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If you plan to talk to your clients or use Your Way Home AZ program with your friends, neighbors, or just around the water cooler – this information may prove helpful!
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Here are some general answers to misconceptions:
· It is available for ALL Arizona residents as of July 2009. (Other states have certain areas – but all of AZ in included)
· The 2nd is a loan through a non-profit agency. The non-profit agency will meet with the borrower to get all credit documentation – borrower will take an 8 hour class – and counselor will meet with borrower again before closing. Borrower must qualify for the 2nd mortgage. This loan does not have a payment or have interest BUT if the home is sold or rented within allotted time (see attachment) then it will be repayable.
· Borrower and property must qualify for this program
· Loan for 1st is underwritten through 1st mortgage company – the 2nd (22%) is underwritten through non-profit agency
· Can do an FHA or Conv loan (see below for more details) 3% down payment required on a Conv loan – 3.5% down payment required on an FHA loan
· Only on REOs! They must agree to purchase price 1% below appraisal value
· Debt to income ratios – NO EXCEPTIONS 31/43%
The main thing is that the down payment is 25% (that is where 3% down and 22% 2nd loan from non-profit come from) and the 1st mortgage loan is 75% LTV. Of the 25% down payment it is required that the borrower come in with 3% of their own funds. With that being said:
o If using Conventional Financing – 3% down payment -22% from YWHAZ loan to value on Conv financing 75%. There would be no mortgage insurance on this loan since LTV is only 75%. PLEASE NOTE DUE TO LENDER’S GUIDELINES (overlays) ON THE COMBINED LOAN TO VALUE THE 3% HAS TO COME FROM BORROWER’S OWN FUNDS – it cannot be gifted. The borrower will also have to have 2% of their own funds PITI in reserves. SO – for a Conv loan borrower must have the 3% down payment and 2 months payment in reserves. Seller contribution on Conv loan is 3%.
o If using FHA Financing – FHA still requires 3.5% down payment – it does allow the down to be gifted so – in the case of FHA – 1% has to come from borrower’s own funds and the remaining 2.5% can be gifted. The 2 months PITI has to be borrower’s own funds. SO – for an FHA loan borrower must have 1% of own funds and 2 months PITI payment in reserves. The remaining 2.5% of down payment can come from own funds OR a gift. Seller contributions on FHA loan is 6%. Even though the LTV is still at 75% on an FHA loan – this loan will still have monthly mortgage insurance because FHA guidelines state that MI is applicable for 5 years. After 5 years if the LTV is at 78% or lower then MI will come off – but again borrower WILL have MI for the first 5 years on the FHA loan.
Wealth Lessons from Andrew Carnegie
By Rob MintonPrint Article Print Article
RISMEDIA, September 10, 2009—For this article, I read David Nasaw’s biography titled “Andrew Carnegie.” It is a fascinating book, and I highly recommend it. Anything in quotes was excerpted from this book.
Andrew was what everyone would consider a “rags to riches” story. His family immigrated to the United States from Scotland when he was 13 years old. He began working at a cotton mill upon arrival. After a short time, he changed jobs and began to work as a telegraph messenger for the Pennsylvania Railroad.
During his employment with the railroad, he started to invest in companies that supplied the railroad. Soon after he made these investments, these companies began paying big dividends. At the age of 26, he had enough money to travel whenever he chose. His dividend checks arrived whether he was in Pittsburgh or Scotland, working or playing. His railroad salary constituted only 5% of his income.
At age 30, he resigned his railroad position to go into business for himself with his former bosses at the Pennsylvania Railroad. By his early 30s, he had accumulated his first fortune in oil wells, iron manufacturing, bridge building and bond trading.
At the age of 66, he sold his steel empire for $400 million dollars. Andrew Carnegie’s share came to $226 million, nearly $120 billion in today’s dollars. He went from zero to $120 billion in 53 years, which translates into $2.3 billion a year. This was accomplished during a time when there were no phones, no fax machines, no Internet, no e-mail, no cars and no handheld PDAs.
