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9-28-18: Are there any Propositions on the November ballot that are real estate related?

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Question of the week:  Are there any Propositions on the November ballot that are real estate related?

 

 Answer:  With the election just over month away, and your absentee ballot available in ten days, and the onslaught of television ads just starting, now is a good time to review some of the propositions on your ballot.

 

A brief bio break before I get into the ballot measures. I have a Bachelor of Arts in Economics and Political Studies from Pitzer College (1984) and have continued to be a student of both disciplines. My philosophy is that economics is the foundation of most personal, organizational and political decisions—if you cannot afford it you cannot do it, and if  you do the long-term consequences will generally not be positive. With that out of the way let’s look at the real estate related propositions on your November ballot.

 

There are four ballot measures that in some way involve real estate in California, Props 1, 2, 5 and 10. Here is a brief description of each and my position (if you are so inclined to care).

 

Proposition 1: Affordable Housing Bond If passed this measure authorizes the state to borrow $4 billion in bonds for affordable housing. The funds would be broken into different areas of expenditure with the largest amount being for the building and renovating of rental units. Other funds would be used to provide home loan assistance to Veterans, housing construction in densely populated areas, down payment assistance programs for low and moderate income potential homebuyers and housing development for agricultural workers.

 

Understanding that more affordable housing is needed in the state I do not feel adding $4 billion in bond payments to our budget and cycling the money through state and local bureaucracies is the way to provide more affordable housing. Supply and demand create prices, some of these funds are targeted in a manner to increase demand, which increases prices, and other funds are targeted to rather ambiguous objectives that appear to expand the power of the government in the market place. I feel that local ordinances and applying tax benefits to developers and property owners would be a more efficient way to create more affordable housing. Dumping government funds into a market has never been shown as a way to lower market prices. I will be voting No on Prop 1. I expect this measure to pass given the lack of a unified opposition and the funds coming into the “Yes” side of the ballot.

 

Proposition 2: Mental Health Housing If passed this measure authorizes the state to re-allocate funds currently directed to county mental health services across the state to fund supportive housing for those suffering mental illness. With a directive and the funding the state can make strides in providing long-term solutions to mental illness sufferers and provide blueprint for counties to help with their homeless problems. Across levels of government funds have been allocated for the homeless with no impact on the problem—it seems to be getting worse. By creating housing for the mentally ill that includes on site social services and medical services this proposition is the best solution I have seen proposed so far at any level to start to make a dent in the issue. I will be voting Yes on Prop 2. I expect this measure to pass given its purpose and how much the issue has been one of top concern to most of the state’s residents.

 

Proposition 5: Residential Property Tax Portability If passed this measure would expand the current property tax transfer rules of Props 60 and 90. Under current rules if homeowner over 55 sells their current residence and purchases a new residence of lower value the homeowner can transfer their current tax base to their new home. The portability of the current tax base is limited as only a few counties in the state allow those otherwise eligible to transfer their current tax base into their county (i.e. homeowner selling Orange County could not transfer tax to new home in Shasta County). As well the current laws allow only a one-time transfer.

 

If Prop 5 is passed the one-time transfer limit is eliminated and the purchase price of your new home does not eliminate your ability to transfer your tax base to lower your taxes if your new home costs more than the home you sold—your tax base will go up but not to market value. As well if you purchase a home for lower value than the home you sold your tax base will be lower than your current tax base. Here are two examples to hopefully clarify how the measure will work if passed.

 

Buying more expensive home:  A couple that qualifies for the property tax transfer owns a home in Los Angeles County they purchased many years ago for $110,000. Today the taxable value is $200,000 and their base tax is $2200 per year ($200,000 x 1.1% state property tax rate). They sell their home for $600,000 and purchase a new home in San Luis Obispo County for $700,000. Their new property tax base is calculated by subtracting the sales price from their prior home from the sales price of the new home and adding the result to the tax base from their prior home:

 

New home price minus prior home sales price: $700,000 – $600,000 = $100,000

Price differential plus prior home tax base: $100,000 + $200,000 = $300,000

 

The new tax base is $300,000, for annual property tax base of $3300 ($300,000 x 1.1%). Without Prop 5 the tax base would be $7700 per year (market value $700,000 x 1.1%), the homeowners are saving $4400 per year.

 

Buying less expensive home: This gets a little more complicated as the new tax base is reduced by a percentage based on the difference between the old property value and the new property value. Same couple sells same home for $600,000 with $200,000 tax base. They purchase a new home in San Luis Obispo County for $450,000.

 

New home price divided by prior home sales price: $450,000 ÷ $600,000 = 75%

Old tax base times price differential percentage: $200,000 x 75% = $150,000

 

The new tax base is $150,000 for annual taxes of $1650 per year, a savings of $550 per year over what they are currently paying.

 

I think the best tax law in America is California’s Prop 13. We pay some of the highest income and sales taxes in the country, but homeowners have the best property tax protection from the state of any state in the country. Prop 5 makes the Prop 13 even more generous to homeowners over the age of 55. Because of the over-generosity of Prop 5 I will vote No. If Prop 5 were to mirror Prop 60 and only eliminate the inability to transfer tax bases over any county lines in the state and enable more than one transfer, particularly in cases of divorce or spouse who have passed away, I would vote for Prop 5. As it is written with homeowners purchasing a new home and being able to lower their tax base to me is not equitable to the counties, state or other tax payers and is not needed. And most importantly, if Prop 5 does pass I see it as a strong rallying issue for those who want to eliminate Prop 13 or severely alter it so that higher property taxes result in the future. I expect this measure to fail.

 

Word has it that the California Association of Realtors is already working on a revision to Prop 5 for the 2020 ballot should the measure fail this year. I hope they do as I would like to see the current Prop 60 benefits available to be transferred across county lines. Were I to be asked to craft a revised proposition I would make the changes I suggest changing the calculation on purchase a new home for a higher price to increase the tax base from formula in Prop 5, eliminate ability to lower tax base by purchasing a new lower priced home, eliminated unlimited ability to transfer the tax base but enable additional transfers due to divorce and/or spousal death, and finally I would raise the age of eligibility to 60 from 55.

 

 

Proposition 10: Local Rent Control Initiative If passed this measure will roll back a 1995 law that limited the use of rent control in California (Costa-Hawkins) and enable greater ability for local government to pass, and/or expand, rent control in their jurisdictions. Costa-Hawkins disallowed cities from enacting rent control on properties first occupied in 1995 and single family dwellings (including condos and townhomes). If passed Prop 10 would enable rent control on all rental units, including single family dwellings—and room rentals inside a single family dwelling.

 

Any rent control imposed by government on landlords benefits a very narrow group of residents: those already renting. Wherever rent control has been enacted rental prices are higher than similar geographically nearby markets. Rental units are scarce in rent control communities as tenants do not move to preserve their low housing cost. Because of the scarcity of available units with a rent control unit does come on the market the landlord is able to get premium rent for the unit since there is little competition. Over time as each generation of rent controlled tenants vacate units the rents in the market climb disproportionate to the surrounding markets.

 

According to a spokesman from the California Business Roundtable there are currently 12,000 rental units across the state approved for construction. Every project is on hold until after the November election. Should Prop 10 pass the projects will not start building as the investors/builders do not want their investments to be restricted from market returns by local governments enacting rent control. I will vote No on Prop 10. I expect this measure to fail.

 

There have been many great benefits to Californians as a result of the ballot initiative process, ad many great detriments as well. It is our duty to study the issues, and candidates, presented and understand both sides before casting our ballots. I hope the above comments on the propositions involving real estate provide you with a decent perspective and spur you on to study these and the other propositions more thoroughly.

 

 

Have a question? Ask me!

 

A busy week for mortgage rate impacting news. First, and most expected, the Fed increased it Fed Funds Rate by 0.25%, as expected. The immediate result was the prime rate, and therefore rates on Home Equity Lines of Credit, also increase 0.25%. Prime rate is now at 5.25%, up one percent from one year ago. The Fed announcement also indicated it is sticking to schedule of one more increase in rates this year and three next year. The news is mortgage rate neutral since the rate increase was expected and the Fed did not announce they anticipate more increases than previously announced.

 

Second quarter Gross Domestic Product went through its third and final evaluation and there was no revision made to the prior revision putting the growth for the quarter at 4.2% annualized. With no change to the growth number there was no impact on mortgages.

 

Last Friday of the month gives us important data on consumers as personal income, consumer consumption and inflation data are released. Good news on all fronts for mortgage rates as personal income matched last month’s increase of 0.3% and the core inflation rate dropped from 0.4% in August to flat this month—meaning those higher wages will go further. Consumer increased spending by 0.3%, lower growth than previous months but still the sixth month in a row of positive spending growth and the eleventh of the past twelve months and 3.8% overall gain in spending from last year. Overall the news should be somewhat negative for rates as it shows economic strength is continuing and should continue through the third and fourth quarters absent some catastrophic event.

