The Lending Coach

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

Author: Tom Bonetto (page 1 of 20)

Baseball Coaching Drills for Youth Teams

I’ve been coaching youth/club baseball with my friends Matt Palmer, Kevin Bacchus, Brian Beltramo, and Bret Prinz for many, many years.  We’ve had a blast together…and we have been given the opportunity to coach some fine players.

Matt and I were talking the other day, looking back at some of the great times and great teams we’ve been fortunate enough to coach.  We reminisced about how our practice plans were extremely simple – and that the skills we were instilling helped our players win more than a few ballgames.

Not to say that the practices were unscripted or easy (they were neither) – but we relied on a handful of drills to help develop proper fundamentals and simulate game situations.

Interestingly enough, in a little under 2 hours a few times a week, we essentially did the same, relatively simple team drills with all of our players. 

We would take the last 45 minutes or so for batting practice and bullpens…so that left us 75 minutes for all of our defensive related drills.

We did these drills EVERY practice.  Here are our 4 favorites:

Bare Handed Ground Balls

We would line the players up in either one or two lines and roll them ground ball after ground ball.  Our focus was to have the players not rely on their gloves, but have soft hands, and field the ball out in front of them in a proper fielding position.

Then they would consciously watch the ball all the way into their hands, then gather the ball with their eyes still on it, and step-and-throw.

Triangle Drill

We would put one third of the kids at shortstop, a third at first, and a third behind the plate.  The coach hits a ground ball to the shortstop, who fields and throws to first, and the first basemen throws to the catcher. 

Each player then follows his throw to the next position (short to first, first to catcher, catcher to short). 

Not only are we working on fielding, throwing, and catching – we are working on team play and endurance.  Don’t underestimate the cardiovascular workout with this one!

4-Corners Drill

We would place players at all 4 bases and throw the ball around the horn – home to first, then to second, next to third, and finally to home for starters. 

We would then switch directions…and the players would switch positions on the field so everyone would have a chance to play all positions.

Sometimes they would be force plays, other times, we would have them catch-and-tag.

Relay Drill

We put the players in 2 or 3 groups (depending on the number of players) – and space them out about 60 feet apart in groups, essentially two or three long lines of players from foul-pole to foul-pole.  The ball would start at one end and be thrown from player to player until it reached the other end.

We worked on game simulated relays in this fashion, focusing on body positioning and feet movement.

At the end, we would hold a competition or “race” to see which team could perform the task the quickest and most effectively.  If a team drops the ball, they pick it up and keep going. 

As you can imagine, the most proficient team with the fewest or no drops would always win, regardless of the speed of the transition from one player to the next.

I can’t stress more strongly the need for these types of drills, especially with younger players.  Our teams were fundamentally strong, for the most part, and they were able to execute team plays quite effectively…even at age 10.

If you’d like to find out more about practice planning for young players, do feel free to reach out, as I’d be happy to share more.

Quick Credit Score Improvement Tips

Let’s talk credit, as it’s so important. Your FICO scores can determine whether you are able to purchase that home or not, and save you a good deal of money on the rate you’re going to pay if your scores are good.

Of course, you want to make your payments on time, but how can you actually improve your credit score in a relatively short period of time? What can you do?

Here are a few things that you might be able to do relatively quickly and improve your scores…

Lower The Balances

It’s a good idea to keep the balance you owe on any of those accounts below 30% of the credit line. If you have a credit card with $1000 limit on it, keep your balance to $300 or less.

Increase The Trade Line

So, what if your balance is higher than that and you can’t bring it down? Well, go to that credit card issuer and ask them if they’re willing to give you a higher limit. By bringing the limit up, the amount you owe becomes a smaller percentage of your limit. That will help your score.

Don’t Close Accounts

One key thing to remember, don’t close off any credit lines that you have from the past. That’s good history that you’ve built up. You want to keep that good history. It’s like getting straight A’s in high school and not wanting to show the report card. Keeping good history will help your credit score. 

Collection Accounts

Finally, think about some of those collection accounts – only if they’ve popped up. If the seven-year reporting period is up (starting from when you first went delinquent with the original debt), dispute the debt from your credit report. Any proof you have regarding the first date of delinquency will strengthen your dispute.

