The Lending Coach

Coaching and teaching - many through the mortgage process and others on the field

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Residential Real Estate | One of the Best Investments Available

November 27, 2023 /

Investing in residential real estate and adopting a strategy of buying and holding properties can be a smart and rewarding financial decision for multiple reasons.

Don’t take my word for it…just look at this example:

In 1971, the interest rate for a primary residential mortgage was 7.33%.  If you waited for interest rates to go down, you wouldn’t have purchased a home until 1993.

You would have rented for 22 years waiting for rates to go down.  Over those 22 years, the value of residential real estate essentially quadrupled. Don’t wait to buy real estate…buy it and wait. 

Marry the house, but date the rate, as you can always refinance when rates go down.

Consistent Appreciation

Residential real estate has historically shown the remarkable ability to appreciate in value over time with relatively little risk.  While market fluctuations do occur, long-term trends clearly indicate an increase in property values.  See the chart below:

Only 7 times in the last 80 years has real estate decreased in value!

This appreciation can lead to substantial gains for investors who hold onto their properties for extended periods, building significant wealth through asset appreciation.

Rental Income

Additionally, rental income generated from residential properties offers a consistent cash flow stream. Owning rental properties can provide a steady source of income, helping investors cover mortgage payments, property maintenance costs, and potentially yield profits.

a house for rent placard

Moreover, as rents tend to rise over time, owning residential real estate can provide a hedge against inflation, with rental incomes increasing along with housing demand.

Leverage

Another advantage of buying and holding residential real estate is the ability to leverage. Real estate allows investors to use leverage by financing a portion of the property’s purchase price through a mortgage.

This means investors can control a more substantial asset with a relatively smaller initial investment. As the property appreciates, the equity in the property grows, amplifying the return on the initial investment.

In Conclusion

Buying and holding residential real estate is one of the best wealth related strategies due to the potential for long-term appreciation, consistent rental income, and leveraging future opportunities.

Please do reach out to me for more, as it would be my pleasure to do some long term planning analysis to help you reach (and even exceed) your financial goals!

The Benefits of the FHA Loan – and Why It’s a Popular Choice Right Now

November 13, 2023 /

FHA (Federal Housing Administration) loans can be a great choice for many looking to purchase a primary residence, and not just first-time homebuyers. These loans offer several advantages that make home ownership more accessible.

One of the key benefits of the FHA loan is the lower down payment requirement, making it easier for individuals with limited savings to enter the housing market.

Lower Down Payment

One of the standout features of FHA loans is the reduced down payment requirement. While conventional mortgages often demand a larger down payment, sometimes around 20%, FHA loans typically require only 3.5% down.

This lower upfront cost opens doors for prospective buyers who may struggle to come up with a significant down payment, providing a more attainable path to home ownership.

Gifts for Down Payments

Receiving FHA gift funds can make it easier to qualify for an FHA loan…but borrowers must follow a particular process for eligibility. First, the money can’t be a loan – it has to be a gift with no scheduled repayment.  Secondly, it must be a family member, a charitable organization, an employer, or a governmental agency assisting families or first time buyers.

FHA guidelines for gift funds include:

  • Gift funds must be from an acceptable source such as savings accounts, stocks, or savings bonds
  • Gift funds must be verified entering into a borrower’s bank account and leaving the donor’s bank account
  • Documentation showing proof funds are not a collateralized loan such as an FHA gift letter

Borrowers may have to provide additional supporting documentation, as well.

Mortgage Insurance

Mortgage insurance premium (MIP) is a type of mortgage insurance that is required of homeowners who take out loans backed by the FHA.  For most borrowers that bring in a 3.5% down payment, the fee is .55 of the loan amount.

So, if you have a $300,000 FHA loan, your monthly mortgage insurance would cost $137.50 per month.  In many cases, this mortgage insurance is MUCH less expensive than that of conventional loans and private mortgage insurance (PMI).

You can learn more about mortgage insurance here…

Accessible Credit Requirements

FHA loans are also known for being more forgiving when it comes to credit requirements.

Conventional mortgages may be challenging for individuals with less-than-perfect credit scores, but FHA loans are designed to accommodate a broader range of credit profiles.  Most investors will lend with a credit score of 580 or better.

This enables people with lower credit scores to qualify for a home loan, giving greater opportunities for those who may have faced obstacles in the conventional mortgage market.

Flexible Qualification Criteria

FHA loans offer flexibility in qualifying criteria, considering factors beyond traditional income and credit scores.

Lenders can take into account compensating factors, such as a history of timely rent payments or utility bills, making it easier for individuals with unique financial situations to secure a mortgage. This flexibility allows the consideration for a more diverse set of borrowers in the homebuying process.

Government Backing and Stability

FHA loans are backed by the federal government, providing an additional layer of security for both lenders and borrowers.

