it is time to sell.  Now what? Can I sell it myself or do I need a Real Estate Agent to help me and how much that will cost me. 

 These are typical questions that most everyone has had when they decide it is time to sell their home.  So let’s discuss the purpose of using a Real Estate Agent and the cost of using one.  It has appeared to most sellers that they could probably put a post in the ground and put the listing in Zillow and sell their own home.  What they have not thought through is how to show the house when they are away, and do the legal paperwork for a potential buyer.  In addition, they may not have the ability to accurately figure a price to put on their home, and if they have come up with a price, will it appraise.   Then there is all the legal aspects of selling a home in today’s world, and are Sellers up to date on what they must provide to a potential buyer by law?  If these are questions you are having then you will naturally look to a Real Estate Professional for help, but who and how much will that cost?

A typical Real Estate commission is between 4-6% plus fees, you may ask yourself “what am I actually getting for that fee?”  The truth is, you are buying piece of mind that your will house will sell and you will not be liable for it once it is closed and you have good proceeds from the sale.  A good Agent will not only give you that piece of mind they will be able to map out how the transaction will go before you even put a post in the ground.  At Mae Capital Real Estate and Loan our Agents have the experience in both years in the business also in the volume of transactions seen in those years.  What our experienced Agents will bring to the table is a team of professionals that are proven in their field whether that is in lending, Title, appraising, or legal.   Not to mention we have been consistently selling home for at or higher than most seller’s expectations are.  

A good Agent will pay for themselves multiple times over in time savings and negotiations.  It starts with the initial marketing of your home or property.  It is like the difference between buying a used car from a dealer or a private party, which one do you feel would stand behind what they just sold you?  That’s right, a dealer, as they will stand behind their product and have a team of mechanics, lenders, and support staff, so you pay a little extra for that piece of mind.   The same applies in Real Estate, as most buyers will feel more comfortable with a team of professionals that will stand behind their work other than an unlicensed person trying to sell their home by themselves.  It is proven that a potential home buyer will pay a little extra for the peace of mind that comes with professional help.  Generally, a home buyer will pay up to 10% more for that peace of mind.   So when we say that “having an Agent represent you will pay for itself”, we are not kidding, it does.  So that covers the argument of an Agent costing the seller more, to add to that, if you were to have a lawyer draw up a contract it would cost you considerably more money, but an Agent covers that cost as well.  If you were to forgot to disclose something upfront and the buyer sued you after the sale that would cost you exponentially, an Agent will assure that you won’t bear that cost.  Your Agent also bears the costs of marketing your home.  At MAE Capital Real Estate and Loan we get your listing out to the MLS so other Agents see your home listed but we also get the house listed on Zillow, Redfin, Realtor.com and over 70 other search engines that potential buyers will be looking at. 

Now that we have rationalized why you should be represented by a licensed Real Estate Professional lets figure out what comes after that.  Your Agent will help you to prepare your house for sale, offering showing ideas and how to stage your home for sale.  If you are selling your primary residence you should have your home inspected by a licensed termite inspector before listing the home so you know what might come up from a potential buyer. Most buyers will ask to see a termite report when they make an offer to purchase your home, so if you have it done in advance your home will become more attractive to potential buyers.  Spruce up the yard, your Agent will tell you that “curb appeal” is important to buyers that may be driving around looking at houses.  Remember, if your home makes a good first impression to potential home buyers it will generally sell fast and at a higher price and it doesn’t take much to make your home appealing to others. 

The inside of your home should ready to show, as well.  This is a little trickier, as you are living in the home at the same time you are trying to sell it.   A good idea will be to ask your Agent what you should do to the inside of your home to make it more attractive and stage it for potential buyers.  This process may be a simple as de-cluttering your home of personal items or a complete make over.  If you are person that has collectables and like to display them for your family and friends you might want to pack those away to make the house look less busy.  You have to remember that you are not showing your house off with all your things, you are trying to sell it without your things in it.  Homes always look better without personal affects in plain view, so take down your family pictures and collectables and pack them away for your next home.  Look in the kitchen, all those appliances that you love to cook with that you leave on the counter, store them away, you probably don’t use them every day anyways.  Bedrooms, probably the hardest thing to keep show ready, but it is important.  You should get in the habit of putting your clothes away every day, go to the kid’s rooms and get those clothes of the floor every day.  Again, take down personal affects like pictures and fill in holes in the walls, paint them if necessary.  Potential home buyers want a “fresh” feeling when they walk into a home that they are planning to live in, so get rid of anything that is not essential, remember you already made the decision to move so start the process of packing your stuff you don’t need.  Clean the windows, that may sound obvious, but you would be surprised that is one of the most overlooked items.  People want to see though clean windows even if the view is of the house next door.  If you don’t feel comfortable “staging” your home, ask your Agent, or call in a professional stager and they can be honest with you on what you should do.  It won’t cost a lot of money preparing your house to sell, it will mostly take your time and energy.  It is worth it I have seen houses sell for top dollar by just cleaning up and make a house feel “fresh”.