When All Else Fails 

If you’re not able to get the collection account removed from your credit report, pay it anyway. A paid collection is better than an unpaid one and shows future lenders that you’ve taken care of your financial responsibilities. Once you’ve paid the collection, just wait out the credit reporting time limit and the account will fall off your credit report.

If you have more questions about your credit and how it impacts your ability to finance a home, please do reach out to me, as it would be my pleasure to help!

The Cost of Waiting to Purchase a Home and Trying to Time the Market

If you’re shopping for a home today, you know it can be hard work. You might not find something right away and it’s easy to become frustrated and fatigued.

Sometimes buyers get discouraged and say, “Let me take off a few months, maybe I’ll come back 6 months later.”

Some, on the other hand, think that the market might weaken shortly or that interest rates will fall even further…and are trying to essentially “time the market” Is that the right strategy?

The Cost of Waiting

Here’s the potential problem with that thinking…while you might want to take time off and away from your search, the market isn’t taking time off!

The cost of waiting to buy is defined as the additional funds it would take to buy a home if prices & interest rates were to increase over a period of time.

The market is quite good in terms of appreciation right now in California and Arizona. The forecasted growth in value is 2.4% in just the next 6 months; let’s quantify that.

The Numbers

A home worth $300,000 today would be worth $7,300 more in 6 months. Additionally, if you were planning on putting the same percent down, you would have to borrow more because the home is more expensive.

What about interest rates? Rates today are at very attractive levels, so does it make sense to wait for rates to go down further…and what if they don’t?

No, the monthly savings with a lower rate are nice but are dwarfed by the missed appreciation and amortization, and it would take many, many years to recoup what you would have lost.

One other thing to consider…if rates drop significantly after your purchase, you can always refinance in the future to take advantage of that lower rate.

Today’s Data

Here’s the data from FHFA – see how the forecast is for nearly 5% appreciation in the year ahead. The longer you wait, the more you miss out on appreciation and the more expensive you new purchase will be.

Stick with it, keep shopping, and you will find something. Don’t hesitate to reach out to me with questions, as it would be my pleasure to help!

Know Your Down Payment Options: From 0% to 20%+

Coming up with enough cash for a down payment when buying a house is the single biggest roadblock for many hopeful home buyers.

But how much do buyers really need?

What is a down payment?

In real estate, a down payment is the amount of cash you put towards the purchase of home.

It is deducted from the total amount of your mortgage and represents the beginning equity — your ownership stake — in a house and property.

Down Payment Options

Many borrowers still believe that 20% is the minimum…and that’s just not the case.  There are options from 0% to 20%+ that can work for many would-be buyers.

For today’s most widely-used purchase mortgage programs, down payment minimum requirements are:

  • FHA Loan: 3.5% down payment minimum
  • VA Loan: No down payment required
  • HomeReady/Home Possible Conventional Loan (with PMI): 3%
  • Conventional Loan (with PMI): 5%
  • Conventional Loan (without PMI): 20% minimum
  • USDA Loan: No Down Payment required
  • Jumbo Loan: 10% down

PMI is “private mortgage insurance…and you can find out more about that here…

Remember, though, that these requirements are just the minimum. As a mortgage borrower, it’s your right to put down as much on a home as you like and, in some cases, it can make sense to put down more.

Benefits of a larger down payment

Conventional loans without mortgage insurance require a 20% down payment. That’s $60,000 on a $300,000 home, for example. There are a number of benefits to bringing in 20%:

  • No mortgage insurance
  • Lower interest rate, in most cases
  • More equity in your home
  • A lower monthly payment

As a reminder, the down payment is not the only upfront money you have to deal with. There are loan closing costs (you can find out more about those here…) and earnest money to consider as well. Before the dramatic music returns, let’s explore some lower down payment options.

Benefits of a smaller down payment

From Dan Green at The Mortgage Reports:

“A large down payment helps you afford more house with the same payment. In the example below, the buyer wants to spend no more than $1,000 a month for principal, interest, and mortgage insurance (when required).

Here’s how much house this home buyer can purchase at a 4 percent mortgage rate. The home price varies with the amount the buyer puts down.”

Even though a large down payment can help you afford more, by no means should home buyers use their last dollar to stretch their down payment level.

A down payment will lower your rate of return

“The first reason why conservative investors should monitor their down payment size is that the down payment will limit your home’s return on investment.

Consider a home which appreciates at the national average of near 5 percent.