 

 

Rates for Friday September 28, 2018: Intra-week rates had a bounce up and then down and the result is the conforming rate is flat from last Friday and the high-balance rate is down slightly for the week. Many analysists are hinting at a possible decline, very small decline, in rates in the next week or so; however, this analysist is not convinced of the underlying factors that would make a such a prediction a strong one.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            4.625%    Flat

30 year high-balance conforming                      4.75%     Down 0.125%

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

 

 

I have a pretty strong background in politics and economics, which perhaps comes through in my WR&MU. My mom grew up in a very politically connected household in Sacramento. Her father was an attorney and lobbyist and her mother was socially active in political circles. My mother continued the family behavior. When my sister, brother and I were growing up we did so with campaign pins and bumper stickers, meet-and-greets with candidates and seeing our mom very briefly on the television from the 1968 Republican National Convention in Miami.

 

Growing up my goal was to become and attorney like my grandfather and both uncles and I majored in economics and political studies in college. My study habits my last few semesters were not great so I put law school on hold to get some discipline. I started earning money, found the mortgage industry and law school was permanently in the rearview mirror. However, my interest in the two disciplines that comprised my major has never left me and I continue to study and read history, economics and political books, articles and journals. For those wondering, the basis of my personal philosophy is that economics is the overwhelming factor that influences politics and therefore history, be it within a family (microeconomics) or nation (macroeconomics). As I often say, take care of the economics and most other issues sort themselves out.

 

Whatever your interest I hope you are able to spend personal time daily, weekly, monthly to indulge in your interest and continue to expand your scope of knowledge and understanding.

 

Have a great week,

 

Dennis

9-7-18: Should we pay extra on our mortgage?

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Question of the week:  Should we pay extra on our mortgage?

 

 Answer:  This is a question we answer every few years and it has come up a few times over the past few weeks with different clients as they consider paying extra on their mortgage every month or year to pay it off faster. It is natural to want to pay off debt, get rid of the monthly payment and quit paying a lender interest are the main two reasons.

 

But is paying off your mortgage early the best financial move for you? Here are several items to consider before you commit to paying off your mortgage ahead of schedule.

 

Are you maxing out your contributions to your retirement account? Most Americans are underfunded for their retirement, many of whom own homes. Instead of paying additional principal down on your mortgage I suggest putting it into your retirement account instead for several reasons. First, the money you put into retirement is usually deducted from your taxes (an exception can be if you contribute to a Roth IRA account), whereas the money you pay down on your mortgage is not. Most homeowners in California will have combined state and federal tax rates around 33% of adjusted gross income. If you contribute the $18,500 maximum to a 401(k) ($24,500 if over 50) that is a tax savings of about $6000, pay the same amount down on your mortgage and there is zero tax savings—in fact you will have negative tax savings because…

 

The government pays for part of your mortgage due to the mortgage deduction allowed on state and federal income taxes. You can deduct the amount you pay on your mortgage interest directly from your income for both federal and California state income taxes (there are limits, for married couple $1 million if mortgage used to purchase home was put in place prior to 12/16/17 or you were in contract to purchase home prior to that day; if your current mortgage was a refinance or put in place after 12/16/17 the new limit is interest up to a $850,000 balance). So if you have a $500,000 mortgage with an interest rate of 4% you can deduct $20,000 from your income, saving approximately $6500 in taxes. If you pay down $18,500 on your mortgage you lose approximately $250 in tax savings since your interest payments are lower. Paying down $18,500 on your mortgage instead of putting it into your 401(k) can cost you over $6000 in tax savings.

 

If you are maxing out your retirement contributions, how are you on saving for your children’s college education? As the parent of college freshman and a future college freshman, and someone who has looked at thousands of clients financial statements, I can attest that college expenses have far outpaced most families abilities to save for those expenses. Having gone on several college tours the last few years one common theme from the financial aid offices was that the general threshold for receiving direct aid (i.e. tuition reduction in form of grant from school) is income around $70-80,000, which is great if you live in some parts of the country but not too far above the median income in most parts of California. So unless your children have exceptional talents in some endeavor plan on needing quite a bit of money if you wish to contribute to your children’s college finances. Putting additional money into a 529 College Savings account or other savings instead of paying down your mortgage might be a better allocation of funds. By doing this you are essentially “borrowing” at whatever your mortgage rate is today for use in the future instead of potentially borrowing in the future at what may/probably will be a higher rate.

 

Speaking of your mortgage’s interest rate, is it lower than other debt you have? Credit card debt, auto loans, your own student loans? If you are maxing out your retirement contributions, you do not have to worry about future college expenses but have consumer debt it makes more sense to pay off that higher interest, non-tax deductible debt before paying off your mortgage. It not only makes more sense but it is very good math.

 

Are you planning on selling your home in the future, before the current term of your mortgage is completed and before your over-payment plan would pay off the mortgage? If so you should consider putting the additional funds into savings, investments, even cash. Your home is not worth more, or less, depending on your mortgage balance. Your home’s value is determined by location, size, condition, etc, not by the amount of debt secured by the home. Paying $40,000 down on your mortgage over say five years and then selling it with a $400,000 mortgage balance was a loss of opportunity for those funds to work for you with compound interest and/or dividend reinvestment. There is no compound equity or equity reinvestment in your personal residence, it will be worth what the market dictates when it comes time to sell. Yes, your net proceeds from the sale will be $40,000 more than if you have not paid down the mortgage. At a 4% return on the extra $666 per month you pay on the mortgage over five years would result in over $44,000, 10% more than your net proceeds gain from paying that money into the mortgage.

 

One final consideration, it costs money to get money back out of your home. If you have $100,000 equity and want to access some of it you will either need to refinance, obtain 2nd loan or HELOC, or sell the property, each of which has costs. What if you pay down your mortgage and need money in the future for home improvements, medical emergency or other unexpected life event?

 

All these are factors, and there are more, that you should consider before paying extra down on your mortgage. There are some factors that more strongly support paying off your mortgage early than other, primarily looking at your current income, your projected retirement date and your projected income during retirement. Or you have a property that is a rental with a low enough balance that you can use rental income to accelerate the payoff of the mortgage, again looking at some of the factors above, to have a free and clear investment that gives you more options in the future, such as selling and carrying a large mortgage to defer capital gains and continue to receive income.

 

As with most/all of our questions of the week, before we can answer the question we need answers to more questions—and this particularly the case this week. If you are considering accelerating the principal reduction on your mortgage, please do not hesitate to contact me to discuss your options.

 

Have a question? Ask me!

 

With the center of the news universe seemingly being in the Senate Judiciary Committee hearing room this week, you may need to look a few pages into your daily paper tomorrow to find the employment data released today, or any other news for that matter. The Labor Department announced today that 201,000 jobs were created in August, 204,000 in the private sector. The front-line unemployment rate remained at 3.9%. These pieces of data are positive, but not a big impact on rates as the news was in-line with expectations. What did have a strong impact on rates was the average hourly earnings data which showed an increase of 0.4% in August following the 0.3% gain in July. This puts the annual rate of pay increases at 2.9%, up from 2.7%, the highest rate of increase since June 2009, the month the recession ended. With the consumer price index measuring inflation at 2.9% the average American worker’s income is keeping pace with inflation. The wage data puts upward pressure on rates and more than reinforces future rate hikes from the Fed.

 

Rates for Friday September 7, 2018: After holding on last week following the strong GDP data, rates could not continue to hold following today’s labor market news. More workers getting more pay leads to more spending leads to higher prices which leads to higher interest rates. Today rates popped up on the labor news after remaining flat from Friday to Friday for the past three weeks. Not surprising, the surprise to me is they had not increased sooner. Lock your rate when you can as higher rates are lot more likely in the future.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            4.50%             Up 0.125%

30 year high-balance conforming                      4.75%      Up 0.125%

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

 

With age comes experience and practicality. When our fifteen year old refrigerator decided to quit last Wednesday, Leslie and I looked at each other and said, “happy anniversary,” knowing a new fridge was going to be our 24th wedding anniversary present to each other. And sure enough this Tuesday, our anniversary date, a new one was delivered. Not to be completely unromantic I placed a bottle of nice vodka inside the present for her to enjoy. Somehow I don’t think I get away with a kitchen appliance and bottle of vodka for number twenty-five next year….

 

Have a great week,

 

Dennis

8-31-18: Should we buy a rental property?

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Question of the week:  Should we buy a rental property?

 

 Answer:  This is a common question for those of us in the real estate industries, as well as for professionals in other industries such as family attorneys, accountants and financial advisors. Looking to secure a long term investment many families would like to purchase a property to rent out for investment income and long term value appreciation.

 

Is it right for you?

 

As you can imagine, there are several factors to consider before deciding to purchase rental property. Here are some that come to mind, but certainly not a complete list.

 

The first question you must answer is, what are my expectations? Do you want positive monthly cash flow? Are you most concerned about long term appreciation and growth of your initial investment? Do you want a loss on your tax returns to off-set income? Each of these factors can be obtained, but each also has different requirements for how you purchase the property.

