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Arizona FCA – Run Your Race

November 3, 2018 / Tom Bonetto

I’m really grateful to be a supporter of a great organization, the Arizona Fellowship of Christian Athletes.

The FCA mission is to lead every coach and athlete into a growing relationship with Jesus Christ and His church

Please do join us for a morning of running and fun for the FCA Run Your Race 5K or 1 mile fun run/walk.

When: December 1st, 2018

Where: Sandra Day O’Connor High School

What time: 8:00am to 10:00am

Registration: https://fca.regfox.com/arizonafca5krunwalk

This is a great opportunity to get out with others for a great morning of activity and fellowship – I hope to see you there!

FHA and Conventional Mortgage Options – Which is Better?

October 21, 2018 / Tom Bonetto

I’m often asked about the different types of loans available for those with a limited down payment. The main options are Fannie Mae and Freddie Mac conventional mortgages or FHA loans. But which one is best?

The FHA versus conventional analysis involves taking a look at your credit score, your available down payment, and your long-term financial goals.

Let’s take a look at all 3 issues:

1. Credit score – buyers with low-to-average credit scores may be better off with an FHA loan. FHA mortgage rates are generally slightly lower than conventional ones for applicants with lower credit, and FHA loans allow credit scores down to 580.

2. Down payment – borrowers can come in with a lower down payment with conventional products, at just 3% down. FHA requires 3.5% percent down.

3. Long-term goals – conventional mortgage insurance can be cancelled when the home achieves 20% equity. FHA mortgage insurance is payable for the life of the loan and can only be canceled with a refinance. Buyers who plan to stay in the home five to ten years may opt for conventional, as the FHA mortgage insurance can add up over time.

For a more, I’d invite you to visit the source at The Mortgage Reports and Dan Green’s post.

FHA Or Conventional – Which is Superior?

There are a multitude of low-down payment options for today’s home buyers but most will choose between the FHA 3.5% down payment program and conventional options such as HomeReady, Home Possible, and Conventional 97.

So, which loan is better? That will depend on your circumstance.

For example, in deciding between an FHA loan and a conventional option, the borrower’s individual credit score matters greatly. This is because the credit score determines whether the borrower is program-eligible; and, it affects the monthly mortgage payment, too.

FHA loans are available with credit scores of 580 or better. The conventional options, by contrast, require a minimum credit score of 620.

Therefore, if your credit score is between 580 and 620, the FHA loan is essentially the only available option.

As your credit score increases, though, the conventional options become more attractive. Your mortgage rate drops due to the lower score and your mortgage insurance costs do, too. This is different from how FHA loans work.

You can find out much more about mortgage insurance here….

With an FHA loan, your mortgage rate and MIP cost the same no matter what your FICO score.

Therefore, over the long-term, borrowers with above-average credit score will typically find conventional loans more economical relative to FHA ones.

In the short-term, though, FHA loans generally win out.

A Second Thought

One main consideration has to be the length of time you would expect to “keep” this mortgage.

Borrowers should take into consideration that FHA MIP is forever but conventional mortgage insurance goes away at 80% loan-to-value. This means that, over time, your conventional option can become a better value — especially for borrowers with high credit scores.

It’s hard to know for how long you’ll hold a loan, though. Sometimes, we expect to live in a home for the rest of our lives and then our circumstances change. Or, sometimes mortgage rates drop and we’ve given the opportunity to refinance.

As a general rule, though, in rising-value housing market, if you plan to stay in the same home with the same mortgage for longer than six years, the conventional 97 may be your better long-term fit.

One other thing to consider is upfront charges.

The FHA charges a separate mortgage insurance premium at the time of closing known as Upfront MIP. Upfront MIP costs 1.75% of your loan size, is generally added to your balance, and is non-recoverable except via the FHA Streamline Refinance.

Upfront MIP is a cost. The conventional versions do not charge a fee.

FHA vs Conventional Infographic

Image Courtesy of The Mortgage Reports

You can find out much, much more about low-down payment options, as well as the specifics of these loans here.