Today, your home is worth $400,000. In a year, it’s worth $420,000. Regardless of your down payment, the home is worth twenty-thousand dollars more.

That down payment affected your rate of return.

  • With 20% down on the home — $80,000 –your rate of return is 25%
  • With 3% down on the home — $12,000 — your rate of return is 167%

That’s a huge difference.

However! We must also consider the higher mortgage rate plus mandatory private mortgage insurance which accompanies a conventional 97% LTV loan like this. Low-down-payment loans can cost more each month.

Assuming a 175 basis point (1.75%) bump from rate and PMI combined, then, and ignoring the homeowner’s tax-deductibility, we find that a low-down-payment homeowner pays an extra $6,780 per year to live in its home.”

Once you make your down payment, it’s tougher to get that money back

More from Green: “when you’re buying a home, there are other down payment considerations, too.

Namely, once you make a down payment, you can’t get access to those monies without an effort.

This is because, at the time of purchase, whatever down payment you make on the home gets converted immediately from cash into a different type of asset known as home equity.

Home equity is the monetary difference between what your home is worth on paper, and what is owed on it to the bank.

Unlike cash, home equity is an “illiquid asset”, which means that it can’t be readily accessed or spent.

All things equal, it’s better to hold liquid assets as an investor as compared to illiquid assets. In case of an emergency, you can use your liquid assets to relieve some of the pressure.

It’s among the reasons why conservative investors prefer making as small of a down payment as possible.”

In Conclusion

As you can see, there are a wide variety of down payment options for buyers.  Please feel to contact me to go over those choices, as it would be my pleasure to help you in financing your next home.

Visualization – A Great Baseball Mental Exercise

I’m linking to a fantastic article from Geoff Miller at The Winning Mind regarding visualization and it’s fantastic capabilities to help baseball athletes prepare.

What is Visualization?

Visualization is the widely used mental technique of “seeing” your performance in your mind.

The technique is generally done by closing your eyes and imagining a play or action.  It can also be used as a primary training device to take the place of actual physical activity when a player is unable to practice.

You can read the entire piece here…and here’s a little bit about Geoff Miller and The Winning Mind:

Geoff is an expert in baseball psychology and manages sport programs at Winning Mind. Since 2005, Geoff has provided mental skills coaching services to the Pittsburgh Pirates (2005-2009), Washington Nationals (2010), and Atlanta Braves (2010-2014.) 

Why Does Visualization Work?

Per Miller’s article, visualization is effective for two primary reasons:

1. “It strengthens neural pathways, the roads that our brain uses to send out messages to our bodies. A strong neural pathway is like an exact route you know to get from your house to the airport, the mall, etc. The more you picture yourself executing your skills, the stronger your neural pathways become until eventually you feel so comfortable playing your game that the movements feel automatic.”

2. “Our brains see real performance and imagined performance the same. We experience this phenomenon often in our dreams.  For example, you might dream that you are falling and wake up bracing yourself or dream that you are in a panic and wake up sweating.  When you’re awake you might experience a real feeling if someone describes that light, tingling you get that resonates from the bat all the way down your arms when you connect with the ball on the barrel or the stinging in your hands when you get jammed on a ball.”

How Do You Do It?

Miller continues: “When practicing visualization, you should describe the sounds and feelings that go along with swinging the bat, fielding the ball, and throwing pitches. In comic books, Batman and Superman would beat up the villains by punching them, but to get added effect, the artist would draw in a big POW and BAM. When a bomb went off, you’d read KABOOM! These words strengthen our pictures and make our visualization exercises more effective.

Pitching words: fastball ZIP, curveball DIP, slider WHOOSH, POP into the glove

Hitting words: CRACK, SLAM, WHAM, CONNECT, LIGHTNING, POW

Fielding words: GLIDE, REACH, STRETCH, SCURRY, LEAP”

In Conclusion

The biggest issue that many players have with using visualization is not that they can’t imagine the details of their performance, but that they can’t see themselves succeeding.

If this is the case, I’d highly recommend that you read the complete piece here.

The goal we are trying to reach in using the mental game is to know what to do without thinking about it. As Miller says, “using visualization helps us practice our skills so we are more familiar with them and we feel like we’ve already “seen” our performance happen when it does.”