 

Positive cash flow can be very challenging in the California, especially if you are in a county that touches the Pacific Ocean. Cash flow is determined by what income the property will generate from rents minus the expenses of ownership: mortgage, taxes, insurance, maintenance and vacancy. Because real estate prices have grown it takes substantial down payment to achieve positive cash flow in most properties. For instance, if you are looking at purchasing a $500,000 home as a rental in an area where the market rents for the property are around $2500 can you achieve positive cash flow? The minimum down for a single family residence non-owner occupied loan is 20%, and today the rate is about 5.125% with that down payment. The monthly PITI is almost $2800—your cash flow is not positive. Putting 25% down the rate drops to 4.875% and your PITI drops to $2500 so you are cash flow neutral before maintenance and upkeep. Before closing costs you have invested $125,000 for neutral cash flow.

 

That said, if the property increases in value an average of 3% for the next five years your property has increased in value about $80,000 so on paper you have seen your initial down payment increase about 65%, from $500,000 to about $580,000. As well you have likely had depreciation on your taxes, that provided you with a loss on your tax returns for the property (if you are eligible to claim real estate losses) which has saved you tens of thousands of dollars in income taxes. So your monthly cash flow is neutral, perhaps slightly negative, but you have seen your investment grow in value and gained cash flow with your tax deductions.

 

Keep in mind the above scenario is based on finding a home for $500,000 in an area that rents for $2500 per month and would increase in value an average of 3% per year over five years. That said it appears this type of scenario checks the boxes for cash flow (after taxes), appreciation and deductions on your tax returns.

 

What are other factors to consider? Costs is a very important consideration. It costs money to purchase real estate, the rule of thumb is about 3% of the purchase price, and it costs money to sell real estate, the rule of thumb is about 8% depending on real estate commissions. So in the above scenario you have about $15,000 on top of your down payment to close the transaction and if you sell at the end of the five years your costs of sale are about $46,000. For your total investment of $140,000 your next gain in equity from the market is about $34,000 which is a  nice 24% return over the five years.

 

Keep in mind that $34,000 will be taxed as capital gains and any depreciation you claimed will be “recaptured”, a fancy term for taxed. Check with your tax preparer but depending on your income the taxes could exceed $10,000.

 

You can avoid the taxes by participating in an IRS tax deferred 1031 exchange, which entails selling the property and having the proceeds transferred to an escrow to purchase another property. You avoid the taxes, but you are not benefiting from the capital appreciation as it has to roll over into another property.

 

One mistake many first time investors, and some experienced, make with investment property is they care too much. Too often they want to purchase property they would want live in, or spend too much money on the property. I have seen clients spend tens of thousands of dollars to upgrade kitchens, bathrooms, floorings, etc, to be of the type and quality they would want, but for tenants who generally do not treat their homes the way they would if they owned it. If you want to get in the real estate rental market as a landlord you must remember that it is a business, you are buying an investment not a home and as such your objective is to provide a clean, safe property for rent. Putting in granite counter tops and solid oak cabinets will not increase the rents you can collect, perhaps it puts you at or near the top of the market for the area you are in, but if the market is $2500 you won’t be able to rent for $3000 just because of the nice kitchen.

 

Which brings me to the most popular way most families obtain their first piece of rental property: convert your existing home to a rental when you purchase your next home. This has many advantages. First, you save on closing costs. Second, you do not need a cash investment for the purchase of the property—though you will need one for the purchase of your new home. Third, the loan is already in place and likely at a lower rate than the current market for non-owner-occupied financing. Fourth, if you sell the property within three years of converting it to a rental you probably can avoid capital gains tax should the property appreciate.

 

Should you purchase a property for rental income and investment? The answer requires a lot of thought and research as to the short and long-term consequences. Before you make the decision consult with your tax preparer and investigate other options with the money you would be investing.  Compare possible rates of return in cash flow and appreciation, costs of acquisition and divestment, on-going costs of maintenance and loss of income, and the potential tax liabilities.

 

I am happy to be part of your investigation by running numbers and scenarios for different sales prices, down payments and types of properties if you are considering purchasing rental property.

 

Have a question? Ask me!

 

Lots of major economic news this week. On Tuesday the Conference Board reported that consumer confidence is at its highest level since October 2000. The higher confidence is supported by increases in personal spending and earnings in July. Spending increased 0.4%, the fifth month in a row for the primary economic engine for the country. The increase in spending was greater than the increase in personal incomes, which rose 0.3% in July, causing a slight downtick in the savings rate. The higher earnings, increased spending and tighter labor market caused prices measured by the PCE index to increase 2.3% in July, the highest level in six years. More importantly the index used by the Federal Reserve to gauge inflation, the PCE price index stripped of energy and food to reach 2.0%. The different pieces of data are each supportive of higher interest rates and collectively provide a strong push for higher rates.

 

Also putting upward pressure on rates, was the revision of 2nd quarter Gross Domestic Product released this week showing growth of 4.2%, revised upward from the initial report of 4.1%. A combination of tax cuts and consumer spending pushed corporate profits higher for the quarter helping push GDP growth.

 

Rates for Friday August 31, 2018: My economic training and experience is telling me that rates should have gone up this week based on the data. They are flat from last Friday, and have remained flat since the first Friday in August. Investors are tempering their decisions on bonds and mortgages waiting to see if a big shoe drops from the White House on tariffs with China and other nations. Earlier this week there was an apparent understanding with Mexico to revise our trade agreements, perhaps the same can occur with Canada, which would alter NAFTA. We will see how those negotiations and others go. If the result is positive in regards to no tariff wars and updated agreements we will definitely see rates go up–absent some other major issue or crisis.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            4.375%            Flat

30 year high-balance conforming                      4.50%               Flat

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

 

 

To slightly change the famous Alice Cooper song, Schools In ‘Til Summer. Our Long Beach Poly junior was a bit grumpy in the early hours of Wednesday morning seeing the wrong side of seven o’clock for the first time in months, I’m sure she was the only teenager or younger in the city in that frame of mind.

 

Hoping all your students have a successful year!

 

Have a great weekend,

 

Dennis

8-17-18: We are retired, how do we qualify for a mortgage?

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Question of the week:  We are retired, how do we qualify for a mortgage?

 

 Answer:  It may be my client base is aging, or it may be that I am fortunate to have more retirees referred to me for assistance with their mortgages, it is probably both, but we are funding exponentially more mortgages for retirees every year. Qualifying income for loan approval is a bit more challenging for retirees than for a younger couple with both spouses working “regular,” salaried jobs. Back to our question, how do we qualify?

 

It is important to note that the vast majority of mortgages are “QRM” designated loan products. Qualified Residential Mortgages came about after the Dodd-Frank Act was signed into law in June 2010 by President Obama. The purpose of the QRM designation was to ensure that banks either funded mortgages for applicants that could prove the ability to make the monthly payments, i.e. show income that supports the mortgage payment. If lenders fund a loan that does not fit the QRM criteria the lender must retain at least 5% of the total non-QRM mortgages they fund, or in the parlance of the times, have skin in the game and face loss if mortgages default.

 

Simply put, a 30 year fixed rate mortgage through Fannie Mae, Freddie Mac or most jumbo loans, is a QRM designated product and as such applicants must prove they have the ability to make monthly payments.

 

Many retirees have multiple sources of income plus assets. Our objective when working with retirees purchasing a new home or refinancing an existing one is to put together a mortgage package that shows “ability to repay” under the guidelines for qualifying income as set for by Fannie/Freddie or the jumbo investors using the available income and assets.

 

Some income is easy to show, prove and qualify. First and foremost is social security income, which is easy to verify as recipients receive a letter detailing the benefit, almost all social security payments are made via automatic deposit into recipient’s checking account and finally the total benefit received and the taxable amount of the benefit are seen on tax returns. Constant, continuing and verifiable, social security income is as good as it gets for qualifying income for a mortgage.

 

Pension income from a prior employer or union is another excellent source of qualifiable income for retirees for the same reasons as social security: there is usually a benefits statement indicating the annual income, it is reported on tax returns and it shows on your bank statements. A few wrinkles for some lenders, are showing you have received the income for the prior six months and/or verifying it will continue for at least three years. It is rare, but there are some pension plans where recipients are paid only ten, fifteen, twenty, etc…years after retirement.

 

Another constant and continuing source of income for some retirees are monthly or payments from an annuity or life insurance policy. This income can be used by verifying the amount, that the income received will be a regular amount and that there is sufficient assets in the policy to ensure payments for at least three more years.

 

A primary source of income for retirees are drawing down of assets from retirement or investment accounts. The two different types of accounts are handled differently by different types of loan products and lenders.

 

The most common asset owned by retirees is some type of retirement account, generally an IRA that consists of funds accumulated while working and paid tax free into a 401(k) or other type of retirement account. One of the best parts of the U.S. tax code is the ability to make tax free contributions to a qualified retirement account while you are working, meaning the income you divert to the qualified account is not taxed as income. In addition, as your account grows through compound interest, dividend reinvestment and capital growth. Because the account grows with no taxes being paid, when you do withdraw funds from the account they are taxed as ordinary income. Also, because you have not paid taxes on the funds the government feels that at some point taxes should be paid so when you turn 70 ½ and have a qualified retirement account you must begin taking “Required Minimum Withdraws” (RMD) from the account. There is a formula that is used based on your age and account balance that determines the RMD you must take each year. These withdraws, or payments, from your retirement account are taxed. And they also can be used for qualifying income for mortgage purposes.