For today’s low down payment home buyers, there are scenarios in which the FHA loan is what’s best for financing and there are others in which the conventional option is the clear winner. Rates for both products should be reviewed and evaluated.

It would be my pleasure to help you find the version that’s most optimal for your situation, so please do contact me for more details!

3% Down Payment Options with Fannie Mae and Freddie Mac

October 12, 2018 / Tom Bonetto

Home purchasing has just become a lot easier for a large number of potential buyers. Fannie Mae and Freddie Mac, the country’s two main mortgage giants, now have programs for home purchases with just a 3% down payment.

If you’re shopping for a low down payment mortgage, there are options as low as 3% down!

By the way, that’s even lower than FHA requires.

A 20% down payment is considered ideal when buying a home, but saving up that much can be a challenge. The good news is there are a number of low down payment mortgages available today.

Many homebuyers assume they need impeccable credit scores to qualify for a loan that requires just 3% down. That’s not the case, either.

Here are some of the programs available:

Fannie Mae’s HomeReady

With its new HomeReady mortgage, the giant mortgage backer looks to help first time homebuyers and repeat buyers alike.

Here are few of the highlights of the HomeReady mortgage program:

As little as 3% down payment
Lower private mortgage insurance costs
Down payment sources include gifts, cash-on-hand, and down payment assistance programs.
Use income from non-occupant co-borrowers to qualify
Income from non-borrowing household members helps your approval.
“Boarder income” (income from a roommate) helps you qualify.

Fannie Mae’s HomeReady low down payment home loan allows for buyers to obtain loans up to $453,100 with as little as 3% down.

The borrower(s) must live in the home, so you can’t buy second homes or investment properties. You can buy two- to four-unit properties as long as you’re living in one of the units, but your down payment requirements will increase if you buy a two to four-unit property.

Income Limits for the HomeReady Mortgage

Income limits are set by geographical areas for this particular loan program. In underserved areas, there are no income limits. In more economically developed areas, Fannie Mae has limited the amount of money HomeReady applicants can make.

Essentially, this policy ensures the program is reserved for the ones who need it most. The following is a breakdown of income limits.

Properties in low-income census tracts: no income limit
Homes in high-minority areas and designated disaster areas: 100% of the area’s median income
Properties in any other area: 100% of the area’s median income

For instance, a home buyer in Los Angeles County finds a home within an area that limits income to 100% of the median income. The median income for Los Angeles is $67,200 so that is the most the buyer can make and still buy the home.

If the borrower makes more than this, he or she could find a home in an underserved area with no income limit. Upon a successful home search, he or she could use HomeReady.

Fannie Mae has published HomeReady eligibility maps for each state that detail each geographical area. It can be difficult to see the exact boundaries. Be sure to check the property address of the home you want to buy and your income by contacting me here….and there is a mandatory home counseling class that must be done online for a small fee.

Home Ready mortgages do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here….

For more, see Tim Lucas’ post at My Mortgage Insider

Freddie Mac’s Home Possible (and Home Possible Advantage)

Home Possible and Home Possible Advantage are two conventional loan programs created by Freddie Mac. They are affordable given their smaller 3% to 5% down payment requirement. The one that’s right for you will depend upon your income, the type property you wish to finance, and property location.

Both the Home Possible and Home Possible Advantage programs help primarily first-time home buyers. With that said, neither program restricts “move-up” buyers.

However, to use either program you cannot have an ownership interest in any other residential property.

For example, if you are a move-up buyer, you must sell your current home before taking on a Home Possible loan.

Both programs are used for purchases or refinances. In the case of refinances, no cash-outs are allowed. Refinances can only be used to change the interest rate or term, as would be the case when switching from a 30-year mortgage to a 15-year mortgage.

