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Home Purchasing Is Easier Than You Might Think

September 10, 2017 / Tom Bonetto

I hear frequently from potential buyers in today’s market – and many are fearful of taking that leap into homeownership. Some are intimidated by the process, expecting a never-ending slog through their financial history.

Actually, the homebuying experience can vary depending on your preparation, and the team you have at your side. The lender you choose, the real estate professional involved, and other factors can make a big difference when buying a home.

You may even know someone who’s recently been though a less-than-pleasurable home buying experience, you may be apprehensive about the process.

I’ve got some good news….buying a home is easier than you probably think.

The key is understanding what it takes to get approved for a mortgage, and being properly prepared. These things will make all the difference in the story you will soon be telling your friends.

Source: Craig Berry and The Mortgage Reports

First Things First: Get Pre-approved

One of the best ways to ensure a smooth home buying process is what you do before you begin your home search.

First, check your credit report and know your credit scores.

Taking this step early in the process will tell you which loans may work better for you. Checking your credit will also give you time to clear up any possible errors or issues you find.

Mortgage pre-approval, without the pressure of a closing date, is easier than trying to engineer a full approval from the ground up. And having a pre-approved mortgage means you can close faster when you’re ready to buy.

If you’re pre-approved, you will have less to worry about when you begin your home search. You will know you’re a qualified buyer, and your offers will get more respect from sellers and their agents.

Please reach out to me to discuss the pre-approval process and how I can help!

Loan Approval Guidelines Have Loosened

The good news? Loans originated in May 2017 increased to more than 70 percent from the prior year. This is great news for homebuyers, as it means more approvals for mortgage applicants.

A common myth is that most folks buying or refinancing a home have a near-perfect credit score. In reality, the average FICO score on all closed loans is 723, and for FHA mortgages, it’s just 684. Many homebuyers are purchasing homes with considerably lower scores.

Mortgage Approval is Now Easier

Changes in the mortgage industry are making it easier for applicants to get approved and buy homes.

Recently, the Consumer Protection Financial Bureau (CFPB) determined that of the millions of consumers with medical collections on their credit reports aren’t as likely to default on future credit accounts as those with other types of collections. For this reason, many loan programs now treat medical debt differently.

Another major reason that homebuyers put off buying a home is that they think they don’t have enough money needed for their down payment.

In fact, many programs require very little down — from zero to five percent. You can find out more here. Even better, down payment assistance programs can help with grants or loans. Many who qualify have no idea this kind of help exists.

Again, you can find out more by vising The Mortgage Reports – but do know that I’m here to coach you through the entire process, from start to finish!

Photo Credit: Cafe Credit via Flickr, under the Creative Commons License

Rental Income and Qualification for Investors

September 2, 2017 / Tom Bonetto

I receive a fair amount of questions from real estate investors, asking about rental income and how that is calculated in their overall income that will enable them to qualify for mortgage.

The amount of rental income that may be used and how it is calculated will depend on multiple factors – such as when the borrower obtained the rental property, when rents were collected, and what how many units there are with the subject property.

Underwriters are looking for the likelihood that the rental income will continue, as well as any potential losses too.

If your rental is producing a net loss, it will absolutely be factored into the debt-to-income ratios that are used for qualifying.

Here are some of the standard guidelines for determining rental income.

Calculating rental income when the property is being purchased

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.

Calculating rental income when the subject property is being refinanced

Copies of the fully executed lease agreements must be provided (assuming the home is currently rented).
If the borrower owned the property during the previous year, they will need to provide tax returns. The lender will use the information provided on Schedule E to determine the net rental income/loss.
If the property was rented for a portion of the previous year, the lender will still need to provide a copy of the tax returns, including Schedule E. The borrower will also need to explain (and document) why the home was not rented for the full year. For example, was the home recently purchased or out of service to be renovated.
Rental income will be averaged based on the months the home was in service the previous year.
The lender may also rely on “market rent” data from the appraisal.

What if you’re converting your existing home into a rental to buy another home?

The rental income may be used if you can provide:
- A fully executed lease agreement – and this lease may be month-to-month
- proof of security deposit from the tenant and first month’s rent (cancelled check); and
- a bank statement showing the deposited security and rent deposit.
- 75% of the verified rental income can be used to offset housing expenses

With that said, there are other options – outside of the standard conventional products for investors. Some enable borrowers to use only the expected rental income to qualify – without providing income or tax returns. Contact me for more information, as it would be my pleasure to help!

Understanding Discount Points – A Primer

August 28, 2017 / Tom Bonetto

There is a fair amount of confusion from prospective buyers about mortgage “points”. What are they? Why do they exist?

