Monday, April 29, 2013

Customer Reviews for Bill Rayman Home Mortgages

Before You Choose a Mortgage Broker, See What Folks Are Saying About Bill Rayman

Dear Bill,

Thank you so much for all you help with purchasing our new home.  WE LOVE IT!  As new home buyers, we particularly appreciated your patience in finding us a great loan.  We hope to keep in touch, as we intend to send friends and family your way.  You really know how to take care of yiur clients.

Thanks Again,

Candis and Brian

Dear Bill,

We never used a mortgage company before.  We always went directly to the banks.  We were concerned about having two loans simultaneously with lenders and had a short escrow period.  We felt that if we use a mortgage broker we would not be faced with unexpected surprises later in the paperwork processing as sometimes happens with banks.  But Mortgage Capital went to bat for us when a final hurdle appeared.


Comment Cards

Ricardo   -   Plain honest talk

James  -  Very professional.  Much superior to our experience with some competitors.  I have recommended you to three friends and will continue to do so

Julie  -  Careful, thorough, helpful, friendly

Dodi  -  Very straightforward, responsive

Joe  -  Did what he said.  Said what he did.  Great follow up on the whole process

Allan  -  I thought your follow up was terrific

Gary  -  Provided timely responses and was very courteous and effective

Charmaine  -  Went beyond what I expected - really tried to help me refinance

For more testimonials from professionals that work with Bill all the time, please see his Linkedin profile at

Do you have experience working with Bill Rayman in any capacity?  Would you like to add your thoughts in the comments below.  You can also do reviews on Google+, Linkedin, Yelp or other review sites. 

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Friday, April 26, 2013

Mortgage Industry Broken - Will Congress Fix it?

It seemed an easy fix to prevent the excesses of the housing market: make home buyers put more money down.

But as the housing market starts to return and the subprime mess fades from memory, the issue is up for debate.

As one letter to the editor responding to the New York Times article quoted here notes below, this issue is only up for debate by those who believe the government should be involved in setting minimum down payments at all.  As you read the following article, note that a supposedly knowledgeable reporter makes not a single mention of PMI or private mortgage insurance.  It would seem even the government should be okay with private insurance companies taking the risk of default on loans below 20%.  Interesting, too, is that virtually none of the letters to the editor dealt with PMI either.  Go here to see the full story and all the letters if you like.

I have quoted extensively from the New York Times Article:

Down Payment Rules Are at Heart of Mortgage Debate By  Peter Eavis

Lenders and consumer advocates — rarely on the same side of the issue — are now cautioning against down payment requirements. They argue that such restrictions could limit lending, and prevent lower-income borrowers from buying homes. They also contend that the new mortgage rules put in place this year will do enough to limit foreclosures, making down payment requirements somewhat superfluous.

The arguments seem to run contrary to long-standing beliefs about homeownership. For decades, experts have emphasized the need for a sizable down payment — a rule of thumb being 20 percent — on the premise that borrowers with a sizable chunk of equity in a home are less likely to walk away when things get bad.  ...
The issue may not be so black and white. Regulators want to protect borrowers and promote homeownership. But they also want to encourage lending and insulate the financial system from future shocks.
... said Roberto G. Quercia, director of the Center for Community Capital at the University of North Carolina at Chapel Hill. “There’s a lack of perspective.”
To underscore his point, Mr. Quercia studied mortgages in a special program for low-income borrowers, typically those with minimal down payments. From 1998 through the end of last year, 5.5 percent of the mortgages ended up in foreclosure, he found. Subprime mortgages made during the last housing boom, regardless of down payment size, had far higher foreclosure rates, roughly 25 percent.
It is worth interrupting here to note that the 25% default was the result of many issues other than the low down payments. 
. . . The proposed rules require banks to hold a slice of the mortgage-backed bonds they sell to investors. Banks do not like those types of restrictions. 
But lenders would not have to keep a piece of the bonds if the underlying loans included features that made them less likely to default. These exempt loans would be called qualified residential mortgages. Regulators effectively proposed that these loans should have a 20 percent down payment.
The proposal prompted widespread objections from consumer advocates, bankers and home builders, who said the plan could shut many borrowers out of the housing market. Banks, they argued, are likely to focus heavily on making qualified residential mortgages. And if those mortgages require high down payments, lenders will be hesitant to make loans with little money down.
Consumer advocates make a nuanced case. They do not deny that down payments reduce the risk of default. But they say defaults can be reduced almost as much by applying other rules that curb lending to certain types of borrowers.
Consider another set of mortgage rules, already put in place this year. These rules emphasize the affordability of the loan. Under them, a borrower’s overall monthly debt payments cannot exceed 43 percent of personal income.
In his study, Professor Quercia of the University of North Carolina found that loans that complied with those rules defaulted at a relatively low rate during the housing bust. About 5.8 percent of them went bad, irrespective of how much the borrower put down.
He then calculated the losses on loans to borrowers in the same group who had down payments of at least 20 percent. The default rate on that smaller group was lower, at 3.9 percent.
But that lower rate came at a cost. More than half of the borrowers in his study group had to be excluded from the second calculation, because they didn’t have down payments of 20 percent or more. This shows how restrictive a down payment rule could be, said Professor Quercia.

