HOW STUDENT LOAN DEBT AFFECTS MILLENNIALS AND MORTGAGES

The rise in student loan debt is a constant subject on the news, and it is often listed as one of the main reasons why Millennials are slow to enter the housing market. Statistics from a recent survey conducted by The Harris Poll on behalf of CNBC Make It show that U.S. adults age 33 to 40 have an average of $21,880 in student loans. And only 32% of those have paid them off, meaning the majority (68%) of older millennials are still paying student loans a decade after graduating from college.

FHA Makes Changes to Student Loan Debt

But there is good news! As of Thursday, June 17, 2021, the Federal Housing Administration
(FHA) is changing the way it reviews an applicant’s student loan debt. This change is an attempt to help entry-level, first time homebuyers close the homeownership gap. Prior to the
change, the FHA made the assumption (always a bad idea, right) that all borrowers only paid 1% of their student loans each month. The problem with this assumption is that it inflated the debt-to-income ratio of many potential homebuyers who were paying substantially more each month
than 1%.

Under the new policy, FHA abandons the 1% assumption in favor of a calculation that better reflects what borrowers actually pay monthly. The changes are a victory for such groups as the Mortgage Bankers Association, which say the existing policy has imposed undue roadblocks on home buyers.

Tips for Getting a Mortgage

An article on the Equifax Finance Blog, “Tips for Getting a Mortgage When You Have Student Loan Debt,” explains that obtaining a new home loan is possible even with student loans.

While it’s true that student loan debt can make it harder to obtain a mortgage, it may not be as big a detriment as many Millennials think. When determining your debt-to-income ratio, lenders look at the amount you pay out toward your debt each month, not the overall amount of debt you have in your name.

Typically, if your debt-to-income (DTI) ratio is more than 43 percent of your overall income, it will significantly decrease your chances of receiving a loan. This means that your total student loan, auto, credit card and mortgage payments should equal less than 43 percent of your total monthly income.

If your DTI ratio is above 43 percent, read the full article on the Equifax Finance Blog for tips on reducing your monthly debt payments. Planning ahead and possessing smart financial skills can help you be prepared when you’re ready to purchase your first home in Atlanta.

Credit To: Carol Morgan and AtlantaRealEstate.com

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6 Strategies to Help Win a Bidding War

The good news- you’ve found the perfect home, and are ready to move in as soon as possible. The bad news- you’re now in competition with a heap of other buyers, all bidding for the same home. With housing inventory at record lows this year, more and more homes are landing in bidding wars amongst interested buyers. These situations can be very stressful, and many buyers could decide it’s just not worth it. But don’t despair yet- there are some strategies that could help buyers get the edge in these competitions.

1. Pay Cash
This option will not be available to everyone, so if this is not a realistic strategy for you, please read on. However, if you do have the cash to cover the purchase price of the home, this is a great option that will give you an immediate edge in a seller’s market. If you don’t need to apply for a mortgage, your offer will have a greater chance jumping to the top of the list. Any time a lender or third party gets involved, there is risk. Paying up front in cash will eliminate that risk, as well as show the seller you mean business. Cash sales saves time for everyone and the home sale can close much sooner because there’s no underwriting process to wait on. If the seller wants to sell their home as soon as possible, a cash offer can be very powerful in influencing their decision.

2. Be Prepared to Show Your Pre-Approval Letter

If strategy #1 does not apply to you, be sure to get pre-approved for a mortgage before you start your home search. Keep in mind that the prequalification process is different than a pre-approval letter. The prequalification process only gives you an estimate of the loan you’ll receive based on verbal confirmations of income and other details. A pre-approval letter gives you a precise mortgage amount based off your official documentation. A pre-approval letter will give the seller peace of mind that you will not run into any trouble getting a mortgage to buy the property. Without pre-approval, it’s very possible a seller will skip over your offer entirely in favor of another buyer.

3. Increase Your Offer

It probably goes without saying that traditionally, the best way to win a bidding war is to offer the most money. However, the highest offer isn’t always the one the seller chooses – so you need to stay strategic. In absolutely no circumstance, though, should you increase your offer if it’s going against your budget. Bidding wars can get frustrating and emotional, but you must be able to have a clear mind and know when to accept the loss and walk away. Always keep in mind the maximum amount you can afford, and stick to that number. It’s easy to be swept up in the chaos of a bidding war – not only because you love the home, but also if you’ve lost out on a few other homes previously. However, that elation will quickly pass if you over-extend yourself and cause financial difficulties down the line.

4. Add an Escalation Clause

You may find yourself in a position where you want to make a high enough offer on the home you like, but you’re not sure about the competition or may be worried about overpaying for the home. Escalation clauses help you put in a higher offer only if you face competition on a home’s price. The escalation clause is an addendum to your offer that states you’re willing to go up by X amount if another buyer matches your offer. Some believe that an escalation clause can show a seller your hand in a way you might not want – informing the seller just how interested you are and willing to spend on the property. However, if your end goal is to win a bidding war on your dream home, there’s nothing wrong with putting it all on the table and letting a seller know how serious you are.

5. Make it Personal

While money is usually the main deciding factor in winning a bidding war, sometimes you can win over sellers by humanizing your offer with a personal letter. Think about the great memories you’ve had in your current space. Many sellers love the idea of passing their home to a buyer who will love it and make memories just as much as they did. Write an open and honest letter to the seller regarding how you feel about their home and why you think you’re the perfect buyer for the home. You can include photos of yourself, your family members, even your pets. This strategy won’t work with all sellers, but if they have a strong connection to the home, this could impact their decision.

