How to Successfully Get a Mortgage in 2016

Imagine going into a restaurant and getting seated only to have the waiter check your wallet, find out you have 20 times the amount of cash required to pay for your meal, call your bank, find out you have double that amount of cash in the bank, ask you to produce even more documents, and then act like nothing's wrong, it's all normal and you're the one with the problem. Sound a little crazy? Well, that's kind of what it's like to apply for a mortgage loan in 2016!

Thank you Congress... Way to Go!

The US government has basically recruited the entire financial services industry in its fight against terrorism through a law known as the Bank Secrecy Act. The Anti-Money Laundering provisions of the Act went into effect across the mortgage industry in 2012. These rules are commonly referred to as the BSA-AML rules. In short, the BSA-AML rules require mortgage companies, banks and financial institutions to document every minute detail of your financial life when you apply for a loan! In fact, mortgage companies are often required by law to ask you for:

• Exact source of funds used for your downpayment and earnest money deposit. This includes where the money came from, how it got there, when it got there and why it got there.
• If you have large deposits in your bank account: where the money from, how it got there, when it got there and why it got there. Large deposits can be classified as any deposit representing 10% - 20% of your normal monthly income. For example, if you earn $10,000 per month, and you had a deposit for an additional $2,000 in your bank account last month, the mortgage company may be required by law to ask you to prove exactly where that money came from, how it got deposited in your account and why it was deposited there in the first place
• If you are selling investments to use that cash for any reason related to the home purchase, you'll likely be asked to document:
• Precisely which stock(s) or bond(s) you are selling
• Whether the trade cleared and when exactly the funds from the investment sale got deposited into your account

Is There Any Way to Avoid All This Invasive Prying Into Your Financial Affairs?

The only way to really avoid this is for you to pay cash for your property. Unfortunately, most people are not in a position to do this. Further, even if you could pay cash, it may not be smart to do so from a financial perspective.

What CAN You Do About This?

First of all, choose the right mortgage professional to help you with this transaction.  Although everyone has to play by the same rules, some mortgage professionals play more competently than others. As for me, I've voluntarily agreed to abide by the CMPS Code of Ethics to handle your transaction with a higher duty of care than most others in my industry.

The CMPS Code of Ethics requires me to:

• Maintain regular and proactive COMMUNICATION with you during the loan process
• Utilize professional COMPETENCE in making the loan process go as smoothly as possible for you
• Implement CONTINUOUS IMPROVEMENT in my business affairs by conducting after-closing surveys and learning how my team and I can improve our service to you

Let's go back to the restaurant example we started with. When you walk into my restaurant, my team and I will do whatever we can to give you a 5-star dining experience! That's our commitment to you. We believe we can do this in spite of all the government regulations. If we didn't believe that, we wouldn't be in business. We take pride in our work, and we're passionate about helping you in any way we can.

What Else Can Be Done To Make This Process Go Smoothly?

The second thing you can do to successfully get a mortgage in 2016 is get all your paperwork prepared ahead of time. This includes:

• Last two months bank statements (all pages, front and back) of any account where you'll be using money for a down payment and/or earnest money deposit; and,
• Explanation of any large or irregular deposits in those accounts

Separately, I'll send you a checklist of documents that are specifically required for your loan program. Please keep in mind that I'm not asking you for items on that checklist to make your life hard. (Believe me, it would actually be easier for me if there were less documents required.) I'm asking you for those documents because I'm required to do so.

Thanks again for choosing me to help you with this financial transaction! I'm truly honored that you've entrusted me with handling this very important part of your life. My desire is to really make this a 5-star experience for you in any way I can!

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Jay Sibley 321-689-0089
NMLS Number: 383991
Sibley Mortgage Group, LLC
Corporate NMLS Number: 1041547
jay@sibleymortgage.com

(321) 689-0089
919 Timber Isle Dr
Orlando, Florida 32828

   

Five Things To Consider Before Buying A Home

Here are five of the most common risks associated with buying a home:

1. House price risk (up or down): what if the house goes down in value?  That's why it's important to evaluate mortgage, cash flow and debt planning strategies that won't put you in a bind if house prices stagnate or go down a little bit.  On the other hand, what if the house goes up in value and you haven’t pulled the trigger yet?  That's why it's important to get yourself a solid mortgage approval BEFORE you go house shopping, and be prepared to act quickly if you find what you're looking for.
2. High costs of sale (8% +): do you realize that you’d have to sell the house for at least 8% - 10% more than what you paid for it just to break even and cover the real estate commissions and transfer taxes?  That's why it's important to make sure that buying this home is part of a longer-term strategy.
3. Improvements, Utilities & Maintenance Costs: have you considered the costs of improvements, utilities and ongoing maintenance expenses?  That's why it's important to:
   • Get your home properly inspected before the closing
   • Investigate the cost of utilities, and make sure to budget for them
   • Budget 1%-2% of the home's value for annual maintenance expenses
4. Opportunity cost: what rate of return could you have earned in a different investment with the funds you are spending on your down payment?  That's why it's important to perform a buy vs. rent analysis and run the numbers for your specific situation.
   