. . . Supporters of a down payment requirement also make a broader argument. They point out that the financial sector overhaul was not just meant to protect borrowers. It was also intended to make banks and financial markets more resilient to shocks like housing busts. In other words, the legislation always envisioned a trade-off between homeownership and the stability of the financial system.
“The key is what is the right balance between some risk and access,” Professor Quercia said. “Just looking at the risks is one-sided.”
Some of the best of the letters that followed the article:  

    •    Concernicus
    •    Hopeless, America

A lot of talk about down payments, debt to income, etc... and no mention at all of the basic credit score or rating. I would much sooner loan money to someone with 10% down who always pays their bills on time than loan money to someone putting 20% down who is a slow payer.

Give me an honest worker who pays on time, all the time, over a high roller with a big down payment and a lousy repayment history.

    •    April 24, 2013 at 5:44 p.m.

    •    Willie
    •    Cincinnati

The article was not informative. There are too many key variables missing.
- first time buyers versus second time & more?
- 0, 5, 10, or higher percentage down payments or equity?
- 25, 35, 45 % of income or even higher, against a full PITI?
- no teaser rate or balloon?
- if ARM, what terms and any yearly or lifetime caps??
- and reason for foreclosure: unemployment, divorce, poor money skills, medical?
    •    Hard Choices
    •    connecticut

When I first went to buy a house in the mid 1990s, the rule of thumb was that one could afford a house that cost no more than three times one's annual income. You had to put down 10%, and pay PMI until you had 20% equity in the property. One couldn't get a larger loan because that was all one could afford to pay! If you don't have enough secure income to pay the mortgage, and don't have enough down payment money so that it will be less likely that you will wind up "upside down" on the mortgage should the market drop a bit, you can't afford to buy a house! And if that means that you'll have to raise the kids in a rental, so be it. Maybe it means that you can't afford to live in the SF Bay area, or NYC, or Boston. Maybe it means that you need to live in the Midwest, if you want to buy a home. Better that than all these defaults, and all these families living "house poor".

Where do you stand on the issue?  Do you believe it is prudent to let the financial and insurance industry set the limits regarding income requirements and down payments, or do you think the government should set strict rules?  What effects would you expect from each choice?
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Wednesday, April 24, 2013

Should You Buy a House to Flip - "Flip or Flop" HGTV Program Explores

New HGTV Show “Flip or Flop” Premiered This Week 

As we noted here a few days ago, in this crazy real estate market you may want to try and find a fixer-upper.  You might do that as a way to get yourself a nice home for cheap.  Or you may do it for a quick flip.  So enters a new reality show.

First off, the show “Flip or Flop” opens up with scenes from coastal Orange County, Calif. so already viewers feel like they’re going to be privy to a soap opera. Enter a beautiful young couple dabbling in the business of buying and renovating houses for a profit, a practice known as “flipping.” It’s the perfect setting with likeable characters and lots of house flippin’ drama!

But the show can also be a great learning experience for those considering a home renovation or buying a home they plan to renovate for their own use.

Condensed into a 30-minute show, each home renovation goes through the typical highs and lows. The debut show opened with the couple teaming up to check out the house they want to buy at a government auction and heading to the auction without a minute to spare - and without seeing the indoors or backyard of the home they want to buy.

After winning the auction during competitive bidding, the new owners make their first thorough inspection and discover the home is trashed, has illegal additions and features a pool that’s become a musty swamp for tadpoles. Their initial estimate of a $25,000 renovation soon turns into more than $70,000, threatening to wipe out any profit.

“This is a nightmare!” the new owner exclaims at one point in frustration. “This house is a disaster.”

Lessons learned:

1. Don’t buy a nightmare house! You should seriously consider how much money, time and energy you want to invest in a house loaded with problems. Remember that a reputable contractor can help you determine the cost and scope of a total renovation. They can walk you through existing and potential problems and tell you how they would tackle these.

2. Do consider buying a lower priced property that needs a renovation but could become the perfect home for you with the right fixes. Sometimes, it is better to buy a home that needs a renovation rather than buying a higher-priced home that does not need a renovation, but doesn’t fit your likes or needs.

3. Carefully consider your renovation and design choices and make sure you know what you want before it’s too late to make changes. You could get stuck with something you hate. In a second episode of “Flip or Flop,” the couple chooses a new paint color for the exterior of the home based on a few brushstrokes of paint samples that they paint themselves. After the whole house is professionally painted, the couple then stands in front of the house, looking agape at the unappealing muddy brown they chose. They had thought it would be lighter. They end up spending an additional $2,000 to have the house professionally painted a different, lighter color.

4. Admit that there are areas where you are clueless and need the advice of a professional. The “Flip or Flop” couple hired a home designer who helped them envision how structural changes could modernize a home.

5. Take a chance on a home that may be less than perfect. The “Flip or Flop” couple ended up in the black (we won’t say by how much) in both of the first episodes, but the renovation process for both houses was quite patchy at times. Best of all, both homes found buyers who were thrilled with their newly renovated home.