6. Purchase a Home Warranty for the Seller

Traditionally, sellers will use home warranty coverage to protect themselves during the listing period, and as a marketing tool to help sell their home. However, this strategy can also be flipped to help a buyer win a bidding war. By offering to order a home warranty that covers the home immediately, the seller will be protected for any possible claims that could occur between offer acceptance and closing. Since a seller’s home warranty is 100% transferable to the buyer, this helps protect the buyer and seller from any possible breakdowns that could occur until and after closing. It’s really a win-win situation, and it could just give you the edge you need to win. And as always, there is no premium until closing.*

*Click Here to view complete limits of liability and any exclusions. CHW offers service contracts which are not warranties. See policy for specifics on response times. CHW reserves the right to offer cash back in lieu of repair or replacement in the amount of CHW’s actual cost (which at times may be less than retail) to repair or replace any covered system, component or appliance.

By our Preferred Vendor, Choice Home Warranty.

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The Median Sales Price In The South Has Risen To $299,400, Up 22.6 Percent From May 2020.

Median existing-home price across all housing types hit a record high of $350,300 in May, up 23.6 percent from the year before, according to a new report released Tuesday morning by the National Association of Realtors (NAR). Home prices rose across all U.S. regions as the new high marked 111 consecutive months of annual price gains since March 2012.

Existing-home sales dropped slightly for the fourth consecutive month in May, with sales down 0.9 percent from the previous month to a seasonally adjusted annual rate of 5.8 million. However, existing-home sales were still up 44.6 percent year over year from 4.01 million in May 2020.

“Home sales fell moderately in May and are now approaching pre-pandemic activity,” NAR Chief Economist Lawrence Yun said in a press statement. “Lack of inventory continues to be the overwhelming factor holding back home sales, but falling affordability is simply squeezing some first-time buyers out of the market.”

Yun, however, expressed optimism at the market’s overall trajectory, despite the lack of inventory continuing to impede homebuyers.

“The market’s outlook, however, is encouraging,” Yun added. “Supply is expected to improve, which will give buyers more options and help tamp down record-high asking prices for existing homes.”

By the end of May, total inventory reached 1.23 million units, an increase of 7 percent from April, but down 20.6 percent year over year. That amount of inventory represents a 2.5-month supply, up from 2.4 months supply the previous month, but down from 4.6 months from the previous year.

Properties spent about 17 days on the market in May, which reflected no change from April, but is down from 26 days in May 2020. Nearly 90 percent of properties sold in May spent less than one month on the market.

First-time homebuyers made up 31 percent of May sales, the same proportion as in April. Investors, or second-home buyers, made up 17 percent of home sales, also equal with the number of investor-buyers in April.

Distressed sales (foreclosures and short sales) made up less than 1 percent of sales in May, equal to the rate in April.

Single-family home sales declined 1 percent from April to a seasonally adjusted annual rate of 5.08 million in May. However, that rate was still up 39.2 percent from the previous year. Meanwhile, the median existing single-family home price was up 24.4 percent year over year to $356,600.

Existing condo and co-op sales remained consistent with April’s numbers at a seasonally adjusted annual rate of 720,000 units. That figure, however, is up 100 percent from the previous year. The median existing condo price also increased year over year, by 21.5 percent to $306,000.

NAR President Charlie Oppler expressed NAR’s commitment to furthering housing policies to address the national shortage of inventory.

“NAR continues its advocacy efforts to find new, creative and effective ways to increase housing construction and supply,” Oppler said in NAR’s report. “The right policies will provide huge benefits to our nation’s economy, and our work to close this gap will be particularly impactful for lower-income households, households of color and first-time buyers.”

The Midwest was the only region that saw increased sales from the month before, with sales rising 1.6 percent to an annual rate of 1,310,000, up 27.2 percent from the previous year. The median price of existing-home sales in the region was $268,500, up 18.1 percent from the year before.

In the Northeast, existing-home sales dropped 1.4 percent to an annual rate of 720,000, which is still up 46.9 percent from May 2020. The median price was $384,300, up 17.1 percent year over year.

Existing-home sales in the South decreased 0.4 percent to an annual rate of 2,590,000, which is up 47.2 percent from the year before. The median price was $299,400, up 22.6 percent from May 2020.

Existing-home sales dropped most precipitously in the West, by 4.1 percent from the previous month to an annual rate of 1,180,000. However, that number is still 61.6 percent up from the year before. The median price was $505,600, up 24.3 percent from May 2020.

Thank you www.Inman.com for this article. For more articles like this, Click Here.

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Reports of the Death of the Office Have Been Greatly Exaggerated

A funny thing happened when offices around the world closed all at once in the early days of COVID-19: internet traffic went through the roof. We certainly felt the surge here at Propmodo. Our team was quick to identify the workplace implications of a pandemic and the fear and uncertainty it would cause landlords and occupiers. Spotting trends, even the unwelcome ones, is a big reason our platform exists. We spent the first few days of lockdown calling our website host to buy more server space to accommodate all the extra visitors. I am not telling you this to brag, it had more to do with what was happening at the moment than anything that we did. An almost unhealthy need for answers, mixed with a lot of downtime, contributed to a spike in readership for almost every online publication, but especially for those writing about the office market.

The elevated traffic pushed media sites to come out with more and more commentary about what the pandemic would do to the office market. The curse of the 24-hour news cycle. There were opinion pieces stating that New York City is dead forever. There were articles predicting that the Empire State Realty Trust, the owners of the Empire State Building, might go out of business. There were articles quoting people saying dramatic things like: “It is not dramatic to say that we don’t know if Chinatown [NYC] is going to be here when we come out of this.”

Now, a long year later we can see that much of this commentary was overstated. New York City is seeing a return to life and did not experience the sustained population decrease many had predicted. The Empire State Realty Trust stock price is nearly where it was pre-pandemic. Chinatown did not somehow vanish. This is another case of the truth being much more complicated than what makes for catchy commentary.

It is true that there are a number of companies that will not be bringing people back to work full time, which could certainly mean less need for space. But when you look at how many of those companies are employing a two- or three-day workweek, the idea of shedding a lot of their footprint breaks down. Big tech companies, which were the biggest proponent of the benefit of an office for collaboration, are slowly rolling back their work-from-anywhere stances. Surveys are starting to show a lower number of occupiers that see themselves reducing their office footprint.

