The Lending Coach

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

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March Home Appreciation and Interest Rate Update

hands over plant

Good news for home owners and buyers alike – home appreciation remains strong.

Interest have moved to historic lows due to multiple factors, including the virus scare.

line on graph with arrow

The Federal Reserve has cut it’s funds rate by .50 basis points in an attempt to “provide a meaningful boost to the economy”, per Chairman Jerome Powell.

With these things in mind, make sure you have a solid game plan to navigate the market right now. Think about inventory, equity in your home, second homes, and investment properties as strategies to build wealth.

It’s also a good time to take a look at refinancing any properties you own, as rates have dropped significantly over the last 2 years.

The housing reporting benchmark, CoreLogic, reported that home prices rose 0.1% in January and 4.0% year over year.

graph of current and forecast home prices rising

The year-over-year reading remained stable from last month’s report. CoreLogic forecasts that home prices will appreciate by 5.4% in the year going forward, which slightly higher pace. from the 5.2% forecasted in the previous report.

This is great news for would be buyers, as they can expect a great return on their investment!

Do reach out to me to find out more, as it would be my pleasure to help you determine the right strategy for today’s environment.

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Building Mental Toughness in Baseball

I’m linking to a very important article from Dr. Gene Coleman on building mental toughness in baseball. Dr. Coleman is a strength and conditioning consultant in the MLB and has written numerous articles on the mental and physical sides of the game.

This article comes from the Professional Baseball Strength and Conditioning Coaches Society and I invite you to read the entire piece here…

I’ve highlighted and quoted some of the key passages that I believe would be most useful for players:

What is mental toughness?

Webster’s dictionary defines, mental toughness as “the ability to consistently perform toward the upper range of your talent and skill regardless of competitive circumstances.”

That’s actually a pretty good definition.

“Coaches say that mental toughness is resilience; the capacity to recover quickly from difficulty, failure, and defeat. Many sports scientists say that mental toughness is an acquired positive mindset.”

What are the characteristics of mentally tough athletes?

“Mentally tough athletes have clarity of mind and firmness of purpose. They desire to be great, and settling for good is never an option. They know how to win and stand tall in the face of adversity.

They make fewer mistakes and possess a work ethic, winning mentality and self-confidence. Mentally tough performers refuse to be intimated. They are able to stay focused and manage pressure. They hate to lose, but don’t dwell on defeat.

They accept losing as an inevitable consequence of meeting someone better on a given day. They are gracious in defeat and positive about the future. They believe in themselves and are positive about the future.”

How do you become mentally tough or tougher?

“This is the million or sometimes the multi-million-dollar question. There are a number of effective approaches that baseball players can take to help develop and improve mental toughness.

There are number of excellent sports psychologists that can help as well as reputable self-help books, articles and internet websites. There are also a few basic things that all players can do that have been shown to be effective first-steps to include the following:

Control what you can control

Nolan Ryan says that you should never lose because the other team was better prepared than you.

The only thing that you can control is how you prepare for the game. That includes how much sleep you get, timing, frequency, size and quality of meals, emotions, body language, mental state, work ethic (consistency of skill work, physical conditioning and recovery techniques), body language and response to success and failure.

Randy Johnson said that he went from being a good pitcher to a great pitcher when Nolan Ryan helped him control his emotions and body language both on the mound and in the dugout.

Nolan explained how his body language and emotional response to failure could have a positive effect on the opposition and negative effect on his teammates.

Once he understood this and was able to control his negative thoughts, poor body language and emotional outbursts, his mental attitude, confidence and performance improved significantly.

Are you the guy who shrugs his shoulders and puts his head down when you give up a run or a teammate makes an error? Do you sit in the corner of the dugout after you make an error or strikeout with the bases loaded, or are you the guy who says “my bad – get him next time,” stands up and supports your teammates? Your actions and reactions can affect not only your performance, but that of your teammates and opponents.

Controlling what you can control is an effective first step to improved mental toughness and performance. You can help your team by being a good teammate, getting on base, making a play in the field, expanding the opposing pitcher’s pitch count, advancing on a passed ball, etc.

Help comes in many forms. At the MLB level, most managers ask their players to do three things to help the team win: 1) be on time; 2) be a good teammate; and 3) respect the game. They don’t ask for shutouts, game winning hits, hi-lite plays or home runs.