New Contact Information for Bill Rayman

Bill Rayman Home Mortgage

12121 Wilshire Blvd
Suite 350
LA CA 90025


Mortgage Los Angeles Offical Website   

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Monday, April 22, 2013

Buy A Home with 5% Down - Low Down Payment Loans on the Rise Says

Refinance Up to 95% and Lower Your Interest Rate

Have the banks returned to the go-go days of 2005?  No.  The simple truth is that the banks are not the ones taking the risk on these 95% loans.  You pay a Premium Mortgage Insurance Company to insure the difference between 80% and 95%.

You may be more familiar with FHA loans which do exactly the same thing.  In fact, the FHA will provide you with insurance to cover up to 96.5%.  Seems like a better deal.  But it isn't necessarily always the best deal.  The FHA requires you to pay that fee for 5 years, where private PMI companies only require two years.  On the other hand, the FHA accepts the banks appraisal, where private companies often run their own.  Sometimes the PMI appraisal comes in lower, which might get in the way of doing the deal.

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YOU CAN Buy a Home or Refinance with Only 5% Down in 2013!  Use PMI instead of FHA to save money.

A knowledgeable mortgage broker working with an excellent lender usually knows how best to get a deal done.  We can help you, since our resources for lenders is huge.

Over the last dozen years, I have helped hundreds of individuals and families:
♦ Get a mortgage for their first home
♦ Refinance a mortgage to provide a college education, a kitchen remodel, or to consolidate debt
♦ Lower the cost of a mortgage through better terms, interest rates, or both
♦ Find the lowest cost mortgage possible
♦ Invest their capital in outstanding residential rental properties
♦ Who are credit challenged find ways to fund a mortgage
♦ Investigate arcane and complicated legalities dealing with foreign buyers, trusts, and more
♦ Creatively acquire a mortgage with low down payments through an FHA mortgage loan
♦ Save money by using private premium mortgage insurance

Since I am a mortgage broker, I am beholden to no bank. And while I am associate with a lender who underwrites most of my clients' mortgages, I have also worked tirelessly to find markets for mortgages that other lenders have no knowledge of.

I have made myself available as a speaker to civic groups who are interested in getting the most up-to-date information possible on every aspect of mortgages. And if I don't have the answer today, i have an iPhone full of contacts that can get me the answer. ►► If you need a speaker for your meeting, please call. I will be delighted.

I have also developed relationships with tax experts, CPA's, wealth managers, realtors, lawyers, and other professionals who are expert in their fields. This helps my clients to have confidence that every aspect of their transaction is being handled by outstanding practitioners.

♦♦♦ My mortgage consulting is totally FREE! There is no obligation to call and get your mortgage questions answered. Whether you want the current rate on a 15 year fixed, or you have a complicated trust issue, I'm here to help you at no cost. ►► 310-295-6213

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Friday, April 19, 2013

No Such Thing as a Free Mortgage Loan - Don't Get Suckered

Loan Fees Have to be Paid.  Their Cost May Be Buried, but You're Still Paying These Fees

As a mortgage broker and a mortgage banker, there's no easier way to market myself than to call somebody up and say, "I'll give you a no cost loan. You'll sign some papers, it's not going to cost you anything.  We'll be able to lower your interest rate, and you can save some money."

Sounds great.  It's fun to market something that’s FREE.  But in this fantasy conversation, I would then spend a little time with my clients and friends, and point out to them why I think that a “no cost loan” is a bad idea.  Remember the adage that we all know that there's no free lunch.?  I believe this is true about mortgage loans.  It's certainly true here in California, but probably in every state in the country.

If you're going to do a real estate transaction, there are certain third party fees that must be paid. You must have:

    •    an appraisal,
    •    an escrow company handle the transaction
    •    title insurance
    •    the deed recorded by the county
    •    the mortgage notarized.

The people and companies that do this type of work are not doing this for free.  Someone is going to pay them.  If you go to a bank or broker and they offer a no cost loan, I guarantee you that bank or broker is paying those third parties those fees.  The bank or broker isn't doing it because they like you or because they're offering a no cost as a way to get you in the door.  They're doing it because they are going to make money, a profit from the transaction.

Paying the Loan Fees in a Higher Interest Rate

 The only way they're going to make money if they've laid out a couple thousand dollars for these fees is to make it on the interest rate.  If it's a bank, higher interest rates means higher payments, and they make it back over time.  The point is, you shouldn't be concerned about how they're going to make their money back, it's how you're going to pay for it.  And you're going to pay for it in a higher interest rate. That higher interest rate means that you're going to pay something more per month in every monthly payment, and that's going to add up over time.

If you get a no cost loan, your interest rate, which I am estimating based off of today's market, on a $500,000 loan for a 30 year fixed rate mortgage, is around 3.6%.  If you want a no cost loan, that rate might be 3.8%.  It's not a huge difference.  The difference in payment in $500,000 could be about $30 a month. The transaction cost for doing a loan like that here in California will run about $3,200 or $3,300, between the escrow and the title insurance and the appraisal and the bank fees. That $3,200 is absorbed by the bank or broker when you do the rate at 3.8%.

So the analysis you want to do is, is it worth my paying $30 more per month, to save $3,200 today. Simple division, that's around 90-100 months worth of payments.  That's 8 or 9 years worth of a loan. Are you better off having $3,200 in your hand today which you could invest, and pay the extra $30 a month?