Office occupancy is still way down in most cities. But there are already some that are starting to show activity closer to what our pre-pandemic selves would call normal. Dallas has been a standout in this respect. Many have pointed to the city’s politics, lack of reliance on public transit and even a “Texas swagger” as reasons this may be. Whatever the reason it is naive to assume that Dallas would be a standout forever. As other metros become more accustomed to a life without COVID we will likely see a return to the office similar to what frontrunners like Dallas are experiencing now.

Thank you Propmodo.com for this article. For the whole article, Click Here.

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Why You Should Talk to a Lender FIRST Before Starting Your Home Search

Before shopping for a new home, your real estate agent will ask you to talk to a lender FIRST and get pre-qualified or pre-approved (sometimes those terms are used interchangeably, but technically a pre-approval has actual verification of income with paystubs and tax returns instead of your lender just taking your word for it). However, you may not want to go through this process beforehand and even feel like your agent is being pushy. As someone who is both an agent and a homebuyer, I can tell you this isn’t the case.

Unless you consistently pull and review your credit scores, you may not know how low or high they are or even if there are collections owed. It is not uncommon to have a surprised client after a discovery by a lender about past due payments or other negative items that will need to be cleaned up first before getting approved for a loan. Sometimes this is as simple as calling a creditor and paying something off, other times it may entail help from an outside source like a credit repair specialist. This process can take days to months to complete and the sooner you know what needs to be done, the sooner you can put a game plan in place.
By talking to a lender first, you will have a much clearer understanding of what loan type and interest rate you qualify for. This is vitally important as just a quarter point difference can make or break your budget. Plus different loans have different attributes associated with them such as required down payments, mortgage insurance and closing cost differences. Having a better handle on what will be required with both cash to close and on a monthly basis will determine how much home you can actually afford which leads us to the next point.
You may be looking at the wrong price range and this could work against you either way. Without talking to a lender who crunches all those important numbers for you, you may be looking at champagne homes on a beer budget. OR the opposite can occur and you could be trying your darndest to fall in love with a home in the $300K range but really you can go up to $325K which can make a difference in size, finishes and even neighborhoods.
You MUST be ready to GO in this market. If you fall in love with a home and want to put an offer on it, you won’t even be considered a real buyer if you don’t have a pre-approval attached. Plus some sellers require a pre-approval even before allowing the home to be seen.

Until you have spoken with a lender, you may be wasting precious time, money on gas and perhaps most importantly, emotions, on the wrong homes. The more prepared you are as a buyer before turning on your computer to start an online search or getting in your car to drive to your first showing, the better off and ultimately happier you will be. For a list of our preferred lenders, visit our website at www.themeridianway.com and look under the vendor tab. Happy home buying!

By Holly A. Morris, Realtor

The Meridian Real Estate Group

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The Rear View: Extend your Living Space Outdoors

Over the past year we have all been spending much more time outdoors. We’ve been entertaining, relaxing, spending time together with our families and when time allowed, eventually back with friends. We have also used the outdoors as a tranquil respite. During this time we have re-evaluated how we have utilized these spaces. Now that we are in the Porch Life Season, its time to think about how we can step up our porches and patios as an extension to our home.

What is the first step on layout when creating an inviting porch or outdoor living area?

First off, I always start with the surrounding. Look at your space and ask What’s the star view or draw outside? What should you be looking at when you are gathered and is there a focal point inside like a fireplace? The second question is, How will the space be used? Maybe it will be used for lounging or a combination including dining. You will get much more use out of your space once you figure those out. Then, consider the interior spaces that are close by such as a living room, keeping room or kitchen. I love to bring the inside aesthetic outside just as much as I like to bring the outside surrounding inside. It is all about creating harmony between the two.

What do you need to consider when it comes to upholstery ideas?

Because of rain, humidity, winds and other outside elements, the make-up and durability is even more important on your outside space than it is inside. When working on the construction, it is important to consider every detail, even what outdoor thread is being used. People tend to think, “ a covered area, it will be fine.” That really is not the case. Even on a covered porch, use outdoor fill and good construction for cushions to extend life and avoid interior mildew. As there are so many beautiful indoor/outdoor fabrics, you can get the same great, rich look outside as inside including things like velvets that are even bleachable.

What are some mistakes people tend to make with porches?

Hands down the biggest mistake I see is people using inside fabrics and pieces on a porch. Even lamps. Today there is a vast array of outdoor fabrics and lighting out in the market. I love outdoor rated lamps. You really want to spend a bit more for all things rated outdoor use, and you’ll only cry once!

What type of furniture do you recommend?

Use a mix of different furniture types on porches. The layering adds depth and is much more interesting. Try some great upholstery mingled with teak or powdered coated metal, depending on if a space is more traditional vs contemporary. And, just like inside, you’ve added interest by including something unexpected.

Do you have a good rule of thumb on how much seating to have?

Well you want to always have enough for the family. I’d then add on at least 2 spots from there.

How should you treat floors?

If I’m doing a covered porch, I would use a rug. Again, it is a great way to bring the feeling of the indoors outside. There are some fabulous indoor/outdoor rug solutions out there now that don’t have that plastic feel of the past.

What do you do about additional lighting – candles or lamps?

Oh lamps for sure. I would also consider a chandelier or lantern of some sort. Candles are fun to add a little lift to a table just like inside. It is important to have good lighting so your outdoor space is just as inviting in the darker and cooler hours than in daylight.

What do you suggest for privacy and sun protection?

For a porch, since we are in the South, definitely a screen to keep the bugs out. For outside, a great umbrella or sail shades.

What do you keep in mind on how to make it inviting for all ages?