Home Possible Down Payments

Many mortgage programs require that some of the down payment funds come from the borrower. Home Possible mortgages allow funds from a variety of sources to help you reach the 3% to 5% down requirement. Money used for your down payment can come from:

Family and friends
Affordable seconds programs (federal, state or municipal programs that provide down payment assistance)
Employee assistance programs

If family and friends help you with gift funds, you and your donors will need to sign a mortgage gift letter – a legal document that states all funds are truly a gift, not a temporary loan you’d pay back.

Home Possible Income Limits

Because the Home Possible loan programs are designed for low to moderate-income borrowers, income limits apply. To be eligible for either mortgage program, your income cannot exceed the Area Median Income (AMI) where the property is located.

There are a few exceptions to the income limit guidelines. The first exception is in high-cost areas, as you’d find near big cities. In more expensive areas, higher incomes are allowed. For example, 140% of AMI will still qualify in some parts of California.

Second, there’s no borrower income limit in rural or underserved areas. The easiest way to determine your local income limits and property eligibility (e.g. underserved area) are to search using Freddie Mac’s income and property eligibility tool.

Home Possible mortgages do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here…. and there is a mandatory home counseling class that must be done online.

Conventional 97

This low down payment home loan allows for first-time buyers to obtain a loan up to $453,100 with 3% down. It must be used for a primary residence, so this loan isn’t available for a 2^nd home.

The difference between this program and Fannie’s Home Ready version, is that there are NO income limits or geographic restrictions.

You can use your own funds or gift funds from a family member for the down payment, and the home must be an owner-occupied single unit home (including condos).

Conventional 97 Loan Limits

Loan limits are the maximum loan amount available to borrowers who wish to take out a mortgage. Loan limits are set by county (and sometimes at a more granular level). A price adjustment is made so that the maximum loan amount reflects average home prices surrounding the property.

Borrowers get a little more headroom to the upside when buying in a big city than rural areas. So there are two core limits outlined below: the first one applies to most counties across the United States and second one applies to big metro areas. Fannie Mae provides a search tool to find conventional loan limits by property address. Conventional 97 loan limits are as follows:

$453,100 in most counties
$679,650 in high-cost areas

Conventional 97 mortgages are 30-year fixed loans, and do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here….

As you can see, there are plenty of low down-payment options available to borrowers today please do reach out to me for more information, as it would be my pleasure to help!

Rising Interest Rates and Increasing Property Values – Updated Forecast 2018-2019

October 7, 2018 / Tom Bonetto

The question asked to me most often over the last few months is “is now a good time to buy?”

Many potential buyers are concerned about rising rates and property values. And yes – both are going up.

My answer to their question might surprise you – as I truly believe now is a great time to purchase real estate.

Purchasing Today – Why Now?

It was clearly more advantageous to purchase real estate last year, when looking through the rear view mirror. But I’m convinced that purchasing today will be MUCH better than this time next year.

Why? Well, for one, property values are increasing at over 5% per year, so that home you are looking at today will most likely be 4-5% more expensive next year.

Secondly, the Federal Reserve has signaled 3 to 4 more interest rate hikes over the next 15 months, the next most likely coming in December of this year.

So, let’s be clear about the fact that most experts agree that both prices and rates will most likely be higher next year versus today.

Why the shift? Read on for more….

First: The Good News – and There’s Lots of It

Unemployment is at it’s lowest level since 1969.

“This is the best job market in a generation or more,” said Andrew Chamberlain, chief economist at recruiting site Glassdoor.

Unemployment rates below 4% are extremely rare in 70 years of modern record-keeping. The two longest sustained periods came during the Korean and Vietnam Wars, when the combination of strong growth and the enlistment of young men from the civilian labor force helped to largely wring unemployment out of the economy.

Real wages were up nearly 3% in August of this year.

Per the Wall St. Journal, the Atlanta Fed’s “wage tracker” showed a 3.2% increase year-over-year for June. Most encouraging is the report of a bounce in labor productivity growth in the second quarter to 2.9%. That’s the best jump since the first quarter of 2015,

Home prices are rising steadily at over 5% year-over-year.

Home price gains are starting to decelerate (they are growing, but at a slower rate than last year)— but they’re still strong and are running well ahead of wage gains and inflation.