Sure. But what if the numbers came out so that the money you're giving back to the bank, you'll wind up giving back to them in 4 years?  It's a different scenario.  Now maybe it's not so great having a no cost loan.  You'd be better off locking in the lower interest rate, because over time, it's going to make sense for you.  If you're looking at a 30 year loan, you should really only be looking at that product if you're thinking of holding a loan for 8, 9, or 10 years.  Otherwise, there is much better products out there for you.  So thinking long term, the lower interest rate might always turn out to be a better deal.

Here Is a Better Way to Handle Transaction Costs

Then, there is one other way to handle the transaction costs, and this is the way that I find almost always is the most sensible for someone. Rather than pay the cost in cash, rather than have the bank pay your costs and you have to have higher interest rate, and assuming you have enough equity in the property to allow this on the loan, I would say take those dollars and add them to your loan amount so they're amortized over the period of time.

Using the cost again of about $3,200 dollars, and your interest rate is in the mid to high 3's, let's say that costs about $17 a month. Paying the higher interest rate was shown to be about $30 a month. Potentially you're better off adding the money to your loan amount, because even though your loan amount might now be higher, your payment will still be lower, and over time.  That lower interest rate is going to save you a tremendous amount of interest costs.

Most everyone you talk to understands that a loan is amortized and that each payment is going to have a portion of principal and a portion of interest. Over time, they're going to cross. You will pay more principal each payment, and corresponding you will pay less interest each payment. What most people don't appreciate is that the lower the interest rate, the greater the percentage of the principal you pay from the get go. So if you have an interest rate of 6%, your first payment might be about 35% principal and 65% interest. If you have an interest rate of 3.5%, you're probably paying about 60% principal and 40% interest. Having a lower interest rate isn't just saving you interest, but it's forcing more of your dollars to go to the principal from the get go.

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Wednesday, April 17, 2013

Construction Loans May Be Your Best Option in 2013

How to Finance a Major Remodel Using a Construction Loan

In the real estate boom years of 2000 - 2007, many homeowners and investors were pouring money into existing homes and residential investment properties.  In some cases this might have been a refresh costing $25,000 to $100,000.  In other cases owners were adding rooms, 2nd floors, and even creating mini-mansions.  There were plenty of lenders happy to provide 2nd trust deeds, total refinance packages, or home equity loans (HELOCS) for these types of construction projects.

Things have changed.  Now there aren't very many lenders offering them, but they do exist.  I do them now with increasing frequency.

For instance, a home equity line of credit works this way.  Banks will give you a second loan on top of your first loan, particularly if you're using that money to fix up the home.  They will do this because you are improving the home, which improves the value, and that's increasing the collateral, which is what the banks is lending against.

Construction Loans Are a Great Way to Finance a Major Remodel

But in today’s market, it is sometimes hard to find banks that will lend you money against some future value of the home.  The other way to approach this is a construction loan.  Construction loans are great.  Here’s how they work.  Lenders doing construction loans appreciate that when you do a major remodel the property is going to be worth more when it's finished.  The banks are looking for something you rarely hear in this market any more... future value.  They will lend against some future value.  They will provide the money for all the construction.

One of the great benefits to a construction loan is that during the construction period the bank will typically lend at a rate lower than your lowest 30 year fixed.  The loan repayment during construction is an interest only payment, so your payment is actually probably going to be substantially less than your current mortgage payment on a smaller loan.

After the construction period the banks are happy if you want to refinance, but most often you don't even have to refinance.  The loan can be set up to automatically roll over into an ARM or into a fixed rate mortgage, and you carry on.   It's a great deal, and a few banks are doing it. They're not for everybody, but I recommend them.

New Contact Information for Bill Rayman

Bill Rayman Home Mortgage

12121 Wilshire Blvd
Suite 350
LA CA 90025


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Monday, April 15, 2013

Mortgage Choices Often Emotion Driven - Here Are the Cold Hard Facts

English: Mortgage debt
English: Mortgage debt (Photo credit: Wikipedia)

Mortgage Choices Are More Often Informed by Emotion Than Financial Analysis

Are you risk averse, or do you love to draw to inside straights?  We are all blessed with different personalities, different circumstances in life, and different life lenses that effect how we make decisions.  In the realm of financial decisions, our emotional response to risk often colors our decision as much or more than the cold, hard financial facts.   That doesn't mean that the emotion isn't correct. In fact, I think the emotion trumps any of the financial issues.

But my goal as a mortgage broker and consultant is to give you a complete understanding of how all of these numbers fit together so you can make an informed choice.

For instance, many people call me and say they want to get a 30 year fixed.   They want to put 25% down or even a larger down payment, because they want to make small monthly payments. I understand that.  They may fear that somehow having mortgage insurance or having larger monthly payments is a bad idea.

The Cold Hard Mortgage Numbers Provide Surprising Results

I'd like to draw that back and show that the numbers indicate differently.   Not only is having a larger payment and even paying mortgage insurance not a bad idea, but arguably is a very wise thing to do. What many don’t consider is the concept taught in every business class and business school.  I know I had to hear it repeatedly at Wharton.  The concept is known as “opportunity costs.”   If you invest your money in A, there's an opportunity cost arising from the reality that you don't have the money for future purposes, either to spend, or to invest in B, C, or D.