Just as you would inside, make sure that the seating isn’t too low or too deep for people to get in and out of their seat. That can be awkward for young kids or more fragile adults. Also, make sure that your space is well lit. No one likes a dim porch when you’re reading a book or trying to enjoy each other’s company over games, meals, or chats.

What do you incorporate when you use your porch for entertaining? Unwinding?

I’m Italian, so I really like a place to put out delicious food or snacks. I love dining alfresco, so I prefer to include a dining table. However, if the space isn’t big enough, then a great coffee table can also work well to set out snacks or a light meal. As long as you have something to set dishes out on. Music on a porch adds to the atmosphere, so make sure to wire for speakers. Beyond that, I would say make sure that there is some place to be able to lounge. Adding pull away pillows for napping is another sure way to invite unwinding.

Is it okay to decorate using indoor items for outdoor use?

No, I wouldn’t. I don’t typically do that as they will not last in the South. There are so many good outdoor items that can be found, that I tend to lean in that direction. The one exception would be an item that is typical to inside, but ok outside such as the teak root coffee table that I used in a recent project.

How do you feel about ceiling fans?

Yes! They are a must for bugs and heat in the South. It’s when I am working in more temperate areas like California, where it wouldn’t be as necessary.

What are some sophisticated touches so it seems more of an additional room to the house?

Rugs, great fabrics like outdoor velvets, lamps, lanterns and décor accents. Your end goal is to make your outdoor space feel like a true extension of the indoors.

Tish Mills Kirk of Tish Mills Interiors, a preferred vendor of The Meridian Real Estate Group, is an award-winning interior designer who has been working with clients in their homes for more than two decades. She believes that it is essential to put together a cohesive plan for your home renovation before you get started that can be carried out by the team of experts you assemble. www.harmoniousliving.net

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The Benefits Of Tenant Representation

Tenant representation is often overlooked by small business owners when looking to lease a commercial space for their business. Most commercial landlords will be represented by a leasing agent that will gladly show you the space, confirm your financial qualifications, and provide you with lease terms. However, these agents are strictly working for the best interests of the property owner and not the small business owner leasing the space. Many small business owners will move forward without representation, but this can be a costly mistake that puts at jeopardy the long term success of the business.

An agent representing the landlord has one sole responsibility and that is to lease the space for the highest price to the most qualified tenant. When they show a space to a small business owner they are focused on highlighting the good aspects of the property and minimizing the negative. They may be able to show you more than one space but they are limited to only the spaces they are listing for the property owner. This agent will be very courteous and they will seem helpful, but they are not necessarily giving you the whole truth.

This is where tenant representation comes in. A commercial real estate agent focused solely on the needs of the tenant can be a valuable asset to any small business owner. For one, an agent representing you as the small business owner will be able to show you all of the options on the market and not try to sell you on one property above all others. Leasing commercial space is a vitally important decision to the long-term success of your business and seeing all of your options and being able to weigh them against each other is a huge benefit to making the best decision.

A tenant rep has only one person’s interest in mind and that is yours. They will perform a needs analysis to make sure you are seeing every property that may work. Once you have determined a preferred location, they use their market knowledge and experience to negotiate aggressively for the terms that work best for your business. A good tenant rep can save you thousands over the term of the lease by ensuring that you are paying a fair market value in rent.

As a small business owner if you are working only with the landlord’s representation you are putting yourself in a weaker negotiating position. A tenant rep can be your best ally and the best part is that working with a tenant rep is typically free for the small business owner. The landlord pays commission to their agent. If you have no representation the landlord’s agent is just keeping all of the commission, if you do have representation the leasing agent simply shares their commission with the tenant rep. It costs you nothing.

With all of the benefits that tenant representation has to offer and the fact that the tenant rarely comes out of pocket for this service, it should be an easy choice for small business owners looking to lease commercial space. Having tenant representation just makes good business sense.

We Can Help

Whether you’re looking to lease, buy, or sell commercial property, now is still the time to do it in Atlanta. The Meridian Real Estate Group has been assisting commercial clients for well over a decade and would love the privilege of earning your business. Our goal is not just to help our clients with a transaction, but to support the building of financial legacies through real estate. Call us today at 678-631-1723 or visit us online at www.themeridianway.com. We look forward to serving you.

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Why Sellers Need Home Warranty Coverage

You never really know when the major systems and appliances in your home will break down or need to be repaired. Having these issues during the listing period can become a big headache for any seller who does not have home warranty coverage. It’s common knowledge that listings with home warranty coverage included typically sell faster and for a higher price, but there are other important reasons for both home sellers and agents to include home warranty coverage on all of their listings.

Protection During the Listing Period

Selling a home can be stressful enough as it is- the last thing a seller should have to worry about is searching for a reliable service technician at a moment’s notice when a major system or appliance unexpectedly breaks down– not to mention the associated costs that will come with it. With Choice Home Warranty Seller’s Coverage, the coverage is free during the listing period, where allowed by law*- meaning the only cost to sellers is the service call fee, if and when there is a claim. This can save you time, money, and frustration during the listing period.

Protection After Closing

In addition to financial protection during listing, seller’s coverage also protects sellers and agents from post-closing disputes. Seller’s coverage is 100% transferable to the home buyer at closing, which allows the new homeowner the same level of coverage on systems and appliances with no waiting period. If a covered system or appliance breaks down after closing, the buyer will be protected. This protects the buyer, but it also protects the seller and seller’s agent from liability.

With many buyers now skipping home inspections entirely, there is even more opportunity for an unexpected issue after closing. Having home warranty coverage in place through the listing period helps shield the seller and agent from possible disputes and lawsuits in these instances.

Seller’s Coverage with Choice Home Warranty is Simple

Finding a reliable contractor in the event of a breakdown can often be time-consuming and expensive. With Choice Home Warranty, sellers can feel confident that their finances and reputation are protected both during listing and after closing. Policy holders can place a claim 24/7, 365 days a year, through their account center or by calling 1-888-275-2980.