Mortgage Interest Rates and The Federal Reserve

I receive a number of questions regarding mortgage interest rates every time there is a meeting of the Federal Reserve Board. 

Most assume that the Federal Reserve controls mortgage interest rates…and, interestingly, that’s not the case.

I’m linking to a fantastic article by Dan Green at The Mortgage Reports – he does a great job in highlighting what really takes place with mortgage rates.  You can read the entire piece here…and I’ll highlight a few key pieces below.

The Federal Reserve Open Market Committee

The Federal Reserve Open Market Committee (FOMC) is a rotating, 12-person sub-committee within the Federal Reserve, headed by current Federal Reserve Chairman Jerome Powell. The FOMC meets eight times annually on a pre-determined schedule, and on an emergency basis, when needed.

The FOMC’s most well-known role worldwide is as keeper of the federal funds rate.

The Federal Funds Rate is the prescribed rate at which banks lend money to each other on an overnight basis.  It is not correlated to mortgage rates.

The FOMC met a few weeks ago and dropped the federal funds rate by .25 basis points to 1.75%.

The Federal Reserve does not control mortgage rates

Here’s a fantastic graph (courtesy The Mortgage Reports) that shows how the Federal Funds Rate does not track with the 30-year mortgage rate (the green section tracks the mortgage rate, while the blue section highlights the Federal Funds rate):

When the Fed Funds Rate is low, the Fed is attempting to promote economic growth. This is because the Fed Funds Rate is correlated to Prime Rate, which is the basis of most bank lending including many business loans and consumer credit cards.

For the Federal Reserve, manipulating the Fed Funds Rate is one way to manage its dual-charter of fostering maximum employment and maintaining stable prices.

The Federal Reserve can affect today’s mortgage rates, but it does not and cannot set them.

The Federal Reserve has no direct connection to U.S. mortgage rates whatsoever.

The Fed Funds Rate and Mortgage Rates

As Dan Green states: “It’s a common belief that the Federal Reserve ‘makes’ consumer mortgage rates. It doesn’t. The Fed doesn’t make mortgage rates. Mortgage rates are made on Wall Street.

Here’s proof: Over the last two decades, the Fed Funds Rate and the average 30-year fixed rate mortgage rate have differed by as much as 5.25%, and by as little as 0.50%.

If the Fed Funds Rate were truly linked to U.S. mortgage rates, the difference between the two rates would be linear or logarithmic — not jagged.”

With that said, the Fed does exert an influence on today’s mortgage rates.

Fixed Mortgage Rates vs. Treasury Yields

A far better way to track mortgage interest rates is by looking at the yield on the 10 year Treasury bond.  These two seem to track quite closely:

The 30-year fixed mortgage rate and 10-year treasury yield move together because investors who want a steady and safe return compare interest rates of all fixed-income products.

U.S. Treasury bills, bonds, and notes directly affect the interest rates on fixed-rate mortgages. How? When Treasury yields rise, so do mortgage interest rates. That’s because investors who want a steady and safe return compare interest rates of all fixed-income products…and investors move to these type of products to fulfill their needs.

What the Fed Says Impacts Mortgage Rates…and Bond Prices

Dan Green outlines how the Fed impacts rates: “the Fed does more than just set the Fed Funds Rate. It also gives economic guidance to markets.

For rate shoppers, one of the key messages for which to listen is the one the Fed spreads on inflation. Inflation is the enemy of mortgage bonds and, in general, when inflation pressures are growing, mortgage rates are rising.

The link between inflation and mortgage rates is direct, as homeowners in the early-1980s experienced.

High inflation rates at the time led to the highest mortgage rates ever. 30-year mortgage rates went for over 17 percent (as an entire generation of borrowers will remind you), and 15-year loans weren’t much better.

Inflation is an economic term describing the loss of purchasing power. When inflation is present within an economy, more of the same currency is required to purchase the same number of goods.”

Meanwhile, mortgage rates are based on the price of mortgage-backed securities (MBS) and mortgage-backed securities are U.S. dollar-denominated. This means that a devaluation in the U.S. dollar will result in the devaluation of U.S. mortgage-backed securities as well.

When inflation is present in the economy, then, the value of a mortgage bond drops, which leads to higher mortgage rates.

This is why the Fed’s comments on inflation are closely watched by Wall Street. The more inflationary pressures the Fed fingers in the economy, the more likely it is that mortgage rates will rise.