Discount points are a one-time, upfront mortgage closing costs, which give a mortgage borrower access to “discounted” mortgage rates as compared to the market.

In general, one discount point paid at closing will lower your mortgage rate by 25 basis points (0.25%).

Do they help or hurt they buyer?

The answer, of course, is “it depends”.

Dan Green at The Mortgage Reports does a fantastic job in highlighting the definitions and costs/benefits of the paying points. You can find out more here….

By the way, the IRS considers discount points to be prepaid mortgage interest, so discount points can be tax-deductible.

What Are Mortgage Discount Points?

When your mortgage lender quotes you the interest rate, is typically quoted in two parts.

The first part is the mortgage rate itself, and the second part is the number of discount points required to get that rate.

You’ll notice that, in general, the higher the number of discount points you’re charged, the lower your mortgage rate quote will be.

Discount points are fees specifically used to buy-down your rate.

On the settlement statement, discount points are sometimes labeled “Discount Fee” or “Mortgage Rate Buydown”. Each discount point cost one percent of your loan size.

Assuming a loan size of $200,000, then, here are a few examples of how to calculate discount points for a mortgage loan.

1 discount point on a $200,000 loans costs $2,000
0.5 discount points on a $200,000 loan costs $1,000
0.25 discount points on a $200,000 loan costs $500

Discount points can be tax-deductible, depending on which deductions you can claim on your federal income taxes. Check with your tax preparer for the specifics.

How Discount Points Change Your Mortgage Rate

When discount points are paid, the lender collects a one-time fee at closing in exchange a lower mortgage rate to be honored for the life of the loan.

The reason a buyer would pay discount points is to get the mortgage rate reduction; and, how much of a mortgage rate break you get will vary by lender.

As a general rule, paying one discount point lowers a quoted mortgage rate by 25 basis points (0.25%). However, paying two discount points, however, will not always lower your rate by 50 basis points (0.50%), as you would expect.

Nor will paying three discount points necessarily lower your rate by 75 basis points (0.75%)

As outlined by Dan Green in his Mortgage Report article, here’s an example of how discount points may work on a $100,000 mortgage:

3.50% with 0 discount points. Monthly payment of $449.
3.25% with 1 discount point. Monthly payment of $435. Fee of $1,000.
3.00% with 2 discount points. Monthly payment of $422. Fee of $2,000.

You’ll note that when you pay discount points come, it costs at a cost, but it also generates real monthly savings.

In the above example, the mortgage applicant saves $14 per month for every $1,000 spent at closing. This creates a “breakeven point” of 71 months.

Says Green, “Every mortgage loan will have its own breakeven point on paying points. If you plan to stay in your home beyond the breakeven and — this is a key point — don’t think you’ll refinance before the breakeven hits, paying points may be a good idea.”

Otherwise, points can be waste.

“Negative” Discount Point Loans (Zero-Closing Cost)

Green highlights another helpful aspect of discount points is that lenders will often offer them “in reverse”.

“Instead of paying discount points in order to get access to lower mortgage rates, you can receive points from your lender and use those monies to pay for closing costs and fees associated with your home loan,” he says.

The technical term for reverse points is “rebate”.

Mortgage applicants can typically receive up to 5 points in rebate. However, the higher your rebate, the higher your mortgage rate.

Here is an example of how rebate points may work on a $100,000 mortgage:

3.50% with 0 discount points. Monthly payment of $449.
3.75% with 1 discount point. Monthly payment of $463. Credit of $1,000.
4.00% with 2 discount points. Monthly payment of $477. Credit of $2,000.

Homeowners can use rebates to pay for some, or all, of their loan closing costs. When you use rebate to pay for all of your closing costs, it’s known as a “zero-closing cost mortgage loan”.

When you do a zero-closing cost refinance, you can stay as liquid as possible with all of your cash in the bank.

Rebates can be good for refinances, too, as loan’s complete closing costs can be “waived”. This allows the homeowner to refinance without increasing its loan size.

When mortgage rates are falling, zero-closing cost mortgages are an excellent way to lower your rate without paying fees over and over again.

Please do reach out to me to find out more about how utilizing discount points can help you in your next transaction!

New Regulatory Changes Help More Borrowers Qualify

August 13, 2017 / Tom Bonetto

I have some good news for those looking to get a mortgage in the near future — as 20% of U.S. consumers could see their credit score increase this fall.

Credit Changes

The nation’s three major credit rating agencies, Equifax, TransUnion, and Experian, will drop tax liens and civil judgments from some consumers’ profiles if the information isn’t complete.