By our Preferred Vendor, Choice Home Warranty.

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WHAT BANKS LOOK FOR WHEN REVIEWING A LOAN APPLICATION

What Banks Look for When Reviewing a Loan Application Not all banks are created equal, but many of them focus on the same areas throughout the loan review process. Learn what documentation, projections and narratives you’ll need to prepare as well as tips to ensure you negotiate the best loan package available.

Whether you are applying to a bank for:

A line of home equity credit
A line of credit for business working capital
A commercial short-term loan
An equipment loan
Real estate financing
Some other type of commercial or consumer loan

Many of the same basic lending principles apply.

Five Keys of Loan Applications

The most fundamental characteristics most prospective lenders will concentrate on include:

Credit history
Cash flow history and projections for the business
Collateral available to secure the loan
Character
Myriad pieces of loan documentation that includes business and personal financial statements, income tax returns, a business plan and that essentially sums up and provides evidence for the first four items listed

The first three of these criteria are largely objective data (although interpretation of the numbers can be subjective). The fourth item—your character—allows the lender to make a more subjective assessment of your business’s market appeal and the business savvy of you and any of your fellow operators. In assessing whether to finance a small business, lenders are often willing to consider individual factors that represent strengths or weaknesses for a loan.

Tools to Use

To give you an idea of what banks specifically focus on when reviewing a loan request, the Tools & Forms section contains a sample business loan application form that is typical of the kind of documentation you’ll need to complete as part of your loan application package.

We also include an internal bank loan review form used by one small community bank to make its own review of a small business loan.

Credit History

Lenders will want to review both the credit history of your business (if the business is not a startup) and, because a personal guarantee is often required for a small business loan, your personal credit history. We recommend obtaining a credit report on yourself and your business before you apply for credit. If you discover any inaccuracies or problems, you can correct them before any damage to your loan application has occurred. If you can, find out which credit reporting company your prospective lender uses and request a report from that company.

Reviewing Your Commercial Credit History

Before you apply for commercial credit, you should review a credit report on your own business, if your business has been in existence for a while. You can obtain a free Business Information Report on your own business from Dun & Bradstreet.

If D&B does not yet have any information on you, they will allow you to voluntarily obtain a listing by providing them with some basic information about your business.

Most conventional lenders will expect a minimum of four or five trade experiences listed on a business report before they consider the business creditworthiness. If you have been operating your business without credit, or with personal assets, you should consider making some trade credit purchases in order to establish a credit history for your enterprise.

Reviewing Your Consumer Credit History

Consumer credit agencies are required to remove any information from the report that cannot be verified or has been shown to be inaccurate. However, before you submit a letter disputing any debt to the credit reporting company, it’s often a good idea to contact the relevant creditor directly. If an error was made, you can often clear up the dispute more quickly if you take the initiative.

If the dispute is not resolved and your credit report is not adjusted, you have the right to file a statement or explanation regarding the alleged debt with the credit report. If your credit report does have some tarnish on it, you might consider requesting that any creditors with whom you have had a good credit history, but who did not report the transactions, be added to the report. For a minimal fee, most credit bureaus will add additional creditor information.

Work Smart

The three major consumer credit reporting companies are TransUnion, Experian, and Equifax. Dun & Bradstreet is the largest business credit reporting agency.

Providing Collateral to Secure a Loan

When it comes to obtaining a secured loan, providing collateral is a must. To a bank, collateral is simply defined as property that secures a loan or other debt, so that the lender may be seize that property if the you fail to make proper payments on the loan.

Understanding Your Collateral Options

When lenders demand collateral for a secured loan, they are seeking to minimize the risks of extending credit. In order to ensure that the particular collateral provides appropriate security, the lender will want to match the type of collateral with the loan being made.

The useful life of the collateral will typically have to exceed, or at least meet, the term of the loan. Otherwise, the lender’s secured interest would be jeopardized. Consequently, short-term assets such as receivables and inventory will not be acceptable as security for a long-term loan, but they are appropriate for short-term financing such as a line of credit.

In addition, many lenders will require that their claim to the collateral be a first secured interest, meaning that no prior or superior liens exist, or may be subsequently created, against the collateral. By being a priority lien holder, the lender ensures its share of any foreclosure proceeds before any other claimant is entitled to any money.

Protecting Your Collateral

Properly recorded security interests in real estate or personal property are matters of public record. Because a creditor wants to have a priority claim against the collateral being offered to secure the loan, the creditor will search the public records to make sure that prior claims have not been filed against the collateral.

If the collateral is real estate, the search of public records is often done by a title insurance company. The company prepares a “title report” that reveals any pre-existing recorded secured interests or other title defects.

If the loan is secured by personal property, the creditor typically runs a “U.C.C. search” of the public records to reveal any pre-existing claims. The costs of a title search or a U.C.C. search is often passed on to the prospective borrower as part of the loan closing costs. In startup businesses, a commonly used source of collateral is the equity value in real estate. The borrower may simply take out a new, or second, mortgage on his or her residence. In some states, the lender can protect a security interest in real estate by retaining title to the property until the mortgage is fully paid.