Off-Season Baseball Strengthening and Flexibility

I’m linking to a great article from COR (a California based physical therapy firm) that outlines specific, baseball related strengthening and flexibility exercises.   

Baseball is unique in that many typical weight training exercises can be counterproductive, as players really need to stay flexible, but strong at the same time. 

Doing bodybuilding type work can actually be detrimental, as you can’t play baseball effectively if you are muscle bound!

Many of these exercises shown in the COR sequence are similar to what Jordan Zimmerman uses with his ZB Velocity and Strengthening program – and you can find our more on that here…

Here’s their concept:

Let’s explore what makes great exercises for baseball players. You need to know which exercises are blunders so you can pick the best for your performance and your body. Great exercises for baseball players do the following:

  • Train the entire body
  • Improve explosive power
  • Strengthen and protect the shoulder
  • Improve mobility of the thoracic spine
  • Improve ankle, trunk, and shoulder mobility

What exercises should not be are painful. Don’t shy away from soreness, but don’t fall victim to the ridiculous myth – “no pain, no gain.”

Baseball players need to focus on balance, explosive power, agility, and rotational power. Strength-training helps baseball players achieve these results, but only if the exercises are done properly and with the mechanics of the game in mind.

What baseball players need to avoid are exercises that exhaust only certain muscles, such as muscles in the shoulder. Doing so causes significant imbalances and leads to injury instead of success on the field. Baseball is a full-body sport, so the greatest exercises for baseball players must address all the muscles, not just a select few. 

I highly recommend that you go through this link and take a look at the exercises and make them part of your routine. 

Economic Turbulence on the Horizon – Recession, Rates, and Real Estate

It does look like most economists are pointing to a recession (although most do think it will be relatively mild by historical standards) in the next 12 months.

A recession occurs when there are two or more consecutive quarters of negative economic growth, meaning GDP growth contracts during a recession.

When an economy is facing recession, business sales and revenues decrease, which cause businesses to stop expanding.

How do the economists know this?  And what does this mean for interest rates and real estate values?  Read on for more…

Recessionary Indicators

The Yield Curve

One of the major indicators for an upcoming recession is the spread between the 10-year US treasury yield and the 2-year US treasury yield.

While various economic or market commentators may focus on different parts of the yield curve, any inversion of the yield curve tells the story – an expectation of weaker growth in the future.

What does this inverted yield curve look like?  Here’s a good depiction:

Why does inversion matter?  Well, the yield curve inversion is a classic signal of a looming recession. 

The U.S. curve has inverted before each recession in the past 50 years. It offered a false signal just once in that time. 

When short-term yields climb above longer-dated ones, it signals short-term borrowing costs are more expensive than longer-term loan costs. 

Under these circumstances, companies often find it more expensive to fund their operations, and executives tend to temper or shelve investments.

Consumer borrowing costs also rise and consumer spending, which accounts for more than two-thirds of U.S. economic activity, slows.

Unemployment

Unemployment is a recessionary factor, too – as economic growth slows, companies generate less revenue and lay off workers to cut costs.

A rapid increase in the overall unemployment levels—even if relatively small—has been an accurate indication that a recession is underway.

Here’s a chart that shows what happens when unemployment starts to trend upward – and notice that recessions follow shortly thereafter:

As you can see, when things in the economy starts to slow down, one of the first things business do is to reduce their labor force.  The curve is flatting now, and unemployment might be ticking up soon.

Mortgage Rates During Recession

When a recession hits, the Federal Reserve prefers rates to be low. The prevailing logic is low-interest rates encourage borrowing and spending, which stimulates the economy.

During a recession, the demand for credit actually declines, so the price of credit falls to entice borrowing activity. 

Here’s a quick snapshot of what mortgage rates have done during recessionary periods:

Obtaining a mortgage during a recession might actually be a good opportunity. As mentioned, when the economy is sluggish, interest rates tend to drop.

Refinancing or purchasing a new home could be a great way to get in at the bottom of the market and make a healthy profit down the road. A borrower should be market- and financially savvy when considering large real estate purchases in a recession

Real Estate During Recession

Believe it or not, outside of the “great recession” of 2007 (which was caused, in part, to a housing crisis), home values and real estate actually appreciate historically during times of recession.