Now when it comes to marketing your home, your Agent will most likely have that handled.  Your Agent will, at a minimum, put your home into the Multiple Listing Service (MLS) so other Agents can see it is for sale.  At MAE Capital Real Estate and Loan we will not only do that for you but we will build a personal website for your home and syndicate that website to over hundreds of different search engines like Zillow, Realtor.com, Homes.com, Trulia, Redfin, and many others.  In addition to that, we will make sure that we have an open house schedule pre-set, if you want those.  Putting a plan together is very important to do upfront so you know what is happening at all times.  You should also be pre-approved for a price on your next home, so you can plan you transition smoothly.   You will also need to know what you will “net” from the sale of your home, so you know how much money you have to work with for the purchase of your next home.  These are the necessities to know when you are selling a home.  Without the proper guidance, your ignorance could cost you thousands of dollars.

This article may have brought up things that you may not have thought of and I hope this has helped you with the rationalization of having proper representation when selling a home.  Over the last 30 plus year I have been in this business I have seen sweeping changes to the industry.  In the last 7 years alone I have seen more changes than all the other years combined.  So if you have sold a home by yourself in the past and think you know how it is done, you may need some help to know the new laws.  There are also potential buyers out there in today’s world that would love to prey on unsuspecting sellers.  I have seen this happen too many times where I have had to come in and fix a big mess at the seller’s expense where that could have been avoided from the start and they potentially could have sold their home for more money and less costs.   So we would love the opportunity to give you a free value estimate of your home and show you how to sell your home.  If you are looking to sell your home please talk with one of our qualified Realtors.  Call us today at 916-672-6130 or click here to email us your questions.

 

Posted by Gregg Mower on March 15th, 2017 11:38 AM

The Federal Reserve has raised the Federal Funds rate by 50 basis points or .5% last year 2016, so what does this mean?  Although the Federal Reserve does not control interest rates on homes, it does control interest rates that banks lend to each other called the Fed Funds Rate.  During the same period interest rates on home loans rose by 50 basis points as well.    The policy of the Federal Reserve Bank has been to use interest rates to quell inflation.  This policy started back in the mid 1980’s with Paul Volker as Fed Chairman.  The concept or policy is that if the Central Bank (the Federal Reserve Bank) senses that inflation is threatening the economy interest rates are raised to slow the flow of money thus keeping inflation at bay.  This has been the Fed’s policy and it has been working, for the most part for the last 30+ years.   The question should be asked if this should be continued or modified as our economy has gone more global than ever before and coupled with a National debt over 20 trillion dollars, does this policy still work for the American economy?

Let’s first look at what the effects of higher interest rates are in the American economy and then what it presents to a worldwide economy.  In America in a higher interest rate environment it becomes less desirable for large projects to start as the higher cost of the money will have impacted the profitability of the project.  For example; if a large development project is evaluating the costs to build and what the profit margin is going to be at the end of the project the cost of the money to complete the project will directly effect profitability.  I addition, if they are going to borrow money at say 6% and the interest rates rise to 6.5% on a $100 million financed the difference in annual payments would be $500,000 a year.  As you can see this dramatically impacts the profitability of the project.    So, in theory, less projects will start in a higher interest rate environment thus less employment and less money flowing into the economy to push prices on goods and services higher.  So, what you get is a general slowing of the economy under this theory that has been used by the Fed for the last 30+ years.  What higher interest rates do to potential home buyers is cut the buying power for potential home buyers.  With a .5% rise in interest rates the buying power of a home buyer will decrease by $30,000 on the average.  So, with the new interest rate being .5% higher a potential home buyer will qualify for $30,000 less of a home.   This combined with slower job growth from large projects not starting will slow the economy thus inflation. 

Now what happens worldwide when America raises interest rates?  This is the part of the equation that I believe has not been fully evaluated by the Federal Reserve system.  It used to be if America raised rates other countries would follow thus keeping the dollar on par with other currencies around the world.  Also, our debt was believed to be under control back then so other countries would just follow America’s lead.   What has happened, and has not really been taken into consideration from our central banking system, is that more outside countries hold our debt and more outside countries have joined the European Economic Union, that did not exist in the 1980’s and some important countries have now left that as well.  China has become a superpower as well.   All the while, in America, our basic concepts of raising and lowering interest rates to the effects of our economic numbers has remained the same.  My question to the Federal Reserve would be why have you not changed with the times? 