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Large down payments result in lost opportunities to invest that money in alternate opportunities.  

I'll use a real life example of a client who recently bought a four unit building here in Los Angeles with a purchase price of $1,200,000.  They can move into the building and live in one of the four units rent free.  They are faced with choices.  Because this building will be a primary residence, one of their choices is to put as little as 3.5% down, which is $42,000, and get a government insured loan by the FHA.  You can also get low down payment loans through private sources with as little as 5% down on most transactions, and get private mortgage insurance.  In general, private mortgage insurance is about 20%-25% the cost of an FHA insurance.

FHA charges you up front; private mortgage insurance doesn't. FHA charges you a much higher per monthly fee than private mortgage insurance.  And FHA mortgage insurance will stay on your loan for at least five years and potentially longer.  With private mortgage insurance you can get rid of it after just two years.

These guidelines change, and private mortgage insurance won't do every kind of transaction, whereas the FHA is much more generous.  However, the concept is the same. You put down very little money and borrow much more.  Mortgage insurance is an expense.  It's even arguably an odious expense. It does, however, let you accomplish a great deal more with your money than without it.

Now back to the specific situation, my client is buying the four unit building, living in one unit, paying the cost of $1,200,000.  We examined the option of putting 25% down, which is $300,000, and he would have a mortgage of $900,000.  The $900,000 loan with an interest rate on a 30 year fixed is currently about 3.875. No mortgage insurance.  The client would have the same payment each month for the life of the loan. Somewhere on the order of $5,800/month.

We then contrasted that to doing an FHA loan.  The FHA down payment is $42,000, or 3.5%.  So he would be borrowing $1,158,000.  The cash left difference between the two down payments would remain under the control of the client by using FHA and equals $258,000. That's a key figure to keep in mind. With the FHA insurance, he's getting a lower interest rate of about 3.25%.   He'll have mortgage insurance, which is quite expensive on that particular transaction. He's going to be paying a little over $1,200 per month for the mortgage insurance, and he'll pay that for five years.

So when you get done taking into account the higher mortgage payment, based on a higher loan balance and the mortgage insurance, he's paying roughly $7,900 per month. If you look at these side-by-side and I say "would you rather pay $5,800 a month or $7,900 a month?"  You look at me and say it's a no brainer.   For now, we will not consider the tax advantages and tax effects.

However, here's why the analysis goes the other way, financially speaking.  We now looked at what else he could do with that $258,000 cash that was not used for the FHA down payment.  That's the opportunity cost

What can he do with that money?  For many people, investments in today's markets aren't so great.  You can get a CD, pays about 1% per year. You can buy some tax free bonds and be in the 2 or 3%. But by working with a financial adviser you are likely to be able to get a very secure investment that's paying 3% - 4%.

Return On Investment at 4% on Money Not Used for the Down Payment Is Outstanding.  What about 8%?

To fully investigate this alternative approach it is critical is to think down the road.  You're looking at a purchase with a loan that's a 30 year term.  Today, investment returns maybe aren't that great, but the economy is still in recovery mode.  A few years down the road, certainly statistically, one could expect to be getting interest rates of 7% to 8%.

But let's deal with a more conservative approach.  My client takes that $258,000 dollars and puts it into a safe investment and makes 1% a year. We looked at five, ten, and fifteen years down the road. In15 years, if you compound interest that $258,000 at 1% one time per year, that money is going to grow from $258,000 to $299,000, which is not that impressive.  The compounding is where the
English: Albert Einstein Fran├žais : Portrait d...
English: Albert Einstein Fran├žais : Portrait d'Albert Einstein (Photo credit: Wikipedia)
impressiveness comes in. To paraphrase a famous quote from Albert Einstein, "compound interest is the strongest force in the universe."

We looked at every interest rate from 1 percent up to 12 percent.  Finally we used a very conservative number of 4%.  His $258,000 after 15 years compounded once a year at 4%, is $464,000.  What we're looking at, finally, is putting $300,000 dollars down to get a $900,000 mortgage and not having money in the bank, or putting $42,000 down, getting a loan of $1,158,000, and sticking $258,000 in the bank.  in 15 years, that's worth $464,000.

in 15 years the first loan with 25% down will now have a balance of only $577,000.  That's pretty good. Contrast that to the FHA secured loan.  At this point the mortgage insurance will be long gone, and at the end of 15 years, you still owe $727,000.

If you just looked at the two loans, and I said, “Would you rather owe $577,000 or $727,000,” of course $577,000 is $150,000 better.  That is until you subtract the estimated $464,000 sitting in the bank.  If you just took that money and applied it to your FHA mortgage, that $727,000 would come down to about $260,000.  Now, do you want to owe $260,000 or $577,000? The numbers swings way in the other direction with just a 4% average interest rate compounded annually.

Additionally, I think the 4% is probably too conservative. If you look at the stock market (granteding that on any given day or year it flutters), over a long period of time, and by long period I mean 30 to 40 year terms, the stock market, on average, has been returning 8.5%.  If you were to take that $258,000 dollars, stick it in the stock market and let that grow, and if you were lucky to get the stock market return of 8.5%, that $258,000 is going to grow into $877,000 in 15 years. You could just pay off your mortgage at that point. Plus, you have had easy access to those funds the entire time.