 

Some retirees only take the RMD from their retirement account(s), others set up a regular monthly, quarterly or annual payment that is greater than their RMD as their expenses exceed what they would receive by just withdrawing the required minimum. If you have a regular withdraw amount established that amount is what most lenders use as qualifying income provided you can prove the amount is constant and also that you have at least three years of withdraws in your retirement account using a formula.

 

One last potential source of income we will discuss in detail is if you have a large amount in cash or investment accounts that are not retirement accounts but money you saved, inherited or are the proceeds from the sale of other assets. In certain instances we can use a process called “asset depletion.” Asset depletion guidelines enable us to take a percentage of these assets and then divide by the total number of months in your applied for mortgage to obtain a monthly income amount. For instance if after going through the calculation process to determine how much of your account is eligible for qualifying income we arrive at  $360,000 of your investment account is eligible for income. You are applying for a 30 year mortgage, which is 360 months. We divide the $360,000 eligible amount by the 360 months of payments and credit you with $1000 per month for income for your mortgage application.

 

Some other sources of income for retirees are rental income, distributions from an inherited IRA or annuity or income from employment—perhaps some consulting work you do ten to fifteen hours a week or filling your time as a greeter at WalMart or working at the library.

 

Finally, if you want, or need, to sell your current home and purchase a new one or refinance your existing home and are not able to qualify for a traditional mortgage, I suggest you explore a reverse mortgage if you are eligible. This is a topic I have covered in the past and will revisit next week as I feel it is an excellent financial tool for many homeowners.

 

If you are retired, or someone you know is, and are wondering what options you may have regarding your current mortgage situation or perhaps downsizing to a new home, please contact me to review your financial information and determine how you can qualify for a new mortgage and how much that mortgage might be.

 

Have a question? Ask me!

 

Seventy percent. That is the estimated amount that consumer spending contributes to our nation’s economy. Based on retail sales numbers from July the third quarter could be another quarter of strong growth as spending increased 0.5% in July from June, which was 0.2% higher than May’s spending after being revised down from the original 0.5% estimate last month. Since consumer spending is the biggest factor in our economy strong retail sales mean a strong economy which means higher rates.

 

More for less. Another sector of the economy showed very strong growth in the 2nd quarter: productivity, which was up 2.9%, the biggest gain in more than three years. Not seeming to benefit from the increase were the workers creating the output as the amount of time workers worked increased just under 2%. Showing the biggest increase in four years was output, the goods and service produced, which jumped 4.8% in the quarter. Productivity is output (4.8%) less hours worked (1.9%) totaling the 2.9% growth. The lower rate of growth in hours worked compared to the growth in output is a result of the very tight labor markets, it is easier to increase the hours of existing workers than it is to hire new workers to increase output. This formula can only last for so long however as there is a limit to the amount of output a static set of workers can produce. The news is negative for interest rates.

 

Rates for Friday August 17, 2018: Rates hung on to last week’s dip this week. Shrugging off the positive economic news, investors are a bit concerned with some of the economic news from China and Turkey, and of course very cautious due to the tariff issue still hanging about.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            4.375%            Flat

30 year high-balance conforming                      4.50%               Flat

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

 

 

Big Friday night as many top high school programs kickoff their season tonight. With both the girls going to Long Beach Poly, and the older being in the marching band for four years, I have come to really enjoy the Friday night games and atmosphere. We are fortunate in Southern California to have so many great schools that have rich traditions in academics and athletics. If you are a high school sports fan, I hope your teams have great seasons with competitive contests, no injuries and growth for the young men and women participating.

 

Have a great weekend,

 

Dennis

8-10-18: It takes so much money to purchase a home, what are some ideas for saving money?

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Question of the week:  It takes so much money to purchase a home, what are some ideas for saving money?

 

 Answer:  Two of the hardest things to do are lose weight and save money. Both objectives require the same habits, or routines, to be successful. You need to be committed to your goal, dedicated to your plan to be successful; commitment plus dedication equals success. How disciplined you are with your behavior will determine the time frame for achieving your goal, which should be a very realistic part of your goal—not only what you want to achieve but when you want to achieve it.

 

Saving money is pretty simple, just like losing weight. To lose weight you need to be more active than you are now with the same diet, or eat less with the same amount of activity and ideally you are both, more active and eat less. As you begin to achieve success and enjoy the feeling you change your activity to be more physically challenging, and you change your diet to intake fewer calories and also better calories, i.e. more healthy foods and beverages.

 

When it comes to saving money you either need to earn more and spend the same, or spend less while earning the same amount. It is generally easier to control your spending than your income but with some willingness to push yourself you can find ways to do both—the weight loss equivalent of waking up at 5:00 a.m. to work out and stop feeding your cookie cravings.

 

Let’s tackle the harder discipline first: increasing income. Absent getting a new job in your current profession that pays more, which is always the best option if available, how can you increase your income?

 

The most obvious way without changing jobs is to look within your company to see if there is available overtime or other duties you can take on for more income. I have found many clients over the years who have told their employers they want to purchase a home and are willing to take on more duties, even if it means more time at work, to earn the funds needed for a down payment. It is not unusual for many employers to have some additional work available, it is cheaper to pay you more and expand your duties than to hire someone else. As you get closer to your goal keep them apprised of your status so they are invested in your success.

 

Do you have a skill that can be monetized? Are you crafty? Using your free time, you can make things to sell on-line or at local shops. Can you write well? Search for companies looking for content for their websites or blogs, for a few years during the market meltdown I wrote for a company that provided content for mortgage blogs and I was writing content for 3-4 mortgage websites. Are you able to work on weekends or evenings? Perhaps pick up some part-time work? I had one client who worked for three years as a night watchman at a manufacturing facility on Friday and Saturday nights and added 25% to his income—which he put right into savings. What time do you have and what skills do you have that can turn into part-time work to add to your savings account.

 

Reducing expenses and putting money into savings is not that hard, it is just a matter of what you are willing to do without. Just like losing weight, am I willing to do without a cookie or two after dinner, or a glass of wine or a beer after work every night, or pasta three to four times a week? If not my chances of success in reaching my weight goal are greatly reduced.

 

Where are you spending money that could be put into savings? Starbucks is one of the biggest drains on savings accounts in our country. Sure, there are other coffeeshops where a lot of money is spent but the ubiquitous white with green logo cups are seemingly in every third or fourth person walking into office buildings every morning. The average cost for most Starbucks coffee only orders is about $4, five mornings a week that is $20, fifty weeks a year that is $1000. Using a coffee maker or French press (easier to make single or two cup servings) costs about $0.20 per cup. I like to start people saving by challenging their “I have to have it…” Starbucks or morning coffeeshop purchase because once that habit is broken a lot of others are easy. Why? Because it completely changes your morning routine, and for most the routine is for the better as they can start their coffee making process while getting dressed or doing something else and save standing in line and waiting for an order in a retail outlet. Saving $1000 towards what is needed to purchase a home does not seem like a lot and it’s easy to say, “I’ll save somewhere else…” but if you can start here then it makes it easy to stop other expenses and convert them to savings.

 

What are you driving? Do you have a car payment? Is it more than two to three percent of your income? If so then you can save a lot of money by changing your car. I drive a 2006 Honda Pilot and have saved a lot of money in car payments over the years, Leslie drives a 2010 Honda Odyssey van, our daughter has a 2001 Infiniti i30. Obviously, we do not need the newest cars with the newest features, because of this we do not have large car payments. When we shuffle cars later this year when our oldest goes to college the plan is for our 16 year old to get my car, my wife to drive the Infinity and me to drive the van; sometime in 2019 we will get a car for Leslie, but a used car to save money and if we decide to finance do so at a lower loan amount.

 

That’s us, we are not car people. I get that there are car people out there who want the latest and greatest. My advice is to get the garage and then the car. Are you worried your friends or co-workers will make fun of you driving a six-year-old vehicle? Tell them you want to buy a house and aren’t willing to compromise saving to purchase something that sits for more than 90% of the day in a parking lot, garage or on the street. If you have a car with a high payment look at what options you have to trade it in and buy down. If you are near the end of the loan keep the car and do not get a new one. If you are leasing talk to the dealer about options to reduce your payments or purchasing a used car with a low loan amount. It is not uncommon for me to meet with clients who have two large car payments that are almost 10% of their gross income who are renting and are short of funds needed to purchase a home. Sell one or both of the cars and get into cheaper payments. Last year I went through the math with a couple and within two weeks sold their less than one year old cars and purchased used cars, they are saving almost $1000 a month in car payments and will be buying in the Spring. Like your morning coffee, your car may be a necessity but how you fill the need may be a luxury.

 

Another big expense item that many do not like to curb is entertainment. Concerts and sporting events are very costly, they can easily cost as much as ten to twenty weeks of Starbucks purchases. It can be tough to tell your friends, “hey we can’t afford to go we want to buy a home,” but good friends will understand, others will try to guilt you into breaking your commitment and dedication. Nights out at expensive restaurants, trips with large airfares and expensive hotels, also have the ability to take a lot out of or put a lot into your savings accounts. Part of your commitment is to forego many fun adventures for the bigger goal, owning your own home.