Determining a Loan-to-Value Ration

To further limit their risks, lenders usually discount the value of the collateral so that they are not extending 100 percent of the collateral’s highest market value. This relationship between the amount of money the bank lends to the value of the collateral is called the loan-to-value ratio. The type of collateral used to secure the loan will affect the bank’s acceptable loan-to-value ratio. For example, unimproved real estate will yield a lower ratio than improved, occupied real estate. These ratios can vary between lenders and the ratio may also be influenced by lending criteria other than the value of the collateral. Your healthy cash flow may allow for more leeway in the loan-to-value ratio. A representative listing of loan-to-value ratios for different collateral at a small community bank is:

Real estate: If the real estate is occupied, the lender might provide up to 75 percent of the appraised value. If the property is improved, but not occupied, such as a planned new residential subdivision with sewer and water but no homes yet, up to 50 percent. For vacant and unimproved property, 30 percent.
Inventory: A lender may advance up to 60 percent to 80 percent of value for ready-to-go retail inventory. A manufacturer’s inventory, consisting of component parts and other unfinished materials, might be only 30 percent. The key factor is the merchantability of the inventory—how quickly and for how much money could the inventory be sold.
Accounts receivable: You may get up to 75 percent on accounts that are less than 30 days old. Accounts receivable are typically “aged” by the borrower before a value is assigned to them. The older the account, the less value it holds. Some lenders don’t pay attention to the age of the accounts until they are outstanding for over 90 days, and then they may refuse to finance them. Other lenders apply a graduated scale to value the accounts so that, for instance, accounts that are from 31 to 60 days old may have a loan-to-value ratio of only 60 percent, and accounts from 61 to 90 days old are only 30 percent. Delinquencies in the accounts and the overall creditworthiness of the account debtors may also affect the loan-to-value ratio.
Equipment: If the equipment is new, the bank might agree to lend 75 percent of the purchase price; if the equipment is used, then a lesser percentage of the appraised liquidation value might be advanced. However, some lenders apply a reverse approach to discounting of equipment. They assume that new equipment is significantly devalued as soon as it goes out the seller’s door (e.g., a new car is worth much less after it’s driven off the lot). If the collateral’s value is significantly depreciated, loaning 75 percent of the purchase price may be an overvaluation of the equipment. Instead, these lenders would use a higher percentage loan-to-value ratio for used goods because a recent appraisal value would give a relatively accurate assessment of the current market value of that property. For example, if a three-year-old vehicle is appraised at $15,000, that’s probably very close to its immediate liquidation value.
Securities: Marketable stocks and bonds can be used as collateral to obtain up to 75 percent of their market value. Note that the loan proceeds cannot be used to purchase additional stock.

Establishing Your Cash Flow from Operating Your Business

The cash flow from your business’s operations—the cycle of cash flow, from the purchase of inventory through the collection of accounts receivable—is the most important factor for obtaining short-term debt financing.

Understanding Your Cash Flow Cycle

A lender’s primary concern is whether your daily operations will generate enough cash to repay the loan. Cash flow shows how your major cash expenditures relate to your major cash sources. This information may give a lender insight into your business’s market demand, management competence, business cycles, and any significant changes in the business over time.

Tools to Use

Included among the Tools & Forms is a cash flow budget worksheet. The worksheet is an Excel template that can be used in Excel 4.0 or higher. Because it’s a template, you can use the worksheet over and over again and still retain an original copy of it. The worksheet is set up to be used for projecting your cash flow for six months. We’ve formatted the worksheet and put in most of the cash inflow and outflow categories for you. All you have to do is put in your numbers and print it. While a variety of factors may affect cash flow and a particular lender’s evaluation of your business’s cash flow numbers, a small community bank might consider an acceptable working cash flow ratio—the amount of available cash at any one time in relationship to debt payments—to be at least 1.15:1. As most lenders are aware, cash flow also presents the most troubling problem for small businesses, and they will typically require both historic and projected cash flow statements. In preparing cash flow projections for newer businesses, you may want to refer to any one of several sources that publish sales/expense ratios for specific industries. The ratios will help you compute realistic sales revenues and the proportion of expenses typically necessary, in that industry, to generate the projected sales revenue.

Warning

A business’s cash flow will usually include not only the money that goes in and out of the business from its operations (sales less expenses), but also any cash flow from investments or financial activities (e.g., payments and receipts of interest and dividends, long-term contracts, insurance, sales or purchase of machinery and other capital changes, leases, etc.) However, the most important component to a lender is simply whether the business’s ongoing sales and collections represent a sufficient and regular source of cash for repayment on a loan. Because of the attention that cash flow receives, you may want to consider our suggestions for improving your positive cash flow.

Improving Your Cash Flow

If you’re trying to improve your odds of getting a business loan, we suggest you review the following practices of your business:

Pay off, or delay paying, debt. If possible, pay off existing debt or refinance the debt for a longer maturity with lower payments. For other debts, try to renegotiate payment lengths. Believe it or not, some creditors may allow some delinquencies as long as some money is coming in. In some situations, you may simply have to prioritize those creditors who must be paid because they are providing necessities—such as utilities, certain suppliers, payroll, etc.—and try to delay payments to creditors who are less likely to halt your business—like secondary suppliers.
Collect receivables. Try to quickly collect overdue accounts. Revenues are lost when a firm’s collection policies are not aggressive. The longer your customers’ balance remains unpaid, the less likely it is that you will receive full payment.
Reduce credit allowances and accelerate cash receipts. If you can tighten credit terms without losing good customers, you can increase available cash on hand and reduce the bad debt expense. You can also encourage cash sales through discounting and pricing policies. In addition, try to reduce the float time on customer payment checks. You can do this by undertaking prompt processing of checks as you receive them, using a bank lockbox arrangement in which you pay a fee for the bank to collect and process all incoming payments, and by shopping for a bank that quickly processes negotiable instruments.
Increase revenues. While this suggestion is an obvious goal of every business, a poor cash flow may indicate that you need to seriously reconsider what steps you can take to increase sales revenues by either raising sales volume and/or altering prices. In reviewing ways to increase cash flow through increased sales, guard against allowing too many credit purchases. Extending credit will increase your accounts receivable, not your cash.
Reduce inventory. If you can reduce the amount of inventory you maintain, your cash outflow should decrease.
Review tax strategies that may help cash flow with your accountant. For instance, a tax credit may be available for job opportunities you create for certain disadvantaged employees, “qualified research” (research and development) costs or the expenses of property renovation or rehabilitation of certain qualified buildings. In addition, accelerated depreciation on certain equipment and tangible property may be available to increase your short-term tax deductions.