Inflation, the arch enemy of bonds and interest rates – is holding at the federal reserve target of 2%.

In a speech last week, Fed Chairman Jerome Powell suggested he sees little urgency to accelerate the central bank’s pace of interest-rate increases or to signal a more restrictive policy path ahead, in part because inflation is so low and stable.

Rates Today – and What We Can Expect

The stronger than expected economic data released over the last weeks and months are actually bad news for mortgage rates, and rates reached their highest levels in many years.

Last Wednesday’s bond rout sent the yield on the 10-year U.S. Treasury note, a closely watched barometer of investors’ sentiment toward growth and inflation, to its highest level since July 2011. Risky assets rallied, pushing the Dow Jones Industrial Average to a record and crude-oil prices to multiyear highs.

Together, the moves suggested investors are once again growing more and more about future growth, a shift from the more cautious outlook that many held for much of the year.

Interestingly, mortgage interest rates don’t necessarily move in step with the federal funds rate, as they are more closely tied to the 10-year Treasury Bond. So, borrowers today looking to get a mortgage aren’t directly affected by the latest Fed hike.

However, the federal funds rate does contribute to the longer-term trends of the 10-year Treasury, and long-term fixed mortgages as a result.

Here’s a little perspective on average mortgage rates since 2000:

Graph Courtesy MarketWatch

With the Fed likely lifting rates multiple times over the next year plus, the trend for long-term mortgage rates is up. It would not surprise me to see 6% interest rates in 2019.

Here’s a piece I wrote earlier this year that outlines more regarding rates and what we can expect in 2019…

The Bond Market and Interest Rates

The U.S. unemployment rate fell to 3.7%, its lowest level since 1969, the Labor Department reported Friday. Average hourly earnings, meanwhile, rose a seasonally adjusted 0.3% from August—the third straight month of solid, inflation-beating gains.

Fed officials raised their benchmark short-term rate last week and penciled in four more quarter-percentage-point increases through the end of 2019. That would lift the rate to a range between 3% and 3.25%. Until recently, many investors doubted the Fed would go that far.

The Fed is raising rates to keep the economy from overheating. If the economy becomes “too strong”, that could send inflation higher, and the Fed doesn’t want that to happen. They combat inflation by raising interest rates.

In essence, the bond market is starting to believe the Federal Reserve.

Finally, I’d invite you to read this article on how rising interest rates are not deterring buyers in today’s market…

What About Another Bubble?

Many clients are talking about a potential bubble, and they don’t want to be on the wrong side of it, if it were to burst.

However, most economists are not the slightest bit concerned about this.

Why? It’s about supply and demand. And the supply is tight. It isn’t forecasted to meet demand until sometime in 2021 or beyond.

Actually, it’s the lack of supply and the accompanying home prices quickly rising are the sources of market headaches. Remember your Economics 101 class on supply and demand? When supply is down and demand increases, prices move up.

In reality, the supply shortage is a much better problem to have, compared to a demand shortage. The current problem also portends no meaningful price decline nor an impending foreclosure crisis. Rather, there is a good possibility for solid home sales growth once the supply issue is steadily addressed.

As to new home building activity, housing starts did fall by a double-digit percentage in June, as mentioned above, but are up 7.8% year-to-date to June.

More will need to be built, as there is still a shortage. As more homes are built, an additional boost will be provided to the local economy along with more local job creations.

In Conclusion

So, it is safe to say that we will continue to see pressures in the bond market and mortgage interest rates overall. These increases do look to be gradual for the time being, but consistent and into 2019, for sure.

With that said, home prices are increasing nationally at over 5%, so the increase in interest rate will be more than offset by the increasing value of one’s home!

Secondly, home buying power is still extraordinarily high, despite rising home prices and rate hikes.

Find out more about that here.

In reality, now is a fantastic time to purchase. Contact me for more information, as it would by my privilege to help you.