 

Success requires trade-offs, what are you willing to trade for success? Where are you spending money now that could be reduced or eliminated in order to put more money in your savings account? Most families have no idea where they are spending their money so do not know where they can cut back. Pull out your bank and credit card statements for the past several months—ideally for a year—and categorize all your spending into categories: necessities, which are only housing, food for home and utilities for now, transportation, dining, entertainment, travel, clothing (yes, it is a necessity but it depends on what you are buying and how often). Add up the totals you are spending and you may be surprised at not only how much but where you are spending your money. Then start making reductions and eliminations.

 

If you are married this process needs to be done with no judgment, one spouse may be a clothes horse and the other a car nut; or one buys a lot of very nice wine and the other plays a lot of really good golf courses.

 

Once you are in  your home you can determine if you can, or want to, start adding back some of the spending you have cut during your saving period.

 

It bears repeating: Success requires trade-offs what are you willing to trade to purchase your home?

 

Have a question? Ask me!

 

Spend more, borrow less. That is what consumers have been doing, at least less spending on credit cards. Credit use for revolving credit has been dropping while consumer spending has been growing, interestingly the personal savings rate has been increasing. So consumers are spending their some of their earnings for purchases that have been put on credit cards in the past, and are borrowing on long term loans for large expenditures like autos and college.  This is generally good news for the economy as it shows consumers have a positive outlook for their personal economic future. This is not a big mover for mortgage rates except as it feeds into the overall data on economic strength and outlook.

 

Prices won’t push rates, for now. Following June’s strong increase in the Producer Price Index (up 0.3%) wholesale prices cooled off to no increase, or decrease, in July. Following the increase in June for wholesalers it is little surprise that the Consumer Price Index increased from 0.1% growth in June the CPI increased 0.2% for July. The “core” price increase (no energy or food costs) was up 0.2% for the month and 2.4% year over year, the highest increase in the index since September 2008…the month before the real estate and mortgage market melt-downs. The news is not positive for interest rates, and pretty much cements the Fed increase rates in September—which means those with Home Equity Lines of Credit will see their rates increase by 0.25%, possible but not probably more.

 

Rates for Friday August 10, 2018: Rates improved from last week, primarily because the Treasury $78 billion in U.S. debt that was absorbed rather easily in the market, investors liked the market reaction and rates dipped strongly on Wednesday. The price data mentioned above was somewhat expected, therefore priced into the market, so did not negatively impact mortgage rates. Overall rates have reversed their increase from two weeks ago. The trade tension between the U.S. and trading partners may come to a head next week, causing rates to make a significant move one way or the other—keeping in mind rates generally go up like a rocket and down like a feather. Be cautious.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            4.375%            Flat

30 year high-balance conforming                      4.50%               Flat

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

 

 

Channeling Gene Rayburn and the original Match Game, I keep thinking this week, “It has been so hot lately. (Audience, “How hot is it?”) That Mildred’s BLANK melted off.” I have weird thoughts.

 

I have had some inquiries and I will admit to procrastination of a task I need to do but not looking forward to doing. When I had my website rebuilt earlier this year I had not yet learned how to effectively put my Weekly Rate & Market Updates on the site. As well there was a gap in the WR&MU from when they were migrated off my old site to when it went live. My objective this month is to reformat the updates, put a title on them referencing the Question of the Week, and loading up 2018 to date on the site with the new format. Your patience is appreciated and I think this will make the site and updates more useful for research on particular topics of interest for you, your friends, clients and family members.

 

Stay cool and have a great week,

 

Dennis

7-27-18: What is primary factor that could slow the housing market and cause a drop in prices?

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Question of the week:  What do you see as primary factor that could slow the housing market and cause a drop in prices?

 

Answer:  In addressing this question I will be using the Southern California market as the “housing market” since that is where the majority of the Weekly Rate & Market Update live.

 

The most basic principle of economics is that of supply and demand determine price. If supply is greater than demand prices drop, if demand is greater than supply prices rise.

 

The past several years we have seen demand greater than supply and as a result prices have risen. During this period the number of sales has also increased. With prices and transactions increasing we have seen increasing inventory hitting the market but demand increasing faster than the inventory available for sale.

 

The most recent data show home prices continuing to grow, but the number of transactions decreasing. Demand still is higher than supply, but supply is shrinking. Will this lead to even higher prices, or is it an indicator that the market will slow and the total number of sales and prices will decline? This is the multi-billion dollar question, literally.

 

Over the past several weeks I have been in several discussions with professionals in the real estate, mortgage, accounting, commercial lending and financial services industries with the primary topic being, what is the threat to housing markets, what will cause the market to slow and put downward pressure on rates.

 

Demand will remain high for some time, which puts a nice floor under the market to absorb supply. Supply will remain tight for some time absent some major economic event, such as very high unemployment. With these factors prices should be strong. So where is the threat.

 

There is a difference between demand for a product and ability to purchase a product. Instead of demand we will say “desire.” There will remain a high desire to purchase homes by families, this becomes demand when their ability matches their desire.

 

There are two ways to purchase a home, with a loan or without a loan. Those able to purchase homes in Southern California without a loan are not overly prevalent, much more so in the very high end of the market, but those transactions have limited, if any, impact on the overall market. Therefore, the real estate market for the overwhelming majority of buyers and sellers is dependent on home buyers being able to obtain a mortgage for their purchase.

 

Qualifying for a mortgage has three main components, known as the three C’s: Credit, Capacity, and Cash. Credit is how much you owe, what your payments are and your history of making those payments. Capacity is your ability to repay the mortgage, i.e. income. Cash is how much money you have for down payment which determines the loan amount.

 

Every borrower is limited by one of these factors when determining the maximum sales price and mortgage for which they qualify.

 

While there are those who desire to purchase a home who have less than good credit, there are not enough of them to impact the housing market.

 

With increasing prices, which means higher loan amounts, and higher rates it takes more income today to qualify for the median priced home than it did last year, or the year before, or the year before, or… However, we have found that most of our clients have incomes sufficient to qualify for the home price they feel comfortable purchasing. While necessary income to qualify is a damper on the housing market due to prices and rates increasing, we have not seen it as a strong barrier for most families entering the market.

 

This brings us to cash. It is my feeling, and supported by many in my conversations, that cash for down payment is becoming the primary barrier to home ownership for many families. Further, part of this barrier is self-imposed.  What does that mean?

 

There has always been, and likely will always be, a very negative sentiment about mortgage insurance. For those not aware of mortgage insurance, it is a cost added to mortgages that are greater than 80% loan to value. As a result of this sentiment most families feel they need to have 20% of the purchase price to purchase a home. While they are working to save the 20% prices are increasing on homes they could have purchased with mortgage insurance.

 

Two families, the Bakers and the Fryerrs, each make $100,000 a year in 2016.  The median priced home in LA County is about $500,000 so $100,000 is needed for 20% down payment. Both families worked hard to save and both had saved $50,000. The Bakers decide they want to continue to save until they get to the 20% down number and figure by really cutting their expenses they could do this by June 2018.

 

The Fryers decides to purchase a home, and because they have only 10% down pay mortgage insurance. They purchase the median priced home for $500,000, get a $450,000 mortgage with an interest rate of 3.375% and pay $1990 for the mortgage $110 per month in mortgage insurance for a total of $2100.

 

Even with rising income and rising prices the Bakers meet their savings objective of 20% down payment and purchase the median priced home in June 2018. They pay $585,000 for the home put $117,000 down and get a $468,000 mortgage at 4.5% with a payment $2370 per month for their mortgage.

 

Due to the rising prices and their declining mortgage balance and that they have made twenty-four consecutive mortgage payments on time the Fryers are eligible to remove their mortgage insurance payment and lower their monthly payment by $110 per month to $1990.

 

By not waiting until they saved 20% for the down payment the Fryers have almost tripled their initial down payment in equity and have a house payment that is almost $400 per month lower than the Bakers and paying about $1000 less per year in property taxes.

 

So, what is the issue with mortgage insurance?

 

It takes a lot of money to purchase a home in California, especially in most Southern California areas. Even 10% down can be a very large percentage of your total gross income, 20% down may exceed your gross income. Because of this cash is the biggest barrier to homeownership in the region. However, those willing to pay some form of mortgage insurance can get in with as low as 3.5% down for FHA mortgages, or depending on the price 5% or 10% down for non-FHA mortgages (if you are a Vet you can purchase with zero down).

 

Those who have been waiting for to save higher down payments have lost tens, hundreds of thousands of dollars in equity while chasing higher prices.

 

While I see cash to close as the biggest barrier to home ownership, I know there are options to lower that barrier. As well, I do not see the housing market undergoing an extreme correction due to this barrier, but it could slow down the number of sales and cause home prices to slow or decline slightly in the medium to long term.

 

Do you, a family or friend have savings in your bank, investment or retirement accounts and want to purchase a home but feel you do not have enough money saved to do so? Call me to go through your options for purchasing your new home.

 

 

Have a question? Ask me!