In fact, I was amazed to learn that his workday was confined to only a few hours in the morning. He typically would accomplish as much in these hours as most men do in a week. He left the day-to-day decision-making to his partners and managed his businesses remotely via mail and telegraph.
Andrew Carnegie was fascinating. He built an enormously profitable empire in his spare time. Andrew Carnegie’s career started out in the railroad business. He rose to high ranks within the organization and was able to see the future of the railroads, as well as the business opportunities available. The railroad was entering a period of steady and unparalleled expansion. Andrew decided to invest his money in companies that supplied the railroads. He invested in more than 10 companies that sold their products to the railroads. In fact, one of the companies he invested into was a company that built bridges for the railroads. Andrew Carnegie, with partners from the Railroad Company, launched a bridge building company. The company profited from contracts with his former employer, the Pennsylvania Railroad. He had an inside connection because his silent partners remained employed in high-level positions at the railroad. This would probably be illegal today.
His bridge company was spending a great deal of money on ore to manufacture the bridges. So he started an ore company to supply his bridge company. Now, he and his partners made money on both ends of the deal. “They profited from the contract between the railroad and the bridge company; then profited again when the bridge company purchased its iron from their iron mill.”
When he turned 33, he sat down and analyzed his finances. His net worth was about $75 million (in today’s dollars). His annual income in dividends was more than $10 million. He figured that “if he carefully managed his assets over the next two years … he would, he estimated, be able to guarantee this level of income in the future.” Although he could have retired at the age of 35, he didn’t.
At the age of 37, he began to focus all his attention and capital on the steel business. Carnegies and a few partners started a steel manufactory. They named this new business “Edgar Thompson” after the nation’s most respected railroad executive.
In 1873, there was an economic panic and Carnegies used this situation to buy out many of his partners. These buyouts gave him the controlling interest in the growing steel business.
In 1880, Carnegie decided to purchase about 11 percent of H.C. Frick Coke Company when the owner needed capital to expand his holdings. This was a good deal for Carnegie because Frick’s company supplied coke to his steel companies. Two years later, Carnegie would increase his ownership to 50%. By 1888, Andrew Carnegie would own 74% of the stock in Frick’s coke company.
Let’s stop for a moment and summarize four lessons. They are:
-He was able to foresee the demand for railroad transportation and the unlimited opportunities surrounding this demand.
-He put all of his eggs in one basket by investing in companies that supplied the railroads. His mission was to supply the railroads with whatever they needed and make a profit while doing so.
-He had calculated his “enough is enough number” and was focused on obtaining it in order to retire.
-He consistently increased his ownership percentages of the various businesses by buying out his partners. Usually, this occurred when times were tough or his partners needed money.
-He turned adversity into opportunity.
These actions by Carnegies were obviously very smart, but his true genius came from his overall business strategy. Andrew Carnegie profited from his business expenses by controlling the companies providing his companies with supplies or raw materials. This strategy allowed him to profit from every step in the manufacturing process. Most companies only profit from one step, while he was profiting from multiple steps.
His bridge company purchased ore from his ore company. His bridge company also purchased steel from his steel company. His steel company purchased coke from his coke company. This means he was extracting multiple profits at the same time.
Now this is all fine and dandy for Carnegie, but how does it apply to us? How can we use his overall business strategy ourselves?
I believe there are two separate ways to apply his strategy to our real estate sales businesses.
First off, we can look at where our money is going and try to own or profit from our expenses. Where do the majority of your business expenses go? Do you do a lot of printing? If so, could you own a print company? Do you do a lot of advertising in the newspaper? If so, could you create and own your own newspaper? Do you spend a lot of money on rent for your office? If so, could you own the building and pay rent to yourself? Take some time and study where your money flows. Think of how you might be able to profit from your expenses. Carnegie set himself up to profit from his expenses by owning businesses that supplied his steel manufacturing business.