Assessing Your Character as a Potential Business Borrower

The weight given to a lender’s assessment of a borrower’s character can vary tremendously between lending institutions and between individual lending officers. Many small businesses have found more success “selling” their reputation and good character to smaller community banks who may be more directly affected by the economic health of the surrounding community.

To ensure you’re selling yourself well to your lender, we’ve compiled the most important steps to follow.

Improving Your Character in Front of Lenders

As a general rule, the following traits are considered the most important when a bank considers your character:

Successful prior business experience
An existing or past relationship with the lender (e.g., prior credit or depositor relationship)
Referrals by respected community members References from professionals (accountants, lawyers, business advisers) who have reviewed your proposals
Community involvement
Evidence of your care and effort in the business planning process

Many banks consider the amount of investment the owners themselves are committing to the business as evidence of a borrower’s “character.” On top of that, many commercial lenders want the owner to finance between 25 percent to 50 percent of the projected cost of a startup business or new project. If your investment is considered insignificant, a lender may consider it a lack of both owner confidence and dedication to the business.

Warning

One banker noted to us that he often relies upon reaching a personal “comfort level” with a borrower before making a loan. This comfort level is based upon the degree of trust or confidence that the banker has in the accuracy of the information and documentation being presented to him. He observed that in their zeal to “sell” him on the profitability of their business, small business borrowers sometimes talk him out of this comfort level by disclosing that their tax returns underreport income and overstate expenses. Such disclosures cast doubt upon the credibility of the loan applicant, and impair any sort of trust or confidence between the banker and the prospective borrower.

Preparing Bank Loan Documentation

The process of applying for a loan involves the collection and submission of a large amount of documentation about your business and yourself. The documents required usually depends upon the purpose of the loan, and whether your business is a startup or an already-existing company.

Documentation for Startups

A bank will typically request, at a minimum, the following documentation for a startup business:
A personal financial statement and personal federal income tax returns from the last one to three years
Projected startup cost estimates
Projected balance sheets and income statements for at least two years
Projected cash flow statement for at least the first 12 months
Evidence of ownership interests in assets, such as leases and contracts, and collateral
A business plan that includes a narrative explaining the specific use for the requested funds, how the money will assist the business and how the borrowed funds will be repaid (repayment sources and duration of repayment period), including identifying any assumptions used in developing your projected financial
A personal resume, or at least a written explanation of your relevant past business experience
Letters of reference recommending you as a reputable and reliable business person may also help your chances for a loan approval

Some lenders will also want you to submit a breakeven analysis in the form of a financial statement or a graph. A breakeven analysis shows the point at which the company’s expenses will match the sales or service volume. The breakeven point can be expressed in terms of dollars or units sold.

Tools to Use

The Tools & Forms section contains a sample personal financial statement that is typical of the kind of documentation you’ll need to complete as part of your loan application package. We also provide Excel spreadsheet templates that allow you to create your own balance sheets, income statements and cash flow budgets. Because these files are in template form, you can customize them and use them over and over again.

Documentation for Existing Businesses

For an existing business, you can anticipate a request to produce: Income statements and business balance sheets for the past three years Projected balance sheets and income statements for two years Projected cash flow statements for at least the next 12 months Personal and business tax returns for the last three years A business plan, depending upon the credit history of your business and the purpose for the loan, may be unnecessary, and a brief narrative of your intentions may suffice Additional Documentation Requests to Expect Depending upon the specific type of loan you are seeking, you should also address certain issues germane to that loan type. For instance, if money is requested for working capital, your documentation should include: The amount that will be used for accounts payable, along with an accounts receivable aging report to disclose the current amounts overdue 30 to 60 days or older The amounts that will be used for inventory and any increase in the number of days that inventory on hand will be held The amount your cash balances will be increased A contingency amount that is equal to at least 10 percent but preferably 25 percent. If money is needed for machinery or equipment, include information that addresses: Whether the assets will be immediately available or if a delay is anticipated The price of the assets and how installation will be performed Whether installation will interfere with current production and the cost of any interruptions Documentation for an acquisition of land financing should include the real estate’s cost, location and size, intended use, and whether any of the land is for future expansion.

Credit To Wolters Kluwer

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Knowing New Construction Gives You A Competitive Edge — Here’s Why

The inventory shortage isn’t going to last forever. In the meantime, studying the economy, real estate market statistics and particularly the new home construction process will make you a fierce competitor in today’s market and the future.

We all know that there is a shortage of inventory. It has been a national topic of conversation, even for non-real-estate professionals, for quite some time. The question is: How long will it last, and is there anything we can do about it?

There are several interesting factors that have contributed to the recent surge in home prices, as well as the inventory shortage. Today, we’re going to focus on new construction and what that means for the overall real estate market.

As Ben Caballero wrote in his article for Inman:

“Beginning in 1959, the US Census Bureau started to record housing starts. During the 48 years between 1959 and 2006, builders completed 52,941,000 homes for an average of 1,102,938 homes per year.

“For the 14 years between 2007 to 2020, builders started 9,914,600 homes or 708,186 homes per year, which is 394,752 fewer starts per year than the historical average. This annual shortfall totals 5,526,525 homes during those years. In 2020, builders started 990,500 homes, still below the historical average of 1.1 million annual starts.”

Historically, annual home starts around 1.1 million per year was sufficient to meet supply and demand. If builders could build 1.5 million homes per year, the national home inventory would gain 400,000 starts per year to add to the current shortfall — which is about 5.5 million homes.

However, based on that math, it would take over 13 years to make up the shortfall! If builders could create 2 million homes annually, we could achieve a supply-demand balance in about six years.

Because of the shortage of new home construction starts, existing-home prices have gone up rapidly. Yes, in part due to supply and demand but also because there is no new product for the existing homes to be measured against.

For example, if you could buy new construction for $500,000, then chances are you are not going to buy a comparable existing home for the same price. Perhaps that property built in 2010 would sell for $475,000.

