As home loans get harder to obtain, the number of renters increases, and so will rent

Come October 2011, buyers’ purchasing power is will reduce even further:

• The FNMA (Fannie Mae) loan limit will be reduced from $729,000 to $625,500, pushing more buyers into jumbo loans for which there are fewer lenders and consolidators.

• Jumbo loans require 6-12 months of reserves, which is more than FNMA requires.

• Interest rates will likely rise, making qualifying for a loan even harder.

• Mortgage insurance for FHA loans will increase by 30% in April 2011.

• Credit scores are on the decline.

• As home equity has vanished, buyers who want bigger homes will not have the equity from the sale of their current home to put toward the new purchase, which will likely require a 30% down payment.

What does this means?  More people staying in their homes, more people unable to qualify for a loan, more people renting instead of buying.  This is all true before we get to the conversation of the recurring suggestions in Congress that the mortgage interest deduction should be reduced or eliminated.  There are times when it’s good to be a landlord. This is one of them.  And, yes, we do investment property loans, too.  Give us a call.

Redefining financial security and other out-of-date financial terms

As many of you know, I don’t approach financial planning from a traditional prospective because we don’t live in a traditional world.  Please consider adopting the following definitions:

“Financial security”:  The ability to weather any financial storm and to take advantage of any financial opportunities.  Notice this has nothing to do with whether you own your home outright.  If you cannot pay your bills if you’re out of work for a year, if you cannot help out your family when they are out of work for a year, when you can’t buy things that are on sale (e.g., income taxes right now when you convert your traditional IRA to a Roth or purchasing investment property), you are not in a financially secure place.  Get your safety net in place, which includes reserve accounts and insurances.  Then go pay off your house.

“Retirement”:  The ability to work for no money and still support one’s health and well-being.  Notice this has nothing to do with whether you own your home outright.  People are living longer and want to contribute to society with their gifts and energy into late adulthood.   They want to try new things.  If you have your house paid off, but no other sources of income to help you make ends meet, you cannot work for no money and pursue those late adulthood activities.  Go get your retirement income accounts in place and then go pay off your house.

“Debt-free”:  When your assets (after liquidation, taxes and penalties) exceed your debts.  Notice this has nothing to do with owning your home outright.  Once you have accumulated assets and can wake up one morning and say, “Hey, you know, today I think I will pay off my house and all my debts,” you are debt-free.  Just because you can do this doesn’t mean that you should.  In many cases, it makes sense to take debt even into retirement.  Go get your assets working for you, use debt intelligently and safely, and someday go pay off your house.  If that’s what you want to do.