That seems counter intuitive…but because interest rates generally drop during recessionary periods, homes become MORE affordable to potential buyers (even though property values are higher), due to the lower payments provided by those lower rates.

When more people can qualify for homes, the demand for housing increases – and so do home prices.

In Closing

Although no one likes to see recession, you can observe that it actually can be beneficial for homeowners and would-be purchasers to refinance or purchase during these periods.

If you have more questions and or would like to strategize about purchasing or refinancing, don’t hesitate to contact me, as it would be my pleasure to help you!

Which Is Better: Cash-Out Refinance or a HELOC?

When you need cash for home improvements, school tuition, a down payment for a 2nd home, or debt consolidation, you might want to consider tapping into what could be your greatest source of wealth — your home equity.

Interestingly, there is more than one way to access your home equity – so it’s smart to compare available options to find the right fit.

Two of the most popular ways are a home equity line of credit (HELOC) and a cash-out refinance. Both of these loans can work if you want to access your home equity, but they do work rather differently.

The “Cash-Out” Refinance

Cash-out refinancing involves replacing your current home loan with a new one. The “cashing out” part of the equation means you essentially take out a larger home loan than you currently have so you can receive the difference as a lump sum. This strategy works for those who have equity in their homes due to paying down their mortgage balances or appreciation of their property.

To qualify for a cash-out refinance, you need to meet similar requirements as you would if you were applying for a first mortgage – and you must have the equity in your home to qualify, as well.  You can borrow up to 80% of your home’s value.

So, let’s assume your home has a value of $300,000 and you want to take cash out. In that case, you could only borrow up to $240,000 through a cash-out refinance. If you owe that much or more on your home already, you wouldn’t qualify.

The Home Equity Line of Credit (HELOC)

While a cash-out refinance requires you to replace your current mortgage with a new one, a HELOC lets you keep your first mortgage exactly how it is.

Acting as a second mortgage, a HELOC lets you borrow against your home equity via a line of credit. This strategy allows you to withdraw the money you want when you want it, then repay only the amounts you borrow.

You now have two mortgage payments to make each month – your first mortgage payment and the new HELOC.

To qualify for a HELOC, you need to have equity in your home. Depending on your creditworthiness and how much debt you have, you may be able to borrow up to 85% of the appraised value of your home after you subtract the balance of your first mortgage.

For example, let’s say your home is worth $300,000 and the balance on your mortgage is currently $200,000. A HELOC could make it possible for you to borrow up to $255,000, because you would still retain 85% equity after accounting for your first mortgage and your HELOC.

Generally speaking, HELOCs work a lot like a credit card. You typically have a “draw period” during which you can take out money to use for any purpose. Once that period ends, you may have the option to repay the loan amount over a specific amount of time or you might be required to repay the balance in full.

Like credit cards, HELOCs also tend to come with variable interest rates, so you should be prepared for some rate volatility.

Key Differentiators

Before you decide between a HELOC or a cash-out refinance, it helps to do some analysis on your personal finances and your overall goals.

A cash-out refinance may work better if:

  • Your current home loan has a higher rate than you could qualify for now, so refinancing could help you save on interest
  • You need more than $50,000 overall
  • You prefer the stability of a fixed monthly payment or only want to make one mortgage payment every month
  • You have high-interest debts and want to consolidate them at the same rate as your new mortgage
  • What you save by refinancing — such as savings from a lower interest rate — outweighs the fees that come with refinancing
  • You are able to roll your closing costs/fees into the new loan amount so there are no out-of-pocket costs

A HELOC may work better if:

  • You are happy with your first mortgage and don’t want to trade it for a new loan
  • You need less than $50,000 overall
  • Your first mortgage has a lower interest rate than you can qualify for with today’s rates
  • You aren’t sure how much money you need, so you prefer the flexibility of having a line of credit you can borrow against
  • You want to be able to borrow up to 85% of your home’s value versus the 80% you can borrow with a cash-out refinance

Here’s a quick “snapshot” of two different options – notice how the smaller transaction works well with the HELOC, the larger one with the refinance.

As you can see, for the smaller transaction, the HELOC is less expensive overall – both in fees and monthly payment. However, once you go over the $50,000 mark in cash-back, it appears that the cash-out refinance is the most economical, all things considered.

I’d invite you to find out more from Gina Pogol at The Mortgage Reports here….and Holly Johnson at Magnify Money here….