 

It’s summer, it’s hot and so was the economy in the second quarter. Today the Gross Domestic Product for April through June was released and while it was lower than expectations it still showed 4.1% growth, almost double the 1st quarter growth. Leading the way was the consumer as spending jumped 4% in the quarter, mostly on services. Shrinking inventories kept the growth under 5%, however the low inventories are a positive for 3rd quarter growth as those inventories will need to be replaced causing economic activity. This is the first quarter with over 4% growth in the third quarter of 2014. In the report this morning was a 3% growth in the price index, which was above expectations. The report is negative for mortgage rates due to the combined strong economic growth and increase in prices. While the mortgage markets have built in rate hikes of 0.25% by the Federal Reserve in September and December, more reports showing economic growth and prices similar to today’s reports will push mortgage rates even higher.

 

Rates for Friday July 27, 2018:  While mortgage markets had no impact to today’s GDP numbers since they had been anticipated, the same cannot be said for Japanese credit markets. Earlier in the week speculation was out that the Japanese central bank was going to alter its policy and push up interest rates in Japan. If true this would impact U.S. credit markets and to get ahead of the actual news investors sold off American long term debt, like mortgages. The sell-off resulted in rates jumping on the speculation. The Japanese central bank meets on Monday and Tuesday and investors have held their position on long term debt to see what, if any, policy changes will be made. Should the speculation be true most of the impact has already been priced into our markets, if the announcement is no change we could see rates dip back down next week. For this Friday rates are up for the week, more so on the high-balance products than the conforming products, rates are at five week highs.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            4.50%                         Up 0.125%

30 year high-balance conforming                      4.75%               Up 0.25%

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

 

On Sunday we visited the King Tut exhibit at the California Science Center. I highly recommend the exhibit, especially if you are a bit of a history geek like I am (okay, I’m more than a bit). We went early and it was not very crowded, though it did become more so towards the end as Leslie and I read everything, much to the chagrin of the 18 year old, and those mostly walking through caught up to us. The detail and workmanship on many of the pieces from 3,000 years ago is fantastic. Another bonus is the air conditioning!

 

Making the day even better was a short drive to Phillipes, the Original in its 110th year for some French dipped beef sandwiches—they invented it you have to have it!

 

Have a great week,

 

Dennis

6-22-18: We are thinking about buying a vacation home, what should we know?

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Question of the week:  We are thinking about buying a vacation home, what should we know?

 

Answer: With summer upon us and families travelling many may be considering purchasing a vacation home where they like to spend…well their vacations! Between June and September it is not unusual for us to get a few inquiries from clients considering purchasing a vacation home, some with different motivations that others.

 

In mortgage industry parlance a vacation home is known as a second home, which also follows the tax policies of the federal government and the states. As you can imagine there are sections of the tax code that deal with second homes and how you can, or must, treat them when filing taxes.

 

Traditionally a family would purchase a second home in the mountains, at the lake, by the ocean, wherever they enjoyed vacationing. Often the family vacation home would be passed down a generation or two. In more recent years second homes are typically still near traditional vacation or resort areas but not infrequently may be condominiums as well as detached dwellings.

 

The basic lending rules for second homes are similar to the rules for primary residences. You can purchase a second home with only 10% down, the cost of the loan in terms of rates and fees is the same as with a primary residence.

 

There are some factors to consider when getting a mortgage for a second home. First, since it is to be used as a residence you must be able to qualify for the total housing payment for your current residence plus the second home you are purchasing. Second, the second home must be “geographically distant” from your primary residence. If you live in a neighborhood on the eastside of Long Beach and want to purchase a condo in downtown Long Beach as a second home you will have a hard time finding a lender that would approve the transaction as a second home.

 

Some lenders require second homes to be traditional resort or vacation areas, for instance Mammoth would be such an area, Fresno would not. However, we often approve second home transactions for clients who have a very strong reason for the second home in a non-vacation region. For instance, a client whose primary home in in Ontario but works in Long Beach and purchases a small condo in Long Beach near his job for use during the week. Or the professor at Cal Poly San Luis Obispo whose wife and children live in Northern California. To qualify as a second home it has to be very obvious as to the intent, if you find yourself trying to stretch into a viable explanation then chances are the underwriters will have a difficult believe the property will be used as a residence and not a rental or investment property.

 

Regarding rentals, we see an increasing number of second home owners using various services to provide revenue when they are not using the property via short-term rentals—aka AirBnB or VRBO for example. If you are approved for a second home mortgage  there is a rider to the deed (mortgage) that you will sign that has several clauses:

 

  • Must be located a reasonable distance away from the borrower’s principal residence
  • Must be occupied by the borrower for some portion of the year
  • Is restricted to 1-unit dwellings • Must be suitable for year-round occupancy
  • The borrower must have exclusive control over the property
  • Must not be rental property or a timeshare arrangement
  • Cannot be subject to any agreements that give a management firm control over the occupancy of the property
  • When a property is classified as a second home, rental income may not be used to qualify the borrower

 

Like with your primary residence, you can convert a second home to an investment property in the future, as long as you have fulfilled the intent to occupy that you have agreed to as part of your application process and by signing the Trust Deed. Should the lender be able to determine that you never intended to use the property as a residence they can issue a Notice of Default and demand the mortgage be paid in full.

 

For those nearing retirement, purchasing a second home where you are considering living in retirement can be a very good financial decision. We have had many clients over the years purchase a second home while they are still working. The advantages are the ability to qualify for a mortgage and leverage the purchase while you are still working, probably a lower price on the property than it may cost you in five, ten, fifteen years when you will retire, and the ability to enjoy the property and determine if it is the right place for you to spend your years in retirement. If you discover the property or location is not just right you have time to sell, or rent, the property and look for a better property and/or location for retirement.

 

When the time comes to retire you may decide to sell your current primary residence, possibly using the proceeds of the sale to pay off your retirement home and enter retirement without the number cost for retirees: housing.

 

If you, or someone you know, have been considering purchasing a second home please contact me to run the numbers and options for you and your family.

 

Have a question? Ask me!

 

 

Rates for Friday June 22, 2018:  Not a lot of economic news this week impacting mortgage rates. The conforming rate edged up for the first time in six weeks as investors have been a bit schizophrenic trying to determine their best course of action with global trade issues and markets. Meanwhile the high-balance rate edged down a touch after last week’s rise. These are interesting times which means the most prudent course of action is to lock in your interest rate through your closing period as soon as you are able.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            4.50%                         Up 0.125%

30 year high-balance conforming                      4.625%             Down 0.125%

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

 

I think one of the toughest weeks for parents is that first week of summer vacation for your kids when you still have your weekday morning routine culminating with leaving for work and your kids have no routine, except possibly stay in bed while you go about your routine. I am very routine oriented so any changes in routine, for me or the house, tends to throw my rhythm off for a while. At least my nightly routine is not affected since I have been going to bed before the kids and Leslie since they were in middle school—we have three night owls and one early bird in the house.

 

I hope your routines and summer rhythms are in sync and enable you to enjoy the summer of 2018 to the fullest.

 

Have a great week,

 

Dennis

3-16-18: What is the difference between Fannie Mae and Freddie Mac?

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Question of the week: What is the difference between Fannie Mae and Freddie Mac?

 

Answer: Before we look at the differences between Fannie and Freddie a quick recap as to what they are. Fannie and Freddie are currently owned by the United States government and regulated by the Federal Housing Finance Agency. When you hear or read about “conforming” or “conventional” mortgages, know the reference is to Fannie and Freddie mortgages.

 

Here is how they work. When your conventional mortgage funds the lender will bundle your mortgage with tens of millions of dollars of other mortgages and sell them to Fannie Mae or Freddie Mac. They will then create a bigger bundle, think hundred million, and sell Mortgage Backed Securities (MBS) to investors. So your home loan in Cypress, California becomes an investment for the Shreveport Municipal Employees Pension Fund.

 

Side note: investors purchase MBS as an alternative to US Treasury bonds or other long term fixed rate investments. When investors are buying MBS rates go down, when they are selling, or not buying, rates go up.

 

When investors purchase the MBS of conventional mortgages they do so with the understanding that all the mortgages in their investment have been underwritten and funded under the guidelines of either Fannie or Freddie, depending which on whose mortgages they are buying.

 

To review, your mortgage is underwritten to either Fannie Mae or Freddie Mac underwriting guidelines, after it is funded by the lender it is sold to whichever entity whose guidelines were used to approve the loan, it is then sold as part of a larger package of mortgages to investors.

 

The differences between Fannie and Freddie comes down to their underwriting guidelines. For decades Freddie was known for somewhat looser underwriting standards, in the past few years Fannie has altered several of its guidelines to align with the Freddie guidelines.

 

There differences between the guidelines between the two are not many but useful to know when certain situations arise. For instance for income qualifying Freddie may only require one year tax returns in situations where Fannie may require two years. Certain property requirements are easier for loans going to Freddie as well—for instance we recently had an issue with a property that had a shared private road, Fannie Mae has some challenging requirements regarding maintaining that road whereas Freddie Mac does not have any requirements. Certain instances of how credit and debt are considered, use of co-signers and funds can also vary between the Fannie and Freddie guidelines.