A good teammate has a good work ethic, takes care of his body, shows up early, stays late, has a team-first attitude, doesn’t sulk when he fails or gloat when he succeeds, doesn’t point fingers, picks his teammates up, accepts blame and gives credit.  If you are on time, a good teammate and respect the game, the other things will take care of themselves.”

Have a Positive Attitude

“Your attitude and emotions can affect how you and your teammates perform both on and off the field. Don’t let your performance affect your attitude and emotions.

Coaches, teammates, parents and fans should not be able to tell what kind of game you had after a win or loss. Remain even keeled after both wins and losses. Be happy after a win and determined after a loss, but don’t get too high or too low after either.

Be disappointed and determined after a loss even if you had a great day. Good teammates are able to control their emotions and have a positive attitude even under unpleasant circumstances.”

Dictate your attitude

“Don’t let your personal or team performance dictate your attitude. Having a positive attitude makes you look good in the eyes of your coaches, fans, parents and teammates.

Be in control of your attitude when you show up to the field, during the game, after the game and on the ride home. Leave what you did yesterday in the past. You can’t change it. Don’t worry about the future. You can’t control it.

Control what you can control. Stay in the present, trust your preparation and make the most out of the game in front of you.”

Do the Hard Things First

“Determine your weakest skill and work on it first both at home and during practice.

If you are having trouble with backhand plays, work on them first when your body, mind and reactions are fresh. Don’t save them for last when you are fatigued.

Fatigue inhibits performance. Avoid doing the most important thing when you are tired. If you are having trouble with your breaking ball, work on the spin first at a shorter distance, say 20-feet.

A sprinter who is having trouble with his start, doesn’t run 100-yards every rep. He shortens up and works on getting out of the blocks and his first 3-4 steps. If you can’t control the spin at 20-feet, throwing 60-feet won’t make it better.

The same goes for hitting, catching balls in the outfield, blocking balls behind the plate and running the bases. Work on what you are having trouble with first. You going to be only as good as your weakest link.

Working on your strengths will not improve your weaknesses. Identify your weakest links and address them head on the first thing every day. Work smart. Have a plan, execute the plan, reevaluate the plan and make adjustments when and where needed.

If you are a catcher and having trouble blocking balls, determine if it’s your lack of skill or lack of strength and mobility. Your body is a 3-link chain – 1) your hips and legs, 2) core and 3) upper body, arms and hands. A chain is only as strong as its weakest link. You initiate force in the lower body and transfer it through the core to the chest, shoulders, arms and hands.

You can have the fastest hands in the league, but if your legs or core are weak, you will not have the strength, mobility and speed to get your body in the right position for your hands to do their job. Conditioning enables an you to put your body in the proper position to effectively perform the drills enough times (reps) to improve performance.

If you are not in shape to do the drills properly and repeat them enough times to enhance performance, you are wasting valuable time. Get in shape to do the work and then work on the things that you can’t and don’t like to do first.

If you are lifting weights, do the exercise you like least first when you are fresh. If you wait, chances are you won’t want to work on your weakness or you will not give it your best effort. When you choose to do the hard things first, you develop mental toughness and the game and life become easier.

When you choose the easiest first, you get mentally weaker and the game and life become harder.

Developing and improving mental toughness and effective performance is not a quick fix. You can’t microwave toughness or skill. You can, however, focus on what you can do on a daily basis to make yourself and the team better. The goal should be to make your team more successful, and this starts by making yourself better.”

Second Homes and Investment Properties – A Mortgage Primer

UPDATED 3/6/2023…

I work with a wide variety of clients, from first time buyers to seasoned investors…and many in between.  However, some of the most frequent questions I receive deal with second home mortgages versus investment property financing.

Interestingly, there are specific rules and regulations for both, and I’d like to outline a number of major differences between them.

In general, whether you’re buying a vacation home or an investment property, you’ll pay higher mortgage rates and have to meet stricter guidelines to qualify.

I’m linking to an article from Peter Miller at The Mortgage Reports – and you can see his entire piece here…

Interest Rate Differences

Mortgage rates are higher for second homes and investment properties than for the home you consider your primary residence.

In general, second home and investment property interest rates are about 0.625% to 1% higher than market rates for primary homes.