HELOC Pros and Cons

Pros

  • Applying for a HELOC allows you to maintain the terms of your original mortgage, which can be an advantage if your rate is low.
  • You can use money from a HELOC for anything you want, and you only have to repay amounts you borrow.
  • HELOCs tend to come with lower closing costs than traditional mortgages and home equity loans.
  • HELOCs can generally be closed quicker than refinances

Cons

  • Taking out a HELOC means you’ll need to make two housing payments every month — your first mortgage payment and your HELOC payment.
  • Interest on a HELOC is no longer tax-deductible, unless the funds are used for acquisition or updating your home.
  • They are more expensive the more you borrow – if you are needing more than $50,000, your payments might be higher than that of a refinance
  • Since you only repay what you borrow and the interest rate on HELOCs is typically variable, you may not be able to anticipate what your monthly payment will be. Your monthly payment could also be interest only at first, meaning your payment won’t go toward the principal or help pay down the balance of your loan.
  • The interest rate on HELOCs tends to be higher than first mortgages, and their variable rates can seem riskier. You may also be required to pay a balloon payment at the end of your loan, so make sure to read and understand the terms and conditions.

Refinance Pros and Cons

Pros

  • You can use the money from a cash-out refinance for anything you want, including home upgrades, college tuition, a vacation or debt consolidation.
  • If rates have gone down or your credit has improved since you took out your original home loan, you could refinance your mortgage into a new loan with a lower interest rate.
  • You can choose from different types of loans for your refinance, with various terms and fixed or variable rates available.
  • Interest on your first mortgage may be tax-deductible.
  • Interest rates on first mortgages tend to be lower than other options, such as home equity loans or HELOCs.

Cons

  • Closing costs for a cash-out refinance are typically higher than those of a HELOC
  • If interest rates have gone up since you purchased your home, you could be trading your mortgage for a higher interest loan that will be more expensive.
  • Refinancing your home to take cash out may leave you in mortgage debt longer.
  • You won’t qualify for a cash-out refinance unless you have at least 80% equity in your home after the process is complete.

In Conclusion

As you can see, there’s really no right or wrong decision to be made here, but it is important that you know the benefits and drawbacks of both options. Please do reach out to me for more information, as I’d be happy to go over the specifics of your scenario to find the best option.

A True Mortgage Approval Before a Purchase – The “TBD” Underwrite

In today’s competitive real estate market, potential home-buyers need every advantage they can get.

One way to differentiate your offer from the myriad of others is a true “TBD underwritten” loan approval. 

I’m not talking about the typical pre-qualification letter that is a cursory overview of a borrower’s ability to gain an approval, but a fully underwritten approval that is only waiting for a contract.

This process is for the home-buyer who wants a solid, iron clad pre-approval that has been fully underwritten and signed off by mortgage underwriters. 

How does that work?

Well, it works very similarly to a full-fledged underwrite – except the address is left blank – or “TBD” (to be determined).  The underwriter analyzes the file as if it was a true loan – and provides the actual loan conditions that the borrower must meet.

What’s the downside?

The only real downside is time.  This process could take as long as a few weeks, because all documentation needs to be gathered (tax returns, W2s, pay stubs, bank statements, etc.) and then analyzed by the underwriter.

What’s the advantage?

There are a multitude of advantages.  First and foremost, the borrower will know the exact size of the mortgage that they will be able to qualify for.  They will have a very good idea of the monthly payment and be assured that the loan will go through.

Equally important, the offer you submit will essentially be like a cash offer.  The real estate agent presenting the offer will share with the seller’s agent that the mortgage approval is actually confirmed – not pre-qualified.  This will make your offer much more attractive to the sellers, as they don’t have to be concerned about mortgage approval.

Finally, the closing can take place more quickly than standard financed transactions.  Essentially all that’s needed is an appraisal to confirm the value of the property.  Instead of a 30 to 45 day close, these can be done in less than 20!

In Conclusion

If you know that you will be purchasing a home in the near future, ask your mortgage lender about a “TBD approval” to see if that’s an option.  If so, I highly recommend that you go through the process early – and in that way you will be miles ahead of your buying competition!

Please do reach out to me for more information, as I can absolutely help you with a “TBD” underwrite!

« Older posts

© 2019 The Lending Coach

Theme by Anders NorenUp ↑