 

If we go into all the differences your eyes will roll back in your head, actually after a few you will quit reading, but there are enough differences that somewhat frequently we will determine to use fund a loan using Freddie guidelines instead of Fannie, or vice-versa, because we need to in order to get the loan approved and funded.

 

Have a question? Ask me!

 

Prices and sales dominated economic news this week. Inflation was subdued in February, the Consumer Price Index rose 0.2% from January and was up 2.2% from last February; strip out volatile food and energy prices, which is what the Fed does when gauging inflation, and prices were up 1.8% from 2017 which is below the Fed’s target 2.0% inflation rate. Wholesale prices were also benign with the Producer Price Index also up 0.2% for the month and 2.5% for the core rate (less food and energy). The price data does not support the Fed looking to alter its stated course of three rate increases of 0.25% this year. Also not support more aggressive rate increases was the retail sales report. Retail sales dipped 0.1% in February from January, a bit counter to expectations with strong job growth and rising wages; an interesting aspect of the report was that nonstore sales jumped 1% from January.

 

Proceed with caution is the advice for the coming week. On Wednesday the Federal Open Market Committee will announce its decision on whether the Federal Funds rate is being increased. The overwhelming consensus is the Fed will bump the rate 0.25% at its meeting, the first of three expected for the year. This rate increase is already priced into the mortgage markets so if there is a 0.25% increase there should be no impact on mortgage rates. Key word in that sentence? “Should.” If the expected rate increase is what is announced, investors will then read with great interest the statement accompanying the rate announcement. Is there any statement regarding following labor markets more closely, concern or attention to wage inflation, changes in expectations for economic growth? Investors will be parsing the statement to see if there is a hint, or a hint of a hint, that the Fed may have four rate increases this year instead of the expected three, or that one or more of the hikes could be 0.5% instead of 0.25% their reaction will be to sell of bonds and Mortgage Backed Securities and we will see rates jump up on Wednesday afternoon.

 

Rates for Friday March 16, 2018: Conforming rates hold steady for another Friday and we see high-balance rates (loans between $453,101 and $679,650) dip after three flat weeks.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            4.25%       Flat

30 year high-balance conforming                       4.375%      Down 0.125%

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

 

Arghhh. Why  did I change my bracket at the last second and put in Arizona to make the Final Four instead of Virginia? Because I over-thought it. It’s a mistake I try to avoid in business and working with clients—don’t over think, the solution is right there just implement it—but when it comes to trying to predict sporting events I tend to over-think which is good for my friendly competitors but frustrates me.

 

A great weekend to be a bar owner with St. Patrick’s Day falling on a Saturday night. I am going to assume the take in the collection plates on Sunday morning will be a directly reciprocal to the take in the tills of the drinking establishments on Saturday night. According to Wallethub.com beer consumption tomorrow will be 152.5% greater than usual, and Guinness sales will be 819% higher. I tend to enjoy Guinness throughout the year, why restrict such a fine beverage to only one day? Not only will purveyors of Guinness benefit from the Irish holiday, but so will cabbage sellers and transporters as the cruciferous vegetable sees a 70% increase in shipments the week of the green.

 

Have a fun, and safe, St. Patrick’s Day,

 

Dennis Cleary Smith (now you know what the “C” is for!)

3-9-18: Why do I need to pay for a home inspection and an appraisal?

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Question of the week: Why do I need to pay for a home inspection and an appraisal?

 

Answer: With many of our clients being first time buyers this is a question that pops up as they try to learn the vernacular of real estate, understandably because the appraiser does inspect the property.

 

The quick answer is, if you are getting a mortgage you will most likely need to pay for an appraisal*, and if you are buying a home you should pay for a home inspection.

 

(*) There are instances with conforming loans (Fannie Mae or Freddie Mac) where the Automated Underwriting System (AUS) will have in the approval findings that they (Fannie or Freddie) will purchase the mortgage from the lender with an “appraisal waiver” instead of a full appraisal. Not uncommon for the waiver to show up, but not real prevalent either. For our purposes today we assume there is no waiver.

 

While both the appraiser and home inspector look at, or inspect, the property, each is doing so with a different purpose and therefore have different reports for you to assist in your decision to continue with your transaction as agreed to with the seller, or perhaps ask for some modifications to the agreement. The purpose of the appraisal is value as collateral, the purpose of the inspection is condition of the property.

 

As mentioned, the appraiser’s purpose is to objectively determine the fair market value of the property for the lender. Since the home you are buying is the collateral for the lender there needs to be sufficient value to support the loan for which you are applying. Therefore the primary work of the appraiser is to evaluate the property in comparison to other similar properties that have sold, and are on the market, in the vicinity.

 

Many people are surprised at how little time most appraisers spend in the property when they are inspecting it. When the appraiser visits the property s/he will take pictures of the exterior and interior, note if certain compliance laws are being followed (smoke and carbon monoxide detectors, strapped and raised water heaters), and if there are any noticeable issues visible by cursory inspection that can create a safety hazard or impact value (broken windows, exposed wiring, obviously deteriorating roof). If there are any very noticeable adverse conditions the appraiser will take pictures and note in the report. The appraiser will also measure the property to include the floor plan in the report. Depending on the size and condition of the property the process takes 15-20 minutes.

 

Most of the work for the appraisal is done away from the property at the appraiser’s office researching recent closed sales, pending sales (in escrow but not closed) and active listings on the market, before visiting the property. Looking for properties that as close as possible to the subject property in square footage, bedroom and bath count, amenities such as pool or spa, condition and proximity, the appraiser notes the similarities and differences and of course the prices of the properties.

 

Using a matrix in the report the appraiser begins making adjustments to the “comps,” or comparable properties. One property is bigger by 200 square feet, so there is an adjustment of $10,000, another has only one and a half bathrooms and the subject has two full baths so there is an adjustment of $15,000, one property sold four months ago and the market has gone up since that sale resulting in a $17,500 adjustment.

 

The appraiser makes adjustments as the properties are compared and in the final column adds up the plusses and minuses to the comparable properties and adjusts the sales (or list if pending sale or active listing) price. If your sales price is $500,000 and the comparable sold for $490,000 but is slightly smaller, in similar condition and closed the sale last week the appraiser may have made $11,000 in adjustments for an adjusted price of $501,000. The next comparable sold for $515,000 but is bigger but in worse condition as it was a rental and the appraiser deducts $17,000 from the price for an adjusted value of $498,000.

 

From the adjusted prices the appraiser presents the opinion of value, if the other comparables are similar to the ones in the above example the appraiser will most likely conclude the value of the property is the sales price, $500,000. The lender now has professional, third party confirmation of the value of the collateral proposed for the loan.

 

In short, a bit late at this point to be short, the appraiser’s work is done without much need for detailed inspection of the property.

 

If you are meeting a home inspector at the property you are purchasing and intend to shadow him or her as the inspection is made you need to block at least two hours on your calendar. The purpose of this inspection is to thoroughly inspect all the physical attributes of the property and test all the mechanical systems. Because of this the inspector will need to spend quite a bit of time at the property. My advice is to always accompany the inspector as s/he does their duty. You will learn a lot about your new home and the inspector will make verbal comments to you that will make reading the report a bit easier later.

 

The inspector will crawl under the home if you have a raised foundation. Climb up on the roof. Go in the attic. Put electrical instruments in all the plugs. Switch every wall light switch on and off. Turn on all the faucets in the sinks and showers and then flush the toilets. Walk the perimeter of the building looking for cracks and how water drains. Doors will be opened and shut. Heating and cooling systems turned on and off. If appliances are included they will also be tested. The floors and flooring will be noted for wear and tear.

 

A good home inspector will look at your home in a more intimate way than your family doctor will you during a physical. Well, perhaps.

 

As the inspection is going the inspector is taking detailed notes which will result in report this is, no surprise given the scope, very detailed. The inspector will, or should, go through the report with you indicating what items are noted and to what extent there should be some concern on your part for future repairs or replacements.

 

It is easy to read through a report and think, “wow, what a mess…” but for most buyers in California you are buying a used home, most likely at least thirty or forty years old, and in many cases like ours over sixty years old when we purchased it almost twenty years ago. There will some flaws, some wear and tear. The important aspects of the inspection are any items that are in need of costly repairs or replacements in the not too distant future. Is the roof nearing the end of its life? Is the heating system antiquated? Does the electrical need upgrading?

 

The appraisal is a required expense for most buyers due to obtaining a mortgage to purchase the property. The inspection is optional, however I would never advise buying a home without first obtaining a home inspection from a professional inspector. Even if you are purchasing new construction it is strongly advised; a friend of mine, many real estate agents reading this will know, George Harper, who was an inspector for many years once told me, he found as many issues in brand new construction as older homes due to quality of workmanship when tract housing is being built—don’t assume because it is brand new it is perfect.

 

The purpose of the appraisal and the inspection are different, but both are important to your home buying process.

 

Have a question? Ask me!