This backing makes lenders more willing to approve loans for individuals who may not meet the stringent criteria of conventional mortgages. The government support also helps stabilize the housing market by providing a reliable option for financing, even during economic downturns.

In Conclusion

FHA loans provide a range of benefits that contribute to making homeownership more accessible for a diverse group of borrowers. From lower down payment requirements, to the use of gift funds, to flexible credit criteria and government backing, these loans play a crucial role in expanding opportunities for prospective homebuyers.

Do reach out to me for more regarding these FHA programs, as it would be my pleasure to help in any way possible!

The Fed’s Decision, Continued Home Appreciation, and Refinance Opportunities

November 6, 2023 /

There’s been a flurry of news recently, so let’s take a look at what’s been going on – both with interest rates and home valuation.

Is the Fed Done With Rate Hikes?

After eleven rate hikes since March of last year, the Fed left their benchmark Federal Funds Rate unchanged at a range of 5.25% to 5.5% at their meeting last Wednesday, just like they did in September.

The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates.

When the Fed hikes the Fed Funds Rate, they are trying to slow the economy and curb inflation.

What’s the bottom line?

The Fed’s decision to pause rate hikes for the second straight meeting was unanimous. However, Fed Chair Jerome Powell did leave the door open for another rate hike at their next meeting on December 13.

The strength of the labor sector remains a key factor in their decision, with the Fed looking for clear signs that the labor market is softening as they consider further rate hikes.

While the latest job reports for October were weaker than forecasted, it remains to be seen if that’s enough for the Fed to pause additional hikes.

The Fed will see November’s job data from ADP and the BLS (releasing December 6 and December 8, respectively), along with upcoming inflation reports, which will certainly play a role in their decision.

Home Prices Hitting New Highs

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices nationwide rose 0.9% from July to August after seasonal adjustment, marking the seventh consecutive month of gains.

The Federal Housing Finance Agency’s (FHFA) House Price Index also saw home prices rise 0.6% in August, with their index reporting gains every month so far this year.

Note that FHFA’s report measures home price appreciation on single-family homes with conforming loan amounts, which means it most likely represents lower-priced homes. FHFA also does not include cash buyers or jumbo loans, and these factors account for some of the differences in the two reports.

What’s the bottom line?

Home values have hit new all-time highs according to Case-Shiller, FHFA, CoreLogic, Black Knight and Zillow, more than recovering from the downturn we saw in the second half of 2022. This year, prices are on pace to appreciate between 6-8% depending on the index, based on the reported pace of appreciation through August.

These indexes show that now remains a great opportunity for building wealth through homeownership and appreciation gains.

Refinance Opportunities

Refinances still make up almost one third of all mortgage transactions, even though rates have risen.  You may be wondering how this can be? 

Many consumers have amassed a large amount of debt, paying much higher rates of interest, thanks to the Fed hiking rates so aggressively.  And many of those individuals are only making the minimum payments, with no path to paying off their debt. 

At the same time, most homeowners have record levels of equity in their homes.

Many homeowners are benefiting from a type of refinance where we pull that equity out of the home to pay off those debts, saving money on the overall monthly payments. 

Additionally, there are ways to gain equity at an accelerated pace and significantly shorten the length of your mortgage, by applying those savings as an additional payment each month.

Call me today to review your current debt situation and see if I can help!

A Must-Listen Podcast for Real Estate Professionals

October 31, 2023 /

I’d like to link to a podcast from my good friend and fellow mortgage originator Mike Nelson.  Mike is a fantastic resource and provides some wonderful perspective on what’s happening in the marketplace today.

In this episode, he is interviewing real estate agent Paul Gusiff – and it’s a must listen.  If you are short on time, start listening at the 6:20 mark to the end.  It’s really incredible!

Paul has been top tier agent for over 35 years and provides some excellent insights on what’s happening today and how to get ready for the next business cycle.

Paul Gusiff is one of the top real estate agents in Southern California.

Mike Nelson provides fantastic service for loans in Colorado, Florida, and Texas.

I hope you enjoy it!

Interest Rate Forecast For November | Any Relief in Sight?

October 23, 2023 /

I’m asked all the time about mortgage interest rates and what the future holds.  I’m not a prognosticator, but I can link to a few.

Mortgage rates increased for the 6th week in a row, reaching their highest point since December of 2000. 

The average 30-year fixed rate mortgage moved from 7.57% on Oct. 12 to 7.63% on Oct. 19, per Freddie Mac.

Mortgage rates have fluctuated significantly this year and have consistently moved upward in the second half of 2023. The average 30-year fixed rate was as low as 6.1% on February 2nd and climbed up to 7.63% on October 19th, according to Freddie Mac.

Here’s what some of the experts are saying…

For the full story from The Mortgage Reports, click here…

Please do contact me for more, as it would be my pleasure to discuss what’s happening in the marketplace and strategies for purchasing today!

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