References:

https://www.wsj.com/articles/bond-investors-catch-up-with-feds-plans-1538767826

https://www.forbes.com/sites/lawrenceyun/2018/08/02/no-housing-recession-over-horizon/#3d8212a5f79c

https://www.wsj.com/articles/real-wages-are-rising-1536359667

Hitters: Never Be Satisfied – Torque Hitting and 4 Key Things

October 6, 2018 / Tom Bonetto

I’ve linked to Paul Petricca’s Torque Hitting before (his blog is here and I highly recommend his book which can be found here).

Paul is back as the hitting coach at Wheaton College in Chicago, and I know him pretty well. He works with both softball and baseball players to maximize their power from the ground up.

I‘m a believer of what he teaches. I love his passion for hitting…and the commitment he has to his players.

Here are a few excerpts from one of his torque hitting blog post, entitled “Hitters Should Never Be Satisfied”:

“As a hitting coach, it is difficult for me to observe the “real” swings of my hitters until they are in the batter’s box in live games. The goal of every hitter should be to use the same hitting mechanics in games as they do in the batting cage. Unfortunately, many hitters struggle with this.”

Hitters…

Don’t be content, even if you are leading your team in hitting.
Continue to search for small ways to generate extra power by using your body more effectively.
Strive for more consistency by continually working on perfecting every hitting key, which will lead to a repeatable swing.
Transfer your batting practice swing to games.
Never be satisfied!

Here are 4 of his torque hitting hitting keys….

Hands Back

Even though I can objectively prove to my hitters with a swing speed radar that by merely moving the hands back toward the catcher a few inches, bat speed will increase dramatically, some don’t trust this advice in games.

They move their hands in towards their body in an effort to be “quicker to the ball”. This only leads to a slower bat and less power. I’m convinced that most hitters don’t want to accept this very simple fix to their swing, because they want to look “cool”. They see professional hitters with their hands and bats in all kinds of crazy positions before the pitch is thrown.

What they don’t see is how all professional hitters move their hands back toward the catcher at some point before the pitch is thrown. They can get away with some pre-swing bat movement, but amateur hitters cannot!

Powerful Load

Hitters who adopt a leg lift that is slow and powerful will enjoy both increased power and consistency. Hitters who decide not to lift the front leg at all will be at the mercy of pitchers who are able to effectively pitch on the corners of home plate. They will have to reach for outside pitches and will be forced to swing earlier than necessary for inside pitches.

I tell my hitters that hitting success begins with a slow and powerful leg lift (load). Without this important hitting key, the entire swing sequence is negatively affected. In my book, Hitting With Torque: For Baseball and Softball Hitters, I detail why lifting the front leg is imperative to be a complete hitter.

Back Elbow Rotation

The most common cause of inconsistency in hitters, especially fastpitch softball players, is the collapsing of the back elbow as the swing sequence is initiated. When hitters move the back elbow close to their bodies as the swing begins, the bat quickly loses the important 45-degree power angle.

This angle is critical for consistent hard contact with the ball. The back elbow should be totally still as it rotates around the body. This rotation without lowering the back elbow will ensure the angle of the bat is maintained until the arms move toward full extension at impact with the ball.

High Finish

In practice, I encourage my hitters to let the bat finish where “it” wants to finish, which is high and away from the body. Average hitters will often manually change the path of the bat (higher or lower) before the swing is fully completed. Not only does this affect the flight of the ball, it also decreases bat speed and power.

Some coaches and hitters erroneously believe that where the bat finishes is not important. They contend the ball is already gone, so it doesn’t matter where the bat finishes. I believe the velocity and trajectory of the ball off the bat has everything to do with the path and finish of the swing.

Ask any professional golfer the key to a successful swing. They will always point to a balanced, powerful, and high finish to the swing. When hitters focus on the end of the swing and trust the rest of the swing sequence, the results are typically very good!

Both baseball and softball players alike can take a ton away from what Coach Petricca is saying here….and best of luck to Paul and his Wheaton team this upcoming season!

The Lending Coach