With my degree in economics I have used these concepts to anticipate interest rate movements for the last 30+ years and I have been pretty accurate over the last 30+ years in doing so just from knowing these basic economic policies of the FED.    I have also observed over the years that the numbers that the Fed uses to predict inflation have become more abstract than ever before.  The Federal Unemployment number has been the bench mark for the Fed's analysis of interest rates and when to raise them.    The unemployment rates, traditionally, show the percentage of people that are collecting Federal unemployment.  The theory has been that if unemployment is low, under 6%, then America has been deemed to be in a healthy economy with a higher probability of inflation.  Remembering that the concept of inflation is that if people are making more money they are spending more money thus putting upward pressure on prices of goods and services or inflation.  The Fed has consistently used the unemployment number as a barometer of future inflation.   Problem is that since our recession of 2008-2011 these numbers have not been accurate and the actual term or length of unemployment benefits that an out of work worker can get has gone up to 99 weeks from 26 weeks.  What we have seen that, since the recession is people have gone back to work but at a far less wage then they had prior to the recession.  This lowers the unemployment number but is not an accurate depiction of how that same worker may spend the wages they are now receiving.  We have also seen a shift in family dynamics with one spouse staying home with children to combat the high costs of day care, thus taking that person out of the unemployment number entirely.  So, although we have seen a significant decrease in the unemployment number we have not seen family incomes rise to the pre-recession levels and we have not seen the kind of inflation that should happen under a full employment economy. 

With a rise in interest rates over the last few months we have seen the refinance market slow to levels that were pre-recession.  It appears that most people have been able to refinance to the lower interest over the last 6 or seven years so the demand to continue to refinance has diminished.    With higher interest rates it has become less attractive to refinance.  One of the consequences of the higher interest rates is that the flow of income slows to the lending industry and will eventually lead to layoffs in the mortgage industry as it has been a strong market for so long that lenders have staffed to fill the old refinance volume needs and now with less volume they don’t need the staff.  These folks will increase the unemployment number by May or June of this year as there is always a time lag when there are changes in the economy, hopefully the Fed does not do another increase in the meantime as that will lead to more layoffs.   Although rates have risen interest rates on home loans are still in the 4’s which is still great, so if you have not refinanced and your current rate is in the high 4’s or fives, or if you need to take cash out of your house to pay for bills or college there is still time to lock into a good interest rate. 

I am just scratching the surface with regards to the factors effecting interest rates and inflation in this article.  I am a believer that in a global economy and the changes that have taken place over the last 30+ years we should be looking at interest rates from a different set of rules.  Our Government has traditionally been reactive to changes in the economy as opposed to being proactive operating on a policy of ”it works until it doesn’t”.  The result is government intervention to fix it, which has never worked and just has put America further into debt and burdened with a larger government with more and more government agencies than ever before.  I don’t want to get political here but what has made America an economic superpower in the past was that people were free from government intervention to create new ideas and new products and services.  With this freedom came the knowledge that if you fail, big or small, no one including the government would bail you out.  This has changed radically with people looking to the government for solutions where they should be looking to themselves and realize that win or lose it is up to the individual to make things right, not government.  We need to become more self-reliant than a dependent society.   These factors also need to be factored into the Fed’s analysis of inflation and how to combat it.  

So if the current Federal Reserve policy is to use the unemployment number as the main factor in determining whether or not they should raise interest rates we will be heading into an economy where we will see higher volatility with interest rates and the economy as a whole.  With the Fed and Janet Yellen (Current Fed Chairperson) looking to raise interest rates again this year we will be looking to an economy that might be cooled off too much.  Some inflation in a healthy economy is not a bad thing so long as wages can keep up with it.  We can look too see home refinancing slowing down this year with the higher interest rates and hopefully home purchases don’t slow too much as that could put America right back into a recession.  It is a balancing act for the Fed to change rates as they really don’t know what  the end effects will be and if they have gone too far.   As always this is just an opinion of a guy who has been in the mortgage industry for 32+ years and if you wish to comment feel free and if you have not refinanced we would love to assist you with that at MAE Capital Real Estate and Loan.  You can call our offices directly at 916-672-6130 or email us at info@maecapital.com.  

Post Script 3/20/2017  The Federal Reserve (The Fed) raised the federal funds rate by .25% which was anticipated by the markets.  Since the Markets liked the only .25% increase the DOW Jones rose to new highs.   The important part of the announcement was that they would be monitoring the unemployment rate and inflation throughout the the year and if they see any increases in inflation and significant decreases in the unemployment number they would then raise rates again.  We can only hope the Fed doesn't raise rates anymore or it could significantly reduce the availability of housing and affordability.  Key indexes that you need to watch to see if there is any inflation; one the stock markets, as this will increase wealth of individuals and they may pull it out and use the funds to purchase other items that could cause inflation.  Watch the unemployment numbers and watch them per the season, as spring and summer should have seasonally lower unemployment but not too low where there is a higher demand for workers than there are workers to fill the demand,  I don't see that happening but that will cause inflation.  I see a steady healthy growth during the year if rates are not increased anymore.  

Posted by Gregg Mower on February 21st, 2017 1:35 PM

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