Benefits to Having Readily Available Cash Rather Than Having Your Cash Tied Up In Equity in Your Home

Often families have a need for cash.  If it's in your house, it is harder or sometimes very hard to get it. Having cash in more accessible investments not only allows you access to it for emergencies or college costs, but you might have another investment opportunity.  Maybe you want to buy another property, maybe buy into a business, or put money into and existing business. Your cheapest source of capital will be your own.

In other words, the analysis of which is a better deal shouldn't be solely based on which one is the lower monthly payment today.  In fact, if you don't mind doing a little extra stretch each month, based on this argument, you'd be better off paying the higher monthly payment of $7,800; and if you have to go to your bank every month and get $2,000 out of your cash reserve just to be equivalent to the $5,800, you could do that.  You're still going to be better off based on these numbers.

Equity in Your Home Provides You with 0% Rate of Return

Here is another related argument for not putting so much down if you don't have to. There are circumstances where you are required to put down 25%, or if it's an investment property, you might have to put down 25%.  Putting money into your principal feels good, is good.  That's the basis of a 30 year loan.  Every month you're forced to put money and it sits there.  At the end of 30 years, you have a nice windfall.  However, from a strictly financial point of view, putting money into your house is a “zero rate of return on your investment.”  Why is that? It sounds counter intuitive.

It's because putting money into your principal doesn't affect the value of your house.  Your house value is entirely derived by the marketplace.  I've never had a client yet, either buying his house or selling a house, that asks the owner of the current house, "How much do you owe on it?"  If the house is worth $612,000 because that's what the market is going to pay for it, it doesn't matter whether the owner of that house owes the bank potentially $612,000, or they owe the bank nothing because they own it outright.

In either instance they own that house.  Whether they put in zero and owe the bank $612,000, or they've been paying principal and they've worked it down so they owe less, the value of that house is $612,000 because that's what the market says.  From a strict definition, putting money into your principle is a zero rate of return, you'd be better off in this scenario taking your money in a CD, where at least it's going to earn something.

The Emotional Decision May Still Be Best For You

These are just numbers. It doesn't mean that anyone should necessarily follow what the numbers tell you to do, or that it's the best decision.  It's your money, and like anything else with your money, how you spend it should not just be with an eye on what's a wise or valuable way to spend it, but by what's making you happiest.  In this case, part of the happiness is tied to what's making you the most comfortable.

There is a huge value to the 30 year fixed loan.  It's not going to change.  If you're not someone who wants to have to read the paper every day and read about what's going on in a European country that

some bank run is happening in Cypress, and it could trigger X, Y, and Z; or there's issues in Congress over what's going to happen to the budget and taxes and deficits, then the 30 year fixed means that you don't have to pay attention to any of those things.  Your mortgage payment is not going to change, and you know where you're going to be today, next year, 10 years, and 30 years from now.

Paying a Little Bit More for Peace-of-Mind

So what the 30 year fixed is doing is buying you peace-of-mind.  I just want you to understand how these numbers work so you can choose what's going to make you happiest.  For many I talk to, having peace of mind is great.  They don't want to have to worry about what's happening in Europe. They can go on running their bike shop, or working in their restaurant, or working for Sony, and turn their back on outside issues roiling financial markets, because they've got a great deal and it's done. So even though they're paying a little more for the 30 year fixed than they might otherwise be able to with investments, that difference they're paying is basically paying for peace-of-mind.  And I think that's worth every penny.

If you would like help going through this analysis on your possible purchase or refinance, give me a call and we can look at all the options available.   310-295-6213   Bill Rayman
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Thursday, April 11, 2013

Residential Real Estate Appraisals Are Potential Deal Killers for Sales, Mortgage, and Refinance

Skyrocketing Los Angeles Home Prices Make Appraisals Tricky

Curb appeal will effect appraised values

The market for residential homes in Southern California and other markets throughout California and the US is very, very tight.  Low inventories and historically low mortgage interest rates are creating buying frenzies.  Where a year ago, a new listing might sit for months without an offer, today a quality property in some neighborhoods might get multiple offers above the asking price the first day it is on the market. 

This creates a nightmare for appraisals.  If the most recent comp for your area is $40,000 less than the buyer just offered you, it may be hard to get an appraisal that will help the buyer secure a mortgage.  We help people through such situations with creative approaches, but you can help yourself by doing everything possible to increase the value determined by the independent appraiser.