5. Long-term Commitment + Changing Cash Flow Needs: how does this decision impact your family’s college funding, retirement planning or elder care funding strategy?  That's why it's important to consider mortgage strategies that take into account your changing cash flow needs.

The mortgage is most likely going to be your single-largest debt; and your home is most likely going to be your single largest investment. That’s why it's important to work with a qualified real estate professional and a Certified Mortgage Planning Specialist.  Together, we can help you consider these risks and compare your options. Contact me so we can get started!

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Jay Sibley 321-689-0089
NMLS Number: 383991
Sibley Mortgage Group, LLC
Corporate NMLS Number: 1041547
jay@sibleymortgage.com

(321) 689-0089
919 Timber Isle Dr
Orlando, Florida 32828

   

How To Improve Your Credit Score

Your credit scores usually determine the price you pay for your money (your mortgages, your auto loans and leases, your credit cards, business loans, etc.). Perhaps the most significant part of your credit report is your credit score. Credit scores range from 350 to 850, with 850 being the best possible credit score that you could receive, and 350 being the worst possible credit score. There are five factors that determine your credit score:

Your Payment History: 35% impact on your credit score

Paying debt on time and in full has a positive impact. Late payments, judgments, charge-offs, collection accounts and bankruptcies have a negative impact. If you have had any bankruptcies within the last 7 years, it will seriously affect your ability to borrow or establish new credit accounts.  If you have had any judgments within the last several years, it is very important that you pay off the judgment and get a "satisfaction of judgment" from the court. Any unsatisfied or recent judgments will make a bad dent in your credit scores and adversely affect your ability to borrow. Usually, judgments and liens must be paid prior to the closing. Timely mortgage payments are weighted heavily by the scoring systems and are one of the most vital requirements that lenders look for when evaluating your credit history. Many times a single late mortgage payment within the last 12 months can hold up your file or spell the difference between the best interest rate and the next credit level. Your payment history on other debts (car payments, credit cards, etc.) is also given a lot of weight.
The credit scoring systems evaluate how many late payments you have had and whether they were 30, 60 or 90 days late, or whether they are currently in default, with default being the worst situation. Additionally the systems look at whether the late payments were consecutive. If you only have one or two minor late payments on your report with no other derogatory marks, your score will not be terribly affected, but you will have a tough time getting over the critical 700 level.  Here are four practical steps that you can implement to improve your credit score in the area of "Payments":

• Make all your payments on time.
• Past dues on any account will destroy your score - bring your delinquent accounts current immediately.
• Pay your bills before they go to a collection agency.
• Check your credit report for accuracy on a regular basis; and make sure that disputed bills are not negatively affecting your credit scores.

The Balance You Owe vs. Your Available Credit Lines: 30% impact on your credit score

Keeping your credit balances below 50% of your available limit is very important. Keeping your balances below 30% of your available credit is even better. For instance, if you owe $10,000, and you have $100,000 of credit available to you, you are only using 10% of your available credit line. On the other hand, if you owe $10,000 and you only have $10,000 available to you, you have "maxed out" your available credit and your credit scores will be very negatively impacted. Therefore, it is not how much you owe, but how much you owe compared to what you are able to borrow.

Here are three practical steps to improve your credit score in this area:

• Don't close your credit accounts unless it is necessary to do so. It is better to have many open accounts with little or no balance than to have just one or two accounts regardless of the balance.
• Don't concentrate large balances on just a few accounts. Pay outstanding debt down as close to zero as possible, and evenly distribute the remaining balance across all your open credit lines. The key is to keep the balances down below 30% or at the very least 50% of your available credit line(s).
• Call your credit card companies and try to increase your available credit lines if they can do so without pulling a new credit report.

