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Monday, March 28, 2016

Mortgage Bond Market Analysis - Jobs Week and Tax Refund Ideas

It's Monday of Jobs Week and it's also a little less than three weeks  until tax returns (or extensions) are due.  If you've read my blog for a while or met with me in person, you know that I have a financial background with a passion for investing and wealth creation.  I conduct seminars on real estate investing, among other things, so I thought I might share with you some ideas regarding the best use of tax refunds.

If you don't currently own a home, a tax refund is a great way to buy a home.  A refund of $5,000 is enough for a down payment on a $142,850 home with an FHA loan.  A $7,500 refund is a down payment on a $214,285 home and a $10,000 refund can get you into a $285,700 home.  Of course you have to have decent (not necessarily great) credit and your income has to support your debts (I can analyze all of this and let you know if you meet the criteria), but the hardest part for most homebuyers is saving for a down payment.  There's ways to pay for closing costs, either with a seller credit or a lender credit; the down payment is always the hardest part.  You may also qualify for a conventional loan which requires a 5% down payment (yeah, I know, there is a 3% down payment version but with the higher interest rate and mortgage insurance, it's not all that great).

If you buy your first home now, after two years you may want to move into a bigger / nicer home and you could use your savings from tax refunds to fund the down payment on those and keep the home you buy this year as a rental property for 2-3 (or more - there's some specific benefits you get by selling within three years of moving out of your primary residence) years at which time you could sell it and parlay that money into 1-2 more investment properties and / or invest in other assets for diversification purposes (Roth IRAs, for instance).  Buying a move-up home is the best way to "buy" an investment property because you move into the nicer home you are purchasing but instead of selling your current home, you keep it for an investment property which then gives you rental income, tax advantages such as depreciation and other write-offs, and asset appreciation.  Even if homes are only appreciating at 3-5% per year, the fact that you have a mortgage means that you are leveraged and your ROI will be much greater than the annual appreciation rate.

My detailed spreadsheet will help you see the financial benefits of not only owning a home but the greater benefits you will realize by moving up and then renting out your current home.  Once you get started, there's a lot more to think about such as how long you should keep your rental properties before selling and buying more homes or refinancing, pulling money out and buying new homes in addition to the types of properties:  single family, duplexes, town homes, condos, cabins, four-plexes, etc.  Furthermore, there are other things to consider such as asset protection that an estate planning attorney can help you with and lots of great tax benefits that only a good CPA can help you maximize.  Contact me for a copy of my spreadsheet to see how much wealth you can create with your tax refund so that you can get on track to a dream retirement - 702-812-1214, 801-853-8720 or

Jobs Week:  There's a fair amount of data this week, not just job-focused data.  Last week, the FNMA benchmark bond finished down 29 basis points.  This morning, the bond is up 18 basis points to 101.92 with oil selling off a tad and some of this morning's data points disappointing a bit.  Consumer spending came in lower, as expected and higher than expected on its various data points.  Pending Home Sales jumped 3.5% in February which beat expectations of 1.5%.  Tomorrow we get Case-Schiller Home Price Index, Consumer Confidence and comments from Fed Chair Janet Yellen - it will be interesting to see if she changes her tune at all regarding rate hikes as the jobs data has been improving and there is an increasing number of FOMC members who think they should raise rates sooner rather than later.  There are also some bond auctions today and tomorrow which could have an impact - that pesky supply-demand thing might come into play here.  Wednesday could be the key point of the week.  Forget the fact that it's Hump day, ADP Private Payrolls that come out on Wednesday have been a good indicator of Non-farm Payrolls over the last couple of months and that comes out on Friday along with the Unemployment Rate.  Strong numbers here could mean an increased possibility of a Fed Funds Rate increase at the end of April when the FOMC next meets.

I don't like floating during this week because there are far too many things that could cause rates to move higher - especially considering recent jobs data trends.  Rates are really great and locking now, even if rates do improve this week, isn't a bad thing.  My guess is that bond prices will be lower by the end of the week which will make locking now a good thing.  If I'm wrong and bond prices are higher and you locked today, you may be able to float your rate down, depending on your lender and how much improvement there was in the bond market.  At any rate (yeah, that pun is always intended), make it a great day and know that I always stand ready to help in any way I can.

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