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Nine Tips for Getting the Highest Possible Appraisal on Your California Home

What can you do to Help Maximize the Value of Your Appraisal?  Here is a list:
  1. Get your home inspection done before the appraiser comes.  You'll need to get it done anyway.  So better to have a professional give you some ideas ahead of time.  He may see things that you will need to do anyway or that you could do that will keep the appraiser from downgrading the home.
  2. Have you made any improvements, additions, or changes in the last five years.  Get out the receipts and make a list showing the costs associated with those changes.  
  3. Has there been any changes in the neighborhood.  A new school, shopping center, or road improvements.  These could all add value that the appraiser would be unlikely to catch.
  4. You might even want to ask the appraiser if he has done other work in your area.  If not, fill him in on what makes the neighborhood great.  If there are other homes on the market or recent sales, don't assume he will know about them.  Show him the comps you think matter.
  5. Clean up everything.  Clutter inside and outside.  Get a real manicure job on your lawn and landscape. 
  6. Take a half a day to do minor repairs.  Maybe you did this already to help sell the house.  But go check again.  Is there scuffed carpeting that you should remove, assuming hardwood or a good surface is underneath.  Touch up any pealing paint.  
  7. A good mortgage broker may be able to select the company he prefers.  Ask him about that.  In California the lender and appraiser can't have any relationship, but there are differences between the services.
  8. Treat your appraiser well, like you would any invited guest.  Try not to be obnoxious, overbearing or to much pushy.  But do sell him on the value.  Get his business card.
  9. Check the appraisal after it is submitted.  You can appeal.  
If you are your buyer or a friend or neighbor is in need of a mortgage, we are here to help.  Call for a no obligation consultation about any aspect of the process. 

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Tuesday, April 9, 2013

Is 2013 the Perfect Time to Buy Residential Income Property for Investment?

Sophisticated Investors Are Pouring Huge Money Into Residential Real Estate

In today's market, as we're coming out of the real estate recession, it's pretty clear that there's a consensus regarding these two things: interest rates are going to remain low, at least through 2013, maybe 2014; and home prices, which seemed to have been falling for years, seemed to have hit bottom and are starting to come up again. I think these two realities present two opportunities for people, and the sophisticated investors have jumped all over this.

Hedge funds, investment pools, and many very well healed companies and investors are buying hundreds and thousands of real estate pieces at a clip.  They've identified that housing has bottomed out, and they think that values will start to appreciate. This suggests that, if you're thinking about getting an investment property, this is a good time to buy one.

As an investor, you might be looking for cash flow.  You are seeking a property that after all the costs of buying and maintaining the property , which is say your mortgage payment, your property taxes, your insurance, any management costs you might have, and some repairs, you can get enough rent each month that you're in the black?  You have cash left over to pay for your own expenses or reinvest.

You might be happy even if you're breaking even, because you expect that over time the value of the property will begin to appreciate again. Real estate has been growing at around 2% a year when you look at it over 30 or 40 years.  If the investment isn't costing you anything and it's growing, it's a very logical thing to do.

Investors Are Also Back in the Fix and Flip Business

Most people who are buying a home or residential property as an investment do not want to spend time and money having to fix it.  They don't want to have to get contractors and plumbers and tear down walls, reroof, redo kitches.  It's a lot of work, it's high cost, and it's often categories of involvement that people don't have too much experience in.

But for the person who is willing to get a fixer-upper, I think that's, dollar for dollar, the best way you can spend your money. The typical example I'll use is a case that I'm working on currently.  It's a single family home, and it's not in good condition.  It definitely needs work.  It's livable, you could move in to it tomorrow, but you wouldn't want to.  It's a 1,700 square foot house on a 9,000 square foot lot.  In that neighborhood you're going to want to expand and make it a 3,000 foot house.

My client purchased the house for $890,000. They met with some architects and contractors, and they found for about $550,000, they can turn this into a much bigger, much more beautiful, modern house.  Plus, they can design the house so it really meets the high end homeowner’s needs.  Some people like big master bathrooms and big closets, some like big living spaces and decks. You want to have staircases on the second floor, you want to have a gazebo in the backyard.

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If you are willing to get a residential fixer-upper, I think that's the best way you can spend your money.

So they are going to buy the house for $890,000, put $550,000 into it for a total cost of $1,430,000. The lender that we're working with did an appraisal on what they believe that house will be worth roughly a year from now when the construction is finished.  In this particular neighborhood, it's expected the house will be worth $2,000,000.

So you can imagine a lot of people doing this right now are investors, contractors, or real estate developers.  They see the value of buying something, putting money into it and fixing it up, and having it be worth multiples of the investment. Flip it, and go out and do it again.

So rather than limiting yourself to thinking that you want to buy a beautiful new condo or a house where you can move in tomorrow, do what the investors are doing.  Look for something that needs a little more work, and put some time and energy into it.  You can move in and live in the house while under construction as a bonus.

Timing Is Perfect For Buying and Fixing Less Desirable Properties

As this post is being written in April of 2013, there are very few desirable properties on the market in Southern California, especially in the better neighborhoods.  As a result and nice home that comes on the market is getting multiple offers, almost without exception, and for some of those offers people are saying, "I'll give you cash, no appraisal, no contingency, we'll take it as is," because they're getting desperate.

On the other hand the homes that aren't getting multiple offers, or certainly aren't being overwhelmed by great offers, are homes that need a little work. They don't have to be teardowns.  Maybe they need a new roof, and it's got some mold in the kitchen. These are not attractive things.  You're going to want to fix it.  The problems are enough, though, to turn off a lot of people.  So much so, that if you go for this type of property, you probably have a better chance at getting it.