Because of the combination of these two dramatic changes, many potential borrowers that did not qualify for a home loan might now be eligible under these new regulations.

These credit bureaus will also be restricted from including medical debt collections. If the debt isn’t at least six-months old or if the medical debt was eventually paid by insurance, it can’t be listed.

The reason is that medical debts, unlike that of credit charges, are unplanned and doctors and hospitals have no standard formula for when they send unpaid debts to collection.

Debt-to-Income Changes

In addition to the FICO changes, mortgage titans Fannie Mae and Freddie Mac are allowing borrowers to have higher levels of debt and still qualify for a home loan. Both are raising their debt-to-income ratio limit to 50 percent of pretax income from 45 percent. That is designed to help those with high levels of student debt.

This move by the mortgage leaders will dramatically increase the number of people who will now be able to qualify for a home loan. Most industry experts agree that this is a welcomed and much needed change for millennials and first-time homebuyers.

If you have been considering a home purchase or refinance, now is a great time to take a look at it.

Contact me to find out if these changes might benefit you or someone you know!

The Great Hitting Debate – Ground Balls or Fly Balls

August 6, 2017 / Tom Bonetto

As I’ve mentioned before, one of my favorite reads is Justin Dedman’s “Hitting Mental” blog – he has great content for players looking to better themselves at the plate.

He’s recently written about the current ground ball versus fly ball debate – and has shed a little clarity on it. I highly recommend you view his entire post here….

Dedman states, “there are so many mis-teaches in hitting, and coaching players to hit predominantly ground balls is one of them.”

“Nor should we ONLY practice hitting fly balls….and it isn’t OK to strike out a billion times. Let’s get this straight.”

He calls this micro-management at its worst. Teaching players to simply make sure they put the ball in play exhibits a lack of trust in their ability, or in our ability to understand hitting and teach it the proper way.

The Data

Justin shows that most college baseball statistical programs log all extra base hits as line drives. In programs like Statcrew and Dakstats, fly balls are outs.

For example, all hits are categorized in college as only line drives or ground balls. Justin states that “this is absolutely asinine. This epitomizes much of the statistical confusion at lower levels.”

He goes on to say that MLB gets it right. Their stat programs note that HRs can be both fly balls and line drives. MLB’s excellence in statistical analysis, data and measurement are second to none.

With that said, Major League Baseball does have the financial capacity to create highly sensitive visual analysis by computers as well as real, live human beings track every pitch and evaluate each contact.

Dedman’s scorecard

We all know that every ball hit comes off of the bat at a different angle. Dedman continues “At Lee University, we call these angles ‘ball flights’, and we grade and value each ball flight separately, giving our hitters great perspective on what they hit, and what we want them to hit.”

Here’s his breakdown:

We encourage our hitters to hit 5’s, 6’s, and 7’s. When you hit a barrel in practice, we track it as a 567. To hit a ball at these ball flights requires certain approaches, timing and contact points to be made.

A “1” flight is a ball hit sharply into the ground, first bouncing near home plate. A “9” is the equal, but opposite angle, hit straight up into the air.

A “4” flight is a hard contact that bounces in the back infield dirt. A “5” is perfectly squared up and cuts straight through the air. A “6” has backspin and “extra-base energy” (lots of doubles and triples here). Most HR’s are “7” flight, though our strongest players can crush an “8” flight and have it sail out of the yard.

567’s win. They require aggressiveness in approach and swing.

Our weaker hitters, who have exit velocities typically between 80 and 90, have ball flight identities of 456. They can crush a “7” and not have the same success. Sitting there hitting “7” flights all day is a bad idea when you don’t possess the bat speed or strength to create distance on the baseball.

His conclusions

Justin continues, “our final misstep in the coaching puzzle is the type of linear hand path/lacking separation/pushing the barrel forward to ensure we make contact swing that coaches dis-empower their hitters with.”

“Hit the ball on the ground is a misnomer. I don’t care if you run a 6.5 60. Hitting 456s or 567’s will result in having an ability to drive in runners from first, create a higher slugging percentage, higher OPS, more runs created, and make a greater impact on the game.”

“We chart hitters on-field batting practices to ensure they have accountability and visual reference for what types of balls they are hitting on a consistent basis. We have a goal for each hitter to hit 40% of their batted balls within their identity (either 456 or 567).”

He also talks about hitters making in-game adjustments depending on outside factors. Windy day? Let’s focus on 456’s. He states, “hitting is all about adjustment making, as is coaching.”

I agree with Justin in teaching our hitters that hitting the right type of balls in the air. It’s clearly advantageous and is an adjustment that many programs can make.

The Lending Coach