Of course, investment property and second home mortgage rates depend on similar factors as those for your primary home. Each borrower’s situation will vary based on income, credit score, assets, and down payment percentage, just to name a few elements.

Why Are Second Home and Investment Interest Rates Different?

Per Miller, “The home you live in (your “primary residence”) is seen as the least risky form of real estate. It’s likely to be the one bill homeowners will pay if times get tough. A vacation home or investment property, on the other hand, is riskier. Borrowers are a lot more likely to forego those payments when money is short.

Because of the higher risk second homes pose, they come with stricter rules about financing.”

Second Home Mortgage Regulations

There are a few key things a buyer needs to know about mortgage requirements if they are considering a second or vacation home.  First of all, one you will essentially live in for part of the year, but not full time.

Lenders expect a vacation or second home to be used by you, your family, and friends for at least part of the year. However, you’re generally allowed to rent the house out when you’re not using it.

If you plan to rent the property when you are not there, you cannot use expected income from that property to help income qualify for the loan.

Down Payment of 20% or More

Most lenders will want at least 20 percent down for a vacation home, however, 25% will get borrowers much better rates and terms . If your application isn’t as strong (say you have a lower credit score or smaller cash reserves), you may have to put 30 percent or more down.

Also, gift funds are generally allowed for a portion of the down payment, but at least 5% of it must come from the borrower’s own funds if bringing in less than a 20 percent down payment.

Credit Score

The purchase of a second home or vacation home requires higher credit scores, typically in the 640 or higher range. Lenders will look for less debt and more affordability, think of tighter debt-to-income ratios. Strong reserves (extra funds after closing) are a big help.

Investment Property Mortgage Regulations

If you are planning on purchasing an investment property there are specific rules that apply.

If you’re financing a home as an investment property, and you plan to rent it out full-time, you are not personally required to live in the building for any amount of time.

Down Payment of 20% to 25%

Down payment requirements for an investment property range from 20 percent for a one-unit property to 25 percent for a two- to four-unit property. You may also be required to make a bigger down payment depending on your application and the type of loan.

No gift funds are allowed for investment property purchases, so most lenders will require down payment funds “seasoned” for at least 60 days in the borrower’s personal account.

Using Expected Rental Income to Help Qualify

The good news about utilizing an investment property loan is that the borrower can use expected rents as income to help in qualification.

Here are some of the guidelines:

  • If the property is leased, then copies of the current signed lease agreements may be required.
  • If the property is not currently leased, then the lender may use “market rent” information provided by the appraiser.
  • When there is no rental income for the subject property on the borrowers tax returns, the rental income will be reduced to 75% of the gross rental income provided on the lease.

You can find more on this subject here…

Credit Score

Lenders generally require borrowers to have a credit score above 640 for an investment property loan. With that said, rates can run very high for low credit scores.

The Bottom Line

When you apply for a mortgage, you are required declare how you intend to use the property. Lenders take such declarations seriously because they don’t want to finance riskier investment properties with residential financing.

Make sure to find a lender who truly understands the differences and requirements between second homes and investment properties.  I’d be more than happy to share other resources I have on the subject, so don’t hesitate to reach out to me with your questions!

Homes Are MORE Affordable Today – Not Less

You might be seeing in the press or hearing from others that owning a home today is less affordable than it has been in the past.  Sure, home prices have increased over the last five years and current inventory is tight.

However, that narrative is completely wrong, when you look at the data. Now is the most affordable buying a home has been in the last 30 years.

I’m linking to an article from Caety James at Keeping Current Matters that outlines some of the reasons.  You can find the article in its entirety here…

Low Mortgage Rates a Key Driver

James writes: “Homes, in most cases, are purchased with a mortgage. The current mortgage rate is a major component of the affordability equation. Mortgage rates have fallen by over a full percentage point since December 2018. Another major piece of the affordability equation is a buyer’s income. The median family income has risen by approximately 3% over the last year.”

Just take a look a the National Association of Realtors “Housing Affordability Index” – it shows that home affordability is better today than nearly any point over the last 30 years!

Potential buyers really should take the time to find out why now is the time to make that purchase.

