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

Three Things You Should Know About Loan Estimates

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Beware! Not all Loan Estimates are created equal. Here are three things you should know about Loan Estimates, where all the closing costs are itemized.

#1 - The Rate quoted to you on Page 1 is not locked... unless the "Yes" box is checked!

Mortgage rates are determined by mortgage bond prices in the bond market.  When bond prices go up, mortgage pricing improves and mortgage rates go down.  When bond prices go down, mortgage pricing gets worse and mortgage rates go up.  Bond prices are often volatile, just like stock prices.  The chart below illustrates how mortgage pricing got worse two times in a single trading day recently!

Think about getting a stock quote from Stock Broker A at 9am in the morning.  Then, you get another quote on the same stock from Stock Broker B at 3pm in the afernoon.  If the stock price is different between the two brokers, what does it really mean?  It could simply mean that stock prices have changed throughout the day.  Mortgage rates work in much the same way.  While there are some price differences between lenders, much of the price differences you'll notice are due to market fluctuations.

On the same token, imagine going to stock broker who uses yesterday's newspaper to quote you the price of a stock today, right now.  Or, imagine working with a stock broker who is quoting you a price on Stock A by looking at the price of Stock B.  That's why it's crucial to work with a mortgage lender who understands what drives mortgage rates, and one who has access to real-time mortgage bond pricing.  One helpful question to ask your mortgage lender or broker in order to test his/her knowledge of the market is: "What drives mortgage rates higher or lower?"  If the lender/broker answers the Fed, or the 10-yr Treasury, you know that it's probably time to move on.

On the other hand, you probably have a winner if the lender/broker shows you a picture of the market and helps you understand the factors that may cause mortgage bond prices to get better or worse in the coming days.  Also, beware of rate lock periods that are too short.  For example, if your rate lock is only good for 30 days, but you end up closing on Day 35, you will likely have to pay for a rate lock extension.  Please reference the article I wrote called,Why Do I Have to Pay for a Rate Lock Extension?

 

#2 - Beware of Innacuracies in the "Other Costs" Section on Page 2.

This section outlines things that should really be the same from one lender to the next. Neither you nor the mortgage company have any control over how much the government is charging for transfer taxes and recording fees.  These charges should be the same from one Loan Estimate to the next.  If you find a Loan Estimate that has lower fees than the rest, it's likely that the lender or broker who gave you that Loan Estimate is trying a "bait and switch" tactic by promising artificially low government charges when they know the actual government charges will likely be higher than what they are quoting you.  One variable in this section that may change from one lender to the next is the mortgage insurance premium, because that is based on the loan product that you choose.

#3 - Don't let the government do the thinking for you on Page 3.

Bless their hearts.  The government wants to make sure that you make an informed financial decision, so they inserted a section on page 3 of the Loan Estimate with certain metrics they want you to look at.  As you look at this section, it may appear that a 15-year mortgage is WAY better for you than a 30 year mortgage because the total interest paid over 5 years with a 15 year mortgage is WAY less than a 30 year mortgage.  Also, your total interest percentage (TIP) would be lower with a 15 year mortgage.  However, this doesn't take into account your real-life cash flow scenario.  For example, what if you were to take the monthly payment difference with a 30 year mortgage and invest it in your college fund for your children, or your retirement account, or your savings account for elder care expenses your family may incur?  Is it better to save money on interest or is it better to have the lowest cost of borrowing over time based on your specific cash flow scenario?  The government is not your financial advisor (and neither am I).  You should really think for yourself and speak to a financial advisor about the financial planning implications of your mortgage decision.

As for your mortgage options, I'd be happy to help in any way I can.  Contact me for more information!

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

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

  

Bond Market Update

 Mortgage pricing is better than it was yesterday

Source: Thomson Reuters

Market Update

Friday, December 18, 2015

What's going on and why does it matter?Mortgage bond prices have rebounded on indications that the Federal Reserve is likely to continue its bond-buying program throughout 2016.  The Fed has been the biggest buyer of mortgage bonds in the market, so mortgage pricing has improved slightly on the news.  Bond prices are near their technical levels of resistance, so the uptick in bond prices may be short-lived.  All-in-all, it should be a relatively quiet day in the markets today.

What should you do about it?
Enjoy the uptick in bond prices, but be prepared to lock your rate if the market changes directions.

Economic Calendar

Economic reports that may impact mortgage rates this week:

Date	Report	Period	Prior	Estimate	Actual
Tue 15 Dec	Core CPI	Nov	+0.20%	+0.20%	+0.20%
Wed 16 Dec	Building Permits	Nov	1,150,000	1,150,000	1,289,000
Wed 16 Dec	Housing Starts	Nov	1,062,000	1,135,000	1,173,000
Wed 16 Dec	Fed Funds Rate	-	0.125%	0.375%	0.375%
Thu 17 Dec	Initial Jobless Claims	Week of Dec 13	282,000	275,000	271,000

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

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

  

Three Reasons to Buy a Home this Winter

Three Reasons to Buy a Home this Winter

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The winter can be a fantastic time to buy a home because:

1. Sellers tend to lower their list price in the winter.  Most sellers who weren't able to sell their home in the summer become more willing to accept an offer below list price during the winter.  After all, the alternative for the seller is to wait until next spring or summer to sell the house.  In the meantime, he/she would have to pay the mortgage, property taxes and utilities.  
2. You are competing with fewer buyers.  One main reason why most buyers wait until the spring or summer to buy a house is because they don't want to move their children to a new school district in the middle of the school year.  However, this shouldn't be a limiting factor for you if you don't have children, or if your children are too young (or old) to go to school.
3. You are positioning yourself to benefit from price increases next spring and summer.  The spring and summer homebuying season is when most people buy houses.  Therefore, if you get a good deal on the purchase of your home this winter, you'll likely benefit when prices go up in the spring/summer.  This sure beats getting stuck on the losing end of a bidding war or price increase!

Contact me so that we can further explore how you may benefit by buying a home this winter.