However, without new construction in that area, buyers may pay $500,000, $525,000 or more because there is simply no new construction “bar” to set home prices against. This is great news for sellers but not so great for buyers, particularly first-time homebuyers, who are getting priced out of the market.

We also know that lumber prices are still up by roughly 78 percent since the start of 2021, though they are beginning to fall somewhat. This is good news for homebuilders (and ultimately buyers) who have been feeling the effects of surging commodity prices for over a year now.

Of course, the record-high lumber prices over the past year certainly haven’t helped with the cost of new construction, which simply gets passed onto the buyer, once again potentially pricing new homebuyers out of the market.

As the owner of three real estate brokerages, a national real estate team, and a residential and commercial construction management and development firm, I’m seeing the real estate market from all angles right now.

Our existing-real estate sales are booming, as are our new construction reservation agreements. Despite this housing inventory shortage there was actually an increase in single-family home sales in 2020 — 5.6 million, up from 5.3 million in 2019.

Inventory is tight. Sales are up. New construction home starts need to increase. Buyers are missing out on deals. Sellers are cashing in on inflated equity in their homes. There is no doubt that real estate is a tough industry to be in right now. Which just means to me that opportunities abound!

Based on the data above, if you haven’t already, now is the time to start educating yourself on the new construction process and building a strong partnership with your local builders. They are likely going to be ramping up their new home starts over the next few years — the demand is there.

As a real estate professional, you want to be their go-to market and marketing expert. If you could hook up with a builder who had 20, 100 or 200 units to sell over the next few years, think about what that would do for your real estate business.

Not only could you potentially negotiate a deal with the builder on the listings, but you also have many more opportunities to bring buyer leads to the table, and of course, help those buyers sell as well. It’s a win-win-win.

The inventory shortage isn’t going to last forever. Like with any market, there are ebbs and flows. As new construction home starts continue to ramp up, existing-home prices will start to level out, and the supply and demand will find equilibrium again, though it might take several more years before we see that.

In the meantime, studying the economy, real estate market statistics and particularly the new home construction process will make you a fierce competitor in today’s market and the future.

Thank you www.Inman.com for this article. For more articles like this, Click Here.

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What Will One Year Cost You?

What will one year cost you?

All things being equal, if you were to purchase a home where the loan amount was $350,000 at the current average interest rate of 3%, your base mortgage payment without taxes and insurance would be $1,476 a month.

BUT…

Wait just one year and that same home loan amount with the estimated national average increase in home prices of 7% will cost you $374,500. Calculate that with what most experts are saying will be at least a .5% increase in interest rates over the next 9-12 months, and your base monthly mortgage principal and interest payment will jump to $1,682.

That’s a 14% increase. (1,682 – 1,476 = 206) (206 / 1,476 = .13956) (.13956 x 100 = 13.956) or 14% rounded up.

If a 14 % loss of buying power in one year doesn’t seem like a lot, consider this. How would you feel if your employer said to you that they were going to cut your pay by 14% this next year but was going to expect you to do the same amount of work? And then to add insult to injury, said that they were also considering decreasing your pay by that same 14% for the next several years in a row as well.

OK, so maybe you think, I’ll just wait it out.

Unfortunately, most experts believe there won’t be a slowdown of any significance in home prices going up for quite some time due to the basic laws of supply and demand. For example, according to recent Inman News articles, we have had a 400,000 new home start shortfall for the last 14 years based on national historical data kept by the US Census Bureau. This goes back as far as 1959, leaving us 5.5M houses short which basically means we have between a 6 and 13 year supply deficit. For more detailed information about this, see the Inman News article in our Newsletter titled “Knowing New Construction Gives You A Competitive Edge — Here’s Why”

So if you’ve been considering buying a home but have hesitated because you believe the prices will start to level out anytime soon, please understand that the statistics just don’t support that belief and actually suggest otherwise.

What to do?

We can help, and we would love the opportunity to earn your business. With interest rates still at historical lows and home prices expected to increase for years to come, now is the time to buy. Let us help you navigate this very competitive seller’s market, employ valuable tricks of the trade to make your offers the most competitive possible (even beating out cash), as well as guide you on locations, types, and ages of homes where you can get the best bang for your buck.

For a free buyer consultation contact us at [email protected] or you can reach one of our Team Members by calling 678.631.1723.

By Tony Morris, Realtor

The Meridian Real Estate Group

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Are Existing Homes Really More Pricey Than New?

The median existing-home price for a single-family home in March jumped to a record high of $334,500, according to data from the National Association of REALTORS®. Meanwhile, the median sales price of a newly built home was $330,800, according to U.S. Census Bureau data.

New homes are traditionally more expensive than used homes. The scenario in which existing homes sell for more than a new home hasn’t occurred in more than 15 years, CNBC reports.

However, that doesn’t necessarily mean existing homes are more expensive, economists say.

“On a per-square-foot basis, within comparable markets, a new home is still priced higher than an existing home,” Robert Dietz, chief economist at the National Association of Home Builders, told CNBC.

Available housing in the existing-home sector lately may be skewing toward the higher price brackets. For example, the number of existing homes that sold in March priced between $100,000 and $250,000 fell by 10% compared with a year earlier. On the other hand, the number of homes priced between $750,000 and $1 million that sold increased by 82% compared with a year earlier, according to NAR data.

New-home construction is increasingly drawing more first-time home buyers, and some builders are starting to build slightly more entry-level homes to meet demand. First-time buyers were responsible for 43% of new-home sales in February, according to the National Association of Home Builders, higher than the 31% of existing-home sales first-time buyers purchased.

Regardless, the higher price tags for existing or new homes haven’t deterred home buyers.

“Consumers are facing much higher home prices, rising mortgage rates, and falling affordability; however, buyers are still actively in the market,” said Lawrence Yun, chief economist at the National Association of REALTORS®.

Thank you to the National Association of Realtors for this article. For the whole article, Click Here.

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