Your Credit History (how long your accounts have been opened): 15% impact on your score

The longer your accounts have been opened, the higher your score will be; newly opened accounts will bring your score down. Here are three practical steps for you to improve your score in this area:

• Don't close your credit accounts. If you must, close the newest ones instead of the oldest ones. Your score will improve over time if you keep accounts open and use them every once in a while.
• Think twice before jumping on that latest 0% credit card offer or opening a new card just to get a 10% discount at a department store.
• If you don't have much of a credit history, and you are planning on taking out a mortgage in the future, it may be a good idea to establish a few open credit lines with little or no balance on them. Although newly opened accounts tend to lower your score initially, they will improve your score once they've been open for awhile, somewhat active and paid off with little or no balance.

Type of Credit that you have open: 10% impact on your credit score

A good mixture of auto loans and leases, credit cards and mortgages is always best. Too many credit cards is not a good thing, and having a mortgage does increase your score. Practical steps to improve your score in this area include: (1) Having 3-5 revolving credit cards open is optimal.; and, (2) Having a good mix of auto loans, credit cards and mortgages is better than having only credit cards.

Number of Recent Inquiries made by creditors: 10% impact on your score

Inquiries affect the score for one year from the time they're made. Your score isn't impacted when you check your own report. It's only affected if a potential creditor checks your credit. These include department stores, as well as credit card, auto finance and mortgage companies. Here are three steps you can take to improve your score in this area: (1) Multiple auto and mortgage inquiries are treated as only one inquiry if made within 45 days of each other. So, it's better to shop for a car or a mortgage over a two week time-frame, rather than to prolong it over a longer timeframe. (2) Don't apply for a lot of credit or open multiple credit cards at the same time; and, (3) If you're thinking of applying for a mortgage within the next 90 days, it would be good to wait until after your loan closes before you apply for any new credit.

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Jay Sibley 321-689-0089
NMLS Number: 383991
Sibley Mortgage Group, LLC
Corporate NMLS Number: 1041547
jay@sibleymortgage.com

(321) 689-0089
919 Timber Isle Dr
Orlando, Florida 32828

  

What You Need to Know About Forgiven Mortgage Debt (2015 - 2016 Rules)

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The tax break for forgiven mortgage debt was extended until December 31, 2016, and retroactively impacts forgiven mortgage debt in 2015. This means that you won't be required to pay income taxes on mortgage debt that was forgiven you in 2015 or 2016 as long as:

1. The total amount of mortgage debt forgiven you is under $1mm; and,
2. The forgiven mortgage debt was specifically used to buy, build or improve your primary residence.

For example, if the lender forgives you $50,000 in debt, and your income tax bracket is 25%, you would normally owe the IRS $12,500.  However, if this forgiveness of debt took place in 2015 or 2016 under the conditions outlined above, you wouldn't owe the IRS anything!

The "Insolvency" Exception

Here's an interesting twist: you would owe taxes on the forgiven mortgage debt if the mortgage funds were NOT used buy build or improve your primary home.  The only way around that is what's known as the "insolvency exception".  This rule states that there's no tax on the forgiveness of debt if you are "insolvent" at the time of debt cancellation. Insolvent simply means that your total debts are greater than your total assets. In our example, assume your total assets are $20,000 and your total liabilities are $70,000. This means that your net worth would be negative $50,000. This would make you "insolvent" according to the IRS, and you wouldn't have to pay any taxes at all on the $50,000 in forgiven mortgage debt! Keep in mind that when you calculate your assets, you need to include everything you own, including exempt assets beyond the reach of creditors under the law, such as interest in a pension plan and the value of your retirement account.

PLEASE NOTE: THIS LETTER AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 4681.

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Jay Sibley 321-689-0089
NMLS Number: 383991
Sibley Mortgage Group, LLC
Corporate NMLS Number: 1041547
jay@sibleymortgage.com

(321) 689-0089
919 Timber Isle Dr
Orlando, Florida 32828

   

How Much Does College Cost These Days?

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According to the College Board, the average total costs (including room and board) for a four-year public in-state school is a whopping $21,447 per year.  That amounts to $85,788 over four years.  Average costs skyrocket to a whopping $42,224 per year for a four-year private education!

The perfect storm here is that college costs have increased dramatically, while state funding for college has declined by similar leaps and bounds over the past several years.

That's one reason why it's more important than ever before to consider these costs as you create a mortgage and cash-flow plan for your family.  Let me know if I can run some mortgage numbers for you or help in any way.

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Jay Sibley 321-689-0089
NMLS Number: 383991
Sibley Mortgage Group, LLC
Corporate NMLS Number: 1041547
jay@sibleymortgage.com

(321) 689-0089
919 Timber Isle Dr
Orlando, Florida 32828