 

Some really big news this week, both economic and political, that can impact rates. On the political side President Trump had an interesting day yesterday—well he has one everyday but for our purposes in composing the WR&MU it was particularly interesting. Directly impacting the economy of the United States and other nations Trump an authorization on tariffs for steel and aluminum imports. This could, probably will in the short run, result in higher prices for those commodities and the products requiring steel and aluminum for manufacture. Ordinarily this would result in investors fleeing stocks and buying bonds, thereby lowering interest rates. Yesterday it was also announced that Trump will be meeting face to face with Kim Jong-un the “supreme leader” of North Korea, at Kim’s request, for nuclear talks. Ordinarily this would be bad for bonds, meaning higher interest rates as good news has investors selling safe, fixed income investments and buying more risky stocks and equities. Neither bit of news had a tremendous impact on the markets, which is surprising to me as I thought the tariffs would result in a pretty strong boost to mortgages and lower rates.

 

Good news is bad, bad is good, when it comes to interest rates. Long time readers of the Weekly Rate & Market Update know this—bonds are fixed return investments, as are mortgages, and are considered “safe” because if you buy them you know what your return will be based on the interest of the bonds. When there is bad news that leads to an uncertain future investors engage in a “flight to safety,” purchasing fixed incomes products like bonds and mortgages creating lower interest rates, and to do this they usually sell stocks, resulting in lower stock prices. The converse is true with positive news, bonds are sold, resulting in higher rates, and stocks are purchased.

 

Today we had some unexpectedly very positive economic news. The Labor Department released its February employment report and it vastly exceeded expectations. The consensus range for new hires in February was 152,000 to 230,000 workers added to payrolls. The actual number was 313,000 new workers added to nonfarm payrolls, as well January’s new hire totals were adjusted up 54,000 workers. The only negative in today’s report was the concern for wage inflation with the strength in employment expansion with average hourly earnings year over year growing 2.6%, more than half a percent over inflation. The unemployment rate remained at 4.1% for the fourth month in a row. With the very strong employment signally economic growth, and possibly supporting a fourth increase in rates from the Fed this year instead of the scheduled three increases, rates opened higher this morning to the surprise of no one in the industry.

 

Rates for Friday March 9, 2018: With all the news this week rates remain constant from last Friday, our fifth straight week at the same rate on conforming. I will admit to being a bit surprised we are not higher than last Friday with the news this week.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            4.25%       Flat

30 year high-balance conforming                       4.50%      Flat

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

 

As most of you know, I am a big sports fan. This coming week is the start to one of my favorite sporting events—the NCAA Men’s Basketball Tournament. Few events have the nail biting finishes, numerous upsets and the energy that occur over three weeks of March Madness. On Sunday the teams participating will be announced and the brackets revealed showing each team the path they need to take if they are going to be cutting down the nets on April 2nd in San Antonio. On Monday campus and office tournament organizers across the country will be posting rules and “costs” and millions will fill out their brackets for “bragging rights.”

 

Every year there is more and more parity in college basketball, and this season was no exception, which should ensure us another tournament filled with surprises and excitement. I hope you are able to enjoy it as much as I will.

 

Have a great week,

 

Dennis

3-2-18: What is the cost of waiting?

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Question of the week: What is the cost of waiting?

 

Answer: Last week we discussed if we are in a housing bubble and if I thought it could pop and send real estate prices, at least in Southern California, tumbling again. The follow up to that question is, what is the cost of waiting if you feel the market will decline in the future and are waiting “buy the dip” when you feel that occurs.

 

This is something I analyze about once a year and it is time to revisit the topic. Past performance is no indication of future performance, but can give us a look at the costs associated with waiting to purchase should prices and/or rates continue to go up.

 

In January 2017, the median price of a home in Los Angeles County was $509,130; in January 2018 the median price was $564,100.  The 30-year fixed rate I quote every Friday was the same on the last Friday of January 2017 as it was on the last Friday of January 2018 at 4% (after dipping as low as 3.625% in late summer early fall) to the cost of money was constant.

 

Assuming 20% down what was the cost to those who waited to purchase in January 2018 instead of purchasing the year before? Here we see the difference in down payment and monthly mortgage payment between purchasing the median home in January 2017 verus January 2018:

 

PRICE  LOAN AMOUNT RATE  PAYMENT MONTHLY  DOWN PAYMENT
 $       509,130  $     407,304 4.000%  $      1,945  $        101,826
 $       564,100  $     451,280 4.000%  $      2,154  $        112,820
 DIFFERENCE  $         209  $          10,994

 

 

As you can see, waiting one year—even with no change in rates, increased your down payment by 10% and your monthly payment by 10%. In the first year of home ownership the cost of waiting from 2017 to 2018 cost about $13,500—and the cost will increase about $2500 per year. (Note the actual cost is higher since you will have higher property taxes with the higher purchase price.)

 

From a qualifying standpoint, if your monthly payment for the mortgage (not including taxes, insurance, homeowners association if applicable) cannot exceed 30% of your monthly income then from January 2017 to 2018 you would need to make about $8400 more per month to qualify.

 

To recap, by waiting from last year to this a home buyer in Los Angeles County needed to earn over $8400 to qualify for the loan, spend almost $11,000 more in down payment and have mortgage payment that is $2500 more per year.

 

Let’s play what if….What if you are ready to buy today but decide to wait for prices and/or rates to dip back down? And what if during this waiting period prices and/or rates go up? Here is a chart showing price increases of about 5% from today’s median price and rates going up to where I, and others, think we may be by the end of 2018:

 

PRICE  DOWN PAYMENT  LOAN AMOUNT**  PAYMENT 4.375%  PAYMENT 4.50%   PAYMENT 4.625%  PAYMENT 4.75%
 $  560,000  $  112,000  $      448,000  $        2,237  $          2,270  $        2,303  $          2,337
 $  585,000  $  117,000  $      468,000  $        2,337  $          2,371  $        2,406  $          2,441
 $  615,000  $  123,000  $      492,000  $        2,456  $          2,493  $        2,530  $          2,567
 $  645,000  $  129,000  $      516,000  $        2,576  $          2,615  $        2,653  $          2,692

 

Digging into this a little bit, if prices do not go down but rates do you can payment increases of about $33 per month. If the rate stays the same but the prices increase you can see payments go up over $100 per month for every 5% increase in price, and the amount of money needed for down payment will increase as well. Should rates and prices continue to climb the amount of money needed to for down payment and monthly payment increase exponentially.

 

I have ** Loan Amount because as the loan amount increases there is a very good chance that you could move from the conforming rate to the high-balance rate—further exacerbating the monthly cost for the mortgage.

 

There are always a lot of what-ifs when we consider the future and try to predict anything, especially markets. However, there are a lot of factors that would support the chart immediately above, from economic growth to homeowners not selling as frequently as they have in past markets which leads to inventory scarcity.  All the data I see supports that if you are ready to purchase a new home now you should not wait as the downside of higher costs and payments is more likely, in my opinion, than any potential upside to lower costs and payments dependent on prices and/or rates receding enough to make the wait worthwhile.

 

Using those who waited through 2017 as an example, those who were ready in January 2017 that are still waiting have seen not only prices but also rates increase through February, making that wait even more costly.

 

Are you ready to buy? Call me to discuss your options and abilities in today’s market, or find out what needs to be done so you are ready to buy sooner rather than later.

 

Have a question? Ask me!

 

We have a new Fed head, Jerome Powell steps into the chair, previously occupied for the past four years by Janet Yellen. On Tuesday Powell had his first public testimony and told Congress he sees a strengthening economy but did not go so far as to answer directly questions from members of Congress if this means he sees four rate hikes this year instead of the previously assumed three rate hikes. Naturally his not saying, “there will not be four hikes” caused investors to sell on bonds and mortgages pushing rates up.

 

The second adjustment to Gross Domestic Product for the last quarter of 2017 was released and saw a slight revision downward, from 2.6% growth to 2.5%. This had minimal impact on rates. There was no impact on rates with this data.

 

There was some positive economic news this week for workers. In February, personal income rose a very strong 0.4%, the second such monthly increase in a row. Higher wages are great, but what was really strong was the 0.9% increase in disposable income due to the tax cuts hitting paychecks with the reduction in automatic withholdings. With prices up only 1.7% for the year workers are seeing their dollars stretch a bit further.

 

Rates for Friday March 2, 2018: Markets continue to be fairly volatile inter- and intraday depending on the news—either economic or political. When there is this type of volatility it usually suggests there is a breakout, either up or down, approaching. We have a rarity with mortgage rates for 2018 as the conforming rate has remained unchanged for three Fridays in a row, the last time that happened was in mid-December to early January (when we went eleven weeks in a row with no week-to-week change). We always like stability—however I am cautious as to how long we will enjoy it. Lock your rate when you can.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            4.25%       Flat

30 year high-balance conforming                       4.50%      Flat

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

 

The Academy Awards are this weekend and I cannot recall the last time I saw so few of the Best Picture nominees—many are on our list to see but we have not had the opportunity to see them. Leslie and our youngest daughter are big fans of the award show, I am not so excited so will no doubt be watching something on Netflix while they are cheering or jeering through the show.

 

Nice to have some rain today, stay safe on the roads!

 

Have a great week,

 

Dennis