Payment as Percentage of Income

The report on the index also calculates the mortgage payment on a median priced home as a percentage of the median national income. Historically, that percentage is just above 21%. Here are the percentages since June of 2018:

Again, we can see that affordability is much better today than the historical average and has been getting better over the last year and a half.

Bottom Line

Whether you’re thinking about buying your first home or contemplating a vacation home or investment property, don’t let the false narrative about affordability prevent you from moving forward.

From an affordability standpoint, this is truly one of the best times to buy in the last 30 years.  Please do reach out to me to find out more and how I can help!

Shop for a Mortgage Without Hurting Your Credit Score

Make sure to do a little planning before you start looking for a mortgage.  With a some work, you can keep your score in top shape relatively easily as you shop for the right mortgage lender.

“Metaphorically, not letting your lender check your credit is like not letting a doctor check your blood pressure. Sure, you can get a diagnosis when your appointment’s over — it just might not be the right one.” – Gina Pogol, The Mortgage Reports

When you start looking for the right mortgage provider, shop carefully because your credit score might suffer if you don’t take care. Each time you apply for a home loan, a mortgage lender will make a credit inquiry to review your credit history. These inquiries are reported to the three major credit-reporting agencies: Equifax, Experian and TransUnion.

I’m linking to a great article by Gina Pogol of The Mortgage Reports that discusses credit inquires and how it impacts a borrower’s score – you can view the entire article here…

If there’s one thing to take away, from Pogol’s article…”do make sure to share your social security number with your lender so they can give you accurate mortgage rate quotes instead of just best guesses or ‘ballpark rates’.”

Mortgage vs Credit Card Inquiries

A hard inquiry generally means you’re searching for additional credit. “Statistically, you’re more likely to have debt problems and default on financial obligations when you increase your available credit. This is especially true if you’re maxed out or carrying credit card balances and looking for more”, says Pogol.

She continues, “Understanding this, it makes sense that your credit scores drop when you go applying for new credit cards or charge cards. Fortunately, credit bureaus have learned that mortgage shopping behavior does not carry the same risks and they no longer treat a slew of mortgage inquiries the same way.”

They key point here is that multiple mortgage companies can check your credit report within a limited period of time – and all of those inquiries will be treated as a single inquiry. That time period depends on the FICO system the lender uses. It can range from 14 to 45 days.

What FICO Says

This is what MyFICO says about its algorithms and how it treats rate shopping inquiries:

FICO® Scores are more predictive when they treat loans that commonly involve rate-shopping, such as mortgage, auto, and student loans, in a different way. For these types of loans, FICO Scores ignore inquiries made in the 30 days prior to scoring. 

So, if you find a loan within 30 days, the inquiries won’t affect your scores while you’re rate shopping. In addition, FICO Scores look on your credit report for rate-shopping inquiries older than 30 days. If your FICO Scores find some, your scores will consider inquiries that fall in a typical shopping period as just one inquiry. 

For FICO Scores calculated from older versions of the scoring formula, this shopping period is any 14-day span. For FICO Scores calculated from the newest versions of the scoring formula, this shopping period is any 45-day span. 

Mortgage rate shopping / credit score Q&A with Gina Pogol

Do mortgage pre-approvals affect credit score?

Yes, but only slightly. Credit bureaus penalize you a small amount for shopping for credit. That’s a precaution in case you are trying to solve financial problems with credit. But requesting a mortgage pre-approval without applying for other types of credit simultaneously will have little to no effect on your score.

Will shopping around for a mortgage hurt my score?

You have 14 days to get as many pre-approvals and rate quotes as you’d like — they all count as one inquiry if you are applying for the same type of credit.

How many points does your credit score go down for an inquiry?

About 5 points, but that could be lower or higher depending on your credit history. If you haven’t applied for much credit lately, a mortgage inquiry will probably have a minimal effect on your score.

How much does a mortgage affect credit score?

Having a mortgage and making all payments on time actually improves your credit score. It’s a big loan and a big responsibility. Managing it well proves you are a worthy of other types of credit.

What’s the mortgage credit pull window?

You have 14 days to shop for a mortgage once you’ve had your credit pulled. Within 14 days, all mortgage inquiries count as one.

The Final Take-Away

A mortgage credit inquiry does have a small effect on your score, but it’s still worth shopping around to find the right lender. Borrowers can save both money and headaches by doing some work to find the lender that you trust the most.

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