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Friday, April 5, 2013

Stated Income Loans in 2013 - Yes! They Are Back

Video Gives Details on How to Get a Stated Income Loan in 2017


New Contact Information for Bill Rayman

Bill Rayman Home Mortgage

12121 Wilshire Blvd
Suite 350
LA CA 90025


Part of the meltdown in the real estate and mortgage business during 2007 had to do with the notorious use of stated income loans.  Lenders would ask you to promise to tell the truth on an application about your income, and the underwriters took your word for it.  The inappropriate use of stated income loans didn't mean that stated income was a bad idea.  However, for a time there was a reaction to the abuse and it was almost impossible to get a loan without massive documentation of your income stream.

Some of the potential borrowers who were hurt by this included those with imputed income from investments that was hard to document, those who were self employed and may have been using legal tax avoidance methods to reduce income, very wealthy individuals who no longer work, and those whose income may vary widely from year to year.

Today, the lenders have methods for reviewing your overall assets and your claims that will give them enough comfort to give you a mortgage.  This is very unlikely to be a loan you can get at your local bank.  However, a competent mortgage broker, should be able to help you through the process if the numbers are realistic.  Please enjoy the video for more details. 

You might also want to read:  How to Finance Your Business with a Home Mortgage
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Wednesday, April 3, 2013

14 Reasons to Use A Mortgage Broker Instead of A Bank Loan Officer

How Do You Choose Between a Mortgage Lender and a Bank for Your New Home, Investment Property, or Refinance?

The perilous waters are filled with sharks, whales, squids, and powerful forces that are far beyond your control.  In fact, a quick look at the last 30 years of the mortgage industry would cause anyone to be wary, at the least, of the lenders who risk their capital to help you buy your property.  The industry, rightly or wrongly, has been blamed for the 2007 economic collapse, and the banks have ponied up billions in reparations for bad behavior.

But your decisions are far more local and immediate.  Undoubtedly if you have never sought a mortgage before or maybe only once or twice years ago, the very idea of signing a document filled with legal jargon that puts you on the hook for hundreds of thousands of dollars over 1/3 of your life is pretty daunting.  But you want to buy that house or investment property, or you want to refinance the one you already own, so you need to shop for a mortgage.  Are you better off with a bank loan officer or with a mortgage broker.  Here are 17 reasons why you may think the latter is the better idea.

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Fourteen Benefits to Using a Mortgage Broker Instead of A Bank Loan Officer 

  1. The broker is your agent and works for you.  The loan officer is the banks agent and works for the bank.  
  2. The loan officer has a portfolio of loans that his bank offers and no other choices - the mortgage broker may have dozens of lenders available with a wide range of possible loan types and combinations.
  3. The loan officer has terms, and conditions with little or no wiggle room - the mortgage broker's portfolio of banks will have many different sets of terms and conditions.
  4. The loan officer has one underwriting team who will make a yes or no decision - the mortgage broker has a different underwriting team at every bank.  He knows which ones are likely to accept your situation.  A no is only a no until you try another bank in his portfolio.
  5. Because of the mortgage brokers wider experience, he is much more likely to be able to help you find ways to overcome obstacles due to credit history, inadequate evidence of income, or unique issues regarding the property itself.
  6. The mortgage broker works on commission and is only going to get paid when you get your deal.  She is going to persevere to the end.
  7. A mortgage broker is an independent business.  Their reputation is on the line with every transaction.  The bank officer is concerned with the banks reputation, possibly, but their personal interest is best served by doing what is best for the bank.
  8. Mortgage brokers are much more likely to have a list of highly reputable professionals that have proven useful to him in other transactions:  including real estate lawyers, tax reparation firms, real estate agents, credit repair services, and insurance providers.
  9. A good mortgage broker sees you as a client for life.  Most loan officers are moving up the corporate ladder at the bank.
  10. You will almost certainly receive far more hand-holding and detailing of the process from a mortgage broker.  Most are available at almost any hour, and will return calls quickly.  If your mortgage broker is not readily available and responsive, change brokers.
  11. It is very likely that you can learn far more about a potential mortgage broker through online research and review sites than you can about a specific loan officer.  The banks reputation may be searchable, but that doesn't speak to the individual you will be working with.
  12. You may end up paying the same or less with a mortgage broker, even for loans with the bank you had in mind.  Many banks offer a discount to brokers that allows for this to happen.
  13. With a bank, you fill out the paperwork, go through the entire process, and if you get a no, you have to start all over again.  With a mortgage broker, he merely moves on to another lender.
  14. You bank loan officer may have just been promoted from some other task in the local branch.  Mortgage brokers get into the mortgage business, intending to make that their career.  It is not a stepping stone from or to another position.


Are There No Advantages to Using a Bank Loan Officer for a Mortgage

The list is certainly not as long.  If you love to shop and shop and shop, you might like to have four or five banks fighting for your loan.  This would be especially true if your loan is a slam dunk.

You might already have done a loan, mortgage or otherwise, and have a relationship at the bank.  This is more likely to be true at smaller banks.  Knowing your history at the bank can help smooth the way.

Bill Rayman can be seen on dozens of YouTube Videos on his YouTube Channel.  Decide for yourself if Bill's knowledge makes him the right choice for you.  One you might really enjoy is:
Do I need 20% Down to Buy a Residence?  Watch below.

New Contact Information for Bill Rayman

Bill Rayman Home Mortgage

12121 Wilshire Blvd
Suite 350
LA CA 90025


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