Granted, Andrew Carnegie used inside information and applied strategies that would be considered illegal today. I’m not suggesting that you break any laws. However, I am suggesting that you consider his “profit from your expenses” strategy and decide if you can leverage it yourself in some fashion — legally.
Let’s move on to the second way to use Carnegie’s overall business strategy. I am going to flip this around a little, but hopefully you will still be able to see the connection.
Carnegie started at the top of the business chain and worked his way down. He went from bridge company to suppliers. Could this strategy work going the other way? Could you start at the bottom of the chain and profit going up?
The idea is to build secondary businesses serving the same customers on top of your real estate sales business. I have built secondary businesses on the back of my real estate sales business. I have leveraged one business into new businesses. However, it is important for you to note that this idea does not work unless you specialize. It is very hard to build secondary businesses if you don’t have a target market.
Think about Disney – they specialize in families. They have built multiple secondary businesses on the back of their primary business, all targeted towards families.
Carnegie specialized and leveraged one business into many other businesses. This is an extremely valuable wealth-building lesson.
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By Sandra EmersonPrint Article Print Article
RISMEDIA, September 10, 2009—(MCT)—A gauge of future U.S. home sales rose more than expected in July 2009 to the highest level in more than two years as first-time buyers rushed to take advantage of a tax credit that expires this fall. The National Association of Realtors recently said its seasonally adjusted index of sales contracts signed in July for previously occupied homes rose 3.2% to 97.6. It was the sixth straight increase, and 12% higher than the same month last year. The index of pending home sales could indicate how sales completed this month and next will turn out.
But using pending home sales to determine the future of the market isn’t necessarily accurate, said Darrel Gomez, a real-estate agent with Keller Williams Realty in Rancho Cucamonga. “Pending sales really should not count. It’s about closing,” Gomez said. “The pending homes, some of them, they fall out of escrow.” In many cases, buyers may have multiple offers pending, he said. Not all contracts lead to a close in escrow and having multiple offers on the table means a buyer will likely need to back out of an offer. “I have a lot of buyers in escrow. I tell them don’t count your blessings until I hand you keys,” Gomez said.
The Inland Empire is the second largest foreclosure market in the nation, which boosted the number of homes available for sale, Gomez said. Gomez has also seen many buyers make offers that are well above the asking price. “I have seen homes in Rancho Cucamonga that people made offers on actually go for $80,000 more because of the desirability of the home and location,” Gomez said.
Dave Coy, president of Century 21 Lois Lauer Realty in Redlands, said the market has leveled off as far as pending home sales in the Redlands area. “As an example, we had 598 in May, 621 in June and 620 in July, we pretty much hit a plateau,” Coy said. “A lot of that is really based upon the fact that we don’t have a lot of inventory of available homes.” Aside from the foreclosures and default properties, there are fewer homes on the market. “We have a very small traditional market, and that’s really just because a lot of people don’t want to sell in this market for good reason,” Coy said.
A 12% jump in sales contracts in the West and a 3% increase in the South drove July’s overall increase. Low home prices combined with the Nov. 30 expiration date of the $8,000 tax credit for first-time home buyers contribute to a spur in sales. “The great home prices right now is why they should be motivated to buy,” Gomez said. “The $8,000 is just the icing on the cake.”
For first-time home buyers to cash in on the deal, they must close escrow on a property by the deadline, Coy said. “If you’re not in escrow by Sept. 30, a first-time home buyer might run the risk of not taking advantage of that $8,000,” Coy said.
The NAR projects that about 2 million first-time buyers will take advantage of the credit this year and says it is spurring 350,000 additional sales that wouldn’t have happened otherwise.
Analysts predict sales will drop off when the tax credit expires, or if mortgage rates rise from near-record lows. Foreclosures also continue to rise, and banks are forced to sell those properties at deep discounts, pushing prices down.
Many real-estate professional are urging the federal government to extend the first-time home buyer tax incentive. Coy said there are even efforts to increase the credit to $15,000 and make it available to all home buyers.
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