As a self-employed person if you don’t do your own taxes make sure you understand what they are saying and that you have a mortgage lender who understands them. Some of your self employment expenses should be brough back into net income for determining what loan/amount you qualify for. For example, deductions for the home office can be put back into income because you paid those expenses, such as rent and utilities under the business banner same as you will when you own the property.

I am facing the same problem. Credit score over 800, great down payment but self-employed in a business that grows slowly. I think we’ll be ok - in a few years a good credit score may actually mean something as will cash!

Sunday, April 16, 2006
Customers For Life

For several months now I have been talking with Mike Morgan / Morgan Florida, a real estate broker serving the treasure coast area of Florida. In our most recent conversation Morgan tells me “prices have already fallen 10%, regardless of what median prices show. In addition transaction volumes have fallen off the cliff”.

Unlike other brokers I have talked to, Morgan is expecting “further declines in the neighborhood of 20% or so, more on condos”. He is advising his clients that “The market has changed and that sellers must accept that reality if they want to get their house sold”. Realtors openly telling their clients to expect substantial further declines simply is not the norm.

Back in January and February Morgan said that “Centex was so desperate to close deals before their March 31 fiscal year end they were offering $60,000 select home sites that were not selling well. But that is just the start of it. Centex was also offering 6% commissions to the agency booking the sale plus an additional $10,000 selling bonus to top it off.”

Obviously Centex was under extreme pressure to unload some properties ahead of their fiscal year end. A year or so ago builders were offering 1-2% at most to outside agents. Some homebuilders would not work with outside agents at all. On a $400,000 home that is an extra $24,000 in lost profit as compared to six months or a year ago. Factor in the $60,000 off then add in a $10,000 bonus and Centex made a whopping $94,000 less on those home sales than expected.

Those deals are now gone, but I suspect Centex and others will be forced to put them back on. The reason median prices have not come down that much is that builders are booking the full value of the sale, before these discounts were granted and calling that the sale. Discounts are attributed to advertising. Prices are now biased on the high side just as they were biased on the low side on the way up. Morgan assures me that “comparable prices have fallen 10% or so” regardless of stats that show otherwise.

Rising inventories are going to continue to add downward pressure on prices. Sentiment was steadily falling from August through December, but a sudden steep falloff in January and February (peak season in Florida), seems to have caught nearly everyone by surprise. Morgan was ahead of the curve by advising his clients to “take a little less” in November and December to “get the deal done”. It seems that was sound advice…..

I just found this blog and have enjoyed reading it. I like to share with you a couple of fallacies about home equity loans.

People think that home equity is synonymous with “cash at hand”. Home equity is not cash, to translating home equity to cash costs money (it is called interest payment). Even at that, it is bank’s money that you have to pay it back.

Home equity is liquid, you may loose your equity easily by 20% in one year.

I have observed a phenomenon in recent years that I do not know what to call. People commit rubbery and spend the money lavilshly. Well, they do not go and rub banks, no there is a more convenient place to rub, it is called HOME. Some people use their home as a huge ATM card.

Most people have fiscal problems because they do not know nor have discipline to manage money. They just know how to spend money recklessly and thoughtlessly.

I think we are going to see a lot of people to suffer financially in near future. Time for reality check has arrived.

Okay, here’s a conspiracy theory. What if lenders are opposing rule changes because by selling these nontraditional home loans, they have millions of owners who will be forced to refinance once their loans start adjusting. Thereby, producing a never-ending cycle of taking out new loans on the same home over and over again. Instead of tempting homeowers with lower rates, higher rates will force homeowners to refinance their nontraditional loans. Thus, the mortgage industry makes money whether interest rates go up or down.

Mary Jane Seebach of Countrywide said in the aforementioned article, “In the absence of such data, we are concerned that cetain aspects of the proposal could unnecessarily have the effect of inhibiting innovation in the mortgage industry and reducing the affordability of housing.”

Okay, Mary Jane, since you appear to need a clue. It’s the nontraditional loans that have reduced the affordability of housing. If, as someone said earlier, we were again required to put 20% down, the pool of potential buyers would shrink to the point that prices would be forced to come down. Thereby making housing far more affordable.

So the reality is, stricter standards on nontraditional home loans would actually hurt the mortgage industry.

Yes, lenders are tightening. They are trying not to admit it, but they have no choice.

I’m working on another post…but I’m out of town for a few days.

I have some good info, stories, and analysis coming.

- I’ll talk about a ‘million dollar’ sales conference held last week for the sales force of a major lender.

- I’ll talk about an encounter with an old loan officer who was now running a cell-phone kiosk.

- plus market insights and more…even a little bit about the new job.

I have just been very busy…and the blogging has suffered (a lot of times I check the blog from my mobile phone).

Stay tuned…I promise I’m not going anywhere!

SoCalMtgGuy

Have you heard anything new about lenders tightening?

You planning on doing another posting this week??

Regards,
BB

Thank you for your reply. The 30 year fixed interest only is 10 years interest only and after the interest only period, the interest rate will stay the same but the payments will be amortized for the remainder of 20 years..

Regarding the home, yes it is a new construction home. The builder does not want to build the property until they have a buyer for the property and until they see the 10% down payment. I agree a Lot of things can happen in seven months.

Thank you so much!